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 June 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) 292-7090
                      (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 xNo 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 reporting
                  company)
                
                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 oNo x




As of
August 5, 2010, the Registrant had one class of Common Stock ($.01 par
value),


of which
70,293,106 shares were issued and outstanding.







INDEX




PagePART
      I - Financial InformationItem
      1.   Financial StatementsCondensed
      Consolidated Balance Sheets as of June 30, 2010 (unaudited) and December
      31, 2009
                              
                              3Condensed
      Consolidated Statement of Income and Comprehensive Income for the three
      and six months ended June 30, 2010 and 2009 (unaudited)
                              
                              4Condensed
      Consolidated Statement of Changes in Shareholders’ Equity for the six
      months ended June 30, 2010 and 2009 (unaudited)
                              
                              5Condensed
      Consolidated Statement of Cash Flows for the six months ended June 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
                              
                              29Item
      3.   Quantitative and Qualitative Disclosures About Market
      Risk
                              
                              51Item
      4.   Controls and Procedures
                              
                              53PART
      II - Other InformationItem
      6.   Exhibits
                              
                              54Signatures
                              
                              55
  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)




June 30,
                        2010
                        (Unaudited)
                      
                      
                      December 31,
                        2009(Audited)ASSETSInvestments:Fixed
      maturities, available for sale, at fair value
                        (Amortized
      cost 2010: $1,576,293; 2009: $1,623,382)
                      
                      $
                      1,633,906
                      
                      
                      $
                      1,661,692Other
      investments, at fair value (Cost 2010: $5,801;
      2009:$5,684)
                      
                      
                      5,677
                      
                      
                      
                      5,549Total
      investments
                      
                      
                      1,639,583
                      
                      
                      
                      1,667,241Cash
      and cash equivalents
                      
                      
                      179,063
                      
                      
                      
                      107,396Restricted
      cash and cash equivalents
                      
                      
                      168,396
                      
                      
                      
                      144,944Accrued
      investment income
                      
                      
                      13,643
                      
                      
                      
                      11,405Reinsurance
      balances receivable (includes $95,610 and $43,382 from related parties in
      2010 and 2009, respectively)
                      
                      
                      271,199
                      
                      
                      
                      208,495Prepaid
      reinsurance
                      
                      
                      31,762
                      
                      
                      
                      28,752Reinsurance
      recoverable on unpaid losses
                      
                      
                      12,144
                      
                      
                      
                      11,984Loan
      to related party
                      
                      
                      167,975
                      
                      
                      
                      167,975Deferred
      commission and other acquisition costs (includes $113,425 and $85,979 from
      related parties in 2010 and 2009, respectively)
                      
                      
                      196,912
                      
                      
                      
                      172,983Other
      assets
                      
                      
                      54,855
                      
                      
                      
                      11,818Intangible
      assets, net
                      
                      
                      48,380
                      
                      
                      
                      51,284Goodwill
                      
                      
                      52,617
                      
                      
                      
                      52,617Total
      assets
                      
                      $
                      2,836,529
                      
                      
                      $
                      2,636,894LIABILITIES
      AND SHAREHOLDERS’ EQUITYLiabilitiesReserve
      for loss and loss adjustment expenses (includes $215,506 and $174,046 from
      related parties in 2010 and 2009, respectively)
                      
                      $
                      1,077,084
                      
                      
                      $
                      1,006,320Unearned
      premiums (includes $346,126 and $264,751 from related parties in 2010 and
      2009, respectively)
                      
                      
                      664,685
                      
                      
                      
                      583,478Accrued
      expenses and other liabilities
                      
                      
                      83,843
                      
                      
                      
                      60,044Securities
      sold under agreements to repurchase, at contract value
                      
                      
                      70,972
                      
                      
                      
                      95,401Junior
      subordinated debt
                      
                      
                      215,156
                      
                      
                      
                      215,125Total
      liabilities
                      
                      
                      2,111,740
                      
                      
                      
                      1,960,368Commitments
      and ContingenciesShareholders’
      equityCommon
      shares ($0.01 par
      value;71,254,437 and 71,253,625 shares issued in 2010 and 2009,
      respectively;70,292,101 and 70,291,289 shares outstanding in 2010 and
      2009, respectively)
                      
                      
                      713
                      
                      
                      
                      713Additional
      paid-in capital
                      
                      
                      576,539
                      
                      
                      
                      576,086Accumulated
      other comprehensive income
                      
                      
                      57,489
                      
                      
                      
                      32,747Retained
      earnings
                      
                      
                      93,849
                      
                      
                      
                      70,781Treasury
      shares, at cost (2010
      and 2009: 962,336 shares)
                      
                      
                      (3,801
                      )
                      
                      
                      (3,801
                      )Total
      shareholders’ equity
                      
                      
                      724,789
                      
                      
                      
                      676,526Total
      liabilities and shareholders’ equity
                      
                      $
                      2,836,529
                      
                      
                      $
                      2,636,894




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
                        June 30, 2010
                      
                      
                      For the Three
                        Months Ended
                        June 30, 2009
                      
                      
                      For the Six
                        Months Ended
                        June 30, 2010
                      
                      
                      For the Six
                        Months Ended
                        June 30, 2009Revenues:Gross
      premiums written
                      
                      $
                      334,784
                      
                      
                      $
                      238,356
                      
                      
                      $
                      662,166
                      
                      
                      $
                      574,905Net
      premiums written
                      
                      $
                      313,050
                      
                      
                      $
                      238,356
                      
                      
                      $
                      624,341
                      
                      
                      $
                      574,905Change
      in unearned premiums
                      
                      
                      (29,266
                      )
                      
                      
                      (14,515
                      )
                      
                      
                      (76,628
                      )
                      
                      
                      (140,972
                      )Net
      earned premium
                      
                      
                      283,784
                      
                      
                      
                      223,841
                      
                      
                      
                      547,713
                      
                      
                      
                      433,933Net
      investment income
                      
                      
                      18,875
                      
                      
                      
                      15,113
                      
                      
                      
                      36,456
                      
                      
                      
                      29,372Net
      realized and unrealized investment gains (losses)
                      
                      
                      535
                      
                      
                      
                      1,534
                      
                      
                      
                      847
                      
                      
                      
                      (396
                      )Total
      revenues
                      
                      
                      303,194
                      
                      
                      
                      240,488
                      
                      
                      
                      585,016
                      
                      
                      
                      462,909Expenses:Loss
      and loss adjustment expenses
                      
                      
                      175,354
                      
                      
                      
                      151,057
                      
                      
                      
                      345,639
                      
                      
                      
                      297,345Commission
      and other acquisition expenses
                      
                      
                      88,447
                      
                      
                      
                      57,664
                      
                      
                      
                      165,843
                      
                      
                      
                      104,295Other
      operating expenses
                      
                      
                      9,484
                      
                      
                      
                      7,133
                      
                      
                      
                      18,036
                      
                      
                      
                      14,667Subordinated
      debt interest expense
                      
                      
                      9,116
                      
                      
                      
                      9,112
                      
                      
                      
                      18,231
                      
                      
                      
                      16,202Amortization
      of intangible assets
                      
                      
                      1,452
                      
                      
                      
                      1,675
                      
                      
                      
                      2,904
                      
                      
                      
                      3,239Foreign
      exchange loss (gain)
                      
                      
                      414
                      
                      
                      
                      (2,404
                      )
                      
                      
                      1,567
                      
                      
                      
                      (2,191
                      )Total
      expenses
                      
                      
                      284,267
                      
                      
                      
                      224,237
                      
                      
                      
                      552,220
                      
                      
                      
                      433,557Income
      before income taxes
                      
                      
                      18,927
                      
                      
                      
                      16,251
                      
                      
                      
                      32,796
                      
                      
                      
                      29,352Income
      taxes:Current
      tax expense
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –
                      
                      
                      
                      –Deferred
      tax expense
                      
                      
                      290
                      
                      
                      
                      –
                      
                      
                      
                      590
                      
                      
                      
                      –Income
      tax expense
                      
                      
                      290
                      
                      
                      
                      –
                      
                      
                      
                      590
                      
                      
                      
                      –Net
      income
                      
                      $
                      18,637
                      
                      
                      $
                      16,251
                      
                      
                      $
                      32,206
                      
                      
                      $
                      29,352Comprehensive
      income:Net
      income
                      
                      $
                      18,637
                      
                      
                      $
                      16,251
                      
                      
                      $
                      32,206
                      
                      
                      $
                      29,352Other
      comprehensive incomeNet
      unrealized holdings gains arising during the period
                      
                      
                      3,784
                      
                      
                      
                      47,423
                      
                      
                      
                      28,308
                      
                      
                      
                      29,006Adjustment
      for reclassification of realized (gains) losses recognized in net
      income
                      
                      
                      (3,254
                      )
                      
                      
                      (1,534
                      )
                      
                      
                      (3,566
                      )
                      
                      
                      396Other
      comprehensive income
                      
                      
                      530
                      
                      
                      
                      45,889
                      
                      
                      
                      24,742
                      
                      
                      
                      29,402Comprehensive
      income
                      
                      $
                      19,167
                      
                      
                      $
                      62,140
                      
                      
                      $
                      56,948
                      
                      
                      $
                      58,754Basic
      earnings per common share
                      
                      $
                      0.27
                      
                      
                      $
                      0.23
                      
                      
                      $
                      0.46
                      
                      
                      $
                      0.43Diluted
      earnings per common share
                      
                      $
                      0.26
                      
                      
                      $
                      0.23
                      
                      
                      $
                      0.46
                      
                      
                      $
                      0.42Dividends
      declared per common share
                      
                      $
                      0.065
                      
                      
                      $
                      0.06
                      
                      
                      $
                      0.13
                      
                      
                      $
                      0.12




For the Three
                  Months Ended
                  June 30, 2010
                
                
                For the Three
                  Months Ended
                  June 30, 2009
                
                
                For the Six
                  Months Ended
                  June 30, 2010
                
                
                For the Six
                  Months Ended
                  June 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)
                
                
                535
                
                
                
                1,534
                
                
                
                847
                
                
                
                (396
                )Net
      realized and unrealized investment gains (losses)
                
                $
                535
                
                
                $
                1,534
                
                
                $
                847
                
                
                $
                (396
                )




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 Six
                      Months Ended
                      June 30, 2010
                    
                    
                    For the Six
                      Months Ended
                      June 30, 2009Common
      sharesBalance
      – beginning of period
                    
                    $
                    713
                    
                    
                    $
                    596Exercise
      of options and issuance of shares, net
                    
                    
                    –
                    
                    
                    
                    117Balance
      – end of period
                    
                    
                    713
                    
                    
                    
                    713Additional
      paid-in capitalBalance
      – beginning of period
                    
                    
                    576,086
                    
                    
                    
                    530,519Exercise
      of options and issuance of shares, net
                    
                    
                    3
                    
                    
                    
                    44,928Share
      based compensation
                    
                    
                    450
                    
                    
                    
                    276Balance
      – end of period
                    
                    
                    576,539
                    
                    
                    
                    575,723Accumulated
      other comprehensive income (loss)Balance
      – beginning of period
                    
                    
                    32,747
                    
                    
                    
                    (44,499
                    )Net
      unrealized gains on securities
                    
                    
                    24,742
                    
                    
                    
                    29,402Balance
      – end of period
                    
                    
                    57,489
                    
                    
                    
                    (15,097
                    )Retained
      earningsBalance
      – beginning of period
                    
                    
                    70,781
                    
                    
                    
                    26,944Net
      income
                    
                    
                    32,206
                    
                    
                    
                    29,352Dividends
      on common shares
                    
                    
                    (9,138
                    )
                    
                    
                    (8,435
                    )Balance
      – end of period
                    
                    
                    93,849
                    
                    
                    
                    47,861Treasury
      sharesBalance
      – beginning of period
                    
                    
                    (3,801
                    )
                    
                    
                    (3,801
                    )Shares
      repurchased
                    
                    
                    –
                    
                    
                    
                    –Balance
      – end of period
                    
                    
                    (3,801
                    )
                    
                    
                    (3,801
                    )Total
      Shareholders’ Equity
                    
                    $
                    724,789
                    
                    
                    $
                    605,399




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 Six
                    Months Ended
                    June 30, 2010
                  
                  
                  For the Six
                    Months Ended
                    June 30, 2009Cash
      flows from operating activities:Net
      income
                  
                  $
                  32,206
                  
                  
                  $
                  29,352Adjustments
      to reconcile net income to net cash provided by (used in) operating
      activities:Depreciation
      and amortization of intangibles
                  
                  
                  3,530
                  
                  
                  
                  3,502Net
      realized and unrealized (gain) loss on investments
                  
                  
                  (847
                  )
                  
                  
                  396Foreign
      exchange loss (gain) on revaluation
                  
                  
                  1,567
                  
                  
                  
                  (2,191
                  )Amortization
      of share-based compensation expense, bond premium and discount and trust
      preferred securities discount
                  
                  
                  (3,599
                  )
                  
                  
                  (2,822
                  )Changes
      in assets - (increase) decrease:Reinsurance
      balances receivable
                  
                  
                  (77,450
                  )
                  
                  
                  (157,679
                  )Prepaid
      reinsurance
                  
                  
                  (3,010
                  )
                  
                  
                  –Accrued
      investment income
                  
                  
                  (2,238
                  )
                  
                  
                  (308
                  )Deferred
      commission and other acquisition costs
                  
                  
                  (23,929
                  )
                  
                  
                  (66,925
                  )Other
      assets
                  
                  
                  42,745
                  
                  
                  
                  (1,041
                  )Changes
      in liabilities – increase (decrease):Loss
      and loss adjustment expense reserves
                  
                  
                  70,776
                  
                  
                  
                  42,102Unearned
      premiums
                  
                  
                  81,207
                  
                  
                  
                  140,972Accrued
      expenses and other liabilities
                  
                  
                  36,978
                  
                  
                  
                  (24,011
                  )Net
      cash provided by (used in) operating activities
                  
                  
                  72,446
                  
                  
                  
                  (38,653
                  )Cash
      flows from investing activities:Purchases
      of investments:Purchases
      of fixed-maturity securities – available for sale
                  
                  
                  (406,277
                  )
                  
                  
                  (415,611
                  )Purchases
      of fixed-maturity securities – trading
                  
                  
                  (509,394
                  )
                  
                  
                  –Purchases
      of other investments
                  
                  
                  (123
                  )
                  
                  
                  (138
                  )Sale
      of investments:Proceeds
      from sales of fixed-maturity securities – available for
    sale
                  
                  
                  173,687
                  
                  
                  
                  134,384Proceeds
      from sales of fixed-maturity securities – trading and short
      sales
                  
                  
                  558,388
                  
                  
                  
                  –Proceeds
      from maturities and calls of fixed-maturity securities
                  
                  
                  241,703
                  
                  
                  
                  116,139Proceeds
      from redemption of other investments
                  
                  
                  6
                  
                  
                  
                  127(Increase)
      decrease in restricted cash and cash equivalents
                  
                  
                  (23,452
                  )
                  
                  
                  97,394Loan
      to related party
                  
                  
                  –
                  
                  
                  
                  –Purchase
      of capital assets
                  
                  
                  (918
                  )
                  
                  
                  (201
                  )Net
      cash provided by (used in) in investing activities
                  
                  
                  33,620
                  
                  
                  
                  (67,906
                  )Cash
      flows from financing activities:Repurchase
      agreements, net
                  
                  
                  (24,429
                  )
                  
                  
                  (123,849
                  )Common
      share issuance
                  
                  
                  3
                  
                  
                  
                  117Junior
      subordinated debt issuance
                  
                  
                  –
                  
                  
                  
                  260,000Junior
      subordinated debt issuance cost
                  
                  
                  –
                  
                  
                  
                  (4,342
                  )Dividend
      paid
                  
                  
                  (9,138
                  )
                  
                  
                  (7,733
                  )Net
      cash (used in) provided by financing activities
                  
                  
                  (33,564
                  )
                  
                  
                  124,193Effect
      of exchange rate changes on foreign currency cash
                  
                  
                  (835
                  )
                  
                  
                  1,246Net
      increase in cash and cash equivalents
                  
                  
                  71,667
                  
                  
                  
                  18,880Cash
      and cash equivalents, beginning of period
                  
                  
                  107,396
                  
                  
                  
                  131,897Cash
      and cash equivalents, end of period
                  
                  $
                  179,063
                  
                  
                  $
                  150,777Supplemental
      information on cash flowsCash
      paid for interest
                  
                  $
                  18,200
                  
                  
                  $
                  8,594Reinsurance
      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
                  
                  
                  –
                  
                  
                  
                  44,928




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 typically 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% of the Company’s fixed maturity investments
      are categorized as Level 2 within the fair value hierarchy. At June 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 typically obtain a non-binding quote from a broker-dealer;
      multiple quotations are not typically sought. As of June 30, 2010 and
      December 31, 2009, only one security was valued using the market approach
      at approximately $8,549 and $7,948 was priced using a quotation from a
      broker as opposed to the Pricing Service. At June 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 June 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)




The
Emerging Issues Task Force (“EITF”) issued EITF Issue No. 09-G,
Clarification ofthe
Definition of Deferred Acquisition Costs (DAC) of Insurance Entitiesand
intends to clarify the definition of what constitutes an acquisition cost and
the types of acquisition costs capitalized by an insurance entity. In
November 2009, the EITF reached a consensus-for-exposure that would limit
the costs an entity can include in DAC to those that are “directly related to”
the acquisition of new and renewal insurance contracts. They clarified that the
direct costs only include those that result in the successful acquisition of a
policy and exclude all costs incurred for unsuccessful efforts, along with
indirect costs. The consensus-for-exposure would require that an entity include
only actual costs, not costs expected to be incurred, in DAC.




On
March 18, 2010, the EITF affirmed the previous conclusions from the
proposed consensus that indirect costs and costs of unsuccessful activities
should not be included in capitalized acquisition costs.  The EITF also
agreed that advertising costs should be capitalized only when certain
requirements are met.  There were further questions on how accounting for
advertising costs interacts with the DAC impairment model and further analysis
was requested.  A working group was formed to assist the staff in advising
the EITF on the effective date and transition questions.  They met in
May 2010 and have issued a report that was discussed at an EITF meeting on
July 29, 2010.  On July 29, 2010 the EITF affirmed the previous
conclusions from the proposed consensus.  This literature has the potential
to significantly impact the way insurance companies account for DAC, and
therefore, could potentially have a significant impact on results of
operations.  It would result in the need to identify and recognize, as
period costs, those amounts associated with unsuccessful acquisition efforts in
addition to indirect costs.  Amounts associated with successful acquisition
efforts would continue to be capitalized and charged to expense in proportion to
premium revenue recognized. As an example, under current guidance, underwriter
salaries are capitalized and amortized over the period in which the associated
premium written is earned as revenue.  Under the proposed guidance,
companies would be required to identify the portion of underwriter salaries that
could be attributed to unsuccessful acquisition efforts and expense that amount
in the current period.  The EITF is effective for interim and annual
periods beginning on or after December 15, 2011, with either prospective or
retrospective application being permitted.




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 June
30, 2010 and December 31, 2009 are as follows:




As at June 30, 2010
                
                Original or
                  Amortized
                  Cost
                
                
                Gross
                  Unrealized
                  Gains
                
                
                Gross
                  Unrealized
                  Losses
                
                
                Fair
                  ValueFixed
      Maturities:U.S.
      treasury bonds
                
                $
                58,359
                
                
                $
                1,070
                
                
                $
                (32
                )
                
                $
                59,397U.S.
      agency bonds – mortgage and asset-backed
                
                
                707,139
                
                
                
                26,283
                
                
                
                (556
                )
                
                
                732,866U.S.
      agency bonds – other
                
                
                153,015
                
                
                
                2,703
                
                
                
                (27
                )
                
                
                155,691Corporate
      fixed maturities
                
                
                636,535
                
                
                
                46,367
                
                
                
                (19,077
                )
                
                
                663,825Municipal
      bonds
                
                
                21,245
                
                
                
                882
                
                
                
                –
                
                
                
                22,127Total
      available for sale fixed maturities
                
                
                1,576,293
                
                
                
                77,305
                
                
                
                (19,692
                )
                
                
                1,633,906Other
      investments
                
                
                5,801
                
                
                
                –
                
                
                
                (124
                )
                
                
                5,677Total
      investments
                
                $
                1,582,094
                
                
                $
                77,305
                
                
                $
                (19,816
                )
                
                $
                1,639,583





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 June 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 June 30, 2010
                  
                  Amortized Cost
                  
                  
                  Fair
                    Value
                  
                  
                  % of TotalFair ValueMaturityDue
      in one year or less
                  
                  $
                  141,987
                  
                  
                  $
                  144,052
                  
                  
                  
                  8.82
                  %Due
      after one year through five years
                  
                  
                  182,018
                  
                  
                  
                  184,551
                  
                  
                  
                  11.30
                  %Due
      after five years through ten years
                  
                  
                  471,429
                  
                  
                  
                  493,020
                  
                  
                  
                  30.17
                  %Due
      after ten years
                  
                  
                  73,720
                  
                  
                  
                  79,417
                  
                  
                  
                  4.86
                  %869,154
                  
                  
                  
                  901,040
                  
                  
                  
                  55.15
                  %Mortgage
      and asset-backed securities
                  
                  
                  707,139
                  
                  
                  
                  732,866
                  
                  
                  
                  44.85
                  %Total
                  
                  $
                  1,576,293
                  
                  
                  $
                  1,633,906
                  
                  
                  
                  100.00
                  %




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 June 30, 2010
                                  
                                  Fair
                                    Value
                                  
                                  
                                  Unrealized
                                    Losses
                                  
                                  
                                  Fair
                                    Value
                                  
                                  
                                  Unrealized
                                    Losses
                                  
                                  
                                  Fair
                                    Value
                                  
                                  
                                  Unrealized
                                    LossesAvailable-for-sale
      securities:U.S.
      treasury bonds
                                  
                                  $
                                  –
                                  
                                  
                                  $
                                  –
                                  
                                  
                                  $
                                  3,341
                                  
                                  
                                  $
                                  (32
                                  )
                                  
                                  $
                                  3,341
                                  
                                  
                                  $
                                  (32
                                  )U.S.
      agency bonds – mortgage and asset-backed
                                  
                                  
                                  56,504
                                  
                                  
                                  
                                  (556
                                  )
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  56,504
                                  
                                  
                                  
                                  (556
                                  )U.S.
      agency bonds - other
                                  
                                  
                                  6,033
                                  
                                  
                                  
                                  (27
                                  )
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  6,033
                                  
                                  
                                  
                                  (27
                                  )Corporate
      fixed maturities
                                  
                                  
                                  47,560
                                  
                                  
                                  
                                  (1,849
                                  )
                                  
                                  
                                  176,682
                                  
                                  
                                  
                                  (17,228
                                  )
                                  
                                  
                                  224,242
                                  
                                  
                                  
                                  (19,077
                                  )110,097
                                  
                                  
                                  
                                  (2,432
                                  )
                                  
                                  
                                  180,023
                                  
                                  
                                  
                                  (17,260
                                  )
                                  
                                  
                                  290,120
                                  
                                  
                                  
                                  (19,692
                                  )Other
      investments
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  4,876
                                  
                                  
                                  
                                  (124
                                  )
                                  
                                  
                                  4,876
                                  
                                  
                                  
                                  (124
                                  )Total
                                  
                                  $
                                  110,097
                                  
                                  
                                  $
                                  (2,432
                                  )
                                  
                                  $
                                  184,899
                                  
                                  
                                  $
                                  (17,384
                                  )
                                  
                                  $
                                  294,996
                                  
                                  
                                  $
                                  (19,816
                                  )




As of
June 30, 2010, there were approximately 34 securities in an unrealized loss
position with a fair value of $294,996 and unrealized losses of $19,816. 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 $184,899 and unrealized
losses of $17,384.




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
                )




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.




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)




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 June 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 six month periods ended June 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 June 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 June
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. The Company has commenced designating upon acquisition,
certain US Treasury bonds as trading for the purpose of augmenting where
possible investment returns. In addition, the Company maintained one open
position in a US Treasury bond sold but not yet purchased valued at $52,328
which to date has resulted in  in unrealized loss of
$2,719  which is recorded in net realized and unrealized gains
(losses) on the Company’s consolidated statement of income. The following
provides an analysis of realized and unrealized gains and losses for the three
and six months ended June 30, 2010 and 2009:




For the Three Months Ended June 30, 2010
                  
                  Gross Gains
                  
                  
                  Gross losses
                  
                  
                  NetAvailable-for-sale
      securities
                  
                  $
                  5,488
                  
                  
                  $
                  (1,619
                  )
                  
                  $
                  3,869Trading
      securities
                  
                  
                  522
                  
                  
                  
                  (1,137
                  )
                  
                  
                  (615
                  )Other
      investments
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Net
      realized gains
                  
                  
                  6,010
                  
                  
                  
                  (2,756
                  )
                  
                  
                  3,254Unrealized
      loss on short sales
                  
                  
                  –
                  
                  
                  
                  (2,719
                  )
                  
                  
                  (2,719
                  )Net
      realized and unrealized gains
                  
                  $
                  6,010
                  
                  
                  $
                  (5,475
                  )
                  
                  $
                  535





For the Six Months Ended June 30, 2010
                  
                  Gross Gains
                  
                  
                  Gross losses
                  
                  
                  NetAvailable-for-sale
      securities
                  
                  $
                  5,800
                  
                  
                  $
                  (1,619
                  )
                  
                  $
                  4,181Trading
      securities
                  
                  
                  522
                  
                  
                  
                  (1,137
                  )
                  
                  
                  (615
                  )Other
      investments
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Net
      realized gains
                  
                  
                  6,322
                  
                  
                  
                  (2,756
                  )
                  
                  
                  3,566Unrealized
      loss on short sales
                  
                  
                  –
                  
                  
                  
                  (2,719
                  )
                  
                  
                  (2,719
                  )Net
      realized and unrealized gains
                  
                  $
                  6,322
                  
                  
                  $
                  (5,475
                  )
                  
                  $
                  847





For the Three Months Ended June 30, 2009
                  
                  Gross Gains
                  
                  
                  Gross losses
                  
                  
                  NetAvailable-for-sale
      securities
                  
                  $
                  2,143
                  
                  
                  $
                  (609
                  )
                  
                  $
                  1,534Other
      investments
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Net
      realized gains
                  
                  $
                  2,143
                  
                  
                  $
                  (609
                  )
                  
                  $
                  1,534





For the Six Months Ended June 30, 2009
                  
                  Gross Gains
                  
                  
                  Gross losses
                  
                  
                  NetAvailable-for-sale
      securities
                  
                  $
                  3,898
                  
                  
                  $
                  (4,279
                  )
                  
                  $
                  (381
                  )Other
      investments
                  
                  
                  –
                  
                  
                  
                  (15
                  )
                  
                  
                  (15
                  )Net
      realized losses
                  
                  $
                  3,898
                  
                  
                  $
                  (4,294
                  )
                  
                  $
                  (396
                  )


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)




Proceeds
from sales of fixed maturities classified as available for sale were $173,687
and $134,384 for the six months ended June 30, 2010 and 2009,
respectively.




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




June 30,
                          2010
                        
                        
                        June 30,
                          2009Fixed
      maturities
                        
                        $
                        57,613
                        
                        
                        $
                        (12,287
                        )Other
      investments
                        
                        
                        (124
                        )
                        
                        
                        (422
                        )Total
      net unrealized gain (loss)
                        
                        
                        57,489
                        
                        
                        
                        (12,709
                        )Deferred
      income tax expense
                        
                        
                        –
                        
                        
                        
                        (2,388
                        )Net
      unrealized losses, net of deferred income tax
                        
                        $
                        57,489
                        
                        
                        $
                        (15,097
                        )Change
      in unrealized gain (loss), net of deferred income tax
                        
                        $
                        24,742
                        
                        
                        $
                        29,402




(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:




June 30,
                      2010
                    
                    
                    December 31,
                      2009Restricted
      cash – third party agreements
                    
                    $
                    115,746
                    
                    
                    $
                    133,029Restricted
      cash – related party agreements
                    
                    
                    52,347
                    
                    
                    
                    11,485Restricted
      cash – U.S. state regulatory authorities
                    
                    
                    303
                    
                    
                    
                    430Total
      restricted cash
                    
                    
                    168,396
                    
                    
                    
                    144,944Restricted
      investments – in Trust for third party agreements at fair value (Amortized
      cost: 2010 – $856,511; 2009 – $1,011,582)
                    
                    
                    887,632
                    
                    
                    
                    1,022,337Restricted
      investments – in Trust for related party agreements at fair value
      (Amortized cost: 2010 – $226,558; 2009 – $177,537)
                    
                    
                    250,465
                    
                    
                    
                    195,474Restricted
      investments – in Trust for U.S. state regulatory authorities (Amortized
      cost: 2010 – $13,280; 2009 – $13,032)
                    
                    
                    13,707
                    
                    
                    
                    12,867Total
      restricted investments
                    
                    
                    1,151,804
                    
                    
                    
                    1,230,678Total
      restricted cash and investments
                    
                    $
                    1,320,200
                    
                    
                    $
                    1,375,622




(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 June 30, 2010, there were $70,972 principal
amount outstanding at interest rate of 0.27%. Interest expense associated with
these repurchase agreements was $298 and $355 for the three and six months ended
June 30, 2010, respectively (2009 - $10 and $783, respectively), out of which
$262 was accrued as of June 30, 2010 (December 31, 2009 - $33). The Company has
approximately $70,972 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 June 30, 2010 were $52,328 for a US Treasury
bond.  This amount is included in accrued expenses and other
liabilities in the condensed consolidated balance sheets. These transactions
result in off-balance sheet risk, as the Company’s ultimate cost to satisfy the
delivery of securities sold but not yet purchased may exceed the amount
reflected at June 30, 2010.  Collateral of an equivalent amount has
been pledged to the clearing broker.




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)




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 June 30, 2010.




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 is determined using 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.




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)




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.




(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 June 30, 2010 and December 31, 2009:




As at June 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
                
                $
                59,397
                
                
                $
                –
                
                
                $
                –
                
                
                $
                59,397U.S.
      agency bonds – mortgage and asset-backed
                
                
                –
                
                
                
                732,866
                
                
                
                –
                
                
                
                732,866U.S.
      agency bonds – other
                
                
                –
                
                
                
                155,691
                
                
                
                –
                
                
                
                155,691Corporate
      fixed maturities
                
                
                –
                
                
                
                663,825
                
                
                
                –
                
                
                
                663,825Municipal
      bonds
                
                
                –
                
                
                
                22,127
                
                
                
                –
                
                
                
                22,127Other
      investments
                
                
                –
                
                
                
                –
                
                
                
                5,677
                
                
                
                5,677Total
                
                $
                59,397
                
                
                $
                1,574,509
                
                
                $
                5,677
                
                
                $
                1,639,583As
      a percentage of total assets
                
                
                2.1
                %
                
                
                55.5
                %
                
                
                0.2
                %
                
                
                57.8
                %LiabilitiesSecurities
      sold under agreements to repurchase
                
                $
                –
                
                
                $
                70,972
                
                
                $
                –
                
                
                $
                70,972Securities
      sold but not yet purchased
                
                
                –
                
                
                
                52,328
                
                
                
                –
                
                
                
                52,328$
                –
                
                
                $
                123,300
                
                
                $
                –
                
                
                $
                123,300As
      a percentage of total liabilities
                
                
                –
                
                
                
                5.8
                %
                
                
                –
                
                
                
                5.8
                %




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
                      %


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)




(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 six months ended
June 30, 2010 and 2009:




Other Investments:
                
                Three Months
                  Ended
                  June 30, 2010
                
                
                Three Months
                  Ended
                  June 30, 2009Balance
      at beginning of period
                
                $
                5,601
                
                
                $
                5,386Net
      realized and unrealized gains – included in net income
                
                
                –
                
                
                
                –Net
      realized and unrealized losses – included in net income
                
                
                –
                
                
                
                –Change
      in net unrealized gains – included in other comprehensive income
      (loss)
                
                
                –
                
                
                
                –Change
      in net unrealized losses – included in other comprehensive income
      (loss)
                
                
                (44
                )
                
                
                112Purchases
                
                
                123
                
                
                
                –Sales
      and redemptions
                
                
                (3
                )
                
                
                (106
                )Transfers
      into Level 3
                
                
                –
                
                
                
                –Transfers
      out of Level 3
                
                
                –
                
                
                
                –Balance
      at end of period
                
                $
                5,677
                
                
                $
                5,392Level
      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:
                
                Six Months
                  Ended
                  June 30, 2010
                
                
                Six Months
                  Ended
                  June 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
                
                
                –
                
                
                
                (15
                )Change
      in net unrealized gains – included in other comprehensive income
      (loss)
                
                
                –
                
                
                
                –Change
      in net unrealized losses – included in other comprehensive income
      (loss)
                
                
                11
                
                
                
                106Purchases
                
                
                123
                
                
                
                138Sales
      and redemptions
                
                
                (6
                )
                
                
                (128
                )Transfers
      into Level 3
                
                
                –
                
                
                
                –Transfers
      out of Level 3
                
                
                –
                
                
                
                –Balance
      at end of period
                
                $
                5,677
                
                
                $
                5,392Level
      3 gains (losses) included in net income attributable to the change in
      unrealized gains (losses) relating to assets held at the reporting
      date
                
                $
                –
                
                
                $
                –




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 June
30, 2010 and December 31, 2009:




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)




5.
            Goodwill
      and Intangible Assets(continued)




As at June 30, 2010
                    
                    Gross
                    
                    
                    Accumulated
                      Amortization
                    
                    
                    Net
                    
                    Useful LifeGoodwill
                    
                    $
                    52,617
                    
                    
                    $
                    –
                    
                    
                    $
                    52,617
                    
                    IndefiniteState
      licenses
                    
                    
                    7,727
                    
                    
                    
                    –
                    
                    
                    
                    7,727
                    
                    IndefiniteCustomer
      relationships
                    
                    
                    51,400
                    
                    
                    
                    (10,747
                    )
                    
                    
                    40,653
                    
                    15 years double decliningNet
      balance
                    
                    $
                    111,744
                    
                    
                    $
                    (10,747
                    )
                    
                    $
                    100,997




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 six months ended June 30, 2010. The
estimated amortization expense for the next five years is:




June 30,
                    20102010
                  
                  $
                  2,9042011
                  
                  
                  5,0332012
                  
                  
                  4,3622013
                  
                  
                  3,7812014
                  
                  
                  3,276




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 (the “Common Shares”), for a purchase price of
$1,000.45 per Unit. 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.




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)




6.
            Junior
      Subordinated Debt(continued)




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
June 30, 2010, the stated value of the Trust Preferred Securities was $215,156
which comprises the principal amount of $260,000 and unamortized discount of
$44,844. Amortization expense for the three and six months ended June 30, 2010
was $16 and $31, respectively (2009 - $12 and $24, respectively).




7.
            Earnings
      Per Share




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




Three Months
                            Ended
                              June 30,2010
                          
                          
                          Three Months
                            Ended
                            June 30, 2009
                          
                          
                          Six Months
                            Ended
                            June 30,2010
                          
                          
                          Six Months
                            Ended
                            June30, 2009Net
      income available to common shareholders
                          
                          $
                          18,637
                          
                          
                          $
                          16,251
                          
                          
                          $
                          32,206
                          
                          
                          $
                          29,352Weighted
      average number of common shares outstanding – basic
                          
                          
                          70,291,894
                          
                          
                          
                          70,287,664
                          
                          
                          
                          70,291,650
                          
                          
                          
                          68,994,846Potentially
      dilutive securities:Warrants
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –Share
      options
                          
                          
                          478,955
                          
                          
                          
                          379,435
                          
                          
                          
                          482,114
                          
                          
                          
                          315,858Weighted
      average number of common shares outstanding – diluted
                          
                          
                          70,770,849
                          
                          
                          
                          70,667,099
                          
                          
                          
                          70,773,764
                          
                          
                          
                          69,310,704Basic
      earnings per common share:
                          
                          $
                          0.27
                          
                          
                          $
                          0.23
                          
                          
                          $
                          0.46
                          
                          
                          $
                          0.43Diluted
      earnings per common share:
                          
                          $
                          0.26
                          
                          
                          $
                          0.23
                          
                          
                          $
                          0.46
                          
                          
                          $
                          0.42




As of
June 30, 2010, 4,050,000 (2009– 4,050,000) warrants and 1,689,874 (2009 – 645,626) share options were
excluded from the calculation of diluted earnings per share as they were
anti-dilutive.




8.
            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 $240 and $450
for the three and six months ended June 30, 2010, respectively (2009 – $117 and
$276, respectively).




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




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)




8.
            Share
      Based Compensation(continued)




Assumptions:
                  
                  June 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 schedules show all options granted, exercised, expired and exchanged
under the Plan for the three and six months ended June 30, 2010:




Three Months Ended
                                      June 30, 2010
                                    
                                    Number of
                                      Share Options
                                    
                                    
                                    Weighted
                                      Average
                                      Exercise Price
                                    
                                    
                                    Weighted Average
                                      Remaining
                                      Contractual TermOutstanding,
      March 31, 2010
                                    
                                    
                                    2,335,824
                                    
                                    
                                    $
                                    5.98
                                    
                                    
                                    8.78
      yearsGranted
                                    
                                    
                                    –
                                    
                                    
                                    
                                    –
                                    
                                    
                                    
                                    –Exercised
                                    
                                    
                                    (344
                                    )
                                    
                                    
                                    3.28
                                    
                                    
                                    
                                    –Cancelled
                                    
                                    
                                    (4,250
                                    )
                                    
                                    
                                    3.28
                                    
                                    
                                    
                                    –Outstanding,
      June 30, 2010
                                    
                                    
                                    2,331,230
                                    
                                    
                                    $
                                    5.99
                                    
                                    
                                    8.53 years





Six Months Ended
                                        June 30, 2010
                                      
                                      Number of
                                        Share Options
                                      
                                      
                                      Weighted
                                        Average
                                        Exercise Price
                                      
                                      
                                      Weighted Average
                                        Remaining
                                        Contractual TermOutstanding,
      December 31, 2009
                                      
                                      
                                      2,036,542
                                      
                                      
                                      $
                                      5.79
                                      
                                      
                                      8.86
      yearsGranted
                                      
                                      
                                      300,000
                                      
                                      
                                      
                                      7.25
                                      
                                      
                                      9.68
      yearsExercised
                                      
                                      
                                      (812
                                      )
                                      
                                      
                                      3.28
                                      
                                      
                                      
                                      –Cancelled
                                      
                                      
                                      (4,500
                                      )
                                      
                                      
                                      3.28
                                      
                                      
                                      
                                      –Outstanding,
      June 30, 2010
                                      
                                      
                                      2,331,230
                                      
                                      
                                      $
                                      5.99
                                      
                                      
                                      8.53 years




The
following schedule shows all options granted, exercised, expired and exchanged
under the Plan for the three and six months ended June 30, 2009:




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.
            Share
      Based Compensation(continued)




Three Months Ended
                  June 30, 2009
                
                Number of
                  Share Options
                
                
                Weighted
                  Average
                  Exercise Price
                
                
                Weighted Average
                  Remaining
                  Contractual TermOutstanding,
      March 31, 2009
                
                
                1,469,834
                
                
                $
                5.55
                
                
                9.31
      yearsGranted
                
                
                34,000
                
                
                
                5.05
                
                
                9.89
      yearsExercised
                
                
                –
                
                
                
                –
                
                
                
                –Cancelled
                
                
                –
                
                
                
                –
                
                
                
                –Outstanding,
      June 30, 2009
                
                
                1,503,834
                
                
                $
                5.54
                
                
                9.08 years





Six Months Ended
                  June 30, 2009
                
                Number of
                  Share Options
                
                
                Weighted
                  Average
                  Exercise Price
                
                
                Weighted Average
                  Remaining
                  Contractual TermOutstanding,
      December 31, 2008
                
                
                1,519,834
                
                
                $
                10.00
                
                
                9.44
      yearsGranted
                
                
                184,000
                
                
                
                4.51
                
                
                9.70
      yearsExercised
                
                
                –
                
                
                
                –
                
                
                
                –Cancelled
                
                
                (200,000
                )
                
                
                7.74
                
                
                
                –Outstanding,
      June 30, 2009
                
                
                1,503,834
                
                
                $
                5.54
                
                
                9.08 years




The
weighted average grant date fair value was $1.76 and $1.58 for all options
outstanding at June 30, 2010 and 2009, respectively. There was approximately
$2,400 and $1,478 of total unrecognized compensation cost related to non-vested
share-based compensation arrangements as of June 30, 2010 and 2009,
respectively.




9.
            Dividends
      Declared




On May 4,
2010, the Company’s Board of Directors approved a quarterly cash dividend of
$0.065 per common share. This dividend was paid on July 15, 2010 to shareholders
of record on July 1, 2010.




10.
            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 and 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.




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)





10.
            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 $31,819 and $66,584 of ceding commission expense
for the three and six months ended June 30, 2010, respectively (2009 – $27,619 and $56,873,
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.




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.




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)




10.
            Related
      Party Transactions(continued)




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 June 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 June 30, 2010 was approximately $294,468 (December 31,
      2009 – $206,960) and the accrued interest was $2,972 (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 $1,271 and $2,654 of
reinsurance brokerage expense for the three and six months ended June 30, 2010,
respectively (2009 –
$1,095 and $2,250, respectively) and deferred reinsurance brokerage of $3,494
and $3,265 as at June 30, 2010 and December 31, 2009, respectively, as a result
of this agreement.




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 $0 expense, which is
included in other operating expenses, for the three and six months ended June
30, 2010, respectively (2009 – $117 and $270,
respectively).




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)




10.
            Related
      Party Transactions(continued)




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 $662 and $1,318 of investment management fees for the
three and six months ended June 30, 2010, respectively (2009 – $619 and $1,216,
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”).  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 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 the 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.




The
Company recorded approximately $6,611 and $7,290 of ceding commission expense
for the three and six months ended June 30, 2010 as a result of this
transaction.




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.
            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 June 30, 2010
                                                      
                                                      Diversified
                                                        Reinsurance
                                                      
                                                      
                                                      AmTrust
                                                        QuotaShare
                                                      
                                                      
                                                      ACAC
                                                        Quota Share
                                                      
                                                      
                                                      TotalNet
      premiums written
                                                      
                                                      $
                                                      136,709
                                                      
                                                      
                                                      $
                                                      109,123
                                                      
                                                      
                                                      $
                                                      67,218
                                                      
                                                      
                                                      $
                                                      313,050Net
      premiums earned
                                                      
                                                      
                                                      161,779
                                                      
                                                      
                                                      
                                                      101,664
                                                      
                                                      
                                                      
                                                      20,341
                                                      
                                                      
                                                      
                                                      283,784Net
      losses and loss expenses
                                                      
                                                      
                                                      (99,218
                                                      )
                                                      
                                                      
                                                      (63,423
                                                      )
                                                      
                                                      
                                                      (12,713
                                                      )
                                                      
                                                      
                                                      (175,354
                                                      )Commissions
      and other acquisition costs
                                                      
                                                      
                                                      (48,386
                                                      )
                                                      
                                                      
                                                      (33,090
                                                      )
                                                      
                                                      
                                                      (6,971
                                                      )
                                                      
                                                      
                                                      (88,447
                                                      )General
      and administrative expenses
                                                      
                                                      
                                                      (5,726
                                                      )
                                                      
                                                      
                                                      (598
                                                      )
                                                      
                                                      
                                                      –
                                                      
                                                      
                                                      
                                                      (6,324
                                                      )Underwriting
      income
                                                      
                                                      $
                                                      8,449
                                                      
                                                      
                                                      $
                                                      4,553
                                                      
                                                      
                                                      $
                                                      657
                                                      
                                                      
                                                      $
                                                      13,659Reconciliation
      to net incomeNet
      investment income and realized and unrealized investment gains
      (losses)
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      19,410Amortization
      of intangible assets
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      (1,452
                                                      )Foreign
      exchange loss
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      (414
                                                      )Subordinated
      debt interest expense
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      (9,116
                                                      )Other
      operating expenses
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      (3,160
                                                      )Deferred
      tax expense
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      (290
                                                      )Net
      Income
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      18,637Net
      loss and loss expense ratio*
                                                      
                                                      
                                                      61.3
                                                      %
                                                      
                                                      
                                                      62.4
                                                      %
                                                      
                                                      
                                                      62.5
                                                      %
                                                      
                                                      
                                                      61.8
                                                      %Acquisition
      cost ratio**
                                                      
                                                      
                                                      29.9
                                                      %
                                                      
                                                      
                                                      32.5
                                                      %
                                                      
                                                      
                                                      34.3
                                                      %
                                                      
                                                      
                                                      31.2
                                                      %General
      and administrative expense ratio***
                                                      
                                                      
                                                      3.5
                                                      %
                                                      
                                                      
                                                      0.6
                                                      %
                                                      
                                                      
                                                      –
                                                      %
                                                      
                                                      
                                                      3.3
                                                      %Combined
      ratio****
                                                      
                                                      
                                                      94.7
                                                      %
                                                      
                                                      
                                                      95.5
                                                      %
                                                      
                                                      
                                                      96.8
                                                      %
                                                      
                                                      
                                                      96.3
                                                      %





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.
            Segments(continued)




For the Six Months Ended June 30, 2010
                    
                    Diversified
                      Reinsurance
                    
                    
                    AmTrust
                      QuotaShare
                    
                    
                    ACAC
                      Quota Share
                    
                    
                    TotalNet
      premiums written
                    
                    $
                    304,623
                    
                    
                    $
                    230,679
                    
                    
                    $
                    89,039
                    
                    
                    $
                    624,341Net
      premiums earned
                    
                    
                    312,959
                    
                    
                    
                    212,323
                    
                    
                    
                    22,431
                    
                    
                    
                    547,713Net
      losses and loss expenses
                    
                    
                    (198,635
                    )
                    
                    
                    (132,985
                    )
                    
                    
                    (14,019
                    )
                    
                    
                    (345,639
                    )Commissions
      and other acquisition costs
                    
                    
                    (88,900
                    )
                    
                    
                    (69,238
                    )
                    
                    
                    (7,705
                    )
                    
                    
                    (165,843
                    )General
      and administrative expenses
                    
                    
                    (11,598
                    )
                    
                    
                    (1,072
                    )
                    
                    
                    –
                    
                    
                    
                    (12,670
                    )Underwriting
      income
                    
                    $
                    13,826
                    
                    
                    $
                    9,028
                    
                    
                    $
                    707
                    
                    
                    $
                    23,561Reconciliation
      to net incomeNet
      investment income and realized and
                      unrealized
      investment gains (losses)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    37,303Amortization
      of intangible assets
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (2,904
                    )Foreign
      exchange loss
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (1,567
                    )Subordinated
      debt interest expense
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (18,231
                    )Other
      operating expenses
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (5,366
                    )Deferred
      tax expense
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (590
                    )Net
      Income
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    $
                    32,206Net
      loss and loss expense ratio*
                    
                    
                    63.5
                    %
                    
                    
                    62.6
                    %
                    
                    
                    62.5
                    %
                    
                    
                    63.1
                    %Acquisition
      cost ratio**
                    
                    
                    28.4
                    %
                    
                    
                    32.6
                    %
                    
                    
                    34.3
                    %
                    
                    
                    30.3
                    %General
      and administrative expense ratio***
                    
                    
                    3.7
                    %
                    
                    
                    0.5
                    %
                    
                    
                    –
                    %
                    
                    
                    3.3
                    %Combined
      ratio****
                    
                    
                    95.6
                    %
                    
                    
                    95.7
                    %
                    
                    
                    96.8
                    %
                    
                    
                    96.7
                    %





For the Three Months Ended June 30, 2009
                                                          
                                                          Diversified
                                                            Reinsurance
                                                          
                                                          
                                                          AmTrust
                                                            QuotaShare
                                                          
                                                          
                                                          ACAC
                                                            Quota Share
                                                          
                                                          
                                                          TotalNet
      premiums written
                                                          
                                                          $
                                                          148,553
                                                          
                                                          
                                                          $
                                                          89,803
                                                          
                                                          
                                                          $
                                                          –
                                                          
                                                          
                                                          $
                                                          238,356Net
      premiums earned
                                                          
                                                          
                                                          136,214
                                                          
                                                          
                                                          
                                                          87,627
                                                          
                                                          
                                                          
                                                          –
                                                          
                                                          
                                                          
                                                          223,841Net
      losses and loss expenses
                                                          
                                                          
                                                          (94,570
                                                          )
                                                          
                                                          
                                                          (56,487
                                                          )
                                                          
                                                          
                                                          –
                                                          
                                                          
                                                          
                                                          (151,057
                                                          )Commissions
      and other acquisition costs
                                                          
                                                          
                                                          (28,950
                                                          )
                                                          
                                                          
                                                          (28,714
                                                          )
                                                          
                                                          
                                                          –
                                                          
                                                          
                                                          
                                                          (57,664
                                                          )General
      and administrative expenses
                                                          
                                                          
                                                          (4,088
                                                          )
                                                          
                                                          
                                                          (687
                                                          )
                                                          
                                                          
                                                          –
                                                          
                                                          
                                                          
                                                          (4,775
                                                          )Underwriting
      income
                                                          
                                                          $
                                                          8,606
                                                          
                                                          
                                                          $
                                                          1,739
                                                          
                                                          
                                                          $
                                                          –
                                                          
                                                          
                                                          $
                                                          10,345Reconciliation
      to net incomeNet
      investment income and realized gains
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          16,647Amortization
      of intangible assets
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (1,675
                                                          )Foreign
      exchange gain
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          2,404Subordinated
      debt interest expense
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (9,112
                                                          )Other
      operating expenses
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (2,358
                                                          )Net
      Income
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          $
                                                          16,251Net
      loss and loss expense ratio*
                                                          
                                                          
                                                          69.4
                                                          %
                                                          
                                                          
                                                          64.4
                                                          %
                                                          
                                                          
                                                          –
                                                          %
                                                          
                                                          
                                                          67.5
                                                          %Acquisition
      cost ratio**
                                                          
                                                          
                                                          21.3
                                                          %
                                                          
                                                          
                                                          32.8
                                                          %
                                                          
                                                          
                                                          –
                                                          %
                                                          
                                                          
                                                          25.7
                                                          %General
      and administrative expense ratio***
                                                          
                                                          
                                                          3.0
                                                          %
                                                          
                                                          
                                                          0.8
                                                          %
                                                          
                                                          
                                                          –
                                                          %
                                                          
                                                          
                                                          3.2
                                                          %Combined
      ratio****
                                                          
                                                          
                                                          93.7
                                                          %
                                                          
                                                          
                                                          98.0
                                                          %
                                                          
                                                          
                                                          –
                                                          %
                                                          
                                                          
                                                          96.4
                                                          %





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.
              Segments(continued)


For the Six Months Ended June 30, 2009
                                                  
                                                  Diversified
                                                    Reinsurance
                                                  
                                                  
                                                  AmTrust
                                                    QuotaShare
                                                  
                                                  
                                                  ACAC
                                                    Quota Share
                                                  
                                                  
                                                  TotalNet
      premiums written
                                                  
                                                  $
                                                  399,731
                                                  
                                                  
                                                  $
                                                  175,174
                                                  
                                                  
                                                  $
                                                  –
                                                  
                                                  
                                                  $
                                                  574,905Net
      premiums earned
                                                  
                                                  
                                                  253,884
                                                  
                                                  
                                                  
                                                  180,049
                                                  
                                                  
                                                  
                                                  –
                                                  
                                                  
                                                  
                                                  433,933Net
      losses and loss expenses
                                                  
                                                  
                                                  (183,585
                                                  )
                                                  
                                                  
                                                  (113,760
                                                  )
                                                  
                                                  
                                                  –
                                                  
                                                  
                                                  
                                                  (297,345
                                                  )Commissions
      and other acquisition costs
                                                  
                                                  
                                                  (45,172
                                                  )
                                                  
                                                  
                                                  (59,123
                                                  )
                                                  
                                                  
                                                  –
                                                  
                                                  
                                                  
                                                  (104.295
                                                  )General
      and administrative expenses
                                                  
                                                  
                                                  (9,815
                                                  )
                                                  
                                                  
                                                  (1,061
                                                  )
                                                  
                                                  
                                                  –
                                                  
                                                  
                                                  
                                                  (10,876
                                                  )Underwriting
      income
                                                  
                                                  $
                                                  15,312
                                                  
                                                  
                                                  $
                                                  6,105
                                                  
                                                  
                                                  $
                                                  –
                                                  
                                                  
                                                  $
                                                  21,417Reconciliation
      to net incomeNet
      investment income and realized (loss)
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  28,976Amortization
      of intangible assets
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  (3,239
                                                  )Foreign
      exchange gain
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  2,191Subordinated
      debt interest expense
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  (16,202
                                                  )Other
      operating expenses
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  (3,791
                                                  )Net
      Income
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  $
                                                  29,352Net
      loss and loss expense ratio*
                                                  
                                                  
                                                  72.3
                                                  %
                                                  
                                                  
                                                  63.2
                                                  %
                                                  
                                                  
                                                  –
                                                  %
                                                  
                                                  
                                                  68.5
                                                  %Acquisition
      cost ratio**
                                                  
                                                  
                                                  17.8
                                                  %
                                                  
                                                  
                                                  32.8
                                                  %
                                                  
                                                  
                                                  –
                                                  %
                                                  
                                                  
                                                  24.0
                                                  %General
      and administrative expense ratio***
                                                  
                                                  
                                                  3.9
                                                  %
                                                  
                                                  
                                                  0.6
                                                  %
                                                  
                                                  
                                                  –
                                                  %
                                                  
                                                  
                                                  3.4
                                                  %Combined
      ratio****
                                                  
                                                  
                                                  94.0
                                                  %
                                                  
                                                  
                                                  96.6
                                                  %
                                                  
                                                  
                                                  –
                                                  %
                                                  
                                                  
                                                  95.9
                                                  %




*
            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 June 30, 2010Reinsurance
      balances receivable
                                  
                                  $
                                  175,672
                                  
                                  
                                  $
                                  42,305
                                  
                                  
                                  $
                                  53,222
                                  
                                  
                                  $
                                  271,199Prepaid
      reinsurance
                                  
                                  
                                  31,762
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  31,762Reinsurance
      recoverable on unpaid losses
                                  
                                  
                                  12,144
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  12,144Deferred
      commission and other acquisition costs
                                  
                                  
                                  83,487
                                  
                                  
                                  
                                  90,543
                                  
                                  
                                  
                                  22,882
                                  
                                  
                                  
                                  196,912Loan
      to related party
                                  
                                  
                                  –
                                  
                                  
                                  
                                  167,975
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  167,975Goodwill
                                  
                                  
                                  52,617
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  52,617Intangible
      assets, net
                                  
                                  
                                  48,380
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  48,380Restricted
      investments and cash
                                  
                                  
                                  1,017,388
                                  
                                  
                                  
                                  302,812
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  1,320,200Corporate
      and other assets
                                  
                                  
                                  5,480
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  735,340Total
      Assets
                                  
                                  $
                                  1,426,930
                                  
                                  
                                  $
                                  603,635
                                  
                                  
                                  $
                                  76,104
                                  
                                  
                                  $
                                  2,836,529





Diversified
                                    Reinsurance
                                  
                                  
                                  AmTrust
                                    Quota Share
                                  
                                  ACAC
                                    Quota Share
                                  
                                  
                                  TotalAs
      at December 31, 2009Reinsurance
      balances receivable
                                  
                                  $
                                  168,639
                                  
                                  
                                  $
                                  39,856
                                  
                                  
                                  $
                                  –
                                  
                                  
                                  $
                                  208,495Prepaid
      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
                                  
                                  $
                                  1,572,665
                                  
                                  
                                  $
                                  499,549
                                  
                                  
                                  $
                                  –
                                  
                                  
                                  $
                                  2,636,894





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)


11.
              Segments(continued)




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 six
months ended June 30, 2010 and 2009:




For the Three Months Ended
                                      June 30, 2010
                                    
                                    
                                    For the Three Months Ended
                                      June 30, 2009Total
                                    
                                    
                                    %
      of Total
                                    
                                    
                                    Total
                                    
                                    
                                    %
      of TotalNet
      premiums writtenDiversified
      ReinsuranceProperty
                                    
                                    $
                                    36,276
                                    
                                    
                                    
                                    11.6
                                    %
                                    
                                    $
                                    25,510
                                    
                                    
                                    
                                    10.7
                                    %Casualty
                                    
                                    
                                    91,855
                                    
                                    
                                    
                                    29.4
                                    %
                                    
                                    
                                    105,233
                                    
                                    
                                    
                                    44.1
                                    %Accident
      and Health
                                    
                                    
                                    8,578
                                    
                                    
                                    
                                    2.7
                                    %
                                    
                                    
                                    17,810
                                    
                                    
                                    
                                    7.5
                                    %Total
      Diversified Reinsurance
                                    
                                    
                                    136,709
                                    
                                    
                                    
                                    43.7
                                    %
                                    
                                    
                                    148,553
                                    
                                    
                                    
                                    62.3
                                    %AmTrust
      Quota ShareSmall
      Commercial Business
                                    
                                    
                                    44,896
                                    
                                    
                                    
                                    14.3
                                    %
                                    
                                    
                                    45,936
                                    
                                    
                                    
                                    19.3
                                    %Specialty
      Program Business
                                    
                                    
                                    20,827
                                    
                                    
                                    
                                    6.6
                                    %
                                    
                                    
                                    12,764
                                    
                                    
                                    
                                    5.4
                                    %Specialty
      Risk and Extended Warranty
                                    
                                    
                                    43,400
                                    
                                    
                                    
                                    13.9
                                    %
                                    
                                    
                                    31,103
                                    
                                    
                                    
                                    13.0
                                    %Total
      AmTrust Quota Share
                                    
                                    
                                    109,123
                                    
                                    
                                    
                                    34.8
                                    %
                                    
                                    
                                    89,803
                                    
                                    
                                    
                                    37.7
                                    %ACAC
      Quota ShareAutomobile
      liability
                                    
                                    
                                    38,514
                                    
                                    
                                    
                                    12.3
                                    %
                                    
                                    
                                    –
                                    
                                    
                                    
                                    –
                                    %Automobile
      physical damage
                                    
                                    
                                    28,704
                                    
                                    
                                    
                                    9.2
                                    %
                                    
                                    
                                    –
                                    
                                    
                                    
                                    –
                                    %Total
      ACAC Quota share
                                    
                                    
                                    67,218
                                    
                                    
                                    
                                    21.5
                                    %
                                    
                                    
                                    –
                                    
                                    
                                    
                                    –
                                    %$
                                    313,050
                                    
                                    
                                    
                                    100.00
                                    %
                                    
                                    $
                                    238,356
                                    
                                    
                                    
                                    100.00
                                    %





For the Six Months Ended
                                    June 30, 2010
                                  
                                  
                                  For the Six Months Ended
                                    June 30, 2009Total
                                  
                                  
                                  %
      of Total
                                  
                                  
                                  Total
                                  
                                  
                                  %
      of TotalNet
      premiums writtenDiversified
      ReinsuranceProperty
                                  
                                  $
                                  94,329
                                  
                                  
                                  
                                  15.1
                                  %
                                  
                                  $
                                  76,958
                                  
                                  
                                  
                                  13.4
                                  %Casualty
                                  
                                  
                                  184,016
                                  
                                  
                                  
                                  29.5
                                  %
                                  
                                  
                                  255,309
                                  
                                  
                                  
                                  44.4
                                  %Accident
      and Health
                                  
                                  
                                  26,278
                                  
                                  
                                  
                                  4.2
                                  %
                                  
                                  
                                  67,464
                                  
                                  
                                  
                                  11.7
                                  %Total
      Diversified Reinsurance
                                  
                                  
                                  304,623
                                  
                                  
                                  
                                  48.8
                                  %
                                  
                                  
                                  399,731
                                  
                                  
                                  
                                  69.5
                                  %AmTrust
      Quota ShareSmall
      Commercial Business
                                  
                                  
                                  103,830
                                  
                                  
                                  
                                  16.6
                                  %
                                  
                                  
                                  98,908
                                  
                                  
                                  
                                  17.2
                                  %Specialty
      Program Business
                                  
                                  
                                  30,901
                                  
                                  
                                  
                                  4.9
                                  %
                                  
                                  
                                  21,993
                                  
                                  
                                  
                                  3.8
                                  %Specialty
      Risk and Extended Warranty
                                  
                                  
                                  95,948
                                  
                                  
                                  
                                  15.4
                                  %
                                  
                                  
                                  54,273
                                  
                                  
                                  
                                  9.5
                                  %Total
      AmTrust Quota Share
                                  
                                  
                                  230,679
                                  
                                  
                                  
                                  36.9
                                  %
                                  
                                  
                                  175,174
                                  
                                  
                                  
                                  30.5
                                  %ACAC
      Quota ShareAutomobile
      liability
                                  
                                  
                                  50,959
                                  
                                  
                                  
                                  8.2
                                  %
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  %Automobile
      physical damage
                                  
                                  
                                  38,080
                                  
                                  
                                  
                                  6.1
                                  %
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  %Total
      ACAC Quota Share
                                  
                                  
                                  89,039
                                  
                                  
                                  
                                  14.3
                                  %
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  %$
                                  624,341
                                  
                                  
                                  
                                  100.00
                                  %
                                  
                                  $
                                  574,905
                                  
                                  
                                  
                                  100.00
                                  %





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)


11.
              Segments(continued)




For the Three Months Ended
                                          June 30, 2010
                                        
                                        
                                        For the Three Months Ended
                                          June 30, 2009Total
                                        
                                        
                                        % of Total
                                        
                                        
                                        Total
                                        
                                        
                                        % of TotalNet
      premiums earnedDiversified
      ReinsuranceProperty
                                        
                                        $
                                        47,550
                                        
                                        
                                        
                                        16.7
                                        %
                                        
                                        $
                                        39,578
                                        
                                        
                                        
                                        17.7
                                        %Casualty
                                        
                                        
                                        95,829
                                        
                                        
                                        
                                        33.8
                                        %
                                        
                                        
                                        71,339
                                        
                                        
                                        
                                        31.9
                                        %Accident
      and Health
                                        
                                        
                                        18,400
                                        
                                        
                                        
                                        6.5
                                        %
                                        
                                        
                                        25,297
                                        
                                        
                                        
                                        11.3
                                        %Total
      Diversified Reinsurance
                                        
                                        
                                        161,779
                                        
                                        
                                        
                                        57.0
                                        %
                                        
                                        
                                        136,214
                                        
                                        
                                        
                                        60.9
                                        %AmTrust
      Quota ShareSmall
      Commercial Business
                                        
                                        
                                        56,186
                                        
                                        
                                        
                                        19.8
                                        %
                                        
                                        
                                        52,120
                                        
                                        
                                        
                                        23.3
                                        %Specialty
      Program Business
                                        
                                        
                                        16,680
                                        
                                        
                                        
                                        5.9
                                        %
                                        
                                        
                                        13,070
                                        
                                        
                                        
                                        5.8
                                        %Specialty
      Risk and Extended Warranty
                                        
                                        
                                        28,798
                                        
                                        
                                        
                                        10.1
                                        %
                                        
                                        
                                        22,437
                                        
                                        
                                        
                                        10.0
                                        %Total
      AmTrust Quota Share
                                        
                                        
                                        101,664
                                        
                                        
                                        
                                        35.8
                                        %
                                        
                                        
                                        87,627
                                        
                                        
                                        
                                        39.1
                                        %ACAC
      Quota ShareAutomobile
      liability
                                        
                                        
                                        11,425
                                        
                                        
                                        
                                        4.0
                                        %
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        %Automobile
      physical damage
                                        
                                        
                                        8,916
                                        
                                        
                                        
                                        3.2
                                        %
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        %Total
      ACAC Quota Share
                                        
                                        
                                        20,341
                                        
                                        
                                        
                                        7.2
                                        %
                                        
                                        
                                        –
                                        
                                        
                                        
                                        –
                                        %$
                                        283,784
                                        
                                        
                                        
                                        100.00
                                        %
                                        
                                        $
                                        223,841
                                        
                                        
                                        
                                        100.00
                                        %





For the Six Months Ended
                    June 30, 2010
                  
                  
                  For the Six Months Ended
                    June 30, 2009Total
                  
                  
                  % of Total
                  
                  
                  Total
                  
                  
                  % of TotalNet
      premiums earnedDiversified
      ReinsuranceProperty
                  
                  $
                  89,338
                  
                  
                  
                  16.3
                  %
                  
                  $
                  65,577
                  
                  
                  
                  15.1
                  %Casualty
                  
                  
                  184,075
                  
                  
                  
                  33.6
                  %
                  
                  
                  137,693
                  
                  
                  
                  31.7
                  %Accident
      and Health
                  
                  
                  39,546
                  
                  
                  
                  7.2
                  %
                  
                  
                  50,614
                  
                  
                  
                  11.7
                  %Total
      Diversified Reinsurance
                  
                  
                  312,959
                  
                  
                  
                  57.1
                  %
                  
                  
                  253,884
                  
                  
                  
                  58.5
                  %AmTrust
      Quota ShareSmall
      Commercial Business
                  
                  
                  108,140
                  
                  
                  
                  19.8
                  %
                  
                  
                  106,748
                  
                  
                  
                  24.6
                  %Specialty
      Program Business
                  
                  
                  31,454
                  
                  
                  
                  5.7
                  %
                  
                  
                  26,418
                  
                  
                  
                  6.1
                  %Specialty
      Risk and Extended Warranty
                  
                  
                  72,729
                  
                  
                  
                  13.3
                  %
                  
                  
                  46,883
                  
                  
                  
                  10.8
                  %Total
      AmTrust Quota Share
                  
                  
                  212,323
                  
                  
                  
                  38.8
                  %
                  
                  
                  180,049
                  
                  
                  
                  41.5
                  %ACAC
      Quota ShareAutomobile
      liability
                  
                  
                  12,594
                  
                  
                  
                  2.3
                  %
                  
                  
                  –
                  
                  
                  
                  –
                  %Automobile
      physical damage
                  
                  
                  9,837
                  
                  
                  
                  1.8
                  %
                  
                  
                  –
                  
                  
                  
                  –
                  %Total
      ACAC Quota Share
                  
                  
                  22,431
                  
                  
                  
                  4.1
                  %
                  
                  
                  –
                  
                  
                  
                  –
                  %$
                  547,713
                  
                  
                  
                  100.00
                  %
                  
                  $
                  433,933
                  
                  
                  
                  100.00
                  %




12.
            Subsequent
      Events




GMAC
International Insurance Services, Ltd. Reinsurance 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 in Europe. 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 plans to fund the proposed transaction through its existing capital base
which, subject to customary regulatory approval, is expected to close by the end
of the third quarter 2010.




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.
            Subsequent
      Events(continued)




Dividends




On
August 5, 2010, the Company declared a quarterly dividend of $0.065 per
common share, payable on October 15, 2010 to shareholders of record on October
1, 2010.




28





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 Insurance Company
("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 coverages. 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 June 30, 2010, we had approximately $724.8 million of total
shareholders’ equity and $940.0 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.




29




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 six 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 or European windstorms, while
losses from the United States winter storms, if any, are expected to be
immaterial.




We
believe that if such events continue, they could have a significant effect on
competition and pricing, 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 plans to fund the proposed transaction through its existing capital base
which, subject to customary regulatory approval, is expected to close by the end
of the third quarter 2010. The Company 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 GMACI Holdings, LLC 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 GMAC Insurance from
GMACI Holdings, LLC ("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).




30




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.
  To
support the businesses acquired in the GMAC Acquisition and Maiden Holdings
North America, Ltd. (“Maiden NA”), on January 20, 2009, we completed the TRUPS
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. 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 $18.6 million and $32.2
      million, or $0.27 basic and $0.26 diluted and $0.46 basic and diluted
      earnings per share for the three and six months ended June 30, 2010 as
      compared to $16.3 million and $29.4 million or $0.23 basic and diluted and
      $0.43 basic and $0.42 diluted earnings per share for the same periods in
      2009, respectively.
  ·
              Operating
      earnings(1)
      of $21.2 million and $37.4 million, or $0.30 and $0.53 basic and
      diluted operating earnings per share for the three and six months ended
      June 30, 2010 compared to $14.1 million and $30.8 million or $0.20 and
      $0.45 basic and $0.44 diluted operating earnings per share in the same
      periods in 2009(1)
  ·
              Gross
      premiums written of $662.2 million in 2010 as compared to $574.9 million
      in 2009.
  ·
              Net
      premiums earned of $547.7 million in 2010 as compared to $433.9 million in
      2009.
  ·
              Underwriting
      income of $13.7 million and $23.6 million and combined ratios of 96.3% and
      96.7%  for the three and six months ended June 30, 2010 compared
      to $10.4 and $21.4 million and combined ratios of 96.4% and 95.9%,
      respectively for the same periods in 2009(1)
  ·
              Net
      investment income of
$36.5 million
  2010
Consolidated Financial Condition
  ·
              Annualized
      operating return on equity of 10.8% for the six months ended June 30, 2010
      as compared to 11.1% for the same period in 2009(1)
  ·
              Common
      shareholders' equity of $724.8 million; book value per common share
      of $10.31
  ·
              Total
      investments of $1.6 billion; fixed maturities and short-term
      securities comprise 99.7% of total investments, of which 61.4% 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
  $1.08 billion
  ·
              Total
      debt of $215.2 million and a debt to total capitalization ratio of
      22.9%
 
 (1)
              Operating
      earnings, operating earnings per share, underwriting income, combined
      ratio and book value per share are non-GAAP financial measures. Sec
      "Non-GAAP Financial Measures" for additional information and a
      reconciliation to the nearest GAAP financial measure (net
      income).
  31
  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 June 30,
                  
                  
                  For the Six Months
                      Ended June 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009($
      in Millions)Net
      income
                  
                  $
                  18.6
                  
                  
                  $
                  16.3
                  
                  
                  $
                  32.2
                  
                  
                  $
                  29.4Add
      (subtract):Net
      realized and unrealized investment (gains) losses
                  
                  
                  (0.5
                  )
                  
                  
                  (1.5
                  )
                  
                  
                  (0.9
                  )
                  
                  
                  0.4Amortization
      of intangible assets
                  
                  
                  1.4
                  
                  
                  
                  1.7
                  
                  
                  
                  2.9
                  
                  
                  
                  3.2IIS
      transaction expenses
                  
                  
                  1.0
                  
                  
                  
                  –
                  
                  
                  
                  1.0
                  
                  
                  
                  –Foreign
      exchange and other (gains) losses
                  
                  
                  0.4
                  
                  
                  
                  (2.4
                  )
                  
                  
                  1.6
                  
                  
                  
                  (2.2
                  )Deferred
      tax expense
                  
                  
                  0.3
                  
                  
                  
                  –
                  
                  
                  
                  0.6
                  
                  
                  
                  –Operating
      earnings
                  
                  $
                  21.2
                  
                  
                  $
                  14.1
                  
                  
                  $
                  37.4
                  
                  
                  $
                  30.8Operating
      earnings per common share:Basic
      operating earnings per share
                  
                  $
                  0.30
                  
                  
                  $
                  0.20
                  
                  
                  $
                  0.53
                  
                  
                  $
                  0.45Diluted
      operating earnings per share
                  
                  $
                  0.30
                  
                  
                  $
                  0.20
                  
                  
                  $
                  0.53
                  
                  
                  $
                  0.44
  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.
  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 six months ended June 30, 2010 and
2009 is computed as follows:
  32
  For the Three Months
                      Ended June 30,
                  
                  
                  For the Six Months
                      Ended June 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009($
      in Millions)Operating
      earnings
                  
                  $
                  21.2
                  
                  
                  $
                  14.1
                  
                  
                  $
                  37.4
                  
                  
                  $
                  30.8Opening
      shareholders’ equity
                  
                  $
                  710.0
                  
                  
                  $
                  547.4
                  
                  
                  $
                  676.6
                  
                  
                  $
                  509.8Ending
      shareholders’ equity
                  
                  $
                  724.8
                  
                  
                  $
                  605.4
                  
                  
                  $
                  724.8
                  
                  
                  $
                  605.4Average
      shareholders’ equity
                  
                  $
                  717.4
                  
                  
                  $
                  576.4
                  
                  
                  $
                  700.7
                  
                  
                  $
                  557.6Operating
      return on equity
                  
                  
                  3.0
                  %
                  
                  
                  2.4
                  %
                  
                  
                  5.3
                  %
                  
                  
                  5.5
                  %Annualized
      operating return on equity
                  
                  
                  11.9
                  %
                  
                  
                  9.6
                  %
                  
                  
                  10.8
                  %
                  
                  
                  11.1
                  %
  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 June
30, 2010 and December 31, 2009 is computed as follows:
  June 30, 2010
                  
                  
                  December 31,
                      2009($ in Millions)Ending
      shareholders’ equity
                  
                  $
                  724.8
                  
                  
                  $
                  676.5Common
      shares outstanding
                  
                  
                  70,292,101
                  
                  
                  
                  70,291,289Book
      value per share
                  
                  $
                  10.31
                  
                  
                  $
                  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
  33
  ·
              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.
  34
  ·
              The
      Company typically 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% of the Company’s fixed maturity investments
      are categorized as Level 2 within the fair value hierarchy. As of June 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 typically obtain a non-binding quote from a broker-dealer;
      multiple quotations are not typically sought. As of June 30, 2010 and
      December 31, 2009, only one security valued using the market approach at
      approximately $8.5 million and $7.9 million, respectively, was
      priced using a quotation from a broker as opposed to the Pricing
      Service.  As of June 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 June 30, 2010 and
      December 31, 2009.
  Results
of Operations
  Net
Income
  Net
income for the three months ended June 30, 2010 was $18.6 million compared to
net income of $16.3 million for the same period in 2009.  Net income
for the six months ended June 30, 2010 was $32.2 million compared to net
income of $29.4 million for the same period in 2009.
  The
improvement in net income for the three months ended June 30, 2010 as compared
to the same period in 2009 was principally the result of increased investment
income 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 and a marginally lower combined
ratio.  Certain non-recurring expenses totaling $1.0 million
related to the IIS Transaction offset these improvements.
  The
improvement in net income for the six months ended June 30, 2010 as compared to
the same period in 2009 was principally the result of increased investment
income 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, a foreign exchange loss, and
deferred tax expenses.
  35
  The
following table sets forth our selected consolidated statement of operations
data for each of the periods indicated:
  Three Months
                        Ended June 30,
                    
                    
                    Six Months
                        Ended June 30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009($ in Millions)Gross
      premiums written
                    
                    $
                    334.8
                    
                    
                    $
                    238.4
                    
                    
                    $
                    662.2
                    
                    
                    $
                    574.9Net
      premiums written
                    
                    $
                    313.1
                    
                    
                    $
                    238.4
                    
                    
                    $
                    624.3
                    
                    
                    $
                    574.9Net
      earned premium
                    
                    $
                    283.8
                    
                    
                    $
                    223.8
                    
                    
                    $
                    547.7
                    
                    
                    $
                    433.9Loss
      and loss adjustment expenses
                    
                    
                    (175.4
                    )
                    
                    
                    (151.0
                    )
                    
                    
                    (345.6
                    )
                    
                    
                    (297.3
                    )Commissions
      and other acquisition expenses
                    
                    
                    (88.4
                    )
                    
                    
                    (57.6
                    )
                    
                    
                    (165.9
                    )
                    
                    
                    (104.3
                    )General
      and administrative expenses
                    
                    
                    (6.3
                    )
                    
                    
                    (4.8
                    )
                    
                    
                    (12.6
                    )
                    
                    
                    (10.9
                    )Total
      underwriting income
                    
                    
                    13.7
                    
                    
                    
                    10.4
                    
                    
                    
                    23.6
                    
                    
                    
                    21.4Other
      operating expenses
                    
                    
                    (3.2
                    )
                    
                    
                    (2.3
                    )
                    
                    
                    (5.4
                    )
                    
                    
                    (3.8
                    )Net
      investment income
                    
                    
                    18.9
                    
                    
                    
                    15.1
                    
                    
                    
                    36.5
                    
                    
                    
                    29.4Net
      realized investment gains (losses)
                    
                    
                    0.5
                    
                    
                    
                    1.5
                    
                    
                    
                    0.8
                    
                    
                    
                    (0.4
                    )Amortization
      of intangible assets
                    
                    
                    (1.5
                    )
                    
                    
                    (1.7
                    )
                    
                    
                    (2.9
                    )
                    
                    
                    (3.2
                    )Foreign
      exchange (loss) gain
                    
                    
                    (0.4
                    )
                    
                    
                    2.4
                    
                    
                    
                    (1.6
                    )
                    
                    
                    2.3Junior
      subordinated debt interest expense
                    
                    
                    (9.1
                    )
                    
                    
                    (9.1
                    )
                    
                    
                    (18.2
                    )
                    
                    
                    (16.2
                    )Deferred
      tax expense
                    
                    
                    (0.3
                    )
                    
                    
                    –
                    
                    
                    
                    (0.6
                    )
                    
                    
                    –Net
      income
                    
                    $
                    18.6
                    
                    
                    $
                    16.3
                    
                    
                    $
                    32.2
                    
                    
                    $
                    29.5
  Three Months
                      Ended June 30,
                  
                  
                  Six Months
                      Ended June 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009Selected
      Consolidated Ratios:Loss
      and loss expense ratio
                  
                  
                  61.8
                  %
                  
                  
                  67.5
                  %
                  
                  
                  63.1
                  %
                  
                  
                  68.5
                  %Acquisition
      cost ratio
                  
                  
                  31.2
                  %
                  
                  
                  25.7
                  %
                  
                  
                  30.3
                  %
                  
                  
                  24.0
                  %General
      and administrative expense ratio
                  
                  
                  3.3
                  %
                  
                  
                  3.2
                  %
                  
                  
                  3.3
                  %
                  
                  
                  3.4
                  %Expense
      ratio
                  
                  
                  34.5
                  %
                  
                  
                  28.9
                  %
                  
                  
                  33.5
                  %
                  
                  
                  27.4
                  %Combined
      ratio
                  
                  
                  96.3
                  %
                  
                  
                  96.4
                  %
                  
                  
                  96.7
                  %
                  
                  
                  95.9
                  %
  Comparison
of Three and Six Months Ended June 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 six
months ended June 30, 2010 and 2009:
  Net Premiums Written
                    
                    
                    Net Premiums EarnedThree Months Ended June 30,
                    
                    
                    Three Months Ended June 30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Diversified
      Reinsurance
                    
                    
                    43.7
                    %
                    
                    
                    62.3
                    %
                    
                    
                    57.0
                    %
                    
                    
                    60.9
                    %AmTrust
      Quota Share
                    
                    
                    34.9
                    %
                    
                    
                    37.7
                    %
                    
                    
                    35.8
                    %
                    
                    
                    39.1
                    %ACAC
      Quota Share
                    
                    
                    21.4
                    %
                    
                    
                    –
                    %
                    
                    
                    7.2
                    %
                    
                    
                    –
                    %Total
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %
  36
  Net Premiums Written
                                            
                                            
                                            Net Premiums EarnedSix Months Ended June 30,
                                            
                                            
                                            Six Months Ended June 30,2010
                                            
                                            
                                            2009
                                            
                                            
                                            2010
                                            
                                            
                                            2009Diversified
      Reinsurance
                                            
                                            
                                            48.8
                                            %
                                            
                                            
                                            69.5
                                            %
                                            
                                            
                                            57.1
                                            %
                                            
                                            
                                            58.5
                                            %AmTrust
      Quota Share
                                            
                                            
                                            36.9
                                            %
                                            
                                            
                                            30.5
                                            %
                                            
                                            
                                            38.8
                                            %
                                            
                                            
                                            41.5
                                            %ACAC
      Quota Share
                                            
                                            
                                            14.3
                                            %
                                            
                                            
                                            –
                                            %
                                            
                                            
                                            4.1
                                            %
                                            
                                            
                                            –
                                            %Total
                                            
                                            
                                            100.0
                                            %
                                            
                                            
                                            100.0
                                            %
                                            
                                            
                                            100.0
                                            %
                                            
                                            
                                            100.0
                                            %
  Net Premiums
Written.  Net premiums written increased by $74.7 million or
31.3% for the three months ended June 30, 2010 as compared to the same period in
2009 and increased $49.4 million or 8.6% for the six months ended June 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 $67.2 million and $89.0 million for the three and six months ended
      June 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 $19.3 million or 21.5% in the three months
      ended June 30, 2010 as compared to the same period in 2009, and $55.5
      million or 31.7% in the six months ended June 30, 2010 as compared to the
      same period in 2009.  Both increases are the result of
      significant growth in the Specialty Risk and
      Extended Warranty line, which was supplemented by more modest growth in
      that segment's Small Commercial and Specialty Program lines of
      business.
  ·
              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 as a result, premiums written decreased by $11.8
      million or 8.0% and $95.1 million or 23.8% for the three and six
      months ended June 30, 2010 as compared to the same periods in 2009,
      respectively.
  Net Premiums
Earned.  Net premiums earned increased by $60.0 million or
26.8% for the three months ended June 30, 2010 as compared to the same period in
2009 and increased $113.8 million or 26.2% for the six months ended June 30,
2010 as compared to the same period in 2009.
  The
increase was attributable to the ongoing growth of the AmTrust Quota Share
segment combined with the continued increase in earned premiums of the
Diversified Reinsurance segment compared to 2009.  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 increase by $3.8 million or
24.9% and $7.1 million or 24.1% for the three and six months ended June 30, 2010
compared to the same periods in 2009, respectively. Average invested assets for
the periods were approximately $2.0 and $2.0 billion compared to $1.8 and
$1.8 billion and the average yields were approximately 3.8% and 3.6%
compared to 3.3% and 2.6%.  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.
  Net Realized Investment (Losses)
Gains.  Net realized gains on investments were $0.5 and $0.8
million for the three and six months ended June 30, 2010, compared to net
realized gains of $1.5 million and net realized losses of $0.4 million for
the three and six months ended June 30, 2009, respectively.
  37
  These can
be further analyzed as follows:
  Three Months
                                                      EndedJune 30, 2010
                                                    
                                                    
                                                    Three Months
                                                      EndedJune 30, 2009
                                                    
                                                    
                                                    Six Months
      Ended June 30,
                                                      2010
                                                    
                                                    
                                                    Six Months
                                                      Ended
                                                      June 30, 2009$ in millionsRealized
      gains (losses) on available-for-sale securities
                                                    
                                                    $
                                                    3.8
                                                    
                                                    
                                                    $
                                                    1.5
                                                    
                                                    
                                                    $
                                                    4.1
                                                    
                                                    
                                                    $
                                                    (0.4
                                                    )Realized
      loss from trading securities
                                                    
                                                    
                                                    (0.6
                                                    )
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    (0.6
                                                    )
                                                    
                                                    
                                                    –Unrealized
      loss from investment sold but not yet purchased
                                                    
                                                    
                                                    (2.7
                                                    )
                                                    
                                                    
                                                    –
                                                    
                                                    
                                                    
                                                    (2.7
                                                    )
                                                    
                                                    
                                                    –Total
                                                    
                                                    $
                                                    0.5
                                                    
                                                    
                                                    $
                                                    1.5
                                                    
                                                    
                                                    $
                                                    0.8
                                                    
                                                    
                                                    $
                                                    (0.4
                                                    )
 
 During
the second quarter of 2010, the Company commenced designating upon acquisition,
certain US Treasury bonds as trading for the purpose of augmenting where
possible investment returns. In addition the Company has sold but not yet
purchased a US Treasury bond resulting in unrealized loss of $2.7 million which
is recorded in net realized and unrealized gains (losses) on the Company’s
consolidated statement of income. Please refer to Liquidity and Capital
Resources for additional information on the Company’s investments.
  Loss and Loss Adjustment
Expenses.  Loss and loss adjustment expenses increased by
$24.3 million or 16.1% and $48.3 million or 16.2% for the three and
six months ended June 30, 2010 compared to the same periods in 2009,
respectively.  The Company’s loss ratio decreased to 61.8% and 63.1%
for the three and six months ended June 30, 2010 compared to 67.5% and 68.5% for
the same periods in 2009.  As of June 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.
  Commission and Other
Acquisition Expenses.  Commission
and other acquisition expenses increased by $30.7 million or 53.2% and $61.6
million or 59.1% for the three and six months ended June 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 31.2% and 30.3% for the three and six months ended June
30, 2010 as compared to 25.7% and 24.0% 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 June 30,
                    
                    
                    Six Months
                        Ended June 30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009($
      in Millions)General
      and administrative  expenses – segment
                    
                    $
                    6.3
                    
                    
                    $
                    4.8
                    
                    
                    $
                    12.6
                    
                    
                    $
                    10.9Other
      operating expenses – corporate
                    
                    
                    3.2
                    
                    
                    
                    2.3
                    
                    
                    
                    5.4
                    
                    
                    
                    3.8Total
                    
                    $
                    9.5
                    
                    
                    $
                    7.1
                    
                    
                    $
                    18.0
                    
                    
                    $
                    14.7General
      and administrative expense ratio
                    
                    
                    3.3
                    %
                    
                    
                    3.2
                    %
                    
                    
                    3.3
                    %
                    
                    
                    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 include $1.0 million of
non-recurring expenses incurred to date as a result of the IIS
Transaction.  Excluding these non-recurring expenses, the Company's
general and administrative expense ratio, which is a measure of its efficiency,
decreased to 3.0% and 3.1 % for the three and six months ended June 30, 2010
compared to 3.3% and 3.4% in the same periods in 2009,
respectively.
  38
  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 June 30,
2010 and 2009, and $18.2 million and $16.2 million in the six months
ended June 30, 2010 and 2009.
  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 six months ended June 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 94.7% in the three months
ended June 30, 2010 as compared to 93.7% for the same period in 2009, and 95.6%
in the six months ended June 30, 2010 as compared to 94.0% for the same period
in 2009.
  The
following table summarizes the underwriting results and associated ratios for
the Diversified Reinsurance segment:
  Three Months
                      Ended June 30,
                  
                  
                  Six Months
                      Ended June 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009($ in Millions)Net
      premiums written
                  
                  $
                  136.7
                  
                  
                  $
                  148.6
                  
                  
                  $
                  304.6
                  
                  
                  $
                  399.7Net
      premiums earned
                  
                  
                  161.8
                  
                  
                  
                  136.2
                  
                  
                  
                  313.0
                  
                  
                  
                  253.9Net
      losses and loss expenses
                  
                  
                  (99.2
                  )
                  
                  
                  (94.6
                  )
                  
                  
                  (198.6
                  )
                  
                  
                  (183.6
                  )Commissions
      and other acquisition expenses
                  
                  
                  (48.4
                  )
                  
                  
                  (29.0
                  )
                  
                  
                  (88.9
                  )
                  
                  
                  (45.2
                  )General
      and administrative expenses
                  
                  
                  (5.7
                  )
                  
                  
                  (4.0
                  )
                  
                  
                  (11.6
                  )
                  
                  
                  (9.8
                  )Underwriting
      income
                  
                  $
                  8.5
                  
                  
                  $
                  8.6
                  
                  
                  $
                  13.9
                  
                  
                  $
                  15.3Loss
      and loss expense ratio
                  
                  
                  61.3
                  %
                  
                  
                  69.4
                  %
                  
                  
                  63.5
                  %
                  
                  
                  72.3
                  %Acquisition
      cost ratio
                  
                  
                  29.9
                  %
                  
                  
                  21.3
                  %
                  
                  
                  28.4
                  %
                  
                  
                  17.8
                  %General
      and administrative expense ratio
                  
                  
                  3.5
                  %
                  
                  
                  3.0
                  %
                  
                  
                  3.7
                  %
                  
                  
                  3.9
                  %Expense
      ratio
                  
                  
                  33.4
                  %
                  
                  
                  24.3
                  %
                  
                  
                  32.1
                  %
                  
                  
                  21.7
                  %Combined
      ratio
                  
                  
                  94.7
                  %
                  
                  
                  93.7
                  %
                  
                  
                  95.6
                  %
                  
                  
                  94.0
                  %
  Premiums.  Net
premiums written decreased by $11.9 million, or 8.0% for the three months
ended June 30, 2010 compared to the three months ended June 30,
2009.  The table below details net premiums written by line of
business in this segment for the three months ended June 30, 2010 and
2009:
  Three Months Ended June 30,2010
                                            
                                            
                                            2009
                                            
                                            
                                            $ Change
                                            
                                            
                                            % Change($ in Millions)Property
                                            
                                            $
                                            36.3
                                            
                                            
                                            $
                                            25.5
                                            
                                            
                                            $
                                            10.8
                                            
                                            
                                            
                                            42.4
                                            %Casualty
                                            
                                            
                                            91.8
                                            
                                            
                                            
                                            105.3
                                            
                                            
                                            
                                            (13.5
                                            )
                                            
                                            
                                            (12.8
                                            )%Accident
      and Health
                                            
                                            
                                            8.6
                                            
                                            
                                            
                                            17.8
                                            
                                            
                                            
                                            (9.2
                                            )
                                            
                                            
                                            (51.7
                                            )%Total
      Diversified Reinsurance
                                            
                                            $
                                            136.7
                                            
                                            
                                            $
                                            148.6
                                            
                                            
                                            $
                                            (11.9
                                            )
                                            
                                            
                                            (8.0
                                            )%
  The
Company continued to maintain its disciplined underwriting approach in the face
of continuing competitive market conditions during the three months ended June
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.  These factors contributed to the decrease in net premium
written in the three months ended June 30, 2010 as compared to the same period
in 2009.
  39
  Net
premiums written decreased by $95.1 million, or 23.8% for the six months
ended June 30, 2010 compared to the six months ended June 30,
2009.  The table below details net premiums written by line of
business in this segment for the six months ended June 30, 2010 and
2009:
  Six Months Ended June 30,2010
                                  
                                  
                                  2009
                                  
                                  
                                  $ Change
                                  
                                  
                                  % Change($
      in Millions)Property
                                  
                                  $
                                  94.3
                                  
                                  
                                  $
                                  77.0
                                  
                                  
                                  $
                                  17.3
                                  
                                  
                                  
                                  22.6
                                  %Casualty
                                  
                                  
                                  184.0
                                  
                                  
                                  
                                  255.3
                                  
                                  
                                  
                                  (71.3
                                  )
                                  
                                  
                                  (27.9
                                  )%Accident
      and Health
                                  
                                  
                                  26.3
                                  
                                  
                                  
                                  67.4
                                  
                                  
                                  
                                  (41.1
                                  )
                                  
                                  
                                  (61.0
                                  )%Total
      Diversified Reinsurance
                                  
                                  $
                                  304.6
                                  
                                  
                                  $
                                  399.7
                                  
                                  
                                  $
                                  (95.1
                                  )
                                  
                                  
                                  (23.8
                                  )%
  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
six months ended June 30, 2010 as compared to the same period in
2009.
  Net
premium earned increased by $25.6 million, or 18.8% for the three months
ended June 30, 2010 compared to the three months ended June 30,
2009.  The table below details net premiums earned by line of business
in this segment for the three months ended June 30, 2010 and 2009:
  Three Months Ended June 30,2010
                                                                                                            
                                                                                                            
                                                                                                            2009
                                                                                                            
                                                                                                            
                                                                                                            $ Change
                                                                                                            
                                                                                                            
                                                                                                            % Change($
      in Millions)Property
                                                                                                            
                                                                                                            $
                                                                                                            47.6
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            39.6
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            8.0
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            20.2
                                                                                                            %Casualty
                                                                                                            
                                                                                                            
                                                                                                            95.8
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            71.3
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            24.5
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            34.3
                                                                                                            %Accident
      and Health
                                                                                                            
                                                                                                            
                                                                                                            18.4
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            25.3
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            (6.9
                                                                                                            )
                                                                                                            
                                                                                                            
                                                                                                            (27.3
                                                                                                            )%Total
      Diversified Reinsurance
                                                                                                            
                                                                                                            $
                                                                                                            161.8
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            136.2
                                                                                                            
                                                                                                            
                                                                                                            $
                                                                                                            25.6
                                                                                                            
                                                                                                            
                                                                                                            
                                                                                                            18.8
                                                                                                            %
  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.
  Net
premium earned increased by $59.1 million, or 23.3% for the six months
ended June 30, 2010 compared to the six months ended June 30,
2009.  The table below details net premiums earned by line of business
in this segment for the six months ended June 30, 2010 and 2009:
  Six Months Ended June 30,2010
                                        
                                        
                                        2009
                                        
                                        
                                        $ Change
                                        
                                        
                                        % Change($
      in Millions)Property
                                        
                                        $
                                        89.3
                                        
                                        
                                        $
                                        65.6
                                        
                                        
                                        $
                                        23.7
                                        
                                        
                                        
                                        36.2
                                        %Casualty
                                        
                                        
                                        184.1
                                        
                                        
                                        
                                        137.7
                                        
                                        
                                        
                                        46.4
                                        
                                        
                                        
                                        33.7
                                        %Accident
      and Health
                                        
                                        
                                        39.6
                                        
                                        
                                        
                                        50.6
                                        
                                        
                                        
                                        (11.0
                                        )
                                        
                                        
                                        (21.7
                                        )%Total
      Diversified Reinsurance
                                        
                                        $
                                        313.0
                                        
                                        
                                        $
                                        253.9
                                        
                                        
                                        $
                                        59.1
                                        
                                        
                                        
                                        23.3
                                        %
  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.
  40
  Loss and Loss Adjustment
Expenses.Loss and loss adjustment expenses increased by
$4.6 million or 4.9% and $15.1 million or 8.2% for the three and six months
ended June 30, 2010 compared to the same periods in 2009, respectively. The
segments loss ratio decreased to 61.3% and 63.5% for the three and six months
ended June 30, 2010 compared to 69.4% and 72.3% for the same periods in 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
$7.1 and $8.8 million for the three and six months ended June 30, 2010 as
compared to $3.4 and $5.8 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 $32.6
million through June 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 $11.4 million as of June 30, 2010 as compared to
$5.7 million as of December 31, 2009.
  Commission and Other Acquisition
Expenses.  Commission and other acquisition expenses increased
by $19.5 million or 67.3% and $43.8 million or 96.9% for the three and six
months ended June 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 29.9% and 28.4% for the three and six months
ended June 30, 2010 as compared to 21.3% and 17.8% 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.  General and administrative expenses increased by
$1.6 million or 40.0% and $1.8 million or 18.3%, for the three and six
months ended June 30, 2010 compared to same period in 2009, respectively. The
general and administrative expense ratio was 3.5% and 3.7% for the three and six
months ended June 30, 2010 compared to 3.0% and 3.9% in the same periods in
2009, respectively. The overall expense ratio (including acquisition costs) was
33.4% and 32.1% for the three and six months ended June 30, 2010 compared to
24.3% and 21.7% 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 six months ended June 30, 2010 as
compared to the same period in 2009, due to ongoing premium growth in the
segment combined with a lower combined ratio, the result of improved loss
ratios. The combined ratio for the segment was 95.5% in the three months ended
June 30, 2010 as compared to 98.0% for the same period in 2009, and 95.7% in the
six months ended June 30, 2010 as compared to 96.6% 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 six
months ended June 30, 2010 and 2009:
  41
  Three Months Ended June 30,
                    
                    
                    Six Months Ended June 30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009($
      in Millions)Net
      premiums written
                    
                    $
                    109.1
                    
                    
                    $
                    89.8
                    
                    
                    $
                    230.7
                    
                    
                    $
                    175.2Net
      premiums earned
                    
                    $
                    101.7
                    
                    
                    $
                    87.6
                    
                    
                    $
                    212.3
                    
                    
                    $
                    180.1Net
      losses and loss expenses
                    
                    
                    (63.4
                    )
                    
                    
                    (56.5
                    )
                    
                    
                    (133.0
                    )
                    
                    
                    (113.8
                    )Commissions
      and other acquisition expenses
                    
                    
                    (33.1
                    )
                    
                    
                    (28.7
                    )
                    
                    
                    (69.2
                    )
                    
                    
                    (59.1
                    )General
      and administrative expenses
                    
                    
                    (0.6
                    )
                    
                    
                    (0.7
                    )
                    
                    
                    (1.1
                    )
                    
                    
                    (1.1
                    )Underwriting
      income
                    
                    $
                    4.6
                    
                    
                    $
                    1.7
                    
                    
                    $
                    9.0
                    
                    
                    $
                    6.1Net
      loss and loss expense ratio
                    
                    
                    62.4
                    %
                    
                    
                    64.4
                    %
                    
                    
                    62.6
                    %
                    
                    
                    63.2
                    %Acquisition
      cost ratio
                    
                    
                    32.5
                    %
                    
                    
                    32.8
                    %
                    
                    
                    32.6
                    %
                    
                    
                    32.8
                    %General
      and administrative expense ratio
                    
                    
                    0.6
                    %
                    
                    
                    0.8
                    %
                    
                    
                    0.5
                    %
                    
                    
                    0.6
                    %Expense
      ratio
                    
                    
                    33.1
                    %
                    
                    
                    33.6
                    %
                    
                    
                    33.1
                    %
                    
                    
                    33.4
                    %Combined
      ratio
                    
                    
                    95.5
                    %
                    
                    
                    98.0
                    %
                    
                    
                    95.7
                    %
                    
                    
                    96.6
                    %
  Premiums
Written.  Net premiums written increased by $19.3 million
or 21.5% for the six months ended June 30, 2010 as compared to the same period
in 2009.  The increase in net premiums written was primarily due to a
substantial increase in the Specialty Risk and Extended Warranty line of
business, where AmTrust continues expand, particularly internationally. The
table below details components of net premiums written for the three months
ended June 30, 2010 as compared to the same period in 2009:
  Three Months Ended June 30,2010
                  
                  
                  2009
                  
                  
                  $ Change
                  
                  
                  % Change($
      in Millions)Small
      Commercial Business
                  
                  $
                  44.9
                  
                  
                  $
                  45.9
                  
                  
                  $
                  (1.0
                  )
                  
                  
                  (2.3
                  )%Specialty
      Program Business
                  
                  
                  20.8
                  
                  
                  
                  12.8
                  
                  
                  
                  8.0
                  
                  
                  
                  62.5
                  %Specialty
      Risk and Extended Warranty
                  
                  
                  43.4
                  
                  
                  
                  31.1
                  
                  
                  
                  12.3
                  
                  
                  
                  39.5
                  %Total
      AmTrust Quota Share
                  
                  $
                  109.1
                  
                  
                  $
                  89.8
                  
                  
                  $
                  19.3
                  
                  
                  
                  21.5
                  %
  Net
premiumswritten
increased by $55.5 million or 31.7% for the six months ended June 30, 2010 as
compared to the same period in 2009.  The table below details
components of net premiums written for the six months ended June 30, 2010 as
compared to the same period in 2009:
  Six Months Ended June 30,2010
                  
                  
                  2009
                  
                  
                  $ Change
                  
                  
                  % Change($
      in Millions)Small
      Commercial Business
                  
                  $
                  103.8
                  
                  
                  $
                  98.9
                  
                  
                  $
                  4.9
                  
                  
                  
                  5.0
                  %Specialty
      Program Business
                  
                  
                  30.9
                  
                  
                  
                  22.0
                  
                  
                  
                  8.9
                  
                  
                  
                  40.5
                  %Specialty
      Risk and Extended Warranty
                  
                  
                  96.0
                  
                  
                  
                  54.3
                  
                  
                  
                  41.7
                  
                  
                  
                  76.8
                  %Total
      AmTrust Quota Share
                  
                  $
                  230.7
                  
                  
                  $
                  175.2
                  
                  
                  $
                  55.5
                  
                  
                  
                  31.7
                  %
  Premiums
Earned.  Net premiums earned increased by $14.1 million or
16.0% for the three months ended June 30, 2010 as compared to the same period in
2009.  The increase in net premiums earned was primarily due to a
substantial increase in the Specialty Risk and Extended Warranty line of
business, where AmTrust continues to expand, particularly internationally. The
table below details components of net premiums earned for the three months ended
June 30, 2010 as compared to the same period in 2009:
  Three Months Ended June 30,2010
                  
                  
                  2009
                  
                  
                  $ Change
                  
                  
                  % Change($
      in Millions)Small
      Commercial Business
                  
                  $
                  56.2
                  
                  
                  $
                  52.1
                  
                  
                  $
                  4.1
                  
                  
                  
                  7.8
                  %Specialty
      Program Business
                  
                  
                  16.7
                  
                  
                  
                  13.1
                  
                  
                  
                  3.6
                  
                  
                  
                  27.6
                  %Specialty
      Risk and Extended Warranty
                  
                  
                  28.8
                  
                  
                  
                  22.4
                  
                  
                  
                  6.4
                  
                  
                  
                  28.4
                  %Total
      AmTrust Quota Share
                  
                  $
                  101.7
                  
                  
                  $
                  87.6
                  
                  
                  $
                  14.1
                  
                  
                  
                  16.0
                  %
  42
  Net
premiumsearned
increased by $32.2 million or 17.9% for the six months ended June 30, 2010 as
compared to the same period in 2009.  The table below details
components of net premiums earned for the six months ended June 30, 2010 as
compared to the same period in 2009:
  Six Months Ended June 30, 20102010
                      
                      
                      2009
                      
                      
                      $ Change
                      
                      
                      % Change($
      in Millions)Small
      Commercial Business
                      
                      $
                      108.1
                      
                      
                      $
                      106.8
                      
                      
                      $
                      1.3
                      
                      
                      
                      1.2
                      %Specialty
      Program Business
                      
                      
                      31.5
                      
                      
                      
                      26.4
                      
                      
                      
                      5.1
                      
                      
                      
                      19.1
                      %Specialty
      Risk and Extended Warranty
                      
                      
                      72.7
                      
                      
                      
                      46.9
                      
                      
                      
                      25.8
                      
                      
                      
                      55.1
                      %Total
      AmTrust Quota Share
                      
                      $
                      212.3
                      
                      
                      $
                      180.1
                      
                      
                      $
                      32.2
                      
                      
                      
                      17.9
                      %
  Loss and Loss Adjustment
Expenses.  Net losses and loss expenses increased by
$6.9 million or 12.3% and $19.2 million and 16.9% for the three and six
months ended June 30, 2010 as compared to the same periods in 2009,
respectively.  The segments loss ratio decreased to 62.4% and 62.6%
for the three and six months ended June 30, 2010 compared to 64.4% and 63.2% for
the same periods in 2009.
  Commission and Other Acquisition
Expenses. Commission and other acquisition expenses increased by
$4.4 million or 15.2% and $10.1 million or 17.1% for the three and six
months ended June 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
$0.1 million for the three months ended June 30, 2010 compared to the same
period in 2009.  These expenses were largely unchanged for the six
months ended June 30, 2010 as compared to the same period in 2009.
  ACAC
Quota Share Segment
  This
segment commenced on March 1, 2010. Please refer to the ACAC Transaction
discussed previously.  For the three months ended June 30, 2010 and
for the period from March 1 to June 30, 2010, the combined ratio was 96.8%,
consisting of a loss ratio of 62.5% and an expense ratio of 34.3%.
  For the Three Months
                      Ended June 30,
                  
                  
                  For the period
                      March 1, to June 30,2010
                  
                  
                  2009
                  
                  
                  2010
                  
                  
                  2009($
      in Millions)Net
      premiums written
                  
                  $
                  67.2
                  
                  
                  $
                  –
                  
                  
                  $
                  89.0
                  
                  
                  $
                  –Net
      premiums earned
                  
                  $
                  20.4
                  
                  
                  $
                  –
                  
                  
                  $
                  22.4
                  
                  
                  $
                  –Net
      losses and loss expenses
                  
                  
                  (12.7
                  )
                  
                  
                  –
                  
                  
                  
                  (14.0
                  )
                  
                  
                  –Commissions
      and other acquisition expenses
                  
                  
                  (7.0
                  )
                  
                  
                  –
                  
                  
                  
                  (7.7
                  )
                  
                  
                  –General
      and administrative expenses
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Underwriting
      income
                  
                  $
                  0.7
                  
                  
                  $
                  –
                  
                  
                  $
                  0.7
                  
                  
                  $
                  –Net
      loss and loss expense ratio
                  
                  
                  62.5
                  %
                  
                  
                  –
                  %
                  
                  
                  62.5
                  %
                  
                  
                  –
                  %Acquisition
      cost ratio
                  
                  
                  34.3
                  %
                  
                  
                  –
                  %
                  
                  
                  34.3
                  %
                  
                  
                  –
                  %General
      and administrative expense ratio
                  
                  
                  –
                  %
                  
                  
                  –
                  %
                  
                  
                  –
                  %
                  
                  
                  –
                  %Expense
      ratio
                  
                  
                  34.3
                  %
                  
                  
                  –
                  %
                  
                  
                  34.3
                  %
                  
                  
                  –
                  %Combined
      ratio
                  
                  
                  96.8
                  %
                  
                  
                  –
                  %
                  
                  
                  96.8
                  %
                  
                  
                  –
                  %
  43
  Premiums.  The
table below details components of net premiums written and earned for the period
from March 1 to June 30, 2010:
  For the Three Months
                      Ended June 30, 2010
                  
                  
                  For the period
                      March 1 to June 30, 2010Written
                  
                  
                  Earned
                  
                  
                  Written
                  
                  
                  Earned($
      in Millions)Automobile
      liability
                  
                  $
                  38.5
                  
                  
                  $
                  11.4
                  
                  
                  $
                  51.0
                  
                  
                  $
                  12.6Automobile
      physical damage
                  
                  
                  28.7
                  
                  
                  
                  8.9
                  
                  
                  
                  38.0
                  
                  
                  
                  9.8Total
      ACAC Quota Share
                  
                  $
                  67.2
                  
                  
                  $
                  20.3
                  
                  
                  $
                  89.0
                  
                  
                  $
                  22.4
  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
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. At June 30, 2010, the statutory capital and surplus of Maiden Bermuda was
$607.0 million, and the amount of capital and surplus required to be
maintained was $428.5 million. During 2010 and 2009, Maiden Bermuda paid no
dividends to Holdings.
  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 six months ended June 30, 2010 and 2009 is as
follows:
  June 30,2010
                  
                  
                  2009($
      in Millions)Operating
      activities
                  
                  $
                  72.5
                  
                  
                  $
                  (38.6
                  )Investing
      activities
                  
                  
                  33.6
                  
                  
                  
                  (67.9
                  )Financing
      activities
                  
                  
                  (33.6
                  )
                  
                  
                  124.2Effect
      of foreign exchange on cash
                  
                  
                  (0.8
                  )
                  
                  
                  1.2Total
      increase in cash and cash equivalents
                  
                  $
                  71.7
                  
                  
                  $
                  18.9
  Cash
flows provided by operations for the six months ended June 30, 2010 were
$72.5 million compared to cash flow used in operations of
$38.6 million for the six months ended June 30, 2009. The increase in net
premiums written offset by a slightly higher combined ratio accounted for the
change in operating cash flow.
  44
  Investing
cash flows consist primarily of proceeds on the sale of investments and payments
for investments acquired. We generated $33.6 million in net cash from
investing activities during the six months ended June 30, 2010 compared to using
$67.9 million for the six months ended June 30, 2009.  During the
second quarter of 2010, the Company sold certain mortgage-backed and floating
rate securities with the intention of re-investing these proceeds in fixed
maturity investments which would not only capture gains embedded in those
securities but also enable the Company to reinvest these funds at higher yields.
A number of these securities were sold in the latter stages of the second
quarter, and as a result, had not yet been re-invested at the conclusion of the
quarter, resulting in the decreased cash flow used by investing activities in
2010 as compared to 2009.
  Cash
flows used by financing activities were $33.6 million for the six months
ended June 30, 2010 compared to $124.2 million provided by financing
activities for the six months ended June 30, 2009. In 2010, cash flow used
consisted of dividends paid of $9.1 million and the repayment of
$24.4 million of the proceeds from the securities sold under agreements to
repurchase, at contract value. Cash flows provided by financing activities for
the six months ended June 30, 2009 were the TRUPS Offering (net of expenses) of
$255.7 million, reduced by dividends paid of $7.7 million and the repayment
of $123.8 million of the proceeds from the securities sold under agreements
to repurchase, at contract value.
  At June
30, 2010, the Company has cash and cash equivalents (including restricted cash
and cash equivalents) totaling $347.5 million, which was an increase from $180.4
million at March 31, 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 months ended June 30, 2010. This increase in
cash and cash equivalents, which is considered temporary, may limit the
continuing increases in investment income until these elevated levels of cash
and cash equivalents are fully invested, particularly in light of the continuing
low interest rate environment.
  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 June 30, 2010, certain of these liabilities and
collateralized arrangements are  recorded in Maiden Bermuda while the
remaining are recorded in Maiden US.
  As of
June 30, 2010, total trust account deposits were $1,320.2 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 December 31, 2010 and 2009:
  45


June 30, 2010
                  
                  
                  December 31, 2009Cash &
                      Equivalents
                  
                  
                  Fixed
                      Maturities
                  
                  
                  Total
                  
                  
                  Cash &
                      Equivalents
                  
                  
                  Fixed
                      Maturities
                  
                  
                  Total($
      in Millions)Maiden
      US
                  
                  $
                  34.6
                  
                  
                  $
                  430.8
                  
                  
                  $
                  465.4
                  
                  
                  $
                  38.6
                  
                  
                  $
                  258.9
                  
                  
                  $
                  297.5Maiden
      Bermuda
                  
                  
                  81.5
                  
                  
                  
                  470.5
                  
                  
                  
                  552.0
                  
                  
                  
                  94.8
                  
                  
                  
                  776.3
                  
                  
                  
                  871.1Total
      Diversified Reinsurance Segment
                  
                  
                  116.1
                  
                  
                  
                  901.3
                  
                  
                  
                  1,017.4
                  
                  
                  
                  133.4
                  
                  
                  
                  1,035.2
                  
                  
                  
                  1,168.6Maiden
      Bermuda
                  
                  
                  52.3
                  
                  
                  
                  250.5
                  
                  
                  
                  302.8
                  
                  
                  
                  11.5
                  
                  
                  
                  195.5
                  
                  
                  
                  207.0Total
      AmTrust Quota Share Segment
                  
                  
                  52.3
                  
                  
                  
                  250.5
                  
                  
                  
                  302.8
                  
                  
                  
                  11.5
                  
                  
                  
                  195.5
                  
                  
                  
                  207.0Total
                  
                  $
                  168.4
                  
                  
                  $
                  1,151.8
                  
                  
                  $
                  1,320.2
                  
                  
                  $
                  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 June 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 June
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.
  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 June
30, 2010 and December 31, 2009:
  June 30, 2010
                          
                          Original or
                              Amortized Cost
                          
                          
                          Gross Unrealized
                              Gains
                          
                          
                          Gross Unrealized
                              Losses
                          
                          
                          Fair
                              Value($
      in Millions)Fixed
      Maturities:U.S. Treasury
      bonds
                          
                          $
                          58.4
                          
                          
                          $
                          1.0
                          
                          
                          $
                          (0.0
                          )
                          
                          $
                          59.4U.S.
      Agency bonds – mortgage and asset-backed
                          
                          
                          707.2
                          
                          
                          
                          26.3
                          
                          
                          
                          (0.6
                          )
                          
                          
                          732.9U.S.
      Agency bonds – other
                          
                          
                          153.0
                          
                          
                          
                          2.7
                          
                          
                          
                          –
                          
                          
                          
                          155.7Corporate
      fixed maturities
                          
                          
                          636.5
                          
                          
                          
                          46.4
                          
                          
                          
                          (19.1
                          )
                          
                          
                          663.8Municipal
      bonds
                          
                          
                          21.2
                          
                          
                          
                          0.9
                          
                          
                          
                          –
                          
                          
                          
                          22.1Total
      available for sale fixed maturities
                          
                          
                          1,576.3
                          
                          
                          
                          77.3
                          
                          
                          
                          (19.7
                          )
                          
                          
                          1,633.9Other
      investments
                          
                          
                          5.8
                          
                          
                          
                          –
                          
                          
                          
                          (0.1
                          )
                          
                          
                          5.7Total
      investments
                          
                          $
                          1,582.1
                          
                          
                          $
                          77.3
                          
                          
                          $
                          (19.8
                          )
                          
                          $
                          1,639.6
  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
  46
  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 June 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
six months ended June 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, which is considered
temporary, 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 June 30, 2010, the Company maintained
one open position in a U.S. treasury bond sold but not yet purchased valued at
$52.3 million which to date has resulted in an unrealized loss of $2.7 million
which is recorded in net realized and unrealized gains (losses) on the Company’s
consolidated statements of income.
  The
following table presents information regarding our invested assets that were in
an unrealized loss position at June 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
                  
                  
                  TotalJune 30, 2010
                  
                  Fair Value
                  
                  
                  Unrealized
                      Losses
                  
                  
                  Fair Value
                  
                  
                  Unrealized
                      Losses
                  
                  
                  Fair Value
                  
                  
                  Unrealized
                      Losses($
      in Millions)Available-for-sale
      securities:U.S. treasury
      bonds
                  
                  $
                  –
                  
                  
                  $
                  –
                  
                  
                  $
                  3.3
                  
                  
                  $
                  (0
                  )
                  
                  $
                  3.3
                  
                  
                  $
                  (0
                  )U.S.
      agency bonds – mortgage and asset - backed
                  
                  
                  56.5
                  
                  
                  
                  (0.6
                  )
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  56.5
                  
                  
                  
                  (0.6
                  )U.S.
      agency bonds – other
                  
                  
                  6.0
                  
                  
                  
                  (0
                  )
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  6.0
                  
                  
                  
                  (0
                  )Corporate
      fixed maturities
                  
                  
                  47.6
                  
                  
                  
                  (1.8
                  )
                  
                  
                  176.7
                  
                  
                  
                  (17.3
                  )
                  
                  
                  224.3
                  
                  
                  
                  (19.1
                  )Total
      available for sale fixed maturities
                  
                  $
                  110.1
                  
                  
                  $
                  (2.4
                  )
                  
                  $
                  180.0
                  
                  
                  $
                  (17.3
                  )
                  
                  $
                  290.1
                  
                  
                  $
                  (19.7
                  )Other
      investments
                  
                  $
                  –
                  
                  
                  $
                  –
                  
                  
                  $
                  4.9
                  
                  
                  $
                  (0.1
                  )
                  
                  $
                  4.7
                  
                  
                  $
                  (0.1
                  )Total
                  
                  $
                  110.1
                  
                  
                  $
                  (2.4
                  )
                  
                  $
                  184.9
                  
                  
                  $
                  (17.4
                  )
                  
                  $
                  295.0
                  
                  
                  $
                  (19.8
                  )
  As of
June 30, 2010, there were approximately 34 securities in an unrealized loss
position with a fair value of $295.0 million and unrealized losses of
$19.8 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 $184.9 million and unrealized losses of $17.4 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.
  47
  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 June 30, 2010 and December 31, 2009 was as
follows:
  June 30, 2010
                  
                  
                  December 31, 2009($ in Millions)
                  
                  
                  % of Total
                  
                  
                  ($ in Millions)
                  
                  
                  % of TotalDue
      in one year or less
                  
                  $
                  144.0
                  
                  
                  
                  8.8
                  %
                  
                  $
                  159.4
                  
                  
                  
                  9.6
                  %Due
      after one year through five years
                  
                  
                  184.6
                  
                  
                  
                  11.3
                  %
                  
                  
                  222.4
                  
                  
                  
                  13.4
                  %Due
      after five years through ten years
                  
                  
                  493.0
                  
                  
                  
                  30.1
                  %
                  
                  
                  366.7
                  
                  
                  
                  22.1
                  %Due
      after ten years
                  
                  
                  79.4
                  
                  
                  
                  4.9
                  %
                  
                  
                  118.6
                  
                  
                  
                  7.1
                  %U.S.
      agency bonds - mortgage-backed securities
                  
                  
                  732.9
                  
                  
                  
                  44.9
                  %
                  
                  
                  794.6
                  
                  
                  
                  47.8
                  %Total
                  
                  $
                  1,633.9
                  
                  
                  
                  100.0
                  %
                  
                  $
                  1,661.7
                  
                  
                  
                  100.0
                  %
  As of
June 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 June 30, 2010
                        
                        Amortized
                            Cost
                        
                        
                        Fair
                            Market Value
                        
                        
                        % of Total
                            Fair Market
                            Value($ in Millions)U.S.
      treasury bonds
                        
                        $
                        58.4
                        
                        
                        $
                        59.4
                        
                        
                        
                        3.6
                        %AAA
      U.S. agency  bonds – mortgage backed securities
                        
                        
                        707.1
                        
                        
                        
                        732.9
                        
                        
                        
                        44.9
                        %AAA
                        
                        
                        204.7
                        
                        
                        
                        210.9
                        
                        
                        
                        12.9
                        %AA+,
      AA, AA-
                        
                        
                        67.4
                        
                        
                        
                        73.7
                        
                        
                        
                        4.5
                        %A+,
      A, A-
                        
                        
                        307.8
                        
                        
                        
                        307.3
                        
                        
                        
                        18.8
                        %BBB+,
      BBB, BBB-
                        
                        
                        224.8
                        
                        
                        
                        243.7
                        
                        
                        
                        14.9
                        %B
      or lower
                        
                        
                        6.1
                        
                        
                        
                        6.0
                        
                        
                        
                        0.4
                        %Total
                        
                        $
                        1,576.3
                        
                        
                        $
                        1,633.9
                        
                        
                        
                        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
                        
                        
                        
                        47.8
                        %AAA
                        
                        
                        265.6
                        
                        
                        
                        272.2
                        
                        
                        
                        16.5
                        %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 June 30, 2010 and December 31, 2009 are provided
below:
  48
  June 30, 2010
                  
                  
                  December 31, 2009Fair Value
                  
                  
                  % of Total
                  
                  
                  Fair Value
                  
                  
                  % of Total($ in Millions)Mortgage-backed
      securitiesResidential
      mortgage-backed (RMBS)GNMA – Fixed
      Rate
                  
                  $
                  327.1
                  
                  
                  
                  36.8
                  %
                  
                  $
                  333.1
                  
                  
                  
                  32.8
                  %FNMA – Fixed
      Rate
                  
                  
                  166.7
                  
                  
                  
                  18.8
                  %
                  
                  
                  125.5
                  
                  
                  
                  12.3
                  %FNMA – Variable
      Rate
                  
                  
                  93.4
                  
                  
                  
                  10.5
                  %
                  
                  
                  135.7
                  
                  
                  
                  13.4
                  %FHLMC – Fixed
      Rate
                  
                  
                  143.5
                  
                  
                  
                  16.1
                  %
                  
                  
                  200.3
                  
                  
                  
                  19.7
                  %FHLMC – Variable
      Rate
                  
                  
                  2.2
                  
                  
                  
                  0.3
                  %
                  
                  
                  –
                  
                  
                  
                  –
                  %Total
      agency RMBS
                  
                  
                  732.9
                  
                  
                  
                  82.5
                  %
                  
                  
                  794.6
                  
                  
                  
                  78.2
                  %Non-agency
      RMBS
                  
                  
                  –
                  
                  
                  
                  –
                  %
                  
                  
                  –
                  
                  
                  
                  –
                  %Total
      RMBS
                  
                  
                  732.9
                  
                  
                  
                  82.5
                  %
                  
                  
                  794.6
                  
                  
                  
                  78.2
                  %Commercial
      mortgage-backed
                  
                  
                  –
                  
                  
                  
                  –
                  %
                  
                  
                  –
                  
                  
                  
                  –
                  %Total
      mortgage-backed securities
                  
                  
                  732.9
                  
                  
                  
                  82.5
                  %
                  
                  
                  794.6
                  
                  
                  
                  78.2
                  %Non-MBS
      fixed rate Agency securities
                  
                  
                  155.7
                  
                  
                  
                  17.5
                  %
                  
                  
                  221.5
                  
                  
                  
                  21.8
                  %Total
      US Agency bonds
                  
                  $
                  888.6
                  
                  
                  
                  100.0
                  %
                  
                  $
                  1,016.1
                  
                  
                  
                  100.0
                  %
  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
June 30, 2010 and December 31, 2009, 36.4% and 46.8% of its corporate securities
were floating rate securities. Security holdings by sector in this asset class
as of June 30, 2010 and December 31, 2009 are as follows:
  June 30, 2010
                  
                  
                  December 31, 2009Fair Value
                  
                  
                  % of Total
                  
                  
                  Fair Value
                  
                  
                  % of Total($ in Millions)Corporate
      SecuritiesFinancial
      Institutions
                  
                  $
                  481.7
                  
                  
                  
                  72.6
                  %
                  
                  $
                  430.4
                  
                  
                  
                  73.9
                  %Industrials
                  
                  
                  132.3
                  
                  
                  
                  19.9
                  %
                  
                  
                  108.6
                  
                  
                  
                  18.6
                  %Utilities/Other
                  
                  
                  49.8
                  
                  
                  
                  7.5
                  %
                  
                  
                  43.7
                  
                  
                  
                  7.5
                  %Total
      Corporate Securities
                  
                  $
                  663.8
                  
                  
                  
                  100.0
                  %
                  
                  $
                  582.7
                  
                  
                  
                  100.0
                  %
  As of
June 30, 2010 and December 31, 2009, the Company has no fixed income investments
that are guaranteed by third parties.  The Company also has no direct
exposure to third party guarantors as of June 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 June 30,
2010, our financial strength rating from A.M. Best was A-.
  49
  Other
Material Changes in Financial Position
  The
following summarizes other material changes in the financial position of the
Company as of June 30, 2010 and December 31, 2009.
  June 30, 2010
                  
                  
                  December 31, 2009($ in Millions)Reinsurance
      balances receivable
                  
                  $
                  271.2
                  
                  
                  $
                  208.5Prepaid
      reinsurance
                  
                  
                  31.8
                  
                  
                  
                  28.8Deferred
      acquisition costs
                  
                  
                  196.9
                  
                  
                  
                  173.0Reserve
      for loss and loss adjustment expenses
                  
                  
                  (1,077.1
                  )
                  
                  
                  (1,006.3
                  )Unearned
      premiums
                  
                  
                  (664.7
                  )
                  
                  
                  (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
six 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 June 30, 2010 and
December 31, 2009 were as follows:
  June 30, 2010
                  
                  
                  December 31, 2009($
      in Millions)Junior
      subordinated debt
                  
                  $
                  215.2
                  
                  
                  $
                  215.1Shareholders’
      equity
                  
                  
                  724.8
                  
                  
                  
                  676.5Total
      capital resources
                  
                  $
                  940.0
                  
                  
                  $
                  891.6Ratio
      of debt to total capitalization
                  
                  
                  22.9
                  %
                  
                  
                  24.1
                  %
  As of
June 30, 2010, our shareholders’ equity was $724.8 million, a 7.1% increase
compared to $676.5 million as of December 31, 2009. The increase was due
primarily to net income for the six months ended June 30, 2010 of
$32.2 million and unrealized gains on investments of $24.7 million
offset by dividends declared of $9.1 million.
  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 June 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.
  50
  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 losses amounted to $0.4 and $1.6 million during the three
and six months ended June 30, 2010 compared to gains of $2.4 and
$2.2 million during the same periods in 2009, respectively.
  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
June 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 June 30, 2010, we had fixed maturity securities with a fair
value of $1,633.9 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 June 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 June 30,
2010.
  51
  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
                                  
                                  $
                                  1,531.7
                                  
                                  
                                  $
                                  (102.2
                                  )
                                  
                                  
                                  -14.1
                                  %100
      basis point increase
                                  
                                  
                                  1,586.4
                                  
                                  
                                  
                                  (47.5
                                  )
                                  
                                  
                                  -6.6
                                  %No
      change
                                  
                                  
                                  1,633.9
                                  
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –
                                  %100
      basis point decrease
                                  
                                  
                                  1,670.1
                                  
                                  
                                  
                                  36.2
                                  
                                  
                                  
                                  5.0
                                  %200
      basis point decrease
                                  
                                  $
                                  1,695.0
                                  
                                  
                                  $
                                  61.1
                                  
                                  
                                  
                                  8.4
                                  %
  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
June 30, 2010 were $271.2 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.
  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 is 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
June 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 six months ended June 30, 2010 and 2009,
approximately 12.0% and 8.6%, respectively, of our business written was
denominated in currencies other than the U.S. dollar.
  52
  Our
foreign exchange losses for the three and six months ended June 30, 2010 were
$0.4 million and $1.6 million in 2010 compared to gains of $2.4 and
$2.2 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.
  53
  PART II -OTHER
INFORMATION
  Item
6.  Exhibits.
  Exhibit
                    Number
                
                Description31.1
                
                Certification
      of the Chief Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a),
      for the quarter ended June 30, 2010.31.2
                
                Certification
      of the Chief Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a),
      for the quarter ended June 30, 2010.32.1
                
                Certification
      of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, for
      the quarter ended June 30, 2010.32.2
                
                Certification
      of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, for
      the quarter ended June 30,
2010.
  54
  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:
      August 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)
  55