Statement of income data and balance sheet data are derived from our audited Consolidated Financial Statements, which have been prepared in accordance with U.S. GAAP. These historical results are not necessarily indicative of results to be expected from any future period. For further discussion of this risk see Item 1A. "Risk Factors" in this Annual Report on Form 10-K. You should read the following selected financial data in conjunction with the other information contained in this Annual Report on Form 10-K, including
We are a Bermuda-based holding company formed in June 2007 primarily focused on serving the needs of regional and specialty insurers in the U.S. 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 significant claims from natural catastrophes. Our tailored solutions include a variety of value added services focused on helping our clients grow and prosper.
On June 14, 2016, Maiden Holdings issued $110.0 million 6.625% Senior Notes and used the cash proceeds to fully redeem all of Maiden NA's 8.25% 2011 Senior Notes due 2041 on June 15, 2016, thus lowering our cost of capital.
On November 25, 2015, the Company issued 6.6 million shares of 7.125% Preference Shares - Series C, par value $0.01, at a price of $25 per preference share. The Company received net proceeds of $159.5 million from the offering after deducting issuance costs of $5.5 million. Each share, which is redeemable at the Company's sole option beginning December 15, 2020, will be paid non-cumulative dividends at a rate of 7.125% per annum on the initial liquidation preference of $25 per share.
Total capital resources is the sum of the Company's principal amount of debt and Maiden shareholders' equity. See "Key Financial Measures" for additional information.
Book value per common share is calculated using common shareholders’ equity (shareholders' equity excluding the aggregate liquidation value of our preference shares) divided by the number of common shares outstanding.
Diluted book value per common share is calculated by dividing common shareholders' equity, adjusted for assumed proceeds from the exercise of dilutive options, by the number of outstanding common shares plus dilutive options and restricted share units (assuming exercise of all dilutive share based awards). The Mandatory Convertible Preference Shares - Series B, which were converted into common shares on September 15, 2016, are excluded at December 31, 2015 as they are anti-dilutive.
In addition to the recurring exclusions above, we also exclude certain non-recurring items that are material to understanding our results of operations. For the year ended December 31, 2016, we excluded the accelerated amortization of the 2011 Senior Notes issuance costs which was redeemed on June 15, 2016 and for the year ended December 31, 2014, we excluded: (1) the interest expense incurred on our 2013 Senior Notes prior to the redemption of the outstanding junior subordinated debt given the one time nature of the additional funding cost and (2) the accelerated amortization of the junior subordinated debt discount and the write-off of the associated issuance costs.
Operating ROACE for the years ended December 31, 2016, 2015 and 2014 was computed as follows:
Book Value per Common Share and Diluted Book Value per Common Share: Management uses growth in both of these metrics as a prime measure of the value we are generating for our common shareholders, as management believes that growth in each metric ultimately results in growth in the Company’s common share price. These metrics are impacted by the Company’s net income and external factors, such as interest rates, which can drive changes in unrealized gains or losses on our investment portfolio. At December 31, 2016, the book value per common share and the diluted book value per common share increased by 3.0% and 3.4% respectively, compared to December 31, 2015, (see "Liquidity and Capital Resources - Investments" on page 83 for further information). Book value and diluted book value per common share at December 31, 2016, 2015 and 2014 were computed as follows:
For excess of loss treaties, cedents generally are required to report losses that either (i) exceed 50% of their retention; or (ii) have a reasonable probability of exceeding the retention; or (iii) meet defined reporting criteria. All reinsurance claims that are reserved are reviewed at least every six months. In addition, reserves for loss and LAE are reviewed every quarter for each cedant. For proportional treaties, cedents are required to give a periodic statement of account, generally monthly or quarterly. These periodic statements typically include information regarding written premiums, earned premiums, unearned premiums, ceding commissions, brokerage amounts, applicable taxes, paid losses and outstanding losses. They can be submitted up to 90 days after the close of the reporting period. Some proportional treaties have specific language requiring earlier notice of serious claims.
Actuarial Methods Used to Estimate Loss and Loss Adjustment Expense Reserves: We utilize a variety of standard actuarial methods in our analysis. The selections from these various methods are based on the loss development characteristics of the specific line of business. The actuarial methods we utilize include:
The Expected Loss Ratio ("ELR") method is a technique that multiplicatively applies an expected loss ratio to earned premium to yield estimated ultimate losses. The ELR assumption is derived most often from the pricing of the business that is being reserved but can be based on historical experience of the business. This method is frequently used for the purpose of stability in the early valuations of an underwriting year with large and uncertain loss development factors. This technique does not take into account actual loss experience for the underwriting year being projected. As an underwriting year matures and actual loss experience becomes available, other methods may be applied in determining the estimated ultimate losses.
The average frequency and severity (“FS”) technique is used for lines where claim count is available, and the estimate of loss development factors is more difficult due to volatility in historical data. The available data for such lines is usually more volatile in the estimation of future losses using the LD and BF reserving methods. The frequency and severity method uses historical data to estimate the average number of reported claims (frequency) and the average costs of closed claims (severity). The estimate of ultimate losses by underwriting year is the result of the multiplication of the average number of claims and the average cost of a claim.
In our Diversified Reinsurance segment, the Company’s executive and technical management, including claims and underwriting, have significant experience with this book of business, which also has more than 30 years of loss experience associated with it. In general for our Diversified Reinsurance segment, we utilize the ELR approach at the onset of reserving an account, the BF method for business with less but maturing loss experience, and as the experience matures the LD Method.
The Company has underwritten the AmTrust Reinsurance segment since July 1, 2007. The majority of the exposure in the underlying book of business has significant seasoning, and allows for a significant amount of credibility in using parameters derived from historical experience to calculate reserve estimates. Some segments of the book are a result of recent acquisitions or newer markets for AmTrust. These segments require a greater level of assumptions and professional judgment in deriving reserve levels, which inherently implies a wider range of reasonable estimates. As a result, we have tended to rely on a weighted approach which primarily employs the LD method for aspects of the segment with ample historical data, while also considering the ELR or BF method for exposure resulting from recent acquisitions, or a relative business with a more limited level of experience. The FS method is also considered for segments of the AmTrust book for which claim count information is available. The Company’s actuarial analysis of this book of business is more refined in that it utilizes a combination of quarterly and annual data instead of contract period data in totality. Additional data detailing items such as class of business, state, claim counts, frequency and severity is available, further enhancing the reserve analysis. Because of the refinement of the data, this allows for greater use of the loss development method earlier on in the maturity of the book than would ordinarily occur.
Due to the inherent complexity of the assumptions used in establishing the Company’s loss and LAE reserve estimates, final claim settlements made by the Company may vary significantly from the present estimates, particularly when those settlements may not occur until well into the future. The expected pattern of loss emergence and the projected level of profitability, two primary factors in establishing the loss and LAE reserves, are subject to a normal level of variance. The recognition of this variance defines a possible range of reserve estimates, from which the best estimate of the provision for reserves is derived. In addition, the Company’s segments have varying levels of seasoning with which the Company has direct experience and as a result, the reasonably likely variance of our expected loss ratio for each segment varies commensurately with that experience.
Based on a range of reasonable reserve estimates, we believe that if our final loss ratio were to vary from the expected loss ratios in the aggregate, our required reserves after reinsurance recoverable could increase by approximately $180.9 million, or 6.5% of our net loss and LAE reserves, as at December 31, 2016.
Contracts and policies written on a "losses occurring" basis cover claims that may occur during the term of the contract or policy, which is typically 12 months. Accordingly, the premium is earned evenly over the term. Contracts which are written on a "risks attaching" basis cover claims which attach to the underlying insurance policies written during the terms of such contracts. Premiums earned on such contracts extend beyond the original term of the reinsurance contract, typically resulting in recognition of premiums earned over a 24-month period.
The Company provides proportional and non-proportional reinsurance coverage to cedants (insurance companies). In most cases, cedants seek protection for business that they have not yet written at the time they enter into reinsurance agreements and thus have to estimate the volume of premiums they will cede to the Company. Reporting delays are inherent in the reinsurance industry and vary in length by type of treaty. As delays can vary from a few weeks to a year or sometimes longer, the Company produces accounting estimates to report premiums and commission and other acquisition expenses until it receives the cedants’ actual results. Under proportional treaties, which represented 92.3% (2015 - 91.0%, 2014 - 88.2%) of gross premiums written for the year December 31, 2016, the Company shares proportionally in both the premiums and losses of the cedant and pays the cedant a commission to cover the cedant’s acquisition expenses. Under this type of treaty, the Company’s ultimate premiums written and earned and acquisition expenses are not known at the inception of the treaty and must be estimated until the cedant reports its actual results to the Company. Under non-proportional treaties, which represented 7.7% (2015 - 9.0%, 2014 - 11.8%) of gross premiums written for the year December 31, 2016, the Company is typically exposed to loss events in excess of a predetermined dollar amount or loss ratio and receives a deposit or minimum premium, which is subject to adjustment depending on the premium volume written by the cedant.
Please refer to "Notes to Consolidated Financial Statements Note 5. Fair Value of Financial Instruments" included under Item 8 "Financial Statements and Supplementary Data" of this Form 10-K on page for a discussion on the fair value methodology and valuation techniques used by the Company to determine the fair value of the financial instruments held at December 31, 2016 and 2015.
In making an assessment of the value of its goodwill and intangible assets, the Company uses both market based and non-market based valuations. Assumptions underlying these valuations include an analysis of the Company’s share price relative to both its book value and its net income in addition to forecasts of future cash flows and future profits. Significant changes in the data underlying these assumptions could result in an assessment of impairment of the Company’s goodwill asset. In addition, if the current economic environment and/or the Company’s financial performance were to deteriorate significantly, this could lead to an impairment of goodwill and intangible, the write-off of which would be recorded against net income in the period such deterioration occurred. If a 5% decline in the fair value of the reporting units occurred, this would not result in an impairment of the goodwill asset at December 31, 2016.
decrease in underwriting income of $97.7 million as a result of a $120.4 million charge taken during the fourth quarter of 2016. This was largely due to adverse development in commercial auto liability across the portfolio. In the Diversified Reinsurance segment, commercial auto liability incurred losses in the fourth quarter were greater than expected in both excess of loss and quota share accounts. In response to this higher emergence, we booked $57 million of additional loss as it became clearer that our prior expectations were not sufficient. In the AmTrust Reinsurance segment, we recorded a $52 million reserve charge, primarily related to higher than expected commercial auto and general liability loss emergence in program business. Finally, we recorded an $11.4 million increase in additional IBNR reserves relating to the run-off of our NGHC contract; and
increase in investment income of $14.8 million or 11.3%, for the year ended December 31, 2016 compared to the same period in 2015. This increase reflects the growth in average investable assets of 13.0%, which was partially offset by a slight reduction in average yields.
redemption of the Company's junior subordinated debt in the first quarter of 2014 leading to a non-recurring, non-cash charge of $28.2 million, which represented the accelerated amortization of original issue discount and write off of issuance costs associated with the junior subordinated debt. As shown in our Item 7 Key Financial Measures on page 57, excluding this non-recurring, non-cash charge in 2014, net income attributable to Maiden common shareholders for the year ended December 31, 2015, compared to the same period in 2014, would decrease by $5.2 million or 4.9%;
increase in investment income of $13.9 million, or 11.8%, for the year ended December 31, 2015 compared to the same period in 2014. This increase reflects the growth in average investable assets of 14.8%, however, this growth was partially offset by a slight reduction in average yields.
decrease in underwriting income of $23.1 million, or 35.3%, for the year ended December 31, 2015 compared to the same period in 2014. This decrease arose in our Diversified Reinsurance segment and was driven primarily by 1) adverse development on Maiden US commercial auto business; 2) loss of a large customer and expiration of a fronting arrangement in the latter periods of 2014; and 3) foreign exchange impact on our non-U.S. underwriting portfolio due to the strengthening of the U.S. dollar during 2015.
Net premiums written increased by $140.8 million, or 5.6%, for the year ended December 31, 2016 compared to the same period in 2015. The tables below compare net premiums written by our reportable segments, reconciled to the total consolidated net premiums written:
The $109.1 million increase in net premiums written in our AmTrust Reinsurance segment for the year ended December 31, 2016 compared to the same period in 2015 is due to organic growth as well as acquisitions made by AmTrust, partially offset by the impact of the 2015 partial commutation. Please refer to the analysis of our AmTrust Reinsurance segment on page 78 for further details.
Net premiums written increased by $56.0 million, or 2.3%, for the year ended December 31, 2015 compared to the same period in 2014. The increase in net premiums written for the year ended December 31, 2015, compared to the same period in 2014, was due to the continuing strong growth in business written in our AmTrust Reinsurance segment partially offset by the loss of business in our Diversified Reinsurance segment.
The increase in net premiums written in our AmTrust Reinsurance segment for the year ended December 31, 2015 compared to the same period in 2014 reflects AmTrust's continued expansion through a combination of acquisitions and ongoing organic growth partially offset by 1) the Company entering into an agreement with AmTrust to commute outstanding liabilities, loss reserves and unearned premiums, associated with certain classes and lines of business resulting in a reduction of net written premiums of approximately 3.5% for the year ended December 31, 2015; 2) an unfavorable impact from foreign exchange movements; and 3) the Company entering into a retrocessional quota share agreement with a highly rated global insurer entered into effective January 1, 2015. There was no such retrocessional quota share agreement in force during 2014. Please refer to the analysis of our AmTrust Reinsurance segment on page 78 for further details.
Net premiums written in our Diversified Reinsurance segment decreased by $115.3 million or 13.6% during the year ended December 31, 2015 compared to the same period in 2014. These reductions were due to 1) declines in both our U.S. and International business as discussed above; 2) adverse impact on our non-U.S. underwriting portfolio due to the strengthening of the U.S. dollar during the year; and 3) the Company entering into a retrocessional quota share agreement with a highly rated global insurer entered into effective January 1, 2015. There was no such retrocessional quota share agreement in force during 2014. Please refer to the analysis of our Diversified Reinsurance segment on page 75 for further details.
Net premiums earned increased by $139.1 million or 5.7% for the year ended December 31, 2016 compared to the same period in 2015. The table below compares net premiums earned by our reportable segments, reconciled to the total consolidated net premiums earned:
The $159.4 million increase in net premiums earned in the AmTrust Reinsurance segment for the year ended December 31, 2016 compared to 2015 reflects the impact of AmTrust's strong growth in 2016 from a combination of acquisition activity and ongoing organic growth. Please refer to the analysis of our AmTrust Reinsurance segment on page 78 for further discussion.
Net premiums earned increased by $177.3 million, or 7.9%, for the year ended December 31, 2015 compared to the same period in 2014. The increase in net premiums earned was primarily the result of strong growth in business written in the AmTrust Reinsurance segment offset by a reduction in the earned premiums in our Diversified Reinsurance segment and business included in our Other category.
Net premiums earned in our Diversified Reinsurance segment decreased for the year ended December 31, 2015 compared to 2014 due to the reasons outlined in the Net Premiums Written section above. Please refer to the analysis of our Diversified Reinsurance segment on page 75 for further discussion.
All of our Other Insurance Revenue is produced by our Diversified Reinsurance segment. Please refer to page 76 for further discussion.
For the year ended December 31, 2016, average invested assets grew by 13.0% giving rise to the increase in net investment income compared to the same period in 2015. The growth in net investment income, particularly when compared with the growth in invested assets, continues to be impacted by the current low interest rate environment which showed some improvement in the 4th quarter of 2016.
The average of the Company's investments, cash and cash equivalents, restricted cash and cash equivalents and loan to related party at each quarter-end during the year.
For the year ended December 31, 2015, average invested assets grew by 14.7% giving rise to the increase in net investment income compared to the same period in 2014. The growth in average invested assets during this period was the result of: 1) our continued profitable growth; 2) strong positive cash flow from operations during the period reported; and 3) issuance of the Preference Shares - Series C, with net proceeds of $159.6 million. The Company's average book yields were marginally lower for the year ended December 31, 2015 compared to the same period in 2014.
Net Realized Gains on Investment - Net realized gains on investment were $2.5 million for the year ended December 31, 2015 compared to $1.2 million for the same period in 2014.
Net loss and LAE increased by $135.3 million, or 9.0%, for the year ended December 31, 2015 compared to 2014. This net increase reflects the continued growth of the business in our AmTrust Reinsurance segment along with the factors offsetting this growth, as discussed in Net Premiums Written above, combined with unfavorable results experienced by Maiden US in its commercial auto liability accounts.
General and administrative expenses include expenses which are segregated for analytical purposes as a component of underwriting income. General and administrative expenses consist of:
Interest and Amortization Expense and Accelerated Amortization of Debt Discount and Issuance Cost
The Company recorded income tax expense of $1.6 million, $2.0 million and $2.2 million for the years ended December 31, 2016, 2015 and 2014, respectively. These amounts relate to income tax on the earnings of our international subsidiaries, non-cash U.S. deferred tax expense relating to timing differences and state taxes incurred by our U.S. subsidiaries. The effective rate of income tax was 3.2% for the year ended December 31, 2016 compared to 1.6% and 2.1% for the years ended December 31, 2015 and 2014, respectively.
For the year ended December 31, 2016, dividends paid to preference shareholders increased by $9.4 million or 38.7% compared to the same period in 2015. The increase is attributable to the issuance of 6,600,000 7.125% Preference Shares - Series C on November 25, 2015. The dividends paid to preference shareholders were $24.3 million in each of the years ended December 31, 2015 and 2014.
The underwriting results and associated ratios for our Diversified Reinsurance segment for the years ended December 31, 2016, 2015 and 2014 were as follows:
The combined ratio increased to 109.4% for the year ended December 31, 2016 compared to 103.0% in 2015. Reserve development in commercial auto continued to unfavorably impact our Diversified Reinsurance segment resulting in underwriting losses.
Net premiums written increased by $31.3 million or 4.3%, for the year December 31, 2016, compared to the same period in 2015 due to the same circumstances as described above related to this segment's gross premiums written. The tables below illustrate net premiums written by line of business in this segment:
Other Insurance Revenue - Other insurance revenue, which represents fee income that is not directly associated with premium revenue assumed by the Company decreased by $0.7 million for the year ended December 31, 2016 compared to the same period in 2015. The decrease was mainly caused by weaker auto sales in Europe.
The impact on the net loss and LAE ratios should be considered in conjunction with the commission and other acquisition expense ratio as changes to either ratio arise primarily due to changes in the mix of business and the impact of the increase in the commission and other acquisition expense rates on pro-rata contracts with loss sensitive features. As a result of these factors, the combined ratio (excluding the general and administrative expense ratio) increased by 6.2 points for the year ended December 31, 2016 compared to 2015.
General and Administrative Expenses - General and administrative expenses increased by $0.4 million, or 1.0%, for the year ended December 31, 2016 compared to 2015. The general and administrative expense ratio was 4.9% and 4.7% for the years ended December 31, 2016 and 2015, respectively. The overall expense ratio (including commission and other acquisition expenses) was 30.5% and 30.7% for the years ended December 31, 2016 and 2015, respectively.
The combined ratio increased to 103.0% for the year ended December 31, 2015 compared to 98.3% in 2014 primarily due to increased loss activity in our Maiden US commercial auto liability reinsurance contracts.
Premiums - Gross premiums written decreased by $120.9 million, or 13.5% for the year ended December 31, 2015 compared to the same period in 2014. The decrease was primarily due to a reduction in Maiden US premium following underwriting actions taken by the Company as well as the loss of a large customer and the expiration of a fronting arrangement in September 2014. In addition, there was a reduction in the International business written due to the strengthening of the U.S. dollar.
Net premiums earned decreased by $109.2 million, or 12.8%, during the year ended December 31, 2015 compared to the same period in 2014. The table below shows net premiums earned by line of business:
General and Administrative Expenses - Consistent with the Company's growth, general and administrative expenses decreased by $3.5 million, or 9.1%, for the year ended December 31, 2015 compared to 2014. The general and administrative expense ratio was 4.7% and 4.6% for the years ended December 31, 2015 and 2014, respectively. The overall expense ratio (including commission and other acquisition expenses) was 30.7% and 31.5% for the years ended December 31, 2015 and 2014, respectively.
Premiums - Gross premiums written increased by $120.7 million or 6.4% for the year ended December 31, 2016 compared to the same period in 2015. Growth in our AmTrust Reinsurance segment is due to additional 2016 premium relating to acquisitions made by AmTrust, ceded for the first time, and ongoing organic growth and also reflects the removal of certain classes of business which we commuted with AmTrust in the fourth quarter of 2015.
The table below shows net premiums written by this segment for the years ended December 31, 2016 and 2015:
Net premiums earned increased by $159.4 million, or 9.5% for the year ended December 31, 2016 compared to the same period in 2015. The increase is primarily due to AmTrust's prior year written premium growth.
Net premiums earned increased by $305.9 million, or 22.2% for the year ended December 31, 2015 compared to the same period in 2014. This increase is due to the reasons outlined above in the Net Premiums Written section.
Commission and Other Acquisition Expenses - Commission and other acquisition expenses increased by $109.0 million, or 26.0%, for the year ended December 31, 2015 compared to 2014. The commission and other acquisition expense ratio increased to 31.3% for the year ended December 31, 2015 compared to 30.4% in 2014. The increase in the ratio during the year ended December 31, 2015 compared to 2014 reflects 1) the higher proportion of net premiums earned from the Reinsurance Agreement, which has a higher commission rate than the European Hospital Liability Quota Share; and 2) increase in Specialty Program business, within which is a component with the highest commission rate in the Reinsurance Agreement of 34.375%.
Maiden Holdings is a holding company and transacts no business of its own. We therefore rely on cash flows in the form of dividends, advances, loans and other permitted distributions from our subsidiary companies to make dividend payments on our common and preference shares. The jurisdictions in which our operating subsidiaries are licensed to write business impose regulations requiring companies to maintain or meet statutory solvency and liquidity requirements. Some jurisdictions also place restrictions on the declaration and payment of dividends and other distributions.
The table below summarizes our operating, investing and financing cash flows for the years ended December 31, 2016, 2015 and 2014:
Cash flows from operations for the year ended December 31, 2016 were $470.1 million compared to $634.3 million for the year ended December 31, 2015, a 25.9% decrease. This decrease in cash flows from operating activities arises primarily due to the settlement of the $107.0 million commutation with AmTrust during the first quarter of 2016. Operating cash flows in 2015 were also favorably impacted by AmTrust's integration of Tower Group which now has been completed.
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 retains broad investment discretion in order to achieve its business objectives while giving clients the additional security a collateralized arrangement offers. We believe this offers the Company a significant competitive advantage and improves Maiden US’s retention of high-quality clients.
At December 31, 2016, total cash and cash equivalents and fixed maturity investments used as collateral were $4.4 billion compared to $3.7 billion at December 31, 2015. The increase was primarily attributable to the increase in assets provided as collateral for the AmTrust Reinsurance segment reflecting continued growth.
The following table details additional information on those assets at December 31, 2016 and 2015:
The investment of our funds is designed to ensure safety of principal while generating current income. Accordingly, our funds are invested in liquid, investment-grade fixed income securities which are designated as either AFS or HTM. In both 2015 and 2016, the Company designated certain corporate bonds previously classified as AFS to HTM to reflect our intention of holding these corporate bonds until maturity. See "Notes to Consolidated Financial Statements Note 4. Investments" included under Item 8 "Financial Statements and Supplementary Data" of this Form 10-K.
During the year ended December 31, 2016, the yield on the 10-year U.S. Treasury bond increased by 18 basis points to 2.45%. The 10-year U.S. Treasury is the key risk-free determinant in the fair value of many of the securities in our AFS portfolio. The increase in interest rates during 2016 reflects the adjustments by the U.S. central bank to reflect improving economic indicators, along with expectations that near-term economic conditions would be more influenced by fiscal policy in the U.S. and internationally, as opposed to monetary policy as has been experienced in recent years.
The movement in unrealized gain/loss in our AFS fixed maturity portfolio was a gain of $20.8 million, primarily due to an increase in interest rates and an increase in corporate spreads. This gain is net of unrealized foreign exchange losses of $15.1 million arising on our non-U.S. dollar denominated investment portfolio, primarily on our euro-denominated investments, following the strengthening of the U.S. dollar versus the euro during the year ended December 31, 2016. These declines were substantially offset by decreases in our non-U.S. dollar net liabilities which are reflected in the movement in our cumulative translation adjustment, which is also a component of AOCI, in our shareholders' equity. See "Liquidity and Capital Resources - Capital Resources" on page 90 for further information.
The increase of 0.2 years in the weighted average duration of our fixed maturity investment portfolio arises predominantly due to purchases during the 4th quarter to take advantage of increasing yields with a higher duration than the fixed maturity investment portfolio at December 31, 2016 combined with an increase in the duration of our Agency MBS portfolio reflecting the impact of the volatility in interest rates on paydowns.
The differential in duration between these assets and liabilities may fluctuate over time and in the case of fixed maturities, is affected by factors such as market conditions, changes in asset mix and prepayment speeds in the case of both our Agency MBS and commercial mortgage-backed securities ("CMBS").
The Company’s ten largest corporate holdings, all of which are U.S. dollar denominated and 60.7% of which are in the Financial Institutions sector, at December 31, 2016 as carried at fair value and as a percentage of all fixed income securities were as follows:
The net increase in non-U.S. denominated fixed maturities is primarily due to purchases. We do not have any non-U.S. government and government related obligations of Greece, Ireland, Italy, Portugal and Spain at December 31, 2016 and 2015. At December 31, 2016 and 2015, 100.0% of the Company's non-U.S. government and supranational issuers were rated A+ or higher by S&P.
The Company establishes loss reserves to cover the estimated liability for the payment of all loss and LAE incurred with respect to premiums earned on the contracts that the Company writes. Loss reserves do not represent an exact calculation of the liability. Estimates of ultimate liabilities are contingent on many future events and the eventual outcome of these events may be different from the assumptions underlying the reserve estimates. The Company believes that the recorded unpaid loss and LAE represent management’s best estimate of the cost to settle the ultimate liabilities based on information available at December 31, 2016.
At December 31, 2016 and 2015, the Company recorded gross reserves for unpaid loss and LAE of $2.9 billion and $2.5 billion, respectively, and net reserves for unpaid loss and LAE of $2.8 billion and $2.4 billion for December 31, 2016 and 2015, respectively. See "Business - Reserve for Loss and Loss Adjustment Expenses" in Item 1 of Part I of this Report, "Critical Accounting Policies and Estimates - Reserve for Loss and Loss Adjustment Expenses" and "Results of Operations" above for a discussion of loss and LAE and prior years’ reserve developments.
The reinsurance balances receivable, net increased by $32.8 million, or 8.7%, primarily due to the continued growth of our AmTrust Reinsurance segment in 2016 compared to 2015, which was lowered by the commutation agreement with AmTrust of $107.0 million. The reserve for net loss and LAE increased following the continued growth in our AmTrust Reinsurance segment combined with adverse development experienced in both our reportable segments including the reserve charge recognized of $120.4 million in all segments including the NGHC run-off business during the fourth quarter. The unearned premiums also increased following the continued growth in our AmTrust Reinsurance segment.
The following table shows the movement in total capital resources at December 31, 2016 and 2015:
net income attributable to Maiden of $49.0 million. See "Results of Operations - Net Income" on page 69 for a discussion of the Company’s net income for the year ended December 31, 2016;
net increase in AOCI of $38.8 million. This increase arose due to: 1) increase in AOCI of $33.4 million which arose from the net increase in our U.S. dollar denominated investment portfolio of $38.3 million relating to market price movements and decline in our non-U.S. dollar denominated investment portfolio of $4.9 million. The decline in our non-U.S. dollar denominated investment portfolio was $15.1 million as a result of the weakening of euro, relative to U.S. dollar at December 31, 2016 compared to December 31, 2015 offset by $10.2 million increase as a result of market price movements; and by 2) increase in cumulative translation adjustments of $5.4 million due to the effect of the appreciation of the U.S. dollar relative to the original currencies on our non-U.S. dollar net liabilities (excluding non-U.S. dollar denominated AFS fixed maturities; and
These increases were offset by dividends declared of $79.5 million related to the Company’s common and preferred shares.
Please refer to "Notes to Consolidated Financial Statements Note 13. Shareholders' Equity" included under Item 8 "Financial Statements and Supplementary Data" of this Form 10-K for a discussion of the equity instruments issued by the Company at December 31, 2016 and 2015.
Refer to "Notes to Consolidated Financial Statements Note 7. Long Term Debt" included under Item 8 "Financial Statements and Supplementary Data" of this Form 10-K for a discussion of the Company’s indebtedness.
The Company’s aggregate contractual obligations at December 31, 2016 are as follows:
The amounts included for reserve for loss and LAE reflect the estimated timing of expected loss payments on known claims and anticipated future claims at December 31, 2016. Both the amount and timing of cash flows are uncertain and do not have contractual payout terms. For a discussion of these uncertainties, please refer to "Critical Accounting Policies - Reserve for Loss and Loss Adjustment Expenses" section included under Item 7 of this Annual Report on Form 10-K for the year ended December 31, 2016. Due to the inherent uncertainty in the process of estimating the timing of these payments, there is a risk that the amounts paid in any period will differ significantly from those disclosed. Total estimated obligations will be funded by existing cash and investments.
Net foreign exchange gains amounted to $13.4 million during the year ended December 31, 2016 compared to $7.4 million and $3.6 million during the years ended December 31, 2015 and 2014, respectively.
Refer to "Notes to Consolidated Financial Statements Note 2. Significant Accounting Policies" included under Item 8 "Financial Statement and Supplementary Data", of this Form 10-K for a discussion on recently issued accounting pronouncements.