We currently lease office space in Bermuda (our corporate headquarters), the United States, the United Kingdom, Germany, Austria, Australia and Russia for the operation of our business. We also lease a property for employee use in Bermuda. Our office leases have remaining terms ranging from 7 months to approximately 10 years in length. We renew and enter into new leases in the ordinary course of business as needed. While we believe that the office space
The following tables set forth our summary historical statement of operations data and summary balance sheet data as at and for the years ended December 31, 2011, 2010 and 2009. Statement of operations 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
Entering into a quota share reinsurance agreement with AmTrust Financial Services, Inc. (“AmTrust”) in 2007 (the “AmTrust Quota Share”);
Entering into a quota share reinsurance agreement with American Capital Acquisition Corporation (“ACAC”) in 2010 (the “ACAC Quota Share”); and
Completing a public debt offering of $107.5 million in June 2011 and repurchasing a like amount of our outstanding TRUPS Offering securities in July 2011 ("the "Senior Note Offering").
Until such time as the Company attains sufficient historical experience, year-to-year comparability is likely to be more difficult as compared with other companies considered peers of the Company and with whom it competes on a regular basis.
We currently operate our business through three segments: Diversified Reinsurance, AmTrust Quota Share Reinsurance and ACAC Quota Share. As at December 31, 2011, we had approximately $3.4 billion in total assets, $768.6 million of total shareholders’ equity and $1.0 billion in total capital, which includes shareholders’ equity and both senior notes and junior subordinated debt.
While natural and man-made catastrophes occur each year affecting reinsurance industry results, both 2010 and 2011 experienced an extensive series of significant natural and man-made catastrophes, both globally and in the U.S., negatively impacting overall industry performance. Consistent with our business model, the Company experienced modest losses from the 2010 or 2011 global catastrophe events; however, the unusually high frequency of loss activity from U.S. thunderstorm and tornado did impact our U.S clients in the second quarter of 2011, adversely affecting the Company's results. Other U.S.-based catastrophe experience in 2011 has been within the Company's expected parameters which are incorporated into the pricing of our Maiden US accounts. Despite this elevated level of weather losses, consistent with its operating model, Maiden maintained profitable underwriting results throughout 2011.
Despite the significant financial impact of these occurrences, capital positions across the insurance and reinsurance industry appear to remain adequate at present. Although the ultimate impact remains unclear and is currently more uncertain in light of reinsurance industry performance in 2011, broad industry conditions brought about by the combination of catastrophe events, unfavorable pricing and investment conditions appear to be more supportive of improved pricing in the near term. The scope and tenure of this improved pricing environment is less certain. As market conditions continue to develop, we continue to maintain our adherence to disciplined underwriting by declining business when pricing, terms and conditions do not meet our underwriting standards. We believe that if such events continue, they could have a significant positive effect on competition and pricing. We believe that we are well positioned to take advantage of market conditions should the pricing environment become more favorable.
On June 24, 2011, the Company’s wholly-owned U.S. holding company subsidiary, Maiden NA, closed the offering of $107.5 million aggregate principal amount of 8.25% Senior Notes due June 15, 2041 (the "Senior Notes"), which are fully and unconditionally guaranteed by Maiden Holdings. The Senior Notes are redeemable for cash, in whole or in part, on or after June 15, 2016, at 100% of the principal amount of the Senior Notes to be repurchased plus accrued and unpaid interest up to but excluding the redemption date.
Total net proceeds from the offering were approximately $104.7 million, after deducting the underwriting discount and estimated offering expenses payable by Maiden NA and the Company. The net proceeds were used to repurchase a portion of the TRUPS Offering securities. The Company repurchased $107.5 million of junior subordinated debt issued in the TRUPS Offering securities on July 15, 2011. Pursuant to the terms of the TRUPS Offering, the Company incurred a non-recurring repurchase expense of approximately $15.1 million, which was reported in the Company's results of operations for the year ended December 31, 2011. The Company will save approximately $6.2 million annually as a result of the refinancing, and approximately $15.9 million from the closing of the Senior Notes offering until January 20, 2014, the date on which the repurchase or redemption penalty associated with the TRUPS Offering expires. As a result of the repurchase, the Company also incurred an additional non-recurring non-cash charge of approximately $20.3 million for the year ended December 31, 2011, which represents the accelerated amortization of original issue discount and issuance costs associated with equity issued in conjunction with the TRUPS Offering.
Acquisition of GMAC VS, an insurance producer based in Germany which supports sales of primary personal auto insurance through participating automobile dealerships and original equipment automobile manufacturers; and
Acquisition of GMAC LF, a credit life insurer domiciled in Sweden which writes certain credit life insurance in association through automobile financings offered through participating automobile dealerships and original equipment automobile manufacturers which has been renamed Maiden LF.
According to the loss portfolio transfer provisions of the IICL Agreement, the Company assumed loss reserves of $98.8 million associated with the GMAC IICL business as at November 30, 2010. The Company also assumed unearned premium, net of acquisition expenses, of approximately $19.5 million.
We will pay a fee to GMAC IICL for the right to renew the expiring contracts, subject to certain minimum payments at close, over a three-year period commencing November 30, 2010.
On September 1, 2011, in exchange for a 10% interest in GMAC VS, we entered into cooperation agreements with the Opel Dealer Association, the Opel dealer association in Germany and the German auto manufacturer Opel. We also renamed GMAC VS “Opel Händler VerisicherungsService GmbH”. The cooperation agreements with both organizations are designed to increase the sales of OVS insurance products in Opel dealerships in Germany and increase fee and other revenues for Opel, the Opel Dealer Association, and Maiden via OVS, respectively.
In November 2009, we announced an agreement in principal with ACAC regarding a multi-year 25% quota share agreement. The contract commenced on March 1, 2010 after final regulatory approval and the closing of ACAC’s acquisition of GMACI’s U.S. consumer property and casualty insurance business, as well as a small amount of commercial auto business. 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. In addition to reinsurance support, we provide support services focused on helping ACAC to continue its profitable expansion. As noted, management of this business is treated as a separate segment captioned ACAC Quota Share.
Net income attributable to Maiden shareholders of $28.5 million, or $0.40 basic and $0.39 diluted earnings per share.
•Operating earnings of $69.6 million, or $0.97 basic and $0.96 diluted operating earnings per share(1)
Net premiums earned of $1.6 billion, a 32.7% increase over 2010 .
Adverse net underwriting impact of second quarter 2011 due to U.S. thunderstorm and tornado activity totaling $9.5 million, net of the Company’s quarterly provision for normalized catastrophe activity.
Non-recurring charges in the year ended December 31, 2011 related to Senior Notes Offering of $15.1 million for the repurchase expense of $107.5 million in junior subordinated debt funded by the Senior Notes along with a $20.3 million non-cash charge for the accelerated amortization of subordinated debt discount and issuance costs related to the TRUPS Offering which were repurchased with the proceeds of the Senior Notes Offering.
Net investment income of $74.9 million , a 4.5% increase over 2010.
Total cash and investments of $2.3 billion; fixed maturities comprise 86.9% of total invested assets, of which 60.1% have a credit rating of AA+ or better and an overall average credit rating of AA-.
Total debt of $233.8 million and a debt to total capitalization ratio of 23.3%.
Operating earnings, operating earnings per share and operating return on equity are non-GAAP financial measures. See “Non-GAAP Financial Measures” for additional information and a reconciliation to the nearest U.S. GAAP financial measure (net income).
Combined ratio is an operating metric. See “Non-GAAP Financial Measures” for additional information.
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 U.S GAAP. These non-GAAP measures are:
in 2011, as a result of the Senior Notes Offering, we exclude the junior subordinated debt repurchase expense and the accelerated amortization of junior subordinated debt discount and issuance costs.
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 (as defined above) 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. The decrease in Operating ROE in 2011 was the result of higher combined ratios in part brought about by the adverse net underwriting impact of second quarter 2011 U.S. thunderstorm and tornado activity totaling $9.5 million, net of the Company's quarterly provision for normalized catastrophe activity. Operating ROE for the years ended December 31, 2011, 2010 and 2009 is computed as follows:
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 at December 31, 2011, 2010 and 2009 is computed as follows:
The Company's revenues also include fee income generated by the IIS Fee Business as well as income generated from its investment portfolio. The Company's investment portfolio is comprised of fixed maturity investments, held as available-for-sale ("AFS"), and other investments that are held as AFS. In accordance with U.S. GAAP, these investments are carried at fair market value and unrealized gains and losses on the Company's investments held as available-for sale are generally excluded from earnings. These unrealized gains and losses are included on the Company's Consolidated Balance Sheet in Accumulated other comprehensive 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.
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
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 2012, we expect this trend to continue.
The reserve for loss and loss adjustment expenses as at December 31, 2011 and 2010 comprised:
With the guidance of the methods above, actuarial judgment is applied in the determination of ultimate losses. In general, the Company’s segments have varying levels of seasoning with which the Company has direct experience and as a result, differing methods are utilized to estimate loss and loss adjustment expenses reserves in each segment.
In the Diversified Reinsurance segment, as at December 31, 2011, 88.7% of the loss reserves in the Diversified Reinsurance segment are associated with the business acquired in the GMAC Acquisition (which includes new business
written subsequent to that transaction). The Company’s executive and technical management, including claims and underwriting, have significant experience with this book of business, which also has more than 25 years of loss experience associated with it. In general for the 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 RLD Method.
The Company has underwritten the AmTrust Quota Share Reinsurance segment since July 1, 2007. This segment consists of business written under the Master Agreement since that time, and commencing April 1, 2011, the business associated with the European Hospital Liability Quota Share. In addition, certain aspects of this segment are associated with recent acquisitions by AmTrust and while the underlying experience of the book has significant seasoning, the combination of the shorter time frame with which the Company has direct experience with this business and the relative inexperience of certain aspects of this business may result in a greater range of volatility. As a result, we have tended to rely on a weighted approach which primarily employs the RLD method for aspects of the segment with ample historical data, while also considering the ELR method for exposure resulting from recent acquisitions, or a relative level of experience. The Company’s actuarial analysis of this book of business is more refined in that it utilizes a combination of monthly and quarterly data instead of contract period data in totality. As a result, a range of loss development factors are utilized due to the relative lack of seasoning of the underlying business as regards the Company’s experience. 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 loss adjustment expense 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 Company has underwritten the AmTrust Quota Share Reinsurance segment since July 1, 2007. This segment consists of business written under the Master Agreement since that time, and commencing April 1, 2011, the business associated with the European Hospital Liability Quota Share. In addition, certain aspects of this segment are associated with recent acquisitions by AmTrust and while the underlying experience of the book has significant seasoning, the combination of the shorter time frame with which the Company has direct experience with this business and the relative inexperience of certain aspects of this business may result in a greater range of volatility in the reasonably likely variance of our expected loss ratio for all applicable loss years in the segment as compared to the Diversified Reinsurance segment. We believe a possible variance of our expected loss ratio for all applicable loss years for the AmTrust Quota Share segment was approximately four percentage points as at December 31, 2011. If our final loss ratio for the AmTrust Quota Share segment were to vary by four percentage points from the expected loss ratios in aggregate, our required reserves after reinsurance recoverable would increase or decrease by approximately $72.0 million.
The Company has underwritten the ACAC Quota Share segment since March 1, 2010. ACAC's executive and technical management, including claims and underwriting, have significant experience with this book of business, which also has more than 15 years of loss experience associated with it. In addition, our management has experience with this book of business when part of our business and ACAC were owned by GMAC. As a result, we believe the possible variance of our expected loss ratio for all applicable loss years for the ACAC Quota Share segment was approximately one percentage point as at December 31, 2011. If our final loss ratio for the ACAC Quota Share segment were to vary by approximately one percentage point from the expected loss ratios in the aggregate, our required reserves after reinsurance recoverable would increase or decrease by approximately $3.7 million.
For pro-rata contracts and excess-of-loss contracts where no deposit or minimum premium is specified in the contract, written premium is recognized based on estimates of ultimate premiums provided by the ceding companies. Initial estimates of written premium are recognized in the period in which the underlying risks are incepted. Subsequent adjustments, based on reports of actual premium by the ceding companies, or revisions in estimates, are recorded in the period in which they are determined. Reinsurance premiums assumed are generally earned on a pro rata basis over the terms of the underlying policies or reinsurance contracts. 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.
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 19.3% of gross premiums written for the year December 31, 2011, the Company is typically exposed to loss events in excess of a predetermined dollar amount or loss ratio and receives a fixed or minimum premium, which is subject to upward adjustment depending on the premium volume written by the cedant.
Reported premiums written and earned and commission and other acquisition expenses on proportional treaties are generally based upon reports received from cedants and brokers, supplemented by the Company’s own estimates of premiums written and commission and other acquisition expenses for which ceding company reports have not been received. Premium and acquisition cost estimates are determined at the individual treaty level. The determination of estimates requires a review of the Company’s experience with cedants, a thorough understanding of the individual characteristics of each line of business and the ability to project the impact of current economic indicators on the volume of business written and ceded by the Company’s cedants. Estimates for premiums and commission and other acquisition expenses are updated continuously as new information is received from the cedants. Differences between such estimates and actual amounts are recorded in the period in which estimates are changed or the actual amounts are determined.
The Company currently classifies all of its fixed income investments, which consist of fixed maturity investments, other investments and short-term investments, as “available for sale”. Pursuant to U.S. GAAP, these investments are carried at estimated fair value, with net unrealized gains or losses excluded from earnings and included in shareholders’ equity as a component of accumulated other comprehensive (loss) income.
The availability of observable inputs can vary from financial instrument to financial instrument and is affected by a wide variety of factors, including, for example, the type of financial instrument, whether the financial instrument is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires significantly more judgment. Accordingly, the degree of judgment exercised by management in determining fair value is greatest for instruments categorized in Level 3. We use prices and inputs that are current as at the measurement date. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified between levels.
Municipals: Municipal securities comprise bonds and auction rate securities issued by U.S. domiciled state and municipality entities. The fair values of municipal bonds are generally priced by pricing services. The pricing services typically use spreads obtained from broker-dealers, trade prices and the new issue market. As the significant inputs used to price the municipal bonds are observable market inputs, municipals are classified within Level 2. Municipal auction rate securities are reported in the consolidated balance sheet at cost which approximates their fair value.
Junior subordinated debt: The amount reported in the accompanying balance sheets for these financial instruments represents the carrying value of the debt. At December 31, 2011, the fair value of the debt was $173.6 million based on the binomial lattice model, Black-Derman-Toy model.
Length of time and extent to which the fair value has been less than amortized cost;
Failure, if any, of the issuer of the security to make scheduled payments; and
There were no other-than-temporary impaired securities during the years ended December 31, 2011, 2010 and 2009.
ASC Topic 805, Business Combinations requires that the Company make an annual assessment as to whether the value of the Company’s goodwill and intangible assets are impaired. Impairment, which can be either partial or full, is based on a fair value analysis by individual reporting unit. Based upon the Company’s assessment at the reporting unit level, there was no impairment of its goodwill and intangible assets as of December 31, 2011 of $98.8 million.
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 stock 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, 2011.
Calculated by dividing net loss and loss adjustment expenses by net premiums earned and other insurance revenue.
Calculated by dividing general and administrative expenses by net premiums earned and other insurance revenue
Net income attributable to Maiden shareholders for the year ended December 31, 2011 was $28.5 million as compared to $69.9 million for the same period in 2010. The lower result in 2011 was due to charges related to the Senior Notes offering which include $15.1 million of junior subordinated debt repurchase expense and $20.3 million of accelerated amortization of junior subordinated debt discount and issuance costs. The 2011 results reflect continued strong premium
growth in all of the Company’s operating segments, offset by higher combined ratios in each of its segments. The 2011 results include $9.5 million in losses related to thunderstorm and tornado activity across the U.S. in the second quarter, net of the Company’s quarterly provisions for normalized catastrophe activity. In addition, the lower result reflects realized and unrealized gains on investment of $0.5 million in 2011 as compared to realized and unrealized gains on investment of $6.6 million in 2010.
We evaluate our business by segment, distinguishing between Diversified Reinsurance, AmTrust Quota Share Reinsurance and ACAC Quota Share segments.
Excluding the business associated with the European Hospital Liability Quota Share, $197.9 million or 49.4% of the increase in net premiums written for the year ended December 31, 2011 as compared to the same period in 2010 was attributable to the automobile line of business, primarily personal auto.
Commencement of the ACAC Quota Share. As noted, this new segment commenced on March 1, 2010 and contributed $205.7 million to net premiums written during 2010.
Completion of the IIS Acquisition. We completed the IIS Acquisition on November 30, 2010. For the period from November 30, 2010 to December 31, 2010, net premium written was $29.6 million, which includes $19.5 million of assumed unearned premium as at November 30, 2010, which was acquired net of acquisition expenses of $12.1 million. Premiums associated with the IIS Acquisition are included in the Diversified Reinsurance segment.
First full calendar year of the IIS Acquisition. The IIS Acquisition was completed on November 30, 2010 and thus the year ended December 31, 2011 represents the first full calendar year of operations for the business associated with the IIS Acquisition, which contributed $107.3 million of the overall increase in net premiums earned year ended December 31, 2011 as compared to 2010.
Growth in the AmTrust Quota Share Reinsurance segment premium. The commencement of the European Hospital Liability Quota Share on April 1, 2011 increased premiums earned by $68.1 million for the year ended December 31, 2011 while the business assumed under the Master Agreement increased $45.0 million for the year ended December 31, 2011 as compared to the year ended December 31, 2010, respectively.
Despite the decline in premiums written in the Diversified Reinsurance segment, earned premiums increased $33.2 million or 5.9% due to the earned premiums associated with prior years at higher production levels.
Due to its closing late in the fourth quarter on November 30, 2010, earned premiums from the IIS Acquisition were limited, at $5.4 million.
Other insurance revenue of $12.6 million represents the IIS Fee Business that is not directly associated with premium revenue generated by the Company. The year ended December 31, 2011 represents the first full calendar year of operations for the IIS Fee Business and is primarily in respect of the German auto business produced by OVS.
Net loss and loss adjustment expenses increased by $288.0 million, or 38.1%, for the year ended December 31, 2011 as compared to the same period in 2010, primarily reflecting the continuing growth in the Company as a result of the commencement of the ACAC Quota Share in 2010 and the continuing growth of the AmTrust Quota Share in 2011compared to 2010.
The total favorable development relating to the loss portfolio transfers since the closing of the GMAC and IIS Acquisitions has been $68.9 million and the remaining $2.6 million is recorded as a deferred gain and is part of the Company’s reserve for loss and loss adjustment expenses at December 31, 2011 that are included in the accompanying Consolidated Balance Sheet. Included in the total favorable development were amortized gains from the loss portfolio acquired as part of the GMAC and IIS Acquisitions, recorded as a reduction of losses incurred of $28.9 million and $25.3 million for the years ended December 31, 2011 and 2010, respectively.
The loss ratios were 64.6% and 66.2% for the years ended December 31, 2010 and 2009, respectively. The decrease was generally the result of business acquired in the GMAC Acquisition having a lower loss ratio, having completed its first full year of business in 2009 which had a higher loss ratio due to a lower earned premium base which had commission and other acquisition expenses offsetting it and a modestly higher loss ratio in the AmTrust Quota Share Reinsurance segment.
Total general & administrative expenses increased by $11.7 million, or 27.8%, for the year ended December 31, 2011 compared to 2010. The general and administrative expense ratio was 3.5% for the years ended December 31, 2011 and 2010. The increase for the year reflects a full years expenses relating to the IIS Acquisition in November 2010 offset by reductions in non-recurring legal and professional expenses relating to the IIS Acquisition.
Travel and office related expenses increased by $1.9 million, substantially all related to full years expenses relating to employees and offices acquired as part of the IIS acquisition on November 30, 2010;
Total general & administrative expenses increased by $10.1 million, or 31.3%, for the year ended December 31, 2010 compared to the same period in 2009. The general and administrative expense ratio was 3.5% for the years ended December 31, 2010 and 2009, respectively. In 2010, total general & administrative expenses for the year ended December 31, 2010, include $1.9 million of non-recurring expenses incurred to date as a result of the IIS Acquisition. Excluding these non-recurring expenses, the Company’s general and administrative expense ratio, which is a measure of its efficiency, was 3.4% for the year ended December 31, 2010 as compared to 3.5% for the same period in 2009, respectively.
As a result, the overall expense ratio (including commission and other acquisition expenses) was 32.3% and 29.7%, respectively for the years ended December 31, 2010 and 2009. The increase reflects the increased acquisition expenses and the costs associated with the IIS Acquisition previously described. The following is a breakdown of the major factors contributing to the increased operating expenses.
Salary and employee welfare costs, including share compensation expense, increased approximately $5.0 million due to an additional 63 full time employees including 50 that were added at November 30, 2010 as part of the IIS Acquisition.
Additional non-recurring expenses of $1.9 million, primarily legal, were incurred as a result of the IIS Acquisition.
Other expenses of $0.6 million incurred by the entities acquired by IIS Acquisition in addition to the salary and professional expenses noted above.
Net Investment Income and Net Realized and Unrealized Gains (Losses) on Investment
Net investment income increased by $3.3 million, or 4.5%, for the year ended December 31, 2011 compared to the same period in 2010. Average invested assets were approximately $2.4 billion for the year ended December 31, 2011 compared to approximately $2.1 billion for the year ended December 31, 2010, a 14.3% increase. Continued growth in the overall book of business combined with positive cash flow from operations contributed to the growth in invested assets. The average yield for the years ended December 31, 2011 and 2010 was 3.2% and 3.5% respectively. Despite the Company's premium growth and the increase in average invested assets, investment income grew at a slower rate in 2011 compared to 2010 reflecting:
the continued significant accumulation of cash and cash equivalents which occurred during 2011 and 2010 due largely to continuing strong operating cash flow;
The TRUPS Offering was completed in January 2009 and the Senior Notes Offering closed on June 24, 2011. The interest and amortization expense for the years ended December 31, 2011, 2010 and 2009 comprises:
Interest and amortization expense related to the TRUPS Offering was $36.5 million and $34.4 million for the years ended December 31, 2010 and 2009, respectively. The TRUPS Offering was completed on January 20, 2009 and thus 2010 represents the first full year of interest expense, accounting for the increase.
Results of this segment include the results of operations from the IIS Acquisition, which completed its first full year of operations in 2011. The results of operations for our three segments, Diversified Reinsurance, AmTrust Quota Share Reinsurance and ACAC Quota Share are discussed below.
The combined ratio increased to 97.1% for the year ended December 31, 2011 as compared to 95.4% in the same period ended 2010. As discussed previously, the 2011 results include the underwriting impact of U.S. storm activity, which increased the combined ratio by 1.2 % for the year ended December 31, 2011. Adjusted for the storm losses, the segment's combined ratio for the year ended December 31, 2011 was 95.9% as compared to 95.4% for the same period in 2010, reflecting a small deterioration in the loss ratios (as adjusted) in the segment.
As noted, the IIS Acquisition was completed on November 30, 2010 and the year ended December 31, 2011 represents the first full year of operations, which accounted for $76.2 million of the increase. For the year ended December 31, 2011, approximately 68.1% of the net premiums written of the International line of business was Personal Automobile business associated with the IIS Acquisition. The remainder of the net premiums written in the International line of business was Credit Life business associated with the IIS Acquisition. Further, approximately 50.5% of the net premiums written in the International line of business originated in Germany. No other country in International exceeded 10% of net premiums written for the year ended December 31, 2011. In addition, the business written by Maiden US experienced strong growth in the year ended December 31, 2011 of $167.4 million or 33.4% as compared to the same period in 2010, when certain accounts were not renewed or more premiums was retained by clients. A series of new accounts were successfully added in 2011, both quota share and excess of loss, accounting for the increase in this business.
Other Insurance Revenue. Other insurance revenue of $12.6 million represents the IIS Fee Business that is not directly associated with premium revenue generated by the Company. The year ended December 31, 2011 represents the first full calendar periods of operations for the IIS Fee Business and is primarily in respect of the German auto business produced by OVS.
Commission and Other Acquisition Expenses. Commission and other acquisition expenses increased by $47.5 million, or 31.1%, for the year ended December 31, 2011 compared to the same period in 2010, primarily reflecting the increased quota share business as a result of the first full year of business from the IIS Acquisition, which typically has a higher ceding commission associated with that business. As a result, the acquisition cost ratio increased to 26.3% for the year ended December 31, 2011 as compared to 25.4% for the same period in 2010.
General and Administrative Expenses. General and administrative expenses increased by $10.3 million, or 39.2%, for the year ended December 31, 2011 compared to the same period in 2010. The general and administrative expense ratio was 4.8% and 4.4% for the years ended December 31, 2011 and 2010, respectively, primarily as a result of the first full year of operations from the IIS Acquisition. The overall expense ratio (including commission and other acquisition expenses) was 31.1% and 29.8% for the years ended December 31, 2011 and 2010, respectively.
The table below illustrates net premiums earned by line of business in this segment for the years ended December 31, 2010 and 2009:
In addition, on April 1, 2011, the Company entered into a separate one-year 40% quota share agreement with AmTrust Europe Limited and AmTrust International Underwriters Limited to cover those entities medical liability business in Europe, substantially all of which is in Italy. The Company's maximum limit of liability is €2 million and it will pay a ceding commission of 5.0% plus a profit share as defined in the agreement. The profit sharing is based upon the reinsured exceeding defined underwriting performance of each contract year, commencing two years after the beginning of each contract year. To the extent that the underwriting performance is exceeded, the Company will share 50% of the excess amounts computed. Pursuant to the terms of the European Hospital Liability Quota Share, the Company assumed the in-force and unearned premium as at April 1 which totaled $45.9 million. The business written under this agreement is included in the Specialty Risk and Extended Warranty line of business in the discussion that follows. As a result of the additional agreement with AmTrust, this segment has been renamed AmTrust Quota Share Reinsurance.
Premiums. Net premiums written increased by $201.3 million, or 43.0%, for the year ended December 31, 2011 as compared to the same period in 2010. For the year ended December 31, 2011, net premiums written for the European Hospital Liability Quota Share were $95.3 million. Excluding this new coverage, the net premiums written in the segment increased by $106.0 million or 22.6%, primarily due to continuing increases in each line of business. The table below illustrates net premiums written by AmTrust’s segments for the years ended December 31, 2011 and 2010.
Net premiums earned increased by $113.1 million, or 25.4% for the year ended December 31, 2011, as compared to the same period in 2010. The increase in net premiums earned was primarily due to the commencement of the European Hospital Liability Quota Share effective April 1, 2011, which accounted for $68.1 million of the overall increase. Excluding this new coverage, the net premiums earned in the segment increased by $45.0 million or 10.1%.
General and Administrative Expenses. General and administrative expenses increased by $0.8 million, or 52.2%, for the year ended December 31, 2011 compared to the same period in 2010. The general and administrative expense ratio also increased to 0.4% for the year ended December 31, 2011 as compared to 0.3% for the year ended December 31, 2010. The overall expense ratio (including commission and other acquisition expenses) was 29.2% and 32.8% for the years ended December 31, 2011 and 2010, respectively, reflecting the changes in the acquisition cost ratio.
Net Loss and Loss Adjustment Expenses. Net loss and loss adjustment expenses increased by $66.0 million, or 30.7%, for the year ended December 31, 2010 compared to the same period in 2009. Loss ratios were 63.1% and 61.1% for the years ended December 31, 2010 and 2009, respectively. The increase in the loss ratio reflects the continuing change in the mix of business ceded by AmTrust to us. AmTrust’s Specialty Risk and Extended Warranty business generates higher loss ratios than AmTrust’s core Small Commercial Business segment, which is smaller as a percentage of the total in 2010 as compared to 2009.
Commission and Other Acquisition Expenses. Commission and other acquisition expenses increased by $29.5 million, or 25.5%, for the year ended December 31, 2010 compared to the same period in 2009. This is consistent with the increase in earned premium experienced.
Please refer to the above discussion of the ACAC Transaction, which resulted in this segment commencing on March 1, 2010. As a result, comparability between the periods is affected by the fact that 2010 only reflects ten months of results. The following table summarizes the underwriting results and associated ratios for the ACAC Quota Share segment for the year ended December 31, 2011 and for the period March 1 to December 31, 2010:
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. For the year ended December 31, 2011 and the period from March 1 to December 31, 2010, the acquisition cost ratio of 31.7% and 31.9%, respectively, reflects the adjusted ceding commission recorded in addition to the U.S. Federal excise tax payable on this premium.
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 including the BSCR. At December 31, 2011, the statutory capital and surplus of Maiden Bermuda was $693.4 million. Maiden Bermuda is currently determining its BSCR as at December 31, 2011 and we estimate that Maiden Bermuda will be allowed to to pay dividends or distributions not exceeding $3.8 million. During 2011 and 2010, Maiden Bermuda did not pay any dividends to Maiden 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 the states of Missouri and North Carolina, respectively, the states in which those subsidiaries are domiciled. In addition, there are restrictions based on risk-based capital a test which is 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 2011, Maiden US and Maiden Specialty paid no dividends.
Company, which in 2010 was primarily due to increased net premiums written from the AmTrust and ACAC Quota Shares.
Cash flows used by financing activities were $37.2 million for the year ended December 31, 2010 compared to cash flows provided by financing activities of $102.4 million for the year ended December 31, 2009. Included in cash flows used in financing activities for the year ended December 31, 2010 were dividends paid of $18.4 million and $19.2 million of outflow relating to a reduction in the securities sold under agreements to repurchase, at contract value, respectively, compared to dividends paid of $16.2 million and $137.2 million of outflow relating to a decrease in the securities sold under agreements to repurchase, at contract value, respectively, during the year ended December 31, 2009. On January 20, 2009, we completed the TRUPS Offering. The net proceeds of $255.8 million were used to capitalize Maiden US and Maiden Specialty's business, which were the insurance subsidiaries acquired in the GMAC Acquisition. These funds were invested in fixed-maturity securities.
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.
As at December 31, 2011, total trust account balances were $1.6 billion compared to $1.5 billion as at December 31, 2010. The following table details additional information on the trust account balances by segment and by underlying asset as at December 31, 2011 and 2010:
The pre-existing funds withheld amounts (“IIS Funds Withheld”) and cash transferred to GMAC IICL are included in the Consolidated Balance Sheet as Funds Withheld. During 2011, the substantial majority of underlying reinsurance contracts were novated to Maiden Bermuda per the terms of the IICL Agreement. As at December 31, 2011, one contract had not yet been novated and this is expected to occur in 2012. Maiden Bermuda now provides collateral in the form of both trusts and letters of credit as required by the respective reinsurance contracts. As at December 31, 2011 and 2010, the IIS Funds Withheld balance consisted of the following:
The fixed maturity portfolio consists entirely of non-U.S. government debt, 100.0% and 67.1% of which is rated AAA as at December 31, 2011 and December 31, 2010, respectively. The three largest non-U.S. sovereign government issuers are the following:
We do not have any non-U.S. government and government related obligations related to Ireland, Italy, Greece, Portugal or Spain as at December 31, 2011. As at December 31, 2010, 9.6% of these securities consist of non-U.S. government obligations of Ireland which were subsequently disposed of during 2011. We had no exposure to government-related obligations of Greece, Italy, Portugal and Spain as at December 31, 2010. See the discussion in Counterparty Credit Risk in