The following tables set forth our summary historical statement of operations data and summary balance sheet data as of and for the years ended December 31, 2012, 2011 and 2010. 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
Acquiring the majority of the reinsurance-related infrastructure, assets and liabilities of U.K.-based GMAC International Insurance Services, Ltd. in 2010 (the “IIS Acquisition”);
Completing a public debt offering of $100.0 million in March 2012 ("2012 Senior Notes"). The net proceeds of $96.6 million have been used for working capital and general corporate purposes; and
Completing a public offering of $150.0 million Preference Shares - Series A (the “Preference Shares”). The Company received net proceeds of $145.0 million from the offering. The net proceeds from the offering are expected to be used for continued support and development of our reinsurance business and for other general corporate purposes, which may include repurchasing a portion of the Company's outstanding common shares and repurchasing the Company's outstanding 14% 30-year trust preferred securities ("TRUPS") issued in January 2009.
These significant transactions along with other unusual or non-recurring events should be considered when evaluating year-to-year comparability or when comparing our performance with other companies considered our peers and with whom we compete on a regular basis.
We provide reinsurance through our wholly owned subsidiaries, Maiden US and Maiden Bermuda and have operations in the United States and Bermuda. On a more limited basis, Maiden Specialty, a wholly owned subsidiary of Maiden US, provides primary insurance on a surplus lines basis focusing on non-catastrophe inland marine and property coverages. During 2013, it is our intention to substantially reduce our exposure to these coverages. Maiden Bermuda does not underwrite any primary insurance business. Maiden LF is a life insurer organized in Sweden and writes credit life insurance on a primary basis in support of Maiden Global business development efforts.
We currently operate our business through three segments: Diversified Reinsurance, AmTrust Quota Share Reinsurance and ACAC Quota Share. As of December 31, 2012, we had approximately $4.1 billion in total assets, $1.0 billion of total shareholders’ equity and $1.3 billion in total capital, which includes shareholders’ equity, the senior notes and junior subordinated debt.
As we have described, our business model is designed to minimize our exposure to catastrophic property losses. Despite this approach, we periodically do incur losses from such events which exceed our provisions for normalized catastrophe activity, which occurred both in 2011 and 2012.
On August 22, 2012, the Company issued six million 8.25% Preference Shares, par value $0.01 per share, at $25 per share. The Company received net proceeds of $145.0 million from the offering, after deducting expenses and underwriting discounts of $5.0 million. The Preference Shares have no stated maturity date and are redeemable in whole or in part at the option of the Company any time on or after August 29, 2017 at a redemption price of $25 per share plus any declared and unpaid dividends, without accumulation of any undeclared dividends.
Dividends on the Preference Shares are non-cumulative. Consequently, in the event dividends are not declared on the Preference Shares for any dividend period, holders of Preference Shares will not be entitled to receive a dividend for such period, and such undeclared dividend will not accrue and will not be payable. The holders of Preference Shares will be entitled to receive dividend payments only when, as and if declared by the Company's board of directors or a duly authorized committee of the board of directors. Any such dividends will be payable from, and including, the date of original issue on a non-cumulative basis, quarterly in arrears. To the extent declared, these dividends will accumulate, with respect to each dividend period, in an amount per share equal to 8.25% of the $25 liquidation preference per annum.
The holders of the Preference Shares have no voting rights other than the right to elect up to two directors if preference share dividends are not declared and paid for six or more dividend periods. The Preference Shares have been listed on the New York Stock Exchange and trading commenced on August 31, 2012 under the symbol "MHPRA".
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 2011 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.
On March 27 2012, the Company, through Maiden NA, issued $100.0 million principal amount of 8.00% Senior Notes ("2012 Senior Notes") due on March 27, 2042, which are fully and unconditionally guaranteed by the Company. The 2012 Senior Notes are redeemable for cash, in whole or in part, on or after March 27, 2017, at 100% of the principal amount to be redeemed plus accrued and unpaid interest to but excluding the redemption date. Maiden NA has listed
the 2012 Senior Notes on the New York Stock Exchange and trading commenced on March 29, 2012 under the symbol "MHNB".
Operating earnings(1) of $48.5 million, or $0.67 basic and $0.66 diluted operating earnings per common share(1) for the year ended December 31, 2012 compared to $69.6 million, or $0.97 basic and $0.96 diluted operating earnings per common share for the year ended December 31, 2011.
Underwriting income of $18.7 million and combined ratio(2) of 99.5% for the year ended December 31, 2012 compared to $42.8 million and 98.1% for the year ended December 31, 2011.
Common shareholders’ equity of $865.2 million at December 31, 2012 compared to $768.6 million at December 31, 2011; book value per common share of $11.96 and $10.64 at December 31, 2012 and 2011, respectively.
Total cash and investments of $2.8 billion and $2.3 billion at December 31, 2012 and 2011, respectively; fixed maturities comprise 92.4% and 86.9% of total invested assets, of which 48.0% and 60.1% have a credit rating of AA+ or better and an overall average credit rating of A+ at December 31, 2012 and 2011, respectively.
Total assets of $4.1 billion at December 31, 2012 compared to $3.4 billion at December 31, 2011.
Reserve for loss and loss adjustment expenses of $1.7 billion and $1.4 billion at December 31, 2012 and 2011, respectively.
Total debt of $333.8 million and $233.8 million at December 31, 2012 and 2011, respectively, and a debt to total capitalization ratio of 24.7% and 23.3% at December 31, 2012 and 2011, respectively.
Operating Earnings and Operating Earnings per Common Share: In addition to presenting net income determined in accordance with U.S. 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 U.S. GAAP net income. Operating earnings are an internal performance measure used in the management of our operations and represents operating results excluding, as applicable on a recurring basis, the following:
in 2011, we exclude the Junior Subordinated Debt repurchase expense and the accelerated amortization of Junior Subordinated Debt discount and issuance costs.
Operating Return on Common Equity ("Operating ROCE"): Management uses operating return on average common 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 ROCE, which management believes provides an attractive return to shareholders for the risk assumed. Operating ROCE for the years ended December 31, 2012, 2011 and 2010 is computed as follows:
Underwriting Income and Combined Ratio: The combined ratio is used in the insurance and reinsurance industry as a measure of underwriting profitability. 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 net loss and loss expense ratio and the expense ratio and the computations of each component are described below. A combined ratio under 100% indicates underwriting profitability, as the total loss and loss adjustment expenses, commission and other acquisition expenses and general and administrative expenses are less than the net premiums earned and other insurance revenue on that business. We have generated underwriting income in each year since our inception. Underwriting income is calculated by subtracting net loss and loss adjustment expenses, commissions and other acquisition expenses and applicable general and administrative expenses from the net premiums earned and other insurance revenue and is the monetized counterpart of the combined ratio.
Commission and other acquisition expenses 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. Commission and other acquisition expenses are reported after (1) deducting commissions received on ceded reinsurance, (2) deducting the part of commission and other acquisition expenses relating to unearned premiums and (3) including the amortization of previously deferred commission and other acquisition expenses.
The amount of time that elapses before a claim is reported to the cedant and then subsequently reported to the reinsurer is commonly referred to in the industry as the reporting tail. Lines of business for which claims are reported quickly are commonly referred to as short-tail lines; and lines of business for which a longer period of time elapses before claims are reported to the reinsurer are commonly referred to as long-tail lines. In general, for reinsurance, the time lags are longer than for primary business due to the delay that occurs between the cedant becoming aware of a loss and reporting the information to its reinsurer(s). The delay varies by reinsurance market (country of cedant), type of treaty, whether losses are paid by the cedant and the size of the loss. The delay could vary from a few weeks to a year or sometimes longer.
The reserve methodologies employed by the Company are dependent on data that the Company collects. This data consists primarily of loss amounts and loss payments reported by the Company’s cedants, and premiums written and earned reported by cedants or estimated by the Company. The actuarial methods used by the Company to project loss reserves in the Diversified Reinsurance segment that it will pay in the future (future liabilities) do not generally include methodologies that are dependent on claim counts reported, claim counts settled or claim counts open as, due to the nature of the Company’s business, this information is not routinely provided by cedants for every treaty. However, the Company does use actuarial methods in the AmTrust Quota Share Reinsurance and ACAC Quota Share segments that are dependent on claim counts reported, claim counts settled or claim counts open. Consequently, actuarial methods relying on this information cannot be used by the Company to estimate loss reserves in the Diversified Reinsurance segment.
The reserve for loss and loss adjustment expenses as of December 31, 2012 and 2011 comprised:
The Reported Loss Development (“RLD”) method is a common reserving method in which ultimate losses are estimated by applying a loss development factor to actual loss experience. This method fully utilizes actual experience. Multiplication of underwriting year actual reported (or paid) losses by its respective development factor produces the estimated ultimate losses. The RLD method is based upon the assumption that the relative change in a given underwriting year’s losses from one evaluation point to the next is similar to the relative change in prior underwriting years’ losses at similar evaluation points. In addition, this method is based on the assumption that the reserving and payment patterns as well as the claim handling procedures have not changed substantially over time. When a company has a sufficiently
In the Diversified Reinsurance segment, as of December 31, 2012, 90.5% 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 most significant assumptions used as of December 31, 2012 to estimate the reserve for loss and loss adjustment expenses within the Company’s segments are as follows:
the loss and exposure information provided by ceding companies, insureds and brokers in support of their submissions can be used to derive meaningful estimates of the likely future performance of business bound with respect to each contract and policy;
Due to the large volume of potential transactions that must be recorded in the insurance and reinsurance industry, backlogs in the recording of the Company’s business activities can also impair the accuracy of its loss and loss adjustment expense reserve estimates. As of December 31, 2012, there were no significant backlogs related to the processing of policy or contract information in the Company’s segments.
Potential Volatility in the Reserve for Loss and Loss Adjustment Expenses. In addition to the factors creating uncertainty in the Company’s estimate of loss and loss adjustment expenses, the Company’s estimated reserve for loss and loss adjustment expenses can change over time because of unexpected changes in the external environment. Potential changing external factors include:
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. As of December 31, 2012, 89.6% of the loss reserves in the Diversified Reinsurance segment are associated with the business acquired in the GMAC Acquisition. 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. We believe the possible variance of our expected loss ratio for all applicable loss years for the Diversified Reinsurance segment was approximately one percentage point as of December 31, 2012. If our final loss ratio for the Diversified Reinsurance 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 $28.0 million.
The Company has underwritten the AmTrust Quota Share Reinsurance segment since July 1, 2007. This segment consists of business written under the Reinsurance 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 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 of December 31, 2012. 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 $101.1 million.
Under proportional treaties, which represented 82.0% of gross premiums written for the year December 31, 2012, 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 18.0% of gross premiums written for the year December 31, 2012, 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.
Level 2 - Valuations based on quoted prices in active markets for similar assets or liabilities, quoted prices for identical assets or liabilities in inactive markets, or for which 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. Examples of assets and liabilities utilizing Level 2 inputs include: listed derivatives that are not actively traded; U.S. government-sponsored agency securities; non-U.S. government obligations; corporate and municipal bonds; mortgage-backed securities (“MBS”) and asset-backed securities (“ABS”); short-duration high yield fund, and over-the-counter (“OTC”) derivatives (e.g. foreign currency options and forward contracts).
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 98.3% and 97.7%, respectively of the Company’s fixed maturity investments are categorized as Level 2 within the fair value hierarchy as of December 31, 2012 and 2011. At December 31, 2012 and 2011, we have not adjusted any pricing provided by the Pricing Services.
The Company will challenge any prices for its investments which 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 December 31, 2012 and 2011, one security and three securities, respectively, are valued using the market approach. At those dates, approximately $26.1 million and $11.4 million, respectively or less than 1.0%. and 0.6%, respectively of Level 2 fixed maturities, was priced using a quotation from a broker and/or custodian as opposed to the Pricing Service. At December 31, 2012 and 2011, we have not adjusted any pricing provided to us 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, as appropriate, 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 December 31, 2012 and 2011.
At December 31, 2012 and 2011, the Company has no fixed income investments that are guaranteed by third parties. We do not have any direct exposure to third party guarantors as of December 31, 2012 and 2011.
Other mortgage-backed securities: Other mortgage-backed bonds consist of a commercial mortgage-backed security ("CMBS"). This security is priced by independent pricing services and brokers. The pricing provider applies dealer quotes and other available trade information, prepayment speeds, yield curves and credit spreads to the valuation. As the significant inputs used to price the CMBS are observable market inputs, the fair value of the CMBS is included in the Level 2 fair value hierarchy.
Other investments: The fair values of the investment in limited partnerships are determined by the fund manager based on recent filings, operating results, balance sheet stability, growth and other business and market sector fundamentals, and as such, the fair values are included in the Level 3 fair value hierarchy.
Loan to related party: The carrying values reported in the accompanying balance sheets for these financial instruments approximate their fair value. The underlying investments of the loan are generally priced by pricing services. As the significant inputs used to price the underlying investments are observable market inputs, the fair values of Loan to related party are included in the Level 2 fair value hierarchy.
Junior subordinated debt: The amount reported in the accompanying balance sheets for these financial instruments represents the carrying value of the debt. The fair value of the debt was derived using the Black-Derman-Toy model. As the fair value of the junior subordinated debt is determined using observable market inputs in the Black-Derman-Toy model, the fair value is included in the Level 2 fair value hierarchy. At December 31, 2012, the fair value of the debt was $166.9 million.
Calculated by adding together net loss and loss adjustment expense ratio, commission and other acquisition expense ratio and general and administrative expense ratio.
Net income attributable to Maiden common shareholders for the year ended December 31, 2012 was $46.5 million as compared to $28.5 million for the same period in 2011.
These increases were offset by reductions in business written in the Diversified Reinsurance segment, primarily by Maiden US, which experienced a decrease in premiums written for the year ended December 31, 2012 of $17.3 million or 2.6% compared to December 31, 2011. In addition to writing fewer new accounts in 2012, Maiden US added a number of large proportional contracts in the second half of 2011 which had sizable in-force and unearned premiums assumed, which did not recur in 2012. Finally, several large proportional reinsurance contracts that no longer met Maiden US' profitability criteria were non-renewed, contributing to the decrease.
Net premiums written increased by $495.7 million, or 40.4%, for the year ended December 31, 2011 compared to the year ended December 31, 2010. The table below compares net premiums written by segment for the years ended December 31, 2011 and 2010.
Premium from the IIS Acquisition. The IIS Acquisition was completed on November 30, 2010; IIS contributed $105.8 million for the year ended December 31, 2011 compared to $29.6 million for the year ended December 31, 2010.
Growth in Maiden US business in the Diversified Reinsurance segment in 2011- Continued underwriting discipline and strong organic premium written growth in 2011, particularly the second half of that year, resulted in increased earned premiums by Maiden US of $73.8 million or 12.3% during the year ended December 31, 2012, compared to the year ended December 31, 2011. This growth in earned premium was partially offset by slower premium written growth in 2012 in Maiden US as noted. Additionally, reduced writings by Maiden Bermuda and the Company's international operations in 2011, as certain accounts reduced in size or were non-renewed, affected earned premium in 2012.
Growth in the ACAC Quota Share segment - For the year ended December 31, 2012, net premiums earned increased by $34.9 million or 14.2% compared to the year ended December 31, 2011, as ACAC continues to expand its business.
Growth in the ACAC Quota Share segment. As noted, this new segment commenced on March 1, 2010 and thus the year ended December 31, 2011 represents a full year of operations compared to only ten months in 2010, contributing $122.3 million of the increase for the year ended December 31, 2011.
Net Investment Income - Net investment income increased by $6.3 million or 8.4% for the year ended December 31, 2012 compared to the year ended December 31, 2011.
The following table details the Company's average invested assets and average book yield for the year ended December 31, 2012 compared to the year ended December 31, 2011.
Net Investment Income - 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.
Yields in fixed income securities in general as well as in cash and cash equivalents have continued to be at historically low levels throughout 2011, resulting in downward pressure on yields as available cash is newly invested at lower rates than maturing securities previously yielded. Interest on the loan to AmTrust amounted to $1.9 million in 2011 compared to $2.0 million for the same period in 2010 due to a reduction in average 30 day LIBOR interest rates during 2011. Investment management fees and expenses of $3.5 million and $3.0 million were incurred during the year ended December 31, 2011 and 2010, respectively.
Net Realized and Unrealized Gains (Losses) on Investments - Net realized and unrealized gains on investments were $0.5 million for the year ended December 31, 2011 compared to $6.6 million for the same period in 2010. In 2011, these were offset by $3.5 million in net unrealized losses on short sales of certain U.S. Treasury securities. For additional information on the Company’s investments and realized and unrealized gains and losses, please refer to Liquidity and Capital Resources.
The net loss and loss adjustment expense ratios were 66.6% and 64.6% for the years ended December 31, 2011 and 2010, respectively. The underwriting impact of U.S. storm activity in 2011 increased the net loss and loss adjustment expense ratio by 0.6 % in 2011. Without the storm losses, the Company's net loss and loss adjustment expense ratio for the year ended December 31, 2011 would have been 66.0%, reflecting stable net loss and loss adjustment expense ratios in the Diversified Reinsurance segment as a result of the IIS Acquisition, offset by higher net loss and loss adjustment expense ratios in the AmTrust and ACAC segments.
Commission and other acquisition expenses increased by $102.1 million, or 30.3%, for the year ended December 31, 2011 compared to the same period in 2010 due to the ongoing premium growth of the Company. However, the commission and other acquisition expense ratio decreased to 28.0% for the year ended December 31, 2011 compared to 28.8% for the same periods in 2010.This reflects the growth in earned premium offset by: (1) modifications to the ceding commission made under the Reinsurance Agreement; (2) lower ceding commissions under the European Hospital Liability Quota Share; and (3) a lower ceding commission under the ACAC Quota Share due to an increase in the loss ratio (under the loss sensitive feature of that segment's reinsurance contract).
Total general and 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 both 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.
The Company recorded a current income tax expense of $1.1 million, $0.6 million and $0.1 million for the years ended December 31, 2012, 2011 and 2010 respectively. These amounts relate to income tax on the earnings of its international subsidiaries and state taxes incurred by its U.S. subsidiaries. The effective rate of current income tax was 1.9%, 2.1% and 0.2% for the years ended December 31, 2012, 2011 and 2010, respectively.
Dividends on Preference Shares in 2012 cover the period from the date of issuance of the Preference Shares on August 22, 2012 to the date of the first dividend payment which was December 17, 2012.
were largely the result of poor performance on certain accounts, primarily in Maiden US and were partially offset by a lower commission and other acquisition expense ratio as a result of reductions in ceding commission from loss sensitive contract features, primarily written by Maiden US.
The reduction in premium written in the segment was primarily attributable to Maiden US, which experienced a decrease in premiums written for the year ended December 31, 2012 of $17.3 million or 2.6% compared to December 31, 2011. In addition to writing fewer new accounts in 2012, Maiden US added a number of large proportional contracts in the second half of 2011 which had sizable in-force and unearned premiums assumed, which did not recur in 2012. Finally, several large proportional reinsurance contracts that no longer met Maiden US' profitability criteria were non-renewed, further contributing to the decrease.
Maiden Bermuda and IIS also decreased their written premium by $15.4 million or 12.0% during the year ended December 31, 2012 compared to December 31, 2011, largely due to non-renewals of certain accounts which were partially offset by new account activity.
Other Insurance Revenue - Other insurance revenue represents the IIS Fee Business, which consists primarily of commissions on German auto business produced, that is not directly associated with premium revenue assumed by the Company and increased 2.0% for the year ended December 31, 2012, compared to December 31, 2011.
The combined ratio increased to 97.1% for the year ended December 31, 2011 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% compared to 95.4% for the same period in 2010, reflecting a small deterioration in the loss ratios (as adjusted) in the segment.
Premiums - Net premiums written increased by $243.9 million, or 44.0%, for the year ended December 31, 2011 compared to the same period in 2010. The table below illustrates net premiums written by line of business in this segment for the years ended December 31, 2011 and 2010:
Net Loss and Loss Adjustment Expenses - Net loss and loss adjustment expenses increased by $107.8 million, or 27.3%, for the year ended December 31, 2011 compared to the same period in 2010. Net loss and loss adjustment expense ratios were 66.0% and 65.6% for the years ended December 31, 2011 and 2010, respectively. The underwriting impact of U.S. storm activity increased the net loss and loss adjustment expense ratio by 1.2% for the year ended December 31, 2011. Adjusted for the storm losses, the Company's net loss and loss adjustment expense ratio for the year ended December 31, 2011 was 64.8%.
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 commission and other acquisition expense ratio increased to 26.3% for the year ended December 31, 2011 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.
Effective April 1, 2011, the Company entered into a series of contract modifications with AmTrust regarding the reinsurance coverage it provides under the Reinsurance Agreement, including the ceding commission arrangements contained within that contract. These changes include: (1) extension of the Reinsurance Agreement for one additional year, to July 1, 2014, while continuing the automatic three-year renewal subject to the provisions of the contract; (2) a reduction of the ceding commission payable under the Reinsurance Agreement to 30.0% for the period April 1, 2011 to December 31, 2011; and (3) subsequent to December 31, 2011, a provision which potentially reduces the ceding commission payable based on the mix of business ceded under the Reinsurance Agreement, excluding business related to the Unitrin Business Insurance (“UBI”) business to either 30.5% or 30.0%.
The following table summarizes the underwriting results and associated ratios for the AmTrust Quota Share Reinsurance segment for the years ended December 31, 2012, 2011 and 2010:
Commission and Other Acquisition Expenses - Commission and other acquisition expenses increased by $40.1 million, or 24.9%, for the year ended December 31, 2012 compared to the same period in 2011. Expenses have increased in 2012 as a result of ongoing growth in earned premium under both the Reinsurance Agreement and the European Hospital Liability Quota Share. The commission and other acquisition expense ratio declined to 27.6% for the year ended December 31, 2012 compared to 28.8% in 2011. The change in both the expenses and ratio reflects the modifications to ceding commission made under the Reinsurance Agreement and the lower ceding commission under the European Hospital Liability Quota Share, both effective April 1, 2011. The impact of the lower ceding commission rate reduced the amount of ceding commission paid to AmTrust by $6.3 million for the year ended December 31, 2012, compared to $3.4 million for the year ended December 31, 2011.
Net premiums earned increased by $113.1 million, or 25.4% for the year ended December 31, 2011, compared to 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%.
The table below details net premiums earned by line of business for the years ended December 31, 2011 and 2010:
The combined ratio decreased to 97.2% for the year ended December 31, 2012 compared to 97.7% for the year ended December 31, 2011. In October 2012, ACAC incurred losses from Superstorm Sandy. Our share, net of inuring reinsurance, under the ACAC Quota Share was $2.0 million, which increased the net loss and loss adjustment expense ratio and combined ratio for the year ended December 31, 2012 by 0.7%. Excluding losses from Superstorm Sandy, the combined ratio decreased to 96.5% in 2012 from 97.7% in 2011. The cause of the decrease was a lower expense ratio in 2012, attributable in part to lower ceding commissions in 2012, the result of changes to the reinsurance agreement with ACAC discussed below.
Effective October 1, 2012, the parties amended the reinsurance agreement to decrease the provisional ceding commission from 32.5% to 32.0% 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 minimum of 30.0% (changed from 30.5%), if the loss ratio is 64.5% or greater. The Company believes 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. For the three months ended December 31, 2012, the effect of this contract amendment reduced ceded commission by $0.4 million.
Premiums - Net premiums written increased by $39.5 million, or 15.4% for the year ended December 31, 2012 compared to the year ended December 31, 2011. The table below details net premiums written by line of business in this segment for the years ended December 31, 2012 and 2011:
Commission and Other Acquisition Expenses - The ACAC Quota Share, as amended, provides that the reinsurers pay a provisional ceding commission equal to 32.0% 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.
For the years ended December 31, 2012 and 2011, the commission and other acquisition expense ratio of 31.5% and 31.7%, respectively, reflects the adjusted ceding commission recorded in addition to the U.S. Federal excise tax payable on this premium.
The ACAC segment commenced on March 1, 2010. As a result, comparability between the 2011 and 2010 periods is affected by the fact that 2010 only reflects ten months of results.
The combined ratio increased to 97.7% for the year ended December 31, 2011 compared to 96.6% for the period ended December 31, 2010. The cause of the increase was due to an increase in the overall loss ratio to 65.3% for the year ended December 31, 2011 compared to 64.5% for the period ended December 31, 2010.
Premiums - Net premiums written increased by $50.5 million, or 24.5% for the year ended December 31, 2011 compared to the period ended December 31, 2010. The table below details net premiums written by line of business in this segment for the year ended December 31, 2011 and for the period from March 1 to December 31, 2010:
Commission and Other Acquisition Expenses - 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. For the year ended December 31, 2011 and the period from March 1 to December 31, 2010, the commission and other acquisition expense 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, 2012, the statutory capital and surplus of Maiden Bermuda was $942.8 million. Maiden Bermuda is currently determining its BSCR as of December 31, 2012 and we estimate that Maiden Bermuda will be allowed to pay dividends or distributions not exceeding $217.7 million. During 2012 and 2011, 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's 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. At December 31, 2012, Maiden US and Maiden Specialty statutory capital and surplus were $267.9 million and $46.2 million, respectively, in excess of its authorized control level. 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 debt, preference shares and common shares. During 2012 and 2011, Maiden US and Maiden Specialty paid no dividends.
Cash flows from operations for the year ended December 31, 2012 were $319.1 million compared to $181.3 million for the year ended December 31, 2011. The increase in the amount of cash provided by operations in the year ended December 31, 2012 reflects the significant growth in the Company during both 2011 and 2012, along with continuing profitable combined ratios, despite the losses incurred by the Company in Superstorm Sandy. The Company's assets grew by $743.1 million or 21.9% as of December 31, 2012 compared to December 31, 2011, primarily reflecting the operating cash flows described, in addition to the issuance of the 2012 Senior Notes and the Preference Shares. Although the Company's rate of premium growth has slowed in recent calendar quarters, the combination of expected premium growth and stable combined ratios should continue to generate positive cash flow from operations resulting in continued growth in the Company's invested assets.
Cash flows from operations for the year ended December 31, 2011 were $181.3 million compared to $151.6 million for the year ended December 31, 2010. Cash flows from operations for the year ended December 31, 2011 were again strong due to continued positive underwriting results and reflect the continued overall growth of the Company in all segments. These positive factors were somewhat offset by the adverse net underwriting impact of second quarter 2011 U.S. thunderstorm and tornado activity totaling $9.5 million and lower growth in investment income during 2011.
Maiden Bermuda is neither licensed nor admitted as an insurer, nor is it accredited as a reinsurer, in any jurisdiction in the U.S. 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 U.S. 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 of December 31, 2012, total cash and cash equivalents and fixed maturity investments used as collateral were $2.2 billion compared to $1.6 billion as of December 31, 2011. The increase was primarily attributable to the increase in assets provided as collateral for the AmTrust Quota Share Reinsurance agreement.
The IIS Funds Withheld constituted 53.1% and 57.2% of the total funds withheld balance on the Company's Consolidated Balance Sheets at December 31, 2012 and 2011, respectively. The fixed maturity portfolio consists primarily of non-U.S. government debt, 100.0% of which is rated AAA as of December 31, 2012 and December 31, 2011. All corporate bonds held as of December 31, 2012 are investment grade securities. The fixed maturities consisted of the following:
We do not have any non-U.S. government and government related obligations related to Greece, Ireland, Italy, Portugal or Spain as of December 31, 2012 and December 31, 2011. See the discussion in Counterparty Credit Risk in