S&P Raises Outlook on Maiden Holdings (MHLD) and Subsidiaries to Stable

Key points:

• Our previous concerns with Maiden's capital adequacy needed to support steady growth, its risk profile, or a balance sheet shock have abated.
• We are affirming our ratings on Maiden and revising the outlook to stable from negative.
• We placed Maiden Specialty on CreditWatch Negative following announcement of its sale.
• The stable outlook reflects our view that Maiden will maintain its capital adequacy and continue to reduce its financial leverage position.

Standard & Poor's Ratings Services said today that it affirmed its 'BBB+' financial strength ratings on Maiden Reinsurance North America Inc. and Maiden Reinsurance Ltd. and its 'BBB-' counterparty credit ratings on Maiden Holdings Ltd. (Nasdaq: MHLD) and Maiden Holdings North America Ltd. (US). At the same time, we revised the outlook on these companies to stable from negative.

In addition, we placed our 'BBB+' long-term counterparty credit and financial strength ratings on Maiden Specialty Insurance Co. on CreditWatch with negative implications following the announcement of an agreement to sell this inactive wholly owned subsidiary to Clear Blue Financial Holdings LLC (unrated).

Maiden's capital and earnings have stabilized at strong levels shaped by stable operating performance, an additional layer of retrocessional reinsurance added in 2015, flexibility afforded from 2014 repayment of high interest rate TRUPS, and prospective improvement in debt-to-capital ratios. Through our projections for 2015-2017, we expect the company to trend toward very strong capital adequacy while firmly preserving capital adequacy at least consistent with the rating level according to our proprietary capital model, despite assumptions of steady growth from its quota share arrangement with AmTrust International Insurance Ltd. and internal Diversified Reinsurance segments.

"The ratings reflect our view of the company's satisfactory business risk profile and upper adequate financial risk profile built on its adequate competitive position and strong capital and earnings," said Standard & Poor's credit analyst Neil Stein. This leads to a 'bbb+' anchor. The ratings further reflect the structural subordination of Maiden Holdings to its regulated operating subsidiaries. As insurance holding companies, Maiden Holdings and Maiden Holdings North America largely rely on distributions from their regulated insurance units to meet their obligations.

The CreditWatch placement of Maiden Specialty results from Maiden's agreement to sell it to Clear Blue Financial Holdings. We expect the transaction to close by year-end 2015, subject to regulatory and other approvals. We expect to resolve the CreditWatch status upon the close of the transaction by lowering the rating by up to two notches to reflect its stand-alone credit characteristics, and withdrawing the ratings.

The stable outlook reflects our expectation that Maiden will sustain its competitive position, generate stable earnings, and maintain capitalization at the strong level, despite rapid growth.

We might lower our ratings if we believe the company is unable to maintain capital adequacy at the 'A' confidence level in our capital model for a prolonged period. A downgrade is also possible if, contrary to our expectations, there is deterioration in operating performance below our base-case assumptions, significant adverse loss-reserve development, or related-party transactions that harm the group's credit profile.

Although we believe there is limited upside potential due to the significant concentration of premium volume from its relationship with AmTrust that overshadows its other businesses, we could raise the ratings in the next 24 months if Maiden improves its competitive position and client concentration subsides. Sustainable improvements to capital adequacy more than expected and the absence of significant adverse loss developments could also contribute, though they are more limiting factors.

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