Maiden Holdings (MHLD) Likely to Divest Inactive Unit

Maiden Holdings, Ltd. MHLD recently announced the proposed sale of its wholly-owned subsidiary – Maiden Specialty Insurance Company – to Clear Blue Financial Holdings, LLC. The company had decided to make the divestiture as this affiliate as has been dormant for quite some time and did not make any significant contribution to its operations. However, the parent company does not expect the net proceeds from this sale to be of significant value to its operations.

Post announcement, A. M. Best placed the financial strength rating (FSR) of A- (Excellent) and the issuer credit rating of “a-” of Maiden Specialty under review with negative implications. The current ratings reflect Maiden Specialty’s strong risk-adjusted capitalization as well as the inter-company reinsurance support it received from Maiden Re NA.

However, the positive factors have been partially offset by Maiden Specialty’s limited business profile. Maiden Specialty has been a run-off company due to a 100% quota share reinsurance arrangement of its surplus units, which involved the transfer of staff and underwriting platform to Brit Insurance in the second quarter of 2013. As of Mar 31, 2015, Maiden Specialty recorded $24 of ceded premiums, down from $35 in the year-ago quarter. Moreover, it recorded $1 ceding commission income, which declined from $2 of ceding commission income in the prior-year quarter.

On completion of the transaction, Maiden Specialty will reinsure all liabilities to its immediate parent – Maiden Reinsurance North America, Inc. The sell-off deal, however, did not have any impact on Maiden, Maiden Reinsurance North America, Ltd. or Maiden Reinsurance Ltd.’s FSRs of A- with positive outlook.

Maiden Holdings’ efforts to remove the inactive unit to focus on its core operations will likely prompt a revision in earnings estimates and hence, lead to a rank upgrade. Currently, Maiden Holdings carries Zacks Rank #5 (Strong Sell).

Better-ranked stocks from the property and casualty insurance sector include Argo Group International Holdings, Ltd. AGII, Endurance Specialty Holdings Ltd. ENH and Markel Corp. MKL. All the stocks sport a Zacks Rank #1 (Strong Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>