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Maiden Holdings leads insurers' losses as Q2 earnings wind down

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Maiden Holdings leads insurers' losses as Q2 earnings wind down

Maiden Holdings Ltd. saw the largest loss among insurers for the week ending Aug. 10, one of the final weeks of second-quarter earnings reports and one in which few insurers made gains.

For the week, the SNL Insurance Index fell 1.03% to 969.82, compared with the S&P 500's 1.56% fall to 2,438.21.

As the earnings season came to a close, some insurers saw "violent stock movements," said JMP Securities analyst Matt Carletti in an interview.

Maiden Holdings led the pack in losses, as its share price plunged 34.68% to $7.25 during the week. The company reported a second-quarter net loss attributable to common shareholders of $22.4 million, down from net income attributable to common shareholders of $30.9 million a year earlier.

But the company's sinking share price was likely in response to its $56 million net adverse development reported in the quarter, according to Carletti, who called the price decline "an overreaction." The charges may continue to impact the company's future earnings and share price, which is a "pretty big discount" as shares are trading at about 60% of book value, Carletti said.

"The magnitude of [the price move] is overstating the size of the issue," he said. "I think the market is assuming there's some very bad things yet to come, but we have a different view."

As Maiden Holdings looks to turn things around in the next six to 12 months, Carletti said he expects investors to stick around thanks to the company's 8% dividend yield.

Trailing Maiden Holdings with large losses for the week were AmTrust Financial Services Inc. and MetLife Inc. AmTrust shares fell 12.92% to $13.82, while MetLife shares were down 13.32% to $46.74.

Earlier in the week, MetLife revealed it expects to incur about $1.4 billion in third-quarter realized net investment losses, net of income tax, from the spinoff of Brighthouse Financial Inc.

AmTrust's fallen share price follows the company reporting year-over-year declines for the second quarter. In 2017, the value of AmTrust shares has been cut nearly in half, with the stock price down about 49% since Jan. 3. Throughout the year, AmTrust has faced accounting issues, having to raise capital, selling off an approximate $211.7 million holding and covering adverse developments.

"It was a very noisy quarter" for AmTrust, JMP's Carletti said, adding that the latter three events all happened in the second quarter. "This is a company that has had more than its fair share of issues that it's had to work through over that period."

AmTrust entered into an adverse loss development cover agreement July 6 to help cover up to about $1.03 billion in adverse net loss reserve development, if the losses go over about $5.96 billion. For the second quarter, the company reported a prior-year adverse loss reserve development of $73.1 million, before taxes, which exceeded the costs related to the agreement's consideration, resulting in $14.1 million of pretax deferred gain, the company said.

Meanwhile, bond insurer MBIA Inc.'s shares finished the week with one of the largest gains among insurers.

MBIA shares were up 5.17% to $10.38 for the week after CEO Joseph Brown revealed his intention to step down from his position less than a day after the company reported year-over-year declines for its second-quarter results. The move caught some off guard, but BTIG analyst Mark Palmer said in an Aug. 10 note that the move was long planned on Brown's part.

Palmer added that Brown was unable to return the company's municipal bond unit, National Public Finance Guarantee Corp., to writing "robust amounts" of new business, particularly as S&P Global Ratings downgraded the unit's credit rating in June.

"Investors should take advantage of any weakness in the company's shares, which would be based on a misinterpretation of the news, in our view," Palmer wrote.

S&P Global Ratings and S&P Global Market Intelligence are owned by S&P Global Inc.