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Maiden Holdings' (MHLD) Divestment Nod to Boost Portfolio

Zacks Equity Research
Updated
Maiden Holdings' (MHLD) Divestment Nod to Boost Portfolio
Maiden Holdings (MHLD) agrees to sell its U.S. diversified business to Enstar Holdings and expects this deal to enhance its capabilities and operational efficiencies.

Maiden Holdings, Ltd. MHLD has made a definitive agreement to divest Maiden Reinsurance North America, Inc. to Enstar Holdings (US) LLC, a wholly owned subsidiary of Enstar Group Limited ESGR for $307.5 million. The divestiture, pending closing conditions, is anticipated to get completed in the fourth quarter of 2018.

The divestiture by Maiden Holdings follows its strategic review to streamline and simplify its operations and profitability. The transaction will help Maiden enhance its financial flexibility, boost operational efficiency and support capital allocation for strategies, thereby creating a shareholder value.  As part of its strategic review, recently, Maiden Holdings sold its exclusive renewal rights of its U.S. treaty reinsurance underwriting business to TransRe, a wholly owned subsidiary of Alleghany Corporation Y.

Further, the Zacks Rank #3 (Hold) property and casualty insurer will be able to accelerate profitability with the implementation of operational efficiencies and expense reductions for the rest of the current year.

However, the transaction excludes all of Bermuda underwritings including AmTrust Business or its International Insurance Services and Capital Solutions businesses in Europe. These constitute a considerable portion of Maiden business.

Shares of Maiden Holdings have plunged 42.4% against the industry’s increase of 5.3% on a year-to-date basis. However, we expect sustained operational performance and a robust capital position to turn the stock around in the near term.



Meanwhile, with this buyout, Enstar Group will further strengthen its dominance in the market in closing legacy acquisitions and simultaneously ramping up its inorganic growth portfolio. The Multi line insurer has acquired more than 80 companies and portfolios since its establishment in 2001, which goes to show that the recent consolidation is a strategic move to boost growth and the overall performance of the insurer.

On closure, Enstar Group will operate the business in run-off and as part of the transaction, the acquirer will novate and assume a few reinsurance agreements from Maiden’s Bermuda reinsurer, comprising certain reinsurance agreements with Maiden Re North America. Also, the acquirer is estimated to assume about $1.3 billion of net loss and loss adjustment expense reserves and unearned premiums.

Enstar Group will finance the transaction with cash in hand as well as borrowings under its revolving credit facility.

Stocks to Consider

Some better-ranked stocks from the same space are The Progressive Corporation PGR and The Navigators Group, Inc. NAVG, both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Progressive Corporation provides personal and commercial auto insurance, residential property insurance and other specialty property-casualty insurance plus related services, primarily in the United States. The company delivered positive surprises in all the preceding four quarters with an average earnings surprise of 9.19%.    

Navigators Group underwrites marine, property and casualty plus professional liability insurance products and services in the United States and globally. The company came up with positive surprises in three of the preceding four quarters with an average beat of 19.54%.

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Maiden Holdings, Ltd. (MHLD) : Free Stock Analysis Report
 
The Navigators Group, Inc. (NAVG) : Free Stock Analysis Report
 
Alleghany Corporation (Y) : Free Stock Analysis Report
 
The Progressive Corporation (PGR) : Free Stock Analysis Report
 
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