Wigglesworth v. Maiden Holdings, Ltd., No. 1:19-cv-05296, 2023 U.S. Dist. LEXIS 225500, 2023 WL 8751243 (D.N.J. Dec. 19, 2023)

Issue Discussed: Securities Fraud

Submitted by Vincent Proto

Date Promulgated: December 19, 2023

Court: United States District Court for the District of New Jersey

Issued Decided:  Whether the defendant’s alleged failure to set reserves above historical loss ratios could support a claim for securities fraud.

This action involved a claim for securities fraud against Maiden Holdings and other defendants on the basis that Maiden Holdings understated the loss reserves on claims arising under policies issued by AmTrust. It appears that Maiden Holdings, in addition to handling the claims, reinsured AmTrust. The plaintiffs alleged that Maiden Holdings should have disclosed that “reserves were set by relying on estimated loss ratios that were lower than historical loss ratios for previous accident years.” The federal district court found that there was no evidence in the record that supported plaintiffs’ claim. In particular, the court found that Maiden Holdings “engaged in a complex actuarial process that considered historical losses” and criticized the plaintiffs for making a “backward-looking challenge” to the reserving process that ignored the relevance of various other considerations apart from the mere fact that historical loss ratios were higher than the estimated loss ratios adopted by Maiden Holdings. As such, the court granted summary judgment to Maiden Holdings and the other defendants. This decision supports the proposition that an insurer or reinsurer cannot be faulted simply for setting reserves below historical loss ratios, provided that it engages in a thorough, professional process in setting those reserves.