Kestrel Group Ltd

Current report

Item 1A. Risk Factors

Current report

There are no material changes from the risk factors previously disclosed in "Part II. Other Information, Item 1A. Risk Factors" of our Quarterly Report on Form 10-Q for the quarter ended June 30, 2025.

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The combined company’s ("Kestrel Group") business, financial condition and results of operations are subject to various risks and uncertainties as noted below, which may affect the value of its securities. In addition to the risks discussed below, there may be additional risks not presently known to us or that we currently deem less significant that also may adversely affect its business, financial condition and results of operations, perhaps materially. Some statements in the risk factors constitute forward-looking statements. You should also read and consider the risk factors associated with the businesses of Maiden because these risk factors may affect the operations and financial results of Kestrel Group.

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Risks Relating to Kestrel Group

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Kestrel Group may not be able to recover amounts due from its reinsurers, which would adversely affect its financial condition.

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Kestrel Group will be a specialty program group offering fronting arrangements to domestic and foreign insurers that want to access specific U.S. property and casualty insurance business, which are collectively referred to as “capacity providers,” and will generally reinsure on a quota share basis up to 100% of the risk under these policies with these carriers in exchange for ceding fees. Kestrel Group will write business initially through the AmTrust Insurance Companies, all subsidiaries of AmTrust through which Kestrel has been writing its business, and the combined company will have an option to acquire the AmTrust Insurance Companies from AmTrust.

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Kestrel Group will reinsure a substantial portion of the underwriting and operating risks in connection with its fronting arrangements to its capacity providers. Kestrel Group will generally select either well capitalized, highly rated authorized capacity providers or will require the capacity providers to post collateral and/or obtain guarantees to secure the reinsured risks. However, if any of the capacity providers becomes insolvent or otherwise refuse to reimburse losses paid to these policyholders in a timely manner, the corresponding impact to the combined company’s ability to continue writing business through the AmTrust Insurance Companies could materially adversely affect Kestrel Group’s financial condition and results of operations.

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While Kestrel Group generally will not hold net reserves for losses or loss adjustment expenses (“LAE”) that might arise as a result of claims made under the policies (unless it participates on a quota share basis to a limited extent in certain programs), it may hold collateral from capacity providers who may not be well capitalized, highly rated, or authorized to protect against any such capacity provider’s failure to pay claims. However, collateral may not be sufficient to cover the combined company’s liability for these claims, and Kestrel Group may not be able to cause the capacity providers to deliver additional collateral.

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Although the AmTrust Insurance Companies will ultimately take the risk of insolvency or other failure to pay by a capacity provider, any adverse impact to the business, financial condition, results of operations and prospects of the AmTrust Insurance Companies may have an adverse impact on Kestrel Group’s financial condition and results of operations as Kestrel Group is reliant on the AmTrust Insurance Companies to write its business. For example, any risks or difficulties that result in a negative impact on the financial strength ratings, licenses or reputation of any of the AmTrust Insurance Companies may limit or restrict Kestrel Group’s ability to continue to write business on behalf of its capacity providers, which in turn may have a material and adverse impact on Kestrel Group’s ability to generate fee revenues.

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If market conditions cause Kestrel Group’s reinsurance to be more costly or difficult to obtain, it may be required to bear increased risks or reduce the level of its underwriting commitments.

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Kestrel Group will provide access to the U.S. property and casualty insurance markets in exchange for ceding fees through its fronting business by providing access to the AmTrust Insurance Companies with expansive licensing and an “A-” (Excellent) rating by A.M. Best through its relationship with AmTrust. As part of its business strategy, Kestrel Group will reinsure a substantial portion of underwriting risk, credit risk and business risk related to its fronting business. Kestrel Group may be unable to maintain its current reinsurance arrangements or to obtain other reinsurance in adequate amounts and at favorable rates, particularly if reinsurers become unwilling or unable to support its specialized fronting model in the future. A decline in the availability of reinsurance, increases in the cost of reinsurance or a decreased level of activity by general agents could limit the amount of fronting business the combined company could write through the AmTrust Insurance Companies and materially and adversely affect its business, financial condition, results of operations and prospects.

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Regulators may challenge Kestrel Group’s use of fronting arrangements in states in which its capacity providers are not licensed.

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Kestrel Group will enter into fronting arrangements with general agents and domestic and foreign insurers that want to access specific U.S. property and casualty insurance business in states in which such capacity providers are not licensed or are not authorized to write particular lines of insurance. The capacity providers or the general agents administer the business, settle all claims and reinsure a substantial portion of the risks. Kestrel Group will receive ceding fees but generally will not share in the profits or losses of the business it writes for the capacity providers unless Maiden Reinsurance participates on a quota share basis to a limited extent in certain programs. Some state insurance regulators may object to such fronting arrangements. In certain states, insurance regulators have the authority to prohibit an authorized insurer from acting as an issuing carrier for an unauthorized insurer. In addition, insurance departments in states without such prohibition could still deem the assuming insurer as transacting insurance business without a license and the issuing carrier as aiding and abetting the unauthorized sale of insurance.

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If regulators in any of the states where Kestrel Group conducts its fronting business were to prohibit or limit the arrangement, Kestrel Group would be prevented or limited from conducting the business for which a capacity provider is not authorized in those states, unless and until such capacity provider is able to obtain the necessary licenses. This could have a material and adverse effect on Kestrel Group’s business, financial condition, results of operations and prospects.

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While it is expected that the fronting business will be ceded to a number of unaffiliated reinsurers, Maiden Reinsurance may be ceded a small percentage of the reinsurance, subject to prior approval from the Vermont Department of Financial Regulation ("Vermont DFR") of Kestrel Group’s ability to reinsure the business that it expects to underwrite. If the Vermont DFR fails to provide this approval, or places certain limitations on such approval, Kestrel Group may not be able to operate its fronting business efficiently, which could reduce Kestrel Group’s effectiveness in the marketplace.

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In addition, the Vermont DFR may place certain restrictions on Kestrel Group’s fronting business, such as requiring Maiden Reinsurance to no longer be licensed as a captive or affiliated reinsurer. Such limitations could further impact the combined company’s ability to operate its fronting business, which could have a material and adverse effect on Kestrel Group’s business, financial condition, results of operations and prospects.

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Notwithstanding these state law restrictions on ceding insurers, the Nonadmitted and Reinsurance Reform Act (“NRRA”) contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) provides that all laws of a ceding insurer’s nondomestic state (except those with respect to taxes and assessments on insurers or insurance income) are preempted to the extent that they otherwise apply the laws of the state to reinsurance agreements of nondomestic ceding insurers. The NRRA places the power to regulate reinsurer financial solvency primarily with the reinsurer’s domiciliary state and requires credit for reinsurance to be recognized for a nondomestic ceding company if it is allowed by the ceding company’s domiciliary state. A state insurance regulator might not view the NRRA as preempting a state regulator’s determination that an unauthorized reinsurer must obtain a license or that any statute prohibits the combined company from doing a fronting business. However, such a determination or a conflict between state law and the NRRA could cause regulatory uncertainty about its fronting business, which could have a material and adverse effect on its business, financial condition, results of operations and prospects.

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State insurance regulation could materially adversely affect Kestrel Group’s business.

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Some states have adopted changes to their insurance laws and regulations that permit insurers to obtain credit for reinsurance from reinsurers who are able to post reduced collateral if they satisfy certain requirements, including specific rating criteria. Kestrel Group will require many of its capacity providers to post collateral to secure their reinsurance obligations. If regulatory changes are adopted in the states in which the AmTrust Insurance Companies are domiciled that permit non-admitted reinsurers to post reduced or no collateral in order for the insurer to obtain credit for that reinsurance, it may become more difficult for Kestrel Group to obtain collateral from its capacity providers who meet the applicable rating agency requirements, which could materially and adversely affect the amount of business that the combined company can write through the AmTrust Insurance Companies.

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In addition, state insurance regulators maintain broad discretion to deny, delay, suspend, non-renew or revoke licenses for various reasons, including violation of regulations. In some instances, where there is uncertainty as to applicability, Kestrel Group may follow practices based on interpretations of regulations or practices that the combined company believes generally to be followed by the industry. These practices may turn out to be different from the interpretations of regulatory authorities. If Kestrel Group does not have the requisite licenses and approvals or does not comply with applicable regulatory requirements, state insurance regulators could preclude or temporarily suspend the combined company from carrying on some or all regulated activities or could otherwise penalize the combined company. In particular, Kestrel Insurance Agency, LLC (“Kestrel Insurance Agency”), which is licensed as a reinsurance broker and general lines agent by the Texas Department of Insurance, has entered into a management agreement with AmTrust that governs Kestrel Group’s fronting arrangement with each of the AmTrust Insurance Companies. If either of these licenses is suspended, non-renewed or revoked, Kestrel Group may be unable to maintain its fronting arrangement with AmTrust and, further, may be unable to exercise the option to acquire the AmTrust Insurance Companies from AmTrust. This could adversely affect Kestrel Group’s ability to operate its business. Further, changes in the level of regulation of the insurance industry or changes in laws or regulations themselves or interpretations by regulatory authorities could interfere with Kestrel Group’s operations and require it to bear additional costs of compliance, which could adversely affect Kestrel Group’s ability to operate its business.

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Insurers are also regulated by state insurance departments for solvency issues and are subject to reserve requirements. Kestrel Group cannot guarantee that all of the AmTrust Insurance Companies comply with regulations instituted by state insurance departments. Kestrel Group may need to expend resources to address questions or concerns regarding its relationships with the AmTrust Insurance Companies, diverting management resources away from operating its business.

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Compliance by Kestrel Group’s insurance subsidiaries with the legal and regulatory requirements to which they are subject is expensive. Any failure to comply could have a material adverse effect on Kestrel Group’s business.

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Kestrel Group’s insurance subsidiaries are required to comply with a wide variety of laws and regulations applicable to insurance or reinsurance companies, both in the jurisdictions in which they are organized and where they sell their insurance and reinsurance products. The insurance and regulatory environment has become subject to increased scrutiny in many jurisdictions, including the U.S., various states within the U.S. and the EU. In the past, there have been Congressional and other initiatives in the U.S. regarding increased supervision and regulation of the insurance industry. It is not possible to predict the future impact of changes in laws and regulations on Kestrel Group’s operations.

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Compliance with applicable laws and regulations is time-consuming and personnel-intensive, and changes in these laws and regulations may materially increase costs of compliance. In the future, states may make existing insurance laws and regulation more restrictive or enact new restrictive laws. In such event, the combined company may seek to cut down its business in, or withdraw entirely from, these states. Additionally, from time to time, the United States Congress and certain federal agencies investigate the current condition of the insurance industry to determine whether federal regulation is necessary. Currently, the U.S. federal government does not directly regulate the property and casualty insurance business. However, Dodd-Frank Act established a Federal Insurance Office (“FIO”) within the Department of the Treasury. The FIO initially is charged with monitoring all aspects of the insurance industry (other than health insurance, certain long-term care insurance and crop insurance), gathering data and developing methods to modernize and improve the insurance regulatory system in the United

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States. The FIO continues to support the current state-based regulatory regime but will consider federal regulation should the states fail to take steps to greater uniformity. The combined company cannot fully predict the impacts of any new legislation on its business, financial condition and results of operations.

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In addition, Kestrel Group’s subsidiaries may not always be able to obtain or maintain necessary licenses, permits, authorizations or accreditations. They also may not be able to fully comply with, or to obtain appropriate exemptions from, the laws and regulations applicable to them. Any failure to comply with applicable law or to obtain appropriate exemptions could result in restrictions on either the ability of the company in question, as well as potentially its affiliates, to do business in one or more of the jurisdictions in which they operate or on brokers on which the combined company may rely. In addition, any such failure to comply with applicable laws or to obtain appropriate exemptions could result in the imposition of fines or other sanctions. Any of these sanctions could have a material adverse effect on the combined company’s business.

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Kestrel Group may change its underwriting guidelines or strategy without shareholder approval.

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Kestrel Group’s management team has the authority to change its underwriting guidelines or strategy without notice to shareholders and without shareholder approval. As a result, Kestrel Group may make fundamental changes to its operations without shareholder approval, which could result in Kestrel Group pursuing a strategy or implementing underwriting guidelines that may be materially different from the current strategy and underwriting guidelines.

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Kestrel Group has a limited operating history and may not be able to manage its growth effectively.

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Kestrel Group intends to grow its business in the future, which could require additional capital, systems development and skilled personnel. However, the limited operating history of Kestrel Group may make it difficult to evaluate its current capital structure and future capital requirements, which may have an adverse impact on potential strategic initiatives. Kestrel Group will encounter risks and difficulties frequently experienced by growing companies in rapidly changing industries, including increasing and unforeseen expenses as it continues to grow its business. The inability of Kestrel Group to manage these risks successfully may have a direct impact on its ability to exercise the option to acquire the AmTrust Insurance Companies from AmTrust, as it must be able to meet its capital needs, expand its systems and internal controls effectively, allocate its human resources optimally, identify, hire, train and develop qualified employees and effectively incorporate the components of any business it may acquire in its effort to achieve growth. The failure to manage Kestrel Group’s growth effectively could have a material adverse effect on its business, financial condition and results of operations.

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Inability to maintain the strategic relationship with AmTrust could adversely affect Kestrel Group’s business.

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Upon the completion of the Combination Agreement, AmTrust holds approximately 7.8% of the issued and outstanding Kestrel Group common shares and has the right to nominate three directors to the Kestrel Group board. See“Note 10 - Related Party Transactions” for more details. Kestrel Group will write its business on a fronting basis initially through the AmTrust Insurance Companies. Kestrel Group will cede up to 100% of underwriting risk in exchange for a ceding fee based on gross premiums written. In addition, AmTrust will provide additional services in relation to the AmTrust Insurance Companies pursuant to a management agreement with Kestrel Insurance Agency, including compliance, data reporting, data flow and information technology systems. As a result, Kestrel Group will rely on its strategic partnership with AmTrust, and any inability to maintain such relationship with AmTrust or to exercise the option to acquire the AmTrust Insurance Companies from AmTrust would materially adversely affect its business. These contractual arrangements may terminate or be terminated under certain circumstances, and there can be no assurance that this strategic relationship will continue in the future, including on the same or similar terms, and if not, that Kestrel Group would be able to find a suitable replacement or another strategic partnership on favorable terms, if at all. If Kestrel Group was not able to find other insurance carriers with similar financial strength ratings with which it could partner, its ability to write new and renewal business would be significantly impacted.

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Kestrel Group’s business, and therefore its results of operations and financial condition, may be adversely affected by conditions that result in reduced insurer capacity.

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Kestrel Group’s results of operations depend on the continued capacity of the AmTrust Insurance Companies to adequately and appropriately underwrite risk and provide coverage. Capacity could be reduced by the AmTrust Insurance Companies failing or withdrawing from writing certain coverages that Kestrel Group will offer and it will have limited control over these matters. In addition, to the extent that reinsurance becomes significantly more expensive, Kestrel Group may experience restrictions and limitations on its ability to continue to write the amount or types of business it anticipated, which could have a negative impact on its ability to generate fee revenue.

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A decline in the financial strength rating or financial size category of Kestrel Group’s fronting companies may adversely affect Kestrel Group’s financial condition and results of operations.

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Each of Kestrel Group’s fronting companies has an “A-” (Excellent) financial strength rating and a XV financial size category from A.M. Best. A downgrade or withdrawal of the financial strength rating or reduction in the financial size category of any of Kestrel Group’s fronting companies could cause current and future general agents and insureds to choose other competitors and could severely limit or prevent Kestrel Group’s writing of new and renewal insurance contracts.

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A.M. Best’s analysis includes comparisons to peers and industry standards as well as assessments of operating plans, philosophy and management. A.M. Best periodically reviews each insurance carrier’s financial strength rating and may adjust upward or downward at its discretion based primarily on analyzing the balance sheet strength, operating performance and business profile of each insurance carrier.

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In addition, in view of the earnings and capital pressures experienced by many financial institutions, including insurance companies, it is possible that rating organizations will heighten the level of scrutiny that they apply to such institutions, increase the frequency and scope of their credit reviews, request additional information from the companies that they rate or increase the capital and other requirements employed in the rating organizations’ models for maintenance of certain ratings levels.

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As Kestrel Group will leverage its strategic relationship with such fronting companies for lines of business that require an “A-” financial strength rating from A.M. Best, any downgrade or withdrawal of any insurance carrier’s rating could have a material adverse effect on Kestrel Group’s business. A.M. Best assigns ratings that are intended to provide an independent opinion of an insurance company’s ability to meet its obligations to policyholders and is neither an evaluation directed to investors nor a recommendation to buy, sell or hold stock or any other securities an insurance group may issue.

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There can be no assurances that Kestrel Group’s fronting companies will be able to maintain this rating. Any downgrade in ratings would likely materially adversely affect Kestrel Group’s business through the loss of certain existing and potential policyholders and the loss of relationships with clients that might move to other companies with higher ratings. If such fronting companies lose their “A-” rating, Kestrel Group may need to secure a new fronting arrangement or risk losing the business of its capacity providers to higher rated issuing carriers.

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Kestrel Group derives a significant portion of its fee revenues from a limited number of general agents, the loss of which could result in its inability to continue to write a significant portion of the current business, additional expense and a material decrease in fee revenues.

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A significant portion of Kestrel Group’s total fees are derived from a limited number of general agents and Kestrel Group is heavily reliant upon these general agents to generate revenues. The decision of any such general agent to seek to terminate its arrangements with Kestrel Group or to otherwise decrease the volume of business Kestrel Group writes through them, could result in additional expense and a material decrease in the amount of fee revenues Kestrel Group is able to generate. In addition, if Kestrel Group is unable to collect fees under these arrangements due to insolvency, dispute or other unwillingness or inability of any of its general agents to meet their obligations to Kestrel Group, its business, financial condition, results of operations or prospects could be materially and adversely affected.