Kestrel Group (KG) risk factors, FY2025 10-K

Risks Relating to Our Business

1. 01We have significant levels of debt service and operating expenses that may make it difficult to produce an operating profit
2. 02The AmTrust Insurance Companies may not be able to recover amounts due from reinsurers, which would adversely affect our financial condition
3. 03If market conditions cause reinsurance to be more costly or difficult to obtain, we may be required to bear increased risks or reduce the level of our underwriting commitments
4. 04Our inability to maintain the strategic relationship with AmTrust could adversely affect Kestrel Group’s business
5. 05Regulators may challenge our use of fronting arrangements in states in which our capacity providers are not licensed
6. 06State insurance regulation could materially adversely affect our business
7. 07The general lines of authority or business we are licensed to conduct, as well as the rates charged under the policies we write through the AmTrust Insurance Companies, will be subject to prior regulatory approval in most of the states in which we operate
8. 08We may change our strategy without shareholder approval
9. 09We have a limited operating history and may not be able to manage our growth effectively
10. 10Our business, and therefore our results of operations and financial condition, may be adversely affected by conditions that result in reduced insurer capacity
11. 11A decline in the financial strength rating or financial size category of our fronting companies may adversely affect our financial condition and results of operations
12. 12the 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
13. 13Failure of capacity providers or general agents to properly market, underwrite or administer policies could materially adversely affect our business, financial condition, results of operations and prospects
14. 14We may not be successful in building more direct relationships with general agents and capacity providers
15. 15We may face increased competition
16. 16Some of our fronting arrangements may contain limits on the reinsurer’s obligations
17. 17Catastrophic losses may exceed expectations
18. 18We rely on third-party service providers that provide the infrastructure for our technological systems, and any failure to maintain these relationships could harm our business
19. 19Maiden’s reinsurers may not pay losses in a timely fashion, or at all, which could have a material adverse effect on Kestrel Group’s results of operations or financial condition
20. 20The failure of any of the loss limitation methods we have employed or could employ in the future could have a material adverse effect on our results of operations or financial condition
21. 21If we are unable to establish and maintain accurate loss reserves, our business, financial condition, results of operations and prospects may be materially and adversely affected
22. 22We may be adversely impacted by claims inflation
23. 23Maiden Reinsurance’s legacy business is subject to risks related to litigation. Losses from legal and regulatory actions may have a material adverse effect on our reputation, which in turn may have a material adverse effect on our results of operations, cash flows, financial condition and prospects
24. 24We may not have sufficient unrestricted liquidity to meet our obligations and favorable terms to obtain additional capital may not be available
25. 25We also have total unfunded commitments on alternative investments of $24.8 million at December 31, 2025 which included commitments for other investments, private equity securities and equity method investments
26. 26Our investments in alternative investments and our investments in joint ventures and/or entities accounted for using the equity method may be illiquid and volatile in terms of value and returns, which could negatively affect our investment income and liquidity
27. 27We may require additional capital and liquidity in the future, which may not be available on favorable terms or at all
28. 28Performance of our investment portfolio will be subject to a variety of investment risks
29. 29A significant amount of our invested assets are subject to changes in interest rates and market volatility. If we are unable to realize our investment objectives, our financial condition and results of operations may be adversely affected
30. 30are not limited to, a failure of these managers to follow our investment policy guidelines, a failure to maintain proper internal controls, technological and staffing deficiencies and inadequate disaster recovery plans
31. 31The differential in duration between these assets and liabilities may fluctuate over time and in the case of fixed maturities, is affected by factors such as market conditions, asset allocations and prepayment speeds in the case of Agency MBS
32. 32The determination of the fair values of our investments and whether a decline in the fair value of an investment is other-than-temporary are based on management’s judgment and may prove to be incorrect
33. 33A decrease in the fair value of our subsidiaries may result in future impairments
34. 34Collateral arrangements with ceding insurers may subject our assets to security interests, pledges or other restrictions which may result in lower investment yields and may adversely affect our profitability
35. 35Technology breaches or failures, including, but not limited to, those resulting from cyber-attacks on us or our business partners and service providers, could disrupt or otherwise negatively impact our business
36. 36Artificial intelligence could increase competitive, operational, legal and regulatory risks to our businesses in ways that we cannot predict
37. 37Our success depends on our executive officers’ industry expertise, knowledge of our markets and relationships with clients. The executive officers of Kestrel Group include: • Luke Ledbetter (Chief Executive Officer); • Terry Ledbetter (Executive Chairman); and • Patrick Haveron (President and Chief Financial Officer)
38. 38Our industry is highly regulated and we are subject to significant legal restrictions and these restrictions may have a material adverse effect on our business, financial condition, results of operations, liquidity, cash flows and prospects
39. 39Compliance by our 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 our business
40. 40Our risk management policies and procedures may prove to be ineffective and leave us exposed to unidentified or unanticipated risk
41. 41Changes in accounting principles and financial reporting requirements could result in material changes to our reported results of operations and financial condition
42. 42Legislation enacted in Bermuda in response to the EU’s review of harmful tax competition could adversely affect our operations
43. 43Even as a pure equity holding entity, Kestrel Group will still be required to demonstrate compliance with the ESA that we have “adequate” economic substance in Bermuda, and therefore should have adequate people for holding and managing equity participation, and adequate premises in Bermuda
44. 44Legislation enacted in Bermuda as to Corporate Income Tax may affect our operations
45. 45Legislation enacted in Bermuda as to Privacy and Protection of Personal Information
46. 46Our holding company structure and certain regulatory and other constraints affect our ability to pay dividends and make other payments
47. 47We do not anticipate paying any cash dividends on our common shares for the foreseeable future
48. 48We have risks related to the Company’s Senior Notes
49. 49Our failure to comply with restrictive covenants contained in the documents governing our Senior Notes or any future credit facility could trigger prepayment obligations, which could adversely affect our business, financial condition and results of operations
50. 50Significant litigation could be costly, disruptive, and strain our limited resources as a newly public company
51. 51Maiden Reinsurance owns approximately 22.4% of our total outstanding common shares and thus has a significant ownership and voting stake in our common shares
52. 52Our common shares owned by Maiden Reinsurance are not retired and could be sold to other shareholders, which could dilute the ownership interests of other shareholders and reduce our book value and earnings per common share
53. 53A few significant shareholders may influence or control the direction of our business. If the ownership of our common shares continues to be highly concentrated, it may limit your ability and the ability of other shareholders to influence significant corporate decisions
54. 54Our revenues and results of operations may fluctuate as a result of factors beyond our control, which may cause the price of our shares to be volatile
55. 55The market price for our common shares has been and may continue to be highly volatile, and if there is a further sustained decline in our share price there could be limited liquidity for our common shares
56. 56Anti-takeover provisions in our bye-laws could impede an attempt to replace or remove our directors, which could diminish the value of our common shares
57. 57Under Delaware law, such interested director could be held liable for a transaction in which such director derived an improper personal benefit
58. 58We are a Bermuda company, and it may be difficult to enforce judgments against us or our directors and executive officers
59. 59Our offices that operate in jurisdictions outside Bermuda and the U.S. are subject to certain limitations and risks that are unique to foreign operations
60. 60Foreign currency fluctuations may reduce our net income and our capital levels, adversely affecting our financial condition
61. 61Significant changes in our reinsurance relationship with AmTrust have reduced our current and future revenues and create significant uncertainty for sources of future liquidity
62. 62The amount of collateral we provide to AmTrust could limit our unrestricted liquidity and impact our ability to fulfill our obligations in certain circumstances
63. 63The property and casualty insurance and reinsurance industry is competitive and cyclical in nature, which may affect our overall financial performance
64. 64We may become subject to taxes in Bermuda after 2035, which may have a material adverse effect on our financial condition and operating results and on an investment in our shares
65. 65OECD two-pillar solution to address the tax challenges arising from the digital economy may apply to our activities
66. 66We may be subject to U.K. taxes, which would have an adverse effect on our financial condition and results of operations and on an investment in our shares