On August 20, 2025, in a ruling that will be of particular interest to insurance industry professionals, the Third Circuit reversed vacated a trial court’s summary judgment ruling in favor of the defendants in the securities class action lawsuit pending against Bermuda reinsurer Maiden Holding, Ltd. The decision provides interesting insight into the application of the U.S. Supreme Court’s holding in the Omnicare case, with particular reference to alleged omissions in connection with insurance company loss reserves. The Third Circuit’s August 20, 2025, opinion can be found here.

Background

Maiden Holding is a Bermuda-based reinsurance company. Until May 2025, its shares were listed on Nasdaq. At the relevant time, Maiden’s largest business segment provided reinsurance coverage for AmTrust Financial Services. AmTrust ceded a portion of its premiums to Maiden in exchange for Maiden’s commitment to compensate AmTrust for a portion of its claims losses. Because of the reinsurance ceding commission Maiden paid AmTrust, Maiden would become unprofitable if loss ratios (that is, the ratio of the losses to premiums for the relevant time period) exceeded 69%.

According to the factual background in the appellate court’s opinion, Maiden’s historical experience with the AmTrust business showed that losses increased over time, meaning that in the years following the initial estimate for the loss ratio for any given accident year the loss ratio tended to increase in subsequent periods. For example, at the end of 2012, the loss ratios for AY 2008 through AY 2012 ranged from 48.6% to 78.5%. By year end 2017, these accident year losses had reached a range of 75.1% to 82.2%. By that time, loss ratios of four of the five most recent accident years had already surpassed 60% as well.

The securities suit plaintiffs allege that notwithstanding this historical experience, Maiden consistently relied on initial loss ratio picks between 50% and 60%, resulting in reserve amounts that were hundreds of millions of dollars less than the loss estimates recommended by Maiden’s actuaries. The plaintiffs also allege that during the class period Maiden did not disclose the several accident years with loss ratios exceeding the 69% profit threshold when announcing loss reserve picks based on the 50% to 60% loss ratio picks.

Maiden’s loss reserve picks and resulting loss reserves allegedly proved to be inadequate. During the period 2017 through 2018, Maiden experienced “significant loss development” within its AmTrust reinsurance segment for the prior accident years. Maiden was forced to increase its deficient loss reserves and lost hundreds of millions of dollars. Maiden’s share price dropped from $16.50 in February 2017 to less than $2.50 in November 2018. According to the plaintiffs, before the stock price dropped, Maiden executives collected millions of dollars by selling thousands of shares of Maiden stock for an average price of between $13.50 to $16.40 per share.

The Securities Lawsuit and the Ruling of the Court Below

In February 2019, plaintiff shareholders filed a securities class action lawsuit in the District of New Jersey against Maiden and certain of its executives. The complaint as amended purported to be filed on behalf of a class of investors who purchased the company’s securities between March 4, 2014, and November 9, 2018.  The complaint as amended essentially alleged that the company’s announcements of its loss reserves were misleading because Maiden omitted historical data suggesting that the reserves were deficient. The defendants filed motions for summary judgment.

The district court, after denying the plaintiffs’ requests for discovery into the historical data Maiden had access to, granted the defendants’ motion for summary judgment. The district court held that Maiden’s loss reserve announcements were not misleading as a matter of law because (1) Maiden knew of and considered the undisclosed historical data; and (2) the withheld data did not “totally eclipse” other considerations that informed Maiden’s predicted losses. The plaintiffs appealed.

Omnicare

Crucial to the district court’s summary judgment ruling, and to the appellate court’s consideration of the district court’s ruling, was the U.S. Supreme Court’s 2015 Omnicare decision. The Omnicare decision is relevant because, among other things, it deals with the way that courts are to assess alleged omissions in connection with the statement of opinions. An insurance loss reserve, as an estimate of potential future losses, is, for purposes of this analysis, considered an opinion.

As I discussed in detail at the time of the Supreme Court’s decision, the Court explained in Omnicare that while statements of opinion necessarily “convey some lack of certainty as to the statement’s content,” they can still mislead investors if the speaker leaves out key information. Thus, a securities issuer’s statements of opinion are “misleadingly incomplete” and thus unlawful if the speaker omits known material facts about his “basis for holding that view.” Whether withheld information is “material” depends on its relative importance to the challenged opinion. Materiality is, the Court said, “always dependent on context.”

The Appellate Court’s August 20, 2025, Opinion

In an August 20, 2025, opinion written by Chief Judge Michael Chagares for a unanimous three-judge panel, the appellate court vacated the district court’s summary judgment grant, and remanded the case to the district court for further proceedings. In reversing the district court, the appellate court said that the district court had “misapplied” Omnicare’s “context-sensitive framework” by holding the plaintiffs to “a higher standard of materiality than the law requires” and by denying the plaintiffs the “opportunity to conduct discovery.”

In seeking to have the district court’s ruling upheld, Maiden had relied on the loss reserves analysis section of the Third Circuit’s 2023 ruling in the Prudential Financial case, another case where the plaintiffs had alleged that an insurer had misled investors in connection with its statement of loss reserves. In Prudential, the Third Circuit had affirmed the district court’s dismissal of the plaintiffs’ case, at least with respect to allegations that the loss reserves were misleading, holding that the plaintiff had failed to allege necessary facts about the omitted data’s importance in setting loss reserves, and in particular had failed to present sufficient allegations to establish the materiality of the allegedly omitted information. However, the Third Circuit said in this case that it did not hold in Prudential that omitting adverse historical data from a loss reserve is never misleading.

With respect to the allegations in this case, the appellate court said the “critical question is whether the omitted loss data is material.” The appellate court said that there were “three straightforward findings” that support that conclusion that a reasonable fact finder might concluded that the omitted historical loss data was indeed material.

First, the appellate court said, the record contains evidence (including the fact that AmTrust was by far Maiden’s largest customer) that negative developments in Maiden’s AmTrust segment would have an outsized impact on Maiden’s entire business.

Second, the appellate court said, the record contains evidence that Maiden had access to historical loss data for AmTrust that was inconsistent with Maiden’s loss ratio picks. Record evidence suggests for the relevant preceding years, Maiden’s losses increased consistently and substantially, with eventually loss ratios of over 70%, and multiple years with losses over 80%. Yet Maiden set and reported loss ratios based on much lower loss ratio picks ranging from 50% to 60%. Despite historical data showing its largest segment became increasingly unprofitable year after year, Maiden “informed investors it expected continued profits” without “disclosing the adverse historical data suggesting otherwise.”

Third, the appellate court said, the record contains evidence that “the negative historical data was (or should have been) an important part of Maiden’s loss reserve estimation process.”

The appellate court said that “viewed holistically” the evidence in the current record “provides the full ‘context’ necessary to raise a genuine issue of material fact as to whether the omission of AmTrust’s historical loss data was material.” The factfinder could also “fairly conclude that Maiden’s omission of that discrepancy when announcing its optimistic predictions would mislead investors.”

Further, the appellate court rejected Maiden’s argument that the omitted data was “immaterial” because it did not “totally eclipse the balance of numerous other considerations used to set reserves.”  The appellate court said that the “complexity” of Maiden’s loss reserve determinations “did not give Maiden free rein to omit any known contradictory evidence.”

Discussion

My impression of this case is substantially influenced by my own experience participating in the setting of loss reserves for a D&O underwriting facility I managed years ago. My overall observation is that setting reserves is a complex process involving the participation of many people and the consideration of many factors. Premiums levels, assumptions about the length of time it takes for losses to develop, historical loss experience data (including trends within the data), and industry recognized actuarial formulas, all play into the setting of (and periodic adjustment to) loss reserves.

For this reason, my starting point about alleged omissions in connection with the announcement of loss reserves is a feeling of skepticism that any single factor – or omissions about any single factor – are by itself material to the question whether the reserves are accurate, reliable, and so on. The Third Circuit’s prior decision in the Prudential case reflects this same kind of skepticism. The appellate court said in that case that the plaintiffs have not presented sufficient allegations to suggest that the allegedly omitted information was material.

By contrast, the appellate court in this case said that the record in this case was “a far cry from the vague factual assertions” at issue in Prudential. By contrast to Prudential, in this case, the appellate court said, the “record contains various calculations, charts, and statements capturing Maiden’s many years of substantial and growing losses with AmTrust, Maiden’s dependence on AmTrust as it largest client, and the importance of historical trends to Maiden’s loss reserve process.”

The outcomes of the two distinct cases, and, more importantly, what the appellate court said about the differences in the allegations in the two cases, provide some reassurance that insurers are not, as a matter of course, going to courts second-guessing their loss reserves.

It is also important to me to recognize that during the time frames under discussion here, many carriers were also recognizing adverse loss development in the accident years involved. Adverse loss trends due to years of underpricing were forcing many carriers to engage in reserving strengthening, producing increased losses across the liability insurance industry. In my humble opinion, there was nothing in the years of say, 2015 to 2018, to suggest that the adverse and deteriorating loss experience during the period 2012 to 2015 was not representative of likely loss experience for the following years.

To be sure, starting in 2019, and continuing through 2021, the insurance industry was in a so-called “hard market,” meaning pricing increased dramatically – the sort of development that might allow an insurer to assume that the loss experience of prior years, reflecting underpricing, were not going to be representative of the hard market years. But the hard market had not yet kicked in during the years at issue in this case. There was less basis for an insurer to assume that prior years’ adverse experiences were not representative of what might happen in the years immediately before the advent of the hard market.

I will say this about the appellate court’s consideration of the issues of this case, and that is that the court’s analysis shows how intricate a court’s consideration of supposed omissions can be under the Omnicare analysis. In particular, a court’s consideration of the materiality of the allegedly omitted materiality is to be “context” specific, making the court’s scrutiny of the issues an analysis of (as the Third Circuit put it in the Prudential case) “complex assumptions and considerations.”

Given all of this it seems to me that it would be a challenging task for any plaintiff to present sufficient allegations to satisfy the materiality requirement in an opinion omissions case. Indeed, that was kind of what the Third Circuit said in the Prudential case. However, as this case shows, though the task is challenging, that does not mean it is impossible.