Enstar
Annual
Report
2019
FINANCIAL RESULTS
(Expressed in millions of U.S. Dollars, except share and per share data)
Net Segment Contribution:
Non-life Run-off
StarStone
Atrium
Other
Net Earnings (Loss) Attributable to Enstar Ordinary Shareholders
Non-GAAP Operating Income Attributable to Enstar Ordinary Shareholders 1
Fully Diluted Earnings (Loss) Per Ordinary Share 2
Weighted Average Fully Diluted Ordinary Shares Outstanding
Ordinary Shareholders’ Equity Attributable to Enstar 3
Return on Opening Ordinary Shareholders’ Equity Attributable to Enstar
Fully Diluted Book Value Per Ordinary Share 3
Fully Diluted Ordinary Shares Outstanding 3
2019
1,059.8
(100.7)
12.1
(69.0)
902.2
553.4
41.43
2018
25.2
(158.6)
9.0
(38.0)
(162.4)
61.6
(7.84)
2017
343.8
2.8
5.4
(40.6)
311.5
283.3
15.95
21,775,066
20,904,176
19,527,591
4,332
26.6%
197.93
3,392
(5.2)%
155.94
3,137
11.1%
159.19
21,989,971
21,881,063
19,830,767
$
$
$
$
$
$
Percent Change in Fully Diluted Book Value Per Ordinary Share
26.9%
(2.0)%
10.8%
1 Non-GAAP Operating Income attributable to Enstar ordinary shareholders is a Non-GAAP financial measure that is calculated by the addition or subtraction of certain items from within our consolidated statements of earnings to or from net
earnings (loss) attributable to Enstar ordinary shareholders, the most directly comparable GAAP financial measure. A complete reconciliation of our Non-GAAP operating income attributable to Enstar ordinary shareholders to net earnings (loss)
attributable to Enstar ordinary shareholders is set forth on the financial calculations schedule on page vi.
2 During a period of loss, the basic weighted average ordinary shares outstanding is used in the denominator of the diluted loss per ordinary share computation as the effect of including potentially dilutive securities would be anti-dilutive.
3 Calculations setting forth the breakdown of these items are set forth on the financial calculations schedule on page vi.
Dear Fellow Shareholders,
Before I take you through our 2019 performance and outlook for 2020, let me express our
deepest concern during this challenging time for the health and safety of people all over the
world, including those in the Enstar community. I hope this report reaches you in good health.
At Enstar, the impact of the pandemic has reminded us of the importance of strong risk and
capital management, operational agility and our proven business model. These strengths will
carry us through these challenging times.
$19.4bn
Assets
2019 Financial Results
Enstar achieved exceptional financial results in 2019, delivering net earnings of $902.2 million,
or $41.43 per fully diluted ordinary share. Our book value per share reached a new high of
$197.93, up 26.9% from year-end 2018.
Our business strategy has evolved over recent years with investment strategy playing a more
prominent role than in our earlier years. Coupled with our continued success in acquiring and
effectively managing our Non-life Run-off portfolios, we are confident in our strategy and our
ability to deliver long-term value to our shareholders.
The increase in the size and nature of our investment portfolios can lead to volatility in our
reported financial results over the short term, as is very evident when we look at our results in
2019 compared with 2018. Enstar’s investment results were the most significant contributor
to earnings. Our net investment income of $321.3 million in 2019 was due to increased assets
under management from our completed transactions and our asset allocation strategies. Net
realised and unrealised gains were $1,031.4 million, which reversed and significantly exceeded
losses in 2018 of $412.9 million.
In addition to investments, other key factors influencing our 2019 results were the performance
of our core Non-life Run-off operations and the favourable results of our Atrium segment,
along with the progression of our repositioning efforts at StarStone.
Investments
2019 was a favourable year for investments to say the least, fuelled by the fall in interest rates,
narrowing credit spreads and a rally in equity markets, all of which resulted in significant
unrealised gains across Enstar’s invested asset classes.
$4.9bn
Total shareholders’ equity
$14.7bn
Total cash and
investments
$31.9bn
Total assets acquired
since inception
i
Annual CEO letterFrom Dominic Silvester, Chief Executive Officer Enstar is sufficiently
capitalised to take
advantage of pipeline
opportunities in 2020
Annual CEO letter
From Dominic Silvester, Chief Executive Officer
Fixed Maturity Investments:
One of the main drivers was the $438.0 million impact of unrealised gains on fixed maturity
investments, which comprise 72.8% of Enstar’s $13.2 billion investment portfolio. Our general
practice is to hold these fixed income securities to maturity. Absent any losses from credit
defaults, these investments will mature at full value. Unrealised gains or losses on these
investments quarter-to-quarter are therefore not indicative of management’s view of our core
performance and are adjusted for in our Non-GAAP Operating Income metric.
The COVID-19 pandemic has caused interest rates to drop further to historically low levels,
which creates additional unrealised gains in our fixed income portfolio. However, credit
spreads in both the investment grade and high yield markets have widened. This will create
unrealised losses that are greater than unrealised gains due to yields. Our fixed income
portfolio was already well positioned with an A+ average credit rating, although we will
continue to monitor credit risk during this time of volatility and take actions where necessary.
Equities and Other Investments:
Our 2019 result was also positively impacted by $497.0 million of net realised and unrealised
gains on the fair value of equities and other investments. We increased our allocation to these
assets to 24.6% of our investment portfolio at 2019 year-end (2018: 20.6%). These assets
provide diversification against fixed income investments and present the opportunity for
improved risk-adjusted returns over the long term. We therefore accept that their returns may
be more volatile in the short term.
Historic volatility in equity markets has occurred during the pandemic, as ‘risk off’ sentiment
has caused a sharp deterioration in equity prices. The first quarter of 2020 was the worst
quarter for stocks since the global financial crisis and we expect that the volatility will
continue this year.
Capital Management
Enstar remains financially strong, with $19.4 billion in total assets and total shareholders’
equity of $4.9 billion as of December 31, 2019.
During 2019, we successfully executed a public offering of $500.0 million of ten-year senior notes.
The proceeds were used to pay down debt on existing credit facilities and for general corporate
purposes and the funding of acquisitions. In combination with capital raising efforts in 2018,
Enstar is sufficiently capitalised to take advantage of pipeline opportunities in 2020 whilst
ensuring we hold capital and liquidity at sufficient levels.
iiii
Transactions
Enstar continued to grow acquisitions in 2019, with transactions announced during the year
totalling $3.2 billion of liabilities assumed. In 2020, we have already announced three new
deals totalling more than $1.4 billion of liabilities.
TRANSACTION
2020 TRANSACTIONS
Lyft
Aspen ADC
AXA XL
TOTAL
DATE CLOSED
OR SIGNED
ASSETS
(IN USD)
TOTAL
LIABILITIES
(IN USD)
PRIMARY NATURE OF BUSINESS
March 31, 2020
March 2, 2020*
$465m
$770m
$465m
$770m
Novation of Lyft’s legacy U.S. automobile business
Adverse development cover of diversified property, liability and
specialty lines across the U.S., U.K. and Europe
February 24, 2020*
$211m
$225m
Loss portfolio transfer of U.S. construction general liability
multi-year policies
$1,446m
$1,460m
2019 TRANSACTIONS
Morse TEC
October 30, 2019
$683m
$683m
Zurich
Munich Re
October 1, 2019
$507m
September 10, 2019*
$160m
$623m
$160m
Maiden Re
August 5, 2019
$445m
$530m
Amerisure
April 11, 2019
$45m
$48m
4 AmTrust RITCs
February 14, 2019
$1,144m
$1,165m
TOTAL
$2,984m
$3,209m
*Indicates transaction remains subject to closing conditions
U.S. liabilities associated with personal injury asbestos claims and
environmental claims arising from legacy manufacturing operations
Reinsurance of U.S. asbestos and environmental insurance portfolios
Portfolio transfer of Australian public liability, professional liability
and builders’ warranty liabilities
Adverse development cover of Maiden Re’s quota share with AmTrust
related to U.S. workers’ compensation and general casualty business
Partnership with Allianz Risk Transfer to provide loss portfolio
transfer for U.S. construction defect business
Four separate RITCs involving Lloyd’s property, professional, marine,
non-marine, affinity annual, extended warranty and political lines
With a recent industry study estimating global non-life run-off liabilities at nearly $800 billion,
Enstar has an ever-increasing pipeline of future prospects.
Our opportunities are typically generated by companies looking to dispose of non-core business,
release capital, improve regulatory solvency capital ratios, achieve legal finality or manage claims
volatility. Enstar stands ready to review new opportunities and find solutions for our partners,
whether it be through acquisition, reinsurance, business transfer or consulting services.
Efficient management of legacy business is becoming an increasingly important part of the
mainstream industry and business within the legacy space is increasing every year.
This, combined with the success of companies such as Enstar, is attracting new players –
a sign of a healthy and expanding marketplace that brings more opportunities for companies
who have proven they can be successful. Enstar’s track record, scale and operational strength,
combined with our highly disciplined acquisition approach, positions us at the top of an
expanding field.
iii
Annual CEO letterFrom Dominic Silvester, Chief Executive Officer
Annual CEO letter
From Dominic Silvester, Chief Executive Officer
The Morse TEC deal
marked an important
milestone in our
history, as it was
our 100th deal
Gross Non-life Run-off Reserves
as of December 31, 2019
We have acquired and managed legacy business around the world for over two decades with
a focus on major markets such as the U.S., the U.K., Lloyd’s, the EU, Bermuda and Australia.
Highlights from 2019 include more than $1 billion of liabilities assumed from AmTrust related
to reinsurance-to-close transactions (RITCs), which continue to provide attractive legacy
opportunities for our Lloyd’s syndicate.
Building upon our prior deals, in 2019 we put in place an adverse development reinsurance
agreement covering Maiden Re’s quota share reinsurance contracts with AmTrust, which
closed in August. The ADC covers losses incurred before 2019 of up to $600 million in excess
of Maiden Re’s $2.2 billion retention.
Our October 2019 acquisition of Morse TEC was another highlight. We assumed $662.5 million
of gross liabilities associated with its personal injury asbestos claims and environmental
claims arising from legacy manufacturing operations. We continue to assist non-insurance
corporate partners looking to de-leverage their balance sheets by taking on some of their
asbestos and workers’ compensation liabilities.
The Morse TEC deal marked an important milestone in our history, as it was our 100th deal.
Since our founding in 1993, we have been a leader in our sector. We believe our success
is derived from our consistent careful selection of acquisition targets and our efficient
management of the underlying portfolios, as well as our commitment to maintaining strong
relationships with regulators around the world.
Gross Reserves
$8.4bn*
Non-life Run-off
Asbestos and Environmental
Workers’ Compensation
General Casualty
Professional Indemnity/D&O
Construction Defect and Other
Motor
Marine, Aviation and Transit
27%
27%
12%
11%
9%
9%
5%
*The percentages shown here do not reflect a fair
value adjustment or unallocated loss adjustment
expenses. “Other” includes Property and All Other.
Gross Reserves does not include defendant asbestos
and environment liabilities.
Our Non-life Run-off segment is our core business. This segment contributed $1.1 billion in net
earnings to our consolidated results in 2019, including a reduction in estimates of net ultimate
losses for prior periods of $220.0 million. Our expertise in claims management continues to
be a cornerstone of our business, and our focus is ensuring that we meet our obligations to
policyholders. We look to settle our liabilities efficiently, which allows us to achieve reserve
savings and recycle capital that continuously feeds future business and investments.
In 2019, we paid $1.2 billion in claims to our policyholders, releasing and deploying the
associated capital elsewhere in our businesses and facilitating our continued growth. Our
claims teams manage our liabilities through verification of coverage, proper evaluation of
exposures, and involvement of legal counsel to handle claims promptly.
Our mix of reserves as of December 31, 2019 remained diversified across property and
casualty lines, with our asbestos and environmental and workers’ compensation reserves
each comprising 27% of our gross reserves.
During 2019, significant progress was made in use of the legislative framework for insurance
business transfers within the U.S. Similar to statutory provisions already in place in other
countries, this regulatory framework provides legal finality for the transfer of insurance
business. Enstar was honoured to have the first transaction approved by the Oklahoma
Department of Insurance under new legislation in that state. As this type of legislation
becomes more widely used across the U.S., we expect it will offer Enstar additional
opportunities and flexibility in transaction structuring, allowing us to offer legal finality for
transferred portfolios as we have successfully done in the U.K., Australia and Europe.
iv
We have a strong
company with a
great team that
continues to
operate at the
highest standard
Active Underwriting Business
Global insurance markets began a long-awaited upturn in 2019, with improved pricing and
terms almost across the board. This has been driven in part by widespread withdrawals from
various lines of property and casualty insurance by insurers around the world, especially at
Lloyd’s, creating new opportunities for Enstar’s active underwriting segments.
Atrium
Atrium achieved another impressive result in 2019, yielding net earnings attributable to Enstar
of $12.1 million, up 34.8% from 2018 with an improved combined ratio of 90.6%. Atrium
remains one of the top performing managing agencies at Lloyd’s and has again outperformed
the market.
We were pleased that Atrium increased gross premiums written during 2019, especially in
those lines of business that are displaying improving market conditions and where Atrium has
a strong track record.
StarStone
StarStone made significant progress in repositioning its underwriting portfolio, which resulted
in a reduction in premiums written to focus on core lines and improve profitability. While
results improved from 2018, the StarStone segment contributed a loss of $100.7 million
in 2019 due to unfavourable experience in exited lines and reserve strengthening in the
U.S. casualty line, reflecting an increase in the frequency and severity of losses. Like other
carriers, StarStone will feel the impact of the pandemic across a number of lines of business.
Consequently, management has taken protective measures to reduce risk exposure where
possible and will continually assess the market and the impact to the group’s business.
Looking ahead
I know we are all looking ahead to better times, when we can safely get back to life and
business as usual. This will take time, but I am confident in Enstar’s ability to endure and
prosper. We have a strong company with a great team that continues to operate at the highest
standard through these tough times.
As ever, I am grateful for the commitment of our Enstar team, shareholders, business partners
and clients. I thank you for your support and wish you well.
Sincerely,
Dominic Silvester
April 28, 2020
v
Annual CEO letterFrom Dominic Silvester, Chief Executive Officer
FINANCIAL CALCULATIONS SCHEDULE
Non-GAAP operating income (loss) attributable to Enstar ordinary shareholders is calculated by the addition or subtraction of certain items
from within our consolidated statements of earnings to or from net earnings (loss) attributable to Enstar ordinary shareholders, the most
directly comparable GAAP financial measure, as illustrated in the table below, for the years ending December 31, 2019, 2018 and 2017 in
thousands of U.S. Dollars.
Non-GAAP Operating Income
Net earnings (loss) attributable to Enstar ordinary shareholders
$
Adjustments:
Net realized and unrealized (gains) losses on fixed maturity
investments and funds held - directly managed 1
Change in fair value of insurance contracts for which we
have elected the fair value option
Loss on sale of subsidiary
Net (earnings) loss from discontinued operations
Tax effects of adjustments 2
Adjustments attributable to noncontrolling interest 3
2019
902,175
2018
(162,354)
(534,730)
243,093
117,181
—
—
51,102
17,689
6,664
—
—
(16,588)
(9,166)
61,649
2017
311,458
(70,747)
30,256
16,349
(14,183)
5,364
4,840
283,337
Non-GAAP operating income attributable to Enstar ordinary shareholders 4
$
553,417
1 Represents the net realized and unrealized gains and losses related to fixed maturity securities. Our fixed maturity securities are held directly on our balance sheet and also within the “Funds held - directly managed” balance. Refer to Note 6 -
“Investments” in the notes to our consolidated financial statements included within Item 8 of this Annual Report on Form 10-K for further details on our net realized and unrealized gains and losses.
2 Represents an aggregation of the tax expense or benefit associated with the specific country to which the pre-tax adjustment relates, calculated at the applicable jurisdictional tax rate.
3 Represents the impact of the adjustments on the net earnings (loss) attributable to noncontrolling interest associated with the specific subsidiaries to which the adjustments relate.
4 Non-GAAP financial measure.
The table below summarises the calculation of our fully diluted book value per ordinary share as of December 31, 2019, 2018 and 2017 in
thousands of U.S. Dollars, including the calculation of ordinary shareholders’ equity and fully diluted ordinary shares outstanding.
Numerator:
Total Enstar Shareholder’s Equity
Less: Series D and E Preferred Shares
Total Enstar Ordinary Shareholders’ Equity
Proceeds from assumed conversion of warrants 1
Numerator for fully diluted book value per ordinary share calculations (A)
2019
2018
2017
$
4,842,183
510,000
4,332,183
20,229
4,352,412
$ 3,901,933
510,000
3,391,933
20,229
3,412,162
$ 3,136,684
—
3,136,684
20,229
3,156,913
Denominator:
Ordinary shares outstanding
Effect of dilutive securities:
Share-based compensation plans
Warrants 1
Fully diluted ordinary shares outstanding (B)
21,511,505
21,459,997
19,406,722
302,565
175,901
245,165
175,901
21,989,971
21,881,063
248,144
175,901
19,830,767
Fully diluted book value per ordinary share = (A) / (B)
$
197.93
155.94
159.19
1 There are warrants outstanding to acquire 175,901 Series C Non-Voting Ordinary Shares for an exercise price of $115.00 per share, subject to certain adjustments (the “Warrants”). The Warrants were issued in April 2011 and expire in April
2021. The Warrant holder may, at its election, satisfy the exercise price of the Warrants on a cashless basis by surrender of shares otherwise issuable upon exercise of the Warrants in accordance with a formula set forth in the Warrants.
Cautionary Statement
This letter contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include
statements regarding the intent, belief or current expectations of Enstar and its management team. Investors are cautioned that any such forward-looking
statements speak only as of the date they are made, are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ
materially from those projected in the forward-looking statements as a result of various factors. In particular, the evolving COVID-19 pandemic has caused significant
economic and financial turmoil globally, as well as uncertainty in the financial markets, which has caused declines in the market value of our invested assets. Due
to the global uncertainty, we are unable to predict the longer-term effects of the pandemic on our business at this time. Important risk factors regarding Enstar can
be found under the heading “Risk Factors” in this Form 10-K for the year ended December 31, 2019 and are incorporated herein by reference. Furthermore, Enstar
undertakes no obligation to update any written or oral forward-looking statements or publicly announce any updates or revisions to any of the forward-looking
statements contained herein, to reflect any change in its expectations with regard thereto or any change in events, conditions, circumstances or assumptions
underlying such statements, except as required by law.
vi
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
Commission File Number 001-33289
ENSTAR GROUP LIMITED
(Exact name of Registrant as specified in its charter)
BERMUDA
(State or other jurisdiction of incorporation or organization)
N/A
(I.R.S. Employer Identification No.)
Windsor Place, 3rd Floor, 22 Queen Street, Hamilton HM JX, Bermuda
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (441) 292-3645
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s) Name of Each Exchange on Which Registered
Ordinary shares, par value $1.00 per share
ESGR
The NASDAQ Stock Market LLC
Depositary Shares, Each Representing a 1/1,000th Interest in a 7.00% ESGRP
The NASDAQ Stock Market LLC
Fixed-to-Floating Rate Perpetual Non-Cumulative Preferred Share,
Series D, Par Value $1.00 Per Share
Depositary Shares, Each Representing a 1/1,000th Interest in a 7.00% ESGRO
The NASDAQ Stock Market LLC
Perpetual Non-Cumulative Preferred Share, Series E, Par Value $1.00
Per Share
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such
files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging
growth company" in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
þ Accelerated filer ☐ Non-accelerated
filer
☐ Smaller reporting
☐ Emerging growth company ☐
company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the registrant's voting and non-voting common equity held by non-affiliates as of June 30, 2019 was
approximately $1.86 billion based on the closing price of $174.28 per ordinary share on the NASDAQ Stock Market on that date. Shares held by
officers and directors of the registrant and their affiliated entities have been excluded from this computation. Such exclusion is not intended, nor
shall it be deemed, to be an admission that such persons are affiliates of the registrant.
As of February 24, 2020, the registrant had outstanding 18,012,556 voting ordinary shares and 3,509,682 non-voting convertible ordinary
shares, each par value $1.00 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A
relating to its 2020 annual general meeting of shareholders are incorporated by reference in Part III of this Form 10-K.
Enstar Group Limited
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 2019
Table of Contents
PART I
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Item 12.
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
PART IV
Item 15.
Exhibits, Financial Statement Schedules
Item 16.
Form 10-K Summary
Page
1
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50
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Table of Contents
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This annual report and the documents incorporated by reference herein contain statements that constitute
"forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
or the Exchange Act, with respect to our financial condition, results of operations, business strategies, operating
efficiencies, competitive positions, growth opportunities, plans and objectives of our management, as well as the
markets for our securities and the insurance and reinsurance sectors in general. Statements that include words such
as "estimate," "project," "plan," "intend," "expect," "anticipate," "believe," "would," "should," "could," "seek," "may" and
similar statements of a future or forward-looking nature identify forward-looking statements for purposes of the federal
securities laws or otherwise. All forward-looking statements are necessarily estimates or expectations, and not
statements of historical fact, reflecting the best judgment of our management and involve a number of risks and
uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements.
These forward looking statements should, therefore, be considered in light of various important factors, including those
set forth in this annual report and the documents incorporated by reference herein, which could cause actual results
to differ materially from those suggested by the forward-looking statements. These factors include:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
risks associated with implementing our business strategies and initiatives;
the adequacy of our loss reserves and the need to adjust such reserves as claims develop over time;
risks relating to our acquisitions, including our ability to evaluate opportunities, successfully price acquisitions,
address operational challenges, support our planned growth and assimilate acquired companies into our
internal control system in order to maintain effective internal controls, provide reliable financial reports and
prevent fraud;
risks relating to our active underwriting businesses, including unpredictability and severity of catastrophic
and other major loss events, failure of risk management and loss limitation methods, the risk of a ratings
downgrade or withdrawal, and cyclicality of demand and pricing in the insurance and reinsurance markets;
risks relating to the performance of our investment portfolio and our ability to structure our investments in a
manner that recognizes our liquidity needs;
changes and uncertainty in economic conditions, including interest rates, inflation, currency exchange rates,
equity markets and credit conditions, which could affect our investment portfolio, our ability to finance future
acquisitions and our profitability;
the risk that ongoing or future industry regulatory developments will disrupt our business, affect the ability
of our subsidiaries to operate in the ordinary course or to make distributions to us, or mandate changes in
industry practices in ways that increase our costs, decrease our revenues or require us to alter aspects of
the way we do business;
risks relating to the variability of statutory capital requirements and the risk that we may require additional
capital in the future, which may not be available or may be available only on unfavorable terms;
risks relating to the availability and collectability of our reinsurance;
losses due to foreign currency exchange rate fluctuations;
increased competitive pressures, including the consolidation and increased globalization of reinsurance
providers;
emerging claim and coverage issues;
lengthy and unpredictable litigation affecting the assessment of losses and/or coverage issues;
loss of key personnel;
the ability of our subsidiaries to distribute funds to us and the resulting impact on our liquidity;
our ability to comply with covenants in our debt agreements;
changes in our plans, strategies, objectives, expectations or intentions, which may happen at any time at
management’s discretion;
operational risks, including system, data security or human failures and external hazards;
Table of Contents
•
•
•
•
•
•
risks relating to our ability to obtain regulatory approvals, including the timing, terms and conditions of any
such approvals, and to satisfy other closing conditions in connection with our acquisition agreements, which
could affect our ability to complete acquisitions;
risks relating to our subsidiaries with liabilities arising from legacy manufacturing operations;
tax, regulatory or legal restrictions or limitations applicable to us or the insurance and reinsurance business
generally;
changes in tax laws or regulations applicable to us or our subsidiaries, or the risk that we or one of our non-
U.S. subsidiaries become subject to significant, or significantly increased, income taxes in the United States
or elsewhere;
changes in Bermuda law or regulation or the political stability of Bermuda; and
changes in accounting policies or practices.
The factors listed above should be not construed as exhaustive and should be read in conjunction with the Risk
Factors that are included in Item 1A below. We undertake no obligation to publicly update or review any forward-looking
statement, whether to reflect any change in our expectations with regard thereto, or as a result of new information,
future developments or otherwise, except as required by law.
Table of Contents
ITEM 1. BUSINESS
Company Overview
PART I
Enstar Group Limited ("Enstar") is a Bermuda-based holding company. We are a multi-faceted insurance group
that offers innovative capital release solutions and specialty underwriting capabilities through our network of group
companies in Bermuda, the United States, the United Kingdom, Continental Europe, Australia, and other international
locations. Enstar is listed on the NASDAQ Global Select Market under the ticker symbol "ESGR". In this report, the
terms "Enstar," "the Company," "us," and "we" are used interchangeably to describe Enstar and our subsidiary
companies.
Our core focus is acquiring and managing insurance and reinsurance companies and portfolios of insurance
and reinsurance business in run-off. Since our formation, we have completed or announced the acquisition of over
100 insurance and reinsurance companies and portfolios of business.
Our fundamental corporate objective is growing our net book value per share. We strive to achieve this primarily
through growth in net earnings from both organic and accretive sources, including the completion of new acquisitions,
the effective management of companies and portfolios of business acquired, and the execution of active underwriting
strategies.
Enstar also manages specialty active underwriting businesses:
•
•
Atrium Underwriting Group Limited and its subsidiaries ("Atrium"), which manage and underwrite specialist
insurance and reinsurance business for Lloyd’s Syndicate 609; and
StarStone Insurance Bermuda Limited and its subsidiaries ("StarStone"), which is an A.M. Best A- rated
global specialty insurance group with multiple underwriting platforms.
Business Strategy
Enstar aims to maximize growth in book value per share by employing the following strategies:
We Leverage Management’s Experience and Industry Relationships to Solidify Enstar’s Position in the Run-Off
Market. Enstar leverages the extensive experience and relationships of our senior management team to solidify our
position as a leading run-off acquirer and generate future growth opportunities.
We Engage in Highly Disciplined Acquisition Practices. Enstar is highly selective and disciplined when assessing
potential acquisition targets, carefully analyzing risk exposures, claims practices and reserve requirements as part of
a detailed due diligence process. We believe this decreases risk and increases the probability that we can deliver
positive operating results from the companies and portfolios acquired.
We Prudently Manage Investments and Capital. In managing investments and deploying group capital, Enstar
strives to achieve superior risk-adjusted returns, while growing profitability and generating long-term growth in
shareholder value.
We Manage Claims Professionally, Expeditiously, and Cost-Effectively. Enstar aims to manage claims in a
professional and disciplined manner, drawing on in-house expertise to dispose of claims efficiently. Enstar strives to
pay valid claims on a timely basis, while relying on well-documented policy terms and exclusions where applicable,
and litigation when necessary, to defend against paying invalid claims.
We Seek to Commute Assumed Liabilities and Insurance and Reinsurance Assets at a Discount to the Ultimate
Liability. Using detailed claims analysis and actuarial projections, Enstar seeks to negotiate with policyholders with a
goal of commuting existing insurance and reinsurance liabilities at a discount to the ultimate liability.
We Aim to Profitably Underwrite Selected Specialty Lines to Enhance Future Growth Opportunities. Through
our Atrium and StarStone segments, we selectively underwrite in chosen specialty lines, with a focus on balancing
risk exposures.
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Strategic Growth
Enstar transactions typically take the form of either acquisitions or portfolio transfers. In an acquisition, we acquire
an insurance or reinsurance company and manage the run-off or continued underwriting of risk in its business lines.
In a portfolio transfer, a reinsurance contract transfers risk from the initial insurance or reinsurance company to a
company in the Enstar group. Enstar also enters into reinsurance to close ("RITC") transactions with Lloyd's of London
("Lloyd's") insurance and reinsurance syndicates in run-off, whereby a portfolio of run-off liabilities is transferred from
one Lloyd’s syndicate to another.
The substantial majority of Enstar’s acquisitions have been in the non-life run-off business, which generally
includes property and casualty, workers’ compensation, asbestos and environmental, construction defect, marine,
aviation and transit, professional indemnity and directors and officers, motor, and other closed business. Enstar evolved
from a stand-alone run-off consolidator to a more diversified insurance group with active underwriting capabilities
following our acquisitions of Atrium and StarStone, in 2013 and 2014, respectively. We partnered with the Trident funds
("Trident") (managed by Stone Point Capital LLC ("Stone Point")) in the acquisitions of these active underwriting
businesses. Stone Point Capital is a financial services-focused private equity firm that has significant experience
investing in insurance and reinsurance companies and other insurance-related businesses, which Enstar believes is
valuable in our active underwriting joint ventures. In each of the Atrium and StarStone transactions, Enstar has a 59.0%
equity interest, Trident has a 39.3% equity interest, and Dowling Capital Partners L.P. ("Dowling") has a 1.7% equity
interest.
Recent Acquisitions and Significant New Business
AXA Group
On February 24, 2020, we entered into a loss portfolio transfer reinsurance agreement with AXA XL, a division
of AXA, to reinsure specified legacy construction general liability multi-year policies. We will assume reinsurance
reserves of approximately $225.0 million in the transaction. Completion of the transaction is subject to, among other
things, regulatory approvals and satisfaction of various closing conditions. The transaction is expected to close in the
first half of 2020.
Munich Re
On September 10, 2019, we signed an agreement with Great Lakes Insurance SE and HSB Engineering
Insurance Limited, both subsidiaries of Munich Reinsurance Company ("Munich Re"), pursuant to which we will acquire
certain portfolios from their Australian branches. In the transaction, which is subject to regulatory and Federal Court
of Australia approval, we will receive total assets of approximately AUD$228.2 million (approximately $160.3 million)
for assuming the associated net insurance reserves, which primarily relate to long tail insurance business. We are
pursuing a portfolio transfer of the insurance business under Division 3A of Part III of Australia’s Insurance Act 1973
(Cth), which would provide legal finality for Munich Re and its subsidiaries. This transaction is expected to close in
2020.
Morse TEC
On October 30, 2019, we completed the acquisition of Morse TEC LLC ("Morse TEC") through our subsidiary,
Enstar Holdings (US) LLC from BorgWarner Inc. Morse TEC holds $662.5 million in gross liabilities associated with
personal injury asbestos claims and environmental claims arising from BorgWarner's legacy manufacturing operations.
Zurich
On October 1, 2019, we completed a reinsurance transaction with Zurich Insurance Group ("Zurich"), pursuant
to which we reinsured certain of Zurich's U.S. asbestos and environmental liability insurance portfolios. In the
transaction, we assumed $622.9 million of gross reserves, relating to 1986 and prior year business, for reinsurance
premium of $465.5 million and recorded a deferred charge of $115.8 million. We have ceded 10% of this transaction
to Enhanzed Reinsurance Ltd. ("Enhanzed Re"), in which we have an investment, on the same terms and conditions
as those received by Enstar.
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Maiden ADC
On August 5, 2019, we and Maiden Reinsurance Ltd. (“Maiden Re Bermuda”) completed a transaction pursuant
to a Master Agreement with Maiden Holdings, Ltd. and Maiden Re Bermuda to provide adverse development cover
reinsurance to Maiden Re Bermuda, effective January 1, 2019. In the transaction, Maiden Re Bermuda ceded and we
assumed as retrocessionaire Maiden Re Bermuda's liability under its quota share agreement with the Bermuda
subsidiary ("AmTrust Bermuda") of AmTrust Financial Services, Inc. (“AmTrust”). The adverse development cover
reinsurance is for losses incurred on or prior to December 31, 2018 in excess of a $2.2 billion retention up to a $600.0
million limit, in exchange for a premium of $445.0 million. We assumed total gross reserves of $530.2 million and
recorded a deferred charge of $85.2 million. Enstar's reinsurance performance obligations in the transaction are
collateralized in accordance with a Master Collateral Agreement among Enstar, Maiden Re Bermuda, AmTrust and
certain subsidiaries of AmTrust.
Amerisure
On April 11, 2019, we completed a loss portfolio transfer reinsurance agreement with Amerisure Mutual Insurance
Company ("Amerisure") and Allianz Risk Transfer (Bermuda) Limited (“ART Bermuda”). In the transaction, Amerisure
ceded, and each of Enstar and ART Bermuda severally assumed, a 50% quota share of the construction defect losses
incurred by Amerisure and certain of its subsidiaries on or before December 31, 2012. Under the agreement, which
was effective as of January 1, 2019, we assumed $48.3 million of gross reserves in exchange for consideration of
$45.5 million and recorded a deferred charge asset of $2.9 million.
AmTrust RITC Transactions
On February 14, 2019, we completed four RITC transactions with Syndicates 1206, 1861, 2526 and 5820,
managed by AmTrust Syndicates Limited, under which we reinsured to close the 2016 and prior underwriting years.
We assumed, among other items, gross loss reserves of £703.8 million ($897.1 million) and net loss reserves of £486.8
million ($620.4 million) relating to the portfolios in exchange for consideration of £539.9 million ($688.2 million) and
recorded a deferred charge asset of $20.6 million.
Acquisitions and Significant New Business since January 1, 2019
The table below sets forth a summary of acquisitions and significant new business that we have signed or
completed since January 1, 2019, including those announced in 2020 prior to issuing this Annual Report on Form 10-
K. For a more detailed explanation of these transactions, as well as transactions completed in 2018 and 2017, refer
to Note 3 - "Acquisitions" and Note 4 - "Significant New Business" in the notes to our consolidated financial statements
included within Item 8 of this Annual Report on Form 10-K.
Acquisitions and Significant New Business (January 1, 2019 - Present)
Transaction
AXA XL
Munich Re
Purchase
Price
N/A
Assets
Acquired/
Assumed
$211 million
Total
Liabilities
Acquired/
Assumed
$225 million
N/A
$160 million
$160 million
Morse TEC
$— million
$683 million
$683 million
Zurich
Maiden Re Bermuda
Amerisure
AmTrust RITCs
N/A
N/A
N/A
N/A
$507 million
$623 million
$445 million
$530 million
$45 million
$48 million
$1,144 million
$1,165 million
Segment
Non-life
Run-off
Non-life
Run-off
Non-life
Run-off
Non-life
Run-off
Non-life
Run-off
Non-life
Run-off
Non-life
Run-off
Primary Nature of
Business
U.S. construction general liability
Australian public liability,
professional liability and builders'
warranty liabilities
U.S. liabilities associated with
personal injury asbestos claims
and environmental claims arising
from legacy manufacturing
operations
U.S. asbestos and environmental
liability
U.S. workers' compensation and
General Casualty
U.S. construction defect
Lloyd's property, professional,
marine, non-marine, affinity
annual, extended warranty and
political
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Sale of Life and Annuities
The following sections describe the sale of various life and annuities businesses and assets. Each of these was
an opportunistic sale, allowing us to release capital and liquidity. We will still consider life and annuities business
opportunities, either for our own balance sheet, or via one of our affiliates, Enhanzed Re or Monument Insurance
Group ("Monument").
Alpha
On May 31, 2019, we completed the transfer of our remaining life assurance policies written by our wholly-owned
subsidiary Alpha Insurance SA to a subsidiary of Monument. We have an investment in Monument. Our policy benefits
operations do not qualify for inclusion in our reportable segments and are therefore included within other activities.
The related assets, as well as the results from these operations, were not significant to our consolidated operations
and therefore they have not been classified as a discontinued operation. In addition, our transfer of these life assurance
polices to Monument was not classified as a held-for-sale business transaction since the underlying contracts did not
meet the definition of a business.
Pavonia
On December 29, 2017, we completed the sale of Pavonia Holdings (US), Inc. (“Pavonia”) to Southland National
Holdings, Inc. (“Southland”), a Delaware corporation and a subsidiary of Global Bankers Insurance Group, LLC. The
aggregate purchase price was $120.0 million. We used the proceeds to make repayments under our revolving credit
facility. A sale of one subsidiary, Pavonia Life Insurance Company of New York ("PLIC NY") has not yet been agreed
or completed. As of December 31, 2019 and 2018, included within other assets and other liabilities on our consolidated
balance sheet were amounts of $20.6 million and $11.7 million, and $24.0 million and $11.3 million, respectively, relating
to PLIC NY.
Other Transactions
During 2019, we divested 16 dormant Lloyd’s corporate members for a de-minimis amount.
Operating Segments
We have three reportable segments of business that are each managed, operated and separately reported:
(i) Non-life Run-off; (ii) Atrium; and (iii) StarStone. Our other activities, which do not qualify as a reportable segment,
include our corporate expenses, debt servicing costs, holding company income and expenses, foreign exchange and
other miscellaneous items. For additional information and financial data relating to our segments, see "Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations by
Segment," "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations -
Investments" and Note 24 - "Segment Information" in the notes to our consolidated financial statements included within
Item 8 of this Annual Report on Form 10-K.
Non-life Run-off
Our Non-life Run-off segment comprises the operations of our subsidiaries that are running off their property
and casualty and other non-life lines of business.
In the primary (or direct) insurance business, the insurer assumes risk of loss from persons or organizations
that are directly subject to the given risks. In the reinsurance business, the reinsurer agrees to indemnify an insurance
or reinsurance company, referred to as the ceding company, against all or a portion of the insurance risks arising under
the policies the ceding company has written or reinsured. When an insurer or reinsurer stops writing new insurance
business, either entirely or with respect to a particular line of business, the insurer, reinsurer, or the line of discontinued
business is in run-off.
Participants in the industry often have portfolios of business that become inconsistent with their core competency
or provide excessive exposure to a particular risk or segment of the market. These non-core and/or discontinued
portfolios are often associated with potentially large exposures and lengthy time periods before resolution of the last
remaining insured claims, resulting in significant uncertainty to the insurer or reinsurer covering those risks. These
factors can distract management, drive up the cost of capital and surplus for the insurer or reinsurer and negatively
impact the insurer’s or reinsurer’s rating, which makes the disposal of the unwanted company or portfolio an attractive
option. The insurer or reinsurer may engage with a third party that specializes in run-off management, such as Enstar,
to purchase the company or assume the portfolio in run-off.
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In the sale of a company in run-off, a purchaser, such as Enstar, may pay a discount to the book value of the
company based on the risks assumed and the relative value to the seller of no longer having to manage the company
in run-off. Such a transaction can be beneficial to the seller because it receives an up-front payment for the company,
eliminates the need for its management to devote any attention to the disposed company and removes the risk that
the established reserves related to the run-off business may prove to be inadequate. The seller is also able to redeploy
its management and financial resources to its core businesses.
In some situations, an insurer or reinsurer may wish to divest itself of a portfolio of non-core legacy business
that may have been underwritten alongside other ongoing core business that the insurer or reinsurer does not want
to dispose of. In such instances, we are able to provide economic finality for the insurer or reinsurer by providing a
loss portfolio reinsurance contract to protect the insurer or reinsurer against deterioration of the non-core portfolio of
loss reserves.
Overall, the focus of our Non-life Run-off segment is to acquire companies or portfolios in run-off and to effectively
manage that business in ways that further our primary corporate objective of growing Enstar's net book value per
share.
Acquisition Process
We evaluate each acquisition and loss portfolio transfer opportunity presented by carefully reviewing the
portfolio’s risk exposures, claim practices, reserve requirements and outstanding claims. Based on this initial analysis,
we can determine if a company or portfolio of business would add value to our current portfolio of run-off businesses.
If we decide to pursue the purchase of a company in run-off, we then proceed to price the acquisition in a manner we
believe will result in positive operating results based on certain assumptions including, without limitation, our ability to
favorably resolve claims, negotiate with direct insureds and reinsurers, manage our investment portfolio and otherwise
manage the nature of the risks posed by the business.
At the time we acquire a company in run-off, we estimate the fair value of assets and liabilities acquired based
on actuarial advice and our views of the exposures assumed. We primarily earn our total return on an acquisition from
disciplined claims management and/or commuting the liabilities that we have assumed, maximizing reinsurance
recoveries on the assumed portfolio of business and investment returns from the acquired investment portfolios.
Run-off Management
Following the acquisition of a company or portfolio of business in run-off, we strive to conduct the run-off in a
disciplined and professional manner to efficiently discharge the liabilities associated with the business while preserving
and maximizing its assets. Our approach to managing our companies and portfolios of business in run-off includes,
where possible, negotiating with third-party insureds and reinsureds to commute their insurance or reinsurance
agreement (sometimes called policy buy-backs for direct insurance) for an agreed upon up-front payment by us and
to more efficiently manage payment of insurance and reinsurance claims. We attempt to commute policies with direct
insureds or reinsureds to eliminate uncertainty over the amount of future claims. Commutations and policy buy-backs
provide an opportunity for the company to exit exposures to certain policies and insureds generally at a discount to
the ultimate liability and provide the ability to eliminate exposure to further losses. Commutations can also reduce the
duration, administrative burden and ultimately the future cost of the run-off.
In certain lines of business, such as direct workers’ compensation insurance, commutations and policy buy-back
opportunities are not typically available, and our strategy with respect to these businesses is to derive value through
efficient and effective management of claims.
Integral to our success is our ability to analyze, administer, and settle claims while managing related expenses,
such as loss adjustment expenses ("LAE"). We have implemented claims handling guidelines along with claims
reporting and control procedures in all of our claims units. All claims matters are reviewed regularly, with all material
claims matters being circulated to and authorized by management prior to any action being taken. Our claims
management processes also include leveraging our extensive relationships and developed protocols to more efficiently
manage outside counsel and other third parties to reduce expenses. With respect to certain lines of business, we have
agreements with third-party administrators to manage and pay claims on our subsidiaries’ behalf and advise with
respect to case reserves. These agreements generally set forth the duties of the third-party administrators, limits of
authority, indemnification language designed for our protection and various procedures relating to compliance with
laws and regulations. These arrangements are also subject to review by our relevant claims departments, and we
monitor these administrators on an ongoing basis.
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We provide consultancy services to third parties in the insurance and reinsurance industry primarily through our
subsidiaries, the Cranmore companies, Enstar Limited, Enstar (US), Inc., Enstar EU, Paladin Managed Care Services,
Inc. ("Paladin") and Kinsale Brokers Limited. In addition to third-party engagements, our consultancy companies also
perform these services in-house for our Enstar companies, using their expertise to assist in managing our run-off
portfolios and performing certain due diligence matters relating to acquired businesses. The services range from full-
service incentive-based or fixed fee run-off management to bespoke solutions such as claims inspection, claims
validation, reinsurance asset collection and IT consulting services. Paladin provides medical bill review, utilization
review, physician case management and related services in the workers’ compensation area.
Following the acquisition of a company or the assumption of a portfolio of business through a reinsurance
transaction, we analyze the acquired exposures and reinsurance receivables on a policyholder-by-policyholder basis
to identify those we wish to approach to discuss commutation. In addition, policyholders and reinsurers often approach
us requesting commutation. We then carry out a full analysis of the underlying exposures in order to determine the
attractiveness of a proposed commutation. From the initial analysis of the underlying exposures, it may take several
months, or even years, before a commutation is completed. In certain cases, if we and the policyholder or reinsurer
are unable to reach a commercially acceptable settlement, the commutation may not be achievable, in which case we
will continue to settle valid claims from the policyholder, or collect reinsurance receivables from the reinsurer, as they
arise or become due.
Certain insureds and reinsureds are often willing to commute with us, subject to receiving an acceptable
settlement, as this provides certainty of recovery of what otherwise may be claims that are disputed in the future, and
often provides a meaningful up-front cash receipt that, with the associated investment income, can provide funds to
meet future claim payments or even commutation of their underlying exposure. Therefore, subject to negotiating an
acceptable settlement, many of our insurance and reinsurance liabilities and reinsurance receivables can be either
commuted or settled by way of policy buy-back over time. Properly priced commutations may reduce the expense of
adjusting direct claims and pursuing collection of reinsurance, realize savings, remove the potential future volatility of
claims and reduce required regulatory capital.
We manage cash flow with regard to reinsurance recoverables by working with reinsurers, brokers and
professional advisors to achieve fair and prompt payment of reinsured claims, and we take appropriate legal action to
secure receivables when necessary. We also attempt where appropriate to negotiate favorable commutations with our
reinsurers by securing a lump sum settlement from reinsurers in complete satisfaction of the reinsurer’s past, present
and future liability in respect of such claims.
As a result of the number of transactions we have completed over the years, our organizational structure consists
of licensed entities across many jurisdictions. In managing our group, we continue to look for opportunities to simplify
our legal structure by way of company amalgamations and mergers, reinsurance, or other transactions to improve
capital efficiency and decrease ongoing compliance and operational costs over time. In addition, we seek to pool risk
in areas where we maintain the expertise to manage such risk to achieve operational efficiencies, which allows us to
most efficiently manage our assets to achieve capital diversification benefits.
Atrium
Our Atrium segment is comprised of the active underwriting operations and financial results of Northshore
Holdings Ltd. ("Northshore"), a holding company that owns Atrium and its subsidiaries and Arden Reinsurance Company
Ltd. ("Arden"). Enstar acquired Atrium on November 25, 2013.
Atrium’s wholly-owned subsidiary, Atrium Underwriters Ltd, manages Syndicate 609, which underwrites specialist
insurance and reinsurance business at Lloyd’s. Atrium’s wholly-owned subsidiary, Atrium 5 Ltd., provides 25% of the
underwriting capacity and capital to Syndicate 609, with the balance provided by traditional Lloyd’s Names. Atrium
has offices in London and the United States. Generally, Atrium continues to operate in accordance with the underwriting
and other business strategies established pre-acquisition, although we and Stone Point continually review these
strategies and business goals and continue to develop synergies with our existing business operations.
Arden is a Bermuda-based reinsurance company that provides reinsurance to Atrium (through a 65% quota
share reinsurance arrangement with Atrium 5 Ltd., which is eliminated upon consolidation) and is currently in the
process of running off certain other discontinued business. Results related to Arden’s discontinued business are
included within our Non-life Run-off segment.
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Business Lines
Syndicate 609 provides insurance and reinsurance on a worldwide basis including the United States, Europe,
the Far East and Australasia. Atrium specializes in a wide range of industry classes, including marine, aviation and
transit, property and casualty binding authorities, reinsurance, accident and health and non-marine direct and
facultative. Lloyd’s business is often underwritten on a subscription basis across the insurance market. Atrium is the
lead underwriter in approximately 45% of the business it underwrites.
Lloyd’s is a surplus lines insurer and an accredited reinsurer in all U.S. states and territories, and a licensed (or
admitted) insurer in Illinois, Kentucky and the U.S. Virgin Islands.
A description of each of Atrium's lines of business follows:
Marine, Aviation and Transit. The marine line of business is a worldwide portfolio writing marine hull, marine
war, cargo, fine art and specie, marine and energy liability and total loss only business. Atrium leads a number of the
major marine war contracts in London. Business is written on a direct, reinsurance, proportional and excess of loss
basis. The aviation portfolio includes all aspects of aviation insurance, with Atrium specializing in rotor wing and non-
major airlines. The majority of the account is sourced through London brokers as direct or facultative reinsurance of
a local reinsurer. Included within the marine, aviation and transit lines of business are the upstream energy and terrorism
portfolios. The upstream energy portfolio is split into two main categories of assureds: operators (private and publicly
quoted companies, national oil companies and Oil Insurance Limited members) and contractors (drilling, service and
construction companies). The principal coverage is physical damage/business interruption, control of well and
associated pollution, construction and Gulf of Mexico windstorm and other natural catastrophe perils. Nearly all of the
upstream energy line of business is sourced through Lloyd’s brokers, with the significant majority written on a facultative
basis and a smaller amount written on a treaty basis. The terrorism portfolio includes political violence, strikes, riots
and civil commotion, and war on land business. Most of the business is located in the U.K., the U.S. and the European
Economic Area.
Binding Authorities. The property and casualty binding authority portfolio includes a broad range of small and
medium business entity insurance products offered across the United States and Canada. Typical property risks include
commercial, vacant and hard-to-place residential dwellings. Typical casualty risks include owners, landlords and
tenants, business owners, artisan, special events and various niche products. Business is written through both
traditional binding authorities as well as online binding authorities through AUGold, Atrium’s proprietary online system
that is used by brokers. The liability line of business includes a professional liability portfolio of products covering a
diverse range of classes including architects, consultants and lawyers and also a miscellaneous range encompassing
many different professions. Included within this line of business is international general liability, which is a book of
primary coverholder business covering the security, leisure and hotel industries. The majority of business is produced
through delegated binding authority contracts.
Reinsurance. The reinsurance line is a worldwide portfolio and includes aviation reinsurance, casualty
reinsurance, property reinsurance, and marine reinsurance. Business is mainly written on a risk excess of loss,
catastrophe excess of loss or retrocessional basis. Aviation reinsurance is written through an underwriting consortium
managed by Atrium.
Accident and Health. The accident and health line is a global account that encompasses a wide range of
classes, including group and individual disability, personal accident, travel insurance, medical expenses, aviation
personal accident, war risks, kidnap and ransom insurance, and sports accident insurance. The line includes both
insurance and reinsurance business, written as facultative placements and under delegated underwriting facilities and
both proportional and non-proportional treaties.
Non-Marine Direct and Facultative. The non-marine direct and facultative portfolio includes a diverse mix of
property business offered in both the international and U.S. markets, comprised of physical loss or damage, business
interruption, extra expense, construction, contingency and pecuniary loss risks in respect of onshore property and
onshore engineered risks. The majority of this line of business is written through Lloyd’s brokers and under delegated
underwriting facilities.
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Distribution
All of the business in the Atrium segment is placed through insurance and reinsurance brokers, and a key
distribution channel for Syndicate 609 is the managing general agent binding authorities. Atrium seeks to develop
relationships with insurance and reinsurance brokers, insurance and reinsurance companies, large global corporations
and financial intermediaries to develop and underwrite business. Independent broker Marsh Inc. accounted for 13%
of Atrium’s gross premiums written in 2019. Other brokers (each individually less than 10%) accounted for the remaining
87% of gross premiums written.
Atrium’s proprietary online platform, AUGold, provides end-to-end processing, quote and policy production for
managing general agents across a range of classes of business. The platform provides agents with efficient and cost
effective access to Lloyd’s binding authorities and is designed to enable Atrium to compete more effectively with North
American excess and surplus lines carriers.
Managing Agency Services
Atrium receives a managing agency fee of 0.7% of Syndicate 609 capacity and a 20% profit commission based
on the net earnings of Syndicate 609, pursuant to its management contract. Atrium also receives management fees
and profit commission from the management of underwriting consortiums. These fees and profit commission are
included within fees and commission income in our consolidated statement of earnings.
Claims Management
Claims in respect of business written by Syndicate 609 are primarily notified by various central market bureaus.
Where a syndicate is a "leading" syndicate on a Lloyd’s policy, its underwriters and claims adjusters work directly with
the broker or insured on behalf of itself and the following market for any particular claim. This may involve appointing
attorneys or loss adjusters. The claims bureaus and the leading syndicate advise movement in loss reserves to all
syndicates participating on the risk. If necessary, Atrium's claims department may adjust the case reserves it records
from those advised by the bureaus.
Reinsurance Ceded
On an annual basis Atrium purchases a tailored outwards reinsurance program designed to manage its risk
profile. The majority of Atrium’s third-party reinsurance cover is with Lloyd’s Syndicates or other highly rated reinsurers.
StarStone
Our StarStone segment is comprised of the active underwriting operations and financial results of StarStone
and StarStone Specialty Holdings Limited ("StarStone Group"), a holding company that owns StarStone and its
subsidiaries. Our StarStone segment also includes various intra-group cessions and the results of KaylaRe's
reinsurance of StarStone Group from May 14, 2018, the date on which we completed the acquisition of KaylaRe. Refer
to Note 3 - "Acquisitions" in the notes to our consolidated financial statements included within Item 8 of this Annual
Report on Form 10-K for additional information. Effective September 30, 2019, KaylaRe and KaylaRe Ltd. merged
with Cavello Bay Reinsurance Limited, our wholly-owned subsidiary, with Cavello Bay Reinsurance Limited as the
surviving company.
We acquired StarStone (formerly known as Torus) on April 1, 2014 in partnership with Trident (managed by
Stone Point). Dowling also has a minority investment. StarStone’s strategy emphasizes underwriting discipline and
focuses on profitable lines and improvement of operational effectiveness and efficiency.
StarStone is a global specialty insurer operating worldwide from key underwriting hubs in the Lloyd's and London
markets, Bermuda, Continental Europe, and the United States. StarStone has five wholly-owned insurance platforms
and licenses to serve a global client base. In December 2017, the London market and European business were merged
into a single European entity based in Liechtenstein. This was executed in order to improve operational efficiencies
and position the StarStone group post-Brexit. Through Syndicate 1301, StarStone offers a variety of specialty products
at Lloyd’s. Syndicate 1301 is managed by StarStone's wholly-owned Lloyd’s managing agency.
In 2018, we appointed new executive leadership at StarStone, and we made progress in repositioning the
underwriting portfolio in 2019 to reflect market opportunities and to achieve a mix of business for improved underwriting
profitability. We will continue to focus on profitable lines, taking action to remediate certain lines that we wish to continue
writing and exiting lines of business that we no longer find attractive. As part of these remediation efforts we have
closed the StarStone offices in Australia, Hong Kong and Zurich and have disposed of our investment in Malakite
Underwriting Partners Ltd, a Dubai-based managing general agent.
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Business Lines
StarStone offers a broad range of property, casualty and specialty insurance products to both large multi-national
and small and middle-market clients around the world. A description of StarStone's business lines is as follows:
Casualty. Casualty is StarStone's largest product group, including StarStone’s U.S. excess casualty, global
management and professional liability, global healthcare, and accident and health products. The U.S. excess casualty
product includes umbrella, excess and retained limit products across a wide range of market segments focused on
small to mid-market businesses. The global management and professional liability product specializes in directors and
officers and professional liability protection for both traditional and emerging professions. Our healthcare product
provides insurance for acute care centers, nursing homes, physician groups, senior living facilities, and others. The
accident and health product provides protection for a broad range of groups and individuals such as air crew personal
accident and loss of license, accidental death and permanent and temporary disability for individuals including athletes
and high net worth individuals.
Marine. We provide a broad range of marine and specialty products including hull and machinery, marine and
energy liabilities, cargo, war, transport, specie and fine art, and terrorism. These products are written through Lloyd's
Syndicate 1301, our European branch network and by some of our U.S. based teams. We also provide high excess
casualty coverage placed in the London wholesale market which is focused on high excess layers for Fortune 500
companies.
Property. This line includes all of our property insurance products. The run-off construction portfolio focuses
on large, complex, infrastructure and contractor cover across all risk areas. Property also includes our onshore, power,
and upstream and offshore products written through our Lloyd's and London platforms. Most lines are written on a
full value, primary, excess of loss or quota share basis.
Aerospace. We serve a diverse client base within the aerospace sector including airlines, aircraft manufacturers
and airport service providers. Our products are split between short-tail and long-tail risks and by aircraft type into three
areas: airlines, aviation products and liability, and general aviation.
Workers' compensation. This line provides workers' compensation solutions for a range of industries, including
energy and maritime businesses to high-hazard operations. We also cover cross-state, multi-jurisdictional exposures
in single policies. Business is written directly with clients and through partnerships with independent agents, managing
general underwriters, and select wholesale brokers throughout the United States.
Distribution
StarStone's distribution strategy is to focus on proximity to clients and brokers, using its Lloyd’s platform, European
branch distribution network, its U.S. wholesale distribution strategy, as well as its relationships with insurance and
reinsurance brokers and risk carriers, corporations and financial intermediaries.
Syndicate 1301 can conduct business in over 200 countries and territories worldwide. In addition to underwriting
business directly at Lloyd’s in London, it provides local access to Lloyd’s in Continental Europe and the United States.
In the United States, products are written locally through our admitted and excess and surplus lines carriers.
Our U.S. strategy also utilizes our online e-commerce broker portal, ESCAPE, which offers immediate wholesale
distribution to all 50 states.
Business in the StarStone segment is generally placed through insurance and reinsurance brokers and managing
general agents. Independent broker Marsh Inc. accounted for 15% of StarStone’s gross premiums written for the year
ended December 31, 2019. Other brokers and managing general agents (each individually less than 6%) accounted
for the remaining 85% of gross premiums written.
Claims Management
Claims in respect of business written by Syndicate 1301, as well as in respect of StarStone’s other London
market business, are primarily notified by various central market bureaus whereby the leading syndicate or company
advise all participants of movement in loss reserves. StarStone’s claims department adjusts bureau claims in respect
of coverages where StarStone is the lead underwriter and may choose to adjust the case reserves it records from
those advised by the bureaus.
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Claims in respect of non-bureau business are handled by StarStone’s experienced claims professionals.
StarStone uses claims handling guidelines along with a global claims management system to review, report and
administer claims. With respect to certain lines of business, StarStone may use third-party administrators to manage
and pay claims on its behalf and advise with respect to case reserves. StarStone also utilizes Enstar’s experience in
claims management.
Reinsurance Ceded
StarStone purchases an annual tailored outwards reinsurance program designed to manage its risk profile. The
majority of StarStone’s third party reinsurance cover is with highly rated reinsurers or is collateralized by letters of
credit. Several of the StarStone affiliates previously had entered into a Quota Share Treaty with KaylaRe Ltd. pursuant
to which KaylaRe Ltd. reinsured 35% of all business written by these StarStone affiliates for risks attaching from
January 1, 2016, net of the StarStone affiliates' reinsurance programs. The portion of this quota share agreement
related to U.S. business was not renewed in 2018, and the remainder was not renewed in 2019. On May 14, 2018,
Enstar acquired all of the outstanding shares and warrants of KaylaRe, and the results of KaylaRe were included within
our consolidated financial statements from that date. Effective September 30, 2019, KaylaRe and KaylaRe Ltd. merged
with our wholly owned subsidiary, Cavello Bay Reinsurance Limited, with Cavello Bay Reinsurance Limited as the
surviving company.
In addition, effective October 1, 2018, April 1, 2019 and October 1, 2019 the StarStone Group transferred all
lines of business for 2018 and prior underwriting years and construction line of business for 2019 underwriting year
via intra-group reinsurance agreements with other Enstar group subsidiaries. For a detailed discussion of these
transactions refer to "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation
- Business Overview - Current Outlook."
Other activities
Our other activities, which do not qualify as a reportable segment, include our corporate expenses, debt servicing
costs, holding company income and expenses, foreign exchange and other miscellaneous items. Following the sale
of our life settlements investments during 2018 and the transfer of our remaining life assurance policies from Alpha to
Monument in 2019, we have de minimis residual life business in our consolidated operations.
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Liability for Losses and Loss Adjustment Expenses
The liability for losses and LAE, also referred to as loss reserves, represents our gross estimates before
reinsurance for unpaid reported losses and losses that have been incurred but not reported ("IBNR") for our Non-life
Run-off, Atrium and StarStone segments. We recognize an asset for the portion of the liability that we expect to recover
from reinsurers. LAE reserves include allocated loss adjustment expenses ("ALAE"), and unallocated loss adjustment
expenses ("ULAE"). ALAE are linked to the settlement of an individual claim or loss, whereas ULAE are based on our
estimates of future costs to administer the claims. IBNR represents reserves for loss and LAE that have been incurred
but not yet reported to us. This includes amounts for unreported claims, development on known claims and reopened
claims.
We establish reserves for individual claims incurred and reported, as well as IBNR claims. We use considerable
judgment in estimating losses for reported claims on an individual claim basis based upon our knowledge of the
circumstances surrounding the claim, the severity of the injury or damage, the jurisdiction of the occurrence, the
potential for ultimate exposure, the type of loss, and our experience with the line of business and policy provisions
relating to the particular type of claim. We also use considerable judgment to establish reserves for IBNR claims using
a variety of generally accepted actuarial methodologies and procedures to estimate the ultimate cost of settling IBNR
claims. See "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical
Accounting Policies - Losses and Loss Adjustment Expenses" for a description of our loss reserving process.
The estimation of unpaid claim liabilities at any given point in time is subject to a high degree of uncertainty for
a number of reasons. A significant amount of time can lapse between the assumption of risk, the occurrence of a loss
event, the reporting of the event to an insurance or reinsurance company and the ultimate payment of the claim on
the loss event. Our actuarial methodologies include industry benchmarking which, under certain methodologies,
compares the trend of our loss development to that of the industry. To the extent that the trend of our loss development
compared to the industry changes in any period, it is likely to have an impact on the estimate of ultimate liabilities.
Unpaid claim liabilities for property and casualty exposures in general are impacted by changes in the legal environment,
jury awards, medical cost trends and general inflation. Certain estimates for unpaid claim liabilities involve considerable
uncertainty due to significant coverage litigation, and it can be unclear whether past claim experience will be
representative of future claim experience. Ultimate values for such claims cannot be estimated using reserving
techniques that extrapolate losses to an ultimate basis using loss development factors, and the uncertainties
surrounding the estimation of unpaid claim liabilities are not likely to be resolved in the near future. In addition, reserves
are established to cover loss development related to both known and unasserted claims. Consequently, our subsequent
estimates of ultimate losses and LAE, and our liability for losses and LAE, may differ materially from our initial estimates.
In our Non-life Run-off segment, policy buy-backs and commutations provide an opportunity for us to exit and
settle exposures to policies with insureds and reinsureds, often at a discount to the previously estimated ultimate
liability. Commutations are beneficial to us as they extinguish liabilities, reduce the potential for future adverse loss
development, and reduce future claims handling costs. Our estimates of ultimate claim liabilities, including IBNR
reserves, are based upon actuarial methodologies applied to the remaining non-commuted aggregate exposures and
revised historical loss development information, after adjusting for the elimination of historical loss development relating
to commuted and bought-back exposures. In addition, the routine settlement of claims, at either below or above the
carried advised loss reserve, updates historical loss development information to which actuarial methodologies are
applied often, resulting in revised estimates of ultimate liabilities. A large portion of our loss reserves are related to
workers' compensation and casualty exposures, which include latent exposures primarily relating to asbestos and
environmental damage. In establishing reserves, we consider facts currently known and the current state of the law
and coverage litigation. Case reserves are recognized for known claims (including the cost of related litigation) when
sufficient information has been developed to indicate the involvement of a specific insurance policy.
Further information regarding the liability for net losses and LAE, including loss development tables and a
reconciliation of activity, is included in the notes to our consolidated financial statements included within Item 8 of this
Annual Report on Form 10-K.
Further information regarding net incurred losses and LAE is included in "Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations - Results of Operations by Segment."
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Inception-to-Date Acquisition Loss Development for our Non-life Run-off segment
The table below sets forth a summary of acquired and assumed net reserves and the resulting development for the 10 most recent acquisition years for our
Non-life Run-off segment:
Acquired
and
Assumed
Net
Reserves
Acquisition
Year
Net Paid
Losses
Net Loss
Development
Net Losses
recognized
on
Acquired
Unearned
Premium
Amortization
of Deferred
Charge
Assets
Change in
provisions
for bad
debt
Change in
provisions
for ULAE
Amortization
of Fair Value
Adjustments
Change
in Fair
Value -
FVO
Total Net
Incurred
losses and
LAE
Retro-
cession
of
reserves
Effect of
Exchange
Rate
Movement
Closing
Net
Reserves
Total Net Incurred Losses and LAE
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
1,245,093
(673,762)
712,867
422,476
657,982
465,395
(70,603)
(240,113)
(511,796)
(361,293)
(320,522)
(315,984)
(77,699)
—
—
—
(109,537)
110,285
(16,600)
1,491,256
(776,646)
(475,300)
1,350,463
(463,203)
1,504,561
(349,899)
2,873,675
(999,944)
1,586,993
(188,463)
6,762
(170,459)
(133,561)
(23,377)
62,404
53,481
—
—
68,518
54,601
(in thousands of U.S. dollars)
243
—
—
—
—
220,310
4,232
—
8,320
17,754
(29,003)
(31,096)
(242)
(127)
1,752
56
(542)
125
—
—
(50,008)
(53,369)
(9,004)
(6,417)
4,823
(76,486)
(8,158)
(32,974)
(46,376)
(7,759)
21,490
(22,001)
(9,132)
(29,909)
(44,964)
16,444
—
(1)
—
—
—
—
—
—
—
104,015
32,139
51,013
(377,800)
(8,274)
(28,647)
(422,450)
(90,104)
(2,373)
(96,077)
—
(25,605)
(35,705)
(28,391)
7,415
—
(4,553)
(3,269)
(261,495)
(50,466)
(13,117)
156,610
127,337
60,681
77,537
108,248
389,532
897,780
2,294
(99,294)
(19,947)
—
—
—
8,226
55,653
1,111,021
(49,971)
1,803,813
—
(927)
40,292
(47,018)
16,082
1,407,886
$12,310,761
$(4,635,722) $ (1,636,277) $
349,289
$
250,859
$
(59,077) $ (285,728) $
(35,934) $154,101
$(1,262,767) $(224,253) $ (47,574) $ 6,140,445
2009 and prior
Total Net Non-life Run-off Liability for Losses and LAE
338,840
$ 6,479,285
The above table presents the assumed and acquired net reserves in the year they were assumed or acquired in our Non-life Run-off segment, including the
impact of any fair value adjustments due to business combinations or electing the fair value option, deferred charge assets and unallocated LAE. The table also
presents the cumulative roll forward of those acquired and assumed net reserves from the year of acquisition to December 31, 2019. As such, each acquisition year
reflects a different time period and therefore impacts the comparability between acquisition years. We generally do not experience significant favorable or adverse
development on acquired or assumed net reserves in the year of acquisition. After the first year, and following detailed reviews of all open claims, we primarily earn
our total return from disciplined claims management and/or commuting the liabilities and maximizing reinsurance recoveries, in addition to maximizing investment
returns on the investment portfolio.
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Investments
For information regarding our investment strategy, portfolio and results, refer to "Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations - Investments."
Ratings
In our active underwriting businesses, financial strength ratings are an important factor in establishing competitive
position and in product marketing. Financial strength ratings by third-party organizations provide an opinion of an
insurer’s or reinsurer’s financial strength and ability to meet ongoing obligations to its policyholders. These ratings
reflect A.M. Best’s, Standard and Poor’s ("S&P"), and Fitch Ratings Ltd.’s ("Fitch") opinions of capitalization,
performance and management, and are not a recommendation to buy, sell or hold securities. These ratings may be
changed, suspended or withdrawn at the discretion of the agencies. Rating agencies charge fees for their services.
Our Lloyd’s Syndicates 609 (Atrium) and 1301 (StarStone) are part of a group rating for the Lloyd's overall
market. Lloyd’s is rated "A" (Excellent) by A.M. Best, "A+" (Strong) by Standard and Poor’s (or S&P) and "AA-" (Very
Strong) by Fitch Ratings.
StarStone’s operating insurance entities have been assigned a financial strength rating of "A-" (Excellent) by
A.M. Best. The A.M. Best rating for StarStone of "A-" (Excellent) by A.M. Best is the fourth highest of 16 rating levels.
Refer to "Item 1A. Risk Factors - Downgrades of financial strength ratings at StarStone or Lloyd’s could materially
and negatively impact our active underwriting business and our company," for more information regarding the
importance of financial strength ratings.
Competition
Our Non-life Run-off segment competes in international markets with domestic and international reinsurance
companies to acquire and manage insurance and reinsurance companies in run-off and portfolios of insurance and
reinsurance business in run-off. The acquisition and management of companies and portfolios in run-off is highly
competitive, and driven by a number of factors, including proposed acquisition price, reputation, and financial resources.
Some of these competitors may have greater financial resources than we do, may have been operating for longer than
we have and may have established long-term and continuing business relationships throughout the insurance and
reinsurance industries, which can be a significant competitive advantage. As a result, we may not be able to compete
successfully in the future for suitable acquisition candidates or run-off portfolio management engagements.
Our Atrium and StarStone active underwriting segments operate in the highly competitive insurance and
reinsurance markets, where companies compete on the basis of premium rates, reputation and perceived financial
strength, the terms and conditions of the products offered, ratings assigned by independent rating agencies, speed of
claims payments and quality of administrative services, relationships with insurance and reinsurance companies and
insurance intermediaries, capacity and coverage offered, experience in the particular risk to be underwritten, and
various other factors.
Atrium and StarStone compete in the international insurance and reinsurance markets directly with numerous
other parties, including established global insurance and reinsurance companies, start-up insurance and reinsurance
entities, other Lloyd’s syndicates, as well as capital markets and securitization structures aimed at managing risk.
Many of these competitors have significant operating histories, underwriting expertise and capacity, extensive capital
resources, and longstanding customer relationships. Any of these factors can be a significant competitive advantage
and may make it difficult for us to write business effectively and profitably. Because few barriers exist to prevent insurers
and reinsurers from entering the non-life active underwriting business, market conditions and capital capacity influence
the degree of competition at any given time. For a detailed discussion of competition and the cyclical pattern of the
insurance and reinsurance market, refer to "Item 1A. Risk Factors - Risks Relating to our Insurance Businesses." The
cyclical market pattern can be more pronounced in the specialty insurance and reinsurance markets in which Atrium
and StarStone compete.
Employees
As of December 31, 2019, we had 1,444 employees, as compared to 1,366 as of December 31, 2018. Although
our employee count was not significantly changed from last year, it may not be consistent from period to period due
to our business strategies, which include anticipated ongoing acquisition and integration activities.
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Enterprise Risk Management
Effective risk oversight is an important priority for our management and our Boards of Directors (both at the
Company level and at a subsidiary level), and we place strong emphasis on ensuring we have a robust risk management
framework to identify, measure, manage, monitor and report on risks that affect the achievement of our strategic,
operational and financial objectives.
An effective enterprise risk management ("ERM") framework contributes to the strength of our overall group (the
"Group"). The value of having effective risk management can positively impact many areas of the business such as
setting and achieving business strategy and objectives, capital management decision making, efficiency and
effectiveness in operations and processes, financial performance and reliable financial reporting, regulatory
compliance, good reputation with key stakeholders and business continuity planning.
Risk Management Strategy
Our risk management strategy is to:
•
•
engage in highly disciplined acquisition, management and (re)insurance practices across a diverse portfolio
of loss reserves;
seek investment risk where it is adequately rewarded;
• maintain reserving risk at low to moderate levels;
•
via active underwriting segments, take on underwriting risks across a balanced range of select specialty
lines where the expected margins compensate for the risk and/or the costs of risk mitigation; and
• maintain capital, liquidity, credit, operational and regulatory risks at low levels.
These strategies are pursued through the use of appropriate controls, governance structures and highly skilled
teams effectively working together.
We embed our risk strategy in our organization by promoting a culture of high risk awareness. This is achieved
in the demonstration of our day-to-day approach in how we manage our business and in how we manage and assess
challenges and opportunities.
Risk Appetite
The primary objective of our risk appetite framework is to monitor and protect the Group from an unacceptable
level of loss, compliance failures and adverse reputational impact. It considers material risks in the business relating
to: strategy, capital adequacy, insurance, investment/market, reinsurance counterparty/credit, regulatory, tax and
operational risk. Risk appetite and tolerance is set by our Board and reviewed annually. It represents the amount of
risk that we are willing to accept as a Group compared to risk metrics based on our shareholders' equity, capital
resources, potential financial loss, and other risk-specific measures.
Accountability for the implementation, monitoring and oversight of risk appetite is assigned to individual corporate
executives and monitored and maintained by the Risk Management function. Risk tolerance levels are monitored and
deviations from pre-established levels are reported in order to facilitate responsive action.
Our subsidiary companies’ risk appetite frameworks are aligned with the risk appetite framework of the Group,
while local company appetite and tolerances are set by the local boards. A review is undertaken annually to confirm
the subsidiary risk appetite does not in the aggregate exceed Group risk appetite.
Risk metrics levels are set and monitored regularly by an appointed owner and reported to management
committees and to our Board and Risk Committee on at least a quarterly basis. Stress and scenario tests are key tools
within our risk appetite framework, used as risk indicators across risk categories and to support a forward looking
assessment of risk. As part of monitoring and aggregating risk exposures across the Group, capital impact assessments
are performed for risks that are deemed material.
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Risk Governance and Risk Management Organization
Our ERM framework consists of numerous processes and controls that have been designed by management,
with oversight by the Board of Directors and its committees, and implemented by employees across the organization.
The purpose of our ERM framework is to appropriately assess and manage risk as we continue to take opportunities
to meet our business objectives. Senior executives are ultimately accountable for key defined risks and are responsible
for providing regular reporting to the Group Executive Team (our "executives"), Management Risk Committee ("MRC"),
Board Risk Committee and Board; and to facilitate the same to subsidiary committees and boards to support decision
making and strong risk governance. The collective boards, management and employees are responsible for the effective
implementation and/or operation of processes and controls.
Board of Directors
Our Board and its committees (and subsidiary boards of directors) receive management information from our
executives, Board committees and management committees relating to performance against strategy and regularly
review information regarding, among other things, acquisitions, active underwriting, loss reserves, credit, liquidity and
investments, operations and information security and the risks associated with each.
Our Risk Committee has responsibility to assist the Board in overseeing the integrity and effectiveness of the
Company’s ERM framework, including by reviewing and evaluating the risks to which the Company is exposed, as
well as monitoring and overseeing the guidelines and policies that govern the processes by which the Company
identifies, assesses and manages its exposure to risk. Our Audit Committee, comprised entirely of independent
directors, oversees our accounting and financial reporting-related risks and internal control environment, receiving
regular reports via the annual internal and external audit process. Our Investment Committee is responsible for
overseeing the Company’s investment portfolio and investment-related risk, determining the Group’s investment
strategy and guidelines and approving investment transactions in accordance with these guidelines. Our Compensation
Committee oversees compensation-related risks. On an annual basis, the Compensation Committee undertakes a
risk assessment of our compensation programs to ensure they do not provide incentives for our employees to take
inappropriate or excessive risks. Our Nominating and Governance Committee considers risk relating to management
succession planning and other corporate governance matters.
Executive and Risk Management Organization
In addition to the director oversight provided by our Risk Committee, our ERM governance structure is supported
by our MRC comprising executives and members of senior management who are responsible for the management of
key risks and representatives from assurance functions. At the operating subsidiary level, risks relating to our individual
insurance and reinsurance subsidiaries are also overseen by the subsidiary boards of directors, subsidiary risk
committees and other committees, and management teams, consistent with applicable regulatory requirements and
our ERM framework.
The MRC is chaired by the Chief Operating Officer and meets regularly. The MRC discusses, challenges and
debates the risks in the business and those emerging and where required recommends changes to the course of
activity in reacting to these risks. The MRC also provides oversight and governance of ERM matters for the Group,
monitoring risk assumption and risk mitigation activities and their consistency with the Risk Appetite Framework while
promoting and sponsoring risk culture and awareness throughout the Group.
Risk Ownership, Accountability and Assurance
We have adopted the "three lines of defense" model. Our first line consists of our executives and members of
senior management and their function as leaders and risk owners. They are responsible for executing the risk
management strategy and appropriately managing the activities and conduct of the business functions, as well as
promoting staff understanding of strategy, risk mitigating policies and procedures.
Our second line comprises our various risk, control and compliance oversight functions. Our Risk Management
function reports to our executives, the MRC and our Risk Committee and focuses primarily on implementing and
overseeing the administration of the MRC and Risk Committee directives and facilitating an efficient, effective and
consistent approach to risk management across the Group. Our management assurance is further complemented by
our compliance function which seeks to mitigate legal and regulatory compliance risks and ensures that appropriate,
effective and responsive compliance services are available to the business units across the Group. Other second line
functions include certain activities of our actuarial function and other Group functions contributing to our management
assurance.
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Our third line of defense comprises our internal audit function which independently reviews the effectiveness of
our ERM framework. The results of audits are monitored by the Audit Committee. Independent assurance from external
third parties (e.g., independent actuarial services, etc.) also sits within our third line of defense.
Entity Level Management
At the operating subsidiary level, risks relating to our individual insurance and reinsurance subsidiaries are also
overseen by the subsidiary boards of directors, subsidiary risk committees and other committees, and management
teams, consistent with applicable regulatory requirements and our ERM framework.
Certain risks relating to the Group’s underwriting segments (Atrium and StarStone) are distinct from the Non-
life Run-off segment. These businesses include external stakeholders that also differ from our other businesses,
including joint venture partners, rating agencies, and, with respect to Atrium, third party Lloyd’s names who provide
approximately 75% of the underwriting capacity to Atrium’s Syndicate 609. Atrium and StarStone each maintain
dedicated ERM frameworks to manage risk, return and capital in the individual businesses, which align with and form
part of Group ERM. These include oversight at the Atrium and StarStone boards of directors, as well as executive risk
committees and other committees that manage and monitor risks relevant to specified functional areas. Individualized
risk policies and risk appetites are established and tailored to the specific needs of Atrium and StarStone, respectively.
Enstar executives serve as members of the Atrium and StarStone boards of directors and certain committees.
The Group and each regulated insurance entity have a unique risk register documenting its risk landscape, with
risk, key risk metric, and control owners assigned, which is maintained through a risk management software system.
Specific functions, such as IT, maintain risk registers with more detailed and specific risks and controls. The risk and
control assessment process is carried out on a quarterly basis using a risk management software system.
Risk Categories
We manage our ERM process based on the major categories of risk within our business discussed below. Our
ERM is a dynamic process, with updates continually being made as a result of changes in our business, industry and
the economic environment. This process and our controls cannot provide absolute assurance that our risk management
objectives will be met or that all risks will be appropriately identified and managed, and accordingly, the possibility of
material adverse effects on our company remains. See "Item 1A. Risk Factors" for important information on the risks
we face.
Strategic Risk. Strategic risk is the risk of unintended adverse impact on the business plan objectives arising
from business decisions, improper implementation of those decisions, inability to adapt to changes in the external
environment, or circumstances that are beyond our control. We manage strategic risk by utilizing a strategic business
planning process involving our executives and Board. Our annual business plan is reviewed and overseen by our
executives and Board, and actual performance, trends, and uncertainties are monitored in comparison to the plan
throughout the year. We specifically evaluate acquisition opportunities pursuant to a detailed and proprietary process
that takes into account, among other things, the risk of the transaction and potential returns, the portfolio’s risk
exposures, claims management practices, reserve requirements and outstanding claims, as well as risks specifically
related to our ability to integrate the acquired business and the impact it may have on our risk appetite framework and
related tolerances. Our governance process, led by our Board of Directors, reviews newly proposed transaction
opportunities, capital-raising matters, and other significant business initiatives. In order to effectively participate in
future opportunities and manage downside risks (due to external events) we review and monitor our liquidity and
available financing. We rely on our processes to help us to anticipate potential adverse changes and, where possible,
avoid or mitigate them.
Capital Adequacy Risk. Capital adequacy risk is the risk that capital levels are or become insufficient to ensure
our insurance obligations will be met and policyholders are protected. We have a low appetite for capital adequacy
risk. As well as meeting our regulatory obligations, the ability to effectively participate in future opportunities is dependent
upon the Group and its subsidiaries continually meeting (and/or exceeding) solvency requirements. We endeavor to
manage our capital such that all of our regulated entities meet local regulatory capital requirements at all times and
maintain adequate capital to enable our insurance obligations to be met while taking into account the risks faced. We
aim to deploy capital efficiently and to establish adequate loss reserves that we believe will protect against future
adverse developments. Capital adequacy and its ability on an ongoing basis to support the business under adverse
circumstances is assessed via stress and scenario testing. Specific scenarios are mandated under the various
regulatory regimes in which the Group and its subsidiaries operate. User-defined scenarios have also been developed
and are regularly tested and reported on.
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Insurance Risk. Insurance risk spans many aspects of our insurance operations, including underwriting risk,
risk assumed upon acquisitions/portfolio transfers and risk associated with our reserving assumptions.
Underwriting risk in our active underwriting businesses relates to the inherent uncertainty as to the occurrence,
amount and timing of insurance liabilities we assume through our underwriting process. We manage exposure levels
across risk categories to maintain them within the approved risk appetite. Underwriting risk management strategies
may differ depending on the line of business involved and the type of account being insured or reinsured.
We strive to mitigate underwriting risk through our controls and strategies, including our underwriting risk
selection, diversification of our underwriting portfolios by class and geography, purchasing reinsurance, establishing
a business plan and associated parameters, underwriting peer review, authority limits, underwriting guidelines that
provide detailed underwriting criteria and a framework for pricing, along with the use of specialized underwriting teams
supported by actuarial, catastrophe modeling, claims, risk management, legal, finance, and other technical personnel.
We utilize internally developed pricing models to evaluate individual underwriting decisions within the context
of business plans and risk appetites. We also use internally developed capital models, which provide information on
key risks and facilitate an understanding of the interaction among the risks and related exposures, as a comprehensive
tool for business and capital planning.
In some business lines we are exposed to multiple insured losses arising out of a single peril, such as a natural
catastrophe event (for example, a hurricane, windstorm, tornado, flood or earthquake) or a man-made event (for
example, war, terrorism, airplane crashes and other transportation-related accidents, or building fires). We model and
manage our individual and aggregate exposures to these events and other material correlated exposures in accordance
with our risk appetite. Our modeling process utilizes major commercial vendor models to measure certain of these
exposures. The incidence, timing and severity of catastrophes and other event types are inherently unpredictable, and
it is difficult to estimate the amount of loss any given occurrence will generate. Accordingly, there is material uncertainty
around our ability to measure exposures, which can cause actual exposures and losses to deviate from our estimates.
To monitor catastrophe risk, we review exceedance probability curves aggregated across Atrium and StarStone
together with aggregated realistic disaster scenarios. We consider occurrence exceedance probability and aggregate
exceedance probability, which reflect losses resulting from single or multiple events, from individual perils and in the
aggregate. We manage our underwriting exposure through a combination of reporting zonal aggregations, realistic
disaster scenarios and stochastic modeling. StarStone also manages its underwriting exposure through monitoring
realistic disaster scenarios for man-made events and certain natural catastrophe risks, and applying absolute maximum
limits by line of business.
Acquisition Risk. We manage acquisition risks through our acquisition evaluation process and our reserving
practices discussed above in "Liability for Losses and Loss Adjustment Expenses." Acquisition pricing risk can arise
from a potential loss in value following an acquisition due to an underestimation of liabilities, a failure to generate
assumed future cash flows that supported the pricing analysis (due to an underperformance of investments and/or
underestimation of expenses) or an unexpected increase in capital requirements necessary to support the transaction
due to unanticipated regulatory changes. We rely on due diligence to strategically select risks, and assume only select
portfolios when our due diligence supports our negotiated pricing. In aggregate, we have a high risk appetite to continue
to execute transactions, with no express restrictions on the size, geography or lines of business that we will review
and consider. However, we have a low aggregate risk appetite for transactions that could ultimately have a negative
impact on book value per share.
Reserving Risk. Reserving risk is the risk that a Company's reserves are not sufficient to cover its unpaid loss
and loss adjustment expense costs. The estimation of reserves is subject to uncertainty because the ultimate cost of
settling claims is dependent upon future events and loss development trends that can vary with the impact of economic,
social, and legal and regulatory matters. We manage reserving risk through our reserving practices discussed above
in "Liability for Losses and Loss Adjustment Expenses - Loss Reserving," as well as through our commutation and
policy buy-back strategy and claims management practices. We also have a Reserving Committee that is responsible
for managing reserving risk and making recommendations to our Chief Financial Officer on the appropriate level of
reserves to include in our consolidated financial statements. For additional information relating to our loss reserves
by segment, "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical
Accounting Policies."
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Investment/Market Risk. Investment / Market risk is the risk of loss resulting from under-performing investment
returns, dilution of investment capital, or adverse financial market movements (such as interest rates or exchange
rates). Investment / Market risk can be broken down into the following sub-risks which may threaten our ability to
effectively manage the investment portfolio: interest rate risk, credit spread risk, public equity risk, alternative investment
risk and concentration risk. We manage Investment / Market risk in a number of ways, including use of investment
guidelines; regular reviews of investment opportunities; market conditions; portfolio duration; oversight of the selection
and performance of external asset managers; regular stress testing of the portfolio against known and hypothetical
scenarios; established tolerance levels; and we manage foreign currency by asset/liability matching and use of
derivatives. Investments are primarily managed by our Investment function, which is overseen by our Investment
Committee.
Liquidity Risk. Liquidity risk is the risk that we are unable to realize investments and other assets in order to
settle financial obligations when they fall due or that we would have to incur excessive cost to do so. We manage this
risk generally by following an investment strategy designed to emphasize the preservation of our invested assets and
provide sufficient liquidity for the prompt payment of claims and contract liabilities, as well as for settlement of
commutation payments. Liquidity risk also includes the risk of our dependence of our future cash flows upon the
availability of dividends or other statutorily permissible payments from our subsidiaries, which is limited by applicable
laws and regulations. Due to our acquisitive strategy, liquidity risk at the Group level also includes immediate cash
needs as a result of the purchase of (re)insurance portfolios and/or capital injections into a new or existing subsidiary
to support associated solvency requirements as a direct result of merger and acquisition activity or other significant
changes. We manage this risk through our capital management and planning processes, which include reviews of
minimum capital resources requirements at our regulated subsidiaries and anticipated distributions, as well as
anticipated capital needs.
Credit / Counterparty Risk. Credit risk relates to the uncertainty of a counterparty’s ability to make timely
payments in accordance with contractual terms of the instrument or contract. We are exposed to direct credit risk
primarily within our portfolios of fixed maturity and short-term investments, and through customers, brokers and
reinsurers in the form of premiums receivable and reinsurance recoverables. In addition, we are exposed to credit
risk through our funds withheld arrangements if the reinsured company is unable to honor the value of the funds held
balances, such as in the event of insolvency. In our run-off businesses, we manage credit risk with respect to our
reinsurance recoverables by ongoing monitoring of counterparty ratings and working to achieve prompt payment of
reinsured claims, as well as through our commutation strategy. For funds withheld arrangements, we generally have
the contractual ability to offset any shortfall in the payment of the funds held balances with amounts owed by us to the
reinsured for losses payable and other amounts contractually due. In our active underwriting businesses, we firstly
mitigate credit risk through our reinsurance purchasing process, where reinsurers are subject to financial security and
rating requirements prior to approval and by limiting exposure to individual reinsurers. Thereafter we manage credit
risk by the regular monitoring of reinsurance recoveries and premium due directly or via brokers and other
intermediaries. In our fixed maturity and short-term investment portfolios, we attempt to mitigate credit risk through
diversification and issuer exposure limitation.
Operational Risk. Operational risk is the risk of a loss arising from inadequate or failed internal processes, or
from external events, personnel, systems or third parties. Due to our acquisitive strategy, operational risk also includes
risks and challenges associated with integrating new companies into the Group. We seek to mitigate operational risks
through the application of our policies and procedures and internal control and compliance processes throughout the
Group and a focus on acquisition integration and assimilation of new companies into our internal control systems,
including but not limited to operational incident management, business continuity planning, information security
procedures, financial reporting controls and a review process for material third-party vendor usage.
Regulatory Risk. Regulatory risk is the risk of legal or regulatory sanctions resulting in a financial loss, or loss
of reputation as a result of an insurer’s failure to comply with laws, regulations, rules, related self-regulatory organization
standards, and codes of conduct. We manage regulatory risk through a focus on compliance with laws and regulations,
adherence to our policies and procedures (including our Code of Conduct) and our internal controls, an established
corporate governance framework and practices, and communication and engagement with external stakeholders.
Tax Risk. Tax risk is the risk that tax requirements are not adhered to accurately or in a timely manner resulting
in a financial loss. We proactively seek to identify, evaluate, manage, monitor and mitigate tax risks. We are committed
to complying with all tax laws, rules and regulations applicable to the Group. In evaluating potential transactions we
consider the overall commercial, financial and tax aspects. Where there is uncertainty or complexity in relation to a
tax risk, we may seek external advice and, where appropriate, we may obtain tax clearances from relevant tax
authorities.
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Emerging Risks
As part of our ERM Framework, we maintain a Framework for the Management of Emerging Risk, which sets
out the minimum standards by which emerging risks are identified, analyzed, evaluated, treated and reported on.
Pursuant to this framework, the MRC and our Board Risk Committee continually monitor emerging risks and oversee
changes to our ERM Framework to react to these risks, where appropriate. Emerging risks are defined as risks which
may develop or which already exist but are difficult to quantify. They are marked by a high degree of uncertainty, and
may or may not fall within the categories outlined above under "Risk Categories." While emerging risks are not fully
understood or explicitly considered within the day-to-day operation of our business due to the lack of quantifiable data,
we expect that the potential impacts of these risks may crystallize over time and therefore merit additional analysis,
monitoring, evaluation and when appropriate treatment. Recent examples of emerging risks that we review and consider
include:
•
•
•
•
•
•
•
Risks relating to the increased use of letters of credit by our subsidiaries to satisfy collateral obligations in our
reinsurance and run-off transactions;
Risks relating to changes in Bermuda solvency capital eligibility requirements;
Risks relating to cybersecurity and data privacy;
Risks relating to the transition from LIBOR;
Risks relating to our claims management activities, including social inflation, increased litigation funding, and
laws that impose absolute liability for certain types of claims;
Risks relating to climate change, including as a result of our investments in companies that may be exposed
to "transition risk;" and
Risks arising from global pandemics, such as coronavirus.
Regulation
General
The business of insurance and reinsurance is regulated in most countries, although the degree and type of
regulation varies significantly from one jurisdiction to another. Our material operations are in Bermuda, the United
Kingdom, the United States, Australia and several Continental European countries. We are subject to extensive
regulation under the applicable statutes in these countries and any others in which we operate. In addition, the Bermuda
Monetary Authority ("BMA") acts as group supervisor of our insurance and reinsurance companies (our "Group"). A
summary of the material regulations governing us in these countries is set forth below.
We may become subject in the future to regulation in new jurisdictions or additional regulations in existing
jurisdictions depending on the location and nature of any companies acquired and the volume and location of business
being transacted by our existing companies.
Bermuda
Group Supervision
The BMA’s group supervision objective is to provide a coordinated approach to the regulation of an insurance
group and its supervisory and capital requirements. Bermuda has been recognized by the U.S. National Association
of Insurance Commissioners ("NAIC") as a qualified jurisdiction, and the E.U. recognizes Bermuda's full equivalence
under Solvency II.
We are group supervised by the BMA. As our Group supervisor, the BMA performs a number of functions
including: (i) coordinating the gathering and dissemination of information for other regulatory authorities; (ii) carrying
out a supervisory review and assessment of our Group; (iii) carrying out an assessment of our Group's compliance
with the rules on solvency, risk concentration, intra-group transactions and good governance procedures; (iv) planning
and coordinating, through regular meetings with other authorities, supervisory activities in respect of our Group; (v)
coordinating any enforcement action that may need to be taken against our Group or any Group members; and (vi)
coordinating meetings of colleges of supervisors in order to facilitate the carrying out of these functions. Cavello Bay
Reinsurance Limited ("Cavello") has been named as our Group’s Designated Insurer, effective December 11, 2019.
As Designated Insurer, Cavello is required to facilitate compliance by our Group with the insurance solvency and
supervision rules.
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On an annual basis, the Group is required to file Group statutory financial statements, a Group statutory financial
return, a Group capital and solvency return, audited Group financial statements, a Group Solvency Self-Assessment
("GSSA"), and a financial condition report with the BMA. The GSSA is designed to document our perspective on the
capital resources necessary to achieve our business strategies and remain solvent, and to provide the BMA with
insights on our risk management, governance procedures and documentation related to this process. In addition, the
Group is required to file a quarterly financial return with the BMA.
We are required to maintain available Group statutory capital and surplus in an amount that is at least equal to
the group enhanced capital requirement ("Group ECR"). The BMA has also established a group target capital level
equal to 120% of the Group ECR.
The BMA also maintains supervision over the controllers of all Bermuda registered insurers, and accordingly,
any person who, directly or indirectly, becomes a holder of at least 10%, 20%, 33% or 50% of our ordinary shares
must notify the BMA in writing within 45 days of becoming such a holder (or ceasing to be such a holder). The BMA
may object to such a person and require the holder to reduce its holding of ordinary shares and direct, among other
things, that voting rights attaching to the ordinary shares shall not be exercisable.
Operating Subsidiaries
The Insurance Act 1978 of Bermuda and related regulations, as amended (together, the "Insurance Act"), regulate
the insurance and reinsurance business of our operating subsidiaries in Bermuda. The Insurance Act imposes certain
solvency and liquidity standards and auditing and reporting requirements and grants the BMA powers to supervise,
investigate, require information and the production of documents and intervene in the affairs of insurance companies.
Significant requirements pertaining to our regulated Bermuda subsidiaries vary depending on the class in which
our company is registered, but generally include the appointment of a principal representative in Bermuda, the
appointment of an independent auditor, the appointment of an approved loss reserve specialist, the filing of annual
statutory and GAAP financial statements, the filing of statutory financial returns, compliance with group solvency and
supervision rules, and compliance with the Insurance Code of Conduct (relating to corporate governance, risk
management and internal controls).
Our regulated Bermuda subsidiaries must also comply with a minimum liquidity ratio and minimum solvency
margin. The minimum liquidity ratio requires that the value of relevant assets must not be less than 75% of the amount
of relevant liabilities. The minimum solvency margin, which varies depending on the class of the insurer, is determined
as a percentage of either net reserves for losses and LAE or premiums or pursuant to a risk-based capital measure.
StarStone Insurance Bermuda Limited, a Class 4 insurer, Cavello Bay Reinsurance Limited, a Class 3B insurer and
Fitzwilliam Insurance Limited, a Class 3A insurer, all domiciled in Bermuda, are subject to an enhanced capital
requirement ("ECR") determined pursuant to a risk-based capital measure and are required to file a Commercial
Insurer’s Solvency Self-Assessment (“CISSA”), and a financial condition report with the BMA.
Each of our regulated Bermuda subsidiaries would be prohibited from declaring or paying any dividends if it
were in breach of its minimum solvency margin or liquidity ratio or if the declaration or payment of such dividends
would cause it to fail to meet such margin or ratio. In addition, each of our regulated Bermuda subsidiaries is prohibited,
without the prior approval of the BMA, from reducing by 15% or more its total statutory capital, or from reducing by
25% of more its total statutory capital and surplus, as set out in its previous year’s statutory financial statements. Our
Bermuda insurance companies that are in run-off are required to seek BMA approval for any dividends or distributions.
Economic Substance Act
The Economic Substance Act 2018 (the “ESA”) was passed in Bermuda in December 2018 in response to the
decision of the European Union Code of Conduct Group (Business taxation) (the "EU Code Group") to place Bermuda,
as well as other offshore jurisdictions, on notice of being included in a list of non-cooperative jurisdictions for tax
purposes. Under the provisions of the ESA, any Bermuda-registered entity engaged in a “relevant activity” (which
includes insurance business and holding entity activities) must maintain a substantial economic presence in Bermuda.
To the extent that the ESA applies to our entities registered in Bermuda, we will be required to demonstrate compliance
with economic substance requirements by filing an annual economic substance declaration with the Registrar of
Companies in Bermuda.
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United Kingdom and Lloyd’s
United Kingdom
Our U.K.-based insurance subsidiaries consist of wholly-owned run-off companies. These subsidiaries are
authorized by the U.K. Prudential Regulation Authority (the "PRA"), and are also regulated by the Financial Conduct
Authority (the "FCA", together with the PRA, the "U.K. Regulator"). Our U.K. run-off subsidiaries may not underwrite
new business without the approval of the U.K. Regulator. E.U. directives also allow certain of our regulated U.K.
subsidiaries to conduct business in E.U. states other than the U.K. within the scope of permission granted by the U.K.
Regulator without the necessity of additional licensing or authorization in E.U. countries.
The United Kingdom left the European Union on January 31, 2020 (commonly referred to as “Brexit”). There is
an 11-month transition period that ends on December 31, 2020 during which existing European Union rules remain in
force. For a discussion of the potential impact of Brexit on our operations, refer to "Item 1A. Risk Factors - Risks
Relating to Laws and Regulation." Pending the end of the transition period (and then subject to the outcome of the
negotiations between the United Kingdom and the European Union. as to the terms of their future trading relationship),
E.U. directives allow certain of our regulated U.K. subsidiaries to conduct business in E.U. states other than the United
Kingdom within the scope of permission granted by the U.K. Regulator without the necessity of additional licensing or
authorization in E.U. countries.
Our U.K.-based insurance subsidiaries are required to maintain adequate financial resources in accordance
with the requirements of the U.K. Regulator. The calculation of the minimum capital resources requirements in any
particular case depends on, among other things, the type and amount of insurance business written and claims paid
by the insurance company.
The Solvency II framework directive, which took effect on January 1, 2016, sets out E.U.-wide requirements on
capital adequacy and risk management for insurers with the aim of further increasing policyholder protection, instilling
greater risk awareness and improving the international competitiveness of E.U. insurers. Insurers must comply with
a Solvency Capital Requirement ("SCR"), which is calculated using either the Solvency II standard formula or a bespoke
internal model. Our non-Lloyd's U.K. companies use the standard formula.
The U.K. Regulator’s rules require our U.K. insurance subsidiaries to obtain regulatory approval for any proposed
or actual payment of a dividend. The U.K. Regulator uses the SCR, among other tests, when assessing requests to
make distributions.
Under the Financial Services and Markets Act of 2000 ("FSMA"), any company or individual (together with its
or his concert parties) proposing to directly or indirectly acquire "control" over a U.K. authorized insurance company
(which is generally defined as acquiring 10% or more of the shares or voting power in a U.K. authorized insurance
company or its parent company) must seek prior approval of the U.K. Regulator of his intention to do so. A person who
is already deemed to have "control" will require prior regulatory approval if the person increases the level of "control"
beyond 20%, 30% and 50%.
Lloyd’s
We participate in the Lloyd’s market through our interests in: (i) Atrium’s Syndicate 609, which is managed by
Atrium Underwriters Limited, a Lloyd's managing agent; (ii) StarStone’s Syndicate 1301, which is managed by StarStone
Underwriting Limited ("SUL"), a Lloyd’s managing agent; and (iii) Syndicate 2008, a wholly aligned syndicate that has
permission to underwrite RITC business and other run-off or discontinued business type transactions with other Lloyd’s
syndicates. SUL serves as managing agent for Syndicate 2008. All of the Group’s underwriting by these syndicates
is supported by one or more internal corporate members.
Our Lloyd’s operations are subject to authorization and regulation by the U.K. Regulator and compliance with
the Lloyd’s Act(s) and Byelaws and regulations, as well as the applicable provisions of the FSMA. The Council of
Lloyd’s has wide discretionary powers to regulate members’ underwriting, and its exercise of these powers might affect
the return on an investment of the corporate member in a given underwriting year. This discretion includes the ability
to assess up to 3% of a member’s underwriting capacity in any one year as a Central Fund contribution.
The underwriting capacity of a corporate member of Lloyd’s must be supported by providing a deposit (referred
to as "Funds at Lloyd’s") in the form of cash, securities or letters of credit in satisfaction of its capital requirement. The
amount of the Funds at Lloyd’s is assessed annually and is determined by Lloyd’s in accordance with applicable capital
adequacy rules.
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Business plans, including maximum underwriting capacity, for Lloyd’s syndicates requires annual approval by
the Lloyd’s Franchise Board, which may require changes to any business plan or additional capital to support
underwriting plans.
In order to achieve finality and to release their capital, Lloyd’s members are usually required to have transferred
their liabilities through an approved RITC, such as offered by Syndicate 2008. RITC is generally put in place after the
third year of a syndicate year of account. On successful conclusion of RITC, any profit from the syndicate for that year
of account can be fully remitted by the managing agent to the syndicate’s members.
The Lloyd’s market has applied the Solvency II internal model under Lloyd’s supervision, and our Lloyd’s
operations are required to meet Solvency II standards. The Society of Lloyd's has received approval from the PRA to
use its internal model under the Solvency II regime.
Lloyd’s approval is required before any person can acquire control of a Lloyd’s managing agent or Lloyd’s
corporate member.
United States
Our insurance and reinsurance companies domiciled in the United States consist of property and casualty
companies in run-off, as well as StarStone Specialty Insurance Company (a U.S. excess and surplus lines insurer)
and StarStone National Insurance Company (a U.S. admitted insurer that is licensed in all 50 states and the District
of Columbia). Our U.S. insurers are subject to extensive governmental regulation and supervision by the states in
which they are domiciled, licensed and/or eligible to conduct business. The insurance laws and regulations of the state
of domicile have the most significant impact on operations. We currently have U.S. insurers and reinsurers domiciled
in Texas, New York, Delaware, Missouri, Oklahoma and Rhode Island, with one of these insurers also commercially
domiciled in California.
Generally, regulatory authorities have broad regulatory powers over such matters as licenses, standards of
solvency, premium rates and policy forms (except for excess and surplus lines insurers), marketing practices, claims
practices, investments, security deposits, restrictions on size of risks that may be insured under a single policy, methods
of accounting, form and content of financial statements, corporate governance, enterprise risk management, reserves
and provisions for unearned premiums, unpaid losses and LAE, reinsurance, minimum capital and surplus
requirements, dividends and other distributions to shareholders, periodic examinations, annual and other report filings,
and transactions among affiliates.
As to periodic examinations, regulators have begun to look well beyond financial solvency and market conduct.
In 2017, for example, the New York Department of Financial Services (“NYDFS”) increased its focus on cybersecurity,
requiring financial institutions regulated by the NYDFS to establish a cybersecurity program. The NYDFS now also
requires the completion of an extensive questionnaire regarding each New York domestic insurer’s cybersecurity
program in connection with such examinations. Additionally, most states require the completion of an extensive
questionnaire, similar to that required by New York, in connection with such examinations. Other states have since
enacted similar laws based on the NAIC’s Insurance Data Security Model Law, adopted in 2017.
U.S. insurers are also required to maintain minimum levels of solvency and liquidity as determined by law, and
to comply with risk-based capital requirements and licensing rules. Insurers having less statutory surplus than required
by the risk-based capital calculation will be subject to varying degrees of regulatory action. If any of our U.S. insurers
were to have risk-based capital levels that are below required levels, they would be subject to increased regulatory
scrutiny and control by their domestic and possibly other insurance regulators. As of December 31, 2019, all of our
U.S. insurers exceeded their required levels of risk-based capital.
Applicable insurance laws also limit the amount of dividends or other distributions our U.S. insurers can pay to
us. The insurance regulatory limitations are generally based on statutory net income and/or certain levels of statutory
surplus as determined by the insurer’s state or states of domicile. Generally, prior regulatory approval must be obtained
before an insurer may pay a dividend or make a distribution above a specified level.
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All states have enacted legislation regulating insurance holding company systems that requires each insurance
company in the system to register with the insurance department of its state of domicile and furnish information
concerning the operations of companies within the holding company system that may materially affect the operations,
management or financial condition of the insurers within the system. The NAIC has adopted amendments to the
Insurance Holding Company System Regulatory Act and associated regulations, which all states in which our U.S.
insurers are domiciled or commercially domiciled have adopted. The amendments provide the regulators with additional
tools to evaluate risks to an insurance company within the insurance holding company system. They impose more
extensive informational requirements on parents and other affiliates of licensed insurers with the purpose of protecting
them from enterprise risk, including requiring an annual enterprise risk report by the ultimate controlling person of the
insurers identifying the material risks within the insurance holding company system that could pose enterprise risk to
the insurers and requiring a person divesting its controlling interest to make a confidential advance notice filing.
The NAIC has also adopted the Risk Management and Own Risk and Solvency Assessment Model Act, which
requires insurers to maintain a risk management framework and establishes a legal requirement for insurers or their
insurance group to conduct an Own Risk and Solvency Assessment ("ORSA") in accordance with the NAIC’s ORSA
Guidance Manual. The ORSA Model Act has been adopted in all of the states in which our U.S. insurers are domiciled,
and our insurers in these states may be subject to ORSA requirements if certain premium thresholds are exceeded.
Where applicable, we must regularly conduct an ORSA consistent with the ORSA Model Act, including undertaking
an internal risk management review no less often than annually and preparing a summary report assessing the adequacy
of risk management and capital in light of our insurers’ current and future business plans.
In addition, the NAIC’s Corporate Governance Annual Disclosure (“CGAD”) Model Act and Regulation requires
the annual filing of a disclosure describing the insurance group’s corporate governance structure, policies, and practices.
The Model Act and Regulation have been adopted in some, though not all, of the states in which we have insurers
domiciled. There are no premium thresholds for CGAD.
The Dodd Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act"), represented
a comprehensive overhaul of the financial services industry within the United States and, among other things,
established the Financial Services Oversight Council and created within the United States Department of the Treasury
a Federal Insurance Office ("FIO"). The FIO is authorized to study, monitor and report to Congress on the U.S. insurance
industry and the significance of global reinsurance to the U.S. insurance market. The Dodd-Frank Act also authorizes
the federal preemption of certain state insurance laws and streamlines the regulation of reinsurance and surplus lines/
non-admitted insurance.
Before a person can acquire control of a domestic insurer (including a reinsurer) or any person controlling such
insurer (including acquiring control of Enstar Group Limited), prior written approval must be obtained from the insurance
commissioner of the state in which the domestic insurer is domiciled and, under certain circumstances, from insurance
commissioners in other jurisdictions. Generally, state statutes and regulations provide that "control" over a domestic
insurer or person controlling a domestic insurer is presumed to exist if any person, directly or indirectly, owns, controls,
holds with the power to vote, or holds proxies representing, 10% or more of the voting securities or securities convertible
into voting securities of the domestic insurer or of a person who controls the domestic insurer.
Australia
Our Australian regulated insurance entities (which include our insurance subsidiary and our non-operating holding
company) are subject to prudential supervision by the Australian Prudential Regulation Authority ("APRA"). APRA is
the primary regulatory body responsible for regulating compliance with the Insurance Act 1973. APRA has issued
prudential standards that apply to general insurers in relation to capital adequacy, the holding of assets in Australia,
risk management, business continuity management, reinsurance management, outsourcing, audit and actuarial
reporting and valuation, the transfer and amalgamation of insurance businesses, governance, and the fit and proper
assessment of the insurer’s responsible persons.
APRA’s prudential standards require that all insurers maintain and meet prescribed capital adequacy
requirements to enable their insurance obligations to be met under a wide range of circumstances.
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APRA also prescribes prudential standards on risk management and governance. These requirements include
the need for regulated insurance entities to have a risk management framework that is consistent and integrated with
its risk profile and capital strength, supported by a risk management function and subject to comprehensive review.
APRA’s risk management requirements also include the need for regulated insurance entities to have a board risk
committee that provides the Board with objective non-executive oversight of the implementation and on-going operation
of its risk management framework, and the requirement that regulated insurance entities designate a chief risk officer
who is involved in, and provides effective challenge to, activities and decisions that may materially affect the regulated
insurance entities’ risk profile. Our Australian regulated insurance entities are compliant with these requirements.
An insurer must obtain APRA’s written consent prior to making any capital releases, including any payment of
dividends in excess of current year earnings. Our insurance subsidiary must provide APRA a valuation prepared by
an appointed actuary that demonstrates that the tangible assets of the insurer, after the proposed capital reduction,
are sufficient to cover its insurance liabilities to a 99.5% level of sufficiency of capital before APRA will consent to a
capital release or dividend.
Under the Financial Sector (Shareholdings) Act 1998, the interest of an individual shareholder or a group of
associated shareholders in an insurer is generally limited to a 15% "stake" of the insurer. A person’s stake is the
aggregate of the person’s voting power and the voting power of the person’s associates. A higher percentage limit
may be approved by the Treasurer of the Commonwealth of Australia on national interest grounds. Any shareholder
of Enstar Group Limited with a "stake" greater than 15% has received approval to hold that stake from the Treasurer
of the Commonwealth of Australia.
Europe
In addition to Bermuda, the United Kingdom, Australia and the United States, we have subsidiaries in Belgium,
as well as StarStone Insurance SE, a Liechtenstein-based company that continues to underwrite new business through
branches across Europe and is regulated by the Financial Markets Authority. StarStone Insurance Europe AG was
merged into StarStone Insurance SE in Liechtenstein effective from October 1, 2017, following the relocation of
StarStone Insurance SE’s principal office from the U.K. to Liechtenstein on May 8, 2017. With effect from January 1,
2019, our Swiss insurance subsidiary redomesticated to Bermuda and is now regulated by the BMA. It continues to
have a UK branch.
Our subsidiaries and branches in European jurisdictions such as Belgium and Liechtenstein are regulated in
their respective home countries. Typically, such regulation is for the protection of policyholders and ceding insurance
companies rather than shareholders. Regulatory authorities generally have broad supervisory and administrative
powers over such matters as licenses, standards of solvency, investments, reporting requirements relating to capital
structure, ownership, financial condition and general business operations, special reporting and prior approval
requirements with respect to certain transactions among affiliates, reserves for unpaid losses and LAE, reinsurance,
minimum capital and surplus requirements, dividends and other distributions to shareholders, periodic examinations
and annual and other report filings. The application of the Solvency II framework across such European jurisdictions
from January 1, 2016 generally results in a more uniform approach to regulation.
Available Information
We maintain a website with the address http://www.enstargroup.com. The information contained on our website
is not included as a part of, or incorporated by reference into, this filing. We make available free of charge through our
website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all
amendments to these reports, as soon as reasonably practicable after the material is electronically filed with or otherwise
furnished to the U.S. Securities and Exchange Commission, (the "SEC"). Our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports are also available on the SEC’s
website at http://www.sec.gov. In addition, copies of our Code of Conduct and the governing charters for the Audit,
Compensation, Nominating and Governance, Investment, and Risk Committees of our Board of Directors are available
free of charge on our website.
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ITEM 1A. RISK FACTORS
Any of the following risk factors could cause our actual results to differ materially from historical or anticipated
results. These risks and uncertainties are not the only ones we face. There may be additional risks that we currently
consider not to be material or of which we are not currently aware, and any of these risks could cause our actual results
to differ materially from historical or anticipated results.
You should carefully consider these risks along with the other information included in this document, including
the matters addressed above under "Cautionary Note Regarding Forward-Looking Statements" before investing in
any of our securities. We may amend, supplement or add to the risk factors described below from time to time in future
reports filed with the SEC.
We have categorized our risk factors into the following areas:
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Risks Relating to our Insurance Businesses
Risks Relating to our Acquisitions
Risks Relating to Liquidity and Capital Resources
Risks Relating to our Investments
Risks Relating to Laws and Regulations
Risks Relating to our Operations
Risks Relating to Taxation
Risks Relating to Ownership of our Shares
Risks Relating to Our Insurance Businesses
If we are unable to implement our business strategies successfully, our business, results of operations
and financial condition may be materially and adversely affected.
Our future results of operations will depend in significant part on the extent to which we can implement our
business strategies successfully, including with respect to our active underwriting segments and investments. Our
business strategies are described in "Item 1. Business - Business Strategy." We may not be able to implement these
strategies or any future strategies fully or realize the anticipated results of our strategies as a result of significant
business, economic, regulatory and competitive uncertainties, many of which are beyond our control. If we are unable
to successfully implement our business strategies, we may not be able to achieve future growth in our earnings and
our financial condition and ability to access capital may suffer and, as a result, holders of our securities may receive
lower returns.
Inadequate loss reserves could reduce our net earnings and capital surplus, which could have a
materially adverse impact on our results of operations and financial condition.
Our success is dependent upon our ability to assess accurately the risks associated with the business we have
insured and reinsured. We are required to maintain reserves to cover the estimated ultimate liability for losses and
LAE for both reported and unreported incurred claims. As of December 31, 2019, gross reserves for losses and LAE
reported on our balance sheet were $10.4 billion. The process of establishing these reserves includes a significant
level of judgment. As a result, these reserves are only estimates of what we expect the settlement and administration
of claims will cost based on facts and circumstances known to us, as well as actuarial methodologies, historical industry
loss ratio experience, loss development patterns, estimates of future trends and developments and other variable
factors such as inflation. We cannot be certain that ultimate losses will not exceed our estimates of losses and LAE
because of the uncertainties that surround the estimation process (which are discussed above in "Item 1. Business -
Liability for Losses and Loss Adjustment Expense"). As a result, actual losses and LAE paid will deviate, perhaps
substantially, from the reserve estimates reflected in our financial statements due to legal, judicial, social, technological
or other factors, including changes in loss inflation. If our reserves are insufficient to cover our actual losses and LAE,
we would have to augment our reserves and incur a charge to our earnings. These charges could be material and
would reduce our net earnings and capital and surplus.
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In our non-life run-off businesses, loss reserves include asbestos and environmental ("A&E") liabilities and
liabilities associated with personal injury A&E claims from acquired companies with legacy manufacturing businesses.
Ultimate values for A&E claims cannot be estimated using traditional reserving techniques, and there are significant
uncertainties in estimating losses for these claims. Factors contributing to the uncertainty include long waiting periods,
reporting delays and difficulties identifying contamination sources and allocating damage liability. Developed case law
and adequate claim history do not always exist for A&E claims, and changes in the legal and tort environment affect
the development of such claims. To further understand this risk, see "Item 7. Management’s Discussion and Analysis
of Financial Condition and Results of Operations - Critical Accounting Policies - Losses and Loss Adjustment Expenses
- Non-Life Run-off - Latent Claims".
In our active underwriting businesses, U.S. GAAP does not permit insurers and reinsurers to reserve for
catastrophes until they occur, which means that claims from these events could cause substantial volatility in our
financial results for any fiscal quarter or year and could have a material adverse effect on our financial condition and
results of operations, as well as our financial strength ratings.
Our active underwriting businesses present inherent risks and uncertainties which could have a material
adverse effect on our business, financial condition and results of operations.
Underwriting is inherently a matter of judgment, involving assumptions about matters that are unpredictable and
beyond our control, and for which historical experience and probability analysis may not provide sufficient guidance.
Our StarStone and Atrium active underwriting businesses expose us to significant risks that could result in under-
performance of the active underwriting businesses compared to our expectations, which could have a material adverse
effect on our business, financial condition and results of operations. Those risks include, but are not limited to:
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exposure to claims arising out of unpredictable natural and man-made catastrophic events (including
hurricanes, windstorms, tsunamis, severe weather, earthquakes, floods, fires, droughts, explosions,
environmental contamination, acts of terrorism, cyber events and war or political unrest);
changing climate patterns and ocean temperature conditions that could increase the frequency and severity
of catastrophe events and natural disasters to which we have loss exposure;
failure of our risk management and loss limitation methods (described in "Item 1. Business - Enterprise Risk
Management") to adequately manage our loss exposure or provide sufficient protection against losses;
the intense competition for business in the insurance and reinsurance industries, including competition from
major global insurance and reinsurance companies and underwriting syndicates that may have greater
experience and resources than our companies or that may be more highly rated than our companies, or
competition resulting from industry consolidation;
dependence on a limited number of brokers, managing general agents and other third parties to support our
business, both in terms of the volume of business we rely on them to place and the credit risk we assume
from them; and
susceptibility to the effects of inflation due to premiums being established before the ultimate amounts of
losses and LAE are known.
The cyclical nature of the insurance and reinsurance industries may make it more difficult for StarStone
and Atrium to execute their underwriting strategies successfully, which could negatively impact our earnings
and our financial condition.
The insurance and reinsurance industry has historically been characterized by periods of intense price
competition due to excess underwriting capacity, as well as periods of more favorable pricing due to limited underwriting
capacity. Periods of favorable pricing tend to attract additional underwriting capacity (by new entrants, market
instruments and structures, and additional commitments by existing insurers) that ultimately cause prices to decrease.
Changes in the frequency and severity of losses suffered by insureds and insurers also impact industry cycles, and
we may not be able to accurately predict whether market conditions will improve, remain constant or deteriorate. Any
of these factors could lead to a significant reduction in premium rates, impair our ability to underwrite at appropriate
rates, result in less favorable policy terms and drive fewer submissions for our active underwriting services, which
could decrease our earnings or adversely affect our financial condition.
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Cyclical market conditions also impact the availability and cost of reinsurance purchased by StarStone and
Atrium as part of our risk management strategy. Market conditions may limit or prevent our active underwriting
companies from obtaining adequate reinsurance protection for our business needs. If our active underwriting companies
are unable to purchase reinsurance, or if reinsurance is available only on unfavorable terms or with less creditworthy
reinsurers, we may retain a higher proportion of risks than we would otherwise prefer, incur additional expense, or
purchase reinsurance from companies with higher credit risk, or we may underwrite fewer or smaller contracts. Any
of these factors could negatively impact our financial performance.
Downgrades of financial strength ratings at StarStone or Lloyd’s could materially and negatively impact
our ability to write new business or renew our existing business in our active underwriting segments.
Financial strength ratings are an important factor in establishing the competitive position of insurance and
reinsurance companies. The StarStone operating insurance entities are currently assigned a financial strength rating
of "A-" (Excellent) by A.M. Best with a stable outlook. The stability of StarStone's credit rating depends on the continued
financial, strategic and operational support provided by its shareholders, including Enstar. A ratings downgrade, outlook
change or withdrawal could negatively impact StarStone’s competitive position in the industry, and severely limit or
prevent StarStone from writing new insurance and reinsurance contracts if policyholders move their business to other
more highly-rated companies. Such a change could also inhibit our ability to implement our business and growth
strategies successfully. Additionally, many of StarStone's reinsurance contracts permit the ceding companies to cancel
the contract if StarStone's financial strength rating is downgraded. Whether a ceding company would cancel a
reinsurance contract after a ratings downgrade would depend on a number of factors (including the reason for and
extent of the downgrade, and the pricing and availability of replacement reinsurance) and, accordingly, we cannot
predict the extent to which these cancellation rights would be exercised or what effect any such cancellations would
have on our financial condition or results of operations.
Lloyd’s ratings apply to business written through Syndicate 609 (Atrium) and Syndicate 1301 (StarStone). Lloyd’s
is rated "A" (Excellent) by A.M. Best, "A+" (Strong) by S&P and "AA-" (Very Strong) by Fitch Ratings. Financial strength
ratings downgrades at Lloyd’s could adversely affect our Lloyd’s syndicates’ ability to trade in certain classes of business
at current levels.
Emerging claim and coverage issues could adversely affect our business.
As industry practices and legal, judicial, social and other environmental conditions change, unexpected and
unintended issues related to claims and coverage may emerge. These issues may adversely affect the adequacy of
our provision for losses and LAE by either extending coverage beyond the envisioned scope of insurance policies and
reinsurance contracts, or by increasing the number or size of claims. Our exposure to these uncertainties could be
exacerbated by an increase in insurance and reinsurance contract disputes, arbitration and litigation, as well as social
inflation trends, including expanded theories of liability and higher jury awards. Increasingly, the handling of insurance
claims can also lead to bad faith or other forms of extra-contractual damages. The full effects of these and other
unforeseen emerging claim and coverage issues are extremely hard to predict. In some instances, these changes
may not become apparent until long after we have acquired or issued the affected contracts. As a result, the full extent
of liability under these insurance or reinsurance contracts may not be known for many years after a contract has been
issued.
Our investments in life insurance businesses, including through certain of our equity method
investments, are subject to the risk that actual mortality, morbidity, policy persistency, and investment yield
may be different than our assumptions and could render the reserves established by these businesses
inadequate, causing a decline in our financial returns from these investments.
The performance of our investments in life businesses depends on the ability of these businesses to operate
effectively and efficiently. Reserves for life policy benefits are based on certain assumptions, including mortality,
morbidity, lapse rates, expenses, and discount rates based on expected yields at acquisition. The adequacy of the
reserves established by the businesses in which we invest is contingent on actual experience related to these key
assumptions. If actual experience differs from these assumptions, or the assumptions are changed based on new
information or experience, it could materially and adversely impact our financial returns on these investments.
The life insurance businesses in which we have invested have exposure to the risk of catastrophic mortality,
such as a pandemic or other event that causes a large number of deaths. In an economic downturn, these businesses
may also experience an elevated incidence of lapses of life insurance policies due to increased risk that policyholders
may choose to cease paying insurance premiums (resulting in a non-diversified pool of policyholders). Any of these
events could adversely affect our financial returns on these investments.
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Risks Relating to Our Acquisitions
We may not be able to continue to grow our business through acquisitions.
We have pursued and, as part of our strategy, will continue to pursue growth through acquisitions of reinsurance
companies and portfolios of insurance and reinsurance business, primarily in our run-off segment. However, the
acquisition and management of companies and portfolios in run-off is highly competitive, and driven by a number of
factors, including proposed acquisition price, reputation, and financial resources. Some of our competitors have greater
financial resources than we do, have been operating for longer than we have and have established long-term and
continuing business relationships throughout the insurance and reinsurance industries, which can be a significant
competitive advantage. In recent years, new competitors have entered the insurance run-off space, including through
the formation of reinsurance companies or the use of other financial products intended to acquire insurance liabilities
in run-off. We expect competition from these sources and others to continue to increase over time. As a result, we
may not be able to compete successfully in the future for suitable acquisition candidates, and if we do not continue to
acquire companies or portfolios, we may not be able to achieve our strategic goals.
There can be no assurance that our acquisitions will be financially beneficial to us or our shareholders.
The evaluation and negotiation of potential acquisitions, as well as the integration of acquired businesses or
portfolios, can be complex and costly and may require substantial management resources. Our acquisitions could
involve numerous additional risks that we may not be able to identify during the due diligence process, such as potential
losses from unanticipated litigation, levels of claims or other liabilities and exposures, an inability to generate sufficient
revenue to offset acquisition costs and financial exposures in the event that sellers are unable or unwilling to meet
their indemnification, reinsurance and other obligations to us.
Our run-off business entails acquiring and managing insurance and reinsurance companies, portfolios of
insurance and reinsurance, and companies with liabilities related to legacy manufacturing operations. Unlike traditional
insurers and reinsurers, our companies and portfolios in run-off no longer underwrite new policies and their stated
provisions for losses and LAE may not be sufficient to cover future losses and the cost of run-off. Because our non-
life companies and portfolios in run-off generally no longer collect underwriting premiums, our sources of capital to
cover losses are limited to our stated reserves, reinsurance coverage and equity.
To achieve positive operating results from an acquisition, we must first price transactions on favorable terms
relative to the risks posed by the acquired businesses and then successfully manage the acquired businesses by
efficiently managing claims, collecting from insurers or reinsurers, generating investment returns on the assets
supporting the acquired businesses and controlling expenses. Failure to do these things successfully could result in
us having to cover losses sustained with retained earnings, which would materially and adversely impact our ability
to grow our business and may result in material losses.
We may not be able to realize the anticipated benefits of acquisitions, which may result in
underperformance relative to our expectations and a material adverse effect on our business, financial
condition or results of operations.
The acquisitions we have made and expect to make in the future may pose operational challenges that divert
management’s time and energy and expose us to risks relating to:
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the value of liabilities assumed being greater than expected;
the value of assets or our anticipated return on assets being lower than expected or diminishing because
of credit defaults, changes in interest rates, or delays in implementation of our intended investment strategies;
funding cash flow shortages that may occur if anticipated revenues are not realized or are delayed, or if
expenses are greater than anticipated;
integrating financial and operational reporting systems and internal controls, including assurance of
compliance with Section 404 of the Sarbanes-Oxley Act of 2002 and our reporting requirements under the
Exchange Act;
leveraging our existing capabilities and expertise into the business acquired and establishing synergies
within our organization;
funding increased capital needs and overhead expenses;
integrating technology platforms and managing any increased cybersecurity risk;
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obtaining and retaining management personnel required for expanded operations;
fluctuating foreign currency exchange rates relating to the assets and liabilities we may acquire;
goodwill and intangible asset impairment charges; and
complying with applicable laws and regulations.
If we are unable to address some or all of these challenges, our acquisitions may underperform relative to our
expectations and our business may be materially and adversely affected.
We may not complete future acquisitions within the time frame we anticipate or at all, which could have
a negative effect on our business, financial condition or results of operations.
Once we have signed a definitive agreement to acquire a business or portfolio, conditions to closing, such as
obtaining regulatory approvals or shareholder approvals, must be met before the acquisition can be consummated.
These and other closing conditions may not be satisfied at all, or may cause a material delay in the anticipated timing
of closing. In addition, our ability to complete the acquisition on the originally anticipated terms, or at all, could be
jeopardized if a seller receives competing proposals, if litigation is brought challenging the transaction or certain of its
terms, or if regulators impose unexpected terms and conditions on the transaction. Failure to consummate an acquisition
on the originally anticipated terms, or a significant delay in the closing, could result in significant expense, diversion
of time and resources, reputational damage, litigation and a failure to realize the anticipated benefits of the acquisition,
all of which could materially adversely impact our business, financial condition and results of operations.
Risks Relating to Liquidity and Capital Resources
The amount of statutory capital that we must hold to maintain our financial strength and credit ratings
and meet certain regulatory requirements can vary significantly from time to time and is sensitive to several
factors.
Statutory capital and reserve requirements for our insurance subsidiaries are prescribed by the applicable
insurance regulators in the jurisdictions in which we operate, including Bermuda, the United States, the United Kingdom,
the European Union and Australia. Insurance regulators have established risk-based capital adequacy measures, such
as the BSCR in Bermuda and the Solvency II regime in the European Union and United Kingdom, which provide
minimum solvency and liquidity requirements for insurance companies. The amount of capital that we and/or our
insurance subsidiaries are required to hold may increase or decrease depending on a variety of factors including the
amount of statutory income or losses generated by our insurance subsidiaries (which itself is sensitive to equity market
and credit market conditions), the amount of additional capital our non-life run-off and live underwriting insurance
subsidiaries must hold to support future growth, changes in the value of investments, changes in interest rates and
foreign currency exchange rates, as well as changes to the relevant regulatory capital adequacy measures. Many of
these factors are outside of our control, and our overall liquidity and credit ratings are significantly influenced by our
insurance subsidiaries’ statutory capital amounts. If statutory capital requirements increase or if our insurance
subsidiaries' solvency decreases, our subsidiaries would be required to hold more capital, and our ability to obtain
distributions from these subsidiaries could be limited. If we fail to maintain adequate statutory capital, the regulators
may restrict our activities and prohibit us and our subsidiaries from completing acquisitions without raising additional
capital.
We may require additional capital and credit in the future that may not be available or may only be
available on unfavorable terms.
Our future capital requirements depend on many factors, including acquisition and investment activity, our ability
to manage the run-off of our assumed policies, our ability to establish reserves at levels sufficient to cover losses, our
underwriting plans, and our obligations to satisfy statutory capital requirements. We may need to raise additional funds
through equity or debt financings in the future. Our ability to secure this financing may be affected by a number of
factors, including volatility in the worldwide financial markets, the strength of our capital position and operating results.
In addition, an unfavorable change or downgrade of our issuer credit ratings could increase the interest rate charged
under our revolving credit facility and may make it more expensive for us to access capital markets. Any equity or debt
financing, if available at all, may be on terms that are not favorable to us, and could limit our strategic, financial and
operational flexibility, including as a result of the need to dedicate a greater portion of our cash flows from operations
to preferred share dividends and interest and principal payments on our debt financing. In the case of equity financings,
dilution to our existing shareholders could result, and any securities that are part of an equity financing may have
rights, preferences and privileges that are senior to those of our already outstanding securities.
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In addition, we may not achieve the desired regulatory capital treatment for any potential issuance of debt or
equity securities due to changing solvency capital eligibility requirements under the Bermuda Insurance (Group
Supervision) Rules 2011 (the "Group Supervision Rules") to which we are subject. For example, our outstanding
preferred shares and senior notes qualify as Tier 2 and Tier 3 capital, respectively, in accordance with the Group
Supervision Rules. In order for these instruments to continue to receive the intended regulatory capital treatment, their
terms must reflect the criteria contained in the Group Supervision Rules and any amendments thereto. Although our
expectation is that any changes to the Group Supervision Rules governing eligible capital would not apply retroactively,
no assurance can be made that the BMA will in the future deem that our preferred shares and senior notes constitute
Tier 2 and Tier 3 capital, respectively, under the Group Supervision Rules. If we cannot obtain adequate capital or
credit, our business, results of operations and financial condition could be adversely affected by, among other things,
our inability to finance future acquisitions.
Our reinsurance subsidiaries may be required to provide collateral to ceding companies pursuant to
their reinsurance contracts. Their ability to conduct business could be significantly and negatively affected
if they are unable to do so or if any letters of credit posted as collateral are drawn upon by a ceding company.
Our reinsurance subsidiaries are often required to post collateral in the form of letters of credit, trust funds or
other assets in order to provide security for their reinsurance obligations and to provide ceding companies with statutory
credit for such reinsurance. If our reinsurance subsidiaries are unable to post the required collateral or the cost of
providing such collateral materially increases, their operations could be significantly and negatively affected, which in
turn could limit our ability to complete certain run-off acquisitions on favorable terms, which could negatively impact
our business, financial condition and results of operations. In addition, if the beneficiary of any letter of credit draws
funds against the letter of credit, we would be obligated to immediately repay the bank that issued the letter of credit
the amount of such drawn funds, which could increase our indebtedness and significantly and negatively affect our
liquidity and financial condition.
Uncertain conditions in the global economy generally may materially adversely affect our business,
results of operations and financial condition.
In the event of financial turmoil affecting the global banking system and global financial markets (which may
result from a variety of events such as natural or man-made disasters including global pandemic such as coronavirus,
war, or terrorism) or significant financial service institution failures, there could be a new or incremental tightening in
the credit markets, low liquidity, and extreme volatility in fixed maturity, credit, currency, and equity markets. This could
have a number of effects on our business, including our ability to obtain financing for future acquisitions. Even if
financing is available, it may only be available on terms that are not favorable to us, which would decrease our
profitability.
Global and local economic conditions could also affect demand for and claims made under our policies, our
counter-party credit risk, and the ability of our customers and other counterparties to establish or maintain their
relationships with us.
Net investment income and net realized and unrealized gains or losses also could vary materially from
expectations depending on gains or losses realized on the sale or exchange of financial instruments; impairment
charges resulting from revaluations of debt and equity securities and other investments; interest rates; cash balances;
and changes in the fair value of financial and derivative instruments. Increased volatility in the financial markets and
overall economic uncertainty would increase the risk that the actual amounts realized in the future on our financial
instruments could differ significantly from the fair values currently assigned to them.
Reinsurers may not satisfy their obligations to our insurance and reinsurance subsidiaries, which could
result in significant losses or liquidity issues for us.
Our insurance and reinsurance subsidiaries are subject to credit risk with respect to their reinsurers because
the transfer of risk to a reinsurer does not relieve our subsidiaries of their liability to the insured. Reinsurance companies
may be negatively impacted or downgraded during difficult financial and economic conditions in the worldwide capital
markets and economies. In addition, reinsurers may be unwilling to pay our subsidiaries even though they are able to
do so, or disputes may arise regarding payment obligations. The failure of one or more of our subsidiaries’ reinsurers
to honor their obligations in a timely fashion may affect our cash flows, reduce our net earnings or cause us to incur
a significant loss. Disputes with our reinsurers may also result in unforeseen expenses relating to litigation or arbitration
proceedings. A reinsurer’s inability or unwillingness to honor its obligations to StarStone and Atrium may negate the
intended risk-reducing impact of our reinsurance purchasing programs.
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Exposure to reinsurers who from time to time represent meaningful percentages of our total reinsurance balances
recoverable on paid and unpaid losses may increase the risks described above. For information on reinsurance
balances recoverable on paid and unpaid losses, see "Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources - reinsurance balances recoverable on paid
and unpaid losses."
We are a holding company, and we are dependent on the ability of our subsidiaries to distribute funds
to us.
We are a holding company and therefore we are dependent on distributions of funds from our operating
subsidiaries to fund acquisitions, fulfill financial obligations in the normal course of our business, including payments
on our outstanding Senior Notes, and pay dividends to our shareholders, including holders of our preferred shares
and, in turn, the related depositary shares. The ability of our insurance and reinsurance subsidiaries to make distributions
to us may be limited by various business considerations and applicable insurance laws and regulations in jurisdictions
in which we operate (which are described in "Item 1. Business - Regulation"). The ability of our subsidiaries to make
distributions to us may also be restricted by, among other things, other applicable laws and regulations and the terms
of our debt obligations and our subsidiaries’ debt obligations. If our subsidiaries are restricted from making distributions
to us, we may be unable to maintain adequate liquidity to fund acquisitions or fulfill our financial obligations.
Fluctuations in currency exchange rates may cause us to experience losses.
We maintain a portion of our investments, insurance liabilities and insurance assets denominated in currencies
other than U.S. dollars. Consequently, we and our subsidiaries may experience foreign exchange losses, which could
adversely affect our results of operations. We publish our consolidated financial statements in U.S. dollars. Therefore,
fluctuations in exchange rates used to convert other currencies, particularly Australian dollars, Canadian dollars, British
pounds and Euros, into U.S. dollars will impact our reported financial condition, results of operations and cash flows
from year to year.
Our failure to comply with covenants contained in our credit facilities or in the indenture governing our
4.5% Senior Notes due 2022 ("2022 Senior Notes") and our 4.95% Senior Notes due 2029 (the "2029 Senior
Notes" and, together with the 2022 Senior Notes, the "Senior Notes") could trigger prepayment obligations,
which could adversely affect our results of operations and financial condition.
We and our subsidiaries currently have several outstanding credit facilities and outstanding Senior Notes. We
depend on access to these funds in operating our business. The credit facilities and the indentures governing our
Senior Notes contain various business and financial covenants that impose restrictions on us and certain of our
subsidiaries with respect to, among other things, limitations on mergers and consolidations, acquisitions,
amalgamations and sales of substantially all assets, indebtedness and guarantees, restrictions as to certain dispositions
of stock and dividends and stock repurchases, investment constraints and limitations on liens on the capital stock of
certain subsidiaries. We may also enter into future debt arrangements containing similar or different restrictive
covenants. Our failure to comply with these covenants could result in an event of default under the credit facilities or
the indentures governing our Senior Notes, which could result in us being required to repay the amounts outstanding
under these facilities or the Senior Notes prior to maturity. These prepayment obligations could have an adverse effect
on our results of operations and financial condition.
In addition, complying with these covenants could limit our financial and operational flexibility. Our credit facilities
and Senior Notes are described in more detail in "Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources - Debt Obligations."
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Risks Relating to Our Investments
The value of our insurance and reinsurance subsidiaries’ investment portfolios and the investment
income that our insurance and reinsurance subsidiaries receive from these portfolios may decline materially
as a result of market fluctuations and economic conditions, including those related to interest rates and
credit spreads.
We derive a significant portion of our income from our invested assets, which consist primarily of investments
in fixed maturity securities. The value and net investment income that our subsidiaries obtain from investments in fixed
maturity securities will generally increase or decrease with changes in interest rates. Interest rates are highly sensitive
to many factors, including governmental monetary policies, domestic and international economic and political conditions
and other factors beyond our control. A rise in interest rates would increase net unrealized losses, which would decline
over time as the security approaches maturity. Conversely, a decline in interest rates would increase net unrealized
gains, which would decline over time as the security approaches maturity. The fair market value can also decrease as
a result of a deterioration of the credit quality of those securities. Any perceived decrease in credit quality may cause
credit spreads to widen and this would result in an increase in net unrealized losses. A deterioration of credit ratings
on our fixed maturity security investments may result in a preference to liquidate these securities in the financial
markets. If we liquidate these securities during a period of tightening credit, we may realize a significant loss.
The Financial Conduct Authority of the United Kingdom plans to phase out the London Interbank Offered Rate
("LIBOR") by the end of 2021. A significant portion of our investments in fixed maturities is in LIBOR-based instruments.
There is currently no definitive replacement rate for LIBOR, and we therefore are unable to determine the potential
impact of the LIBOR change on our investment results.
Some of our fixed maturity securities, such as mortgage-backed and other asset-backed securities, carry
prepayment risk, or the risk that principal will be returned more rapidly or slowly than expected, as a result of interest
rate fluctuations. When interest rates decline, consumers will generally make prepayments on their mortgages, causing
us to be repaid more quickly than we might have originally anticipated, meaning that our opportunities to reinvest these
proceeds back into the investment markets may be at reduced interest rates (with the converse being true in a rising
interest rate environment). Mortgage-backed and other asset-backed securities are also subject to default risk on the
underlying securitized mortgages, which would decrease the value of our investments.
The changes in the market value of our securities that are classified as trading or available-for-sale are reflected
in our financial statements. Other-than-temporary impairment losses in the value of our fixed maturity securities are
also reflected in our financial statements. As a result, a decline in the value of the securities in our investment portfolios
may materially reduce our net income and shareholders’ equity, and may cause us to incur a significant loss. For more
information on our investment portfolios, see "Item 7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations - Investable Assets."
Our 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.
In addition to fixed maturity securities, we have invested, and may from time to time continue to invest, in
alternative investments such as hedge funds, fixed income funds, equity funds, private equity funds and co-investments,
collateralized loan obligation ("CLO") equities, CLO equity funds, real estate funds and other alternative investments.
These and other similar investments may be illiquid due to restrictions on sales, transfers and redemption terms, may
have different, more significant risk characteristics than our investments in fixed maturity securities and may also have
more volatile values and returns, all of which could negatively affect our investment income and overall portfolio liquidity.
We have also invested, and from time to time may continue to make investments in joint ventures and in other
entities that we do not control. In these investments, many of which are accounted for using the equity method, we
may lack management and operational control over the entities in which we are invested, which may limit our ability
to take actions that could protect or increase the value of our investment. In addition, these investments may be illiquid
due to contractual provisions, and our lack of operational control may prevent us from obtaining liquidity through
distributions from these investments in a timely manner or on favorable terms.
Alternative or "other" investments may not meet regulatory admissibility requirements or may result in increased
regulatory capital charges to our insurance subsidiaries that hold these investments, which could limit those subsidiaries’
ability to make capital distributions to us and, consequently, negatively impact our liquidity. For more information on
our alternative investments, see "Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations - Investable Assets."
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The valuation of our investments may include methodologies, estimations and assumptions that are
subject to differing interpretations and could result in changes to investment valuations that may materially
adversely affect our financial condition or results of operations.
Fixed maturity and alternative investments, such as hedge funds, fixed income funds, equity funds, private equity
funds and co-investments, CLO equities, CLO equity funds and real estate funds represent the majority of our total
cash and invested assets. These investments are reported at fair value on our consolidated balance sheet. Fair value
prices for all trading and available-for-sale securities in the fixed maturities portfolio are independently provided by our
investment accounting service providers, investment managers and investment custodians, each of which utilize
internationally recognized independent pricing services. We record the unadjusted price provided by our accounting
service providers, managers or custodians, after we perform an internal validation process. Fair value for our alternative
investments is estimated based primarily on the most recently reported net asset values reported by the fund manager,
which we may adjust following our internal review.
These valuation procedures involve estimates and judgments, and during periods of market disruptions (such
as periods of significantly rising or high interest rates, rapidly widening credit spreads or illiquidity), it may be difficult
to value certain of our securities if trading becomes less frequent or market data becomes less observable. In addition,
there may be certain asset classes that are now in active markets with significant observable data that become illiquid
due to changes in the financial environment. In these cases, the valuation of a greater number of securities in our
investment portfolio may require more subjectivity and management judgment. As a result, valuations may include
inputs and assumptions that are less observable or require greater estimation as well as valuation methods that are
more sophisticated or require greater estimation, which may result in valuations greater than the value at which the
investments could ultimately be sold. Further, rapidly changing and unpredictable credit and equity market conditions
could materially affect the valuation of securities carried at fair value as reported within our consolidated financial
statements and the period-to-period changes in value could vary significantly. Decreases in value could have a material
adverse effect on our financial condition and results of operations.
The nature of our business liquidity demands and the structure of our entities’ investment portfolios
may adversely affect the performance of our investment portfolio and financial results and our investing
flexibility.
We strive to structure our investments in a manner that recognizes our liquidity needs for future liabilities. Because
of the unpredictable nature of losses that may arise under the insurance and reinsurance policies issued by certain of
our subsidiaries and as a result of our opportunistic commutation strategy, our liquidity needs can be substantial and
may arise at any time. In that regard, we attempt to correlate the maturity and duration of our investment portfolio to
our general liability profile. If we are unsuccessful in managing our investment portfolio within the context of this strategy,
we may be forced to liquidate our investments at times and at prices that are not optimal, and we may have difficulty
liquidating some of our alternative investments due to restrictions on sales, transfers and redemption terms. This could
have a material adverse effect on the performance of our investment portfolio.
We have many individual portfolios of cash and investments from our acquired companies and portfolios. Each
investment portfolio has its own regulatory admissibility requirements, and each run-off entity is likely to have negative
operating and financing cash flows due to commutation activity, claims settlements and capital distributions. These
factors reduce our overall investing flexibility.
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Risks Relating to Laws and Regulations
Insurance laws and regulations restrict our ability to operate, and any failure to comply with these laws
and regulations, or any investigations, inquiries or demands by government authorities, may have a material
adverse effect on our business.
We are subject to the insurance laws and regulations of a number of jurisdictions worldwide. Existing laws and
regulations, among other things, limit the amount of dividends that can be paid to us by our insurance and reinsurance
subsidiaries, prescribe solvency and capital adequacy standards, impose restrictions on the amount and type of
investments that can be held to meet solvency and capital adequacy requirements, require the maintenance of reserve
liabilities, and require pre-approval of acquisitions and certain affiliate transactions. Failure to comply with these laws
and regulations or to maintain appropriate authorizations, licenses, and/or exemptions under applicable laws and
regulations may cause governmental authorities to preclude or suspend our insurance or reinsurance subsidiaries
from carrying on some or all of their activities, place one or more of them into rehabilitation or liquidation proceedings,
impose monetary penalties or other sanctions on them or our affiliates, or commence insurance company delinquency
proceedings against our insurance or reinsurance subsidiaries. The application of these laws and regulations by various
governmental authorities may affect our liquidity and restrict our ability to expand our business operations through
acquisitions or to pay dividends on our ordinary or preferred shares. Furthermore, compliance with legal and regulatory
requirements may result in significant expenses, which could have a negative impact on our profitability. To further
understand these regulatory requirements, see "Item 1. Business - Regulation."
In addition, the insurance and reinsurance industry has experienced volatility as a result of investigations, litigation
and regulatory activity by various insurance, governmental and enforcement authorities concerning certain practices
within the insurance and reinsurance industry. Insurance and reinsurance companies that we have acquired, or may
acquire in the future, may have been or may become involved in these or other investigations, litigation or regulatory
activity and may have lawsuits filed or other regulatory actions taken against them. Our involvement in any such activity
would cause us to incur legal costs and, if we or any of our insurance or reinsurance subsidiaries were found to have
violated any laws or regulations, we could be required to pay fines and damages and incur other sanctions, perhaps
in material amounts, which could have a material negative impact on our profitability.
Political, regulatory and industry initiatives could materially adversely affect our business by increasing
the amount of regulation we face or changing the nature of the regulations that apply to us in operating our
insurance businesses or acquiring new insurance businesses.
Increasingly, governmental authorities have taken interest in the potential systemic risks posed by the insurance
and reinsurance industry as a whole. The insurance regulatory environment has become subject to increased scrutiny
across a number of jurisdictions, and authorities regularly consider enhanced or new regulatory requirements and
seek to exercise their supervisory authority in new and more extensive ways. Regulators are generally concerned with
the protection of policyholders above other constituencies, including our shareholders. Additional laws and regulations
have been and may continue to be enacted that may have adverse effects on our operations, financial condition,
statutory capital adequacy, and liquidity. We cannot predict the exact nature, timing or scope of these initiatives;
however, we believe it is likely there will continue to be increased regulatory intervention in our industry in the future,
and these initiatives could adversely affect our business.
In many of the jurisdictions in which we operate, including Bermuda, there are increased regulations relating to
group supervision though cooperation and coordination among insurance regulators regardless of an individual
company’s domiciliary jurisdiction. The BMA acts as our Group supervisor, as described in "Item 1. Business -
Regulation" which has led to increased regulatory reporting and oversight.
The implementation of Solvency II, an E.U.-wide directive covering the capital adequacy, risk management and
regulatory reporting for insurers, requires significant resources to ensure compliance by our E.U. companies.
Additionally, if our non-E.U. subsidiaries engage in E.U. insurance or reinsurance business, additional capital
requirements may be imposed for such companies to continue to insure or reinsure E.U.-domiciled risk or cedants if
their regulatory regime is not deemed to have Solvency II equivalence. Bermuda has gained Solvency II equivalence,
and our Bermuda reinsurers are subject to requirements in line with a Solvency II framework.
In the United States, the Dodd-Frank Act addresses the entire financial services industry and includes initiatives
such as the creation of a Federal Insurance Office and other federal oversight agencies, the requiring of more
transparency, accountability and focus in protecting investors and businesses, the input of shareholders regarding
executive compensation, and the enhanced empowerment of regulators to punish fraud and unethical business
practices. Continued compliance with these laws and regulations is likely to result in additional regulation and additional
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costs for us.
In addition, increased scrutiny by insurance regulators of investments in or acquisitions of insurers or insurance
holding companies by private equity firms or hedge funds may result in imposition of additional regulatory requirements
and restrictions. We have in the past partnered with private equity firms in making acquisitions and may do so in the
future. This increased scrutiny may make it difficult to complete U.S. acquisitions with private equity or hedge funds
should we seek to do so. In addition, private equity firms and hedge funds have invested in Enstar and may seek to
do so in the future. This increased scrutiny may materially adversely impact our ability to raise capital through
transactions with these types of investors.
Our business is subject to laws and regulations relating to sanctions and foreign corrupt practices, the
violation of which could adversely affect our financial condition and results of operations.
We are legally required to comply with all applicable economic sanctions and anti-bribery laws and regulations
of the jurisdictions in which we operate. U.S. laws and regulations applicable to our U.S. subsidiaries include the
economic trade sanctions laws and regulations administered by the Treasury’s Office of Foreign Assets Control, as
well as certain laws administered by the U.S. Department of State. New sanction regimes may be initiated, or existing
sanctions expanded, at any time, which can impact our business activities. In addition, our companies are subject to
the U.S. Foreign Corrupt Practices Act and other anti-bribery laws such as the Bermuda Bribery Act and the U.K.
Bribery Act that generally bar corrupt payments or unreasonable gifts to foreign governments or officials. Although we
have policies and controls in place that are designed to ensure compliance with these laws and regulations, it is possible
that an employee or intermediary could fail to comply with applicable laws and regulations. In such event, we could
be exposed to civil penalties, criminal penalties and other sanctions, including fines or other punitive actions. Such
civil or criminal penalties, sanctions, fines or other punitive actions, and the possibility of resulting damage to our
business and/or reputation, could have a material adverse effect on our financial condition and results of operations.
The United Kingdom’s referendum vote to leave the European Union ("Brexit") could adversely affect
our business.
There has been volatility in the financial and foreign exchange markets following the advisory referendum held
on June 23, 2016, in which the United Kingdom voted to leave the European Union (commonly referred to as “Brexit”),
and this is expected to continue. On March 29, 2017, Article 50 of the Lisbon Treaty was triggered, and following the
successful passing of the Withdrawal Agreement Bill by the U.K. Parliament, the United Kingdom left the European
Union on January 31, 2020 pursuant to the terms of a withdrawal agreement concluded between the U.K. government
and the E.U. Council (the “Withdrawal Agreement”). The Withdrawal Agreement allows for a transition period during
which the United Kingdom’s trading relationship with the European Union will remain largely unchanged. This transition
period is due to end on December 31, 2020. During the transition period, the United Kingdom and the European Union
will continue to negotiate the terms of their ongoing relationship. However, uncertainty remains over the United
Kingdom's future relationship with the European Union after 2020. As a result, we face risks associated with the potential
uncertainty and consequences that may follow Brexit, including with respect to volatility in the financial markets,
exchange rates and interest rates. We also have significant operations and employees in the United Kingdom, including
in our Lloyd’s and StarStone businesses. Brexit’s impact on our U.K. businesses will depend on the United Kingdom
and Lloyd’s abilities to retain access to the E.U. markets, and our U.K. businesses could be adversely affected if
adequate access to these markets is not obtained. Brexit may also lead to legal uncertainty and differences in national
laws and regulations as the United Kingdom determines which E.U. laws to replace or replicate, and these issues
could impact our structure and operations. Any of these effects of Brexit, and others we cannot anticipate, could
adversely affect our business, results of operations, and financial condition.
Changes in accounting principles and financial reporting requirements could impact our reported
financial results and our reported financial condition.
Our financial statements are prepared in accordance with U.S. GAAP, which is periodically revised by the Financial
Accounting Standards Board ("FASB"), and they are subject to the accounting-related rules and interpretations of the
SEC. We are required to adopt new and revised accounting standards implemented by the FASB.
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Unanticipated developments in accounting practices may require us to incur considerable additional expenses
to comply with such developments, particularly if we are required to prepare information relating to prior periods for
comparative purposes or to apply the new requirements retroactively. The impact of changes in accounting standards,
particularly those that apply to insurance companies, cannot be predicted but may affect the calculation of net earnings,
shareholders’ equity and other relevant financial statement line items. In addition, such changes may cause additional
volatility in reported earnings, decrease the understandability of our financial results and affect the comparability of
our reported results with the results of others.
Risks Relating to our Operations
We are dependent on our executive officers, directors and other key personnel and the loss of any of
these individuals could adversely affect our business.
Our success depends on our ability to attract and retain qualified employees and upon the ability of our senior
management and other key employees to implement our business strategy. We believe that there are only a limited
number of available qualified personnel in the businesses in which we compete, and the pool of highly skilled employees
available to fill key positions at our companies may fluctuate based on market conditions. We rely substantially upon
the services of our executive officers and our subsidiaries’ executive officers and directors, as well as our local
management teams, to implement our business strategies. The loss of the services of any of our management or other
key personnel, or the loss of the services of or our relationships with any of our directors, could have a material adverse
effect on our business. Higher demand for employees with appropriate skills could lead to increased compensation
expectations for existing and prospective personnel across our organization, which could also make it difficult to
maintain labor expenses at desired levels.
Some of our directors, large shareholders and their affiliates have interests and/or other involvement
with entities that can create conflicts of interest, through related party transactions or competition.
We have participated in transactions, investments and investment management arrangements in which one or
more of our directors, large shareholders or their affiliates has an interest, and we may continue to do so in the future.
These matters, called related party transactions, are described in Note 21 - "Related Party Transactions" in the notes
to our consolidated financial statements included in Item 8 of this Annual Report. In addition, some of our directors,
large shareholders or their affiliates from time to time have ownership interests or other involvement with entities that
compete against us or otherwise have interests that could, at times, be considered potentially adverse to us, either in
the pursuit of acquisition targets, investments or in our business operations. The interests of our directors, large
shareholders or their affiliates in related party transactions or competitive businesses may create the potential for, or
result in, conflicts of interests.
Cybersecurity events or other difficulties with our information technology systems could disrupt our
business, result in the loss of critical and confidential information, increased costs, and adversely impact
our reputation and results of operations.
We rely heavily on the successful, uninterrupted functioning of our information technology systems, as well as
those of any third-party service providers we use. We rely on these systems to securely and accurately process, store,
and transmit confidential and other data in connection with our critical operational functions such as paying claims,
performing actuarial and other modeling, pricing, quoting and processing policies, cash and investment management,
acquisition analysis, financial reporting and other necessary support functions. Our active underwriting companies rely
on broker portals to bind certain business, and, therefore, a service interruption would negatively impact our ability to
write business. Where we rely on third parties for outsourced functions and other services, our information may be
exposed to the risk of a data breach or cyber-security incident through their systems. A failure of our information
technology systems or those of our third-party service providers could materially impact our ability to perform the critical
functions described above, affect the confidentiality, availability or integrity of our proprietary information and expose
us to litigation and increase our administrative expenses.
Computer viruses, cyber-attacks, and other external hazards, as well as any internal process or employee
failures, could expose our information technology systems to security breaches that may cause critical data to be
corrupted or confidential or proprietary information to be exposed, or cause system disruptions or shut-downs. In
addition to our own information, we receive and may be responsible for protecting confidential or personal information
of ceding companies, policyholders, employees, and other third parties, which could also be compromised in the event
of a security breach.
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Although we utilize numerous controls, protections and risk management strategies to attempt to mitigate these
risks, and management is not aware of a material cyber-security incident to date, the sophistication and volume of
these security threats continues to increase. We may not have the technical expertise or resources to successfully
prevent every data breach or cyber-security incident. The potential consequences of a data breach or cyber-security
incident could include claims against us, significant reputational damage to our company, damage to our business as
a result of disclosure of proprietary information, and regulatory action against us, which may include fines and penalties.
Such an incident could cause us to lose business and commit resources, management time and money to remediate
these breaches and notify aggrieved parties, any of which in turn could have an adverse impact on our business. We
may also experience increasing costs associated with implementing and maintaining adequate safeguards against
these types of incidents and attacks.
In addition, the information security and data privacy regulatory environment is increasingly demanding. We are
subject to numerous laws and regulations in multiple jurisdictions governing the protection of the personal and
confidential information of our clients and/or employees, including in relation to medical records and financial
information. These laws and regulations are rapidly expanding, increasing in complexity and sometimes conflict
between jurisdictions. For example, the E.U. General Data Protection Regulation ("GDPR") creates rights for individuals
to control their personal data and sets forth the requirements with which companies handling the personal data of
E.U.-based data subjects have to comply (regardless of whether such data handling involves E.U.-based operations).
We are also subject to the GDPR through our handling of the personal data of E.U.-based subjects in connection with
our ordinary course operations. If any person, including any of our employees or those with whom we share such
information, negligently disregards or intentionally breaches our established controls with respect to our client data,
or otherwise mismanages or misappropriates that data, we could be subject to significant monetary damages, regulatory
enforcement actions, fines and/or criminal prosecution in one or more jurisdictions, including as a result of a violation
of the GDPR.
If outsourced providers such as third-party administrators, managing general agents, investment
managers or other service providers were to breach obligations owed to us, our business and results of
operations could be adversely affected.
We outsource certain business functions to third-party providers, and these providers may not perform as
anticipated or may fail to adhere to their obligations to us. For example, certain of our subsidiaries rely on relationships
with a number of third-party administrators under contracts pursuant to which these third-party administrators manage
and pay claims on our subsidiaries’ behalf and advise with respect to case reserves. In these relationships, we rely
on controls incorporated in the provisions of the administration agreement, as well as on the administrator’s internal
controls, to manage the claims process within our prescribed parameters. Our StarStone and Atrium subsidiaries use
managing general agents, general agents and other producers to write and administer business on their behalf within
prescribed underwriting authorities. We also rely on external investment managers to provide services pursuant to the
terms of our investment management agreements, including following established investment guidelines. Although
we monitor these administrators, agents and producers, and investment managers on an ongoing basis, our monitoring
efforts may not be adequate or our service providers could exceed their authorities or otherwise breach obligations
owed to us, which, if material, could adversely affect our business and results of operations.
Risks Relating to Taxation
Recently enacted U.S. tax reform legislation, various international tax transparency and economic
substance initiatives, and possible future tax reform legislation and regulations could materially affect us
and our shareholders.
On December 22, 2017, the US government enacted comprehensive tax legislation commonly referred to as
the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act is broad and contains many provisions that have significant
implications on us, and potentially on our shareholders, including re-measurement of deferred taxes and surplus due
to the reduction in corporation income tax rate, and imposition of a new base-erosion anti-abuse tax (“BEAT”) on
affiliate transactions (including reinsurance arrangements between affiliated companies). In response to the introduction
of BEAT, we non-renewed (as of January 1, 2018) certain of our active underwriting affiliate reinsurance transactions
between our operating entities that are subject to U.S. taxation and our non-U.S. affiliates that are not. We continue
to assess the future impact of BEAT on our transaction structuring.
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The Tax Act also includes modifications of the taxation of non-U.S. companies owned by U.S. shareholders.
Certain aspects of the Tax Act require clarification through future regulatory action and accordingly, we are unable to
definitively determine the impact to our shareholders. The Tax Act may increase the likelihood that we or our non-U.S.
subsidiaries or joint ventures managed by us will be deemed a “controlled foreign corporation” (CFC) within the meaning
of the Internal Revenue Code of 1986, as amended (the “Code”) for U.S. federal tax purposes. Specifically, the Tax
Act expands the definition of “United States shareholder” for CFC purposes to include U.S. persons who own, directly
or constructively, 10% or more of the value of a non-U.S. corporation’s shares, rather than looking only to voting power
held. The Tax Act also expands certain attribution rules for share ownership in a way that would cause non-U.S.
subsidiaries to now be treated as CFCs if owned in a group, such as Enstar, that has a non-U.S. parent company and
also includes at least one U.S. subsidiary. In the event a corporation is characterized as a CFC, any “United States
shareholder” of the CFC is required to include in taxable income each year the shareholder’s proportionate share of
certain insurance and related investment income for the taxable year, even if such income is not distributed.
The Tax Act also contains modifications to certain provisions relating to passive foreign investment company
(“PFIC”) status that if applicable to us could result in adverse tax consequences to U.S. persons who own our ordinary
shares. On July 10, 2019, the U.S. Internal Revenue Service and Department of the Treasury released proposed
regulations relating to PFICs that may have an impact on foreign insurance companies and their investors, and other
participants in transactions involving foreign insurers. The new proposed regulations withdraw a set of proposed
regulations that were issued in April 2015. The proposed regulations provide guidance relating to changes in the PFIC
regime made by the Tax Act, address the application and interaction of certain “look-through” rules contained in the
Code and introduce new rules relating to the determination of the “active conduct” test. While the proposed regulations
make it more difficult to qualify for certain exceptions to PFIC status, we believe that we will not be a PFIC for U.S.
federal income purposes for the foreseeable future under the proposed regulations. In particular, we believe that the
income of our non-U.S. subsidiaries that are insurance companies is derived in the "active conduct of an insurance
business" by corporations that are predominately engaged in such business under the provision of the Tax Act, and
that this is also the case for us when the operations of our subsidiaries are considered as a whole, under the look-
through rules applicable to foreign holding companies. There are currently no final regulations regarding the application
of the PFIC provisions of the Code to an insurance company, so the application of those provisions to insurance
companies remains unclear in certain respects. The proposed regulations are expected to become final, possibly as
early as the first half of 2020.
The United States and other countries and governing bodies have also enacted reform legislation aimed at
increasing transparency on companies’ global tax footprint and profile. The Organization for Economic Co-operation
and Development (the "OECD") is an intergovernmental economic organization founded to stimulate economic
progress and trade. It develops economic policy recommendations to encourage policy reform in member countries.
Created by the OECD under the initiative known as the “Base Erosion and Profit Shifting Project (“BEPS”), “Country-
by-Country Reporting” (Action 13) aims to ensure that multi-national businesses provide appropriate and accurate
information to each respective member and non-member region based on various metrics. These metrics are directed
at counteracting the effects of global preferential tax regimes and increasing tax transparency. Bermuda has adopted
OECD compliant Country-by-Country Reporting regulations for Bermuda headquartered companies which requires
the Company to file a report containing results of our global operations. It is uncertain how cooperating jurisdictions,
including those in which we operate, will utilize the data collected in our Bermuda filing. These initiatives could increase
the burden and costs of compliance.
In December 2017, the European Union's Code Group included Bermuda on a list of jurisdictions that it considered
to be non-cooperative for tax purposes. In order to be removed from such list, Bermuda passed the Economic Substance
Act 2018 (the “ESA”) in December 2018, which came into effect on January 1, 2019 and required compliance by pre-
existing entities by July 1, 2019. The legislation requires Bermuda companies engaging in a “relevant activity” (which
includes insurance business and holding entity activities) to be locally managed and directed, to carry on core income
generating activities in Bermuda, to maintain adequate physical presence in Bermuda, and to have an adequate level
of local full time qualified employees and incur adequate operating expenditure in Bermuda. The guidance as to how
Bermuda authorities will interpret and enforce the ESA is pending, and we therefore cannot predict their potential
impact on our results of operations and financial condition. In the event that we are required to maintain additional
staff or operations in Bermuda, we may incur increased operating expenditures that could negatively impact our results
of operations.
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U.S. persons who own our ordinary shares might become subject to adverse U.S. tax consequences as
a result of "related person insurance income," if any, of our non-U.S. insurance company subsidiaries.
For any of our wholly-owned non-U.S. insurance company subsidiaries, if (1) U.S. persons are treated as owning
25% or more of our shares, (2) the related person insurance income ("RPII") of that subsidiary were to equal or exceed
20% of its gross insurance income in any taxable year, and (3) direct or indirect insureds of that subsidiary (and persons
related to such insureds) own (or are treated as owning) 20% or more of the voting power or value of our shares, then
a U.S. person who owns our shares directly, or indirectly through non-U.S. entities, on the last day of the taxable year
would be required to include in income for U.S. federal income tax purposes that person's pro rata share of the RPII
of such a non-U.S. insurance company for the entire taxable year, whether or not any such amounts are actually
distributed. In the case of any of our partially-owned non-U.S. insurance company subsidiaries, the RPII provisions
apply similarly, except that the percentage share ownership thresholds described in the preceding sentence are
measured in terms of indirect ownership of the subsidiary’s shares rather than in terms of ownership of our shares.
Moreover, if the RPII rules of the Code were to apply to any of our non-U.S. insurance company subsidiaries,
any RPII that is includible in the income of a U.S. tax-exempt organization would generally be treated as unrelated
business taxable income. Although we and our subsidiaries intend to operate generally in a manner so as to avoid
exceeding the foregoing thresholds for application of the RPII rules, there can be no assurance that this will always
be the case. Accordingly, there can be no assurance that U.S. persons who own our ordinary shares will not be required
to recognize gross income inclusions attributable to RPII.
In addition, the RPII rules provide that if a shareholder who is a U.S. person disposes of shares in a foreign
insurance company that has RPII and in which U.S. persons collectively own 25% or more of the total combined voting
power of all classes of stock entitled to vote, or the total value of the stock, any gain from the disposition will generally
be treated as dividend income to the extent of the shareholder’s share of the corporation’s undistributed earnings and
profits that were accumulated during the period that the shareholder owned the shares (whether or not those earnings
and profits are attributable to RPII). Such a shareholder would also be required to comply with certain reporting
requirements, regardless of the amount of shares owned by the shareholder. These rules should not apply to dispositions
of our ordinary shares because we will not be directly engaged in the insurance business. The RPII rules have not
been interpreted by the courts or the IRS and regulations interpreting the RPII rules exist only in proposed form.
Accordingly, there is no assurance that our views as to the inapplicability of these rules to a disposition of our ordinary
shares will be accepted by the IRS or a court.
We might incur unexpected U.S., U.K., Australia, or other tax liabilities if companies in our group that
are incorporated outside those jurisdictions are determined to be carrying on a trade or business in such
jurisdictions.
We and a number of our subsidiaries are companies formed under the laws of Bermuda or other jurisdictions
that do not impose income taxes, and it is our contemplation that these companies will not incur substantial income
tax liabilities from their operations. Because the operations of these companies generally involve, or relate to, the
insurance or reinsurance of risks that arise in higher tax jurisdictions, such as the United States, the United Kingdom
and Australia, it is possible that the taxing authorities in those jurisdictions may assert that the activities of one or more
of these companies creates a sufficient nexus in that jurisdiction to subject the company to income tax there. There
are uncertainties in how the relevant rules apply to insurance businesses, and in our eligibility for favorable treatment
under applicable tax treaties. Accordingly, it is possible that we could incur substantial unexpected tax liabilities.
Risks Relating to Ownership of our Shares
The market price for our ordinary shares and the depositary shares representing our preferred shares
may experience volatility, thereby causing a potential loss of value to our investors.
The market price for our ordinary shares may fluctuate substantially and could cause investment losses due to,
among other things, the following factors:
•
•
•
•
•
announcements with respect to an acquisition or investment;
changes in the value of our assets;
our financial condition, performance and prospects, including our quarterly and annual operating results;
sales, or the possibility or perception of future sales, by our existing shareholders;
changes in general conditions in the economy and the insurance industry;
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•
•
economic, financial, geopolitical, regulatory or judicial events that affect us or the financial markets generally;
and
adverse press or news announcements.
The market price for our depositary shares representing our preferred shares may fluctuate substantially and
could cause investments losses due to, among other things and in addition to the factors listed above, the following:
•
•
•
•
•
•
whether dividends have been declared and are likely to be declared on the preferred shares from time to
time;
whether the ratings on the depositary shares representing our preferred shares provided by any ratings
agency have changed;
changes in our credit ratings or the ratings of our insurance subsidiaries’ financial strength and claims paying
ability published by major credit ratings agencies;
the amount of total indebtedness we have outstanding;
the level, direction and volatility of market interest rates generally; and
the market for similar securities.
A few significant shareholders may influence or control the direction of our business. If the ownership
of our ordinary shares continues to be highly concentrated, it may limit the ability of other shareholders to
influence significant corporate decisions.
We have a number of shareholders with large interests, including several that may be affiliated with members
of our Board of Directors. The interests of certain significant shareholders, including those affiliated with members of
our Board of Directors, may not be fully aligned with those of other shareholders, and this may lead to a strategy that
is not in such other shareholders’ best interests. As of December 31, 2019, CPPIB, funds managed by Hillhouse Capital
Advisors Ltd. and its affiliates, funds managed by Stone Point and its affiliates, Beck Mack & Oliver, and two of Enstar's
executive officer co-founders (collectively) beneficially owned approximately12.5%, 9.7%,9.1%, 3.9% and 4.1%,
respectively, of our outstanding voting ordinary shares. CPPIB owns additional non-voting ordinary shares that, together
with its voting shares, represented an economic interest of approximately 17.8% as of December 31, 2019. Hillhouse
owns additional non-voting shares and warrants that, together with its voting shares, represented an economic interest
of approximately 17.0% as of December 31, 2019.
Although they do not act as a group, the shareholders identified above may exercise significant influence over
matters requiring shareholder approval, and their concentrated holdings may delay or deter possible changes in control
of Enstar, which may reduce the market price of our ordinary shares.
Some aspects of our corporate structure may discourage third-party takeovers and other transactions
or prevent the removal of our board of directors and management.
Some provisions of our bye-laws have the effect of making more difficult or discouraging unsolicited takeover
bids from third parties or preventing the removal of our current board of directors and management. In particular, our
bye-laws provide for a classified board, whose members may be removed by our shareholders only for cause by a
majority vote, and contain restrictions on the ability of shareholders to nominate persons to serve as directors, submit
resolutions to a shareholder vote and request special general meetings. In addition, our board of directors may limit
a shareholder’s exercise of voting rights where it deems it necessary to do so to avoid adverse tax, legal or regulatory
consequences. We also have the authority under our bye-laws to reasonably request information from any shareholder
for the purpose of determining whether a shareholder’s voting rights are to be limited pursuant to the bye-laws. If a
shareholder fails to respond to our request for information or submits incomplete or inaccurate information in response
to a request by us, we may, in our reasonable discretion, eliminate the shareholder’s voting rights. These provisions
may encourage persons seeking to acquire control of us to negotiate with our directors, which we believe would
generally best serve the interests of our shareholders. In addition, these bye-law provisions may prevent the removal
of our current board of directors and management. To the extent these provisions discourage takeover attempts, they
may deprive shareholders of opportunities to realize takeover premiums for their shares or may depress the market
price of the shares.
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There are regulatory limitations on the ownership and transfer of our ordinary shares.
Insurance laws and regulations in the jurisdictions in which our insurance and reinsurance subsidiaries operate
require prior notices or regulatory approval of changes in control of an insurer or its holding company. Different
jurisdictions define changes in control differently, and generally any purchaser of 10% or more of the vote or value of
our ordinary shares could become subject to regulation and be required to file certain notices and reports with the
applicable insurance authorities. These laws may discourage potential acquisition proposals and may delay, deter or
prevent a change in control of us, including transactions that some shareholders might consider to be desirable.
Our board of directors may decline to register a transfer of our ordinary shares under certain
circumstances.
Our board of directors may decline to register a transfer of ordinary shares under certain circumstances, including
if it has reason to believe that any non-de minimis adverse tax, regulatory or legal consequences to us, any of our
subsidiaries or any of our shareholders may occur as a result of such transfer. Further, our bye-laws provide us with
the option to repurchase, or to assign to a third party the right to purchase, the minimum number of shares necessary
to eliminate any such non-de minimis adverse tax, regulatory or legal consequence. In addition, our board of directors
may decline to approve or register a transfer of shares unless all applicable consents, authorizations, permissions or
approvals of any governmental body or agency in Bermuda, the United States, the United Kingdom and other applicable
jurisdictions required to be obtained prior to such transfer shall have been obtained. The proposed transferor of any
shares will be deemed to own those shares for dividend, voting and reporting purposes until a transfer of such shares
has been registered on our shareholder register. It is our understanding that while the precise form of the restrictions
on transfer contained in our bye-laws is untested, as a matter of general principle, restrictions on transfers are
enforceable under Bermuda law and are not uncommon. These restrictions on transfer may also have the effect of
delaying, deferring or preventing a change in control.
The market value of our ordinary shares may decline if large numbers of shares are sold.
Pursuant to our contractual obligations, on October 10, 2017, we filed a resale registration statement covering
approximately 9.8 million ordinary shares (including voting ordinary shares issuable upon conversion of outstanding
non-voting ordinary shares) primarily held by CPPIB, Hillhouse and Trident. Upon effectiveness of the resale registration
statement on December 13, 2018, a large number of ordinary shares became freely tradable without restrictions under
the Securities Act. Our ordinary shares have in the past been, and may from time to time continue to be, thinly traded,
and significant sales could adversely affect the market price for our ordinary shares and impair our ability to raise
capital through offerings of our equity securities.
Because we are incorporated in Bermuda, it may be difficult for shareholders to serve process or enforce
judgments against us or our directors and officers.
We are a Bermuda company. In addition, certain of our officers and directors reside in countries outside the
United States. All or a substantial portion of our assets and the assets of these officers and directors are or may be
located outside the United States. Investors may have difficulty effecting service of process within the United States
on our directors and officers who reside outside the United States or recovering against us or these directors and
officers on judgments of U.S. courts based on civil liabilities provisions of the U.S. federal securities laws even though
we have appointed an agent in the United States to receive service of process. Further, no claim may be brought in
Bermuda against us or our directors and officers for violation of U.S. federal securities laws, as such laws do not have
force of law in Bermuda. A Bermuda court may, however, impose civil liability, including the possibility of monetary
damages, on us or our directors and officers if the facts alleged in a complaint constitute or give rise to a cause of
action under Bermuda law.
We believe that there is doubt as to whether the courts of Bermuda would enforce judgments of U.S. courts
obtained in actions against us or our directors and officers, as well as our independent auditors, predicated upon the
civil liability provisions of the U.S. federal securities laws or original actions brought in Bermuda against us or these
persons predicated solely upon U.S. federal securities laws. Further, there is no treaty in effect between the United
States and Bermuda providing for the enforcement of judgments of U.S. courts, and there are grounds upon which
Bermuda courts may not enforce judgments of U.S. courts. Some remedies available under the laws of U.S. jurisdictions,
including some remedies available under the U.S. federal securities laws, may not be allowed in Bermuda courts as
contrary to that jurisdiction’s public policy. Because judgments of U.S. courts are not automatically enforceable in
Bermuda, it may be difficult for you to recover against us based upon such judgments.
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Shareholders who own our shares may have more difficulty in protecting their interests than
shareholders of a U.S. corporation.
The Bermuda Companies Act (the "Companies Act"), which applies to us, differs in certain material respects
from laws generally applicable to U.S. corporations and their shareholders. As a result of these differences, shareholders
who own our shares may have more difficulty protecting their interests than shareholders who own shares of a U.S.
corporation. For example, class actions and derivative actions are generally not available to shareholders under
Bermuda law. Under Bermuda law, only shareholders holding collectively 5% or more of our outstanding ordinary
shares or groups of shareholders numbering 100 or more are entitled to propose a resolution at our general meeting.
We do not intend to pay cash dividends on our ordinary shares.
We do not intend to pay a cash dividend on our ordinary shares. Rather, we intend to use any retained earnings
to fund the development and growth of our business. From time to time, our board of directors will review our alternatives
with respect to our earnings and seek to maximize value for our ordinary shareholders. In the future, we may decide
to commence a dividend program for the benefit of our ordinary shareholders. Any future determination to pay dividends
on our ordinary shares will be at the discretion of our board of directors and will be limited by our position as a holding
company that lacks direct operations, the results of operations of our subsidiaries, our financial condition, cash
requirements and prospects and other factors that our board of directors deems relevant. In addition, there are significant
regulatory and other constraints that could prevent us from paying dividends in any event. As a result, capital
appreciation, if any, on our ordinary shares may be your sole source of gain for the foreseeable future.
Dividends on our preferred shares are non-cumulative.
Dividends on our preferred shares are non-cumulative and payable only out of available funds under Bermuda
law. If our board of directors (or a duly authorized committee of the board) does not authorize and declare a dividend
for any dividend period, holders of our preferred shares and, in turn, the depositary shares representing preferred
shares, would not be entitled to receive any such dividend, and such unpaid dividend will not accrue and will not be
payable. We will have no obligation to pay dividends for a dividend period on or after the dividend payment date for
such period if our board of directors (or a duly authorized committee of the board) has not declared such dividend
before the related dividend payment date, whether or not dividends are declared for any subsequent dividend period
with respect to any outstanding preferred shares and/or our ordinary shares.
Certain regulatory and other constraints may limit our ability to pay dividends on our securities.
We are subject to Bermuda regulatory constraints that affect our ability to pay dividends and make other
distributions on our ordinary and preferred shares. Under the Companies Act, we may declare or pay a dividend or
distribution out of contributed surplus only if we have reasonable grounds to believe that we are, and would after the
payment be, able to meet our liabilities as they become due or is the realizable value of our assets would thereby not
be less than our liabilities.
Our ordinary and preferred shares are subordinate to our existing and future indebtedness.
Our preferred shares are equity interests and do not constitute indebtedness. As such, the preferred shares, in
addition to our ordinary shares, will rank junior to all of our indebtedness and other non-equity claims with respect to
assets available to satisfy our claims, including in our liquidation. The preferred shares are also contractually
subordinated in right of payment to all obligations of our subsidiaries including all existing and future policyholder
obligations of our subsidiaries. Additionally, neither our ordinary shares nor our preferred shares represent an interest
in any of our subsidiaries, and accordingly, are structurally subordinated to all obligations of our subsidiaries.
There is no limitation on our issuance of securities that rank equally with or senior to the preferred
shares.
We may issue, without limitation, (1) additional depositary shares representing additional preferred shares that
would form part of one of the series of depositary shares representing our outstanding preferred shares, and
(2) additional series of securities that rank equally with or senior to the outstanding preferred shares. The issuance of
additional preferred shares on par with or senior to the outstanding preferred shares would dilute the interests of the
holders of our preferred shares, and any issuance of preferred shares senior to our outstanding preferred shares or
of additional indebtedness could affect our ability to pay dividends on, redeem or pay the liquidation preference on our
preferred shares, or to make payments to holders of our ordinary shares from remaining assets of the Company, in
the event of a liquidation, dissolution or winding-up of Enstar.
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Our ordinary shares rank junior to our outstanding preferred shares in the event of a liquidation, winding
up or dissolution of the Company.
In the event of a liquidation, winding up or dissolution of the Company, our ordinary shares rank junior to our
outstanding preferred shares. In such an event, there may not be sufficient assets remaining after payments to holders
of our outstanding preferred shares to ensure payments to holders of ordinary shares.
Under certain limited circumstances, the terms of the preferred shares may change without the holders’
consent or approval.
Under the terms of our outstanding preferred shares, at any time following specified tax or capital disqualification
events, we may, without the consent of any holders of the preferred shares, vary the terms of the preferred shares
such that they remain securities, or exchange the preferred shares for new securities, which (i) in the case of a tax
event, would eliminate the substantial probability that we or any successor company would be required to pay any
additional amounts with respect to such preferred shares as a result of a change in tax law or (ii) in the case of a capital
disqualification event, for purposes of determining the solvency margin, capital adequacy ratios or any other comparable
ratios, regulatory capital resource or level of Enstar Group or any member thereof, where subdivided into tiers, qualify
as Tier 2 capital securities under then-applicable capital adequacy regulations imposed upon us by the BMA (or any
successor agency or then-applicable regulatory authority) which would include, without limitation, the ECR. However,
our exercise of this right is subject to certain conditions, including that the terms considered in the aggregate cannot
be less favorable to the holders of the applicable preferred shares than the terms of such securities prior to being
varied or exchanged.
The voting rights of holders of our preferred shares and, in turn, the depositary shares representing the
preferred shares are limited.
Holders of our outstanding preferred shares and, in turn, the depositary shares representing the preferred shares
have no voting rights with respect to matters that generally require the approval of voting shareholders. In addition, if
dividends on any of our outstanding preferred shares have not been declared or paid for the equivalent of six dividend
payments, whether or not for consecutive dividend periods, holders of the outstanding preferred shares and, in turn,
the depositary shares, will, subject to the terms and conditions contained in the certificates of designation governing
the preferred shares, be entitled to vote for the election of two additional directors to our board of directors. The holders
shall be divested of the foregoing voting rights if and when dividends for at least four dividend periods, whether or not
consecutive, following a nonpayment event have been paid in full (or declared and a sum sufficient for such payment
shall have been set aside). In addition, holders of the depositary shares must act through the depositary to exercise
any voting rights in respect of the preferred shares. Although each depositary share is entitled to 1/1,000th of a vote,
the depositary can vote only whole preferred shares. While the depositary will vote the maximum number of whole
preferred shares in accordance with the instructions it receives, any remaining votes of holders of the depositary shares
will not be voted.
Our preferred shares ratings may be downgraded.
Our preferred shares are rated. However, if any ratings assigned to our preferred shares are subsequently
lowered or withdrawn, or if it we issue other rated securities and they are rated lower than market expectations, it could
adversely affect the market for or the market value of the outstanding depositary shares representing our preferred
shares. A rating is not a recommendation to purchase, sell or hold any particular security, including our preferred shares
and, in turn, the depositary shares. Ratings do not reflect market prices or suitability of a security for a particular investor
and any rating of our preferred shares may not reflect all risks related to us and our business, or the structure or market
value of the preferred shares or the depositary shares. Ratings only reflect the views of the rating agency or agencies
issuing the ratings and such ratings could be revised downward or withdrawn entirely at the discretion of the issuing
rating agency if in its judgment circumstances so warrant. Any such downward revision or withdrawal of a rating could
have an adverse effect on the market price of the depositary shares.
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Market interest rates may adversely affect the value of the depositary shares representing our preferred
shares.
One of the factors that will influence the price of the depositary shares representing our preferred shares will be
the current dividend yield on the relevant series of preferred shares (as a percentage of the price of the depositary
shares representing such preferred shares, as applicable) relative to market interest rates. An increase in market
interest rates, which are currently at low levels relative to historical rates, may lead prospective purchasers of our
depositary shares representing the preferred shares to seek a higher dividend yield, which could cause the market
price of our depositary shares representing the preferred shares to decrease. Higher interest rates would also likely
increase our borrowing costs and potentially decrease funds available to pay dividends on the preferred shares, which
may also cause the market price of our depositary shares representing the preferred shares to decrease.
In addition, during the floating rate period of our outstanding series D preferred shares, the interest rate on such
preferred shares is determined with reference to three-month LIBOR. To the extent that the three-month LIBOR rate
is discontinued or is no longer quoted, the applicable base rate used to calculate the dividend rate on such preferred
shares beginning on September 1, 2028 (when the floating rate period begins) will be determined using the alternative
methods described in the certificate of designations relating to such preferred shares. Any of these alternative methods
may result in dividend rates that are lower than or that do not otherwise correlate over time with the dividend rates that
would have been applicable if the three-month LIBOR rate was available in its current form. Such alternative methods
may include determinations and adjustments made by the calculation agent in consultation with us. Our interests and
the interests of any calculation agent appointed by us and making the foregoing determinations or adjustments may
be adverse to your interests as a holder of depositary shares representing preferred shares, and any of the foregoing
determinations, adjustments or actions by such calculation agent could result in adverse consequences to the applicable
dividend rate on such preferred shares, which could have adverse effects on the returns on, value of and market for
such preferred shares and the depositary shares representing such preferred shares. If the calculation agent determines
that LIBOR has been discontinued, in certain circumstances, such preferred shares would bear a fixed dividend rate
and could decline in value because the premium, if any, over market dividend rates will decline.
We have no obligation to maintain any listing of the depositary shares representing our outstanding
preferred shares.
Although the depositary shares representing our outstanding preferred shares are listed on NASDAQ, such
listings may not provide significant liquidity, and transaction costs in any secondary market could be high. The difference
between bid and ask prices in any secondary market could be substantial. As a result, holders of depositary shares
representing our preferred shares (which do not have a maturity date) may be required to bear the financial risks of
an investment in the depositary shares representing preferred shares for an indefinite period of time. We do not expect
that there will be any separate public trading market for the preferred shares except as represented by the depositary
shares. In addition, we undertake no obligation, and expressly disclaim any obligation, to maintain the listing of the
depositary shares representing our preferred shares on NASDAQ or any other stock exchange. If we elect to discontinue
the listing at any time or the depositary shares representing the preferred shares otherwise are not listed on an applicable
stock exchange, the dividends paid after the delisting would not constitute qualified dividend income for U.S. federal
income tax purposes. This is because dividends paid by a Bermuda corporation are qualified dividend income only if
the stock with respect to which the dividends are paid is readily tradeable on an established securities market in the
United States.
A classification of the depositary shares representing our preferred shares by the National Association
of Insurance Commissioners may impact U.S. insurance companies that purchase our preferred shares.
The National Association of Insurance Commissioners (the “NAIC”) may from time to time, in its discretion,
classify securities in U.S. insurers’ portfolios as debt, preferred equity or common equity instruments. The NAIC’s
written guidelines for classifying securities as debt, preferred equity or common equity include subjective factors that
require the relevant NAIC examiner to exercise substantial judgment in making a classification. There is therefore a
risk that the depositary shares representing our preferred shares may be classified by the NAIC as common equity
instead of preferred equity. The NAIC classification determines the amount of risk-based capital (“RBC”) charges
incurred by insurance companies in connection with an investment in a security. Securities classified as common equity
by the NAIC carry RBC charges that can be significantly higher than the RBC requirement for debt or preferred equity.
Therefore, any classification of the depositary shares representing our preferred shares as common equity may
adversely affect U.S. insurance companies that hold depositary shares representing our preferred shares. In addition,
a determination by the NAIC to classify the depositary shares representing our preferred shares as common equity
may adversely impact the trading of the depositary shares representing our preferred shares in the secondary market.
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Our preferred shares are subject to our rights of redemption.
Our preferred shares are redeemable pursuant to the terms set forth in the certificate of designations governing
such series. Whenever we redeem preferred shares held by the depositary, the depositary will, as of the same
redemption date, redeem the number of depositary shares representing preferred shares so redeemed. We have no
obligation to redeem or repurchase the preferred shares under any circumstances. If the preferred shares are redeemed
by us, you may not be able to reinvest the redemption proceeds in a comparable security at a similar return on your
investment.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
We renew and enter into new leases in the ordinary course of our business. We lease office space in Hamilton,
Bermuda, where our principal executive office is located. We also lease office space in a number of U.S. states, the
United Kingdom, Australia, Ireland, Switzerland, Canada and several Continental European countries. We believe that
this office space is sufficient for us to conduct our current operations for the foreseeable future, although in connection
with future acquisitions from time to time, we may expand to different locations or increase space to support any such
growth.
In connection with the acquisition of DCo, LLC ("DCo") in December 2016, we acquired properties in the United
States. The acquired properties have no present value and are not used to run our operations.
ITEM 3. LEGAL PROCEEDINGS
For a discussion of legal proceedings, see Note 23 - "Commitments and Contingencies" in the notes to our
consolidated financial statements included in Item 8 of this Annual Report on Form 10-K, which is incorporated herein
by reference.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Market Information and Number of Holders
Our ordinary voting shares are listed on the NASDAQ Global Select Market under the symbol "ESGR." There
is no established trading market for our non-voting ordinary shares. On February 24, 2020, there were 1,492
shareholders of record of our voting ordinary shares and four shareholders of record of our non-voting ordinary shares.
This is not the number of beneficial owners of our voting ordinary shares as some shares are held in “street name” by
brokers and others on behalf of individual owners.
Dividend Information
We have not historically declared a dividend on our ordinary shares. Our strategy is to retain earnings and invest
distributions from our subsidiaries back into the company. We do not currently expect to pay any dividends on our
ordinary shares. Any payment of dividends must be approved by our Board of Directors. Our ability to pay dividends
is subject to certain restrictions, as described in Note 22 - "Dividend Restrictions and Statutory Financial Information"
in the notes to our consolidated financial statements included in Item 8 of this Annual Report on Form 10-K, which is
incorporated herein by reference.
Issuer Purchases of Equity Securities
The following table provides information about ordinary shares acquired by the Company during the three months
ended December 31, 2019, which are related to shares withheld from employees in order to facilitate the payment of
withholding taxes on restricted shares. The Company does not have a share repurchase program.
Period
October 1, 2019 - October 31, 2019
November 1, 2019 - November 30, 2019
December 1, 2019 - December 31, 2019
Total Number of
Shares
Purchased(1)
Average Price
Paid per Share
— $
635 $
— $
635
—
202.55
—
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or
Programs
Maximum Number
(or Approximate
Dollar Value) of
Shares that May Yet
be Purchased Under
the Program
— $
— $
— $
— $
—
—
—
—
(1)
Includes shares withheld from employees in order to facilitate the payment of withholding taxes on restricted shares granted pursuant to our
equity incentive plan. The shares are calculated at their fair market value, as determined by reference to the closing price of our ordinary shares
on the vesting date.
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Performance Graph
The following performance graph compares the cumulative total return on our ordinary shares with the cumulative
total return on the NASDAQ Composite Index and the NASDAQ Insurance Index for the period that commenced
December 31, 2014 and ended on December 31, 2019. The performance graph shows the value as of December 31
of each calendar year of $100 invested on December 31, 2014 in our ordinary shares, the NASDAQ Composite Index,
and the NASDAQ Insurance Index assuming the reinvestment of dividends. Returns have been weighted to reflect
relative market capitalization. This information is not necessarily indicative of future returns.
Comparison of 5 Year Cumulative Total Return
$200
$150
$100
$50
$0
2014
2015
2016
2017
2018
2019
Enstar Group Limited
NASDAQ Composite Index
NASDAQ Insurance Index
Indexed Returns* for Years Ended December 31,
2014
2015
2016
2017
2018
2019
Enstar Group Limited
NASDAQ Composite Index
NASDAQ Insurance Index
100.00
100.00
100.00
98.14
106.96
103.70
129.31
116.45
131.49
131.30
150.96
142.17
109.60
146.67
124.49
135.30
200.49
159.49
*$100 invested on December 31, 2014 in stock or index, including reinvestment of dividends.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected historical financial information for each of the past five fiscal years has been derived from
our audited historical financial statements. This information is only a summary and should be read in conjunction with
"Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" and our consolidated
financial statements and notes thereto included in Item 8 of this Annual Report on Form 10-K. The results of operations
for historical accounting periods are not necessarily indicative of results to be expected for future accounting periods.
Since our inception, we have made numerous acquisitions of companies and portfolios of business, and
discontinued and sold certain life and annuities business, that significantly impacts the comparability between periods
of the information reflected below. Our recent acquisitions, significant new business and discontinued operations are
described in Note 3 - "Acquisitions", Note 4 - "Significant New Business", and Note 5 - "Divestitures, Held-for-Sale
Businesses and Discontinued Operations" of our consolidated financial statements included in Item 8 of this Annual
Report on Form 10-K.
Statements of Earnings Data:
Net premiums earned
Fees and commission income
Net investment income
Net realized and unrealized gains (losses)
Net incurred losses and LAE
Acquisition costs
Total other expenses, net
Earnings (loss) before income taxes
Income tax (expense) benefit
Earnings (losses) from equity method investments
Net earnings (loss) from discontinuing operations
Net earnings (loss)
Net earnings (loss) attributable to noncontrolling interest
Net earnings (loss) attributable to Enstar Group Limited
Dividends on preferred shares
Net earnings (loss) attributable to Enstar Group Limited
Ordinary Shareholders
Years Ended December 31,
2019
2018
2017
2016
2015
(in thousands of U.S. dollars, except share and per share data)
$
1,154,861
$
895,575
$
613,121
$
823,514
$
753,744
28,453
321,276
1,031,351
(872,575)
(305,951)
(480,669)
876,746
(4,437)
55,910
35,088
270,671
(412,884)
(454,025)
(192,790)
(402,178)
(260,543)
6,124
42,147
—
928,219
9,870
938,089
(35,914)
—
(212,272)
62,051
(150,221)
(12,133)
66,103
208,789
190,334
(193,551)
(96,906)
(479,383)
308,507
6,395
5,904
320,806
10,993
331,799
(20,341)
311,458
—
39,364
185,463
77,818
(174,099)
(186,569)
(432,767)
332,724
(34,874)
(5,400)
292,450
11,963
304,413
(39,606)
264,807
—
39,347
122,564
(41,523)
(104,333)
(163,716)
(381,061)
225,022
(12,650)
—
212,372
(2,031)
210,341
9,950
220,291
—
$
902,175
$
(162,354) $
311,458
$
264,807
$
220,291
Net earnings (loss) from continuing operations
928,219
(212,272)
Per Ordinary Share Data:(1)
Earnings per ordinary share attributable to Enstar Group
Limited:
Basic:
Net earnings (loss) from continuing operations
Net earnings (loss) from discontinuing operations
Net earnings (loss) per ordinary share
Diluted:
Net earnings (loss) from continuing operations
Net earnings (loss) from discontinuing operations
Net earnings (loss) per ordinary share
Weighted average ordinary shares outstanding:
$
$
$
$
42.00
$
(7.84) $
15.50
$
13.10
$
—
—
0.56
0.62
42.00
$
(7.84) $
16.06
$
13.72
$
41.43
$
(7.84) $
15.39
$
13.00
$
—
—
0.56
0.62
41.43
$
(7.84) $
15.95
$
13.62
$
11.55
(0.11)
11.44
11.46
(0.11)
11.35
Basic
Diluted
21,482,617
20,698,310
19,388,621
19,299,426
19,252,072
21,775,066
20,904,176
19,527,591
19,447,241
19,407,756
(1) Earnings per share is a measure based on net earnings divided by weighted average ordinary shares outstanding. Basic earnings per share is
defined as net earnings available to ordinary shareholders divided by the weighted average number of ordinary shares outstanding for the period,
giving no effect to dilutive securities. Diluted earnings per share is defined as net earnings available to ordinary shareholders divided by the weighted
average number of shares and share equivalents outstanding calculated using the treasury stock method for all potentially dilutive securities. When
the effect of dilutive securities would be anti-dilutive, these securities are excluded from the calculation of diluted earnings per share.
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Table of Contents
Balance Sheet Data:
Total investments
Total cash and cash equivalents (inclusive of
restricted)
Reinsurance balances recoverable on paid
and unpaid losses
Total assets
Losses and loss adjustment expense liabilities
Defendant asbestos and environmental
liabilities
Debt obligations
Total Liabilities
Total Enstar Group Limited shareholders’
equity
Book Value per Share:(1)
Basic
Diluted
Shares Outstanding:
Basic
Diluted
2,379,890
19,363,315
10,429,238
847,685
1,191,207
2019
2018
2017
2016
2015
(in thousands of U.S. dollars, except share and per share data)
December 31,
$
13,207,513
$
11,242,061
$
8,755,130
$
7,332,425
$
6,340,781
1,055,777
982,584
1,212,836
1,318,645
1,295,169
2,029,663
2,021,030
1,460,743
1,451,921
16,556,270
13,606,422
12,865,744
11,772,534
9,409,504
7,398,088
5,987,867
5,720,149
203,320
861,539
219,164
646,689
234,020
673,603
14,068,173
12,183,738
9,980,868
9,600,390
—
599,750
8,834,088
4,842,183
3,901,933
3,136,684
2,802,312
2,516,872
$
$
201.39
197.93
$
$
158.06
155.94
$
$
161.63
159.19
$
$
144.66
143.68
$
$
130.65
129.65
21,511,505
21,989,971
21,459,997
21,881,063
19,406,722
19,830,767
19,372,178
19,645,309
19,263,742
19,714,810
(1) Basic book value per share is calculated as total Enstar Group Limited shareholders’ equity available to ordinary shareholders divided by the
number of ordinary shares outstanding as of the end of the period, giving no effect to dilutive securities. Diluted book value per share is calculated
as total Enstar Group Limited shareholders’ equity available to ordinary shareholders plus the assumed proceeds from the exercise of outstanding
warrants divided by the sum of the number of ordinary shares and ordinary share equivalents and warrants outstanding at the end of the period.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in
conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report.
Some of the information contained in this discussion and analysis or included elsewhere in this annual report, including
information with respect to our plans and strategy for our business, includes forward-looking statements that involve
risks, uncertainties and assumptions. Our actual results and the timing of events could differ materially from those
anticipated by these forward-looking statements as a result of many factors, including those discussed under
"Cautionary Statement Regarding Forward-Looking Statements", "Item 1A. Risk Factors" and elsewhere in this annual
report.
For a comparison of our results of operations for the fiscal years ended December 31, 2018 and 2017, see Part
II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our annual
report on Form 10-K for the fiscal year ended December 31, 2018, filed with the SEC on March 1, 2019.
Table of Contents
Section
Business Overview
Key Performance Indicator
Non-GAAP Financial Measures
Underwriting Ratios
Current Outlook
Consolidated Results of Operations — for the Years Ended December 31, 2019 and 2018
Results of Operations by Segment — for the Years Ended December 31, 2019 and 2018
Non-life Run-off Segment
Atrium Segment
StarStone Segment
Other Activities
Investable Assets
Liquidity and Capital Resources
Critical Accounting Policies
Business Overview
Page
50
51
52
53
54
55
57
58
64
68
74
75
82
91
We are a multi-faceted insurance group that offers innovative capital release solutions and specialty underwriting
capabilities through our network of group companies in Bermuda, the United States, the United Kingdom, Continental
Europe, Australia, and other international locations. Our core focus is acquiring and managing insurance and
reinsurance companies and portfolios of insurance and reinsurance business in run-off. Since the formation of our
Bermuda-based holding company in 2001, we have completed or announced over 100 acquisitions or portfolio transfers.
The substantial majority of our acquisitions have been in the non-life run-off business, which generally includes property
and casualty, workers’ compensation, asbestos and environmental, construction defect, marine, aviation and transit,
and other closed business.
While our core focus remains acquiring and managing non-life run-off business, we expanded our business to
include active underwriting through our acquisitions of Atrium and StarStone in 2013 and 2014, respectively. We
partnered with Trident in the Atrium and StarStone acquisitions, with Enstar owning a 59.0% interest, Trident owning
a 39.3% interest, and Dowling owning a 1.7% interest. We also expanded our portfolio of run-off businesses in 2013
to include closed life and annuities, primarily through our acquisition of Pavonia, which we sold in 2017 and which had
made up the majority of our life and annuities business.
We also manage our investment portfolio with the goal of achieving superior risk-adjusted returns, while growing
profitability and generating long-term growth in shareholder value.
Our businesses strategies are discussed in "Item 1. Business - Company Overview", "- Business Strategy", "-
Strategic Growth" and "- Recent Acquisitions and Significant New Business."
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Table of Contents
Key Performance Indicator
Our primary corporate objective is growing our book value per share, and we believe that long-term growth in
fully diluted book value per share is the most appropriate measure of our financial performance. We create growth in
our book value through the execution of the strategies discussed in "Item 1. Business - Business Strategy."
During 2019, our book value per share on a fully diluted basis increased by 26.9% to $197.93 per share. The
growth of our fully diluted book value per share since becoming a public company is shown in the table below.
Growth in Fully Diluted Book Value Per Share
$197.93
$159.19 $155.94
$143.68
$129.65
$119.22
E
R
A
H
S
R
E
P
E
U
L
A
V
K
O
O
B
D
E
T
U
L
D
Y
L
L
U
F
I
$200
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
$105.20
$93.30
$82.97
$71.68
$58.06
$45.18
$36.92
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
YEAR
The table below summarizes the calculation of our fully diluted book value per ordinary share as of December 31,
2019 and 2018:
2019
2018
Change
(in thousands of U.S. Dollars)
Numerator:
Total Enstar Group Limited Shareholder's Equity
Less: Series D and E Preferred Shares
Total Enstar Group Limited Ordinary Shareholders' Equity (A)
Proceeds from assumed conversion of warrants (1)
Numerator for fully diluted book value per ordinary share
calculations (B)
$
4,842,183 $
510,000
3,901,933 $
510,000
940,250
—
4,332,183
3,391,933
940,250
20,229
20,229
—
$
4,352,412 $
3,412,162 $
940,250
Denominator:
Ordinary shares outstanding (C)
Effect of dilutive securities:
Share-based compensation plans
Warrants(1)
Fully diluted ordinary shares outstanding (D)
21,511,505
21,459,997
51,508
302,565
175,901
245,165
175,901
21,989,971
21,881,063
57,400
—
108,908
Book value per ordinary share
Basic book value per ordinary share = (A) / (C)
Fully diluted book value per ordinary share = (B) / (D)
$
$
201.39 $
197.93 $
158.06 $
155.94 $
43.33
41.99
(1) There are warrants outstanding to acquire 175,901 Series C Non-Voting Ordinary Shares for an exercise price of $115.00 per share, subject to
certain adjustments (the "Warrants"). The Warrants were issued in April 2011 and expire in April 2021. The Warrant holder may, at its election,
satisfy the exercise price of the Warrants on a cashless basis by surrender of shares otherwise issuable upon exercise of the Warrants in
accordance with a formula set forth in the Warrants.
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Table of Contents
Non-GAAP Financial Measure
In addition to presenting net earnings (losses) attributable to Enstar Group Limited ordinary shareholders and
diluted earnings (losses) per ordinary share determined in accordance with U.S. GAAP, we believe that presenting
non-GAAP operating income (loss) attributable to Enstar Group Limited ordinary shareholders and non-GAAP diluted
operating income (loss) per ordinary share provides investors with valuable measures of our performance.
Non-GAAP operating income (loss) attributable to Enstar Group Limited ordinary shareholders is calculated by
the addition or subtraction of certain items from within our consolidated statements of earnings to or from net earnings
(loss) attributable to Enstar Group Limited ordinary shareholders, the most directly comparable GAAP financial
measure, as illustrated in the table below, for the years ending December 31, 2019 and 2018:
2019
2018
(in thousands of U.S.
dollars, except per share
data)
Net earnings (loss) attributable to Enstar Group Limited ordinary shareholders
$
902,175 $ (162,354)
Adjustments:
Net realized and unrealized (gains) losses on fixed maturity investments and funds
held - directly managed (1)
Change in fair value of insurance contracts for which we have elected the fair value
option
Tax effects of adjustments (2)
Adjustments attributable to noncontrolling interest (3)
Non-GAAP operating income attributable to Enstar Group Limited ordinary
shareholders (4)
Diluted net earnings (loss) per ordinary share (5)
Adjustments:
(534,730)
243,093
117,181
51,102
17,689
6,664
(16,588)
(9,166)
$
$
553,417 $
61,649
41.43 $
(7.84)
Net realized and unrealized (gains) losses on fixed maturity investments and funds
held - directly managed (1)
Change in fair value of insurance contracts for which we have elected the fair value
option
Tax effects of adjustments (2)
Adjustments attributable to noncontrolling interest (3)
Diluted non-GAAP operating income per ordinary share (4)
(24.55)
11.70
5.38
2.35
0.81
$
25.42 $
0.32
(0.79)
(0.44)
2.95
Weighted average ordinary shares outstanding - diluted
21,775,066
20,904,176
(1) Represents the net realized and unrealized gains and losses related to fixed maturity securities. Our fixed maturity securities are held directly on
our balance sheet and also within the "Funds held - directly managed" balance. Refer to Note 6 - "Investments" in the notes to our consolidated
financial statements included within Item 8 of this Annual Report on Form 10-K for further details on our net realized and unrealized gains and
losses.
(2) Represents an aggregation of the tax expense or benefit associated with the specific country to which the pre-tax adjustment relates, calculated
at the applicable jurisdictional tax rate.
(3) Represents the impact of the adjustments on the net earnings (loss) attributable to noncontrolling interest associated with the specific subsidiaries
to which the adjustments relate.
(4) Non-GAAP financial measure.
(5) During a period of loss, the basic weighted average ordinary shares outstanding is used in the denominator of the diluted loss per ordinary share
computation as the effect of including potentially dilutive securities would be anti-dilutive.
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Table of Contents
Basis of Non-GAAP Operating Income (Loss) financial measure
Our non-GAAP measure shown above, as defined in Item 10(e) of Regulation S-K, enables readers of the
consolidated financial statements to more easily analyze our results in a manner more aligned with the manner in
which our management analyzes our underlying performance. We believe that presenting this non-GAAP financial
measure, which may be defined and calculated differently by other companies, improves the understanding of our
consolidated results of operations. This measure should not be viewed as a substitute for those calculated in accordance
with U.S. GAAP.
Non-GAAP operating income (loss) excludes: (i) net realized and unrealized (gains) losses on fixed maturity
investments and funds held - directly managed, (ii) change in fair value of insurance contracts for which we have
elected the fair value option, (iii) gain (loss) on sale of subsidiaries, if any, (vi) net earnings (loss) from discontinued
operations, if any, (v) tax effect of these adjustments where applicable, and (vi) attribution of share of adjustments to
noncontrolling interest where applicable. We eliminate the impact of net realized and unrealized (gains) losses on fixed
maturity investments and funds held - directly managed and change in fair value of insurance contracts for which we
have elected the fair value option because these items are subject to significant fluctuations in fair value from period
to period, driven primarily by market conditions and general economic conditions, and therefore their impact on our
earnings is not reflective of the performance of our core operations. When applicable, we eliminate the impact of gain
(loss) on sale of subsidiaries and net earnings (loss) on discontinued operations because these are not reflective of
the performance of our core operations.
Underwriting Ratios
In presenting our results for the Atrium and StarStone segments, we discuss the loss ratio, acquisition cost ratio,
operating expense ratio, and the combined ratio of our active underwriting operations within these segments.
Management believes that these ratios provide the most meaningful measure for understanding our underwriting
profitability. These measures are not defined in GAAP, but are calculated using GAAP amounts presented on the
statements of earnings for both Atrium and StarStone.
The loss ratio is calculated by dividing net incurred losses and LAE by net premiums earned. The acquisition
cost ratio is calculated by dividing acquisition costs by net premiums earned. The operating expense ratio is calculated
by dividing operating expenses by net premiums earned. The combined ratio is the sum of the loss ratio, the acquisition
cost ratio and the operating expense ratio.
The Atrium segment also includes corporate expenses that are not directly attributable to the underwriting results
in the segment. The corporate expenses include general and administrative expenses related to amortization of the
definite-lived intangible assets in the holding company, and expenses relating to Atrium Underwriters Limited ("AUL")
employee salaries, benefits, bonuses and current year share grant costs. The AUL general and administrative expenses
are incurred in managing the syndicate. These are principally funded by the profit commission fees earned from
Syndicate 609, which is a revenue item not included in the insurance ratios.
The StarStone segment also includes corporate expenses that are not directly attributable to the underwriting
results in the segment and are not included in the insurance ratios. The corporate expenses include non-
recurring expenses, reorganization expenses and holding company expenses.
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Current Outlook
Our business strategy includes generating growth through acquisitions and reinsurance transactions, particularly
in our Non-life Run-off segment. During 2019, we completed seven significant reinsurance transactions with Zurich
Insurance Group, Maiden Reinsurance Ltd., Amerisure Mutual Insurance Company, and four AmTrust's Lloyd's
Syndicates. We also completed the acquisition of Morse TEC, a company that holds personal injury asbestos and
environmental liabilities. During 2019, we acquired $2.8 billion of assets and liabilities in aggregate in these transactions.
In 2019, we also completed a Part VII transfer in the U.K., delivering legal finality to RSA for its employers' liability
portfolio, and in Oklahoma, we are pursuing an insurance business transfer under the newly enacted Insurance Business
Transfer Act with respect to an intra-group transaction. As this legislation becomes more widely used in the U.S., we
expect it will offer us additional opportunities and flexibility in how we structure U.S. transactions. We have signed
two transactions with AXA XL and Munich Re, representing approximately $0.4 billion of assets and liabilities, that are
expected to close in the first half of 2020. Our strong operating platforms in all of the major insurance markets are well
positioned to take on additional business opportunities. We recently completed our 100th acquisition, demonstrating
our ability to successfully execute upon transactions. We are market-leading in acquiring companies in run-off, entering
into reinsurance transactions through loss portfolio transfers, adverse development covers, reinsurance-to-close, or
insurance business transfers.
Our business operates in the insurance, reinsurance and investments markets. As with others in our industry,
we are subject to economic factors such as interest rates, foreign exchange rates, underwriting events, regulation, tax
policy changes, political risks and other market risks that can impact our strategy and operations. Economic conditions
have recently been characterized by historically low interest rates, international trade tensions, signs of slowing global
growth, significant catastrophe events, coronavirus, and other political and economic uncertainties. However, our
business continued to perform well in 2019.
We experienced favorable investment conditions during 2019, and we expect that investment results will continue
to be a key driver of our consolidated results going forward. However, we cannot be assured that the recent positive
market conditions will continue into the future. We also anticipate that our consolidated earnings will be impacted by
volatility in the investment markets. Our fixed income portfolio is prudently invested to earn us a reasonable return,
whilst ensuring that funds will be available to pay our obligations when they become due. While it is possible that fixed
income yields will improve over time, we anticipate that interest rates will remain low in the near-term which may
adversely impact reinvestment yields. Our other investments, including equities, hedge funds and other non-fixed
income investments carry higher expected returns, have a longer investment time horizon, and diversify against our
fixed income portfolio. Our enterprise risk management framework enables us to hold sufficient capital for possible
risk events and ensures our business strategies can be deployed through market cycles to deliver attractive returns
for our capital providers.
While Non-life Run-off is our predominant business activity, we also allocate our capital to our active underwriting
businesses and to strategic investments as described below.
•
•
Atrium has been a consistent top-quartile performing Lloyd's business and is currently seeing market
opportunities that are resulting in an increase to premiums written.
StarStone, with the strong support from its shareholders, has undertaken a significant re-positioning of its
underwriting portfolio, resulting in lower premiums written in 2019. StarStone's focus is to achieve consistent
underwriting profitability from its core lines of business. We believe StarStone is better positioned for the future
and we expect that StarStone will seek to write more premiums through selective growth opportunities.
• Our significant strategic investments include Enhanzed Re, Monument Re, AmTrust, amongst others, more
fully described in Note 21 - "Related Party Transactions" in the notes to our consolidated financial statements
included within Item 8 of this Annual Report on Form 10-K.
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Table of Contents
Consolidated Results of Operations - For the Years Ended December 31, 2019 and 2018
The following table sets forth our consolidated statements of earnings for the years ended December 31, 2019
and 2018. For a discussion of the critical accounting policies that affect the results of operations, see "Critical Accounting
Policies" below.
INCOME
Net premiums earned
Fees and commission income
Net investment income
Net realized and unrealized gains (losses)
Other income
EXPENSES
Net incurred losses and LAE
Life and annuity policy benefits
Acquisition costs
General and administrative expenses
Interest expense
Net foreign exchange (gains) losses
EARNINGS (LOSS) BEFORE INCOME TAXES
Income tax benefit (expense)
Earnings from equity method investments
NET EARNINGS (LOSS)
Net loss (earnings) attributable to noncontrolling interest
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR GROUP
LIMITED
Dividends on preferred shares
2019
2018
Change
(in thousands of U.S. dollars)
$ 1,154,861 $
28,453
321,276
1,031,351
37,170
895,575 $
35,088
270,671
(412,884)
35,085
259,286
(6,635)
50,605
1,444,235
2,085
2,573,111
823,535
1,749,576
872,575
454,025
91
305,951
473,086
52,541
(7,879)
1,696,365
876,746
(4,437)
55,910
928,219
9,870
1,003
192,790
407,375
26,217
2,668
1,084,078
(260,543)
6,124
42,147
(212,272)
62,051
418,550
(912)
113,161
65,711
26,324
(10,547)
612,287
1,137,289
(10,561)
13,763
1,140,491
(52,181)
938,089
(35,914)
(150,221)
(12,133)
1,088,310
(23,781)
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR GROUP
LIMITED ORDINARY SHAREHOLDERS
$
902,175 $ (162,354) $ 1,064,529
Highlights
Consolidated Results of Operations for 2019:
•
•
•
•
•
•
Consolidated net earnings of $902.2 million and basic and diluted earnings per share of $42.00 and $41.43,
respectively;
Non-GAAP operating income of $553.4 million and diluted non-GAAP operating income per ordinary share
of $25.42. For a reconciliation of non-GAAP operating income to net earnings (loss) calculated in accordance
with GAAP and diluted non-GAAP operating income per ordinary share to diluted net earnings (loss) per
ordinary share calculated in accordance with GAAP, see "Non-GAAP Financial Measure" above;
Net earnings from Non-life Run-off segment of $1,059.8 million;
Combined ratio of 90.6% for our Atrium segment, with net premiums earned of $164.1 million.
Combined ratio of 103.4% for StarStone's core business lines, and 111.9% for StarStone Group after
intragroup reinsurance cessions.
Net investment income of $321.3 million and net realized and unrealized gains of $1,031.4 million.
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Consolidated Financial Condition as of December 31, 2019:
•
•
•
•
•
•
Total cash and investments of $14,263.0 million;
Total reinsurance balances recoverable on paid and unpaid losses of $2,379.9 million;
Total assets of $19,363.3 million;
Total gross and net reserves for losses and LAE of $10,429.2 million and $8,047.1 million, respectively. In
our Non-life Run-off operations during 2019, gross and net reserves acquired and assumed were $2,109.1
million and $1,587.0 million, respectively;
Total capital under management of $6,486.3 million, including common equity of $4,332.2 million, preferred
equity of $510.0 million, noncontrolling interests of $453.0 million, and debt of $1,191.2 million; and
Diluted book value per ordinary share of $197.93, an annual increase of 26.9%.
Consolidated Overview
2019 versus 2018: We reported consolidated net earnings attributable to Enstar Group Limited ordinary
shareholders of $902.2 million in 2019, a change of $1,064.5 million from net losses of $162.4 million in 2018. The
comparability of our results across different periods was impacted by the acquisitions and loss portfolio transfer
reinsurance transactions we completed during 2019 with Morse TEC, Zurich, Maiden Re, Amerisure and AmTrust and
in 2018 with Maiden Re, Maiden Re North America, KaylaRe, Neon, Novae, Zurich, Coca-Cola and Allianz. The most
significant drivers of the change in our financial performance during 2019 as compared to 2018 included:
•
•
•
•
Non-life Run-off Segment - Our Non-life Run-off segment is the predominant driver of our results, contributing
$1,059.8 million of net income to our consolidated results in 2019, an increase of $1,034.6 million compared
to 2018, primarily due to net realized and unrealized gains on both our fixed income portfolio and our other
investments;
Higher Net Investment Income - Total net investment income increased by $50.6 million in 2019, compared
to 2018. The increase was primarily attributable to an increase in average invested assets and an increase
in the book yield we obtained on our assets. The increase in average invested assets was primarily due to
the new business we acquired by completing the Morse TEC, Zurich, Maiden Re Bermuda, Amerisure and
AmTrust RITC transactions in 2019. The increase in the book yield was primarily due to the contractual yield
received on the 2019 transactions and our asset allocation strategies;
Atrium - Net earnings attributable to the Atrium segment were $12.1 million in 2019, compared to $9.0 million
in 2018. The combined ratio in 2019 was 90.6%, compared to 94.5% in 2018, and the improvement was
primarily driven by a lower operating expense ratio;
StarStone - The StarStone segment results improved by $57.8 million, with net losses of $100.7 million in
2019, compared to net losses of $158.6 million in 2018. The decrease in net losses was primarily due to
net realized and unrealized gains on investments in 2019, compared to net realized and unrealized losses
on investments in 2018. Included in the segment results, the combined ratio for the StarStone Group was
111.9% in 2019 compared to 125.3% in 2018. StarStone has been repositioning the underwriting portfolio,
resulting in significant improvement in the profitability of the core lines to achieve a combined ratio of 103.4%.
The segment's underwriting result was impacted by large current year loss activity predominantly related to
exited lines, and prior year adverse loss development;
• Other Activities - Net losses attributable to our other activities were $69.0 million in 2019, compared to $38.0
million in 2018. The increase in net losses was primarily driven by the dividends on our preferred shares
and largely related to increased performance-based compensation due to higher net earnings.
•
Net Realized and Unrealized Gains (Losses) - In 2019, net realized and unrealized gains were $1,031.4
million, compared to net losses of $412.9 million in 2018. The net realized and unrealized gains in 2019
were primarily attributable to an increase in the valuation of our fixed maturity investments due to declining
interest rates and tighter credit spreads and gains on our other investments primarily due to strong
performance in the global equity markets. Many insurance companies predominantly use available-for-sale
accounting where unrealized amounts are recorded directly to shareholders’ equity and therefore do not
impact earnings. Unrealized amounts would only become realizable in the event of a sale of the specific
securities prior to maturity or a credit default. We have historically utilized trading accounting which is reflected
56
Table of Contents
in earnings, however from October 1, 2019 we have been electing to use available-for-sale accounting for
all new acquisitions and, where permissible, as trading fixed maturity securities mature, we are reinvesting
the proceeds into available-for-sale securities for the Non-Life Run-off and StarStone segments;
•
•
Noncontrolling Interest - Net (earnings) losses attributable to noncontrolling interest is the share of results
from those subsidiary companies in which there are either noncontrolling interests or redeemable
noncontrolling interests. In 2019, the net loss attributable to noncontrolling interest was $9.9 million, compared
to net loss attributable to noncontrolling interest of $62.1 million in 2018. The reduction in losses attributable
to noncontrolling interest was primarily due to an improvement in StarStone, as discussed above;
Income Taxes - We recorded an income tax expense of $4.4 million in 2019, compared to an income tax
benefit of $6.1 million in 2018, a change of $10.6 million. Our effective tax rate was 0.5% in 2019 compared
with 2.8% in 2018, primarily relating to the geographic distribution of our pre-tax net earnings (losses) between
our taxable and non-taxable jurisdictions in 2018; and
• Our non-GAAP operating income, which excludes the impact of unrealized losses on fixed maturity securities
and other items, was $553.4 million for the year ended December 31, 2019, an increase of $491.8 million
from non-GAAP operating income of $61.6 million for the year ended December 31, 2018. The increase
was primarily attributable to our other investments results. For a reconciliation of non-GAAP operating income
to net earnings (loss) calculated in accordance with GAAP, see "Non-GAAP Financial Measures" above.
Results of Operations by Segment - For the Years Ended December 31, 2019 and 2018
We have three reportable segments of business that are each managed, operated and reported on separately:
(i) Non-life Run-off; (ii) Atrium; and (iii) StarStone. In addition, our other activities include our corporate expenses, debt
servicing costs, holding company income and expenses, foreign exchange and other miscellaneous items. For a
description of our segments, see "Item 1. Business - Operating Segments." The following is a discussion of our results
of operations by segment.
The below table provides a split by operating segment of the net earnings attributable to Enstar Group Limited
ordinary shareholders for the years ended December 31, 2019 and 2018:
2019
2018
(in thousands of U.S. dollars)
Change
Segment split of net earnings (loss) attributable to Enstar Group
Limited:
Non-life Run-off
Atrium
StarStone
Other
$ 1,059,804 $
12,125
(100,733)
(69,021)
25,222 $ 1,034,582
3,128
8,997
(158,580)
(37,993)
57,847
(31,028)
Net earnings (loss) attributable to Enstar Group Limited ordinary
shareholders
$
902,175 $ (162,354) $ 1,064,529
The following is a discussion of our results of operations by segment.
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Table of Contents
Non-life Run-off Segment
The following is a discussion and analysis of the results of operations for our Non-life Run-off segment for the
years ended December 31, 2019 and 2018, which are summarized below:
Gross premiums written
Net premiums written
Net premiums earned
Net incurred losses and LAE
Acquisition costs
Operating expenses
Underwriting income (loss)
Net investment income
Net realized and unrealized gains (losses)
Fees and commission income
Other income
Corporate expenses
Interest expense
Net foreign exchange gains
2019
2018
Change
(in thousands of U.S. dollars)
(25,069) $
(8,910) $
(16,159)
(25,338) $
(9,217) $
(16,121)
168,496 $
9,427 $
159,069
$
$
$
(51,625)
(73,642)
(199,756)
(156,527)
275,236
968,350
18,293
34,809
(70,689)
(62,055)
9,918
306,067
(4,006)
(158,731)
152,757
226,287
(357,692)
(69,636)
(41,025)
(309,284)
48,949
(381,712)
1,350,062
16,466
35,978
(39,093)
(30,616)
2,534
1,827
(1,169)
(31,596)
(31,439)
7,384
EARNINGS (LOSS) BEFORE INCOME TAXES
1,017,335
(17,399)
1,034,734
Income tax benefit (expense)
Earnings from equity method investments
NET EARNINGS
Net earnings attributable to noncontrolling interest
NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED
ORDINARY SHAREHOLDERS
(7,250)
56,128
1,066,213
(6,409)
3,581
42,147
28,329
(3,107)
(10,831)
13,981
1,037,884
(3,302)
$ 1,059,804 $
25,222 $ 1,034,582
Overall Results
Net earnings were $1,059.8 million in 2019, compared to $25.2 million in 2018, an increase of $1,034.6 million.
This increase was primarily attributable to net realized and unrealized gains on both our fixed income portfolio and our
other investments during 2019, compared to net unrealized losses during 2018. Net investment income increased due
to higher assets under management from our completed transactions in 2019, as well as our asset allocation strategies.
Our underwriting result included a favorable reduction in estimates of prior period net ultimate losses of $220.0 million
in 2019, compared to $286.4 million in 2018. Our underwriting result also includes the amortization of deferred charge
assets, amortization of fair value adjustments and the change in fair value for those liabilities where we elected the
fair value option, representing an aggregate expense of $205.9 million in 2019 compared to an aggregate expense of
$33.3 million in 2018. These amortization and fair value amounts relating to our underwriting were generally offset by
our investment results.
Investment results are separately discussed in the "Investments Results - Consolidated" section.
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Net Premiums Earned:
The following table shows the gross and net premiums written and earned for the Non-life Run-off segment for
the years ended December 31, 2019 and 2018:
2019
2018
Change
Gross premiums written
Ceded reinsurance premiums written
Net premiums written
Gross premiums earned
Ceded reinsurance premiums earned
Net premiums earned
$
$
(in thousands of U.S. dollars)
(25,069) $
(269)
(25,338)
197,009
(28,513)
168,496 $
(8,910) $
(307)
(9,217)
25,230
(15,803)
(16,159)
38
(16,121)
171,779
(12,710)
159,069
9,427 $
As business in this segment is in run-off, our general expectation is for premiums associated with legacy business
to decline in future periods. However, the actual amount in any particular year will be impacted by new transactions
during the year and the run-off of premiums from transactions completed in recent years. Premiums earned in this
segment are generally offset by net incurred losses and LAE related to the premiums. Premiums earned may be higher
than premiums written as we may assume unearned premium without writing the premium ourselves.
Net premiums written in 2019 of $(25.3) million were primarily related to reductions in net written premium on
legacy business for which corresponding unearned premium was also released. Net premiums earned in 2019 of
$168.5 million were primarily related to the run-off business assumed as a result of the AmTrust RITC transactions
and the acquisition of Maiden Reinsurance North America, Inc. ("Maiden Re North America"). Premiums written and
earned in 2018 were primarily related to the run-off business assumed as a result of the RITC transaction with Novae.
Net Incurred Losses and LAE:
The following table shows the components of net incurred losses and LAE for the Non-life Run-off segment for
the years ended December 31, 2019 and 2018:
Prior
Periods
2019
Current
Period
Total
Prior
Periods
(in thousands of U.S. dollars)
2018
Current
Period
Total
Net losses paid
Net change in case and LAE reserves (1)
Net change in IBNR reserves (2)
$ 1,182,804
$
64,820
$ 1,247,624
$ 838,812
$
5
$ 838,817
(553,996)
(848,776)
23,105
35,194
(530,891)
(552,124)
(813,582)
(573,127)
4,704
7,742
(547,420)
(565,385)
Increase (reduction) in estimates of net ultimate losses
(219,968)
123,119
(96,849)
(286,439)
12,451
(273,988)
Increase (reduction) in provisions for unallocated LAE
Amortization of deferred charge assets
Amortization of fair value adjustments
Changes in fair value - fair value option
Net incurred losses and LAE
(57,844)
38,627
50,070
117,181
440
(57,404)
(65,401)
—
—
—
38,627
50,070
117,181
13,781
12,877
6,664
—
—
—
—
(65,401)
13,781
12,877
6,664
$
(71,934) $ 123,559
$
51,625
$ (318,518) $
12,451
$ (306,067)
(1) Net change in case and LAE reserves comprises the movement during the year in specific case reserve liabilities as a result of claims settlements
or changes advised to us by our policyholders and attorneys, less changes in case reserves recoverable advised by us to our reinsurers as a
result of the settlement or movement of assumed claims.
(2) Net change in IBNR represents the gross change in our actuarial estimates of IBNR, less amounts recoverable.
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2019: Net incurred losses and LAE for the year ended December 31, 2019 of $51.6 million included net incurred
losses and LAE of $123.6 million related to current period net earned premium. Excluding current period net incurred
losses and LAE of $123.6 million, the reduction in net incurred losses and LAE liabilities relating to prior periods was
$71.9 million, which was attributable to a reduction in estimates of net ultimate losses of $220.0 million and a reduction
in provisions for unallocated LAE of $57.8 million relating to 2019 run-off activity, partially offset by an increase in the
fair value of liabilities of $117.2 million related to our assumed retroactive reinsurance agreements for which we have
elected the fair value option, amortization of fair value adjustments of $50.1 million and the amortization of deferred
charge assets of $38.6 million. The reduction in estimates of prior period net ultimate losses of $220.0 million for the
year ended December 31, 2019 included a net reduction in case and IBNR reserves of $1,402.8 million, partially offset
by net losses paid of $1,182.8 million.
Drivers of the change in estimates of net ultimate losses:
The significant drivers of the 2019 results are explained below.
Workers' Compensation
A $136.4 million reduction in estimates of net ultimate losses in our workers' compensation line of business
arose across multiple portfolios, where reported loss development was generally significantly less than expected
development. The lower than expected actual development was driven by significant proactive settlement activity on
individual claimants where we were able to settle claims lower than the case reserve estimates. For example, in two
of our portfolios we observed favorable reported loss development, where we paid $39.3 million in loss payments to
release a corresponding $53.6 million of associated case reserves for $14.3 million in favorable reported loss
development. These settlement activities and the favorable actual loss development versus expected loss development,
led to a change in the actuarial assumptions in the annual reserve study that reflect this favorable loss development.
For workers' compensation, we paid $209.0 million, offset by a reduction in case reserves of $156.4 million and a
reduction in IBNR reserves of $188.9 million.
We also continue to actively seek to commute policies in our workers' compensation line of business when
possible, and where the commutation of the policy is settled at a level below the carried value of the loss reserves,
we record a reduction in our estimates of net ultimate losses. During the year ended December 31, 2019, we completed
6 commutations across several workers' compensation portfolios that contributed to a $6.1 million reduction in estimates
of net ultimate losses.
Professional Indemnity/Directors & Officers
A $38.6 million reduction in estimates of net ultimate losses in our professional indemnity/directors’ & officers’
line of business arose based on the annual actuarial analysis which reflected the better than expected loss development
during 2019. As part of the reserve analysis, an in-depth review of recently acquired portfolios’ ceded reinsurance
programs led to an increase in the ceded reinsurance asset of $13.5 million, which is a reduction in net ultimate losses.
Asbestos
A $6.8 million increase in estimates of net ultimate losses in our asbestos line of business arose primarily due
to changes in our actuarial assumptions related to dismissal rates. During 2019, the number of new defendants and
filed claims was less than expected, but this was offset by a lowering of the dismissal rate. In asbestos, the dismissal
rates are extremely high as many of the claims do not have merit against the insured. However, we have seen a trend
in both US and UK exposure of the dismissal rate decreasing in the range of 2 to 3 percentage points.
Similar to workers’ compensation business, during the year ended December 31, 2019, we completed 6
commutations across several portfolios that contributed to a $9.8 million reduction in estimates of net ultimate losses.
Other
All other line of business changes in estimates of net ultimate losses were primarily due to the application of our
reserving methodologies, favorable actual versus expected loss development and proactive claim management.
Other Components of Net incurred Losses and LAE
The reduction of $57.8 million in provisions for unallocated LAE was due to a reduction in our estimate of the
total future costs to administer the claims.
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The increase in the fair value of liabilities for which we have elected the fair value option of $117.2 million was
primarily due to changes in the discount rate and the application of the discount rate to the updated expected cash
flow patterns.
The amortization of fair value adjustments of $50.1 million was related to the fair value adjustments associated
with the acquisition of companies. On acquisition, we are required to fair value the net assets acquired, including the
reinsurance balances recoverable and the liability for losses and LAE. The resulting fair value adjustments are then
amortized over the expected life of the reinsurance balances recoverable and the liability for losses and LAE.
The amortization of deferred charge assets of $38.6 million was associated with retroactive reinsurance contracts
where, at the inception of the contract, the estimated ultimate losses payable was in excess of premium received.
Deferred charge assets are amortized over the estimated claim payment period of the related contract and are adjusted
periodically to reflect new estimates of the amount and timing of the remaining loss payments.
2018: The reduction in net incurred losses and LAE for the year ended December 31, 2018 of $306.1 million
included net incurred losses and LAE of $12.5 million related to current period net earned premium from previously
acquired businesses that renewed certain policies while being run-off. Excluding current period net incurred losses
and LAE of $12.5 million, the reduction in net incurred losses and LAE liabilities relating to prior periods was $318.5
million, which was attributable to a reduction in estimates of net ultimate losses of $286.4 million, and a reduction in
provisions for unallocated LAE of $65.4 million, relating to 2018 run-off activity, partially offset by an increase in the
fair value of liabilities of $6.7 million related to our assumed retroactive reinsurance agreements for which we have
elected the fair value option, the amortization of the deferred charge assets of $13.8 million and the amortization of
fair value adjustments relating to companies acquired amounting to $12.9 million.
The reduction in estimates of prior period net ultimate losses of $286.4 million for the year ended December 31,
2018 included a net reduction in case and IBNR reserves of $1,125.3 million, partially offset by net losses paid of
$838.8 million.
Drivers of the change in estimates of net ultimate losses:
The significant drivers of the 2018 results are explained below.
Workers' Compensation
The $154.6 million reduction in estimates of net ultimate losses in our workers' compensation line of business
in 2018 arose across multiple portfolios, where reported incurred loss development was generally significantly less
than expected. When actual development is less than expected for a sustained period of time across a significant
volume of exposures, an updated actuarial analysis tends to indicate reductions in IBNR reserves. Updates to actuarial
analysis, factoring in the less-than-expected reported incurred loss development for the year, is the primary driver of
the $154.6 million reduction to Workers' Compensation net ultimate loss estimates.
For certain of our portfolios, the lower than expected actual development was driven by significant proactive
settlement activity on individual claimants where we were able to close open claims earlier than was indicated by the
original payout pattern, and in other portfolios, based on the review of recent loss development activity we revised our
actuarial development "tail factor" assumption, which led to a reduction in net ultimate losses. For example, in one
portfolio we observed favorable incurred loss development, primarily relating to accident years 1995 through 2005
where we paid $22.7 million in loss payments to release a corresponding $37.0 million of associated case reserves
for $14.3 million in favorable incurred loss development.
For recently acquired portfolios of workers' compensation business, we have utilized our subsidiary, Services
Paladin, to assist us in reviewing claims. Paladin generally produces savings related to medical expense liabilities
over and above savings achieved by prior vendors of such services, and the savings lead to actual development that
is less than expected, thereby driving reductions to the estimates of net ultimate losses. In one particular program, our
claims personnel pursued a proactive strategy of settling with numerous workers' compensation claimants whose
injuries arose in recent accident years. For this portfolio, the claims team reduced the open inventory of claims by 78%
during 2018. This reduction in exposure, when incorporated into an updated actuarial analysis, led to a reduction in
our estimate of ultimate net losses of $30.2 million, primarily relating to accident years 2010 through 2014.
We also continue to actively seek to commute policies when possible, and where the commutation of the policy
is settled at a level below the carried value of the loss reserves, we record a reduction in our estimates of net ultimate
losses. During the year ended December 31, 2018, we completed 7 commutations across several portfolios that
contributed to an $11.2 million reduction in estimates of net ultimate losses.
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Asbestos
The $64.9 million reduction in estimates of net ultimate losses in our asbestos line of business arose primarily
due to one asbestos portfolio where lower than expected volume of claims reported and a lower than expected severity
on claims settled in the period, when projected to net ultimate losses through actuarial methodologies, resulted in a
significant reduction in estimates of net ultimate losses. The volume of claims reported was 3% less than expected
and the average cost per claim was 5% less than expected. Across our other asbestos portfolios, we completed 8
commutations and 2 policy buy-backs contributing to a $9.5 million reduction in estimates of net ultimate losses.
Furthermore, detailed actuarial studies and lower than expected incurred loss development also resulted in reductions
to estimates of net ultimate losses.
All Other
All other line of business changes in estimates of net ultimate losses were primarily due to the application of our
reserving methodologies, favorable actual versus expected loss development and proactive claim management.
Other Components of Net incurred Losses and LAE
The reduction of $65.4 million in provisions for unallocated LAE was due to a reduction in our estimate of the
total future costs to administer the claims.
The amortization of deferred charge assets of $13.8 million was associated with retroactive reinsurance contracts
where, at the inception of the contract, the estimated ultimate losses payable was in excess of premium received.
The amortization of fair value adjustments of $12.9 million was related to the fair value adjustments associated
with the acquisition of companies.
The increase in the fair value of liabilities for which we have elected the fair value option of $6.7 million was
primarily due to decreases in the estimated duration of the net liabilities, partially offset by changes in the corporate
bond yield.
Acquisition Costs:
Acquisition costs for the Non-life Run-off segment were $73.6 million in 2019, compared to $4.0 million in 2018,
an increase of $69.6 million. The increase in acquisition costs for 2019 primarily related to the run-off business assumed
through the AmTrust RITC Transactions and the acquisition of Maiden Re North America.
Fees and Commission Income:
Our management companies in the Non-life Run-off segment earned fees and commission income of $18.3
million in 2019, broadly consistent with income of $16.5 million in 2018. While our consulting subsidiaries continue to
provide management and consultancy services, claims inspection services and reinsurance collection services to third-
party clients in limited circumstances, the core focus of these subsidiaries is providing in-house services to companies
within the Enstar group. These internal fees are eliminated upon consolidation of our results of operations.
Other Income:
Other income was $34.8 million in 2019, broadly consistent with other income of $36.0 million in 2018.
General and Administrative Expenses:
General and administrative expenses consist of operating expenses and corporate expenses.
Operating expenses
Corporate expenses
General and administrative expenses
$
$
2019
2018
(in thousands of U.S. dollars)
199,756 $
158,731 $
Change
70,689
39,093
270,445 $
197,824 $
41,025
31,596
72,621
General and administrative expenses for the Non-life Run-off segment increased by $72.6 million, from $197.8
million in 2018 to $270.4 million in 2019. The increase in expenses in 2019 was primarily attributable to an increase
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in performance-based salary and benefit expenses due to significantly higher net earnings of the Non-life Run-off
segment in 2019 compared to lower earnings in 2018.
Interest Expense:
Interest expense was $62.1 million in 2019, compared to interest expense of $30.6 million in 2018, an increase
of $31.4 million. The increase of $31.4 million was primarily driven by interest on the 2018 EGL Term Loan Facility
which was entered into on December 27, 2018 and partially used to fund the acquisition of Maiden Re North America,
and interest on the 2029 Senior Notes.
Net Foreign Exchange Gains (Losses):
Net foreign exchange gains for the Non-life Run-off segment were $9.9 million in 2019 compared to $2.5 million
in 2018. The increase of $7.4 million in net foreign exchange gains arose primarily as a result of increased volatility in
exchange rates in 2019 and the resulting impact on our foreign currency denominated investments and subsidiaries,
which was partially offset by the change in currency translation adjustment in the consolidated statement of
comprehensive income.
Income Tax Benefit (Expense):
We recorded an income tax expense of $7.3 million for our Non-life Run-off segment in 2019, compared to an
income tax benefit of $3.6 million in 2018, a change of $10.8 million. The effective tax rate was 0.7% in 2019 compared
with (14.5)% in 2018. Our tax rate was impacted by having proportionately higher net income in our tax paying
subsidiaries in 2019 than in 2018. Income tax expense is primarily generated through our foreign operations outside
of Bermuda, principally in the United States, the United Kingdom, Continental Europe and Australia. The effective tax
rate, which is calculated as income tax expense or benefit divided by income before tax, is driven primarily by the
geographic distribution of pre-tax net income between jurisdictions with comparatively higher tax rates and those with
comparatively lower income tax rates and as a result may fluctuate significantly from period to period.
Earnings from Equity Method Investments:
We recorded earnings from equity method investments of $56.1 million for our Non-life Run-off segment in 2019,
compared to earnings of $42.1 million in 2018, an increase of $14.0 million. The increase in 2019 was primarily due
to increased earnings from our investments in Monument and Enhanzed Re.
Noncontrolling Interest:
Net earnings attributable to noncontrolling interest in our Non-life Run-off segment were $6.4 million in 2019,
compared to $3.1 million in 2018, a change of $3.3 million. The change of $3.3 million in 2019 was due primarily to
the increase in earnings for those companies where there is a noncontrolling interest. The number of subsidiaries in
this segment with a noncontrolling interest remained unchanged at two as of December 31, 2019 and December 31,
2018.
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Atrium Segment
The Atrium segment includes Atrium 5 Ltd. ("Atrium 5"), Atrium Underwriters Limited ("AUL") and Northshore
Holdings Limited. Atrium 5 results represent its proportionate share of the results of Syndicate 609 for which it provides
25% of the underwriting capacity and capital. AUL results largely represent fees charged to Syndicate 609 and a 20%
profit commission on the results of the syndicate less salaries and general and administrative expenses incurred in
managing the syndicate. AUL also includes other Atrium Group non-syndicate fee income and associated expenses.
Northshore Holdings Limited results include the amortization of intangible assets that were fair valued upon acquisition.
The following is a discussion and analysis of the results of operations for our Atrium segment for the years ended
December 31, 2019 and 2018, which are summarized below.
Gross premiums written
Net premiums written
Net premiums earned
Net incurred losses and LAE
Acquisition costs
Operating expenses
Underwriting income
Net investment income
Net realized and unrealized gains (losses)
Fees and commission income
Other income
Corporate expenses
Net foreign exchange losses
EARNINGS BEFORE INCOME TAXES
Income tax expense
NET EARNINGS
Net earnings attributable to noncontrolling interest
$
$
$
2019
2018
Change
(in thousands of U.S. dollars)
$
$
$
$
$
$
192,373
172,356
164,059
(77,276)
(56,956)
(14,452)
15,375
7,049
6,195
10,160
140
(13,825)
(504)
24,590
(4,033)
20,557
(8,432)
171,494
153,488
146,315
(69,810)
(50,646)
(17,777)
8,082
5,686
(3,251)
18,622
162
(6,921)
(3,394)
18,986
(3,732)
15,254
(6,257)
20,879
18,868
17,744
(7,466)
(6,310)
3,325
7,293
1,363
9,446
(8,462)
(22)
(6,904)
2,890
5,604
(301)
5,303
(2,175)
NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED ORDINARY
SHAREHOLDERS
$
12,125
$
8,997
$
3,128
Underwriting ratios:
Loss ratio (1)
Acquisition cost ratio (1)
Operating expense ratio (1)
Combined ratio (1)
47.1%
34.7%
8.8%
90.6%
47.7%
34.6%
12.2%
94.5%
(0.6)%
0.1 %
(3.4)%
(3.9)%
(1)Refer to "Underwriting Ratios" for a description of how these ratios are calculated.
Overall Results
An analysis of the components of the segment's net earnings is shown below, after the attribution of net earnings
to noncontrolling interest.
The combined ratio in 2019 was 90.6%, compared to 94.5% in 2018, and the decrease was primarily driven by
a lower operating expense ratio.
Investment results are separately discussed in the "Investments Results - Consolidated" section.
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Gross Premiums Written:
The following table provides gross premiums written by line of business for the Atrium segment for the years
ended December 31, 2019 and 2018:
2019
2018
Change
Marine, Aviation and Transit
Binding Authorities
Reinsurance
Accident and Health
Non-Marine Direct and Facultative
Total
$
(in thousands of U.S. dollars)
49,275 $
78,825
40,227 $
76,389
9,048
2,436
17,778
21,585
24,910
17,763
18,836
18,279
15
2,749
6,631
$
192,373 $
171,494 $
20,879
Gross premiums written for the Atrium segment were $192.4 million in 2019, compared to $171.5 million in 2018,
an increase of $20.9 million. The increase was seen predominantly across the Marine, Aviation and Transit and Non-
Marine Direct and Facultative lines of business. Both lines of business have benefited from an increase in rates. The
Non-Marine Direct and Facultative class are continuing to see new opportunities to write new business.
Net Premiums Earned:
The following table provides net premiums earned by line of business for the Atrium segment for the years ended
December 31, 2019 and 2018:
2019
2018
Change
Marine, Aviation and Transit
Binding Authorities
Reinsurance
Accident and Health
Non-Marine Direct and Facultative
Total
$
(in thousands of U.S. dollars)
36,312 $
75,142
31,738 $
67,423
4,574
7,719
14,433
18,922
19,250
14,029
17,689
15,436
404
1,233
3,814
$
164,059 $
146,315 $
17,744
Net premiums earned for the Atrium segment were $164.1 million in 2019, compared to $146.3 million in 2018,
an increase of $17.7 million. The increase was seen across all lines of business in 2019 and was primarily due to an
increase in the Binding Authorities line of business following continued growth of products placed on AU Gold, Atrium’s
proprietary online underwriting platform, and increases in the Marine, Aviation and Transit line of business.
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Net Incurred Losses and LAE:
The following table shows the components of net incurred losses and LAE for the Atrium segment for the years
ended December 31, 2019 and 2018:
Net losses paid
Net change in case and LAE reserves (1)
Net change in IBNR reserves (2)
Increase (reduction) in estimates of net ultimate losses
Amortization of fair value adjustments
Net incurred losses and LAE
Prior
Periods
2019
Current
Period
Total
Prior
Periods
(in thousands of U.S. dollars)
2018
Current
Period
Total
$
43,572
$
34,617
$
78,189
$
28,969
$
35,537
$
64,506
(13,278)
(38,380)
(8,086)
335
16,812
33,598
85,027
—
3,534
(4,782)
76,941
335
(10,161)
(27,507)
(8,699)
(5,118)
16,492
31,598
83,627
—
6,331
4,091
74,928
(5,118)
$
(7,751) $
85,027
$
77,276
$ (13,817) $
83,627
$
69,810
(1) Net change in case and LAE reserves comprises the movement during the period in specific case reserve liabilities as a result of claims settlements
or changes advised to us by our policyholders and attorneys, less changes in case reserves recoverable advised by us to our reinsurers as a
result of the settlement or movement of assumed claims.
(2) Net change in IBNR reserves represents the gross change in our actuarial estimates of IBNR reserves, less amounts recoverable.
Net incurred losses and LAE were $77.3 million in 2019, compared to $69.8 million in 2018, an increase of $7.5
million. Net favorable prior period loss development in 2019 and 2018 was $7.8 million and $13.8 million, respectively,
and was experienced across most lines of business. Excluding prior year loss development, net incurred losses and
LAE in 2019 and 2018 were $85.0 million and $83.6 million, respectively. The net earned premium increased in 2019
and claims performance was better than 2018 due to lower levels of catastrophe losses. The losses in 2019 include
$2.8 million in respect of Hurricane Dorian. 2018 catastrophe losses amounted to $6.7 million and were related to
California Wildfires and Hurricane Matthew.
Acquisition Costs:
Acquisition costs were $57.0 million in 2019, compared to $50.6 million in 2018, an increase of $6.3 million. The
Atrium acquisition cost ratio for 2019 was 34.7%, relatively consistent with 34.6% in 2018.
Operating Expenses:
Operating expenses for the Atrium segment were $14.5 million in 2019, compared to $17.8 million in 2018. The
operating expense ratio was 8.8% in 2019 compared to 12.2% in 2018, a decrease of 3.4%, primarily due to increased
net premiums earned and a reduction in operating expense due to lower performance-based compensation and bonus
expense within Atrium 5. The large catastrophe losses, primarily hurricanes Harvey, Irma and Maria, in the third quarter
of 2017 continued to impact the earning of performance-based compensation expenses and agency profit commission
in Atrium 5.
Fees and Commission Income:
Fees and commission income was $10.2 million in 2019, compared to $18.6 million in 2018, a decrease of $8.5
million. The fees represent management and profit commission fees earned by us in relation to AUL’s management
of Syndicate 609 and other underwriting consortiums. The decrease of $8.5 million in 2019 was primarily due to profit
commission on lower syndicate profits arising on the prior year underwriting profits in 2019 as compared with 2018,
principally due to the large catastrophe losses, primarily hurricanes Harvey, Irma and Maria, in the third quarter of
2017, which continued to impact the profit commission in 2019.
Corporate Expenses:
Corporate expenses for the Atrium segment were $13.8 million in 2019, compared to $6.9 million in 2018, an
increase of $6.9 million. This increase in corporate expenses was due to higher variable compensation costs in 2019
due to improved performance in the Atrium segment in 2019.
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Income Tax Expense:
We recorded income tax expense of $4.0 million in 2019, compared to $3.7 million in 2018, an increase of $0.3
million, primarily due to higher earnings in the Atrium segment. Income tax expense is associated with the operations
of Atrium 5 and AUL in the United Kingdom. The effective tax rates for the Atrium segment in 2019 and 2018 were
16.4% and 19.7%, respectively.
Noncontrolling Interest:
Net earnings attributable to noncontrolling interest in our Atrium segment were $8.4 million in 2019, compared
to $6.3 million in 2018, a change of $2.2 million, which was primarily due to higher earnings in the Atrium segment.
As of December 31, 2019, Trident and Dowling had a combined 41.0% noncontrolling interest in the Atrium segment.
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StarStone Segment
The results of our StarStone segment include the results of StarStone and StarStone Specialty Holdings Limited
("StarStone Group") and intragroup reinsurance cessions.
StarStone made significant progress in repositioning the underwriting portfolio during 2019 to focus on core lines
of business, which have a track record of performing, and exiting under-performing lines of business in order to achieve
improved underwriting profitability for StarStone Group. As part of the new strategy for the StarStone segment, we
have exited or disposed of various operations and investments that are no longer considered to be key to the new
strategy. The StarStone leadership has separated the book into "core lines" and "exited lines" to manage the
performance during the repositioning phase. The exited lines represent segments or lines of business where new
business has ceased and includes some aerospace, casualty and property lines.
Our StarStone segment also includes the results of intragroup reinsurance cessions. In partnership with
StarStone's other shareholders, we completed the following transactions to provide strategic and capital support to
StarStone in the form of:
(i) a contribution to its contributed surplus account and a loss portfolio transfer and adverse development cover,
effective October 1, 2018. To fund the transaction, the shareholders of StarStone contributed an aggregate amount
of $135.0 million to StarStone in December 2018 in proportion to their ownership interests;
(ii) a loss portfolio transfer, effective April 1, 2019, for which the StarStone shareholders agreed to contribute an
aggregate amount of $48.0 million;
(iii) a loss portfolio transfer and adverse development cover with StarStone effective October 1, 2019, whereby
StarStone transferred $189.4 million in loss reserves and unearned premium to a wholly-owned Enstar subsidiary in
exchange for premium of $189.4 million. Enstar also provided an additional $59.0 million adverse development cover
in excess of the $189.4 million.
(iii) our wholly-owned subsidiary, KaylaRe, provided quota share reinsurance to StarStone's U.S., E.U. and U.K.
affiliates. These were non-renewed as of January 1, 2018 for U.S. business, and January 1, 2019, for E.U. and U.K.
business. However, losses in the earlier calendar years will continue to fall due under the previous quota share
agreements. Effective May 14, 2018, Enstar completed the acquisition of the portion of KaylaRe it did not already own.
These reinsurance transactions between StarStone Group and other group entities, including KaylaRe, are
reflected within StarStone Intra-Group Cessions below (the "StarStone Intra-Group Cessions") and are eliminated
upon consolidation.
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Table of Contents
The following is a discussion and analysis of the results of operations for the StarStone segment for the years
ended December 31, 2019 and 2018, which are summarized below:
Gross premiums written
Net premiums written
Net premiums earned
Net incurred losses and LAE
Acquisition costs
Operating expenses
Underwriting loss
Net investment income
Net realized and unrealized gains (losses)
Other income (losses)
Corporate expenses
Interest expense
Net foreign exchange losses
LOSS BEFORE INCOME TAXES
Income tax benefit
Losses from equity method investments
NET LOSS
Net loss attributable to noncontrolling interest
$
$
$
2019
2018
Change
(in thousands of U.S. dollars)
917,555
$ 1,121,135
$ (203,580)
735,429
801,926
(727,636)
(174,711)
(120,629)
(221,050)
47,401
50,957
338
(7,790)
(475)
(1,538)
$
$
805,562
714,959
(673,383)
(135,452)
(156,726)
(250,602)
35,973
(17,672)
(541)
—
(624)
(2,856)
$
$
(70,133)
86,967
(54,253)
(39,259)
36,097
29,552
11,428
68,629
879
(7,790)
149
1,318
(132,157)
(236,322)
104,165
6,931
(218)
6,327
—
(125,444)
(229,995)
24,711
71,415
604
(218)
104,551
(46,704)
NET LOSS ATTRIBUTABLE TO ENSTAR GROUP LIMITED ORDINARY
SHAREHOLDERS
$ (100,733)
$ (158,580)
$
57,847
Underwriting ratios:
Loss ratio (1)
Acquisition cost ratio (1)
Operating expense ratio (1)
Combined ratio (1)
(1) Refer to "Underwriting Ratios" for a description of how these ratios are calculated.
90.7%
21.8%
15.1%
94.2%
18.9%
22.0%
127.6%
135.1%
(3.5)%
2.9 %
(6.9)%
(7.5)%
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Table of Contents
The following table summarizes the impact of the StarStone Intra-Group Cessions, which are included in our
StarStone segment for the years ended December 31, 2019 and 2018. The discussion below also describes the results
of the StarStone Group, which does not reflect the impact of the StarStone Intra-Group Cessions, as well as the
StarStone segment which does include the impact of the StarStone Intra-Group Cessions.
Net premiums earned
Net incurred losses and LAE
Acquisition costs
Operating expenses
Underwriting loss
Net investment income
Net realized and unrealized gains (losses)
Other income (losses)
Corporate expenses
Interest income (expenses)
Net foreign exchange gain
2019
StarStone
Intra-Group
Cessions
StarStone
Group
StarStone
Segment
StarStone
Group
(in thousands of U.S. dollars)
2018
StarStone
Intra-Group
Cessions
StarStone
Segment
$ 708,188
$
93,738
$ 801,926
$ 560,670
$ 154,289
$ 714,959
(533,671)
(193,965)
(727,636)
(472,564)
(200,819)
(673,383)
(138,970)
(120,044)
(35,741)
(174,711)
(75,952)
(59,500)
(135,452)
(585)
(120,629)
(153,733)
(2,993)
(156,726)
(84,497)
(136,553)
(221,050)
(141,579)
(109,023)
(250,602)
47,307
43,834
338
(7,790)
(16,612)
(677)
94
7,123
—
—
16,137
(861)
47,401
50,957
338
(7,790)
(475)
(1,538)
35,973
(17,672)
(541)
—
(2,500)
(1,208)
—
—
—
—
1,876
(1,648)
35,973
(17,672)
(541)
—
(624)
(2,856)
LOSS BEFORE INCOME TAXES
(18,097)
(114,060)
(132,157)
(127,527)
(108,795)
(236,322)
Income tax benefit
Losses from equity method investments
6,931
(218)
—
—
6,931
(218)
6,327
—
—
—
6,327
—
NET LOSS
(11,384)
(114,060)
(125,444)
(121,200)
(108,795)
(229,995)
Net loss attributable to noncontrolling interest
4,663
20,048
24,711
49,877
21,538
71,415
NET LOSS ATTRIBUTABLE TO ENSTAR
GROUP LIMITED ORDINARY SHAREHOLDERS
$
(6,721)
$
(94,012)
$ (100,733)
$ (71,323)
$
(87,257)
$ (158,580)
Underwriting ratios:
Loss ratio (1)
Acquisition cost ratio (1)
Operating expense ratio (1)
Combined ratio (1)
75.4%
19.6%
16.9%
206.9%
38.1%
0.7%
90.7%
21.8%
15.1%
84.3%
13.5%
27.5%
130.2%
38.6%
1.9%
94.2%
18.9%
22.0%
111.9 %
245.7%
127.6%
125.3%
170.7%
135.1%
(1) Refer to "Underwriting Ratios" for a description of how these ratios are calculated.
In addition, the below table presents StarStone Group's underwriting income split by the lines of business that
we consider core and exited:
2019
2018
Core Lines
Exited Lines
StarStone
Group
Core Lines
Exited Lines
StarStone
Group
(in thousands of U.S. dollars)
Net premiums earned
$
616,176
$
92,012
$
708,188
$
409,725
$
150,945
$
560,670
Net incurred losses and LAE
Acquisition costs
Operating expenses
(416,981)
(121,366)
(98,983)
(116,690)
(17,604)
(21,061)
(533,671)
(138,970)
(120,044)
(309,750)
(68,608)
(108,405)
(162,814)
(7,344)
(45,328)
(472,564)
(75,952)
(153,733)
Underwriting income (loss)
$
(21,154)
$
(63,343)
$
(84,497)
$
(77,038)
$
(64,541)
$
(141,579)
Underwriting ratios(1):
Loss ratio
Acquisition cost ratio
Operating expense ratio
Combined ratio
67.7%
19.7%
16.0%
103.4%
126.8%
19.1%
22.9%
168.8%
75.4%
19.6%
16.9%
111.9 %
75.6%
16.7%
26.5%
118.8%
107.9%
4.9%
30.0%
142.8%
84.3%
13.5%
27.5%
125.3%
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Table of Contents
Overall Results
Net losses for the StarStone segment decreased to $100.7 million in 2019, compared to net losses of $158.6
million in 2018. The combined ratio decreased to 127.6% in 2019, compared to 135.1% in 2018. Whilst this was an
improvement from 2018, the unfavorable results in 2019 were attributable to losses from exited lines of business as
well as reserve strengthening in the U.S. casualty line of business, and prior year adverse development on our U.S.
healthcare, excess casualty, marine, aviation and construction lines of business in 2019. The decrease in net premiums
written was due to our strategy to exit certain lines of business and to focus on core lines. The improvement in the
underwriting performance was primarily due to the repositioning actions to improve underwriting profitability in core
lines and reduced exposure in exited lines of business. The increase of 2.9 percentage points in the acquisition cost
ratio was partially driven by the elimination of the ceding commission earned on the cession to KaylaRe, following our
acquisition of KaylaRe in May 2018. The decrease of 6.9 percentage points in the operating expense ratio was a result
of net premiums earned increasing and operating expenses decreasing.
Net losses for the StarStone Group reduced to $6.7 million in 2019, compared to net losses of $71.3 million in
2018, a change of $64.6 million. The 2019 result was primarily driven by an underwriting loss of $84.5 million that was
primarily due to losses from exited lines of business as well as reserve strengthening in U.S. casualty line of business,
offset by $47.3 million of net investment income and $43.8 million of net realized and unrealized gains. The loss ratio
for the StarStone Group decreased by 8.9 percentage points, reflecting repositioning actions focused on underwriting
profitability. The acquisition cost ratio increased by 6.1 percentage points and the operating expense ratio decreased
by 10.6 percentage points due to reduction on expenses and higher net premiums earned from the non-renewal of
KaylaRe.
Investment results are separately discussed in the "Investments Results - Consolidated" section.
Gross Premiums Written:
The following table provides gross premiums written by line of business for the StarStone segment for the years
ended December 31, 2019 and 2018:
2019
2018
Change
Casualty
Marine
Property
Aerospace
Workers' Compensation
Total
$
$
118,574
332,042 $
272,714
(in thousands of U.S. dollars)
364,413 $
245,046
32,371
(27,668)
(186,365)
(1,203)
117,191
(20,715)
137,906
917,555 $ 1,121,135 $ (203,580)
304,939
72,331
73,534
Gross premiums written were $917.6 million and $1,121.1 million for the years ended December 31, 2019 and
2018, respectively, a decrease of $203.6 million. Lower premiums in 2019 compared to 2018 were largely a result of
our strategy to exit certain lines of business and to focus on core lines. The property and marine lines of business
decreased by $186.4 million and $27.7 million, respectively. The $32.4 million increase in the casualty line of business
was due to improving rates in the U.S. and new business opportunities underwritten through our European platform.
The $20.7 million decrease in Workers' Compensation was due to the non-renewal of two programs.
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Table of Contents
Net Premiums Earned:
The following table provides net premiums earned by line of business for the StarStone segment for the years
ended December 31, 2019 and 2018:
2019
2018
Change
Casualty
Marine
Property
Aerospace
Workers' Compensation
Total
$
(in thousands of U.S. dollars)
321,088 $
221,740
253,065 $
188,556
138,090
156,695
44,755
76,253
57,776
58,867
68,023
33,184
(18,605)
(13,021)
17,386
$
801,926 $
714,959 $
86,967
Net premiums earned for the StarStone segment were $801.9 million and $715.0 million for the years ended
December 31, 2019 and 2018, respectively, an increase of $87.0 million. The increase in net premiums earned in the
StarStone Group was due to the impact of lower ceded premium earned related to KaylaRe after its acquisition.
Net premiums earned for the StarStone Group for 2019 were $708.2 million, an increase of $147.5 million
compared to 2018. The increase was primarily driven by lower ceded premiums due to the non-renewal of the quota
share arrangement with KaylaRe.
Net Incurred Losses and LAE:
The following table shows the components of net incurred losses and LAE for the StarStone segment for the
years ended December 31, 2019 and 2018:
Net losses paid
Net change in case and LAE reserves (1)
Net change in IBNR reserves (2)
Prior
Periods
2019
Current
Period
Total
Prior
Periods
(in thousands of U.S. dollars)
2018
Current
Period
Total
$ 435,372
$
96,261
$ 531,633
$ 326,352
$ 150,778
$ 477,130
(85,983)
111,950
25,967
(81,491)
157,378
(214,787)
381,214
166,427
(144,212)
258,091
75,887
113,879
666,896
6,753
(266)
Increase in estimates of net ultimate losses
134,602
589,425
724,027
100,649
566,247
Increase (reduction) in provisions for unallocated LAE
Amortization of fair value adjustments
Net incurred losses and LAE
(5,602)
168
9,043
—
3,441
168
(5,892)
12,645
(266)
—
$ 129,168
$ 598,468
$ 727,636
$
94,491
$ 578,892
$ 673,383
(1) Net change in case and LAE reserves comprises the movement during the period in specific case reserve liabilities as a result of claims settlements
or changes advised to us by our policyholders and attorneys, less changes in case reserves recoverable advised by us to our reinsurers as a
result of the settlement or movement of assumed claims.
(2) Net change in IBNR reserves represents the gross change in our actuarial estimates of IBNR reserves, less amounts recoverable.
Net incurred losses and LAE for 2019 and 2018 were $727.6 million and $673.4 million, respectively. The increase
in net incurred losses was due to lower reinsurance recoveries due to the non-renewal of the KaylaRe quota share
arrangement and net unfavorable prior year loss development. Net unfavorable prior year loss development for 2019
was $129.2 million, compared to $94.5 million for 2018, primarily related to reserve strengthening for the U.S. casualty
line of business, reflecting an increase in the frequency and severity of losses and social inflation, and lines of business
which we have exited. Excluding prior year loss development, net incurred losses and LAE for 2019 and 2018 were
$598.5 million and $578.9 million, respectively.
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Table of Contents
Acquisition Costs:
Acquisition costs for the StarStone segment were $174.7 million and $135.5 million for 2019 and 2018,
respectively, an increase of $39.3 million. The acquisition cost ratios for 2019 and 2018 were 21.8% and 18.9%,
respectively, an increase of 2.9 percentage points. The increase in the acquisition cost ratio was primarily attributable
to the non-renewal of the quota share arrangement with KaylaRe, and as a result, the StarStone Group benefited less
from the quota share ceding commission for 2019 than it did in 2018.
Acquisition costs for the StarStone Group were $139.0 million and $76.0 million for 2019 and 2018, respectively,
an increase of $63.0 million. The acquisition cost ratios for December 31, 2019 and 2018 were 19.6% and 13.5%,
respectively, an increase of 6.1 percentage points.
Operating Expenses:
Operating expenses for the StarStone segment were $120.6 million in 2019, compared to $156.7 million in 2018,
a decrease of $36.1 million. The operating expense ratios for 2019 and 2018 were 15.1% and 22.0%, respectively, a
decrease of 6.9 percentage points. The decrease was due to lower staff compensation, costs of exiting lines of business
and a decrease in IT costs of $5.0 million.
Operating expense ratios for the StarStone Group for 2019 and 2018 were 16.9% and 27.5%, respectively, a
decrease of 10.6 percentage points. The decrease in the operating expense ratio is attributable to the withdrawal from
certain lines of business and higher net premiums earned due to the non-renewal of KaylaRe.
Corporate expenses:
Corporate expenses for StarStone segment were $7.8 million in 2019. These expenses primarily related to non-
recurring expenses related to reorganization and remediation initiatives, which were not a cost of underwriting, as well
as certain holding company expenses.
Noncontrolling Interest:
Net losses attributable to noncontrolling interest were $24.7 million in 2019, compared to $71.4 million in 2018,
a change of $46.7 million, primarily due to the net losses in both the StarStone Group and the StarStone Intra-Group
Cessions, as discussed above.
As of December 31, 2019 and 2018, Trident and Dowling had a combined 41.0% noncontrolling interest in the
StarStone Group.
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Table of Contents
Other
Our other activities, which do not qualify as a reportable segment, include our corporate expenses, debt servicing
costs, preferred share dividends, holding company income and expenses, foreign exchange and other miscellaneous
items. On May 31, 2019, we completed the transfer of our remaining life assurance policies written by our wholly-
owned subsidiary Alpha Insurance SA to a subsidiary of Monument.
The following is a discussion and analysis of our results of operations for our other activities for the years ended
December 31, 2019 and 2018, which are summarized below:
Net premiums earned
Net incurred losses and LAE
Life and annuity policy benefits
Acquisition costs
Underwriting income
Net investment (losses) income
Net realized and unrealized gains (losses)
Other income (losses)
Corporate expenses
Interest income
Net foreign exchange gains
LOSS BEFORE INCOME TAXES
Income tax expense
NET LOSS ATTRIBUTABLE TO ENSTAR GROUP LIMITED
Dividends on preferred shares
2019
2018
Change
(in thousands of U.S. dollars)
$
20,380 $
24,874 $
(4,494)
(16,038)
(16,899)
(91)
(642)
3,609
(8,410)
5,849
1,883
(45,945)
9,989
3
(1,003)
(2,686)
4,286
2,725
(10,249)
(514)
(28,127)
5,023
1,048
(33,022)
(25,808)
(85)
(33,107)
(35,914)
(52)
(25,860)
(12,133)
861
912
2,044
(677)
(11,135)
16,098
2,397
(17,818)
4,966
(1,045)
(7,214)
(33)
(7,247)
(23,781)
NET LOSS ATTRIBUTABLE TO ENSTAR GROUP LIMITED ORDINARY
SHAREHOLDERS
$
(69,021) $
(37,993) $
(31,028)
Overall Results:
Net losses were $69.0 million for 2019 and $38.0 million for 2018, an increase in net losses of $31.0 million,
which primarily resulted from a $23.8 million increase in dividends on preferred shares, a $17.8 million increase in
corporate expenses, an $11.1 million decrease in net investment income, and a $1.0 million decrease in foreign
exchange gains, partially offset by a $16.1 million increase in net realized and unrealized gains (losses) and a $5.0
million increase in interest income. The primary changes are discussed below.
•
•
•
•
•
Underwriting income was $3.6 million in 2019, compared to $4.3 million in 2018, a decrease of $0.7 million.
Investment results are separately discussed in the "Investments Results - Consolidated" section.
Corporate expenses were $45.9 million in 2019, compared to $28.1 million in 2018, an increase of $17.8
million, primarily due to an increase in performance-related compensation as a result of higher consolidated
net earnings in 2019 compared to 2018.
Interest income was $10.0 million in 2019, compared to $5.0 million in 2018, an increase of $5.0 million. This
represents the elimination of interest expense between our reportable segments.
In 2019, we paid $35.9 million of dividends on our Series D and Series E Preferred Shares compared to $12.1
million in 2018. On June 28, 2018, we issued 16,000 Series D Preferred Shares with an aggregate liquidation
value of $400.0 million. On November 21, 2018, we issued 4,400 Series E Preferred Shares with an aggregate
liquidation value of $110.0 million.
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Table of Contents
Investable Assets
We define investable assets as the sum of total investments, cash and cash equivalents, restricted cash and
cash equivalents and funds held. Investments consist primarily of investment grade, liquid, fixed maturity securities of
short-to-medium duration, equities and other investments. Cash and cash equivalents and restricted cash and cash
equivalents is comprised mainly of cash, high-grade fixed deposits, and other highly liquid instruments such as
commercial paper with maturities of less than three months at the time of acquisition and money market funds. Funds
held primarily consists of investment grade, liquid, fixed maturity securities of short-to-medium duration.
Investable assets were $14.7 billion as of December 31, 2019 as compared to $12.5 billion as of December 31,
2018, an increase of 16.9%. The increase was primarily due to the investments and funds held balance acquired in
relation to the Morse TEC, Zurich, Maiden Re Bermuda, Amerisure and the AmTrust RITC transactions.
Schedules of maturities for our fixed maturity securities are included in Note 6 - "Investments" of our consolidated
financial statements included within Item 8 of this Annual Report on Form 10-K.
Investment Strategies
Our key investment objectives are as follows:
•
•
•
•
To follow an investment strategy designed to emphasize the security and growth of our invested assets that
also meet our credit quality and diversification objectives.
To provide sufficient liquidity for the prompt payment of claims and contract liabilities.
To seek superior risk-adjusted returns, by allocating a portion of our portfolio to non-investment grade
securities in accordance with our investment guidelines.
To consider the duration characteristics of our liabilities in determining the extent to which we correlate with
assets of comparable duration depending on our other investment strategies and to the extent practicable.
In the Non-life Run-off, Atrium and StarStone segments, we generally seek to maintain investment portfolios
that are shorter or of equivalent duration to the liabilities in order to provide liquidity for the settlement of losses and,
where possible, to avoid having to liquidate longer-dated investments. In the Non-life Run-off segment, the
commutations of liabilities also have the potential to accelerate the natural payout of losses, which requires liquidity.
Our fixed maturity securities include U.S. government and agency investments, highly rated sovereign and
supranational investments, high-grade corporate investments, and mortgage-backed and asset-backed investments.
We allocate a portion of our investment portfolio to other investments, including private equity funds, fixed income
funds, hedge funds, equity funds, CLO equities, CLO equity funds, real estate debt fund and private credit funds.
We utilize and pay fees to various companies to provide investment advisory and/or management services.
These fees, which are predominantly based upon the amount of assets under management, are included in net
investment income.
Our investment performance is subject to a variety of risks, including risks related to general economic conditions,
market volatility, interest rate fluctuations, foreign exchange risk, liquidity risk and credit and default risk. Interest rates
are highly sensitive to many factors, including governmental monetary policies, domestic and international economic
and political conditions and other factors beyond our control. An increase in interest rates could result in significant
losses, realized or unrealized, in the value of our investment portfolio. A portion of our non-investment grade securities
consists of alternative investments that subject us to restrictions on redemption, which may limit our ability to withdraw
funds for some period of time after the initial investment. The values of, and returns on, such investments may also
be more volatile. For more information on these risks, refer to "Item 1A. Risk Factors - Risks Relating to Our
Investments" and "Item 7A. Quantitative and Qualitative Disclosures About Market Risk."
In 2018 and 2019, we increased our allocation to other investments and equity method investments, which
collectively constituted 19.4% of our investable assets as of December 31, 2019 (2018: 17.2%), and 58.7% of our total
shareholders' equity as of December 31, 2019 (2018: 55.2%). We believe our other investments and equity method
investments portfolio provides diversification against our fixed income investments and an opportunity for improved
risk-adjusted return, however, the returns of these investments may be more volatile and we may experience significant
unrealized gains or losses in a particular quarter or year.
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Table of Contents
Composition of Investable Assets By Segment
Across all of our segments, we strive to structure our investments in a manner that recognizes our liquidity needs
and in order to meet our obligation to pay losses. Our remaining life business did not qualify as a reportable segment
and is reflected as Other below. We consider the duration characteristics of our liabilities in determining the extent to
which we correlate with assets of comparable duration depending on our other investment strategies and to the extent
practicable. If our liquidity needs or general liability profile change unexpectedly, we may adjust the structure of our
investment portfolio to meet our revised expectations. The following tables summarize the composition of total
investable assets by segment as of December 31, 2019 and 2018:
2019
Non-life
Run-off
Atrium
StarStone
Other
Total
(in thousands of U.S. dollars)
Short-term investments, trading, at fair value
$
50,268
$
1,222
$
— $
— $
51,490
Short-term investments, available-for-sale, at fair
value
Fixed maturities, trading, at fair value
Fixed maturities, available-for-sale, at fair value
Funds held - directly managed
Equities, at fair value
Other investments, at fair value
Other investments, at cost
Equity method investments
Total investments
121,780
5,378,533
1,446,912
1,187,552
576,893
2,386,776
—
326,277
—
155,510
15,310
—
22,079
7,417
—
—
6,555
812,286
451,167
—
130,749
130,227
—
—
11,474,991
201,538
1,530,984
—
—
—
—
—
—
—
—
—
Cash and cash equivalents (including restricted cash)
Funds held by reinsured companies
666,705
336,470
58,369
27,451
326,136
36,194
4,567
8,620
128,335
6,346,329
1,913,389
1,187,552
729,721
2,524,420
—
326,277
13,207,513
1,055,777
408,735
Total investable assets
Duration (in years) (1)
Average credit rating (2)
$ 12,478,166
$
287,358
$
1,893,314
$
13,187
$
14,672,025
5.24
A+
1.86
AA-
2.53
A+
0.00
AAA
4.76
A+
2018
Non-life
Run-off
Atrium
StarStone
Other
Total
(in thousands of U.S. dollars)
Short-term investments, trading, at fair value
$
106,375
$
541
$
7,200
$
— $
114,116
Fixed maturities, trading, at fair value
Fixed maturities, available-for-sale, at fair value
Funds held - directly managed
Equities, at fair value
Other investments, at fair value
Equity method investments
Total investments
Cash and cash equivalents (including restricted cash)
Funds held by reinsured companies
Total investable assets
Duration (in years) (1)
Average credit rating (2)
5,790,219
—
1,198,154
335,632
1,825,307
204,507
9,460,194
585,956
263,713
139,121
29,975
—
3,193
7,166
—
1,319,453
—
7,248,793
—
—
28,300
113,024
—
121,634
—
—
151,609
1,198,154
367,125
12,260
1,957,757
—
204,507
179,996
1,467,977
133,894
11,242,061
54,679
26,489
318,811
20,823
23,138
10,242
982,584
321,267
$ 10,309,863
$
261,164
$
1,807,611
$
167,274
$
12,545,912
5.41
A+
1.70
AA-
2.66
A+
5.70
AA-
4.86
A+
(1) The duration calculation includes cash and cash equivalents, short-term investments, fixed maturities and the fixed maturities within our funds
held - directly managed portfolios at December 31, 2019 and 2018.
(2) The average credit ratings calculation includes cash and cash equivalents, short-term investments, fixed maturities and the fixed maturities within
our funds held - directly managed portfolios at December 31, 2019 and 2018.
76
U.K. government
Other government
Corporate
Municipal
Residential mortgage-
backed
Commercial mortgage-
backed
Asset-backed
Total
Table of Contents
As of both December 31, 2019 and 2018, our investment portfolio, including funds held - directly managed had
an average credit quality rating of A+. As of December 31, 2019 and 2018, our fixed maturity investments (classified
as trading and available-for-sale and our fixed maturity investments included within funds held - directly managed)
that were non-investment grade (i.e. rated lower than BBB- and non-rated securities) comprised 4.3% and 3.8% of
our total fixed maturity investment portfolio, respectively. A detailed schedule of average credit ratings by asset class
as of December 31, 2019 is included in Note 6 - "Investments" of our consolidated financial statements included within
Item 8 of this Annual Report on Form 10-K.
Composition of Investment Portfolio by Asset Class
The following table summarizes the composition of our investment portfolio by asset class as of December 31,
2019 and 2018:
AAA
Rated
AA Rated
A Rated
2019
BBB
Rated
Non-
investment
Grade
Not Rated
Total
%
Fixed maturity and short-term investments, trading and available-for-sale and funds held - directly managed
(in thousands of U.S. dollars, except percentages)
U.S. government & agency
$ 736,043
$
— $
— $
— $
736,043
—
316,151
149,108
16,381
161,772
154,072
— $
—
— $
—
63,270
144,557
619,707
2,911,867
1,703,328
77,291
50,938
23,272
—
24,807
311,167
—
—
—
161,772
702,857
5.6%
1.2%
5.3%
1,890
5,697,067
43.1%
—
167,882
1.3%
381,502
47,489
2,295
1,882
34,055
4,613
471,836
3.6%
632,461
378,116
89,347
89,418
95,508
66,573
174,118
117,275
6,224
15,694
9,916
781
900,029
775,402
6.8%
5.9%
2,609,762
1,239,096
3,297,996
2,056,887
391,947
17,200
9,612,888
72.8%
Other assets included within funds held - directly managed
14,207
0.1%
Equities
Publicly traded equities
Exchange-traded funds
Privately held equities
Total
Other investments
Hedge funds
Equity funds
Fixed income funds
Private equity funds
CLO equities
CLO equity funds
Private credit funds
Other
Total
Equity method investments
327,875
133,047
268,799
729,721
1,121,904
410,149
481,039
329,885
87,555
87,509
—
6,379
2.5%
1.0%
2.0%
5.5%
8.5%
3.1%
3.6%
2.5%
0.7%
0.7%
—%
—%
2,524,420
19.1%
326,277
2.5%
Total investments
$2,609,762
$ 1,239,096
$ 3,297,996
$ 2,056,887
$
391,947
$
17,200
$ 13,207,513
100.0%
77
Table of Contents
AAA
Rated
AA Rated
A Rated
2018
BBB
Rated
Non-
investment
Grade
Not
Rated
Total
%
(in thousands of U.S. dollars, except percentages)
Fixed maturity and short-term investments, trading and available-for-sale and funds held - directly managed
U.S. government & agency
$ 502,819
$
7,426
$
— $
— $
510,245
U.K. government
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-
backed
Asset-backed
Total
2,144
322,606
129,059
7,934
644,418
487,054
358,574
298,487
213,639
— $
—
— $
—
69,601
154,800
470,571
2,306,532
1,731,398
69,270
51,729
70,620
68,174
41,666
8,658
77,538
125,644
11,395
10,495
60,879
66,136
—
32,592
197,822
—
54,727
7,297
17,573
4.5%
2.7%
7.1%
—
572
300,631
793,810
4,458
4,839,840
43.1%
—
3,530
9,675
380
130,265
773,557
713,063
636,481
1.2%
6.9%
6.3%
5.7%
2,454,608
1,249,916
2,629,639
2,035,103
310,011
18,615
8,697,892
77.5%
Other assets included within funds held - directly managed
14,780
0.1%
Equities
Publicly traded equities
Privately held equities
Total
Other investments
Hedge funds
Equity funds
Fixed income funds
Private equity funds
CLO equities
CLO equity funds
Private credit funds
Other
Total
Equity method investments
138,415
228,710
367,125
852,584
333,681
403,858
248,628
39,052
37,260
33,381
9,313
1.2%
2.0%
3.2%
7.6%
3.0%
3.6%
2.2%
0.3%
0.3%
0.3%
0.1%
1,957,757
17.4%
204,507
1.8%
Total investments
$2,454,608
$1,249,916
$ 2,629,639
$ 2,035,103
$
310,011
$ 18,615
$ 11,242,061
100.0%
A description of our investment valuation processes is included in "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Critical Accounting Policies - Investments" and Note 12 - "Fair Value
Measurements" of our consolidated financial statements included within Item 8 of this Annual Report on Form 10-K.
78
Fair
Value
736,043
161,772
702,857
(117)
(6,254)
(19,293)
5,697,067
(147)
(1,538)
(3,892)
(5,912)
167,882
471,836
900,029
775,402
Fair
Value
510,245
300,631
793,810
(7,644)
(26,065)
(191,373)
4,839,840
(3,157)
(4,746)
(18,782)
(7,169)
130,265
773,557
713,063
636,481
Table of Contents
The following tables summarize the amortized cost, gross unrealized gains and losses and the fair value of our
short-term investments and fixed maturity investments, classified as trading and available-for-sale, and the fixed
maturity investments included within our funds held - directly managed as of December 31, 2019 and 2018:
U.S. government and agency
$
730,396 $
6,869 $
(1,222) $
Amortized
Cost
Gross
Unrealized
Gains
2019
Gross
Unrealized
Losses
Non-OTTI
U.K. government
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
155,261
684,117
5,479,839
157,868
466,932
882,603
779,279
6,628
24,994
236,521
10,161
6,442
21,318
2,035
$
9,336,295 $
314,968 $
(38,375) $
9,612,888
U.S. government and agency
$
512,360 $
1,904 $
(4,019) $
Amortized
Cost
Gross
Unrealized
Gains
2018
Gross
Unrealized
Losses
Non-OTTI
U.K. government
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
301,749
814,614
5,019,018
132,928
772,457
729,232
642,618
6,526
5,261
12,195
494
5,846
2,613
1,032
$
8,924,976 $
35,871 $
(262,955) $
8,697,892
We have generally accounted for our fixed maturity securities as "trading." However, from October 1, 2019, we
elected to use available-for-sale accounting for all new acquisitions and, where permissible, as trading fixed maturity
securities mature, we are reinvesting the proceeds into available-for-sale securities for our Non-Life and StarStone
segments. The difference is that unrealized changes on investments classified as trading are recorded through earnings,
whereas unrealized changes on investments classified as available-for-sale are recorded directly to shareholders'
equity. We may experience unrealized losses on our fixed maturity investments, depending on investment conditions
and general economic conditions. Unrealized amounts would only become realized in the event of a sale of the specific
securities prior to maturity or a credit default. For further information on the sensitivity of our portfolio to changes in
interest rates, refer to the Interest Rate Risk section within "Item 7A. Quantitative and Qualitative Disclosures About
Market Risk", included within this Annual Report on Form 10-K. For further discussion of our investments, see
"Investable Assets" below.
79
Table of Contents
The following table summarizes the composition of our top ten corporate issuers included within our short-term
investments and fixed maturity investments, classified as trading and available-for-sale and the fixed maturity
investments included within our funds held - directly managed balance as of December 31, 2019:
Citigroup Inc
Bank of America Corp
JPMorgan Chase & Co
Morgan Stanley
Apple Inc
Wells Fargo & Co
Comcast Corp
HSBC Holdings PLC
Walmart Inc
Goldman Sachs Group Inc
Fair Value
(in thousands of U.S.
dollars)
Average Credit
Rating
$
115,392
111,165
109,528
106,453
101,538
86,221
80,342
68,469
59,773
56,038
BBB+
A
A
A-
AA+
A
A-
A
AA
A-
$
894,919
Investment Results - Consolidated
Comparability between periods is impacted by our acquisitions and significant new business as described in
"Item 1. Business - Recent Acquisitions and Significant New Business" and Note 3 - "Acquisitions" and Note 4 -
"Significant New Business" of our consolidated financial statements included in Item 8 of this Annual Report on Form
10-K.
The following table summarizes our consolidated investment results for the years ended December 31, 2019
and 2018:
2019
Non-life
Run-off
Atrium
StarStone
Other
Total
(in thousands of U.S. dollars)
Net investment income:
Fixed maturities and cash and cash equivalents
$
258,277
$
6,292
$
42,518
$
Equity securities
Other
Gross investment income
Investment expenses
14,660
14,916
287,853
(12,617)
72
975
7,339
(290)
1,939
5,425
49,882
(2,481)
984
—
(9,524)
(8,540)
130
$
308,071
16,671
11,792
336,534
(15,258)
Net investment income (expense)
$
275,236
$
7,049
$
47,401
$
(8,410)
$
321,276
Net realized and unrealized gains and losses:
Fixed maturity securities
Equity securities
Other investments
Net realized and unrealized gains and losses
Annualized income from cash and fixed maturities
Average aggregate fixed maturities and cash and
cash equivalents, at cost (1)
480,579
55,336
432,435
968,350
258,277
$
$
$
$
4,396
817
982
6,195
6,292
$
$
45,604
(1,168)
6,521
50,957
42,518
$
$
4,151
—
1,698
5,849
984
534,730
54,985
441,636
$
$
1,031,351
308,071
9,031,708
256,109
1,638,695
72,045
10,998,557
Annualized Investment Book Yield
2.86%
2.46%
2.59%
1.37 %
2.80%
Total financial statement return (2)
Average aggregate invested assets, at fair value (1)
$
1,243,586
$
13,244
$
98,358
$
(2,561)
$
1,352,627
11,799,264
270,590
1,837,229
79,478
13,986,561
Financial Statement Portfolio Return
10.54%
4.89%
5.35%
(3.22)%
9.67%
80
Table of Contents
2018
Non-life
Run-off
Atrium
StarStone
Other
Total
(in thousands of U.S. dollars)
Net investment income:
Fixed maturities and cash and cash equivalents
$
207,390
$
5,221
$
34,619
$
1,551
$
248,781
Equity securities
Other investments and other
Gross investment income
Investment expenses
Net investment income
Net realized and unrealized gains and losses:
Fixed maturity securities
Equity securities
Other investments
Net realized and unrealized losses
Annualized income from cash and fixed maturities
Average aggregate fixed maturities and cash and
cash equivalents, at cost (1)
3,831
21,638
232,859
(6,572)
$
226,287
$
(222,442)
(8,383)
(150,887)
(381,712)
207,390
$
$
$
$
$
$
55
684
5,960
(274)
1,511
2,522
38,652
(2,679)
—
1,370
2,921
(196)
5,397
26,214
280,392
(9,721)
5,686
$
35,973
$
2,725
$
270,671
(2,514)
$
(18,143)
$
$
(243,093)
(154)
(583)
(3,251)
5,221
$
$
2,722
(2,251)
(17,672)
34,619
(10,255)
(10,249)
1,551
$
$
$
$
(5,815)
(163,976)
(412,884)
248,781
6
—
7,537,621
265,238
1,535,360
160,359
9,498,578
Annualized Investment Book Yield
2.75 %
1.97%
2.25%
0.97 %
2.62 %
Total financial statement return (2)
Average aggregate invested assets, at fair value (1)
$
(155,425)
$
2,435
$
18,301
$
(7,524)
$
(142,213)
9,041,377
272,386
1,670,240
222,822
11,206,825
Financial Statement Portfolio Return
(1.72)%
0.89%
1.10%
(3.38)%
(1.27)%
(1) These amounts are an average of the amounts disclosed in our quarterly U.S. GAAP consolidated financial statements.
(2) This is the sum of net investment income and net realized and unrealized gains (losses) from our U.S. GAAP consolidated financial statements.
2019 versus 2018: Net investment income increased by $50.6 million during 2019, primarily due to a $59.3
million increase in net investment income from fixed maturities and cash and cash equivalents, principally driven by
an increase of $1.5 billion in our average balance of fixed maturities and cash and cash equivalents. The increase in
average balance of fixed maturities and cash and cash equivalents was primarily due to the Morse TEC, Zurich, Maiden
Re Bermuda, Amerisure and the AmTrust RITC transactions in 2019. The book yield increased by 18 basis points
primarily due to the contractual yield received on the 2019 transactions.
Net realized and unrealized gains were $1,031.4 million in 2019, compared to net realized and unrealized losses
of $412.9 million in 2018, a change of $1,444.2 million. Included in net realized and unrealized gains (losses) are the
following items:
•
•
•
net realized and unrealized gains on fixed income securities, including fixed income securities within our funds
held portfolios, of $534.7 million in 2019, compared to net realized and unrealized losses of $243.1 million in
2018, an increase of $777.8 million, primarily driven by higher valuations due to declining interest rates and
tighter credit spreads in the current period, compared to lower valuations in the comparative period due to
higher interest rates and wider credit spreads;
net realized and unrealized gains on equity securities of $55.0 million in 2019, compared to net unrealized
losses of $5.8 million in 2018, an increase of $60.8 million, primarily driven by a more favorable movement in
global equity markets in 2019 compared to the comparative period; and
net realized and unrealized gains on other investments of $441.6 million in 2019, compared to net realized
and unrealized losses of $164.0 million in 2018, representing a change of $605.6 million. The unrealized gains
in 2019 primarily comprised unrealized gains in our hedge funds, equity funds, fixed income funds and private
equity funds, principally driven by declining interest rates, tighter credit spreads, and a more favorable
movement in global equity markets in 2019. The unrealized losses in 2018 primarily comprised unrealized
losses in our equity funds, call options on equity, hedge funds, fixed income funds and CLO equities, partially
offset by unrealized gains on our private debt and private equities.
81
Table of Contents
Liquidity and Capital Resources
Overview
We aim to generate cash flows from our insurance operations and investments, preserve sufficient capital for
future acquisitions, and develop relationships with lenders who provide borrowing capacity at competitive rates.
Our capital resources as at December 31, 2019 included ordinary shareholders' equity of $4.3 billion, preferred
equity of $510.0 million, redeemable noncontrolling interest of $438.8 million classified as temporary equity, and debt
obligations of $1,191.2 million. The redeemable noncontrolling interest may be settled in the future in cash or our
ordinary shares, at our option. Based on our current loss reserves position, our portfolios of in-force insurance and
reinsurance business, and our investment positions, we believe we are well capitalized.
The following table details our capital position as of December 31, 2019 and 2018:
Ordinary shareholders' equity
Series D and E Preferred Shares
Total Enstar Group Limited Shareholders' Equity (A)
Noncontrolling interest
Total Shareholders' Equity (B)
Senior Notes
Revolving credit facility
Term loan facility
Total debt (C)
2019
2018
Change
(in thousands of U.S. dollars)
$
4,332,183
$
3,391,933
$
940,250
510,000
4,842,183
14,168
4,856,351
842,216
—
348,991
1,191,207
510,000
3,901,933
12,056
3,913,989
348,054
15,000
498,485
861,539
—
940,250
2,112
942,362
494,162
(15,000)
(149,494)
329,668
Redeemable noncontrolling interest (D)
438,791
458,543
(19,752)
Total capitalization = (B) + (C) + (D)
Total capitalization attributable to Enstar = (A) + (C)
$
$
6,486,349
6,033,390
$
$
5,234,071
4,763,472
$
$
1,252,278
1,269,918
Debt to total capitalization
Debt and Series D and E Preferred Shares to total
capitalization
Debt to total capitalization attributable to Enstar
Debt and Series D and E Preferred Shares to total
capitalization attributable to Enstar
18.4%
26.2%
19.7%
28.2%
16.5%
26.2%
18.1%
28.8%
1.9 %
— %
1.6 %
(0.6)%
As of December 31, 2019, we had $703.1 million of cash and cash equivalents, excluding restricted cash that
supports insurance operations, and included in this amount was $485.1 million held by our foreign subsidiaries outside
of Bermuda. Based on our group's current corporate structure with a Bermuda domiciled parent company and the
jurisdictions in which we operate, if the cash and cash equivalents held by our foreign subsidiaries were to be distributed
to us, as dividends or otherwise, such amount would not be subject to incremental income taxes, however in certain
circumstances withholding taxes may be imposed by some jurisdictions, including by the United States. Based on
existing tax laws, regulations and our current intentions, there were no accruals as of December 31, 2019 for any
material withholding taxes on dividends or other distributions, as described in Note 20 - "Income Taxation" in the notes
to our consolidated financial statements included within Item 8 of this Annual Report on Form 10-K.
82
Table of Contents
Dividends
Enstar has not historically declared a dividend on our ordinary shares. Our strategy is to retain earnings and
invest distributions from our subsidiaries back into the company. We do not currently expect to pay any dividends on
our ordinary shares.
On June 28, 2018, we issued 16,000 Series D Preferred Shares with an aggregate liquidation value of $400.0
million. On November 21, 2018, we issued 4,400 Series E Preferred Shares with an aggregate liquidation value of
$110.0 million. The dividends on the Series D and E Preferred Shares are non-cumulative and may be paid quarterly
in arrears on the first day of March, June, September and December of each year, only when, as and if declared.
The following table details the dividends that have been declared and paid on our Series D and E Preferred
Shares from January 1, 2019 to February 27, 2020:
Preferred
Share
Series
Series D
Series E
Series D
Series E
Series D
Series E
Series D
Series E
Series D
Series E
Dividend per:
Date
Declared
Record Date
Date Paid or
Payable
Preferred
Share
Depositary
Share
(in U.S. dollars)
Total dividends paid
and declared in the
year ended
December 31, 2019
(in thousands of U.S.
dollars)
February 21,
2019
February 15,
2019
February 21,
2019
February 15,
2019
May 3,
2019
May 3,
2019
August 5,
2019
August 5,
2019
May 15,
2019
May 15,
2019
August 15,
2019
August 15,
2019
March 1,
2019
March 1,
2019
June 1,
2019
June 1,
2019
September 3,
2019
September 3,
2019
November 5,
2019
November 15,
2019
December 2,
2019
November 5,
2019
November 15,
2019
December 2,
2019
February 4,
2020
February 4,
2020
February 15,
2020
February 15,
2020
March 2,
2020
March 2,
2020
$
$
$
$
$
$
$
$
$
$
437.50 $
0.43750 $
486.11 $
0.48611
437.50 $
0.43750
437.50 $
0.43750
437.50 $
0.43750
437.50 $
0.43750
437.50 $
0.43750
437.50 $
0.43750
437.50 $
0.43750
437.50 $
0.43750
7,000
2,139
7,000
1,925
7,000
1,925
7,000
1,925
—
—
Any payment of common or preferred dividends must be approved by our Board of Directors. Our ability to pay
common and preferred dividends is subject to certain restrictions, as described in Note 22 - "Dividend Restrictions
and Statutory Financial Information" in the notes to our consolidated financial statements included within Item 8 of this
Annual Report on Form 10-K.
$
35,914
83
Table of Contents
Sources and Uses of Cash
Holding Company Liquidity
The potential sources of cash flows to Enstar as a holding company consist of cash flows from our subsidiaries
including dividends, advances and loans, and interest income on loans to our subsidiaries. We also borrow from our
credit and loan facilities, and we have also issued senior notes and preferred shares.
We use cash to fund new acquisitions of companies and significant new business. We also utilize cash for our
operating expenses associated with being a public company and to pay interest and principal on loans from subsidiaries
and debt obligations, including loans under our credit facilities, our 4.50% senior notes due 2022 (the “2022 Senior
Notes”) and our 4.95% senior notes due 2029 (the "2029 Senior Notes” and, together with the 2022 Senior Notes, the
"Senior Notes").
Our holding company cash flows are summarized in "Item 8. Financial Statements and Supplementary Data -
Schedule II - Condensed Financial Information of Registrant - Statements of Cash Flows - Parent Company Only for
the years ended December 31, 2019, 2018 and 2017" and the notes thereto.
We may, from time to time, raise capital from the issuance of equity, debt or other securities as we continuously
evaluate our strategic opportunities. We filed an automatic shelf registration statement on October 10, 2017 with the
U.S. Securities and Exchange Commission ("SEC") to allow us to conduct future offerings of certain securities, if
desired, including debt, equity and other securities.
On March 26, 2019, we entered into a second supplemental indenture relating to our 2022 Senior Notes, which
limits our right to redeem the 2022 Senior Notes at our option, except in the circumstances set forth in the second
supplemental indenture. This change enabled the 2022 Senior Notes to qualify as Tier 3 capital under the eligible
capital rules of the Bermuda Monetary Authority. Because this amendment did not materially and adversely affect the
holders of or the coupons on the 2022 Senior Notes, entry into the second supplemental indenture did not require the
consent of the holders of the 2022 Senior Notes. The 2029 Senior Notes qualify as Tier 3 capital under the eligible
capital rules of the Bermuda Monetary Authority.
As we are a holding company and have no substantial operations of our own, our assets consist primarily of
investments in subsidiaries and our loans and advances to subsidiaries. Dividends from our insurance subsidiaries
are restricted by insurance regulation, as described below.
Operating Company Liquidity
The ability of our insurance and reinsurance subsidiaries to pay dividends and make other distributions is limited
by the applicable laws and regulations of the jurisdictions in which our insurance and reinsurance subsidiaries operate,
including Bermuda, the United Kingdom, the United States, Australia and Continental Europe, which subject these
subsidiaries to significant regulatory restrictions. These laws and regulations require, among other things, certain of
our insurance and reinsurance subsidiaries to maintain minimum capital resources requirements and limit the amount
of dividends and other payments that these subsidiaries can pay to us, which in turn may limit our ability to pay dividends
and make other payments. For more information on these laws and regulations, see "Item 1. Business - Regulation."
As of December 31, 2019, all of our insurance and reinsurance subsidiaries’ capital resources levels were in excess
of the minimum levels required. The ability of our subsidiaries to pay dividends is subject to certain restrictions, as
described in Note 22 - "Dividend Restrictions and Statutory Financial Information" in the notes to our consolidated
financial statements included within Item 8 of this Annual Report on Form 10-K. Our subsidiaries’ ability to pay dividends
and make other forms of distributions may also be limited by our repayment obligations under certain of our outstanding
loan facility agreements. Variability in ultimate loss payments may also result in increased liquidity requirements for
our subsidiaries. During 2019 and 2018, our regulated subsidiaries paid aggregate capital distributions and dividends
of $530.6 million and $243.0 million, respectively.
In the Non-life Run-off segment, sources of funds primarily consist of cash and investment portfolios acquired
on the completion of acquisitions and loss portfolio transfer reinsurance agreements. Cash balances acquired upon
our purchase of insurance or reinsurance companies are classified as cash provided by investing activities. Cash
acquired from loss portfolio transfer reinsurance agreements is classified as cash provided by operating activities. We
expect to use funds acquired from cash and investment portfolios, collected premiums, collections from reinsurance
debtors, fees and commission income, investment income and proceeds from sales and redemptions of investments
to meet expected claims payments and operational expenses with the remainder used for acquisitions and additional
investments. In the Non-life Run-off segment, we generally expect negative operating cash flows to be met by positive
investing cash flows. In 2019, cash provided by operating activities was positive as the proceeds from sales and
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maturities of trading securities exceeded cash used in the purchase of trading securities, with the net proceeds being
used in the purchase of available-for-sale securities included within investing cash flows.
In the Atrium and StarStone segments we expect a net provision of cash from operations as investment income
earned and collected premiums should generally be in excess of total net claim payments, losses incurred on earned
premiums and operating expenses.
Overall, we expect our cash flows, together with our existing capital base and cash and investments acquired
on the acquisition of insurance and reinsurance subsidiaries, to be sufficient to meet cash requirements and to operate
our business.
Cash Flows
The following table summarizes our consolidated cash flows, including those related to restricted cash, from
operating, investing and financing activities for the years ended December 31, 2019 and 2018:
Cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
2019
2018
Change
(in thousands of U.S. dollars)
$
1,763,516 $
(160,072) $
1,923,588
(1,983,537)
(825,754)
(1,157,783)
293,538
(324)
73,193
982,584
752,986
2,588
(230,252)
1,212,836
(459,448)
(2,912)
303,445
(230,252)
$
1,055,777 $
982,584 $
73,193
Details of our consolidated cash flows are included in "Item 8. Financial Statements and Supplementary Data -
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017."
2019 versus 2018: Cash and cash equivalents increased by $73.2 million in 2019 compared with a decrease
of $230.3 million during 2018.
Cash provided by operating activities was $1,763.5 million in 2019 compared cash used of $160.1 million in
2018. The positive operating cash flow in 2019 was predominantly driven by: (i) net proceeds from sales and maturities
of trading securities of $1,237.8 million in 2019 as we used the proceeds from maturing trading securities to purchase
available-for-sale securities compared to net cash used in the purchase of trading securities of $790.1 million in 2018;
and (ii) cash and restricted cash acquired in Non-life Run-off reinsurance transactions for the years ended December 31,
2019 and 2018 of $1,201.3 million and $652.0 million, respectively; partially offset by net paid losses in our Non-Life
Run-off segment for the years ended December 31, 2019 and 2018 of $1,247.6 million and $838.8 million, respectively.
Cash used in investing activities for 2019 primarily related to: (i) net purchases of available-for-sale securities
of $1,867.9 million; and (ii) net purchases of other investments of $214.3 million; partially offset by net cash acquired
as a result of acquisitions of $172.5 million. In 2018, cash used in investing activities of $825.8 million was primarily
due to net purchases of other investments of $464.7 million and cash used in acquisitions of $245.2 million.
Cash provided by financing activities for 2019 of $293.5 million primarily related to the net inflows of $327.9
million from loan obligations, notably the $500.0 million of Senior Notes issued, which were principally used to fund
new business and acquisitions, partially offset by dividends paid on preferred shares of $35.9 million. Cash provided
by financing activities for 2018 of $753.0 million primarily related to net proceeds of $495.4 million from the issuance
of the Series D and E Preferred Shares, net inflows of $218.2 million from our credit facilities, which were principally
used to fund new business and acquisitions, $55.4 million of inflows in respect of contributions by noncontrolling
interests, partially offset by dividends paid on preferred shares of $12.1 million and $3.9 million in dividends paid to
noncontrolling interests.
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Investable Assets
We define investable assets as the sum of total investments, cash and cash equivalents, restricted cash and
cash equivalents and funds held. Investable assets were $14.7 billion as of December 31, 2019 as compared to $12.5
billion as of December 31, 2018, an increase of 16.9%. The increase was primarily due to the investments and funds
held balance acquired in relation to the Morse TEC, Zurich, Maiden Re Bermuda, Amerisure and the AmTrust RITC
transactions.
For information regarding our investment strategy, portfolio and results, refer to "Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations - Investments".
Included within our investable assets we had funds held - directly managed as of December 31, 2019 and 2018,
of $1,187.6 million and $1,198.2 million, respectively. Our funds held - directly managed is carried on our consolidated
balance sheets at fair value. For further information regarding our funds held - directly managed, refer to Note 6 -
"Investments" in the notes to our consolidated financial statements included within Item 8 of this Annual Report on
Form 10-K.
In addition, as of December 31, 2019 and 2018, we had funds held by ceding companies of $408.7 million and
$321.3 million, respectively, which are carried at cost with a fixed crediting rate.
For information regarding credit risk, refer to "Item 7A. Quantitative and Qualitative Disclosures About Market
Risk - Credit Risk - Funds Held" of this Annual Report on Form 10-K.
Reinsurance Balances Recoverable on Paid and Unpaid Losses
As of December 31, 2019 and 2018, we had reinsurance balances recoverable on paid and unpaid losses of
$2,379.9 million and $2,029.7 million, respectively. The increase is primarily related to the AmTrust RITC transactions.
Our insurance and reinsurance run-off subsidiaries and portfolios, prior to acquisition, used retrocessional
agreements to reduce their exposure to the risk of insurance and reinsurance assumed. On an annual basis, both
Atrium and StarStone purchase a tailored outwards reinsurance program designed to manage their risk profiles. The
majority of Atrium’s and StarStone's third-party reinsurance cover is with highly rated reinsurers or is collateralized by
letters of credit.
We remain liable to the extent that retrocessionaires do not meet their obligations under these agreements, and
therefore, we evaluate and monitor concentration of credit risk among our reinsurers. Provisions are made for amounts
considered potentially uncollectible.
For further information regarding our reinsurance balances recoverable on paid and unpaid losses, refer to Note
8 - "Reinsurance Balances Recoverable on Paid and Unpaid Losses" in the notes to our consolidated financial
statements included within Item 8 of this Annual Report on Form 10-K.
Debt Obligations
We utilize debt financing and loan facilities primarily for acquisitions and significant new business, and, from
time to time, for general corporate purposes. For information regarding our debt arrangements, including our loan
covenants, refer to Note 15 - "Debt Obligations and Credit Facilities" in the notes to our consolidated financial statements
included within Item 8 of this Annual Report on Form 10-K. Our debt obligations as of December 31, 2019 and 2018
were $1,191.2 million and $861.5 million, respectively, as detailed in the below table:
Facility
4.50% Senior Notes due 2022
4.95% Senior Notes due 2029
Total Senior Notes
EGL Revolving Credit Facility
2018 EGL Term Loan Facility
Total debt obligations
Origination Date
Term
2019
2018
March 10, 2017
5 years
$
348,616 $
348,054
May 28, 2019
10 years
August 16, 2018
December 27, 2018
5 years
3 years
493,600
842,216
—
348,991
$
1,191,207 $
—
348,054
15,000
498,485
861,539
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On March 10, 2017, we issued the 2022 Senior Notes for an aggregate principal amount of $350.0 million. The
2022 Senior Notes pay 4.5% interest semi-annually and mature on March 10, 2022. The 2022 Senior Notes are
unsecured and unsubordinated obligations that rank equal to any of our other unsecured and unsubordinated
obligations, senior to any future obligations that are expressly subordinated to the 2022 Senior Notes, effectively
subordinated to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness,
and structurally subordinated to all liabilities of our subsidiaries.
On May 28, 2019, we issued the 2029 Senior Notes for an aggregate principal amount of $500.0 million. The
2029 Senior Notes pay 4.95% interest semi-annually and mature on June 1, 2029. The 2029 Senior Notes are unsecured
and unsubordinated obligations that rank equal to any of our other unsecured and unsubordinated obligations, senior
to any future obligations that are expressly subordinated to the 2029 Senior Notes, effectively subordinate to any of
our secured indebtedness to the extent of the value of the assets securing such indebtedness, and contractually
subordinate to all liabilities of our subsidiaries.
On August 16, 2018, we and certain of our subsidiaries, as borrowers and guarantors, entered into a new five-
year unsecured $600.0 million revolving credit agreement. The credit agreement expires in August 2023 and we have
the option to increase the commitments under the facility by up to an aggregate of $400.0 million, subject to the terms
of the agreement. Borrowings under the facility will bear interest at a rate based on the Company's long term senior
unsecured debt ratings. In connection with our entry into the credit agreement described above, we terminated and
fully repaid our previous revolving credit agreement. As of December 31, 2019, we were permitted to borrow up to an
aggregate of $600.0 million under the facility. As of December 31, 2019, there was $600.0 million of available unutilized
capacity under this facility. We are in compliance with the covenants of the facility. Subsequent to December 31, 2019,
we utilized $5.0 million and repaid $nil, bringing the unutilized capacity under this facility to $595.0 million.
On December 27, 2018, we entered into and fully utilized a three-year $500.0 million unsecured term loan (the
"2018 EGL Term Loan Facility"). Interest is payable at least every three months at the London Interbank Offered Rate
("LIBOR") or the alternate base rate ("ABR") plus a margin set forth in the agreement. In the event of default, the
interest rate may increase and the agent may, and at the request of the required lenders shall, cancel lender
commitments and demand early repayment. The proceeds were partially used to fund the acquisition of Maiden
Reinsurance North America, Inc. We repaid $50.0 million outstanding under the 2018 EGL Term Loan Facility using
some of the proceeds from the issuance of our 2029 Senior Notes in May 2019 and repaid an additional $100.0 million
in September 2019 using available funds on hand. There is $349.0 million outstanding on this loan, which includes
unamortized issuance costs of $1.0 million as of December 31, 2019.
Financial and business covenants imposed on us, in relation to our revolving credit facility and our term loan
credit facility include certain limitations on mergers and consolidations, acquisitions, indebtedness and guarantees,
restrictions as to dispositions of stock and assets, and limitations on liens. Generally, the financial covenants require
us to maintain a gearing ratio of consolidated indebtedness to total capitalization of not greater than 0.35 to 1.0 and
to maintain a consolidated net worth of not less than the aggregate of (i) $2.3 billion, (ii) 50% of net income available
for distribution to the Company's ordinary shareholders at any time after August 16, 2018, and (iii) 50% of the proceeds
of any common stock issuance made after August 16, 2018. In addition, we must maintain eligible capital in excess
of the enhanced capital requirement imposed on us by the Bermuda Monetary Authority pursuant to the Insurance
(Group Supervision) Rules 2011 of Bermuda. We are in compliance with these covenants.
Unsecured Letters of Credit
We utilize unsecured letters of credit to support our insurance and reinsurance performance obligations.
Funds at Lloyd's
We have an unsecured letter of credit agreement for Funds at Lloyd's ("FAL Facility") to issue up to $375.0 million
of letters of credit, with provision to increase the facility by an additional $25.0 million up to an aggregate amount of
$400.0 million, subject to lenders approval. On November 6, 2019, we amended and restated the FAL Facility to extend
its term by one year. The FAL Facility is available to satisfy our Funds at Lloyd's requirements and expires in 2022. As
of December 31, 2019, our combined Funds at Lloyd's were comprised of cash and investments of $639.3 million and
unsecured letters of credit of $252.0 million.
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$120.0 million Letter of Credit Facility
We use this facility to support certain reinsurance collateral obligations of our subsidiaries. On December 6,
2019, we reduced the facility size from $170.0 million to $120.0 million. Pursuant to the facility agreement, we have
the option to increase commitments under the facility by an additional $60.0 million. As of December 31, 2019 and
December 31, 2018, we had issued an aggregate amount of letters of credit under this facility of $115.3 million and
$78.4 million, respectively.
$760.0 million Letter of Credit Facility
During 2019, we entered into an unsecured $760.0 million letter of credit facility agreement, most recently
amended on December 9, 2019. We may increase the commitments by an aggregate amount of $40.0 million. The
facility is used to post letters of credit to collateralize reinsurance performance obligations to various parties, including
$445.0 million relating to the reinsurance transaction with Maiden Re Bermuda, as described in Note 4 - "Significant
New Business". As of December 31, 2019, we had issued an aggregate amount of letters of credit under this facility
of $608.0 million.
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Contractual Obligations
The following table summarizes, as of December 31, 2019, our future payments under contractual obligations
and estimated payments for losses and LAE and policy benefits by expected payment date. The table excludes short-
term liabilities and includes only obligations that are expected to be settled in cash.
Total
Less than
1 Year
1 - 3
years
3 - 5
years
6 - 10
years
More than
10 Years
(in millions of U.S. dollars)
Operating Activities
Estimated gross reserves for losses and
LAE (1)
Asbestos
Environmental
General Casualty
Workers' compensation/personal
accident
Marine, aviation and transit
Construction defect
Professional indemnity/ Directors &
Officers
Motor
Property
Other
$ 1,916.4 $
343.3
991.0
2,248.3
411.6
128.1
959.3
714.5
204.2
435.8
166.5 $
287.4 $
237.0 $
377.6 $
38.5
215.7
189.7
125.7
35.3
236.2
197.5
83.9
114.1
66.2
263.1
305.5
130.0
46.5
300.5
190.8
68.7
93.1
53.0
199.6
356.6
60.1
22.8
75.5
195.3
502.7
51.6
13.9
156.2
145.0
88.3
25.3
57.4
88.5
16.0
71.0
847.9
110.1
117.3
893.8
44.2
9.6
121.4
149.4
10.3
100.2
Total Non-Life Run-off
8,352.5
1,403.1
1,751.8
1,256.3
1,537.1
2,404.2
Atrium
StarStone
Other
ULAE
225.7
1,851.1
23.1
362.3
88.7
644.4
3.4
64.1
82.0
664.2
9.3
81.3
33.1
273.9
4.2
51.9
18.3
191.7
4.2
62.4
3.6
76.9
2.0
102.6
Estimated gross reserves for losses and
LAE (1)
10,814.7
2,203.7
2,588.6
1,619.4
1,813.7
2,589.3
Operating lease obligations
105.6
29.3
47.9
13.6
12.7
2.1
Investing Activities
Investment commitments to private
equity funds, CLO equity funds and real
estate debt fund
Investment commitments to equity
method investments
Financing Activities
Loan repayments (including estimated
interest payments)
Total
482.3
185.8
155.0
141.5
93.1
93.1
—
—
—
—
—
—
1,505.8
—
$13,001.5 $ 2,566.7 $ 3,580.7 $ 1,825.0 $ 2,437.7 $ 2,591.4
789.2
611.3
54.8
50.5
(1) The reserves for losses and LAE represent management’s estimate of the ultimate cost of settling losses. The estimation of losses is based on
various complex and subjective judgments. Actual losses paid may differ, perhaps significantly, from the reserve estimates reflected in our financial
statements. Similarly, the timing of payment of our estimated losses is not fixed and there may be significant changes in actual payment activity.
The assumptions used in estimating the likely payments due by period are based on our historical claims payment experience and industry
payment patterns, but due to the inherent uncertainty in the process of estimating the timing of such payments, there is a risk that the amounts
paid in any such period can be significantly different from the amounts disclosed above. The amounts in the above table represent our estimates
of known liabilities as of December 31, 2019 and do not take into account corresponding reinsurance recoverable amounts that would be due to
us. Furthermore, certain of the reserves included in the audited consolidated financial statements as of December 31, 2019 were acquired by
us and initially recorded at fair value with subsequent amortization, whereas the expected payments by period in the table above are the estimated
payments at a future time and do not reflect the fair value adjustment in the amount payable.
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In addition to the contractual obligations in the table above, we also have the right to purchase the redeemable
noncontrolling interests ("RNCI") from the RNCI holders at certain times in the future (each such right, a "call right")
and the RNCI holders have the right to sell their RNCI interests to us at certain times in the future (each such right, a
"put right"). The RNCI rights are described in Note 21 - "Related Party Transactions" in the notes to our consolidated
financial statements included within Item 8 of this Annual Report on Form 10-K.
For information relating to our commitments and contingencies, see Note 23 - "Commitments and Contingencies"
in the notes to our consolidated financial statements included within Item 8 of this Annual Report on Form 10-K. For
information relating to our defendant asbestos and environmental liabilities, see Note 11 - "Defendant Asbestos and
Environmental Liabilities" in the notes to our consolidated financial statements included within Item 8 of this Annual
Report on Form 10-K.
Off-Balance Sheet Arrangements
At December 31, 2019, we did not have any off-balance sheet arrangements, as defined by Item 303(a) (4) of
Regulation S-K.
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Critical Accounting Policies
We believe the following accounting policies impact the most significant judgments and estimates used in the
preparation of our financial statements.
Losses and Loss Adjustment Expenses
Non-Life Run-off
The following tables provide a breakdown of gross and net losses and LAE reserves, consisting of Outstanding
Loss Reserve ("OLR") and IBNR by line of business and adjustments for fair value resulting from business combinations,
adjustments for where we elected the fair value option, deferred charge assets and ULAE, as of December 31, 2019
and 2018:
Workers' compensation/personal accident
1,270,530
977,808
2,248,338
Asbestos
Environmental
General casualty
Marine, aviation and transit
Construction defect
Professional indemnity/Directors & Officers
Motor
Property
Other
Fair value adjustments
Fair value adjustments - fair value option
Deferred charge assets on retroactive
reinsurance
ULAE
Total
Asbestos
Environmental
General casualty
Workers' compensation/personal accident
Marine, aviation and transit
Construction defect
Professional indemnity/Directors & Officers
Motor
Property
Other
Fair value adjustments
Fair value adjustments - fair value option
Deferred charge assets on retroactive
reinsurance
ULAE
Total
OLR
Gross
IBNR
2019
Total
OLR
(in thousands of U.S. dollars)
Net
IBNR
Total
$
542,681
$ 1,373,678
$ 1,916,359
$
490,117
$ 1,271,982
$ 1,762,099
187,165
501,863
156,121
489,129
343,286
990,992
290,067
29,772
693,760
480,668
140,620
269,956
121,577
98,312
265,490
233,806
63,604
165,882
411,644
128,084
959,250
714,474
204,224
435,838
173,878
399,396
963,578
244,611
29,245
485,478
317,829
122,010
208,647
142,351
421,426
751,074
100,135
94,888
170,926
165,543
56,450
97,573
316,229
820,822
1,714,652
344,746
124,133
656,404
483,372
178,460
306,220
$
4,407,082
$ 3,945,407
$ 8,352,489
$ 3,434,789
$ 3,272,348
$ 6,707,137
(170,689)
(217,933)
—
331,494
$ 8,295,361
2018
(157,036)
(129,848)
(272,462)
331,494
$ 6,479,285
OLR
Gross
IBNR
Total
OLR
(in thousands of U.S. dollars)
Net
IBNR
Total
$
341,544
$ 1,275,476
$ 1,617,020
$
321,356
$ 1,171,754
$ 1,493,110
96,665
500,033
1,454,178
301,783
20,712
603,665
564,307
168,267
220,615
126,035
379,484
832,615
72,888
99,288
216,839
321,992
37,631
165,519
222,700
879,517
93,095
416,097
2,286,793
1,115,116
374,671
120,000
820,504
886,299
205,898
386,134
227,994
19,310
426,020
414,847
160,873
175,289
117,384
298,612
537,782
78,023
94,736
166,898
304,874
36,817
111,453
210,479
714,709
1,652,898
306,017
114,046
592,918
719,721
197,690
286,742
$
4,271,769
$ 3,527,767
$ 7,799,536
$ 3,369,997
$ 2,918,333
$ 6,288,330
(217,527)
(374,752)
—
333,405
$ 7,540,662
91
(203,183)
(244,013)
(86,585)
333,405
$ 6,087,954
Table of Contents
As of December 31, 2019 and 2018, the IBNR reserves (net of reinsurance balances receivable) accounted for
$3,272.3 million, or 48.8%, and $2,918.3 million, or 46.4%, respectively, of our total Non-life Run-off net losses and
LAE, excluding the fair value adjustments, deferred charge assets and ULAE.
Our primary objective in running off the operations of acquired companies and portfolios of insurance and
reinsurance business in run-off is to increase book value by settling loss reserves below their acquired fair value. The
earnings created in each acquired company or portfolio of insurance and reinsurance business, together with the
related decrease in loss reserves, lead to a reduction in the capital required for each company, thereby providing the
ability to distribute both earnings and excess capital to the parent company.
•
•
To the extent that the nature of the acquired loss reserves are conducive to commutation, our aim is to settle
the majority of the acquired loss reserves within a time frame of approximately five to seven years from the
date of acquisition.
To the extent that acquired reserves are not conducive to commutation, we will instead adopt a disciplined
claims management approach to pay only valid claims on a timely basis and endeavor to reduce the level of
acquired LAE provisions by streamlining claims handling procedures.
By adopting either of the above run-off strategies, we would expect that over the targeted life of the run-off,
acquired ultimate loss reserves would settle below their acquired value, resulting in reductions in ultimate losses and
LAE liabilities. There can be no assurance, however, that we will successfully implement our strategy.
Commutations of blocks of policies, along with disciplined claims management, have the potential to produce
favorable claims development compared to established reserves. For each newly-acquired company, we determine
a commutation strategy that broadly identifies commutation targets using the following criteria:
•
•
•
•
•
previous commutations completed by existing portfolio companies with policyholders of the newly-acquired
company;
nature of liabilities;
size of incurred loss reserves;
recent loss development history; and
targets for claims audits.
Once commutation targets are identified, they are prioritized into target years of completion. At the beginning of
each year, the approach to commutation negotiations is determined by the commutation team, including claims and
exposure analysis and broker account reconciliations. On completion of this analysis, settlement parameters are set
around incurred liabilities. Commutation discussions can take many months or even years to come to fruition.
Commutation targets not completed in a particular year are re-prioritized for the following year.
Every commutation, irrespective of value, requires the approval of our senior management. The impact of the
commutation activity on the IBNR reserve is reflected as part of our annual actuarial reviews of reserves. However, if
a significant commutation is completed during the year, loss reserves will be adjusted in the corresponding quarter to
reflect management’s then best estimate of the impact on remaining IBNR reserves.
Commutations provide an opportunity for us to exit exposures to entire policies with insureds and reinsureds for
an agreed upon payment, or payments, often at a discount to the previously estimated ultimate liability. As a result of
exiting all exposures to such policies, all advised case reserves and IBNR reserves relating to the insured or reinsured
are eliminated. A commutation is recognized upon the execution of a commutation release agreement. Following
completion of a commutation, all the related balances, including insurance and reinsurance balances payable and/or
receivable, funds held by ceding companies, and losses and LAE (including fair value adjustments and estimated
IBNR), are written off with corresponding gain or loss recorded in the net reduction of ultimate losses. A commutation
may result in a net gain irrespective of whether the settlement exceeds the advised case reserves. Advised case
reserves are those reserve estimates for a specific loss or losses reported by either the broker or insured or reinsured.
IBNR reserves are established at a class of business level. A commutation settlement is a negotiated settlement
of both the advised case reserves and an estimate of the IBNR reserves that relate to the policies being commuted.
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For latent exposures with a long reporting tail, the estimated level of IBNR reserves may be significantly higher
than the advised case reserves. In such an instance, the commutation settlement of a block of such policies may be
greater than the advised case reserves but less than the aggregate of the advised case reserves plus the estimated
related IBNR reserves, resulting in a total saving on the remaining liability.
On a quarterly basis, we adjust our estimates of ultimate loss and LAE liabilities in the quarter that any significant
commutation is concluded. The agreed commutation settlement is recorded in net losses paid.
To the extent that commuted policies are protected by reinsurance, then we will, on completion of a commutation
with an insured or reinsured, negotiate with the reinsurers to contribute their share of the commutation settlement. Any
amounts received from such reinsurers will be recorded in net losses paid and the impact of any savings or loss on
reinsurance recoverable on unpaid losses will be included in the actuarial reassessment of net ultimate liabilities.
Annual Losses and Loss Adjustment Reviews
Because a significant amount of time can lapse between the assumption of risk, the occurrence of a loss event,
the reporting of the event to an insurance or reinsurance company and the ultimate payment of the claim on the loss
event, the liability for unpaid losses and LAE is based largely upon estimates. On a quarterly basis, our management
must use considerable judgment in the process of developing these estimates. Management reviews the actual loss
development in the quarter and receives input from the actuarial, claims and legal staff on the drivers of any favorable
or unfavorable loss emergence. The liability for unpaid losses and LAE for property and casualty business includes
amounts determined from loss reports on individual cases and amounts for IBNR reserves.
Loss advices or reports from ceding companies are generally provided via the placing broker and comprise
treaty statements, individual claims files, electronic messages and large loss advices or cash calls.
•
•
•
Large loss advices and cash calls are provided to us as soon as practicable after an individual loss or claim
is made or settled by the insured.
The remaining broker advices are issued monthly, quarterly or annually depending on the provisions of the
individual policies or the ceding company’s practice.
For certain direct insurance policies where the claims are managed by Third Party Administrators (TPAs) and
Managing General Agents (MGAs), loss bordereaux are received either monthly or quarterly depending on
the arrangement with the TPA and MGA. Loss advices for direct insurance policies may be received from the
broker, agent or directly from the insured.
Where we provide reinsurance or retrocession reinsurance protection, the process of claims advice from the
direct insurer to the reinsurers and/or retrocessionaires naturally involves more levels of communication, which
inevitably creates delays or lags in the receipt of loss advice by the reinsurers/retrocessionaires relative to the date of
first advice to the direct insurer. Certain types of exposure, typically latent health exposures such as asbestos-related
claims, have inherently long reporting delays, in some cases many years, from the date a loss occurred to the
manifestation and reporting of a claim and ultimately until the final settlement of the claim.
An industry-wide weakness in cedant reporting affects the adequacy and accuracy of reserving for advised
claims. We attempt to mitigate this inherent weakness as follows:
• We closely monitor cedant loss reporting and, for those cedants identified as providing inadequate, untimely
or unusual reporting of losses, we conduct, in accordance with the provisions of the insurance and reinsurance
contracts, detailed claims audits at the insured’s or reinsured’s premises. Such claims audits have the benefit
of validating advised claims, determining whether the cedant’s loss reserving practices and reporting are
adequate and identifying potential loss reserving issues of which our actuaries need to be made aware. Any
required adjustments to advised claims reserves reported by cedants identified during the claims audits will
be recorded as an adjustment to the advised case reserve.
• Onsite claims audits are often supplemented by further reviews by our internal and external legal advisors
to determine the reasonableness of advised case reserves and, if considered necessary, an adjustment to
the reported case reserve will be recorded.
• Our actuaries project expected paid and incurred loss development for each class of business, which is
monitored on a quarterly basis. Should actual paid and incurred development differ significantly from the
expected paid and incurred development, we will investigate the cause and, in conjunction with our actuaries,
consider whether any adjustment to total loss reserves is required.
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• Our actuaries consider the quality of ceding company data as part of their ongoing evaluation of the liability
for ultimate losses and LAE, and the methodologies they select for estimating ultimate losses inherently
compensate for potential weaknesses in this data, including weaknesses in loss reports provided by cedants.
We strive to apply the highest standards of discipline and professionalism to our claims adjusting, processing
and settlement, and disputes with cedants are rare. However, we are from time to time involved in various disputes
and legal proceedings in the ordinary course of our claims adjusting process. We are often involved in disputes
commenced by other co-insurers who act in unison with any litigation or dispute resolution controlled by the lead
underwriter. Coverage disputes arise when the insured/reinsured and insurer/reinsurer cannot reach agreement as to
the interpretation of the policy and/or application of the policy to a claim. Most insurance and reinsurance policies
contain dispute resolution clauses requiring arbitration or mediation. In the absence of a contractual dispute resolution
process, civil litigation would be commenced. We aim to reach a commercially acceptable resolution to any dispute,
using arbitration or litigation as a last resort. We regularly monitor and provide internal reports on disputes involving
arbitration and litigation and engage external legal counsel to provide professional advice and assist with case
management.
In establishing reserves, management includes amounts for IBNR reserves using information from the actuarial
estimates of ultimate losses. We use generally accepted actuarial methodologies to estimate ultimate losses and LAE
and those estimates are reviewed by our management. On an annual basis, independent actuarial firms are retained
by management to provide their estimates of ultimate losses and to review the estimates developed by our actuaries.
Nearly all of our unpaid claims liabilities are considered to have a long claims payout tail. Net loss reserves,
excluding the fair value adjustments, deferred charge assets and ULAE, for our non-life run-off subsidiaries relate
primarily to casualty exposures, including latent claims, of which 31.0% in 2019 (2018: 27.1%) relate to asbestos and
environmental ("A&E") exposures.
Within the annual loss reserve studies produced by either our actuaries or independent actuaries, exposures
for each subsidiary are separated into homogeneous reserving categories for the purpose of estimating IBNR. Each
reserving category contains either direct insurance or assumed reinsurance reserves and groups relatively similar
types of risks and exposures (for example, asbestos, environmental, casualty, property) and lines of business written
(for example, marine, aviation, non-marine). Based on the exposure characteristics and the nature of available data
for each individual reserving category, a number of methodologies are applied. Recorded reserves for each category
are selected from the actuarial indications produced by the various methodologies after consideration of exposure
characteristics, data limitations and strengths and weaknesses of each method applied. This approach to estimating
IBNR has been consistently adopted in the annual loss reserve studies for each period presented.
Our management, through the loss reserving committees, considers the reasonableness of loss reserves
recommended by our actuaries, including actual loss development during the year, using the following reports produced
internally on a quarterly basis for each of our insurance and reinsurance subsidiaries:
• Gross, ceded and net incurred loss report - This report provides, for each reporting period, the total (including
commuted policies) gross, ceded and net incurred loss development for each company and a commentary
on each company’s loss development. The report highlights the causes of any unusual or significant loss
development activity (including commutations).
•
•
•
Actual versus expected gross incurred loss development schedule - This schedule provides a summary,
and commentary thereon, of each company’s (excluding companies or portfolios of business acquired in
the current year) non-commuted incurred gross losses compared to the estimate of the development of non-
commuted incurred gross losses provided by our actuaries at the beginning of the year as part of the prior
year’s reserving process.
Commutations summary schedule - This schedule summarizes all commutations completed during the year
for all companies, and identifies the policyholder with which we commuted, the incurred losses settled by
the commutation (comprising outstanding unpaid losses and case reserves) and the amount of the
commutation settlement.
Analysis of paid, incurred and ultimate losses - This analysis for each company, and in the aggregate,
provides a summary of the gross, ceded and net paid and incurred losses and the impact of applying our
actuaries’ recommended loss reserves. This report, reviewed in conjunction with the previous reports,
provides an analytical tool to review each company’s incurred loss or gain and reduction in IBNR reserves
to assess whether the ultimate reduction in loss reserves appears reasonable in light of known developments
within each company.
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The above reports provide management with the relevant information to determine whether loss development
(including commutations) during the year has, for each company, been sufficiently meaningful so as to warrant an
adjustment to the reserves recommended by our actuaries in the most recent actuarial study.
When establishing loss reserves we have an expectation that, in the absence of commutations and significant
favorable or unfavorable non-commuted loss development compared to expectations, loss reserves will not exceed
the high, or be less than the low, end of the following ranges of gross losses and LAE reserves implied by the various
methodologies used by each of our insurance subsidiaries as of December 31, 2019.
The range of gross loss and LAE reserves implied by the various methodologies used by each of our insurance
and reinsurance subsidiaries as of December 31, 2019 and December 31, 2018 is presented in the following table
("Range of Outcomes"):
Asbestos
Environmental
General casualty
2019
2018
Low
Selected
High
Low
Selected
High
(in thousands of U.S. dollars)
$ 1,639,077 $ 1,916,359 $ 2,447,051 $ 1,384,890 $ 1,617,020 $ 1,931,409
296,253
875,288
343,286
413,991
990,992
1,116,946
184,749
803,851
222,700
879,517
267,159
976,457
Workers' compensation/personal accident
1,983,940
2,248,338
2,555,782
2,063,005
2,286,793
2,577,116
Marine, aviation and transit
Construction defect
Professional indemnity/Directors &
Officers
Motor
Property
Other
368,090
112,549
876,445
633,338
184,028
380,793
411,644
128,084
480,875
145,253
959,250
1,062,111
714,474
204,224
435,838
800,217
226,688
520,909
338,318
107,126
758,021
806,731
192,869
346,674
374,671
120,000
820,504
886,299
205,898
386,134
419,911
139,129
910,718
951,734
225,013
428,904
7,349,801
8,352,489
9,769,823
6,986,234
7,799,536
8,827,550
Fair value adjustments
(147,158)
(170,689)
(194,310)
(198,969)
(217,527)
(239,227)
Fair value adjustments - fair value option
(190,549)
(217,933)
(265,609)
(329,874)
(374,752)
(420,609)
ULAE
Total
291,696
331,494
385,762
296,704
333,405
373,360
$ 7,303,790 $ 8,295,361 $ 9,695,666 $ 6,754,095 $ 7,540,662 $ 8,541,074
Quarterly Reserve Reviews
In addition to an in-depth annual review, we also perform quarterly reserve reviews. This is done by examining
quarterly paid and incurred loss development to determine whether it is consistent with reserves established during
the preceding annual reserve review and with expected development. Loss development is reviewed separately for
each major exposure type (e.g., asbestos, environmental, etc.), for each of our relevant subsidiaries, and for large
"wholesale" commutation settlements versus "routine" paid and advised losses. This process is undertaken to determine
whether loss development experience during a quarter warrants any change to held reserves.
Loss development is examined separately by exposure type because different exposures develop differently
over time. For example, the expected reporting and payout of losses for a given amount of asbestos reserves can be
expected to take place over a different time frame and in a different quarterly pattern from the same amount of
environmental reserves.
In addition, loss development is examined separately for each of our relevant subsidiaries. Companies can differ
in their exposure profile due to the mix of insurance versus reinsurance, the mix of primary versus excess insurance,
the underwriting years of participation and other criteria. These differing profiles lead to different expectations for
quarterly and annual loss development by company.
Our quarterly paid and incurred loss development is often driven by large, wholesale settlements - such as
commutations and policy buy-backs - which settle many individual claims in a single transaction. This allows for
monitoring of the potential profitability of large settlements, which, in turn, can provide information about the adequacy
of reserves on remaining exposures that have not yet been settled.
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•
•
For example, if it were found that large settlements were consistently leading to large negative, or favorable,
incurred losses upon settlement, it might be an indication that reserves on remaining exposures are redundant.
Conversely, if it were found that large settlements were consistently leading to large positive, or adverse,
incurred losses upon settlement, it might be an indication—particularly if the size of the losses were increasing
—that certain loss reserves on remaining exposures are deficient.
Moreover, removing the loss development resulting from large settlements allows for a review of loss development
related only to those contracts that remain exposed to losses. Were this not done, it is possible that savings on large
wholesale settlements could mask significant underlying development on remaining exposures.
Once the data has been analyzed as described above, an in-depth review is performed on classes of exposure
with significant loss development. Discussions are held with appropriate personnel, including individual company
managers, claims handlers and attorneys, to better understand the causes. If it were determined that development
differs significantly from expectations, reserves would be adjusted.
As described above, our management regularly reviews and updates reserve estimates using the most current
information available and employing various actuarial methods. Adjustments resulting from changes in our estimates
are recorded in the period when such adjustments are determined. The ultimate liability for losses and LAE is likely
to differ from the original estimate due to a number of factors, primarily consisting of the overall claims activity occurring
during any period, including the completion of commutations of assumed liabilities and ceded reinsurance receivables,
policy buy-backs and general incurred claims activity.
Loss Reserving (All Classes, except Latent Claims)
For our "All Other" (non-latent) loss exposure, including workers' compensation, our actuaries apply a range of
traditional loss development extrapolation techniques. These methods assume that cohorts, or groups, of losses from
similar exposures will increase over time in a predictable manner. Historical paid, incurred, and outstanding loss
development experience is examined for earlier years to make inferences about how later years’ losses will develop.
The application and consideration of multiple methods is consistent with the Actuarial Standards of Practice.
When determining which loss development extrapolation methods to apply to each company and each class of
exposure within each company, we consider the nature of the exposure for each specific subsidiary and reserving
segment and the available loss development data, as well as the limitations of that data. In cases where company-
specific loss development information is not available or reliable, we select methods that do not rely on historical data
(such as incremental or run-off methods) and consider industry loss development information published by industry
sources such as the Reinsurance Association of America. In determining which methods to apply, we also consider
cause of loss coding information when available.
A brief summary of the methods that are considered most frequently in analyzing non-latent exposures is provided
below. This summary discusses the strengths and weaknesses of each method, as well as the data requirements for
each method, all of which are considered when selecting which methods to apply for each reserve segment.
1. Cumulative Reported and Paid Loss Development Methods. The Cumulative Reported (Case Incurred)
Loss Development method relies on the assumption that, at any given state of maturity, ultimate losses can be predicted
by multiplying cumulative reported losses (paid losses plus case reserves) by a cumulative development factor. The
validity of the results of this method depends on the stability of claim reporting and settlement rates, as well as the
consistency of case reserve levels. Case reserves do not have to be adequately stated for this method to be effective;
they only need to have a fairly consistent level of adequacy at all stages of maturity. Historical "age-to-age" loss
development factors ('LDFs') are calculated to measure the relative development of an accident year from one maturity
point to the next. Age-to-age LDFs are then selected based on these historical factors. The selected age-to-age LDFs
are used to project the ultimate losses. The Cumulative Paid Loss Development Method is mechanically identical to
the Cumulative Reported Loss Development Method described above, but the paid method does not rely on case
reserves or claim reporting patterns in making projections. The validity of the results from using a cumulative loss
development approach can be affected by many conditions, such as internal claim department processing changes,
a shift between single and multiple payments per claim, legal changes, or variations in a company’s mix of business
from year to year. Typically, the most appropriate circumstances in which to apply a cumulative loss development
method are those in which the exposure is mature, full loss development data is available, and the historical observed
loss development is relatively stable.
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2. Incremental Reported and Paid Loss Development Methods. Incremental incurred and paid analyses are
performed in cases where cumulative data is not available. The concept of the incremental loss development methods
is similar to the cumulative loss development methods described above, in that the pattern of historical paid or incurred
losses is used to project the remaining future development. The difference between the cumulative and incremental
methods is that the incremental methods rely on only incremental incurred or paid loss data from a given point in time
forward, and do not require full loss history. These incremental loss development methods are therefore helpful when
data limitations apply. While this versatility in the incremental methods is a strength, the methods are sensitive to
fluctuations in loss development, so care must be taken in applying them.
3. IBNR-to-Case Outstanding Method. This method requires the estimation of consistent cumulative paid and
reported (case) incurred loss development patterns and age-to-ultimate LDFs, either from data that is specific to the
segment being analyzed or from applicable benchmark or industry data. These patterns imply a specific expected
relationship between IBNR, including both development on known claims (bulk reserve) and losses on true late reported
claims, and reported case incurred losses. The IBNR-to-Case Outstanding method can be used in a variety of situations.
It is appropriate for loss development experience that is mature and possesses a very high ratio of paid losses to
reported case incurred losses. The method also permits an evaluation of the difference in maturity between the business
being reviewed and benchmark development patterns. Depending on the relationship of paid to incurred losses, an
estimate of the relative maturity of the business being reviewed can be made and a subsequent estimate of ultimate
losses driven by the implied IBNR to case outstanding ratio at the appropriate maturity can be made. This method is
also useful where loss development data is incomplete and only the case outstanding amounts are determined to be
reliable. This method is less reliable in situations where relative case reserve adequacy has been changing over time.
4. Bornhuetter-Ferguson Expected Loss Projection Reported and Paid Methods. The Bornhuetter-Ferguson
Expected Loss Projection Method based on reported loss data relies on the assumption that remaining unreported
losses are a function of the total expected losses rather than a function of currently reported losses. The expected
losses used in this analysis are based on initial selected ultimate loss ratios by year. The expected losses are multiplied
by the unreported percentage to produce expected unreported losses. The unreported percentage is calculated as
one minus the reciprocal of the selected cumulative incurred LDFs. Finally, the expected unreported losses are added
to the current reported losses to produce ultimate losses. The calculations underlying the Bornhuetter-Ferguson
Expected Loss Projection Method based on paid loss data are similar to the Bornhuetter-Ferguson calculations based
on reported losses, with the exception that paid losses and unpaid percentages replace reported losses and unreported
percentages. The Bornhuetter-Ferguson method is most useful as an alternative to other models for immature years.
For these immature years, the amounts reported or paid may be small and unstable and therefore not predictive of
future development. Therefore, future development is assumed to follow an expected pattern that is supported by more
stable historical data or by emerging trends. This method is also useful when changing reporting patterns or payment
patterns distort historical development of losses. Similar to the loss development methods, the Bornhuetter-Ferguson
method may be applied to loss and ALAE on a combined or separate basis. The Bornhuetter-Ferguson method may
not be appropriate in circumstances where the liabilities being analyzed are very mature, as it is not sensitive to the
remaining amount of case reserves outstanding, or the actual development to date.
5. Reserve Run-off Method. This method first projects the future values of case reserves for all underwriting
years to future ages of development. This is done by selecting a run-off pattern of case reserves. The selected case
run-off ratios are chosen based on the observed run-off ratios at each age of development. Once the ratios have been
selected, they are used to project the future values of case reserves. A paid on reserve factor is selected in a similar
way. The ratios of the observed amounts paid during each development period to the respective case reserves at the
beginning of the periods are used to estimate how much will be paid on the case reserves during each development
period. These paid on reserve factors are then applied to the case reserve amounts that were projected during the
first phase of this method. A summation of the resulting paid amounts yields an estimate of the liability. The Reserve
Run-off Method works well when the historical run-off patterns are reasonably stable and when case reserves ultimately
show a decreasing trend. Another strength of this method is that it only requires case reserves at a given point in time
and incremental paid and incurred losses after that point, meaning that it can be applied in cases where full loss history
is not available. In cases of volatile data where there is a persistent increasing trend in case reserves, this method will
fail to produce a reasonable estimate. In several cases, reliance upon this method was limited due to this weakness.
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Our actuaries select the appropriate loss development extrapolation methods to apply to each company and
each class of exposure, and then apply these methods to calculate an estimate of ultimate losses. Our management,
which is responsible for the final estimate of ultimate losses, reviews the calculations of our actuaries, considers
whether the appropriate method was applied, and adjusts the estimate of ultimate losses as it deems necessary.
Historically, we have not deviated from the recommendations of our actuaries. Paid-to-date losses are then deducted
from the estimate of ultimate losses to arrive at an estimated total loss reserve, and reported outstanding case reserves
are then deducted from estimated total loss reserves to calculate the estimated IBNR reserve.
Loss Reserving (Latent Claims)
Asbestos Claims
Asbestos continues to be the most significant and difficult mass tort for the insurance industry in terms of claims
volume, legal expense and indemnity payments. In the United States, asbestos-related lawsuits emerged in the early
1970s, accelerated through the 1980s and continue today, nearly fifty years after the first significant lawsuit against
an asbestos manufacturer. A unique feature of U.S. asbestos litigation is that a plaintiff will identify numerous defendants,
often over 50, in a lawsuit, creating additional expense to defend the suit. Asbestos lawsuits have led to many of the
traditional defendants filing for bankruptcy. We believe the insurance industry has been adversely affected by judicial
interpretations that have had the effect of maximizing insurance recoveries from both a coverage and liability
perspective.
A number of our subsidiaries, and counterparties who wrote portfolios we assumed, have exposure to bodily
injury claims from alleged exposure to asbestos. The United States asbestos exposure arises mainly from general
liability insurance policies underwritten prior to 1986, which our subsidiaries or counterparties either wrote directly, on
a primary or excess basis, or as reinsurance. Our United Kingdom asbestos exposures emanates from Employers
Liability insurance policies. Asbestos bodily injury claims differ from other bodily injury claims due to the long latency
period for asbestos, which often triggers a policyholder’s coverage over multiple policy periods. The long latency period,
combined with the lack of clear judicial precedent with respect to coverage interpretations and expanded theories of
liability, increase the uncertainty of the asbestos claim reserve estimates.
The following table provides a reconciliation of our gross and net loss and ALAE reserves from asbestos
exposures and the movement in gross and net reserves for the years ended December 31, 2019 and 2018:
Balance as at January 1
Less: reinsurance reserves recoverable
Net balance as at January 1
Total net incurred losses and LAE
Total net paid losses
Effect of exchange rate movement
Acquired on purchase of subsidiaries
Assumed business
Ceded business
Net balance as at December 31
Plus: reinsurance reserves recoverable
Balance as at December 31
2019
2018
(in thousands of U.S. dollars)
$
$
1,617,020 $
123,910
1,493,110
6,811
(118,557)
37,249
—
382,474
(38,988)
1,762,099
154,260
1,916,359 $
1,801,044
122,222
1,678,822
(64,949)
(108,248)
(70,084)
7,569
50,000
—
1,493,110
123,910
1,617,020
The liability for unpaid losses and ALAE for asbestos reserves reflects our best estimate for future amounts
needed to pay losses and related ALAE as of each of the balance sheet dates reflected in the financial statements
herein in accordance with U.S. GAAP. As of December 31, 2019 and 2018, the net loss reserves for asbestos-related
claims comprised 26.3% and 23.7%, respectively, of total non-life run-off net reserves for losses and LAE liabilities
excluding the fair value adjustments, deferred charge assets and ULAE. In addition, we also have defendant asbestos
liabilities, as described in Note 11 - "Defendant Asbestos and Environmental Liabilities" in the notes to our consolidated
financial statements included within Item 8 of this Annual Report on Form 10-K.
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Environmental Claims
Environmental pollution claims represent another exposure where we believe the insurance industry has been
adversely affected by various legislative changes and judicial interpretations. Unlike asbestos claims which are
generated primarily from injured individuals, environmental claims generally result from state or federal government
activities initiated against a commercial enterprise. The most well-known legislation, passed in 1980, is the
Comprehensive Environmental Restoration, Compensation and Liability Act (“CERCLA”, also known as Superfund).
CERCLA imposed strict and retroactive liability on potentially responsible parties (“PRP”), which expanded in the court
system to be interpreted as joint and several liability.
Our subsidiaries and counterparties who wrote portfolios we assumed have exposure to environmental claims
from general liability insurance policies written prior to the mid-1980s, that were not specifically written to cover damage
to the environment from gradual releases of pollutants. Similar to asbestos, there is additional uncertainty with respect
to environmental reserves as compared to other general liability exposures. This added uncertainty is due to the
multiple policy periods and allocation of claims to policy years, number of solvent PRPs at any site, ultimate cost of
the remediation, the number of ultimate sites and changes to judicial precedence.
The following table provides a reconciliation of our gross and net loss and ALAE reserves from environmental
exposures and the movement in gross and net reserves for the years ended December 31, 2019 and 2018:
Balance as at January 1
Less: reinsurance reserves recoverable
Net balance as at January 1
Total net incurred losses and LAE
Total net paid losses
Effect of exchange rate movement
Acquired on purchase of subsidiaries
Assumed business
Ceded business
Net balance as at December 31
Plus: reinsurance reserves recoverable
Balance as at December 31
2019
2018
(in thousands of U.S. dollars)
$
222,700 $
12,221
210,479
14,988
(16,899)
(3,615)
—
124,009
(12,733)
316,229
27,057
$
343,286 $
191,060
6,666
184,394
14,153
(21,273)
(320)
13,525
20,000
—
210,479
12,221
222,700
The liability for unpaid losses and ALAE, for environmental reserves, reflects our best estimate for future amounts
needed to pay losses and related ALAE as of each of the balance sheet dates reflected in the financial statements
herein in accordance with U.S. GAAP. As of December 31, 2019 and 2018, the net loss reserves for environmental
pollution-related claims comprised 4.7% and 3.3%, respectively, of total non-life run-off net reserves for losses and
LAE excluding the fair value adjustments, deferred charge assets and ULAE. In addition, we also have direct
environmental liabilities, as described in Note 11 - "Defendant Asbestos and Environmental Liabilities" in the notes to
our consolidated financial statements included within Item 8 of this Annual Report on Form 10-K.
Asbestos and Environmental Reserving
The ultimate losses from asbestos and environmental claims cannot be estimated using traditional actuarial
reserving techniques that extrapolate losses to an ultimate basis using loss development. Claims are spread across
multiple policy years based on the still evolving case law in each jurisdiction, making historical development patterns
unreliable to forecast the future claim payments. There can be no assurance that the reserves we establish will be
adequate or not be adversely affected by the development of other latent exposures.
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We use a variety of methodologies to estimate the appropriate IBNR reserves required for our asbestos and
environmental exposures. We estimate the IBNR reserves separately for each of our subsidiaries in order to apply the
appropriate methodologies and assumptions to match the distinct portfolios of exposure. For example, where we have
policy and claim data at the defendant or claimant level, we will use a ground-up frequency/severity method (described
later in this section). For our subsidiaries that primarily have reinsurance portfolios, we generally use industry
benchmarking methodologies to estimate appropriate IBNR reserves. These methods are based on comparisons of
our loss experience on A&E exposures relative to industry loss experience on similar exposures. The discussion that
follows describes, in greater detail, the primary actuarial methodologies used by us to estimate IBNR for A&E exposures.
In addition to the specific considerations for each method described below, many general factors are considered
in the application of the methods and the interpretation of results for each portfolio of exposures. These factors include:
•
•
•
•
•
the mix of product types (e.g., primary insurance, excess insurance, reinsurance of primary, excess of loss
reinsurance, retrocession)
the average attachment point and limit of coverages (e.g., first-dollar primary versus umbrella over primary
versus high-excess)
payment and reporting lags related to the international domicile of our subsidiaries as well as the difference
in lags between primary, excess and reinsurance policies
payment and reporting pattern acceleration due to large "wholesale" settlements (e.g., policy buy-backs and
commutations) pursued by us, and
lists of individual risks remaining and general trends within the legal and tort environments.
1. Paid Survival Ratio Method. In this method, our expected annual average payment amount is multiplied by
an expected future number of payment years to develop an indicated reserve. Our historical calendar year payments
are examined to determine an expected future annual average payment amount. This amount is multiplied by an
expected number of future payment years to estimate a reserve. Trends in calendar year payment activity are considered
when selecting an expected future annual average payment amount. Accepted industry benchmarks are used in
determining an expected number of future payment years. Each year, annual payments data is updated, trends in
payments are re-evaluated and changes to benchmark future payment years are reviewed. Advantages of this method
are ease of application and simplicity of assumptions. A potential disadvantage of the method is that results could be
misleading for portfolios of high excess exposures where significant payment activity has not yet begun.
2. Paid Market Share Method. In this method, our estimated market share is applied to the industry estimated
unpaid losses or estimate of industry ultimate losses. The ratio of our historical calendar year payments to industry
historical calendar year payments is examined to estimate our market share. This ratio is then applied to the estimate
of industry unpaid losses or estimate of industry ultimate losses. Each year, calendar year payment data is updated
(for both us and industry), estimates of industry unpaid losses are reviewed and the selection of our estimated market
share is revisited. This method has the advantage that trends in calendar year market share can be incorporated into
the selection of company share of remaining market payments. A potential disadvantage of this method is that it is
particularly sensitive to assumptions regarding the time-lag between industry payments and our payments.
3. Reserve-to-Paid Method. In this method, the ratio of estimated industry reserves to industry paid-to-date
losses is multiplied by our paid-to-date losses to estimate our reserves. Specific considerations in the application of
this method include the completeness of our paid-to-date loss information, the potential acceleration or deceleration
in our payments (relative to the industry) due to our claims handling practices, and the impact of large individual
settlements. Each year, paid-to-date loss information is updated (for both us and the industry) and updates to industry
estimated reserves are reviewed. This method has the advantage of relying purely on paid loss data and so is not
influenced by subjectivity of case reserve loss estimates. A potential disadvantage is that the application to our portfolios
that do not have complete inception-to-date paid loss history could produce misleading results. To address this potential
disadvantage, a variation of the method is also considered by multiplying the ratio of estimated industry reserves to
industry losses paid during a recent period of time (e.g., 3 years) times our paid losses during that period.
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4. IBNR: Case Ratio Method. In this method, the ratio of estimated industry IBNR reserves to industry case
reserves is multiplied by our case reserves to estimate our IBNR reserves. Specific considerations in the application
of this method include the presence of policies reserved at policy limits, changes in overall industry case reserve
adequacy and recent loss reporting history. Each year, our case reserves are updated, the estimate of industry reserves
is updated and the applicability of the industry IBNR: Case Ratio is reviewed. This method has the advantage that it
incorporates the most recent estimates of amounts needed to settle open cases included in current case reserves. A
potential disadvantage is that results could be misleading where our case reserve adequacy differs significantly from
overall industry case reserve adequacy. In these instances, the industry IBNR: Case Ratios were adjusted to reflect
our portfolio case reserve adequacy.
5. Ultimate-to-Incurred Method. In this method, the ratio of estimated industry ultimate losses to industry
incurred-to-date losses is applied to our incurred-to-date losses to estimate our IBNR reserves. Specific considerations
in the application of this method include the completeness of our incurred-to-date loss information, the potential
acceleration or deceleration in our incurred losses (relative to the industry) due to our claims handling practices and
the impact of large individual settlements. Each year incurred-to-date loss information is updated (for both us and the
industry) and updates to industry estimated ultimate losses are reviewed. This method has the advantage that it
incorporates both paid and case reserve information in projecting ultimate losses. A potential disadvantage is that
results could be misleading where cumulative paid loss data is incomplete or where our case reserve adequacy differs
significantly from overall industry case reserve adequacy. In these instances, the industry IBNR: Case Ratios were
adjusted to reflect our portfolio case reserve adequacy.
6. Decay Factor Method. In this method, a decay factor is directly applied to our payment data to estimate
future payments. The decay factors were selected based on a review of our own decays and industry decays. This
method is most useful where our data shows a decreasing pattern and is credible enough to be reliable.
7. Asbestos Ground-up Exposure Analysis Using Frequency-Severity Method. This method is used when we
have policy and claim data at the defendant or claimant level. In a frequency-severity method there are two components
that need to be estimated, namely, (1) the number of claims that will ultimately be settled with payment and (2) the
severity of these claims including legal costs. The estimate of future settled claims is based on the historical claim
filing rates, claim dismissal rates, current pending claims and epidemiological forecasts of asbestos disease incident
for future claim filings. The average severity is based on historical average settlement amounts trended for inflation
to the expected year of settlement for claims that close with an indemnity payment. Loss adjustment expenses are
loaded on based on historical expense to indemnity ratios. Multiplying the number of expected future claims settled
with payments by the average severity results in an estimate of the ground-up losses at the defendant level. At this
point, the defendant’s insurance coverage is considered to determine the allocation of the ground-up estimate to policy
years and policy within the insurance coverage as well as the amount retained by the defendant.
Atrium and StarStone
The reserve for losses and loss expenses includes reserves for unpaid reported losses and for IBNR reserves.
The reserves for unpaid reported losses and loss expenses are established by management based on reports from
brokers, ceding companies and insureds and represent the estimated ultimate cost of events or conditions that have
been reported to, or specifically identified by us. The reserve for incurred but not reported losses and loss expenses
is established by management based on actuarially determined estimates of ultimate losses and loss expenses.
Inherent in the estimate of ultimate losses and loss expenses are expected trends in claim severity and frequency and
other factors which may vary significantly as claims are settled. Accordingly, ultimate losses and loss expenses may
differ materially from the amounts recorded in the consolidated financial statements. These estimates are reviewed
regularly and, as experience develops and new information becomes known, the reserves are adjusted as necessary.
Such adjustments, if any, will be recorded in earnings in the period in which they become known. Prior period
development arises from changes to loss estimates recognized in the current year that relate to loss reserves
established in previous calendar years.
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The following tables provide a breakdown of the gross and net losses and LAE by line of business and the fair
value adjustments resulting from business combinations and ULAE as of December 31, 2019 and 2018 for the Atrium
segment:
Total
$
89,141 $
136,543 $
9,121
10,935
20,056
8,584
OLR
Gross
IBNR
2019
Total
OLR
(in thousands of U.S. dollars)
Net
IBNR
Total
$
24,668 $
31,507
34,156 $
54,039
58,824 $
85,546
21,012 $
29,590
24,829 $
51,984
18,385
5,460
29,533
7,880
47,918
13,340
16,209
4,735
23,338
7,469
45,841
81,574
39,547
12,204
80,130 $
225,684 $
3,700
2,288
$
231,672
2018
9,637
117,257 $
18,221
197,387
3,181
2,288
$
202,856
OLR
Gross
IBNR
Total
OLR
(in thousands of U.S. dollars)
Net
IBNR
Total
$
32,999 $
28,512
36,011 $
59,302
69,010 $
87,814
21,460 $
26,601
24,207 $
57,016
18,547
4,972
27,653
6,348
46,200
11,320
15,180
4,225
24,823
5,837
45,667
83,617
40,003
10,062
Marine, Aviation and
Transit
Binding Authorities
Reinsurance
Accident and Health
Non-Marine Direct and
Facultative
Fair value adjustments
ULAE
Total
Marine, Aviation and
Transit
Binding Authorities
Reinsurance
Accident and Health
Non-Marine Direct and
Facultative
Fair value adjustments
ULAE
Total
Total
$
94,885 $
140,521 $
9,855
11,207
21,062
8,529
75,995 $
235,406 $
3,476
2,402
9,389
121,272 $
17,918
197,267
2,847
2,402
$
202,516
$
241,284
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The following tables provide a breakdown of the gross and net losses and LAE reserves by line of business and
the fair value adjustments resulting from business combinations and ULAE as of December 31, 2019 and 2018 for the
StarStone segment:
Total
578,272
300,659
250,811
70,658
92,655
22,862
74,661
111,334
750,950 $ 1,311,734
1,600
28,503
$ 1,341,837
Total
419,854
297,315
217,296
82,046
2019
OLR
Gross
IBNR
Total
OLR
(in thousands of U.S. dollars)
Net
IBNR
$
191,317 $
195,068
481,473 $
173,319
672,790 $
368,387
156,086 $
162,073
422,186 $
138,586
Casualty
Marine
Property
Aerospace
Workers' Compensation
367,258
79,249
55,902
Total
$
888,794 $
Fair value adjustments
ULAE
Total
152,514
33,000
519,772
112,249
122,047
962,353 $ 1,851,147 $
177,949
158,156
47,796
36,673
560,784 $
(522)
28,503
$ 1,879,128
2018
OLR
Gross
IBNR
Total
OLR
(in thousands of U.S. dollars)
Net
IBNR
$
177,432 $
185,084
331,432 $
182,453
508,864 $
367,537
137,828 $
163,889
282,026 $
133,426
123,511
40,416
440,613
107,619
110,082
787,894 $ 1,584,088 $
159,455
151,774
45,879
33,759
533,129 $
(467)
25,076
$ 1,608,697
65,522
36,167
68,969
102,728
586,110 $ 1,119,239
1,432
25,076
$ 1,145,747
Casualty
Marine
Property
Aerospace
Workers' Compensation
317,102
67,203
49,373
Total
$
796,194 $
Fair value adjustments
ULAE
Total
Quarterly Reserve Reviews
The reserve for losses and loss expenses is reviewed on a quarterly basis. Each quarter, paid and incurred loss
development is reviewed to determine whether it is consistent with expected development. Loss development is
examined separately by class of business, and large individual losses or loss events are examined separately from
regular attritional development. Discussions are held with appropriate personnel including underwriters, claims
adjusters, actuaries, accountants and attorneys to fully understand quarterly loss development and implications for
the quarter-end reserve balances. Based on analysis of the loss development data and the associated discussions,
management determines whether any adjustment is necessary to quarter-end reserve balances.
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Defendant asbestos and environmental liabilities
Defendant asbestos and environmental liabilities as of December 31, 2019 and 2018 were as follows:
Defendant asbestos and environmental liabilities:
Defendant asbestos liabilities
Defendant environmental liabilities
Estimated future expenses
Fair value adjustments
Defendant asbestos and environmental liabilities
Other assets:
Insurance recoveries related to defendant asbestos and environmental liabilities
Fair value adjustments
Insurance balances recoverable
2019
2018
$
1,100,593 $
10,279
51,637
(314,824)
847,685
549,593
(100,738)
448,855
265,975
2,152
19,843
(84,650)
203,320
183,676
(47,868)
135,808
Net liabilities relating to defendant asbestos and environmental exposures
$
398,830 $
67,512
We acquired DCo on December 30, 2016, and Morse TEC on October 30, 2019, as described in Note 3 -
"Acquisitions". DCo and Morse TEC hold liabilities associated with personal injury asbestos claims and environmental
claims arising from their legacy manufacturing operations. These companies continue to process asbestos personal
injury claims in the normal course of business and are separately managed. Defendant asbestos liabilities on our
consolidated balance sheets include amounts for loss payments and defense costs for pending and future asbestos-
related claims, determined using standard actuarial techniques for asbestos exposures. Defendant environmental
liabilities include estimated clean-up costs associated with the acquired companies' former operations based on
engineering reports.
Insurance balances recoverable on our consolidated balance sheets include estimated insurance recoveries
relating to these liabilities. The recorded asset represents our assessment of the capacity of the insurance agreements
to indemnify our subsidiaries for the anticipated defense and loss payments for pending claims and projected future
claims. The recognition of these recoveries is based on an assessment of the right to recover under the respective
contracts and on the financial strength of the insurers. The recorded asset does not represent the limits of our insurance
coverage, but rather the amount we would expect to recover if the accrued and projected loss and defense costs were
paid in full.
Reinsurance Balances Recoverable on Paid and Unpaid Losses
Reinsurance balances recoverable on paid and unpaid losses as of December 31, 2019 and 2018 were as
follows:
Reinsurance balances recoverable on paid and unpaid losses
Reinsurance balances recoverable on paid and unpaid losses, fair value
Total reinsurance balances recoverable on paid and unpaid losses
2019
2018
(in thousands of U.S. dollars)
$
$
1,684,372 $
1,290,072
695,518
739,591
2,379,890 $
2,029,663
Our acquired insurance and reinsurance subsidiaries in all three of our operating segments use retrocessional
agreements to reduce their exposure to the risk of insurance and reinsurance they have assumed. Loss reserves
represent total gross losses, and reinsurance balances recoverables represent anticipated recoveries of a portion of
those loss reserves, as well as amounts receivable from reinsurers with respect to claims that have already been paid.
While reinsurance arrangements are designed to limit losses and to permit recovery of a portion of loss reserves,
reinsurance does not relieve us of our liabilities to our insureds or reinsureds. Therefore, we evaluate and monitor
concentration of credit risk among our reinsurers, including companies that are insolvent, in run-off or facing financial
difficulties. Provisions are made for amounts considered potentially uncollectible. In addition to the acquired
retrocessional agreements, on an annual basis, our active underwriting subsidiaries purchase tailored outwards
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reinsurance programs designed to manage their risk profiles. The majority of the total third-party reinsurance cover
for our active underwriting subsidiaries is with Lloyd’s Syndicates or other reinsurers rated A- or better and reinsurers,
while not rated, provide collateral in the form of letters of credit, trust funds or funds withheld.
Valuation Allowances on Reinsurance Balances Recoverable and Deferred Tax Assets
Valuation Allowances on Reinsurance Balances Recoverable
To estimate the provision for uncollectible reinsurance balances recoverable on paid and unpaid losses, the
reinsurance balances recoverable on paid and unpaid losses is first allocated to applicable reinsurers. As part of this
process, ceded IBNR is allocated by reinsurer. We then use a detailed analysis to estimate uncollectible reinsurance.
The primary components of the analysis are reinsurance recoverable balances by reinsurer and bad debt provisions
applied to these balances to determine the portion of a reinsurer’s balance deemed to be uncollectible. These provisions
require considerable judgment and are determined using the current rating, or rating equivalent, of each reinsurer (in
order to determine its ability to settle the reinsurance balances) as well as other key considerations and assumptions,
such as claims and coverage issues.
Valuation Allowances on Deferred Tax Assets
Certain of our subsidiaries and branches operate in jurisdictions where they are subject to taxation. Current and
deferred tax expense or benefit is allocated to net earnings (loss), or, in certain cases, to discontinued operations or
other comprehensive income (loss). Current tax is recognized and measured based upon enacted tax laws and rates
applicable in the relevant jurisdiction in the period in which the income tax becomes accruable or realizable. Deferred
taxes are provided for temporary differences between the carrying amount of assets and liabilities used in the financial
statements and the tax basis used in the various jurisdictional tax returns. When our assessment indicates that all or
some portion of deferred tax assets will not be realized, a valuation allowance is recorded against the deferred tax
assets to reduce the assets to the amount more likely than not to be realized.
We recognize the benefit relating to tax positions only where the position is more likely than not to be sustained
assuming examination by tax authorities. A recognized tax benefit is measured as the largest amount that is greater
than 50 percent likely of being realized upon settlement. A liability or other adjustment is recognized for any tax benefit
(along with any interest and penalty, if applicable) claimed in a tax return in excess of the amount allowed to be
recognized in the financial statements under U.S. GAAP. Any changes in amounts recognized are recorded in the
period in which they are determined.
Goodwill
Goodwill as of December 31, 2019 and 2018 was as follows:
Goodwill
2019
2018
(in thousands of U.S. dollars)
$
114,807 $
114,807
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired. We perform
an initial valuation of our goodwill assets and assess goodwill for impairment on an annual basis. If, as a result of the
assessment, we determine the value of our goodwill asset is impaired, goodwill is written down in the period in which
the determination is made.
Intangible Assets
Intangible assets as of December 31, 2019 and 2018 were as follows:
Intangible assets with a definite life
Intangible assets with an indefinite life
Total intangible assets
2019
2018
(in thousands of U.S. dollars)
$
$
14,630 $
87,031
16,887
87,031
101,661 $
103,918
Intangible assets represent the Lloyd’s syndicate capacity, customer relationships, management contract and
brand arising from the acquisition of Atrium and the syndicate capacity, U.S. insurance licenses and software, technology
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arising from the acquisition of StarStone. Definite-lived intangible assets are amortized over their estimated useful
lives. We recognize the amortization of all intangible assets in our consolidated statement of earnings. Indefinite-lived
intangible assets are not subject to amortization. The carrying values of indefinite-lived intangible assets are reviewed
for indicators of impairment on at least an annual basis or sooner whenever events or changes in circumstances
indicate that the assets may be impaired. Impairment is recognized if the carrying values of the intangible assets are
not recoverable from their undiscounted cash flows and is measured as the difference between the carrying value and
the fair value.
Deferred Charge Assets
Deferred charge assets as of December 31, 2019 and 2018 were as follows:
Deferred charge asset
2019
2018
(in thousands of U.S. dollars)
$
272,462 $
86,585
Retroactive reinsurance policies provide indemnification of losses and LAE with respect to past loss events. At
the inception of a contract, a deferred charge asset is recorded for the excess, if any, of the estimated ultimate losses
payable over the premiums received. The premium consideration that we charge the ceding companies may be lower
than the undiscounted estimated ultimate losses payable due to the "time value of money". After receiving the premium
consideration in full from our cedents at the inception of the contract, we invest the premium received over an extended
period of time thereby generating investment income. We expect to generate profits from these retroactive reinsurance
policies when taking into account the premium received and expected investment income, less contractual obligations
and expenses. Deferred charge assets, recorded in other assets, are amortized over the estimated claim payment
period of the related contract with the periodic amortization reflected in earnings as a component of losses and LAE.
Deferred charge assets amortization is adjusted periodically to reflect new estimates of the amount and timing of
remaining loss payments. Changes in the estimated amount and the timing of payments of unpaid losses may have
an effect on the unamortized deferred charge assets and the amount of periodic amortization.
Premium Revenue Recognition
Non-life Run-off, Atrium and StarStone
Our premiums written are earned on a pro-rata basis over the coverage period. Our reinsurance premiums are
recorded at the inception of the policy, unless policy language stipulates otherwise, and are estimated based upon
information in underlying contracts and information provided by clients and/or brokers. A change in reinsurance premium
estimates is made when additional information regarding changes in underlying exposures is obtained. Such changes
in estimates are expected and may result in significant adjustments in future periods. We record any adjustments as
premiums written in the period they are determined.
With respect to retrospectively rated contracts (where additional premium would be due should losses exceed
pre-determined contractual thresholds), any additional premiums are based upon contractual terms, and management
judgment is involved in estimating the amount of losses that we expect to be ceded. We would recognize additional
premiums at the time loss thresholds specified in the contract are exceeded and are earned over the coverage period,
or are earned immediately if the period of risk coverage has passed. Changes in estimates of losses recorded on
contracts with additional premium features would result in changes in additional premiums recognized.
Investments
Valuation of Investments
Our non-life run-off and active underwriting businesses invest in trading portfolios of fixed maturity and short-
term investments and equities, and an available-for-sale portfolio of fixed maturity and short-term investments. We
record both the trading and available-for-sale portfolios at fair value on our balance sheet. For our trading portfolios,
the unrealized gain or loss associated with the difference between the fair value and the amortized cost of the
investments is recorded in net earnings. For our available-for-sale portfolios, the unrealized gain or loss (other than
credit losses) is excluded from net earnings and reported as a separate component of accumulated other comprehensive
income.
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Our other investments comprise investments in various private equity funds, fixed income funds, hedge funds,
equity funds, private credit funds and CLO equity funds, as well as direct investments in CLO equities. All of these
other investments are recorded at fair value.
We measure fair value in accordance with ASC 820, Fair Value Measurements. The guidance dictates a
framework for measuring fair value and a fair value hierarchy based on the quality of inputs used to measure fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of
the fair value hierarchy are described below:
•
•
•
Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities
that we have the ability to access. Valuation adjustments and block discounts are not applied to Level 1
instruments.
Level 2 - Valuations based on quoted prices in active markets for similar assets or liabilities, quoted prices
for identical assets or liabilities in inactive markets, or for which significant inputs are observable (e.g. interest
rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by
observable market data
Level 3 - Valuations based on unobservable inputs where there is little or no market activity. Unadjusted
third party pricing sources or management's assumptions and internal valuation models may be used to
determine the fair values.
In addition, certain of our other investments are measured at fair value using net asset value ("NAV") per share
(or its equivalent) as a practical expedient and have not been classified within the fair value hierarchy above. When
the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value
measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its
entirety. Thus, a Level 3 fair value measurement may include inputs that are observable (Level 1 and 2) and
unobservable (Level 3).
The use of valuation techniques may require a significant amount of judgment. During periods of market
disruption, including periods of rapidly widening credit spreads or illiquidity, it may be difficult to value certain of our
securities if trading becomes less frequent or market data becomes less observable.
Fixed Maturity Investments
Fixed maturity investments as of December 31, 2019 and 2018 were as follows:
Short-term investments, trading, at fair value
Short-term investments, available-for-sale, at fair value
Fixed maturities, trading, at fair value
Fixed maturities, available-for-sale, at fair value
Fixed maturity investments within funds held - directly managed
2019
2018
(in thousands of U.S. dollars)
$
51,490 $
114,116
128,335
6,346,329
1,913,389
1,173,345
—
7,248,793
151,609
1,183,374
8,697,892
Total fixed maturity investments
$
9,612,888 $
Fixed maturity investments are subject to fluctuations in fair value due to changes in interest rates, changes in
issuer-specific circumstances such as credit rating and changes in industry-specific circumstances such as movements
in credit spreads based on the market’s perception of industry risks. As a result of these potential fluctuations, it is
possible to have significant unrealized gains or losses on a security. At maturity, absent any credit loss, fixed maturity
investments’ amortized cost will equal their fair value and no realized gain or loss will be recognized in income. If, due
to an unforeseen change in loss payment patterns, we need to sell any available-for-sale investments before maturity,
we could realize significant gains or losses in any period, which could have a meaningful effect on reported net income
for such period.
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We perform regular reviews of our available-for-sale fixed maturities portfolios and utilize a process that considers
numerous indicators in order to identify investments that are showing signs of potential other-than-temporary impairment
losses. These indicators include the length of time and extent of the unrealized loss, any specific adverse conditions,
historic and implied volatility of the security, failure of the issuer of the security to make scheduled interest payments,
significant rating changes and recoveries or additional declines in fair value subsequent to the balance sheet date.
The consideration of these indicators and the estimation of credit losses involve significant management judgment.
Any other-than-temporary impairment loss, or OTTI, related to a credit loss would be recognized in earnings,
and the amount of the OTTI related to other factors (e.g. interest rates, market conditions, etc.) is recorded as a
component of other comprehensive income. If no credit loss exists but either we have the intent to sell the fixed maturity
investment or it is more likely than not that we will be required to sell the fixed maturity investment before its anticipated
recovery, then the entire unrealized loss is recognized in earnings.
For the years ended December 31, 2019 and 2018, we did not recognize any other-than-temporary impairment
charges through earnings.
The fair values for all fixed maturity securities in our trading and funds held - directly managed investment
portfolios are independently provided by the investment accounting service providers, investment managers and
investment custodians, each of which utilize internationally recognized independent pricing services. We record the
unadjusted price provided by the investment accounting service providers, investment managers or investment
custodians and validate this price through a process that includes, but is not limited to: (i) comparison of prices against
alternative pricing sources; (ii) quantitative analysis (e.g. comparing the quarterly return for each managed portfolio
to its target benchmark); (iii) evaluation of methodologies used by external parties to estimate fair value, including a
review of the inputs used for pricing; and (iv) comparing the price to our knowledge of the current investment market.
Our internal price validation procedures and review of fair value methodology documentation provided by independent
pricing services have not historically resulted in adjustment in the prices obtained from the pricing service.
The independent pricing services used by the investment accounting service providers, investment managers
and investment custodians obtain actual transaction prices for securities that have quoted prices in active markets.
Where we utilize single unadjusted broker-dealer quotes, they are generally provided by market makers or broker-
dealers who are recognized as market participants in the markets in which they are providing the quotes. For determining
the fair value of securities that are not actively traded, in general, pricing services use "matrix pricing" in which the
independent pricing service uses observable market inputs including, but not limited to, reported trades, benchmark
yields, broker-dealer quotes, interest rates, prepayment speeds, default rates and such other inputs as are available
from market sources to determine a reasonable fair value. In addition, pricing services use valuation models, using
observable data, such as an Option Adjusted Spread model, to develop prepayment and interest rate scenarios. The
Option Adjusted Spread model is commonly used to estimate fair value for securities such as mortgage-backed and
asset-backed securities.
Where pricing is unavailable from pricing services, such as in periods of low trading activity or when transactions
are not orderly, we obtain non-binding quotes from broker-dealers. Where significant inputs are unable to be
corroborated with market observable information, we classify the securities as Level 3.
Equities
Equity investments, trading as of December 31, 2019 and 2018 were as follows:
Publicly traded equity investments in common and preferred stocks
Exchange-traded funds
Privately held equity investments in common and preferred stocks
Total equity investments
2019
2018
(in thousands of U.S. dollars)
327,875 $
138,415
133,047
268,799
729,721 $
—
228,710
367,125
$
$
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Our publicly traded equity investments in common and preferred stocks predominantly trade on the major
exchanges and are managed by our external advisors. Our publicly traded equity investments are widely diversified
and there is no significant concentration in any specific industry. Our exchange-traded funds trade on major exchanges.
We use an internationally recognized pricing service to estimate the fair value of our publicly traded equities and
exchange-traded funds. We have categorized the majority of our publicly traded equity investments, other than preferred
stock and our exchange-traded funds, as Level 1 investments because the fair values of these investments are based
on unadjusted quoted prices in active markets for identical assets or liabilities. The fair value estimates of our
investments in publicly traded preferred stock and exchange-traded funds are based on observable market data and,
as a result, have been categorized as Level 2.
Our privately held equity investments in common and preferred stocks are direct investments in companies that
we believe offer attractive risk adjusted returns and/or offer other strategic advantages. Privately held equity investments
are another method by which we can invest in the run off or active underwriting markets. Each investment may have
its own unique terms and conditions and there may be restrictions on disposals. The market for these investments is
illiquid and there is no active market. We have categorized all of our privately held equity investments as Level 3
investments because the market for these investments is illiquid and there is no active market. The Company uses a
combination of internal models, reported values from co-investors/managers and observable inputs, such as capital
raises and capital transactions between new and existing shareholders, to calculate the fair value of the privately held
equity investments.
Other Investments, at fair value
Other investments as of December 31, 2019 and 2018 were as follows:
Hedge funds
Fixed income funds
Equity funds
Private equity funds
CLO equities
CLO equity funds
Other
Private credit funds
Total other investments
2019
2018
$
$
1,121,904 $
481,039
410,149
329,885
87,555
87,509
6,379
—
2,524,420 $
852,584
403,858
333,681
248,628
39,052
37,260
9,313
33,381
1,957,757
We have ongoing due diligence processes with respect to the other investments carried at fair value in which
we invest and their managers. These processes are designed to assist us in assessing the quality of information
provided by, or on behalf of, each fund and in determining whether such information continues to be reliable or whether
further review is warranted. Certain funds do not provide full transparency of their underlying holdings; however, we
obtain the audited financial statements for funds annually, and regularly review and discuss the fund performance with
the fund managers to corroborate the reasonableness of the reported net asset values ("NAV").
The use of NAV as an estimate of the fair value for investments in certain entities that calculate NAV is a permitted
practical expedient. Due to the time lag in the NAV reported by certain fund managers we adjust the valuation for
capital calls and distributions. Other investments measured at fair value using NAV as a practical expedient have not
been classified in the fair value hierarchy. Other investments for which we do not use NAV as a practical expedient
have been valued using prices from independent pricing services, investment managers and broker-dealers.
For our investments in private equity funds, we measure fair value by obtaining the most recently available NAV
from the external fund manager or third-party administrator. The fair values of these investments are measured using
the NAV as a practical expedient and therefore have not been categorized within the fair value hierarchy.
Our investments in fixed income funds and equity funds are valued based on a combination of prices from
independent pricing services, external fund managers or third-party administrators. For the publicly available prices
we have classified the investments as Level 2. For the non-publicly available prices we are using NAV as a practical
expedient and therefore these have not been categorized within the fair value hierarchy.
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For our investments in hedge funds, we measure fair value by obtaining the most recently available NAV as
advised by the external fund manager or third-party administrator. The fair values of these investments are measured
using the NAV as a practical expedient and therefore have not been categorized within the fair value hierarchy.
We measure the fair value of our direct investment in CLO equities based on valuations provided by independent
pricing services, our external CLO equity manager, and valuations provided by the broker or lead underwriter of the
investment (the "broker"). Our CLO equity investments have been classified as Level 3 due to the use of unobservable
inputs in the valuation and the limited number of relevant trades in secondary markets.
In providing valuations, the independent pricing service providers, CLO equity manager and brokers use
observable and unobservable inputs. Of the significant unobservable market inputs used, the default and loss severity
rates involve the most judgment and create the most sensitivity. A significant increase or decrease in either of these
significant inputs in isolation would result in lower or higher fair value estimates for direct investments in CLO equities
and, in general, a change in default rate assumptions will be accompanied by a directionally similar change in loss
severity rate assumptions. Collateral spreads and estimated maturity dates are less subjective inputs because they
are based on the historical average of actual spreads and the weighted average life of the current underlying portfolios,
respectively. A significant increase or decrease in either of these significant inputs in isolation would result in higher
or lower fair value estimates for direct investments in CLO equities. In general, these inputs have no significant
interrelationship with each other or with default and loss severity rates.
On a quarterly basis, we receive the valuation from the independent pricing providers, external CLO manager
and brokers and then review the underlying cash flows and key assumptions used by them. We review and update
the significant unobservable inputs based on information obtained from secondary markets. These inputs are our
responsibility and we assess the reasonableness of the inputs (and if necessary, update the inputs) through
communicating with industry participants, monitoring of the transactions in which we participate (for example, to evaluate
default and loss severity rate trends), and reviewing market conditions, historical results, and emerging trends that
may impact future cash flows.
If valuations from the independent pricing service providers, external CLO equity manager or brokers are not
available, we use an income approach based on certain observable and unobservable inputs to value these investments.
An income approach is also used to corroborate the reasonableness of the valuations provided by the pricing providers,
external manager and brokers. Where an income approach is followed, the valuation is based on available trade
information, such as expected cash flows and market assumptions on default and loss severity rates. Other inputs
used in the valuation process include asset spreads, loan prepayment speeds, collateral spreads and estimated maturity
dates.
For our investments in CLO equity funds, we measure fair value by obtaining the most recently available NAV
as advised by the external fund manager or third party administrator. The fair values of these investments are measured
using the NAV as a practical expedient and therefore have not been categorized within the fair value hierarchy.
For our investments in private credit funds, we measure fair value by obtaining the most recently available NAV
from the external fund manager or third-party administrator. The fair values of these investments are measured using
NAV as a practical expedient and therefore have not been categorized within the fair value hierarchy.
Certain funds are subject to gates or side-pockets, where redemptions are subject to the sale of underlying
investments. A gate is the ability to deny or delay a redemption request, whereas a side-pocket is a designated account
for which the investor loses its redemption rights. As of December 31, 2019, we had $51.8 million of fixed income
hedge funds subject to gates or side-pockets.
A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability
of valuation inputs may result in a reclassification for certain financial assets and liabilities. Reclassifications impacting
Level 3 of the fair value hierarchy are reported as transfers in/out of the Level 3 category as of the end of the quarter
in which the reclassifications occur.
Accounting for Business Combinations - Fair Value Measurement
The most significant liabilities and assets of an acquired company are typically the liability for losses and LAE,
and the assets related to cash, investments and any reinsurance balances recoverable on paid and unpaid losses that
may be contractually due to the acquired entity. The market for acquisition of run-off companies is not always sufficiently
active and transparent to enable us to identify reliable, market exit values for acquired assets and liabilities. Accordingly,
consistent with provisions of U.S. GAAP, we have developed internal models that we believe allow us to determine
fair values that are reasonable proxies for market exit values. We are familiar with the major participants in the acquisition
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run-off market and believe that the key assumptions we make in valuing acquired assets and liabilities are consistent
with the kinds of assumptions made by such market participants. Furthermore, in our negotiation of purchase prices
with sellers, it is frequently clear to us that other bidders in the market are using models and assumptions similar in
nature to ours during the competitive bid process. The majority of acquisitions are completed following a public tender
process whereby the seller invites market participants to provide bids for the target acquisition.
We account for business combinations using the acquisition method of accounting, which requires that the
acquirer record the assets and liabilities acquired at their estimated fair value. The fair values of each of the insurance
and reinsurance assets and liabilities acquired are derived from probability-weighted ranges of the associated projected
cash flows, based on actuarially prepared information and management’s run-off strategy. Our run-off strategy, as well
as that of other run-off market participants, is expected to be different from the seller’s as generally sellers are not
specialized in running off insurance and reinsurance liabilities whereas we and other market participants do specialize
in such run-offs.
The key assumptions used by us and, we believe, by other run-off market participants in the fair valuation of
acquired companies are (i) the projected payout, timing and amounts of claims liabilities; (ii) the related projected
timing and amount of reinsurance collections; (iii) an appropriate discount rate, which is applied to determine the
present value of the future cash flows; (iv) the estimated ULAE to be incurred over the life of the run-off; (v) the impact
that any accelerated run-off strategy may have on the adequacy of acquired bad debt provisions; and (vi) an appropriate
risk margin.
The probability-weighted projected cash flows of the acquired company are based on projected claims payouts
provided by the seller predominantly in the form of the seller’s most recent independent actuarial reserve report. In
the absence of the seller’s actuarial reserve report, our actuaries will determine the estimated claims payout. In certain
jurisdictions, the local legislation provides for the possibility of pursuing strategies to achieve complete finality and
conclude the run-off of a company, such as solvent schemes of arrangement. If appropriate we may estimate the
probability of being able to complete a solvent scheme of arrangement and factor that into the claims payout projections.
On acquisition, we make a provision for ULAE liabilities. This provision considers the adequacy of the provision
maintained and recorded by the seller in light of our run-off strategy and estimated ULAE to be incurred over the life
of the acquired run-off as projected by the seller’s actuaries or, in their absence, our actuaries. To the extent that our
estimate of the total ULAE provision is different from the seller’s, an adjustment will be made. While our objective is
to accelerate the run-off by completing commutations of assumed and ceded business (which would have the effect
of shortening the life, and therefore the cost, of the run-off), the success of this strategy is far from certain. Therefore,
the estimates of ULAE are based on running off the liabilities and assets over the actuarially projected life of the run-
off.
We believe that providing for ULAE based on our run-off strategy is appropriate in determining the fair value of
the assets and liabilities acquired in an acquisition of a run-off company. We believe that other participants in the run-
off acquisition marketplace factor into the price to pay for an acquisition the estimated cost of running off the acquired
company based on how that participant expects to manage the assets and liabilities.
The difference between the carrying value of reserves acquired at the date of acquisition and the fair value is
the Fair Value Adjustment, ("FVA"). The FVA is amortized over the estimated payout period and adjusted for
accelerations on commutation settlements or any other new information or subsequent change in circumstances after
the date of acquisition. To the extent the actual payout experience after the acquisition is materially faster or slower
than anticipated at the time of the acquisition, there is an adjustment to the estimated ultimate loss reserves, or there
are changes in bad debt provisions or in estimates of future run-off costs following accelerated payouts, then the
amortization of the FVA is accelerated or decelerated, as the case may be, to reflect such changes.
Fair Value Option - Insurance Contracts
In our Non-life Run-off segment we have elected to apply the fair value option for certain loss portfolio transfer
reinsurance transactions. This is an irrevocable election that applies to all balances under the insurance contract,
including funds held assets, reinsurance recoverable, and the liability for losses and loss adjustment expenses.
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The fair value of the liability for losses and LAE and reinsurance recoverable under these contracts is presented
separately in our consolidated balance sheet as of December 31, 2019 and 2018. Changes in the fair value of the
liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses are included in net incurred
losses and LAE in our consolidated statement of operations. The carrying value of our reinsurance recoverable and
liability for losses and LAE for which we elected the fair value option as of December 31, 2019 and 2018 was as follows:
Gross Losses and loss adjustment expenses, fair value
Reinsurance balances recoverable on paid and unpaid losses, fair value
Net losses and LAE, fair value
2019
2018
(in thousands of U.S. dollars)
2,621,122 $
2,874,055
695,518 $
739,591
1,925,604 $
2,134,464
$
$
$
We use an internal model to calculate the fair value of the liability for losses and loss adjustment expenses and
reinsurance recoverable asset for certain retroactive reinsurance contracts where we have elected the fair value option
in our Non-life Run-off segment.
The fair value was calculated as the aggregate of discounted cash flows plus a risk margin:
•
•
The discounted cash flow approach uses (i) estimated nominal cash flows based upon an appropriate payment
pattern developed in accordance with standard actuarial techniques and (ii) a discount rate based upon a high
quality rated corporate bond plus a credit spread for non-performance risk. The model uses corporate bond
rates across the yield curve depending on the estimated timing of the future cash flows and specific to the
currency of the risk.
The risk margin was calculated using the present value of the cost of capital. The cost of capital approach
uses (i) projected capital requirements, (ii) multiplied by the risk cost of capital representing the return required
for non-hedgeable risk based upon the weighted average cost of capital less investment income, and (iii)
discounted using the weighted average cost of capital.
The observable and unobservable inputs used in the model are described in Note 12 - "Fair Value Measurements"
in the notes to our consolidated financial statements included within Item 8 of this Annual Report on Form 10-K.
The fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses
may increase or decrease due to changes in the corporate bond rate, the credit spread for non-performance risk, the
risk cost of capital, the weighted average cost of capital and the estimated payment pattern:
•
•
•
•
An increase in the corporate bond rate or credit spread for non-performance risk would result in a decrease
in the fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid
losses. Conversely, a decrease in the corporate bond rate or credit spread for non-performance risk would
result in an increase in the fair value of the liability for losses and LAE and reinsurance balances recoverable
on paid and unpaid losses.
An increase in the weighted average cost of capital would result in an increase in the fair value of the liability
for losses and LAE and reinsurance balances recoverable on paid and unpaid losses. Conversely, a decrease
in the weighted average cost of capital would result in a decrease in the fair value of the liability for losses and
LAE and reinsurance balances recoverable on paid and unpaid losses.
An increase in the risk cost of capital would result in an increase in the fair value of the liability for losses and
LAE and reinsurance balances recoverable on paid and unpaid losses. Conversely, a decrease in the risk cost
of capital would result in a decrease in the fair value of the liability for losses and LAE and reinsurance balances
recoverable on paid and unpaid losses.
An acceleration of the estimated payment pattern would result in an increase in the fair value of the liability
for losses and LAE and reinsurance balances recoverable on paid and unpaid losses. Conversely, a
deceleration of the estimated payment pattern would result in a decrease in the fair value of the liability for
losses and LAE and reinsurance balances recoverable on paid and unpaid losses.
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In addition, the estimate of the capital required to support the liabilities is based upon current industry standards
for capital adequacy. If the required capital per unit of risk increases then the fair value of the liability for losses and
LAE and reinsurance balances recoverable on paid and unpaid losses would increase. Conversely, a decrease in
required capital would result in a decrease in the fair value of the liability for losses and LAE and reinsurance balances
recoverable on paid and unpaid losses.
Redeemable Noncontrolling Interest
The redeemable noncontrolling interest as of December 31, 2019 and 2018 was as follows:
Redeemable noncontrolling interest
2019
2018
(in thousands of U.S. dollars)
$
438,791 $
458,543
In connection with the acquisitions of Arden, Atrium and StarStone, certain subsidiaries have issued shares to
noncontrolling interests. These shares provide certain redemption rights to the holder, which may be settled in Enstar’s
own shares or cash or a combination of cash and shares, at our option. We classify redeemable noncontrolling interests
with redemption features that are not solely within our control within temporary equity in our consolidated balance
sheets and carry them at the redemption value, which is fair value. We recognize changes in the fair value that exceed
the carrying value of redeemable noncontrolling interest through retained earnings as if the balance sheet date were
also the redemption date.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following risk management discussion and the estimated amounts generated from sensitivity analysis
presented are forward-looking statements of market risk assuming certain market conditions occur. Future results may
differ materially from these estimated results due to, among other things, actual developments in the global financial
markets, changes in the composition of our investment portfolio, or changes in our business strategies. The results of
analysis we use to assess and mitigate risk are not projections of future events or losses. See "Cautionary Statement
Regarding Forward-Looking Statements" for additional information regarding our forward-looking statements.
We are principally exposed to four types of market risk: interest rate risk; credit risk; equity price risk and foreign
currency risk. Our policies to address these risks in 2019 were not materially different than those used in 2018 other
than as described herein, and, based on our current knowledge and expectations, we do not currently anticipate
significant changes in our market risk exposures or in how we will manage those exposures in future reporting periods.
Interest Rate and Credit Spread Risk
Interest rate risk is the price sensitivity of a security to changes in interest rates. Credit spread risk is the price
sensitivity of a security to changes in credit spreads. Our investment portfolio and funds held - directly managed include
fixed maturity and short-term investments, whose fair values will fluctuate with changes in interest rates and credit
spreads. We attempt to maintain adequate liquidity in our fixed maturity investments portfolio with a strategy designed
to emphasize the preservation of our invested assets and provide sufficient liquidity for the prompt payment of claims
and contract liabilities, as well as for settlement of commutation payments. We also monitor the duration and structure
of our investment portfolio.
The following table summarizes the aggregate hypothetical change in fair value from an immediate parallel shift
in the treasury yield curve, assuming credit spreads remain constant, in our fixed maturity and short-term investments
portfolio classified as trading and available-for-sale, our funds held directly managed portfolio, fixed income funds and
our fixed income exchange-traded funds:
As of December 31, 2019
-100
-50
—
+50
+100
Interest Rate Shift in Basis Points
Total Market Value
Market Value Change from Base
Change in Unrealized Value
As of December 31, 2018
Total Market Value
Market Value Change from Base
Change in Unrealized Value
(in millions of U.S. dollars)
$ 10,757
$ 10,490
5.2%
530
-100
9,555
5.0%
454
$
$
$
$
$
$
2.6%
263
-50
9,325
2.5%
224
$
$
$
$
10,227 $
—
— $
9,976
(2.5)%
(251)
—
9,101 $
—
— $
+50
8,885
(2.4)%
(216)
$
$
$
$
9,736
(4.8)%
(491)
+100
8,677
(4.7)%
(424)
Actual shifts in interest rates may not change by the same magnitude across the maturity spectrum or on an
individual security and, as a result, the impact on the fair value of our fixed maturity securities, short-term investments,
funds held - directly managed and fixed income exchange-traded fund may be materially different from the resulting
change in value indicated in the tables above.
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The following table summarizes the aggregate hypothetical change in fair value from an immediate parallel shift
in credit spreads assuming interest rates remain fixed, in our fixed maturity and short-term investments portfolio
classified as trading and available-for-sale, our funds held directly managed portfolio, fixed income funds and our fixed
income exchange-traded funds:
As of December 31, 2019
Total Market Value
Market Value Change from Base
Change in Unrealized Value
As of December 31, 2018
Total Market Value
Market Value Change from Base
Change in Unrealized Value
Credit Risk
—
—
Credit Spread Shift in Basis Points
+50
+100
(in millions of U.S. dollars)
10,227 $
$
9,101 $
$
+50
9,999
(2.2)%
(228)
8,896
(2.3)%
(205)
$
$
$
$
+100
9,777
(4.4)%
(450)
8,699
(4.4)%
(402)
$
$
Credit risk relates to the uncertainty of a counterparty’s ability to make timely payments in accordance with
contractual terms of the instrument or contract. We are exposed to direct credit risk primarily within our portfolios of
fixed maturity and short-term investments, and through customers, brokers and reinsurers in the form of premiums
receivable and reinsurance balances recoverable on paid and unpaid losses, respectively, as discussed below.
Fixed Maturity and Short-Term Investments
As a holder of $9.6 billion of fixed maturity and short-term investments, we also have exposure to credit risk as
a result of investment ratings downgrades or issuer defaults. In an effort to mitigate this risk, our investment portfolio
consists primarily of investment grade-rated, liquid, fixed maturity investments of short-to-medium duration and mutual
funds. A table of credit ratings for our fixed maturity and short-term investments is in Note 6 - "Investments" in the
notes to our consolidated financial statements included within Item 8 of this Annual Report on Form 10-K. At
December 31, 2019, 40.0% of our fixed maturity and short-term investment portfolio was rated AA or higher by a major
rating agency (December 31, 2018: 42.6%) with 4.1% rated lower than BBB- (December 31, 2018: 3.6%). The portfolio
as a whole, including cash, restricted cash, fixed maturity and short term investments and funds held - directly managed,
had an average credit quality rating of A+ as of December 31, 2019 (December 31, 2018: A+). In addition, we manage
our portfolio pursuant to guidelines that follow what we believe are prudent standards of diversification. The guidelines
limit the allowable holdings of a single issue and issuers and, as a result, we do not believe we have significant
concentrations of credit risk.
A summary of our fixed maturity and short-term investments by credit rating as of December 31, 2019 and
December 31, 2018 is as follows:
Credit rating
2019
2018
Change
AAA
AA
A
BBB
Non-investment grade
Not rated
Total
Average credit rating
(1.1)%
(1.5)%
4.1 %
(2.0)%
0.5 %
— %
28.2%
14.4%
30.2%
23.4%
3.6%
0.2%
100.0%
A+
27.1%
12.9%
34.3%
21.4%
4.1%
0.2%
100.0%
A+
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Reinsurance Balances Recoverable on Paid and Unpaid Losses
We have exposure to credit risk as it relates to our reinsurance balances recoverable on paid and unpaid losses.
Our insurance subsidiaries remain liable to the extent that retrocessionaires do not meet their contractual obligations
and, therefore, we evaluate and monitor concentration of credit risk among our reinsurers. A discussion of our
reinsurance balances recoverable on paid and unpaid losses is in Note 8 - "Reinsurance Balances Recoverable on
Paid and Unpaid Losses" in the notes to our consolidated financial statements included within Item 8 of this Annual
Report on Form 10-K.
Funds Held
Under funds held arrangements, the reinsured company has retained funds that would otherwise have been
remitted to our reinsurance subsidiaries. The funds balance is credited with investment income and losses payable
are deducted. We are subject to credit risk if the reinsured company is unable to honor the value of the funds held
balances, such as in the event of insolvency. However, we generally have the contractual ability to offset any shortfall
in the payment of the funds held balances with amounts owed by us to the reinsured for losses payable and other
amounts contractually due. Our funds held are shown under two categories on the consolidated balance sheets, where
funds held upon which we receive the underlying portfolio economics are shown as "Funds held - directly managed",
and funds held where we receive a fixed crediting rate are shown as "Funds held by reinsured companies". Both types
of funds held are subject to credit risk. We routinely monitor the creditworthiness of reinsured companies with whom
we have funds held arrangements. As of December 31, 2019 we have a significant concentration of $1.0 billion with
one reinsured company, which has financial strength credit ratings of A+ from A.M. Best and AA from Standard &
Poor's.
Equity Price Risk
Our portfolio of equity investments, excluding our fixed income exchange-traded funds but including the equity
funds and call options on equities included in other investments (collectively, "equities at risk"), has exposure to equity
price risk, which is the risk of potential loss in fair value resulting from adverse changes in stock prices. Our fixed
income exchange-traded funds are excluded from the below analysis and have been included within the interest rate
and credit spread risk analysis, as the exchange-traded funds are part of our fixed income investment strategy. Our
global equity portfolio is correlated with a blend of the S&P 500 and MSCI World indices, and changes in this blend
of indices would approximate the impact on our portfolio. The following table summarizes the aggregate hypothetical
change in fair value from a 10% decline in the overall market prices of our equities at risk:
Publicly traded equity investments in common and
preferred stocks
Privately held equity investments in common and
preferred stocks
Private equity funds
Equity funds
Call options on equity
Fair value of equities at risk
Impact of 10% decline in fair value
2019
2018
Change
(in millions of U.S. dollars)
$
327.9
$
138.4
$
189.5
268.8
329.9
410.1
0.1
$
$
1,336.8
133.7
$
$
228.7
248.6
333.7
—
949.4
94.9
$
$
40.1
81.3
76.4
0.1
387.4
38.8
In addition to the above, as of December 31, 2019, we had investments of $1,121.9 million (December 31, 2018:
$852.6 million) in hedge funds, included within our other investments, at fair value, that have exposure, among other
items, to equity price risk.
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Foreign Currency Risk
The table below summarizes our net exposures as of December 31, 2019 and 2018 to foreign currencies:
AUD
CAD
EUR
GBP
Other
Total
(in millions of U.S. dollars)
2019
Total net foreign currency exposure
Pre-tax impact of a 10% movement in USD(1)
2018
Total net foreign currency exposure
Pre-tax impact of a 10% movement in USD(1)
$
$
$
$
(1) Assumes 10% change in U.S. dollar relative to other currencies.
20.2 $ (10.6) $ 12.9 $ (11.9) $
(1.2) $
(1.1) $
1.3 $
2.0 $
17.5 $ 20.2 $ 17.2 $ (35.8) $
(3.6) $
1.7 $
2.0 $
1.8 $
0.6 $
0.1 $
11.2
1.1
1.7 $
0.2 $
20.7
2.1
Through our subsidiaries located in various jurisdictions, we conduct our insurance and reinsurance operations
in a variety of non-U.S. currencies. We have the following exposures to foreign currency risk:
•
•
•
•
Transaction Risk: The functional currency for the majority of our subsidiaries is the U.S. dollar. Within these
entities, any fluctuations in foreign currency exchange rates relative to the U.S. dollar has a direct impact on
the valuation of our assets and liabilities denominated in other currencies. All changes in foreign exchange
rates, with the exception of non-U.S. dollar available-for-sale investments, are recognized in our consolidated
statements of earnings. Changes in foreign exchange rates relating to non-U.S. dollar available-for-sale
investments are recorded accumulated other comprehensive income (loss) in shareholders’ equity. Our
subsidiaries with non-U.S. dollar functional currencies are also exposed to fluctuations in foreign currency
exchange rates relative to their own functional currency.
Translation Risk: Our net investments in certain European, British, and Australian subsidiaries whose functional
currencies are the Euro, British pound and Australian dollar, respectively. The foreign exchange gain or loss
resulting from the translation of their financial statements from functional currency into U.S. dollars is recorded
in the cumulative translation adjustment account, which is a component of accumulated other comprehensive
income (loss) in shareholders’ equity.
Our foreign currency policy is to broadly manage, where possible, our foreign currency risk by:
Seeking to match our liabilities under insurance and reinsurance policies that are payable in foreign currencies
with assets that are denominated in such currencies, subject to regulatory constraints.
Selectively utilizing foreign currency forward contracts to mitigate foreign currency risk.
• We may borrow to hedge the foreign currency exposure on our net investment in certain of our subsidiaries
whose functional currency is denominated in non-U.S. dollars. This is referred to as a non-derivative hedge.
The instruments we use to manage foreign currency risk are discussed in Note 7 - "Derivatives and Hedging
Instruments" in the notes to our consolidated financial statements included within Item 8 of this Annual Report on Form
10-K. To the extent our foreign currency exposure is not matched or hedged, we may experience foreign exchange
losses or gains, which would be reflected in our consolidated results of operations and financial condition.
Effects of Inflation
Inflation may have a material effect on our consolidated results of operations by its effect on our assets and our
liabilities. Inflation could lead to higher interest rates, resulting in a decrease in the market value of our fixed maturity
portfolio. We may choose to hold our fixed maturity investments to maturity, which would result in the unrealized gains
or losses accreting back over time. Inflation may also affect the value of certain of our liabilities, primarily our estimate
for losses and LAE, such as our cost of claims which includes medical treatments, litigation costs and judicial awards.
Although our estimate for losses and LAE is established to reflect the likely payments in the future, we would be subject
to the risk that inflation could cause these amounts to be greater than the current estimate for losses and LAE. We
seek to take this into account when setting reserves and pricing new business.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2019 and 2018
Consolidated Statements of Earnings for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017
Notes to the Consolidated Financial Statements
Note 1 - Description of Business
Note 2 - Significant Accounting Policies
Note 3 - Acquisitions
Note 4 - Significant New Business
Note 5 - Divestitures, Held-for-Sale Businesses and Discontinued Operations
Note 6 - Investments
Note 7 - Derivatives and Hedging Instruments
Note 8 - Reinsurance Balances Recoverable on Paid and Unpaid Losses
Note 9 - Deferred Charge Assets
Note 10 - Losses and Loss Adjustment Expenses
Note 11 - Defendant Asbestos and Environmental Liabilities
Note 12 - Fair Value Measurements
Note 13 - Premiums Written and Earned
Note 14 - Goodwill and Intangible Assets
Note 15 - Debt Obligations and Credit Facilities
Note 16 - Noncontrolling Interest
Note 17 - Share Capital
Note 18 - Earnings per Share
Note 19 - Share-Based Compensation and Pensions
Note 20 - Income Taxation
Note 21 - Related Party Transactions
Note 22 - Dividend Restrictions and Statutory Financial Information
Note 23 - Commitments and Contingencies
Note 24 - Segment Information
Note 25 - Unaudited Condensed Quarterly Financial Data
SCHEDULES
I. Summary of Investments Other than Investments in Related Parties
II. Condensed Financial Information of Registrant
III. Supplementary Insurance Information
IV. Reinsurance
V. Valuation and Qualifying Accounts
VI. Supplementary Information Concerning Property/Casualty Insurance Operations
Page
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122
123
124
125
126
127
127
128
139
145
148
149
158
160
162
163
218
220
230
231
233
236
237
239
240
244
247
254
258
262
266
267
268
271
272
273
274
Schedules other than those listed above are omitted as they are not applicable or the information has been included in the
consolidated financial statements, notes thereto, or elsewhere herein.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
Enstar Group Limited:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Enstar Group Limited and subsidiaries (the
Company) as of December 31, 2019 and 2018, the related consolidated statements of earnings, comprehensive
income, changes in shareholders’ equity, and cash flows for each of the years in the three‑year period ended
December 31, 2019, and the related notes and financial statement schedules I to VI (collectively, the consolidated
financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash
flows for each of the years in the three‑year period ended December 31, 2019, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission, and our report dated February 27, 2020 expressed an unqualified opinion on the
effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks
of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated
financial statements that were communicated or required to be communicated to the audit committee and that: (1)
relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way
our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical
audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which
they relate.
Assessment of the estimate of the loss reserves and asbestos and environmental liabilities
As discussed in Notes 2 (c), 10 and 11 to the consolidated financial statements, the Company has recorded a liability
for loss and loss adjustment expenses (loss reserves) and defendant asbestos and environmental liabilities (asbestos
and environmental liabilities) of $7,808 million and $848 million, respectively, as of December 31, 2019. Included in
loss reserves are claims that have been received by the Company but not yet paid, in addition losses that have been
incurred, but not yet reported to the Company. Asbestos and environmental liabilities include amounts for indemnity
and defense costs for pending and future claims, as well as estimated clean-up costs based on engineering reports.
The Company established loss reserves and asbestos and environmental liabilities based on actuarially determined
estimates of ultimate claims payments, using generally accepted actuarial methods, with the assistance of actuarial
specialists.
We identified the assessment of the estimate of loss reserves and asbestos and environmental liabilities as a critical
audit matter. The evaluation of the estimate of loss reserves involved a high degree of auditor judgment due to the
inherent uncertainty that exists in the losses incurred but not yet reported amounts, the outcome of coverage litigation
on certain lines of business, and the significant amount of time that can lapse between the assumption of risk and
ultimate payment of the claim. Also, the evaluation of the estimate of asbestos and environmental liabilities involved
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a high degree of auditor judgment due to the inherent uncertainty that exists in estimating the number and potential
value of claims asserted, but unpaid and claims not yet asserted. The key assumptions used in the estimation process
for loss reserves included loss development factors, expected loss ratios, and expected trends in claim frequency and
severity. The key assumptions used in the estimation process for asbestos and environmental liabilities included
expected trends in claim frequency and severity. Specialized skills and knowledge were required to evaluate the
actuarial methodologies and certain assumptions used to estimate loss reserves and asbestos and environmental
liabilities.
The primary procedures we performed to address this critical audit matter included the following. We tested certain
internal controls over the Company’s process to estimate the loss reserves and asbestos and environmental liabilities,
including controls over the assumptions listed above and actuarial methodologies used in the estimation of loss reserves
and asbestos and environmental liabilities. We involved actuarial professionals with specialized skills and knowledge,
who assisted in:
• Comparing the methodologies and assumptions used by the Company in estimating loss reserves and asbestos
and environmental liabilities with generally accepted actuarial methodologies;
• Evaluating loss development factors, expected loss ratios, and expected trends in claim frequency and severity,
by comparing them to historical results and industry trends used in the estimation process of loss reserves;
• Evaluating expected trends in claim frequency and severity, by comparing them to historical results and industry
trends used in the estimation process of asbestos and environmental liabilities;
• Developing an independent actuarial estimate of loss reserves and asbestos and environmental liabilities for
selected lines of business;
• Examining the Company’s internal or independent external actuarial analyses for the remaining lines of business
by 1) analyzing claims development in the current year; and 2) evaluating changes in methodologies and
assumptions from the prior year;
• Evaluating the Company’s overall recorded loss reserves by assessing the movement of the recorded loss reserves
within the Company’s range of actuarially determined reserves; and
• Evaluating the Company’s overall recorded asbestos and environmental liabilities by assessing the movement of
the recorded asbestos and environmental liabilities within the Company’s range of actuarially determined reserves.
Assessment of the estimate of the nominal loss reserve used to develop the liability for loss and loss adjustment
expenses, fair value
As discussed in Notes 2 (c), 2(p), 10 and 12 to the consolidated financial statements, the Company used a discounted
cash flow approach to estimate the liability for loss and loss adjustment expenses, fair value. The discounted cash
flow approach used estimated nominal cash flows based on a payment pattern developed in accordance with standard
actuarial techniques. Nominal loss reserves include claims that have been received by the Company but not yet paid,
in addition to losses that have been incurred, but not yet reported to the Company. The Company estimated the nominal
loss reserve based on actuarially determined estimates of ultimate loss and loss adjustment expenses, using generally
accepted actuarial methods, with the assistance of actuarial specialists. The Company has recorded a liability for loss
and loss adjustment expenses, fair value (loss reserves at fair value) of $2,621 million as of December 31, 2019.
We identified the assessment of the estimate of the nominal loss reserve used to develop the loss reserves at fair
value as a critical audit matter. The evaluation of the estimate of the nominal loss reserves involved a high degree of
auditor judgment due to the inherent uncertainty that exists in the losses incurred but not yet reported amounts, the
outcome of coverage litigation on certain lines of business, and the significant amount of time that can lapse between
the assumption of risk and ultimate payment of the claim. The key assumptions used in the estimation process included
loss development factors and expected trends in claim frequency and severity. Specialized skills and knowledge were
required to 1) evaluate the actuarial methodologies and certain assumptions used to estimate the nominal loss reserves;
and 2) evaluate the projected payout, including timing, and amount of the nominal cash flows used in the fair value
estimate.
The primary procedures we performed to address this critical audit matter included the following. We tested certain
internal controls over the Company’s process to estimate nominal loss reserve, including controls over the assumptions
and actuarial methodologies used in the 1) estimation of the nominal loss reserves; and 2) the estimation of the projected
payout, including timing, and amount of the nominal cash flows used to develop the fair value. We involved actuarial
professionals with specialized skills and knowledge, who assisted in:
• Comparing the methodologies and assumptions used by the Company in estimating the nominal loss reserves
with generally accepted actuarial methodologies;
• Evaluating loss development factors and expected trends in claim frequency and severity, by comparing them to
historical results and industry trends;
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• Developing an independent actuarial estimate of the nominal loss reserves for selected lines of business;
• Examining the Company’s internal and independent external actuarial analyses for the remaining lines of business
by 1) analyzing claims development in the current year; and 2) evaluating changes in methodologies and
assumptions from the prior year;
• Evaluating the Company’s overall nominal loss reserves and assessing the movement of the nominal loss reserves
within the Company’s range of actuarially determined reserves; and
• Evaluating the projected payout, including timing, and amount of the nominal cash flows used to develop the fair
value, by comparing the assumptions used with the assumptions applied in developing the nominal loss reserves.
Evaluation of the acquisition date fair value of asbestos liabilities acquired in the Morse TEC business combination
As discussed in Note 3 to the consolidated financial statements, on October 30, 2019, the Company acquired Morse
TEC. As a result of the transaction the Company recoded $0.663 billion in asbestos liabilities associated with personal
injury claims (asbestos liabilities). The Company determined the acquisition to be a business combination and applied
the acquisition method to account for the transaction. The acquisition date fair value of the acquired asbestos liabilities
are derived from projected cash flows, based on actuarially determined information. The key assumptions used by the
Company to determine the acquisition date fair value of the acquired asbestos liabilities are: 1) the projected payout,
including timing and amount of asbestos liabilities, which is derived from the actuarial estimate of nominal asbestos
liabilities; 2) a discount rate, which is applied to estimate the present value of the future cash flows; and 3) a risk margin.
The nominal asbestos liabilities include amounts for indemnity and defense costs for pending and future claims. The
Company established nominal asbestos liabilities based on actuarially determined estimates of ultimate claims
payments, using generally accepted actuarial methods, with the assistance of actuarial specialists.
We identified the determination of the acquisition date fair value of the asbestos liabilities acquired in the Morse TEC
business combination as a critical audit matter. The evaluation of the estimate of nominal asbestos liabilities involved
a high degree of auditor judgment due to the inherent uncertainty that exists in estimating the number and potential
value of claims asserted, but unpaid and claims not yet asserted. The key assumptions used in the fair value process
included: 1) the projected payout, including timing and amount of asbestos liabilities; 2) a discount rate; and 3) a risk
margin. Specialized skills and knowledge were required to 1) evaluate the actuarial methodologies and certain
assumptions used to estimate the nominal asbestos liability; and 2) the acquisition date fair value of asbestos liabilities.
The primary procedures we performed to address this critical audit matter included the following. We tested certain
internal controls over the Company’s process to estimate the fair value of the asbestos liabilities, including controls
over the assumptions and actuarial methodologies used in the 1) estimation of the nominal asbestos liabilities; 2)
estimation of the projected payout, including timing, and amount of asbestos liabilities; and 3) the methodologies and
assumptions used in determining the discount rate and risk margin. We involved actuarial processionals with specialized
skills and knowledge, who assisted in:
• Comparing the methodologies and assumptions used by the Company in estimating the nominal asbestos liabilities
with generally accepted actuarial methodologies;
• Evaluating expected trends in claim frequency and severity, by comparing them to historical results and industry
trends;
• Developing an independent actuarial estimate of nominal asbestos liabilities for selected lines of - business;
• Examining the Company’s internal actuarial analysis for the remaining lines of business by analyzing claims
development in the current year;
• Developing independent actuarial estimates of the projected payout, including timing, and amount of asbestos
liabilities; and
• Evaluating the methodologies and assumptions used by the Company in determining the risk margin used in the
estimation of the fair value of the acquired asbestos liabilities.
In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:
• Evaluating the discount rate used in the estimation of the fair value of the asbestos liabilities by assessing the
inputs into the discount rate.
/s/ KPMG Audit Limited
KPMG Audit Limited
Hamilton, Bermuda
February 27, 2020
We have served as the Company’s auditor since 2012.
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ENSTAR GROUP LIMITED
CONSOLIDATED BALANCE SHEETS
As of December 31, 2019 and 2018
ASSETS
Short-term investments, trading, at fair value
Short-term investments, available-for-sale, at fair value (amortized cost: 2019 — $128,311; 2018 — $nil)
Fixed maturities, trading, at fair value
Fixed maturities, available-for-sale, at fair value (amortized cost: 2019 — $1,914,143; 2018 — $151,433)
Funds held - directly managed
Equities, at fair value
Other investments, at fair value
Equity method investments
Total investments (Note 6 and Note 12)
Cash and cash equivalents
Restricted cash and cash equivalents
Premiums receivable
Deferred tax assets (Note 20)
Reinsurance balances recoverable on paid and unpaid losses (Note 8)
Reinsurance balances recoverable on paid and unpaid losses, fair value (Note 8 and Note 12)
Insurance balances recoverable (Note 11)
Funds held by reinsured companies
Deferred acquisition costs
Goodwill and intangible assets (Note 14)
Other assets
TOTAL ASSETS
LIABILITIES
Losses and loss adjustment expenses (Note 10)
Losses and loss adjustment expenses, fair value (Note 10 and Note 12)
Defendant asbestos and environmental liabilities (Note 11)
Unearned premiums
Insurance and reinsurance balances payable
Deferred tax liabilities (Note 20)
Debt obligations (Note 15)
Other liabilities
TOTAL LIABILITIES
COMMITMENTS AND CONTINGENCIES (Note 23)
2019
2018
(expressed in thousands of U.S.
dollars, except share data)
$
51,490
$
114,116
128,335
6,346,329
1,913,389
1,187,552
729,721
2,524,420
326,277
—
7,248,793
151,609
1,198,154
367,125
1,957,757
204,507
13,207,513
11,242,061
703,085
352,692
576,980
170,984
602,096
380,488
787,468
10,124
1,684,372
1,290,072
695,518
448,855
408,735
153,505
216,468
744,608
739,591
135,808
321,267
121,101
218,725
707,469
$
$
19,363,315
$
16,556,270
7,808,116
$
6,535,449
2,621,122
2,874,055
847,685
746,775
373,180
16,074
1,191,207
464,014
203,320
842,618
388,086
10,542
861,539
468,129
14,068,173
12,183,738
REDEEMABLE NONCONTROLLING INTEREST (Note 16)
438,791
458,543
SHAREHOLDERS’ EQUITY (Note 17)
Ordinary shares (par value $1 each, issued and outstanding 2019: 21,511,505; 2018: 21,459,997):
Voting Ordinary Shares (issued and outstanding 2019: 18,001,823; 2018: 17,950,315)
Non-voting convertible ordinary Series C Shares (issued and outstanding 2019 and 2018: 2,599,672)
Non-voting convertible ordinary Series E Shares (issued and outstanding 2019 and 2018: 910,010)
Preferred Shares:
Series C Preferred Shares (issued and held in treasury 2019 and 2018: 388,571)
Series D Preferred Shares (issued and outstanding 2019 and 2018: 16,000)
Series E Preferred Shares (issued and outstanding 2019 and 2018: 4,400)
Treasury shares, at cost (Series C Preferred Shares 2019 and 2018: 388,571)
Additional paid-in capital
Accumulated other comprehensive income
Retained earnings
Total Enstar Group Limited Shareholders’ Equity
Noncontrolling interest
TOTAL SHAREHOLDERS’ EQUITY
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY
18,002
2,600
910
389
400,000
110,000
(421,559)
1,836,778
7,171
2,887,892
4,842,183
14,168
17,950
2,600
910
389
400,000
110,000
(421,559)
1,804,664
10,440
1,976,539
3,901,933
12,056
$
4,856,351
$
3,913,989
19,363,315
16,556,270
See accompanying notes to the consolidated financial statements
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ENSTAR GROUP LIMITED
CONSOLIDATED STATEMENTS OF EARNINGS
For the Years Ended December 31, 2019, 2018 and 2017
INCOME
Net premiums earned
Fees and commission income
Net investment income
Net realized and unrealized gains (losses)
Other income
EXPENSES
Net incurred losses and loss adjustment expenses
Life and annuity policy benefits
Acquisition costs
General and administrative expenses
Interest expense
Net foreign exchange (gains) losses
Loss on sale of subsidiary
EARNINGS (LOSS) BEFORE INCOME TAXES
Income tax benefit (expense)
Earnings from equity method investments
2019
2018
2017
(expressed in thousands of U.S.
dollars, except share and per share data)
$
1,154,861 $
895,575 $
613,121
28,453
321,276
35,088
270,671
1,031,351
(412,884)
37,170
2,573,111
872,575
91
305,951
473,086
52,541
(7,879)
—
35,085
823,535
454,025
1,003
192,790
407,375
26,217
2,668
—
1,696,365
1,084,078
876,746
(260,543)
(4,437)
55,910
6,124
42,147
66,103
208,789
190,334
22,605
1,100,952
193,551
4,015
96,906
435,985
28,102
17,537
16,349
792,445
308,507
6,395
5,904
320,806
10,993
331,799
(20,341)
311,458
—
NET EARNINGS (LOSS) FROM CONTINUING OPERATIONS
928,219
(212,272)
Net earnings from discontinued operations, net of income taxes
NET EARNINGS (LOSS)
Net loss (earnings) attributable to noncontrolling interest
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR GROUP LIMITED
Dividends on preferred shares
—
928,219
9,870
938,089
(35,914)
—
(212,272)
62,051
(150,221)
(12,133)
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR GROUP LIMITED
ORDINARY SHAREHOLDERS
$
902,175 $
(162,354) $
311,458
Earnings per ordinary share attributable to Enstar Group Limited:
Basic:
Net earnings (loss) from continuing operations
Net earnings from discontinued operations, net of income taxes
Net earnings (loss) per ordinary share
Diluted:
Net earnings (loss) from continuing operations
Net earnings from discontinued operations, net of income taxes
Net earnings (loss) per ordinary share
Weighted average ordinary shares outstanding:
Basic
Diluted
$
$
$
$
42.00 $
(7.84) $
—
—
42.00 $
(7.84) $
41.43 $
(7.84) $
—
—
41.43 $
(7.84) $
15.50
0.56
16.06
15.39
0.56
15.95
21,482,617
20,698,310
19,388,621
21,775,066
20,904,176
19,527,591
See accompanying notes to the consolidated financial statements
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ENSTAR GROUP LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31, 2019, 2018 and 2017
NET EARNINGS (LOSS)
Other comprehensive income (loss), net of income taxes:
Unrealized holding gains (losses) on fixed income investments
arising during the year
Reclassification adjustment for net realized gains (losses)
included in net earnings
Unrealized gains (losses) arising during the year, net of
reclassification adjustment
Change in currency translation adjustment
Reclassification to earnings on disposal of subsidiary
Total cumulative translation adjustment
Decrease in defined benefit pension liability
Total other comprehensive gain (loss)
2019
2018
2017
(expressed in thousands of U.S. dollars)
$
928,219 $
(212,272) $
331,799
2,896
(2,284)
4,776
(3,894)
(998)
(2,428)
—
(2,428)
42
(3,384)
63
(491)
(2,221)
(202)
—
(202)
2,156
(267)
4,285
9,423
20,751
30,174
1,501
35,960
Comprehensive income (loss)
924,835
(212,539)
367,759
Comprehensive loss (income) attributable to noncontrolling
interest
9,985
62,291
(22,285)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO
ENSTAR GROUP LIMITED
$
934,820 $
(150,248) $
345,474
See accompanying notes to the consolidated financial statements
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ENSTAR GROUP LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2019, 2018 and 2017
Share Capital — Voting Ordinary Shares
Balance, beginning of year
Issue of shares
Conversion of Series C Non-Voting Convertible Ordinary Shares
Balance, end of year
Share Capital — Non-Voting Convertible Ordinary Series C Shares
Balance, beginning of year
Conversion to Voting Ordinary Shares
Balance, end of year
Share Capital — Non-Voting Convertible Ordinary Series E Shares
Balance, beginning of year
Issue of shares
Balance, end of year
Share Capital - Series C Convertible Participating Non-Voting Preferred Shares
Balance, beginning and end of year
Share Capital - Series D Preferred Shares
Balance, beginning of year
Issue of shares
Balance, end of year
Share Capital - Series E Preferred Shares
Balance, beginning of year
Issue of shares
Balance, end of year
Treasury Shares (Series C Preferred Shares)
Balance, beginning and end of year
Additional Paid-in Capital
Balance, beginning of year
Issue of voting ordinary shares
Issuance costs of preferred shares
Amortization of share-based compensation
Balance, end of year
Accumulated Other Comprehensive Income (Loss)
Balance, beginning of year
Cumulative translation adjustment
Balance, beginning of year
Change in currency translation adjustment
Reclassification to earnings on disposal of subsidiary
Balance, end of year
Defined benefit pension liability
Balance, beginning of year
Change in defined benefit pension liability
Balance, end of year
Unrealized gains (losses) on investments
Balance, beginning of year
Change in unrealized gains (losses) on investments
Balance, end of year
Balance, end of year
Retained Earnings
Balance, beginning of year
Net earnings (loss) attributable to Enstar Group Limited ordinary shareholders
Net loss (earnings) attributable to noncontrolling interest
Dividends on preferred shares
Change in redemption value of redeemable noncontrolling interests
Cumulative effect of change in accounting principle
Balance, end of year
Noncontrolling Interest (excludes redeemable noncontrolling interests)
Balance, beginning of year
Purchase of noncontrolling shareholders' interest in subsidiaries
Contribution of capital
Net earnings attributable to noncontrolling interest
Balance, end of year
2019
2017
2018
(expressed in thousands of U.S. dollars)
17,950
52
—
18,002
2,600
—
2,600
910
—
910
389
400,000
—
400,000
110,000
—
110,000
(421,559)
1,804,664
583
—
31,531
1,836,778
10,440
10,986
(2,438)
—
8,548
(987)
42
(945)
441
(873)
(432)
7,171
1,976,539
928,219
9,870
(35,914)
9,178
—
2,887,892
12,056
(47)
—
2,159
14,168
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
16,402
1,548
—
17,950
2,600
—
2,600
405
505
910
389
$
$
$
$
$
$
$
— $
400,000
400,000
$
— $
110,000
110,000
(421,559)
1,395,067
413,141
(14,643)
11,099
1,804,664
10,468
11,171
(185)
—
10,986
(3,143)
2,156
(987)
2,440
(1,999)
441
10,440
2,132,912
(212,272)
62,051
(12,133)
7,554
(1,573)
1,976,539
9,264
—
49
2,743
12,056
$
$
$
$
$
$
$
$
$
$
16,175
35
192
16,402
2,792
(192)
2,600
405
—
405
389
—
—
—
—
—
—
(421,559)
1,380,109
450
—
14,508
1,395,067
(23,549)
(18,993)
9,413
20,751
11,171
(4,644)
1,501
(3,143)
88
2,352
2,440
10,468
1,847,550
331,799
(20,341)
—
(30,978)
4,882
2,132,912
8,520
—
22
722
9,264
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
See accompanying notes to the consolidated financial statements
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ENSTAR GROUP LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2019, 2018 and 2017
OPERATING ACTIVITIES:
Net earnings (loss)
Net earnings from discontinued operations, net of income taxes
Adjustments to reconcile net earnings to cash flows used in operating activities:
2019
2018
2017
(expressed in thousands of U.S. dollars)
$
928,219
—
$
(212,272) $
—
331,799
(10,993)
Realized losses (gains) on sale of investments
Unrealized losses (gains) on investments
Depreciation and other amortization
Earnings from equity method investments
Sales and maturities of trading securities
Purchases of trading securities
Net loss on sale of subsidiary
Other non-cash items
Changes in:
Reinsurance balances recoverable on paid and unpaid losses
Funds held by reinsured companies
Losses and loss adjustment expenses
Defendant asbestos and environmental liabilities
Policy benefits for life and annuity contracts
Insurance and reinsurance balances payable
Unearned premiums
Premiums receivable
Other operating assets and liabilities
Net cash flows provided by (used in) operating activities
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired
Sale of subsidiary, net of cash sold
Sales and maturities of available-for-sale securities
Purchase of available-for-sale securities
Purchase of other investments
Proceeds from other investments
Purchase of equity method investments
Other investing activities
Net cash flows provided by (used in) investing activities
FINANCING ACTIVITIES:
Net proceeds from the issuance of preferred shares
Dividends on preferred shares
Contribution by noncontrolling interest
Contribution by redeemable noncontrolling interest
Dividends paid to noncontrolling interest
Purchase of noncontrolling interest in subsidiaries
Receipt of loans
Repayment of loans
Net cash flows provided by (used in) financing activities
EFFECT OF EXCHANGE RATE CHANGES ON FOREIGN CURRENCY CASH, CASH
EQUIVALENTS AND RESTRICTED CASH
(96,328)
(935,023)
35,583
(55,910)
5,829,277
(4,591,459)
—
33,857
(350,243)
(87,468)
1,021,175
(18,142)
(103,080)
(15,227)
(95,843)
210,493
53,635
1,763,516
$
172,482
—
344,325
(2,212,204)
(796,918)
582,662
(69,213)
(4,671)
(1,983,537)
$
— $
(35,914)
—
13,127
(11,556)
(47)
1,070,502
(742,574)
293,538
27,633
385,251
33,295
(42,147)
4,802,224
(5,592,311)
—
11,857
(268,039)
(126,897)
960,199
(15,844)
(6,776)
151,918
173,725
(212,423)
(229,465)
(160,072)
$
(245,151) $
—
58,219
(10,386)
(901,071)
436,396
(155,440)
(8,321)
(825,754)
495,357
(12,133)
49
55,377
(3,852)
—
1,132,507
(914,319)
752,986
$
(1,668)
(188,666)
36,115
(5,904)
6,111,607
(7,544,649)
16,349
41,087
(530,857)
(93,310)
1,363,032
(14,857)
(3,314)
(157,741)
34,854
(19,026)
293,035
(343,107)
(4,185)
126,611
86,359
(14,848)
(109,885)
232,827
—
(23,617)
293,262
—
—
22
—
(27,458)
—
874,100
(912,140)
(65,476)
(324)
2,588
9,512
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF YEAR
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF YEAR
73,193
982,584
$ 1,055,777
Supplemental Cash Flow Information:
Income taxes paid, net of refunds
Interest paid
Reconciliation to Consolidated Balance Sheets:
Cash and cash equivalents
Restricted cash and cash equivalents
Cash, cash equivalents and restricted cash
$
$
5,012
49,457
$
703,085
352,692
$ 1,055,777
(230,252)
1,212,836
982,584
(105,809)
1,318,645
$ 1,212,836
17,610
25,240
$
$
13,192
21,487
602,096
380,488
982,584
$
955,150
257,686
$ 1,212,836
$
$
$
$
$
See accompanying notes to the consolidated financial statements
126
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
(Tabular information expressed in thousands of U.S. dollars except share and per share data)
1. DESCRIPTION OF BUSINESS
Enstar Group Limited ("Enstar") is a Bermuda-based holding company, formed in 2001. Enstar is a multi-faceted
insurance group that offers innovative capital release solutions and specialty underwriting capabilities through its
network of group companies in Bermuda, the United States, the United Kingdom, Continental Europe, Australia, and
other international locations. Our ordinary shares are listed on the NASDAQ Global Select Market under the ticker
symbol "ESGR". Unless the context indicates otherwise, the terms "Enstar," "we," "us" or "our" mean Enstar Group
Limited and its consolidated subsidiaries and the term "Parent Company" means Enstar Group Limited and not any
of its consolidated subsidiaries.
Our business is organized into three segments:
(i) Non-life Run-off: This segment comprises the operations of our subsidiaries that are running off their property
and casualty and other non-life business. It also includes our management business, which manages the
run-off portfolios of third parties through our service companies;
(ii) Atrium: Atrium Underwriters Ltd. is a managing general agent at Lloyd’s of London ("Lloyd's"), which manages
Syndicate 609. Through a corporate capital vehicle, Atrium 5 Ltd., we provide 25% of the syndicate’s
underwriting capacity and capital (with the balance provided by traditional Lloyd’s Names). Atrium specializes
in a wide range of industry classes, including marine, aviation and transit, property and casualty binding
authorities, reinsurance, accident and health and non-marine direct and facultative; and
(iii) StarStone: StarStone is a global specialty insurer that underwrites a diverse range of property, casualty and
specialty insurance through its operations in Bermuda, the United States, the United Kingdom, and
Continental Europe. Certain business of StarStone placed into run-off at the time of our acquisition of
StarStone is recorded in our Non-life Run-off segment.
Atrium and StarStone, our active underwriting operations, are reported as separate segments because they are
managed and operated in separate and distinct manners. Atrium employees are not involved in the management or
strategy of StarStone, nor are StarStone employees involved in the management or strategy of Atrium. Atrium and
StarStone are monitored and reported upon separately and distinctly and their strategies and business plans are
determined independently of each other.
In addition to our three reportable segments, our other activities, which do not qualify as a reportable segment,
include our corporate expenses, debt servicing costs, holding company income and expenses, foreign exchange and
other miscellaneous items.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation
The consolidated financial statements have been prepared in conformity with accounting principles generally
accepted in the United States of America ("U.S. GAAP"). The consolidated financial statements include our assets,
liabilities and results of operations as of December 31, 2019 and 2018 and for the years ended December 31, 2019,
2018 and 2017. Results of operations for acquired subsidiaries are included from the date of acquisition. All significant
intercompany transactions and balances have been eliminated. Certain prior period amounts have been reclassified
to conform to the current period presentation. These reclassifications had no impact on net earnings.
Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Our actual results could differ materially from our estimates. Accounting policies that we believe are most
dependent on assumptions and estimates are considered to be our critical accounting policies and are related to the
determination of:
•
•
•
•
•
•
•
•
•
•
liability for losses and loss adjustment expenses ("LAE");
reinsurance balances recoverable on paid and unpaid losses;
defendant asbestos and environmental liabilities and related insurance balances recoverable;
valuation allowances on reinsurance balances recoverable and deferred tax assets;
impairment charges, including other-than-temporary impairments on investment securities classified as
available-for-sale, and impairments on goodwill, intangible assets and deferred charge assets;
gross and net premiums written and net premiums earned;
fair value measurements of investments;
fair value estimates associated with accounting for acquisitions;
fair value estimates associated with loss portfolio transfer reinsurance agreements for which we have elected
the fair value option; and
redeemable noncontrolling interests.
Significant Accounting Policies
(a) Premiums
Non-Life
Non-life premiums written are earned on a pro-rata basis over the period the coverage is provided. Reinsurance
premiums are recorded at the inception of the policy, are based upon contractual terms and, for certain business, are
estimated based on underlying contracts or from information provided by insureds and/or brokers. Changes in
reinsurance premium estimates are expected and may result in adjustments in future periods. Any subsequent
differences arising on such estimates are recorded as premiums written in the period in which they are determined.
Certain non-life contracts are retrospectively rated and provide for a final adjustment to the premium based on
the final settlement of all losses. Premiums on such contracts are adjusted based upon contractual terms, and
management judgment is involved with respect to the estimate of the amount of losses that we expect to incur. Additional
premiums are recognized at the time loss thresholds specified in the contract are exceeded and are earned over the
coverage period, or are earned immediately if the period of risk coverage has passed.
Premiums receivable
Premiums receivable represent amounts currently due and amounts not yet due on insurance and reinsurance
policies. Premiums for insurance policies and loss portfolio transfer reinsurance agreements are generally due at
inception. Premiums for other reinsurance policies generally become due over the period of coverage based on the
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
policy terms. We monitor the credit risk associated with premiums receivable, taking into consideration the impact of
our contractual right to offset loss obligations or unearned premiums against premiums receivable. Amounts deemed
uncollectible are charged to net earnings based on an expected loss approach. Changes in the estimates of premiums
written will result in an adjustment to premiums receivable in the period they are determined.
Unearned premiums and prepaid reinsurance premiums
Unearned premiums represent the portion of premiums written that relate to the unexpired terms of policies in
force. Premiums ceded are similarly pro-rated over the period the coverage is provided with the unearned portion being
deferred as prepaid reinsurance premiums.
(b) Acquisition Costs
Acquisition costs, consisting principally of commissions and brokerage expenses and certain premium taxes and
fees incurred at the time a contract or policy is issued and that vary with and are directly related to the successful
efforts of acquiring new insurance contracts or renewing existing insurance contracts, are deferred and amortized over
the period in which the related premiums are earned. Deferred acquisition costs are limited to their estimated realizable
value by line of business based on the related unearned premiums, anticipated claims and claim expenses and
anticipated investment income.
A premium deficiency occurs if the sum of anticipated losses and loss adjustment expenses exceed unearned
premiums, deferred acquisition costs and anticipated investment income. A premium deficiency is initially recognized
by charging any deferred acquisition costs to expense to the extent required in order to eliminate the deficiency. If the
premium deficiency exceeds the deferred acquisition costs then a liability is accrued for the excess deficiency.
(c) Losses and LAE
Non-life Run-off
The liability for losses and LAE in the Non-life Run-off segment includes an amount determined from reported
claims and an amount, based on historical loss experience and industry statistics, for losses incurred but not reported
("IBNR") determined using a variety of actuarial methods. These estimates are continually reviewed and are necessarily
subject to the impact of future changes in factors such as claim severity and frequency, changes in economic conditions
including the impact of inflation, legal and judicial developments, and medical cost trends. Our estimates, at inception
and on an ongoing basis, do not include an estimate for potential future commutations and policy buybacks.
Commutations and policy buybacks are often unique, and each commutation or policy buyback is separately negotiated.
Therefore, the successful execution of one commutation or policy buyback does not necessarily impact the likelihood
of other commutations or policy buybacks occurring in the future. We therefore exclude the impact of potential future
commutations and policy buybacks in determining the liability for losses and LAE. While we believe that the liability
for losses and LAE is adequate, the ultimate amount may be in excess of, or less than, the amounts provided.
Adjustments will be reflected as part of the net increase or reduction in losses and LAE liabilities in the periods in which
they become known. Premium and commission adjustments may be triggered by incurred losses, and any amounts
are recorded in the same period that the related incurred loss is recognized.
Commutations of acquired companies’ exposures have the effect of accelerating the payout of claims compared
to the probability-weighted ranges of actuarially projected cash flows that we applied when estimating the fair values
of assets and liabilities at the time of acquisition. Commutations and policy buybacks provide an opportunity for us to
exit exposures to certain policies and insureds generally at a discount to our estimate of the ultimate liability and provide
us with the ability to eliminate exposure to further losses. Commutations and policy buybacks can be beneficial to us
as they legally extinguish liabilities in full, reduce the potential for future adverse loss development, and reduce future
claims handling costs. Any material acceleration of payout together with the impact of any material loss reserve savings
in any period will also accelerate the amortization of fair value adjustments and deferred charge assets in that period.
Commutations are only executed directly with insureds or reinsureds and any gains realized or losses incurred on the
settlement of losses and LAE liabilities through commutations or policy buybacks are recognized upon the execution
of a commutation or policy buyback with the insured or reinsured. Our estimate of the liability for losses and LAE does
not consider historical commutations and policy buybacks and also does not include an estimate for potential future
commutations and policy buybacks.
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ENSTAR GROUP LIMITED
Our insurance and reinsurance subsidiaries also establish provisions for LAE relating to run-off costs for the
estimated duration of the run-off, which are included in the liability for losses and LAE. These provisions are assessed
at each reporting date, and provisions relating to future periods are adjusted to reflect any changes in estimates of the
periodic run-off costs or the duration of the run-off, including the impact of any acceleration of the run-off period that
may be caused by commutations. Provisions relating to the current period together with any adjustment to future run-
off provisions are included in net incurred losses and LAE in the consolidated statements of earnings.
Atrium and StarStone
The reserves for losses and LAE in the Atrium and StarStone segments include reserves for unpaid reported
losses and for IBNR loss reserves. The reserves for unpaid reported losses and loss expenses are established by
management based on reports from brokers, ceding companies and insureds and represent the estimated ultimate
cost of events or conditions that have been reported to or specifically identified by us. The reserve for IBNR losses is
established by us based on actuarially determined estimates of ultimate losses and loss expenses. Inherent in the
estimate of ultimate losses and loss expenses are expected trends in claim severity and frequency and other factors
which may vary significantly as claims are settled. Accordingly, ultimate losses and loss expenses may differ from the
amounts recorded in the consolidated financial statements. These estimates are reviewed regularly and, as experience
develops and new information becomes known, the reserves are adjusted as necessary. Such adjustments, if any, will
be recorded in earnings in the period in which they become known. Prior period development arises from changes to
loss estimates recognized in the current year that relate to loss reserves established in previous calendar years.
Components of Net Incurred Losses and LAE
Included within the total net incurred losses and LAE on our consolidated statement of earnings are the following
items:
•
•
•
•
•
•
•
•
•
Net losses paid: paid losses and LAE, net of related reinsurance recoveries.
Net change in case and LAE reserves: the change in case reserves and associated LAE, net of related
reinsurance recoveries.
Net change in IBNR reserves: the change in IBNR reserves, net of related reinsurance recoveries.
Increase (reduction) in estimates of net ultimate losses: the total of net losses paid, net change in case and
LAE reserves and the net change in IBNR. This includes the net impact of commutations and policy buybacks
on the liability for losses and LAE reserves and reinsurance recoveries.
Increase (reduction) in provisions for unallocated LAE: the net change in our provision for unallocated LAE.
Amortization of deferred charge assets: the amortization of the deferred charge assets associated with assumed
retroactive reinsurance contracts, where the estimated ultimate losses assumed at the inception of the contracts
is greater than the premium consideration received.
Amortization of fair value adjustments: the amortization of the fair value adjustments associated with acquired
companies, where the assumed losses and LAE reserves and the acquired reinsurance recoveries are fair
valued on acquisition.
Changes in fair value - fair value option: the changes in the fair value for reinsurance agreements where we
have elected the fair value option. The change in fair value component includes the changes in the discounted
cash flows and risk margin. The underlying net losses paid, net change in case and LAE reserves and the net
change in IBNR reserves relating to these reinsurance agreements for which we have elected the fair value
option are included within the appropriate line items described above.
Net incurred losses and LAE: the total of increase (reduction) in estimates of net ultimate losses, increase
(reduction) in provisions for unallocated LAE, amortization of deferred charge assets, amortization of fair value
adjustments and changes in fair value - fair value option.
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ENSTAR GROUP LIMITED
(d) Defendant Asbestos and Environmental Liabilities
We acquired DCo on December 30, 2016, and Morse TEC on October 30, 2019, as described in Note 3 -
"Acquisitions". DCo and Morse TEC hold liabilities associated with personal injury asbestos claims and environmental
claims arising from their legacy manufacturing operations. DCo and Morse TEC continue to process asbestos personal
injury claims.
Defendant asbestos and environmental liabilities on our consolidated balance sheets include amounts for
indemnity and defense costs for pending and future claims, determined using standard actuarial techniques for
asbestos-related exposures. Defendant asbestos and environmental liabilities also include amounts for environmental
liabilities associated with DCo's and Morse TEC's properties.
(e) Reinsurance Balances Recoverable on Paid and Unpaid Losses
Amounts billed to, and due from, reinsurers resulting from paid movements in the underlying business are
calculated in accordance with the terms of the individual reinsurance contracts. Similarly, reinsurance balances
recoverable on paid and unpaid losses related to our case reserves are calculated by applying the terms of any
applicable reinsurance coverage to movements in the underlying case reserves. Our estimate of reinsurance balances
recoverable on paid and unpaid losses related to IBNR reserves is recognized on a basis consistent with the underlying
IBNR reserves.
Our reinsurance balances recoverable on paid and unpaid losses are presented net of a provision for uncollectible
amounts, reflecting the amount deemed not collectible due to credit quality, collection problems due to the location of
the reinsurer, contractual disputes with reinsurers over individual contentious claims, contract language or coverage
issues.
(f) Insurance Balances Recoverable
Amounts billed to and due from insurers providing coverage for our defendant asbestos liabilities are calculated
in accordance with the terms of the individual insurance contracts.
The insurance balances recoverable related to our defendant asbestos liabilities are presented net of a provision
for uncollectible amounts, reflecting the amount deemed not collectible primarily due to credit quality and contractual
disputes with insurers over coverage issues.
(g) Investments, Cash and Cash Equivalents
Short-term investments and fixed maturity investments
Short-term investments comprise investments with a maturity greater than three months up to one year from the
date of purchase. Fixed maturities comprise investments with a maturity of greater than one year from the date of
purchase.
Short-term and fixed maturity investments classified as trading are carried at fair value, with realized and
unrealized holding gains and losses included in net earnings and reported as net realized and unrealized gains and
losses.
Short-term and fixed maturity investments classified as available-for-sale are carried at fair value, with unrealized
gains and losses excluded from net earnings and reported as a separate component of accumulated other
comprehensive income (loss) ("AOCI"). Realized gains and losses on sales of investments classified as available-for-
sale are recognized in the consolidated statements of earnings.
The costs of short-term and fixed maturity investments are adjusted for amortization of premiums and accretion
of discounts, recognized using the effective yield method and included in net investment income. For mortgage-backed
and asset-backed investments, and any other holdings for which there is a prepayment risk, prepayment assumptions
are evaluated and reviewed on a regular basis.
Investment purchases and sales are recorded on a trade-date basis. Realized gains and losses on the sale of
investments are based upon specific identification of the cost of investments.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Other-Than-Temporary Impairments
Fixed maturity investments classified as available-for-sale are reviewed quarterly to determine if they have
sustained an impairment of value that is, based on our judgment, considered to be other than temporary. The process
includes reviewing each fixed maturity investment whose fair value is below amortized cost and: (1) determining if we
have the intent to sell the fixed maturity investment; (2) determining if it is more likely than not that we will be required
to sell the fixed maturity investment before its anticipated recovery; and (3) assessing whether a credit loss exists, that
is, whether we expect that the present value of the cash flows expected to be collected from the fixed maturity investment
is less than the amortized cost basis of the investment.
In assessing whether it is more likely than not that we will be required to sell a fixed maturity investment before
its anticipated recovery, we consider various factors including our future cash flow requirements, legal and regulatory
requirements, the level of our cash, cash equivalents, short-term investments and fixed maturity investments available-
for-sale in an unrealized gain position, and other relevant factors.
In evaluating credit losses, we consider a variety of factors in the assessment of a fixed maturity investment
including: (1) the time period during which there has been a significant decline below cost; (2) the extent of the decline
below cost and par; (3) the potential for the investment to recover in value; (4) an analysis of the financial condition of
the issuer; (5) the rating of the issuer; and (6) failure of the issuer of the investment to make scheduled interest or
principal payments.
If we conclude that an investment is other-than-temporarily impaired ("OTTI"), then the difference between the
fair value and the amortized cost of the investment is presented as an OTTI charge in the consolidated statements of
earnings, with an offset for any non-credit related loss component of the OTTI charge to be recognized in other
comprehensive income. Accordingly, only the credit loss component of the OTTI amount would have an impact on our
earnings.
Equities
We hold investments in publicly traded equities and exchange-traded funds as well as in privately held equities.
Our equity investments are carried at fair value with realized and unrealized holding gains and losses included in net
earnings and reported as net realized and unrealized gains and losses.
Other investments, at fair value
Other investments include investments in limited partnerships and limited liability companies (collectively "private
equities") and fixed income funds, hedge funds, equity funds, private credit funds and collateralized loan obligation
("CLO") equity funds that carry their investments at fair value, as well as direct investments in CLO equities. These
other investments are stated at fair value, which ordinarily will be the most recently reported net asset value as advised
by the fund manager or administrator. Many of our fund investments publish net asset values on a daily basis and
provide daily liquidity; others report on a monthly basis. Private equities typically report quarterly. The change in fair
value is included in net realized and unrealized gains and losses on investments and recognized in net earnings.
Equity method investments
Investments in which the Company has significant influence over the operating and financial policies of the
investee are classified as equity method investments and are accounted for using the equity method of accounting. In
applying the equity method of accounting, investments are initially recorded at cost and are subsequently adjusted
based on the Company's proportionate share of net income or loss of the investee, net of any distributions received
from the investee. Adjustments are based on the most recently available financial information from the investee.
Changes in the carrying value of such investments are recorded in our consolidated statements of earnings as earnings
(losses) from equity method investments. Any decline in the value of our equity method investments considered by
management to be other-than-temporary is reflected in our consolidated statements of earnings in the period in which
it is determined.
Cash and cash equivalents
Cash equivalents includes money market funds, fixed interest deposits and all highly liquid debt instruments
purchased with an original maturity of three months or less.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
(h) Funds Held
Under funds held arrangements, the reinsured company has retained funds that would otherwise have been
remitted to our reinsurance subsidiaries. The funds balance is credited with investment income and losses payable
are deducted. Funds held are shown under two categories on the consolidated balance sheets, where funds held upon
which we receive the underlying portfolio economics are shown as "Funds held - directly managed", and funds held
where we receive a fixed crediting rate are shown as "Funds held by reinsured companies". Funds held by reinsured
companies are carried at cost. Funds held - directly managed, carried at fair value, represents the aggregate of funds
held at cost and the value of an embedded derivative. The embedded derivative relates to our contractual right to
receive the return on the underlying investment portfolio economics. The investment returns on both categories of
funds held are recognized in net investment income and net realized and unrealized gains (losses). The revaluation
of the embedded derivative is included in net unrealized gains (losses).
(i) Fees and Commission Income
Fees and commission income primarily includes profit commissions earned from managed Lloyd's syndicates
as well as fees earned under fronting and consulting arrangements with third-party clients, which are recorded on an
accrual basis.
(j) Foreign Exchange
Our reporting currency is the U.S. dollar. Assets and liabilities of entities whose functional currency is not the
U.S. dollar are translated at period end exchange rates. Revenues and expenses of such foreign entities are translated
at average exchange rates during the year. The effect of the currency translation adjustments for these foreign entities
is included in accumulated other comprehensive income (loss).
Other foreign currency assets and liabilities that are considered monetary items are translated at exchange rates
in effect at the balance sheet date. Foreign currency revenues and expenses are translated either at transaction date
exchange rates or using an appropriately weighted average exchange rate for the reporting period. These exchange
gains and losses are recognized in net earnings.
(k) Share-based Compensation
We primarily use three types of share-based compensation arrangements: (i) restricted shares, restricted share
units and performance share units, (ii) cash-settled stock appreciation rights ("SARs") and (iii) shares issued under
our employee share purchase plans. With the exception of SARs and the incentive plan awards issued to certain
employees of Atrium and StarStone, our share-based compensation awards qualify for equity classification. The fair
value of the compensation cost is measured at the grant date and is expensed over the service period of the award.
The SARs, the Atrium and StarStone incentive plan awards are classified as liability awards. Liability classified awards
are recorded at fair value within other liabilities in the consolidated balance sheet with changes in fair value relating to
the vested portion of the award recorded within general and administrative expenses in the consolidated statements
of earnings.
(l) Derivative Instruments
We utilize derivative instruments in our foreign currency and interest rate risk management strategies and
recognize all derivatives as either assets or liabilities in the consolidated balance sheets and carry them at the fair
value of the specific instrument utilized. Changes in the fair value as well as realized gains or losses on derivative
instruments are recognized in net earnings if they are not designated as qualifying hedging instruments or if the criteria
for establishing a perfectly effective designated hedging relationship for our net investment hedges has not been met.
However, if a designated net investment hedge is deemed to be perfectly effective, then we recognize the changes in
the fair value of the underlying hedging instrument in accumulated other comprehensive income (loss) until the
application of hedge accounting is discontinued. Any cumulative gains or losses arising on designated net investment
hedges are deferred in accumulated other comprehensive income (loss) until the cumulative translation adjustment
("CTA") from the underlying hedged net investment is recognized in net earnings due to a disposal, deconsolidation
or substantial liquidation.
Certain of our funds held arrangements also contain embedded derivatives as described above, which are carried
at fair value. In addition, we also hold equity call options carried at fair value, as part of our investment strategy.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
(m) Income Taxes
Certain of our subsidiaries and branches operate in jurisdictions where they are subject to taxation. Current and
deferred tax expense or benefit is allocated to net earnings (loss), or, in certain cases, to discontinued operations or
other comprehensive income (loss). Current tax is recognized and measured upon enacted tax laws and rates applicable
in the relevant jurisdiction in the period in which the income tax becomes accruable or realizable. Deferred taxes are
provided for temporary differences between the carrying amount of assets and liabilities used in the financial statements
and the tax basis used in the various jurisdictional tax returns. When our assessment indicates that all or some portion
of deferred tax assets will not be realized, a valuation allowance is recorded against the deferred tax assets to reduce
the assets to the amount more likely than not to be realized.
We recognize the benefit relating to tax positions only where the position is more likely than not to be sustained
assuming examination by tax authorities. A recognized tax benefit is measured as the largest amount that is greater
than 50 percent likely of being realized upon settlement. A liability or other adjustment is recognized for any tax benefit
(along with any interest and penalty, if applicable) claimed in a tax return in excess of the amount allowed to be
recognized in the financial statements under U.S. GAAP. Any changes in amounts recognized are recorded in the
period in which they are determined.
(n) Earnings Per Share
Basic earnings per share is based on the weighted average number of ordinary shares outstanding and excludes
potentially dilutive securities such as restricted shares, restricted share units, warrants, options and convertible
securities. Diluted earnings per share is based on the weighted average number of ordinary and ordinary share
equivalents outstanding calculated using the treasury stock method for all potentially dilutive securities. When the effect
of dilutive securities would be anti-dilutive, these securities are excluded from the calculation of diluted earnings per
share.
(o) Acquisitions, Goodwill and Intangible Assets
The acquisition method is used to account for all business acquisitions. This method requires that we record the
acquired assets and liabilities at their estimated fair value. The fair values of each of the acquired reinsurance assets
and liabilities are derived from probability-weighted ranges of the associated projected cash flows, based on actuarially
prepared information and management’s run-off strategy. Our run-off strategy, as well as that of other run-off market
participants, is expected to be different from the seller's as generally sellers are not specialized in running off insurance
and reinsurance liabilities whereas we and other market participants do specialize in such run-offs.
The key assumptions used by us and, we believe, by other run-off market participants in the valuation of acquired
companies are (i) the projected payout, timing and amount of claims liabilities; (ii) the related projected timing and
amount of reinsurance collections; (iii) an appropriate discount rate, which is applied to determine the present value
of the future cash flows; (iv) the estimated unallocated LAE to be incurred over the life of the run-off; (v) the impact of
any accelerated run-off strategy; and (vi) an appropriate risk margin.
The difference between the nominal carrying values of the acquired reinsurance liabilities and assets as of the
acquisition date and their fair value is recorded as a fair value adjustment ("FVA") on the consolidated balance sheet.
The FVA is amortized over the estimated payout period of the acquired outstanding losses and LAE and reinsurance
balances recoverable. To the extent the actual payout experience after the acquisition is materially faster or slower
than anticipated at the time of the acquisition as a result of (i) our active claims management strategies, which include
commutations and policy buybacks, (ii) an adjustment to the estimated ultimate loss reserves, (iii) changes in bad debt
provisions, or (iv) changes in estimates of future run-off costs following accelerated payouts, then the amortization of
the FVA is adjusted to reflect such changes.
The difference between the fair value of net assets acquired and the purchase price is recorded as goodwill and
included as an asset on the consolidated balance sheet or as a gain from bargain purchase in the consolidated
statements of earnings. Goodwill is established initially upon acquisition and assessed at least annually for impairment.
If the goodwill asset is determined to be impaired it is written down in the period in which the determination is made.
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ENSTAR GROUP LIMITED
Intangible assets represent both the definite-lived and indefinite-lived intangible assets arising from the
acquisitions of Atrium and StarStone. Definite-lived intangible assets are amortized over their useful lives with the
amortization expense being recognized in the consolidated statements of earnings. Indefinite-lived intangible assets
are not subject to amortization. The carrying values of intangible assets are reviewed for indicators of impairment at
least annually. Impairment is recognized if the carrying values of the definite-lived intangible assets are not recoverable
from their undiscounted cash flows and is measured as the amount by which the carrying value exceeds the fair value.
Similarly, for indefinite-lived intangible assets, if the carrying value of the asset exceeds its fair value, then an impairment
loss is recognized in an amount equal to the excess.
(p) Retroactive Reinsurance
Retroactive reinsurance policies provide indemnification for losses and LAE with respect to past loss events. In
our Non-life Run-off segment we use the balance sheet accounting approach for assumed loss portfolio transfers,
whereby at the inception of the contract there are no premiums or losses recorded in earnings.
Deferred Charge Assets
If, at the inception of a Non-life Run-off retroactive reinsurance contract, the estimated undiscounted ultimate
losses payable are in excess of the premiums received, a deferred charge asset is recorded for the excess. The
premium consideration that we charge the ceding companies may be lower than the undiscounted estimated ultimate
losses payable due to the time value of money. After receiving the premium consideration in full from our cedents at
the inception of the contract, we invest the premium received over an extended period of time, thereby generating
investment income. We expect to generate profits from these retroactive reinsurance policies when taking into account
the premium received and expected investment income, less contractual obligations and expenses. Deferred charge
assets, recorded in other assets, are amortized over the estimated claim payment period of the related contract with
the periodic amortization reflected in earnings as a component of losses and LAE. The amortization of deferred charge
assets is adjusted at each reporting period to reflect new estimates of the amount and timing of remaining loss ad LAE
payments. Changes in the estimated amount and the timing of payments of unpaid losses may have an effect on the
unamortized deferred charge assets and the amount of periodic amortization. When liabilities for losses and LAE are
extinguished through commutations and policy buybacks, they are removed from our estimates for the remaining loss
and LAE payments, and this will generally result in an acceleration of the amortization of the deferred charge assets.
Deferred charge assets are assessed at each reporting period for impairment and if the asset is determined to be
impaired, then it is written down in the period in which the determination is made.
Fair Value Option
In our Non-life Run-off segment, we have elected to apply the fair value option for certain loss portfolio transfer
reinsurance transactions. This is an irrevocable election that applies to all balances under the insurance contract,
including funds held assets, reinsurance balances recoverable on paid and unpaid losses, and the liability for losses
and loss adjustment expenses.
We use an internal model to calculate the fair value of the liability for losses and loss adjustment expenses and
the reinsurance balances recoverable on paid and unpaid losses. Note 12 - "Fair Value Measurements" describes the
internal model, including the observable and unobservable inputs used in the model.
(q) Redeemable Noncontrolling Interest
In connection with the acquisitions of Arden, Atrium and StarStone, certain subsidiaries issued shares to
noncontrolling interests. These shares provide certain redemption rights to the holders, which may be settled in our
own shares or cash or a combination of cash and shares, at our option. Redeemable noncontrolling interests with
redemption features that are not solely within our control are classified within temporary equity in the consolidated
balance sheets and carried at their redemption value, which is fair value. Change in the fair value is recognized through
retained earnings as if the balance sheet date were also the redemption date.
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ENSTAR GROUP LIMITED
(r) Internal-use Software
Direct internal and external costs to acquire or develop internal-use software have been capitalized. We only
capitalize costs incurred after the preliminary project stage has been completed, and when management has authorized
and committed to funding the project and it is probable that the project will be completed and the software will be used
to perform the functions intended. Capitalized costs related to internal-use software are amortized on a straight-line
basis over the estimated useful lives of the assets. These capitalized costs are also assessed for impairment when
impairment indicators exist.
(s) Held-for-sale Business and Discontinued Operations
We report a business as held-for-sale when certain criteria are met, which include (1) management has either
approved the sale or is in the process of obtaining approval to sell the business and is committed to a formal plan to
sell the business, (2) the business is available for immediate sale in its present condition, (3) the business is being
actively marketed for sale at a price that is reasonable in relation to its current fair value, and (4) the sale is anticipated
to occur within the next 12 months, among other specified criteria. A business classified as held for sale is recorded
at the lower of its carrying amount or estimated fair value less costs to sell. If the carrying amount of the business
exceeds its estimated fair value, a loss is recognized. Assets and liabilities related to the businesses classified as held-
for-sale are separately reported in our Consolidated Balance Sheets beginning in the period in which the business is
classified as held-for-sale. Refer to Note 5 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations" for
further information regarding our held-for-sale business.
Disposals that represent strategic shifts that have or will have a major effect on our operations and financial
results are reported as discontinued operations.
New Accounting Standards Adopted in 2019
Accounting Standards Update ("ASU") 2019-07 - Codification Updates to SEC Sections
In July 2019, the Financial Accounting Standards Board (the "FASB") issued ASU 2019-07 in response to the
Securities and Exchange Commission's ("SEC's") disclosure update and simplification initiative. The ASU clarifies or
improves the disclosure and presentation requirements of a variety of Codification Topics by aligning them with the
SEC’s regulations, thereby eliminating redundancies and making the Codification easier to apply. The adoption of the
disclosure and presentation amendments included in this ASU and which are to be applied prospectively, did not have
a material impact on our consolidated financial statements and disclosures.
ASU 2018-13, Changes to the Disclosure Requirements for Fair Value Measurements
In August 2018, the FASB issued ASU 2018-13, which amended the fair value measurement guidance in
Accounting Standards Codification ("ASC") 820 - Fair Value Measurement, by removing and modifying certain existing
disclosure requirements, while also adding some new disclosure requirements. We adopted the new standard as of
December 31, 2019 however these new or modified disclosures did not have a material impact on the fair value
measurement disclosures included in our consolidated financial statements.
ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
In February 2018, the FASB issued ASU 2018-02, which gives entities the option to reclassify to retained earnings
tax effects related to items in accumulated other comprehensive income (“AOCI”) that are deemed stranded in AOCI
as a result of the Tax Cuts and Jobs Act (the "Tax Act") enacted in the United States at the end of 2017. The amendments
in this guidance eliminate the stranded tax effects resulting from the Tax Act and will improve the usefulness of
information reported to financial statement users. We adopted the new standard on January 1, 2019, and that adoption
did not have a material impact on our consolidated financial statements and related disclosures.
ASUs 2016-02, 2018-10, 2018-11 and 2019-01, Leases
In February 2016, the FASB issued ASU 2016-02, which is codified in ASC 842 - Leases, amending the guidance
on the classification, measurement and disclosure of leases for both lessors and lessees. The ASU requires lessees
to recognize a right-of-use asset and an offsetting lease liability on the balance sheet and to disclose qualitative and
quantitative information about leasing arrangements. Subsequently, in July 2018, the FASB issued ASU 2018-10, which
clarifies how to apply certain aspects of ASC 842. The amendments in the ASU address a number of issues in the new
leases guidance, including (1) the rate implicit in the lease, (2) impairment of the net investment in the lease, (3) lessee
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ENSTAR GROUP LIMITED
reassessment of lease classification, (4) lessor reassessment of lease term and purchase options, (5) variable payments
that depend on an index or rate, and (6) certain transition adjustments.
In July 2018, the FASB also issued ASU 2018-11, which adds a transition option for all entities and a practical
expedient only for lessors, to ASU 2016-02. The transition option, which we elected on adoption of the guidance, allows
entities not to apply the new leases standard in the comparative periods they present in their financial statements in
the year of adoption. Under the transition option, entities can instead opt to continue to apply the legacy guidance in
ASC 840 - Leases, including its disclosure requirements, in the comparative periods presented in the year they adopt
the new leases standard. This means that entities that elect this option will only provide annual disclosures for the
comparative periods because ASC 840 does not require interim disclosures. Entities that elect this transition option
are still required to adopt the new leases standard using the modified retrospective transition method, but they will
recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption rather
than in the earliest period presented. The practical expedient provides lessors with an option to not separate the non-
lease components from the associated lease components when certain criteria are met and requires them to account
for the combined component in accordance with the revenue recognition standard in ASC 606 if the associated non-
lease components are the predominant components.
In addition, in March 2019, the FASB issued ASU 2019-01 to clarify that in the year of initial adoption of ASC
842, entities are not subject to the transition disclosure requirements in ASC 250-10-50-3 related to the effect of an
accounting change on certain interim period financial information. Prior to this clarification, the transition guidance in
ASC 842 only excluded the annual disclosures required in ASC 250-10-50-1(b)(2).
We adopted ASU 2016-02 and the related amendments on January 1, 2019 using the modified retrospective
transition method as required by the standard and recognized a right-of-use asset and an associated lease liability of
$51.6 million on our consolidated balance sheet, relating primarily to office space and facilities that we have leased to
conduct our business operations. Refer to Note 23 - "Commitments and Contingencies" for further details.
Recently Issued Accounting Pronouncements Not Yet Adopted
ASU 2020-01 - Clarifying the Interactions between ASC 321, ASC 323 and ASC 815
In January 2020, the FASB issued ASU 2020-01 to clarify the interaction of the accounting for equity securities
under ASC 321 and investments accounted for under the equity method of accounting in ASC 323 and the accounting
for certain forward contracts and purchased options accounted for under ASC 815. With respect to the interactions
between ASC 321 and ASC 323, the amendments clarify that an entity should consider observable transactions that
require it to either apply or discontinue the equity method of accounting when applying the measurement alternative
in ASC 321, immediately before applying or upon discontinuing the equity method of accounting. With respect to forward
contracts or purchased options to purchase securities, the amendments clarify that when applying the guidance in
ASC 815-10-15-141(a), an entity should not consider whether upon the settlement of the forward contract or exercise
of the purchased option, individually or with existing investments, the underlying securities would be accounted for
under the equity method in ASC 323 or the fair value option in accordance with ASC 825. The ASU is effective for
interim and annual reporting periods beginning after December 15, 2020, although early adoption is permitted, including
adoption in any interim period. We do not expect the adoption of this standard to have a material impact on our
consolidated financial statements and disclosures.
ASU 2019-12 - Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued ASU 2019-12 which removes certain exceptions for (1) recognizing deferred
taxes for investments, (2) performing intraperiod tax allocation, and (3) calculating income taxes in interim periods.
The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill
and allocating income taxes to a legal entity that is not subject to income taxes. The ASU is effective for interim and
annual reporting periods beginning after December 15, 2020, although early adoption is permitted, including adoption
in any interim period. We are currently assessing the impact of adopting this guidance however we do not expect that
the adoption will have a material impact on our consolidated financial statements and disclosures.
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ENSTAR GROUP LIMITED
ASUs 2016-13, 2018-19, 2019-04, 2019-05, 2019-10 and 2019-11, Financial Instruments - Credit Losses -
Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU 2016-13, which is codified in ASC 326, amending the guidance on the
impairment of financial instruments and significantly changing how entities measure credit losses for most financial
assets and certain other financial instruments including reinsurance balances recoverable on paid and unpaid losses
that are not measured at fair value through net income. The ASU will replace the existing “incurred loss” approach,
with an “expected loss” model for instruments measured at amortized cost and require entities to record allowances
for available-for-sale ("AFS") debt securities rather than reduce the carrying amount under the existing OTTI model.
The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans.
In November 2018, the FASB then issued ASU 2018-19 covering targeted improvements to ASU 2016-13, which
clarifies that receivables arising from operating leases are not within the scope of ASC 326-20 and that instead, the
impairment of such receivables should be accounted for in accordance with ASC 842 - Leases.
In April 2019, the FASB also issued ASU 2019-04, which amends (1) ASU 2016-13 as codified in ASC 326, (2)
ASU 2017-12 on hedging activities as codified in ASC 815, and (3) ASU 2016-01 on recognizing and measuring financial
instruments as codified in ASC 825-10. Specifically with respect to ASC 326, the amendments in ASU 2019-04 clarify
the scope of the credit losses standard and address issues related to accrued interest receivable balances, recoveries,
variable interest rates and prepayments.
In May 2019, the FASB then issued ASU 2019-05, which amends ASU 2016-13 to provide entities with an option
to irrevocably elect the fair value option for certain financial assets previously measured on an amortized cost basis.
Entities that avail themselves of this transition relief will have the option to irrevocably elect the fair value option in ASC
825-10 on an instrument-by-instrument basis for eligible instruments, upon the adoption of ASC 326. The fair value
option election, however, does not apply to held-to-maturity debt securities. An entity that elects the fair value option
should subsequently apply the guidance in ASC 820-10 and ASC 825-10 to the eligible instruments for which it has
elected the fair value option.
In November 2019, the FASB also issued ASU 2019-10 deferring the effective dates for ASU 2016-13; ASU
2017-12 and ASU 2016-02 for non-public business entities. With respect to ASU 2016-13, this deferral was also
extended to entities that meet the smaller reporting company eligibility criteria.
Finally, in November 2019, the FASB issued ASU 2019-11 which clarified the following specific issues related
to the amendments in ASU 2016-13: (1) the treatment for expected recoveries for purchased financial assets with
credit deterioration or PCD assets, (2) application of the transition relief provided for troubled debt restructuring ("TDRs"),
(3) disclosures related to accrued interest receivables, and (4) the application of the practical expedient related to
financial assets secured by collateral maintenance provisions.
We adopted ASU 2016-13 and all the related amendments on January 1, 2020 using the modified retrospective
approach and recorded a cumulative effect adjustment of approximately $1.6 million to increase opening retained
earnings with respect to our financial instruments carried at amortized cost, which primarily relate to our reinsurance
balances recoverable. As disclosed in Note 8 - Reinsurance Balances Recoverable on Paids and Unpaid Losses, we
already carry significant specific provisions for bad debts amounting to $147.6 million on our reinsurance balances
recoverable, relating primarily to our Non-life Run-off segment. Therefore, the adoption of ASU 2016-13 and the related
amendments did not have a material quantitative impact on the overall credit allowance established against our
reinsurance balances recoverable. As a result of adopting ASU 2016-13 and the related amendments, we also recorded
a credit allowance of approximately $3.1 million related to our AFS debt securities whose fair values were less than
their amortized cost basis.
In addition to the estimated quantitative impact of adopting ASU 2016-13 and the related amendments, as
illustrated above, the guidance will also require us to amend and in certain cases, significantly enhance the qualitative
disclosures included in our consolidated financial statements around the following specific items: (1) the credit risk
inherent within our portfolios of financial assets and how we monitor credit quality, (2) how we determine the estimation
of expected credit losses, (3) changes in the estimate of expected credit losses that have occurred during each reporting
period, and (4) providing a roll-forward analysis of our allowance for credit losses.
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ENSTAR GROUP LIMITED
3. ACQUISITIONS
2019
Morse TEC
Overview
On October 30, 2019, we completed the acquisition of Morse TEC LLC ("Morse TEC") through our subsidiary,
Enstar Holdings (US) LLC for $nil purchase price. Morse TEC holds approximately $0.7 billion in liabilities associated
with personal injury asbestos claims and environmental claims arising from BorgWarner's legacy manufacturing
operations. We applied the acquisition method to account for the Morse TEC transaction as required by ASC 805 -
Business Combinations, with no goodwill or gain from bargain purchase being recorded on the acquisition. In addition,
no intangible assets were identified for recognition on the acquisition.
Fair Value of Net Assets Acquired and Liabilities Assumed
The following table summarizes the fair values of the assets acquired and liabilities assumed in the Morse TEC
transaction at the acquisition date, which have all been allocated to the Non-life Run-off segment.
ASSETS
Cash and cash equivalents
Deferred tax assets
Other assets - insurance balances receivable
TOTAL ASSETS
LIABILITIES
Defendant asbestos and environmental liabilities
Other liabilities
TOTAL LIABILITIES
NET ASSETS ACQUIRED AT FAIR VALUE
$ 171,412
140,000
371,116
682,528
662,507
20,021
$ 682,528
—
Morse TEC's Results Included in the Consolidated Statement of Earnings
The table below summarizes the results of the Morse TEC operations, which are included in our consolidated
statement of earnings from the acquisition date to December 31, 2019:
Net investment income
General and administrative expenses
Other expenses
Net loss
$
$
488
(1,459)
(1,512)
(2,483)
Supplemental Pro Forma Financial Information
The following unaudited pro forma condensed combined statement of earnings for the years ended December
31, 2019 and 2018 combines our historical consolidated statements of earnings with those of Morse TEC, giving effect
to the business combination transaction as if it had occurred on January 1, 2019 and 2018, respectively. The unaudited
pro forma financial information presented below is for informational purposes only and is not necessarily indicative of
the results of operations that would have been achieved if the acquisition of Morse TEC had taken place at the beginning
of each period presented, nor is it indicative of future results.
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ENSTAR GROUP LIMITED
2019
Total income
Total expenses
Total noncontrolling interest
Enstar Group
Limited
$
2,629,021 $
(1,700,802)
9,870
Morse TEC
Pro Forma
Adjustments
Enstar Group
Limited - Pro
forma
76,480 $
(8,918)
—
(488) $
1,459
—
2,705,013
(1,708,261)
9,870
Net earnings (loss) attributable to Enstar Group
Limited
$
938,089 $
67,562 $
971 $
1,006,622
The following table summarizes the pro-forma adjustments in the table above:
Income
(a) Total income for the period subsequent to the acquisition of Morse TEC already included
within Enstar's full year results
$
(488)
Expenses
(a) Total expenses for the period subsequent to the acquisition of Morse TEC already
included within Enstar's full year results
$
1,459
2018
Total income
Total expenses
Total noncontrolling interest
Enstar Group
Limited
$
865,682 $
(1,077,954)
62,051
Morse TEC
Enstar Group
Limited - Pro
forma
42,766 $
(30,187)
—
908,448
(1,108,141)
62,051
Net earnings (loss) attributable to Enstar Group
Limited
$
(150,221) $
12,579 $
(137,642)
2018
Maiden Re North America
Overview
On December 27, 2018, we completed the acquisition of Maiden Reinsurance North America, Inc. (“Maiden Re
North America”) from a subsidiary of Maiden Holdings, Ltd. ("Maiden Holdings"). Maiden Re North America is an
insurance company domiciled in Missouri that provides property and casualty treaty reinsurance, casualty facultative
reinsurance and accident and health treaty reinsurance. As part of the transaction, we also novated and assumed
certain reinsurance agreements from Maiden Holdings' Bermuda reinsurer, including certain reinsurance agreements
with Maiden Re North America. Refer to Note 4 - "Significant New Business" for additional information relating to these
reinsurance agreements. We have operated the business in run-off since we acquired it.
Purchase Price
The total cash paid in the transaction was $286.4 million, subject to certain post-closing adjustments. The
components of the consideration paid to acquire all of the outstanding shares of Maiden Re North America were as
follows:
Cash paid
Adjustment for the fair value of preexisting relationships
Total purchase price
Net assets acquired at fair value (excluding preexisting relationships)
Excess of purchase price over fair value of net assets acquired
$
$
$
$
286,375
10,273
296,648
296,648
—
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ENSTAR GROUP LIMITED
The purchase price was allocated to the acquired assets and liabilities of Maiden Re North America based on
their estimated fair values at the acquisition date.
Adjustment for the Fair Value of Preexisting Relationships
Enstar had contractual preexisting relationships with Maiden Re North America, which were deemed to be
effectively settled at fair value on the acquisition date. The differences between the carrying value and the fair value
of the preexisting relationships was included as part of the purchase price in accordance with ASC 805 - Business
Combinations. The fair value of the balances relating to preexisting reinsurance relationships with Maiden Re North
America were deemed to equal their carrying values given their short-term nature and the expectation that they would
all be settled within twelve months following acquisition.
Fair Value of Net Assets Acquired and Liabilities Assumed
The following table summarizes the fair values of the assets acquired and liabilities assumed (excluding
preexisting relationships and net of the intercompany cession assumed as part of the transaction) in the Maiden Re
North America transaction at the acquisition date, which have all been allocated to the Non-life Run-off segment.
ASSETS
Fixed maturities, trading, at fair value
Short-term investments, trading, at fair value
Total investments
Cash and cash equivalents
Restricted cash and cash equivalents
Premiums receivable
Prepaid reinsurance premiums
Reinsurance balances recoverable
Other assets
TOTAL ASSETS
LIABILITIES
Losses and LAE
Unearned premiums
Other liabilities
TOTAL LIABILITIES
NET ASSETS ACQUIRED AT FAIR VALUE
$1,098,593
3,508
1,102,101
12,035
26,871
138,378
3,257
87,018
96,669
$1,466,329
$1,027,367
85,696
56,618
1,169,681
$ 296,648
Maiden Re North America's Results Included in the Consolidated Statement of Earnings
The table below summarizes the results of the Maiden Re North America operations, which are included in
our consolidated statement of earnings from the acquisition date to December 31, 2018:
Net investment income
Net unrealized gains
General and administrative expenses
Net earnings
$
$
675
3,749
(435)
3,989
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ENSTAR GROUP LIMITED
Table of Contents
KaylaRe
Overview
On May 14, 2018, the Company acquired all of the outstanding shares and warrants of KaylaRe Holdings, Ltd.
("KaylaRe"). In consideration for the acquired shares and warrants of KaylaRe, the Company issued an aggregate of
2,007,017 ordinary shares to the shareholders of KaylaRe, comprising 1,501,778 voting ordinary shares and 505,239
Series E non-voting ordinary shares. Effective May 14, 2018, we consolidated KaylaRe into our consolidated financial
statements, and any balances between KaylaRe and Enstar are now eliminated upon consolidation. Effective
September 30, 2019, KaylaRe and KaylaRe Ltd. merged with Cavello Bay Reinsurance Limited, a wholly owned
subsidiary of the Company, with Cavello Bay Reinsurance Limited as the surviving company. Refer to Note 21 - "Related
Party Transactions" for additional information relating to KaylaRe.
Purchase Price
The components of the consideration paid to acquire all of the outstanding shares and warrants of KaylaRe
were as follows:
Fair value of Enstar ordinary shares issued
Fair value of previously held equity method investment
Adjustment for the fair value of preexisting relationships
Total purchase price
Net assets acquired at fair value (excluding preexisting relationships)
Excess of purchase price over fair value of net assets acquired
$
$
$
$
414,750
336,137
37,169
788,056
746,320
41,736
The purchase price was allocated to the acquired assets and liabilities of KaylaRe based on their estimated fair
values at the acquisition date. We recognized goodwill of $41.7 million on the transaction, primarily attributable to (i)
the capital synergies from integrating KaylaRe into our group capital structure, (ii) investment management capabilities
on a total return basis, and (iii) the incremental acquired capital to be utilized for future non-life run-off transactions.
Fair Value of Enstar Ordinary Shares Issued
The fair value of the Enstar ordinary shares issued was based on the closing price of Enstar's voting ordinary
shares of $206.65 as of May 14, 2018, the date the transaction closed. Enstar's non-voting ordinary shares are
economically equivalent to Enstar's voting ordinary shares.
Number of Enstar ordinary shares issued
Closing price of Enstar voting ordinary shares as of May 14, 2018
Fair value of Enstar ordinary shares issued to shareholders of KaylaRe
2,007,017
206.65
414,750
$
$
Fair Value of Previously Held Equity Method Investment
Prior to the close of the transaction, Enstar held a 48.2% interest in KaylaRe, which was accounted for as an
equity method investment in accordance with ASC 323 - Investments - Equity Method and Joint Ventures. The acquisition
of the remaining 51.8% equity interest in KaylaRe was considered a step acquisition, whereby the Company remeasured
the previously held equity method investment to fair value. The Company considered multiple factors in determining
the fair value of the previously held equity method investment, including (i) the price negotiated with the selling
shareholders for the 51.8% equity interest in KaylaRe, (ii) recent market transactions for similar companies, and (iii)
current trading multiples for comparable companies. Based on this analysis, a valuation multiple of 1.05 to KaylaRe's
carrying book value was determined to be appropriate to remeasure the previously held equity method investment at
fair value. This resulted in the recognition of a gain of $16.0 million on completion of the step acquisition of KaylaRe,
which was recorded in earnings (losses) from equity method investments for the three and six months ended June 30,
2018.
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ENSTAR GROUP LIMITED
Carrying value of previously held equity method investment prior to the close of the transaction
Price-to-book multiple
Fair value of previously held equity method investment prior to the close of the transaction
Gain recognized on remeasurement of previously held equity method investment to fair value
$
$
$
320,130
1.05
336,137
16,007
Adjustment for the Fair Value of Preexisting Relationships
Enstar had contractual preexisting relationships with KaylaRe, which were deemed to be effectively settled at
fair value on the acquisition date. The differences between the carrying value and the fair value of the preexisting
relationships was included as part of the purchase price in accordance with ASC 805 - Business Combinations. The
fair value of the balances relating to preexisting reinsurance relationships with KaylaRe was determined using a
discounted cash flow approach and, where applicable, consideration was given to stated contractual settlement
provisions, when determining the loss to be recorded on the deemed settlement of these preexisting relationships.
The fair values of the balances arising from the non-reinsurance preexisting relationships with KaylaRe were deemed
to equal their carrying values given their short-term nature and the expectation that they would all be settled within the
next twelve months.
As a result of effectively settling all the contractual preexisting relationships with KaylaRe, the Company
recognized a loss of $15.6 million, which was recorded in other income (loss) in the three and six months ended June
30, 2018, as summarized below:
ASSETS
Carrying value
Fair value
Funds held by reinsured companies
$
386,793 $
386,793 $
Deferred acquisition costs/Value of business acquired
TOTAL ASSETS
LIABILITIES
Losses and LAE
Unearned premiums
Insurance and reinsurance balances payable
Other liabilities
TOTAL LIABILITIES
NET ASSETS (LIABILITIES)
33,549
420,342
339,747
105,602
25,897
1,864
40,268
427,061
333,205
105,602
23,559
1,864
473,110
(52,768) $
464,230
(37,169) $
$
Loss on
deemed
settlement
—
6,719
6,719
(6,542)
—
(2,338)
—
(8,880)
15,599
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ENSTAR GROUP LIMITED
Fair Value of Net Assets Acquired and Liabilities Assumed
The following table summarizes the fair values of the assets acquired and liabilities assumed (excluding
preexisting relationships) in the KaylaRe transaction at the acquisition date, which have all been allocated to the Non-
life Run-off segment.
ASSETS
Fixed maturities, trading, at fair value
Other investments, at fair value
Total investments
Cash and cash equivalents
Premiums receivable
Deferred acquisition costs
Other assets
TOTAL ASSETS
LIABILITIES
Losses and LAE
Unearned premiums
Insurance and reinsurance balances payable
Other liabilities
TOTAL LIABILITIES
NET ASSETS ACQUIRED AT FAIR VALUE
$ 126,393
626,476
752,869
5,657
10,965
275
614
$ 770,380
$
4,059
10,984
13
9,004
24,060
$ 746,320
KaylaRe's Results Included in the Consolidated Statement of Earnings
The table below summarizes the results of the KaylaRe operations, which are included in our consolidated
statement of earnings from the acquisition date to December 31, 2018:
Premiums earned
Incurred losses and LAE
Acquisition costs
Underwriting income
Net investment income
Net unrealized gains
General and administrative expenses
Net loss
$
$
13,627
(12,364)
(341)
922
3,096
(47,769)
(2,164)
(45,915)
144
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
4. SIGNIFICANT NEW BUSINESS
2020
AXA Group
On February 24, 2020, we entered into a loss portfolio transfer reinsurance agreement with AXA XL, a division
of AXA, to reinsure specified legacy construction general liability multi-year policies. We will assume reinsurance
reserves of approximately $225.0 million in the transaction. Completion of the transaction is subject to, among other
things, regulatory approvals and satisfaction of various closing conditions. The transaction is expected to close in the
first half of 2020.
Munich Re
On September 10, 2019, we signed an agreement with Great Lakes Insurance SE and HSB Engineering
Insurance Limited, both subsidiaries of Munich Reinsurance Company ("Munich Re"), pursuant to which we will acquire
certain portfolios from their Australian branches. In the transaction, which is subject to regulatory and Federal Court
of Australia approval, we will receive total assets of approximately AUD$228.2 million (approximately $160.3 million)
for assuming the associated net insurance reserves, which primarily relate to long tail insurance business. We are
pursuing a portfolio transfer of the insurance business under Division 3A of Part III of Australia’s Insurance Act 1973
(Cth), which would provide legal finality for Munich Re and its subsidiaries. This transaction is expected to close in
2020.
2019
Zurich
On October 1, 2019, we completed a reinsurance transaction with Zurich Insurance Group ("Zurich"), pursuant
to which we reinsured certain of Zurich's U.S. asbestos and environmental liability insurance portfolios. In the
transaction, we assumed $622.9 million of gross reserves, relating to 1986 and prior year business, for reinsurance
premium of $465.5 million and recorded a deferred charge of $115.8 million. We have ceded 10% of this transaction
to Enhanzed Reinsurance Ltd. ("Enhanzed Re"), in which we have an investment, on the same terms and conditions
as those received by Enstar.
Maiden ADC
On August 5, 2019, we and Maiden Reinsurance Ltd. (“Maiden Re Bermuda”) completed a transaction pursuant
to a Master Agreement with Maiden Holdings, Ltd. and Maiden Re Bermuda to provide adverse development cover
reinsurance to Maiden Re Bermuda, effective January 1, 2019. In the transaction, Maiden Re Bermuda ceded and we
assumed as retrocessionaire Maiden Re Bermuda's liability under its quota share agreement with the Bermuda
subsidiary ("AmTrust Bermuda") of AmTrust Financial Services, Inc. (“AmTrust”). The adverse development cover
reinsurance is for losses incurred on or prior to December 31, 2018 in excess of a $2.2 billion retention up to a $600.0
million limit, in exchange for a premium of $445.0 million. We assumed total gross reserves of $530.2 million and
recorded a deferred charge of $85.2 million. Enstar's reinsurance performance obligations in the transaction are
collateralized in accordance with a Master Collateral Agreement among Enstar, Maiden Re Bermuda, AmTrust and
certain subsidiaries of AmTrust.
Amerisure
On April 11, 2019, we completed a loss portfolio transfer reinsurance agreement with Amerisure Mutual Insurance
Company ("Amerisure") and Allianz Risk Transfer (Bermuda) Limited (“ART Bermuda”). In the transaction, Amerisure
ceded, and each of Enstar and ART Bermuda severally assumed, a 50% quota share of the construction defect losses
incurred by Amerisure and certain of its subsidiaries on or before December 31, 2012. Under the agreement, which
was effective as of January 1, 2019, we assumed $48.3 million of gross reserves in exchange for consideration of
$45.5 million and recorded a deferred charge asset of $2.9 million.
145
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
AmTrust RITC Transactions
On February 14, 2019, we completed four RITC transactions with Syndicates 1206, 1861, 2526 and 5820
(collectively the "AmTrust RITC Transactions"), managed by AmTrust Syndicates Limited, under which we reinsured
to close the 2016 and prior underwriting years. We assumed, among other items, gross loss reserves of £703.8 million
($897.1 million) and net loss reserves of £486.8 million ($620.4 million) relating to the portfolios in exchange for
consideration of £539.9 million ($688.2 million) and recorded a deferred charge asset of $20.6 million. We have an
investment in AmTrust, as described further in Note 21 - "Related Party Transactions".
2018
Allianz
Effective December 31, 2018, we and Allianz SE ("Allianz") amended the January 1, 2016 reinsurance agreement
between our subsidiary and Allianz, which related to our reinsurance of certain U.S. workers' compensation, construction
defect, and asbestos, pollution and toxic tort business originally held by Fireman's Fund Insurance Company. The
amendment increased the original sub-limit related to asbestos & environmental (“A&E”) liabilities in exchange for a
premium of $70.0 million. This additional business is also covered by the consulting agreement that we entered into
with San Francisco Reinsurance Company, an affiliate of Allianz, in connection with our 2016 transaction with Allianz
discussed below.
Maiden LPT
On December 27, 2018, as part of the acquisition of Maiden Re North America as discussed in Note 3 -
"Acquisitions", we also novated and assumed certain reinsurance agreements from Maiden Re Bermuda, including
certain affiliate reinsurance agreements with Maiden Re North America. We assumed total gross unaffiliated reserves
of $72.1 million for total assets of $70.4 million on a funds held basis and recorded a deferred charge asset of $1.7
million.
Coca-Cola
On August 1, 2018, we entered into a reinsurance transaction with The Coca-Cola Company and its subsidiaries
("Coca-Cola"), pursuant to which we reinsured certain of Coca-Cola's retention and deductible risks under its
subsidiaries' U.S. workers' compensation, auto liability, general liability and product liability insurance coverage. We
assumed total gross reserves of $120.8 million for cash consideration of $103.6 million and recorded a deferred charge
asset of $17.2 million. We transferred the cash consideration received of $103.6 million into a trust to support our
obligations under the reinsurance agreement.
Zurich Australia
On February 23, 2018, we entered into a reinsurance agreement with Zurich Australian Insurance Limited, a
subsidiary of Zurich Insurance Group ("Zurich"), to reinsure its New South Wales Vehicle Compulsory Third Party
("CTP") insurance business. Under the agreement, which was effective as of January 1, 2018, we assumed gross loss
reserves of AUD$359.4 million ($280.8 million) in exchange for consideration of AUD$343.9 million ($268.7 million).
We elected the fair value option for this reinsurance contract and recorded an initial fair value adjustment of AUD$15.5
million ($12.1 million) on the assumed gross loss reserves. Refer to Note 12 - "Fair Value Measurements" for a
description of the fair value process and the assumptions made.
Following the initial reinsurance transaction, which transferred the economics of the CTP insurance business,
we and Zurich also completed a portfolio transfer of the CTP insurance business under Division 3A Part III of Australia's
Insurance Act 1973 (Cth), effective December 31, 2018, which provided legal finality for Zurich's obligations.
146
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Neon RITC Transaction
On February 16, 2018, we completed a reinsurance-to-close (“RITC”) transaction with Neon Underwriting Limited
("Neon"), under which we reinsured to close the 2015 and prior underwriting years of account (comprising underwriting
years 2008 to 2015) of Neon's Syndicate 2468, with effect from January 1, 2018. We assumed gross loss reserves of
£403.9 million ($546.3 million) and net loss reserves of £342.1 million ($462.6 million) relating to the portfolio in exchange
for consideration of £329.1 million ($445.1 million). We elected the fair value option for this reinsurance contract and
recorded initial fair value adjustments of $20.6 million and $17.5 million on the gross and net loss reserves assumed,
respectively. Refer to Note 12 - "Fair Value Measurements" for a description of the fair value process and the assumptions
made.
Novae RITC Transaction
On January 29, 2018, we completed an RITC transaction with AXIS Managing Agency Limited, under which we
reinsured to close the 2015 and prior underwriting years of account of Novae Syndicate 2007 ("Novae"), with effect
from January 1, 2018. We assumed gross loss reserves of £860.1 million ($1,163.2 million) and net loss reserves of
£630.7 million ($853.0 million) relating to the portfolio in exchange for consideration of £594.1 million ($803.5 million)
and recorded initial fair value adjustments of $67.5 million and $49.5 million on the gross and net loss reserves assumed,
respectively. Refer to Note 12 - "Fair Value Measurements" for a description of the fair value process and the assumptions
made.
2017
Allianz
On December 28, 2017, we entered into a reinsurance agreement with Allianz to reinsure a portfolio of Allianz’s
run-off business, effective December 31, 2017. Pursuant to the reinsurance agreement, we reinsured 50% of certain
U.S. workers' compensation, asbestos, and toxic tort business originally held by San Francisco Reinsurance Company,
an affiliate of Allianz, and in the process assumed net reinsurance reserves of $81.4 million. Affiliates of Allianz retained
$81.4 million of reinsurance premium as funds withheld collateral for the obligations under the reinsurance agreement
and we transferred $8.1 million to a reinsurance trust to further support our obligations. We also provide ongoing
consulting services with respect to the entire $162.8 million portfolio, including the 50% share retained by affiliates of
Allianz.
RSA
On February 7, 2017, we entered into an agreement to reinsure the U.K. employers' liability legacy business of
RSA Insurance Group PLC ("RSA"). Pursuant to the transaction, our subsidiary assumed gross insurance reserves of
£1,046.4 million ($1,301.8 million), relating to 2005 and prior year business. Net insurance reserves assumed were
£927.5 million ($1,153.9 million) and the reinsurance premium received was £801.6 million ($997.2 million). We elected
the fair value option for this reinsurance contract. The initial fair value adjustment on the gross reserves was $174.1
million, and on the net reserves was $156.7 million. Refer to Note 12 - "Fair Value Measurements" for a description of
the fair value process and assumptions.
In addition to the initial reinsurance transaction, which transferred the economics of the portfolio up to the policy's
limits, we and RSA completed a portfolio transfer of the business under Part VII of the Financial Services and Markets
Act 2000 on July 1, 2019, which provided legal finality for RSA's obligations.
QBE
On January 11, 2017, we closed a transaction to reinsure multi-line property and casualty business of QBE
Insurance Group Limited ("QBE"). We assumed gross reinsurance reserves of approximately $1,019.0 million (net
reserves of $447.0 million) relating to the portfolio, which primarily includes workers' compensation, construction defect,
and general liability discontinued lines of business. The reinsurance premium received was $403.8 million, comprised
of $227.6 million in restricted cash and $176.2 million in funds held. We elected the fair value option for this reinsurance
contract. The initial fair value adjustment was $180.0 million on the gross reserves and $43.2 million on the net reserves.
Refer to Note 12 - "Fair Value Measurements" for a description of the fair value process and assumptions. In addition,
we pledged a portion of the premium as collateral to a subsidiary of QBE, and we have provided additional collateral
and a limited parental guarantee.
147
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
5. DIVESTITURES, HELD-FOR-SALE BUSINESSES AND DISCONTINUED OPERATIONS
Policy Benefits for Life Contracts held by Alpha Insurance
On May 31, 2019, we completed the transfer of our remaining life assurance policies written by our wholly-owned
subsidiary Alpha Insurance SA to a subsidiary of Monument Insurance Group Limited ("Monument"). Our life and
annuities operations do not qualify for inclusion in our reportable segments and are therefore included within other
activities. The related assets, as well as the results from these operations, were not significant to our consolidated
operations and therefore were not classified as a discontinued operation. In addition, our transfer of these life assurance
polices to Monument was not classified as a held-for-sale business transaction since the underlying contracts did not
meet the definition of a business. We have an equity method investment in Monument, as described further in Note
21 - "Related Party Transactions".
Life assurance polices subjected us to mortality, longevity and morbidity risks and were accounted for as life and
annuity premiums earned. Life benefit reserves were established using assumptions for investment yields, mortality,
morbidity, lapse and expenses, including a provision for adverse deviation. We established and reviewed our life
reserves regularly based upon cash flow projections. We established and maintained our life reinsurance reserves at
a level that we estimated would, when taken together with future premium payments and investment income expected
to be earned on associated premiums, be sufficient to support all future cash flow benefit obligations and third-party
servicing obligations as they become payable. Policy benefits for life contracts as of December 31, 2018 were $105.1
million.
Pavonia
On December 29, 2017, we completed the sale of our subsidiary, Pavonia Holdings (US), Inc. (“Pavonia”), to
Southland National Holdings, Inc. (“Southland”), a Delaware corporation and a subsidiary of Global Bankers Insurance
Group, LLC. The aggregate purchase price was $120.0 million. We used the proceeds to make repayments under our
revolving credit facility. Pavonia was a substantial portion of our previously reported Life and Annuities segment. Pavonia
was classified as held-for-sale prior to its sale during 2017.
The Pavonia business qualified as a discontinued operation. Net earnings from discontinued operations from
Pavonia recorded in the consolidated statement of earnings were $11.0 million for the year ended December 31, 2017.
The change in cash of businesses held for sale on the consolidated cash flow statement from Pavonia was $118.3
million whilst under our ownership for the year ended December 31, 2017. The cash, cash equivalents and restricted
cash carried on the balance sheet of Pavonia on December 29, 2017, the date of disposal, were $135.1 million.
A sale of one subsidiary, Pavonia Life Insurance Company of New York ("PLIC NY"), has not yet been agreed
or completed. As of December 31, 2019 and 2018, included within other assets and other liabilities on our consolidated
balance sheet were amounts of $20.6 million and $11.7 million, and $24.0 million and $11.3 million, respectively, relating
to PLIC NY.
Laguna
On August 29, 2017, we closed the previously-announced sale of our wholly-owned subsidiary Laguna Life DAC
(“Laguna”) to a subsidiary of Monument, for a total consideration of €25.6 million (approximately $30.8 million). We
have an equity method investment in Monument, as described further in Note 21 - "Related Party Transactions". Laguna
was classified as held-for-sale during 2017 prior to its sale.
Following the closing of the sale of Laguna, we recorded a loss on sale of $16.3 million for the year ended
December 31, 2017, which was included in earnings from continuing operations before income taxes in our consolidated
statement of earnings. This loss included a cumulative currency translation adjustment balance of $6.3 million, which
was reclassified from accumulated other comprehensive income and included in earnings as a component of the loss
on sale of Laguna during the year ended December 31, 2017, following the closing of the sale. Excluding the loss on
sale, the net losses relating to Laguna for the year ended December 31, 2017 were $1.2 million. These amounts were
not significant to our consolidated operations and therefore Laguna was not classified as a discontinued operation.
148
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
6. INVESTMENTS
We hold: (i) trading portfolios of fixed maturity investments, short-term investments and equities, carried at fair
value; (ii) available-for-sale portfolios of fixed maturity and short-term investments, carried at fair value; (iii) other
investments carried at fair value; (iv) equity method investments; and (v) funds held - directly managed.
Fixed Maturity Investments
Asset Types
The fair values of the underlying asset types of our short-term investments and fixed maturity investments,
classified as trading and available-for-sale, and the fixed maturity investments included within our funds held - directly
managed balance were as follows as of December 31, 2019 and 2018:
2019
Short-term
investments,
trading
Short-term
investments,
available-for-
sale
Fixed
maturities,
trading
Fixed
maturities,
available-
for-sale
Fixed
maturities,
funds held -
directly
managed
Total
U.S. government and agency
$
— $
111,583 $
219,194 $
298,729
$
106,537 $
736,043
U.K. government
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
Total fixed maturity and short-
term investments
24,411
21,958
5,121
—
—
—
—
1,069
387
122,012
575,018
14,280
84,760
—
20,734
161,772
702,857
13,915
4,007,386
1,067,256
603,389
5,697,067
1,381
—
—
—
102,554
258,412
571,129
490,624
14,491
127,219
98,557
208,097
49,456
86,205
230,343
76,681
167,882
471,836
900,029
775,402
$
51,490 $
128,335 $ 6,346,329 $ 1,913,389
$ 1,173,345 $ 9,612,888
Short-term
investments,
trading
Fixed
maturities,
trading
2018
Fixed
maturities,
available-for-
sale
Fixed
maturities,
funds held -
directly
managed
$
45,885 $
2,275
19,064
44,900
—
—
—
1,992
389,735 $
298,356
679,525
4,081,793
73,856
682,962
488,598
553,968
$
573
—
73,185
75,359
2,480
12
—
—
74,052 $
—
22,036
637,788
53,929
90,583
224,465
80,521
Total
510,245
300,631
793,810
4,839,840
130,265
773,557
713,063
636,481
$
114,116 $
7,248,793 $
151,609
$
1,183,374 $
8,697,892
U.S. government and agency
U.K. government
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
Total fixed maturity and short-
term investments
Included within residential and commercial mortgage-backed securities as of December 31, 2019 were securities
issued by U.S. governmental agencies with a fair value of $356.9 million (as of December 31, 2018: $656.6 million).
Included within corporate securities as of December 31, 2019 were senior secured loans of $31.4 million (as of
December 31, 2018: $20.4 million).
149
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Contractual Maturities
The contractual maturities of our short-term investments and fixed maturity investments, classified as trading
and available-for-sale, and the fixed maturity investments included within our funds held - directly managed balance
are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call
or prepay obligations with or without call or prepayment penalties.
As of December 31, 2019
One year or less
More than one year through two years
More than two years through five years
More than five years through ten years
More than ten years
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
Credit Ratings
Amortized
Cost
Fair Value
$
537,944 $
536,156
801,473
808,071
2,175,547
2,212,834
2,108,172
2,198,505
1,584,345
1,710,055
466,932
882,603
779,279
471,836
900,029
775,402
% of Total
Fair
Value
5.6%
8.4%
23.0%
22.9%
17.8%
4.9%
9.4%
8.0%
$ 9,336,295 $ 9,612,888
100.0%
The following table sets forth the credit ratings of our short-term investments and fixed maturity investments,
classified as trading and available-for-sale, and the fixed maturity investments included within our funds held - directly
managed balance as of December 31, 2019:
Amortized
Cost
Fair Value
% of Total
AAA
Rated
AA Rated
A Rated
BBB
Rated
Non-
Investment
Grade
Not Rated
$
730,396
$ 736,043
7.7% $ 736,043
$
— $
— $
— $
— $
155,261
161,772
1.7%
—
161,772
—
—
—
684,117
702,857
7.3%
316,151
154,072
63,270
144,557
24,807
—
—
—
5,479,839
5,697,067
59.2%
149,108
619,707
2,911,867
1,703,328
311,167
1,890
157,868
466,932
167,882
471,836
1.7%
4.9%
16,381
381,502
77,291
47,489
50,938
2,295
23,272
1,882
—
34,055
—
4,613
882,603
900,029
9.4%
632,461
89,347
95,508
66,573
6,224
9,916
U.S.
government and
agency
U.K.
government
Other
government
Corporate
Municipal
Residential
mortgage-
backed
Commercial
mortgage-
backed
Asset-backed
779,279
775,402
8.1%
378,116
89,418
174,118
117,275
15,694
781
Total
$ 9,336,295
$9,612,888
100.0% $2,609,762
$1,239,096
$3,297,996
$2,056,887
$ 391,947
$ 17,200
% of total fair
value
27.1%
12.9%
34.3%
21.4%
4.1%
0.2%
150
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Unrealized Gains and Losses on Available-for-sale Fixed Maturity Investments
The amortized cost and fair values of our fixed maturity investments classified as available-for-sale were as
follows as of December 31, 2019 and 2018:
2019
U.S. government and agency
U.K. government
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
2018
U.S. government and agency
Other government
Corporate
Municipal
Residential mortgage-backed
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Non-OTTI
Fair
Value
$
410,842 $
77 $
(607) $
410,312
15,067
84,116
1,081,713
15,963
127,704
98,928
208,121
282
1,119
4,026
20
240
38
169
—
(88)
15,349
85,147
(4,568)
1,081,171
(111)
(725)
(409)
(193)
15,872
127,219
98,557
208,097
$
2,042,454 $
5,971 $
(6,701) $
2,041,724
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Non-OTTI
$
576 $
— $
(3) $
72,811
75,535
2,499
12
1,219
1,006
—
—
(845)
(1,182)
(19)
—
Fair
Value
573
73,185
75,359
2,480
12
$
151,433 $
2,225 $
(2,049) $
151,609
Gross Unrealized Losses on Available-for-sale Fixed Maturity Investments
The following tables summarize our fixed maturity and short-term investments classified as available-for-sale in a
gross unrealized loss position, as of December 31, 2019 and 2018:
2019
Fixed maturity investments, at fair
value
12 Months or Greater
Less Than 12 Months
Total
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
U.S. government and agency
$
— $
— $ 222,643 $
(607) $ 222,643 $
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
Total fixed maturity and short-term
investments
1,080
2,754
128
—
—
—
(23)
(306)
—
—
—
—
37,796
461,772
12,046
65,992
79,606
129,014
(607)
(88)
(65)
38,876
(4,262)
464,526
(4,568)
(111)
(725)
(409)
(193)
12,174
65,992
79,606
129,014
(111)
(725)
(409)
(193)
$
3,962 $
(329) $ 1,008,869 $
(6,372) $ 1,012,831 $
(6,701)
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
2018
Fixed maturity and short-term
investments, at fair value
12 Months or Greater
Less Than 12 Months
Total
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
U.S. government and agency
$
573 $
(3) $
— $
— $
573 $
Other government
Corporate
Municipal
Residential mortgage-backed
Total fixed maturity and short-term
investments
7,351
11,888
1,783
12
(345)
(629)
(18)
—
11,000
25,227
283
—
(500)
(553)
(1)
—
18,351
37,115
2,066
12
(3)
(845)
(1,182)
(19)
—
$
21,607 $
(995) $
36,510 $
(1,054) $
58,117 $
(2,049)
As of December 31, 2019 and 2018, the number of securities classified as available-for-sale in an unrealized
loss position was 563 and 88, respectively. Of these securities, the number of securities that had been in an unrealized
loss position for twelve months or longer was 12 and 42, respectively. From October 1, 2019 we elected to use
available-for-sale accounting for all new acquisitions and where permissible, as trading fixed maturity securities mature,
we are reinvesting the proceeds into available-for-sale securities for the Non-Life Run-off and StarStone segments.
Other-Than-Temporary Impairment on Available-for-sale Fixed Maturity Investments
For the years ended December 31, 2019, 2018 and 2017, we did not recognize any other-than-temporary
impairment losses on our available-for-sale securities. We determined that no credit losses existed as of December 31,
2019 and 2018. A description of our other-than-temporary impairment process is included in Note 2 - "Significant
Accounting Policies". There were no changes to our process in the years ended December 31, 2019 and 2018.
Equity Investments
The following table summarizes our equity investments classified as trading as of December 31, 2019 and 2018:
Publicly traded equity investments in common and preferred stocks
Exchange-traded funds
Privately held equity investments in common and preferred stocks
2019
2018
$
$
327,875 $
133,047
268,799
729,721 $
138,415
—
228,710
367,125
Equity investments include publicly traded common and preferred stocks, exchange-traded funds and privately
held common and preferred stocks. Our publicly traded equity investments in common and preferred stocks
predominantly trade on major exchanges and are managed by our external advisors. Our investments in exchange-
traded funds trade on a major exchange.
Our privately held equity investments in common and preferred stocks are direct investments in companies that
we believe offer attractive risk adjusted returns and/or offer other strategic advantages. Each investment may have its
own unique terms and conditions and there may be restrictions on disposals. The market for these investments is
illiquid and there is no active market. Included within the above balance as of December 31, 2019 is an investment in
the parent company of AmTrust Financial Services, Inc. ("AmTrust"), with a fair value of $240.1 million. Refer to Note
21 - "Related Party Transactions" for further information.
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ENSTAR GROUP LIMITED
Other Investments, at fair value
The following table summarizes our other investments carried at fair value as of December 31, 2019 and
2018:
Hedge funds
Fixed income funds
Equity funds
Private equity funds
CLO equity funds
CLO equities
Private credit funds
Others
2019
2018
$
$
1,121,904 $
481,039
410,149
329,885
87,509
87,555
—
6,379
2,524,420 $
852,584
403,858
333,681
248,628
37,260
39,052
33,381
9,313
1,957,757
The valuation of our other investments is described in Note 12 - "Fair Value Measurements". Due to a lag in the
valuations of certain funds reported by the managers, we may record changes in valuation with up to a three-month
lag. We regularly review and discuss fund performance with the fund managers to corroborate the reasonableness of
the reported net asset values and to assess whether any events have occurred within the lag period that would affect
the valuation of the investments. The following is a description of the nature of each of these investment categories:
•
•
•
•
•
•
•
Hedge funds may invest in a wide range of instruments, including debt and equity securities, and utilize various
sophisticated strategies to achieve their objectives. We invest in a mixture of fixed income, equity and multi-
strategy hedge funds.
Fixed income funds comprise a number of positions in diversified fixed income funds that are managed by
third-party managers. Underlying investments vary from high-grade corporate bonds to non-investment grade
senior secured loans and bonds, but are generally invested in liquid fixed income markets. These funds have
regularly published prices.
Equity funds invest in a diversified portfolio of U.S. and international publicly-traded equity securities.
Private equity funds invest primarily in the financial services industry.
CLO equity funds invest primarily in the equity tranches of term-financed securitizations of diversified pools of
corporate bank loans.
CLO equities comprise investments in the equity tranches of term-financed securitizations of diversified pools
of corporate bank loans.
Private credit funds invest in direct senior or collateralized loans.
• Others comprise of various investments including a real estate debt fund that invests primarily in European
commercial real estate equity, call options on equities and a fund that provides loans to educational institutions
throughout the United States and its territories.
The increase in our other investments carried at fair value between December 31, 2019 and December 31, 2018
was primarily attributable to unrealized gains of $441.6 million and net additional subscriptions of $214.3 million to
CLO equity, CLO equity funds, fixed income funds and private equity funds.
As of December 31, 2019, we had unfunded commitments of $482.3 million to private equity funds.
Certain of our other investments are subject to restrictions on redemptions and sales that are determined by the
governing documents, which limits our ability to liquidate those investments. These restrictions may include lock-ups,
redemption gates, restricted share classes or side pockets, restrictions on the frequency of redemption and notice
periods. A gate is the ability to deny or delay a redemption request, whereas a side-pocket is a designated account for
which the investor loses its redemption rights. Certain other investments may not have any restrictions governing their
sale, but there is no active market and no guarantee that we will be able to execute a sale in a timely manner. In
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ENSTAR GROUP LIMITED
addition, even if certain other investments are not eligible for redemption or sales are restricted, we may still receive
income distributions from those other investments. The table below details the estimated date by which proceeds would
be received if we had provided notice of our intent to redeem or initiated a sales process as of December 31, 2019:
Less than
1 Year
1-2 years
2-3 years
More than
3 years
Not
Eligible/
Restricted
Total
Hedge funds
$ 343,005 $ 624,233 $
— $ 102,600 $
52,066 $ 1,121,904
Fixed income funds
477,935
Equity funds
410,149
Private equity funds
CLO equity funds
CLO equities
Other
60,735
87,555
34
—
—
—
—
—
—
—
—
—
26,774
—
—
—
—
—
—
—
—
3,104
481,039
—
329,885
410,149
329,885
—
—
6,345
87,509
87,555
6,379
$ 1,379,413 $ 624,233 $
26,774 $ 102,600 $ 391,400 $ 2,524,420
Equity Method Investments
The table below shows our equity method investments as of December 31, 2019 and 2018:
Redemption
Frequency
Monthly to Bi-
annually
Daily to
Quarterly
Daily to
Quarterly
N/A
Quarterly to Bi-
annually
N/A
N/A
2019
2018
Investment
Ownership
%
Carrying
Value
Investment
Ownership
%
Carrying
Value
Enhanzed Re
$
154,050
Citco
Monument
Clear Spring
Other
50,000
26,600
11,210
24,963
47.4% $
31.9%
26.6%
20.0% $
~30%
182,856 $
51,742
60,598
10,645
20,436
94,800
50,000
26,600
11,210
15,250
47.4% $
31.9%
26.6%
20.0%
~30%
94,800
50,812
42,193
10,070
6,632
$
266,823
$
326,277 $
197,860
$
204,507
Refer to Note 21 - "Related Party Transactions" for further information regarding our investments in Clear Spring,
Citco, Monument and Enhanzed Re.
As of December 31, 2019, we had unfunded commitments of $93.1 million related to equity method investments.
Funds Held
Under funds held arrangements, the reinsured company has retained funds that would otherwise have been
remitted to our reinsurance subsidiaries. We either have (i) funds held by reinsured companies, which are carried at
amortized cost and on which we receive a fixed crediting rate, or (ii) funds held - directly managed, which are carried
at fair value and on which we receive the underlying return on the portfolio. The investment returns on both categories
of funds held are recognized in net investment income and net realized and unrealized gains (losses). The funds held
balance is credited with investment income and losses payable are deducted.
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ENSTAR GROUP LIMITED
Funds Held - Directly Managed
Funds held - directly managed, where we receive the underlying return on the investment portfolio, are carried
at fair value, either because we elected the fair value option at the inception of the reinsurance contract, or because
it represents the aggregate of funds held at amortized cost and the fair value of an embedded derivative. The embedded
derivative relates to our contractual right to receive the return on the underlying investment portfolio supporting the
reinsurance contract. We include the estimated fair value of these embedded derivatives in the consolidated balance
sheets with the host contract in order to reflect the expected settlement of these features with the host contract. The
change in the fair value of the embedded derivative is included in net unrealized gains (losses). The following table
summarizes the components of the funds held - directly managed as of December 31, 2019 and 2018:
Fixed maturity investments, trading
Other assets
2019
1,173,345 $
14,207
1,187,552 $
2018
1,183,374
14,780
1,198,154
$
$
The following table summarizes the fixed maturity investment components of funds held - directly managed as
of December 31, 2019 and 2018:
Funds held
- Directly
Managed -
Fair Value
Option
2019
Funds held
- Directly
Managed -
Variable
Return
Funds held
- Directly
Managed -
Fair Value
Option
2018
Funds held
- Directly
Managed -
Variable
Return
Total
Total
$
185,859 $
940,194 $ 1,126,053 $
179,670 $ 1,044,377 $ 1,224,047
5,438
—
5,438
(2,733)
—
(2,733)
—
41,854
41,854
—
(37,940)
(37,940)
$
191,297 $
982,048 $ 1,173,345 $
176,937 $ 1,006,437 $ 1,183,374
Fixed maturity investments, at
amortized cost
Net unrealized gains (losses):
Change in fair value - fair value
option accounting
Change in fair value - embedded
derivative accounting
Fixed maturity investments within
funds held - directly managed, at fair
value
Refer to the sections above for details of the fixed maturity investments within our funds held - directly managed
portfolios.
Funds Held by Reinsured Companies
Funds held by reinsured companies, where we received a fixed crediting rate, are carried at cost on our
consolidated balance sheets. As of December 31, 2019 and 2018, we had funds held by reinsured companies of $408.7
million and $321.3 million, respectively.
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ENSTAR GROUP LIMITED
Net Investment Income
Major categories of net investment income for the years ended December 31, 2019, 2018 and 2017 are
summarized as follows:
Fixed maturity investments
Short-term investments and cash and cash equivalents
Funds held
Funds held – directly managed
Investment income from fixed maturities and cash and cash
equivalents
Equity investments
Other investments
Life settlements and other
Investment income from equities and other investments
Gross investment income
Investment expenses
Net investment income
Net Realized and Unrealized Gains (Losses)
2019
233,310 $
2018
189,000 $
2017
144,367
$
16,607
19,981
38,173
308,071
16,671
11,792
—
28,463
12,117
10,041
37,623
9,314
601
32,479
248,781
186,761
5,397
19,703
6,511
31,611
4,355
14,337
14,370
33,062
336,534
(15,258)
321,276 $
280,392
(9,721)
270,671 $
219,823
(11,034)
208,789
$
Components of net realized and unrealized gains (losses) for the years ended December 31, 2019, 2018 and
2017 were as follows:
Net realized gains (losses) on sale:
Gross realized gains on fixed maturity securities, available-for-sale
securities (1)
Gross realized losses on fixed maturity securities, available-for-sale
securities (1)
Net realized gains (losses) on fixed maturity securities, trading
Net realized gains (losses) on fixed maturity securities in funds held -
directly managed portfolios
Net realized gains (losses) on equity investments, trading
Total net realized gains (losses) on sale
Net unrealized gains (losses):
Fixed maturity securities, trading
Fixed maturity securities in funds held - directly managed portfolios
Equity investments, trading
Other investments
Total net unrealized gains (losses)
Net realized and unrealized gains (losses)
2019
2018
2017
$
4,856 $
27 $
616
(962)
91,313
1,495
(374)
96,328
349,975
88,053
55,359
441,636
935,023
(90)
(27,646)
(3,940)
4,016
(27,633)
(165,187)
(46,257)
(9,831)
(163,976)
(385,251)
$
1,031,351 $
(412,884) $
(125)
4,695
(4,219)
701
1,668
35,878
33,902
16,498
102,388
188,666
190,334
(1)The gross realized gains and losses on available-for-sale investments included in the table above resulted from sales of $310.4 million, $11.4
million and $40.8 million for the years ended December 31, 2019, 2018 and 2017, respectively.
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ENSTAR GROUP LIMITED
Restricted Assets
We utilize trust accounts to collateralize business with our insurance and reinsurance counterparties. We are
also required to maintain investments and cash and cash equivalents on deposit with regulatory authorities and Lloyd's
to support our insurance and reinsurance operations. The investments and cash and cash equivalents on deposit are
available to settle insurance and reinsurance liabilities. Collateral generally takes the form of assets held in trust, letters
of credit or funds held. The assets used as collateral are primarily highly rated fixed maturity securities. The carrying
value of our restricted assets, including restricted cash of $352.7 million and $380.5 million, as of December 31, 2019
and 2018, respectively, was as follows:
Collateral in trust for third party agreements
Assets on deposit with regulatory authorities
Collateral for secured letter of credit facilities
Funds at Lloyd's (1)
2019
4,104,093 $
445,626
133,238
639,316
5,322,273 $
$
$
2018
4,336,752
579,048
127,841
354,589
5,398,230
(1) Our businesses include three Lloyd's syndicates. Lloyd's determines the required capital principally through the annual business plan of each
syndicate. This capital is referred to as "Funds at Lloyd's" and will be drawn upon in the event that a syndicate has a loss that cannot be funded
from other sources. We also utilize unsecured letters of credit for Funds at Lloyd's, as described in Note 15 - "Debt Obligations and Credit
Facilities". Funds at Lloyd's increased primarily due to reinsurance to close ("RITC") transactions, during 2019.
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ENSTAR GROUP LIMITED
7. DERIVATIVES AND HEDGING INSTRUMENTS
Foreign Currency Hedging of Net Investments in Foreign Operations
We use foreign currency forward exchange rate contracts in qualifying hedging relationships to hedge the foreign
currency exchange rate risk associated with certain of our net investments in foreign operations. As of December 31,
2019 and 2018, we had forward foreign currency contracts in place which we had designated as hedges of our net
investments in foreign operations.
The following table presents the gross notional amounts and the estimated fair values recorded within other
assets and liabilities related to our qualifying foreign currency forward exchange rate contracts as of December 31,
2019 and 2018:
2019
Fair Value
2018
Fair Value
Gross Notional
Amount
Assets
Liabilities
Gross Notional
Amount
Assets
Liabilities
Foreign exchange forward - AUD
$
64,620
$
52
$
2,033
$
42,258
$
1,377
$
Foreign exchange forward - EUR
Foreign exchange forward - GBP
112,284
318,387
Total qualifying hedges
$
495,291
$
246
344
642
1,635
7,784
66,422
—
238
—
$
11,452
$
108,680
$
1,615
$
—
300
—
300
The following table presents the amounts of the net gains and losses deferred in the cumulative translation
adjustment ("CTA") account, which is a component of accumulated other comprehensive income (loss) ("AOCI"), in
shareholders' equity, relating to our foreign currency forward exchange rate contracts for the years ended December 31,
2019, 2018 and 2017:
Foreign exchange forward - AUD
Foreign exchange forward - EUR
Foreign exchange forward - GBP
Total qualifying hedges
Amount of Gains (Losses) Deferred in AOCI
2019
2018
2017
$
$
(722) $
1,817
(16,423)
(15,328) $
3,438
$
1,000
—
4,438
$
(1,247)
—
—
(1,247)
Non-derivative Hedging Instruments of Net Investments in Foreign Operations
From time to time, we may also use non-derivative instruments such as foreign currency denominated borrowings
under our credit facilities to hedge certain of our net investments in foreign operations in designated qualifying non-
derivative hedging arrangements. While there were no foreign currency denominated borrowings outstanding under
our credit facilities as of December 31, 2019 and 2018, the following table presents the amounts of the net gains and
losses deferred in the CTA account in AOCI relating to these qualifying non-derivative hedging instruments for the
years ended December 31, 2018 and 2017:
Amount of Gains (Losses) Deferred in AOCI
2018
2017
Net gains (losses) on qualifying non-derivative hedges
3,144
(9,375)
Derivatives Not Designated or Not Qualifying as Hedging Instruments
From time to time, we may also utilize foreign currency forward contracts as part of our overall foreign currency
risk management strategy or to obtain exposure to a particular financial market, as well as for yield enhancement in
non-qualifying hedging relationships. We may also utilize equity call option instruments either to obtain exposure to a
particular equity instrument or for yield enhancement in non-qualifying hedging relationships.
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ENSTAR GROUP LIMITED
Foreign Currency Forward Contracts
The following table presents the gross notional amounts and the estimated fair values recorded within other
assets and liabilities as of December 31, 2019 and 2018 and the gains and losses during the years ended December 31,
2019 and 2018, related to our non-qualifying foreign currency forward exchange rate hedging relationships:
December 31, 2019
Fair Value
2019
Gross Notional
Amount
Assets
Liabilities
Gains (losses) on non-
qualifying hedges charged to
earnings
Foreign exchange forward - AUD
$
913
$
839
$
892
$
Foreign exchange forward - CAD
Foreign exchange forward - EUR
Foreign exchange forward - GBP
66,266
74,444
11,940
10
507
13
1,482
1,440
292
Total non-qualifying hedges
$
153,563
$
1,369
$
4,106
$
1,523
(2,079)
1,759
12,004
13,207
December 31, 2018
Fair Value
2018
Gross Notional
Amount
Assets
Liabilities
Gains (losses) on non-
qualifying hedges charged to
earnings
Foreign exchange forward - AUD
$
45,427
$
1,952
$
310
$
Foreign exchange forward - CAD
Foreign exchange forward - EUR
Foreign exchange forward - GBP
55,050
54,282
256,959
1,441
139
1,554
—
301
72
Total non-qualifying hedges
$
411,718
$
5,086
$
683
$
4,958
9,311
2,296
15,078
31,643
Investments in Call Options on Equities
During the years ended December 31, 2019 and 2018, we recorded unrealized gains of approximately $0.5
million and unrealized losses of $9.4 million respectively, within net earnings, on the call options on equities which we
purchased in 2018 at a cost of $10.0 million. These call options on equities had a fair value of less than $0.1 million
and $0.6 million as of December 31, 2019 and 2018, respectively.
Other Derivatives
In 2019 we entered into a forward interest rate swap, with a notional amount of AUD$120.0 million, to partially
mitigate the risk associated with declining interest rates until the receipt of the assets related to the Munich Re
transaction, as discussed in Note 3 - "Significant New Business", which is expected to close in 2020. The carrying
value of the forward interest rate swap, recorded in other liabilities, was $0.3 million as of December 31, 2019. We
recorded unrealized losses in net earnings of $0.3 million on the instrument for the year ended December 31, 2019.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
8. REINSURANCE BALANCES RECOVERABLE ON PAID AND UNPAID LOSSES
The following table provides the total reinsurance balances recoverable on paid and unpaid losses as of
December 31, 2019 and 2018:
Recoverable from reinsurers on unpaid:
Outstanding losses
IBNR
Fair value adjustments - acquired companies
Fair value adjustments - fair value option
Total reinsurance reserves recoverable
Paid losses recoverable
Total
Non-life
Run-off
Atrium
StarStone
Total
2019
$
972,293 $
9,011 $
328,009 $
1,309,313
673,059
(13,652)
(88,086)
1,543,614
181,375
19,286
519
—
28,816
1,541
211,404
(2,122)
—
537,291
87,253
903,749
(15,255)
(88,086)
2,109,721
270,169
$
1,724,989 $
30,357 $
624,544 $
2,379,890
Reconciliation to Consolidated Balance Sheet:
Reinsurance balances recoverable on paid and
unpaid losses
Reinsurance balances recoverable on paid and
unpaid losses - fair value option
Total
$
$
1,029,471 $
30,357 $
624,544 $
1,684,372
695,518
—
—
695,518
1,724,989 $
30,357 $
624,544 $
2,379,890
Recoverable from reinsurers on unpaid:
Outstanding losses
IBNR
Fair value adjustments - acquired companies
Fair value adjustments - fair value option
Total reinsurance reserves recoverable
Paid losses recoverable
Total
Non-life
Run-off
Atrium
StarStone
Total
2018
$
901,772 $
18,891 $
263,065 $
1,183,728
609,434
(14,344)
(130,739)
1,366,123
138,265
19,247
630
—
38,768
(256)
201,784
(1,899)
—
462,950
23,813
830,465
(15,613)
(130,739)
1,867,841
161,822
$
1,504,388 $
38,512 $
486,763 $
2,029,663
Reconciliation to Consolidated Balance Sheet:
Reinsurance balances recoverable on paid and
unpaid losses
Reinsurance balances recoverable on paid and
unpaid losses - fair value option
Total
$
$
764,797 $
38,512 $
486,763 $
1,290,072
739,591
—
—
739,591
1,504,388 $
38,512 $
486,763 $
2,029,663
Our insurance and reinsurance run-off subsidiaries and assumed portfolios, prior to acquisition, used
retrocessional agreements to reduce their exposure to the risk of insurance and reinsurance assumed. On an annual
basis, both Atrium and StarStone purchase a tailored outwards reinsurance program designed to manage their risk
profiles. The majority of Atrium’s and StarStone's third-party reinsurance cover is with highly rated reinsurers or is
collateralized by pledged assets or letters of credit.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
The fair value adjustments, determined on acquisition of insurance and reinsurance subsidiaries, are based on
the estimated timing of loss and LAE recoveries and an assumed interest rate equivalent to a risk free rate for securities
with similar duration to the acquired reinsurance balances recoverable on paid and unpaid losses plus a spread to
reflect credit risk, and are amortized over the estimated recovery period, as adjusted for accelerations in timing of
payments as a result of commutation settlements. The determination of the fair value adjustments on the retroactive
reinsurance contracts for which we have elected the fair value option is described in Note 12 - "Fair Value
Measurements".
As of December 31, 2019 and 2018, we had reinsurance balances recoverable on paid and unpaid losses of
approximately $2,379.9 million and $2,029.7 million, respectively. The increase of $350.2 million in reinsurance balances
recoverable on paid and unpaid losses was primarily due to the AmTrust RITC and Zurich reinsurance transactions,
which closed during the first and fourth quarters of 2019, respectively, and reserve increases in StarStone and our
non-life run-off segment, offset by commutations and cash collections made during the year ended December 31,
2019.
Top Ten Reinsurers
December 31, 2019
December 31, 2018
Top ten reinsurers
Other reinsurers > $1
million
Other reinsurers < $1
million
Total
Non-life
Run-off
Atrium
StarStone
Total
% of
Total
Non-life
Run-off
Atrium
StarStone
Total
% of
Total
$
1,154,110
$
22,051
$
388,171
$
1,564,332
65.7% $
1,124,079
$
25,239
$
263,192
$
1,412,510
69.6%
551,636
7,761
233,871
793,268
33.4%
364,098
12,091
220,123
596,312
29.4%
19,243
545
2,502
22,290
0.9%
16,211
1,182
3,448
20,841
1.0%
$
1,724,989
$
30,357
$
624,544
$
2,379,890
100.0% $
1,504,388
$
38,512
$
486,763
$
2,029,663
100.0%
Information regarding top ten reinsurers:
Number of top 10 reinsurers rated A- or better
Number of top 10 non-rated reinsurers (1)
Recoverables rated A- or better in top 10
Collaterized non-rated reinsurers recoverables in top 10 (1)
Single reinsurers that represent 10% or more of total reinsurance
balance recoverables as of December 31, 2019:
Hannover Ruck SE (2)
Lloyd's Syndicates (3)
December 31, 2019 December 31, 2018
8
2
1,292,207 $
272,125
1,564,332 $
7
3
1,096,272
316,238
1,412,510
261,295 $
411,030 $
279,723
334,509
$
$
$
$
(1) For the two non-rated reinsurers as of December 31, 2019 and three non-rated reinsurers as at December 31, 2018, we hold security in the form
of pledged assets in trust or letters of credit issued to us in the full amount of the recoverable.
(2) Hannover Ruck SE is rated AA- by Standard & Poor’s and A+ by A.M. Best.
(3) Lloyd's Syndicates are rated A+ by Standard & Poor's and A by A.M. Best.
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ENSTAR GROUP LIMITED
Provisions for Uncollectible Reinsurance Balances Recoverable on Paid and Unpaid Losses
We evaluate and monitor concentration of credit risk among our reinsurers. Provisions are made for amounts
considered potentially uncollectible.
The following table shows our reinsurance balances recoverable on paid and unpaid losses by rating of reinsurer
and our provisions for uncollectible reinsurance balances recoverable on paid and unpaid losses ("provisions for bad
debt") as of December 31, 2019 and 2018. The majority of the provisions for bad debt relate to the Non-life Run-off
segment.
2019
2018
Gross
Provisions
for Bad
Debt
Provisions
as a
% of Gross
Net
Gross
Provisions
for Bad
Debt
Provisions
as a
% of Gross
Net
Reinsurers rated A- or above
$ 1,904,268
$
43,427
$ 1,860,841
2.3% $ 1,612,464
$
51,519
$ 1,560,945
Reinsurers rated below A-,
secured
Reinsurers rated below A-,
unsecured
Total
487,608
—
487,608
—%
430,852
—
430,852
135,653
104,212
31,441
76.8%
143,079
105,213
37,866
$ 2,527,529
$
147,639
$ 2,379,890
5.8% $ 2,186,395
$
156,732
$ 2,029,663
3.2%
—%
73.5%
7.2%
9. DEFERRED CHARGE ASSETS
Deferred charge assets relate to retroactive reinsurance policies providing indemnification of losses and LAE
with respect to past loss events in the Non-life Run-off segment. For insurance and reinsurance contracts for which
we do not elect the fair value option, a deferred charge asset is recorded for the excess, if any, of the estimated ultimate
losses payable over the premiums received at the initial measurement. The premium consideration that we charge the
ceding companies may be lower than the undiscounted estimated ultimate losses payable due to the time value of
money. After receiving the premium consideration in full from our cedents at the inception of the contract, we invest
the premium received over an extended period of time thereby generating investment income. We expect to generate
profits from these retroactive reinsurance policies when taking into account the premium received and expected
investment income, less contractual obligations and expenses. Further information on deferred charge assets recorded
during the years ended December 31, 2019, 2018 and 2017 is included in Note 4 - "Significant New Business".
Deferred charge assets are included in other assets on our consolidated balance sheets. The following table
presents a reconciliation of the deferred charge assets for the years ended December 31, 2019, 2018 and 2017:
Beginning carrying value
Recorded during the year
Amortization
Ending carrying value
2019
2018
2017
$
$
86,585 $
224,504
(38,627)
272,462 $
80,192 $
20,174
(13,781)
86,585 $
94,551
—
(14,359)
80,192
Deferred charge assets are amortized over the estimated claim payment period of the related contract with the
periodic amortization reflected in earnings as a component of losses and LAE. Deferred charge assets amortization
is adjusted at each reporting period to reflect new estimates of the amount and timing of remaining loss
payments. Changes in the estimated amount and the timing of payments of unpaid losses may have an effect on the
unamortized deferred charge assets and the amount of periodic amortization. When liabilities for losses and LAE are
commuted or bought back, they are removed from the estimates for the remaining loss payments, and this will generally
result in an acceleration of the amortization of the deferred charge assets. Deferred charge assets are assessed at
each reporting period for impairment. If the asset is determined to be impaired, it is written down in the period in which
the determination is made. For the year ended December 31, 2019, we completed our assessment for impairment of
deferred charge assets and concluded that there had been $nil impairment of our carried deferred charge assets
amount.
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ENSTAR GROUP LIMITED
10. LOSSES AND LOSS ADJUSTMENT EXPENSES
The liability for losses and loss adjustment expenses ("LAE"), also referred to as loss reserves, represents our gross
estimates before reinsurance for unpaid reported losses and losses that have been incurred but not reported ("IBNR") for
our Non-life Run-off, Atrium and StarStone segments using a variety of actuarial methods. We recognize an asset for the
portion of the liability that we expect to recover from reinsurers. LAE reserves include allocated loss adjustment expenses
("ALAE"), and unallocated loss adjustment expenses ("ULAE"). ALAE are linked to the settlement of an individual claim or
loss, whereas ULAE are based on our estimates of future costs to administer the claims. IBNR represents reserves for
losses and LAE that have been incurred but not yet reported to us. This includes amounts for unreported claims, development
on known claims and reopened claims.
The following table summarizes the liability for losses and LAE by segment and for our other activities as of
December 31, 2019 and 2018:
Non-life
Run-off
Atrium
StarStone
Other
Total
2019
Outstanding losses
IBNR
Fair value adjustments - acquired companies
Fair value adjustments - fair value option
ULAE
Total
$
$
89,141 $ 888,794 $
4,407,082 $
3,945,407
(170,689)
(217,933)
331,494
9,512 $ 5,394,529
5,057,868
(167,511)
(217,933)
362,285
8,295,361 $ 231,672 $ 1,879,128 $ 23,077 $ 10,429,238
962,353
(522)
—
28,503
136,543
3,700
—
2,288
13,565
—
—
—
Reconciliation to Consolidated Balance Sheet:
Losses and loss adjustment expenses
Losses and loss adjustment expenses, at fair
value
Total
$
$
5,674,239 $ 231,672 $ 1,879,128 $ 23,077 $ 7,808,116
2,621,122
2,621,122
8,295,361 $ 231,672 $ 1,879,128 $ 23,077 $ 10,429,238
—
—
—
2018
Non-life
Run-off
Atrium
StarStone
Other
Total
$
4,271,769 $
94,885 $ 796,194 $ 6,052 $ 5,168,900
3,527,767
140,521
787,894
12,809
4,468,991
(217,527)
(374,752)
333,405
3,476
—
2,402
(467)
—
25,076
—
—
—
(214,518)
(374,752)
360,883
$
7,540,662 $ 241,284 $ 1,608,697 $ 18,861 $ 9,409,504
Outstanding losses
IBNR
Fair value adjustments- acquired companies
Fair value adjustments - fair value option
ULAE
Total
Reconciliation to Consolidated Balance Sheet:
Losses and loss adjustment expenses
$
4,666,607 $ 241,284 $ 1,608,697 $ 18,861 $ 6,535,449
Losses and loss adjustment expenses, at fair
value
Total
2,874,055
—
—
—
2,874,055
$
7,540,662 $ 241,284 $ 1,608,697 $ 18,861 $ 9,409,504
The overall increase in the liability for losses and LAE between December 31, 2018 and December 31, 2019
was primarily attributable to the assumed reinsurance agreements with Zurich, Maiden Re Bermuda, Amerisure and
AmTrust, as described in Note 4 - "Significant New Business" in our Non-life Run-off segment.
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ENSTAR GROUP LIMITED
The table below provides a consolidated reconciliation of the beginning and ending liability for losses and LAE
for the years ended December 31, 2019, 2018 and 2017:
Balance as at January 1
Less: reinsurance reserves recoverable
Less: deferred charge assets on retroactive reinsurance
Net balance as at January 1
Net incurred losses and LAE:
Current period
Prior periods
Total net incurred losses and LAE
Net paid losses:
Current period
Prior periods
Total net paid losses
Effect of exchange rate movement
Acquired on purchase of subsidiaries
Assumed business
Ceded business
Net balance as at December 31
Plus: reinsurance reserves recoverable
Plus: deferred charge assets on retroactive reinsurance
2019
2018
2017
$
9,409,504 $
7,398,088 $
1,867,841
86,585
7,455,078
823,658
48,917
872,575
(200,264)
(1,669,004)
(1,869,268)
48,695
686
1,586,307
(47,018)
8,047,055
2,109,721
272,462
1,870,033
80,192
5,447,863
689,782
(235,757)
454,025
(189,560)
(1,194,985)
(1,384,545)
(145,243)
1,310,874
1,772,104
—
7,455,078
1,867,841
86,585
5,987,867
1,388,193
94,551
4,505,123
437,853
(244,302)
193,551
(82,273)
(862,921)
(945,194)
158,429
10,251
1,525,703
—
5,447,863
1,870,033
80,192
Balance as at December 31
$
10,429,238 $
9,409,504 $
7,398,088
The tables below provide the components of net incurred losses and LAE by segment and for our other activities
for the years ended December 31, 2019, 2018 and 2017:
Net losses paid
Net change in case and LAE reserves
Net change in IBNR reserves
Increase (reduction) in estimates of net ultimate losses
Increase (reduction) in provisions for unallocated LAE
Amortization of deferred charge assets
Amortization of fair value adjustments
Changes in fair value - fair value option
Net incurred losses and LAE
2019
Non-life
Run-off
Atrium
StarStone
Other
Total
$ 1,247,624 $
78,189 $ 531,633 $
11,822 $ 1,869,268
(530,891)
(813,582)
(96,849)
(57,404)
38,627
50,070
117,181
3,534
(4,782)
76,941
—
—
335
—
25,967
166,427
724,027
3,441
—
168
—
3,460
756
(497,930)
(651,181)
16,038
720,157
—
—
—
—
(53,963)
38,627
50,573
117,181
$
51,625 $
77,276 $ 727,636 $
16,038 $ 872,575
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Non-life
Run-off
Atrium
StarStone
Other
Total
2018
Net losses paid
Net change in case and LAE reserves
Net change in IBNR reserves
$
838,817 $
64,506 $
477,130 $
4,092 $ 1,384,545
(547,420)
(565,385)
6,331
4,091
75,887
113,879
4,808
7,999
(460,394)
(439,416)
Increase (reduction) in estimates of net ultimate
losses
Increase (reduction) in provisions for unallocated
LAE
Amortization of deferred charge assets
Amortization of fair value adjustments
Changes in fair value - fair value option
(273,988)
74,928
666,896
16,899
484,735
(65,401)
13,781
12,877
6,664
—
—
(5,118)
—
6,753
—
(266)
—
—
—
—
—
(58,648)
13,781
7,493
6,664
Net incurred losses and LAE
$
(306,067) $
69,810 $
673,383 $
16,899 $
454,025
Net losses paid
Net change in case and LAE reserves
Net change in IBNR reserves
Increase (reduction) in estimates of net ultimate
losses
Increase (reduction) in provisions for bad debt
Increase (reduction) in provisions for unallocated
LAE
Amortization of deferred charge assets
Amortization of fair value adjustments
Changes in fair value - fair value option
2017
Non-life
Run-off
Atrium
StarStone
Total
$
581,723 $
55,678 $
307,793 $
945,194
(381,053)
(390,727)
(190,057)
(1,536)
(53,810)
14,359
10,114
30,256
8,338
7,679
31,685
(23,540)
(341,030)
(406,588)
71,695
315,938
197,576
159
285
—
(2,720)
—
—
(1,377)
(187)
—
(945)
—
(53,712)
14,359
6,449
30,256
Net incurred losses and LAE
$
(190,674) $
69,419 $
314,806 $
193,551
Loss Development Information
Methodology for Establishing Reserves
The liability for losses and LAE includes an amount determined from reported claims and an amount based on
historical loss experience and industry statistics for IBNR using a variety of actuarial methods. Our loss reserves cover
multiple lines of business, which include workers' compensation, general casualty, asbestos and environmental, marine,
aviation and transit, construction defects and other non-life lines of business. Our management, through our loss
reserving committees, considers the reasonableness of loss reserves recommended by our actuaries, including actual
loss development during the year.
Case reserves are recognized for known claims (including the cost of related litigation) when sufficient information
has been reported to us to indicate the involvement of a specific insurance policy. We use considerable judgment in
estimating losses for reported claims on an individual claim basis based upon our knowledge of the circumstances
surrounding the claim, the severity of the injury or damage, the jurisdiction of the occurrence, the potential for ultimate
exposure, the type of loss, and our experience with the line of business and policy provisions relating to the particular
type of claim. The reserves for unpaid reported losses and LAE are established by management based on reports
from brokers, ceding companies and insureds and represent the estimated ultimate cost of events or conditions that
have been reported to, or specifically identified, by us. We also consider facts currently known and the current state
of the law and coverage litigation.
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ENSTAR GROUP LIMITED
IBNR reserves are established by management based on actuarially determined estimates of ultimate losses
and loss expenses. We use generally accepted actuarial methodologies to estimate ultimate losses and LAE and those
estimates are reviewed by management. In addition, the routine settlement of claims, at either below or above the
carried advised loss reserve, updates historical loss development information to which actuarial methodologies are
applied, often resulting in revised estimates of ultimate liabilities. On an annual basis, independent actuarial firms are
retained by management to provide their estimates of ultimate losses and to review the estimates developed by our
actuaries.
Within the annual loss reserve studies produced by either our actuaries or independent actuaries, exposures
for each subsidiary are separated into homogeneous reserving categories for the purpose of estimating IBNR. Each
reserving category contains either direct insurance or assumed reinsurance reserves and groups relatively similar
types of risks and exposures (for example, asbestos, environmental, casualty, property) and lines of business written
(for example, marine, aviation, non-marine). Based on the exposure characteristics and the nature of available data
for each individual reserving category, a number of methodologies are applied. Recorded reserves for each category
are selected from the actuarial indications produced by the various methodologies after consideration of exposure
characteristics, data limitations and strengths and weaknesses of each method applied. This approach to estimating
IBNR has been consistently adopted in the annual loss reserve studies for each period presented.
The estimation of unpaid claim liabilities at any given point in time is subject to a high degree of uncertainty for
a number of reasons. A significant amount of time can lapse between the assumption of risk, the occurrence of a loss
event, the reporting of the event to an insurance or reinsurance company and the ultimate payment of the claim on
the loss event. Our actuarial methodologies include industry benchmarking which, under certain methodologies,
compares the trend of our loss development to that of the industry. To the extent that the trend of our loss development
compared to the industry changes in any period, it is likely to have an impact on the estimate of ultimate liabilities.
Unpaid claim liabilities for property and casualty exposures in general are impacted by changes in the legal environment,
jury awards, medical cost trends and general inflation. Certain estimates for unpaid claim liabilities involve considerable
uncertainty due to significant coverage litigation, and it can be unclear whether past claim experience will be
representative of future claim experience. Ultimate values for such claims cannot be estimated using reserving
techniques that extrapolate losses to an ultimate basis using loss development factors, and the uncertainties
surrounding the estimation of unpaid claim liabilities are not likely to be resolved in the near future. In addition, reserves
are established to cover loss development related to both known and unasserted claims. Consequently, our subsequent
estimates of ultimate losses and LAE, and our liability for losses and LAE, may differ materially from the amounts
recorded in the consolidated financial statements.
These estimates are reviewed regularly and, as experience develops and new information becomes known, the
reserves are adjusted as necessary. Such adjustments, if any, will be recorded in earnings in the period in which they
become known. Prior period development arises from changes to loss estimates recognized in the current year that
relate to loss reserves established in previous calendar years.
Asbestos and Environmental
In establishing the reserves for losses and LAE related to asbestos and environmental claims, management
considers facts currently known and the current state of the law and coverage litigation. Liabilities are recognized for
known claims (including the cost of related litigation) when sufficient information has been developed to indicate the
involvement of a specific insurance policy, and management can reasonably estimate its liability. In addition, reserves
have been established to cover additional exposures on both known and unreported claims. Estimates of the reserves
are reviewed and updated continually. Developed case law and claim histories are still evolving for such claims,
especially because significant uncertainty exists about the outcome of coverage litigation and whether past claim
experience will be representative of future claim experience. In view of the changes in the legal and tort environment
that affect the development of such claims, the uncertainties inherent in valuing asbestos and environmental claims
are not likely to be resolved in the near future. Ultimate values for such claims cannot be estimated using traditional
reserving techniques and there are significant uncertainties in estimating the amount of our potential losses for these
claims. There can be no assurance that the reserves established by us will be adequate or will not be adversely affected
by the development of other latent exposures. The net liability for unpaid losses and LAE as of December 31, 2019
and 2018 included $2,078.3 million and $1,703.6 million, respectively, which represented an estimate of the net ultimate
liability for asbestos and environmental claims. The gross liability for such claims as of December 31, 2019 and 2018
was $2,259.6 million and $1,839.7 million, respectively. For the years ended December 31, 2019 and 2018, our reserves
for asbestos and environmental liabilities increased by $419.9 million and decreased by $152.4 million on a gross
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ENSTAR GROUP LIMITED
basis, respectively, and increased by $374.7 million and decreased by $159.6 million on a net basis, respectively. The
increase in 2019 was primarily due to acquisition activity and the decrease in 2018 was primarily due to net paid losses,
foreign exchange and net favorable development, partially offset by acquisition activity.
Disclosures of Incurred and Paid Loss Development, IBNR, Claims Counts and Payout Percentages
The loss development tables disclosed below, sets forth our historic incurred and paid loss development by
accident year through December 31, 2019, net of reinsurance, as well as the cumulative number of reported claims,
IBNR balances, and other supplementary information.
The loss development tables disclosed below are presented as follows:
•
•
•
Non-Life Run-off - Presented by acquisition year, if significant, and further disaggregated, if significant, by
line of business within that acquisition year. The disaggregated lines of business include General Casualty,
Workers’ Compensation, Marine, Aviation and Transportation, Professional Indemnity / Directors & Officers
and Motor.
Atrium - The loss development disclosures for our Atrium segment have not been disaggregated further by
line of business as the segment comprised approximately only 2% of our total consolidated liability for losses
and LAE as of December 31, 2019 and was, therefore, not considered material for further disaggregation.
StarStone - All the lines of business related to the StarStone segment have been included within the loss
development disclosures below, namely, Casualty, Marine, Property, Aerospace and Workers’ Compensation.
Incurred and Paid Loss Development and IBNR Disclosures
For each acquisition year and/or line of business for which incurred losses and allocated loss adjustment
expenses, net of reinsurance tables have been provided below, the disclosure approach and format adopted reflects
the following:
•
•
•
•
•
•
•
The incurred loss development tables include both reported case reserves and IBNR liabilities, as well as
cumulative paid losses;
Both the incurred and cumulative paid loss development tables include allocated LAE (i.e. claims handling
costs allocated to specific individual claims) but exclude unallocated LAE (i.e. the costs associated with internal
claims staff and third party administrators as well as consultants that cannot be allocated to specific individual
claims);
The fair value adjustments related to business acquisitions are excluded from the loss development tables,
however the undiscounted incurred losses, cumulative paid losses and allocated LAE related to business
acquisitions are included in the loss development tables;
The fair value adjustments related to retroactive reinsurance agreements for which we have elected the fair
value option are excluded from the loss development tables, however the undiscounted incurred losses,
cumulative paid losses and allocated LAE related to retroactive reinsurance agreements for which we have
elected the fair value option are included in the loss development tables;
The amounts relating to the amortization of deferred charge assets are excluded from the loss development
tables;
The amounts relating to the increase (reduction) in provisions for unallocated LAE are excluded from the loss
development tables;
In the incurred loss development tables, the incurred effect of agreeing a commutation or policy buyback is
included in the period in which the commutation or policy buyback is contractually agreed. We reflect the net
incurred loss development arising from a commutation or policy buyback in the fiscal year in which a
commutation or policy buyback is contractually agreed, and the net incurred loss development is allocated to
the appropriate accident year. The claim will generally have been adjusted throughout its lifetime and the
amounts recorded in prior years (supplementary information) remain unchanged in our tables, such that the
incurred amount that we recognize in the year in which a commutation or policy buyback is contractually agreed
represents the effect of the commutation or policy buyback settlement compared to the carried net loss and
LAE reserve balance in the prior year. We do not recast prior years to remove commuted or bought back
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ENSTAR GROUP LIMITED
claims, as such practice would eliminate any historical favorable or adverse development we may have
experienced on our commuted loss and LAE reserves. Reserves that have been commuted or bought back
are not adjusted in future years but the commuted or bought back value remains in our total incurred losses;
In the cumulative paid losses tables, we reflect the amount of the commutation or policy buyback settlements
in the year in which they are actually paid or received, and the net payment is allocated to the appropriate
accident year. The claim or recoverable may have recorded payments or receipts throughout its lifetime and
amounts recorded in prior years (supplementary information) remain unchanged in our tables, such that the
amounts paid or received that we recognize in the year in which a commutation or policy buyback is paid or
received represents the amount actually paid or received. We do not recast prior years to remove payments
or receipts related to commutations or policy buybacks, as we consider commutations and policy buybacks a
key component of our business and reflective of our ability to effectively manage acquired losses and LAE
liabilities. Payments relating to commutations and policy buybacks are not adjusted in future years but the
payments remain in our total cumulative paid losses;
The amounts included within the loss development tables for the years ended December 31, 2010 through to
December 31, 2018 (April 1, 2014 through to December 31, 2018 in the case of StarStone since its date of
acquisition), as well as the historical average annual percentage payout ratios as of December 31, 2019, are
presented as supplementary information and are therefore unaudited;
All data presented within the loss development tables is net of reinsurance recoveries, excluding provisions
for uncollectible reinsurance recoverables;
All data presented within the loss development tables is net of intercompany activity, including the Intra-Group
Cessions within the StarStone segment. On May 14, 2018, we completed the acquisition of KaylaRe and
subsequently eliminated all the related intercompany balances. In the loss development disclosures provided
in our Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended
December 31, 2017, the StarStone loss triangles were presented net of the external reinsurance provided by
KaylaRe since it was not a consolidated subsidiary at that time. However, after the acquisition of KaylaRe in
May 2018, the reinsurance arrangement with StarStone became an intercompany transaction and was
eliminated on consolidation. In addition, the StarStone loss development disclosures relating to the prior years
(supplementary information) were retrospectively recast as if KaylaRe had always been a consolidated
subsidiary, to allow for comparability between fiscal years;
The IBNR reserves included within each incurred loss development table by accident year, reflect the net IBNR
recorded as of December 31, 2019, including expected development on reported losses;
For the Non-life Run-off segment loss development tables, all information for both acquisitions and retroactive
reinsurance agreements is presented prospectively. As the reserves are effectively re-underwritten at the date
the reserves are acquired or assumed, we believe that the historical loss development prior to being acquired
is not relevant to our own experience managing these reserves. In addition, the information required to prepare
the loss development disclosures on a retrospective basis is not always available to us and a mixed approach
would result in loss development tables that are not entirely reflective of the actual loss development;
For the Non-life Run-off segment we have also presented the net incurred and paid losses and ALAE information
by calendar year as well as IBNR and claim counts for accident years older than 10 years on a single row
within the loss development tables. This presentation differs from the typical approach where only the net
outstanding losses and LAE reserves are presented as a reconciling item at the bottom of the loss development
tables. The additional detailed disclosures are provided on a voluntary basis and the inclusion of the disclosures
is to provide additional information to the users of our financial statements and to also enable the reconciliation
of our total loss reserves by acquisition year and by significant line of business.
For the StarStone segment loss development tables, all information has been presented on a prospective
basis from the date of our acquisition of StarStone, which was effective on April 1, 2014. Providing pre-
acquisition incurred and paid losses by accident year for years prior to 2014 was determined to be impracticable
due to significant data limitations; and
•
•
•
•
•
•
•
•
•
For the Atrium segment loss development tables, all information has been presented on a retrospective basis.
The historical amounts disclosed within the loss development tables for all lines of business presented below
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ENSTAR GROUP LIMITED
are on a constant-currency basis, which is achieved by using constant foreign exchange rates between periods in the
loss development tables, and translating prior period amounts denominated in currencies other than the U.S. dollar,
which is our reporting currency, using the closing exchange rates as of December 31, 2019.
The impact of this exchange rate conversion is to show the change between periods exclusive of the effect of
exchange rate fluctuations, which would otherwise distort the change in incurred losses and the cash flow patterns
associated with those incurred losses shown within the loss development tables. The change in net incurred losses
shown within the loss development tables will, however, differ from other U.S. GAAP disclosures of incurred current
and prior period reserve development amounts, which include the effect of exchange rate fluctuations.
Establishing an estimate for loss reserves involves various assumptions and judgments, therefore, the information
contained within the loss development disclosures only allows readers or users of our consolidated financial statements
to understand, at the summary level presented in the development tables, the change over time in our reported incurred
loss estimates as well as the nature and patterns of the cash flows associated with those estimates. We, therefore,
believe that the information provided within the loss development tables disclosed below is of limited use for independent
analysis or application of standard actuarial estimations, and any results obtained from doing so should be interpreted
with caution.
Cumulative Number of Reported Claims
Reported claim counts, on a cumulative basis, are provided as supplemental information to each incurred loss
development table by accident year. We measure claim frequency information on an individual claim count basis within
each of our segments as follows:
•
•
Non-Life Run-off - The claim frequency information for the exposures included within our Non-life Run-off
lines of business includes direct and assumed open and closed claims by accident year at the claimant level.
Reported claims that are closed without a payment are included within our cumulative number of reported
claims because we typically incur claim adjustment expenses on them prior to their closure. The claim count
numbers exclude counts related to claims within policy deductibles where the insured is responsible for the
payment of losses within the deductible layer. Individual claim counts related to certain assumed reinsurance
contracts such as excess-of-loss and quota share treaties are not available to us, and the losses arising from
these treaties have been treated as single claims for the purposes of determining claim counts. Therefore,
each treaty year within the reinsurance contract is deemed a single claim because the detailed underlying
individual claim information is generally not reported to us by our cedents; and
StarStone and Atrium - The claim frequency information is determined at the claimant level for the exposures
within the lines of business related to these segments. Our claims system assigns a unique claim identifier to
each reported claim we receive. Each unique claim identifier is deemed to be a single claim, irrespective of
whether the claim remains open or has been closed with or without payment. For certain insurance facilities
and business produced or managed by managing general agents, coverholders and third party administrators
where the underlying claims data is reported to us in an aggregated format, the information necessary to
provide cumulative claims frequency is not available. In such cases, we typically record a “block” claim in our
system. This also applies to a small amount of assumed reinsurance business that we write where, similarly,
the underlying claims data is reported to us in an aggregated format. In such instances, each assumed
reinsurance contract is deemed a single claim.
The cumulative number of reported claims for our Atrium segment includes all claim counts for Syndicate 609.
Our Atrium segment represents our 25% share of Syndicate 609's underwriting capacity and capital, however, the
claims count is the same whether viewed at the 100% Syndicate level or for our 25% share.
Our reported claim frequency information is subject to the following inherent limitations when analyzing our loss
experience and severity:
•
Claim counts are presented only on a reported and not on an ultimate basis. Therefore, reported claim counts
include open claims which have outstanding reserves but exclude IBNR claims. As such the reported claims
are consistent with reported losses, which can be calculated by subtracting IBNR losses from incurred losses.
However, the reported claim counts are inconsistent with the losses in the incurred loss development tables,
which include IBNR losses, and to losses in the paid loss development tables, which exclude outstanding
reserves;
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ENSTAR GROUP LIMITED
•
•
•
•
•
Reported claim counts have not been adjusted for ceded reinsurance, which may distort any measures of
frequency or severity;
For lines of business that have a mix of primary and excess layer exposures, such as our general casualty
and workers’ compensation lines of business, the reported claim counts may fluctuate from period to period
between exposure layers, thereby distorting any measure of frequency and severity; and
The use of our reported claim frequency information to project ultimate loss payouts by disaggregated disclosure
category or line of business may not be as meaningful as claim count information related to individual contracts
at a more granular level.
Payout Percentages
Non-life Run-off - The annual percentage payout disclosures for our Non-life Run-off segment are based on
the payout of incurred claims by age, net of reinsurance. For our Non-life Run-off segment, claims aging reflects
the number of years that have lapsed since the original acquisition of the related net liability for losses and
LAE reserves to the date the claim is paid. There may be occasions where, due to our claims management
strategies (including commutations and policy buy-backs) or due to the timing of claims payments relative to
the associated recovery, the cash received from reinsurance recoveries is greater than the cash paid out to
our claimants, (i.e. a net recovery rather than a net payout for a particular calendar year), thereby resulting in
a negative annual percentage payout for that calendar year.
Atrium and StarStone - The average annual percentage payout disclosures for our Atrium and StarStone
segments are based on the payout of incurred claims by age, net of reinsurance.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Non-Life Run-off Segment
The table below provides a reconciliation of the beginning and ending reserves for losses and LAE for the years
ended December 31, 2019, 2018 and 2017 for the Non-life Run-off segment:
2019
2018
2017
Balance as at January 1
$
7,540,662 $
5,949,472 $
Less: reinsurance reserves recoverable
Less: deferred charge assets on retroactive reinsurance
Net balance as at January 1
Net incurred losses and LAE:
Current period
Prior periods
Total net incurred losses and LAE
Net paid losses:
Current period
Prior periods
Total net paid losses
Effect of exchange rate movement
Acquired on purchase of subsidiaries
Assumed business
Ceded business
Net balance as at December 31
Plus: reinsurance reserves recoverable
Plus: deferred charge assets on retroactive reinsurance
1,366,123
86,585
6,087,954
123,559
(71,934)
51,625
(64,820)
(1,182,804)
(1,247,624)
47,355
686
1,586,307
(47,018)
6,479,285
1,543,614
272,462
1,377,485
80,192
4,491,795
12,451
(318,518)
(306,067)
(5)
(838,812)
(838,817)
(132,632)
1,111,839
1,761,836
—
6,087,954
1,366,123
86,585
Balance as at December 31
$
8,295,361 $
7,540,662 $
4,716,363
1,000,953
94,551
3,620,859
5,866
(196,540)
(190,674)
(2,835)
(578,888)
(581,723)
138,772
10,251
1,494,310
—
4,491,795
1,377,485
80,192
5,949,472
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Net incurred losses and LAE in the Non-life Run-off segment for the years ended December 31, 2019, 2018 and
2017 were as follows:
2019
2018
2017
Prior
Period
Current
Period
Total
Prior
Period
Current
Period
Total
Prior
Period
Current
Period
Total
$ 1,182,804
$
64,820
$ 1,247,624
$ 838,812
$
5
$ 838,817
$ 578,888
$
2,835
$ 581,723
(553,996)
23,105
(530,891)
(552,124)
4,704
(547,420)
(381,450)
397
(381,053)
Net losses paid
Net change in case and LAE
reserves
Net change in IBNR reserves
(848,776)
35,194
(813,582)
(573,127)
7,742
(565,385)
(393,100)
(219,968)
123,119
(96,849)
(286,439)
12,451
(273,988)
(195,662)
2,373
5,605
(390,727)
(190,057)
Increase (reduction) in estimates
of net ultimate losses
Reduction in provisions for bad
debt
Increase (reduction) in provisions
for unallocated LAE
Amortization of deferred charge
assets
Amortization of fair value
adjustments
Changes in fair value - fair value
option
—
—
—
—
(57,844)
440
(57,404)
(65,401)
38,627
50,070
117,181
—
—
—
38,627
13,781
50,070
12,877
117,181
6,664
—
—
—
—
—
—
(1,536)
—
(1,536)
(65,401)
(54,071)
261
(53,810)
13,781
14,359
12,877
10,114
6,664
30,256
—
—
—
14,359
10,114
30,256
Net incurred losses and LAE
$
(71,934) $ 123,559
$
51,625
$ (318,518) $ 12,451
$ (306,067) $ (196,540) $
5,866
$ (190,674)
Net change in case and LAE reserves comprises the movement during the year in specific case reserve liabilities
as a result of claims settlements or changes advised to us by our policyholders and attorneys, less changes in case
reserves recoverable advised by us to our reinsurers as a result of the settlement or movement of assumed claims.
Net change in IBNR represents the gross change in our actuarial estimates of IBNR, less amounts recoverable.
Year Ended December 31, 2019
The increase in net incurred losses and LAE for the year ended December 31, 2019 of $51.6 million included
net incurred losses and LAE of $123.6 million related to current period net earned premium. Excluding current period
net incurred losses and LAE of $123.6 million, the reduction in net incurred losses and LAE liabilities relating to prior
periods was $71.9 million, which was attributable to a reduction in estimates of net ultimate losses of $220.0 million,
a reduction in provisions for unallocated LAE of $57.8 million relating to 2019 run-off activity, partially offset by the
amortization of the deferred charge assets of $38.6 million, amortization of fair value adjustments of $50.1 million and
an increase in the fair value of liabilities of $117.2 million related to our assumed retroactive reinsurance agreements
for which we have elected the fair value option.
Drivers of the change in estimates of net ultimate losses:
The reduction in estimates of prior period net ultimate losses of $220.0 million for the year ended December 31,
2019 included a net reduction in case and IBNR reserves of $1,402.8 million, partially offset by net losses paid of
$1,182.8 million. For the year ended December 31, 2019, the overall change in our estimates of net ultimate losses
related to prior periods by line of business within our Non-life Run-off was as presented in the table below:
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Net losses paid
Net change in case
and LAE reserves
Net change in
IBNR reserves
Increase (reduction) in
estimates of net
ultimate losses
Asbestos
$
118,557 $
Environmental
General Casualty
Workers' Compensation
Marine, aviation and
transit
Construction defect
Professional indemnity/
Directors & Officers
Motor
Property
All Other
Total
16,899
175,044
208,961
82,058
32,078
103,413
276,563
94,093
75,138
1,182,804 $
$
35,003 $
13,796
(89,968)
(156,435)
(77,958)
(8,313)
(36,986)
(134,127)
(73,259)
(25,749)
(553,996) $
(146,749) $
(15,707)
(91,818)
(188,944)
(24,508)
(25,025)
(104,984)
(179,887)
(7,358)
(63,796)
(848,776) $
The significant drivers of the results in the table above are explained below.
Workers' Compensation
6,811
14,988
(6,742)
(136,418)
(20,408)
(1,260)
(38,557)
(37,451)
13,476
(14,407)
(219,968)
A $136.4 million reduction in estimates of net ultimate losses in our workers' compensation line of business arose
across multiple portfolios, where reported loss development was generally significantly less than expected development.
The lower than expected actual development was driven by significant proactive settlement activity on individual
claimants where we were able to settle claims lower than the case reserve estimates. For example, in two of our
portfolios we observed favorable reported loss development, where we paid $39.3 million in loss payments to release
a corresponding $53.6 million of associated case reserves for $14.3 million in favorable reported loss development.
These settlement activities and the favorable actual loss development versus expected loss development, lead to a
change in the actuarial assumptions in the annual reserve study that reflect this favorable loss development. For
workers compensation, we paid $209.0 million offset by a reduction in case reserves of $156.4 million and reduction
in IBNR reserve of $188.9 million.
We also continue to actively seek to commute policies when possible, and where the commutation of the policy
is settled at a level below the carried value of the loss reserves, we record a reduction in our estimates of net ultimate
losses. During the year ended December 31, 2019, we completed 6 commutations across several portfolios that
contributed to a $6.1 million reduction in estimates of net ultimate losses.
Professional Indemnity/Directors & Officers
A $38.6 million reduction in estimates of net ultimate losses in our professional indemnity/directors’ & officers’
line of business arose based on the annual actuarial analysis which reflected the better than expected loss development
during 2019. As part of the reserve analysis, an in-depth review of recently acquired portfolios’ ceded reinsurance
program led to an increase in the ceded reinsurance asset of $13.5 million, which is a reduction in net ultimate losses.
Asbestos
A $6.8 million increase in estimates of net ultimate losses in our asbestos line of business arose primarily due
to changes in our actuarial assumptions related to dismissal rates. During 2019, the number of new defendants and
filed claims was less than expected but this was offset by a lowering of the dismissal rate. In asbestos, the dismissal
rates are extremely high as many of the claims do not have merit against the insured. However, we have seen a trend
in both US and UK exposure of the dismissal rate trending down in the range of 2 to 3 percentage points.
Similar to workers’ compensation business, during the year ended December 31, 2019, we completed 6
commutations across several portfolios that contributed to a $9.8 million reduction in estimates of net ultimate losses.
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All Other
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
All other line of business changes in estimates of net ultimate losses were primarily due to the application of our
reserving methodologies, favorable actual versus expected loss development and proactive claim management.
Other Components of Net incurred Losses and LAE
The reduction of $57.8 million in provisions for unallocated LAE was due to a reduction in our estimate of the
total future costs to administer the claims.
The increase in the fair value of liabilities for which we have elected the fair value option of $117.2 million was
primarily due to changes in the discount rate and the application of the discount rate to the updated expected cash
flow patterns.
The amortization of fair value adjustments of $50.1 million was related to the fair value adjustments associated
with the acquisition of companies. On acquisition, we are required to fair value the net assets acquired, including the
reinsurance balances recoverable and the liability for losses and LAE. The resulting fair value adjustments are then
amortized over the expected life of the reinsurance balances recoverable and the liability for losses and LAE.
The amortization of deferred charge assets of $38.6 million was associated with retroactive reinsurance contracts
where, at the inception of the contract, the estimated ultimate losses payable was in excess of premium received.
Deferred charge assets are amortized over the estimated claim payment period of the related contract and are adjusted
periodically to reflect new estimates of the amount and timing of the remaining loss payments.
Year Ended December 31, 2018
The reduction in net incurred losses and LAE for the year ended December 31, 2018 of $306.1 million included
net incurred losses and LAE of $12.5 million related to current period net earned premium from previously acquired
businesses that renewed certain policies while being run-off. Excluding current period net incurred losses and LAE of
$12.5 million, the reduction in net incurred losses and LAE liabilities relating to prior periods was $318.5 million, which
was attributable to a reduction in estimates of net ultimate losses of $286.4 million, and a reduction in provisions for
unallocated LAE of $65.4 million, relating to 2018 run-off activity, partially offset by an increase in the fair value of
liabilities of $6.7 million related to our assumed retroactive reinsurance agreements for which we have elected the fair
value option, the amortization of the deferred charge assets of $13.8 million and the amortization of fair value
adjustments over the estimated payout period relating to companies acquired amounting to $12.9 million.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Drivers of the change in estimates of net ultimate losses:
The reduction in estimates of prior period net ultimate losses of $286.4 million for the year ended December 31,
2018 included a net reduction in case and IBNR reserves of $1,125.3 million, partially offset by net losses paid of
$838.8 million. For the year ended December 31, 2018, the overall change in our estimates of net ultimate losses
related to prior periods by line of business within our Non-life Run-off was as presented in the table below:
Net losses paid
Net change in case
and LAE reserves
Net change in
IBNR reserves
Increase (reduction) in
estimates of net
ultimate losses
Asbestos
$
108,248 $
Environmental
General Casualty
Workers' Compensation
Marine, aviation and
transit
Construction defect
Professional indemnity/
Directors & Officers
Motor
Property
All Other
Total
21,273
141,624
139,226
67,831
22,182
161,797
104,182
22,178
50,271
$
838,812 $
(21,535) $
479
(115,240)
(178,138)
(151,662) $
(7,599)
(60,828)
(115,648)
(44,200)
(7,257)
(21,188)
(33,146)
(11,159)
(109,962)
(24,271)
(40,841)
(552,124) $
(130,957)
(34,215)
(11,497)
(6,387)
(573,127) $
The significant drivers of the results in the table above are explained below.
Workers' Compensation
(64,949)
14,153
(34,444)
(154,560)
2,443
(18,221)
19,681
(39,995)
(13,590)
3,043
(286,439)
The $154.6 million reduction in estimates of net ultimate losses in our workers' compensation line of business
in 2018 arose across multiple portfolios, where reported incurred loss development was generally significantly less
than expected. When actual development is less than expected for a sustained period of time across a significant
volume of exposures, an updated actuarial analysis tends to indicate reductions in IBNR reserves. Updates to actuarial
analysis, factoring in the less-than-expected reported incurred loss development for the year, is the primary driver of
the $154.6 million reduction to Workers' Compensation net ultimate loss estimates.
For certain of our portfolios, the lower than expected actual development was driven by significant proactive
settlement activity on individual claimants where we were able to close open claims earlier than was indicated by the
original payout pattern, and in other portfolios, based on the review of recent loss development activity we revised our
actuarial development "tail factor" assumption, which led to a reduction in net ultimate losses. For example, in one
portfolio we observed favorable incurred loss development, primarily relating to accident years 1995 through 2005
where we paid $22.7 million in loss payments to release a corresponding $37.0 million of associated case reserves
for $14.3 million in favorable incurred loss development.
For recently acquired portfolios of workers' compensation business, we have utilized our subsidiary, Paladin
Managed Care Services ("Paladin"), to assist us in reviewing claims. Paladin generally produces savings related to
medical expense liabilities over and above savings achieved by prior vendors of such services, and the savings lead
to actual development that is less than expected, thereby driving reductions to the estimates of net ultimate losses. In
one particular program, our claims personnel pursued a proactive strategy of settling with numerous workers'
compensation claimants whose injuries arose in recent accident years. For this portfolio, the claims team reduced the
open inventory of claims by 78% during 2018. This reduction in exposure, when incorporated into an updated actuarial
analysis, led to a reduction in our estimate of ultimate net losses of $30.2 million, primarily relating to accident years
2010 through 2014.
We also continue to actively seek to commute policies when possible, and where the commutation of the policy
is settled at a level below the carried value of the loss reserves, we record a reduction in our estimates of net ultimate
losses. During the year ended December 31, 2018, we completed 7 commutations across several portfolios that
contributed to an $11.2 million the reduction in estimates of net ultimate losses.
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Asbestos
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
The $64.9 million reduction in estimates of net ultimate losses in our asbestos line of business arose primarily
due to one asbestos portfolio where lower than expected volume of claims reported and a lower than expected severity
on claims settled in the period, when projected to net ultimate losses through actuarial methodologies, resulted in a
significant reduction in estimates of net ultimate losses. The volume of claims reported was 3% less than expected
and the average cost per claim was 5% less than expected. Across our other asbestos portfolios, we completed 8
commutations and 2 policy buy-backs contributing to a $9.5 million reduction in estimates of net ultimate losses.
All Other
All other line of business changes in estimates of net ultimate losses were primarily due to the application of our
reserving methodologies, favorable actual versus expected loss development, claim management and commutations.
Other Components of Net incurred Losses and LAE
The reduction of $65.4 million in provisions for unallocated LAE was due to a reduction in our estimate of the
total future costs to administer the claims.
The amortization of deferred charge assets of $13.8 million was associated with retroactive reinsurance contracts
where, at the inception of the contract, the estimated ultimate losses payable were in excess of premium received.
The amortization of fair value adjustments of $12.9 million was related to the fair value adjustments associated
with the acquisition of companies. On acquisition, we are required to fair value the net assets acquired, including the
reinsurance balances recoverable and the liability for losses and LAE.
The increase in the fair value of liabilities for which we have elected the fair value option of $6.7 million was
primarily due to decreases in the estimated duration of the net liabilities, partially offset by changes in the corporate
bond yield.
Year Ended December 31, 2017
The reduction in net incurred losses and LAE for the year ended December 31, 2017 of $190.7 million included
net incurred losses and LAE of $5.9 million related to current period net earned premium from previously acquired
businesses that renewed certain policies while being run-off. Excluding current period net incurred losses and LAE of
$5.9 million, the reduction in net incurred losses and LAE liabilities relating to prior periods was $196.5 million, which
was attributable to a reduction in estimates of net ultimate losses of $195.7 million, and a reduction in provisions for
unallocated LAE of $54.1 million, relating to 2017 run-off activity, partially offset by an increase in the fair value of
unallocated liabilities of $30.3 million related to our assumed retroactive reinsurance agreements for which we have
elected the fair value option, the amortization of the deferred charge assets of $14.4 million and the amortization of
fair value adjustments over the estimated payout period relating to companies acquired amounting to $10.1 million.
Drivers of the change in estimates of net ultimate losses:
The reduction in estimates of prior period net ultimate losses of $195.7 million for the year ended December 31,
2017 included a net reduction in case and IBNR reserves of $774.6 million, partially offset by net losses paid of $578.9
million. For the year ended December 31, 2017, the overall change in our estimates of net ultimate losses related to
prior periods by line of business within our Non-life Run-off was as presented in the table below:
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Net losses paid
Net change in case
and LAE reserves
Net change in
IBNR reserves
Increase (reduction) in
estimates of net
ultimate losses
Asbestos
$
105,731 $
Environmental
General Casualty
Workers' Compensation
Marine, aviation and
transit
Construction defect
Professional indemnity/
Directors & Officers
Motor
Property
All Other
Total
26,542
94,526
187,712
18,272
33,802
33,402
24,391
13,440
41,070
$
578,888 $
(1,865) $
(9,438)
(54,292)
(190,924)
(76,837) $
(7,748)
(49,025)
(151,797)
(9,322)
(24,023)
(11,517)
(42,804)
(19,054)
(15,990)
(11,196)
(45,346)
(381,450) $
(24,559)
(8,513)
(5,162)
(15,138)
(393,100) $
The significant drivers of the results in the table above are explained below.
Workers' Compensation
27,029
9,356
(8,791)
(155,009)
(2,567)
(33,025)
(10,211)
(112)
(2,918)
(19,414)
(195,662)
The $155.0 million reduction in estimates of net ultimate losses in our workers' compensation line of business
arose primarily in five separate portfolios. Across these five portfolios, the reported incurred loss development was
generally significantly lower than expected. When actual development is less than expected for a sustained period of
time, across a significant volume of exposures, an updated actuarial analysis tends to indicate reductions in IBNR
reserves. In addition, we continue to proactively manage and settle claims where possible, commute policies if
appropriate and, through Paladin, we are able to achieve significant savings on medical costs through active claims
management strategies over the life of the reported claims. All of these items reduce the estimates of net ultimate
losses.
Construction Defect
The $33.0 million reduction in estimates of net ultimate losses in our construction defect line of business arose
primarily due to lower than expected actual incurred development in one portfolio. The active claims management
approach that our claims team adopted for the assumed exposures within this portfolio led to a significant reduction
loss in the inventory of the assumed open claims of 73% during 2017. This reduction in exposure, when incorporated
into our updated actuarial analysis, resulted in a reduction in estimates of net ultimate losses for this line of business.
Asbestos
The $27.0 million increase in estimates of net ultimate losses in our asbestos line of business resulted from a
ground-up study performed by a consulting actuarial firm on one of our portfolios. This study resulted in the recording
of additional reserves of $60.5 million due to a small number of accounts that experienced an increase in the notification
of claims which are expected to attach to the excess policies that we reinsure. This increase was partially offset by
favorable development of $33.5 million in our other portfolios of asbestos exposures arising primarily from lower than
expected claim notifications
All Other
All other line of business changes in estimates of net ultimate losses were primarily due to the application of our
reserving methodologies, favorable actual versus expected loss development, claim management and commutations.
Other Components of Net incurred Losses and LAE
The reduction in provisions for bad debt of $1.5 million was a result of the favorable recoveries from reinsurers,
the reduction in bad debt provisions for insolvent reinsurers as a result of distributions received and the reduction of
specific provisions held for certain reinsurers.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
The reduction of $54.1 million in provisions for unallocated LAE was due to a reduction in our estimate of the
total future costs to administer the claims.
The amortization of deferred charge assets of $14.4 million was associated with retroactive reinsurance contracts
where, at the inception of the contract, the estimated ultimate losses payable were in excess of premium received.
Deferred charge assets are amortized over the estimated claim payment period of the related contract and are adjusted
periodically to reflect new estimates of the amount and timing of the remaining loss payments.
The amortization of fair value adjustment of $10.1 million was related to the fair value adjustments associated
with the acquisition of companies. On acquisition, we are required to fair value the net assets acquired, including the
reinsurance balances recoverable and the liability for losses and LAE. The resulting fair value adjustments are then
amortized over the expected life of the reinsurance balances recoverable and the liability for losses and LAE.
The increase in the fair value of liabilities for which we have elected the fair value option of $30.3 million was
primarily due to decreases in the estimated duration of the net liabilities, partially offset by changes in the corporate
bond yield.
Disclosures of Incurred and Paid Loss Development, IBNR, Claims Counts and Payout Percentages
The following tables provides a breakdown of gross and net losses and LAE reserves, consisting of Outstanding
Loss Reserve ("OLR") and IBNR by line of business and adjustments for fair value resulting from business combinations,
adjustments for where we elected the fair value option, deferred charge assets and ULAE, as of December 31, 2019
and 2018:
Asbestos
Environmental
General casualty
Workers' compensation/personal accident
Marine, aviation and transit
Construction defect
Professional indemnity/Directors & Officers
Motor
Property
Other
Fair value adjustments
Fair value adjustments - fair value option
Deferred charge on retroactive reinsurance
ULAE
Total
OLR
Gross
IBNR
2019
Total
OLR
(in thousands of U.S. dollars)
Net
IBNR
Total
$
542,681
$ 1,373,678
$ 1,916,359
$
490,117
$ 1,271,982
$ 1,762,099
187,165
501,863
1,270,530
290,067
29,772
693,760
480,668
140,620
269,956
156,121
489,129
977,808
121,577
98,312
265,490
233,806
63,604
165,882
343,286
990,992
2,248,338
411,644
128,084
959,250
714,474
204,224
435,838
173,878
399,396
963,578
244,611
29,245
485,478
317,829
122,010
208,647
142,351
421,426
751,074
100,135
94,888
170,926
165,543
56,450
97,573
316,229
820,822
1,714,652
344,746
124,133
656,404
483,372
178,460
306,220
$
4,407,082
$ 3,945,407
$ 8,352,489
$ 3,434,789
$ 3,272,348
$ 6,707,137
(170,689)
(217,933)
—
331,494
$ 8,295,361
(157,036)
(129,848)
(272,462)
331,494
$ 6,479,285
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Asbestos
Environmental
General casualty
Workers' compensation/personal accident
Marine, aviation and transit
Construction defect
Professional indemnity/Directors & Officers
Motor
Property
Other
Fair value adjustments
Fair value adjustments - fair value option
Deferred charge on retroactive reinsurance
ULAE
Total
OLR
Gross
IBNR
2018
Total
OLR
(in thousands of U.S. dollars)
Net
IBNR
Total
$
341,544
$ 1,275,476
$ 1,617,020
$
321,356
$ 1,171,754
$ 1,493,110
96,665
500,033
1,454,178
301,783
20,712
603,665
564,307
168,267
220,615
126,035
379,484
832,615
72,888
99,288
216,839
321,992
37,631
165,519
222,700
879,517
93,095
416,097
2,286,793
1,115,116
374,671
120,000
820,504
886,299
205,898
386,134
227,994
19,310
426,020
414,847
160,873
175,289
117,384
298,612
537,782
78,023
94,736
166,898
304,874
36,817
111,453
210,479
714,709
1,652,898
306,017
114,046
592,918
719,721
197,690
286,742
$
4,271,769
$ 3,527,767
$ 7,799,536
$ 3,369,997
$ 2,918,333
$ 6,288,330
(217,527)
(374,752)
—
333,405
$ 7,540,662
(203,183)
(244,013)
(86,585)
333,405
$ 6,087,954
In addition to the breakdown of our non-life run-off reserves by line of business we also monitor our reserves by
acquisition year. The acquisition year is the year in which the net reserves were acquired via a business acquisition or
assumed via a retroactive reinsurance agreement. By analyzing the loss development tables by acquisition year on a
prospective basis, the impact of the take-on positions from year to year does not distort the loss development tables.
The following table provides a summary of our net loss reserves, prior to provisions for bad debt, fair value adjustments,
deferred charge assets and ULAE as of December 31, 2019, by year of acquisition and by significant line of business:
2009
and
Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Total
Asbestos
$ 180,887 $ 36,371 $
Environmental
44,461
10,364
— $
—
— $
7,973 $
— $
673 $ 387,808 $ 729,749 $
60,424 $ 336,925 $ 1,740,810
—
—
—
—
101,649
26,798
17,247
108,094
308,613
Acquisition Year
General
casualty
Workers'
compensation/
personal
accident
Marine,
aviation and
transit
Construction
defect
Professional
indemnity/
Directors &
Officers
Motor
Property
All Other
Total
60,400
13,409
24,072
12,082
14,695
30,313
46,838
5,389
59,432
305,370
241,541
813,541
3,362
49,828
145,975
3,986
58,316
— 331,383
266,932
73,069
385,223
392,454
1,710,528
8,890
2,638
3,256
—
18
55
—
—
9,438
25,131
3,957
5,021
5,756
4,058
17,889
13,843
8,619
28,274
217
298
422
500
6,199
6,295
—
—
—
660
—
3,361
13,762
1,589
—
81,037
139,908
91,909
342,989
—
46,906
18,982
22,973
—
35,198
124,132
35,795
—
77,685
—
326,157
164,271
655,260
250
14,785
14,127
5,587
3,581
7,600
203
—
4,453
406,545
455
66,755
16,562
22,099
78,785
84,344
480,599
178,215
301,410
26,528
118,979
$ 354,415 $ 141,306 $ 182,914 $ 57,336 $ 85,005 $ 99,834 $ 453,355 $ 885,176 $ 1,116,945 $ 1,724,191 $ 1,555,620 $ 6,656,097
179
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
The table below reconciles the net loss reserves, prior to provisions for bad debt, fair value adjustments, deferred
charge assets and ULAE as of December 31, 2019, by significant line of business to the line of business table presented
above:
Asbestos
Environmental
General casualty
Workers' compensation/personal accident
Marine, aviation and transit
Construction defect
Professional indemnity/Directors & Officers
Motor
Property
All Other
Total
2019
Total Net
Reserves per all
Acquisition
Years
Provision for
Bad Debt
Total Net
Reserves
$
1,740,810 $
21,289 $
1,762,099
308,613
813,541
1,710,528
342,989
124,132
655,260
480,599
178,215
301,410
7,616
7,281
4,124
1,757
1
1,144
2,773
245
4,810
316,229
820,822
1,714,652
344,746
124,133
656,404
483,372
178,460
306,220
$
6,656,097 $
51,040 $
6,707,137
Loss development tables have been provided for acquisition years 2010 through 2019. In addition, the workers'
compensation line of business in the 2015 acquisition year; the workers' compensation line of business in the 2016
acquisition year; the general casualty, workers' compensation, marine, aviation & transit, professional indemnity/directors
& officers and motor lines of business in the 2018 acquisition year; and the general casualty, workers' compensation and
professional indemnity/directors & officers lines of business in the 2019 acquisition year are significant and we have provided
additional loss development tables for those lines of business within those acquisition years.
Our non-life run-off segment is unique within the insurance industry in that legacy reserves are continuously being
acquired and added to this segment through business acquisitions or through retroactive reinsurance agreements.
Accordingly, it would not be appropriate to extrapolate redundancies or deficiencies into the future from the loss development
tables provided below. Acquired and assumed reserves arising from business acquisitions and retroactive reinsurance
agreements are presented on a full prospective basis.
The following tables set forth information about incurred and paid loss development, total IBNR reserves and
cumulative loss frequency related to our 2010 through 2019 acquisition years within the Non-Life Run-off segment as of
December 31, 2019. In addition, we have also presented loss development tables for the significant lines of business within
certain acquisition years. The information related to incurred and paid loss development for the years ended December
31, 2010 through 2018 is presented as supplementary information and is therefore unaudited.
180
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Business Acquired and Contracts Incepting in the Year Ended December 31, 2010
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
As of December
31, 2019
Accident
Year
Total Net
Reserves
Acquired
2010
(unaudited)
2011
(unaudited)
2012
(unaudited)
2013
(unaudited)
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
IBNR
Cumulative
Number of
Claims
2009
and
Prior
Accident
Year
2009
and
Prior
$ 1,092,197 $ 1,086,671 $ 1,044,111 $ 1,058,458 $1,012,046 $ 929,888 $ 903,954 $ 839,798 $ 800,104 $ 800,341 $ 788,475
$ 42,290
163,994
$ 1,092,197
$ 788,475
$ 42,290
163,994
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For The Years Ended December 31,
2010
(unaudited)
2011
(unaudited)
2012
(unaudited)
2013
(unaudited)
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
$
102,123 $
261,446 $
428,312 $ 511,054 $ 553,769 $ 567,605 $ 584,306 $ 612,530 $ 630,627 $ 647,169
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
$ 647,169
$ 141,306
181
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Business Acquired and Contracts Incepting in the Year Ended December 31, 2011
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
As of December
31, 2019
Accident
Year
Total Net
Reserves
Acquired
2011
(unaudited)
2012
(unaudited)
2013
(unaudited)
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
IBNR
Cumulative
Number of
Claims
2009
and
Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
$ 596,121 $621,742 $586,636 $490,822 $424,001 $370,995 $315,912 $270,905 $256,864 $ 235,348
$23,721
112,787
285
—
—
—
—
—
—
—
—
—
412
102
449
36
121
141
140
140
140
142
142
142
45
10
23
54
10
43
1
61
10
15
3
—
71
10
15
3
(2)
2
79
17
15
3
(2)
86
18
15
18
32
93
17
15
15
24
(139)
(110)
(99)
—
21
7
15
8
—
—
—
—
—
3
5
8
2
2
—
26
19
7
16
14
1
2
2
1
—
$ 596,406
$ 235,578
$23,741
112,875
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident
Year
2011
(unaudited)
2012
(unaudited)
2013
(unaudited)
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
For The Years Ended December 31,
2009
and
Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
$ 59,906 $ 97,414 $ 92,129 $ 21,874 $ 15,512 $ 24,434 $ 16,751 $ 27,013 $
52,483
140
140
140
140
142
142
142
$
91
27
115
36
6
45
10
6
54
10
10
1
61
10
15
3
—
71
10
15
3
(2)
2
79
17
15
3
(2)
86
17
15
4
3
93
17
15
7
11
(153)
(124)
(114)
—
3
1
6
4
—
$
52,664
$ 182,914
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
182
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Business Acquired and Contracts Incepting in the Year Ended December 31, 2012
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
As of December 31,
2019
Accident
Year
2009 and
Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Total Net
Reserves
Acquired
2012
(unaudited)
2013
(unaudited)
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
IBNR
Cumulative
Number of
Claims
$ 315,850 $ 314,772 $ 306,078 $ 297,612 $ 283,244 $ 273,273 $ 266,124 $ 257,947 $ 252,794
$
18,173
47,708
920
1,341
74
3,068
1,222
45
866
2,788
1,081
332
109
2,736
2,400
1,002
315
390
2,843
667
831
1,360
50
—
—
—
—
—
—
—
$ 318,091
2,468
1,368
1,242
1,208
981
371
396
1,420
1,388
61
960
363
385
1,189
676
1,158
69
944
152
124
1,093
676
1,019
153
—
944
152
124
1,048
676
969
91
141
251
64
—
—
—
23
—
139
—
18
37
6
5
6
5
7
5
2
4
1
4
$ 258,398
$
18,454
47,753
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident
Year
2009 and
Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
For The Years Ended December 31,
2012
(unaudited)
2013
(unaudited)
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
2,754 $ 67,858 $ 108,965 $ 139,542 $ 163,845 $ 173,921 $ 187,091 $ 197,236
$
$
167
110
28
463
454
45
100
618
679
45
109
62
685
792
47
124
205
103
712
849
152
124
420
107
2
748
905
152
124
617
676
51
12
776
944
152
124
791
676
89
39
—
801
944
152
124
905
676
89
91
27
17
$ 201,062
$ 57,336
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
183
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Business Acquired and Contracts Incepting in the Year Ended December 31, 2013
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
As of December 31,
2019
Accident
Year
2009 and
Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Total Net
Reserves
Acquired
2013
(unaudited)
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
IBNR
$
207,452 $ 227,635 $ 233,644 $ 225,478 $ 218,082 $ 212,039 $ 200,034 $ 188,416
$ 15,864
110,795
118,652
117,915
133,289
135,364
125,148
123,802
122,441
96,929
102,288
100,482
100,243
95,848
87,913
86,403
85,920
131,119
127,323
121,364
118,085
114,772
110,045
107,853
108,025
13,062
90,739
—
—
—
—
—
—
91,634
4,514
88,920
3,714
265
85,791
3,425
280
103
81,732
16,800
982
71
30
80,036
16,225
329
70
13
22
80,091
16,304
250
69
13
17
13
4,635
2,218
2,090
1,277
90
54
2
—
—
3
Cumulative
Number of
Claims
44,881
11,537
11,175
10,420
5,649
175
2
1
1
1
1
$
559,357
$ 601,559
$ 26,233
83,843
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
$
$
Accident
Year
2009 and
Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
For The Years Ended December 31,
2013
(unaudited)
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
48,802 $
84,422 $ 109,918 $ 128,474 $ 129,803 $ 136,898 $ 140,814
24,752
30,323
33,361
17,022
48,783
52,455
59,095
37,653
993
75,351
63,952
74,663
52,638
1,747
43
92,782
70,498
86,916
62,876
2,256
102
34
98,341
75,055
92,445
68,866
15,804
112
64
9
105,023
105,873
77,290
96,780
71,487
15,959
165
65
13
13
79,113
99,781
74,556
16,123
190
66
13
17
8
$ 516,554
$
85,005
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
184
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Business Acquired and Contracts Incepting in the Year Ended December 31, 2014
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident
Year
Total Net Reserves
Acquired
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
IBNR
Cumulative
Number of Claims
For the Years Ended December 31,
As of December 31, 2019
2009 and
Prior
$
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
37,554 $
33,315 $
23,192 $
20,933 $
22,105 $
21,089 $
19,229
$
104,408
100,017
100,345
133,784
119,430
115,341
122,063
73,942
128,979
153,910
133,521
135,540
140,845
143,664
140,683
146,060
177,122
185,261
178,247
165,223
162,068
75,762
12,826
93,936
9,503
33,545
82,344
13,817
15,529
330
86,798
7,420
20,709
1,075
5,074
86,920
—
—
—
—
—
—
86,393
5,765
18,616
4,607
3,920
6
84,590
5,589
17,799
773
8,196
5
—
72
10,628
9,369
11,175
13,971
1,731
73
89
423
—
899
6,363
6,454
6,693
5,086
3,171
1,113
186
44
37
17
5
$
443,507
$ 563,976
$
48,430
29,169
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
$
$
Accident
Year
2009 and
Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
For The Years Ended December 31,
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
7,044 $
13,090 $
15,652 $
16,337 $
16,884 $
16,934
69,414
87,233
102,138
102,128
103,753
109,574
110,338
113,406
120,564
126,650
119,807
128,692
127,958
132,508
29,424
84,042
47,495
21,752
1,462
89,618
40,237
2,494
1,739
47,537
3,280
4,295
20
55,882
3,975
11,465
556
537
63,256
5,994
13,487
571
1,553
5
62,009
7,671
12,774
601
1,237
5
—
$ 464,142
$
99,834
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
185
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Business Acquired and Contracts Incepting in the Year Ended December 31, 2015
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident
Year
Total Net Reserves
Acquired
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
IBNR
Cumulative
Number of Claims
For the Years Ended December 31,
As of December 31, 2019
2009 and
Prior
$
953,149 $
877,641 $
585,616 $
536,452 $
508,471 $
467,530
$
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
53,914
137,102
187,288
189,430
142,425
69,067
52,889
130,994
197,716
196,205
137,061
68,034
14,172
49,049
124,400
178,936
229,182
143,623
22,540
—
—
—
—
55,761
129,386
200,749
199,593
142,332
65,243
12,504
4,056
51,348
127,098
192,896
188,572
136,403
63,776
12,750
4,497
2,965
49,031
127,673
192,338
184,189
151,243
68,388
13,837
5,194
1,845
1,804
$
1,700,879
$ 1,263,072
$
51,305
6,860
18,940
23,706
16,027
18,617
5,125
2,053
453
997
1,775
145,858
11,285
2,349
5,379
4,714
5,182
10,707
21,014
3,365
900
270
3
65,168
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
$
$
Accident
Year
2009 and
Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
For The Years Ended December 31,
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
23,605 $
67,899 $
114,682 $
140,691 $
165,931
9,191
33,826
52,728
46,761
30,747
20,653
15,301
55,077
94,767
89,868
64,353
38,193
5,325
19,665
70,975
119,382
120,429
90,738
46,067
7,038
2,311
25,625
86,324
142,165
145,659
109,149
51,315
8,298
3,909
558
28,455
97,842
158,417
159,626
125,226
59,247
9,405
4,691
835
42
$
$
809,717
453,355
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
186
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Business Acquired and Contracts Incepting in the Year Ended December 31, 2015 - Workers' Compensation
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
As of December 31, 2019
Accident
Year
Total Net Reserves
Acquired
2015 (unaudited)
2016 (unaudited)
2017 (unaudited)
2018 (unaudited)
2019
IBNR
Cumulative Number
of Claims
2009 and
Prior
$
921,259 $
834,148 $
538,290 $
488,356 $
462,612 $
418,931
$
43,677
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
34,360
73,723
110,007
124,726
86,852
18,647
31,402
69,009
108,251
122,238
82,038
12,623
873
31,919
76,789
120,298
146,237
82,141
4,089
—
—
—
—
30,407
68,013
106,625
121,010
83,095
13,488
955
358
27,922
66,781
100,187
113,056
78,389
12,295
583
61
—
26,913
67,236
98,532
112,199
78,457
11,125
536
41
5
1
1,877
5,836
5,774
6,789
2,633
545
72
21
3
—
8,129
471
1,238
1,804
2,379
3,680
2,900
38
10
1
1
$
1,382,732
$
813,976
$
67,228
20,651
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For The Years Ended December 31,
Accident
Year
2009 and
Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2015 (unaudited)
2016 (unaudited)
2017 (unaudited)
2018 (unaudited)
2019
16,278 $
56,563 $
96,000 $
115,884 $
137,417
$
$
4,352
16,032
25,103
27,737
17,824
3,034
8,446
30,462
52,851
55,675
38,051
5,672
134
11,906
39,635
66,092
75,065
53,308
7,917
363
2
16,141
50,470
79,367
91,559
65,561
9,169
417
10
—
17,912
55,595
88,369
100,890
72,696
9,248
447
18
1
—
$
$
482,593
331,383
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
187
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Business Acquired and Contracts Incepting in the Year Ended December 31, 2016
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident
Year
Total Net Reserves
Acquired
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
IBNR
Cumulative Number
of Claims
For the Years Ended December 31,
As of December 31, 2019
2009 and
Prior
$
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
1,263,726 $
1,274,524 $
1,302,307 $
1,282,385 $
1,287,000
$
303,592
22,892
32,451
17,291
13,717
373
391
—
—
32,866
19,920
17,020
1,312
1,380
—
—
—
32,571
17,291
13,717
373
391
—
—
—
—
—
28,093
19,754
14,765
1,237
1,056
—
—
—
—
25,710
18,829
12,717
1,120
869
—
—
—
—
—
5,047
2,830
2,012
827
485
—
—
—
—
—
706
789
776
112
50
—
—
—
—
—
$
1,328,069
$
1,346,245
$
314,793
25,325
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
Accident
Year
2009 and
Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
For the Years Ended December 31,
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
$
$
96,937 $
213,509 $
317,309 $
2,757
2,758
2,734
145
178
—
—
7,111
6,647
5,206
191
207
—
—
—
10,001
8,218
6,461
278
284
—
—
—
—
428,904
14,236
9,691
7,587
285
366
—
—
—
—
—
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
$
$
461,069
885,176
188
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Business Acquired and Contracts Incepting in the Year Ended December 31, 2016 - Workers' Compensation
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
As of December 31, 2019
Accident Year
Total Net Reserves
Acquired
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
IBNR
2009 and Prior $
413,381 $
412,474 $
377,285 $
369,093 $
362,905
$
26,747
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
25,330
15,376
13,074
—
—
—
—
26,034
16,399
15,465
—
—
—
—
—
24,075
15,376
13,074
—
—
—
—
—
—
—
22,383
16,501
13,276
19,541
16,327
11,379
—
—
—
—
—
—
—
—
—
—
—
—
—
3,660
1,456
1,093
—
—
—
—
—
—
—
Cumulative
Number of
Claims
9,092
323
476
608
—
—
—
—
—
—
—
$
465,906
$
410,152
$
32,956
10,499
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
33,610 $
59,725 $
83,273 $
117,191
$
$
Accident Year
2009 and Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
1,908
2,631
2,638
—
—
—
—
5,539
5,871
5,028
—
—
—
—
—
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
7,326
7,305
6,247
—
—
—
—
—
—
9,891
8,756
7,382
—
—
—
—
—
—
—
$
$
143,220
266,932
189
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Business Acquired and Contracts Incepting in the Year Ended December 31, 2017
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year
Total Net Reserves
Acquired
For the Years Ended December 31,
2018
2017
(unaudited)
(unaudited)
2019
As of December 31, 2019
IBNR
Cumulative
Number of Claims
2009 and Prior $
1,449,663 $
1,374,191 $
1,304,002 $
1,313,517
$
776,522
11,481
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
34,561
36,184
39,449
36,320
31,474
9,207
1,484
95
—
—
28,737
29,273
35,467
30,335
20,315
6,494
(4)
174
18,908
25,390
31,240
28,140
16,984
7,002
125
—
—
21,021
27,315
29,452
24,703
15,996
6,295
919
—
—
—
8,209
8,573
6,389
1,242
2,195
931
86
416
—
—
36
7
11
11
20
8
3
1
—
—
$
1,638,437
$
1,439,218
$
804,563
11,578
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
$
$
Accident Year
2009 and Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
For the Years Ended December 31,
2018
2017
(unaudited)
(unaudited)
2019
80,189 $
165,471 $
243,621
4,287
4,125
10,348
9,508
6,482
1,361
(56)
4
7,394
9,257
15,371
15,711
8,987
3,720
66
—
—
9,121
12,971
18,603
21,277
11,559
4,687
434
—
—
—
$
$
322,273
1,116,945
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
190
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Business Acquired and Contracts Incepting in the Year Ended December 31, 2018
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year Total Net Reserves Acquired
For the Year Ended December 31,
As of December 31, 2019
2018
(unaudited)
2019
IBNR
Cumulative
Number of Claims
2009 and Prior $
559,105 $
383,948 $
355,392
$
106,822
209,846
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
88,147
159,362
225,177
263,008
408,726
354,692
170,311
207,035
315,659
—
108,810
147,341
219,807
267,132
453,181
474,678
172,245
207,172
315,659
94,273
142,391
211,156
255,973
423,289
467,650
174,845
205,460
285,038
68,271
23,039
21,380
20,218
54,609
90,111
97,189
55,384
79,430
88,411
19,774
13,799
14,100
14,055
16,251
18,887
23,421
2,094
4,163
4,929
1,634
$
2,751,222
$
2,683,738
$
656,367
323,179
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
Accident Year
2009 and Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
For the Year Ended December 31,
2018
(unaudited)
2019
$
$
41,953 $
11,109
26,998
31,845
42,312
93,536
100,598
6,258
52
—
36,359
23,761
47,261
74,768
90,716
181,166
191,150
62,658
72,794
139,815
39,099
959,547
1,724,191
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
$
$
191
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Business Acquired and Contracts Incepting in the Year Ended December 31, 2018 - General Casualty
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year Total Net Reserves Acquired
For the Year Ended December 31,
As of December 31, 2019
2018
(unaudited)
2019
IBNR
Cumulative
Number of Claims
2009 and Prior $
97,189 $
48,898 $
42,901
$
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
30,895
17,518
36,536
42,528
65,355
77,011
28,825
37,209
39,888
—
23,086
15,854
31,901
54,061
80,316
91,825
28,825
37,209
39,888
23,059
15,532
27,774
44,782
72,333
102,399
36,585
41,664
40,753
6,767
3,969
7,004
2,086
3,716
5,123
16,793
28,926
14,377
20,392
20,480
2,802
45,895
1,885
1,404
1,567
1,571
2,210
3,430
253
230
182
34
$
472,954
$
454,549
$
125,668
58,661
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
Accident Year
2009 and Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
For the Year Ended December 31,
2018
(unaudited)
2019
$
$
3,496 $
5,345
2,236
1,104
10,015
13,427
15,163
—
—
—
7,146
7,835
6,621
11,097
19,756
28,071
32,244
14,109
11,048
8,879
2,373
149,179
305,370
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
$
$
192
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Business Acquired and Contracts Incepting in the Year Ended December 31, 2018 - Workers' Compensation
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
As of December 31, 2019
Accident Year Total Net Reserves Acquired
2018
(unaudited)
2019
IBNR
Cumulative
Number of Claims
2009 and Prior $
106,230 $
101,016 $
108,435
$
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
24,838
29,795
28,788
37,716
65,000
38,734
44,686
52,360
65,075
—
25,149
24,877
29,174
38,309
66,305
39,336
44,686
52,360
65,075
24,102
26,179
27,723
37,866
57,128
34,649
38,945
49,156
60,923
20,889
30,391
8,642
12,202
12,633
16,786
24,865
16,909
21,267
28,222
24,137
5,472
$
493,222
$
485,995
$
201,526
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
1,742
355
401
468
866
1,335
1,437
892
998
886
383
9,763
Accident Year
2009 and Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
For the Year Ended December 31,
2018
(unaudited)
2019
$
$
3,633 $
317
(1,517)
521
1,532
3,248
1,355
—
—
—
10,643
4,542
1,825
5,513
7,743
14,666
4,066
3,666
5,900
28,725
13,483
100,772
385,223
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
$
$
193
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Business Acquired and Contracts Incepting in the Year Ended December 31, 2018 - Marine, Aviation & Transit
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year Total Net Reserves Acquired
For the Year Ended December 31,
As of December 31, 2019
2018
(unaudited)
2019
IBNR
Cumulative
Number of Claims
2009 and Prior $
26,321 $
28,798 $
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
3,324
8,676
16,069
43,798
62,766
26,007
—
—
—
—
2,062
9,472
12,297
35,462
81,126
65,209
—
—
—
20,641
$
(6,710)
10,345
10,151
29,464
82,479
72,055
—
—
—
—
(1,842)
(1,049)
1,486
(6,037)
2,404
14,668
8,758
—
—
—
—
57,002
3,243
3,966
4,280
5,720
5,862
6,606
—
—
—
—
$
186,961
$
218,425
$
18,388
86,679
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
Accident Year
2009 and Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
For the Year Ended December 31,
2018
(unaudited)
2019
$
$
3,211 $
(3,689)
4,953
1,180
5,642
22,990
21,956
—
—
—
(3,789)
(7,715)
5,901
3,482
11,734
40,926
27,978
—
—
—
—
78,517
139,908
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
$
$
194
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Business Acquired and Contracts Incepting in the Year Ended December 31, 2018 - Professional Indemnity/
Directors & Officers
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year Total Net Reserves Acquired
For the Year Ended December 31,
As of December 31, 2019
2018
(unaudited)
2019
IBNR
Cumulative
Number of Claims
2009 and Prior $
200,658 $
92,577 $
100,687
$
(1,316)
52,393
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
25,474
44,476
55,366
56,251
84,795
45,515
—
—
—
—
39,710
50,663
68,004
60,010
106,888
97,288
—
—
—
33,765
46,111
65,180
74,018
101,771
79,028
—
—
—
—
8,220
2,837
12,943
9,407
16,922
19,285
—
—
—
—
4,259
3,745
3,263
3,223
3,563
3,903
—
—
—
—
$
512,535
$
500,560
$
68,298
74,349
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
Accident Year
2009 and Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
For the Year Ended December 31,
2018
(unaudited)
2019
$
$
24,232 $
3,644
12,453
15,706
10,599
21,640
13,696
—
—
—
33,585
12,243
19,732
22,837
18,601
40,189
27,216
—
—
—
—
174,403
326,157
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
$
$
195
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Business Acquired and Contracts Incepting in the Year Ended December 31, 2018 - Motor
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year Total Net Reserves Acquired
For the Year Ended December 31,
As of December 31, 2019
2018
(unaudited)
2019
IBNR
Cumulative
Number of Claims
2009 and Prior $
17,648 $
15,490 $
10,781
$
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
$
23,548
46,015
62,432
74,615
111,418
129,271
90,166
100,316
180,471
—
835,900
13,937
36,282
55,338
68,022
99,140
127,187
92,100
100,453
180,471
15,187
35,843
60,620
61,396
86,887
126,345
93,824
99,129
157,556
39,757
(291)
1,015
1,477
6,949
14,105
10,440
15,912
19,439
30,312
42,546
11,457
356
922
1,209
1,594
626
1,140
1,274
644
2,797
3,731
1,200
$
787,325
$
153,361
15,493
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
For the Year Ended December 31,
2018
(unaudited)
2019
Accident Year
2009 and Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
$
$
2,398 $
4,437
5,631
11,520
10,226
20,746
19,857
6,258
52
—
5,112
6,911
12,112
23,284
27,839
46,359
58,433
42,527
48,655
86,861
22,687
380,780
406,545
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
$
$
196
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Business Acquired and Contracts Incepting in the Year Ended December 31, 2019
Incurred Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
Accident Year
Total Net Reserves Acquired
2019
IBNR
Cumulative Number
of Claims
For the Year Ended December 31,
As of December 31, 2019
2009 and Prior $
604,631 $
598,841
$
330,575
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
35,515
47,718
70,661
110,426
135,465
182,991
238,798
116,386
162,744
—
24,353
38,961
51,937
87,708
131,000
186,727
308,254
116,386
162,744
54,601
3,586
1,506
27,520
36,879
76,169
99,838
179,237
116,386
162,744
12,706
81,869
21,945
21,380
15,532
19,223
21,224
35,276
39,815
2
2
85
$
1,705,335 $
1,761,512
$
1,047,146
256,353
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
Accident Year
2009 and Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Total outstanding liabilities for unpaid losses and
LAE, net of reinsurance
For the Year Ended December 31,
2019
$
$
$
21,678
4,923
4,649
6,455
12,893
26,910
34,610
68,179
—
—
25,595
205,892
1,555,620
197
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Business Acquired and Contracts Incepting in the Year Ended December 31, 2019 - General Casualty
Incurred Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
For the Year Ended December 31,
As of December 31, 2019
Accident Year
Total Net Reserves Acquired
2019
2009 and Prior $
4,396 $
4,415
$
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
7,704
11,381
16,910
22,355
32,883
58,563
50,518
32,188
45,010
—
5,426
8,817
13,592
16,934
30,337
45,594
62,866
32,188
45,010
1,709
IBNR
Cumulative Number
of Claims
670
1,509
2,347
5,262
7,515
15,387
30,556
44,899
32,188
45,010
475
693
1,213
1,148
688
448
456
346
475
1
1
3
$
281,908 $
266,888
$
185,818
5,472
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
Accident Year
2009 and Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Total outstanding liabilities for unpaid losses and
LAE, net of reinsurance
For the Year Ended December 31,
2019
$
$
$
1,163
1,031
896
3,136
3,472
4,103
4,552
6,193
—
—
801
25,347
241,541
198
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Business Acquired and Contracts Incepting in the Year Ended December 31, 2019 - Workers' Compensation
Incurred Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
For the Year Ended December 31,
As of December 31, 2019
Accident Year
Total Net Reserves Acquired
2019
2009 and Prior $
5,143 $
3,609
$
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
$
713
2,470
6,274
16,686
34,945
57,027
84,171
84,197
117,734
—
409,360 $
726
2,410
6,173
16,223
35,252
56,158
85,396
84,197
117,734
—
407,878
$
IBNR
Cumulative Number
of Claims
1,270
642
2,334
6,090
14,578
30,998
48,794
73,087
84,197
117,734
—
379,724
11,136
1,352
1,476
2,102
3,726
3,956
6,158
6,612
1
1
—
36,520
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
Accident Year
2009 and Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Total outstanding liabilities for unpaid losses and
LAE, net of reinsurance
For the Year Ended December 31,
2019
$
$
$
577
38
24
24
451
3,076
3,635
7,599
—
—
—
15,424
392,454
199
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Business Acquired and Contracts Incepting in the Year Ended December 31, 2019 - Professional Indemnity/
Directors & Officers
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
As of December 31, 2019
Accident Year
Total Net Reserves Acquired
2019
2009 and Prior $
6,696 $
4,052
$
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
7,245
18,093
30,127
46,758
46,557
29,527
2,892
—
—
—
4,448
10,292
18,012
35,881
46,982
32,577
52,708
—
—
3,251
IBNR
Cumulative Number
of Claims
812
838
1,947
4,348
9,945
17,975
7,665
28,916
—
—
961
10,399
5,300
6,511
3,472
4,411
5,361
5,856
5,053
—
—
3
$
187,895 $
208,203
$
73,407
46,366
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
Accident Year
2009 and Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Total outstanding liabilities for unpaid losses and LAE,
net of reinsurance
For the Year Ended December 31,
2019
$
$
$
1,323
326
3,403
3,216
3,924
14,955
7,193
8,067
—
—
1,525
43,932
164,271
200
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Annual Historical Duration of Claims
The following is unaudited supplementary information, which presents the annual percentage payout since the
year of acquisition, by year of acquisition and significant line of business within each acquisition year:
Annual Percentage Payout of Incurred Losses since Year of Acquisition, Net of Reinsurance
Year of Acquisition
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
2010 - All lines of business
12.95% 20.21 % 21.16 % 10.49 %
5.42% 1.75 % 2.12 %
3.58%
2.30%
2.10%
2011 - All lines of business
25.48% 15.94 % (2.22)% (29.82)% (2.70)% 3.79 % (3.32)%
4.38% 10.83%
2012 - All lines of business
1.18% 25.49 % 16.08 % 12.00 %
9.56% 4.26 % 5.22 %
4.02%
2013 - All lines of business
25.64% 21.47 % 15.78 % 10.91 %
6.08% 3.86 % 2.14 %
2014 - All lines of business
33.91% 23.93 % 10.99 % 7.95 %
3.44% 2.08 %
2015 - All lines of business
17.22% 16.89 % 12.71 % 9.69 %
2015 - Workers' compensation
13.56% 16.89 % 12.58 % 9.62 %
7.60%
6.64%
2016 - All lines of business
7.84% 9.46 % 8.15 % 8.80 %
2016 - Workers' Compensation
9.94% 8.63 % 6.82 % 9.53 %
2017 - All lines of business
8.08% 7.62 % 6.69 %
2018 - All lines of business
2018 - General Casualty
13.22% 22.54 %
11.17% 21.65 %
2018 - Workers' Compensation
1.87% 18.87 %
2018 - Marine, Aviation & Transit
25.75% 10.20 %
2018 - Professional Indemnity/
Directors & Officers
2018 - Motor
2019 - All lines of business
2019 - General Casualty
2019 - Workers' Compensation
2019 - Professional Indemnity/
Directors & Officers
20.37% 14.47 %
10.30% 38.06 %
11.69%
9.50%
3.78%
21.10%
The negative payout percentages in the table above for years 3, 4, 5 and 7 within the 2011 year of acquisition
line were primarily due to ceded paid losses exceeding the assumed paid losses as a result of commutations completed
with several reinsurers covering the exposures assumed by one of our reinsurance subsidiaries that we acquired in
2011. For the specific years referenced above, we collected more paid recoveries from our reinsurers than the losses
we paid on the assumed exposures, and as such, the calculated annual payout percentages were negative.
201
Table of Contents
Atrium
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
The table below provides a reconciliation of the beginning and ending liability for losses and LAE for the years
ended December 31, 2019, 2018 and 2017:
2019
2018
2017
Balance as at January 1
$
241,284 $
240,873 $
Less: reinsurance reserves recoverable
Net balance as at January 1
Net incurred losses and LAE:
Current period
Prior periods
Total net incurred losses and LAE
Net paid losses:
Current period
Prior periods
Total net paid losses
Effect of exchange rate movement
Net balance as at December 31
Plus: reinsurance reserves recoverable
38,768
202,516
85,027
(7,751)
77,276
(34,617)
(43,572)
(78,189)
1,253
202,856
28,816
40,531
200,342
83,627
(13,817)
69,810
(35,537)
(28,969)
(64,506)
(3,130)
202,516
38,768
Balance as at December 31
$
231,672 $
241,284 $
212,122
30,009
182,113
90,359
(20,940)
69,419
(24,571)
(31,107)
(55,678)
4,488
200,342
40,531
240,873
Net incurred losses and LAE in the Atrium segment for the years ended December 31, 2019, 2018 and 2017
were as follows:
Prior
Period
2019
Current
Period
Total
Prior
Period
2018
Current
Period
Total
Prior
Period
2017
Current
Period
Total
Net losses paid
$ 43,572
$ 34,617
$ 78,189
$ 28,969
$ 35,537
$ 64,506
$ 31,107
$ 24,571
$ 55,678
Net change in case and LAE
reserves
Net change in IBNR reserves
Increase (reduction) in
estimates of net ultimate losses
Increase in provisions for bad
debt
Increase (reduction) in
provisions for unallocated LAE
Amortization of fair value
adjustments
(13,278)
(38,380)
16,812
33,598
3,534
(10,161)
(4,782)
(27,507)
16,492
31,598
6,331
4,091
(13,324)
(35,650)
21,662
43,329
8,338
7,679
(8,086)
85,027
76,941
(8,699)
83,627
74,928
(17,867)
89,562
71,695
—
—
335
—
—
—
—
—
—
—
335
(5,118)
—
—
—
—
—
89
(442)
70
727
159
285
(5,118)
(2,720)
—
(2,720)
Net incurred losses and LAE
$ (7,751) $ 85,027
$ 77,276
$ (13,817) $ 83,627
$ 69,810
$ (20,940) $ 90,359
$ 69,419
202
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Disclosures of Incurred and Paid Loss Development, IBNR, Claims Counts and Payout Percentages
The following tables provide a breakdown of the gross and net losses and LAE by line of business and the fair
value adjustments resulting from business acquisitions and ULAE as of December 31, 2019 and 2018 for the Atrium
segment:
Total
$
89,141 $
136,543 $
9,121
10,935
20,056
8,584
OLR
Gross
IBNR
2019
Total
OLR
(in thousands of U.S. dollars)
Net
IBNR
Total
$
24,668 $
31,507
34,156 $
54,039
58,824 $
85,546
21,012 $
29,590
24,829 $
51,984
18,385
5,460
29,533
7,880
47,918
13,340
16,209
4,735
23,338
7,469
45,841
81,574
39,547
12,204
80,130 $
225,684 $
3,700
2,288
$
231,672
2018
9,637
117,257 $
18,221
197,387
3,181
2,288
$
202,856
OLR
Gross
IBNR
Total
OLR
(in thousands of U.S. dollars)
Net
IBNR
Total
$
32,999 $
28,512
36,011 $
59,302
69,010 $
87,814
21,460 $
26,601
24,207 $
57,016
18,547
4,972
27,653
6,348
46,200
11,320
15,180
4,225
24,823
5,837
45,667
83,617
40,003
10,062
Marine, Aviation and
Transit
Binding Authorities
Reinsurance
Accident and Health
Non-Marine Direct and
Facultative
Fair value adjustments
ULAE
Total
Marine, Aviation and
Transit
Binding Authorities
Reinsurance
Accident and Health
Non-Marine Direct and
Facultative
Fair value adjustments
ULAE
Total
Total
$
94,885 $
140,521 $
9,855
11,207
21,062
8,529
75,995 $
235,406 $
3,476
2,402
$
241,284
9,389
121,272 $
17,918
197,267
2,847
2,402
$
202,516
The Atrium segment comprises only 2% of the total consolidated gross liability for losses and LAE as of
December 31, 2019 and therefore has not been disaggregated further for purposes of presenting the accident year
disclosures below.
203
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
The following tables set forth information about incurred and paid loss development information for the Atrium
segment as of December 31, 2019. The information related to incurred and paid loss development for the years ended
December 31, 2010 through 2018 is presented as supplementary information and is therefore unaudited. Information
about total IBNR reserves and cumulative loss frequency as of December 31, 2019, including expected development
on reported losses included within the net incurred losses and allocated LAE amounts for the Atrium segment, are set
forth in the table below.
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
As of December
31, 2019
Accident
Year
2010
(unaudited)
2011
(unaudited)
2012
(unaudited)
2013
(unaudited)
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
IBNR(1)
Cumulative
Number of
Claims
2009
and
Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
546,446
609,275
593,467
573,576
569,959
564,128
560,524
558,768
556,252
553,325
2,839
1,381
26,782
64,985
57,835
51,698
47,558
46,024
45,540
44,289
43,739
86,326
84,661
72,898
71,104
69,385
68,083
67,358
66,904
70,259
57,279
55,903
53,723
51,930
51,012
50,541
58,326
63,710
57,798
54,472
51,706
52,049
69,253
69,500
66,104
60,542
57,667
69,646
71,498
63,530
60,210
43,723
66,534
50,352
50,638
56,737
58,785
518
991
601
1,441
3,104
6,018
73,190
75,318
70,179
67,031
10,449
90,247
94,984
91,109
20,400
85,044
91,621
37,297
86,269
33,598
201
252
385
566
932
1,515
2,803
5,053
6,644
5,362
(1) Total of IBNR plus expected development on reported losses.
Total $ 1,216,124
$ 117,257
25,094
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For The Years Ended December 31,
Accident
Year
2010
(unaudited)
2011
(unaudited)
2012
(unaudited)
2013
(unaudited)
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
2009
and
Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
$491,683 $510,113 $521,740 $531,928 $536,706 $541,597 $543,591 $544,954 $543,253 $ 544,625
11,442
25,127
32,223
36,530
39,022
40,049
40,650
41,223
41,386
17,138
39,997
52,450
58,627
62,560
63,914
65,199
64,669
11,228
31,474
37,991
42,152
44,430
45,321
46,901
14,579
32,064
40,443
43,511
45,387
46,099
17,596
34,368
41,595
46,879
48,542
12,029
29,687
38,987
44,544
13,729
34,606
44,273
14,371
47,723
13,130
41,631
65,040
47,598
46,637
51,263
47,704
47,962
56,057
34,166
36,054
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
$ 197,387
Total $1,018,737
204
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
The reconciliation of incurred and paid loss development to the liability for unpaid losses and LAE as presented
in the tables above for the Atrium segment for the year ended December 31, 2019 is set forth below:
Liabilities for unpaid losses and allocated LAE, net of reinsurance
Reinsurance recoverable on unpaid losses
Gross liability for unpaid losses and LAE before unallocated loss adjustment expenses and
fair value adjustments
$
$
2019
197,387
28,297
225,684
The following is unaudited supplementary information for average annual historical duration of claims within the
Atrium segment:
Average Annual Percentage Payout of Incurred Losses by Age, Net of Reinsurance
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Atrium
24.69% 32.30%
14.57%
8.25%
4.69%
2.47%
1.88%
0.63%
0.47%
0.56%
StarStone
The table below provides a reconciliation of the beginning and ending liability for losses and LAE for the years
ended December 31, 2019, 2018 and 2017:
Balance as at January 1
Less: reinsurance reserves recoverable
Net balance as at January 1
Net incurred losses and LAE:
Current period
Prior periods
Total net incurred losses and LAE
Net paid losses:
Current period
Prior periods
Total net paid losses
Effect of exchange rate movement
Acquired on purchase of subsidiaries
Assumed business
Ceded business
Net balance as at December 31
Plus: reinsurance reserves recoverable
Balance as at December 31
2019
2018
2017
$
1,608,697 $
462,950
1,145,747
1,207,743 $
452,017
755,726
1,059,382
357,231
702,151
598,468
129,168
727,636
(96,261)
(435,372)
(531,633)
87
—
—
—
578,892
94,491
673,383
(150,778)
(326,352)
(477,130)
(9,481)
192,981
10,268
—
1,341,837
1,145,747
537,291
1,879,128 $
462,950
1,608,697 $
$
341,628
(26,822)
314,806
(54,867)
(252,926)
(307,793)
15,169
—
31,393
—
755,726
452,017
1,207,743
205
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Net incurred losses and LAE in the StarStone segment for the years ended December 31, 2019, 2018 and 2017
were as follows:
Prior
Period
2019
Current
Period
Total
Prior
Period
2018
Current
Period
Total
Prior
Period
2017
Current
Period
Total
Net losses paid
$ 435,372
$ 96,261
$ 531,633
$ 326,352
$ 150,778
$ 477,130
$ 252,926
$ 54,867
$ 307,793
Net change in case and
LAE reserves
Net change in IBNR
reserves
Increase (reduction) in
estimates of net ultimate
losses
Increase (reduction) in
provisions for unallocated
LAE
Amortization of fair value
adjustments
Net incurred losses and
LAE
(85,983)
111,950
25,967
(81,491)
157,378
75,887
(63,785)
95,470
31,685
(214,787)
381,214
166,427
(144,212)
258,091
113,879
(208,244)
184,704
(23,540)
134,602
589,425
724,027
100,649
566,247
666,896
(19,103)
335,041
315,938
(5,602)
9,043
3,441
(5,892)
12,645
6,753
(6,774)
6,587
(187)
168
—
168
(266)
—
(266)
(945)
—
(945)
$ 129,168
$ 598,468
$ 727,636
$ 94,491
$ 578,892
$ 673,383
$ (26,822) $ 341,628
$ 314,806
Net change in case and LAE reserves comprises the movement during the year in specific case reserve liabilities
as a result of claims settlements or changes advised to us by our policyholders and attorneys, less changes in case
reserves recoverable advised by us to our reinsurers as a result of the settlement or movement of assumed claims.
Net change in IBNR represents the gross change in our actuarial estimates of IBNR, less amounts recoverable.
Disclosures of Incurred and Paid Loss Development, IBNR, Claims Counts and Payout Percentages
The following tables provide a breakdown of the gross and net losses and LAE reserves by line of business and
the fair value adjustments resulting from business acquisitions and ULAE as of December 31, 2019 and 2018:
2019
OLR
Gross
IBNR
Total
OLR
(in thousands of U.S. dollars)
Net
IBNR
$
191,317 $
195,068
481,473 $
173,319
672,790 $
368,387
156,086 $
162,073
422,186 $
138,586
Casualty
Marine
Property
Aerospace
Workers' Compensation
367,258
79,249
55,902
Total
$
888,794 $
Fair value adjustments
ULAE
Total
Total
578,272
300,659
250,811
70,658
92,655
22,862
74,661
111,334
750,950 $ 1,311,734
1,600
28,503
$ 1,341,837
152,514
33,000
519,772
112,249
122,047
962,353 $ 1,851,147 $
177,949
158,156
47,796
36,673
560,784 $
(522)
28,503
$ 1,879,128
206
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
2018
OLR
Gross
IBNR
Total
OLR
(in thousands of U.S. dollars)
Net
IBNR
$
177,432 $
185,084
331,432 $
182,453
508,864 $
367,537
137,828 $
163,889
282,026 $
133,426
Casualty
Marine
Property
Aerospace
Workers' Compensation
317,102
67,203
49,373
Total
$
796,194 $
Fair value adjustments
ULAE
Total
123,511
40,416
440,613
107,619
110,082
787,894 $ 1,584,088 $
159,455
151,774
45,879
33,759
533,129 $
(467)
25,076
$ 1,608,697
65,522
36,167
68,969
102,728
586,110 $ 1,119,239
1,432
25,076
$ 1,145,747
Total
419,854
297,315
217,296
82,046
The following tables set forth information about incurred and paid loss development, total IBNR reserves and
cumulative loss frequency related to all the individual lines of business within the StarStone segment as of December 31,
2019. The information related to incurred and paid loss development for the years ended December 31, 2014 through
2018 is presented as supplementary information and is therefore unaudited. The information within the tables below
is presented on a prospective basis from the date of our acquisition of StarStone on April 1, 2014 since providing pre-
acquisition incurred and paid losses by accident year for years prior to 2014 was determined to be impracticable due
to significant data limitations.
207
Table of Contents
Casualty
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For The Years Ended December 31,
As of December 31,
2019
Accident
Year
2009 and
Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2014
(Unaudited)
2015
(Unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
IBNR(1)
$ 82,278 $ 82,329 $ 82,400 $ 82,324 $ 82,535 $
17,856
18,538
18,556
17,769
16,623
21,101
56,891
72,771
91,369
25,435
48,251
66,888
92,793
105,135
25,745
43,936
77,756
92,812
111,067
125,367
24,971
40,095
76,172
90,335
110,179
129,130
137,614
25,422
39,477
78,788
90,588
123,208
140,601
162,599
159,324
82,574 $
18,612
26,159
42,055
87,575
101,748
131,156
169,207
194,259
181,499
—
119
765
3,059
9,817
19,074
22,056
39,548
64,639
90,672
198,218
172,437
Total $1,233,062 $ 422,186
Cumulative
Number of
Claims
2,543
729
2,035
3,128
4,998
5,734
4,744
4,467
4,830
3,902
2,780
39,890
(1) Total of IBNR plus expected development on reported losses.
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
For The Years Ended December 31,
Accident
Year
2009 and
Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2014
(Unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
$ 82,257 $ 82,319 $ 82,395 $ 82,318 $ 82,534 $
17,855
18,537
18,555
17,768
15,555
15,745
18,412
23,054
5,769
21,088
29,503
30,448
21,911
8,088
23,731
32,694
50,137
37,607
27,292
4,642
24,294
33,943
54,688
50,767
49,014
42,935
9,997
24,925
36,162
60,389
64,672
68,194
74,921
50,705
20,649
82,546
18,466
25,389
36,076
69,703
68,827
92,327
97,715
107,625
47,973
Total outstanding liabilities for unpaid losses and
LAE, net of reinsurance
$ 578,272
8,143
Total $ 654,790
208
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
The reconciliation of incurred and paid loss development to the liability for unpaid losses and LAE as presented
in the tables above for the year ended December 31, 2019 is set forth below:
Liabilities for unpaid losses and allocated LAE, net of reinsurance
Reinsurance recoverable on unpaid losses
Gross liability for unpaid losses and LAE before unallocated loss adjustment expenses and fair value
adjustments
$
$
2019
578,272
94,518
672,790
The following is unaudited supplementary information for average annual historical duration of claims:
Average Annual Percentage Payout of Incurred Losses by Age, Net of Reinsurance
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Casualty
5.87% 17.83% 17.73% 17.98% 13.06%
5.94%
3.72%
1.44%
0.71% (0.23)%
209
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Marine
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For The Years Ended December 31,
As of December 31,
2019
Accident
Year
2009 and
Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
IBNR(1)
$ 27,070 $ 27,002 $ 27,018 $ 27,050 $ 27,076 $ 27,100 $
22,347
29,527
47,957
62,904
50,079
19,270
27,753
51,418
55,154
53,452
71,004
19,114
27,330
51,074
52,938
48,450
70,033
82,486
19,176
27,371
49,813
53,913
54,958
79,494
83,070
130,700
19,040
27,715
50,618
57,224
50,576
81,088
87,169
19,050
33,538
59,597
46,309
50,026
82,698
86,774
158,785
167,902
166,042
167,565
—
144
514
405
243
833
1,082
4,214
10,802
33,836
163,412
86,513
Total $ 902,111 $ 138,586
(1) Total of IBNR plus expected development on reported losses.
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
For The Years Ended December 31,
Cumulative
Number of
Claims
1,991
1,029
1,961
2,422
2,226
4,003
5,742
6,904
8,524
9,881
5,219
49,902
Accident
Year
2008 and
Prior
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
$ 26,939 $ 26,990 $ 27,015 $ 27,042 $ 27,077 $ 27,092
18,539
18,437
18,403
18,372
16,300
18,324
29,395
49,727
12,529
10,878
31,152
53,711
21,213
24,813
10,871
32,397
55,446
25,135
32,332
30,562
12,131
32,643
56,589
27,237
36,773
50,062
41,696
25,258
32,803
57,206
29,071
42,420
56,154
57,265
68,952
41,427
32,558
57,711
38,733
43,789
59,478
72,475
108,000
104,825
38,252
Total $ 601,452
Total outstanding liabilities for unpaid losses and
LAE, net of reinsurance
$ 300,659
210
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
The reconciliation of incurred and paid loss development to the liability for unpaid losses and LAE as presented
in the tables above for the year ended December 31, 2019 is set forth below:
Liabilities for unpaid losses and allocated LAE, net of reinsurance
Reinsurance recoverable on unpaid losses
Gross liability for unpaid losses and LAE before unallocated loss adjustment expenses and
fair value adjustments
$
$
2019
300,659
67,728
368,387
The following is unaudited supplementary information for average annual historical duration of claims:
Average Annual Percentage Payout of Incurred Losses by Age, Net of Reinsurance
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Marine
18.70% 29.98% 19.76%
9.79%
5.60%
3.86%
4.63%
0.32% (0.09)%
0.30%
211
Table of Contents
Property
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For The Years Ended December 31,
As of December 31,
2019
Accident
Year
2009 and
Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
IBNR(1)
$ 113,828 $ 113,118 $ 113,206 $ 113,696 $ 114,633 $ 114,991 $
74,893
91,161
65,824
78,145
58,975
73,437
89,708
61,707
65,152
43,848
78,993
72,072
89,752
60,683
64,804
43,169
76,550
87,562
72,134
89,441
61,637
63,959
43,603
70,359
95,557
155,484
72,146
89,359
58,721
62,177
41,563
70,244
95,151
72,088
89,708
58,985
60,582
40,818
71,189
95,038
171,665
165,311
183,584
178,800
—
—
4
12
13
1,082
3,964
2,672
6,554
8,433
122,118
69,922
Total $1,087,901 $ 92,656
(1) Total of IBNR plus expected development on reported losses.
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
For The Years Ended December 31,
Cumulative
Number of
Claims
2,901
1,557
1,621
1,501
1,959
2,094
5,720
6,791
8,034
6,653
3,277
42,108
Accident
Year
2009 and
Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
$ 112,693 $ 112,957 $ 112,987 $ 113,237 $ 113,143 $ 113,338
71,969
72,131
72,148
72,069
71,958
69,070
87,411
48,103
30,880
5,500
88,608
52,168
46,285
18,830
10,433
89,113
54,308
51,086
31,617
28,652
26,838
89,366
55,274
53,172
34,563
55,372
58,035
37,410
89,345
55,474
59,277
36,106
63,880
75,387
98,267
59,187
89,387
57,753
60,416
37,240
64,764
85,023
139,555
98,065
19,580
Total $ 837,090
Total outstanding liabilities for unpaid losses and
LAE, net of reinsurance
$ 250,811
212
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
The reconciliation of incurred and paid loss development to the liability for unpaid losses and LAE as presented
in the tables above for the year ended December 31, 2019 is set forth below:
Liabilities for unpaid losses and allocated LAE, net of reinsurance
Reinsurance recoverable on unpaid losses
Gross liability for unpaid losses and LAE before unallocated loss adjustment expenses and
fair value adjustments
$
$
2019
250,811
268,961
519,772
The following is unaudited supplementary information for average annual historical duration of claims:
Average Annual Percentage Payout of Incurred Losses by Age, Net of Reinsurance
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Property
20.98% 29.19% 27.01%
8.82%
2.69%
3.22%
0.54%
1.04%
— %
0.20%
213
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Aerospace
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident
Year
2009 and
Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
For The Years Ended December 31,
As of December 31,
2019
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
IBNR(1)
Cumulative
Number of
Claims
$
— $
— $
— $
— $
— $
— $
18,441
58,786
55,675
72,098
65,208
18,073
57,257
55,370
70,180
53,541
66,335
18,382
57,681
56,212
70,511
53,553
69,499
37,741
18,896
58,114
56,159
74,900
52,341
72,519
45,019
31,380
18,970
59,647
57,450
77,393
54,408
73,183
48,180
35,075
59,498
18,772
58,770
57,185
76,964
48,657
71,196
45,380
56,354
55,986
—
17
61
125
274
464
1,318
1,714
3,142
3,980
45,483
11,766
Total $ 534,747 $ 22,861
—
579
2,197
2,421
2,568
2,861
2,975
2,880
3,100
2,891
1,232
23,704
(1) Total of IBNR plus expected development on reported losses
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident
Year
2009 and
Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
For The Years Ended December 31,
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
$
— $
— $
— $
— $
— $
—
15,396
53,821
45,897
50,842
17,297
16,539
55,179
49,332
59,850
31,147
32,388
17,145
55,858
52,142
63,439
38,426
52,185
11,815
18,209
56,435
53,622
68,775
40,678
60,820
31,858
10,398
18,494
57,028
54,812
72,770
43,801
64,000
37,037
28,221
25,552
18,548
57,555
55,585
73,511
43,779
66,293
39,361
45,946
40,304
23,207
Total $ 464,089
Total outstanding liabilities for unpaid losses and
LAE, net of reinsurance
$ 70,658
214
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
The reconciliation of incurred and paid loss development to the liability for unpaid losses and LAE as presented
in the tables above for the year ended December 31, 2019 is set forth below:
Liabilities for unpaid losses and allocated LAE, net of reinsurance
Reinsurance recoverable on unpaid losses
Gross liability for unpaid losses and LAE before unallocated loss adjustment expenses and
fair value adjustments
$
$
2019
70,658
41,591
112,249
The following is unaudited supplementary information for average annual historical duration of claims:
Average Annual Percentage Payout of Incurred Losses by Age, Net of Reinsurance
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Aerospace
37.03% 31.40% 16.33%
4.98%
4.76%
3.00%
1.81%
2.68%
1.21%
0.29%
215
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Workers' Compensation
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For The Years Ended December 31,
As of December 31,
2019
Accident
Year
2009 and
Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
IBNR(1)
$
— $
—
—
—
—
— $
—
—
—
—
— $
—
—
—
—
— $
—
—
—
—
— $
—
—
—
—
— $
—
—
—
—
15,607
17,199
54,977
18,290
55,505
62,942
15,662
50,103
54,121
43,366
15,203
47,338
54,793
39,089
44,615
14,873
45,812
55,150
29,676
39,247
—
—
—
—
—
1,421
4,905
9,101
6,037
13,672
56,754
39,525
Total $ 241,512 $ 74,661
(1) Total of IBNR plus expected development on reported losses.
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Cumulative
Number of
Claims
—
—
—
—
—
1,062
2,522
2,507
2,110
2,820
2,860
13,881
Accident
Year
2009 and
Prior
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
For The Years Ended December 31,
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
$
— $
—
— $
—
—
—
—
1,491
—
—
—
6,079
6,361
— $
—
—
—
—
— $
—
—
—
—
— $
—
—
—
—
9,279
20,194
7,953
11,431
30,439
23,428
5,477
12,243
35,311
32,739
13,509
4,508
—
—
—
—
—
12,617
37,385
39,333
18,899
15,064
6,880
Total $ 130,178
Total outstanding liabilities for unpaid
losses and LAE, net of reinsurance
$ 111,334
The reconciliation of incurred and paid loss development to the liability for unpaid losses and LAE as presented
in the tables above for the year ended December 31, 2019 is set forth below:
Liabilities for unpaid losses and allocated LAE, net of reinsurance
Reinsurance recoverable on unpaid losses
Gross liability for unpaid losses and LAE before unallocated loss adjustment expenses and
fair value adjustments
$
$
2019
111,334
66,615
177,949
216
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
The following is unaudited supplementary information for average annual historical duration of claims:
Average Annual Percentage Payout of Incurred Losses by Age, Net of Reinsurance
Year 1
Year 2
Year 3
Year 4
Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
Workers' compensation
13.40% 28.61% 19.73% 12.35% 4.99% 2.51%
—%
—%
—%
—%
217
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
11. DEFENDANT ASBESTOS AND ENVIRONMENTAL LIABILITIES
We acquired DCo on December 30, 2016, and Morse TEC on October 30, 2019, as described in Note 3 -
"Acquisitions". DCo and Morse TEC hold liabilities associated with personal injury asbestos claims and environmental
claims arising from their legacy manufacturing operations. These companies continue to process asbestos personal
injury claims in the normal course of business. Defendant asbestos liabilities on our consolidated balance sheets
include amounts for loss payments and defense costs for pending and future asbestos-related claims, determined
using standard actuarial techniques for asbestos exposures. Defendant environmental liabilities include estimated
clean-up costs associated with the acquired companies' former operations based on engineering reports.
Insurance balances recoverable on our consolidated balance sheets include estimated insurance recoveries
relating to these liabilities. The recorded asset represents our assessment of the capacity of the insurance agreements
to indemnify our subsidiaries for the anticipated defense and loss payments for pending claims and projected future
claims. The recognition of these recoveries is based on an assessment of the right to recover under the respective
contracts and on the financial strength of the insurers. The recorded asset does not represent the limits of our insurance
coverage, but rather the amount we would expect to recover if the accrued and projected loss and defense costs were
paid in full.
Included within insurance balances recoverable and defendant asbestos and environmental liabilities are the
fair value adjustments that were initially recognized upon acquisition. These fair value adjustments are amortized in
proportion to the actual payout of claims and recoveries. The carrying value of the asbestos and environmental liabilities,
insurance recoveries, future estimated expenses and the fair value adjustments related to DCo and Morse TEC as of
December 31, 2019 and 2018 was as follows:
Defendant asbestos and environmental liabilities:
Defendant asbestos liabilities
Defendant environmental liabilities
Estimated future expenses
Fair value adjustments
Defendant asbestos and environmental liabilities
Insurance balances recoverable:
Insurance recoveries related to defendant asbestos and environmental liabilities
Fair value adjustments
Insurance balances recoverable
2019
2018
$
1,100,593 $
10,279
51,637
(314,824)
847,685
549,593
(100,738)
448,855
265,975
2,152
19,843
(84,650)
203,320
183,676
(47,868)
135,808
Net liabilities relating to defendant asbestos and environmental exposures
$
398,830 $
67,512
218
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
The table below provides a consolidated reconciliation of the beginning and ending liability for defendant asbestos
and environmental exposures for the years ended December 31, 2019, 2018 and 2017:
Balance as at January 1
Less: Insurance balances recoverable
Net balance as at January 1
Total net paid claims
Amounts recorded in other income (expense):
Net change in actuarial estimates
Amortization of fair value adjustments
Total other expense (income)
Acquired on purchase of subsidiaries
Net balance as at December 31
Plus: Insurance balances recoverable
Balance as at December 31
Methodologies for determining liabilities
Defendant Asbestos Liabilities
2019
2018
2017
203,320
135,808
67,512
(13,708)
(4,263)
13,500
9,237
335,789
398,830
448,855
847,685
219,164
122,326
96,838
(6,351)
(23,221)
246
(22,975)
—
67,512
135,808
203,320
234,020
133,032
100,988
(6,927)
2,800
(23)
2,777
—
96,838
122,326
219,164
DCo and Morse TEC review, on an ongoing basis, their own experience in handling asbestos-related claims and
trends affecting asbestos-related claims in the U.S. tort system generally, for the purposes of assessing the value of
pending asbestos-related claims and the number and value of those that may be asserted in the future, as well as
potential recoveries from DCo and Morse TEC’s insurance carriers with respect to such claims and defense costs. The
actuarial analysis for these asbestos-related exposures utilizes data resulting from the claim review process, including
input from national coordinating counsel and local counsel, and includes the development of an estimate of the potential
value of asbestos-related claims asserted but not yet resolved as well as the number and potential value of asbestos-
related claims not yet asserted. In developing the estimate of liability for potential future claims, the actuarial analysis
projects the potential number of future claims based on DCo and Morse TEC’s historical claim filings and epidemiological
studies. The actuarial analysis also utilizes assumptions based on the DCo and Morse TEC’s historical proportion of
claims resolved without payment, historical claim resolution costs for those claims that result in a payment, and historical
defense costs. The liabilities are then estimated by multiplying the pending and projected future claim filings by projected
payments rates and average claim resolution amounts and then adding an estimate for defense costs.
DCo and Morse TEC determine, based on the factors described above, including the actuarial analysis, that
their best estimate of the aggregate liability both for asbestos-related claims asserted but not yet resolved and potential
asbestos-related claims not yet asserted, including estimated defense costs, was $1,100.6 million and $266.0 million
as of December 31, 2019 and 2018, respectively. This liability reflects the actuarial central estimate, which is intended
to represent an expected value of the most probable outcome.
Defendant Environmental Liabilities
As a result of our acquisition of DCo and Morse TEC, we have been identified by the United States Environmental
Protection Agency and certain U.S. state environmental agencies and private parties as potentially responsible parties
("PRP") at various hazardous waste disposal sites under the Comprehensive Environmental Response, Compensation
and Liability Act ("Superfund") and equivalent U.S. state laws. The PRPs may currently be liable for the cost of clean-
up and other remedial activities at 22 such sites. Responsibility for clean-up and other remedial activities at a Superfund
site is typically shared among PRPs based on an allocation formula.
We have a liability for defendant environmental liabilities of $10.3 million and $2.2 million as of December 31,
2019 and 2018, respectively. The estimate for defendant environmental liabilities is based on information available to
us, including an estimate of the allocation of liability among PRPs, the probability that other PRPs will pay the cost
apportioned to them, currently available information from PRPs and/or federal or state environmental agencies
concerning the scope of contamination and estimated remediation and consulting costs, and remediation alternatives.
219
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
12. FAIR VALUE MEASUREMENTS
Fair Value Hierarchy
Fair value is defined as the price at which to sell an asset or transfer a liability (i.e. the "exit price") in an orderly
transaction between market participants. We use a fair value hierarchy that gives the highest priority to quoted prices
in active markets and the lowest priority to unobservable data. The hierarchy is broken down into three levels as follows:
•
•
•
Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities
that we have the ability to access. Valuation adjustments and block discounts are not applied to Level 1
instruments.
Level 2 - Valuations based on quoted prices in active markets for similar assets or liabilities, quoted prices
for identical assets or liabilities in inactive markets, or for which significant inputs are observable (e.g. interest
rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by
observable market data.
Level 3 - Valuations based on unobservable inputs where there is little or no market activity. Unadjusted third
party pricing sources or management's assumptions and internal valuation models may be used to determine
the fair values.
In addition, certain of our other investments are measured at fair value using net asset value ("NAV") per share
(or its equivalent) as a practical expedient and have not been classified within the fair value hierarchy above. We have
categorized our assets and liabilities that are recorded at fair value on a recurring basis among levels based on the
observability of inputs, or at fair value using NAV per share (or its equivalent) as follows:
220
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
December 31, 2019
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Other Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value
Based on NAV
as Practical
Expedient
Total Fair
Value
Investments:
Fixed maturity investments:
U.S. government and agency
$
— $
736,043
$
— $
— $
U.K. government
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
Other assets included within funds held
- directly managed
Equities:
Publicly traded equity investments
Exchange-traded funds
Privately held equity investments
Other investments:
Hedge funds
Fixed income funds
Equity funds
Private equity funds
CLO equities
CLO equity funds
Other
Total Investments
Cash and cash equivalents
Reinsurance balances recoverable
on paid and unpaid losses:
Other Assets:
Derivatives qualifying as hedging
Derivatives not qualifying as hedges
Derivative instruments
Losses and LAE:
Other Liabilities:
Derivatives qualifying as hedging
Derivatives not qualifying as hedges
Derivative instruments
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
—
—
—
—
—
—
—
161,772
702,857
5,697,067
167,882
471,836
900,029
775,402
—
—
—
—
—
—
—
—
—
—
—
—
—
—
736,043
161,772
702,857
5,697,067
167,882
471,836
900,029
775,402
— $
9,612,888
$
— $
— $
9,612,888
—
14,207
—
—
14,207
297,310
$
30,565
$
133,047
—
—
—
— $
—
268,799
— $
—
—
430,357
$
30,565
$
268,799
$
— $
327,875
133,047
268,799
729,721
— $
— $
— $
1,121,904
$
1,121,904
—
—
—
—
—
—
398,143
111,040
—
—
—
34
—
—
—
87,555
—
314
82,896
299,109
329,885
—
87,509
6,031
481,039
410,149
329,885
87,555
87,509
6,379
— $
509,217
430,357
$
10,166,877
$
$
87,869
356,668
$
$
1,927,334
1,927,334
$
$
2,524,420
12,881,236
173,892
$
222,191
$
— $
— $
396,083
— $
— $
695,518
$
— $
695,518
— $
— $
— $
— $
— $
— $
— $
642
1,369
2,011
$
$
$
— $
— $
— $
— $
— $
— $
642
1,369
2,011
— $
2,621,122
$
— $
2,621,122
11,452
4,106
15,558
$
$
$
— $
— $
— $
— $
— $
— $
11,452
4,106
15,558
221
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
December 31, 2018
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Other Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value
Based on NAV
as Practical
Expedient
Total Fair
Value
Investments:
Fixed maturity investments:
U.S. government and agency
U.K government
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
Other assets included within funds held
- directly managed
Equities:
Publicly traded equity investments
Privately held equity investments
Other investments:
Hedge funds
Fixed income funds
Equity funds
Private equity funds
CLO equities
CLO equity funds
Private credit funds
Other
Total Investments
Cash and cash equivalents
Reinsurance recoverable:
Other Assets:
Derivatives qualifying as hedging
Derivatives not qualifying as hedges
Derivative instruments
Losses and LAE:
Other Liabilities:
Derivatives qualifying as hedging
Derivatives not qualifying as hedges
Derivative instruments
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
— $
510,245
$
— $
— $
—
—
—
—
—
—
—
300,631
793,810
—
—
4,802,454
37,386
130,265
773,557
705,674
627,360
—
—
7,389
9,121
—
—
—
—
—
—
—
510,245
300,631
793,810
4,839,840
130,265
773,557
713,063
636,481
— $
8,643,996
— $
14,780
$
$
53,896
$
— $
8,697,892
— $
— $
14,780
102,102
$
36,313
$
— $
—
—
228,710
102,102
$
36,313
$
228,710
$
— $
—
— $
138,415
228,710
367,125
— $
— $
— $
852,584
$
—
—
—
—
—
—
—
290,864
100,440
—
—
—
—
578
—
—
—
39,052
—
—
315
112,994
233,241
248,628
—
37,260
33,381
8,420
852,584
403,858
333,681
248,628
39,052
37,260
33,381
9,313
— $
391,882
102,102
$
9,086,971
$
$
39,367
321,973
$
$
1,526,508
1,526,508
$
$
1,957,757
11,037,554
243,839
$
21,146
$
— $
— $
264,985
— $
— $
739,591
$
— $
739,591
1,615
$
5,086
6,701
$
— $
—
— $
— $
—
— $
1,615
5,086
6,701
— $
2,874,055
$
— $
2,874,055
300
$
683
983
$
— $
—
— $
— $
—
— $
300
683
983
— $
—
— $
— $
— $
—
— $
222
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Valuation Methodologies of Financial Instruments Measured at Fair Value
Fixed Maturity Investments
The fair values for all securities in the fixed maturity investments and funds held - directly managed portfolios
are independently provided by the investment accounting service providers, investment managers and investment
custodians, each of which utilize internationally recognized independent pricing services. We record the unadjusted
price provided by the investment accounting service providers, investment managers or investment custodians and
validate this price through a process that includes, but is not limited to: (i) comparison of prices against alternative
pricing sources; (ii) quantitative analysis (e.g. comparing the quarterly return for each managed portfolio to its target
benchmark); (iii) evaluation of methodologies used by external parties to estimate fair value, including a review of the
inputs used for pricing; and (iv) comparing the price to our knowledge of the current investment market. Our internal
price validation procedures and review of fair value methodology documentation provided by independent pricing
services have not historically resulted in adjustment in the prices obtained from the pricing service.
The independent pricing services used by the investment accounting service providers, investment managers
and investment custodians obtain actual transaction prices for securities that have quoted prices in active markets.
Where we utilize single unadjusted broker-dealer quotes, they are generally provided by market makers or broker-
dealers who are recognized as market participants in the markets for which they are providing the quotes. For
determining the fair value of securities that are not actively traded, in general, pricing services use "matrix pricing" in
which the independent pricing service uses observable market inputs including, but not limited to, reported trades,
benchmark yields, broker-dealer quotes, interest rates, prepayment speeds, default rates and other such inputs as
are available from market sources to determine a reasonable fair value. In addition, pricing services use valuation
models, using observable data, such as an Option Adjusted Spread model, to develop prepayment and interest rate
scenarios. The Option Adjusted Spread model is commonly used to estimate fair value for securities such as mortgage-
backed and asset-backed securities.
The following describes the techniques generally used to determine the fair value of our fixed maturity investments
by asset class, including the investments underlying the funds held - directly managed.
•
•
U.S. government and agency securities consist of securities issued by the U.S. Treasury and mortgage pass-
through agencies such as the Federal National Mortgage Association, the Federal Home Loan Mortgage
Corporation and other agencies. Non-U.S. government securities consist of bonds issued by non-U.S.
governments and agencies along with supranational organizations. The significant inputs used to determine
the fair value of these securities include the spread above the risk-free yield curve, reported trades and
broker-dealer quotes. These are considered to be observable market inputs and, therefore, the fair values
of these securities are classified as Level 2.
Corporate securities consist primarily of investment-grade debt of a wide variety of corporate issuers and
industries. The fair values of these securities are determined using the spread above the risk-free yield curve,
reported trades, broker-dealer quotes, benchmark yields, and industry and market indicators. These are
considered observable market inputs and, therefore, the fair values of these securities are classified as Level
2. Where pricing is unavailable from pricing services, such as in periods of low trading activity or when
transactions are not orderly, we obtain non-binding quotes from broker-dealers. Where significant inputs are
unable to be corroborated with market observable information, we classify the securities as Level 3.
• Municipal securities consist primarily of bonds issued by U.S.-domiciled state and municipal entities. The
fair values of these securities are determined using the spread above the risk-free yield curve, reported
trades, broker-dealer quotes and benchmark yields. These are considered observable market inputs and,
therefore, the fair values of these securities are classified as Level 2.
•
Asset-backed securities consist primarily of investment-grade bonds backed by pools of loans with a variety
of underlying collateral. Residential and commercial mortgage-backed securities include both agency and
non-agency originated securities. Where pricing is unavailable from pricing services, we obtain non-binding
quotes from broker-dealers. This is generally the case when there is a low volume of trading activity and
current transactions are not orderly. The significant inputs used to determine the fair value of these securities
include the spread above the risk-free yield curve, reported trades, benchmark yields, prepayment speeds
and default rates. The fair values of these securities are classified as Level 2 if the significant inputs are
223
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
market observable. Where significant inputs are unable to be corroborated with market observable
information, we classify the securities as Level 3.
Equities
Our investments in equities consist of a combination of publicly and privately traded investments. Our publicly
traded equity investments in common and preferred stocks predominantly trade on major exchanges and are managed
by our external advisors. Our publicly traded equities are widely diversified and there is no significant concentration in
any specific industry. Our exchange-traded funds trade on major exchanges. We use an internationally recognized
pricing service to estimate the fair value of our publicly traded equities and exchange-traded funds. We have categorized
the majority of our publicly traded equity investments, other than preferred stock, and our exchange-traded funds as
Level 1 investments because the fair values of these investments are based on unadjusted quoted prices in active
markets for identical assets. One equity security is trading in an inactive market and, as a result has been classified
as Level 2. The fair value estimates of our investments in publicly traded preferred stock are based on observable
market data and, as a result, have been categorized as Level 2.
Our privately held equity investments in common and preferred stocks are direct investments in companies that
we believe offer attractive risk adjusted returns and/or offer other strategic advantages. Each investment may have its
own unique terms and conditions and there may be restrictions on disposals. The market for these investments is
illiquid and there is no active market. We use a combination of cost, internal models, reported values from co-investors/
managers and observable inputs, such as capital raises and capital transactions between new and existing shareholders
to calculate the fair value of the privately held equity investments. The fair value estimates of our investments in privately
held equities are based on unobservable market data and, as a result, have been categorized as Level 3.
Other investments, at fair value
We have ongoing due diligence processes with respect to the other investments carried at fair value in which
we invest and their managers. These processes are designed to assist us in assessing the quality of information
provided by, or on behalf of, each fund and in determining whether such information continues to be reliable or whether
further review is warranted. Certain funds do not provide full transparency of their underlying holdings; however, we
obtain the audited financial statements for funds annually, and regularly review and discuss the fund performance with
the fund managers to corroborate the reasonableness of the reported net asset values ("NAV").
The use of NAV as an estimate of the fair value for investments in certain entities that calculate NAV is a permitted
practical expedient. Due to the time lag in the NAV reported by certain fund managers we adjust the valuation for capital
calls and distributions. Other investments measured at fair value using NAV as a practical expedient have not been
classified in the fair value hierarchy. Other investments for which we do not use NAV as a practical expedient have
been valued using prices from independent pricing services, investment managers and broker-dealers.
The following describes the techniques generally used to determine the fair value of our other investments.
•
For our investments in hedge funds, we measure fair value by obtaining the most recently available NAV as
advised by the external fund manager or third-party administrator. The fair values of these investments are
measured using the NAV as a practical expedient and therefore have not been categorized within the fair value
hierarchy.
• Our investments in fixed income funds and equity funds are valued based on a combination of prices from
independent pricing services, external fund managers or third-party administrators. For the publicly available
prices we have classified the investments as Level 2. For the non-publicly available prices we are using NAV
as a practical expedient and therefore these have not been categorized within the fair value hierarchy.
•
For our investments in private equity funds, we measure fair value by obtaining the most recently available
NAV from the external fund manager or third-party administrator. The fair values of these investments are
measured using the NAV as a practical expedient and therefore have not been categorized within the fair value
hierarchy.
• We measure the fair value of our direct investment in CLO equities based on valuations provided by independent
pricing services, our external CLO equity manager, and valuations provided by the broker or lead underwriter
of the investment (the "broker"). Our CLO equity investments have been classified as Level 3 due to the use
of unobservable inputs in the valuation and the limited number of relevant trades in secondary markets.
224
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
In providing valuations, the independent pricing service providers, CLO equity manager and brokers use
observable and unobservable inputs. Of the significant unobservable market inputs used, the default and loss
severity rates involve the most judgment and create the most sensitivity. A significant increase or decrease in
either of these significant inputs in isolation would result in lower or higher fair value estimates for direct
investments in CLO equities and, in general, a change in default rate assumptions will be accompanied by a
directionally similar change in loss severity rate assumptions. Collateral spreads and estimated maturity dates
are less subjective inputs because they are based on the historical average of actual spreads and the weighted
average life of the current underlying portfolios, respectively. A significant increase or decrease in either of
these significant inputs in isolation would result in higher or lower fair value estimates for direct investments
in CLO equities. In general, these inputs have no significant interrelationship with each other or with default
and loss severity rates.
On a quarterly basis, we receive the valuation from the independent pricing providers, external CLO manager
and brokers and then review the underlying cash flows and key assumptions used by them. We review and
update the significant unobservable inputs based on information obtained from secondary markets. These
inputs are our responsibility and we assess the reasonableness of the inputs (and if necessary, update the
inputs) through communicating with industry participants, monitoring of the transactions in which we participate
(for example, to evaluate default and loss severity rate trends), and reviewing market conditions, historical
results, and emerging trends that may impact future cash flows.
If valuations from the independent pricing service providers, external CLO equity manager or brokers are not
available, we use an income approach based on certain observable and unobservable inputs to value these
investments. An income approach is also used to corroborate the reasonableness of the valuations provided
by the pricing providers, external manager and brokers. Where an income approach is followed, the valuation
is based on available trade information, such as expected cash flows and market assumptions on default and
loss severity rates. Other inputs used in the valuation process include asset spreads, loan prepayment speeds,
collateral spreads and estimated maturity dates.
For our investments in the CLO equity funds, we measure fair value by obtaining the most recently available
NAV as advised by the external fund manager or third party administrator. The fair value of these investments
is measured using the NAV as a practical expedient and therefore have not been categorized within the fair
value hierarchy.
For our investments in private credit funds, we measure fair value by obtaining the most recently available
NAV from the external fund manager or third-party administrator. The fair values of these investments are
measured using the NAV as a practical expedient and therefore have not been categorized within the fair value
hierarchy.
Included within other is an investment in a real estate debt fund, for which we measure fair value by obtaining
the most recently available NAV from the external fund manager or third-party administrator. The fair value of
this investment is measured using the NAV as a practical expedient and therefore has not been categorized
within the fair value hierarchy.
•
•
•
Insurance Contracts - Fair Value Option
The Company uses an internal model to calculate the fair value of the liability for losses and loss adjustment
expenses and reinsurance balances recoverable on paid and unpaid losses for certain retroactive reinsurance contracts
where we have elected the fair value option in our Non-life Run-off segment. The fair value was calculated as the
aggregate of discounted cash flows plus a risk margin. The discounted cash flow approach uses (i) estimated nominal
cash flows based upon an appropriate payment pattern developed in accordance with standard actuarial techniques
and (ii) a discount rate based upon a high quality rated corporate bond plus a credit spread for non-performance risk.
The model uses corporate bond rates across the yield curve depending on the estimated timing of the future cash
flows and specific to the currency of the risk. The risk margin was calculated using the present value of the cost of
capital. The cost of capital approach uses (i) projected capital requirements, (ii) multiplied by the risk cost of capital
representing the return required for non-hedgeable risk based upon the weighted average cost of capital less investment
income and (iii) discounted using the weighted average cost of capital.
225
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Derivative Instruments
The fair values of our foreign currency exchange contracts, as described in Note 7 - "Derivatives and Hedging
Instruments" are classified as Level 2. The fair values are based upon prices in active markets for identical contracts.
Level 3 Measurements and Changes in Leveling
Transfers into or out of levels are recorded at their fair values as of the end of the reporting period, consistent
with the date of determination of fair value.
Investments
The following table presents a reconciliation of the beginning and ending balances for all investments measured
at fair value on a recurring basis using Level 3 inputs during the years ended December 31, 2019 and 2018:
Fixed maturity investments
Residential
mortgage-
backed
Commercial
mortgage-
backed
Corporate
Asset-
backed
Privately-
held
Equities
Other
Investments
Total
2019
Beginning fair value
$
37,386
$
— $
7,389
$
9,121
$
228,710
$
39,367
$ 321,973
Purchases
Sales
Total realized and unrealized gains
(losses)
Transfer into Level 3 from Level 2
Transfer out of Level 3 into Level 2
184
(3,520)
90
3,535
(37,675)
—
—
(1)
102
(101)
—
(784)
64
—
(5,088)
241
1,515
(8,184)
22,771
(27,045)
33,713
(2,016)
8,392
—
—
56,908
90,805
(590)
(11,998)
(7,816)
970
—
—
27,923
(73,005)
Ending fair value
$
— $
— $
— $
— $
268,799
$
87,869
$ 356,668
Fixed maturity investments
Residential
mortgage-
backed
Commercial
mortgage-
backed
Corporate
Asset-
backed
Privately-
held
Equities
Other
Investments
Total
2018
Beginning fair value
$
67,178
$
3,080
$
21,494
$
27,892
$
— $
57,079
$ 176,723
Purchases
Sales
Total realized and unrealized
losses
Transfer into Level 3 from Level 2
Transfer out of Level 3 into Level 2
14,391
(65,700)
(57)
28,339
(6,765)
—
(1,184)
(28)
1,795
(3,663)
3,749
(5,781)
(645)
46,074
(49,020)
(1,843)
227,000
13,173
304,387
—
(2)
(12,091)
(133,776)
(18,794)
(21,369)
4,897
9,890
(16,325)
(23,872)
1,712
—
—
—
46,633
(50,625)
Ending fair value
$
37,386
$
— $
7,389
$
9,121
$
228,710
$
39,367
$ 321,973
Net realized and unrealized gains related to Level 3 assets in the table above are included in net realized and
unrealized (losses) gains in our consolidated statements of earnings.
The securities transferred from Level 2 to Level 3 were transferred due to insufficient market observable inputs
for the valuation of the specific assets. The transfers from Level 3 to Level 2 were based upon obtaining market
observable information regarding the valuations of the specific assets.
226
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Valuations Techniques and Inputs
The table below presents the quantitative information related to the fair value measurements for investments
measured at fair value on a recurring basis using Level 3 inputs for the year ended December 31, 2019:
Qualitative Information about Level 3 Fair Value Measurements
Fair Value at
December 31,
2019
(in millions of
U.S. dollars)
$87.6
CLO equities
Privately held equity
investments
268.8
Valuation
Techniques
Unobservable Input
Range (Average) (1)
Consensus pricing Offered quotes
14-87 (48)
Discounted Cash
Flow method
Transactional
value
Cost as
approximation of
fair value
Discount rate (%) (2)
Recovery rate (3)
Prepayment rate (4)
Collateral reinvestment coupon
floor (5)
Implied price at recent purchase
transaction
Cost as approximation of fair value
10%-30% (19.5%)
50%-70% (60%)
20%-30% (25%)
1%
13.50 - 13.85
(1) The average represents the arithmetic average of the inputs and is not weighted by the relative fair value.
(2) Implied yields were determined from recent market color of comparable subordinated notes, as well as unique characteristics for each investment.
(3) For collateral which has already defaulted, a recovery rate equal to the current market value of the collateral was assumed.
(4) An assumed constant prepayment rate (CPR) was applied to the CLOs. CPRs are the annualized percentage of loans in the collateral pool that
prepay.
(5) It was assumed that the collateral manager would reinvest into collateral with a similar weighted-average spread and a similar ratings composition
to the current collateral pool.
Insurance Contracts - Fair Value Option
The following table presents a reconciliation of the beginning and ending balances for all insurance contracts
measured at fair value on a recurring basis using Level 3 inputs during the years ended December 31, 2019 and 2018:
2019
Reinsurance
balances
recoverable
on paid and
unpaid
losses
Liability for
losses and
LAE
2018
Reinsurance
balances
recoverable
on paid and
unpaid
losses
Net
Liability for
losses and
LAE
Net
$
2,874,055
$
739,591
$
2,134,464
$
1,794,669
$
542,224
$
1,252,445
9,218
—
9,218
1,890,061
372,780
1,517,281
(32,690)
(19,915)
160,630
108,025
(416,770)
46,594
(2,958)
—
43,449
40,491
(92,145)
7,581
(29,732)
(19,915)
117,181
67,534
(324,625)
39,013
(108,429)
(20,656)
27,845
(101,240)
(576,949)
(132,486)
(30,041)
—
21,181
(8,860)
(148,175)
(18,378)
(78,388)
(20,656)
6,664
(92,380)
(428,774)
(114,108)
Beginning fair value
Assumed business
Incurred losses and LAE:
Reduction in estimates of ultimate
losses
Reduction in unallocated LAE
Change in fair value
Total incurred losses and LAE
Paid losses
Effect of exchange rate movements
Ending fair value
$
2,621,122
$
695,518
$
1,925,604
$
2,874,055
$
739,591
$
2,134,464
227
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Changes in fair value in the table above are included in net incurred losses and LAE in our consolidated statements
of earnings.
The following table presents the components of the net change in fair value for the years ended December 31,
2019, 2018 and 2017:
Changes in fair value due to changes in:
Duration
Corporate bond yield
Risk cost of capital
Change in fair value
2019
2018
2017
$
$
22,719 $
94,462
—
117,181 $
74,011 $
(71,031)
3,684
6,664 $
41,332
(11,076)
—
30,256
Below is a summary of the quantitative information regarding the significant observable and unobservable inputs
used in the internal model to determine fair value on a recurring basis as of December 31, 2019 and 2018:
Valuation
Technique
Unobservable (U) and Observable (O) Inputs
Internal model
Corporate bond yield (O)
Internal model
Credit spread for non-performance risk (U)
Internal model
Risk cost of capital (U)
Internal model
Weighted average cost of capital (U)
Internal model
Duration - liability (U)
Internal model
Duration - reinsurance balances recoverable on paid
and unpaid losses (U)
2019
Weighted
Average
A rated
0.2%
5.1%
8.5%
2018
Weighted
Average
A rated
0.2%
5.0%
8.5%
7.82 years
8.68 years
7.33 years
7.98 years
The fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses
may increase or decrease due to changes in the corporate bond rate, the credit spread for non-performance risk, the
risk cost of capital, the weighted average cost of capital and the estimated payment pattern as described below:
•
•
•
•
An increase in the corporate bond rate or credit spread for non-performance risk would result in a decrease
in the fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid
losses. Conversely, a decrease in the corporate bond rate or credit spread for non-performance risk would
result in an increase in the fair value of the liability for losses and LAE and reinsurance balances recoverable
on paid and unpaid losses.
An increase in the weighted average cost of capital would result in an increase in the fair value of the liability
for losses and LAE and reinsurance balances recoverable on paid and unpaid losses. Conversely, a decrease
in the weighted average cost of capital would result in a decrease in the fair value of the liability for losses and
LAE and reinsurance balances recoverable on paid and unpaid losses.
An increase in the risk cost of capital would result in an increase in the fair value of the liability for losses and
LAE and reinsurance balances recoverable on paid and unpaid losses. Conversely, a decrease in the risk cost
of capital would result in a decrease in the fair value of the liability for losses and LAE and reinsurance balances
recoverable on paid and unpaid losses.
The duration of the liability and recoverable is adjusted every period to reflect actual net payments during the
period and expected future payments. An acceleration of the estimated payment pattern, a decrease in duration,
would result in an increase in the fair value of the liability for losses and LAE and reinsurance balances
recoverable on paid and unpaid losses. Conversely, a deceleration of the estimated payment pattern, an
increase in duration, would result in a decrease in the fair value of the liability for losses and LAE and reinsurance
balances recoverable on paid and unpaid losses.
228
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
In addition, the estimate of the capital required to support the liabilities is based upon current industry standards
for capital adequacy. If the required capital per unit of risk increases, then the fair value of the liability for losses and
LAE and reinsurance balances recoverable on paid and unpaid losses would increase. Conversely, a decrease in
required capital would result in a decrease in the fair value of the liability for losses and LAE and reinsurance balances
recoverable on paid and unpaid losses.
Disclosure of Fair Values for Financial Instruments Carried at Cost
Senior Notes
As of December 31, 2019, our 4.50% Senior Notes due 2022 (the "2022 Senior Notes") and our 4.95% Senior
Notes due 2029 (the "2029 Senior Notes" and, together with the 2022 Senior Notes, the "Senior Notes") were carried
at amortized cost of $348.6 million and $493.6 million, respectively, while the fair value based on observable market
pricing from a third party pricing service was $362.5 million and $537.4 million, respectively. The Senior Notes are
classified as Level 2.
Insurance Contracts
Disclosure of fair value of amounts relating to insurance contracts is not required, except those for which we
elected the fair value option, as described above.
Remaining Assets and Liabilities
Our remaining assets and liabilities were generally carried at cost or amortized cost, which due to their short-
term nature approximates fair value as of December 31, 2019 and 2018.
229
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
13. PREMIUMS WRITTEN AND EARNED
The following tables provide a summary of net premiums written and earned for the years ended December 31,
2019, 2018 and 2017:
2019
2018
2017
Premiums
Written
Premiums
Earned
Premiums
Written
Premiums
Earned
Premiums
Written
Premiums
Earned
Non-life Run-off
Gross
Ceded
Net
Atrium
Gross
Ceded
Net
StarStone
Gross
Ceded
Net
Other
Gross
Ceded
Net
Total
Gross
Ceded
Net
$
$
$
$
$
$
$
$
(25,069) $
(269)
(25,338) $
197,009 $
(28,513)
168,496 $
(8,910) $
(307)
(9,217) $
25,230 $
(15,803)
9,427 $
14,102 $
(7,620)
6,482 $
23,950
(9,788)
14,162
192,373 $
(20,017)
172,356 $
182,678 $
(18,619)
164,059 $
171,494 $
(18,006)
153,488 $
164,428 $
(18,113)
146,315 $
153,472 $
(19,258)
134,214 $
152,278
(17,531)
134,747
917,555 $ 1,021,827 $ 1,121,135 $ 1,010,816 $
(182,126)
735,429 $
(219,901)
801,926 $
(295,857)
714,959 $
(315,573)
805,562 $
895,160 $
(430,259)
464,901 $
865,159
(405,756)
459,403
18,534 $
(22)
18,512 $
20,544 $
(164)
20,380 $
32,378 $
(311)
32,067 $
25,237 $
(363)
24,874 $
5,719 $
(926)
4,793 $
5,900
(1,091)
4,809
$ 1,103,393 $ 1,422,058 $ 1,316,097 $ 1,225,711 $ 1,068,453 $ 1,047,287
(434,166)
613,121
(202,434)
900,959 $ 1,154,861 $
(458,063)
610,390 $
(334,197)
981,900 $
(330,136)
895,575 $
(267,197)
$
Gross premiums written for the year ended December 31, 2019 and 2018 were $1,103.4 million and $1,316.1
million, respectively, a decrease of $212.7 million. The decrease was primarily due to a decrease in gross written
premiums in our StarStone segment due to our strategy to exit certain lines of business, and reductions in gross written
premiums in our Non-life Run-off segment due to unearned premium acquired in various transactions.
230
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
14. GOODWILL AND INTANGIBLE ASSETS
The following table presents a reconciliation of the beginning and ending goodwill and intangible assets for the
years ended December 31, 2019 and 2018:
Goodwill
Intangible
assets with
a definite life
Intangible assets
Intangible
assets with
an indefinite
life
Total
Total
Balance as of December 31, 2017
Acquired during the year
Amortization
Balance as of December 31, 2018
Amortization
Balance as of December 31, 2019
$
$
$
73,071 $
20,487 $
87,031 $
107,518 $
180,589
41,736
—
—
(3,600)
—
—
—
(3,600)
41,736
(3,600)
114,807 $
16,887 $
87,031 $
103,918 $
218,725
—
(2,257)
—
(2,257)
(2,257)
114,807 $
14,630 $
87,031 $
101,661 $
216,468
Goodwill
Goodwill as of December 31, 2019 and 2018, related to our Non-life Run-off, Atrium and StarStone segments,
was as follows:
Non-life Run-Off
Atrium
StarStone
2019
2018
$
$
62,959 $
38,848
13,000
114,807 $
62,959
38,848
13,000
114,807
For the year ended December 31, 2019, we completed our assessment for impairment of goodwill and concluded
that there had been no impairment of our carried goodwill amount. For the year ended December 31, 2018 the increase
in the goodwill balance in the Non-life Run-off segment was due to the acquisition of KaylaRe as discussed in Note 3
- "Acquisitions", which resulted in the recognition of goodwill of $41.7 million, none of which is amortizable for tax
purposes.
Intangible Assets
Intangible assets with a definite life includes the distribution channel, technology and brand related to our
acquisitions of Atrium and StarStone. These assets are amortized on a straight-line basis over a period ranging from
four to fifteen years. The following table provides a summary of the amortization recorded on the intangible assets for
the years ended December 31, 2019, 2018 and 2017:
Intangible asset amortization
$
2,257 $
3,600 $
4,266
2019
2018
2017
Intangible assets with an indefinite life includes assets associated with the Lloyd’s syndicate capacity for StarStone
and Atrium, StarStone's U.S. insurance licenses, and Atrium’s management contract with Syndicate 609 in relation to
underwriting, actuarial and support services it provides.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
The gross carrying value, accumulated amortization and net carrying value of intangible assets by type as of
December 31, 2019 and 2018 was as follows:
Intangible assets with a definite life:
Distribution channel
Technology
Brand
Total
Intangible assets with an indefinite
life:
Lloyd’s syndicate capacity
Licenses
Management contract
Total
$
$
$
$
Gross
Carrying
Value
2019
Accumulated
Amortization
Net
Carrying
Value
Gross
Carrying
Value
2018
Accumulated
Amortization
Net
Carrying
Value
20,000
$
(8,111) $
11,889
$
20,000
$
(6,776) $
13,224
15,000
7,000
(15,000)
(4,259)
—
2,741
15,000
7,000
(14,778)
(3,559)
222
3,441
42,000
$
(27,370) $
14,630
$
42,000
$
(25,113) $
16,887
37,031
$
— $
37,031
$
37,031
$
— $
19,900
30,100
—
—
19,900
30,100
19,900
30,100
—
—
87,031
$
— $
87,031
$
87,031
$
— $
37,031
19,900
30,100
87,031
The net carrying value of intangible assets by segment and by type as of December 31, 2019 and 2018 was as
follows:
Intangible assets with a definite life:
Distribution channel
Technology
Brand
Total
Intangible assets with an indefinite
life:
Lloyd’s syndicate capacity
Licenses
Management contract
Total
Total intangible assets
$
$
$
$
$
2019
2018
Atrium
StarStone
Total
Atrium
StarStone
Total
11,889
$
— $
11,889
$
13,224
$
— $
13,224
—
2,741
—
—
—
2,741
—
3,441
222
—
222
3,441
14,630
$
— $
14,630
$
16,665
$
222
$
16,887
33,031
$
4,000
$
37,031
$
33,031
$
4,000
$
—
30,100
19,900
—
19,900
30,100
—
30,100
19,900
—
63,131
$
23,900
$
87,031
$
63,131
$
23,900
$
37,031
19,900
30,100
87,031
77,761
$
23,900
$
101,661
$
79,796
$
24,122
$
103,918
The estimated future amortization expense related to our intangible assets with a definite life is as follows:
Year
2020
2021
2022
2023
2024
2025 and thereafter
Total amortization
Atrium
StarStone
Total
2,033
2,033
2,033
1,975
1,333
5,223
$
— $
—
—
—
—
—
2,033
2,033
2,033
1,975
1,333
5,223
14,630
$
— $
14,630
$
$
232
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
15. DEBT OBLIGATIONS AND CREDIT FACILITIES
We primarily utilize debt facilities for funding acquisitions and significant new business, investment activities and,
from time to time, for general corporate purposes. Our debt obligations are as follows:
Facility
4.50% Senior Notes due 2022
4.95% Senior Notes due 2029
Total senior notes
EGL Revolving Credit Facility
2018 EGL Term Loan Facility
Total debt obligations
Origination Date
Term
December 31,
2019
December 31,
2018
March 10, 2017
5 years
$
348,616 $
348,054
May 28, 2019
10 years
August 16, 2018
December 27, 2018
5 years
3 years
493,600
842,216
—
348,991
$
1,191,207 $
—
348,054
15,000
498,485
861,539
During the year ended December 31, 2019, we utilized $1,070.5 million and repaid $742.6 million under our
facilities. The facilities were primarily utilized for funding acquisitions as described in Note 3 - "Acquisitions", significant
new business as described in Note 4 - "Significant New Business", and investing activities.
The table below provides a summary of the total interest expense for the years ended December 31, 2019, 2018
and 2017:
Interest expense on debt obligations
Amortization of debt issuance costs
Funds withheld balances and other
Total interest expense
Senior Notes
4.50% Senior Notes due 2022
2019
2018
2017
$
$
51,245 $
953
343
52,541 $
25,205 $
537
475
26,217 $
25,619
416
2,067
28,102
On March 10, 2017, we issued the 2022 Senior Notes for an aggregate principal amount of $350.0 million. The
2022 Senior Notes pay 4.5% interest semi-annually and mature on March 10, 2022. The 2022 Senior Notes are
unsecured and unsubordinated obligations that rank equal to any of our other unsecured and unsubordinated
obligations, senior to any future obligations that are expressly subordinated to the 2022 Senior Notes, effectively
subordinate to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness,
and structurally subordinate to all liabilities of our subsidiaries.
The 2022 Senior Notes are rated BBB- and are redeemable at our option on a make whole basis at any time
prior to the date that is one month prior to the maturity of the 2022 Senior Notes. On or after the date that is one month
prior to the maturity of the 2022 Senior Notes, the notes are redeemable at a redemption price equal to 100% of the
principal amount of the 2022 Senior Notes to be redeemed.
We incurred costs of $2.9 million in issuing the 2022 Senior Notes. These costs included underwriters’ fees,
legal and accounting fees, and other fees, and are capitalized and presented as a direct deduction from the principal
amount of debt obligations in the consolidated balance sheets. These costs are amortized over the term of the 2022
Senior Notes and are included in interest expense in our consolidated statements of earnings. The unamortized costs
as of December 31, 2019 and 2018 were $1.4 million and $1.9 million, respectively.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
4.95% Senior Notes due 2029
On May 28, 2019, we issued the 2029 Senior Notes for an aggregate principal amount of $500.0 million. The
2029 Senior Notes pay 4.95% interest semi-annually and mature on June 1, 2029. The 2029 Senior Notes are unsecured
and unsubordinated obligations that rank equal to any of our other unsecured and unsubordinated obligations, senior
to any future obligations that are expressly subordinated to the 2029 Senior Notes, effectively subordinate to any of
our secured indebtedness to the extent of the value of the assets securing such indebtedness, and contractually
subordinate to all liabilities of our subsidiaries.
The 2029 Senior Notes are rated BBB- and are redeemable at our option on a make whole basis at any time
prior to the date that is three months prior to the maturity of the 2029 Senior Notes. On or after the date that is three
months prior to the maturity of the 2029 Senior Notes, the notes are redeemable at a redemption price equal to 100%
of the principal amount of the notes to be redeemed.
We incurred costs of $6.8 million in issuing the 2029 Senior Notes. These costs included underwriters’ fees,
legal and accounting fees, and other fees, and are capitalized and presented as a direct deduction from the principal
amount of debt obligations in the consolidated balance sheets. These costs are amortized over the term of the 2029
Senior Notes and are included in interest expense in our consolidated statements of earnings. The unamortized costs
as of December 31, 2019 were $6.4 million.
EGL Revolving Credit Facility
On August 16, 2018, we and certain of our subsidiaries, as borrowers and guarantors, entered into a new five-
year unsecured $600.0 million revolving credit agreement. The revolving credit agreement expires in August 2023 and
we have the option to increase the commitments under the facility by up to an aggregate amount of $400.0 million
from the existing lenders, or through the addition of new lenders subject to the terms of the agreement. Borrowings
under the facility will bear interest at a rate based on the Company's long term senior unsecured debt ratings.
As of December 31, 2019, we were permitted to borrow up to an aggregate of $600.0 million under the facility.
As of December 31, 2019, there was $600.0 million of available unutilized capacity under the facility. Subsequent to
December 31, 2019, we drew down $5.0 million bringing the unutilized capacity under this facility to $595.0 million.
Interest is payable at least every three months at either the alternate base rate ("ABR") or LIBOR plus a margin
as set forth in the revolving credit agreement. The margin could vary based upon any change in our long term senior
unsecured debt rating assigned by S&P or Fitch. We also pay a commitment fee based on the average daily unutilized
portion of the facility. If an event of default occurs, the interest rate may increase and the agent may, and at the request
of the required lenders shall, cancel lender commitments and demand early repayment.
Financial and business covenants imposed on us in relation to the new revolving credit facility include certain
limitations on mergers and consolidations, acquisitions, indebtedness and guarantees, restrictions as to dispositions
of stock and assets, and limitations on liens. Generally, the financial covenants require us to maintain a gearing ratio
of consolidated indebtedness to total capitalization of not greater than 0.35 to 1.0 and to maintain a consolidated net
worth of not less than the aggregate of (i) $2.3 billion, (ii) 50% of net income available for distribution to our ordinary
shareholders at any time after August 16, 2018, and (iii) 50% of the proceeds of any common stock issuance made
after August 16, 2018. In addition, we must maintain eligible capital in excess of the enhanced capital requirement
imposed on us by the Bermuda Monetary Authority pursuant to the Insurance (Group Supervision) Rules 2011 of
Bermuda. We are in compliance with the covenants of the EGL Revolving Credit Facility.
2018 EGL Term Loan Facility
On December 27, 2018, we entered into and fully utilized a three-year $500.0 million unsecured term loan (the
"2018 EGL Term Loan Facility"). The proceeds were partially used to fund the acquisition of Maiden Re North America.
We have the option to increase the principal amount of the term loan credit facility up to an aggregate amount of $150.0
million from the existing lenders or through the addition of new lenders, subject to the terms of the term loan credit
agreement. During 2019, we repaid $150.0 million of principal on the facility, bringing the outstanding loan amount to
$349.0 million, which includes unamortized issuance costs of $1.0 million, as of December 31, 2019.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Interest is payable at least every three months at either ABR or LIBOR plus a margin set forth in the term loan
credit agreement. The margin could vary based upon any change in our long term senior unsecured debt rating assigned
by S&P or Fitch. During the existence of an event of default, the interest rate may increase and the agent may, and at
the request of the required lenders shall, demand early repayment.
Financial and business covenants relating to this facility are similar to the EGL revolving credit facility. We are
in compliance with the covenants of the 2018 EGL Term Loan Facility.
We incurred costs of $1.5 million associated with closing the 2018 EGL Term Loan Facility. These costs included
bank, legal and accounting fees, and other fees, and are capitalized and presented as a direct deduction from the
principal amount of debt obligations in the consolidated balance sheets. These costs are amortized over the term of
the facility and are included in interest expense in our consolidated statements of earnings. The unamortized costs as
of December 31, 2019 and December 31, 2018 were $1.0 million and $1.5 million, respectively.
Unsecured Letters of Credit
We utilize unsecured letters of credit to support certain of our insurance and reinsurance performance obligations.
Funds at Lloyd's
We have an unsecured letter of credit agreement for Funds at Lloyd's ("FAL Facility") to issue up to $375.0 million
of letters of credit, with provision to increase the facility by an additional $25.0 million up to an aggregate amount of
$400.0 million, subject to lenders approval. On November 6, 2019, we amended and restated the FAL Facility to extend
its term by one year. The FAL Facility is available to satisfy our Funds at Lloyd's requirements and expires in 2023. As
of December 31, 2019, our combined Funds at Lloyd's were comprised of cash and investments of $639.3 million and
unsecured letters of credit of $252.0 million.
$120.0 million Letter of Credit Facility
We use this facility to support certain reinsurance collateral obligations of our subsidiaries. On December 6,
2019, we reduced the facility size from $170.0 million to $120.0 million. Pursuant to the facility agreement, we have
the option to increase commitments under the facility by an additional $60.0 million. As of December 31, 2019 and
December 31, 2018, we had issued an aggregate amount of letters of credit under this facility of $115.3 million and
$78.4 million, respectively.
$760.0 million Syndicated Letter of Credit Facility
During 2019, we entered into an unsecured $760.0 million letter of credit facility agreement, most recently
amended on December 9, 2019. We may increase the commitments by an aggregate amount of $40.0 million. The
facility is used to post letters of credit to collateralize reinsurance performance obligations to various parties, including
$445.0 million relating to the reinsurance transaction with Maiden Re Bermuda, as described in Note 4 - "Significant
New Business". As of December 31, 2019, we had issued an aggregate amount of letters of credit under this facility
of $608.0 million.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
16. NONCONTROLLING INTEREST
We have both redeemable noncontrolling interest and noncontrolling interest on our consolidated balance sheets.
Redeemable noncontrolling interest with redemption features that are not solely within our control are classified within
temporary equity in the consolidated balance sheets and carried at redemption value, which is fair value. The change
in fair value is recognized through retained earnings as if the balance sheet date were also the redemption date. In
addition, we also have noncontrolling interest, which does not have redemption features and is classified within equity
in the consolidated balance sheets.
Redeemable Noncontrolling Interest
Redeemable noncontrolling interest ("RNCI") as of December 31, 2019 and 2018 comprises the ownership
interests held by the Trident V Funds ("Trident") (39.3%) and Dowling Capital Partners, L.P. ("Dowling") (1.7%) in our
subsidiary North Bay Holdings Limited ("North Bay"). North Bay owns our investments in Atrium and StarStone.
The following is a reconciliation of the beginning and ending carrying amount of the equity attributable to the
RNCI for the years ended December 31, 2019 and 2018:
Balance at beginning of year
Capital contributions
Dividends paid
Net loss attributable to RNCI
Accumulated other comprehensive income (loss) attributable to RNCI
Change in redemption value of RNCI
Balance at end of year
2019
458,543 $
$
13,127
(11,556)
(12,029)
(116)
(9,178)
438,791 $
$
2018
479,606
55,377
(3,852)
(64,794)
(240)
(7,554)
458,543
We carried the RNCI at its estimated redemption value, which is fair value, as of December 31, 2019. The fair
value is based on tangible book value and a valuation multiple derived from a combination of comparable company
market valuations, recent comparable transaction multiples and discounted cash flow models. The decrease in the fair
value of the RNCI during 2019 was primarily attributable to a decrease in tangible net assets due to net losses relating
to StarStone during 2019 and the distribution of Atrium dividends during the year ended December 31, 2019, which
were partially offset by net earnings from Atrium. The valuation multiples did not change significantly.
Refer to Note 2 - "Significant Accounting Policies", Note 21 - "Related Party Transactions" and Note 23 -
"Commitments and Contingencies" for additional information regarding RNCI.
Noncontrolling Interest
As of December 31, 2019 and 2018, we had $14.2 million and $12.1 million, respectively, of noncontrolling
interest ("NCI") primarily related to an external interest in two of our non-life run-off subsidiaries. A reconciliation of the
beginning and ending carrying amount of the equity attributable to NCI is included in the Consolidated Statement of
Changes in Shareholders Equity.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
17. SHARE CAPITAL
As of December 31, 2019 and 2018, the authorized share capital was 111,000,000 ordinary shares ("Voting
Ordinary Shares") and non-voting convertible ordinary shares ("Non-Voting Ordinary Shares"), each of par value $1.00
per share, and 45,000,000 preferred shares of par value $1.00 per share.
Voting Ordinary Shares
Our Voting Ordinary Shares are listed and trade on the NASDAQ Global Select Market. Each Voting Ordinary
Share entitles the holder thereof to one vote.
On May 14, 2018, 1,501,778 Voting Ordinary Shares were issued as consideration for the acquisition of KaylaRe
Holdings Ltd, as described in Note 3 - "Acquisitions".
On January 21, 2020, 565,630 Voting Ordinary Shares were issued to the trustee of the Enstar Group Limited
Employee Benefit Trust (the "EB Trust"). Shares held in the EB Trust are classified as treasury shares. The EB Trust
supports awards made under the Joint Share Ownership Plan, a sub-plan to our Amended and Restated 2016 Equity
Incentive Plan (the "JSOP"). Voting rights in respect of shares held in the EB Trust have been contractually waived.
Non-Voting Ordinary Shares
The Non-Voting Ordinary Shares are comprised of several different series as of December 31, 2019:
•
•
•
•
the Series A shares were canceled in June 2016 in an internal reorganization as described below.
the Series C shares were originally issued in connection with investment transactions in April and December
of 2011. In addition, there were 66,520 Series C Non-Voting Ordinary Shares issued in March 2017 in
connection with the exercise of warrants as described below. The Series C shares: (i) have all of the economic
rights (including dividend rights) attaching to Voting Ordinary Shares but are non-voting except in certain
limited circumstances; (ii) will automatically convert at a one-for-one exchange ratio (subject to adjustment
for share splits, dividends, recapitalizations, consolidations or similar transactions) into Voting Ordinary
Shares if the registered holder transfers them in a widely dispersed offering; (iii) may only vote on certain
limited matters that would constitute a variation of class rights and as required under Bermuda law, provided
that the aggregate voting power of the Series C shares with respect to any merger, consolidation or
amalgamation will not exceed 0.01% of the aggregate voting power of our issued share capital; and (iv)
require the registered holders’ written consent in order to vary the rights of the shares in a significant and
adverse manner. During the three months ended March 31, 2017, 192,485 Series C Non-Voting Ordinary
Shares were converted into Voting Ordinary Shares in a widely dispersed offering by their registered holders.
the Series B and Series D shares were created in connection with the 2011 investment transactions, but no
shares in these series are issued and outstanding. Holders of the Series C shares have the right to convert
such shares, on a share-for-share basis, subject to certain adjustments, into Series D shares at their option.
There is no economic difference in Series B, C or D shares, but there are slight differences in the conversion
rights and the limited voting rights of each series.
there were 910,010 Series E shares issued and outstanding as of December 31, 2019. On May 14, 2018,
505,239 Series E non-voting shares were issued as consideration for the acquisition of KaylaRe Holdings
Ltd, as described in Note 3 - "Acquisitions". The Series E shares have substantially the same rights as the
Series C shares, except that (i) they are convertible only into Voting Ordinary Shares and (ii) they may only
vote as required under Bermuda law. The Series E shares include all other Non-Voting Ordinary Shares
authorized under our bye-laws but not classified as Series A, B, C or D Non-Voting Ordinary Shares.
Warrants
As of December 31, 2019, there were warrants outstanding to acquire 175,901 Series C Non-Voting Ordinary
Shares for an exercise price of $115.00 per share, subject to certain adjustments (the "Warrants"). The Warrants were
issued in April 2011 and expire in April 2021. The Warrant holder may, at its election, satisfy the exercise price of the
Warrants on a cashless basis by surrender of shares otherwise issuable upon exercise of the Warrants in accordance
with a formula set forth in the Warrants.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Series C Preferred Shares
As of December 31, 2019, there were 388,571 Series C Participating Non-Voting Perpetual Preferred Shares
("Series C Preferred Shares") issued and held by one of our wholly-owned subsidiaries. The Series C Preferred Shares
were issued in June 2016 in an internal reorganization transaction that resulted in the cancellation of all of the Series
A Shares. The Series C Preferred Shares (i) upon liquidation, dissolution or winding up of the Company, entitle their
holders to a preference over holders of our ordinary voting and non-voting shares of an amount equal to $0.001 per
share with respect to surplus assets and (ii) are non-voting except in certain limited circumstances. The Series C
Preferred shares have dividend rights equal to those of the ordinary voting shares, subject to certain limitations and
in an amount determined by a "participation rate" that is generally reflective of the reduction in the number of Series
C Preferred Shares issued in exchange for the previously outstanding Series A Shares. The Series C Preferred Shares
otherwise rank on parity with the ordinary voting and non-voting shares, and they rank senior to each other class or
series of share capital, unless the terms of any such class or series shall expressly provide otherwise.
Series D Preferred Shares
On June 28, 2018, the Company raised $400.0 million of gross proceeds through the public offering of 16,000
shares of its 7.00% non-cumulative fixed-to-floating rate Series D perpetual preferred shares ("Series D Preferred
Shares") (equivalent to 16,000,000 depositary shares, each of which represents a 1/1,000th interest in a Series D
Preferred Share), $1.00 par value and $25,000 liquidation preference (the "Liquidation Preference") per share
(equivalent to $25.00 per depositary share). The Company received net proceeds of $389.2 million which was used
to repay debt obligations. The depositary shares are listed and trade on the NASDAQ Global Select Market. The Series
D Preferred Shares are not redeemable prior to September 1, 2028, except in specified circumstances relating to
certain tax, corporate, capital or rating agency events as described in the prospectus supplement relating to the offering.
On and after September 1, 2028, the Series D Preferred Shares, represented by the depositary shares, will be
redeemable at the Company’s option, in whole or from time to time in part, at a redemption price equal to $25,000 per
Series D Preferred Share (equivalent to $25.00 per depositary share), plus any declared and unpaid dividends.
Series E Preferred Shares
On November 21, 2018, the Company raised $110.0 million of gross proceeds through the public offering of
4,400 shares of its 7.00% fixed rate non-cumulative Series E perpetual preferred shares ("Series E Preferred Shares")
(equivalent to 4,400,000 depositary shares, each of which represents a 1/1,000th interest in a Series E Preferred
Share), $1.00 par value and $25,000 liquidation preference (the "Series E Liquidation Preference") per share (equivalent
to $25.00 per depositary share). The Company received net proceeds of $106.1 million which was used to fund
operations within our Non-life Run-off segment. The depositary shares are listed and trade on the NASDAQ Global
Select Market. The Series E Preferred Shares are not redeemable prior to March 1, 2024, except in specified
circumstances relating to certain tax, corporate, capital or rating agency events as described in the prospectus
supplement relating to the offering. On and after March 1, 2024, the Series E Preferred Shares, represented by the
depositary shares, will be redeemable at the Company’s option, in whole or from time to time in part, at a redemption
price equal to $25,000 per Series E Preferred Share (equivalent to $25.00 per depositary share), plus any declared
and unpaid dividends.
Dividends on Preferred Shares
Holders of Series D and Series E Preferred Shares are entitled to receive, only when, as and if declared, non-
cumulative cash dividends, paid quarterly in arrears on the 1st day of March, June, September and December of each
year, commencing on September 1, 2018 for the Series D Preferred Shares and March 1, 2019 for the Series E
Preferred Shares, of 7.00% per annum. Commencing on September 1, 2028, the Series D Preferred Shares will convert
to a floating rate basis and dividends will be payable on a non-cumulative basis, when, as and if declared, at three-
month LIBOR plus 4.015% per annum. Dividends that are not declared will not accumulate and will not be payable.
During 2019, we declared and paid $28.0 million of dividends on the Series D Preferred Shares, and declared and
paid $7.9 million of dividends on the Series E Preferred Shares. During 2018, we declared and paid $12.1 million of
dividends on the Series D Preferred Shares. During February 2020, we declared $7.0 million and $1.9 million of
dividends on the Series D and E Preferred Shares, respectively, to be paid on March 2, 2020 to shareholders of record
as of February 15, 2020.
Any payment of dividends must be approved by our Board of Directors. Our ability to pay dividends is subject
to certain restrictions, as described in Note 22 - "Dividend Restrictions and Statutory Financial Information".
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
18. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share for the years ended
December 31, 2019, 2018 and 2017:
Numerator:
Net earnings (loss) from continuing operations
Net earnings from discontinued operations, net of income taxes
Net earnings (loss) attributable to Enstar Group Limited
Denominator:
Weighted-average ordinary shares outstanding — basic
Effect of dilutive securities:
Share-based compensation plans
Warrants
Weighted-average ordinary shares outstanding — diluted
Earnings per share attributable to Enstar Group Limited:
Basic:
Net earnings (loss) from continuing operations
Net earnings from discontinued operations, net of income taxes
Net earnings (loss) per ordinary share
Diluted(1):
Net earnings (loss) from continuing operations
Net earnings from discontinued operations, net of income taxes
Net earnings (loss) per ordinary share
$
$
$
$
$
$
2019
2018
2017
902,175 $ (162,354) $
—
—
902,175 $ (162,354) $
300,465
10,993
311,458
21,482,617
20,698,310
19,388,621
227,878
64,571
21,775,066
129,746
76,120
20,904,176
62,732
76,238
19,527,591
42.00 $
—
42.00 $
41.43 $
—
41.43 $
(7.84) $
—
(7.84) $
(7.84) $
—
(7.84) $
15.50
0.56
16.06
15.39
0.56
15.95
(1) During a period of loss, the basic weighted average ordinary shares outstanding is used in the denominator of the diluted loss per ordinary share
computation as the effect of including potentially dilutive securities would be anti-dilutive.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
19. SHARE-BASED COMPENSATION AND PENSIONS
Share-based compensation
The 2016 and 2006 Equity Incentive Plans are our primary share-based compensation plans. We also maintain
other share-based compensation plans as discussed below. The table below provides a summary of the compensation
costs for all of our share-based compensation plans for the years ended December 31, 2019, 2018 and 2017:
Share-based compensation plans:
Restricted shares and restricted share units
Performance share units
Cash-settled stock appreciation rights
Other share-based compensation plans:
Northshore incentive plan
StarStone incentive plan
Deferred compensation and ordinary share plan for non-employee directors
Employee share purchase plan
Total share-based compensation
Restricted Shares and Restricted Share Units
2019
2018
2017
$
6,564
$
7,641
$
23,582
2,575
3,652
223
992
411
1,968
(3,316)
2,792
—
1,155
430
7,302
5,832
8,875
3,156
—
758
403
$
37,999
$
10,670
$
26,326
Restricted shares and restricted share units are service awards that typically vest over three years. These awards
are share-settled and are recorded in additional paid-in capital on the consolidated balance sheets. The fair value of
these awards is measured at the grant date and expensed over the service period. The following table summarizes
the activity related to restricted shares and restricted share awards during 2019:
Number of
Shares
Weighted-Average
Share Price
Nonvested — January 1
Granted
Vested
Forfeited
Nonvested — December 31
59,936
50,054
(42,462)
(2,956)
64,572
$191.89
176.16
189.98
206.85
180.49
The unrecognized compensation cost related to our unvested restricted share and restricted share unit awards
as of December 31, 2019 was $6.0 million. This cost is recognizable over the next 2.10 years, which is the weighted
average contractual life.
Performance Share Units ("PSUs")
PSUs are share-settled and vest on the third anniversary of the grant date. The number of shares to vest will be
determined by a performance adjustment based on either (i) the change in fully diluted book value per share ("FDBVPS")
over three years, or (ii) average annual non-GAAP operating income return on equity, excluding StarStone.
Performance Share Units based on FDBVPS
The following table summarizes the awards granted, the unvested PSU awards at December 31, 2019, and the
performance criteria and associated performance multipliers at various levels of achievement.
Inception-to-date Activity Roll-forward
Performance Criteria:
Change in FDBVPS (3 year)
Performance Multiplier
Levels Per Award Agreements
Grant
Year
2017
2017
2018
2019
PSUs
Granted
at Target
36,321
91,875
39,682
18,308
Forfeited
(12,176)
—
(11,414)
(798)
Estimated
Change in
Multiplier
Nonvested at
December 31,
2019
9,560
18,081
—
—
33,705
109,956
28,268
17,510
189,439
186,186
(24,388)
27,641
Threshold
Target Maximum
Threshold
Target
Maximum
20.00% 30.00%
30.30% 35.65%
25.00% 32.50%
20.00% 30.00%
40.00%
41.00%
40.00%
40.00%
50.00% 100.00%
150.00%
50.00% 100.00%
150.00%
50.00% 100.00%
150.00%
60.00% 100.00%
150.00%
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
An increase of Target to Maximum or more in FDBVPS results in a settlement of 100% to a maximum of 150%
of the units granted, respectively. An increase of Threshold to Target in FDBVPS results in a settlement of 50% to 100%
of the units granted, respectively for 2017 and 2018 awards, and settlement of 60% to 100% for the 2019 awards.
Straight-line interpolation applies within these ranges, and no settlement occurs if the increase in FDBVPS is less than
the Threshold.
Performance Share Units based on Average Annual Non-GAAP Operating Income Return on Equity ("Operating
ROE")
The following table summarizes the awards granted, the unvested units at December 31, 2019, and the
performance criteria and associated performance multipliers at various levels of achievement.
Inception-to-date Activity Roll-forward
Performance Criteria:
Average Annual Operating ROE
Performance Multiplier
Levels Per Award Agreements
Grant
Year
2019
PSUs
Granted
at Target
Forfeited
Estimated
Change in
Multiplier
Nonvested at
December 31,
2019
Threshold
Target Maximum
Threshold
Target
Maximum
18,308
(798)
—
17,510
9.60% 12.00%
14.40%
60.00% 100.00%
150.00%
Annual Operating ROE is calculated based upon the non-GAAP operating income return on opening shareholder's
equity, excluding StarStone. Average Annual Operating ROE is the sum of the three individual year annual operating
ROE %'s divided by three. An Average Annual Operating ROE of Target to Maximum or more results in a settlement
of 100% to a maximum of 150% of the units granted, respectively. An Average Annual Operating ROE of Threshold to
Target results in a settlement of 60% to 100%. Straight-line interpolation applies within these ranges and no settlement
occurs if the Average Annual Operating ROE is less than the Threshold.
Performance Multipliers
For expense purposes we assume a Target vesting at the initial time of award. At the end of each reporting
period, we estimate the expected performance multiplier, as shown in the table below:
Award Description
2017 FDBVPS Type I (30.00% Target Change)
2017 FDBVPS Type II (35.65% Target Change)
2018 FDBVPS
2019 FDBVPS
2019 Average Operating ROE
2019
139%
120%
100%
100%
100%
2018
50%
50%
50%
n/a
n/a
2017
100%
100%
n/a
n/a
n/a
The unrecognized compensation cost related to our unvested PSU share awards as of December 31, 2019 was
$7.9 million. This cost is recognizable over the next 1.51 years, which is the weighted average contractual life.
Roll-forward of Performance Share Units
The following table summarizes the activity related to PSUs during 2019:
Nonvested — January 1
Granted
Increase for above target vest
Vested
Forfeited
Nonvested — December 31
Number of
Shares
Weighted-Average
Share Price
159,168
36,616
27,641
(2,631)
(13,845)
206,949
$190.77
166.42
188.62
195.60
198.37
185.61
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Cash-Settled Stock Appreciation Rights
Cash-settled stock appreciation right awards ("SARs") give the holder the right, upon exercise, to receive in
cash the difference between the market price per share of our ordinary shares at the time of exercise and the exercise
price of the SARs. The exercise price of each SAR is equal to the market price of our ordinary shares on the date of
the grant. Vested SARs are exercisable for periods not to exceed either 4 years or 10 years from the date of grant.
We have not granted any new SAR awards since 2015.
The following table summarizes the activity related to SARs during 2019:
Number of
SARs
Weighted-Average
Exercise
Price of SARs
Weighted-Average
Expected Term
(in years)
Aggregate
Intrinsic
Value(1)
Balance, beginning of year
109,081
$
Exercised
Balance, end of year
(19,854)
89,227
142.37
138.07
143.33
2.39
$
6,133
(1) The aggregate intrinsic value is calculated as the pre-tax difference between the exercise price of the underlying share awards
and the closing price per share of our ordinary shares of $206.86 on December 31, 2019.
Compensation expense for SARs is based on the estimated fair value on the date of grant using the Black-
Scholes valuation model, which requires the use of subjective assumptions related to the expected stock price volatility,
expected term, expected dividend yield and risk-free interest rate. SARs are liability-classified awards for which
compensation expense and the liability are re-measured using the then-current Black Scholes assumptions at each
interim reporting date based upon the portion of the requisite service period rendered. The unrecognized compensation
cost related to our SARs as of December 31, 2019 was less than $0.1 million.
The following table sets forth the assumptions used to estimate the fair value of the SARs using the Black-
Scholes option valuation model as of December 31, 2019, 2018 and 2017:
Weighted-average fair value per SAR
$
76.03
$
45.85
$
Weighted-average volatility
Weighted-average risk-free interest rate
Dividend yield
19.75%
1.64%
0.00%
18.94%
2.72%
0.00%
75.38
19.44%
1.65%
0.00%
2019
2018
2017
Joint Share Ownership Plan
Under the JSOP, we have the ability to make equity awards to our U.K.-based staff through which a recipient
acquires jointly held interests in a set number of our Voting Ordinary Shares together with the independent trustee of
the EB Trust at fair market value, pursuant to the terms of a joint ownership agreement. The Voting Ordinary Shares
underlying any JSOP award remain in the EB Trust, and the recipient ultimately receives the value of the appreciation
above a threshold on those shares, measured between date of grant and a pre-set measuring date that follows a
vesting period (typically three years). JSOP awards are generally settled in Voting Ordinary Shares and may include
performance and other conditions, typically related to share price appreciation above a hurdle, that must be met in
order for the award to vest. Voting rights in respect of shares held in the EB Trust are contractually waived. Shares
held in the EB Trust are classified as treasury shares.
No awards under the JSOP were made during 2019. Subsequent to December 31, 2019, a JSOP award
comprising 565,630 underlying Voting Ordinary Shares was made to our Chief Executive Officer (the "CEO JSOP
Award"). The CEO JSOP Award was granted on January 21, 2020 and cliff-vests after 3 years. The ultimate value of
the CEO JSOP Award at vesting, if any, is determined based on the price of a Voting Ordinary Share appreciating
above a certain threshold between the date of grant and the vesting date. If the higher of the closing price per Share
on January 20, 2023 and the 10-day volume weighted average price per Share for the ten consecutive trading days
ending on January 20, 2023 (each, the "Market Price") is $266.00 or greater (the "Hurdle"), the award will have a value
equal to the applicable Market Price per Share, less $205.89, multiplied by 565,630. If the higher of the Market Price
per Voting Ordinary Share is less than $266.00 on such date, the award will have no value. Subject to the terms of the
agreement governing the award, 20% of the ultimate value of the CEO JSOP Award is subject to a performance
condition to vesting, in addition to the Hurdle, based on growth in our fully diluted book value per share between January
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
1, 2020 and December 31, 2022. The grant date fair value of the award was approximately $13.6 million.
Other share-based compensation plans
Northshore Incentive Plan
Our subsidiary, Northshore, has long-term incentive plans that award time-based restricted shares of Northshore
to certain Atrium employees. Shares generally vest over two to three years. These share awards have been classified
as liability awards. The unrecognized compensation cost related to the Northshore incentive plan at December 31,
2019 was $0.9 million. This cost is expected to be recognized over the next 0.36 years, which is the weighted average
contractual life of the awards.
StarStone Incentive Plan
Our subsidiary, StarStone, has long-term incentive plans that are cash-settled plans for StarStone employees.
The awards are based on StarStone's performance over two to three years. These share awards have been classified
as liability awards. The unrecognized compensation cost related to the StarStone incentive plan at December 31, 2019
was $1.8 million. This cost is expected to be recognized over the next 2 years.
Deferred Compensation and Ordinary Share Plan for Non-Employee Directors
The following table summarizes the number of units outstanding for the years ended December 31, 2019, 2018
and 2017 under the Enstar Group Limited Deferred Compensation and Ordinary Share Plan for Non-Employee Directors
(the "Deferred Compensation Plan"):
Restricted share units credited to the accounts
of non-employee directors
5,976
5,691
3,852
2019
2018
2017
Employee Share Purchase Plan
We provide an Employee Share Purchase Plan whereby eligible employees may purchase Enstar shares at a
15% discount to market price, in an amount of share value limited to the lower of $21,250 or 15% of the employee's
base salary. The 15% discount is expensed as compensation cost.
The following table summarizes the number of shares issued to employees under the Employee Share Purchase
Plan for the years ended December 31, 2019, 2018 and 2017:
Number of shares issued to employees
15,269
14,183
12,401
2019
2018
2017
Pension Plans
We provide retirement benefits to eligible employees through various plans that we sponsor. Pension expense
can be affected by changes in our employee headcount. The table below summarizes the pension expenses related
to our Defined Contribution Plans and our Defined Benefit Plan for the years ended December 31, 2019, 2018 and
2017.
Defined contribution plans
Defined benefit plan
Total pension expense
2019
2018
2017
$
$
11,798
684
12,482
$
$
11,434
2,243
13,677
$
$
12,247
1,988
14,235
Defined Benefit Plan
During 2019, an actuarial review was performed on the defined benefit plan, which determined that the plan’s
unfunded liability, as of December 31, 2019 and 2018 was $8.9 million and $8.4 million, respectively. As of December 31,
2019 and 2018, we had an accrued liability of $8.9 million and $8.4 million, respectively, for this plan.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
20. INCOME TAXATION
Enstar Group Limited is incorporated under the laws of Bermuda and under Bermuda law is not required to pay
taxes in Bermuda based upon income or capital gains. The Company, under the Exempted Undertakings Tax Protection
Act of 1966, is protected against any legislation that may be enacted in Bermuda which would impose any tax on
profits, income, or gain until March 31, 2035.
We have foreign operating subsidiaries and branch operations principally located in the United States, United
Kingdom, Continental Europe and Australia that are subject to federal, foreign, state and local taxes in those jurisdictions.
Deferred tax liabilities have not been accrued with respect to the undistributed earnings of our foreign subsidiaries. If
the earnings were to be distributed, as dividends or other distributions, withholding taxes may be imposed by the
jurisdiction of the paying subsidiary. For our U.S. subsidiaries, we have not currently accrued any withholding taxes
with respect to unremitted earnings as management has indefinitely reinvested these earnings. For our United Kingdom
subsidiaries, there are no withholding taxes imposed. For our other foreign subsidiaries, it would not be practicable to
compute such amounts due to a variety of factors, including the amount, timing, and manner of any repatriation.
Because we operate in many jurisdictions, our net earnings are subject to risk due to changing tax laws and tax rates
around the world. The current, rapidly changing economic environment may increase the likelihood of substantial
changes to tax laws in the jurisdictions in which we operate.
The following table presents earnings (loss) before income taxes by jurisdiction from continuing operations,
including earnings (loss) from equity method investments, for the years ended December 31, 2019, 2018 and 2017:
Domestic (Bermuda)
Foreign
Total earnings (loss) before income tax on continuing operations
2019
2018
2017
$
$
576,339
356,317
932,656
$
$
(232,743) $
14,347
(218,396) $
167,263
147,148
314,411
The following table presents our current and deferred income tax expense (benefit) from continuing operations
by jurisdiction for the years ended December 31, 2019, 2018 and 2017:
2019
2018
2017
Current:
Domestic (Bermuda)
Foreign
Deferred:
Domestic (Bermuda)
Foreign
$
— $
— $
18,433
18,433
—
(13,996)
(13,996)
(3,632)
(3,632)
—
(2,492)
(2,492)
Total income tax expense (benefit) on continuing operations
$
4,437
$
(6,124) $
—
10,299
10,299
—
(16,694)
(16,694)
(6,395)
The actual effective income tax rate differs from the statutory rate of 0% under Bermuda law to earnings (loss)
from continuing operations before income taxes, including earnings (loss) from equity method investments for the years
ended December 31, 2019, 2018 and 2017 as shown in the following reconciliation:
Earnings (loss) before income tax
Bermuda income taxes at statutory rate
Foreign income tax rate differential
Change in valuation allowance
Effect of change in foreign (U.S.) tax rate
U.S. base erosion and anti-abuse tax
Other
Effective tax rate
2019
2018
2017
$
932,656
$
(218,396)
$
314,411
0.0 %
8.6 %
(8.2)%
— %
0.5 %
(0.4)%
0.5 %
0.0 %
0.7 %
(0.3)%
— %
(0.6)%
3.0 %
2.8 %
0.0 %
13.1 %
(34.9)%
20.3 %
— %
(0.5)%
(2.0)%
Our effective tax rate is generally driven by the geographical distribution of our pre-tax net earnings between
our taxable and non-taxable jurisdictions.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities reflect the tax effect of the differences between the financial statement carrying
amount and the income tax bases of assets and liabilities. Significant components of the deferred tax assets and
deferred tax liabilities as of December 31, 2019 and 2018 were as follows:
Deferred tax assets:
Net operating loss carryforwards
Insurance reserves
Unearned premiums
Lloyd's underwriting losses taxable in future periods
Provisions for bad debt
Unrealized losses on investments
Defendant asbestos and environmental liabilities (1)
Other deferred tax assets
Gross deferred tax assets
Valuation allowance
Deferred tax assets
Deferred tax liabilities:
Unrealized gains on investments
Lloyd's underwriting profit taxable in future periods
Deferred policy acquisition cost
Other deferred tax liabilities
Deferred tax liabilities
2019
2018
$
159,436
$
14,104
7,131
—
6,172
—
140,000
—
326,843
(117,390)
209,453
(10,107)
(8,852)
(8,267)
(27,317)
(54,543)
183,633
18,677
11,314
6,201
2,594
5,160
—
183
227,762
(212,113)
15,649
—
—
—
(16,067)
(16,067)
Net deferred tax asset (liability)
$
154,910
$
(418)
(1) Relates to the Morse TEC acquisition as described in Note 3 - "Acquisitions".
Net Deferred Tax Asset (Liability) Balance by Major Jurisdiction:
December 31,
2019
Net Deferred Tax
Asset
2018
Net Deferred Tax
Liability
United States
United Kingdom
Other
Total
$
$
169,891
$
(16,074)
1,093
154,910
$
5,151
(8,377)
2,808
(418)
Net Operating Loss Carryforwards:
As of December 31, 2019, we had net operating loss carryforwards that could be available to offset future taxable
income, as follows:
Tax Jurisdiction
Loss Carryforwards
Tax effect
Expiration
Operating and Capital Loss Carryforwards:
United States - Net operating loss
$
513,476
$
United Kingdom
Other
224,150
52,484
107,830
38,106
13,500
2024-2038
Indefinitely
Various
The U.S. net operating loss carryforwards are also subject to certain utilization limitations based upon their nature
and the specific legal entity that holds them.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Assessment of Valuation Allowance on Deferred Tax Assets
As of December 31, 2019 and 2018, we had deferred tax asset valuation allowances of $117.4 million and $212.1
million, respectively, related to foreign subsidiaries. We recorded a decrease of $94.7 million in our deferred tax valuation
allowance primarily due to utilization of deferred tax asset in the amount of $69.7 million as well as a partial deferred
tax asset valuation allowance release in the amount of $25.0 million during 2019.
The realization of deferred tax assets is dependent on generating sufficient taxable income in future periods in
which the tax benefits are deductible or creditable. The amount of the deferred tax asset considered realizable, however,
could be revised in the future if estimates of future taxable income change. Taxes are determined and assessed
jurisdictionally by legal entity or by filing group. Certain jurisdictions require or allow combined or consolidated tax
filings. We have estimated future taxable income of our foreign subsidiaries and provided a valuation allowance in
respect of those assets where we do not expect to realize a benefit. We have considered all available evidence using
a “more likely than not” standard in determining the amount of the valuation allowance. We considered the following
evidence: (i) net earnings or losses in recent years; (ii) the future sustainability and likelihood of positive net earnings
of our subsidiaries; (iii) the carryforward periods of tax losses including the effect of reversing temporary differences;
and (iv) tax planning strategies, in making our determination. The assumptions used in determining future taxable
income require significant judgment and any changes in these assumptions could have an impact on earnings.
Unrecognized Tax Benefits
During the years ended December 31, 2019, 2018 and 2017, there were no unrecognized tax benefits. There
were no accruals for the payment of interest and penalties related to unrecognized tax benefits as of December 31,
2019, 2018 and 2017.
Our operating subsidiaries may be subject to audit by various tax authorities and may have different statutes of
limitations expiration dates. Tax authorities may propose adjustments to our income taxes. Listed below are the tax
years that remain subject to examination by a major tax jurisdiction as of December 31, 2019:
Major Tax Jurisdiction
United States
United Kingdom
Australia
Impact of U.S. Tax Reform
Open Tax Years
2016-2019
2016-2019
2014-2019
On December 22, 2017, the U.S. Government enacted comprehensive tax legislation commonly referred to as
the Tax Cuts and Jobs Act ("Tax Act"). The Tax Act resulted in a reduction of the U.S. Federal Tax rate to 21% from
35% effective for tax years beginning after December 31, 2017. Consequently, we recorded a $63.8 million reduction
of our U.S. deferred tax asset fully offset by a reduction in our valuation allowance in 2017. The Tax Act also repealed
the corporate AMT. Taxpayers with AMT credit carryovers in excess of their tax liability may have the credits refunded
over multiple years between 2018 and 2021. For the year ended December 31, 2017, we had recorded a reduction
to our valuation allowance of $7.4 million and reclassified our AMT credit carryforward to other assets on our
consolidated balance sheet. The AMT carryforward has been refunded 50% each tax year beginning in 2018 with any
remaining balance expected to be fully refunded in 2021.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
21. RELATED PARTY TRANSACTIONS
Stone Point Capital LLC
Through several private transactions occurring from May 2012 to July 2012 and an additional private transaction
that closed in May 2018, investment funds managed by Stone Point Capital LLC ("Stone Point") have acquired an
aggregate of 1,635,986 of our Voting Ordinary Shares (which constitutes approximately 9.1% of our outstanding Voting
Ordinary Shares). On November 6, 2013, we appointed James D. Carey to our Board of Directors. Mr. Carey is the
sole member of an entity that is one of four general partners of the entities serving as general partners for Trident, is
a member of the investment committees of such general partners, and is a member and senior principal of Stone Point,
the manager of the Trident funds.
In addition, we have entered into certain agreements with Trident with respect to Trident’s co-investments in the
Atrium, Arden, and StarStone acquisitions. These include investors’ agreements and shareholders’ agreements, which
provide for, among other things: (i) our right to redeem Trident’s equity interest in the Atrium/Arden and StarStone
transactions in cash at fair market value within the 90 days following September 6, 2018 and April 1, 2019, respectively,
and at any time following September 6, 2020 and April 1, 2021, respectively; and (ii) Trident’s right to have its equity
co-investment interests in the Atrium/Arden and StarStone transactions redeemed by us at fair market value (which
we may satisfy in either cash or our ordinary shares) following September 6, 2020 and April 1, 2021, respectively. We
did not exercise our right to redeem Trident's equity interest in Atrium/Arden during the 90 days following September
6, 2018, nor did we exercise our right to redeem Trident's equity interest in StarStone during the 90 days following
April 1, 2019. Pursuant to the terms of the shareholders’ agreements, Mr. Carey serves as a Trident representative on
the boards of the holding companies, including North Bay Holdings Limited ("North Bay"), established in connection
with the Atrium/Arden and StarStone co-investment transactions. Trident also has a second representative on these
boards who is a Stone Point employee.
We, in partnership with StarStone's other shareholders, have recently completed transactions to provide capital
support to StarStone in the form of:
(i) a contribution to its contributed surplus account and a loss portfolio transfer, effective October 1, 2018. To
fund the transaction, the North Bay shareholders contributed an aggregate amount of $135.0 million to North Bay in
proportion to their ownership interests. Trident’s proportionate contribution of $53.1 million was temporarily funded by
North Bay and was reimbursed in the first quarter of 2019; and
(ii) a loss portfolio transfer, effective April 1, 2019, for which shareholders agreed to contribute an aggregate
amount of $48.0 million.
In addition, Enstar has separately entered into a loss portfolio transfer and adverse development cover with
StarStone effective October 1, 2019, whereby StarStone transferred $189.4 million in loss reserves and unearned
premium to a wholly-owned Enstar subsidiary in exchange for premium of $189.4 million. Enstar also provided an
additional $59.0 million adverse development cover in excess of the $189.4 million.
As of December 31, 2019 and December 31, 2018, the RNCI on our balance sheet relating to these Trident co-
investment transactions was as follows:
Redeemable Noncontrolling Interest
$
420,499 $
439,428
2019
2018
As of December 31, 2019, we had the following additional relationships with Stone Point and its affiliates:
•
•
•
Investments in funds (carried within other investments) managed by Stone Point, with respect to which we
recognized net unrealized gains (losses);
Investments in registered investment companies affiliated with entities owned by Trident or otherwise affiliated
with Stone Point, with respect to which we recognized net unrealized gains (losses) and interest income;
Separate accounts managed by Eagle Point Credit Management, PRIMA Capital Advisors and SKY Harbor
Capital Management, which are affiliates of entities owned by Trident, with respect to which we incurred
management fees;
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
•
•
Investments in funds (carried within other investments) managed by Sound Point Capital, an entity in which
Mr. Carey has an indirect minority ownership interest and serves as a director, with respect to which we
recognized net unrealized gains (losses);
Sound Point Capital has acted as collateral manager for certain of our direct investments in CLO debt and
equity securities, with respect to which we recognized net unrealized gains (losses) and interest income;
• Marble Point Capital, which is an affiliate of an entity owned by Trident, has acted as collateral manager for
certain of our direct investments in CLO debt and equity securities, with respect to which we recognized net
unrealized gains (losses) and interest income;
•
•
A separate account managed by Sound Point Capital, with respect to which we incurred management fees in
prior periods; and
In the fourth quarter of 2018, we invested $25.0 million in Mitchell TopCo Holdings, the parent company of
Mitchell International and Genex Services, as a co-investor alongside certain Trident funds.
The following table presents the amounts included in our consolidated balance sheet related to our related party
transactions with Stone Point and its affiliated entities:
December 31, 2019 December 31, 2018
Short-term investments, available-for-sale, at fair value
$
1,431 $
Fixed maturities, trading, at fair value
Fixed maturities, available-for-sale, at fair value
Equities, at fair value
Other investments, at fair value:
Hedge funds
Fixed income funds
Private equity funds
CLO equities
CLO equity funds
Private Debt
Real estate fund
Cash and cash equivalents
Other assets
Other liabilities
269,131
160,303
121,794
18,993
381,449
34,858
32,560
87,509
16,312
18,106
54,080
10
4,710
—
176,193
—
57,319
19,535
324,561
52,925
15,372
37,260
10,387
8,025
11,739
5,216
4,240
The following table presents the amounts included in net earnings related to our related party transactions with
Stone Point and its affiliated entities:
Net investment income
Net realized and unrealized gains (losses)
Total net earnings
KaylaRe
2019
2018
2017
$
$
8,733 $
26,631
35,364 $
7,424 $
207
7,631 $
5,990
24,684
30,674
On December 15, 2016, KaylaRe completed an initial capital raise of $620.0 million. We originally owned
approximately 48.2% of KaylaRe's common shares and recorded our investment in KaylaRe using the equity method
basis of accounting, pursuant to the conclusion that we were not required to consolidate following an analysis based
on the guidance in ASC 810 - Consolidation.
On May 14, 2018, we completed a transaction to acquire all of the outstanding shares and warrants of KaylaRe,
following the receipt of all required regulatory approvals. In consideration for the acquired shares and warrants of
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
KaylaRe, we issued an aggregate of 2,007,017 ordinary shares, comprising 1,501,778 voting ordinary shares and
505,239 Series E non-voting ordinary shares to the shareholders of KaylaRe as follows: (i) 1,204,353 voting ordinary
shares and 505,239 Series E Shares to a fund managed by Hillhouse Capital Management, Ltd.; (ii) 285,986 voting
ordinary shares to Trident; and (iii) 11,439 voting ordinary shares to the minority shareholder. In addition, the
Shareholders Agreement between Enstar and the other KaylaRe shareholders was effectively terminated. Effective
May 14, 2018 we consolidated KaylaRe into our consolidated financial statements and any balances between KaylaRe
and Enstar are now eliminated upon consolidation. Refer to Note 3 - "Acquisitions" for additional information. Effective
September 30, 2019, KaylaRe and KaylaRe Ltd. merged with Cavello Bay Reinsurance Limited, a wholly owned
subsidiary of the Company, with Cavello Bay Reinsurance Limited as the surviving company.
Through a Quota Share Agreement dated December 15, 2016 (the "KaylaRe-StarStone QS"), several of our
StarStone affiliates entered into a Quota Share Treaty with KaylaRe Ltd. pursuant to which KaylaRe Ltd. reinsured
35% of all business written by these StarStone affiliates for risks attaching from January 1, 2016, net of the StarStone
affiliates’ external reinsurance programs. The reinsurance of StarStone's U.S. affiliates was non-renewed as of January
1, 2018, and the reinsurance of its U.K. and European affiliates was non-renewed as of January 1, 2019. In addition,
Fitzwilliam Insurance Limited ("Fitzwilliam"), one of our non-life run-off subsidiaries, ceded $177.2 million of loss reserves
to KaylaRe Ltd. in 2016, on a funds held basis. Under the terms of this reinsurance agreement, Fitzwilliam is entitled
to receive a profit commission calculated with reference to reserve savings made during the term of this agreement.
Our Non-life Run-off subsidiaries did not cede any new business to KaylaRe Ltd. during years ended December 31,
2019 and 2018.
Our consolidated statement of earnings for the years ended December 31, 2018 and 2017 included the following
balances related to transactions between us and KaylaRe and KaylaRe Ltd. up until May 14, 2018, the date of acquisition:
Fee income due to Enstar Limited
Transactions under KaylaRe-StarStone QS:
Ceded premium earned
Net incurred losses
Acquisition costs
2018
2017
$
1,453 $
2,679
(52,651)
31,654
18,774
(234,079)
155,433
99,500
Transactions under Fitzwilliam reinsurance agreement:
Profit Commission
—
18,843
Total net earnings (loss)
$
(770) $
42,376
Hillhouse
Investment funds managed by Hillhouse Capital Advisors, Ltd. ("Hillhouse Capital") collectively own
approximately 9.7% of Enstar’s voting ordinary shares. These funds also own non-voting ordinary shares and warrants
to purchase additional non-voting ordinary shares, which together with their voting ordinary shares, represent an
approximate 17.0% economic interest in Enstar. In February 2017, Jie Liu, a Partner of Hillhouse Capital, was appointed
to our Board.
We have direct investments in funds managed by Hillhouse Capital and its affiliate, AnglePoint Asset Management
Ltd. ("AnglePoint"), (together with such parties' affiliates, "Hillhouse"). As of December 31, 2019, the carrying value of
our direct investment in the InRe Fund, L.P. (the "InRe Fund"), which is managed by AnglePoint, was $918.6 million
with the fund's assets being invested in approximately 18% in fixed income securities, 6% in North American equities,
96% in international equities and (20)% in financing, derivatives and other items.
As of December 31, 2019 and December 31, 2018, our equity method investee, Enhanzed Re, had investments
in a fund managed by AnglePoint, as set forth in the table below.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Our consolidated balance sheet as of December 31, 2019 and 2018 included the following balances related to
transactions with Hillhouse:
Investments in funds managed by AnglePoint, held by Enhanzed Re
Our ownership of equity method investments
Our share of Enhanzed Re's funds managed by AnglePoint
Investment in other funds managed by Hillhouse:
InRe Fund
Other funds
2019
2018
$
$
$
$
327,799
47.4%
155,377
918,633
232,968
1,151,601
$
$
$
$
75,192
47.4%
35,641
678,420
166,646
845,066
On January 1, 2020 Enhanzed Re invested an additional $54.0 million into funds managed by Hillhouse.
The increase in the investment in funds managed by Hillhouse was primarily due to unrealized gains for the year
ended December 31, 2019. We incurred fees of approximately $89.0 million, included within the funds' reported NAV,
for the year ended December 31, 2019 in relation to the direct investment in funds managed by Hillhouse as described
above.
Monument
Monument Insurance Group Limited ("Monument") was established in October 2016 and Enstar has invested a
total of $26.6 million in the common and preferred shares of Monument. We have approximately a 26.6% interest in
Monument. In connection with our investment in Monument, we entered into a Shareholders Agreement with the other
shareholders. We recorded the investment in Monument using the equity method basis of accounting, as we concluded
that we are not required to consolidate based on the guidance in ASC 810 - Consolidation.
On August 29, 2017, we sold our wholly-owned subsidiary, Laguna, to a subsidiary of Monument for a total
consideration of €25.6 million (approximately $30.8 million). The total loss recorded on the sale of Laguna, for the year
ended December 31, 2017 was $16.3 million, which has been included in earnings from continuing operations before
taxes in our consolidated statement of earnings. This loss includes a cumulative currency translation adjustment balance
of $6.3 million, which has been reclassified from accumulated other comprehensive income and included in earnings
as a component of the loss on sale of Laguna during the year ended December 31, 2017, following the closing of the
sale.
On May 31, 2019, we completed the transfer of our remaining life assurance policies written by our wholly-owned
subsidiary Alpha Insurance SA to a subsidiary of Monument. In this transaction, we transferred policy benefits for life
and annuity contracts with a carrying value of €88.8 million (or approximately $99.1 million) and total assets with a fair
value of €91.1 million (or approximately $101.6 million) to a subsidiary of Monument.
Our investment in the common and preferred shares of Monument, carried in equity method investments on our
consolidated balance sheet, as of December 31, 2019 and 2018 was as follows:
Investment in Monument
2019
2018
$
60,598 $
42,193
Clear Spring (formerly SeaBright)
Effective January 1, 2017, we sold SeaBright Insurance Company (“SeaBright Insurance”) and its licenses to
Delaware Life Insurance Company ("Delaware Life"), a subsidiary of Guggenheim Partners, LLC. Following the sale,
SeaBright Insurance was renamed Clear Spring Property and Casualty Company (“Clear Spring”). Clear Spring was
subsequently capitalized with $56.0 million of equity, with Enstar retaining a 20% indirect equity interest in Clear Spring.
We have accounted for our equity interest in Clear Spring as an equity method investment as we have significant
influence over its operating and financial policies.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
We have recorded the investment in Clear Spring using the equity method basis of accounting, pursuant to the
conclusion that we are not required to consolidate following an analysis based on the guidance in ASC 810 -
Consolidation. Our investment in the common shares of Clear Spring, carried in equity method investments on our
consolidated balance sheet, as of December 31, 2019 and 2018 was as follows:
Investment in Clear Spring
2019
2018
$
10,645 $
10,070
Effective January 1, 2017, StarStone National Insurance Company (“StarStone National”) entered into a ceding
quota share treaty with Clear Spring pursuant to which Clear Spring reinsures 33.3% of core workers' compensation
business written by StarStone National. This agreement was terminated as of December 31, 2018.
Effective January 1, 2017, we also entered into an assuming quota share treaty with Clear Spring pursuant to
which an Enstar subsidiary reinsures 25% of all workers' compensation business written by Clear Spring. This is
recorded as other activities.
Our consolidated balance sheet as of December 31, 2019 and 2018 included the following balances between
us and Clear Spring:
Balances under StarStone ceding quota share:
Reinsurance balances recoverable on paid and unpaid losses
$
Prepaid insurance premiums
Ceded payable
Ceded acquisition costs
Balances under assuming quota share:
Losses and LAE
Unearned reinsurance premiums
Funds held
2019
2018
22,812 $
51
3,616
21
6,135
13
8,611
23,718
13,821
14,153
3,233
5,778
3,455
10,242
Our consolidated statement of earnings for the years ended December 31, 2019 and 2018 included the following
amounts between us and Clear Spring:
2019
2018
2017
Amounts under StarStone ceding quota share:
Ceded premium earned
Net incurred losses and LAE
Acquisition costs
$
(14,994) $
6,567
356
Amounts under assuming quota share:
Premium earned
Net incurred losses and LAE
Acquisition costs
3,749
(2,202)
(92)
(29,520)
18,143
7,035
7,380
(4,536)
(1,836)
(14,256)
9,533
6,718
3,564
(1,181)
(1,753)
Total net earnings (loss)
$
(6,616) $
(3,334) $
2,625
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AmTrust
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
In November 2018, pursuant to a Subscription Agreement with Evergreen Parent L.P. ("Evergreen"), K-Z
Evergreen, LLC and Trident Pine Acquisition LP ("Trident Pine"), we purchased equity in Evergreen in the aggregate
amount of $200.0 million. Evergreen is an entity formed by private equity funds managed by Stone Point and the
Karfunkel-Zyskind family that acquired the approximately 45% of the issued and outstanding shares of common stock
of AmTrust that the Karfunkel-Zyskind Family and certain of its affiliates and related parties did not already own or
control. The equity interest was in the form of three separate classes of equity securities issued at the same price and
in the same proportion as the equity interest purchased by Trident Pine. In a second transaction in December 2019,
Enstar acquired an additional $25.9 million of Evergreen securities from another investor.
Following the closing of the second transaction, Enstar owns approximately 8.5% of the equity interest in
Evergreen and Trident Pine owns approximately 21.8%. Evergreen owns all of the equity interest in AmTrust. In addition,
upon the successful closing of the transaction we received a fee of $3.3 million, half of which was payable upon closing
and the other on the first anniversary of the closing. The fee has been recorded in full in other income within our
consolidated statements of earnings for the year ended December 31, 2018.
Our indirect investment in the shares of AmTrust, carried in equities on our consolidated balance sheet, as of
December 31, 2019 was as follows:
Investment in AmTrust
2019
2018
$
240,115 $
200,000
During the years ended December 31, 2019 and 2018 we recorded net investment income of $7.7 million and
$0.3 million, respectively, and net realized and unrealized gains of $10.1 million and $nil, respectively, related to our
indirect equity investment in AmTrust.
Citco
In June 2018, we made a $50.0 million indirect investment in the shares of Citco III Limited ("Citco"), a fund
administrator with global operations. Pursuant to an investment agreement and in consideration for participation therein,
a related party of Hillhouse provided us with investment support. In a private transaction that preceded our co-investment
opportunity, certain Citco shareholders, including Trident, agreed to sell all or a portion of their interests in Citco. As of
December 31, 2019, Trident owned an approximate 3.4% interest in Citco. Mr. Carey currently serves as an observer
to the board of directors of Citco in connection with Trident's investment therein.
Our indirect investment in the shares of Citco, carried in equity method investments on our consolidated balance
sheet, as of December 31, 2019 and 2018 was as follows:
Investment in Citco
Enhanzed Re
2019
2018
$
51,742 $
50,812
Enhanzed Reinsurance Ltd. ("Enhanzed Re") is a joint venture between Enstar, Allianz SE and Hillhouse that
was capitalized in December 2018. Enhanzed Re is a Bermuda-based Class 4 and Class E reinsurer of life, non-life
run-off, and property and casualty insurance business, initially sourced from Allianz SE and Enstar. Enstar, Allianz and
Hillhouse affiliates have made equity investment commitments in aggregate of $470.0 million to Enhanzed Re. Enstar
owns 47.4% of the entity, Allianz owns 24.9%, and an affiliate of Hillhouse owns 27.7%. As of December 31, 2019,
Enstar contributed $154.1 million of its total capital commitment to Enhanzed Re and had an uncalled amount of $68.7
million. We have accounted for our equity interest in Enhanzed Re as an equity method investment as we have
significant influence over its operating and financial policies.
Enstar acts as the (re)insurance manager for Enhanzed Re, for which it receives fee income recorded within
other income, Hillhouse acts as primary investment manager, and an affiliate of Allianz SE provides investment
management services. Enhanzed Re intends to write business from affiliates of its operating sponsors, Allianz SE and
Enstar. It will seek to underwrite business to maximize diversification by risk and geography.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Our investment in the common shares of Enhanzed Re, carried in equity method investments on our consolidated
balance sheet, as of December 31, 2019 was as follows:
Investment in Enhanzed Re
2019
2018
$
182,856 $
94,800
We have ceded 10% of the Zurich transaction, as discussed in Note 4 - "Significant New Business", to Enhanzed
Re on the same terms and conditions as those received by Enstar.
Our consolidated balance sheet as of December 31, 2019 and 2018 included the following balances between
us and Enhanzed Re:
Balances under ceding quota share:
Insurance balances payables
Reinsurance balances recoverable
Funds held
Other assets
$
2019
1,443
59,601
50,089
1,033
Our consolidated statement of earnings for the years ended December 31, 2019 and 2018 included the following
amounts between us and Enhanzed Re:
Amounts under ceding quota share:
Acquisition costs
Other income
Total net earnings (loss)
2019
73
749
822
$
$
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
22. DIVIDEND RESTRICTIONS AND STATUTORY FINANCIAL INFORMATION
Parent Company Dividend Restrictions
There were no significant restrictions on the Parent Company's ability to pay dividends from retained earnings
as of December 31, 2019. Bermuda law permits the payment of dividends if (i) we are not, or would not be after payment,
unable to pay our liabilities as they become due and (ii) the realizable value of our assets is in excess of our liabilities
after taking such payment into account. We have not historically declared a dividend on our ordinary shares. The
issuance of our Series D and E Preferred Shares have resulted in the declaration of dividends. Holders of Series D
and Series E Preferred Shares are entitled to receive, only when, as and if declared, non-cumulative cash dividends,
paid quarterly in arrears on the 1st day of March, June, September and December of each year of 7.0% per annum.
Refer to Note 17 - "Share Capital" for details regarding dividends on preferred shares.
The Bermuda Monetary Authority ("BMA") acts as group supervisor to Enstar. On an annual basis, we are
required to file group statutory financial statements, a group statutory financial return, a group capital and solvency
return, audited group financial statements and a Group Solvency Self-Assessment ("GSSA") with the BMA. The GSSA
is designed to document our perspective on the capital resources necessary to achieve our business strategies and
remain solvent, and to provide the BMA with insights on our risk management, governance procedures and
documentation related to this process. We are required to maintain available group statutory capital and surplus in an
amount that is at least equal to the group enhanced capital requirement ("Group ECR"). The BMA has also established
a group target capital level equal to 120% of the Group ECR. We are in compliance with these requirements.
Our ability to pay dividends to our shareholders is dependent upon the ability of our insurance and reinsurance
subsidiaries to distribute capital and pay dividends to us. Our insurance and reinsurance subsidiaries are subject to
certain regulatory restrictions on the distribution of capital and payment of dividends in the jurisdictions in which they
operate, as described below. The restrictions are generally based on net income or levels of capital and surplus as
determined in accordance with the relevant statutory accounting practices. Failure of these subsidiaries to meet their
applicable regulatory requirements could result in restrictions on any distributions of capital or retained earnings or
stricter regulatory oversight of the subsidiaries.
Our ability to pay dividends and make other forms of distributions may also be limited by repayment obligations
and financial covenants in our outstanding loan facility agreements.
Subsidiary Statutory Financial Information and Dividend Restrictions
Our insurance and reinsurance subsidiaries prepare their statutory financial statements in accordance with
statutory accounting practices prescribed or permitted by local regulators. Statutory accounting differs from U.S. GAAP,
including in the treatment of investments, acquisition costs and deferred income taxes, amongst other items.
The statutory capital and surplus amounts for the years ended December 31, 2019 and 2018 and statutory net
income amounts for the years ended December 31, 2019, 2018 and 2017 for our insurance and reinsurance subsidiaries
based in Bermuda, the United Kingdom, Australia, the United States and Continental Europe are summarized in the
table below which includes information relating to acquisitions from the year of acquisition:
Statutory Capital and Surplus
Required
Actual
Statutory Income
Bermuda
U.K.
U.S.
Europe
Australia
2019
2018
2018
2019
$ 2,138,395 $ 1,591,991 $ 4,016,663 $ 3,701,825 $ 643,683 $
1,532,751
861,379
229,344
37,815
715,448
660,470
431,863
26,882
154,644
121,406
11,816
4,847
654,721
392,394
239,582
22,535
837,104
364,507
94,334
18,110
2019
2018
2017
29,486 $ 390,752
77,900
(52,936)
(5,065)
(75,005)
(4,245)
(17,611)
(874)
1,761
As of December 31, 2019, the total amount of net assets of our consolidated subsidiaries that were restricted
was $3.5 billion.
Certain material aspects of these laws and regulations as they relate to solvency, dividends and capital and
surplus are summarized below.
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Bermuda
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Our Bermuda-based insurance and reinsurance subsidiaries are registered under the Insurance Act 1978 of
Bermuda and related regulations, as amended (the "Insurance Act"). The Insurance Act imposes certain solvency and
liquidity standards and auditing and reporting requirements and grants the BMA powers to supervise, investigate,
require information and the production of documents and intervene in the affairs of insurance companies.
The Insurance Act requires that our Bermuda-based insurance and reinsurance subsidiaries maintain certain
solvency and liquidity standards. The minimum liquidity ratio requires that the value of relevant assets not be less than
75% of the amount of relevant liabilities. The minimum solvency margin, which varies depending on the class of the
insurer, is determined as a percentage of either net reserves for losses and LAE or premiums or pursuant to a risk-
based capital measure. Our Bermuda subsidiaries with commercial insurance licenses are required to maintain a
minimum statutory capital and surplus (Enhanced Capital Requirement or "ECR") at least equal to the greater of a
minimum solvency margin or the Bermuda Solvency Capital Requirement ("BSCR"). The BSCR is calculated based
on a standardized risk-based capital model.
Each of our regulated Bermuda subsidiaries would be prohibited from declaring or paying any dividends if it were
in breach of its minimum solvency margin or liquidity ratio or if the declaration or payment of such dividends would
cause it to fail to meet such margin or ratio. In addition, each of our regulated Bermuda subsidiaries is prohibited,
without the prior approval of the BMA, from reducing by 15% or more its total statutory capital, or from reducing by
25% of more its total statutory capital and surplus, as set out in its previous year’s statutory financial statements. Our
Bermuda insurance companies that are in run-off are required to seek BMA approval for any dividends or distributions.
As of December 31, 2019 and 2018, each of our Bermuda-based insurance and reinsurance subsidiaries
exceeded their respective minimum solvency and liquidity requirements. The Bermuda insurance and reinsurance
subsidiaries in aggregate exceeded minimum solvency requirements by $1.9 billion as of December 31, 2019 (2018:
$2.1 billion) and were in compliance with their liquidity requirements.
United Kingdom
U.K. Insurance Companies (non-Lloyd's)
Our U.K. based insurance subsidiaries are regulated by the U.K. Prudential Regulatory Authority (the "PRA")
and the Financial Conduct Authority (the "FCA", together with the PRA, the "U.K. Regulator").
Our U.K.-based insurance subsidiaries are required to maintain adequate financial resources in accordance with
the requirements of the U.K. Regulator. Insurers must comply with a Solvency Capital Requirement ("SCR"), which is
calculated using either the Solvency II standard formula or a bespoke internal model. Our non-Lloyd's U.K. companies
use the standard formula.
The calculation of the minimum capital resources requirements in any particular case depends on, among other
things, the type and amount of insurance business written and claims paid by the insurance company. As of
December 31, 2019 and 2018, all of our U.K. insurance subsidiaries maintained capital in excess of the minimum
capital resources requirements and complied with the relevant U.K. Regulator requirements. The U.K.-based insurance
subsidiaries, in aggregate, maintained capital in excess of the minimum capital resources requirements by $695.6
million and $60.7 million as of December 31, 2019 and 2018, respectively.
The U.K. Regulator’s rules require our U.K. insurance subsidiaries to obtain regulatory approval for any proposed
or actual payment of a dividend. The U.K. Regulator uses the SCR, among other tests, when assessing requests to
make distributions.
Lloyd’s
As of December 31, 2019, we participated in the Lloyd’s market through our interests in: (i) Atrium’s Syndicate
609, which is managed by Atrium Underwriters Limited, a Lloyd's managing agent, and the Atrium corporate member;
(ii) StarStone’s Syndicate 1301, which is managed by StarStone Underwriting Limited ("SUL"), a Lloyd’s managing
agent, and the StarStone corporate member; and (iii) Syndicate 2008, a wholly aligned syndicate that has permission
to underwrite RITC business and other run-off or discontinued business type transactions with other Lloyd’s syndicates,
and its corporate member. During 2015, SUL assumed the role of managing agent for Syndicate 2008 in place of
Shelbourne Syndicate Services Limited as we streamlined our organizational structure and combined Shelbourne and
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
StarStone resources into one agency. For the 2019 underwriting year, participation in all three syndicates has been
through a common corporate member.
The underwriting capacity of a member of Lloyd’s is supported by providing Funds at Lloyd’s, as described in
Note 6 - "Investments". Business plans, including maximum underwriting capacity, for Lloyd’s syndicates requires
annual approval by the Lloyd’s Franchise Board, which may require changes to any business plan or additional capital
to support underwriting plans.
The Lloyd’s market has applied the Solvency II internal model under Lloyd’s supervision, and our Lloyd’s
operations are required to meet Solvency II standards. Lloyd's has the approval of the PRA to use its internal model
under the Solvency II regime.
United States
Our U.S. non-life run-off and active underwriting insurance and reinsurance subsidiaries are subject to the
insurance laws and regulations of the states in which they are domiciled, licensed and/or eligible to conduct business.
These laws restrict the amount of dividends the subsidiaries can pay to us. The restrictions are generally based on
statutory net income and/or certain levels of statutory surplus as determined in accordance with the relevant statutory
accounting requirements of the individual domiciliary states or states in which any of the insurance or reinsurance
subsidiaries are domiciled. Generally, prior regulatory approval must be obtained before an insurer may pay a dividend
or make a distribution above a specified level.
The U.S. insurance and reinsurance subsidiaries are also required to maintain minimum levels of solvency and
liquidity as determined by law, and to comply with Risk-Based Capital ("RBC") requirements and licensing rules as
specified by the National Association of Insurance Commissioners ("NAIC"). RBC is used to evaluate the adequacy
of capital and surplus maintained by our life company in relation to risks associated with: (i) asset risk; (ii) insurance
risk; (iii) interest rate risk and (iv) business risk. For all of our U.S. insurance and reinsurance subsidiaries, with the
exception of one subsidiary which has a permitted accounting practice to treat an adverse development cover
reinsurance agreement as prospective reinsurance, there are no prescribed or permitted statutory accounting practices
that differ significantly from the statutory accounting principles established by NAIC.
As of December 31, 2019, all of our U.S. non-life insurance and reinsurance subsidiaries exceeded their required
levels of risk-based capital. On an aggregate basis, our U.S. non-life insurance and reinsurance subsidiaries exceeded
their minimum levels of risk-based capital as of December 31, 2019 by $488.3 million (December 31, 2018: $359.6
million).
Europe
Our Liechtenstein insurance subsidiary (StarStone Insurance SE) is regulated by the Liechtenstein Financial
Market Authority ("FMA") pursuant to the Liechtenstein Insurance Supervisory Act. This subsidiary is obligated to
maintain a minimum solvency margin based on the Solvency II regulations. As of December 31, 2019, this subsidiary
exceeded the Solvency II requirements by $119.0 million (2018: $133.9 million). The amount of dividends that this
subsidiary is permitted to distribute is restricted to freely distributable reserves, which consist of retained earnings, the
current year profit and legal reserves. Any dividend exceeding the current year profit requires the FMA’s approval.
Solvency and capital requirements for this subsidiary are based on the Solvency II framework and must continue to
be met following any distribution.
Our Belgian insurance subsidiary files financial statements and returns with the National Bank of Belgium. This
subsidiary was in compliance with its solvency and capital requirements under Solvency II.
Harper Insurance Limited, which was previously regulated in Switzerland, was re-domiciled to Bermuda on
January 1, 2019. It is now required to file regulatory returns in both Bermuda and for its branch in the UK. The UK
requirements are more constrictive then those in Bermuda thus these have been included in the "United Kingdom"
section above.
Australia
The Company’s Australian insurance subsidiary is regulated and subject to prudential supervision by the
Australian Prudential Regulation Authority (“APRA”). APRA is the primary regulatory body responsible for regulating
compliance with the Insurance Act 1973. APRA’s prudential standards require that all insurers maintain and meet
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
prescribed capital adequacy requirements to enable their insurance obligations to be met under a wide range of
circumstances.
A run-off insurer must obtain APRA’s written consent prior to making any capital releases, including any payment
of dividends, not from current year profits. The Company’s insurance subsidiary must provide APRA a valuation prepared
by its Appointed Actuary that demonstrates that the tangible assets of the insurer, after the proposed capital reduction,
are sufficient to cover its insurance liabilities.
257
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
23. COMMITMENTS AND CONTINGENCIES
Concentration of Credit Risk
We believe that there are no significant concentrations of credit risk associated with our cash and cash equivalents,
fixed maturity investments, or other investments. Cash, cash equivalents and fixed maturity investments are managed
pursuant to guidelines that follow prudent standards of diversification and limit the allowable holdings of a single issue
and issuers. Other investments are managed pursuant to guidelines that emphasize diversification and liquidity.
Pursuant to these guidelines, we manage and monitor risk across a variety of investment funds and vehicles, markets
and counterparties. We are also subject to custodial credit risk on our investments, which we manage by diversifying
our holdings amongst large financial institutions that are highly regulated.
We have exposure to credit risk on certain of our assets pledged to ceding companies under insurance contracts.
In addition, we are potentially exposed should any insurance intermediaries be unable to fulfill their contractual
obligations with respect to payments of balances owed to and by us.
Credit risk exists in relation to our insurance and reinsurance balances recoverable on paid and unpaid losses.
We remain liable to the extent that counterparties do not meet their contractual obligations and, therefore, we evaluate
and monitor concentration of credit risk among our insurers and reinsurers. Amounts recoverable from reinsurers are
described Note 8 - "Reinsurance Balances Recoverable on Paid and Unpaid Losses".
We are also subject to credit risk in relation to funds held by reinsured companies. Under funds held arrangements,
the reinsured company has retained funds that would otherwise have been remitted to our reinsurance subsidiaries.
The funds may be placed into trust or subject to other security arrangements. The funds balance is credited with
investment income and losses payable are deducted. We are subject to credit risk if the reinsured company is unable
to honor the value of the funds held balances, such as in the event of insolvency. However, we generally have the
contractual ability to offset any shortfall in the payment of the funds held balances with amounts owed by us to the
reinsured for losses payable and other amounts contractually due. We routinely monitor the creditworthiness of
reinsured companies with whom we have funds held arrangements. We have a significant funds held concentration
of $1.0 billion to one reinsured company which has financial strength credit ratings of A+ from A.M. Best and AA from
S&P.
We limit the amount of credit exposure to any one counterparty and none of our counterparty credit exposures,
excluding U.S. Government instruments and the counterparty noted above, exceeded 10% of shareholders’ equity as
of December 31, 2019. Our credit exposure to the U.S. government was $1,082.2 million as of December 31, 2019.
Legal Proceedings
We are, from time to time, involved in various legal proceedings in the ordinary course of business, including
litigation and arbitration regarding claims. Estimated losses relating to claims arising in the ordinary course of business,
including the anticipated outcome of any pending arbitration or litigation are included in the liability for losses and LAE
in our consolidated balance sheets. In addition to claims litigation, we may be subject to other lawsuits and regulatory
actions in the normal course of business, which may involve, among other things, allegations of underwriting errors or
omissions, employment claims or regulatory activity. We do not believe that the resolution of any currently pending
legal proceedings, either individually or taken as a whole, will have a material effect on our business, results of operations
or financial condition. We anticipate that, similar to the rest of the insurance and reinsurance industry, we will continue
to be subject to litigation and arbitration proceedings in the ordinary course of business, including litigation generally
related to the scope of coverage with respect to asbestos and environmental and other claims.
Unfunded Investment Commitments
As of December 31, 2019, we had unfunded commitments of $482.3 million and $93.1 million to private equity
funds and equity method investments, respectively.
Guarantees
As of December 31, 2019 and 2018, parental guarantees and capital instruments supporting subsidiaries'
insurance obligations were $1,031.5 million and $614.5 million, respectively. We also have a FAL facility, which on
February 12, 2019, we increased to issue an aggregate amount of $375.0 million of letters of credit, and we maintained
the provision to further increase the facility up to $400.0 million. The FAL Facility is available to satisfy our Funds at
258
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Lloyd’s requirements and expires in 2023. As of December 31, 2019 there were $252.0 million letters of credit issued
under this facility which have a parental guarantee.
Significant New Business
We have entered into transaction agreements that are expected to become effective subsequent to December 31,
2019. Refer to Note 4 - "Significant New Business" above.
Redeemable Noncontrolling Interest
We have the right to purchase the RNCI interests from the RNCI holders at certain times in the future (each such
right, a "call right") and the RNCI holders have the right to sell their RNCI interests to us at certain times in the future
(each such right, a "put right"). The RNCI rights held by Trident are described in Note 21 - "Related Party Transactions".
Dowling has a right to participate if Trident exercises its put right.
Leases
2019 Disclosures under ASC 842 - Leases
We adopted the new leasing standard and the related amendments on January 1, 2019 using the modified
retrospective transition method as required by the standard, and based on the detailed analysis of our operating lease
arrangements we have recognized a right-of-use asset and an offsetting lease liability on our consolidated balance
sheet, relating primarily to office space and facilities that we have leased to conduct our business operations. On an
ongoing basis we determine whether an arrangement is a lease or contains a lease at inception and also complete an
assessment to determine the classification of each lease as either a finance lease or an operating lease. Our leases
are all currently classified as operating leases.
Our leases have remaining lease terms of one year to 37 years, some of which include options to extend the
lease term for up to five years and some of which include options to terminate the lease within one year. We consider
these options in determining the lease term used to establish our right-of-use assets and lease liabilities. Only those
renewal options that we believe we are reasonably certain to exercise are taken into account when determining lease
terms. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Since a majority of our leases do not provide an implicit discount rate, we use our collateralized incremental
borrowing rate based on the information available at the commencement date of the lease in determining the present
value of lease payments. The starting point for determining a collateralized incremental borrowing rate is our general
unsecured borrowing rate, given the term of the lease and the amount of the related lease payments. This base rate
is then adjusted to reflect the effect of collateral. Since adding collateral improves a lender’s level of security in a lending
arrangement, it has the impact of lowering our implied borrowing rate that we use to determine the present value of
lease payments.
We also adopt a portfolio approach as permitted by ASC 842 whereby we use attributes such as the lease term
to determine the appropriate incremental borrowing rate to be used to determine the present value of lease payments.
In this regard, we use the same incremental borrowing rate for leases with a similar term while ensuring that the use
of this portfolio approach does not result in an outcome that would materially differ from applying the lease accounting
guidance on a lease-by-lease basis.
We have lease agreements that contain both lease and non-lease components. For real estate leases, we
account for lease components together with non-lease components such as common-area maintenance costs as a
single lease component.
As part of our adoption of the new leasing standard, we elected the practical expedient package as well as the
hindsight practical expedient permitted by the FASB in ASC 842. The practical expedient package covers the application
of the new leasing standard to leases that commenced before January 1, 2019, the effective date of the standard and
gives an entity the option of not reassessing, (1) whether any expired or existing contracts are or contain leases, (2)
the lease classification for any expired or existing leases, and (3) initial direct costs for any existing leases. The hindsight
practical expedient permits an entity to consider changes in facts and circumstances from commencement through to
the effective date of the new standard when determining the lease term and assessing any potential impairment of the
recorded right-of-use asset. All these practical expedients were consistently applied to our leases as required by the
leasing standard.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
The table below provides a summary of the components of our lease cost including the gross sublease income
received under sublease arrangements related to certain office spaces that we have leased to conduct our business
operations for the year ended December 31, 2019:
Operating lease cost
Sublease income
Total lease cost
2019
13,627
(542)
13,085
$
$
The table below provides a summary of the cash flow information and non-cash activity related to our operating
leases for the year ended December 31, 2019:
Operating cash flow information:
2019
Cash paid for amounts included in the measurement of lease liabilities
Non-cash activity:
Right-of-use assets obtained in exchange for lease obligations
$
$
11,129
57,536
The table below provides a summary of the leases recorded on our consolidated balance sheets for the year
ended December 31, 2019:
Balance sheet classification
2019
Right-of-use assets
Current lease liabilities
Non-current lease liabilities
Other assets
Other liabilities
Other liabilities
$
46,747
11,403
34,785
Weighted-average remaining lease term and discount rate used for our operating leases are as follows for the
year ended December 31, 2019:
Weighted-average remaining lease term
Weighted-average discount rate
2019
6.3 years
6.3%
The table below provides a summary of the maturity of the operating lease liabilities for the year ended
December 31, 2019:
2020
2021
2022
2023
2024
2025 and beyond
Total lease payments
Less: Imputed interest
Present value of lease liabilities
2019
13,663
9,854
8,103
7,044
5,358
13,119
57,141
(10,953)
46,188
$
$
260
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
2018 Comparative Disclosures under ASC 840 - Leases
As discussed in Note 2 - Significant Accounting Policies, on adoption of ASU 2016-02 as codified in ASC 842
on January 1, 2019, we elected the transition option in ASU 2018-11 which amended ASU 2016-02 to allow entities
not to apply the new leases standard in the comparative periods presented in the financial statements in the year of
adoption. Under the transition option, entities can instead opt to continue to apply the legacy guidance in ASC 840 -
Leases, including its disclosure requirements, in the comparative periods presented in the year they adopt the new
leases standard.
Pursuant to the transition option provided in ASU 2018-11 which we elected on adoption of ASU 2016-02 on
January 1, 2019 as discussed above, the following is a schedule of future minimum rental payments that were required
under operating leases that had initial or remaining non-cancelable lease terms in excess of one year as of December
31, 2018:
2019
2020
2021
2022
2023
2024 and beyond
$
$
9,510
10,754
9,772
7,500
6,592
21,276
65,404
Rent expense for the years ended December 31, 2018 and 2017 was $11.3 million and $9.5 million, respectively,
relating to office space and facilities that we leased to conduct our business operations.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
24. SEGMENT INFORMATION
We have three reportable segments of business that are each managed, operated and separately reported:
(i) Non-life Run-off; (ii) Atrium; and (iii) StarStone. Our other activities, which do not qualify as a reportable segment,
include our corporate expenses, debt servicing costs, holding company income and expenses, foreign exchange and
other miscellaneous items. These segments are described in Note 1 - "Description of Business".
The following tables set forth selected and consolidated statement of earnings results by segment for the years
ended December 31, 2019, 2018, 2017:
Gross premiums written
Net premiums written
Net premiums earned
Net incurred losses and LAE
Life and Annuity Policy Benefits
Acquisition costs
Operating expenses
Underwriting income (loss)
Net investment income
Net realized and unrealized gains
Fees and commission income
Other income
Corporate expenses
Interest income (expense)
Net foreign exchange gains (losses)
2019
Non-Life
Run-Off
Atrium
StarStone
Other
Total
$
$
(25,069)
$ 192,373
$ 917,555
(25,338)
$ 172,356
$ 735,429
$ 168,496
$ 164,059
$ 801,926
$
$
$
18,534
$ 1,103,393
18,512
$ 900,959
20,380
$ 1,154,861
(51,625)
(77,276)
(727,636)
(16,038)
(872,575)
—
(73,642)
(199,756)
(156,527)
275,236
968,350
18,293
34,809
(70,689)
(62,055)
9,918
—
(56,956)
(14,452)
15,375
7,049
6,195
10,160
140
(13,825)
—
(504)
24,590
(4,033)
—
—
(174,711)
(120,629)
(221,050)
47,401
50,957
—
338
(7,790)
(475)
(1,538)
(91)
(642)
—
3,609
(8,410)
(91)
(305,951)
(334,837)
(358,593)
321,276
5,849
1,031,351
—
1,883
28,453
37,170
(45,945)
(138,249)
9,989
3
(52,541)
7,879
(132,157)
(33,022)
876,746
6,931
(218)
(85)
—
(4,437)
55,910
EARNINGS (LOSS) BEFORE INCOME TAXES
1,017,335
Income tax benefit (expense)
Earnings (losses) from equity method investments
(7,250)
56,128
NET EARNINGS (LOSS)
1,066,213
20,557
(125,444)
(33,107)
928,219
Net loss (earnings) attributable to noncontrolling
interest
NET EARNINGS (LOSS) ATTRIBUTABLE TO
ENSTAR GROUP LIMITED
Dividends on preferred shares
NET EARNINGS (LOSS) ATTRIBUTABLE TO
ENSTAR GROUP LIMITED ORDINARY
SHAREHOLDERS
(6,409)
(8,432)
24,711
—
9,870
1,059,804
12,125
(100,733)
—
—
—
(33,107)
(35,914)
938,089
(35,914)
$ 1,059,804
$
12,125
$ (100,733)
$
(69,021)
$ 902,175
Underwriting ratios:
Loss ratio
Acquisition expense ratio
Operating expense ratio
Combined ratio
47.1%
34.7%
8.8%
90.6%
90.7%
21.8%
15.1%
127.6%
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Gross premiums written
Net premiums written
Net premiums earned
Net incurred losses and LAE
Life and annuity policy benefits
Acquisition costs
Operating expenses
Underwriting income (loss)
Net investment income
Net realized and unrealized losses
Fees and commission income
Other income (losses)
Corporate expenses
Interest income (expense)
Net foreign exchange gains (losses)
$
$
$
$
$
$
Non-Life
Run-Off
(8,910)
(9,217)
9,427
306,067
—
(4,006)
(158,731)
152,757
226,287
(381,712)
16,466
35,978
(39,093)
(30,616)
2,534
EARNINGS (LOSS) BEFORE INCOME TAXES
(17,399)
Income tax benefit (expense)
Earnings from equity method investments
NET EARNINGS (LOSS)
Net loss (earnings) attributable to
noncontrolling interest
NET EARNINGS (LOSS) ATTRIBUTABLE TO
ENSTAR GROUP LIMITED
Dividends on preferred shares
NET EARNINGS (LOSS) ATTRIBUTABLE TO
ENSTAR GROUP LIMITED ORDINARY
SHAREHOLDERS
Underwriting ratios:
Loss ratio
Acquisition expense ratio
Operating expense ratio
Combined ratio
2018
Atrium
StarStone
Other
Total
171,494
$ 1,121,135
$
$
805,562
714,959
(673,383)
—
(135,452)
(156,726)
(250,602)
35,973
(17,672)
—
(541)
—
(624)
(2,856)
$
$
$
32,378
$ 1,316,097
32,067
24,874
(16,899)
(1,003)
(2,686)
—
4,286
2,725
$
$
981,900
895,575
(454,025)
(1,003)
(192,790)
(333,234)
(85,477)
270,671
(10,249)
(412,884)
—
(514)
(28,127)
5,023
1,048
35,088
35,085
(74,141)
(26,217)
(2,668)
153,488
146,315
(69,810)
—
(50,646)
(17,777)
8,082
5,686
(3,251)
18,622
162
(6,921)
—
(3,394)
18,986
(3,732)
—
3,581
42,147
28,329
(236,322)
(25,808)
(260,543)
6,327
—
(52)
—
6,124
42,147
15,254
(229,995)
(25,860)
(212,272)
(3,107)
(6,257)
71,415
—
62,051
25,222
—
8,997
—
(158,580)
—
(25,860)
(12,133)
(150,221)
(12,133)
$
25,222
$
8,997
$ (158,580)
$
(37,993)
$ (162,354)
47.7%
34.6%
12.2%
94.5%
94.2%
18.9%
22.0%
135.1%
263
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Gross premiums written
Net premiums written
Net premiums earned
Net incurred losses and LAE
Life and annuity policy benefits
Acquisition costs
Operating expenses
Underwriting income (loss)
Net investment income
Net realized and unrealized gains (losses)
Fees and commission income (expense)
Other income
Corporate expenses
Interest income (expense)
Net foreign exchange gains
Loss on sale of subsidiary
Income tax benefit (expense)
Earnings from equity method investments
NET EARNINGS (LOSS) FROM CONTINUING
OPERATIONS
Net earnings from discontinued operations, net
of income taxes
NET EARNINGS (LOSS)
Net earnings attributable to noncontrolling
interest
NET EARNINGS (LOSS) ATTRIBUTABLE TO
ENSTAR GROUP LIMITED ORDINARY
SHAREHOLDERS
Underwriting ratios:
Loss ratio
Acquisition expense ratio
Operating expense ratio
Combined ratio
EARNINGS (LOSS) BEFORE INCOME TAXES
345,593
$
$
$
Non-Life
Run-Off
14,102
6,482
14,162
190,674
—
(328)
(132,235)
72,273
166,678
179,545
43,849
21,157
(28,970)
(7,347)
—
6,990
5,904
358,487
—
358,487
2017
Atrium
StarStone
Other
Total
$
$
$
$
$
$
153,472
134,214
134,747
(69,419)
—
(47,688)
(17,444)
196
4,218
1,117
22,788
230
(559)
(5,060)
—
10,788
(1,593)
—
9,195
—
9,195
$
$
$
895,160
464,901
459,403
(314,806)
—
(48,012)
(135,558)
(38,973)
27,706
16,613
632
570
—
(1,902)
(926)
—
3,720
988
—
5,719
$ 1,068,453
4,793
4,809
—
(4,015)
(878)
—
(84)
10,187
(6,941)
(1,166)
648
$
$
610,390
613,121
(193,551)
(4,015)
(96,906)
(285,237)
33,412
208,789
190,334
66,103
22,605
(37,014)
(150,748)
3,329
(4,204)
(16,349)
(51,594)
10
—
(28,102)
(17,537)
(16,349)
308,507
6,395
5,904
4,708
(51,584)
320,806
—
4,708
10,993
(40,591)
10,993
331,799
(101,592)
(12,142)
(14,687)
(3,772)
(1,882)
—
(20,341)
$
343,800
$
5,423
$
2,826
$
(40,591)
$
311,458
51.5%
35.4%
13.0%
99.9%
68.5%
10.5%
29.5%
108.5%
264
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Gross Premiums Written by Geographical Area
The following table summarizes our gross premiums written for the year ended December 31, 2019 by geographic
area. Geographic distribution in future years is subject to variation based upon market conditions and business
strategies.
Non-life Run-off
Atrium
StarStone
Other
Total
Total
%
Total
%
Total
%
Total
%
Total
%
(In thousands of U.S. dollars, except percentages)
United States
United Kingdom
Europe
Asia
Rest of World
Total
$ (25,012)
99.7 % $102,199
53.1% $ 548,683
59.8% $ 17,239
93.0% $ 643,109
350
(265)
(48)
(94)
(1.4)%
12,972
1.1 %
0.2 %
0.4 %
17,677
5,700
53,825
6.7%
9.2%
3.0%
28.0%
114,822
115,481
75,773
62,796
12.5%
12.6%
8.3%
6.8%
—
1,295
—
—
—%
7.0%
—%
—%
128,144
134,188
81,425
116,527
58.2%
11.6%
12.2%
7.4%
10.6%
$ (25,069)
100.0 % $192,373
100.0% $ 917,555
100.0% $ 18,534
100.0% $1,103,393
100.0%
Assets by Segment
Invested assets are managed on a subsidiary by subsidiary basis, and investment income and realized and
unrealized gains on investments are recognized in each segment as earned. Our total assets as of December 31, 2019
and 2018 by segment were as follows:
Assets by Segment:
Non-life Run-off
Atrium
StarStone
Other
Total assets
2019
2018
$ 15,775,409 $ 13,362,749
591,722
580,405
3,522,353
(514,852)
3,416,132
(814,333)
$ 19,363,315 $ 16,556,270
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
25. UNAUDITED CONDENSED QUARTERLY FINANCIAL DATA
INCOME
Net premiums earned
Fees and commission income
Net investment income
December 31,
September 30,
June 30,
March 31,
2019
2018
2019
2018
2019
2018
2019
2018
$ 272,686
$ 231,947
$270,325
$264,597
$276,563
$228,812
$335,287
$ 170,219
9,007
79,376
11,455
68,453
6,587
6,950
6,178
8,352
6,681
8,331
85,472
69,430
77,732
66,469
78,696
66,319
Net realized and unrealized gains (losses)
152,664
(158,213)
148,185
(57,223)
269,711
(54,418)
460,791
(143,030)
Other income (losses)
19,502
34,267
826
8,226
11,030
(9,351)
5,812
1,943
533,235
187,909
511,395
291,980
641,214
239,864
887,267
103,782
EXPENSES
Net incurred losses and loss adjustment
expenses
Life and annuity policy benefits
Acquisition costs
121,416
187,698
222,417
153,974
216,338
92,819
312,404
19,534
(2,199)
95,026
786
—
423
2,194
(160)
96
(46)
55,106
50,282
54,242
66,855
53,334
93,788
30,108
95,260
8,011
5,868
General and administrative expenses
129,569
106,950
113,924
102,553
117,519
102,612
112,074
Interest expense
Net foreign exchange losses (gains)
13,519
12,189
4,644
1,279
14,950
(13,631)
4,640
1,040
13,036
8,922
11,036
(2,587)
(5,519)
(3,850)
369,520
356,463
387,942
316,872
413,355
252,008
525,548
158,735
EARNINGS (LOSS) BEFORE INCOME
TAXES
Income tax benefit (expense)
Earnings from equity method investments
163,715
(168,554)
123,453
(24,892)
227,859
(12,144)
361,719
(54,953)
22,427
11,722
10,688
(14,597)
(746)
(7,518)
(3,646)
(4,749)
(172)
8,488
17,703
3,317
17,713
15,645
8,772
14,697
NET EARNINGS (LOSS)
197,864
(149,378)
126,559
(22,321)
238,054
(145)
365,742
(40,428)
Net loss (earnings) attributable to
noncontrolling interest
NET EARNINGS (LOSS) ATTRIBUTABLE
TO ENSTAR GROUP LIMITED
4,900
42,955
109
11,489
2,713
8,389
2,148
(782)
202,764
(106,423)
126,668
(10,832)
240,767
8,244
367,890
(41,210)
Dividends on preferred shares
(8,925)
(7,000)
(8,925)
(5,133)
(8,925)
—
(9,139)
—
NET EARNINGS (LOSS) ATTRIBUTABLE
TO ENSTAR GROUP LIMITED ORDINARY
SHAREHOLDERS
Earnings Loss) per ordinary share
attributable to Enstar Group Limited:
$ 193,839
$ (113,423) $117,743
$ (15,965) $231,842
$ 8,244
$358,751
$ (41,210)
Basic
Diluted(1):
$
$
9.02
8.89
$
$
(5.29) $
(5.29) $
5.48
5.42
$
$
(0.74) $ 10.79
(0.74) $ 10.70
$
$
0.40
$ 16.71
0.40
$ 16.57
$
$
(2.12)
(2.12)
(1) During a period of loss, the basic weighted average ordinary shares outstanding is used in the denominator of the diluted loss per ordinary share
computation as the effect of including potentially dilutive securities would be anti-dilutive.
266
ENSTAR GROUP LIMITED
SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES
As of December 31, 2019
(Expressed in thousands of U.S. Dollars)
SCHEDULE I
Type of investment
Fixed maturity securities and short-term investments — Trading and fixed
maturity investments within funds held - directly managed:(2)
Cost (1)
Fair Value
Amount at which
shown in the
balance sheet
U.S. government and agency
$
319,554
$
325,731
$
U.K. government
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
Total
Fixed maturity securities and short-term investments — Available-for-sale:(2)
U.S. government and agency
U.K. government
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
Total
Equities(3)
Other investments, at fair value(4)
Total
140,194
600,001
4,398,126
141,905
339,228
783,675
562,020
146,423
617,710
4,615,896
152,010
344,617
801,472
558,217
325,731
146,423
617,710
4,615,896
152,010
344,617
801,472
558,217
7,284,703
7,562,076
7,562,076
410,842
15,067
84,116
410,312
15,349
85,147
410,312
15,349
85,147
1,081,713
1,081,171
1,081,171
15,963
127,704
98,928
202,136
2,036,469
312,407
783,032
15,872
127,219
98,557
202,117
2,035,744
367,812
783,032
15,872
127,219
98,557
202,117
2,035,744
367,812
783,032
$
10,416,611
$
10,748,664
$
10,748,664
(1) Original cost of fixed maturity securities is reduced by repayments and adjusted for amortization of premiums or accretion of discounts.
(2) The difference in the amount of fixed maturities shown at fair value and the fixed maturities shown in our consolidated balance sheet relates to
the fair value of $15.1 million as of December 31, 2019 for our investment in fixed maturities issued by affiliates of Stone Point. Refer to Note 21
- "Related Party Transactions" of the notes to the consolidated financial statements.
(3) The difference in the amount of equities shown at fair value and the equities shown in our consolidated balance sheet relates to the fair value of
$96.8 million as of December 31, 2019 for our investment in a registered investment company affiliated with entities owned by Trident, $25.0
million as a co-investor alongside Stone Point and a $240.1 million investment in AmTrust. Refer to Note 21 - "Related Party Transactions" of the
notes to the consolidated financial statements.
(4) The difference in the amount of other investments shown at fair value and the other investments shown in our consolidated balance sheet relates
to the fair value of $1,741.4 million as of December 31, 2019 for our other investments in funds or companies owned by or affiliated with certain
related parties. Refer to Note 21 - "Related Party Transactions" of the notes to the consolidated financial statements.
267
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ENSTAR GROUP LIMITED
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Balance Sheets - Parent Company Only
As of December 31, 2019 and 2018
SCHEDULE II
ASSETS
Cash and cash equivalents
Balances due from subsidiaries
Investments in subsidiaries
Other assets
TOTAL ASSETS
LIABILITIES
Debt obligations
Balances due to subsidiaries
Other liabilities
TOTAL LIABILITIES
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY
2019
2018
(in thousands of U.S.
dollars, except share data)
$
$
$
4,568
$
134,897
6,050,197
6,391
6,196,053
1,191,207
135,532
27,131
1,353,870
$
$
15,213
25,091
4,843,913
8,596
4,892,813
861,539
120,397
8,944
990,880
Ordinary shares (par value $1 each, issued and outstanding 2019: 21,511,505; 2018: 21,459,997):
Voting Ordinary Shares (issued and outstanding 2019: 18,001,823; 2018: 17,950,315)
18,002
17,950
Non-voting convertible ordinary Series C Shares (issued and outstanding 2019 and 2018:
2,599,672)
Non-voting convertible ordinary Series E Shares (issued and outstanding 2019 and 2018:
910,010)
Preferred Shares:
Series C Preferred Shares (issued and held in treasury 2019 and 2018: 388,571)
Series D Preferred Shares (issued and outstanding 2019 and 2018: 16,000)
Series E Preferred Shares (issued and outstanding 2019 and 2018: 4,400)
Treasury shares, at cost (Series C Preferred Shares 2019 and 2018: 388,571)
Additional paid-in capital
Accumulated other comprehensive income
Retained earnings
Total Enstar Group Limited Shareholders’ Equity
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
2,600
2,600
910
389
400,000
110,000
(421,559)
1,836,778
7,171
2,887,892
4,842,183
910
389
400,000
110,000
(421,559)
1,804,664
10,440
1,976,539
3,901,933
$
6,196,053
$
4,892,813
See accompanying notes to the Condensed Financial Information of Registrant
268
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ENSTAR GROUP LIMITED
CONDENSED FINANCIAL INFORMATION OF REGISTRANT - CONTINUED
Statements of Earnings - Parent Company Only
For the Years Ended December 31, 2019, 2018 and 2017
SCHEDULE II
2019
2018
(in thousands of U.S. dollars)
2017
INCOME
Net investment income
Other income
Dividend income from subsidiaries
EXPENSES
General and administrative expenses
Interest expense
Net foreign exchange losses (gains)
$
3,649 $
—
—
3,649
142 $
—
—
142
44,964
51,508
(21,516)
74,956
68,977
27,353
7,655
103,985
116,869
80
1,050
249,055
250,185
87,596
23,138
6,135
EARNINGS (LOSSES) BEFORE EQUITY IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARIES
Equity in undistributed earnings (losses) of subsidiaries - continuing
operations
Equity in undistributed earnings (losses) of subsidiaries -
discontinued operations
NET EARNINGS
Dividends on preferred shares
(71,307)
(103,843)
133,316
1,009,396
(46,378)
167,149
—
938,089
(35,914)
—
(150,221)
(12,133)
10,993
311,458
—
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR GROUP
LIMITED ORDINARY SHAREHOLDERS
$
902,175 $
(162,354) $
311,458
See accompanying notes to the Condensed Financial Information of Registrant
Statements of Comprehensive Income - Parent Company Only
For the Years Ended December 31, 2019, 2018 and 2017
2019
2018
(in thousands of U.S. dollars)
2017
NET EARNINGS
OTHER COMPREHENSIVE INCOME (LOSS) RELATING TO
SUBSIDIARIES, NET OF TAX
COMPREHENSIVE INCOME
$
$
938,089 $
(150,221) $
311,458
(3,269)
934,820 $
(27)
34,016
(150,248) $
345,474
See accompanying notes to the Condensed Financial Information of Registrant
269
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ENSTAR GROUP LIMITED
CONDENSED FINANCIAL INFORMATION OF REGISTRANT - CONTINUED
Statements of Cash Flows - Parent Company Only
For the Years Ended December 31, 2019, 2018 and 2017
SCHEDULE II
2019
2018
(in thousands of U.S. dollars)
2017
OPERATING ACTIVITIES:
Net cash flows provided by (used in) operating activities
$
(128,462) $
(128,382) $
97,898
INVESTING ACTIVITIES:
Dividends and return of capital from subsidiaries
Contributions to subsidiaries
Net cash flows used in investing activities
FINANCING ACTIVITIES:
Net proceeds from the issuance of preferred shares
Dividends on preferred shares
Repayment of loans
Receipt of loans
Net cash flows provided by financing activities
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
65,500
(240,382)
(174,882)
—
(35,914)
(219,000)
547,613
292,699
(10,645)
15,213
101,000
(660,339)
(559,339)
495,357
(12,133)
(898,633)
1,115,885
700,476
12,755
2,458
CASH AND CASH EQUIVALENTS, END OF YEAR
$
4,568 $
15,213 $
See accompanying notes to the Condensed Financial Information of Registrant
Notes to the Condensed Financial Information of Registrant
217,450
(465,650)
(248,200)
—
—
(696,640)
844,516
147,876
(2,426)
4,884
2,458
The Condensed Financial Information of Registrant should be read in conjunction with our consolidated financial
statements and the accompanying notes thereto included in Part II - Item 8 of this Annual Report on Form 10-K. Our
wholly owned and majority owned subsidiaries are recorded based upon our proportionate share of our subsidiaries'
net assets (similar to presenting them on the equity method).
Investing activities in the Condensed Statements of Cash Flows primarily represents the flow of funds to and
from subsidiaries to provide cash on hand to fund acquisitions and significant new business. Net investment income
relates to interest on loans to subsidiaries. For the years ended December 31, 2019, 2018, and 2017, interest paid
was $46.5 million, $25.1 million, and $17.6 million, respectively. During the years ended December 31, 2019, 2018,
and 2017, non-cash investing activities included $nil, $nil and $31.6 million, respectively, for dividends and return of
capital from subsidiaries and $nil, $414.8 million and $148.1 million, respectively, for contributions to subsidiaries. In
2018, these transactions represented the contribution of the acquired outstanding shares and warrants of KaylaRe
Holdings, Ltd to another subsidiary company. In 2017, these transactions were to settle intercompany balances,
resulting in a net reduction in balances due from subsidiaries and an increase in investments in subsidiaries.
As of December 31, 2019, parental guarantees and capital support instruments supporting subsidiaries'
insurance obligations were $1,031.5 million. In addition, as of December 31, 2019 there were $252.0 million of
unsecured letters of credit for Funds at Lloyd's which have a parental guarantee.
As of December 31, 2019 and 2018, retained earnings were $2,887.9 million and $1,976.5 million, respectively,
an increase of $911.4 million. This increase was primarily attributable to the net earnings of $902.2 million.
270
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ENSTAR GROUP LIMITED
SUPPLEMENTARY INSURANCE INFORMATION
(Expressed in thousands of U.S. Dollars)
SCHEDULE III
As of December 31,
Year ended December 31,
Deferred
Acquisition
Costs
Reserves
for Losses
and Loss
Adjustment
Expenses
Policy
Benefits for
Life and
Annuity
Contracts
Unearned
Premiums
Net
Premiums
Earned
Net
Investment
Income
Losses
and Loss
Expenses
and
Policy
Benefits
Amortization
of Deferred
Acquisition
Costs
Other
Operating
Expenses
Net
Premiums
Written
2019
Non-life run-off
$
41,753
$
8,295,361
$
129,715
$
— $
168,496
$
275,236
$
51,625
$
73,642
$
270,445
$
(25,338)
Atrium
StarStone
Other
Total
2018
Non-life run-off
Atrium
StarStone
Other
Total
2017
Non-life run-off
Atrium
StarStone
Other
Total
$
$
$
$
22,184
89,180
388
231,672
1,879,128
23,077
153,505
$ 10,429,238
4,378
$
7,540,662
241,284
1,608,697
18,861
9,409,504
5,949,472
240,873
$
$
20,355
96,004
364
121,101
655
18,385
45,944
—
80,863
518,199
17,998
746,775
136,023
70,429
619,164
17,002
842,618
14,275
64,877
$
$
$
$
$
$
$
$
—
—
—
164,059
801,926
20,380
— $
1,154,861
— $
—
—
105,080
9,427
146,315
714,959
24,874
105,080
$
895,575
— $
—
—
14,162
134,747
459,403
4,809
$
$
$
$
7,049
47,401
(8,410)
321,276
226,287
5,686
35,973
2,725
270,671
166,678
4,218
27,706
10,187
$
$
$
$
77,276
727,636
16,129
56,956
174,711
642
872,666
$
305,951
(306,067) $
69,810
673,383
17,902
4,006
50,646
135,452
2,686
455,028
$
192,790
(190,674) $
69,419
314,806
4,015
328
47,688
48,012
878
$
$
$
$
28,277
128,419
45,945
473,086
197,824
24,698
156,726
28,127
407,375
233,827
29,586
135,558
37,014
$
$
$
$
172,356
735,429
18,512
900,959
(9,217)
153,488
805,562
32,067
981,900
6,482
134,214
464,901
4,793
1,207,743
504,045
—
—
117,207
$
64,984
$
7,398,088
$
583,197
$
117,207
$
613,121
$
208,789
$
197,566
$
96,906
$
435,985
$
610,390
271
Table of Contents
2019
Life insurance in force
Premiums earned:
Property and casualty
Life and annuities
ENSTAR GROUP LIMITED
REINSURANCE
For the Years Ended December 31, 2019, 2018 and 2017
(Expressed in thousands of U.S. Dollars)
SCHEDULE IV
Ceded to
Other
Companies
Gross
Assumed
from
Other
Companies Net Amount
Percentage
of Amount
Assumed
to Net
$
725,293 $
(65,795) $
— $
659,498
—%
Total premiums earned
$ 1,148,251 $
(267,197) $
1,146,956
1,295
(267,174)
(23)
273,807
1,153,589
—
1,272
273,807 $ 1,154,861
23.7%
—%
2018
Life insurance in force
Premiums earned:
Property and casualty
Life and annuities
Total premiums earned
2017
Life insurance in force
Premiums earned:
Property and casualty
Life and annuities
Total premiums earned
$
855,366 $
(84,603) $
— $
770,763
—%
985,637
3,892
989,529 $
(330,110)
(26)
236,182
—
891,709
3,866
(330,136) $
236,182 $
895,575
26.5%
—%
979,291 $
(100,189) $
— $
879,102
—%
899,226
5,900
905,126 $
(433,075)
(1,091)
(434,166) $
142,161
—
608,312
4,809
142,161 $
613,121
23.4%
—%
$
$
$
272
Table of Contents
ENSTAR GROUP LIMITED
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2019, 2018 and 2017
(Expressed in thousands of U.S. Dollars)
SCHEDULE V
Balance at
Beginning
of Year
Charged to
costs and
expenses
Charged to
other
accounts
Deductions (1)
Balance at
End of Year
December 31, 2019
Reinsurance balances recoverable
on paid and unpaid losses:
Provisions for bad debt
156,732
—
Valuation allowance for deferred tax
assets
212,113
2,792
111
—
(9,204)
147,639
(97,515)
117,390
December 31, 2018
Reinsurance balances recoverable
on paid and unpaid losses:
Provisions for bad debt
165,213
—
(1,837)
(6,644)
156,732
Valuation allowance for deferred tax
assets
December 31, 2017
Reinsurance balances recoverable
on paid and unpaid losses:
188,300
(2,492)
18,000
8,305
212,113
Provisions for bad debt
174,516
(1,536)
(4,191)
(3,576)
165,213
Valuation allowance for deferred tax
assets
(1) Credited to the related asset account.
290,861
(16,694)
—
(85,867)
188,300
273
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SCHEDULE VI
ENSTAR GROUP LIMITED
SUPPLEMENTARY INFORMATION CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS
As of and for the years ended December 31, 2019, 2018 and 2017
(Expressed in thousands of U.S. Dollars)
As of December 31,
Reserves for
Unpaid
Losses and
Loss
Adjustment
Expenses
Deferred
Acquisition
Costs
Year ended December 31,
Unearned
Premiums
Net
Premiums
Earned
Net
Investment
Income
Current Year
Prior Year
Net Losses and Loss
Expenses Incurred
Net Paid
Losses and
Loss
Expenses
Amortization
of Deferred
Acquisition
Costs
Net
Premiums
Written
$
153,505
$ 10,429,238
$
746,775
$ 1,153,589
$
320,780
$
823,658
$
48,917
$
(1,869,268) $
305,774
$
121,101
64,984
9,409,504
7,398,088
842,618
583,197
891,708
608,312
269,093
198,602
689,782
437,853
(235,757)
(244,302)
(1,384,545)
(945,194)
192,790
96,028
899,687
978,037
605,597
Affiliation with Registrant
Consolidated Subsidiaries
2019
2018
2017
274
Table of Contents
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of management, including our Chief Executive Officer and our
Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) of the Exchange Act) as of December 31, 2019. Based on that evaluation, our Chief Executive
Officer and our Chief Financial Officer have concluded that we maintained effective disclosure controls and procedures
to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under
the Exchange Act is recorded, processed, summarized and timely reported as specified in the SEC's rules and forms,
and is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting
(as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). Our internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with U.S. GAAP.
Management does not expect that its internal control over financial reporting will prevent all error and fraud. A
control system, no matter how well conceived and operated, has inherent limitations, and accordingly no evaluation
of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
As a result, even those internal control systems determined to be effective can provide only reasonable assurance
with respect to financial reporting and the preparation of financial statements.
Under the supervision and with the participation of management, including our Chief Executive Officer and our
Chief Financial Officer, we evaluated the effectiveness of our internal control over financial reporting as of December 31,
2019, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in
Internal Control - Integrated Framework (2013). Based on that evaluation, we have concluded that we maintained
effective internal control over financial reporting as of December 31, 2019.
Management excluded Morse TEC, acquired on October 30, 2019, from its evaluation of internal controls over
financial reporting as permitted under Securities and Exchange Commission guidance. The results of Morse TEC since
the acquisition date are included in our consolidated financial statements. Morse TEC constituted approximately 3.5%,
0.0% and 0.0% of total assets, net assets and total income, respectively, as of and for the year ended, December 31,
2019. See Note 3 - "Acquisitions" in the notes to our consolidated financial statements included in Item 8 of this Annual
Report on Form 10-K for a discussion of this acquisition. We are in the process of incorporating our controls and
procedures into this acquisition.
KPMG Audit Limited, the independent registered public accounting firm who audited our consolidated financial
statements included in this Form 10-K, audited our internal control over financial reporting as of December 31, 2019
and their attestation report on our internal control over financial reporting appears below.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the three months
ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
275
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Enstar Group Limited:
Opinion on Internal Control Over Financial Reporting
We have audited Enstar Group Limited and subsidiaries’ (the Company) internal control over financial reporting as of
December 31, 2019, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2019, based on the criteria established in
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated
statements of earnings, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the
three-year period ended December 31, 2019,and the related notes and financial statement schedules I to VI (collectively,
the consolidated financial statements), and our report dated February 27, 2020 expressed an unqualified opinion on those
consolidated financial statements.
The Company acquired Morse TEC on October 30, 2019, and management excluded from its assessment of the effectiveness
of the Company’s internal control over financial reporting as of December 31, 2019, Morse TEC’s internal control over financial
reporting associated with total assets, net assets and total income acquired of 3.5%, 0.0% and 0.0% of total assets, net
assets and total income, respectively, as of December 31, 2019. Our audit of internal control over financial reporting of the
Company also excluded an evaluation of the internal control over financial reporting of Morse TEC.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Form 10-K as
“Management’s Annual Report on Internal Control Over Financial Reporting” under Item 9A, “Controls and Procedures”. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are
a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in
all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG Audit Limited
KPMG Audit Limited
Hamilton, Bermuda
February 27, 2020
276
Table of Contents
ITEM 9B. OTHER INFORMATION
Not applicable.
PART II (CONTINUED)
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
All information required by Items 10, 11, 12, 13 and 14 of this Annual Report on Form 10-K is incorporated by
reference from the definitive proxy statement for our 2020 Annual General Meeting of Shareholders that will be filed
with the SEC not later than 120 days after the close of the fiscal year ended December 31, 2019 pursuant to Regulation
14A.
ITEM 11. EXECUTIVE COMPENSATION
See Item 10 herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
See Item 10 herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
See Item 10 herein.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
See Item 10 herein.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
PART IV
(a) Financial Statements and Financial Statement Schedules: see Item 8 in Part II of this report.
(b) Exhibits: see accompanying exhibit index that precedes the signature page of this report.
ITEM 16. FORM 10-K SUMMARY
Omitted at Company's option.
277
Table of Contents
Exhibit Index
Exhibit
No.
2.1s
2.2
2.3
2.4
2.5s
3.1
3.2
3.3
3.4
3.5
3.6
4.1
4.2
4.3
4.4
4.5
4.6
Description
Stock Purchase Agreement, dated February 17, 2017, by and between Southland National Holdings, Inc.
and Laguna Life Holdings SARL (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K
filed on February 21, 2017).
Amendment No. 1 to Stock Purchase Agreement, dated June 1, 2017, by and between Southland National
Holdings, Inc. and Laguna Life Holdings SARL (incorporated by reference to Exhibit 2.1 to the Company’s
Form 10-Q filed on November 8, 2017).
Amendment No. 2 to Stock Purchase Agreement, dated July 31, 2017, by and between Southland National
Holdings, Inc. and Laguna Life Holdings SARL (incorporated by reference to Exhibit 2.2 to the Company’s
Form 10-Q filed on November 8, 2017).
Amendment No. 3 to Stock Purchase Agreement, dated December 15, 2017, by and between Southland
National Holdings, Inc. and Laguna Life Holdings SARL (incorporated by reference to Exhibit 2.14 to the
Company’s Form 10-K filed on February 28, 2018).
Master Transaction Agreement, dated as of August 31, 2018, by and among Enstar Group Limited, Enstar
Holdings (US) LLC and Maiden Holdings North America, Ltd. (incorporated by reference to Exhibit 2.1 to
the Company’s Form 8-K filed on September 4, 2018).
Memorandum of Association of Enstar Group Limited (incorporated by reference to Exhibit 3.1 to the
Company’s Form 10-K/A filed on May 2, 2011).
Fifth Amended and Restated Bye-Laws of Enstar Group Limited (incorporated by reference to Exhibit 3.1
of the Company’s Form 8-K filed on June 13, 2019).
Certificate of Designations for the Series B Convertible Participating Non-Voting Perpetual Preferred Stock
(incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed on July 9, 2013).
Certificate of Designations of Series C Participating Non-Voting Perpetual Preferred Stock of Enstar Group
Limited, dated as of June 13, 2016 (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K
filed on June 17, 2016).
Certificate of Designations of Series D Perpetual Non-Cumulative Preferred Shares of Enstar Group
Limited, dated as of June 27, 2018 (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K
filed on June 27, 2018).
Certificate of Designations of Series E Perpetual Non-Cumulative Preferred Shares of Enstar Group
Limited, dated as of November 21, 2018 (incorporated by reference to Exhibit 4.1 to the Company’s Form
8-K filed on November 21, 2018).
Senior Indenture, dated as of March 10, 2017, between Enstar Group Limited and The Bank of New York
Mellon, as trustee (incorporated by reference to Exhibit 4.1 to the Company's Form 8-K filed on March
10, 2017).
First Supplemental Indenture, dated as of March 10, 2017, between Enstar Group Limited and The Bank
of New York Mellon, as trustee (incorporated by reference to Exhibit 4.2 to the Company's Form 8-K filed
on March 10, 2017).
Second Supplemental Indenture, dated as of March 26, 2019, between Enstar Group Limited and The
Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-
K filed on March 26, 2019).
Third Supplemental Indenture, dated as of May 28, 2019, between Enstar Group Limited and The Bank
of New York Mellon, as trustee (incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K filed
on May 28, 2019).
Deposit Agreement, dated as of June 27, 2018, between Enstar Group Limited and American Stock
Transfer (incorporated by reference to Exhibit 4.3 to the Company’s Form 8-K filed on June 27, 2018).
Deposit Agreement, dated as of November 21, 2018, between Enstar Group Limited and American Stock
Transfer (incorporated by reference to Exhibit 4.3 to the Company’s Form 8-K filed on November 21,
2018).
4.7*
Description of Securities.
278
Table of Contents
10.1
10.2
10.3
10.4
10.5
10.6
10.7+
10.8+
10.9+
10.10+
10.11+
10.12+
Form of Warrant (incorporated by reference to Exhibit 99.2 to the Company’s Form 8-K filed on April 21,
2011).
Registration Rights Agreement, dated as of January 31, 2007, by and among Castlewood Holdings Limited,
Trident II, L.P., Marsh & McLennan Capital Professionals Fund, L.P., Marsh & McLennan Employees’
Securities Company, L.P., Dominic F. Silvester, J. Christopher Flowers, and other parties thereto set forth
on the Schedule of Shareholders attached thereto (incorporated by reference to Exhibit 10.1 of the
Company’s Form 8-K12B filed on January 31, 2007).
Registration Rights Agreement, dated as of April 20, 2011, by and among Enstar Group Limited, GSCP
VI AIV Navi, Ltd., GSCP VI Offshore Navi, Ltd., GSCP VI Parallel AIV Navi, Ltd., GSCP VI Employee Navi,
Ltd., and GSCP VI GmbH Navi, L.P. (incorporated by reference to Exhibit 99.3 to the Company’s Form 8-
K filed on April 21, 2011).
Registration Rights Agreement, dated April 1, 2014, among Enstar Group Limited, FR XI Offshore AIV,
L.P., First Reserve Fund XII, L.P., FR XII A Parallel Vehicle L.P., FR Torus Co-Investment, L.P. and Corsair
Specialty Investors, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on
April 4, 2014).
Form of Waiver Agreement (incorporated herein by reference to Exhibit 4.7 to the Company's Form S-3
filed on October 10, 2017).
Shareholder Rights Agreement, dated June 3, 2015, between Enstar Group Limited and Canada Pension
Plan Investment Board (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on
June 3, 2015.
Form of Director Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Company’s
Form S-3 (No. 333-151461) initially filed on June 5, 2008).
Amended and Restated Employment Agreement, dated as of January 21, 2020, by and between Enstar
Group Limited and Dominic F. Silvester (incorporated by reference to Exhibit 10.2 to the Company’s Form
8-K filed on January 27, 2020).
Amended and Restated Employment Agreement, dated as of January 21, 2020, by and between Enstar
Group Limited and Paul J. O’Shea (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-
K filed on January 27, 2020).
Amended and Restated Employment Agreement, dated January 21, 2020, by and between Enstar Group
Limited and Orla M. Gregory (incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K filed
on January 27, 2020).
Employment Agreement, dated December 28, 2017, by and between Enstar Group Limited and Guy T.A.
Bowker (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on January 4, 2018).
Employment Agreement, dated January 8, 2018, by and between Enstar Group Limited and Paul M.J.
Brockman(incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on May 8, 2019).
10.13*+
Employment Agreement, dated September 9, 2016, by and between Enstar Group Limited and Nazar
Alobaidat.
10.14+
10.15+
10.16+
10.17+
10.18+
10.19+
Enstar Group Limited Deferred Compensation and Ordinary Share Plan for Non-Employee Directors,
effective as of June 5, 2007 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed
on June 11, 2007).
Amended and Restated Enstar Group Limited Deferred Compensation and Ordinary Share Plan for Non-
Employee Directors, effective as of January 1, 2015 (incorporated by reference to Exhibit 10.13 to the
Company’s Form 10-K filed on March 2, 2015).
Form of Non-Employee Director Restricted Stock Award Agreement (incorporated by reference to
Exhibit 10.32 to the Company’s Form 10-K filed on March 2, 2015).
Castlewood Holdings Limited 2006 Equity Incentive Plan (incorporated by reference to Exhibit 10.11 to
the proxy statement/prospectus that forms a part of the Company’s Form S-4 declared effective December
15, 2006).
First Amendment to Castlewood Holdings Limited 2006 Equity Incentive Plan (incorporated by reference
to Exhibit 10.2 to the Company’s Form 8-K filed on April 6, 2007).
Form of Award Agreement under the Castlewood Holdings Limited 2006 Equity Incentive Plan
(incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on April 6, 2007).
279
Table of Contents
10.20+
10.21+
10.22+
10.23+
10.24+
10.25+
10.26+
10.27+
10.28+
Form of Stock Appreciation Right Award Agreement pursuant to the 2006 Equity Incentive Plan
(incorporated by reference to Exhibit 10.5 to the Company’s Form 10-Q filed on August 11, 2014).
Form of Restricted Stock Award Agreement pursuant to the 2006 Equity Incentive Plan (incorporated by
reference to Exhibit 10.6 to the Company’s Form 10-Q filed on August 11, 2014).
Enstar Group Limited Amended and Restated 2016 Equity Incentive Plan (incorporated by reference to
Exhibit 10.1 to the Company’s Form 8-K filed on December 2, 2019).
Form of Restricted Stock Award Agreement under the Enstar Group Limited 2016 Equity Incentive Plan
(incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q filed on August 5, 2016).
Form of Stock Appreciation Right Award Agreement under the Enstar Group Limited 2016 Equity Incentive
Plan (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q filed on August 5, 2016).
Form of Restricted Stock Unit Award Agreement under the Enstar Group Limited 2016 Equity Incentive
Plan (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q filed on November 8, 2016).
Form of Performance Stock Unit Award Agreement under the Enstar Group Limited 2016 Equity Incentive
Plan (incorporated by reference to Exhibit 10.3 to the Company's Form 10-Q filed on November 8, 2016).
Form of Performance Stock Unit Award Agreement (2018) under the Enstar Group Limited 2016 Equity
Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q filed on November
8, 2017).
Form of Performance Stock Unit Award Agreement (3-Year Cycle) (2020) under the Enstar Group Limited
2016 Equity Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s Form 8-K filed
on January 27, 2020).
10.29*+
Form of Performance Stock Unit Award Agreement (Annual Cycle) (2020) under the Enstar Group Limited
2016 Equity Incentive Plan.
10.30*+
Form of Restricted Stock Unit Award Agreement (2020) under the Enstar Group Limited 2016 Equity
Incentive Plan.
10.31+
10.32+
10.33+
10.34
10.35
10.36
10.37
10.38
10.39
Joint Share Ownership Agreement, dated January 21, 2020, by and among Enstar Group Limited,
Dominic F. Silvester and Zedra Trust Company, as trustee (incorporated by reference to Exhibit 10.1 to
the Company’s Form 8-K filed on January 27, 2020).
Enstar Group Limited Amended and Restated Employee Share Purchase Plan (incorporated by reference
to Exhibit 10.4 to the Company’s Form 10-Q filed on November 8, 2016).
Amended and Restated Enstar Group Limited 2019-2021 Annual Incentive Program (incorporated by
reference to Exhibit 10.30 to the Company’s Form 10-K filed on March 1, 2019).
Amended and Restated Bayshore Shareholders’ Agreement, dated May 8, 2014, among Bayshore
Holdings Limited, Kenmare Holdings Ltd., Trident V, L.P., Trident V Parallel Fund, L.P., Trident V
Professionals Fund, L.P., and Dowling Capital Partners I, L.P. (incorporated by reference to Exhibit 10.3
of the Company’s Form 10-Q filed on August 11, 2014).
Voting and Shareholders’ Agreement, dated as of December 23, 2015, among North Bay Holdings Limited,
Kenmare Holdings Ltd., Trident V, L.P., Trident V Parallel Fund, L.P., Trident V Professionals Fund, L.P.,
Dowling Capital Partners I, L.P., Atrium Nominees Limited, Bayshore Holdings Limited, Northshore
Holdings Limited and Enstar Group Limited (incorporated by reference to Exhibit 10.1 of the Company’s
Form 8-K filed on December 30, 2015).
Second Amended and Restated Northshore Shareholders’ Agreement, dated as of December 23, 2015,
among Northshore Holdings Limited, North Bay Holdings Limited and Atrium Nominees Limited
(incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on December 30, 2015).
Exchange Agreement, dated as of February 2, 2018, by and among Enstar Group Limited, KaylaRe
Holdings, Ltd., HH KaylaRe Holdings, Ltd., Hillhouse Fund III, L.P., Trident V, L.P., Trident V Parallel Fund,
L.P, Trident V Professionals Fund, L.P., Souris Partners and Cavello Bay Reinsurance Limited
(incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on February 8, 2018).
Master Agreement, dated March 1, 2019, by and among Enstar Group Limited, Maiden Holdings, Ltd. and
Maiden Reinsurance Ltd. (incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed on
May 8, 2019).
Amendment to Master Agreement, dated June 28, 2019, by and among Enstar Group Limited, Maiden
Holdings, Ltd. and Maiden Reinsurance Ltd. (incorporated by reference to Exhibit 10.1 to the Company’s
Form 10-Q filed on August 6, 2019).
280
Table of Contents
10.40
10.41
10.42
10.43
10.44
10.45
21.1*
23.1*
31.1*
31.2*
32.1**
32.2**
101*
104*
Subscription Agreement, dated as of December 11, 2018, by and between Cavello Bay Reinsurance
Limited and Enhanzed Reinsurance Limited (incorporated by reference to Exhibit 10.36 to the Company’s
Form 10-K filed on March 1, 2019).
Revolving Credit Agreement, dated as of August 16, 2018, by and among Enstar Group Limited and certain
of its subsidiaries, National Australia Bank Limited, Barclays Bank PLC, Wells Fargo Securities, LLC Wells
Fargo Bank, National Association and each of the lenders party thereto (incorporated by reference to
Exhibit 10.1 of the Company’s Form 8-K filed on August 21, 2018).
First Amendment to Revolving Credit Agreement, dated as of December 19, 2018, by and among Enstar
Group Limited and certain of its subsidiaries, National Australia Bank Limited, Barclays Bank PLC, Wells
Fargo Securities, LLC Wells Fargo Bank, National Association and each of the lenders party thereto
(incorporated by reference to Exhibit 10.38 to the Company’s Form 10-K filed on March 1, 2019).
Term Loan Credit Agreement, dated as of December 27, 2018, by and among Enstar Group Limited and
certain of its subsidiaries, Wells Fargo Bank, National Association and each of the lenders party thereto
(incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on January 2, 2019).
Letter of Credit Facility Agreement, dated as of August 5, 2019, by and among Enstar Group Limited and
certain of its subsidiaries, National Australia Bank Limited, London Branch, The Bank of Nova Scotia and
each of the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K
filed on August 7, 2019).
First Amendment to Letter of Credit Facility Agreement, dated as of December 9, 2019, by and among
Enstar Group Limited and certain of its subsidiaries, National Australia Bank Limited, London Branch, The
Bank of Nova Scotia and each of the lenders party thereto (incorporated by reference to Exhibit 10.1 to
the Company’s Form 8-K filed on December 11, 2019).
List of Subsidiaries.
Consent of KPMG Audit Limited.
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities
Exchange Act of 1934 as adopted under Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities
Exchange Act of 1934 as adopted under Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
Inline XBRL Document Set for the consolidated financial statements and accompanying notes in Part II,
Item 8 of this Annual Report on Form 10-K.
The cover page from the Company’s Annual Report on Form 10-K for the year ended December 31, 2019,
formatted as Inline XBRL (included in Exhibit 101).
_______________________________
* filed herewith
** furnished herewith
+ denotes management contract or compensatory arrangement
s certain of the schedules and similar attachments are not filed but Enstar Group Limited undertakes to furnish
a copy of the schedules or similar attachments to the SEC upon request
281
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 27, 2020.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities indicated on February 27, 2020.
ENSTAR GROUP LIMITED
By:
/S/ DOMINIC F. SILVESTER
Dominic F. Silvester
Chief Executive Officer
Signature
/s/ ROBERT J. CAMPBELL
Robert J. Campbell
/s/ DOMINIC F. SILVESTER
Dominic F. Silvester
/s/ GUY BOWKER
Guy Bowker
/s/ PAUL J. O’SHEA
Paul J. O’Shea
/s/ B. FREDERICK BECKER
B. Frederick Becker
/s/ SANDRA L. BOSS
Sandra L. Boss
/s/ JAMES D. CAREY
James D. Carey
/s/ HANS-PETER GERHARDT
Hans-Peter Gerhardt
/s/ MYRON HENDRY
Myron Hendry
/s/ JIE LIU
Jie Liu
/s/ HITESH PATEL
Hitesh Patel
/s/ POUL A. WINSLOW
Poul A. Winslow
Title
Chairman and Director
Chief Executive Officer and Director
Chief Financial Officer (signing in his capacity as
principal financial officer and principal accounting officer)
President and Director
Director
Director
Director
Director
Director
Director
Director
Director
282
DIRECTORS
Robert Campbell
Chairman of the Board
Enstar Group Limited
Partner
Beck Mack & Oliver, LLC
Dominic Silvester
Chief Executive Officer
Enstar Group Limited
B. Frederick (Rick) Becker
Non-Executive Director
James Carey
Senior Principal
Stone Point Capital LLC
Hans-Peter Gerhardt
Chief Executive Officer (former)
AXA Re, PARIS Re and Asia Capital Reinsurance
W. Myron Hendry
Executive VP, Chief Platform Officer (former)
XL Catlin
Jie Liu
Partner
Hillhouse Capital
Paul O’Shea
President
Enstar Group Limited
Hitesh Patel
Non-Executive Director
Poul Winslow
Senior Managing Director & Global Head of
Capital Markets and Factor Investing
Canada Pension Plan Investment Board
EXECUTIVE OFFICERS
Dominic Silvester
Chief Executive Officer
Paul O’Shea
President
Orla Gregory
Chief Operating Officer
Guy Bowker
Chief Financial Officer
TRANSFER AGENT
American Stock Transfer & Trust Company
6201, 15th Avenue,
Brooklyn, NY 11219
(800) 937-5449
ENSTAR GROUP LIMITED
Head Office
P.O. Box HM 2267,
Windsor Place,
3rd Floor , 22 Queen Street,
Hamilton HM JX,
Bermuda
www.enstargroup.com