Enstar
Annual
Report
2020
FINANCIAL RESULTS
(Expressed in millions of U.S. Dollars, except Share and Per Share Data)
Net Segment Contribution:
Non-life Run-off
Atrium
StarStone
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
2020
2019
2018
$
1,866.1
15.9
(81.5)
(81.2)
1,719.3
1,552.1
78.80
$
$
$
1,059.8
12.1
(100.7)
(69.0)
902.2
558.0
41.43
25.2
9.0
(158.6)
(38.0)
(162.4)
58.1
(7.84)
Weighted Average Fully Diluted Ordinary Shares Outstanding
21,818,294
21,775,066
20,904,176
Ordinary Shareholders’ Equity Attributable to Enstar 3
$
6,164.4
Return on Opening Ordinary Shareholders’ Equity Attributable to Enstar
39.7%
Fully Diluted Book Value Per Ordinary Share 3
$
281.20
4,332.2
26.6%
197.93
3,392.0
(5.2)%
155.94
Fully Diluted Ordinary Shares Outstanding 3
21,993,598
21,989,971
21,881,063
Percent Change in Fully Diluted Book Value Per Ordinary Share
42.1%
26.9%
(2.0)%
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.
$21.6bn
Assets
$6.7bn
Total shareholders’ equity
$17.3bn
Total cash and investments
$33.2bn
Total assets acquired since
inception
Dear Fellow Shareholders,
Enstar had another impressive year, one characterised by profitable growth, new partnerships
and high-quality investments. We delivered record-high net earnings as our book value per
share reached a new peak.
However, 2020 was not without challenges - we remain in the midst of the biggest public
health crisis for a century. A key concern throughout has been the health and welfare of
everyone in the Enstar family, including our shareholders and business partners. I sincerely
hope that you are well. In terms of operations, I extend my personal thanks to every employee
across the globe for responding to the crisis with flexibility and resilience. These efforts
carried us through the year and leave us ideally positioned in 2021 to continue our significant
contribution to the legacy market.
2020 Financial Results
Enstar delivered another year of excellent results. We achieved record net earnings of $1.7 billion
in 2020, or $78.80 per fully diluted ordinary share. Our fully diluted book value per share was
up 42% to $281.20 from $197.93 at year-end 2019, a new high.
Our investment performance dominated our net earnings, with net realised and unrealised
investment gains of $1.6 billion. We strive to achieve above-average investment returns whilst
maintaining an asset-preservation strategy appropriate to the duration of the liabilities we have
acquired. The success of our asset management strategies has led to well-capitalised companies
positioned to take on new investment opportunities and continue to grow our balance sheet.
Strategic Developments
From early 2020, we have continuously assessed the impact and potential impact of COVID-19
under a number of stress scenarios, and Enstar performed well to date under this real-life
stress test. We incurred net underwriting losses of $89 million, for which our share was $56
million, from active underwriting operations, primarily arising in StarStone’s international
portfolios which are now in run-off. To date, we have not assumed third-party legacy
portfolios containing COVID-19-related liabilities, although we have declined some. We expect
the market for COVID-19-impacted risk portfolios to evolve during the year ahead, and present
potentially attractive opportunities to Enstar.
With regard to active underwriting through StarStone and Atrium, we reduced our direct exposure,
whilst retaining meaningful minority investment stakes alongside trusted equity partners:
• We recapitalised StarStone U.S., through a sale to Core Specialty, a new entity of which
Enstar owns 25%. Core Specialty will benefit from its extensive distribution into the
hardening specialty property & casualty insurance market under proven leadership with
CEO Jeff Consolino and his executive team forging the way ahead.
In addition, Enstar entered into a loss portfolio transfer with respect to StarStone U.S.’
legacy liabilities.
•
• Meanwhile we swapped the majority of Enstar’s shares in Atrium for Stone Point Capital funds’
ownership interests in Core Specialty, leaving Enstar with 13.8% of Atrium (previously 54%).
• StarStone International (which covers non-US) was placed into orderly run-off, and
optimised its Lloyd’s platform, StarStone Underwriting Limited, through a sale to Inigo, a
new specialty (re)insurance company led by founders and seasoned executives, Richard
Watson, Russell Merrett and Stuart Bridges, in which we now own a minority interest.
All of this serves to diversify our remaining live underwriting holdings during an increasingly
encouraging international market cycle, whilst retaining the economic interest in StarStone
portfolios as a significant asset within our core run-off business.
i
Annual CEO letterFrom Dominic Silvester, Chief Executive Officer Annual CEO letter
From Dominic Silvester, Chief Executive Officer
Key Acquisitions
Enstar continues to acquire high-quality run-off portfolios, with increasingly large books of
business being brought to market. We completed five deals in 2020, including transactions with
new partners, totaling $1.7 billion of liabilities assumed. In 2021, we have already completed
or announced four deals totaling $3.0 billion of liabilities assumed based on initial estimates.
ASSETS
TRANSFERRED TOTAL
OR PREMIUM
PAID
(in USD million) (in USD million) PRIMARY NATURE OF BUSINESS
LIABILITIES
ASSUMED
$465
$180
$770
$101
$182
$465
$180
$782
$101
$210
Novation of Lyft’s U.S. auto insurance business
Reinsurance of U.S. construction general liability
Adverse development cover of diversified property, liability, and
specialty lines across the U.S., U.K. and Europe
Business transfer of Australian public liability, professional liability
and builders’ warranty liabilities
Novation of U.S. asbestos, environmental, and workers’
compensation liabilities
TRANSACTION
2020 TRANSACTIONS
Lyft
AXA Group
Aspen
Munich Re
DATE
COMPLETED
March 31
June 1
June 1
July 1
Hannover Re
August 6
TOTAL
$1,698
$1,738
TRANSACTION
DATE
COMPLETED
2021 TRANSACTIONS TO DATE
Liberty Mutual
January 8
ProSight
N/A - Announced
January 15
INITIAL ESTIMATE
OF LIABILITIES
ASSUMED
(in USD million)
$420
$500
PRIMARY NATURE OF BUSINESS
Reinsurance of U.S. energy, construction, and homebuilders liability
insurance portfolios
Loss portfolio transfer of U.S. workers’ compensation and excess
workers’ compensation business and adverse development cover
of diversified general liability business
Continental Casualty
Company (CNA)
AXA Group
TOTAL
February 5
$690
Reinsurance of U.S. excess workers’ compensation business
N/A - Announced
February 25
$1,395
$3,005
Adverse development cover of diversified global casualty and
professional lines
ii
ii
The Adverse Development Cover arrangements we entered with Aspen, AXA Group and
ProSight are a point of focus. In securing these multi-layer solutions, our clients were able
to meet their capital and risk management objectives through bespoke structures that
draw on Enstar’s expertise in understanding diverse and complex portfolios. Together, these
transactions equal $2.7 billion of ceded loss reserves and place Enstar as a first-choice partner
for the growing number of primary insurers seeking this kind of large legacy solution.
Another stand-out transaction in 2020 was our completion of the first-ever U.S. insurance
business transfer. By undergoing a rigorous statutory and judicial process, we successfully
transferred direct liability for policies from one of our insurers to another via a single court
order, improving our capital position and flexibility to create value. Our leadership role in this
new route to capital relief for U.S. insurers signals Enstar’s expanding toolbox of solutions. We
anticipate greater demand for such U.S. deals, which are common elsewhere in the world,
as insurers, including captives, seek to free-up balance sheet capital, potentially unlocking
billions in U.S. run-off opportunities.
Several new run-off players were launched in recent years, which is a sign of a healthy and
expanding marketplace that brings more opportunities for companies who have proven
they can be successful. Whilst their entry has increased competition, our highly disciplined
underwriting approach, pricing and claims handling expertise differentiate our business.
We have demonstrated our ability to agree large deals with new and existing partners around
the world, and to achieve strong overall results.
The non-life run-off market remains robust, with a strong pipeline. Given our longevity in
the legacy space, we have previously experienced upturns during times of market volatility
or dislocation, such as the 2008/9 global financial crisis, and I remain optimistic about the
continued flow of attractive non-life run-off opportunities in the years ahead.
Non-life Run-off
Enstar’s core Non-life Run-off business performed well again in 2020, contributing $1.9 billion
to our consolidated results in 2020, up by $806 million from 2019. Run-off profitability relies
both on the successful reduction of liabilities and on the effective growth through investment
of remaining, offsetting assets. The improvement in part reflects increases in net realised and
unrealised investment gains of $660 million, and increased earnings from equity investments
of $182 million.
In 2020, Enstar paid $1.1 billion in claims to our Non-life Run-off policyholders, as we continue
to meet obligations assumed from our partners. Enstar’s claims specialists constantly review
each book of business and deploy a variety of settlement strategies to close claims and
optimise each outcome. Our ability to manage claims effectively remains a critical pillar of
the Enstar business model. A long and proven track record in the successful management of
favourable claims outcomes allows Enstar to achieve reserve savings, and therefore to recycle
capital to fuel future acquisitions and investments.
We achieved reserve / claims savings1 of $230 million in 2020, which includes a reduction in
estimates of net ultimate losses on prior periods of $127 million, and $103 million for defendant
asbestos and environmental liabilities. This metric shows the change in our ultimate claims
outcomes and indicates the technical performance of our claims and reserving functions.
Our mix of reserves remained well-diversified. Asbestos & Environmental, Workers’
Compensation, and General Casualty each account for roughly one fifth of our total loss
reserves of $9.2 billion.
iii
Gross Non-life Run-off Reserves
as of December 31, 2020
$9.1bn*
Gross Reserves
Asbestos & Environmental
General casualty
Workers’ compensation
Professional Indemnity/D&O
Motor
Construction Defect & Other
23%
22%
21%
12%
11%
7%
Marine, Aviation and Transit 4%
* 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.
1 Reserve / claims savings is a non-GAAP measure
calculated using components of amounts determined
in accordance with U.S. GAAP and disclosed in our
quarterly and annual U.S. GAAP consolidated financial
statements. Refer to the Financial Calculations
Schedule on page vi for further information.
Annual CEO letterFrom Dominic Silvester, Chief Executive Officer A long and proven track
record in the successful
management of
favourable claims
outcomes allows Enstar
to achieve reserve
savings, and therefore
to recycle capital to fuel
future acquisitions and
investments.
Annual CEO letter
From Dominic Silvester, Chief Executive Officer
Investments
2020 was marked by significant volatility in global financial markets. The global economy
grounded to a halt and stock markets plummeted in the first quarter, as businesses were
forced to close, and consumers were placed under strict lockdowns to contain the spread
of COVID-19. The year also demonstrated the resilience of people, institutions, and financial
markets. Central banks around the globe brought interest rates to near zero, flooded financial
markets with ample liquidity and backstopped risk assets.
The sharp drawdown and subsequent recovery experienced by the broader financial markets
was also reflected in Enstar’s investment portfolio in 2020. We experienced significant
unrealised losses during the first quarter, but our portfolio outperformed during the
subsequent nine months relative to broader markets, to achieve a total investment return
of 13% over the course of the year. Total investment return included in earnings for 2020 is
$1.9 billion, including total net investment income of $303 million, realised gains of
$179 million, and unrealised gains of $1.5 billion.
Fixed Income Investments
This asset class, which includes government and corporate bonds with an A+ average credit
rating, comprised 61.1% of Enstar’s investment portfolio at December 31, 2020, and delivered
$575 million in income and realised and unrealised gains over the year, for a book yield of
2.53%. In the prevailing low interest rate environment, the share of fixed income securities in
the portfolio dropped from 71.6% at year-end 2019 due to the appreciation of our alternatives
portfolio. Given the low interest rate environment worldwide, attractive reinvestment yields in
this class are challenging to achieve, prompting Enstar to make allocation changes that swap
near-term liquidity for the greater yield available in certain less liquid asset classes such as
private credit.
Hedge Fund Investments
Enstar increased its allocation to hedge funds in 2020, to reach 17.3% of investments at year
end. Our investment in the InRe Fund was valued at $2.4 billion as of December 31, 2020,
which reflects unrealised gains of $1.2 billion during the year. These unrealised gains account
for a considerable share of the overall net realised and unrealised gains on our investment
portfolio for 2020.
Equities and Other Investments
Our equity holdings remained roughly stable at 5% of the invested portfolio, as did our investments in
equity and credit funds. Earnings from equity method investments were $239 million in 2020.
Along with providing diversification, these assets, which include our equity investments in
Enhanzed Re and Monument Re (and from 2021, Core Specialty), are expected to generate
higher returns, and have a longer investment time-horizon than our fixed income portfolio.
iv
I am confident that
Enstar will continue to
endure and thrive in
a market increasingly
eager to release capital
through partnership
with reliable, financial
strong third-party run-
off specialists.
Capital Management
Enstar’s balance sheet ended 2020 in a strong position, with $21.7 billion in total assets and
total shareholders’ equity of $6.7 billion at December 31, up from $4.9 billion at the end of
2019. Meanwhile, during 2020, we successfully executed a public offering of $350 million of
fully guaranteed 5.75% fixed-rate reset junior subordinated notes due 2040. The proceeds
have been used to repay a similar amount of outstanding borrowing under our term loan facility.
The result of these transactions increased regulatory capital and diversified our capital base.
We also undertook a share buyback program, repurchasing $26 million from shareholders.
Looking Ahead
As programs to inoculate against COVID-19 are rolled out across the globe, a return to business
and life as usual is in our sights. The impact on Enstar has been relatively minimal so far, but the
scope, duration and magnitude of any future effects are difficult to anticipate. I am confident
that Enstar will continue to endure and thrive in a market increasingly eager to release capital
through partnership with reliable, financially strong third-party run-off specialists.
As a result of the pandemic we moved seamlessly to working from home. Our flexible working
and telecommuting policies pre-crisis put us in good stead and laid the groundwork for
Enstar’s future operational model of agile working. In all of this, employee welfare and staying
connected will be key to Enstar’s ongoing success. To that end, we have taken initiatives that
prioritise mental and physical wellbeing, increase interaction and digital communication, and
celebrate the differences among all our employees. These important measures help ensure
that Enstar attracts and retains the wide range of talented people we need to accomplish our
strategic ambitions.
As always, I remain grateful for the commitment of our staff around the world, our shareholders
and our business partners. I thank you for your continued support and wish you and your
families good health.
Sincerely,
Dominic Silvester
April 26, 2021
v
Annual CEO letterFrom Dominic Silvester, Chief Executive Officer
FINANCIAL CALCULATIONS SCHEDULE
Reserve / Claims Savings
Reserve / claims savings is calculated by adding (i) the reduction (increase) in estimates of
net ultimate losses relating to prior periods, included in net incurred losses and LAE, and (ii)
the reduction (increase) in estimates of ultimate net defendant asbestos and environmental
(“Defendant A&E”) liabilities relating to prior periods, included in other income (expense).
Because the reduction (increase) in estimates of ultimate Defendant A&E liabilities for
prior periods is presented as a component of other income (expense) in our consolidated
statement of earnings, there is not a U.S. GAAP measure that is directly comparable to reserve
/ claims savings presented on a non-GAAP basis. However, we believe reserve / claims savings
provides investors with a meaningful measure of claims management performance within our
Non-life Run-off segment that is consistent with management’s view of the business because
it combines the reduction (increase) in estimates of net ultimate losses related to our direct
exposure to certain acquired asbestos and environmental liabilities with the reduction
(increase) in estimates of net ultimate losses related to liabilities that we have insured.
Reduction in estimates of net ultimate losses - prior periods = (A)
Reduction in estimates of ultimate net defendant A&E liabilities - prior periods = (B)
Reserve / claims savings: total reduction in net ultimate losses = (A) + (B)
2020
$
127,116
103,166
230,282
$
Non-GAAP Operating Income
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, 2020, 2019 and 2018 in thousands of U.S. dollars.
Net earnings (loss) attributable to Enstar ordinary shareholders
Adjustments:
Net realised and unrealised (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
Gain on sale of subsidiary
Net earnings from discontinued operations
Tax effects of adjustments 2
Adjustments attributable to noncontrolling interest 3
2020
$
1,719,344
2019
902,175
2018
(162,354)
(306,284)
(515,628)
237,262
119,046
(3,375)
(16,251)
27,534
12,087
117,181
-
(7,375)
47,091
14,524
6,664
-
(1,489)
(15,364)
(6,665)
Non-GAAP operating income attributable to Enstar ordinary shareholders 4
$
1,552,101
557,968
58,054
1 Represents the net realised and unrealised gains and losses related to fixed maturity securities recognised in net earnings (losses). 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 our Annual Report on Form 10-K for the year ended December 31, 2020 for further details on our net realised and
unrealised 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.
vi
The table below summarises the calculation of our fully diluted book value per ordinary share
as of December 31, 2020, 2019 and 2018 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 (A)
Proceeds from assumed conversion of warrants 1
Numerator for fully diluted book value per ordinary share calculations (B)
$
$
6,674,395
510,000
6,164,395
20,229
6,184,624
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
2020
2019
2018
Denominator:
Ordinary shares outstanding (C) 2
Effect of dilutive securities:
Share-based compensation plans 3
Warrants 1
Fully diluted ordinary shares outstanding (D)
Book value per ordinary share:
Basic book value per ordinary share = (A) / (C)
Fully diluted book value per ordinary share = (B) / (D)
21,519,602
21,511,505
21,459,997
298,095
175,901
302,565
175,901
21,993,598
21,989,971
245,165
175,901
21,881,063
$
$
286.45
281.20
201.39
197.93
158.06
155.94
1 As of December 31, 2020 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 were exercised in March 2021. The Warrant holder was entitled, at its election, to 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.
2 Ordinary shares outstanding includes voting and non-voting shares but excludes ordinary shares held in the Enstar Group Limited Employee Benefit Trust (the “EB Trust”) in respect of awards made under our Joint Share Ownership Plan,
a sub-plan to our Amended and Restated 2016 Equity Incentive Plan (the “JSOP”).
3 Share-based dilutive securities include restricted shares, restricted share units, and performance share units (“PSUs”). The amounts for PSUs, and for ordinary shares held in the EB Trust in respect of the JSOP, are adjusted at the end of
each period end to reflect the latest estimated performance multipliers for the respective awards. The JSOP shares did not have a dilutive effect as of December 31, 2020.
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. Important risk factors regarding Enstar can be found under
the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 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.
vii
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, 2020
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
☒ Accelerated filer
☐ Non-accelerated filer ☐ Smaller reporting
company
☐
Emerging growth 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 has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☒
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, 2020 was
$1.63 billion based on the closing price of $152.77 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 25, 2021, the registrant had outstanding 18,585,678 voting ordinary shares and 3,509,682 non-voting convertible ordinary
shares, each par value $1.00 per share.
Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A relating to its 2021 annual general meeting of shareholders are incorporated by reference in Part III of this Form 10-K
DOCUMENTS INCORPORATED BY REFERENCE
Enstar Group Limited
Annual Report on Form 10-K
For the Fiscal Year Ended December 31, 2020
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND SUMMARY OF
RISK FACTORS
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 (re)insurance 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 risk
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 risk
factors include:
Risks Relating to our Run-off Business
•
•
•
•
•
•
•
•
•
changes in our plans, strategies, objectives, expectations or intentions, which may happen at any time at
management’s discretion;
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;
emerging claim and coverage issues and disputes that could impact reserve adequacy;
lengthy and unpredictable litigation affecting the assessment of losses and/or coverage issues;
increased competitive pressures, including increased competition in the market for run-off business that
aligns with our strategic objectives;
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;
the impact of the COVID-19 pandemic and the resulting disruption and economic turmoil, such as
increased volatility in global financial markets, could adversely impact our investment returns, financial
condition, and liquidity and capital resources, and any future impact on our business is difficult to predict
at this time;
Risks Relating to Liquidity and Capital Resources
•
•
•
•
•
•
•
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;
the risk that our reinsurance subsidiaries may not be able to provide the required collateral to ceding
companies pursuant to their reinsurance contracts, including through the use of letters of credit;
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;
risks relating to the availability and collectability of our reinsurance;
the ability of our subsidiaries to distribute funds to us and the resulting impact on our liquidity;
losses due to foreign currency exchange rate fluctuations;
our ability to comply with covenants in our debt agreements;
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Risk Relating to our Investments
•
•
•
the risk that the value of our investment portfolios and the investment income that we receive from these
portfolios may decline materially as a result of market fluctuations and economic conditions, including
those related to interest rates, credit spreads, and the phase out of the London Interbank Offered Rate
("LIBOR");
risks relating to the performance of our investment portfolio and our ability to structure our investments in
a manner that recognizes our liquidity needs;
risks relating to our strategic investments in alternative asset classes, such as hedge funds, and joint
ventures, which are illiquid and may be volatile;
Risks Relating to Laws and Regulations
•
risks relating to the complex regulatory environment in which we operate, including 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 our Operations
•
•
loss of key personnel;
operational risks, including cybersecurity events, external hazards, human failures or other difficulties with
our information technology systems that could disrupt our business or result in the loss of critical and
confidential information, increased costs;
Risks Relating to Taxation
•
•
tax, regulatory or legal restrictions or limitations applicable to us or the (re)insurance 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;
Risks Relating to the Ownership of our Shares
•
risk relating to the ownership of our shares resulting from certain provisions of our bye-laws and our
status as a Bermuda company.
The risk 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.
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ITEM 1. BUSINESS
Company Overview
PART I
Enstar Group Limited ("Enstar") is a Bermuda-based holding company. We are a leading global insurance
group that offers innovative capital release solutions 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 (re)insurance companies and portfolios of (re)insurance 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 and discontinued blocks of
business.
Our primary corporate objective is growing our book value per share. We strive to achieve this primarily
through growth in net earnings derived from both organic and accretive sources, such as the completion of new
acquisitions, the generation of claims savings and investment income through the effective management of
companies and portfolios in run-off, and returns on strategic investments.
As a result of the sale and recapitalization of StarStone US Holdings, Inc. and its subsidiaries ("StarStone
U.S."), the sale of the majority of our interest in Atrium Underwriting Group Limited and its subsidiaries ("Atrium")
and the placing of StarStone's business outside the United States into run-off, we have largely exited our previously
controlled active underwriting platforms. While we maintain strategic minority interests in these businesses, our
primary focus is on our core business of acquiring and managing (re)insurance companies or portfolios of
(re)insurance business in run-off.
For further information on strategic developments, refer to Note 5 - "Divestitures, Held-for-Sale Businesses
and Discontinued Operations" in the notes to our consolidated financial statements included within Item 8 of this
Annual Report on Form 10-K.
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 generate reserve/
claims savings by managing claims in a professional and disciplined manner, drawing on in-house expertise to
dispose of claims efficiently. We strive 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 Manage Assumed Liabilities and (Re)insurance Assets Cost Effectively. Using detailed claims analysis
and actuarial projections, Enstar seeks to negotiate with policyholders and reinsurers with a goal of settling existing
(re)insurance liabilities and monetizing (re)insurance assets in a cost efficient manner.
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Strategic Growth
Enstar transactions typically take the form of either acquisitions or portfolio transfers. In an acquisition, we
acquire a (re)insurance company and manage the run-off. In a portfolio transfer, a reinsurance contract transfers
risk from the initial (re)insurance company to a company in the Enstar group. Enstar also enters into reinsurance to
close ("RITC") transactions with Lloyd's of London ("Lloyd's") (re)insurance syndicates in run-off, whereby a portfolio
of run-off liabilities is transferred from one Lloyd’s syndicate to another.
On October 15, 2020, we completed an insurance business transfer (“IBT”) in the U.S., having received
judicial approval from the Oklahoma County District Court. An IBT is similar to the Part VII transfer process in the
U.K. where the insurance liability is novated from one insurance party to another, providing legal finality to the party
transferring the liability. The transaction occurred between two of our subsidiaries and, although common in many
parts of the world, it was the first of its kind to occur in the U.S. The IBT mechanism provides another option as to
how we might structure U.S. transactions in the future.
For further information on recent acquisitions and significant new business, please refer to Note 3 - "Business
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.
Operating Segments
We have historically had three reportable segments of business that were 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, preferred share dividends, holding
company income and expenses, foreign exchange and other miscellaneous items.
As discussed above, the strategic transactions related to our Atrium and StarStone segments will enable us to
focus on our core Non-life Run-off business. We will review and assess our segment structure in 2021 to reflect the
changes to the StarStone and Atrium segments that occurred in the fourth quarter of 2020 and the first quarter of
2021, respectively.
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," Note 5 -
"Divestitures, Held-for-Sale Businesses and Discontinued Operations" 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 insurance industry often have portfolios of business that become inconsistent with their
core competency, provide excessive exposure to a particular risk or segment of the market and/or absorb capital
that the company may wish to deploy elsewhere. 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 (re)insurer and negatively impact the (re)insurer’s
rating, which makes the disposal of the unwanted company or reinsurance of the portfolio an attractive option to
free-up capital and reduce further downside risk. The (re)insurer 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 via reinsurance or
a novation of the insurance liabilities.
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, reduces the
expense in managing the 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
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its core businesses.
In some situations, a (re)insurer 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 (re)insurer does not want to dispose of. In
such instances, we are able to provide economic finality for the (re)insurer by providing a loss portfolio reinsurance
contract to protect the (re)insurer against deterioration of the non-core portfolio of loss reserves. In the Lloyd's
market, we provide similar solutions through RITCs as described above.
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 book value
per share.
Acquisition Process
We evaluate each acquisition and loss portfolio transfer opportunity presented by carefully reviewing and
analyzing 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 the
investments associated with the 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
We consider claims management to be a core competency. 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
(re)insureds to commute their (re)insurance 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 (re)insurance 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 actively monitor and manage these administrators on an ongoing basis.
We provide consultancy services to third parties in the (re)insurance 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
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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 (re)insurance policies that may be beneficial to us if commuted and commence commutation
discussions with the counterparty. In addition, policyholders and reinsurers often approach us requesting a
commutation solution. 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 (re)insureds 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 (re)insurance liabilities and reinsurance receivables can be either commuted or
settled by way of a 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 Limited ("Northshore"), a holding company that owns Atrium and Arden Reinsurance Company Ltd.
("Arden"). Enstar acquired Arden and Atrium on September 9, 2013 and November 25, 2013, respectively, in
partnership with Trident V, L.P., Trident V Parallel Fund, L.P. and Trident V Professionals Fund, L.P. (collectively, the
"Trident V Funds") managed by Stone Point Capital LLC ("Stone Point"). Dowling Capital Partners I, L.P. and Capital
City Partners LLC (collectively, the "Dowling Funds") also have minority investments in Northshore.
Atrium is a managing general agent at Lloyd's, which manages Syndicate 609. Through our Lloyd's corporate
member, SGL No. 1 Limited ("SGL No. 1"), we provide 25% of the syndicate’s underwriting capacity and capital
(with the balance provided by traditional Lloyd’s Names).
Arden is a Bermuda-based reinsurance company that primarily provides reinsurance to Atrium, which has
been 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.
Strategic Development
On January 1, 2021, we completed a transaction (the "Exchange Transaction") in which we exchanged the
majority of our indirect interest in Northshore for all of Trident V Funds' indirect interest in Core Specialty Insurance
Holdings, Inc. ("Core Specialty"). Following completion of the Exchange Transaction, we now own 13.8% of
Northshore. As a result, Northshore will be deconsolidated and our investment will be accounted for as a privately
held equity investment and carried at fair value beginning in the first quarter of 2021. For further information, refer to
Note 5 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations" in the notes to our consolidated
financial statements included within Item 8 of this Annual Report on Form 10-K.
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Business Lines
Syndicate 609 provides (re)insurance on a worldwide basis including in 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
covers. Lloyd’s business is often underwritten on a subscription basis across the insurance market. Atrium is the
lead underwriter in 43% 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.
Distribution
All of the business in the Atrium segment is placed through (re)insurance brokers, and a key distribution
channel for Syndicate 609 is the managing general agent binding authorities. Atrium seeks to develop relationships
with (re)insurance brokers, (re)insurance companies, large global corporations and financial intermediaries to
develop and underwrite business. Independent broker Marsh Inc. accounted for 11% of Atrium’s gross premiums
written in 2020. Other brokers (each individually less than 10%) accounted for the remaining 89% 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 includes the results of StarStone Insurance Bermuda Limited and its subsidiaries
("StarStone") and StarStone Specialty Holdings Limited ("StarStone Group"), a holding company that owns
StarStone. Our StarStone segment also includes intra-group reinsurance cessions which are eliminated on
consolidation.
We acquired StarStone (formerly known as Torus) on April 1, 2014 in partnership with Trident V Funds
managed by Stone Point. The Dowling Funds also have a minority investment. During 2020, we completed a
strategic review of the StarStone segment. Following this review, we have taken various actions to position
ourselves for improved profitability going forward, as further described below.
Strategic Developments
On June 10, 2020, we announced that we placed StarStone's non-U.S. operations ("StarStone International")
into an orderly run-off (the "StarStone International Run-Off").
Recent developments relating to StarStone International include:
• On October 2, 2020, StarStone International sold the renewal rights for its financial lines portfolio;
• On October 14, 2020, we completed the sale of Vander Haeghen & Co. SA ("VdH"), a Belgium-based
insurance agency majority owned by StarStone International entities;
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• On November 17, 2020, we announced an agreement to sell StarStone Underwriting Limited ("SUL"), a
Lloyd's managing agency, together with the right to operate Lloyd's Syndicate 1301, to Inigo Limited
("Inigo") in exchange for consideration in the form of Inigo shares. Upon closing, we expect to own 5.4%
of Inigo, which includes an additional investment from us. As a result, our investment in Inigo will be
accounted for as a privately held equity investment and carried at fair value. In conjunction with the
transaction, Enstar, the Trident V Funds and the Dowling Funds will retain the economics of Syndicate
1301’s 2020 and prior years’ underwriting portfolios as this business runs off; and
• On February 11, 2021, we entered into an agreement to sell Arena N.V., a Belgium-based specialist
accident and health managing general agent.
We continue to evaluate strategic options for StarStone's European platform.
On November 30, 2020, we completed the sale and recapitalization of StarStone U.S. through the sale of
StarStone U.S. to Core Specialty, a newly formed entity with equity backing from funds managed by SkyKnight
Capital, L.P., Dragoneer Investment Group and Aquiline Capital Partners LLC. We received consideration of
$282.0 million inclusive of $235.0 million of common shares of Core Specialty and cash of $47.0 million. The
$235.0 million of common shares of Core Specialty represents a 25.23% interest in Core Specialty on a fully diluted
basis. Our investment in Core Specialty is accounted for as an equity method investment and we record our
proportionate share of the net earnings on a one quarter lag.
For further information, refer to Note 5 - "Divestitures, Held-for-Sale Businesses and Discontinued
Operations" in the notes to our consolidated financial statements included within Item 8 of this Annual Report on
Form 10-K.
Business Lines
Previously, StarStone offered a broad range of property, casualty and specialty insurance products, including
marine, aerospace, and workers' compensation, to both large multi-national and small and middle-market clients
around the world.
Distribution
Business in the StarStone segment was generally placed through (re)insurance brokers and managing
general agents. Independent brokers Marsh Inc. and Ryan Specialty Group accounted for 15% and 12%,
respectively, of StarStone’s gross premiums written for the year ended December 31, 2020. Other brokers and
managing general agents (each individually less than 8%) accounted for the remaining 73% of gross premiums
written. StarStone International is no longer writing new business, however a de-minimis amount of premium is still
subject to mandatory renewal or adjustments.
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.
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.
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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 (classified as held-for-sale as of December 31, 2020) 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 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, coverage limits and coverage eligibility, 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.
The estimation of unpaid claim liabilities at any given point in time is subject to a high degree of uncertainty.
Consequently, our subsequent estimates of ultimate losses and LAE, and our liability for losses and LAE, may
deviate materially from our initial ultimate loss estimates.
For further information regarding: i) the liability for net losses and LAE, including loss development tables and
a reconciliation of activity, refer to Note 10 - "Losses and Loss Adjustment Expenses" in the notes to our
consolidated financial statements included within Item 8 of this Annual Report on Form 10-K; ii) net incurred losses
and LAE, refer to "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations by Segment"; and iii) our loss reserving process, refer to "Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates - Losses
and Loss Adjustment Expenses."
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10 Year 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:
Total Net Incurred Losses and LAE
Acquired
and
Assumed
Net
Reserves
Net Paid
Losses
Acquisition
Year
Net
(Favorable)
Adverse
Loss
Development
Net Losses
recognized
on
Acquired
Unearned
Premium
Amortization
of Deferred
Charge
Assets and
Deferred
Gain
Liabilities
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
Other
Effect of
Exchange
Rate
Movement
Closing Net
Reserves
(in thousands of U.S. dollars)
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
712,867
(94,399)
(316,736)
422,476
(243,922)
(86,337)
—
—
657,982
(512,039)
(115,486)
110,285
465,395
(366,282)
(19,621)
1,491,256
(832,807)
(487,395)
1,350,463
(556,799)
(13,683)
1,504,561
(435,997)
(181,889)
2,873,675
(1,312,235)
(201,460)
1,586,993
(406,140)
2,186,024
(253,931)
(62,018)
66,835
62,404
53,493
—
—
69,328
82,572
1,729
—
—
—
—
(31,096)
(55,044)
(242)
(127)
1,752
(8,607)
(7,415)
4,367
229,372
56
(81,033)
4,838
—
10,857
49,272
1,657
(542)
125
—
—
—
(7,937)
(42,043)
(66,175)
(13,441)
(5,201)
(18,934)
(9,132)
(29,912)
(45,449)
17,592
—
(1)
53,025
—
—
—
—
—
—
—
—
178,851
80,700
(88)
13,684
(421,810)
(90,104)
(104,318)
(3,990)
(42,655)
(28,391)
3,453
—
(267,915)
(50,466)
(17,324)
(44,957)
(53,725)
56,297
78,704
—
—
—
(47,018)
(17,968)
—
208
—
40
—
44
—
—
166
—
(2,278)
104,276
(24,541)
(3,983)
(3,815)
(11,019)
12,744
45,913
70,914
98,791
329,049
789,128
84,102
1,107,709
(16,082)
1,491,633
17,794
1,208,092
8,533
2,001,362
$ 13,251,692 $ (5,014,551) $
(1,417,790) $ 379,811 $
295,996 $
(30,074) $ (282,529) $
(32,811) $ 273,147 $
(814,250) $
(237,937) $
458 $
61,455 $ 7,246,867
2010 and prior
Total Net Non-life Run-off Liability for Losses and LAE
341,933
$ 7,588,800
The above table presents our Non-life Run-off segment's assumed and acquired net loss reserves in the year they were assumed or acquired, including the
impact of any fair value adjustments arising from business combination transactions or our election of the fair value option, deferred charge assets and gain
liabilities and unallocated LAE. The table relates to policyholder obligations and therefore excludes defendant asbestos and environmental liabilities, which are
non-insurance liabilities, and as such are recorded and presented separately on our consolidated balance sheets. The table presents the cumulative roll forward of
our acquired and assumed net loss reserves from the year of acquisition to December 31, 2020. As such, each acquisition year reflects a different time period and
therefore impacts the comparability between acquisition years. Our net loss development, favorable or adverse, will occur over time as we execute on our
disciplined claims management strategies through continual detailed review of all open and new claims, investigating opportunities to settle claims, effectively
managing legal and claims handling expenses, commuting liabilities and maximizing reinsurance recoveries. In addition, we seek to maximize the investment
returns on the investment portfolio supporting the assumed net loss reserves.
During 2020, we experienced adverse development on an assumed loss portfolio transfer transaction within the motor line of business due to higher than
expected severity. For further information refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of
Operations by Segment - Non-life Run-off Segment."
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Investments
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, including alternative investment classes, 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.
To allocate a portion of our investment portfolio to strategic investments, including minority interests in live
underwriting companies, that provide diversification to our overall investment portfolio.
We generally seek to maintain investment portfolios that are shorter or of equivalent duration to 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 settlements of liabilities also have the potential to accelerate the
natural payout of losses, which requires liquidity.
investments, high-grade corporate
Our fixed maturity securities include U.S. government and agency investments, highly rated sovereign and
supranational
investments, and mortgage-backed and asset-backed
investments. We allocate a portion of our investment portfolio to other investments, including hedge funds, private
equity funds, fixed income 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 are predominantly based upon the amount of assets under management and in some
instances are performance-based. Fees are either expensed as a reduction to investment income or have the effect
of reducing the net asset value of the managed assets.
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, inflation 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."
Our allocation to other investments and equity method investments collectively constituted 29.4% of our
investable assets as of December 31, 2020 (2019: 20.2%). The increase was primarily attributable to significant
unrealized gains in our hedge fund managed by AnglePoint Asset Management Ltd. and other alternative
investments, as well as additional deployment of capital to these strategies. We believe our other investments and
equity method investments provide diversification in our overall investment portfolio since they are generally not
correlated with our fixed income investments and provide an opportunity for improved risk-adjusted rates of return.
The returns of our hedge fund investments may be volatile, and we may experience significant unrealized gains or
losses in a particular quarter or year.
For information regarding our investment portfolio and results, refer to "Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations - Investable Assets" and 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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Competition
Our Non-life Run-off segment competes in the global insurance market with domestic and international
reinsurance companies to acquire and manage (re)insurance companies in run-off and portfolios of (re)insurance
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
including new capital and alternative forms of capital entering the markets. Some of these competitors may have
greater financial resources or lower operational costs than we do, may have been operating for longer than we have
and may have established long-term and continuing business relationships throughout the (re)insurance 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. The Non-life Run-off space
has seen a number of new entrants to the market over the recent years which has increased competition in the
overall market.
Human Capital Resources
As of December 31, 2020, we had 1,189 employees, as compared to 1,444 as of December 31, 2019. The
reduction was driven by the sale of StarStone U.S., which closed in the fourth quarter of 2020. Upon closing of the
Atrium Exchange Transaction on January 1, 2021, we had 1,008 employees.
We seek to attract, retain and motivate a specialized workforce that supports our culture, target operating
model and business performance. We do this by making use of a range of hiring channels and approaches and
through a total reward offering that includes market competitive salaries, an annual bonus plan tied to both business
results and individual performance as well as comprehensive benefits to protect employee health, wellness and
financial security. We also promote alignment of interests with investors through the use of an employee share
purchase plan and long-term equity-based incentives. In addition, we encourage our employees to periodically
review development areas with their managers to identify appropriate learning opportunities to better equip our
workforce with the skills necessary for near- and long-term success. We offer an array of professional development
programs and initiatives to support our employees' career aspirations and enhance our leadership and management
capabilities—creating a pipeline of talent able to deliver on our long-term strategic objectives and developing a
skilled workforce with succession capabilities. To measure our progress, we use a variety of human capital
measures in managing our business, including workforce demographics and diversity metrics, attrition and retention
metrics, and hiring metrics.
We are committed to fostering a culture that treats all employees fairly and with respect, promotes inclusivity
and diversity, and provides equal opportunities for professional development and merit-based advancement. To
formalize these values, we have adopted a Board Diversity Policy and Group Diversity and Inclusion Policy. As of
December 31, 2020, women comprised 45% of our global headcount. In addition, as of December 31, 2020, 35% of
our workforce was located in the United States, of whom 34% self-identified as being part of an ethnic and/or racial
minority group.1 We intend to continue conducting all human capital management activities, including recruitment,
career development and advancement, role design and compensation in a manner reflective of our commitment to
diversity and inclusion.
During the COVID-19 pandemic, we have focused on the safety of our employees, and in response to the
pandemic, we transitioned primarily to a remote working environment to minimize the risk to our staff. Throughout
the pandemic, we have sought to provide employees with the tools and technology to enable them to effectively
perform their respective job functions. In addition, we have also launched various initiatives designed to mitigate the
challenges of working remotely.
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 comprehensive 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
1 Global racial and ethnic diversity information is not available due to limitations on our ability to maintain such
details about our employees in in certain jurisdictions in which we operate.
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compliance, good reputation with key stakeholders and business continuity planning. Our objective is to integrate
risk management through our ERM function into all aspects of our business.
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; and
• maintain capital, liquidity, credit, operational and regulatory risks at low levels.
These strategies are pursued through the use of appropriate controls, analytics including scenario testing,
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 the Group risk appetite.
Risk metrics levels are set and monitored regularly by an appointed owner for respective areas of the
business 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.
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, 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
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Table of Contents
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 (re)insurance 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 the business strategy, risk mitigating policies and procedures and overall
governance framework.
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
provides a framework such 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.
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 and assessed 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 (re)insurance 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 overall ERM framework that is embedded at local levels
and throughout the business.
The Group and each regulated insurance entity have a risk register documenting its risk landscape, with risk,
key risk metric, and designated control owners, which is maintained through a risk management software system.
Specific functions, such as IT, maintain risk registers with greater detail and increased specificity of risks and
controls as needed to govern such function's particular risk profile. 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,
investment strategy 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.
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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 and potential collateral
requirements, 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 and including management's Peer Review Committee and process and the Risk Management function,
reviews newly proposed transaction opportunities, capital 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 and rating agency 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 the need for our
capital to continuously 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.
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, inflation risk and concentration risk. We manage Investment / Market risk in a number of
ways, including through our investment policy; regular reviews of investment opportunities; market conditions;
portfolio duration; concentration limitations; oversight of the selection and performance of external asset managers;
regular stress testing of the portfolio against known and hypothetical scenarios; and established risk tolerance
levels. Any changes to our established investment policy or risk tolerance levels are approved by our board of
directors. In addition, we manage foreign currency exposure through management of asset/liability matching and
use of derivatives. Investments are primarily managed by our Investment function, which is overseen by the
Investment Committee of our board of directors.
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.
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 and meet our result targets. 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.
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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, our
commutation and policy buy-back strategy, and our claims management practices. We also have local and group
Reserving Committees that are 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 reserving processes and our loss reserves by segment, see "Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting
Estimates."
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, regular stress testing of our subsidiaries' solvency and collateral requirements against known and
hypothetical scenarios; as well as anticipated capital needs. We also seek to maintain the ability to draw on our
Group revolving credit facility or access the capital markets to meet liquidity needs, as appropriate.
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. 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. Where reinsurance is placed to mitigate any
remaining active exposures in select portfolios, 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 or portfolios 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.
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Cyber and Information Security Risk. Cyber and information security risk is the risk that our IT infrastructure
could be breached, resulting in a loss of confidential information, damage to our reputation, financial liability and/or
a disruption to business operations, including an inability to access the underlying data. Cybersecurity threats
extend from individual attempts to gain unauthorized access to our information technology systems to coordinated,
elaborate, targeted or opportunistic attempts via a third party supplier's compromised IT environment. We have in
place, and seek to continuously improve, a comprehensive system of security controls that are implemented by
dedicated staff. Control activities are designed to prevent, detect and mitigate such threats. Such control activities
include independent and in-house vulnerability assessments, access controls, data encryption, continuous
monitoring of our information technology networks and systems, desktop testing of our cyber response plan, regular
security risk education awareness and training sessions for all staff including on-going phishing testing,
maintenance of backup and protective systems and embedding IT security assessments into the third party due
diligence and oversight program.
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.
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, management of the emerging risk. Recent
examples of emerging risks that we review and consider include:
•
•
•
•
•
Risks relating to the recalculation and/or transition from LIBOR to alternative benchmark rates;
Risks relating to developing tax frameworks such as the OECD Pillar II Blueprint framework;
Risks relating to our claims management activities, including social inflation, increased litigation funding,
latent injury claims (e.g. Talcum powder, Glyphosate, Opioids) and laws that impose absolute liability for
certain types of claims;
Risks relating to climate change, including as a result of our investments, to transition risk (which arises
from our efforts to mitigate the physical risks posed by climate change, for example by increasing our
internal business investment to support transition to a low carbon economy or by incurring higher costs
when using carbon intensive products); and
Risks arising from the ongoing uncertainty in markets and other matters related to the COVID-19 global
pandemics.
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Regulation
General
The business of (re)insurance 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 (re)insurance 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 appropriate 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") serves as our Group’s Designated Insurer. As Designated
Insurer, Cavello is required to facilitate compliance by our Group with the insurance solvency and supervision rules.
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 (re)insurance 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 annual statutory financial returns, the filing of quarterly
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).
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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. Each of our regulated
Bermuda-domiciled insurers is also 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. As of December 31, 2020, each of our Bermuda-based (re)insurance
subsidiaries exceeded their respective minimum solvency and liquidity requirements.
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. 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 are required to demonstrate compliance with
economic substance requirements by filing an annual economic substance declaration with the Registrar of
Companies in Bermuda.
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.
The United Kingdom left the European Union on January 31, 2020 (commonly referred to as “Brexit”). The
11-month transition period, during which European Union rules remained in force, ended on December 31, 2020.
For a discussion of the impact of Brexit on our operations, refer to "Item 1A. Risk Factors - Risks Relating to Laws
and Regulation."
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. As of December 31, 2020, each of our U.K.-based insurance subsidiaries maintained
capital in excess of the minimum capital resources requirements.
The Solvency II framework sets out requirements on capital adequacy and risk management for insurers. To
the extent that Solvency II was already adopted by U.K. legislation, it remains in force post-Brexit. 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. It remains to be
seen to what extent (if any) the U.K. will depart from the requirements of Solvency II post-Brexit in any new U.K.
legislation that may be introduced.
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
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 its 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%.
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Lloyd’s
As of December 31, 2020, we participated in the Lloyd’s market through our interests in: (i) Atrium's Syndicate
609, which is managed by Atrium Underwriters Limited ("AUL"), a Lloyd's managing agent; (ii) StarStone's
Syndicate 1301, which is managed by SUL, a Lloyd's managing agent; and (iii) Syndicate 2008, a 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 a single corporate member. On January 1, 2021, we sold the Atrium business as
discussed in Note 5 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations" in the notes to our
consolidated financial statements included within Item 8 of this Annual Report on Form 10-K.
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 its members, 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, letters of credit or other approved capital
instrument 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.
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 those 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. 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, Missouri, Oklahoma and Rhode Island and minority owned affiliates in
Delaware and Pennsylvania.
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.
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, 2020, 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 on dividends 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 and approval must be obtained
before an insurer may pay a dividend or make a distribution above these thresholds.
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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 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 most of the states in which we have insurers
domiciled. There are no premium thresholds for CGAD.
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 designed to ensure that insurers meet their insurance obligations under a wide range of scenarios.
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,
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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 above the prescribed limit.
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
We have subsidiaries in Belgium, as well as StarStone Insurance SE, a Liechtenstein-based company that is
regulated by the Financial Markets Authority. Our subsidiaries and branches in European jurisdictions such as
Belgium and Liechtenstein are regulated in their respective home countries. The application of the Solvency II
framework across such European jurisdictions generally results in a more uniform approach to regulation. 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 including minimum capital and surplus requirements, 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, dividends and other distributions to shareholders, periodic examinations and annual and other
report filings.
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, Risk, and Executive 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 and Summary of
Risk Factors" 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.
A summary of our risk factors is included above under the heading "Cautionary Note Regarding Forward-
Looking Statements and Summary of Risk Factors."
We have categorized our risk factors into the following areas:
•
•
•
•
•
•
•
Risks Relating to our Run-off Business
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 Run-off Business
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 that we
have acquired or will acquire in the future. We are required to maintain a best estimate of reserves to cover the
estimated ultimate liability for losses and LAE for both reported and unreported incurred claims. As of December 31,
2020, gross reserves for losses and LAE reported on our balance sheet were $10.6 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 and inherent judgements that
surround the estimation process (which are discussed in "Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations - Critical Accounting Estimates - Losses and Loss Adjustment
Expenses"). 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.
In our Non-life Run-off business, 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 Estimates - Losses
and Loss Adjustment Expenses - Non-Life Run-off - Loss Reserving (Latent Claims)".
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Emerging claim and coverage issues could adversely affect the adequacy of our provision for losses
and LAE.
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.
We may not be able to sustain our growth through acquisitions.
We have pursued and, as part of our strategy, will continue to pursue growth through financially beneficial
acquisitions of insurance companies and portfolios of insurance and reinsurance business in run-off (“run-off
business”), including through reinsurance. Because the execution of our claims management strategies naturally
results in the reduction of our losses and LAE over time (with associated assets including cash and investment
reducing commensurately as claims are paid), we must continually acquire an adequate amount of run-off business
that aligns with our strategic objectives. However, the acquisition of suitable run-off business is highly competitive
and driven by several factors, including proposed acquisition price, reputation, collateral arrangements, and
financial resources. 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 be unable to source an adequate amount of favorable acquisition transactions at acceptable prices
with acceptable terms, which could prevent us from achieving future growth.
Our acquisitions may not 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 requires 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 covered claims or other liabilities and exposures, an inability
to generate sufficient investment income and other revenue to offset acquisition costs and financial exposures in the
event that sellers breach their representations and warranties and/or are unable or unwilling to meet their
indemnification, reinsurance and other contractual 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
resources to cover losses are limited to our assets backing stated reserves and our equity.
To achieve positive operating results from an acquisition, we must first price the transaction on favorable
terms relative to the risks posed by the acquired business and then successfully manage the acquired reserves by
efficiently managing claims, collecting from insurers or reinsurers, generating investment returns on the assets
supporting the acquired business and controlling expenses. Failure to successfully perform these activities in line
with our pricing assumptions could result in us having to cover losses sustained with capital, 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 have 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:
•
the value of liabilities assumed being greater than expected;
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•
•
•
•
•
•
•
•
•
•
•
the value of assets or our anticipated return on assets being lower than expected or diminishing for
reasons including credit defaults, changes in interest rates, declines in the market value, inflation 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, if
expenses are greater than anticipated, or if assets are not liquid;
integrating financial and operational reporting systems and internal controls of acquired businesses,
including 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;
the timely transfer and integrity of data needed to manage acquired business;
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 completed.
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 burdensome terms and conditions on the transaction. Failure to
complete 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.
The impact of COVID-19 and related risks could adversely affect our business, results of operations,
financial condition, and liquidity and capital resources, and any future impact on our business is difficult
to predict at this time.
The ongoing COVID-19 pandemic has caused significant disruption to the economy and financial markets
globally, and the full extent of the impacts of COVID-19 are not yet known. Our results of operations, financial
condition, and liquidity and capital resources have been adversely impacted by the COVID-19 pandemic, and the
future impact of the pandemic is difficult to predict. Uncertainty in a global economic recovery is high, principally due
to the varying abilities of individual countries to manage and contain new outbreaks of COVID-19, which has led to a
wide range of economic responses. We are unable to predict what the long-term economic impact of the COVID-19
pandemic will be and how that will impact our business. In addition, we believe we are subject to the following
heightened risks related to the COVID-19 pandemic:
•
•
Investments. Due in large part to the uncertainty caused by the COVID-19 pandemic in global financial
markets, our investment portfolio has experienced significant volatility. In the first quarter of 2020, we
experienced significant unrealized losses (largely due to widening credit spreads on fixed income
investments and changes in the fair value of our equity and fund investments), heightened credit risk, and
declines in yields on our fixed income investments. Although these unrealized losses reversed since the first
quarter of 2020, our investment portfolios may continue to experience significant volatility and could be
adversely impacted by unfavorable market conditions caused by the COVID-19 pandemic, which could
cause continued volatility in our results of operations and negatively impact our financial condition.
Debt and Equity Financing. As a result of the economic uncertainty caused by the COVID-19 pandemic,
capital and debt markets continue to experience volatility that could negatively impact our ability to raise
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additional capital through the debt or equity capital markets or through bank or other debt financing. If we
are unable obtain adequate capital on suitably attractive terms (or at all), we may be unable to implement
our future growth or operating plans to their fullest potential (or at all), and our business, financial condition,
and results of operations could be materially adversely affected.
•
Liquidity. Due to the change in fair value of our investments caused by the COVID-19 pandemic, we and
our insurance and reinsurance subsidiaries may need additional capital to maintain compliance with
regulatory capital requirements and/or be required to post additional collateral under existing debt facilities
and/or reinsurance arrangements, which could reduce our liquidity. If market conditions deteriorate, we may
not be able to secure letters of credit to satisfy certain of our existing collateral obligations, whether because
we cannot obtain new letter of credit facilities, extend or renew existing letter of credit facilities, or negotiate
favorable or acceptable pricing or other terms or conditions. In addition, we may experience a reduction in
the amount of available dividend or capital distribution capacity from our regulated insurance and
reinsurance subsidiaries, which would also reduce our available liquidity resources.
• Operational Disruptions. We rely on the continued productivity of our senior executive team, our employees,
and our third party administrators, suppliers and outsourcing providers to carry out our operations. If any of
these people are unable to continue to work productively, or at all, due to illness, government restrictions,
remote working conditions, or other disruptions related to the COVID-19 pandemic, our ability to conduct
our operations may be adversely affected.
•
Cybersecurity. Like many other companies, most of our employees are working remotely, and we are
therefore more dependent on our information technology systems and the continued access by our
employees and service providers to reliable internet and telecommunications systems. We will be adversely
affected if these systems do not function effectively or are disrupted due to heightened demand,
cybersecurity attacks and data security incidents, or for any other related reason. These types of
operational and technological disruptions that impact our people and/or systems and others we may not
foresee, would negatively impact our ability to settle claims efficiently, complete acquisitions, integrate our
acquired businesses, manage our investments, or otherwise conduct our business.
Circumstances caused by the COVID-19 pandemic are complex, uncertain and continuing to evolve. We
therefore may not be able to accurately predict the extent the COVID-19 pandemic adversely affects our financial
condition or results of operations, and it may also have the effect of heightening additional risks described herein.
Risks Relating to Liquidity and Capital Resources
The amount of statutory capital that we must hold in order 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 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 Bermuda Solvency Capital Requirement ("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 capital needed to
support future growth through acquisitions, 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 and
frameworks. Many of these factors are outside of our control, and our overall liquidity and credit ratings are
significantly influenced by the level of statutory capital and surplus in our insurance subsidiaries. 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 liabilities, our ability to establish reserves at levels sufficient to cover
losses, and our obligations to satisfy statutory capital requirements. We may need to raise additional capital and
liquidity through equity or debt financings in the future. Our ability to secure this financing may be affected by a
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number of factors, including volatility in the global 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 or commission rate charged under our debt facilities 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 and to comply with more burdensome covenant restrictions from our various debt and letter of credit
facilities.
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 junior subordinated notes qualify as Tier 2 capital and our outstanding senior notes qualify as
Tier 3 capital, in accordance with the Group Supervision Rules. 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. If the BMA applies any changes to the Group Supervision Rules governing eligible
capital such that our outstanding preferred shares and notes no longer receive their intended capital treatment
under the Group Supervision Rules, we may be unable to maintain adequate regulatory capital. 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 cannot be renewed or 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. Depending on economic, credit market
and regulatory factors, our reinsurance subsidiaries may not be able to secure letters of credit to satisfy
requirements to post collateral in support of their reinsurance obligations. If our reinsurance subsidiaries cannot post
collateral in the form of letters of credit, then our reinsurance subsidiaries will have to post a greater amount of
collateral in the form of trust funds or other assets, limiting our ability to invest (and consequently derive investment
income from) such assets and constrain our liquidity, 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, 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
several 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 increase the number and size of claims made under our
policies, our counter-party credit risk, and the ability of our 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 market conditions; impairment charges resulting from revaluations of debt and equity
securities and other investments; interest rates; inflation; 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.
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Reinsurers may not satisfy their obligations to our (re)insurance subsidiaries, which could result in
significant losses or liquidity issues for us.
Our (re)insurance 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 global 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 and liquidity, 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 may negate the
intended risk-reducing impact of our reinsurance.
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 notes, and pay dividends to our shareholders, including holders of our preferred shares and, in
turn, the related depositary shares. The ability of our (re)insurance 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. Additionally, we publish our consolidated financial statements
in U.S. dollars. Therefore, fluctuations in exchange rates used to convert other currencies used by our subsidiaries,
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 indentures governing
our outstanding notes could trigger repayment obligations, which could adversely affect our results of
operations and financial condition.
We and our subsidiaries currently have a revolving credit facility, several outstanding letter of credit facilities
and outstanding senior and junior notes. We depend on access to our credit facilities and the capital provided by our
outstanding notes in operating our business. The credit facilities and the indentures governing our outstanding notes
contain various business and financial covenants that impose requirements with respect to our financial condition
and restrictions on us and certain of our subsidiaries with respect to, among other things, mergers and
consolidations, acquisitions, amalgamations and sales of substantially all assets, indebtedness and guarantees,
dispositions, dividends and stock repurchases, investments and liens. We may also enter into future debt
arrangements containing similar or different restrictive business and financial covenants. Our failure to comply with
these covenants could result in an event of default under the credit facilities or the indentures governing our
outstanding notes, which could result in us being required to repay any amounts outstanding under our revolving
credit facility or the outstanding notes prior to maturity and/or post alternative collateral in respect of outstanding
letters of credit that support reinsurance obligations. These obligations could have an adverse effect on our results
of operations and financial condition, including our capital and liquidity. In addition, complying with these covenants
could limit our financial and operational flexibility. Our credit facilities and our outstanding 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 (re)insurance subsidiaries’ investment portfolios and the investment income that our
(re)insurance 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 of our subsidiaries’ investments in fixed maturity securities will generally
increase or decrease with changes in interest rates and credit spreads. 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, all else being equal (i.e. no movement in credit
spreads), increase net unrealized losses, which would decline over time as the security approaches maturity.
Conversely, a decline in interest rates, all else being equal (i.e. no movement in credit spreads) would increase net
unrealized gains, which would decline over time as the security approaches maturity. Additionally, new investments
of cash or the reinvestment of proceeds from sales of securities would likely be invested at lower interest rates
thereby decreasing net investment income on those proceeds. 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, all else equal, 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 deteriorating credit, we may realize a significant
loss.
The Financial Conduct Authority of the United Kingdom plans to phase out 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 tend to make prepayments on their mortgages
(often through refinancing), 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 ("AFS")
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 may be illiquid and volatile in terms of value and returns.
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 significantly more volatile values and returns, all of which could negatively
affect the market value of our investments, our investment income, and our overall portfolio liquidity. 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 pay
dividends and 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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A significant amount of our investments in alternative investments are contained in the InRe Fund, a
hedge fund managed by AnglePoint, which exercises broad discretionary authority to determine how the
underlying funds are invested. The performance of such investments is dependent on the manager’s
ability to select and manage appropriate investments and the ability of its key personnel to develop and
implement appropriate investment strategies.
We have made significant direct investments in the InRe Fund, L.P. (the “InRe Fund”), a hedge fund managed
by AnglePoint Asset Management Ltd. ("AnglePoint"), an affiliate of Hillhouse Capital Management, Ltd. and
Hillhouse Capital Advisors, Ltd. (together, "Hillhouse Capital"). Our investment in the InRe Fund had a carrying
value of $2.4 billion as of December 31, 2020 (December 31, 2019: $918.6 million). Funds managed by Hillhouse
Capital collectively own 9.4% of our voting ordinary shares.
Subject to certain limitations, AnglePoint has broad discretionary authority to determine how our investments
in the InRe Fund are invested. As a result, the success of our investment in the InRe Fund is dependent on
AnglePoint’s ability to select and manage appropriate investments and the ability of AnglePoint’s key personnel to
develop and implement appropriate investment strategies. The failure of AnglePoint or any of its key personnel to
perform adequately (or a loss or diminution of the services provided by AnglePoint’s key personnel) could result in
losses or lower than expected profits, either of which could significantly and negatively affect our investment returns
and results of operations.
Like our other alternative investments, our investments in the InRe Fund may have different, more significant
risk characteristics than our investments in fixed maturity securities and may also have more volatile values and
returns than the broader equity markets, all of which could negatively affect our investment income and overall
portfolio liquidity. Furthermore, the InRe Fund employs investment strategies and trading techniques that involve the
use of margin, derivatives and other forms of financial leverage or short sales, all of which could result in significant
or outsized realized or unrealized losses and negatively affect the value and liquidity of our investment portfolio,
which could materially adversely impact our financial condition and results of operations.
Past performance is not indicative of future results, and our investment in the InRe Fund may not achieve
future results that are comparable to historical results. Additionally, because the performance of our investments in
the InRe Fund is only one component of our overall results, the performance of an investment in our shares may not
correlate with the performance of this investment. For more information about our investment in the InRe Fund refer
to 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.
Our strategic investments in joint ventures and/or entities accounted for using the equity method are
illiquid and may be volatile in terms of value and returns.
We have also invested, and we expect to continue to make significant 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. These investments are
typically illiquid due to contractual provisions that restrict our ability to transfer our interest. In addition, our lack of
operational control and the financial condition and performance of these businesses at any given time may prevent
us from obtaining liquidity through distributions from these investments in a timely manner or on favorable terms.
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 AFS securities in the fixed maturities portfolio are independently provided by our
investment accounting service providers, investment managers, fund administrators, 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. Additionally, for some
strategic investments for which we have elected the fair value option, our valuations of these investments is based
on internal valuation models and methodologies that are subject to estimates and judgements that can vary from
quarter to quarter.
These valuation procedures involve estimates and judgments, and during periods of market disruptions (such
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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 the duration of our investments in a manner that recognizes our liquidity needs to satisfy
future liabilities. Because of the unpredictable nature of losses and associated collateral provisions that may arise
under the (re)insurance 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. Alternatively, we may forego investment income if the asset duration
is shorter than our liability duration profile which could negatively impact our earnings.
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.
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 and capital that can be paid to us by our
(re)insurance 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, reinsurance transactions 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 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 costs for us. In addition, the (re)insurance 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 (re)insurance industry. (Re)insurance 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
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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
(re)insurance 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 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 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.
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The United Kingdom’s referendum vote to leave the European Union ("Brexit") could adversely affect
our business.
There has been volatility in the global financial markets, including the 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. There was then an 11-month transition period
during which European Union rules remained in force, which ended on December 31, 2020. On December 24,
2020, the United Kingdom and the European Union announced a Trade and Cooperation Agreement which took
effect from January 1, 2021. However, the Trade and Cooperation Agreement did not address financial services in
any material way, with the effect that there has been a “hard” Brexit in respect of financial services. The United
Kingdom and the European Union are to negotiate and agree a Memorandum of Understanding in relation to
financial services by March 31, 2021. It remains uncertain whether this will address issues such as market access
or equivalence. For insurance/reinsurance companies based in the United Kingdom, there continues to be
uncertainty regarding the nature of future insurance and reinsurance trading relationships with the European Union.
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 compensation 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 information may
also be exposed to the risk of a data breach or cyber-security incident through a breach or failure of our systems or
a breach or failure of the systems of third parties where we rely on such parties for outsourced functions or services.
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, phishing scams 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, cause system disruptions or shut-
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downs, or expose us to financial fraud. 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.
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, 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. 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
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.
In particular, the Tax Act 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 still unable to definitively determine the impact to our shareholders. The Tax Act has increased 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
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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 including an exception for foreign insurance companies ("PFIC insurance exception"). PFIC
characterization of the Company under these rules 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 with potential impact on foreign insurance companies and their
investors, and other participants in transactions involving foreign insurers. On December 4, 2020, the U.S. Internal
Revenue Service and Department of Treasury issued final and newly proposed regulations relating to PFIC status
that finalized many of the July 10, 2019 proposed rules. In particular, the proposed rules (i) modify the active
conduct percentage test to include a lower threshold for attributing the activities of related parties, (ii) include a safe
harbor test, and (iii) provide for an alternative facts-and-circumstances test. Under the Tax Act, and final and newly
proposed regulations if they are assumed to be effective today, we believe that the Company is not a PFIC as our
non-U.S. subsidiaries that are insurance companies meet the PFIC insurance exception as they are qualifying
insurance companies whose income is derived in the "active conduct of an insurance business". Enstar and our
domestic insurance companies meet the qualifying domestic company exception.
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”), the
OECD Pillar I and Pillar II initiatives are intended to address the growing digital economy and move the traditional
physical-based taxing schemes to a more nexus-based taxing scheme (Pillar I) coupled with a minimum tax (Pillar
II). The OECD working groups introduced a proposed framework for the Pillar I and Pillar II rules on October 12,
2020. While the Pillar I framework suggests a new revenue-based approach for a country to impose taxing rights
over a company, insurance and other finance companies are expressly exempt from the rules. The proposed
framework for Pillar II provides a sweeping minimum tax for a multinational group that is either collected at the top
group company to the extent located in a taxing jurisdiction, or provides mechanisms to allow taxing jurisdictions of
subsidiaries to collect the tax liability of the group, subject to certain limitations. There may be a possibility that we
will be subject to the minimum tax rules under Pillar II. Much is unknown about the Pillar II rules at this time,
including the agreed upon minimum tax rate, specifics related to the calculation of the potential minimum tax base,
and whether the Pillar II rules would be unanimously agreed upon by OECD member nations and adopted globally.
Accordingly, should we become subject to the Pillar II rules in the future, this could have a material adverse impact
on our business operations.
We are currently not subject to tax in Bermuda. Under the Exempted Undertakings Tax Protection Act 1996,
we have assurance that any legislation imposing an income, capital, or similar tax before March 31, 2035 will not
apply to us. Given limitations imposed under this assurance, we cannot be certain that we will not be subject to tax
after March 31, 2035. If we are subject to tax in Bermuda, this could have a material adverse impact on our
business operations.
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
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business taxable income. We and our subsidiaries may not be able to operate in a manner such that we avoid
exceeding the foregoing thresholds for application of the RPII rules. Accordingly, U.S. persons who own our ordinary
shares may 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, our views as to the inapplicability of these rules to a disposition of our ordinary
shares may not 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
in such jurisdiction. 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 our tax liabilities could
be adversely impacted, which could reduce our net earnings.
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;
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;
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•
•
the effect on dividend yield of any of the alternative methods described in the certificate of designations
relating to our series D preferred shares for determining the applicable based rate used to calculate the
dividend rate on such preferred shares following the discontinuation of LIBOR; 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 several 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, 2020, 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 12.1%, 9.4%, 8.8%, 3.8%
and 4.5%, 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 17.4% as of December 31, 2020.
Hillhouse owns additional non-voting shares and warrants that, together with its voting shares, represented an
economic interest of 16.6% as of December 31, 2020.
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.
There are regulatory limitations on the ownership and transfer of our ordinary shares.
Insurance laws and regulations in the jurisdictions in which our (re)insurance 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
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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.
Our ordinary shares are thinly traded, and 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
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.
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.
In addition, certain of our officers and directors reside in countries outside the United States. A substantial
portion of our assets and the assets of these officers and directors are located outside the United States. Investors
may therefore 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.
Further, 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. 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 they may be 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.
Certain regulatory and other constraints may limit our ability to pay dividends on our securities.
We do not currently intend to pay a cash dividend on our ordinary shares. Our strategy is to retain earnings
and invest distributions from our operating subsidiaries into our business. As a result, capital appreciation, if any, on
our ordinary shares may be your sole source of gain for the foreseeable future. In the event our Board decided to
commence a dividend program in the future, we are subject to significant regulatory and other constraints that affect
our ability to pay dividends and make other distributions on our ordinary and preferred shares. For example, under
the Bermuda 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 that the realizable value of our assets would thereby not be less than our liabilities. In addition, as
described above under “Risks Relating to Liquidity and Capital Resources,” we are a holding company that is
dependent upon distributions from our operating subsidiaries for liquidity, which may not be available.
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Table of Contents
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 at any time. 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.
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.
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
37
Table of Contents
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.
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 tradable 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.
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 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.
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Table of Contents
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.
39
Table of Contents
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 25, 2021, there were 1,373
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
Historically, we have not declared a dividend on our ordinary shares. Our strategy is to retain earnings and
invest distributions from our operating subsidiaries into our business. However, we may re-evaluate this strategy
from time to time based on overall market conditions and other factors, but 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.
Furthermore, 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.
For information on dividends on our preferred shares refer to Note 17 - "Shareholders' Equity" in the notes to
our consolidated financial statements included within Item 8 of this Annual Report on Form 10-K.
Issuer Purchases of Equity Securities
The following table provides information about ordinary shares acquired by the Company during the three
months ended December 31, 2020.
Period
Total Number of
Shares Purchased
Average Price
Paid per Share
Beginning dollar amount available to be
repurchased
October 1, 2020 - October 31, 2020
3,816 $
161.64
November 1, 2020 - November 30, 2020
December 1, 2020 - December 31, 2020
—
—
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans or
Programs (1)
Maximum Number
(or Dollar Value) of
Shares that May Yet
be Purchased Under
the Program(1)
$
124,611
3,816
—
—
(617)
—
—
123,994
(1) Ordinary shares repurchased pursuant to the Company's Board-approved ordinary share repurchase program announced on March 9, 2020,
which authorized the repurchase of up to $150.0 million of ordinary shares. The share repurchase plan was suspended on March 23, 2020
due to uncertainty in the global financial markets resulting from the COVID-19 pandemic. The repurchase program resumed on
September 21, 2020 and expires on March 1, 2021. From inception to December 31, 2020, we repurchased 178,280 ordinary shares for an
aggregate amount of $26.0 million under the Repurchase Program. As of December 31, 2020, the remaining capacity under the Repurchase
Program was $124.0 million. We did not repurchase any shares subsequent to December 31, 2020.
3,816 $
3,816
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Table of Contents
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, NASDAQ Insurance Index, S&P 500 Index and the S&P
Property & Casualty Insurance Index for the period that commenced December 31, 2015 and ended on December
31, 2020. The performance graph shows the value as of December 31 of each calendar year of $100 invested on
December 31, 2015 in our ordinary shares, and the indices listed above, assuming the reinvestment of dividends.
Returns have been weighted to reflect relative market capitalization. This information is not necessarily indicative of
future returns.
Indexed Returns* for Years Ended December 31,
2015
2016
2017
2018
2019
2020
Enstar Group Limited
NASDAQ Composite Index
NASDAQ Insurance Index
S&P 500 Index
S&P Property & Casualty Index
100.00
100.00
100.00
100.00
100.00
131.76
108.87
120.29
111.96
117.57
133.80
141.13
135.28
136.40
143.23
111.68
137.12
122.28
130.42
133.47
137.87
187.44
159.58
171.49
168.46
136.56
271.64
165.14
203.04
179.76
*$100 invested on December 31, 2015 in stock or index, including reinvestment of dividends.
In addition to the NASDAQ Composite and Insurance Indices, we have added the S&P 500 and S&P
Property & Casualty Indices to the 2020 performance graph. The NASDAQ Composite Index is more heavily
weighted to the technology sector as compared to the S&P 500 Index, so we believe the S&P 500 Index is a more
appropriate benchmark. Furthermore, the majority of our peers benchmark against both the S&P 500 and S&P
Property & Casualty Indices.
ITEM 6. SELECTED FINANCIAL DATA
Omitted at the Company's option.
41
Comparison of 5 Year Cumulative Total ReturnEnstar Group LimitedNASDAQ Composite IndexNASDAQ Insurance IndexS&P 500 IndexS&P Property & Casualty Index201520162017201820192020$100$125$150$175$200$225$250$275
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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.
The StarStone U.S. business qualifies as a discontinued operation; therefore, prior period amounts have been
reclassified to conform to the current period presentation. For further information, refer to Note 5 - "Divestitures,
Held-for-Sale Businesses and Discontinued Operations" in the notes to our consolidated financial statements
included within Item 8 of this Annual Report on Form 10-K. These reclassifications had no impact on net earnings,
the Non-life Run-off segment, the Atrium segment or other activities; however, these reclassifications did impact our
consolidated results of operations and our StarStone segment results of operations.
For a comparison of our results of operations for the Non-life Run-off segment, the Atrium segment and other
activities for the fiscal years ended December 31, 2019 and 2018, 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, 2019, filed with the Securities and Exchange Commission ("SEC") on February 27, 2020.
Table of Contents
Section
Page
Business Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Key Performance Indicator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-GAAP Financial Measure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Underwriting Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Results of Operations — for the Years Ended December 31, 2020, 2019 and 2018 . . . .
Results of Operations by Segment — for the Years Ended December 31, 2020, 2019 and 2018 . . . .
Non-life Run-off Segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Atrium Segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
StarStone Segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investable Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Critical Accounting Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
42
42
44
45
45
47
49
50
55
58
62
63
72
78
Business Overview
For information on the Company and our business strategy, refer "Item 1. Business - Company Overview"
and "- Business Strategy."
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 2020, our book value per share on a fully diluted basis increased by 42.1% to $281.20 per share. The
increase was primarily due to our net earnings for the year ended December 31, 2020, which was primarily the
result of net realized and unrealized investment gains and earnings from equity method investments, as discussed
more fully below.
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Table of Contents
The growth of our fully diluted book value per share over the last 10 years is shown in the table below.
The table below summarizes the calculation of our fully diluted book value per ordinary share as of December
31, 2020 and 2019:
2020
2019
(In thousands of U.S. dollars, except share
and per share data)
Change
Numerator:
Total Enstar shareholder's equity
Less: Series D and E preferred shares
Total Enstar ordinary shareholders' equity (A)
Proceeds from assumed conversion of warrants (1)
Numerator for fully diluted book value per ordinary share
calculations (B)
Denominator:
Ordinary shares outstanding (C) (2)
Effect of dilutive securities:
Share-based compensation plans (3)
Warrants(1)
Fully diluted ordinary shares outstanding (D)
Book value per ordinary share
Basic book value per ordinary share = (A) / (C)
$
6,674,395 $
4,842,183 $
1,832,212
510,000
510,000
—
6,164,395
4,332,183
1,832,212
20,229
20,229
—
$
6,184,624 $
4,352,412 $
1,832,212
21,519,602
21,511,505
8,097
298,095
175,901
302,565
175,901
21,993,598
21,989,971
(4,470)
—
3,627
$
286.45 $
201.39 $
85.06
Fully diluted book value per ordinary share = (B) / (D)
83.27
(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.
197.93 $
281.20 $
$
(2) Ordinary shares outstanding includes voting and non-voting shares but excludes ordinary shares held in the Enstar Group Limited Employee
Benefit Trust (the "EB Trust") in respect of awards made under our Joint Share Ownership Plan, a sub-plan to our Amended and Restated
2016 Equity Incentive Plan (the "JSOP").
(3) Share-based dilutive securities include restricted shares, restricted share units, and performance share units ("PSUs"). The amounts for PSUs,
and for ordinary shares held in the EB Trust in respect of the JSOP, are adjusted at the end of each period end to reflect the latest estimated
performance multipliers for the respective awards. The JSOP shares did not have a dilutive effect as of December 31, 2020.
43
YEARFULLY DILUTED BOOK VALUE PER SHAREGrowth in Fully Diluted Book Value Per Share$82.97$93.30$105.20$119.22$129.65$143.68$159.19$155.94$197.93$281.202011201220132014201520162017201820192020$0$20$40$60$80$100$120$140$160$180$200$220$240$260$280$300
Table of Contents
Non-GAAP Financial Measure
In addition to presenting net earnings (losses) attributable to Enstar 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 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 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, 2020, 2019 and 2018:
2020
2019
(in thousands of U.S. dollars, except share and
per share data)
2018
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
Gain on sale of subsidiary
Net earnings from discontinued operations
Tax effects of adjustments (2)
Adjustments attributable to noncontrolling interest (3)
Non-GAAP operating income attributable to Enstar ordinary
shareholders (4)
Diluted net earnings (loss) per ordinary share (5)
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
Gain on sale of subsidiary
Net earnings from discontinued operations
Tax effects of adjustments (2)
Adjustments attributable to noncontrolling interest (3)
Diluted non-GAAP operating income per ordinary share (4)
Weighted average ordinary shares outstanding:
$
1,719,344 $
902,175 $
(162,354)
(306,284)
(515,628)
237,262
119,046
117,181
(3,375)
(16,251)
27,534
12,087
—
(7,375)
47,091
14,524
6,664
—
(1,489)
(15,364)
(6,665)
$
$
1,552,101 $
557,968 $
58,054
78.80 $
41.43 $
(7.84)
(14.04)
(23.68)
11.42
5.46
(0.15)
(0.74)
1.26
0.55
5.38
—
(0.34)
2.16
0.67
$
71.14 $
25.62 $
0.32
—
(0.07)
(0.73)
(0.32)
2.78
Basic
Diluted
21,551,408
21,482,617
20,698,310
21,818,294
21,775,066
20,904,176
(1) Represents the net realized and unrealized gains and losses related to fixed maturity securities recognized in net earnings (losses). 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.
44
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 analyze our results in a way that is more aligned with the manner in which our
management measures 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) is net earnings attributable to Enstar ordinary shareholders excluding: (i)
net realized and unrealized (gains) losses on fixed maturity investments and funds held - directly managed included
in net earnings (loss); (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; (iv) 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. 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. Diluted Non-GAAP operating income (loss) per ordinary share is diluted net earnings per
ordinary share excluding the per diluted share amounts of each of the adjustments used to calculate non-GAAP
operating income.
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 figures 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 and are not included in the insurance ratios. 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.
Current Outlook
The evolving COVID-19 pandemic has caused significant disruption in global financial markets and
economies worldwide. Although the overall financial and operational impact to us has been minimal to-date, with
virtually all of our employees working remotely, the scope, duration and magnitude of the direct and indirect effects
of the COVID-19 pandemic are changing rapidly and are difficult to anticipate. As with others in our industry, we are
subject to economic factors such as interest rates, inflationary pressures, market volatility, foreign exchange rates,
underwriting events, regulation, tax policy changes, political risks and other market risks that can impact our
strategy and operations. For additional information on the risks posed by the COVID-19 pandemic, refer to "Item
1A. Risk Factors - Risks Relating to our Run-off Business."
The value of our investment portfolio has been impacted by the ongoing uncertainty and volatility in financial
markets caused by the COVID-19 pandemic. For our fixed income portfolio, the COVID-19 pandemic has resulted in
interest rates dropping to historically low levels which, in conjunction with credit spreads remaining largely
unchanged year-over-year, has contributed to net unrealized gains for the year ended December 31, 2020. As of
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December 31, 2020, our fixed income portfolio remained well-positioned with an A+ average credit rating. The
COVID-19 pandemic has increased the risk of defaults and downgrades across many industries, and we continue to
monitor credit risk during this time of volatility. We expect interest rates and credit spreads will remain volatile in the
near-term.
Our other investments, including equities, hedge funds, equity method investments and other non-fixed
income investments, are expected to generate higher expected returns, have a longer investment time horizon, and
provide diversification to our fixed income portfolio. Given their higher risk and return profile, we expect these
returns to be more volatile over the short-term relative to our fixed income investments. Heightened volatility in
equity markets was introduced during the COVID-19 pandemic, though equity prices have recovered from the sharp
declines experienced in the first quarter of 2020. This improvement has resulted in unrealized gains in our equity
and other investments for the year ended December 31, 2020. We anticipate continued volatility in the global
investment markets as a result of the economic conditions caused by the COVID-19 pandemic.
Our results for the year ended December 31, 2020 included the impact of unrealized investment gains of $1.5
billion, driven primarily by increases in the valuation of our other investments, predominantly hedge fund
investments, and earnings from equity method investments of $238.6 million. Investments that are accounted for
under the equity method typically report their results on a three month lag. Accordingly, the potential effects of
volatility across global financial markets, including the impact of COVID-19, on our equity method investments is
generally reflected in our consolidated financial statements on a quarter lag basis.
During the year ended December 31, 2020, the Atrium and StarStone segments have incurred COVID-19
related net underwriting losses of $18.4 million and $70.7 million, respectively, for which our share was $10.9 million
and $45.4 million, respectively. COVID-19 net underwriting losses for the Atrium segment primarily included losses
in the accident and health lines of business, whereas losses in the StarStone segment included losses primarily in
the casualty and property lines of business. Our Non-life Run-off segment had no underwriting losses related to the
COVID-19 pandemic; however, as a result of the loss portfolio transfer and adverse development cover reinsurance
agreement with StarStone U.S., as further described in Note 5 - "Divestitures, Held-for-Sale Businesses and
Discontinued Operations" in the notes to our consolidated financial statements included within Item 8 of this Annual
Report on Form 10-K, the Non-life Run-off segment assumed $10.0 million of COVID-19 related loss reserves from
StarStone U.S. The amounts of Non-life Run-off, Atrium and StarStone losses referenced herein represent our
estimate of underwriting losses related to the COVID-19 pandemic incurred through December 31, 2020. Given the
uncertainties associated with the COVID-19 pandemic and its impact, and the limited information upon which our
current estimates have been made, our preliminary reserves and the estimated liability for losses and LAE arising
from the COVID-19 pandemic may materially change.
We expect to see continued opportunities in the NLRO market with companies looking for alternative and
optimized capital solutions and greater certainty around incurred losses on books of business that are in run-off. Our
strategy is to administer the run-off of claims profitably through closing claims in an efficient and effective manner.
However, there may be increased competition in the NLRO market and increased volatility in run-off portfolios that
have come to market. We believe we have a competitive advantage in the run-off market and will continue to apply
our disciplined approach to underwriting and pricing transactions.
Strategic Developments
As a result of the sale and recapitalization of StarStone U.S., the sale of the majority of our interest in Atrium
and the placing of StarStone International into run-off, we have largely exited our previously controlled active
underwriting platforms. While we maintain strategic minority interests in these businesses, our primary focus is on
our core business of acquiring and managing (re)insurance companies or portfolios of (re)insurance business in
run-off. For further information on our strategic developments, refer to Note 5 - "Divestitures, Held-for-Sale
Businesses and Discontinued Operations" in the notes to our consolidated financial statements included within Item
8 of this Annual Report on Form 10-K.
Non-life Run-off Business Opportunities
On October 15, 2020, we completed an IBT in the U.S., having received judicial approval from the Oklahoma
County District Court. The transaction occurred between two of our subsidiaries and, although common in many
parts of the world, it was the first of its kind to occur in the U.S. The IBT mechanism provides another option for
structuring U.S. transactions in the future which provides legal finality to the seller of transferred insurance liabilities.
Our acquisition activity in the Non-life Run-off segment remains strong. We announced transactions with AXA
XL and ProSight and completed transactions with CNA, Liberty Mutual, Hannover Re, Munich Re, AXA Group,
Aspen and Lyft. Collectively, these transactions represent $4.7 billion of assets and liabilities. Refer to Note 4 -
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"Significant New Business" in the notes to our consolidated financial statements included within Item 8 of this
Annual Report on Form 10-K for further information on these transactions.
Consolidated Results of Operations - For the Years Ended December 31, 2020, 2019 and 2018
The following table sets forth our consolidated statements of earnings for the years ended December 31,
2020, 2019 and 2018.
The StarStone U.S. business qualifies as a discontinued operation; therefore, certain prior period amounts
have been reclassified to conform to the current period presentation. These reclassifications had no impact on net
earnings. For further information, refer to Note 5 - "Divestitures, Held-for-Sale Businesses and Discontinued
Operations" in the notes to our consolidated financial statements included within Item 8 of this Annual Report on
Form 10-K.
For a discussion of the critical accounting estimates that affect the results of operations, see "Critical
Accounting Estimates" below.
2020
2019
Change
2018
Change
(in thousands of U.S. dollars)
INCOME
Net premiums earned
Fees and commission income
$ 572,092 $ 804,047 $ (231,955) $ 695,779 $ 108,268
(6,635)
42,446
35,088
28,453
13,993
Net investment income
Net realized and unrealized gains (losses) (1)
Other income
302,817
308,271
(5,454)
261,698
46,573
1,642,019
1,011,966
630,053
(407,532) 1,419,498
101,132
37,070
64,062
34,073
2,997
2,660,506
2,189,807
470,699
619,106
1,570,701
EXPENSES
Net incurred losses and LAE
Acquisition costs
General and administrative expenses
Interest expense
Net foreign exchange (gains) losses
415,926
171,020
501,479
59,308
16,393
614,179
(198,253)
323,722
290,457
240,609
413,084
52,541
(69,589)
177,855
88,395
348,786
6,767
(7,912)
24,305
25,696
2,644
62,754
64,298
26,845
(10,556)
1,164,126
EARNINGS (LOSS) BEFORE INCOME TAXES 1,496,380
Income tax benefit (expense)
(23,827)
1,312,501
(148,375)
878,703
433,798
877,306
619,074
(259,597) 1,136,903
(12,372)
(11,455)
3,689
42,147
(16,061)
13,763
Earnings from equity method investments
238,569
55,910
182,659
NET EARNINGS (LOSS) FROM CONTINUING
OPERATIONS
Net earnings from discontinued operations, net
of income taxes
NET EARNINGS (LOSS)
1,711,122
920,844
790,278
(213,761) 1,134,605
16,251
7,375
8,876
1,489
5,886
1,727,373
928,219
799,154
(212,272) 1,140,491
Net loss attributable to noncontrolling interest
27,671
9,870
17,801
62,051
(52,181)
NET EARNINGS (LOSS) ATTRIBUTABLE TO
ENSTAR
Dividends on preferred shares
1,755,044
938,089
816,955
(150,221) 1,088,310
(35,700)
(35,914)
214
(12,133)
(23,781)
NET EARNINGS (LOSS) ATTRIBUTABLE TO
ENSTAR ORDINARY SHAREHOLDERS
$ 1,719,344 $ 902,175 $ 817,169 $ (162,354) $ 1,064,529
(1) This includes amounts relating to both fixed income securities and other investments. We have historically accounted for our fixed income
securities as a trading portfolio, whereby unrealized amounts are reflected in earnings. However, from October 1, 2019 we have elected to use
AFS accounting and, as trading fixed income securities mature or are disposed of, to the extent the proceeds are reinvested in fixed income
securities, the investments will be classified as AFS securities for the Non-life Run-off and StarStone segments. For a breakdown between
realized and unrealized gains and losses, 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.
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Highlights
Consolidated Results of Operations for 2020:
•
•
•
•
•
Consolidated net earnings attributable to Enstar ordinary shareholders of $1.7 billion and basic and
diluted earnings per share of $79.78 and $78.80, respectively, a year-over-year increase of $817.2 million
or $37.37 per diluted share.
Non-GAAP operating income attributable to Enstar ordinary shareholders of $1.6 billion and diluted non-
GAAP operating income per ordinary share of $71.14 compared to $558.0 million and $25.62,
respectively, for 2019. For a reconciliation of non-GAAP operating income attributable to Enstar ordinary
shareholders to net earnings attributable to Enstar ordinary shareholders calculated in accordance with
GAAP, and diluted non-GAAP operating income per ordinary share to diluted net earnings per ordinary
share calculated in accordance with GAAP, see "Non-GAAP Financial Measure" above.
Net earnings from Non-life Run-off segment of $1.9 billion, which included the impact of net realized and
unrealized gains of $1.6 billion, comprised of $168.5 million of net realized gains and $1.5 billion of net
unrealized gains, driven primarily by increases in the valuation of our other investments, predominantly
hedge fund investments, as discussed below in the "Investment Results - Consolidated" section. Also
contributing to net earnings was $238.6 million of earnings from equity method investments, driven
primarily by our investments in Enhanzed Re and Monument Re.
Combined ratio of 91.2% for our Atrium segment, with net premiums earned of $175.4 million. Excluding
the estimated underwriting losses related to the COVID-19 pandemic, the combined ratio for the Atrium
segment was 80.7%.
Combined ratio of 138.1% for our StarStone segment, with net premiums earned of $318.1 million.
Excluding the estimated underwriting losses related to the COVID-19 pandemic and exit costs associated
with the StarStone International Run-Off, the combined ratio for the StarStone segment was 112.1%.
Consolidated Financial Condition as of December 31, 2020:
•
•
•
•
•
•
Total investable assets of $17.3 billion, an increase of 22.7% year-over-year.
Total reinsurance balances recoverable on paid and unpaid losses of $2.1 billion was relatively
unchanged from 2019.
Total assets of $21.6 billion compared to $19.8 billion in 2019.
Total gross and net reserves for losses and LAE of $10.6 billion and $8.5 billion, respectively. During
2020, our Non-life Run-off segment assumed and ceded net reserves of $2.2 billion and $154.9 million,
respectively.
Total capital of $8.4 billion, including common equity of $6.2 billion, preferred equity of $510.0 million,
noncontrolling interests of $379.0 million, and debt of $1.4 billion.
Fully diluted book value per ordinary share of $281.20, an increase of 42.1% since December 31, 2019,
which was primarily the result of net realized and unrealized investment gains and earnings from equity
method investments.
Consolidated Overview
2020 versus 2019: Consolidated net earnings attributable to Enstar ordinary shareholders increased by
$817.2 million from 2019. The most significant drivers of the change in our financial performance included:
•
Non-life Run-off Segment - Net earnings attributable to the Non-life Run-off segment increased by $806.3
million, primarily due to:
◦
◦
◦
◦
An increase in net realized and unrealized gains of $659.2 million. Net realized and unrealized
gains in 2020 were driven by an increase in the valuation of our other investments, predominantly
in a hedge fund, as discussed below in the "Investment Results - Consolidated" section;
An increase in earnings from equity method investments of $182.4 million, driven primarily by our
investments in Enhanzed Re and Monument Re; and
An increase in other income of $65.1 million driven by a change in actuarial estimates of our
defendant asbestos and environmental liabilities; partially offset by,
An increase in net underwriting losses of $50.9 million.
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•
•
•
Atrium - Net earnings attributable to the Atrium segment increased by $3.8 million, primarily due to higher
fees and commission income and foreign exchange gains in the current period, partially offset by higher
corporate expenses and a lower investment return in the current period.
StarStone - Net losses attributable to the StarStone segment decreased by $19.2 million, primarily as a
result of lower underwriting losses due to the impact of underwriting remediation activity and the gain on
the sale of StarStone U.S. (included in net earnings from discontinued operations, net of income taxes),
partially offset by exit costs associated with the StarStone International Run-Off and a lower investment
return in the current period.
Non-GAAP operating income - Our non-GAAP operating income, which excludes the impact of realized
and unrealized losses on fixed maturity securities and other items, increased by $994.1 million. The
increase was primarily attributable to net realized and unrealized gains on our other investments of $1.3
billion and earnings from equity method investments of $238.6 million, as discussed above. For a
reconciliation of non-GAAP operating income attributable to Enstar ordinary shareholders to net earnings
attributable to Enstar ordinary shareholders calculated in accordance with GAAP, see "Non-GAAP
Financial Measures" above.
2019 versus 2018: Consolidated net earnings attributable to Enstar ordinary shareholders increased by $1.1
billion. The most significant drivers of the change in our financial performance included:
•
Non-life Run-off Segment - Net earnings attributable to the Non-life Run-off segment increased by $1.0
billion, primarily due to:
◦
◦
An increase in net realized and unrealized gains on our investment portfolio of $1.4 billion. Net
realized and unrealized gains in 2019 were driven primarily by higher valuations due to declining
interest rates and tighter credit spreads; compared to lower valuations in 2018 due to higher
interest rates and wider credit spreads; partially offset by
An increase in net incurred losses and LAE of $357.7 million primarily due to higher losses
related to i) net premiums earned in 2019 and ii) changes in the fair value of liabilities related to
our assumed retroactive reinsurance agreements for which we have elected the fair value option,
primarily due to narrowing credit spreads on corporate bond yields in 2019.
•
•
StarStone - Net losses attributable to the StarStone segment decreased by $57.8 million primarily due to
a reduction in underwriting losses and an increase in net realized and unrealized gains in 2019 compared
to losses in 2018.
Non-GAAP operating income - Our non-GAAP operating income, which excludes the impact of unrealized
gains and losses on fixed maturity securities and other items, increased by $499.9 million primarily due to
our other investments results in 2019. For a reconciliation of non-GAAP operating income attributable to
Enstar ordinary shareholders to net earnings attributable to Enstar ordinary shareholders calculated in
accordance with GAAP, see "Non-GAAP Financial Measures" above.
Results of Operations by Segment - For the Years Ended December 31, 2020, 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. 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. For a description of our
segments, see "Item 1. Business - Operating Segments."
As discussed in Item 1. Business - Company Overview and Note 5 - "Divestitures, Held-for-Sale Businesses
and Discontinued Operations" in the notes to our consolidated financial statements included within Item 8 of this
Annual Report on Form 10-K, the strategic transactions related to our Atrium and StarStone segments will enable us
to focus on our core Non-life Run-off business. We will review and assess our segment structure in 2021 to reflect
the changes to the StarStone and Atrium segments in the fourth quarter of 2020 and the first quarter of 2021,
respectively.
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The below table provides a split by operating segment of the net earnings attributable to Enstar ordinary
shareholders for the years ended December 31, 2020, 2019 and 2018:
Segment split of net earnings (loss)
attributable to Enstar:
2020
2019
Change
(in thousands of U.S. dollars)
2018
Change
Non-life Run-off
$ 1,866,127 $ 1,059,804 $ 806,323 $
25,222 $ 1,034,582
Atrium
StarStone
Other
15,924
12,125
3,799
8,997
3,128
(81,547)
(100,733)
19,186
(158,580)
57,847
(81,160)
(69,021)
(12,139)
(37,993)
(31,028)
Net earnings (loss) attributable to Enstar
ordinary shareholders
$ 1,719,344 $ 902,175 $ 817,169 $
(162,354) $ 1,064,529
The following is a discussion of our results of operations by segment.
Non-life Run-off Segment
For a description of our Non-life Run-off segment, see "Item 1. Business - Operating Segments - Non-life
Run-off." The following is a discussion and analysis of the results of operations for our Non-life Run-off segment.
Gross premiums written
Net premiums written
Net premiums earned
Net incurred losses and LAE (1)
Acquisition costs
Operating expenses
Underwriting loss
Net investment income
Net realized and unrealized gains (2)
Fees and commission income
Other income
Corporate expenses
Interest expense
Net foreign exchange gains (losses)
EARNINGS BEFORE INCOME TAXES
Income tax expense
Earnings from equity method investments
NET EARNINGS
Net (earnings) loss attributable to noncontrolling interest
NET EARNINGS ATTRIBUTABLE TO ENSTAR ORDINARY
SHAREHOLDERS
$
$
$
2020
2019
Change
(in thousands of U.S. dollars)
5,191 $
(25,069) $
30,260
2,987 $
(25,338) $
28,325
58,695 $
168,496 $
(109,801)
(44,995)
(51,625)
(20,177)
(73,642)
6,630
53,465
(200,990)
(199,756)
(1,234)
(207,467)
(156,527)
(50,940)
282,048
1,627,526
19,462
99,940
275,236
968,350
18,293
34,809
6,812
659,176
1,169
65,131
(97,727)
(70,689)
(27,038)
(67,195)
(62,055)
(13,214)
9,918
(5,140)
(23,132)
1,643,373
1,017,335
626,038
(17,412)
(7,250)
(10,162)
238,569
56,128
1,864,530
1,066,213
182,441
798,317
1,597
(6,409)
8,006
$ 1,866,127 $ 1,059,804 $
806,323
(1) Comparability between periods is impacted by the current period net incurred losses and LAE as acquired unearned premium is earned, and
by changes in fair value due to the election of the fair value option on certain business. Refer to Net Incurred Losses and LAE table for further
details.
(2) This includes amounts relating to both fixed income securities and other investments. We have historically accounted for our fixed income
securities as a trading portfolio, whereby unrealized amounts are reflected in earnings. However, from October 1, 2019, we have elected to
use AFS accounting and, as trading fixed income securities mature or are disposed of, to the extent the proceeds are reinvested in fixed
income securities, the investments will be classified as AFS securities for the Non-life Run-off segment.
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Overall Results
2020 versus 2019: Net earnings attributable to the Non-life Run-off segment increased by $806.3 million,
primarily due to:
•
•
•
•
An increase in net realized and unrealized gains of $659.2 million. Net realized and unrealized gains in
2020 were driven by an increase in the valuation of our other investments, predominantly in a hedge fund
in the current period as discussed below in the "Investment Results - Consolidated" section;
An increase in earnings from equity method investments of $182.4 million, driven primarily by our
investments in Enhanzed Re and Monument Re; and
An increase in other income of $65.1 million largely driven by changes in actuarial estimates in defendant
asbestos and environmental liabilities; partially offset by,
An increase in net underwriting losses of $50.9 million.
An analysis of the components of the segment's net earnings is shown below. Investment results are
separately discussed below in the "Investments Results - Consolidated" section.
Net Premiums Earned:
The following table shows the gross and net premiums written and earned for the Non-life Run-off segment.
2020
2019
(in thousands of U.S. dollars)
Change
Gross premiums written
Ceded reinsurance premiums written
Net premiums written
Gross premiums earned
Ceded reinsurance premiums earned
Net premiums earned
$
5,191 $
(25,069) $
30,260
(2,204)
(269)
(1,935)
2,987
71,522
(25,338)
28,325
197,009
(125,487)
(12,827)
(28,513)
15,686
$
58,695 $ 168,496 $ (109,801)
Since 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 unearned 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 acquire or assume unearned premium without
the writing of gross premiums.
2020 versus 2019: Net premiums earned in 2020 were primarily related to the AmTrust RITC transactions
assumed in 2019, whereas premiums written and earned in 2019 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").
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Table of Contents
Net Incurred Losses and LAE:
The following table shows the components of net incurred losses and LAE for the Non-life Run-off segment.
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
Increase (reduction) in provisions for unallocated LAE (3)
Amortization of deferred charge assets and deferred gain
liabilities (4)
Amortization of fair value adjustments (5)
Changes in fair value - fair value option (6)
Prior
Periods
2020
Current
Period
Total
Prior
Periods
(in thousands of U.S. dollars)
2019
Current
Period
Total
$ 1,064,911 $
9,990 $ 1,074,901 $ 1,182,804 $
64,820 $ 1,247,624
(449,610)
(742,417)
(127,116)
(48,407)
42,640
28,667
119,046
24,003
30,523
(3,470)
(453,080)
(553,996)
(718,414)
(847,893)
23,105
35,194
(96,593)
(219,085)
123,119
(358)
(48,765)
(57,844)
440
—
—
—
42,640
28,667
37,744
50,070
119,046
117,181
—
—
—
(530,891)
(812,699)
(95,966)
(57,404)
37,744
50,070
117,181
Net incurred losses and LAE
51,625
(1) 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.
(71,934) $ 123,559 $
44,995 $
14,830 $
30,165 $
$
(2) Represents the gross change in our actuarial estimates of IBNR, less amounts recoverable.
(3) Represents the change in the estimate of the total future costs to administer the claims.
(4) Relates to the amortization of deferred charge assets and deferred gain liabilities on retroactive reinsurance contracts.
(5) Relates to the amortization of fair value adjustments associated with the acquisition of companies.
(6) Represents the changes in the fair value of liabilities related to our assumed retroactive reinsurance agreements for which we have elected the
fair value option.
2020 versus 2019: Net incurred losses and LAE decreased by $6.6 million primarily due to a lower amount of
premium earned for which current period losses were recognized, partially offset by a lower reduction in estimates
of net ultimate losses related to prior periods in 2020.
The following table shows the components of the 2020 reduction in estimates of net ultimate losses related to
prior periods by line of business for the Non-life Run-off segment.
Net losses paid
Net change in case
and LAE reserves
Net change in
IBNR reserves
Increase (reduction) in
estimates of net
ultimate losses
2020
Asbestos
$
132,853 $
(1,300) $
(150,054) $
Environmental
General Casualty
Workers' Compensation
Marine, aviation and
transit
Construction defect
Professional indemnity/
Directors & Officers
Motor
Property
All Other
Total
23,866
170,502
142,790
33,927
27,476
63,878
349,366
71,422
48,831
1,064,911 $
$
(266)
(68,744)
(176,927)
(14,458)
(6,092)
3,698
(106,561)
(24,356)
(54,604)
(449,610) $
(36,362)
(127,421)
(149,198)
(50,558)
(13,382)
(79,181)
(95,040)
(64,331)
23,110
(742,417) $
(18,501)
(12,762)
(25,663)
(183,335)
(31,089)
8,002
(11,605)
147,765
(17,265)
17,337
(127,116)
The significant drivers of the 2020 reduction in estimates of net ultimate losses are explained below.
Workers' Compensation - The workers’ compensation line of business experienced a $183.3 million reduction
in estimates of net ultimate losses as a result of favorable actual development versus expected development across
nearly all our acquired companies and assumed portfolios. We continue to drive favorable loss experience by
proactively settling claims for less than the current case reserves. During 2020, we paid net losses of $142.8 million
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and released case and LAE reserves of $176.9 million. This represents a decrease in reported losses of $34.1
million for the year. As a result of the favorable development in our data, our actuarial analyses indicated and
resulted in a release of $149.2 million of IBNR reserves, primarily attributed to a settlement of an outwards
reinsurance agreement resulting in the reduction in gross ultimate losses inuring to our benefit.
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. Included in the net paid losses and released case and
LAE reserves were 10 commutations that resulted in a net reduction of ultimate losses of $10.8 million.
Marine, aviation and transit - We experienced $31.1 million of favorable development in our marine, aviation
and transit line of business. The reduction in net ultimate loss reserves was driven by a number of favorable
outcomes on certain large claims from our U.K.-based portfolios and better actual than expected experience of
reported losses across most reserve segments which led to releases of IBNR reserves as a result of our annual
actuarial analyses.
General casualty - Our general casualty line of business experienced $25.7 million in favorable loss
development which was the result of better actual than expected claim emergence across several portfolios
including a new portfolio acquired in 2020 that underwent its first actuarial analysis by our outside actuarial
consultant. To date, we have not experienced adverse social inflation in our general casualty line of business since
we are generally proactive in settling claims early for fair value which reduces legal costs for both the defendant and
plaintiff.
Motor - The experience in the motor line was adverse by $147.8 million due to higher than expected severity
related to a recent assumed loss portfolio transfer transaction. The case reserves were significantly strengthened
when we transferred the claims handling to a new third-party administrator with specialist experience in commercial
automobile exposures. Along with the new third-party administrator, we have implemented several claim initiatives
aimed at reducing defense costs, settling claims earlier, lowering claims severity and increased governance and
technical oversight.
Other significant components of the 2020 net incurred losses and LAE include losses related to 2020 net
earned premium of $30.2 million, an increase in the fair value of liabilities of $119.0 million related to our assumed
retroactive reinsurance agreements for which we have elected the fair value option, primarily due to narrowing credit
spreads on corporate bond yields in 2020, and 15 commutations in lines other than workers’ compensation resulting
in a decrease of $12.3 million.
The following table shows the components of the 2019 reduction in estimates of net ultimate losses related to
prior periods by line of business for the Non-life Run-off segment.
Net losses paid
Net change in case
and LAE reserves
Net change in
IBNR reserves
Increase (reduction) in
estimates of net
ultimate losses
2019
Asbestos
$
118,557 $
35,003 $
(146,749) $
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
13,796
(89,968)
(156,435)
(77,958)
(8,313)
(36,986)
(134,127)
(73,259)
(25,749)
(15,707)
(91,818)
(188,944)
(24,508)
(25,025)
(104,984)
(179,887)
(7,358)
(62,913)
$
1,182,804 $
(553,996) $
(847,893) $
The significant drivers of the 2019 reduction in estimates of net ultimate losses are explained below.
53
6,811
14,988
(6,742)
(136,418)
(20,408)
(1,260)
(38,557)
(37,451)
13,476
(13,524)
(219,085)
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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
resulting in $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.
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 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 from 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 results in a reduction in net ultimate losses.
Asbestos - A $6.8 million increase in estimates of net ultimate losses in our asbestos line of business was
driven primarily from 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 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 significant components of the 2019 net incurred losses and LAE include losses related to 2019 net
earned premium of $123.6 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, primarily due to
narrowing credit spreads on corporate bond yields in 2019.
Other Items:
2020 versus 2019:
•
•
The reduction in acquisition costs of $53.5 million in 2020 was due to a lower level of net premiums earned
and lower associated acquisition costs in respect of the run-off business assumed through the AmTrust
RITC transactions and the acquisition of Maiden Re North America.
The increase in other income of $65.1 million was primarily driven by other income from our defendant
asbestos and environmental liabilities companies of $99.3 million in 2020 due to a reduction in the
actuarially estimated ultimate net liabilities as a result of a lower than expected number of asbestos claims
filed against us; lower than expected paid indemnity and defense costs; the collection of disputed insurance
recoveries that were carried on our balance sheet at $166.7 million, net of fair value adjustments, for
consideration of $179.6 million; and recovery of $19.3 million on insurance payments previously written-off
prior to our acquisition of the companies.
• General and administrative expenses consist of operating and corporate expenses. General and
administrative expenses increased by $28.3 million primarily due higher performance-based compensation
costs as a result of higher earnings in 2020.
•
Net foreign exchange losses were $13.2 million for 2020 compared to gains of $9.9 million in 2019. The
unfavorable change of $23.1 million was primarily driven by increased volatility in foreign exchange markets
associated with the COVID-19 pandemic and the resulting impact on non-U.S. dollar denominated
investments and technical balances in 2020.
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•
•
•
The income tax benefit (expense) is generally driven by the geographical distribution of pre-tax earnings
(loss) between taxable and non-taxable jurisdictions.
Earnings from equity method investments increased by $182.4 million in 2020, primarily due to an increase
in earnings from our investments in Enhanzed Re and Monument Re.
The change in net earnings attributable to noncontrolling interest of $8.0 million was due to lower earnings
for those companies where there is a noncontrolling interest.
Atrium Segment
For a description of our Atrium segment, including strategic developments, see "Item 1. Business - Operating
Segments - Atrium." The following is a discussion and analysis of the results of operations for our Atrium segment.
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 (1)
Fees and commission income
Other income
Corporate expenses
Net foreign exchange gains (losses)
EARNINGS BEFORE INCOME TAXES
Income tax expense
NET EARNINGS
Net earnings attributable to noncontrolling interest
2020
2019
Change
(in thousands of U.S. dollars)
$ 206,656
$ 192,373
$ 183,194
$ 172,356
$ 175,393
$ 164,059
$
$
$
(87,226)
(59,611)
(13,078)
15,478
5,542
4,165
22,984
131
(77,276)
(56,956)
(14,452)
15,375
7,049
6,195
10,160
140
14,283
10,838
11,334
(9,950)
(2,655)
1,374
103
(1,507)
(2,030)
12,824
(9)
(21,522)
(13,825)
(7,697)
4,327
31,105
(4,122)
26,983
(11,059)
(504)
24,590
(4,033)
20,557
(8,432)
4,831
6,515
(89)
6,426
(2,627)
NET EARNINGS ATTRIBUTABLE TO ENSTAR ORDINARY SHAREHOLDERS $
15,924
$
12,125
$
3,799
Underwriting ratios: (2)
Loss ratio
Acquisition cost ratio
Operating expense ratio
49.7 %
34.0 %
7.5 %
Combined ratio
91.2 %
(1) For the Atrium segment, we utilize trading accounting, where unrealized amounts are reflected in earnings.
(2) Refer to "Underwriting Ratios" for a description of how these ratios are calculated.
Overall Results
47.1 %
34.7 %
8.8 %
90.6 %
2.6 %
(0.7) %
(1.3) %
0.6 %
2020 versus 2019: Net earnings attributable to the Atrium segment increased by $3.8 million, primarily due to
higher fees and commission income and foreign exchange gains in the current year, partially offset by higher
corporate expenses and a lower investment return in the current year.
An analysis of the components of the segment's net earnings before the attribution of net (earnings) to
noncontrolling interest is shown below. Investment results are separately discussed below in the "Investments
Results - Consolidated" section.
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Table of Contents
Gross Premiums Written:
The following table provides gross premiums written by line of business for the Atrium segment.
Marine, aviation and transit
Binding authorities
Reinsurance
Accident and health
Non-marine direct and facultative
Total
2020
2019
Change
(in thousands of U.S. dollars)
$
58,081 $
49,275 $
86,944
16,906
14,778
29,947
78,825
17,778
21,585
24,910
8,806
8,119
(872)
(6,807)
5,037
$ 206,656 $ 192,373 $
14,283
2020 versus 2019: The increase in gross premiums written was driven predominantly by increases across
the marine, aviation and transit, binding authorities and non-marine direct and facultative lines of business. The
marine, aviation and transit and non-marine direct and facultative lines of business continue to benefit from an
increase in rates, while the binding authorities line of business benefited from new opportunities to write business.
The reduction in the accident and health line of business was largely driven by the impact of the COVID-19
pandemic as well as underwriting actions to not renew certain contracts in 2020.
Net Premiums Earned:
The following table provides net premiums earned by line of business for the Atrium segment.
Marine, aviation and transit
Binding authorities
Reinsurance
Accident and health
Non-marine direct and facultative
Total
2020
2019
Change
(in thousands of U.S. dollars)
$
44,127 $
36,312 $
79,246
13,793
14,841
23,386
75,142
14,433
18,922
19,250
7,815
4,104
(640)
(4,081)
4,136
$ 175,393 $ 164,059 $
11,334
2020 versus 2019: The increase in net premiums earned was primarily due to ongoing growth in the marine,
aviation and transit, non-marine direct and facultative and binding authorities lines of business.
Net Incurred Losses and LAE:
The following table shows the components of net incurred losses and LAE for the Atrium segment.
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 (3)
Increase (reduction) in provisions for unallocated loss
adjustment expense liabilities (4)
Prior
Periods
2020
Current
Period
Total
Prior
Periods
(in thousands of U.S. dollars)
2019
Current
Period
Total
$ 40,196 $ 33,724 $ 73,920 $ 43,572 $ 34,617 $ 78,189
(14,145)
(31,773)
(5,722)
(571)
21,390
38,434
93,548
7,245
6,661
87,826
—
(571)
48
(77)
(29)
(13,278)
(38,380)
(8,086)
335
—
16,812
33,598
85,027
—
—
3,534
(4,782)
76,941
335
—
Net incurred losses and LAE
(1) 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.
(6,245) $ 93,471 $ 87,226 $
(7,751) $ 85,027 $ 77,276
$
(2) Represents the gross change in our actuarial estimates of IBNR reserves, less amounts recoverable.
(3) Relates to the amortization of fair value adjustments associated with the acquisition of companies.
(4) Represents the change in the estimate of the total future costs to administer the claims.
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Table of Contents
2020 versus 2019: The increase in net incurred losses and LAE of $10.0 million in 2020 was primarily driven
by $18.4 million of losses related to the COVID-19 pandemic, primarily from accident and health business, partially
offset by overall improved loss experience in other lines of business and lower catastrophe activity on the business
written by Atrium.
The loss ratios were 49.7% and 47.1% for 2020 and 2019, respectively. Excluding the impact of losses related
to the COVID-19 pandemic, the loss ratio for 2020 was 39.2%.
Other Items
2020 versus 2019:
•
•
•
•
•
•
The reduction in the acquisition cost ratio of 0.7% was primarily due to agreed reductions in brokerage rates
for certain accounts in 2020.
The reduction in the operating expense ratio of 1.3% was primarily driven by an increase in net premiums
earned and a reduction in operating expenses in 2020.
Fees and commission income increased by $12.8 million primarily due to higher profit commissions from
Syndicate 609 and the space consortium in 2020.
The increase in corporate expenses of $7.7 million was primarily attributable to higher variable
compensation costs from improved performance in the Atrium segment in 2020.
Net foreign exchange gains were $4.3 million in 2020 compared to losses of $0.5 million in 2019. The
favorable change of $4.8 million was primarily due to the strengthening of the Euro and the Canadian dollar
against the U.S. dollar during 2020.
Net earnings attributable to noncontrolling interest in the Atrium segment increased by $2.6 million, primarily
due to higher earnings, as discussed above. As of December 31, 2020, the Trident V Funds and the
Dowling Funds had a combined 41.0% noncontrolling interest in the Atrium segment.
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Table of Contents
StarStone Segment
For a description of our StarStone segment, including strategic developments, see "Item 1. Business -
Operating Segments - StarStone."
The following is a discussion and analysis of the results of operations for our StarStone segment. As a result
of the impact from the strategic developments in the segment, we have updated the presentation of the following
tables. In previous reports, we had distinguished the results of sub-components of the segment between StarStone
Group and Intra-group reinsurances, and between core and exited lines of business, which is no longer considered
to be as meaningful. Under U.S. GAAP, StarStone U.S. qualified as a discontinued operation whereas StarStone
International (non-U.S.) qualified as a continuing operation. As a result, certain prior period amounts have been
reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings.
For further information, refer to Note 5 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations" in
the notes to our consolidated financial statements included within Item 8 of this Annual Report on Form 10-K.
The following is a discussion and analysis of the results of operations for the StarStone segment. Current and
prior period results are not indicative of future results.
2020
2019
Change
2018
Change
(in thousands of U.S. dollars)
Gross premiums written
$ 326,695
$ 472,815
$ (146,120)
$ 622,570
$ (149,755)
Net premiums written
Net premiums earned
$ 233,202
$ 379,523
$ (146,321)
$ 478,009
$ (98,486)
$ 318,115
$ 451,112
$ (132,997)
$ 515,163
$ (64,051)
Net incurred losses and LAE
(266,738)
(469,240)
202,502
(543,080)
Acquisition costs
Operating expenses
Underwriting loss
Net investment income
Net realized and unrealized gains (losses) (1)
Other income
Corporate expenses
Interest expense
Net foreign exchange losses
(90,797)
(81,853)
(109,369)
18,572
(120,517)
(60,627)
(21,226)
(98,137)
(121,273)
(188,124)
66,851
(246,571)
27,443
10,328
3,734
(42,011)
(2,110)
(10,140)
(12,756)
34,396
31,572
329
(7,790)
(475)
(1,505)
56,527
(6,953)
27,000
(21,244)
(12,320)
3,405
(34,221)
(1,635)
(8,635)
(69,283)
(550)
—
(103)
(2,832)
11,195
73,840
11,148
37,510
58,447
7,396
43,892
879
(7,790)
(372)
1,327
45,332
LOSS BEFORE INCOME TAXES
(134,029)
(131,597)
(2,432)
(235,376)
103,779
Income tax expense
Losses from equity method investments
(902)
—
(1,004)
(218)
102
218
3,892
—
(4,896)
(218)
NET LOSS FROM CONTINUING OPERATIONS
(134,931)
(132,819)
(2,112)
(231,484)
98,665
Net earnings from discontinued operations, net of
income taxes
NET LOSS
16,251
7,375
(118,680)
(125,444)
8,876
6,764
1,489
5,886
(229,995)
104,551
Net loss attributable to noncontrolling interest
37,133
24,711
12,422
71,415
(46,704)
NET LOSS ATTRIBUTABLE TO ENSTAR
ORDINARY SHAREHOLDERS
$
(81,547)
$ (100,733)
$
19,186
$ (158,580)
$ 57,847
Underwriting ratios: (2)
Loss ratio
Acquisition cost ratio
Operating expense ratio
83.8 %
28.5 %
25.8 %
104.0 %
(20.2) %
105.4 %
24.2 %
13.5 %
4.3 %
12.3 %
23.4 %
19.1 %
(1.4) %
0.8 %
(5.6) %
Combined ratio
(6.2) %
(1) This includes amounts relating to both fixed income securities and other investments. We have historically accounted for our fixed income
securities as a trading portfolio, whereby unrealized amounts are reflected in earnings. However, from October 1, 2019, we have elected to
use AFS accounting and, as trading fixed income securities mature or are disposed of, to the extent the proceeds are reinvested in fixed
income securities, the investments will be classified as AFS securities for the StarStone segment.
138.1 %
141.7 %
147.9 %
(3.6) %
(2) Refer to "Underwriting Ratios" for a description of how these ratios are calculated.
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Table of Contents
Overall Results
2020 versus 2019: Net losses attributable to the StarStone segment decreased by $19.2 million despite
incurring COVID-19 related net underwriting losses of $45.4 million, and exit costs associated with the StarStone
International Run-Off of $37.6 million. The reduction of $19.2 million was primarily as a result of lower underwriting
losses due to the impact of underwriting remediation activity and the gain on the sale of StarStone U.S. (included in
net earnings from discontinued operations, net of income taxes), partially offset by exit costs associated with the
StarStone International Run-Off and a lower investment return in 2020.
2019 versus 2018: Net losses attributable to the StarStone segment decreased by $57.8 million, primarily
due to a reduction in underwriting losses due to the underwriting remediation and a higher investment return,
partially offset by higher corporate expenses in 2019.
An analysis of the components of the segment's net loss before the attribution of net losses to noncontrolling
interest is shown below. Investment results are separately discussed below in "Investments Results - Consolidated"
section.
COVID-19
The StarStone segment included net underwriting losses related to the COVID-19 pandemic as follows:
StarStone International (1)
$
StarStone U.S. (Discontinued Operations)
Total StarStone Segment COVID-19 net underwriting losses
$
StarStone Segment
2020
Noncontrolling
Interests' Share
Enstar's share of
StarStone Segment
(in thousands of U.S. dollars)
60,672 $
10,000
70,672 $
(21,146) $
(4,100)
(25,246) $
39,526
5,900
45,426
(1) Includes the impact of net reinstatement premiums of $1.0 million and the premium deficiency provision of $8.9 million for the year ended
December 31, 2020.
Exit Costs
The following table summarizes the exit costs associated with the StarStone International Run-Off.
Description:
Results of Operations Line Item:
Provision for unallocated LAE (run-off basis)
Net incurred losses and LAE
$
Provision for employee severance-related costs
Goodwill impairment
Capitalized software write-down
Earnings acceleration of prepaid reinsurance
premiums
Intangible asset impairment
Operating leases right-of-use asset write-down
Other asset write-downs
Valuation allowance on deferred tax assets
Sub-total
Corporate expenses
Corporate expenses
Corporate expenses
Net premiums earned
Corporate expenses
Corporate expenses
Corporate expenses
Income tax expense
Net (loss)
Redeemable non-controlling interest
Net loss attributable to noncontrolling interest
Total reduction in StarStone net earnings attributable
to the StarStone International Run-Off
Net (loss) attributable to Enstar ordinary shareholders
$
2020
(in thousands of U.S.
dollars)
(18,682)
(12,586)
(8,000)
(7,640)
(4,146)
(4,000)
(3,474)
(2,827)
(2,313)
(63,668)
26,115
(37,553)
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Underwriting Impact of Exit Costs:
The underwriting impact of the exit costs relating to net premiums earned and net incurred losses and LAE as
shown in the table above, are summarized in the following table.
Net premiums earned
Net incurred losses and LAE
Acquisition costs
Operating expenses
2020
Subtotal Before Exit
Costs
Exit Costs
Total
(in thousands of U.S. dollars)
$
322,261
$
(248,056)
(90,797)
(81,753)
(4,146) $
(18,682)
—
(100)
318,115
(266,738)
(90,797)
(81,853)
Underwriting income (loss)
$
(98,345)
$
(22,928) $
(121,273)
Underwriting ratios(1):
Loss ratio
Acquisition cost ratio
Operating expense ratio
Combined ratio
77.0 %
28.2 %
25.3 %
130.5 %
83.8 %
28.5 %
25.8 %
138.1 %
(1) Refer to "Underwriting Ratios" for a description of how these ratios are calculated.
Gross Premiums Written:
The following table provides gross premiums written by line of business for the StarStone segment.
Casualty
Marine
Property
Aerospace
Workers' Compensation
Total
2020
2019
Change
2018
Change
(in thousands of U.S. dollars)
$
81,661 $
97,355 $
(15,694) $ 88,701 $
8,654
141,361
49,417
52,967
1,289
215,520
102,718
54,245
2,977
(74,159) 248,308
(32,788)
(53,301) 217,858
(115,140)
(1,278)
61,528
(1,688)
6,175
(7,283)
(3,198)
$ 326,695 $ 472,815 $ (146,120) $ 622,570 $ (149,755)
2020 versus 2019: Gross premiums written decreased by $146.1 million with all lines of business decreasing
due to StarStone International being placed into an orderly run-off.
In light of the decision to implement the StarStone International Run-Off, gross premiums written will decline
materially in future periods.
2019 versus 2018: Gross premiums written decreased by $149.8 million due to our strategy to exit certain
lines of business.
Net Premiums Earned:
The following table provides net premiums earned by line of business for the StarStone segment.
Casualty
Marine
Property
Aerospace
Workers' Compensation
Total
2020
2019
Change
2018
Change
(in thousands of U.S. dollars)
$
84,360 $
86,509 $
(2,149) $ 121,373 $ (34,864)
133,966
68,681
29,343
1,765
199,700
121,644
43,545
(65,734) 176,189
23,511
(52,963) 144,933
(14,202)
56,098
(286)
2,051
16,570
(23,289)
(12,553)
(16,856)
$ 318,115 $ 451,112 $ (132,997) $ 515,163 $ (64,051)
2020 versus 2019: Net premiums earned decreased by $133.0 million due to StarStone International being
placed into an orderly run-off.
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As noted above with respect to gross premiums written, in light of the decision to implement the StarStone
International Run-Off, net premiums earned will decline materially in future periods.
2019 versus 2018: Net premiums earned decreased by $64.1 million due to our strategy to exit certain lines
of business.
Net Incurred Losses and LAE:
The following table shows the components of net incurred losses and LAE for the StarStone segment.
2020
2019
2018
Prior
Periods
Current
Period
Total
Prior
Periods
Current
Period
Total
Prior
Periods
Current
Period
Total
(in thousands of U.S. dollars)
Net losses paid
Net change in case and LAE reserves (1)
Net change in IBNR reserves (2)
$ 300,037 $ 26,831 $ 326,868 $ 375,377 $ 75,458 $ 450,835 $ 289,981 $ 137,390 $ 427,371
(130,502)
35,458
(95,044)
(95,183)
90,497
(4,686)
(77,821)
141,682
63,861
(165,909)
183,563
17,654
(163,340)
185,361
22,021
(87,963)
134,464
46,501
Increase in estimates of net ultimate losses
3,626
245,852
249,478
116,854
351,316
468,170
124,197
413,536
537,733
Increase (reduction) in provisions for unallocated
LAE (3)
Amortization of deferred charge assets and
deferred gain liabilities (4)
Amortization of fair value adjustments (5)
(466)
17,710
17,244
(2,666)
3,568
902
(3,042)
8,655
5,613
606
(590)
—
—
606
(590)
—
168
—
—
—
168
—
(266)
—
—
—
(266)
Net incurred losses and LAE
$ 3,176 $ 263,562 $ 266,738 $ 114,356 $ 354,884 $ 469,240 $ 120,889 $ 422,191 $ 543,080
(1) 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) Represents the gross change in our actuarial estimates of IBNR reserves, less amounts recoverable.
(3) Represents the change in the estimate of the total future costs to administer the claims.
(4) Relates to the amortization of deferred charge assets and deferred gain liabilities on retroactive reinsurance contracts.
(5) Relates to the amortization of fair value adjustments associated with the acquisition of companies.
2020 versus 2019: The decrease in net incurred losses and LAE of $202.5 million in 2020 was mainly driven
by our strategy to exit certain lines of business in 2019 and StarStone International being placed into an orderly run-
off in 2020.
The loss ratios for the StarStone segment were 83.8% and 104.0% in 2020 and 2019, respectively. Net
incurred losses and LAE for 2020 were $266.7 million and included $52.8 million of COVID-19 related losses,
mainly related to casualty and property business, and $18.7 million of exit costs associated with the StarStone
International Run-Off. Excluding the impact of COVID-19 losses and exit costs, the loss ratio for 2020 was 60.8%.
2019 versus 2018: The decrease in net incurred losses and LAE of $73.8 million was primarily driven by our
strategy to exit certain lines of business.
Other Items
2020 versus 2019:
•
•
•
•
•
•
The increase in the acquisition cost ratio of 4.3% was primarily driven by the reduction in net premiums
earned and the impact of the COVID-19-related premium deficiency of $8.9 million in 2020.
The increase in the operating expense ratio of 12.3% was due to restructuring costs and the reduction in
net premiums earned in 2020.
Corporate expenses increased by $34.2 million primarily due to exit costs associated with the StarStone
International Run-Off of $38.5 million, which are summarized above.
Net foreign exchange losses were $10.1 million in 2020 compared to $1.5 million in 2019. The unfavorable
change of $8.6 million was primarily driven by the strengthening of the British pound and Euro against the
U.S. dollar in 2020.
2019 versus 2018:
The reduction in the operating expense ratio of 5.6% was mainly due to a reduction in underwriting
expenses.
Corporate expenses increased by $7.8 million primarily due to reorganization and remediation initiatives,
which were not a cost of underwriting, as well as certain holding company expenses in 2019.
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Discontinued Operations (StarStone U.S.):
2020 versus 2019: The increase in net earnings from discontinued operations, net of income taxes of $8.9
million was driven primarily by the gain on the sale of StarStone U.S. of $16.1 million, partially offset by a reduction
in income tax benefits in 2020.
Net earnings from discontinued operations, net of income taxes included $10.0 million net incurred losses and
LAE related to the COVID-19 pandemic, with Enstar's share totaling $5.9 million, primarily related to casualty
business.
2019 versus 2018: The increase in net earnings from discontinued operations, net of income taxes of $5.9
million was primarily due an increase in income tax benefits in 2019.
The StarStone U.S. business, included in discontinued operations, includes the results of intra-group
reinsurance cessions which were non-renewed as of January 1, 2018. The effect of these intra-group reinsurance
cessions on net earnings, net of income taxes for the StarStone U.S. business was as follows:
StarStone U.S. Group net earnings (loss) before Intra-Group Cessions
Intra-Group Cessions
StarStone U.S. net earnings, net of income taxes
Noncontrolling Interest:
2020
2019
2018
$
$
25,900 $
(48,164) $
(21,983)
(25,763)
55,539
137 $
7,375 $
23,472
1,489
As of December 31, 2020 and 2019, the Trident V Funds and the Dowling Funds had a combined 41.0%
noncontrolling interest in the StarStone segment. The net loss attributable to them is based on their proportionate
share of loss.
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.
The following is a discussion and analysis of our results of operations for our other activities.
Net premiums earned
Net incurred losses and LAE
Acquisition costs
Underwriting income
Net investment (losses) income
Net realized and unrealized gains
Other income (losses)
Corporate expenses
Interest income
Net foreign exchange gains
LOSS BEFORE INCOME TAXES
Income tax expense
NET LOSS ATTRIBUTABLE TO ENSTAR
Dividends on preferred shares
2020
2019
Change
(in thousands of U.S. dollars)
$
19,889 $
20,380 $
(16,967)
(16,038)
(435)
(642)
2,487
3,700
(12,216)
(8,410)
—
(2,673)
5,849
1,792
(44,298)
(45,945)
9,997
2,634
9,989
3
(491)
(929)
207
(1,213)
(3,806)
(5,849)
(4,465)
1,647
8
2,631
(44,069)
(33,022)
(11,047)
(1,391)
(85)
(1,306)
(45,460)
(33,107)
(12,353)
(35,700)
(35,914)
214
NET LOSS ATTRIBUTABLE TO ENSTAR ORDINARY SHAREHOLDERS
$
(81,160) $
(69,021) $
(12,139)
Overall Results:
2020 versus 2019: The increase in net losses from other activities of $12.1 million was primarily driven by a
lower investment return and other losses, partially offset by net foreign exchange gains in 2020. Investment results
are separately discussed below in the "Investment Results - Consolidated" section.
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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. 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 $17.3 billion as of December 31, 2020 as compared to $14.1 billion as of December
31, 2019, an increase of 22.7%, primarily due to assets acquired in relation to the Hannover Re, Munich Re, Lyft,
Aspen and AXA Group transactions, as well as unrealized gains on investments.
For information regarding our investment strategy, refer to "Item 1. Business - Investments."
Composition of Investable Assets By Segment
Across all of our segments, we strive to structure our investment holdings and the duration of our investments
in a manner that recognizes our liquidity needs, including our obligation to pay losses. We consider the duration
characteristics of our liabilities in determining our selection of asset durations 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. Schedules of contractual
maturities for our short-term and fixed maturity securities are included in Note 6 - "Investments" in the notes to our
consolidated financial statements included within Item 8 of this Annual Report on Form 10-K.
The following tables summarize the composition of total investable assets by segment as of December 31,
2020 and 2019:
2020
Non-life Run-
off
StarStone
Other
Total (1)
(in thousands of U.S. dollars)
Short-term investments, trading, at fair value
$
5,129 $
Short-term investments, AFS, at fair value
Fixed maturities, trading, at fair value
Fixed maturities, AFS, 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) (2)
263,795
4,145,956
3,194,327
1,074,890
773,744
4,146,271
— $
—
448,936
200,773
—
73,051
97,763
597,295
235,000
14,201,407
1,055,523
1,104,401
546,471
260,843
81,846
— $
5,129
—
—
—
—
—
—
—
—
7,872
7,502
263,795
4,594,892
3,395,100
1,074,890
846,795
4,244,034
832,295
15,256,930
1,373,116
635,819
$ 15,852,279 $
1,398,212 $
15,374 $ 17,265,865
5.09
1.96
—
4.82
Average credit rating (3)
(1) The Atrium segment is not shown above as its investments were classified as held-for-sale as at December 31, 2020.
(2) The duration calculation includes cash and cash equivalents, short-term investments, fixed maturities and the fixed maturities within our funds
AAA
AA-
A+
A+
held - directly managed portfolios at December 31, 2020 and 2019.
(3) 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, 2020 and 2019.
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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, AFS, at fair value
Fixed maturities, trading, at fair value
Fixed maturities, AFS, 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
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
—
11,474,991
201,538
666,705
336,470
58,369
27,451
6,555
609,292
75,830
—
127,749
123,838
—
943,264
241,708
103,191
—
—
—
—
—
—
—
—
4,567
8,620
128,335
6,143,335
1,538,052
1,187,552
726,721
2,518,031
326,277
12,619,793
971,349
475,732
Total investable assets
Duration (in years) (1)
$ 12,478,166 $
287,358 $
1,288,163 $
13,187 $ 14,066,874
5.24
1.86
2.07
—
4.86
Average credit rating (2)
A+
A+
(1)The duration calculation includes cash and cash equivalents, short-term investments, fixed maturities and the fixed maturities within our funds
AAA
AA-
A+
held - directly managed portfolios at December 31, 2020 and 2019.
(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, 2020 and 2019.
As of both December 31, 2020 and 2019, our investment portfolio, including funds held - directly managed
had an average credit quality rating of A+. As of December 31, 2020 and 2019, our fixed maturity investments
(classified as trading and AFS 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 3.7% and 4.5% of our
total fixed maturity investment portfolio, respectively. A detailed schedule of average credit ratings by asset class as
of December 31, 2020 is included in Note 6 - "Investments" 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
Composition of Investment Portfolio by Asset Class
The following tables summarize the composition of our investment portfolio by asset class as of December
31, 2020 and 2019:
AAA Rated
AA Rated
A Rated
BBB Rated
Non-
investment
Grade
Not Rated
Total
%
(in thousands of U.S. dollars, except percentages)
2020
Fixed maturity and short-term investments, trading and AFS and funds held - directly managed
U.S. government & agency
$ 951,048 $
— $
— $
— $
— $
— $
951,048
U.K. government
Other government
Corporate
Municipal
Residential mortgage-
backed
Commercial mortgage-
backed
Asset-backed
Total
—
244,041
172,718
43,199
159,095
7,883
42,337
—
51,413
—
5,267
—
—
51,082
502,153
607,796
2,646,602
1,960,971
287,363
11,282
5,686,732
37.3 %
8,270
78,585
55,631
20,183
—
—
162,669
1.1 %
544,545
—
2,195
2,615
2,472
2,118
553,945
3.6 %
591,396
239,733
115,114
74,615
84,058
119,757
61,730
89,898
3,961
24,014
7,274
—
854,090
557,460
5.6 %
3.7 %
2,751,751
1,087,847
2,949,020
2,186,810
323,077
20,674
9,319,179
61.1 %
6.2 %
0.3 %
3.3 %
Other assets included within funds held - directly managed
Equities
Publicly traded equities
Exchange-traded funds
Privately held equities
Total
Other investments
Hedge funds
Fixed income funds
Private equity funds
Private credit funds
Equity funds
CLO equity funds
CLO equities
Other
Total
Equity method investments
14,627
0.1 %
260,767
311,287
274,741
846,795
1.7 %
2.0 %
1.8 %
5.5 %
2,638,339
17.3 %
552,541
363,103
192,319
190,767
166,523
128,083
12,359
3.6 %
2.4 %
1.3 %
1.3 %
1.1 %
0.8 %
0.1 %
4,244,034
27.9 %
832,295
5.4 %
Total investments
$ 2,751,751 $ 1,087,847 $ 2,949,020 $ 2,186,810 $ 323,077 $ 20,674 $ 15,256,930
100.0 %
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AAA
Rated
AA Rated
A Rated
BBB Rated
Non-
investment
Grade
Not
Rated
Total
%
(in thousands of U.S. dollars, except percentages)
2019
Fixed maturity and short-term investments, trading and AFS and funds held - directly managed
U.S. government & agency
$ 696,077 $
— $
— $
— $
— $
— $
696,077
U.K. government
Other government
Corporate
Municipal
Commercial mortgage-
backed
Asset-backed
Total
—
161,772
—
—
—
316,150
154,072
63,270
144,557
24,807
—
—
161,772
702,856
140,889
600,081
2,759,671
1,634,572
311,167
1,890
5,448,270
43.2 %
10,088
567,453
304,542
56,389
47,474
80,517
79,930
50,938
2,295
23,272
1,882
—
—
34,055
4,613
87,081
63,565
159,087
110,201
5,556
15,694
9,574
781
140,687
400,914
813,746
670,235
1.1 %
3.2 %
6.4 %
5.3 %
2,345,794
1,180,235
3,122,342
1,978,049
391,279
16,858
9,034,557
71.6 %
Residential mortgage-backed
310,595
5.5 %
1.3 %
5.6 %
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
Fixed income funds
Equity funds
Private equity funds
CLO equities
CLO equity funds
Other
Total
Equity method investments
327,875
133,047
265,799
726,721
1,121,904
481,039
410,149
323,496
87,555
87,509
6,379
2.6 %
1.1 %
2.1 %
5.8 %
8.9 %
3.8 %
3.3 %
2.5 %
0.7 %
0.7 %
— %
2,518,031
19.9 %
326,277
2.6 %
Total investments
$ 2,345,794 $ 1,180,235 $ 3,122,342 $ 1,978,049 $ 391,279 $ 16,858 $ 12,619,793
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 Estimates - Investments" and 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 amortized cost, gross unrealized gains and losses and the fair value of our short-term investments and
fixed maturity investments were as follows:
As of December 31, 2020
U.S. government and agency
U.K. government
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
Gross Unrealized Losses
Amortized
Cost
Gross
Unrealized
Gains
Non-Credit
Related
Losses
Allowance for
Credit
Losses(1)
Fair Value
$
935,014 $
17,148 $
(1,114) $
— $
951,048
46,988
463,765
5,226,238
145,469
545,628
828,155
567,638
4,094
38,460
463,459
17,210
9,640
37,318
3,682
—
(72)
(2,784)
(10)
(1,323)
(11,250)
(13,852)
—
—
51,082
502,153
(181)
5,686,732
—
—
(133)
(8)
162,669
553,945
854,090
557,460
9,319,179
(1)The Company adopted ASU 2016-13 and the related amendments on January 1, 2020. Refer to Note 2 - "Significant Accounting Policies" in the
8,758,895 $
591,011 $
(30,405) $
(322) $
$
notes to our consolidated financial statements included within Item 8 of this Annual Report on Form 10-K for further details.
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As of December 31, 2019
U.S. government and agency
U.K. government
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Non-OTTI
Fair
Value
$
690,343 $
6,663 $
(929) $
696,077
155,261
684,116
5,231,512
131,130
396,331
796,730
674,250
6,628
24,994
235,406
9,595
5,981
20,673
1,806
(117)
(6,254)
161,772
702,856
(18,648)
5,448,270
(38)
(1,398)
(3,657)
(5,821)
140,687
400,914
813,746
670,235
$
8,759,673 $
311,746 $
(36,862) $
9,034,557
We have historically accounted for our fixed income securities as a trading portfolio, whereby unrealized gains
are reflected in earnings. However, from October 1, 2019, we have elected to use AFS accounting and, as trading
fixed income securities mature or are disposed, to the extent the proceeds are reinvested in fixed income securities,
the investments will be classified as AFS securities for the Non-life Run-off and StarStone segments. The difference
in the treatment of the fixed income securities is that unrealized changes on investments classified as trading are
recorded through earnings, whereas unrealized changes on investments classified as AFS are recorded directly to
shareholders' equity as a component of other comprehensive income. 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, allowances for
credit losses 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.
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 AFS and the fixed maturity investments
included within our funds held - directly managed balance as of December 31, 2020:
Bank of America Corp
Morgan Stanley
Citigroup Inc
JPMorgan Chase & Co
Comcast Corp
Wells Fargo & Co
Apple Inc
HSBC Holdings PLC
AT&T Inc
Oracle Corp
Fair Value
(in thousands of U.S.
dollars)
Average Credit
Rating
$
110,894
101,614
96,346
93,275
89,995
87,733
71,006
56,849
55,829
49,765
A
A
A-
A
A-
A
AA+
A
BBB
A-
$
813,306
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Table of Contents
Investment Results - Consolidated
Comparability of our investment results between periods is impacted by our acquisitions and significant new
business as described in Note 3 - "Business 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.
The following tables summarize our consolidated investment results.
Net investment income:
Fixed income securities (1)
Cash and restricted cash
Other investments, including equities
Less: Investment expenses
Non-Life
Run-off
Atrium
StarStone
Other
Total
2020
$ 242,571
$
4,440
$
21,732
$
—
$ 268,743
1,844
51,478
813
492
811
103
6,742
(12,319)
3,571
46,393
(13,845)
(203)
(1,842)
—
(15,890)
Total net investment income (expense)
$ 282,048
$
5,542
$
27,443
$ (12,216)
$ 302,817
Net realized gains (losses):
Fixed income securities (1)
Other investments, including equities
Total net realized gains
Net unrealized gains (losses):
Fixed income securities, trading (1)
Other investments, including equities
Total net unrealized gains
Total investment return included in earnings (A)
Other comprehensive income:
Unrealized gains (losses), on fixed income securities, AFS, net
of reclassification adjustments excluding foreign exchange (B) (1) $
66,745
Total investment return = (A) + (B)
$ 1,976,319
$ 146,673
$
(275)
$
8,027
$
21,800
$ 168,473
$
482
207
2,144
$
10,171
$
$ 153,519
$
3,552
$
(5,212)
$
—
—
—
—
—
—
$ 154,425
24,426
$ 178,851
$ 151,859
1,311,309
$ 1,463,168
1,305,534
$ 1,459,053
$ 1,909,574
406
3,958
9,707
(17)
9,690
$
$
$
$
$
$
$
$
5,369
157
$
37,771
$ (12,216)
$ 1,944,836
2,277
$
—
$
69,005
40,048
$ (12,216)
$ 2,013,841
Income from fixed income assets (2)
$ 244,415
$
5,253
$
22,543
$
103
$ 272,314
Average aggregate fixed income assets, at cost (2)(3)
9,490,830
207,671
1,038,522
16,809
10,753,832
Investment book yield
2.58 %
2.53 %
2.17 %
0.61 %
2.53 %
Average aggregate invested assets, at fair value (3)
$ 13,490,472
$ 235,649
$ 1,225,503
$ 16,809
$ 14,968,433
Investment return included in net earnings
14.15 %
4.12 %
3.08 %
(72.68) %
12.99 %
Total investment return
13.45 %
(1) Fixed income securities includes both trading and AFS short-term and fixed maturity investments as well as funds held - directly managed,
(72.68) %
14.65 %
4.11 %
3.27 %
whereas fixed income securities, trading excludes AFS investments and fixed income, AFS excludes trading investments.
(2) Fixed income assets includes fixed income securities and cash and restricted cash.
(3) These amounts are an average of the amounts disclosed in our quarterly and annual U.S. GAAP consolidated financial statements.
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Net investment income:
Fixed income securities (1)
Cash and restricted cash
Other investments, including equities
Less: Investment expenses
Non-Life
Run-off
Atrium
StarStone
Other
Total
2019
$ 249,677
$ 5,422
$
24,579
$
8,600
29,576
870
1,047
4,116
7,364
567
417
(9,524)
$ 280,245
14,003
28,463
(12,617)
(290)
(1,663)
130
(14,440)
Total net investment income (expense)
$ 275,236
$ 7,049
$
34,396
$ (8,410)
$ 308,271
Net realized gains (losses):
Fixed income securities (1)
Other investments, including equities
Total net realized gains
Net unrealized gains:
Fixed income securities, trading (1)
Other investments, including equities
$
78,573
$
75
$
3,646
$ 4,151
$
86,445
(691)
$
77,882
$
126
201
191
—
(374)
$
3,837
$ 4,151
$
86,071
$ 402,006
$ 4,321
$
22,856
$
—
$ 429,183
488,462
1,673
4,879
1,698
496,712
Total net unrealized gains
$ 890,468
$ 5,994
Total investment return included in earnings (A)
$ 1,243,586
$ 13,244
Other comprehensive income:
Unrealized gains (losses), on fixed income securities, AFS, net
of reclassification adjustments excluding foreign exchange (B) (1) $
(1,064)
$
288
Total investment return = (A) + (B)
$ 1,242,522
$ 13,532
$
$
$
$
27,735
$ 1,698
$ 925,895
65,968
$ (2,561)
$ 1,320,237
(24)
$ (1,072)
$
(1,872)
65,944
$ (3,633)
$ 1,318,365
Income from fixed income assets (2)
$ 258,277
$ 6,292
$
28,695
$
984
$ 294,248
Average aggregate fixed income assets, at cost (2)(3)
9,031,708
256,109
1,158,237
72,045
10,518,099
Investment book yield
2.86 %
2.46 %
2.48 %
1.37 %
2.80 %
Average aggregate invested assets, at fair value (3)
$ 11,799,264
$ 270,590
$ 1,347,215
$ 79,478
$ 13,496,547
Investment return included in net earnings
Total investment return
10.54 %
10.53 %
4.89 %
5.00 %
4.90 %
4.89 %
(3.22) %
(4.57) %
9.78 %
9.77 %
(1) Fixed income securities includes both trading and AFS short-term and fixed maturity investments as well as funds held - directly managed,
whereas fixed income securities, trading excludes AFS investments and fixed income, AFS excludes trading investments.
(2) Fixed income assets includes fixed income securities and cash and restricted cash.
(3) These amounts are an average of the amounts disclosed in our quarterly and annual U.S. GAAP consolidated financial statements.
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Net investment income:
Fixed income securities (1)
Cash and restricted cash
Other investments, including equities
Less: Investment expenses
Non-Life
Run-off
Atrium
StarStone
Other
Total
2018
$ 202,203
$
4,696
$
22,680
$ 1,397
$ 230,976
5,187
25,469
(6,572)
525
739
2,326
4,033
154
1,370
8,192
31,611
(274)
(2,039)
(196)
(9,081)
Total net investment income (expense)
$ 226,287
$
5,686
$
27,000
$ 2,725
$ 261,698
Net realized gains (losses):
Fixed income securities (1)
$
(26,845)
$
(485)
$
(4,087)
$
Other investments, including equities
3,272
226
518
Total net realized gains (losses)
$
(23,573)
$
(259)
$
(3,569)
$
6
—
6
$
(31,411)
4,016
$
(27,395)
Net unrealized gains:
Fixed income securities, trading (1)
Other investments, including equities
Total net unrealized gains
Total investment return included in earnings (A)
Other comprehensive income:
Unrealized gains (losses), on fixed income securities, AFS, net
of reclassification adjustments excluding foreign exchange (B) (1) $
(44)
Total investment return = (A) + (B)
$ (155,469)
$ (195,597)
$
(2,029)
$
(8,225)
$
—
$ (205,851)
(162,542)
$ (358,139)
$ (155,425)
(963)
(2,992)
2,435
(243)
2,192
$
$
$
$
$
$
$
$
(526)
(10,255)
(174,286)
(8,751)
$ (10,255)
$ (380,137)
14,680
$
(7,524)
$ (145,834)
—
$
(1,375)
$
(1,662)
14,680
$
(8,899)
$ (147,496)
Income from fixed income assets (2)
$ 207,390
$
5,221
$
25,006
$ 1,551
$ 239,168
Average aggregate fixed income assets, at cost (2)(3)
7,537,621
265,238
1,535,360
160,359
9,498,578
Investment book yield
2.75 %
1.97 %
1.63 %
0.97 %
2.52 %
Average aggregate invested assets, at fair value (3)
$ 9,041,377
$ 272,386
$ 1,670,240
$ 222,822
$ 11,206,825
Investment return included in net earnings
Total investment return
(1.72) %
(1.72) %
0.89 %
0.80 %
0.88 %
0.88 %
(3.38) %
(3.99) %
(1.30) %
(1.32) %
(1) Fixed income securities includes both trading and AFS short-term and fixed maturity investments as well as funds held - directly managed
whereas, fixed income securities, trading excludes AFS investments and fixed income, AFS excludes trading investments.
(2) Fixed income assets includes fixed income securities and cash and restricted cash.
(3) These amounts are an average of the amounts disclosed in our quarterly and annual U.S. GAAP consolidated financial statements.
Net Investment Income:
2020 versus 2019: Net investment income decreased by $5.5 million for 2020 compared to 2019. There was
a decrease of $11.5 million in net investment income from fixed maturities and a $17.9 million increase in other
investment income and equities, partly offset by a decrease of $10.4 million in net investment income from cash and
cash equivalents. There was an increase of $235.7 million in our average aggregate fixed maturities and cash and
cash equivalents. The increase in our average aggregate fixed maturities and cash and cash equivalents was
primarily due to the Hannover Re, Munich Re, Lyft, Aspen and AXA Group transactions in 2020 and the AmTrust
RITC, Amerisure, Zurich and Maiden Re transactions in 2019. The book yield decreased by 27 basis points,
primarily due to lower rates.
2019 versus 2018: Net investment income increased by $46.6 million for 2019 compared to 2018. There was
an increase of $49.3 million in net investment income from fixed maturities and a $5.8 million in net investment
income from cash and cash equivalents, partly offset by a $3.1 million decrease in other investment income and
equities. There was an increase of $1.0 billion in our average aggregate fixed maturities and cash and cash
equivalents. The increase in our average aggregate 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 28 basis points, primarily due to the contractual yield received on the 2019 transactions.
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Net Realized and Unrealized Gains (Losses):
2020 versus 2019: Net realized and unrealized gains were $1.6 billion for 2020 compared to net realized and
unrealized gains of $1.0 billion for 2019, an increase of $0.6 billion. 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 $306.3 million for 2020, compared to net realized and unrealized gains of $515.6
million for 2019, a decrease of $209.3 million. The gains in 2020 were primarily driven by a decline in
interest rates, whereas the gains in 2019 were due to a combination of lower interest rates and tightening
credit spreads;
Net realized and unrealized gains on other investments, including equities of $1.3 billion for 2020 compared
to $496.3 million for 2019, an increase of $839.4 million. The unrealized gains for 2020 primarily comprised
unrealized gains of $1.2 billion in the hedge fund managed by AnglePoint. These unrealized gains were
driven by strong performance in equity markets across multiple sectors, including consumer discretionary,
communication services, information technology and consumer staples. Historical performance on these
investments may not be indicative of future returns. The fund utilizes prime brokerage borrowings and
derivatives for both hedging and investment purposes as part of a strategy that can generate significant
returns. Funds that employ leverage through borrowings and derivatives can generate outsized returns but
can also experience greater levels of volatility. The unrealized gains for 2019 primarily comprised unrealized
gains in our hedge funds, equities, equity funds, fixed income funds, and private equity funds principally
driven by declining interest rates, tightening credit spreads, and a favorable movement in equity markets.
2019 versus 2018: Net realized and unrealized gains were $1.0 billion for 2019 compared to net realized and
unrealized losses of $407.5 million for 2018, an increase of $1.4 billion. 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 $515.6 million for 2019, compared to net realized and unrealized losses of $237.3
million for 2018, an increase of $752.9 million. The gains in 2019 were primarily driven by a decline in
interest rates and tighter credit spreads, whereas the losses in 2018 were due to higher interest rates and
wider credit spreads; and
Net realized and unrealized gains on other investments, including equities of $496.3 million for 2019
compared to net realized and unrealized losses of $170.3 million for 2018, an increase of $666.6 million.
The unrealized gains for 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 principally
driven by higher interest rates and wider credit spreads.
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Liquidity and Capital Resources
Overview
We aim to generate cash flows from our (re)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 of December 31, 2020 included ordinary shareholders' equity of $6.2 billion,
preferred equity of $510.0 million, redeemable noncontrolling interest of $365.4 million, our debt obligations of $1.4
billion. Based on our current loss reserves position, our portfolios of in-force (re)insurance business, and our
investment positions, we believe we are well capitalized.
The following table details our capital position as of December 31, 2020 and 2019:
Ordinary shareholders' equity
Series D and E Preferred Shares
Total Enstar Group Limited Shareholders' Equity (A)
Noncontrolling interest
Total Shareholders' Equity (B)
$
Senior Notes
Junior Subordinated Notes
Revolving credit facility
Term loan facility
Total debt (C)
2020
2019
(in thousands of U.S. dollars)
Change
$
$
6,164,395
510,000
6,674,395
13,609
6,688,004
843,447
344,812
185,000
—
1,373,259
4,332,183
510,000
4,842,183
14,168
4,856,351
842,216
—
—
348,991
1,191,207
1,832,212
—
1,832,212
(559)
1,831,653
1,231
344,812
185,000
(348,991)
182,052
Redeemable noncontrolling interest (D)
365,436
438,791
(73,355)
Total capitalization = (B) + (C) + (D)
Total capitalization attributable to Enstar = (A) + (C)
$
$
8,426,699
8,047,654
$
$
6,486,349
6,033,390
$
$
1,940,350
2,014,264
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
16.3 %
22.3 %
17.1 %
23.4 %
18.4 %
26.2 %
19.7 %
28.2 %
(2.1) %
(3.9) %
(2.6) %
(4.8) %
As of December 31, 2020, we had $901.2 million of cash and cash equivalents, excluding restricted cash that
supports (re)insurance operations, and included in this amount was $677.7 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, 2020 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.
Dividends
Historically, Enstar has not declared a dividend on its ordinary shares. The strategy has been to retain
earnings and invest distributions from operating subsidiaries into our business. We may re-evaluate this strategy
from time to time based on overall market conditions and other factors, but 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
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$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. For further information on preferred share dividends, refer to Note 17 - "Shareholders' Equity" in the notes
to our consolidated financial statements included within Item 8 of this Annual Report on Form 10-K.
Any payment of common or preferred dividends must be approved by our Board of Directors. Our ability to
pay ordinary 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.
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
utilize our credit and loan facilities, and we have issued senior notes and preferred shares and guaranteed junior
subordinated notes issued by one of our subsidiaries.
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 dividends on our preference shares and
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”), our 4.95% senior notes due 2029 (the "2029 Senior Notes”
and, together with the 2022 Senior Notes, the "Senior Notes") and our 5.75% Junior Subordinated Notes due 2040
(the “Junior Subordinated Notes”), as well as for ordinary share repurchases. Under the eligible capital rules of the
Bermuda Monetary Authority, the Senior Notes qualify as Tier 3 capital and the Preferred Shares and Junior
Subordinated Notes qualify as Tier 2 capital when considering the BSCR.
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, 2020, 2019 and 2018" 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 August 17,
2020 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.
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 (re)insurance
subsidiaries are restricted by (re)insurance laws and regulations, as described below. The ability of all of our
subsidiaries to make distributions and transfers to us may also be restricted by, among other things, other
applicable laws and regulations and the terms of our credit facilities and our subsidiaries’ bank loans and other
issued debt instruments.
U.S. Finance Company Liquidity
Enstar Finance LLC ("Enstar Finance") is a wholly-owned finance subsidiary and is dependent upon funds
from other subsidiaries to pay any amounts due under the Junior Subordinated Notes. In addition, as noted above,
we are a holding company that conducts substantially all of our operations through our subsidiaries. Our only
significant assets are the capital stock of our subsidiaries. Because substantially all of our operations are conducted
through our (re)insurance subsidiaries, substantially all of our consolidated assets are held by our subsidiaries and
most of our cash flow, and, consequently, our ability to pay any amounts due under the guaranty of the Junior
Subordinated Notes, is dependent upon the earnings of our subsidiaries and the transfer of funds by those
subsidiaries to us in the form of distributions or loans.
In addition, the ability of our (re)insurance subsidiaries to make distributions or other transfers to Enstar
Finance or us is limited by applicable insurance laws and regulations, as described below. These laws and
regulations and the determinations by the regulators implementing them may significantly restrict such distributions
and transfers, and, as a result, adversely affect the overall liquidity of Enstar Finance or us. The ability of all of our
subsidiaries to make distributions and transfers to Enstar Finance and us may also be restricted by, among other
things, other applicable laws and regulations and the terms of our credit facilities and our subsidiaries’ bank loans
and other issued debt instruments.
Operating Company Liquidity
The ability of our (re)insurance subsidiaries to pay dividends and make other distributions is limited by the
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applicable laws and regulations of the jurisdictions in which our (re)insurance 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 (re)insurance subsidiaries to maintain minimum capital 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, 2020, all of our (re)insurance subsidiaries’ capital requirement 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 credit
facility agreements and other debt instruments. Variability in ultimate loss payments may also result in increased
liquidity requirements for our subsidiaries. During 2020 and 2019, our regulated subsidiaries paid aggregate capital
distributions and dividends of $706.9 million and $530.6 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 transfers and other 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; however, cash provided by operating activities was positive
for 2020 and 2019 as the proceeds from sales and maturities of trading securities exceeded cash used in the
purchase of trading securities, with the net proceeds being used in the purchase of AFS securities included within
investing cash flows.
In the Atrium segment, we expect positive cash flows 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. As a result of the sale of StarStone U.S. and the decision to place StarStone International
into run-off, we expect net neutral cash flows from operations as net claim payments, losses incurred on earned
premiums and operating expenses are met by cash inflows from investment income, collection of premium
receivable and proceeds from sales and maturities of investments.
Overall, we expect our cash flows, together with our existing capital base and cash and investments acquired
on the acquisition of business, to be sufficient to meet cash requirements and to operate our business.
Cash Flows
The following table summarizes our consolidated cash flows provided by (used in) operating, investing and
financing activities.
Cash provided by (used in):
Operating activities
Investing activities
Financing activities
Net cash flows from discontinued operations
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
2020
2019
Change
2018
Change
(in thousands of U.S. dollars)
$ 2,786,366 $ 1,424,449 $ 1,361,917 $
(141,609) $ 1,566,058
(2,335,436)
(1,603,310)
(732,126)
(827,085)
(776,225)
117,406
(21,996)
(5,800)
540,540
971,349
248,538
(131,132)
701,986
(453,448)
3,840
(324)
73,193
901,996
(25,836)
(5,476)
33,868
2,588
(30,028)
(2,912)
467,347
(230,252)
303,445
69,353
1,166,116
(264,120)
Net change in cash of businesses held-for-sale
(138,773)
(3,840)
(134,933)
(33,868)
Cash and cash equivalents, end of year
$ 1,373,116 $
971,349 $
401,767 $
901,996 $
30,028
69,353
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, 2020, 2019 and 2018" of this
Annual Report on Form 10-K.
2020 versus 2019: Cash and cash equivalents increased by $540.5 million in 2020 compared to $73.2 million
during 2019.
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Cash and cash equivalents increased by $540.5 million in 2020, as cash provided by operating and financing
activities of $2.8 billion and $117.4 million, respectively, was partially offset by cash used in investing activities of
$2.3 billion. Cash provided by operations in 2020 was predominantly driven by: (i) the proceeds from net sales and
maturities of trading securities of $1.7 billion; and (ii) cash and restricted cash acquired in Non-life Run-off
reinsurance transactions of $1.6 billion; partially offset by the timing of paid losses. Cash provided by financing
activities in 2020 was primarily attributable to net inflows of $179.5 million from loan obligations, partially offset by
share repurchases and preferred share dividends. Cash used in investing activities in 2020 primarily related to net
purchases of AFS securities of $1.9 billion and net subscriptions of other investments of $380.3 million. Change in
cash of business held-for-sale is due to the classification of the assets and liabilities of Northshore as held-for-sale
as of December 31, 2020 and the disposal of StarStone U.S.
Cash and cash equivalents increased by $73.2 million in 2019, as cash provided by operating and financing
activities of $1.4 billion and $248.5 million, respectively, was partially offset by cash used in investing activities of
$1.6 billion. Cash provided by operations in 2019 was largely the result of: (i) the proceeds from net sales and
maturities of trading securities of $956.5 million; and (ii) cash and restricted cash acquired in Non-life Run-off
reinsurance transactions of $1.2 billion; partially offset by the timing of paid losses. Cash provided by financing
activities in 2019 was primarily attributable to an increase in debt obligations of $327.9 million due to the issuance of
the 2029 Senior Notes, partially offset by a $150.0 million repayment of the 2018 EGL Term Loan Facility. Cash
used in investing activities in 2019 was primarily related to net purchases of AFS securities of $1.5 billion and net
subscriptions of other investments of $213.0 million, partially offset by cash acquired on the acquisition of Morse
TEC.
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 and cash equivalents decreased by $230.3 million in 2018, as cash used in investing and operating
activities of $827.1 million and $141.6 million, respectively, was partially offset by cash provided by financing
activities of $702.0 million. Cash used in investing activities in 2018 was primarily related to net subscriptions of
other investments of $466.0 million, cash paid on acquisitions, net of cash acquired of $245.2 million and the
purchase of equity method investments of $155.4 million. Cash used in operations was largely the result of net
purchases of trading securities of $637.6 million and the timing of paid losses, partially offset by cash and restricted
cash acquired in Non-life Run-off reinsurance transactions of $652.0 million. Cash provided by financing activities in
2018 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 to noncontrolling interests of $3.9 million.
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 $17.3 billion as of December 31, 2020 as compared to
$14.1 billion as of December 31, 2019, an increase of 22.7%. The increase was primarily due to assets acquired
and unrealized gains on investments. For information regarding our investment strategy and our portfolio and
results, refer to "Item 1. Business - Investments" and to "Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations - Investable Assets," respectively.
Reinsurance Balances Recoverable on Paid and Unpaid Losses
As of December 31, 2020 and 2019, we had reinsurance balances recoverable on paid and unpaid losses of
$2.1 billion and $2.2 billion, respectively.
Our (re)insurance run-off subsidiaries and portfolios, prior to acquisition, used retrocessional agreements to
reduce their exposure to the risk of (re)insurance assumed. On an annual basis, both Atrium and StarStone
purchased a tailored outwards reinsurance program designed to manage their risk profile. The majority of Atrium's
and StarStone's third-party reinsurance 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.
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Debt Obligations
We utilize debt financing and loan facilities primarily for funding acquisitions and significant new business,
investment activities and, from time to time, for general corporate purposes. Our debt obligations as of December
31, 2020 and 2019 were as follows:
4.50% Senior Notes due 2022
4.95% Senior Notes due 2029
Total Senior Notes
5.75% Junior Subordinated Notes due 2040
EGL Revolving Credit Facility
2018 EGL Term Loan Facility
Total debt obligations
Origination Date
Term
2020
2019
March 10, 2017
May 28, 2019
August 26, 2020
August 16, 2018
December 27, 2018
5 years
$
349,253 $
10 years
20 years
5 years
3 years
494,194
843,447
344,812
185,000
—
$
1,373,259 $
348,616
493,600
842,216
—
—
348,991
1,191,207
In 2020, we issued the Junior Subordinated Notes and fully repaid the 2018 EGL Term Loan Facility.
Junior Subordinated Notes
On August 26, 2020, our wholly-owned subsidiary, Enstar Finance issued the Junior Subordinated Notes for
an aggregate principal amount of $350.0 million. The Junior Subordinated Notes are fully and unconditionally
guaranteed by us on an unsecured and junior subordinated basis.
The Junior Subordinated Notes are exclusively the obligations of Enstar Finance and us, to the extent of the
guarantee, and are not guaranteed by any of our other subsidiaries, which are separate and distinct legal entities
and, except for Enstar Finance, have no obligation, contingent or otherwise, to pay holders any amounts due on the
Junior Subordinated Notes or to make any funds available for payment on the Junior Subordinated Notes, whether
by dividends, loans or other payments.
Generally, if an event of default occurs, the trustee or the holders of at least 25% in aggregate principal
amount of the then outstanding Junior Subordinated Notes may declare the principal and accrued and unpaid
interest on all of the Junior Subordinated Notes to be due and payable immediately.
For further information regarding our debt arrangements, including letters of credit, 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.
Credit Ratings
The following table presents our credit ratings as of March 1, 2021:
Credit ratings (1)
Long-term issuer
Senior notes
Junior subordinated notes
Series D preferred shares
Series E preferred shares
Standard and Poor’s
BBB (Outlook: Stable)
BBB
BB+
BB+
BB+
Fitch Ratings
BBB (Outlook: Stable)
BBB-
BB+
BB+
BB+
(1) Credit ratings are provided by third parties, Standard and Poor’s and Fitch Ratings, and are subject to certain limitations and disclaimers. For
information on these ratings, refer to the rating agencies’ websites and other publications.
Agency ratings are not a recommendation to buy, sell or hold any of our securities and may be revised or
withdrawn at any time by the issuing organization. Each agency's rating should be evaluated independently of any
other agency's rating. For information on risks related to our credit ratings, refer to "Item 1A. Risk Factors - Risks
Relating to Liquidity and Capital Resources" and "Item 1A. Risk Factors - Risks Relating to Ownership of our
Shares."
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Contractual Obligations
The following table summarizes, as of December 31, 2020, our future payments under material contractual
obligations and estimated payments for losses and LAE by expected payment date. The table includes only
obligations that are expected to be settled in cash.
Less
than
1 Year
Total
1 - 3
years
3 - 5
years
6 - 10
years
(in millions of U.S. dollars)
More
than
10 Years
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
$ 1,778.5 $
145.6 $
263.0 $
216.9 $
337.8 $
815.2
302.9
1,890.4
34.1
261.1
58.5
380.5
44.5
462.9
60.8
659.6
105.0
126.3
2,005.6
175.7
319.7
336.1
415.1
759.0
344.6
109.0
1,101.5
974.7
152.2
422.5
73.3
28.4
187.4
346.7
51.4
107.2
90.6
39.0
262.6
283.7
47.0
86.7
54.1
21.1
66.6
13.3
254.6
326.0
95.3
22.3
58.5
92.0
19.3
68.0
60.0
7.2
70.9
157.0
12.2
102.1
Total Non-Life Run-off
9,081.9
1,410.9
1,831.3
1,566.3
2,058.5
2,214.9
StarStone International (Non-U.S.)
1,293.2
438.7
456.1
208.4
152.2
Other
ULAE
30.3
385.7
8.1
67.0
8.2
87.1
5.1
60.7
8.9
75.8
37.8
—
95.1
Estimated gross reserves for losses
and LAE (1)
Investing Activities
10,791.1
1,924.7
2,382.7
1,840.5
2,295.4
2,347.8
Investment commitments
1,049.2
442.7
298.4
181.1
127.0
—
Financing Activities
Loan repayments (including
estimated interest payments)
2,034.6
66.1
640.2
89.8
687.3
551.2
Total
$ 13,874.9 $ 2,433.5 $ 3,321.3 $ 2,111.4 $ 3,109.7 $ 2,899.0
(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, 2020 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, 2020 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.
As of December 31, 2020, excluding fair value adjustments, we expect to pay estimated gross losses and
LAE of $1.9 billion in the short-term (less than one year) and $8.9 billion in the long-term (more than one year). We
generally attempt to match the duration of our investment portfolio to the duration of our general liability profile. 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 settlement of liabilities also have the potential to accelerate the
natural payout of losses, which may require additional liquidity.
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In addition to the contractual obligations noted in the table above, as of December 31, 2020, we had the right
to purchase the RNCI related to Atrium and StarStone from the Trident V Funds and the Dowling Funds after a
certain time in the future (a "call right") and the RNCI holders had the right to sell their RNCI interests to us after a
certain time in the future (a "put right"). Following closing of the Exchange Transaction 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, we hold a call right over the remaining portion of StarStone owned by the Trident V
Funds and the Dowling Funds, and they hold a put right to transfer those interests to us.
For additional 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
As of December 31, 2020, we did not have any off-balance sheet arrangements, as defined by SEC rules and
regulations.
Critical Accounting Estimates
We believe the following accounting policies impact the most significant judgments and estimates used in the
preparation of our financial statements.
Losses and LAE
Non-Life Run-off
For a breakdown of our Non-Life Run-off gross and net losses and LAE reserves, including Outstanding Loss
Reserves ("OLR") and IBNR by line of business, fair value adjustments resulting from business combinations,
adjustments related to retroactive reinsurance contracts for which we have elected the fair value option, deferred
charge assets and gain liabilities and ULAE, as of December 31, 2020 and 2019, refer to Note 10 - "Losses and
Loss Adjustment Expenses" in the notes to our consolidated financial statements included within Item 8 of this
Annual Report on Form 10-K.
As of December 31, 2020 and 2019, IBNR reserves (net of reinsurance balances recoverable) accounted for
$4.1 billion, or 54.1%, and $3.3 billion, or 48.8%, respectively, of our total Non-life Run-off net losses and LAE
reserves, excluding the fair value adjustments, deferred charge assets and gain liabilities and ULAE.
Our primary objective in running off the operations of acquired companies and portfolios of (re)insurance
business in run-off is to increase our book value by settling loss reserves below their acquired fair value and earning
investment income on the cash and investments backing the loss reserves. The earnings generated from each
acquired company or portfolio of (re)insurance business, together with the related decrease in loss reserves, leads
to a reduction in the capital required for each company, thereby providing the ability to distribute both earnings and
excess capital to us to finance the new business acquisitions and reinsurance transactions and for general
corporate purposes.
We adopt a disciplined claims management approach to pay only valid claims and pay such claims on a
timely basis and endeavor to reduce the level of acquired LAE provisions by streamlining claims handling
procedures. We also actively pursue commutations of both our acquired LAE provisions and reinsurance
recoverable assets.
We would expect that over the targeted duration of the run-off of our acquired companies and portfolios of
(re)insurance business, the acquired ultimate loss reserves would settle below the acquired fair value, resulting in
reductions in ultimate losses and LAE liabilities resulting in earnings to us. There can be no assurance, however,
that we will successfully implement our run-off 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 and assumed
(re)insurance business in run-off, 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 or assumed (re)insurance business in run-off;
• nature of liabilities;
• size of incurred loss reserves;
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• 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 of the commutation on the remaining IBNR reserves.
Commutations of our acquired LAE provisions provide an opportunity for us to exit exposures to entire
policies with (re)insureds 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 the 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 (re)insured.
Commutations of outward reinsurance business provide an opportunity for us to accelerate the collection of
our ceded reinsurance asset in exchange for assuming the previously reinsured risk. In such instance, we receive a
cash payment from our reinsurer, which is recorded as a negative paid loss and the ceded case and IBNR reserves
attributable to the commuted business will be written down to zero, resulting in an increase to our net case and
IBNR reserves. If we are successful in executing on our claims management strategies, we may realize the benefit
of settling these assumed claims for less than their acquired value; however, there is no assurance that we will be
successful in executing these strategies.
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.
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 overall savings being realized on the total recorded ultimate 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 (re)insured, 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 (re)insurance 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.
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•
•
•
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 (re)insurance contracts, detailed claims audits at the (re)insured’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.
• 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 (re)insurance 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 gain liabilities and ULAE, for our Non-life Run-off
subsidiaries relate primarily to casualty exposures, including latent claims, of which 24.2% in 2020 (2019: 31.0%)
related to asbestos and environmental ("A&E") exposures.
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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 (re)insurance 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 or increase in
IBNR reserves to assess whether the ultimate reduction or increase in loss reserves appears reasonable
in light of known developments within each company.
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 (re)insurance subsidiaries as of December 31, 2020.
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The range of gross loss and LAE reserves implied by the various methodologies used by each of our
(re)insurance subsidiaries as of December 31, 2020 and 2019 is presented in the following table ("Range of
Outcomes"):
Asbestos
Environmental
General casualty
2020
2019
Low
Selected
High
Low
Selected
High
(in thousands of U.S. dollars)
$ 1,530,983 $ 1,778,539 $ 2,162,145 $ 1,639,077 $ 1,916,359 $ 2,447,051
261,105
302,894
366,789
1,513,079
1,890,428
2,229,347
296,253
875,288
343,286
413,991
990,992
1,116,946
Workers' compensation/personal accident
1,674,984
2,005,562
2,281,656
1,983,940
2,248,338
2,555,782
Marine, aviation and transit
Construction defect
Professional indemnity/Directors &
Officers
Motor
Property
Other
305,496
97,304
344,550
108,958
387,300
124,341
368,090
112,549
411,644
128,084
480,875
145,253
960,300
1,101,473
1,241,179
850,161
135,688
363,350
974,726
1,105,808
152,230
422,565
168,983
486,125
876,445
633,338
184,028
380,793
959,250
1,062,111
714,474
204,224
435,838
800,217
226,688
520,909
7,692,450
9,081,925
10,553,673
7,349,801
8,352,489
9,769,823
Fair value adjustments
(125,423)
(142,854)
(163,303)
(147,158)
(170,689)
(194,310)
Fair value adjustments - fair value option
(47,286)
(54,589)
(62,491)
(190,549)
(217,933)
(265,609)
ULAE
Total
303,527
350,600
399,895
291,696
331,494
385,762
$ 7,823,268 $ 9,235,082 $ 10,727,774 $ 7,303,790 $ 8,295,361 $ 9,695,666
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 given 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.
Once the data has been analyzed, 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
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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.
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 derived. 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
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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, since 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 selected 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.
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 additional information that may not be evident in the data used by the actuaries, such as, but not limited
to, recent judicial decisions, inflation, and adjusts the estimate of ultimate losses as it deems necessary. 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, over fifty years after the first significant lawsuit
against an asbestos manufacturer was filed. 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 had the effect of maximizing insurance recoveries from both a
coverage and liability perspective for these plaintiffs.
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.
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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, 2020 and 2019:
Balance as of January 1
Less: reinsurance reserves recoverable
Net balance as of January 1
Total net incurred losses and LAE
Total net paid losses
Effect of exchange rate movement
Assumed business
Ceded business
Net balance as of December 31
Plus: reinsurance reserves recoverable
Balance as of December 31
2020
2019
(in thousands of U.S. dollars)
$
1,916,359 $
1,617,020
154,260
1,762,099
(18,501)
(132,853)
38,932
—
(63,554)
1,586,123
192,416
123,910
1,493,110
6,811
(118,557)
37,249
382,474
(38,988)
1,762,099
154,260
$
1,778,539 $
1,916,359
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, 2020 and 2019, the net loss reserves for asbestos-
related claims comprised 20.8% and 26.3%, respectively, of total Non-life Run-off net reserves for losses and LAE
liabilities excluding the fair value adjustments, deferred charge assets and gain liabilities 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.
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.
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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, 2020 and 2019:
Balance as of January 1
Less: reinsurance reserves recoverable
Net balance as of January 1
Total net incurred losses and LAE
Total net paid losses
Effect of exchange rate movement
Assumed business
Ceded business
Net balance as of December 31
Plus: reinsurance reserves recoverable
Balance as of December 31
2020
2019
(in thousands of U.S. dollars)
$
343,286 $
27,057
316,229
(12,762)
(23,866)
(1,334)
—
(13,219)
265,048
37,846
$
302,894 $
222,700
12,221
210,479
14,988
(16,899)
(3,615)
124,009
(12,733)
316,229
27,057
343,286
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, 2020 and 2019, the net loss reserves for
environmental pollution-related claims comprised 3.5% and 4.7%, respectively, of total Non-life Run-off net reserves
for losses and LAE excluding the fair value adjustments, deferred charge assets and gain liabilities 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.
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 coverage limitations (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.
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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 payment 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) by our paid losses
during that period.
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
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historical claim filing rates, historical 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 added to the projected ultimate losses 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 (classified as held-for-sale) 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.
For 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, 2020 and 2019 for the Atrium and StarStone
segments, refer to Note 10 - "Losses and Loss Adjustment Expenses" in the notes to our consolidated financial
statements included within Item 8 of this Annual Report on Form 10-K.
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 loss 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.
Defendant asbestos and environmental liabilities
For information on our defendant asbestos and environmental liabilities, refer to Note 11 - "Defendant
Asbestos and Environmental Liabilities" and Note 2 - "Significant Accounting Policies" in the notes to our
consolidated financial statements included within Item 8 of this Annual Report on Form 10-K.
Reinsurance Balances Recoverable on Paid and Unpaid Losses
Our acquired (re)insurance subsidiaries in all three of our operating segments have retrocessional
agreements to reduce exposure to the risk of (re)insurance 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 (re)insureds. 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 reinsurance programs designed to manage their risk profiles. The majority of the total third-party
reinsurance for our active underwriting subsidiaries is with Lloyd’s Syndicates or other reinsurers rated A- or better.
For reinsurers that are not rated, the reinsurer provides collateral in the form of letters of credit, trust funds or funds
withheld.
For further information, refer to Note 8 - "Reinsurance Balances Recoverable on Paid and Unpaid Losses"
and Note 2 - "Significant Accounting Policies" in the notes to our consolidated financial statements included within
Item 8 of this Annual Report on Form 10-K.
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Valuation Allowances on Reinsurance Balances Recoverable and Deferred Tax Assets
Valuation Allowances on Reinsurance Balances Recoverable
Refer to Note 8 - "Reinsurance Balances Recoverable on Paid and Unpaid Losses" and Note 2 - "Significant
Accounting Policies" in the notes to our consolidated financial statements included within Item 8 of this Annual
Report on Form 10-K for information on the allowance for estimated uncollectible reinsurance balances recoverable
on paid and unpaid losses.
Valuation Allowances on Deferred Tax Assets
For information on valuation allowances on deferred tax assets, refer to "Income Taxes" within Note 2 -
"Significant Accounting Policies" in the notes to our consolidated financial statements included within Item 8 of this
Annual Report on Form 10-K.
Deferred Charge Assets and Deferred Gain Liabilities
Refer to "Retroactive Reinsurance" within Note 2 - "Significant Accounting Policies" in the notes to our
consolidated financial statements included within Item 8 of this Annual Report on Form 10-K for information on
deferred charge assets and gain liabilities.
Premium Revenue Recognition
Refer to "Premiums" within Note 2 - "Significant Accounting Policies" in the notes to our consolidated financial
statements included within Item 8 of this Annual Report on Form 10-K for information on premium revenue
recognition.
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 AFS portfolio of fixed maturity and short-term investments. We record both
the trading and AFS 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 AFS 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.
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
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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.
Short-Term and Fixed Maturity Investments
Short-term and 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 AFS
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.
At every reporting period, we perform a detailed analysis to identify any credit losses on our AFS portfolios.
For further information on the allowance for credit losses and other-than temporary impairment losses on our AFS
investments, refer to Note 2 - "Significant Accounting Policies" and Note 6 - "Investments" in the notes to our
consolidated financial statements included within Item 8 of this Annual Report on Form 10-K.
For information on our valuation methodologies for short-term and fixed maturity investments, refer to 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.
Other investments, including equities
For information on our valuation methodologies for other investments, including equities, refer to 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.
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 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 estimated fair value. The fair values of each of the
(re)insurance 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 (re)insurance 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
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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 the estimated cost of running off the acquired company based on how that
participant expects to manage the assets and liabilities into the price to pay for an acquisition.
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.
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, 2020 and 2019. 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.
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 is 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 high quality rated corporate bond yields 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.
Redeemable Noncontrolling Interest
For information on redeemable noncontrolling interest, refer to Note 2 - "Significant Accounting Policies" in the
notes to our consolidated financial statements included within Item 8 of this Annual Report on Form 10-K.
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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 2020 are not materially different than those used in
2019, 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. However, due to
the ongoing uncertainty and volatility in financial markets as a result of the economic conditions caused by the
COVID-19 pandemic, we expect interest rates, credit spreads and global equity markets to remain volatile in the
near-term. Furthermore, the pandemic has increased the risk of defaults across many industries. As a result, we
continue to closely monitor market risk during this time.
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
includes 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 AFS, our funds held directly managed portfolio, our fixed income
funds and our fixed income exchange-traded funds, and excludes investments classified as held-for-sale:
As of December 31, 2020
-100
-50
—
+50
+100
Interest Rate Shift in Basis Points
Total Market Value (1)
Market Value Change from Base
Change in Unrealized Value
As of December 31, 2019
Total Market Value (1)
Market Value Change from Base
(in millions of U.S. dollars)
$ 10,632
$ 10,324
$
10,028 $ 9,756
$ 9,495
6.0 %
3.0 %
—
(2.7) %
(5.3) %
$
604
$
296
$
— $
(272)
$
(533)
-100
-50
—
+50
+100
$ 10,141
$ 9,893
$
9,648 $ 9,415
$ 9,193
5.1 %
2.5 %
—
(2.4) %
(4.7) %
(455)
Change in Unrealized Value
(1) Excludes equity exchange-traded funds of $154.9 million and $0 for the years ended December 31, 2020 and December 31, 2019,
— $
(233)
245
493
$
$
$
$
respectively, which are included in the Equity Price Risk section below.
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 AFS, our funds held directly managed portfolio, our fixed income funds and our fixed
income exchange-traded funds, and excludes investments classified as held-for-sale:
As of December 31, 2020
-100
-50
—
+50
+100
Credit Spread Shift in Basis Points
Total Market Value (1)
Market Value Change from Base
Change in Unrealized Value
As of December 31, 2019
Total Market Value (1)
Market Value Change from Base
(in millions of U.S. dollars)
$ 10,608
$ 10,308
$
10,028 $ 9,765
$ 9,516
5.8 %
2.8 %
(2.6) %
(5.1) %
$
580
$
280
$
(263)
$
(512)
-100
-50
—
+50
+100
$ 10,078
$ 9,867
$
9,648 $ 9,429
$ 9,218
4.5 %
2.3 %
(2.3) %
(4.5) %
(430)
Change in Unrealized Value
$
(1) Excludes equity exchange-traded funds of $154.9 million and $0 for the years ended December 31, 2020 and December 31, 2019,
(219)
219
430
$
$
$
respectively, which are included in the Equity Price Risk section below.
Credit 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 balances recoverable on paid and unpaid losses, respectively, as discussed below.
Fixed Maturity and Short-Term Investments
As a holder of $9.3 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, 2020, 41.2% of our fixed maturity and short-term investment portfolio was rated AA or
higher by a major rating agency (December 31, 2019: 39.1%) with 3.5% rated lower than BBB- (December 31,
2019: 4.3%). 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, 2020 (December 31,
2019: 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 believe we do not have significant concentrations of credit risk.
A summary of our fixed maturity and short-term investments by credit rating as of December 31, 2020 and
2019 is as follows:
Credit rating
AAA
AA
A
BBB
Non-investment grade
Not rated
Total
Average credit rating
2020
2019
Change
29.5 %
11.7 %
31.6 %
23.5 %
3.5 %
0.2 %
100.0 %
A+
3.5 %
(1.4) %
(2.9) %
1.6 %
(0.8) %
— %
26.0 %
13.1 %
34.5 %
21.9 %
4.3 %
0.2 %
100.0 %
A+
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
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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, 2020 we had 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 these exchange-traded funds are part of our fixed income
investment strategy and are backed by fixed income instruments. 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
Equity exchange traded funds
Call options on equity
Fair value of equities at risk
Impact of 10% decline in fair value
2020
2019
Change
(in millions of U.S. dollars)
$
260.8 $
327.9 $
(67.1)
274.7
363.1
190.8
155.0
—
265.8
323.5
410.1
—
0.1
$
$
1,244.4 $
1,327.4 $
124.4 $
132.7 $
8.9
39.6
(219.3)
155.0
(0.1)
(83)
(8.3)
In addition to the above, as of December 31, 2020, we had investments of $2.6 billion (December 31, 2019:
$1.1 billion) in hedge funds, included within our other investments, at fair value, that have exposure to equity price
risk given the underlying assets in those funds. As of December 31, 2020 and 2019, the impact of a 10% decline in
the fair value of these investments would have been $263.8 million and $112.2 million, respectively.
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Foreign Currency Risk
The table below summarizes our net exposures as of December 31, 2020 and 2019 to foreign currencies:
As of December 31, 2020
Total net foreign currency exposure
Pre-tax impact of a 10% movement in USD(1)
$
$
7.0 $
(1.9) $ 24.4 $ 38.9 $
1.5 $ 69.9
0.7 $
(0.2) $
2.4 $
3.9 $
0.2 $
7.0
AUD
CAD
EUR
GBP
Other
Total
(in millions of U.S. dollars)
As of December 31, 2019
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) $
0.6 $ 11.2
2.0 $
(1.1) $
1.3 $
(1.2) $
0.1 $
1.1
Through our subsidiaries located in various jurisdictions, we conduct our (re)insurance 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 AFS investments, are recognized in our consolidated statements
of earnings. Changes in foreign exchange rates relating to non-U.S. dollar AFS 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: We have 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 their respective 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 (re)insurance 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.
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.
However, the actual effects of inflation on our consolidated results of operations cannot be accurately known until
claims are ultimately settled.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets as of December 31, 2020 and 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Earnings for the years ended December 31, 2020, 2019 and 2018 . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018 . . . . . . . . . . .
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2020, 2019 and 2018 . . . .
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018 . . . . . . . . . . . . . . . . . . . . .
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 1 - Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 2 - Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 3 - Business 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 and Deferred Gain Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 - Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
97
100
101
102
103
104
105
105
106
118
123
124
129
139
142
145
146
197
199
208
208
209
212
213
217
218
222
224
233
236
239
243
244
245
249
250
251
252
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash
flows for each of the years in the three‑year period ended December 31, 2020, 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, 2020, 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 March 1, 2021 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.
Loss reserves and asbestos and environmental liabilities
As discussed in Notes 2 (c), 2 (d), 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 $ 8,140 million and $ 706 million,
respectively, as of December 31, 2020. Loss reserves include an amount determined from reported claims and
an amount, based on historical loss experience and industry statistics, for losses incurred but not reported.
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 establishes loss
reserves and asbestos and environmental liabilities based on actuarially determined estimates of ultimate
claims payments, 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
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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 evaluation of the estimate of asbestos and
environmental 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 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 the key
assumptions used to estimate loss reserves and asbestos and environmental liabilities.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the
design and tested the operating effectiveness of certain internal controls over the Company’s process to
estimate the loss reserves and asbestos and environmental liabilities. This included 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 assumptions for loss development factors, expected loss ratios, and expected trends in claim
frequency and severity used in the estimation process of loss reserves by comparing them to historical
results and industry trends
evaluating assumptions for expected trends in claim frequency and severity used in the estimation process
of asbestos and environmental liabilities by comparing them to historical results and industry trends
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
assessing the movement of the recorded loss reserves within the Company’s range of actuarially
determined reserves
assessing the movement of the recorded asbestos and environmental liabilities within the Company’s range
of actuarially determined reserves.
Liability for loss and loss adjustment expenses, fair value
As discussed in Notes 2 (c), 2 (q), 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 uses estimated nominal cash flows based on a payment pattern developed in
accordance with standard actuarial techniques. Nominal loss reserves include an amount determined from
reported claims and an amount, based on historical loss experience and industry statistics, for losses incurred
but not reported. The Company establishes nominal loss reserves based on actuarially determined estimates of
ultimate loss and loss adjustment expenses, 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 $ 2,453
million as of December 31, 2020.
We identified the assessment of loss reserves at fair value as a critical audit matter. The evaluation of the
estimate of 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 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 following are the primary procedures we performed to address this critical audit matter. We evaluated the
design and tested the operating effectiveness of certain internal controls over the Company’s process to
estimate nominal loss reserves. This included controls over the assumptions and actuarial methodologies used
in the 1) estimation of nominal loss reserves; and 2) the estimation of the projected payout, including timing and
98
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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 nominal loss reserves
with generally accepted actuarial methodologies
comparing assumptions for loss development factors and expected trends in claim frequency and severity
to historical results and industry trends
developing an independent actuarial estimate of 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
evaluating the projected payout, including timing, and amount of the nominal cash flows used to develop the
fair value, by developing an independent projected payout for selected lines of business
examining the Company’s projected payout for the remaining lines of business by evaluating changes in the
timing of the nominal cash flows from the prior year and evaluating changes in methodologies and
assumptions from the prior year.
/s/ KPMG Audit Limited
KPMG Audit Limited
We have served as the Company’s auditor since 2012.
Hamilton, Bermuda
March 1, 2021
99
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ENSTAR GROUP LIMITED
CONSOLIDATED BALANCE SHEETS
As of December 31, 2020 and 2019
ASSETS
Short-term investments, trading, at fair value
Short-term investments, available-for-sale, at fair value (amortized cost: 2020 — $263,750; 2019 — $128,311; net of
allowance: 2020 — $0)
Fixed maturities, trading, at fair value
Fixed maturities, available-for-sale, at fair value (amortized cost: 2020 — $3,312,891; 2019 — $1,537,815; net of allowance:
2020 — $322)
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
2020
2019
(expressed in thousands of U.S.
dollars, except share data)
$
5,129 $
51,490
263,795
128,335
4,594,892
6,143,335
3,395,100
1,074,890
846,795
1,538,052
1,187,552
726,721
4,244,034
2,518,031
832,295
326,277
15,256,930
12,619,793
901,152
471,964
405,793
624,472
346,877
491,511
Reinsurance balances recoverable on paid and unpaid losses (net of allowance: 2020 — $137,122) (Note 8)
1,568,333
1,485,616
Reinsurance balances recoverable on paid and unpaid losses, at fair value (Note 8 and Note 12)
Insurance balances recoverable (net of allowance: 2020 — $4,824) (Note 11)
Funds held by reinsured companies
Other assets
Assets held-for-sale (Note 5)
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)
Insurance and reinsurance balances payable
Debt obligations (Note 15)
Other liabilities
Liabilities held-for-sale (Note 5)
TOTAL LIABILITIES
COMMITMENTS AND CONTINGENCIES (Note 23)
REDEEMABLE NONCONTROLLING INTEREST (Note 16)
SHAREHOLDERS’ EQUITY (Note 17)
Ordinary shares (par value $1 each, issued and outstanding 2020: 22,085,232; 2019: 21,511,505):
Voting Ordinary Shares (issued and outstanding 2020: 18,575,550; 2019: 18,001,823)
Non-voting convertible ordinary Series C Shares (issued and outstanding 2020 and 2019: 2,599,672)
Non-voting convertible ordinary Series E Shares (issued and outstanding 2020 and 2019: 910,010)
Preferred Shares:
Series C Preferred Shares (issued and held in treasury 2020 and 2019: 388,571)
Series D Preferred Shares (issued and outstanding 2020 and 2019: 16,000)
Series E Preferred Shares (issued and outstanding 2020 and 2019: 4,400)
Treasury shares, at cost (Series C Preferred Shares 2020 and 2019: 388,571)
Joint Share Ownership Plan (voting ordinary shares, held in trust 2020: 565,630; 2019: 0)
Additional paid-in capital
Accumulated other comprehensive income
Retained earnings
Total Enstar Shareholders’ Equity
Noncontrolling interest
TOTAL SHAREHOLDERS’ EQUITY
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY
See accompanying notes to the consolidated financial statements
100
520,830
249,652
635,819
925,533
711,278
695,518
448,855
475,732
1,162,955
1,474,770
$
21,647,284 $
19,826,099
$
8,140,362 $
7,247,282
2,452,920
2,621,122
706,329
494,412
847,685
420,546
1,373,259
1,191,207
942,905
483,657
994,584
1,208,531
14,593,844
14,530,957
365,436
438,791
18,576
2,600
910
389
400,000
110,000
18,002
2,600
910
389
400,000
110,000
(421,559)
(421,559)
(566)
—
1,836,074
1,836,778
80,659
4,647,312
6,674,395
13,609
7,171
2,887,892
4,842,183
14,168
6,688,004
4,856,351
$
21,647,284 $
19,826,099
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ENSTAR GROUP LIMITED
CONSOLIDATED STATEMENTS OF EARNINGS
For the Years Ended December 31, 2020, 2019 and 2018
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
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) FROM CONTINUING OPERATIONS
Net earnings from discontinued operations, net of income taxes
NET EARNINGS (LOSS)
Net loss attributable to noncontrolling interest
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR
2020
2019
2018
(expressed in thousands of U.S.
dollars, except share and per share data)
$
572,092 $
804,047 $
695,779
42,446
302,817
28,453
308,271
35,088
261,698
1,642,019
1,011,966
(407,532)
101,132
37,070
2,660,506
2,189,807
34,073
619,106
415,926
171,020
501,479
59,308
16,393
614,179
240,609
413,084
52,541
(7,912)
1,164,126
1,496,380
1,312,501
877,306
(23,827)
(12,372)
238,569
1,711,122
16,251
1,727,373
27,671
1,755,044
55,910
920,844
7,375
928,219
9,870
938,089
323,722
177,855
348,786
25,696
2,644
878,703
(259,597)
3,689
42,147
(213,761)
1,489
(212,272)
62,051
(150,221)
Dividends on preferred shares
(35,700)
(35,914)
(12,133)
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR ORDINARY
SHAREHOLDERS
$
1,719,344 $
902,175 $
(162,354)
Earnings per ordinary share attributable to Enstar Group Limited:
Basic:
Net earnings (loss) from continuing operations
Net earnings from discontinued operations
Net earnings (loss) per ordinary share
Diluted:
Net earnings (loss) from continuing operations
Net earnings from discontinued operations
Net earnings (loss) per ordinary share
Weighted average ordinary shares outstanding:
Basic
Diluted
$
$
$
$
79.43 $
41.80 $
0.35
0.20
79.78 $
42.00 $
78.45 $
41.23 $
0.35
0.20
78.80 $
41.43 $
(7.89)
0.05
(7.84)
(7.89)
0.05
(7.84)
21,551,408
21,482,617
20,698,310
21,818,294
21,775,066
20,904,176
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, 2020, 2019 and 2018
NET EARNINGS (LOSS)
Other comprehensive income (loss), net of income taxes:
Unrealized gains (losses) on fixed income available-for-sale
investments arising during the year
Reclassification adjustment for change in allowance for credit
losses recognized in net earnings
Reclassification adjustment for net realized (gains) losses included
in net earnings
Reclassification to earnings on disposal of subsidiary
Unrealized gains (losses) arising during the year, net of
reclassification adjustments
Change in currency translation adjustment
Reclassification to earnings on disposal of subsidiary
Cumulative currency translation adjustment, net of reclassification
adjustments
Decrease in defined benefit pension liability
Total other comprehensive income (loss)
2020
2019
2018
(expressed in thousands of U.S. dollars)
$ 1,727,373 $
928,219 $
(212,272)
104,924
2,896
(2,284)
(509)
—
(18,033)
(11,856)
(3,894)
—
74,526
(998)
(2,103)
(2,428)
34
—
(2,069)
(2,428)
1,152
73,609
42
(3,384)
—
63
—
(2,221)
(202)
—
(202)
2,156
(267)
Comprehensive income (loss)
Comprehensive loss attributable to noncontrolling interest
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO
ENSTAR
1,800,982
924,835
(212,539)
27,550
9,985
62,291
$ 1,828,532 $
934,820 $
(150,248)
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, 2020, 2019 and 2018
Share Capital — Voting Ordinary Shares
Balance, beginning of year
Issue of shares
Shares repurchased
Balance, end of year
Share Capital — Non-Voting Convertible Ordinary Series C Shares
Balance, beginning and 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
Joint Share Ownership Plan — Voting Ordinary Shares, Held in Trust
Balance, beginning of year
Issue of shares
Balance, end of year
Additional Paid-in Capital
Balance, beginning of year
Issue (repurchase) of voting ordinary shares
Shares repurchased
Issuance costs of preferred shares
Amortization of share-based compensation
Balance, end of year
Accumulated Other Comprehensive Income
Balance, beginning of year
Cumulative currency translation adjustment
Balance, beginning of year
Change in currency translation adjustment
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 available-for-sale investments
Balance, beginning of year
Change in unrealized gains (losses) on available-for-sale investments
Balance, end of year
Balance, end of year
Retained Earnings
Balance, beginning of year
Net earnings (loss)
Net loss 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
Contribution (distribution) of noncontrolling interest
Net earnings (loss) attributable to noncontrolling interest
Balance, end of year
2018
2019
2020
(expressed in thousands of U.S. dollars)
18,002 $
752
(178)
18,576 $
17,950 $
52
—
18,002 $
16,402
1,548
—
17,950
2,600 $
2,600 $
2,600
910 $
—
910 $
910 $
—
910 $
389 $
389 $
400,000 $
—
400,000 $
400,000 $
—
400,000 $
110,000 $
—
110,000 $
110,000 $
—
110,000 $
405
505
910
389
—
400,000
400,000
—
110,000
110,000
(421,559) $
(421,559) $
(421,559)
— $
(566)
(566) $
— $
—
— $
—
—
—
1,836,778 $
(815)
(25,828)
—
25,939
1,836,074 $
1,804,664 $
583
—
—
31,531
1,836,778 $
1,395,067
413,141
—
(14,643)
11,099
1,804,664
7,171 $
10,440 $
10,468
8,548
(672)
7,876
(945)
1,152
207
10,986
(2,438)
8,548
(987)
42
(945)
(432)
73,008
72,576
80,659 $
441
(873)
(432)
7,171 $
11,171
(185)
10,986
(3,143)
2,156
(987)
2,440
(1,999)
441
10,440
2,887,892 $
1,727,373
27,671
(35,700)
46,224
(6,148)
4,647,312 $
1,976,539 $
928,219
9,870
(35,914)
9,178
—
2,887,892 $
2,132,912
(212,272)
62,051
(12,133)
7,554
(1,573)
1,976,539
14,168 $
(400)
(159)
13,609 $
12,056 $
(47)
2,159
14,168 $
9,264
49
2,743
12,056
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
See accompanying notes to the consolidated financial statements
103
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ENSTAR GROUP LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2020, 2019 and 2018
OPERATING ACTIVITIES:
Net earnings (loss)
Net earnings from discontinued operations, net of income taxes
Adjustments to reconcile net earnings to cash flows provided by (used in) operating activities:
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
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
Insurance and reinsurance balances payable
Premiums receivable
Other operating assets and liabilities
Net cash flows provided by (used in) operating activities
INVESTING ACTIVITIES:
Acquisitions, net of cash acquired
Sales of subsidiaries, 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
Sale of equity method investment
Other investing activities
Net cash flows used in investing activities
FINANCING ACTIVITIES:
Net proceeds from the issuance of preferred shares
Dividends on preferred shares
(Purchase) contribution by noncontrolling interest
Contribution by redeemable noncontrolling interest
Contribution of capital to discontinued operations
Dividends paid to noncontrolling interest
Repurchase of shares
Receipt of loans
Repayment of loans
Net cash flows provided by financing activities
DISCONTINUED OPERATIONS CASH FLOWS:
Net cash flows provided by (used in) operating activities
Net cash flows (used in) provided by investing activities
Net cash flows provided by financing activities
Net cash flows from discontinued operations
EFFECT OF EXCHANGE RATE CHANGES ON FOREIGN CURRENCY CASH, CASH EQUIVALENTS AND
RESTRICTED CASH
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF YEAR
NET CHANGE IN CASH OF BUSINESSES HELD-FOR-SALE
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF YEAR
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
2020
2019
2018
(expressed in thousands of U.S. dollars)
$
1,727,373
$
928,219
$
(212,272)
(16,251)
(7,375)
(1,489)
(178,851)
(1,463,168)
59,570
(238,569)
3,792,083
(86,071)
(925,895)
34,695
(55,910)
27,395
380,137
32,242
(42,147)
5,361,936
4,706,318
(2,139,399)
(4,405,433)
(5,343,965)
23,242
33,857
11,857
52,027
(316,440)
(192,313)
1,002,520
(141,356)
86,645
23,326
389,487
2,786,366
(67,636)
821,049
(18,142)
50,859
204,358
(127,622)
1,424,449
(289,295)
(215,041)
897,091
(15,844)
133,676
(165,357)
(44,915)
(141,609)
$
—
$
172,482
$
(245,151)
(13,847)
2,259,546
—
335,670
(4,180,893)
(1,826,724)
(975,024)
594,676
(33,000)
12,200
906
(794,613)
581,639
(69,213)
—
(2,551)
(2,335,436)
(1,603,310)
—
58,219
(10,385)
(900,262)
434,255
(155,440)
—
(8,321)
(827,085)
$
—
$
—
$
495,357
(35,700)
—
—
—
(400)
(26,006)
858,512
(679,000)
117,406
107,644
(129,640)
—
(21,996)
(5,800)
540,540
971,349
(138,773)
(35,914)
(47)
13,127
(45,000)
(11,556)
—
(12,133)
49
55,377
(51,000)
(3,852)
—
1,070,502
1,132,507
(742,574)
248,538
339,067
(380,227)
45,000
3,840
(324)
73,193
901,996
(3,840)
(914,319)
701,986
(18,463)
1,331
51,000
33,868
2,588
(230,252)
1,166,116
(33,868)
$
1,373,116
$
971,349
$
901,996
$
$
$
$
25,029
50,775
$
$
4,941
49,457
$
$
12,355
25,240
901,152
$
624,472
$
471,964
346,877
1,373,116
$
971,349
$
535,809
366,187
901,996
In addition to the cash flows presented above, our noncash investing activities for the year ended December 31, 2020 included $235 million relating to the
purchase of equity method investments which was satisfied through the sale of a subsidiary. Refer to Note 5 - "Divestitures, Held-for-Sale Businesses and
Discontinued Operations."
See accompanying notes to the consolidated financial statements
104
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2020, 2019 and 2018
(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 leading
global insurance group that offers innovative capital release solutions 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 in the business of
running off property and casualty and other non-life (re)insurance 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 our Lloyd’s corporate member, SGL No.1 Limited ("SGL No.1"), we provide 25%
of the underwriting capacity for Atrium's Syndicate 609 (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. As of December 31,
2020, we have classified the Atrium segment as held-for-sale in view of the Exchange Transaction as discussed in
Note 5 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations."; and
(iii) StarStone: StarStone was a global specialty insurer that offered a diverse range of property, casualty and
specialty insurance through its operations in Bermuda, the United States, the United Kingdom, and Continental
Europe. However, during 2020, StarStone's U.S. operations, including StarStone U.S. Holdings, Inc. and its
subsidiaries ("StarStone U.S.") were sold and StarStone's remaining non-U.S. operations ("StarStone International")
were placed into an orderly run-off. For further information, refer to Note 5 - "Divestitures, Held-for-Sale Businesses
and Discontinued Operations."
Atrium and StarStone are reported as separate segments as of December 31, 2020 because they were
managed and operated in separate and distinct manners. Atrium employees were not involved in the management
or strategy of StarStone, nor were StarStone employees involved in the management or strategy of Atrium. Atrium
and StarStone were monitored and reported upon separately and distinctly and the strategies and business plans
were determined independently of each other.
In addition, 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.
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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, 2020 and 2019 and for the years ended December 31, 2020,
2019 and 2018. 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 as described in further detail in Note 5 - "Divestitures,
Held-for-Sale Businesses and Discontinued Operations." 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 may differ materially from these estimates. The impact of changes in
estimates are reflected in earnings in the period during which the estimate is changed. Accounting policies that we
believe are most dependent on assumptions and estimates are considered to be our critical accounting estimates
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 credit allowances on investment securities classified as available-for-sale
("AFS"), and impairments on 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.
We expect that uncertainty and volatility in financial markets relating to the COVID-19 pandemic will continue
to impact the value of our investments. The scope, duration and magnitude of the direct and indirect effects of the
COVID-19 pandemic are changing rapidly and are difficult to anticipate. 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, operations, and results.
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.
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Unearned Premium Reserves and Premiums Receivable
ENSTAR GROUP LIMITED
Unearned premium reserves represent the unexpired portion of policy premiums. For retrospectively rated
contracts as well as those contracts whose written premium amounts are recorded based on premium estimates at
inception, changes to accrued premiums arising from changes to these estimates are reflected as changes in
premium balances receivable where appropriate.
Premium balances receivable are reported net of an allowance for expected credit losses as appropriate. The
allowance is based upon our ongoing review of amounts outstanding, historical loss data, including delinquencies
and write-offs, current and forecasted economic conditions and other relevant factors. However, the credit risk on
our premiums receivable balances is substantially reduced where we have the ability to cancel the underlying policy
if the policyholder does not pay the related premium.
(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 circumstance-based, 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. While we believe that our liability for losses and LAE is adequate, the ultimate amount may be in excess of,
or less than, the amounts recorded on our financial statements. 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 changes in incurred losses, and any changes in such amounts are
recorded in the same period that the related change in 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 and gain liabilities 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 (re)insurance 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
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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:
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•
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•
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•
•
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 and deferred gain liabilities: relates to retroactive reinsurance
contracts where, if at the inception of the contract, the estimated undiscounted ultimate losses payable are
in excess of the premiums received, a deferred charge asset is recorded for the excess; whereas, if the
premiums received are in excess of the estimated undiscounted ultimate losses payable, a deferred gain
liability is recorded for the excess, such that we don't record any gain or loss at the inception of these
retroactive reinsurance contracts. In addition, for retrocessions of losses and LAE reserves that we have
assumed through retroactive reinsurance contracts where the retroceded liabilities exceed the retrocession
premiums paid, we record the excess as a deferred gain liability which is amortized to earnings over the
estimated period during which the losses paid on the assumed retroceded liabilities are recovered from the
retrocessionaire.
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 ("nominal") 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 the increase (reduction) in estimates of net ultimate losses,
increase (reduction) in provisions for unallocated LAE, amortization of deferred charge assets and deferred
gain liabilities, amortization of fair value adjustments and changes in fair value - fair value option.
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(d) Defendant Asbestos and Environmental Liabilities
ENSTAR GROUP LIMITED
We acquired DCo LLC ("DCo") on December 30, 2016, and Morse TEC LLC ("Morse TEC") on October 30,
2019, as described in Note 3 - "Business 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
for
environmental liabilities associated with DCo's and Morse TEC's properties.
include amounts
liabilities also
(e) Reinsurance Balances Recoverable on Paid and Unpaid Losses
Amounts recoverable from reinsurers are estimated in a manner consistent with the underlying liability for
losses and loss adjustment expenses. We report our reinsurance balances recoverable on paid and unpaid losses
net of an allowance for estimated uncollectible amounts. The allowance is based upon our ongoing review of the
outstanding balances and reflects factors such as the duration of the collection period, credit quality, changes in
reinsurer credit standing, default rates specific to the individual reinsurer, the geographical location of the reinsurer,
contractual disputes with reinsurers over individual contentious claims, contract language or coverage issues,
industry analyst reports and consensus economic forecasts.
A probability-of-default methodology that reflects current and forecasted economic conditions is used to
estimate the allowance for uncollectible reinsurance due to credit-related factors. See "New Accounting Standards
Adopted in 2020" below for the discussion on our adoption of the credit losses standard.
The allowance also includes estimated uncollectible amounts related to dispute risk with reinsurers. Amounts
deemed to be uncollectible, including amounts due from known insolvent reinsurers, are written off against the
allowance.
Changes in the allowance, as well as any subsequent collections of amounts previously written off, are
reported as part of the net incurred losses and loss adjustment expenses in our consolidated statements of
earnings.
On an ongoing basis, we also evaluate and monitor the financial condition of our reinsurers under voluntary
schemes of arrangement to minimize our exposure to significant losses from potential insolvencies.
(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 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 AFS 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 AFS 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.
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
Allowance for Credit Losses
We perform a detailed analysis every reporting period to identify any credit losses on our investment portfolios
not measured at fair value through net earnings.
Some of the factors that we consider when assessing whether an allowance for credit losses is required on
our debt securities include: (1) the extent to which the fair value has been less than the amortized cost; (2) the
financial condition, near-term and long-term prospects of the issuer, including the relevant industry conditions and
trends, and implications of rating agency actions and offering prices; (3) the likelihood of the recoverability of
principal and interest; and (4) whether it is more likely than not that we will be required to sell the security prior to an
anticipated recovery in value.
With effect from January 1, 2020, credit losses on our AFS debt securities are recognized through an
allowance account which is deducted from the amortized cost basis of the security, with the net carrying value of the
security presented on the consolidated balance sheet at the amount expected to be collected. To calculate the
amount of the credit loss, we compare the present value of the expected future cash flows with the amortized cost
basis of the AFS debt security, with the amount of the credit loss recognized being limited to the excess of the
amortized cost basis over the fair value of the AFS debt security, effectively creating a “fair value floor”. See "New
Accounting Standards Adopted in 2020" below for the discussion on our adoption of the credit losses standard.
For our AFS debt securities that we do not intend to sell or for which it is more likely than not that we will not
be required to sell before an anticipated recovery in value, we separate the credit loss component of any unrealized
losses from the amount related to all other factors and report the credit loss component in net realized investment
gains (losses) in our consolidated statements of earnings. The unrealized losses related to non-credit factors is
reported in other comprehensive income. The allowance for credit losses account is adjusted for any additional
credit losses, write-offs and subsequent recoveries and is reflected in earnings.
For our AFS debt securities where we record a credit loss, a determination is made as to the cause of the
credit loss and whether we expect a recovery in the fair value of the security. For our AFS debt securities where we
expect a recovery in fair value, the constant effective yield method is utilized, and the investment is amortized to
par.
For our AFS debt securities that we intend to sell or for which it is more likely than not that we will be required
to sell before an anticipated recovery in fair value, the full amount of the unrealized loss is included in net realized
investment gains (losses). The new cost basis of the investment is the previous amortized cost basis less the credit
loss recognized in net realized investment gains (losses). The new cost basis is not adjusted for any subsequent
recoveries in fair value.
We report the investment income accrued on our AFS debt securities within other assets and therefore
separately from the underlying AFS debt securities. In addition, due to the short-term period during which accrued
investment income remains unpaid, which is typically six months or less, since the coupon on our AFS debt
securities is paid semi-annually or more frequently, we have elected not to establish an allowance for credit losses
on our accrued investment income balances. Accrued investment income is written off through net realized
investment gains (losses) at the time the issuer of the debt security defaults or is expected to default on payments.
Uncollectible debt securities are written off when we determine that no additional payments of principal or
interest will be received.
Other-Than-Temporary Impairments ("OTTI")
As discussed above and below, with effect from January 1, 2020, we adopted the new credit losses standard
which replaced the OTTI model that was previously applicable to our AFS debt securities. The new approach now
requires the recognition of impairment charges relating to credit losses through an allowance account and limits the
amount of credit loss to the difference between a security’s amortized cost basis and its fair value. A description of
our historical OTTI process which was in place prior to our adoption of the new credit losses standard and which
applied to our comparative financial statements is provided below.
Fixed maturity investments classified as AFS were reviewed quarterly to determine if they had sustained an
impairment of value that was, based on our judgment, considered to be other than temporary. The process included
reviewing each fixed maturity investment whose fair value was below amortized cost and: (1) determining if we had
the intent to sell the fixed maturity investment; (2) determining if it was more likely than not that we would be
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required to sell the fixed maturity investment before its anticipated recovery; and (3) assessing whether a credit loss
existed, that is, whether we anticipated if the present value of the cash flows expected to be collected from the fixed
maturity investment would be less than the amortized cost basis of the investment.
In assessing whether it was more likely than not that we would be required to sell a fixed maturity investment
before its anticipated recovery, we considered 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 considered a variety of factors in the assessment of a fixed maturity investment
including: (1) the time period during which there had 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 concluded that an investment was other-than-temporarily impaired, then the difference between the fair
value and the amortized cost of the investment was 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 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 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 while others report on a monthly or quarterly basis. 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. We typically record our proportionate share of an investee's net income or loss on a
quarter lag in line with the timing of when they report their financial information to us. Any adjustments made to the
carrying value of our equity method investees are based on the most recently available financial information from
the investees. 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.
(h) Variable interest entities
We have investments in certain limited partnership funds which are deemed to be variable interest entities
(“VIEs”) and which are included in other investments at the reported net asset value (“NAV”). Determining whether
to consolidate a VIE may require judgment in assessing (i) whether an entity is a VIE, and (ii) if we are the entity’s
primary beneficiary and thus required to consolidate the entity. To determine if we are the primary beneficiary of a
VIE, we evaluate whether we have (i) the power to direct the activities that most significantly impact the VIE’s
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economic performance, and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could
potentially be significant to the VIE. Our evaluation includes identification of the activities that most significantly
impact the VIE’s economic performance and an assessment of our ability to direct those activities based on
governance provisions, contractual arrangements to provide or receive certain services, funding commitments and
other applicable agreements and circumstances. Our assessment of whether we are the primary beneficiary of our
VIEs requires significant assumptions and judgment.
(i) 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, funds held where
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, are carried at fair value and 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).
(j) 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.
(k) Foreign Exchange
Our reporting currency is the U.S. dollar. Assets and liabilities of certain of our subsidiaries and equity method
investees 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.
(l) Share-based Compensation
We primarily use four types of share-based compensation arrangements: (i) restricted shares, restricted share
units and performance share units ("PSUs"), (ii) joint share ownership program ("JSOP"), (iii) cash-settled stock
appreciation rights ("SARs") and (iv) 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. For equity-classified awards, the fair value of the
compensation cost is measured at the grant date and is expensed over the service period of the award within
general and administrative expenses in the consolidated statements of earnings except for PSUs where the
expense also varies depending on the performance multiplier on 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.
(m) Derivative Instruments
We utilize derivative instruments in our foreign currency, investments 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
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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 may also hold equity call options and other derivatives carried at fair value, as
part of our investment strategy.
(n) 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 an 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 in our consolidated statements of earnings.
(o) 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.
(p) 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 (re)insurance 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.
Intangible assets arising from our business acquisitions are classified as either definite-lived or indefinite-lived
intangible assets. 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 however not
subject to amortization. The carrying values of intangible assets are reviewed for indicators of impairment at least
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
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.
(q) 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 generally 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 and Deferred Gain Liabilities
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;
whereas, if the premiums received are in excess of the estimated undiscounted ultimate losses payable, a deferred
gain liability is recorded for the excess, such that we don't record any gain or loss at the inception of these
retroactive reinsurance contracts. In addition, for retrocessions of losses and LAE reserves that we have assumed
through retroactive reinsurance contracts where the retroceded liabilities exceed the retrocession premiums paid,
we record the excess as a deferred gain liability which is amortized to earnings over the estimated period during
which the losses paid on the assumed retroceded liabilities are recovered from the retrocessionaire.
The premium consideration that we charge the ceding companies under retroactive reinsurance contracts
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 contracts when taking into account the premium received and expected
investment income, less contractual obligations and expenses.
Deferred charge assets, recorded in other assets, and deferred gain liabilities, recorded in other liabilities, 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 and deferred gain
liabilities is adjusted at each reporting period to reflect new estimates of the amount and timing of remaining loss
and 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 deferred gain liabilities 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 and deferred gain liabilities. 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 with that write down reflected in earnings as a component of
net incurred losses and LAE.
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. The nominal amounts related to the funds
held assets, reinsurance balances recoverable on paid and unpaid losses, and the liability for losses and loss
adjustment expenses, are inputs in our internal model. Note 12 - "Fair Value Measurements" describes the internal
model, including the observable and unobservable inputs used in the model.
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ENSTAR GROUP LIMITED
(r) 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. Any change in the fair value is recognized
through retained earnings as if the balance sheet date was also the redemption date.
(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 which requires the restatement of the comparatives reflected on our
consolidated financial statements. In addition, transactions with discontinued operations are not eliminated on
consolidation and any transactions that were previously eliminated on consolidation but which will continue with the
discontinued operations are restated for all periods presented and reflected within continuing operations in our
consolidated financial statements.
New Accounting Standards Adopted in 2020
Accounting Standards Update ("ASU") 2020-10 – Codification Improvements
In October 2020, the Financial Accounting Standards Board ("FASB") issued ASU 2020-10, which (1)
removes references to various FASB Concepts Statements, (2) situates all disclosure guidance in the appropriate
disclosure section of the Codification, and (3) makes other improvements and technical corrections to the
Codification, with these amendments being applied retrospectively. We early adopted this guidance and that
adoption did not have a material impact on our consolidated financial statements and disclosures.
ASU 2020-09 – Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762
In October 2020, the FASB issued ASU 2020-09, which amends and supersedes various SEC paragraphs
included in a number of Codification Topics pursuant to the issuance of the SEC's Release No. 33-10762. Through
Release No. 33-10762, which was issued in March 2020, the SEC made amendments to the financial disclosure
requirements in Regulation S-X for guarantors and issuers of guaranteed securities registered or being registered,
and issuers’ affiliates whose securities collateralize securities registered or being registered, to improve those
requirements for both investors and registrants. The changes made by the SEC are intended to (1) provide
investors with material information given the specific facts and circumstances, (2) make the disclosures easier to
understand, and (3) reduce the costs and burdens to registrants.
The amended rules in Release No. 33-10762 became effective on January 4, 2021, although early
compliance was permitted. We elected early compliance with the new rules subsequent to their issuance. Because
the amendments made by the FASB in this ASU are designed to ensure alignment of the relevant SEC paragraphs
in various Codification Topics with the amended rules in Release No. 33-10762, the amendments did not have a
material impact on our disclosures, since we already elected early compliance with the amended rules in Release
No. 33-10762.
ASU 2020-04 and ASU 2021-01– Reference Rate Reform
In March 2020, the FASB issued ASU 2020-04, which is codified in Accounting Standards Codification
("ASC") 848 and which provides entities with temporary optional expedients and exceptions to the existing US
GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to
the expected market transition from the London Inter-bank Offered Rate ("LIBOR") and other inter-bank offered
rates to alternative reference rates, such as the Secured Overnight Financing Rate ("SOFR").
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Under the provisions of ASU 2020-04, entities can elect not to apply certain modification accounting
requirements to contracts affected by reference rate reform, if certain criteria are met. An entity that makes this
election would not have to remeasure the contracts at the modification date or reassess a previous accounting
determination. Entities can also elect various optional expedients for hedging relationships affected by reference
rate reform, if certain criteria are met. Once elected, the amendments in this guidance must be applied prospectively
for all eligible contract modifications.
Subsequently in January 2021, the FASB issued ASU 2021-01 to refine the scope of ASC 848 and clarify that
certain optional expedients and exceptions in ASC 848 for contract modifications and hedge accounting apply to
derivatives that are affected by the discounting transition. Specifically, the ASU clarified that certain provisions in
ASC 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting,
or contract price alignment that is modified as a result of reference rate reform. The amendments in ASU 2021-01
are effective immediately for all entities and can be applied either on a full retrospective or prospective basis
depending on the facts and circumstances.
ASU 2020-04 was effective upon issuance and can be applied through to December 31, 2022. We adopted
the ASU upon its issuance and as we transition from LIBOR to alternative reference rates, we have elected the
temporary optional expedients and exceptions to the existing US GAAP guidance on contract modifications and
hedge accounting permitted by the ASU, as appropriate. The adoption of this standard did not have any impact on
our consolidated financial statements and disclosures.
ASU 2020-03 – Codification Improvements to Financial Instruments
In March 2020, the FASB issued ASU 2020-03, which makes narrow-scope improvements to various topics
within the codification relating to financial instruments, including the new credit losses standard. The amendments
related to certain specific issues covered by the ASU were effective immediately upon the issuance of the ASU,
while certain specific issues covered by the ASU and affecting the credit losses standard in ASU 2016-13 were
effective in 2020 for those entities that have already adopted ASU 2016-13. We adopted the amendments in this
ASU upon its issuance and that adoption did not have a material impact on our consolidated financial statements
and the related disclosures.
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 - Financial Instruments - Credit
Losses, 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 earnings. The ASU
replaced the “incurred loss” approach that was previously applied to determine credit losses with an “expected loss”
model for financial instruments measured at amortized cost. Under the "expected loss" model, the estimate of
expected credit losses should consider historical information, current information, as well as reasonable and
supportable forecasts, including estimates of prepayments. The expected credit losses and subsequent adjustments
to such losses are recorded through an allowance account that is deducted from the amortized cost basis of the
financial asset, with the net carrying value of the financial asset presented on the consolidated balance sheet at the
amount expected to be collected.
ASU 2016-13 also amends the other-than-temporary impairment ("OTTI") model that was previously
applicable to AFS debt securities, with the new approach now requiring the recognition of impairments relating to
credit losses through an allowance account and limiting the amount of credit loss to the difference between a
security’s amortized cost basis and its fair value. This revised approach records the full effect of reversals of any
credit losses in current period earnings, compared to previous guidance where this reversal was amortized over the
lifetime of the security. Under this revised approach, the length of time a security has been in an unrealized loss
position will no longer be considered in determining whether to record a credit loss. In addition, the historical and
implied volatility of the fair value of a security and recoveries or declines in fair value after the balance sheet date
will no longer be considered when making a determination of whether a credit loss exists.
We adopted ASU 2016-13 and all the related amendments on January 1, 2020 using the modified
retrospective approach for our financial instruments carried at amortized cost, and prospectively for our AFS debt
securities as required by the standard, resulting in an overall reduction in retained earnings of $6.1 million as
summarized below:
• A cumulative effect adjustment of $3.0 million relating to our financial instruments carried at amortized cost,
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
which primarily relates to our insurance balances recoverable on paid and unpaid losses. We already carried
significant specific allowances for credit losses of $147.6 million on our reinsurance balances recoverable on paid
and unpaid losses, relating primarily to our Non-life Run-off segment and therefore the adoption of this standard did
not have a material impact on our balance sheet; and
• $3.1 million related to our AFS debt securities whose fair values were less than their amortized cost basis.
Recently Issued Accounting Pronouncements Not Yet Adopted
ASU 2020-08 – Codification Improvements to Subtopic 310-20 - Receivables - Nonrefundable Fees and Other
Costs
In October 2020, the FASB issued ASU 2020-08 to clarify that an entity should re-evaluate whether a callable
debt security is within the scope of ASC 310-20-35-33 during each reporting period. All entities are required to apply
the amendments in this ASU on a prospective basis as of the beginning of the period of adoption for existing or
newly purchased callable debt securities.
The amendments in this ASU are effective for interim and annual reporting periods beginning after December
15, 2020, and early adoption is not permitted. We do not expect the adoption of this guidance to have a material
impact on our consolidated financial statements and the related disclosures.
ASU 2020-06 – Accounting for Convertible Instruments and Contracts in an Entity's Own Equity
In August 2020, the FASB issued ASU 2020-06, which simplifies the accounting for certain financial
instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity's
own equity. For convertible instruments, the ASU eliminates two of the three accounting models in ASC 470-20 that
require separate accounting for embedded conversion features. The ASU also simplifies an issuer's application of
the derivatives scope exception in ASC 815-40 for contracts in its own equity and removes some of the conditions
that preclude a freestanding contract from being classified in equity, thereby allowing more of such contracts to
qualify for equity classification.
The amendments in this ASU are effective for interim and annual reporting periods beginning after December
15, 2021 and, although early adoption is permitted, the amendments may not be adopted earlier than during interim
and annual reporting periods beginning after December 15, 2020. In addition, the FASB specified that an entity
should adopt the guidance as of the beginning of its annual reporting period through either a modified retrospective
method of transition or a fully retrospective method of transition. We do not expect the adoption of this guidance to
have a material impact on our consolidated financial statements and the related disclosures.
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 guidance 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 do not expect the adoption of this guidance to have a material impact
on our consolidated financial statements and disclosures.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
3. BUSINESS 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 $0 purchase price. Morse TEC held $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 were 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 were 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
2018
Maiden Re North America
Overview
$
$
488
(1,459)
(1,512)
(2,483)
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.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
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 (including preexisting relationships)
Excess of purchase price over fair value of net assets acquired
$
$
$
$
286,375
10,273
296,648
296,648
—
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
119
$ 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
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Maiden Re North America's Results Included in the Consolidated Statement of Earnings
ENSTAR GROUP LIMITED
The table below summarizes the results of the Maiden Re North America operations, which were 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
KaylaRe
Overview
$
675
3,749
(435)
$
3,989
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
Fair Value of Previously Held Equity Method Investment
2,007,017
206.65
414,750
$
$
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
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
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
Adjustment for the Fair Value of Preexisting Relationships
$
$
$
320,130
1.05
336,137
16,007
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
33,549
420,342
339,747
105,602
25,897
1,864
473,110
40,268
427,061
333,205
105,602
23,559
1,864
464,230
NET ASSETS (LIABILITIES)
$
(52,768) $
(37,169) $
Loss on
deemed
settlement
—
6,719
6,719
(6,542)
—
(2,338)
—
(8,880)
15,599
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fair Value of Net Assets Acquired and Liabilities Assumed
ENSTAR GROUP LIMITED
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
$
$
$
126,393
626,476
752,869
5,657
10,965
275
614
770,380
4,059
10,984
13
9,004
24,060
NET ASSETS ACQUIRED AT FAIR VALUE
$
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)
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
4. SIGNIFICANT NEW BUSINESS
We define significant new business as material transactions other than business acquisitions which are
included in Note 3 - "Business Acquisitions." Generally, our significant new business takes the form of reinsurance
or direct business transfers. The table below sets forth a summary of significant new business that we have
completed between January 1, 2018 and December 31, 2020:
Transaction
Date Completed
Total Assets
Assumed
Deferred
Charge
Asset (1)
Total
Liabilities
Assumed
Net Fair Value
Adjustment (2)
Hannover Re
August 6, 2020
$
182,498
N/A $
209,713 $
(27,215)
Primary Nature of Business
U.S. asbestos, environmental and
workers' compensation liabilities
Australian public liability, professional
liability and builders' warranty
liabilities
U.S. construction general liability
Diversified mix of property, liability
and specialty lines of business across
the U.S., U.K. and Europe
U.S. motor
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
Asbestos and environmental
U.S. workers' compensation and
motor
U.S. workers' compensation, auto
liability, general and product liability
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Medical malpractice, general liability,
professional indemnity and marine
Financial, casualty, marine and
energy, professional indemnity,
aviation, motor and property
Munich Re
AXA Group (3)
July 1, 2020
June 1, 2020
Aspen
Lyft
Zurich (3)
Maiden Re
Bermuda
Amerisure
AmTrust
Allianz SE
Maiden Re
Bermuda
June 1, 2020
March 31, 2020
October 1, 2019
August 5, 2019
April 11, 2019
February 14,
2019
December 31,
2018
December 27,
2018
Coca-Cola
August 1, 2018
Zurich Australia
Neon
February 23,
2018
February 16,
2018
$
$
$
$
$
$
$
$
$
$
$
$
100,956
179,681
N/A $
100,956
N/A $
179,681
770,000 $
11,746 $
781,746
465,000
N/A $
465,000
507,061 $
115,815 $
622,876
445,000 $
85,183 $
530,183
45,463 $
2,873 $
48,336
$ 1,143,949 $
20,633 $ 1,164,582
70,000
N/A $
70,000
70,425 $
1,704 $
72,129
103,617 $
17,208 $
120,825
268,657
N/A $
280,764 $
(12,107)
Australian motor
525,673
N/A $
546,298 $
(20,625)
Novae
January 29, 2018 $ 1,095,730
N/A $ 1,163,198 $
(67,468)
The table below sets forth a summary of significant new business that we have signed or completed between
January 1, 2021 and March 1, 2021:
Transaction
Date Completed
AXA Group(4)
N/A - Announced
February 25, 2021
Initial
Estimate of
Liabilities
Assumed
Primary Nature of Business
$ 1,395,000
Diversified mix of global casualty and professional lines
ProSight (4)
CNA (4)
N/A - Announced
January 15, 2021
February 5, 2021
Liberty Mutual (4)
January 8, 2021
$
$
$
500,000
690,000
420,000
U.S. discontinued workers' compensation and excess workers' compensation lines of
business and adverse development cover on a diversified mix of general liability
classes of business
U.S. excess workers' compensation
U.S. energy liability, construction liability and homebuilders liability
(1) Where the estimated ultimate losses payable exceed the premium consideration received at the inception of the agreement, a deferred charge
asset is recorded.
(2) When the fair value option is elected for any retroactive reinsurance agreement, an initial net fair value adjustment is recorded at the inception
of the agreement.
(3) Effective October 1, 2020 and 2019, we ceded 10% of the AXA Group and Zurich transactions, respectively, to Enhanzed Reinsurance Ltd.
("Enhanzed Re"), in which we have an investment, on the same terms and conditions as those received by us.
(4) The retroactive reinsurance agreements with AXA Group, ProSight, CNA and Liberty Mutual either closed or are expected to close in 2021
and therefore the related balances are not included in our consolidated financial statements as of December 31, 2020.
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
5. DIVESTITURES, HELD-FOR-SALE BUSINESSES AND DISCONTINUED OPERATIONS
Atrium Exchange Transaction
On August 13, 2020, we announced an exchange transaction with Trident V, L.P., Trident V Parallel Fund, L.P.
and Trident V Professionals Fund, L.P. (collectively, the "Trident V Funds") managed by Stone Point Capital LLC
("Stone Point"). As part of the exchange, we entered into a recapitalization agreement with the Trident V Funds,
Dowling Capital Partners I, L.P. and Capital City Partners LLC (collectively, the "Dowling Funds"), North Bay
Holdings Limited ("North Bay"), and StarStone Specialty Holdings Limited ("SSHL"). On January 1, 2021, this
transaction was completed.
As of December 31, 2020, Enstar owned an indirect 59.0% interest in North Bay and the Trident V Funds and
the Dowling Funds owned 39.3% and 1.7%, respectively. North Bay owns 100.0% of SSHL, the holding company
for the StarStone group, which previously included StarStone U.S. and still includes StarStone International. North
Bay also owned 92.1% of Northshore Holdings Limited ("Northshore"), the holding company that owns Atrium
Underwriting Group Limited and its subsidiaries (collectively, "Atrium") and Arden Reinsurance Company Ltd.
("Arden"). The remaining share ownership of Northshore is held on behalf of certain Atrium employees.
Pursuant to the terms of the recapitalization agreement, we exchanged a portion of our indirect interest in
Northshore for all of the Trident V Funds’ indirect interest in StarStone U.S., which was owned through an interest in
Core Specialty (the “Exchange Transaction”). Effective January 1, 2021, we own 25.23% of Core Specialty on a fully
diluted basis, which in turn owns StarStone U.S., and 13.8% of Northshore, which continues to own Atrium and
Arden. Furthermore, the Trident V Funds no longer own any interest in Core Specialty but own 76.3% of
Northshore, while the Dowling Funds own 0.4% of Core Specialty and 1.6% of Northshore. The Exchange
Transaction had no impact on the ultimate ownership of SSHL, which continues to own StarStone International, with
us, the Trident V Funds and the Dowling Funds retaining our and their current ownership interests in SSHL of
59.0%, 39.3% and 1.7%, respectively.
Effective January 1, 2021, Northshore was deconsolidated and our remaining investment will be accounted
for as a privately held equity investment and carried at its fair value.
Through our wholly-owned subsidiary SGL No.1, a Lloyd’s corporate member included within our Non-life
Run-off segment, we provided 25% of the underwriting capacity on the 2017 to 2020 underwriting years of Atrium's
Syndicate 609 at Lloyd’s. Effective January 1, 2021, and in conjunction with the completion of the Atrium Exchange
Transaction, SGL No.1 ceased its provision of underwriting capacity on Syndicate 609. Accordingly, the 2020
underwriting year was the last underwriting year that SGL No. 1 participated in with respect to the Atrium business.
We will continue to report SGL No. 1's 25% gross-up share of the 2020 and prior underwriting years of Syndicate
609 until the 2020 underwriting year completes an RITC into a successor year, which will be no earlier than
December 31, 2022. There is no net retention for Enstar on Atrium's 2020 and prior underwriting years as the
business was contractually transferred to the Atrium entities that were divested in the Exchange Transaction.
Effective January 1, 2021, certain balances that SGL No. 1 has with Atrium and Arden will no longer be eliminated
on consolidation.
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of December 31, 2020, we have classified the assets and liabilities of Northshore as held-for-sale but it did
not qualify as a discontinued operation since the pending disposal did not represent a strategic shift that would have
a major effect on our operations and financial results. The following table summarizes the components of
Northshore's assets and liabilities held-for-sale on our consolidated balance sheet as of December 31, 2020:
December 31, 2020
ASSETS
Short-term investments, AFS, at fair value
Fixed maturities, trading, at fair value
Fixed maturities, AFS, at fair value
Other investments, at fair value
Total investments
Cash and cash equivalents
Restricted cash and cash equivalents
Premiums receivable
Reinsurance balances recoverable on paid and unpaid losses
Funds held by reinsured companies
Other assets
TOTAL ASSETS HELD-FOR-SALE
LIABILITIES
Losses and loss adjustment expenses
Insurance and reinsurance balances payable
Debt obligations
Other liabilities
TOTAL LIABILITIES HELD-FOR-SALE
NET ASSETS HELD-FOR-SALE
$
$
$
$
$
1,720
154,026
7,483
9,897
173,126
71,156
152,044
62,392
37,341
32,226
182,993
711,278
254,149
12,393
39,850
177,265
483,657
227,621
As of December 31, 2020, included in the table above were restricted investments of $94.4 million.
Recapitalization of StarStone U.S. and Discontinued Operations
On November 30, 2020, we completed the sale and recapitalization of StarStone U.S. through the sale of
StarStone U.S. to Core Specialty, a newly formed entity with equity backing from funds managed by SkyKnight
Capital, L.P., Dragoneer Investment Group and Aquiline Capital Partners LLC.
We received consideration of $282.0 million inclusive of $235.0 million of common shares of Core Specialty
and cash of $47.0 million. The $235.0 million of common shares of Core Specialty represents a 25.23% interest in
Core Specialty on a fully diluted basis. Our investment in Core Specialty is accounted for as an equity method
investment and we record our proportionate share of the net earnings on a one quarter lag.
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
StarStone U.S. comprised a substantial portion of the StarStone segment. We classified the assets and
liabilities of StarStone U.S. as held-for-sale. The following table summarizes the components of StarStone U.S.'s
assets and liabilities held-for-sale on our consolidated balance sheet as of December 31, 2019:
December 31, 2019 (1)
ASSETS
Fixed maturities, trading, at fair value
Fixed maturities, AFS, at fair value
Equities, at fair value
Other investments, at fair value
Total investments
Cash and cash equivalents
Restricted cash and cash equivalents
Premiums receivable
Deferred tax assets
Reinsurance balances recoverable on paid and unpaid losses
Funds held by reinsured companies
Deferred acquisition costs
Goodwill and intangible assets
Other assets
TOTAL ASSETS HELD-FOR-SALE
LIABILITIES
Losses and loss adjustment expenses
Unearned premiums
Insurance and reinsurance balances payable
Other liabilities
TOTAL LIABILITIES HELD-FOR-SALE
NET ASSETS HELD-FOR-SALE
$
$
$
$
$
202,994
375,337
3,000
6,389
587,720
78,613
5,815
99,367
15,191
530,604
35,861
36,992
24,900
59,707
1,474,770
836,761
218,166
22,453
131,151
1,208,531
266,239
(1) Following our decision to sell StarStone U.S. to Core Specialty which was completed on November 30, 2020, the assets and liabilities of
StarStone U.S. as of December 31, 2019 were reclassified to held-for-sale on our consolidated balance sheets, in addition to the comparatives
being restated since StarStone U.S. qualified as a discontinued operation.
As of December 31, 2019, included in the table above were restricted investments of $131.0 million.
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The StarStone U.S. business qualified as a discontinued operation. The following table summarizes the
components of net earnings (loss) from discontinued operations, net of income taxes, related to StarStone U.S., on
the consolidated statements of earnings for the years ended December 31, 2020, 2019 and 2018:
INCOME
Net premiums earned
Net investment income
Net realized and unrealized gains
Other income
EXPENSES
2020
2019
2018
$ 291,326 $ 350,814 $ 199,796
12,849
5,431
49
15,606
19,385
9
10,572
(5,352)
10
309,655
385,814
205,026
Net incurred losses and loss adjustment expenses
191,844
258,396
130,303
Acquisition costs
General and administrative expenses
Interest expense
Net foreign exchange (gains) losses
EARNINGS (LOSS) BEFORE INCOME TAXES
Income tax benefit
NET EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS, NET
OF INCOME TAXES, BEFORE GAIN ON SALE
DISPOSAL
Consideration received
Less: Carrying value of subsidiary
Add: Net realized gains on AFS securities and cumulative currency
translation adjustments previously recognized in AOCI
Gain on sale of subsidiary
57,640
60,236
2,066
(13)
65,342
60,003
2,600
33
14,935
58,590
2,120
24
311,773
386,374
205,972
(2,118)
(560)
2,255
7,935
(946)
2,435
$
137 $
7,375 $
1,489
$ 281,989 $
— $
(277,697)
11,822
—
—
$
16,114 $
— $
—
—
—
—
NET EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS, NET
OF INCOME TAXES
Net loss (earnings) from discontinued operations attributable to
noncontrolling interest
NET EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS
ATTRIBUTABLE TO ENSTAR ORDINARY SHAREHOLDERS
$
16,251 $
7,375 $
1,489
(8,717)
(3,025)
(611)
$
7,534 $
4,350 $
878
Continuing Involvement Disclosures
Following the completion of the sale of StarStone U.S. to Core Specialty on November 30, 2020, our
continuing involvement with StarStone U.S comprised of the following transactions:
LPT and ADC reinsurance agreement
In connection with the sale of StarStone U.S. to Core Specialty, one of our Non-life Run-off subsidiaries
entered into an LPT and ADC reinsurance agreement with StarStone U.S. pursuant to which we reinsured all of the
net loss reserves of StarStone U.S. in respect of premium earned prior to October 31, 2020. Under the terms of the
LPT and ADC reinsurance agreement, we assumed total net loss reserves of $462.4 million from StarStone U.S. in
exchange for a total reinsurance premium consideration of $478.2 million, subject to an aggregate limit of $130.0
million above the assumed total net loss reserves. Our Non-life Run-off subsidiary's obligations to StarStone U.S.
under the LPT and ADC reinsurance agreement are guaranteed by us. The LPT and ADC reinsurance agreement
between us and StarStone U.S. shall continue in force until such time as our liability with respect to the assumed
total net loss reserves terminates.
Concurrent with the closing of the LPT and ADC reinsurance agreement, one of our wholly-owned
subsidiaries entered into an Administrative Services Agreement ("ASA") with StarStone U.S., through which it was
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
appointed as an independent contractor to provide certain administrative services covering the business we
assumed from StarStone U.S. through the LPT and ADC reinsurance agreement. This ASA became effective on
November 30, 2020 and shall continue until its termination.
In addition, concurrent with the sale of StarStone U.S. to Core Specialty which was completed on
November 30, 2020, one of our wholly-owned subsidiaries entered into a Transition Services Agreement ("TSA")
with Core Specialty through which our subsidiary and Core Specialty agreed to provide certain transitional services
to each other relating to the StarStone U.S. businesses, for a specified period of time. This TSA became effective on
November 30, 2020 and unless otherwise agreed to in writing by both Core Specialty and us, shall terminate on the
earliest to occur of (a) the 2-year anniversary of the agreement, (b) the date on which all the covered transitional
services have been terminated, and (c) the termination of the agreement.
Reinsurance transactions previously eliminated on consolidation
The table below presents a summary of the total income and expenses which have been recognized within
our continuing operations for the years ended December 31, 2020, 2019 and 2018, relating to intercompany
transactions, primarily intra-group reinsurances, between StarStone U.S. and our subsidiaries:
Total Income
Total Expenses (1)
Net Earnings (Loss)
2020
2019
2018
$
$
11,911 $
(16,397)
10,672 $
62,515
28,308 $
(51,843) $
98,402
113,952
(15,550)
(1) For the year ended December 31, 2020, negative total expenses were driven by favorable loss development on the losses and LAE reserves
ceded by StarStone U.S. to our subsidiaries.
Cash flows
The cash inflows (outflows) between our subsidiaries and StarStone U.S. for the years ended December 31,
2020, 2019 and 2018 were $99.2 million, $(53.9) million and $(64.6) million, respectively.
Equity method investment
We have applied the equity method of accounting to the common shares we acquired in Core Specialty as
part-consideration for the sale of StarStone U.S. and which make up 25.23% of the total outstanding common
shares in Core Specialty on a fully diluted basis. Since we account for our share of earnings attributable to our
equity method investees on a quarter lag, the carrying value of our investment in the common shares of Core
Specialty as at December 31, 2020 remained unchanged from our November 30, 2020 fair value of $235.0 million,
when we completed the sale of StarStone U.S. to Core Specialty.
Run-off of StarStone International (non-U.S.)
On June 10, 2020, we announced that we placed StarStone International into an orderly run-off (the
"StarStone International Run-Off"). The liabilities associated with the StarStone International Run-Off vary in
duration, and the run-off is expected to occur over a number of years. Steps to reduce the size of StarStone
International's operations have begun and will involve several phases that will occur over time. As a result, we
cannot anticipate with certainty the expected completion date of the StarStone International Run-Off.
We continue to evaluate additional strategic options for StarStone International's operations and business.
Consequently, such options could have the effect of mitigating costs associated with placing the business into run-
off. The remaining StarStone International operations will continue to serve the needs of policyholders and ensure
that the companies continue to meet all regulatory requirements. The results of StarStone International are included
within continuing operations in the StarStone segment. Recent developments relating to StarStone International
include:
• On October 2, 2020, StarStone International sold the renewal rights for its financial lines portfolio for
consideration of $0.5 million.
• On October 14, 2020, we completed the sale of Vander Haeghen & Co. SA ("VdH"), a Belgium-based
insurance agency majority owned by StarStone International entities, for consideration of €3.8 million
($4.5 million). We recognized a gain on the sale of $3.4 million in the fourth quarter of 2020.
• On November 17, 2020, we announced an agreement to sell StarStone Underwriting Limited ("SUL"), the
Lloyd's managing agency, together with the right to operate Lloyd's Syndicate 1301, to Inigo Limited
("Inigo"). We currently have a 59.0% interest in SUL and the Trident V Funds and the Dowling Funds
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
currently own 39.3% and 1.7%, respectively. Upon closing, Enstar, the Trident V Funds and the Dowling
Funds will receive $30.0 million of consideration from the sale of SUL in the form of Inigo shares. In
addition, Enstar and the Trident V Funds have committed to invest up to $27.0 million and $18.0 million,
respectively, into Inigo. The sale is expected to close in the first half of 2021, subject to regulatory approvals
and satisfaction of customary closing conditions. Upon closing, we expect to own 5.4% of Inigo. As of
December 31, 2020, our investment in Inigo was $16.9 million and was accounted for as a privately held
equity investment and carried at fair value. In conjunction with the transaction, Enstar, the Trident V Funds
and the Dowling Funds will retain the economics of Syndicate 1301’s 2020 and prior years’ underwriting
portfolios as this business runs off.
• On February 11, 2021, we entered into an agreement to sell Arena N.V., a Belgium-based specialist
accident and health managing general agent.
6. INVESTMENTS
We hold: (i) trading portfolios of short-term and fixed maturity investments and equities, carried at fair value;
(ii) AFS portfolios of short-term and fixed maturity investments, carried at fair value; (iii) other investments carried at
fair value; (iv) equity method investments; and (v) funds held - directly managed.
Short-term and Fixed Maturity Investments
Asset Types
The fair values of the underlying asset categories comprising our short-term and fixed maturity investments
classified as trading and AFS and the fixed maturity investments included within our funds held - directly managed
balance were as follows as of December 31, 2020 and 2019:
2020
Short-term
investments,
trading
Short-term
investments,
AFS
Fixed
maturities,
trading
Fixed
maturities,
AFS
Fixed
maturities,
funds held -
directly
managed
Total
U.S. government and agency
$
— $
243,556 $ 123,874 $
474,442 $
109,176 $ 951,048
U.K. government
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
Total fixed maturity and short-
term investments
—
3,424
1,705
—
—
—
—
—
37,508
3,213
327,437
13,574
146,914
—
51,082
21,165
502,153
17,026
3,227,726
1,920,323
519,952
5,686,732
—
—
—
—
79,959
154,471
347,225
296,692
30,032
328,871
276,488
204,456
52,678
70,603
230,377
56,312
162,669
553,945
854,090
557,460
$
5,129 $
263,795 $ 4,594,892 $ 3,395,100 $ 1,060,263 $ 9,319,179
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
2019
Short-term
investments,
trading
Short-term
investments,
AFS
Fixed
maturities,
trading
Fixed
maturities,
AFS
Fixed
maturities,
funds held -
directly
managed
Total
U.S. government and agency
$
— $
111,583 $ 208,296 $ 269,661 $
106,537 $ 696,077
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
575,017
14,280
84,760
—
20,734
161,772
702,856
13,915
3,959,288
866,557
603,389
5,448,270
1,381
—
—
—
87,451
215,521
534,357
441,393
2,399
99,188
49,046
152,161
49,456
86,205
230,343
76,681
140,687
400,914
813,746
670,235
$
51,490 $
128,335 $ 6,143,335 $ 1,538,052 $ 1,173,345 $ 9,034,557
Included within residential and commercial mortgage-backed securities as of December 31, 2020 were
securities issued by U.S. governmental agencies with a fair value of $458.1 million (as of December 31, 2019:
$333.3 million). There were no senior secured loans within corporate securities as of December 31, 2020,
compared to $31.4 million as of December 31, 2019.
Contractual Maturities
The contractual maturities of our short-term and fixed maturity investments, classified as trading and AFS, 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, 2020
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
Amortized
Cost
Fair Value
% of Total Fair
Value
$
489,559 $
710,621
2,097,923
1,974,838
1,544,533
545,628
828,155
567,638
494,490
726,331
2,206,020
2,151,191
1,775,652
553,945
854,090
557,460
5.3 %
7.8 %
23.7 %
23.1 %
19.0 %
5.9 %
9.2 %
6.0 %
$
8,758,895 $
9,319,179
100.0 %
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Credit Ratings
The following table sets forth the credit ratings of our short-term and fixed maturity investments, classified as
trading and AFS, and the fixed maturity investments included within our funds held - directly managed balance as of
December 31, 2020:
Amortized
Cost
Fair Value
% of
Total
AAA
Rated
AA Rated
A Rated
BBB
Rated
Non-
Investment
Grade
Not Rated
U.S. government and
agency
$ 935,014 $ 951,048
10.2 % $
951,048
$
—
$
—
$
—
$
—
$
U.K. government
46,988
51,082
0.6 %
—
Other government
463,765
502,153
5.4 %
244,041
43,199
159,095
7,883
42,337
—
51,413
—
5,267
—
—
—
Corporate
Municipal
Residential mortgage-
backed
Commercial mortgage-
backed
5,226,238
5,686,732
61.0 %
172,718
607,796
2,646,602
1,960,971
287,363
11,282
145,469
545,628
162,669
553,945
1.7 %
8,270
78,585
5.9 %
544,545
—
55,631
2,195
20,183
2,615
—
2,472
—
2,118
828,155
854,090
9.2 %
591,396
115,114
74,615
61,730
3,961
7,274
Asset-backed
567,638
557,460
6.0 %
239,733
84,058
119,757
89,898
24,014
—
Total
$ 8,758,895 $ 9,319,179
100.0 % $ 2,751,751
$ 1,087,847
$ 2,949,020
$ 2,186,810
$ 323,077
$ 20,674
% of total fair value
29.5 %
11.7 %
31.6 %
23.5 %
3.5 %
0.2 %
Unrealized Gains and Losses on AFS Short-Term and Fixed Maturity Investments
The amortized cost, unrealized gains and losses, allowance for credit losses and fair values of our short-term
and fixed maturity investments classified as AFS as of December 31, 2020 were as follows:
2020
U.S. government and agency
Amortized Cost
$
715,527 $
U.K. government
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
12,494
142,459
1,873,184
28,881
326,268
273,516
204,312
Gross Unrealized Losses
Gross
Unrealized
Gains
Non-Credit
Related Losses
Allowance for
Credit Losses(1)
Fair Value
3,305 $
1,080
7,721
65,913
1,155
3,292
5,202
846
(834) $
—
(53)
— $
—
—
717,998
13,574
150,127
(1,567)
(181)
1,937,349
(4)
(689)
(2,097)
(694)
—
—
(133)
(8)
30,032
328,871
276,488
204,456
(322) $ 3,658,895
(1) The Company adopted ASU 2016-13 and the related amendments on January 1, 2020. Refer to Note 1 - "Significant Accounting Policies" for
$ 3,576,641 $
88,514 $
(5,938) $
further details.
131
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The amortized cost, unrealized gains and losses and fair values of our short-term and fixed maturity
investments classified as AFS as of December 31, 2019 were as follows:
2019
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Non-OTTI
Fair
Value
U.S. government and agency
$
381,488 $
78 $
(322) $
381,244
U.K. government
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
15,067
84,116
880,667
3,770
99,646
49,219
152,153
282
1,119
3,739
12
221
30
127
—
(88)
15,349
85,147
(3,934)
880,472
(2)
(679)
(203)
(119)
3,780
99,188
49,046
152,161
$
1,666,126 $
5,608 $
(5,347) $
1,666,387
Gross Unrealized Losses on AFS Short-term and Fixed Maturity Investments
The following table summarizes our short-term and fixed maturity investments classified as AFS that were in a
gross unrealized loss position, for which an allowance for credit losses has not been recorded, as of December 31,
2020:
2020
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
$
— $
— $
55,839 $
(834) $
55,839 $
(834)
UK government
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
Total short-term and fixed maturity
investments
—
—
—
—
—
—
—
—
—
7,971
—
—
(53)
7,971
—
(53)
199,048
(1,224)
199,048
(1,224)
1,690
(4)
1,690
4,626
(125)
79,149
(564)
83,775
38
—
(38)
67,094
(1,562)
67,132
—
116,827
(564)
116,827
(4)
(689)
(1,600)
(564)
$
4,664 $
(163) $ 527,618 $
(4,805) $ 532,282 $
(4,968)
The following table summarizes our short-term and fixed maturity investments classified as AFS that were in a
gross unrealized loss position as of December 31, 2019, aggregated by major security type and length of time in
continuous unrealized loss position:
2019
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
$
— $
— $ 193,574 $
(322) $ 193,574 $
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
Total short-term and fixed maturity
investments
1,080
2,754
128
—
—
—
(23)
37,796
(65)
38,876
(306)
338,965
(3,628)
341,719
(3,934)
—
—
—
—
761
52,005
35,777
(2)
889
(679)
52,005
(203)
35,777
101,591
(119)
101,591
(2)
(679)
(203)
(119)
(322)
(88)
$
3,962 $
(329) $ 760,469 $
(5,018) $ 764,431 $
(5,347)
132
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of December 31, 2020 and 2019, the number of securities classified as AFS in an unrealized loss position
for which an allowance for credit loss is not recorded was 407 and 479, respectively. Of these securities, the
number of securities that had been in an unrealized loss position for twelve months or longer was 2 and 12,
respectively.
The contractual terms of a majority of these investments do not permit the issuers to settle the securities at a
price less than the amortized cost basis of the security. While credit spreads have increased, and in certain cases
credit ratings were downgraded, we currently do not expect the issuers of these fixed income securities to settle
them at a price less than their amortized cost basis and therefore it is expected that we will recover the entire
amortized cost basis of each security. Furthermore, we do not intend to sell the securities that are currently in an
unrealized loss position, and it is also not more likely than not that we will be required to sell the securities before
the recovery of their amortized cost bases.
Allowance for Credit Losses on AFS Fixed Maturity Investments
We adopted ASU 2016-13 and the related amendments on January 1, 2020 prospectively, and recognized an
allowance for credit losses of $3.1 million on initial adoption of the guidance. Our allowance for credit losses is
derived based on various data sources, multiple key inputs and forecast scenarios. These include default rates
specific to the individual security, vintage of the security, geography of the issuer of the security, industry analyst
reports, credit ratings and consensus economic forecasts.
To determine the credit losses on our AFS securities, we use the probability of default ("PD") and loss given
default ("LGD") methodology through a third-party proprietary tool which calculates the expected credit losses
based on a discounted cash flow method. The tool uses effective interest rates to discount the expected cash flows
associated with each AFS security to determine its fair value, which is then compared with its amortized cost basis
to derive the credit loss on the security.
The methodology and inputs used to determine the credit loss by security type are as follows:
•
Corporate and Government: Expected cashflows are derived that are specific to each security. The PD is
based on a quantitative model that converts agency ratings to term structures that vary by country, industry
and the state of the credit cycle. This is used along with macroeconomic forecasts to produce scenario
conditioned PDs. The LGD is based on default studies provided by a third party which we use along with
macroeconomic forecasts to produce scenario conditioned LGDs.
• Municipals: Expected cash flows are derived that are specific to each security. The PD model produces
scenario conditioned PD output over the lifetime of the municipal security. These PDs are based on key
macroeconomic and instrument specific risk factors. The LGD is derived based on a model which uses
assumptions specific to the municipal securities.
For corporate, government and municipal securities, we use an explicit reversion and a three year forecast
period, which we consider to be a reasonable duration during which an economic forecast could continue to be
reliable.
•
Asset backed, Commercial and Residential mortgaged-backed: Expected cash flows are derived that are
specific to each security. The PD and LGD for each security is based on a quantitative model that generates
scenario conditioned PD and LGD term structures based on the underlying collateral type, waterfall and
other trustee information. This model also considers prepayments. For these security types, there is no
explicit reversion and the forecasts are deemed reasonable and supportable over the life of the portfolio.
Due to the short-term period during which accrued investment income remains unpaid, which is typically six
months or less since the coupon on our debt securities is paid semi-annually or more frequently, we elected not to
establish an allowance for credit losses on our accrued investment income balances. Accrued investment income is
written off through net realized investment gains (losses) at the time the issuer of the debt security defaults or is
expected to default on payments.
133
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table provides a reconciliation of the beginning and ending allowance for credit losses on our
AFS debt securities:
Other
government Corporate
December 31, 2020
Residential
mortgage-
backed
Commercial
mortgage
backed
Asset-
backed
Total
Allowance for credit losses, beginning of year
$
— $
— $
— $
— $
— $
—
Cumulative effect of change in accounting principle
(22)
(2,987)
—
(50)
—
(3,059)
Allowances for credit losses on securities for which credit
losses were not previously recorded
Additions to the allowance for credit losses arising from
purchases of securities accounted for as PCD assets
Reductions for securities sold during the year
Reductions in the allowance for credit losses on securities
we either intend to sell or more likely than not, we will be
required to sell before the recovery of their amortized cost
basis
(Increase) decrease to the allowance for credit losses on
securities that had an allowance recorded in the previous
period
—
(10,748)
(2)
(675)
(142) (11,567)
—
22
—
2,545
—
—
—
11,009
—
—
—
2
—
—
—
—
—
2,567
—
—
—
592
134
11,737
Allowance for credit losses, end of year
$
— $
(181) $
— $
(133) $
(8) $
(322)
During the year ended December 31, 2020, we did not have any write-offs charged against the allowance for
credit losses or any recoveries of amounts previously written-off.
Other-Than-Temporary Impairment on AFS Short-term and Fixed Maturity Investments
For the years ended December 31, 2019 and 2018, we did not recognize any OTTI losses on our AFS
securities. We determined that no other-than-temporary credit losses existed as of December 31, 2019. A
description of our OTTI process is included in Note 2 - "Significant Accounting Policies".
As discussed in detail in Note 2 - "Significant Accounting Policies", we adopted ASU 2016-13 and the related
amendments on January 1, 2020 with this new guidance replacing the OTTI model that was previously applicable to
our AFS debt securities. The new approach now requires the recognition of impairments relating to credit losses
through an allowance account and limits the amount of credit loss to the difference between a security’s amortized
cost basis and its fair value.
Equity Investments
The following table summarizes our equity investments classified as trading as of December 31, 2020 and
2019:
Publicly traded equity investments in common and preferred stocks
Exchange-traded funds
Privately held equity investments in common and preferred stocks
2020
2019
$
$
260,767 $
311,287
274,741
846,795 $
327,875
133,047
265,799
726,721
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 also trade on major exchanges.
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. There is no active market for
these investments. Included within the above balance as of December 31, 2020 and 2019 is an investment in the
parent company of AmTrust Financial Services, Inc. ("AmTrust"), with a fair value of $230.3 million and $240.1
million, respectively. Refer to Note 21 - "Related Party Transactions" for further information.
134
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Other Investments, at fair value
The following table summarizes our other investments carried at fair value as of December 31, 2020 and
2019:
Hedge funds
Fixed income funds
Private equity funds
Private credit funds
Equity funds
CLO equity funds
CLO equities
Others
2020
2019
$
$
2,638,339 $
552,541
363,103
192,319
190,767
166,523
128,083
12,359
4,244,034 $
1,121,904
481,039
323,496
—
410,149
87,509
87,555
6,379
2,518,031
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, including derivatives, to achieve their objectives. We invest in 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, in both liquid and illiquid markets. The liquid fixed income funds
have regularly published prices.
Private equity funds invest primarily in the financial services industry.
Private credit funds invest in direct senior or collateralized loans.
Equity funds invest in a diversified portfolio of U.S. and international publicly-traded equity securities.
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.
• Others primarily comprise of a real estate debt fund that invests primarily in European commercial real
estate equity.
The increase in our other investments carried at fair value between December 31, 2020 and December 31,
2019 was primarily attributable to unrealized gains of $1.3 billion and net additional subscriptions of $380.3 million
to hedge funds, fixed income funds, private credit funds, CLO equities and CLO equity funds.
As of December 31, 2020, we had unfunded commitments of $975.5 million to other investments.
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 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
135
Redemption
Frequency
Monthly to Bi-
annually
Daily to
Quarterly
Daily to
Quarterly
N/A
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
sales process as of December 31, 2020:
Less than
1 Year
1-2 years
2-3 years
More than
3 years
Not
Eligible/
Restricted
Total
Hedge funds
$ 2,590,164 $
— $
— $
— $
48,175 $ 2,638,339
Fixed income funds
537,055
Equity funds
Private equity funds
190,767
—
—
—
—
—
—
—
CLO equity funds
94,313
61,741
10,469
CLO equities
Private credit funds
Other
128,083
—
—
9,250
—
—
—
—
—
—
—
15,486
552,541
—
363,103
190,767
363,103
—
—
183,069
12,359
166,523
Quarterly to Bi-
annually
128,083
192,319
12,359
Daily to
Quarterly
N/A
N/A
$ 3,540,382 $
70,991 $
10,469 $
— $ 622,192 $ 4,244,034
As of December 31, 2020 and 2019, we had $48.2 million and $51.8 million, respectively, of hedge funds
subject to gates or side-pockets.
Equity Method Investments
The table below shows our equity method investments as of December 31, 2020 and 2019:
Enhanzed Re
Citco (1)
Monument Re (2)
Clear Spring
Core Specialty
Other
2020
2019
Ownership %
Carrying Value
Ownership %
Carrying Value
47.4 % $
31.9 %
20.0 %
— %
25.2 %
27%
330,289
53,022
193,716
—
235,000
20,268
47.4 % $
182,856
31.9 %
20.0 %
20.0 %
— %
30%
51,742
60,598
10,645
—
20,436
326,277
(1) We own 31.9% of the common shares in HH CTCO Holdings Limited which in turn owns 15.4% of the convertible preferred shares, amounting
832,295
$
$
to a 6.2% interest in the total equity of Citco III Limited ("Citco").
(2) We own 20.0% of the common shares in Monument Re as well as different classes of preferred shares which have fixed dividend yields and
whose balances are included in the Investment amount.
Refer to Note 21 - "Related Party Transactions" for further information regarding the investments above. As of
December 31, 2020, we had unfunded commitments of $68.7 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 funds
held by reinsured companies are recognized in net investment income and the investment returns on funds held -
directly managed 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.
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
136
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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,
2020 and 2019:
Fixed maturity investments, trading
Cash and cash equivalents
Other assets
2020
1,060,263 $
9,067
5,560
1,074,890 $
2019
1,173,345
10,296
3,911
1,187,552
$
$
The following table summarizes the short-term and fixed maturity investment components of funds held -
directly managed as of December 31, 2020 and 2019:
2020
Funds held
- Directly
Managed -
Fair Value
Option
Funds held
- Directly
Managed -
Variable
Return
Total
2019
Funds held
- Directly
Managed -
Fair Value
Option
Funds held
- Directly
Managed -
Variable
Return
Total
$ 106,938 $ 859,403 $ 966,341 $ 185,859 $ 940,194 $ 1,126,053
9,693
—
9,693
5,438
—
5,438
—
84,229
84,229
—
41,854
41,854
$ 116,631 $ 943,632 $ 1,060,263 $ 191,297 $ 982,048 $ 1,173,345
Short-term and 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
Short-term and fixed maturity
investments within funds held -
directly managed, at fair value
Refer to the sections above for details of the short-term and 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, 2020 and 2019, we had funds held by reinsured companies of
$635.8 million and $475.7 million, respectively. The increase related to $204.2 million of additional funds held
balances related to the AXA Group transaction.
137
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Net Investment Income
Major categories of net investment income for the years ended December 31, 2020, 2019 and 2018 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
Investment income from equities and other investments
Gross investment income
Investment expenses
Net investment income
2020
2019
2018
$
198,988 $
217,886 $
178,213
4,843
33,920
34,563
15,609
22,580
38,173
11,692
11,640
37,623
272,314
294,248
239,168
19,240
27,153
46,393
16,671
11,792
28,463
318,707
322,711
(15,890)
302,817 $
(14,440)
308,271 $
$
5,397
26,214
31,611
270,779
(9,081)
261,698
Net Realized and Unrealized Gains (Losses)
Components of net realized and unrealized gains (losses) for the years ended December 31, 2020, 2019 and
2018 were as follows:
Net realized gains (losses) on sale:
2020
2019
2018
Gross realized gains on fixed maturity securities, AFS
$
26,313 $
4,844 $
Gross realized losses on fixed maturity securities, AFS
(7,801)
(905)
Decrease in allowance for expected credit losses on fixed maturity
securities, AFS
170
—
27
(90)
—
Net realized gains (losses) on fixed maturity securities, trading
126,945
81,011
(27,408)
Net realized gains (losses) on fixed maturity securities in funds held -
directly managed
Net realized gains (losses) on equity investments
Net realized investment gains on investment derivatives
Total net realized gains (losses) on sale
Net unrealized gains (losses):
Fixed maturity securities, trading
Fixed maturity securities in funds held - directly managed
Equity investments
Other investments
Investment derivatives
Total net unrealized gains (losses)
Net realized and unrealized gains (losses)
8,798
24,282
144
1,495
(374)
—
(3,940)
4,016
—
178,851
86,071
(27,395)
101,022
50,837
(25,752)
341,130
(159,594)
88,053
55,359
(46,257)
(9,831)
1,336,343
441,702
(164,455)
718
(349)
—
1,463,168
925,895
(380,137)
$ 1,642,019 $ 1,011,966 $
(407,532)
The gross realized gains and losses on AFS investments included in the table above resulted from sales of
$2.0 billion, $302.9 million and $11.4 million for the years ended December 31, 2020, 2019 and 2018, respectively.
The unrealized gains for 2020 primarily comprised unrealized gains of $1.2 billion in the hedge fund managed
by AnglePoint. These unrealized gains were driven by strong performance in equity markets across multiple sectors,
including consumer discretionary, communication services, information technology and consumer staples.
138
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Reconciliation to the Consolidated Statements of Comprehensive Income
ENSTAR GROUP LIMITED
The following table provides a reconciliation of the gross realized gains and losses and credit recoveries
(losses) on our AFS fixed maturity debt securities that arose during the years ended December 31, 2020, 2019 and
2018 within our continuing and discontinued operations and the offsetting reclassification adjustments included
within our consolidated statements of comprehensive income:
Included within continuing operations:
Gross realized gains on fixed maturity securities, AFS
$
26,313 $
4,844 $
2020
2019
2018
Gross realized losses on fixed maturity securities, AFS
Tax effect
Included within discontinued operations:
Gross realized gains on fixed maturity securities, AFS
Gross realized losses on fixed maturity securities, AFS
Tax effect
(7,801)
(1,623)
(905)
—
1,374
(120)
(110)
12
(57)
—
27
(90)
—
—
—
—
Total reclassification adjustment for net realized gains (losses) included in net
earnings
Included within continuing operations:
Credit recoveries (losses) on fixed maturity securities, AFS
Tax effect
Included within discontinued operations:
Credit recoveries (losses) on fixed maturity securities, AFS
Tax effect
$
$
18,033 $
3,894 $
(63)
170 $
— $
3
329
7
—
—
—
—
—
—
—
—
Total reclassification adjustment for change in allowance for credit losses
recognized in net earnings
$
509 $
— $
Restricted Assets
We utilize trust accounts to collateralize business with our (re)insurance counterparties. We are also required
to maintain investments and cash and cash equivalents on deposit with regulatory authorities and Lloyd's to support
our (re)insurance operations. The investments and cash and cash equivalents on deposit are available to settle
(re)insurance 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 $472.0 million and $346.9 million, as of December 31, 2020 and 2019,
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)
2020
2019
$
4,924,866 $
4,103,847
131,283
104,627
260,914
309,659
132,670
639,316
5,185,492
(1) Our businesses include three Lloyd's syndicates as at December 31, 2020. 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".
5,421,690 $
$
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, 2020 and 2019, we had foreign currency forward exchange rate contracts in place which we had
designated as hedges of our net investments in foreign operations.
139
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents the gross notional amounts and estimated fair values recorded within other
assets and liabilities related to our qualifying foreign currency forward exchange rate contracts as of December 31,
2020 and 2019:
2020
Fair Value
2019
Fair Value
Gross Notional
Amount
Assets
Liabilities
Gross Notional
Amount
Assets
Liabilities
Foreign currency forward - AUD
$
73,852 $
13 $
5,060 $
64,620 $
52 $
2,033
Foreign currency forward - EUR
Foreign currency forward - GBP
217,168
312,671
205
951
8,889
14,998
112,284
318,387
246
344
1,635
7,784
Total qualifying hedges
$
603,691 $
1,169 $
28,947 $
495,291 $
642 $
11,452
The following table presents the net gains and losses deferred in the cumulative translation adjustment
("CTA") account, which is a component of AOCI, in shareholders' equity, relating to our foreign currency forward
exchange rate contracts for the years ended December 31, 2020, 2019 and 2018:
Foreign currency forward - AUD
Foreign currency forward - EUR
Foreign currency forward - GBP
Total qualifying hedges
Amount of Gains (Losses) Deferred in AOCI
2020
2019
2018
$
$
(6,792) $
(15,026)
(8,457)
(722) $
1,817
(16,423)
(30,275) $
(15,328) $
3,438
1,000
—
4,438
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 outstanding foreign currency denominated
borrowings under our credit facilities as of December 31, 2020 and 2019, there was a net gain of $3.1 million
deferred in the CTA account in AOCI relating to qualifying non-derivative hedging instruments for the year ended
December 31, 2018.
Derivatives Not Designated or Not Qualifying as Net Investments in 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 or other
derivatives either to obtain exposure to a particular equity instrument or for yield enhancement in non-qualifying
hedging relationships.
Foreign Currency Forward Contracts
The following tables present the gross notional amounts and estimated fair values recorded within other
assets and other liabilities related to our non-qualifying foreign currency forward exchange rate hedging
relationships as of December 31, 2020 and 2019:
December 31, 2020
December 31, 2019
Fair Value
Fair Value
Gross
Notional
Amount
Assets
Liabilities
Gross
Notional
Amount
Assets
Liabilities
Foreign currency forward - AUD
$
28,848 $
882 $
2,847 $
913 $
839 $
Foreign currency forward - CAD
Foreign currency forward - EUR
Foreign currency forward - GBP
64,224
43,531
2,731
10
1,782
161
1,764
41
404
66,266
74,444
11,940
10
507
13
Total non-qualifying hedges
$
139,334 $
2,835 $
5,056 $
153,563 $
1,369 $
892
1,482
1,440
292
4,106
140
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents the amounts of the net gains and losses included in earnings related to our non-
qualifying foreign currency forward exchange rate contracts during the years ended December 31, 2020, 2019, and
2018:
Foreign currency forward - AUD
Foreign currency forward - CAD
Foreign currency forward - EUR
Foreign currency forward - GBP
Net gains (losses) on non-qualifying hedges
Investments in Call Options on Equities
Gains (losses) on non-qualifying hedges charged to earnings
2020
2019
2018
$
$
(2,388) $
(879)
1,871
(1,558)
1,523 $
(2,079)
1,759
12,004
(2,954) $
13,207 $
4,958
9,311
2,296
15,078
31,643
During the years ended December 31, 2020, 2019, and 2018, we recorded unrealized gains (losses) of less
than $(0.1) million, $0.5 million and $(9.4) million, respectively, in net earnings on the call options on equities that
we had 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 as of December 31, 2019 and expired without being exercised during the year ended December 31, 2020.
Forward Interest Rate Swaps
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 completion of the Munich Re transaction which
closed on July 1, 2020, as described in Note 4 - "Significant New Business".
During the year ended December 31, 2020, we recorded unrealized gains included within net earnings of $0.8
million on the forward interest rate swap. This forward interest rate swap was terminated on April 7, 2020, for an
inception-to-date net realized gain of $0.5 million. The carrying value of the forward interest rate swap, recorded in
other liabilities as of December 31, 2019, was $0.3 million.
Credit Default Swaps, Futures and Currency Forward Contracts
From time to time we may also utilize (i) credit default swaps to both hedge and replicate credit exposure, (ii)
government bond futures contracts for interest rate management, and (iii) foreign currency forward contracts for
currency hedging, to collectively manage credit and duration risk, as well as for yield enhancement on some of our
fixed income portfolios.
The following table presents the gross notional amounts and estimated fair values recorded within other
assets and other liabilities related to our credit default swaps, government bond futures contracts and currency
forward contracts:
December 31, 2020
Fair Value
Gross Notional Amount
Assets
Liabilities
Futures contracts - long positions
Futures contracts - short positions
Currency forward contracts - long positions - USD
Currency forward contracts - short positions - USD
Currency forward contracts - long positions - GBP
Currency forward contracts - short positions - GBP
Total
$
$
34,502 $
(32,316)
1,428
(3,233)
1,278
(4,418)
(2,759) $
32 $
6
—
60
19
12
129 $
5
121
13
—
—
—
139
The following table presents the amounts of the net gains included in earnings related to our credit default
swaps, government bond futures contracts and currency forward contracts:
Credit default swaps
Futures contracts
Currency forward contracts
Total net gains
141
$
$
2020
181
(127)
572
626
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We did not utilize any credit default swaps, government bond futures contracts and currency forward contracts
during the years ended December 31, 2019 and 2018.
8. REINSURANCE BALANCES RECOVERABLE ON PAID AND UNPAID LOSSES
The following tables provide the total reinsurance balances recoverable on paid and unpaid losses.
Recoverable from reinsurers on unpaid:
Outstanding losses
IBNR
ULAE
Fair value adjustments - acquired companies
Fair value adjustments - fair value option
Total reinsurance reserves recoverable
Paid losses recoverable
Total
Reconciliation to Consolidated Balance Sheet:
December 31, 2020
Non-life
Run-off
StarStone
Total
$
938,231 $
263,638 $
1,201,869
508,082
16,688
(14,014)
(21,427)
1,427,560
172,309
139,761
—
(1,339)
—
402,060
87,234
647,843
16,688
(15,353)
(21,427)
1,829,620
259,543
$
1,599,869 $
489,294 $
2,089,163
Reinsurance balances recoverable on paid and unpaid losses
$
1,079,039 $
489,294 $
1,568,333
Reinsurance balances recoverable on paid and unpaid losses - fair
value option
Total
520,830
—
520,830
$
1,599,869 $
489,294 $
2,089,163
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
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
December 31, 2019
Non-life
Run-off
Atrium
StarStone
Total
$
972,293 $
9,011 $
264,131 $
1,245,435
673,059
(13,652)
(88,086)
1,543,614
181,375
19,286
519
—
28,816
1,541
93,185
(2,122)
—
355,194
70,594
785,530
(15,255)
(88,086)
1,927,624
253,510
$
1,724,989 $
30,357 $
425,788 $
2,181,134
$
1,029,471 $
30,357 $
425,788 $
1,485,616
695,518
—
—
695,518
$
1,724,989 $
30,357 $
425,788 $
2,181,134
Our (re)insurance run-off subsidiaries and assumed portfolios, prior to acquisition, used retrocessional
agreements to reduce their exposure to the risk of (re)insurance assumed. On an annual basis, both Atrium
(classified as held-for-sale as of December 31, 2020) and StarStone purchased a tailored outwards reinsurance
program designed to manage their risk profiles. The majority of Atrium’s and StarStone's third-party reinsurance is
with highly rated reinsurers or is collateralized by pledged assets or letters of credit.
The fair value adjustments, determined on acquisition of (re)insurance 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 for
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
142
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
reinsurance contracts for which we have elected the fair value option is described in Note 12 - "Fair Value
Measurements".
As of December 31, 2020 and 2019, we had reinsurance balances recoverable on paid and unpaid losses of
$2.1 billion and $2.2 billion, respectively. The decrease of $92.0 million was primarily due to the Hannover Re
transaction, cash collections and the classification of Atrium as held-for-sale at December 31, 2020, partially offset
by increases due to the retrocession to Enhanzed Re as discussed in Note 21 - "Related Party Transactions"
Top Ten Reinsurers
December 31, 2020
Non-life
Run-off
StarStone
Total
% of
Total
Top 10 reinsurers
$
1,036,676 $
327,917 $
1,364,593
Other reinsurers > $1 million
Other reinsurers < $1 million
539,428
23,765
158,174
3,203
697,602
26,968
Total
$
1,599,869 $
489,294 $
2,089,163
Non-life
Run-off
Atrium
StarStone
Total
December 31, 2019
Top 10 reinsurers
$ 1,154,110 $
22,051 $
295,443 $ 1,471,604
Other reinsurers > $1 million
Other reinsurers < $1 million
551,636
19,243
7,761
545
129,335
1,010
688,732
20,798
65.3 %
33.4 %
1.3 %
100.0 %
% of
Total
67.4 %
31.6 %
1.0 %
Total
$ 1,724,989 $
30,357 $
425,788 $ 2,181,134
100.0 %
Information regarding top ten reinsurers:
Number of top 10 reinsurers rated A- or better
Number of top 10 non-rated reinsurers (1)
Reinsurers rated A- or better in top 10
Non-rated reinsurers in top 10 (1)
Total top 10 reinsurance recoverables
Single reinsurers that represent 10% or more of total reinsurance
balance recoverables as of December 31, 2020 and 2019:
Hannover Ruck SE (2)
Lloyd's Syndicates (3)
Michigan Catastrophic Claims Association(4)
December 31, 2020 December 31, 2019
7
3
863,819 $
500,774
1,364,593 $
8
2
1,199,479
272,125
1,471,604
— $
331,118 $
229,374 $
259,077
396,246
—
$
$
$
$
$
(1) The reinsurance balances recoverable from the three and two non-rated top 10 reinsurers as of December 31, 2020 and 2019, respectively,
was comprised of:
•
•
•
$229.4 million and $190.8 million as of December 31, 2020 and December 31, 2019 respectively, due from a U.S. state backed
reinsurer that is supported by assessments on active auto writers operating within the state;
$73.8 million and $81.4 million as of December 31, 2020 and December 31, 2019 respectively, due from a reinsurer who has provided
us with security in the form of pledged assets in trust for the full amount of the recoverable balance; and
$208.4 million as of December 31, 2020 due from Enhanzed Re, an equity method investee to whom some of our subsidiaries have
retroceded their exposures through quota share reinsurance agreements as discussed in Note 21 - "Related Party Transactions".
These quota share reinsurance agreements are written on a funds withheld basis with our subsidiaries retaining the retrocession
premium consideration, to secure the full amount of the recoverable balances due from Enhanzed Re.
(2) Hannover Ruck SE is rated AA- by Standard & Poor’s and A+ by A.M. Best. The transaction described in Note 4 - "Significant New Business"
had the effect of reducing the balances due from this reinsurer to below 10% of the total reinsurance balances recoverable as of December 31,
2020.
(3) Lloyd's Syndicates are rated A+ by Standard & Poor's and A by A.M. Best.
(4) U.S. state backed reinsurer that is supported by assessments on active auto writers operating within the state.
143
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Allowance for Estimated Uncollectible Reinsurance Balances Recoverable on Paid and Unpaid Losses
We evaluate and monitor the credit risk related to our reinsurers, and an allowance for estimated uncollectible
reinsurance balances recoverable on paid and unpaid losses ("allowance for estimated uncollectible reinsurance")
is established for amounts considered potentially uncollectible.
With respect to our process for determining the allowances for estimated uncollectible reinsurance, we
adopted ASU 2016-13 and the related amendments on January 1, 2020 and recorded a cumulative effect
adjustment of $0.2 million to increase the opening retained earnings on the initial adoption of the guidance. Our
allowance for estimated uncollectible reinsurance is derived based on various data sources, multiple key inputs and
forecast scenarios. These include the duration of the collection period, credit quality, changes in reinsurer credit
standing, default rates specific to the individual reinsurer, the geographical location of the reinsurer, contractual
disputes with reinsurers over individual contentious claims, contract language or coverage issues, industry analyst
reports and consensus economic forecasts.
To determine the allowance for estimated uncollectible reinsurance, we use the PD and LGD methodology
whereby each reinsurer is allocated an appropriate PD percentage based on the expected payout duration by
portfolio. This PD percentage is then multiplied by an appropriate LGD percentage to arrive at an overall credit
allowance percentage which is then applied to the reinsurance balance recoverable for each reinsurer, net of any
specific bad debt provisions, collateral or other contract related offsets, to arrive at the overall allowance for
estimated uncollectible reinsurance by reinsurer.
The following tables show our gross and net balances recoverable from our reinsurers as well as the related
allowance for estimated uncollectible reinsurance broken down by the credit ratings of our reinsurers. The majority
of the allowance for estimated uncollectible reinsurance relates to the Non-life Run-off segment.
December 31, 2020
Allowance for
estimated
uncollectible
reinsurance
Gross
Net
Provisions as a
% of Gross
Reinsurers rated A- or above
$
1,464,529 $
60,801 $
1,403,728
Reinsurers rated below A-, secured
Reinsurers rated below A-, unsecured
608,999
152,757
—
76,321
608,999
76,436
Total
$
2,226,285 $
137,122 $
2,089,163
4.2 %
— %
50.0 %
6.2 %
December 31, 2019
Allowance for
estimated
uncollectible
reinsurance
Gross
Net
Provisions as a
% of Gross
Reinsurers rated A- or above
Reinsurers rated below A-, secured
Reinsurers rated below A-, unsecured
$
1,731,270 $
43,427 $
1,687,843
463,840
133,663
—
104,212
463,840
29,451
Total
$
2,328,773 $
147,639 $
2,181,134
2.5 %
— %
78.0 %
6.3 %
144
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The table below provides a reconciliation of the beginning and ending allowance for estimated uncollectible
reinsurance balances for the years ended December 31, 2020 and 2019:
Allowance for estimated uncollectible reinsurance, beginning of
year
$
Cumulative effect of change in accounting principle
Effect of exchange rate movement
Current period change in the allowance
Write-offs charged against the allowance
Recoveries collected
2020
2019
147,639 $
156,732
(195)
700
(381)
(9,625)
(1,016)
—
(887)
2,077
(9,871)
(412)
Allowance for estimated uncollectible reinsurance, end of year
$
137,122 $
147,639
We consider a reinsurance recoverable asset to be past due when it is 90 days past due and record a credit
allowance when there is reasonable uncertainty about the collectability of a disputed amount during the reporting
period. We did not have significant past due balances older than one year for any of the periods presented.
9. DEFERRED CHARGE ASSETS AND DEFERRED GAIN LIABILITIES
Deferred charge assets and deferred gain liabilities 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
(re)insurance 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;
whereas, a deferred gain liability is recorded for the excess, if any, of the premiums received over the estimated
ultimate losses payable at the initial measurement. In addition, for retrocessions of losses and LAE reserves that we
have assumed through retroactive reinsurance contracts where the retroceded liabilities exceed the retrocession
premiums paid, we record the excess as a deferred gain liability which is amortized to earnings over the estimated
period during which the losses paid on the assumed retroceded liabilities are recovered from the retrocessionaire.
For further information on our deferred charge assets and deferred gain liabilities, refer to Note 2 - "Significant
Accounting Policies."
Deferred Charge Assets
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, 2020, 2019 and 2018:
Beginning carrying value
Recorded during the year
Amortization
Ending carrying value
2020
2019
2018
$
$
272,462 $
86,585 $
11,746
(45,606)
224,504
(38,627)
238,602 $
272,462 $
80,192
20,174
(13,781)
86,585
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,
2020, we completed our assessment for impairment of deferred charge assets and concluded that there had been
no impairment of our carried deferred charge asset balances.
Further information on deferred charges recorded during the years ended December 31, 2020, 2019 and
2018 is included in Note 4 - "Significant New Business."
145
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Deferred Gain Liabilities
Deferred gain liabilities are included in other liabilities on our consolidated balance sheets. The following table
presents a reconciliation of the deferred gain liabilities for the years ended December 31, 2020 and 2019:
Beginning carrying value
Recorded during the year
Amortization
Ending carrying value
2020
2019
$
$
12,875 $
9,365
(2,360)
19,880 $
—
13,758
(883)
12,875
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 includes losses that have been incurred but not
reported ("IBNR") for our Non-life Run-off, Atrium (classified as held-for-sale as of December 31, 2020) 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
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.
Our loss reserves cover multiple lines of business, including asbestos, environmental, general casualty,
workers' compensation/personal accident, marine, aviation and transit, construction defect, professional indemnity/
directors and officers, motor, property and other non-life lines of business.
The following tables summarize the liability for losses and LAE by segment and for our other activities.
2020
Non-life
Run-off
StarStone
Other
Total
$ 4,440,425 $ 677,220 $ 10,204 $ 5,127,849
5,277,503
(143,183)
4,641,500
(142,854)
20,040
—
615,963
(329)
(54,589)
350,600
(54,589)
385,702
$ 9,235,082 $ 1,327,956 $ 30,244 $ 10,593,282
—
35,102
—
—
$ 6,782,162 $ 1,327,956 $ 30,244 $ 8,140,362
2,452,920
2,452,920
—
$ 9,235,082 $ 1,327,956 $ 30,244 $ 10,593,282
—
Outstanding losses
IBNR
Fair value adjustments - acquired companies
Fair value adjustments - fair value option
ULAE
Total
Reconciliation to Consolidated Balance Sheet:
Loss and loss adjustment expenses
Loss and loss adjustment expenses, at fair value
Total
146
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Outstanding losses
IBNR
2019
Non-life
Run-off
Atrium
StarStone
Other
Total
$ 4,407,082 $
89,141 $ 743,830 $ 9,512 $ 5,249,565
3,945,407
136,543
556,134
13,565
4,651,649
Fair value adjustments- acquired companies
(170,689)
3,700
Fair value adjustments - fair value option
(217,933)
—
(522)
—
ULAE
Total
331,494
2,288
18,852
$ 8,295,361 $ 231,672 $ 1,318,294 $ 23,077 $ 9,868,404
—
—
—
(167,511)
(217,933)
352,634
Reconciliation to Consolidated Balance Sheet:
Loss and loss adjustment expenses
$ 5,674,239 $ 231,672 $ 1,318,294 $ 23,077 $ 7,247,282
Loss and loss adjustment expenses, at fair value
2,621,122
—
—
—
2,621,122
Total
$ 8,295,361 $ 231,672 $ 1,318,294 $ 23,077 $ 9,868,404
The overall increase in the liability for losses and LAE between December 31, 2019 and December 31, 2020
was primarily attributable to the reinsurance transactions completed in 2020, as described in Note 4 - "Significant
New Business," net incurred losses and LAE and foreign exchange losses in the year, partially offset by losses paid
in the year.
The table below provides a consolidated reconciliation of the beginning and ending liability for losses and
LAE.
2020
2019
2018
Balance as of January 1
$
9,868,404 $
9,048,796 $
Less: reinsurance reserves recoverable
1,927,624
1,708,272
7,100,488
1,693,028
Less: net deferred charge assets and gain liabilities on
retroactive reinsurance
Less: cumulative effect of change in accounting principle on
the determination of the allowance for estimated uncollectible
reinsurance balances (1)
Net balance as of January 1
259,587
86,585
80,192
643
—
—
7,680,550
7,253,939
5,327,268
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
Reclassification to assets and liabilities held-for-sale
Net balance as of December 31
Plus: reinsurance reserves recoverable (2)
Plus: net deferred charge assets and gain liabilities on
retroactive reinsurance
405,178
10,748
415,926
580,074
34,105
614,179
(71,989)
(179,461)
(1,413,500)
(1,609,009)
(1,485,489)
(1,788,470)
119,663
—
47,812
686
2,186,024
1,586,307
(154,926)
(216,808)
8,544,940
1,829,620
(33,260)
—
7,681,193
1,927,624
533,081
(209,359)
323,722
(176,172)
(1,158,614)
(1,334,786)
(145,243)
1,310,874
1,772,104
—
—
7,253,939
1,708,272
218,722
259,587
86,585
Balance as of December 31
$
9,048,796
(1) The Company adopted ASU 2016-13 and the related amendments on January 1, 2020. Refer to Note 2 - "Significant Accounting Policies" for
further details. This amount excludes $0.4 million related to the adoption impact of ASU 2016-13 on StarStone U.S., which has been classified as
a discontinued operation with the related assets and liabilities disclosed as held-for-sale on our consolidated balance sheets.
10,593,282 $
9,868,404 $
147
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(2) Net of allowance for estimated uncollectible reinsurance.
ENSTAR GROUP LIMITED
The tables below provide the components of net incurred losses and LAE by segment and for our other
activities.
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
Increase (reduction) in provisions for unallocated LAE (3)
Amortization of deferred charge assets and deferred
gain liabilities (4)
Amortization of fair value adjustments (5)
Changes in fair value - fair value option (6)
Net incurred losses and LAE
2020
Non-life
Run-off
Atrium
StarStone
Other
Total
$ 1,074,901 $
73,920 $ 326,868 $
9,800 $ 1,485,489
(453,080)
(718,414)
7,245
6,661
(95,044)
692
(540,187)
17,654
6,475
(687,624)
(96,593)
87,826
249,478
16,967
257,678
(48,765)
(29)
17,244
42,640
28,667
119,046
—
606
(571)
(590)
—
—
—
—
—
—
(31,550)
43,246
27,506
119,046
$
44,995 $
87,226 $ 266,738 $
16,967 $ 415,926
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
Increase (reduction) in provisions for unallocated
LAE (3)
Amortization of deferred charge assets and
deferred gain liabilities (4)
Amortization of fair value adjustments (5)
Changes in fair value - fair value option (6)
Net incurred losses and LAE
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
Increase (reduction) in provisions for unallocated
LAE (3)
Amortization of deferred charge assets and
deferred gain liabilities (4)
Amortization of fair value adjustments (5)
Changes in fair value - fair value option (6)
Net incurred losses and LAE
2019
Non-life
Run-off
Atrium
StarStone
Other
Total
$ 1,247,624 $
78,189 $
450,835 $
11,822 $ 1,788,470
(530,891)
3,534
(4,686)
(812,699)
(4,782)
22,021
3,460
756
(528,583)
(794,704)
(95,966)
76,941
468,170
16,038
465,183
(57,404)
37,744
50,070
117,181
—
—
335
—
902
—
168
—
—
—
—
—
(56,502)
37,744
50,573
117,181
$
51,625 $
77,276 $
469,240 $
16,038 $
614,179
2018
Non-life
Run-off
Atrium
StarStone
Other
Total
$
838,817 $
64,506 $
427,371 $
4,092 $ 1,334,786
(547,420)
(565,385)
6,331
4,091
63,861
46,501
4,808
7,999
(472,420)
(506,794)
(273,988)
74,928
537,733
16,899
355,572
(65,401)
13,781
12,877
6,664
—
—
5,613
—
(5,118)
(266)
—
—
—
—
—
—
(59,788)
13,781
7,493
6,664
(306,067) $
323,722
(1) 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.
543,080 $
69,810 $
16,899 $
$
(2) Represents the gross change in our actuarial estimates of IBNR, less amounts recoverable.
(3) Represents the change in the estimate of the total future costs to administer the claims.
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(4) Relates to the amortization of deferred charge assets and deferred gain liabilities on retroactive reinsurance contracts.
(5) Relates to the amortization of fair value adjustments associated with the acquisition of companies. .
(6) Represents the changes in the fair value of liabilities related to our assumed retroactive reinsurance agreements for which we have elected the
fair value option.
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, including 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.
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 amongst other methodologies industry benchmarking which,
under certain actuarial methods, 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 our 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 our consolidated financial statements.
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
These estimates are reviewed regularly and, as experience develops and new information becomes known,
the reserves are adjusted as necessary. Such adjustments (i.e. change in ultimate losses), 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 environment. 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, 2020 and 2019 included $1.9 billion and $2.1
billion, 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, 2020 and 2019 was $2.1 billion and $2.3 billion,
respectively. For the years ended December 31, 2020 and 2019, our reserves for asbestos and environmental
liabilities decreased by $178.2 million and increased by $419.9 million on a gross basis, respectively, and
decreased by $227.2 million and increased by $374.7 million on a net basis, respectively. The decrease in 2020 was
primarily due to net paid losses while the increase in 2019 was primarily due to acquisition activity, partially offset by
net paid losses.
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, 2020, 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 - Loss development disclosures have been provided for the 10 latest acquisition years, in
addition to disclosures for lines of business with material net losses and LAE reserve balances as of
December 31, 2020, within those 10 latest acquisition years, also being provided. The disaggregated lines
of business include general casualty, workers’ compensation, motor and professional indemnity and
directors and officers.
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.
Following our sale of StarStone U.S. to Core Specialty which was completed on November 30, 2020, the
loss development disclosures presented for all the individual lines of business within the StarStone segment
have been restated to exclude the historical incurred and paid loss development related to StarStone U.S.
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);
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ENSTAR GROUP LIMITED
•
•
•
•
•
•
•
•
•
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 and deferred gain liabilities 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 (which is considered supplementary information) remain unchanged in our
loss development 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 claims, since this practice would eliminate any
historical favorable or adverse development we may have experienced on the 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 (which is considered supplementary information) remain
unchanged in our loss development 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, since we consider commutations and policy buybacks a key component of our business and are
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, 2011 through
to December 31, 2019 (and in the case of StarStone, from April 1, 2014 its acquisition date through to
December 31, 2019), as well as the historical average annual percentage payout ratios as of December 31,
2020, 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 the incurred and paid loss activity presented within the loss development tables provided below, exclude
intercompany cessions. Upon the sale of StarStone U.S. to Core Specialty on November 30, 2020, the
incurred and paid loss development activity related to the cessions from StarStone U.S. to our other
subsidiaries were no longer eliminated on consolidation and have been included within the loss
development tables presented below;
The IBNR reserves included within each incurred loss development table by accident year, reflect the net
IBNR recorded as of December 31, 2020, including expected development on reported losses;
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ENSTAR GROUP LIMITED
•
•
•
•
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
For the Non-life Run-off segment loss development tables, all information for both acquisitions and
retroactive reinsurance agreements is presented prospectively. As the loss reserves are effectively re-
underwritten at the date that they are acquired or assumed, we believe that the historical loss development
prior to their acquisition is not relevant with respect to our own experience managing these acquired loss
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 presentation approach would result in loss
development tables that are not entirely reflective of the actual loss development of the acquired loss
reserves;
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
Following our sale of StarStone U.S. to Core Specialty which was completed on November 30, 2020, the
loss development disclosures presented below for all the individual lines of business within the StarStone
segment have been restated to exclude the historical incurred and paid loss development related to
StarStone U.S.
The historical amounts disclosed within the loss development tables for all the acquisition years and lines of
business presented below 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, 2020.
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
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 cedants; and
•
StarStone - 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.
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;
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.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
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.
StarStone - The average annual percentage payout disclosures for our StarStone segment are based on
the payout of incurred claims by age, net of reinsurance.
Non-Life Run-off Segment
The table below provides a reconciliation of the beginning and ending reserves for losses and LAE for the
Non-life Run-off segment.
2020
2019
2018
Balance as of January 1
$
8,295,361 $
7,540,662 $
Less: reinsurance reserves recoverable
1,543,614
1,366,123
Less: net deferred charge assets and gain liabilities on
retroactive reinsurance
Plus: cumulative effect of change in accounting principal on
allowance for estimated uncollectible reinsurance (1)
Net balance as of 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 of December 31
Plus: reinsurance reserves recoverable(2)
Plus: net deferred charge assets and gain liabilities on
retroactive reinsurance
5,949,472
1,377,485
80,192
—
86,585
—
6,087,954
4,491,795
123,559
(71,934)
51,625
(64,820)
(1,182,804)
(1,247,624)
46,472
686
1,586,307
(33,260)
6,492,160
1,543,614
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
259,587
703
6,492,863
30,165
14,830
44,995
(9,990)
(1,064,911)
(1,074,901)
94,745
—
2,186,024
(154,926)
7,588,800
1,427,560
218,722
259,587
86,585
Balance as of December 31
7,540,662
(1) The Company adopted ASU 2016-13 and the related amendments on January 1, 2020. Refer to Note 2 - "Significant Accounting Policies" for
8,295,361 $
9,235,082 $
$
further details.
(2) Net of allowance for estimated uncollectible reinsurance.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net incurred losses and LAE in the Non-life Run-off segment were as follows:
ENSTAR GROUP LIMITED
Prior
Period
2020
Current
Period
Total
Prior
Period
2019
Current
Period
2018
Total
Prior
Period
Current
Period
Total
Net losses paid
$ 1,064,911 $
9,990 $ 1,074,901 $ 1,182,804 $ 64,820 $ 1,247,624 $ 838,812 $
5 $ 838,817
Net change in case and LAE
reserves (1)
Net change in IBNR reserves (2)
Increase (reduction) in estimates
of net ultimate losses
Increase (reduction) in
provisions for unallocated LAE (3)
Amortization of deferred charge
assets and deferred gain
liabilities (4)
Amortization of fair value
adjustments (5)
Changes in fair value - fair value
option (6)
(449,610)
(3,470)
(453,080)
(553,996)
23,105
(530,891)
(552,124)
4,704
(547,420)
(742,417)
24,003
(718,414)
(847,893)
35,194
(812,699)
(573,127)
7,742
(565,385)
(127,116)
30,523
(96,593)
(219,085)
123,119
(95,966)
(286,439)
12,451
(273,988)
(48,407)
(358)
(48,765)
(57,844)
440
(57,404)
(65,401)
—
(65,401)
42,640
—
42,640
37,744
—
37,744
13,781
—
13,781
28,667
—
28,667
50,070
119,046
—
119,046
117,181
—
—
50,070
12,877
117,181
6,664
—
—
12,877
6,664
Net incurred losses and LAE
(1) 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.
51,625 $ (318,518) $ 12,451 $ (306,067)
(71,934) $ 123,559 $
30,165 $
44,995 $
14,830 $
$
(2) Represents the gross change in our actuarial estimates of IBNR, less amounts recoverable.
(3) Represents the change in the estimate of the total future costs to administer the claims.
(4) Relates to the amortization of deferred charge assets and deferred gain liabilities on retroactive reinsurance contracts.
(5) Relates to the amortization of fair value adjustments associated with the acquisition of companies.
(6) Represents the changes in the fair value of liabilities related to our assumed retroactive reinsurance agreements for which we have elected the
fair value option.
Year Ended December 31, 2020
The following table shows the components of the 2020 reduction in estimates of net ultimate losses related to
prior periods by line of business for the Non-life Run-off segment.
Net losses paid
Net change in case
and LAE reserves
Net change in
IBNR reserves
Increase (reduction) in
estimates of net
ultimate losses
2020
Asbestos
$
132,853 $
(1,300) $
(150,054) $
Environmental
General Casualty
Workers' Compensation
Marine, aviation and
transit
Construction defect
Professional indemnity/
Directors & Officers
Motor
Property
All Other
Total
23,866
170,502
142,790
33,927
27,476
63,878
349,366
71,422
48,831
1,064,911 $
$
(266)
(68,744)
(176,927)
(14,458)
(6,092)
3,698
(106,561)
(24,356)
(54,604)
(449,610) $
(36,362)
(127,421)
(149,198)
(50,558)
(13,382)
(79,181)
(95,040)
(64,331)
23,110
(742,417) $
(18,501)
(12,762)
(25,663)
(183,335)
(31,089)
8,002
(11,605)
147,765
(17,265)
17,337
(127,116)
The significant drivers of the 2020 reduction in estimates of net ultimate losses are explained below.
Workers' Compensation - The workers’ compensation line of business experienced a $183.3 million reduction
in estimates of net ultimate losses as a result of favorable actual development versus expected development across
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
nearly all our acquired companies and assumed portfolios. We continue to drive favorable loss experience by
proactively settling claims for less than the current case reserves. During 2020, we paid net losses of $142.8 million
and released case and LAE reserves of $176.9 million. This represents a decline in reported losses of $34.1 million
for the year. As a result of the favorable development in our data, our actuarial analyses indicated and resulted in a
release of $149.2 million of IBNR reserves, primarily attributed to a settlement of an outwards reinsurance
agreement resulting in the reduction in gross ultimate losses inuring to our benefit.
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. Included in the net paid losses and released case and
LAE reserves were 10 commutations that resulted in a net reduction of ultimate losses of $10.8 million.
Marine, aviation and transit - We experienced $31.1 million of favorable development in our marine, aviation
and transit line of business. The reduction in net ultimate loss reserves was driven by a number of favorable
outcomes on certain large claims from our London based portfolios and better actual than expected experience of
reported losses across most reserve segments which led to releases of IBNR reserves as a result of our annual
actuarial analyses.
General casualty - Our general casualty line of business experienced $25.7 million in favorable loss
development which was the result of better actual than expected claim emergence across several portfolios
including a new portfolio acquired in 2020 that underwent its first actuarial analysis by our outside actuarial
consultant. To date, we have not experienced adverse social inflation in our general casualty line of business since
we are generally proactive in settling claims early for fair value which reduces legal costs for both the defendant and
plaintiff.
Motor - The experience in the motor line was adverse by $147.8 million due to higher than expected severity
related to a recent assumed loss portfolio transfer transaction. The case reserves were significantly strengthened
when we transferred the claim handling to a new third-party administrator with specialist experience in commercial
automobile exposures. Along with the new third-party administrator, we have implemented several claim initiatives
aimed at reducing defense costs, settling claims earlier, lowering claims severity and increased governance and
technical oversight.
Other significant components of the 2020 net incurred losses and LAE include losses related to 2020 net
earned premium of $30.2 million, an increase in the fair value of liabilities of $119.0 million related to our assumed
retroactive reinsurance agreements for which we have elected the fair value option, primarily due to narrowing
credit spreads on corporate bond yields in 2020 and 15 commutations in lines other than workers’ compensation
resulting in a decrease of $12.3 million.
156
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Year Ended December 31, 2019
The following table shows the components of the 2019 reduction in estimates of net ultimate losses related to
prior periods by line of business for the Non-life Run-off segment.
Net losses paid
Net change in case
and LAE reserves
Net change in
IBNR reserves
Increase (reduction) in
estimates of net
ultimate losses
2019
Asbestos
$
118,557 $
35,003 $
(146,749) $
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
13,796
(89,968)
(156,435)
(77,958)
(8,313)
(36,986)
(134,127)
(73,259)
(25,749)
(15,707)
(91,818)
(188,944)
(24,508)
(25,025)
(104,984)
(179,887)
(7,358)
(62,913)
$
1,182,804 $
(553,996) $
(847,893) $
6,811
14,988
(6,742)
(136,418)
(20,408)
(1,260)
(38,557)
(37,451)
13,476
(13,524)
(219,085)
The significant drivers of the 2019 reduction in estimates of net ultimate losses 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.
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 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 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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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 significant components of the 2019 net incurred losses and LAE include losses related to 2019 net
earned premium of $123.6 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, primarily due to
narrowing credit spreads on corporate bond yields in 2019.
Year Ended December 31, 2018
The following table shows the components of the 2018 reduction in estimates of net ultimate losses related to
prior periods by line of business for the Non-life Run-off segment.
Net losses paid
Net change in case
and LAE reserves
Net change in
IBNR reserves
Increase (reduction) in
estimates of net
ultimate losses
2018
Asbestos
$
108,248 $
(21,535) $
(151,662) $
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
479
(115,240)
(178,138)
(44,200)
(7,257)
(7,599)
(60,828)
(115,648)
(21,188)
(33,146)
(11,159)
(130,957)
(109,962)
(24,271)
(40,841)
(34,215)
(11,497)
(6,387)
$
838,812 $
(552,124) $
(573,127) $
(64,949)
14,153
(34,444)
(154,560)
2,443
(18,221)
19,681
(39,995)
(13,590)
3,043
(286,439)
The significant drivers of the 2018 reduction in estimates of net ultimate losses are explained below.
Workers' Compensation - The $154.6 million reduction in estimates of net ultimate losses in our workers'
compensation line of business 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 reduction to our 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
our original payout patterns, 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
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 commutations on 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 2018, we completed 7 commutations across several portfolios that contributed to an
$11.2 million the reduction in estimates of net ultimate losses.
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.
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.
Disclosures of Incurred and Paid Loss Development, IBNR, Claims Counts and Payout Percentages
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, 2020 and 2019:
Workers' compensation/personal accident
1,087,324
918,238
2,005,562
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
Net deferred charge assets and gains on
retroactive reinsurance
ULAE
Total
OLR
Gross
IBNR
2020
Total
OLR
(in thousands of U.S. dollars)
Net
IBNR
Total
$
544,438 $ 1,234,101 $ 1,778,539 $
464,102 $ 1,122,021 $ 1,586,123
184,783
118,111
302,894
164,709
100,339
610,437
1,279,991
1,890,428
492,039
1,247,662
271,469
23,380
764,768
619,682
116,398
217,746
73,081
85,578
344,550
108,958
336,705
1,101,473
355,044
35,832
204,819
974,726
152,230
422,565
912,068
229,464
23,109
526,333
451,097
97,826
141,448
776,941
56,414
83,039
307,349
283,576
34,182
121,895
265,048
1,739,701
1,689,009
285,878
106,148
833,682
734,673
132,008
263,343
$ 4,440,425 $ 4,641,500 $ 9,081,925 $ 3,502,195 $ 4,133,418 $ 7,635,613
(142,854)
(54,589)
—
350,600
$ 9,235,082
(128,841)
(33,163)
(218,722)
333,913
$ 7,588,800
159
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Asbestos
Environmental
General casualty
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
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
Workers' compensation/personal accident
1,270,530
977,808
2,248,338
Marine, aviation and transit
Construction defect
Professional indemnity/Directors & Officers
Motor
Property
Other
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
Fair value adjustments
Fair value adjustments - fair value option
Net deferred charge assets and gain liabilities on
retroactive reinsurance
ULAE
Total
(170,689)
(217,933)
—
331,494
$ 8,295,361
(157,036)
(129,848)
(259,587)
331,494
$ 6,492,160
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 deferred gain liabilities and ULAE as of December 31, 2020, by year of
acquisition and by significant line of business:
2010
and
Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Total
Asbestos
$ 142,028 $
Environmental
42,356
— $
—
— $
7,767 $
—
—
— $
—
— $ 407,958 $ 726,901 $
1,105 $ 277,947 $
— $ 1,563,706
—
89,865
22,891
11,203
95,072
—
261,387
Acquisition Year
General
casualty
Workers'
compensation/
personal
accident
Marine, aviation
and transit
Construction
defect
Professional
indemnity/
Directors &
Officers
Motor
Property
All Other
Total
52,582
13,270
9,983
16,696
31,610
34,704
3,727
44,551
228,419
218,995 1,077,908 1,732,445
42,908 125,649
—
48,207
— 287,653 219,157
53,659
322,737
387,438
199,864 1,687,272
8,760
2,747
—
(188)
10,592
1,616
32
77,321
106,431
56,709
19,848
283,868
43
—
—
—
—
36,258
14,289
18,836
—
36,709
—
106,135
7,539
9,564
23,210
—
20,942
—
76,314
—
331,676
130,906
232,934
833,085
12,452
201
276
—
1,465
13,147
—
3,710
260,797
17,899
422,321
732,268
3,301
161
7,008
—
18,165
3,880
465
(114)
47,270
39,286
10,887
130,309
17,473
854
2,696
4,260
9,676
6,959
23,582
94,499
18,222
78,474
—
256,695
$ 329,442 $ 152,446 $ 43,173 $ 76,742 $ 92,450 $ 384,217 $ 835,389 $ 1,042,254 $ 1,327,860 $ 1,339,435 $ 1,963,762 $ 7,587,170
160
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The table below reconciles the net loss reserves, prior to provisions for bad debt, fair value adjustments,
deferred charge assets and deferred gain liabilities and ULAE as of December 31, 2020, 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
2020
Total Net
Reserves per all
Acquisition
Years
Provision for
Bad Debt
Total Net
Reserves
$
1,563,706 $
22,417 $
1,586,123
261,387
1,732,445
1,687,272
283,868
106,135
833,085
732,268
130,309
256,695
3,661
7,256
1,737
2,010
13
597
2,405
1,699
6,648
265,048
1,739,701
1,689,009
285,878
106,148
833,682
734,673
132,008
263,343
$
7,587,170 $
48,443 $
7,635,613
Loss development tables have been provided for acquisition years 2011 through 2020. In addition, for the
acquisition years presented, we have also provided additional loss development tables for lines of business within
those acquisition years which had net loss reserve balances that were deemed to be significant as of December 31,
2020 as follows:
• General casualty - 2018, 2019 and 2020 acquisition years;
• Workers' compensation - 2015, 2016, 2018 and 2019 acquisition years;
• Motor - 2018 and 2020 acquisition years; and
•
Professional indemnity and directors and officers - 2018 and 2020 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 2011 through 2020 acquisition years within the Non-Life Run-off segment
as of December 31, 2020. 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, 2011 through 2019 is presented as supplementary information and is therefore
unaudited.
161
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Business Acquired and Contracts Incepting in the Year Ended December 31, 2011
ENSTAR GROUP LIMITED
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
As of December
31, 2020
Accident
Year
Total Net
Reserves
Acquired
2011
(unaudited)
2012
(unaudited)
2013
(unaudited)
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
(unaudited)
2020
IBNR
Cumulative
Number of
Claims
2010
and
Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
$ 597,263 $ 621,819 $ 589,004 $ 489,877 $ 426,777 $ 375,227 $ 319,423 $ 274,136 $ 261,234 $ 240,808 $ 229,458 $ 17,493
112,837
36
122
45
11
23
54
10
43
1
—
102
—
—
—
—
—
—
—
—
—
61
10
15
3
—
71
10
15
3
(2)
79
17
15
3
(2)
86
18
15
18
32
93
17
15
15
24
2
(139)
(111)
(99)
—
21
7
15
8
—
100
17
15
14
19
(88)
17
8
2
2
—
—
—
2
—
7
1
1
1
1
19
7
16
14
1
2
2
1
1
1
$ 597,263
$ 229,564 $ 17,506
112,901
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
(unaudited)
2020
For The Years Ended December 31,
$ 58,934 $ 98,969 $ 90,711 $ 24,238 $ 19,370 $ 27,563 $ 19,697 $ 31,108 $ 56,741 $ 77,051
27
36
6
46
10
6
54
10
11
1
61
10
15
3
(1)
71
10
15
3
(2)
79
17
15
3
(2)
86
17
15
4
2
93
17
15
7
11
100
17
15
7
18
2
(153)
(125)
(114)
(105)
2010
and
Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
—
3
1
6
4
—
10
5
—
—
$ 77,118
$ 152,446
162
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Business Acquired and Contracts Incepting in the Year Ended December 31, 2012
ENSTAR GROUP LIMITED
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
As of December
31, 2020
Total Net
Reserves
Acquired
2012
(unaudited)
2013
(unaudited)
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
(unaudited)
2020
IBNR
Cumulative
Number of
Claims
$ 326,229 $ 328,419 $ 321,295 $ 312,510 $ 297,081 $ 286,660 $ 277,778 $ 269,004 $ 263,472 $ 252,318 $ 10,889
47,773
1,487
1,466
1,336
1,182
1,095
1,072
1,049
1,032
1,032
1,032
55
81
—
(60)
—
(485)
—
(59)
(123)
—
$ 327,044
49
946
363
119
344
427
406
433
397
421
167
136
167
136
167
136
2,991
3,108
1,552
1,300
1,195
1,146
1,068
729
1,517
739
739
739
67
1,266
1,113
1,059
75
167
—
100
154
274
739
445
100
74
145
164
—
—
—
1
—
37
—
4
11
—
5
6
5
7
5
2
4
1
4
3
$ 256,388 $ 10,942
47,815
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For The Years Ended December 31,
2012
(unaudited)
2013
(unaudited)
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
(unaudited)
2020
$ 3,194 $ 70,440 $ 112,966 $ 144,553 $ 169,781 $ 180,270 $ 194,011 $ 204,482 $ 209,656
120
496
742
866
31
49
49
109
119
67
52
136
224
112
928
167
136
459
117
3
990
1,032
1,032
1,032
167
136
675
739
56
13
167
136
864
739
98
43
—
167
136
167
136
989
1,053
739
98
100
30
18
739
98
100
34
36
164
$ 213,215
$ 43,173
Accident
Year
2010 and
Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Accident
Year
2010 and
Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
163
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Business Acquired and Contracts Incepting in the Year Ended December 31, 2013
ENSTAR GROUP LIMITED
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
As of December
31, 2020
Accident
Year
2010 and
Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Total Net
Reserves
Acquired
2013
(unaudited)
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
(unaudited)
2020
IBNR
$ 320,974 $ 349,297 $ 354,585 $ 361,812 $ 356,522 $ 340,248 $ 326,851 $ 313,347 $ 314,497 $ 16,353
96,929 102,288 100,482 100,243 95,848 87,913 86,403 85,919 81,616
131,119 127,323 121,364 118,085 114,772 110,045 107,853 108,025 105,564
13,062 90,739 91,634 88,920 85,791 81,732 80,036 80,091 79,174
—
—
—
—
—
—
—
4,514
3,714
3,425 16,800 16,225 16,304 16,269
265
280
103
982
329
250
237
71
30
70
13
22
69
13
17
13
69
13
18
15
61
2,700
1,831
1,073
55
42
1
—
—
—
4
Cumulative
Number of
Claims
56,441
11,185
10,423
5,656
174
2
1
1
1
1
1
$ 562,084
$ 597,533 $ 22,059
83,886
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident
Year
2010 and
Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For The Years Ended December 31,
2013
(unaudited)
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
(unaudited)
2020
$ 74,418 $ 134,409 $ 186,762 $ 222,891 $ 229,942 $ 243,755 $ 249,023 $ 258,436
30,323 52,455 63,952 70,498 75,055 77,290 79,112 73,282
33,361 59,095 74,663 86,916 92,445 96,780 99,781 98,096
17,022 37,653 52,638 62,876 68,866 71,487 74,556 74,472
993
1,747
2,256 15,804 15,959 16,123 16,164
43
102
34
112
165
190
191
64
9
65
13
13
66
13
17
8
67
13
18
15
37
$ 520,791
$ 76,742
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
164
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Business Acquired and Contracts Incepting in the Year Ended December 31, 2014
ENSTAR GROUP LIMITED
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
As of December 31,
2020
Accident
Year
Total Net Reserves
Acquired
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
(unaudited)
2020
IBNR
Cumulative
Number of Claims
2010 and
Prior
$
142,341 $ 133,678 $ 123,973 $ 155,274 $ 142,256 $ 141,058 $ 145,889 $ 144,874 $ 6,454
12,014
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
74,248 129,149 154,394 134,137 136,257 137,806 139,997 135,181
10,057
141,597 147,347 178,577 187,062 179,745 165,821 162,740 160,769
10,449
86,920 76,313 95,125 83,564 88,189 90,387 88,391 90,951
— 13,802
9,554 14,506
7,438
6,590
6,954
7,098
—
—
—
—
—
—
33,549 15,553 20,741 18,929 17,206 17,090
330
1,108
4,594
771
724
5,078
3,893
8,200
8,463
6
5
—
82
—
—
8,947
1,708
72
89
24
—
—
—
6,228
6,393
3,173
1,112
183
45
37
19
10
6
$
445,106
$ 565,232 $ 37,800
29,220
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident
Year
2010 and
Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For The Years Ended December 31,
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
(unaudited)
2020
$ 36,509 $ 82,699 $ 103,197 $ 118,857 $ 120,309 $ 121,847 $ 127,622
84,031 109,675 110,575 113,701 120,155 123,335 123,364
47,495 90,307 120,910 130,001 130,105 133,900 133,026
21,752 40,817 48,223 56,941 65,073 65,625 66,225
1,462
2,504
3,293
3,989
6,147
6,660
6,654
1,741
4,308 11,566 13,371 13,417 13,473
20
556
558
561
559
537
1,541
1,238
1,778
5
5
—
81
—
—
$ 472,782
$ 92,450
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
165
Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Business Acquired and Contracts Incepting in the Year Ended December 31, 2015
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident
Year
2010 and
Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For the Years Ended December 31,
As of December 31, 2020
Total Net
Reserves
Acquired
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
(unaudited)
2020
IBNR
Cumulative
Number of Claims
$ 1,003,949 $ 933,328 $ 640,324 $ 594,466 $ 564,502 $ 521,598 $ 505,379 $
124,727
137,429
131,303
129,657
128,155
128,672
126,764
179,136
187,488
197,895
201,017
194,277
193,553
192,426
229,590
189,838
196,582
199,983
189,737
185,101
184,590
144,392
143,193
137,668
142,937
137,541
152,478
147,567
23,750
70,276
69,322
66,152
64,974
69,465
73,256
—
—
—
—
—
14,872
13,141
13,440
14,576
12,868
4,095
4,527
3,055
5,277
1,889
1,838
6,860
1,805
1,873
1,951
49,461
14,306
18,110
13,855
7,413
6,959
2,178
345
985
1,831
1,962
13,557
5,587
4,885
4,699
7,783
10,997
14,283
3,534
400
51
3
$ 1,705,544
$ 1,255,339 $
117,405
65,779
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident
Year
2010 and
Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For The Years Ended December 31,
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
(unaudited)
2020
$
32,819 $
83,350 $ 134,737 $ 166,983 $ 195,205 $ 220,984
33,827
55,115
71,023
86,397
98,000
105,178
52,728
94,831
119,520
142,358
158,620
168,213
46,761
89,930
120,509
145,788
159,767
164,215
30,747
64,475
91,016
109,451
125,619
133,094
20,653
38,709
46,668
51,994
59,963
63,181
5,603
7,371
2,321
8,687
3,925
567
9,861
10,321
4,767
5,047
862
45
820
65
4
$ 871,122
$ 384,217
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
166
Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Business Acquired and Contracts Incepting in the Year Ended December 31, 2015 - Workers' Compensation
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
(unaudited)
2020
IBNR
Cumulative Number
of Claims
For the Years Ended December 31,
As of December 31, 2020
2010 and
Prior
$
953,178 $ 868,509 $ 569,692 $ 518,764 $ 490,534 $ 449,380 $ 434,422 $
40,504
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
76,789
73,723
69,009
68,013
66,781
67,741
65,825
120,298 110,007 108,251 106,625 100,187
99,212
98,733
146,237 124,726 122,238 121,010 113,056 112,677 113,414
82,141
86,852
82,038
83,095
78,389
78,948
80,307
4,089
18,647
12,623
13,488
12,295
11,309
11,337
—
—
—
—
—
873
955
358
583
536
61
—
41
5
1
514
33
3
3
—
3,685
4,613
5,595
1,513
557
52
13
—
1
—
8,605
1,241
1,809
2,386
3,686
2,900
38
10
1
1
—
$
1,382,732
$ 804,591 $
56,533
20,677
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
Accident
Year
2010 and
Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For The Years Ended December 31,
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
(unaudited)
2020
$ 20,630 $ 65,008 $ 107,906 $ 132,025 $ 155,329 $ 177,205
16,032
30,462
39,635
50,470
55,595
58,420
25,103
52,851
66,092
79,367
88,369
91,332
27,737
55,675
75,065
91,559 100,890 104,265
17,824
38,051
53,308
65,561
72,696
75,781
3,034
5,672
7,917
9,169
9,248
9,461
134
363
417
447
2
10
—
18
1
—
452
19
2
1
—
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
$ 516,938
$ 287,653
167
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Business Acquired and Contracts Incepting in the Year Ended December 31, 2016
ENSTAR GROUP LIMITED
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
As of December 31, 2020
Accident
Year
Total Net Reserves
Acquired
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
(unaudited)
2020
IBNR
Cumulative Number of
Claims
2010 and
Prior
$
1,304,938 $ 1,316,544 $ 1,346,575 $ 1,321,289 $ 1,322,161 $ 1,361,353 $
305,042
24,449
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
17,291
17,291
19,920
19,754
18,829
13,717
13,717
17,020
14,765
12,717
373
391
—
—
—
—
—
—
373
391
—
—
1,312
1,380
1,237
1,056
1,120
869
—
—
—
—
—
—
—
—
—
—
—
—
18,609
13,037
914
817
—
—
—
—
—
—
2,266
1,829
603
310
—
—
—
—
—
—
861
809
127
57
—
—
—
—
—
—
$
1,336,710
$ 1,394,730 $
310,050
26,303
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
Accident
Year
2010 and
Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For the Years Ended December 31,
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
(unaudited)
2020
$ 101,098 $ 222,703 $ 331,218 $ 445,770 $ 536,987
2,758
2,734
145
178
—
—
6,647
5,206
191
207
—
—
—
8,218
6,461
278
284
—
—
—
—
9,691
7,587
285
366
13,098
8,492
301
463
—
—
—
—
—
—
—
—
—
—
—
$ 559,341
$ 835,389
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
168
Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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,
2020
Accident Year
Total Net
Reserves
Acquired
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
(unaudited)
2020
IBNR
Cumulative
Number of
Claims
2010 and Prior $
437,457 $
437,805 $
403,319 $
391,476 $
382,446 $
367,109 $ 19,015
9,452
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
15,376
13,074
15,376
13,074
16,399
15,465
16,501
13,276
16,327
11,379
16,472
11,256
1,374
1,020
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
469
612
—
—
—
—
—
—
—
—
$
465,907
$
394,837 $ 21,409
10,533
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year
2010 and Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For the Years Ended December 31,
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
(unaudited)
2020
$
35,518 $
65,264 $
90,599 $
127,081 $
155,433
2,631
2,638
5,871
5,028
7,305
6,247
8,756
7,382
12,130
8,117
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
$
$
175,680
219,157
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
169
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Business Acquired and Contracts Incepting in the Year Ended December 31, 2017
ENSTAR GROUP LIMITED
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year
Total Net Reserves
Acquired
2017
(unaudited)
2018
(unaudited)
2019
(unaudited)
2020
IBNR
Cumulative
Number of Claims
2010 and Prior $
1,507,609 $ 1,433,301 $ 1,351,451 $ 1,364,113 $ 1,349,226 $
749,197
31,566
For the Years Ended December 31,
As of December 31, 2020
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
29,274
35,470
30,338
20,315
6,494
(4)
174
25,389
31,238
28,139
16,984
7,002
126
—
—
40,743
43,653
35,671
32,858
8,808
362
—
—
—
—
27,316
29,456
24,707
15,996
6,295
919
—
—
—
26,942
28,485
29,829
16,342
6,043
1,074
—
—
—
—
5,834
3,744
1,860
2,287
234
394
—
—
—
—
8
10
11
20
8
3
1
—
—
—
$
1,669,704
$ 1,457,941 $
763,550
31,627
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
Accident Year
2010 and Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For the Years Ended December 31,
2017
(unaudited)
2018
(unaudited)
2019
(unaudited)
2020
$
85,514 $
175,630 $
257,071 $
334,586
4,125
10,348
9,509
6,482
1,361
(56)
4
9,257
15,372
15,714
8,986
3,720
66
—
—
12,971
18,605
21,280
11,559
4,687
434
—
—
—
15,407
21,076
25,832
12,668
5,582
536
—
—
—
—
$
415,687
$ 1,042,254
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
170
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Business Acquired and Contracts Incepting in the Year Ended December 31, 2018
ENSTAR GROUP LIMITED
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year Total Net Reserves Acquired
2018
(unaudited)
2019
(unaudited)
2020
IBNR
Cumulative
Number of Claims
For the Year Ended December 31,
As of December 31, 2020
2010 and Prior $
662,009 $
497,101 $
476,164 $
409,505 $
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
164,556
232,116
272,732
419,593
365,429
173,309
207,040
315,659
—
—
150,408
224,955
274,377
462,858
483,489
175,428
207,190
315,659
150,388
224,959
268,237
439,396
480,093
178,061
205,466
285,038
68,271
147,796
225,528
250,013
415,829
496,187
169,872
204,490
282,279
68,041
—
50,970
16,240
29,903
35,175
38,688
62,476
36,090
55,056
53,287
9,762
—
223,572
14,072
14,382
16,126
19,463
24,768
2,026
4,163
4,929
1,634
—
$
2,812,443
$
2,669,540 $
387,647
325,135
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
Accident Year
2010 and Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For the Year Ended December 31,
2018
(unaudited)
2019
(unaudited)
2020
$
50,515 $
86,132 $
26,236
31,772
41,544
90,689
95,688
6,854
56
—
53,151
81,356
96,968
188,721
199,373
63,982
72,800
139,815
39,099
81,554
65,522
106,297
133,398
235,787
269,559
93,705
113,770
191,442
50,646
—
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
$
$
1,341,680
1,327,860
171
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Business Acquired and Contracts Incepting in the Year Ended December 31, 2018 - General Casualty
ENSTAR GROUP LIMITED
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year Total Net Reserves Acquired
2018
(unaudited)
2019
(unaudited)
2020
IBNR
Cumulative
Number of Claims
For the Year Ended December 31,
As of December 31, 2020
2010 and Prior $
130,049 $
74,102 $
70,937 $
67,933 $
4,827
151
3,270
4,352
5,802
14,188
10,075
14,554
11,605
394
—
47,893
1,421
1,593
1,596
2,291
3,594
253
230
182
34
—
$
463,978 $
69,218
59,087
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
$
18,044
37,454
43,301
66,562
79,191
28,825
37,209
39,888
—
—
480,523
16,554
33,433
56,092
80,896
94,124
28,825
37,209
39,888
16,650
29,123
46,596
74,947
15,855
29,760
46,999
68,535
104,790
109,694
36,585
41,664
40,753
6,767
36,684
43,174
39,157
6,187
—
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
Accident Year
2010 and Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For the Year Ended December 31,
2018
(unaudited)
2019
(unaudited)
2020
$
9,164 $
18,817 $
2,349
1,281
10,404
13,766
15,494
—
—
—
7,115
11,453
19,938
27,833
31,535
14,109
11,048
8,879
2,373
29,840
11,018
14,383
27,717
41,899
49,860
18,916
21,130
17,455
3,341
—
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
$
$
235,559
228,419
172
Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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, 2020
Total Net Reserves
Acquired
2018
(unaudited)
2019
(unaudited)
2020
IBNR
Cumulative
Number of Claims
131,873 $
122,831 $
129,280 $
131,775 $
29,897
28,749
38,029
65,049
38,851
44,686
52,360
65,075
—
—
28,685
29,181
38,554
66,346
39,379
44,686
52,360
65,075
29,981
27,676
38,093
57,163
35,235
38,945
49,156
60,923
20,889
27,203
26,833
35,212
52,797
33,253
37,714
45,529
59,768
21,417
—
39,843
9,067
10,597
13,243
17,605
13,026
15,857
23,004
19,310
4,445
—
2,098
401
468
869
1,345
1,464
892
998
886
383
—
Accident Year
2010 and Prior $
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
$
494,569
$
471,501 $
165,997
9,804
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
Accident Year
2010 and Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For the Year Ended December 31,
2018
(unaudited)
2019
(unaudited)
2020
$
604 $
11,788 $
2,281
516
1,525
3,260
1,403
—
—
—
5,592
5,508
7,773
14,687
4,355
3,666
5,900
28,725
13,483
21,726
9,418
7,941
12,280
21,380
9,844
7,176
9,088
34,317
15,594
—
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
$
$
148,764
322,737
173
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Business Acquired and Contracts Incepting in the Year Ended December 31, 2018 - Motor
ENSTAR GROUP LIMITED
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year Total Net Reserves Acquired
2018
(unaudited)
2019
(unaudited)
2020
IBNR
Cumulative
Number of Claims
For the Year Ended December 31,
As of December 31, 2020
2010 and Prior $
43,818 $
31,489 $
30,036 $
33,230 $
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
$
48,231
65,427
78,456
116,677
135,855
93,164
100,321
180,471
—
—
862,420
38,092
58,006
71,276
103,761
133,493
95,283
100,471
180,471
37,707
63,786
65,012
90,902
132,167
97,040
99,135
157,556
39,757
36,301
59,276
55,345
84,459
132,165
91,600
102,038
160,143
39,647
—
$
794,204 $
2,599
2,031
5,862
5,744
5,243
15,246
9,824
16,628
21,609
4,955
—
89,741
1,323
1,239
1,641
683
1,260
1,510
732
2,797
3,731
1,200
—
16,116
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
Accident Year
2010 and Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For the Year Ended December 31,
2018
(unaudited)
2019
(unaudited)
2020
$
7,460 $
13,722 $
6,060
12,380
11,114
22,393
21,712
6,854
56
—
12,980
24,433
29,311
49,089
61,928
43,851
48,661
86,861
22,687
$
$
16,655
15,464
31,136
35,186
60,254
84,976
65,287
73,440
120,041
30,968
—
533,407
260,797
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
174
Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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
2018
(unaudited)
2019
(unaudited)
2020
IBNR
Cumulative
Number of Claims
For the Year Ended December 31,
As of December 31, 2020
2010 and Prior $
236,568 $
137,394 $
147,383 $
143,585 $
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
46,512
57,937
59,457
88,173
47,337
—
—
—
—
—
52,553
70,636
63,284
111,193
100,975
—
—
—
48,884
69,641
78,933
107,411
81,272
—
—
—
—
51,600
74,884
76,291
114,621
85,394
—
—
—
—
—
(3,639)
3,185
4,399
10,543
11,523
15,074
—
—
—
—
—
56,674
3,762
3,285
3,257
3,619
3,990
—
—
—
—
—
$
535,984
$
546,375 $
41,085
74,587
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
Accident Year
2010 and Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For the Year Ended December 31,
2018
(unaudited)
2019
(unaudited)
2020
$
29,359 $
54,157 $
13,123
16,382
10,987
22,734
14,245
—
—
—
20,017
23,237
21,919
39,601
26,595
—
—
—
—
28,528
22,250
33,794
34,269
61,024
34,834
—
—
—
—
—
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
$
$
214,699
331,676
175
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Business Acquired and Contracts Incepting in the Year Ended December 31, 2019
ENSTAR GROUP LIMITED
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year
Total Net Reserves Acquired
2019
(unaudited)
2020
IBNR
Cumulative Number
of Claims
For the Year Ended December 31,
As of December 31, 2020
2010 and Prior $
652,608 $
630,171 $
628,495 $
272,910
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
49,873
73,098
112,031
137,324
179,651
253,099
116,386
162,744
—
—
40,554
54,301
93,213
137,478
188,833
295,011
116,386
162,744
54,571
35,876
49,349
88,066
127,704
196,007
260,473
116,386
162,744
64,595
27,975
8,773
12,905
29,931
53,814
80,816
118,653
116,386
162,744
6,155
5,483
$
1,736,814
$
1,757,670 $
868,570
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
74,742
15,218
12,329
14,952
17,624
25,081
32,057
2
2
1,679
1,020
194,706
Accident Year
2010 and Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For the Year Ended December 31,
2019
(unaudited)
2020
$
26,817 $
106,195
4,786
6,886
13,540
28,188
33,417
56,125
—
—
25,595
8,100
9,565
20,906
47,310
63,994
84,592
—
—
55,912
21,661
418,235
1,339,435
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
$
$
176
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Business Acquired and Contracts Incepting in the Year Ended December 31, 2019 - General Casualty
ENSTAR GROUP LIMITED
Incurred Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
For the Year Ended December 31,
As of December 31, 2020
Accident Year
Total Net Reserves Acquired
2010 and Prior $
12,765 $
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
12,321
18,107
23,750
33,767
58,818
48,606
32,188
45,010
—
—
2019
(unaudited)
9,788 $
9,490
14,471
18,230
31,181
45,936
64,159
32,188
45,010
1,750
2020
IBNR
9,994 $
7,979
13,786
20,960
29,341
41,158
58,061
32,188
45,010
1,873
1,118
Cumulative Number
of Claims
1,620
3,587
8,214
8,897
16,377
18,055
32,692
32,188
45,010
510
267
1,424
796
1,165
313
905
2,003
3,134
1
1
225
411
$
285,332
$
261,468 $
167,417
10,378
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
Accident Year
2010 and Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For the Year Ended December 31,
2019
(unaudited)
2020
$
2,230 $
810
3,326
3,499
3,878
4,421
4,894
—
—
—
$
2,894
1,869
6,604
5,813
8,155
5,121
10,723
—
—
841
453
42,473
218,995
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance $
177
Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Business Acquired and Contracts Incepting in the Year Ended December 31, 2019 - Workers' Compensation
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year
Total Net Reserves Acquired
2019
(unaudited)
2020
IBNR
Cumulative Number
of Claims
For the Year Ended December 31,
As of December 31, 2020
2010 and Prior $
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
5,860 $
2,474
6,280
16,738
35,023
57,194
87,702
84,197
4,420 $
2,410
6,176
18,339
35,426
56,171
85,530
84,197
4,551 $
2,409
6,176
15,980
35,556
57,314
84,862
84,197
1,938
2,342
6,991
14,415
31,501
48,840
70,769
84,197
117,734
117,734
117,734
117,734
—
—
—
—
2,045
—
—
9,869
1,082
1,640
2,897
3,410
4,802
4,829
1
1
—
189
$
413,202
$
410,824 $
378,727
28,720
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
Accident Year
2010 and Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For the Year Ended December 31,
2019
(unaudited)
2020
$
607 $
22
22
458
3,080
3,549
7,337
—
—
—
696
23
63
572
3,443
6,325
12,137
—
—
—
127
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
$
$
23,386
387,438
178
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Business Acquired and Contracts Incepting in the Year Ended December 31, 2020
ENSTAR GROUP LIMITED
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended
December 31,
As of December 31, 2020
Accident Year
Total Net Reserves Acquired
2020
IBNR
2010 and Prior
$
256,228 $
169,601 $
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
26,488
58,128
68,683
100,054
161,383
210,661
316,751
432,590
344,495
166,946
26,983
58,241
63,922
102,600
161,352
205,305
342,330
575,706
343,168
168,091
91,688
25,162
53,749
47,944
83,249
113,476
120,481
168,832
305,471
301,463
144,090
$
2,142,407 $
2,217,299 $
1,455,605
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Cumulative
Number of
Claims
47
36
74
140
201
384
816
1,770
3,108
1,351
1,481
9,408
Accident Year
2010 and Prior
$
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For the Years Ended
December 31,
2020
2,310
54
601
4,283
5,975
12,253
33,985
73,001
111,871
1,509
7,695
253,537
Total outstanding liabilities for unpaid losses and LAE, net of
reinsurance
$
1,963,762
179
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Business Acquired and Contracts Incepting in the Year Ended December 31, 2020 - General Casualty
ENSTAR GROUP LIMITED
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended
December 31,
As of December 31, 2020
Accident Year
Total Net Reserves Acquired
2020
IBNR
2010 and Prior
$
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
43,511 $
26,434
55,478
60,872
87,620
140,583
142,395
142,862
141,803
202,521
83,021
43,849 $
26,928
55,591
56,111
90,182
139,947
143,156
137,097
138,267
201,174
82,598
36,455
25,133
51,130
41,186
71,022
96,032
100,293
112,135
133,942
179,284
77,737
Cumulative
Number of
Claims
36
29
60
122
185
280
394
439
316
388
338
$
1,127,100 $
1,114,900 $
924,349
2,587
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year
2010 and Prior
$
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For the Years Ended
December 31,
2020
522
54
601
3,258
5,983
10,230
9,125
4,149
400
203
2,467
36,992
Total outstanding liabilities for unpaid losses and LAE, net of
reinsurance
$
1,077,908
180
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Business Acquired and Contracts Incepting in the Year Ended December 31, 2020 - Motor
ENSTAR GROUP LIMITED
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident Year
Total Net Reserves Acquired
2020
IBNR
Cumulative
Number of Claims
For the Years Ended December 31,
As of December 31, 2020
2010 and Prior $
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
$
— $
—
—
—
—
2,397
48,505
154,070
250,028
—
—
455,000 $
— $
—
—
—
—
3,018
42,420
185,445
397,413
—
—
—
—
—
—
—
603
2,779
38,279
145,623
—
—
628,296 $
187,284
—
—
—
—
—
19
221
1,099
2,204
—
—
3,543
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
Accident Year
2010 and Prior
2020
$
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Total outstanding liabilities for unpaid losses and LAE,
net of reinsurance
$
—
—
—
—
—
2,012
24,804
68,712
110,447
—
—
205,975
422,321
181
Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Business Acquired and Contracts Incepting in the Year Ended December 31, 2020 - Professional Indemnity/
Directors & Officers
Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
As of December 31, 2020
IBNR
Cumulative
Number of Claims
1
3
4
6
4
4
9
41
115
135
79
401
Accident Year
Total Net Reserves Acquired
2020
2010 and Prior
$
4,680 $
4,678 $
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
44
2,593
7,791
11,949
16,120
16,259
17,212
25,323
99,460
34,548
44
2,593
7,791
11,949
16,120
16,216
17,206
25,290
99,350
34,757
4,679
44
2,584
6,745
11,947
15,769
16,053
16,906
19,209
92,944
30,144
$
235,979 $
235,994 $
217,024
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
Accident Year
2010 and Prior
2020
$
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
—
—
—
1,025
—
6
1
5
475
410
1,138
3,060
Total outstanding liabilities for unpaid losses and LAE,
net of reinsurance
$
232,934
182
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
2011 - All lines of business
25.68 % 17.45 % (3.59) % (28.95) % (2.12) % 3.57 % (3.49) % 4.99 % 11.18 % 8.86 %
2012 - All lines of business
1.30 % 26.42 % 16.71 % 12.48 % 10.00 % 4.47 % 5.48 % 4.17 % 2.12 %
2013 - All lines of business
25.96 % 21.67 % 15.93 % 11.01 % 6.15 % 3.89 % 2.24 % 0.32 %
2014 - All lines of business
33.84 % 24.15 % 11.11 % 8.07 % 3.74 % 1.65 % 1.10 %
2015 - All lines of business
17.33 % 17.09 % 12.84 % 9.80 % 7.69 % 4.65 %
2015 - Workers' compensation
13.72 % 17.09 % 12.73 % 9.73 % 6.71 % 4.27 %
2016 - All lines of business
7.67 % 9.18 % 7.99 % 8.41 % 6.86 %
2016 - Workers' Compensation
10.33 % 8.96 % 7.09 % 9.89 % 8.22 %
2017 - All lines of business
8.04 % 7.64 % 6.71 % 6.11 %
2018 - All lines of business
12.86 % 25.40 % 12.00 %
2018 - General Casualty
11.31 % 21.69 % 17.77 %
2018 - Workers' Compensation
2.03 % 19.49 % 10.03 %
2018 - Professional Indemnity/
Directors & Officers
2018 - Motor
19.55 % 14.40 % 5.34 %
11.08 % 38.47 % 17.61 %
2019 - All lines of business
11.11 % 12.68 %
2019 - General Casualty
8.82 % 7.43 %
2019 - Workers' Compensation
3.67 % 2.02 %
2020 - All lines of business
2020 - General Casualty
2020 - Motor
2020 - Professional Indemnity/
Directors & Officers
11.43 %
3.32 %
32.78 %
1.30 %
The negative payout percentages in the table above for years 3, 4, 5, and 7 within the 2011 year of acquisition
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.
183
Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Atrium (Classified as held-for-sale as of December 31, 2020)
The table below provides a reconciliation of the beginning and ending liability for losses and LAE for the years
ended December 31, 2020, 2019 and 2018:
2020
2019
2018
Balance as of January 1
$
231,672 $
241,284 $
Less: reinsurance reserves recoverable
28,816
38,768
Less: cumulative effect of change in accounting
principal on allowance for estimated uncollectible
reinsurance (1)
Net balance as of 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
Reclassification to assets and liabilities held-
for-sale
851
202,005
93,471
(6,245)
87,226
(33,724)
(40,196)
(73,920)
1,497
—
202,516
85,027
(7,751)
77,276
(34,617)
(43,572)
(78,189)
1,253
(216,808)
—
240,873
40,531
—
200,342
83,627
(13,817)
69,810
(35,537)
(28,969)
(64,506)
(3,130)
—
Net balance as of December 31
Plus: reinsurance reserves recoverable (2)
Balance as of December 31
(1) The Company adopted ASU 2016-13 and the related amendments on January 1, 2020. Refer to Note 2 - "Significant Accounting Policies" for
231,672 $
202,516
241,284
202,856
28,816
38,768
— $
—
—
$
further details.
(2) Net of allowance for estimated uncollectible reinsurance.
Net incurred losses and LAE in the Atrium segment for the years ended December 31, 2020, December 31,
2019 and 2018 were as follows:
Prior
Period
2020
Current
Period
Total
Prior
Period
2019
Current
Period
Total
Prior
Period
2018
Current
Period
Total
Net losses paid
$ 40,196 $ 33,724 $ 73,920 $ 43,572 $ 34,617 $ 78,189
$ 28,969 $ 35,537 $ 64,506
Net change in case and LAE
reserves(1)
Net change in IBNR reserves(2)
Increase (reduction) in estimates
of net ultimate losses
Increase (reduction) in provisions
for unallocated LAE (3)
Amortization of fair value
adjustments (4)
(14,145)
21,390
7,245
(13,278)
16,812
3,534
(10,161)
16,492
(31,773)
38,434
6,661
(38,380)
33,598
(4,782)
(27,507)
31,598
6,331
4,091
(5,722)
93,548
87,826
(8,086)
85,027
76,941
(8,699)
83,627
74,928
48
(77)
(29)
—
(571)
—
(571)
335
—
—
—
—
335
(5,118)
—
—
—
(5,118)
Net incurred losses and LAE
$ (6,245) $ 93,471 $ 87,226 $ (7,751) $ 85,027 $ 77,276
$ (13,817) $ 83,627 $ 69,810
(1) 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) Represents the gross change in our actuarial estimates of IBNR, less amounts recoverable.
(3) Represents the change in the estimate of the total future costs to administer the claims.
(4) Relates to the amortization of fair value adjustments associated with the acquisition of companies.
The increase in net incurred losses and LAE of $10.0 million in 2020 was primarily driven by $18.4 million of
losses related to the COVID-19 pandemic, primarily from accident and health business, partially offset by overall
improved loss experience, within other lines of business and lower catastrophe activity on the business we write.
184
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table provides a breakdown of the gross and net losses and LAE reserves by line of business
and the fair value adjustments recorded on the acquired gross and net losses and LAE reserves and ULAE as of
December 31, 2019 for the Atrium segment. The breakdown as of December 31, 2020 has not been disclosed
below since we have classified the Atrium segment as held-for-sale as discussed in Note 5 - "Divestitures, Held-for-
Sale Businesses and Discontinued Operations."
OLR
Gross
IBNR
2019
Total
OLR
(in thousands of U.S. dollars)
Net
IBNR
Total
$
24,668 $
34,156 $
58,824 $
21,012 $
24,829 $
31,507
18,385
5,460
54,039
29,533
7,880
85,546
47,918
13,340
29,590
16,209
4,735
51,984
23,338
7,469
45,841
81,574
39,547
12,204
9,121
10,935
20,056
8,584
$
89,141 $
136,543 $
225,684 $
80,130 $
9,637
117,257 $
18,221
197,387
3,700
2,288
$
231,672
3,181
2,288
$
202,856
Marine, Aviation and
Transit
Binding Authorities
Reinsurance
Accident and Health
Non-Marine Direct and
Facultative
Total
Fair value adjustments
ULAE
Total
StarStone
The table below provides a reconciliation of the beginning and ending liability for losses and LAE for the years
ended December 31, 2020, 2019 and 2018:
2020
2019
2018
Balance as of January 1
$
1,318,294 $
1,247,989 $
Less: reinsurance reserves recoverable
355,194
303,381
Less: cumulative effect of change in accounting
principal on allowance for estimated uncollectible
reinsurance (1)
Net balance as of 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
495
962,605
263,562
3,176
266,738
(26,831)
(300,037)
(326,868)
23,421
—
—
—
944,608
354,884
114,356
469,240
(75,458)
(375,377)
(450,835)
87
—
—
910,143
275,012
—
635,131
422,191
120,889
543,080
(137,390)
(289,981)
(427,371)
(9,481)
192,981
10,268
Ceded business
Net balance as of December 31
Plus: reinsurance reserves recoverable (2)
1,247,989
$
Balance as of December 31
(1) The Company adopted ASU 2016-13 and the related amendments on January 1, 2020. Refer to Note 2 - "Significant Accounting Policies" for
—
944,608
—
963,100
—
925,896
1,318,294 $
1,327,956 $
303,381
402,060
355,194
further details.
(2) Net of allowance for estimated uncollectible reinsurance.
185
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net incurred losses and LAE in the StarStone segment for the years ended December 31, 2020, December
31, 2019 and 2018 were as follows:
Net losses paid
Net change in case and LAE
reserves (1)
Net change in IBNR reserves (2)
Increase in estimates of net
ultimate losses
Increase (reduction) in provisions
for unallocated LAE (3)
Amortization of deferred charge
assets and deferred gain
liabilities (4)
Amortization of fair value
adjustments (5)
Prior
Period
2020
Current
Period
Total
Prior
Period
2019
Current
Period
Total
Prior
Period
2018
Current
Period
Total
$ 300,037 $ 26,831 $ 326,868 $ 375,377 $ 75,458 $ 450,835 $ 289,981 $ 137,390 $ 427,371
(130,502)
35,458
(95,044) (95,183) 90,497
(4,686) (77,821) 141,682
63,861
(165,909)
183,563
17,654
(163,340) 185,361
22,021
(87,963) 134,464
46,501
3,626
245,852
249,478
116,854
351,316
468,170
124,197
413,536
537,733
(466)
17,710
17,244
(2,666)
3,568
902
(3,042)
8,655
5,613
606
(590)
—
—
606
—
(590)
168
—
—
—
—
168
(266)
—
—
—
(266)
Net incurred losses and LAE
$ 3,176 $ 263,562 $ 266,738 $ 114,356 $ 354,884 $ 469,240 $ 120,889 $ 422,191 $ 543,080
(1) 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) Represents the gross change in our actuarial estimates of IBNR, less amounts recoverable.
(3) Represents the change in the estimate of the total future costs to administer the claims.
(4) Relates to the amortization of deferred charge assets and deferred gain liabilities on retroactive reinsurance contracts.
(5) Relates to the amortization of fair value adjustments associated with the acquisition of companies.
The decrease in net incurred losses and LAE of $202.5 million in 2020 was mainly driven by our strategy to
exit certain lines of business in 2019 and StarStone International being placed into an orderly run-off in 2020;
partially offset by $52.8 million of losses relating to the COVID-19 pandemic. The decrease in net incurred losses
and LAE of $73.8 million in 2019 was primarily driven by our strategy to exit certain lines of business.
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 recorded on the acquired gross and net losses and LAE reserves and ULAE as of
December 31, 2020 and 2019:
Casualty
Marine
Property
Aerospace
Workers' Compensation
Total
$
Fair value adjustments
ULAE
Total
OLR
Gross
IBNR
2020
Total
OLR
(in thousands of U.S. dollars)
Net
IBNR
Total
$
115,295 $
276,941 $ 392,236 $
98,721 $
232,433 $
331,154
142,631
322,735
84,515
12,044
174,015
117,240
36,178
11,589
316,646
439,975
120,693
23,633
119,628
141,089
42,100
12,044
132,482
81,459
18,240
11,589
252,110
222,548
60,340
23,633
677,220 $
615,963 $ 1,293,183 $
413,582 $
476,203 $
889,785
(329)
35,102
$ 1,327,956
1,010
35,101
$
925,896
186
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
OLR
Gross
IBNR
2019
Total
OLR
(in thousands of U.S. dollars)
Net
IBNR
Total
$
121,945 $
210,969 $ 332,914 $
108,543 $
204,800 $
313,343
189,355
341,677
75,764
15,089
161,379
131,596
32,325
19,865
350,734
473,273
108,089
34,954
158,252
150,559
47,256
15,089
128,242
87,653
22,389
19,865
286,494
238,212
69,645
34,954
743,830 $
556,134 $ 1,299,964 $
479,699 $
462,949 $
942,648
(522)
18,852
$ 1,318,294
1,600
18,852
$
963,100
Casualty
Marine
Property
Aerospace
Workers' Compensation
Total
$
Fair value adjustments
ULAE
Total
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, 2020. The information related to incurred and paid loss development for the years ended December
31, 2014 through 2019 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. Following our sale of StarStone U.S. to Core
Specialty, which was completed on November 30, 2020, the incurred and paid loss development tables presented
below for all of the individual lines of business within the StarStone segment have been restated to exclude the
historical incurred and paid loss development related to StarStone U.S.
187
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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,
2020
Accident
Year
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
(unaudited)
2020
IBNR(1)
Cumulative
Number of
Claims
2010 and
Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
$ 100,449 $ 101,217 $ 101,444 $ 101,801 $ 102,539 $ 102,317 $
102,661 $
16,244
18,740
19,681
19,103
27,703
27,859
39,797
33,853
30,788
28,482
33,511
36,159
51,458
47,304
54,282
53,493
56,145
63,323
66,094
67,141
67,461
66,559
66,585
75,513
28,027
37,072
67,638
72,097
76,470
82,050
81,685
92,904
99,425
101,191
92,406
95,726 111,020 135,670
128,139
100,585 135,743 161,288
166,472
87,781 101,381
106,014
42,595
59,902
98,738
19
429
3,418
9,044
10,495
13,037
25,293
34,822
39,329
23,758
72,789
4,322
2,962
3,521
4,821
4,863
4,323
3,825
3,899
2,929
2,581
1,582
Total $
967,951 $ 232,433
39,628
(1) Total of IBNR plus expected development on reported losses.
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident
Year
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
(unaudited)
2020
For The Years Ended December 31,
2010 and
Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
$ 99,643 $ 101,181 $ 101,326 $ 101,712 $ 101,783 $ 101,813 $
101,886
12,394
15,941
18,354
18,760
27,385
27,401
13,336
20,634
22,746
23,711
32,644
32,666
16,373
22,131
35,799
38,866
42,123
48,898
4,318 16,141 27,043 36,802 46,654 49,571
6,439 21,503 36,971 50,598 69,948
4,206 32,864 59,074 76,175
27,426
32,706
52,333
51,949
75,875
92,223
7,712 41,896 87,902
114,062
18,747 34,762
4,721
54,000
26,235
8,102
Total $ 636,797
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
$ 331,154
188
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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, 2020 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
$
$
2020
331,154
61,082
392,236
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
7.72 % 20.87 % 17.53 % 15.99 %
9.96 %
4.35 %
7.85 %
9.00 %
0.06 %
0.08 %
189
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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,
2020
Accident
Year
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
(unaudited)
2020
IBNR(1)
Cumulative
Number of
Claims
2010 and
Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
$
50,395 $ 47,336 $ 47,194 $ 47,287 $ 47,175 $ 47,213 $ 46,828 $
29,890
28,190
27,767
27,824
28,162
27,956
28,075
48,204
52,010
51,710
50,435
51,231
49,176
48,706
63,442
55,981
53,783
54,790
58,209
64,399
63,323
50,959
54,370
49,449
56,049
51,642
51,062
49,676
70,492
70,160
80,196
81,864
83,646
80,438
80,830
83,187
88,459
88,023
89,309
125,976 158,450 166,304 162,629
164,461 164,042 161,831
152,423 158,919
84,427
62
229
307
926
1,003
1,612
4,150
7,959
16,444
39,463
60,327
3,037
1,966
2,431
2,202
3,944
5,606
6,658
8,352
10,123
7,015
2,703
(1) Total of IBNR plus expected development on reported losses.
Total $ 974,161 $ 132,482
54,037
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
For The Years Ended December 31,
Accident
Year
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
(unaudited)
2020
2010 and
Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
$
44,212 $ 46,360 $ 46,464 $ 46,470 $ 46,563 $ 46,682 $ 46,709
24,599
25,686
26,688
26,942
27,057
27,082
27,285
38,570
42,787
44,681
45,498
45,951
46,178
47,452
29,436
38,880
43,027
45,575
47,698
57,539
62,037
11,037
25,306
33,076
37,594
43,323
44,727
44,740
10,234
30,143
50,376
56,557
59,918
62,401
11,669
41,875
58,438
73,778
76,534
23,986
68,233 107,787 125,335
40,698 103,930 129,632
33,196
84,414
15,512
Total $ 722,051
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
$ 252,110
190
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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, 2020 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
$
$
2020
252,110
64,536
316,646
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
18.17 % 30.97 % 19.08 %
9.99 %
5.02 %
2.46 %
3.48 %
2.04 %
0.99 %
0.39 %
191
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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,
2020
Accident
Year
2010 and
Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
(unaudited)
2020
IBNR(1)
Cumulative
Number of
Claims
$ 190,649 $ 188,537 $ 187,286 $ 187,846 $ 188,778 $ 189,079 $
190,667 $
91,712
90,272
90,328
90,018
89,918
90,259
66,137
62,119
61,243
62,177
59,201
59,463
78,501
65,608
65,394
64,521
62,711
61,114
59,390
44,130
43,631
44,081
41,968
41,226
75,514
73,946
67,944
67,733
68,678
83,622
91,680
92,038
91,956
90,406
58,247
61,383
40,612
69,314
94,450
152,172
169,673
181,855
171,673
13
88
133
152
794
1,377
1,361
4,429
161,507
172,640
174,137
11,123
116,634
117,009
22,609
71,147
39,380
4,485
1,635
1,516
1,955
2,125
11,435
14,167
14,553
11,891
6,166
1,338
(1) Total of IBNR plus expected development on reported losses.
Total $ 1,139,045 $ 81,459
71,266
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident
Year
2010 and
Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
For The Years Ended December 31,
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
(unaudited)
2020
$ 183,649 $ 186,876 $ 187,040 $ 187,264 $ 187,285 $ 187,300 $
188,080
87,937
89,149
89,662
89,894
89,894
89,940
48,322
52,442
54,681
55,672
55,895
58,099
31,000
46,556
51,431
53,548
59,756
60,916
5,517
18,945
31,854
34,869
36,461
37,609
8,756
25,890
52,799
61,347
62,237
23,803
54,188
72,244
81,904
34,961
96,151
137,569
60,944
93,275
19,461
90,110
58,100
61,060
39,681
62,826
83,577
146,340
126,763
52,637
7,323
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
$
222,548
Total $
916,497
192
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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, 2020 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
$
$
The following is unaudited supplementary information for average annual historical duration of claims:
2020
222,548
217,427
439,975
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
19.10 % 28.75 %
26.40 %
8.35 %
2.47 %
2.69 %
1.55 %
1.01 %
0.02 %
0.30 %
193
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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
For The Years Ended December 31,
As of December 31,
2020
Accident
Year
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
(unaudited)
2020
IBNR(1)
Cumulative
Number of
Claims
2010 and
Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
$ 18,439 $
18,083 $
18,393 $
18,906 $
18,962 $
18,759 $
18,693 $
58,748
57,226
57,653
58,084
59,578
58,677
58,299
55,293
55,087
55,870
55,823
57,044
56,771
56,907
71,930
69,976
70,255
74,733
77,222
76,774
78,673
65,227
53,457
53,533
52,471
54,534
48,757
45,978
36
96
186
297
485
64,550
67,846
70,903
71,624
69,612
69,879
1,070
35,923
43,371
46,832
43,991
42,954
1,463
28,816
33,623
54,980
52,590
2,193
58,573
54,969
54,831
3,491
45,401
45,784
5,148
8,732
3,775
622
2,179
2,375
2,538
2,867
2,962
2,925
3,381
3,390
2,028
357
(1) Total of IBNR plus expected development on reported losses
Total $ 533,320 $ 18,240
25,624
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance
Accident
Year
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
(unaudited)
2020
For The Years Ended December 31,
2010 and
Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
$ 15,391 $
16,530 $
17,141 $
18,209 $
18,480 $
18,535 $
18,538
53,785
55,133
55,817
56,394
56,954
57,482
57,483
45,618
49,009
51,787
53,271
54,415
55,160
55,290
50,725
59,639
63,226
68,574
72,573
73,309
73,923
17,297
31,192
38,494
40,749
43,857
43,858
43,868
31,417
50,844
59,342
62,522
64,811
65,630
11,001
30,516
35,884
37,909
37,933
9,000
26,857
44,582
46,134
24,979
39,531
43,284
23,294
30,210
687
Total $ 472,980
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
$
60,340
194
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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, 2020 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
$
$
2020
60,340
60,353
120,693
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
32.80 % 29.84 %
15.40 %
4.61 % 4.31 % 2.22 %
1.93 %
1.12 %
0.48 %
0.01 %
195
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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,
2020
Accident
Year
2010 and
Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
(unaudited)
2020
IBNR(1)
Cumulative
Number of
Claims
$
— $
— $
— $
— $
— $
— $
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
—
—
1
—
—
1
10,145 11,179 11,889 10,180
9,867
9,666
9,372
35,735 36,078 32,567 30,742 29,757 28,768
40,912 35,179 37,703 38,739 36,293
28,188 29,931 22,900 23,320
15,100 14,814 14,490
—
—
—
—
—
—
—
500
1,870
2,847
3,888
2,484
—
—
—
—
—
—
137
259
277
295
161
—
—
(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,
Total $ 112,244 $ 11,589
1,129
Accident
Year
2010 and
Prior
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2014
(unaudited)
2015
(unaudited)
2016
(unaudited)
2017
(unaudited)
2018
(unaudited)
2019
(unaudited)
2020
$
— $
— $
— $
— $
— $
— $
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
—
—
1
—
—
—
1
969,000
3,951
6,031
7,430
7,957
8,201
8,503
4,135 13,126 19,785 22,952 24,301 25,032
5,170 15,229 22,940 27,632 29,539
3,560 10,436 14,600 16,520
2,574
6,431
9,016
—
—
—
Total $ 88,611
Total outstanding liabilities for unpaid losses and LAE, net of reinsurance
$ 23,633
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, 2020 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
$
$
2020
23,633
—
23,633
196
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following is unaudited supplementary information for average annual historical duration of claims:
Workers' compensation
14.40 % 29.38 % 20.46 % 11.77 % 5.19 % 2.57 % 1.61 %
— %
— %
— %
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
11. DEFENDANT ASBESTOS AND ENVIRONMENTAL LIABILITIES
We acquired DCo LLC ("DCo") on December 30, 2016, and Morse TEC on October 30, 2019. These
companies hold liabilities associated with personal injury asbestos claims and environmental claims arising from
their legacy manufacturing operations. 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, 2020 and 2019 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
2020
2019
$
913,276 $
1,100,593
12,572
42,510
10,279
51,637
(262,029)
(314,824)
706,329
847,685
Insurance balances recoverable:
Insurance recoveries related to defendant asbestos liabilities (net of allowance:
2020 - $4,824)
Fair value adjustments
Insurance balances recoverable
310,602
549,593
(60,950)
(100,738)
249,652
448,855
Net liabilities relating to defendant asbestos and environmental exposures
$
456,677 $
398,830
197
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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, 2020, 2019 and 2018:
Balance as of January 1
Less: Insurance balances recoverable
Plus: Cumulative effect of change in accounting principle on
the determination of the allowance for estimated uncollectible
insurance balances (1)
Net balance as of January 1
Total net recoveries (paid claims)
Amounts recorded in other income (expense):
Change in estimate of net ultimate liabilities
Reduction in estimated future expenses
Amortization of fair value adjustments
Total other expense (income)
Acquired on purchase of subsidiaries
2020
2019
2018
847,685
448,855
3,167
401,997
153,964
(103,166)
(9,126)
13,008
(99,284)
—
203,320
135,808
219,164
122,326
—
67,512
(10,434)
(4,263)
(3,274)
13,500
5,963
335,789
—
96,838
(6,351)
(23,221)
—
246
(22,975)
—
Net balance as of December 31
Plus: Insurance balances recoverable (2)
Balance as of December 31
203,320
(1) The Company adopted ASU 2016-13 and the related amendments on January 1, 2020. Refer to Note 1 - "Significant Accounting Policies" for
398,830
847,685
249,652
448,855
456,677
706,329
135,808
67,512
further details.
(2) Net of allowance for estimated uncollectible insurance balances.
Total other income from our defendant asbestos and environmental liabilities companies was $99.3 million for
the year ended December 31, 2020 and was driven by a reduction in the actuarially estimated ultimate net liabilities
as a result of a lower than expected number of asbestos claims filed against us; lower than expected paid indemnity
and defense costs; the collection of disputed insurance recoveries that were carried on our balance sheet at
$166.7 million, net of fair value adjustments, for consideration of $179.6 million; and recovery of $19.3 million on
insurance payments previously written-off prior to our acquisition of the companies.
Methodologies for determining liabilities
Defendant Asbestos Liabilities
We review, on an ongoing basis, our 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 our 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 our historical claim filings and epidemiological studies. The
actuarial analysis also utilizes assumptions based on our 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.
We 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 $913.3 million and $1.1 billion as of
December 31, 2020 and 2019, respectively.
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
198
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 $12.6 million and $10.3 million as of December
31, 2020 and 2019, 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.
Allowance for Estimated Uncollectible Insurance Balances Recoverable on Defendant Asbestos
Liabilities
We evaluate and monitor the credit risk related to our insurers and an allowance for estimated uncollectible
insurance balances recoverable on our defendant asbestos liabilities ("allowance for estimated uncollectible
insurance") is established for amounts considered potentially uncollectible. To determine the allowance for
estimated uncollectible insurance, we use the inputs and methodologies as described in Note 8 - "Reinsurance
Balances Recoverable on Paid and Unpaid Losses" above.
The table below provides a reconciliation of the beginning and ending allowance for estimated uncollectible
insurance balances related to our defendant asbestos liabilities, for the years ended December 31, 2020 and 2019:
Allowance for estimated uncollectible insurance balances, beginning of
year
$
Cumulative effect of change in accounting principle
Current period change in the allowance
Allowance for estimated uncollectible insurance balances, end of year
$
2020
2019
3,818 $
3,167
(2,161)
4,824 $
—
—
3,818
3,818
During the year ended December 31, 2020, we did not have any write-offs charged against the allowance for
estimated uncollectible insurance or any recoveries of amounts previously written off.
We did not have significant non-disputed past due balances receivable from our insurers related to our
defendant asbestos liabilities, that were older than one year for any of the periods presented. Any balances that are
part of ongoing legal activity are estimated to be recovered at the level of our recorded asset which is consistent
with our legal advice and past collection experience.
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.
199
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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:
December 31, 2020
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:
Short-term and Fixed maturity
investments:
U.S. government and agency
$
— $
951,048 $
— $
— $
951,048
U.K. government
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
Other assets included within funds held
- directly managed
Equities:
—
—
—
—
—
—
—
51,082
502,153
5,686,732
162,669
553,945
854,090
557,460
—
—
—
—
—
—
—
—
—
—
—
—
—
—
51,082
502,153
5,686,732
162,669
553,945
854,090
557,460
$
— $
9,319,179 $
— $
— $
9,319,179
—
14,627
—
—
14,627
Publicly traded equity investments
$
229,167 $
31,600 $
Exchange-traded funds
Privately held equity investments
311,287
—
—
—
— $
—
274,741
— $
—
—
540,454 $
31,600 $
274,741 $
— $
260,767
311,287
274,741
846,795
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 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
$
$
$
$
$
$
$
$
$
$
$
— $
— $
— $
2,638,339 $
2,638,339
—
—
—
—
—
—
—
285,837
5,073
—
128,083
—
—
—
—
—
—
—
—
9,250
314
266,704
185,694
363,103
—
166,523
183,069
12,045
552,541
190,767
363,103
128,083
166,523
192,319
12,359
— $
418,993 $
9,564 $
3,815,477 $
4,244,034
540,454 $
9,784,399 $
284,305 $
3,815,477 $ 14,424,635
385,790 $
208,272 $
— $
— $
594,062
— $
— $
520,830 $
— $
520,830
1,169 $
2,964
4,133 $
— $
—
— $
— $
—
— $
1,169
2,964
4,133
— $
2,452,920 $
— $
2,452,920
28,947 $
5,195
34,142 $
— $
—
— $
— $
—
— $
28,947
5,195
34,142
— $
—
— $
— $
— $
—
— $
200
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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:
Short-term and 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
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
$
— $
696,077 $
— $
— $
696,077
—
—
—
—
—
—
—
161,772
702,856
5,448,270
140,687
400,914
813,746
670,235
—
—
—
—
—
—
—
—
—
—
—
—
—
—
161,772
702,856
5,448,270
140,687
400,914
813,746
670,235
— $
9,034,557 $
— $
— $
9,034,557
— $
14,207 $
— $
— $
14,207
297,310 $
30,565 $
133,047
—
—
—
— $
—
265,799
— $
327,875
—
—
133,047
265,799
430,357 $
30,565 $
265,799 $
— $
726,721
— $
— $
— $
1,121,904 $
1,121,904
—
—
—
—
—
—
398,143
111,040
—
—
—
34
—
—
—
87,555
—
314
82,896
299,109
323,496
—
87,509
6,031
481,039
410,149
323,496
87,555
87,509
6,379
— $
509,217 $
87,869 $
1,920,945 $
2,518,031
430,357 $
9,588,546 $
353,668 $
1,920,945 $ 12,293,516
144,984 $
222,191 $
— $
— $
367,175
— $
— $
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
$
$
$
$
$
$
$
$
$
$
$
$
$
$
201
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Valuation Methodologies of Financial Instruments Measured at Fair Value
Short-term and Fixed Maturity Investments
The fair values for all securities in the short-term and 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.
The following describes the techniques generally used to determine the fair value of our short-term and 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 market observable. Where significant inputs are unable to be corroborated with
market observable information, we classify the securities as Level 3.
202
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Equities
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
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 exchange-traded funds also trade on major exchanges. Our publicly traded
equities are widely diversified and there is no significant concentration in any specific industry. 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, including active discussions with managers of the investments. 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 review the audited results relative to the net asset values provided by the managers, 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"). The fair values measured using prices provided by
independent pricing services have been classified as Level 2 and fair values using prices from brokers have
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
•
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.
• Our investments in private credit funds are primarily valued 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 private credit funds is a loan which is valued at cost less distributions
received to date.
•
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.
Cash and Cash Equivalents
Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of
cash and are very close to maturity that they present insignificant risk of changes in value due to changes in interest
rates. Included within cash and cash equivalents are money market funds, fixed interest deposits and highly liquid
fixed maturity investments purchased with an original maturity of three months or less.
The majority of our cash and cash equivalents included within the fair value hierarchy are comprised of
money market and liquid reserve funds which have been categorized as Level 1. Fixed interest deposits and highly
liquid fixed maturity investments with an original maturity of three months or less have been categorized as Level 2.
Operating cash balances are not subject to the recurring fair value measurement guidance and are therefore
excluded from 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 yield 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.
Derivative Instruments
The fair values of our derivative instruments, 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.
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Investments
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
The following tables present 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, 2020 and
2019:
Beginning fair value
Purchases
Sales
Total realized and unrealized losses
Transfer out of Level 3 into Level 2
Ending fair value
$
$
2020
Privately-held Equities
Other Investments
Total
265,799 $
87,869 $
20,125
—
(11,183)
—
47,092
(1,289)
(40,368)
(83,740)
274,741 $
9,564 $
2019
353,668
67,217
(1,289)
(51,551)
(83,740)
284,305
Fixed maturity investments
Residential
mortgage-
backed
Commercial
mortgage-
backed
Corporate
Asset-
backed
Privately-
held
Equities
Other
Investments
Total
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
—
(3,605)
255
1,515
(8,184)
21,024
(26,795)
30,713
(2,016)
8,392
—
—
56,908
87,805
(590)
(10,515)
(7,816)
984
—
—
26,176
(72,755)
Ending fair value
$
— $
— $
— $
— $ 265,799 $
87,869 $ 353,668
Net realized and unrealized gains related to Level 3 assets in the table above are included in net realized and
unrealized gains (losses) 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.
Valuations Techniques and Inputs
The table below presents the quantitative information related to the fair value measurements for our privately
held equity investments measured at fair value on a recurring basis using Level 3 inputs:
Quantitative Information about Level 3 Fair Value Measurements
Fair Value as of
December 31,
2020
(in millions of
U.S. dollars)
Valuation Techniques
Unobservable Input
Average (1)
$
$
$
230.3 Guideline company methodology
Distribution waterfall
12.98
54.0 Cost as approximation of fair value Cost as approximation of fair value
284.3
(1) The average represents the arithmetic average of the inputs and is not weighted by the relative fair value.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
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, 2020 and
2019:
2020
Reinsurance
balances
recoverable
on paid and
unpaid losses
Liability for
losses and
LAE
2019
Reinsurance
balances
recoverable
on paid and
unpaid losses
Net
Liability for
losses and
LAE
Net
$
2,621,122 $
695,518 $
1,925,604 $
2,874,055 $
739,591 $
2,134,464
1,526
(180,972)
182,498
9,218
—
9,218
(73,596)
(17,484)
157,965
66,885
59,478
(133,074)
—
38,919
98,397
(17,484)
119,046
(31,512)
(32,690)
(19,915)
160,630
108,025
(2,958)
—
43,449
40,491
(29,732)
(19,915)
117,181
67,534
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
(300,234)
(101,326)
(198,908)
(416,770)
(92,145)
(324,625)
Effect of exchange rate movements
63,621
9,213
54,408
46,594
7,581
39,013
Ending fair value
$
2,452,920 $
520,830 $
1,932,090 $
2,621,122 $
695,518 $
1,925,604
The net assumed business of $182.5 million in the current period relates to the Hannover Re novation
transaction disclosed in Note 4 - "Significant New Business." 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, 2020, 2019 and 2018:
Changes in fair value due to changes in:
Duration
Corporate bond yield
Weighted cost of capital
Risk cost of capital
Change in fair value
2020
2019
2018
$
20,861 $
22,719 $
96,478
(5,048)
6,755
94,462
—
—
$
119,046 $
117,181 $
74,011
(71,031)
3,684
6,664
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, 2020 and 2019:
Valuation
Technique
Internal model
Unobservable (U) and Observable (O) Inputs
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
Internal model
Duration - liability (U)
Duration - reinsurance balances recoverable on paid and
unpaid losses (U)
2020
Weighted
Average
A rated
0.2%
5.1%
8.25%
8.17 years
8.23 years
2019
Weighted
Average
A rated
0.2%
5.1%
8.5%
7.82 years
8.68 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
206
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below:
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
•
•
•
•
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.
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, 2020, 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 $349.3 million and $494.2 million, respectively, while the fair value based on observable
market pricing from a third party pricing service was $362.4 million and $573.3 million, respectively. The Senior
Notes are classified as Level 2.
Junior Subordinated Notes
As of December 31, 2020, our 5.75% Fixed-Rate Reset Junior Subordinated Notes due 2040 (the “Junior
Subordinated Notes”) were carried at amortized cost of $344.8 million, while the fair value based on observable
market pricing from a third party pricing service was $365.7 million. The Junior Subordinated 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, 2020 and 2019.
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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, 2020, 2019 and 2018:
Non-life Run-off
Gross
Ceded
Net
Atrium
Gross
Ceded
Net
StarStone
Gross
Ceded
Net
Other
Gross
Ceded
Net
Total
Gross
Ceded
Net
2020
2019
2018
Premiums
Written
Premiums
Earned
Premiums
Written
Premiums
Earned
Premiums
Written
Premiums
Earned
$
$
5,191 $
(2,204)
2,987 $
71,522 $
(12,827)
58,695 $
(25,069) $ 197,009 $
(269)
(28,513)
(25,338) $ 168,496 $
(8,910) $
(307)
(9,217) $
25,230
(15,803)
9,427
$ 206,656 $ 197,492 $ 192,373 $ 182,678 $ 171,494 $ 164,428
(18,113)
$ 183,194 $ 175,393 $ 172,356 $ 164,059 $ 153,488 $ 146,315
(23,462)
(20,017)
(18,006)
(18,619)
(22,099)
$ 326,695 $ 441,015 $ 472,815 $ 549,299 $ 622,570 $ 647,218
(132,055)
$ 233,202 $ 318,115 $ 379,523 $ 451,112 $ 478,009 $ 515,163
(122,900)
(144,561)
(93,493)
(98,187)
(93,292)
$
13,441 $
—
19,889 $
—
18,534 $
(22)
20,544 $
(164)
32,378 $
(311)
25,237
(363)
$
13,441 $
19,889 $
18,512 $
20,380 $
32,067 $
24,874
$ 551,983 $ 729,918 $ 658,653 $ 949,530 $ 817,532 $ 862,113
(119,159)
(157,826)
(113,600)
(145,483)
(163,185)
(166,334)
$ 432,824 $ 572,092 $ 545,053 $ 804,047 $ 654,347 $ 695,779
Gross premiums written for the year ended December 31, 2020 decreased by $106.7 million primarily due to
StarStone International being placed into an orderly run-off, whereas gross premiums written for the year ended
December 31, 2019 decreased by $158.9 million primarily due to StarStone's strategy to exit certain lines of
business.
14. GOODWILL AND INTANGIBLE ASSETS
The following table presents a reconciliation of the beginning and ending goodwill and intangible assets,
included within other assets in the consolidated balance sheets, for the years ended December 31, 2020 and 2019:
Balance as of December 31, 2018
$ 109,807 $
16,887 $
67,131 $ 193,825
Amortization
—
(2,257)
—
(2,257)
Balance as of December 31, 2019
$ 109,807 $
14,630 $
67,131 $ 191,568
Intangible
assets with
a definite life
Intangible
assets with an
indefinite life
Total
Goodwill
Amortization
Impairment losses (StarStone International) (1)
Reclassification to assets held-for-sale (Atrium) (2)
—
(1,524)
—
(1,524)
(8,000)
—
(4,000)
(12,000)
(115,085)
Balance as of December 31, 2020
62,959
(1) On June 10, 2020, we announced the StarStone International Run-Off. During the year ended December 31, 2020, we recognized impairment
losses of $8.0 million related to the goodwill allocated to StarStone International and $4.0 million on StarStone's Lloyd's syndicate capacity.
(2) On August 13, 2020, we announced the Atrium Exchange Transaction, which resulted in the assets and liabilities of the Atrium segment being
classified as held-for-sale as of December 31, 2020. Refer to Note 5 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations"
for further information.
(38,848)
62,959 $
(63,131)
(13,106)
— $
— $
$
208
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The gross carrying value, accumulated amortization and net carrying value of goodwill and intangible assets
by segment and by type as of December 31, 2020 and 2019 was as follows:
Non-life Run-off segment:
Goodwill
Atrium segment:
Goodwill
Intangible assets with a definite life:
Distribution channel
Brand
Intangible assets with an indefinite life:
Lloyd’s syndicate capacity
Management contract
Total Atrium segment goodwill and
intangible assets
StarStone segment:
Goodwill
Intangible assets with an indefinite life:
Lloyd’s syndicate capacity
Total StarStone segment goodwill and
intangible assets
December 31, 2020
December 31, 2019
Gross
carrying
value
Accumulated
amortization
Net
carrying
value
Gross
carrying
value
Accumulated
amortization
Net
carrying
value
$ 62,959 $
— $ 62,959 $
62,959 $
— $ 62,959
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
38,848
—
38,848
—
—
—
—
20,000
7,000
33,031
30,100
(8,111)
11,889
(4,259)
2,741
—
—
33,031
30,100
—
128,979
(12,370) 116,609
—
—
—
8,000
4,000
12,000
—
—
—
8,000
4,000
12,000
Total goodwill and intangible assets $ 62,959 $
— $ 62,959 $ 203,938 $
(12,370) $ 191,568
The amortization recorded on the intangible assets of the Atrium segment, prior to the reclassification to held-
for-sale, for the years ended December 31, 2020, 2019 and 2018 was $1.5 million, $2.3 million and $3.6 million,
respectively.
15. DEBT OBLIGATIONS AND CREDIT FACILITIES
We utilize debt and credit facilities primarily for funding acquisitions and significant new business, investment
activities and, from time to time, for general corporate purposes. Our debt obligations were as follows:
Facility
4.50% Senior Notes due 2022
4.95% Senior Notes due 2029
Total Senior Notes
Origination Date
Term
December 31,
2020
December 31,
2019
March 10, 2017
5 years
$
349,253 $
May 28, 2019
10 years
494,194
843,447
344,812
185,000
—
348,616
493,600
842,216
—
—
348,991
$
1,373,259 $
1,191,207
5.75% Junior Subordinated Notes due 2040
August 26, 2020
20 years
EGL Revolving Credit Facility
2018 EGL Term Loan Facility
Total debt obligations
August 16, 2018
December 27, 2018
5 years
3 years
In 2020, we issued the Junior Subordinated Notes and fully repaid the 2018 EGL Term Loan Facility.
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The table below provides a summary of the total interest expense for the years ended December 31, 2020,
2019 and 2018:
Interest expense on debt obligations
Amortization of debt issuance costs
Funds withheld balances and other
Total interest expense
Senior Notes
2020
2019
2018
57,974 $
51,245 $
25,205
1,331
3
953
343
537
(46)
59,308 $
52,541 $
25,696
$
$
We have issued two series of Senior Notes as shown in the table above. The Senior Notes are 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, including claims of policyholders. The
2022 Senior Notes and the 2029 Senior Notes bear interest at a fixed rate per annum, equal to 4.50% and 4.95%,
respectively.
Both series of Senior Notes are rated BBB-. We may repurchase the 2029 Senior Notes at any time prior to
three months prior to maturity of the 2029 Senior Notes, subject to the payment of a make-whole premium. After
such date, we may repurchase the 2029 Senior Notes at a purchase price equal to 100% of the outstanding
principal amount, plus accrued and unpaid interest. We do not have the right to repurchase the 2022 Senior Notes
prior to their maturity.
We incurred costs of $2.9 million and $6.8 million in issuing the 2022 and 2029 Senior Notes, respectively.
The unamortized costs as of December 31, 2020 were $0.7 million and $5.8 million, respectively.
Junior Subordinated Notes
5.75% Junior Subordinated Notes due 2040
On August 26, 2020, our wholly-owned subsidiary, Enstar Finance LLC ("Enstar Finance") issued the Junior
Subordinated Notes in an aggregate principal amount of $350.0 million. The Junior Subordinated Notes bear
interest (i) during the initial five-year period ending August 30, 2025, at a fixed rate per annual of 5.75% and
(ii) during each five-year reset period thereafter beginning September 1, 2025, at a fixed rate per annum equal to
the five-year U.S. treasury rate calculated as of two business days prior to the beginning of such five-year period
plus 5.468%.
The Junior Subordinated Notes are rated BB+ and are unsecured junior subordinated obligations of Enstar
Finance. The Junior Subordinated Notes are fully and unconditionally guaranteed by us on an unsecured and junior
subordinated basis. These debt securities of Enstar Finance are effectively subordinated to the obligations of our
other subsidiaries.
Subject to certain requirements and during certain time periods, Enstar Finance may repurchase the Junior
Subordinated Notes, in whole or in part, at any time, at a repurchase price equal to at least 100% of the principal
amount, plus accrued and unpaid interest.
We incurred costs of $5.2 million in issuing the Junior Subordinated Notes. The unamortized costs as of
December 31, 2020 were $5.2 million.
EGL Revolving Credit Facility
On August 16, 2018, we entered into a five-year, unsecured $600.0 million revolving credit agreement. We
may request additional commitments under the facility up to an additional $400.0 million, which the existing lenders
in their discretion or new lenders may provide, in each case subject to the terms of the agreement. To date, we have
not requested any additional commitments under the facility.
As of December 31, 2020, we were permitted to borrow up to an aggregate of $600.0 million under the
revolving credit facility. As of December 31, 2020, there was $415.0 million of available unutilized capacity under the
facility. Subsequent to December 31, 2020, we borrowed an additional $20.0 million and repaid $30.0 million,
increasing the unutilized capacity under the facility to $425.0 million.
We pay interest on loans borrowed under the facility at a per annum rate comprising a reference rate
determined based on the type of loan we borrow plus a margin based on the Company's long term senior
unsecured debt ratings. The applicable reference rate is adjusted base rate for base rate loans and adjusted LIBOR
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
for LIBOR loans. The applicable margin varies based upon changes to our long term senior unsecured debt ratings
assigned by S&P or Fitch. We pay interest quarterly for base rate loans and as frequently as monthly for LIBOR
loans, depending on the applicable interest period. We also pay a commitment fee based on the average daily
unutilized capacity under 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, terminate lender commitments and demand early repayment of any
outstanding loans borrowed under the facility.
We are subject to business and financial covenants under the revolving credit agreement. Business
covenants include limitations on indebtedness and guarantees; liens; mergers, consolidations and other
fundamental changes; dispositions; and investments and acquisitions, in each case subject to certain exceptions.
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 revolving credit facility.
2018 EGL Term Loan Facility
On December 27, 2018, we entered into and fully utilized a three-year, unsecured $500.0 million term loan.
During 2019, we repaid $150.0 million, and during 2020, we repaid the remaining $350.0 million and terminated the
facility.
Maturities
As of December 31, 2020, the amount of outstanding debt obligations that will become due in each of the next
five years and thereafter was as follows: 2021, $0; 2022, $350.0 million; 2023, $185.0 million; 2024, $0; and
thereafter, $850.0 million.
Letters of Credit
We utilize unsecured and secured letters of credit to support certain of our (re)insurance performance
obligations.
$275.0 million Funds at Lloyd's Letter of Credit Facility
On November 5, 2020, we amended and restated our Fund's at Lloyd's letter of credit facility to reduce its
capacity to $275.0 million (with the right to request additional commitments under the facility in an aggregate
amount not to exceed $75.0 million) and extended its term by two years. We use letters of credit under this facility to
satisfy a portion of our Funds at Lloyd's requirements, and letters of credit issued under the facility will expire at the
end of 2025. As of December 31, 2020 and December 31, 2019, our combined Funds at Lloyd's comprised cash
and investments of $260.9 million and $639.3 million, respectively, and unsecured letters of credit of $210.0 million
and $252.0 million, respectively.
$120.0 million Letter of Credit Facility
We use this facility to provide collateral support for certain reinsurance obligations of our subsidiaries. We
may request additional commitments under the facility in an aggregate amount not to exceed $60.0 million, which
the existing lender in its discretion or new lenders may provide, in each case subject to the terms of the agreement.
As of December 31, 2020 and December 31, 2019, The aggregate amount of letters of credit issued under the
facility was $115.7 million and $115.3 million, respectively.
$800.0 million Syndicated Letter of Credit Facility
On August 4, 2020, we increased the total commitments available under this facility by an aggregate amount
of $40.0 million, bringing the total size of the facility to $800.0 million. We use this facility to collateralize certain
reinsurance obligations. As of December 31, 2020 and December 31, 2019, the aggregate amount of letters of
credit issued under the facility was $424.1 million and $608.0 million, respectively.
$65.0 million Letter of Credit Facility
On August 4, 2020, we entered into a $65.0 million letter of credit facility agreement pursuant to which we
issued a letter of credit to collateralize a portion of our reinsurance obligations relating to our novation transaction
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
with Hannover Re, which we completed on August 6, 2020, as discussed in Note 4 - "Significant New Business". As
of December 31, 2020, the aggregate amount of letters of credit issued under the facility was $61.0 million.
Subsidiary Capital Letters of Credit
We also utilize unsecured and secured letters of credit to support the regulatory capital requirements of
certain of our subsidiaries.
$100.0 million Bermuda Letter of Credit Facility
On December 22, 2017, we entered into a $100.0 million subsidiary capital letter of credit facility agreement.
The letter of credit issued under the agreement qualifies as eligible capital for one of our Bermuda regulated
subsidiaries. As of December 31, 2020, the aggregate face amount of letters of credit under the facility was
$100.0 million.
GBP £32.0 million United Kingdom Letter of Credit Facility
On December 8, 2020, we entered into a £32.0 million ($43.7 million) subsidiary capital letter of credit facility
agreement. The letter of credit issued under the agreement qualifies as Ancillary Own Funds capital for one of our
U.K. regulated subsidiaries. As of December 31, 2020, the aggregate face amount of letters of credit under the
facility was $43.7 million.
16. NONCONTROLLING INTEREST
We have both redeemable noncontrolling interest ("RNCI") and noncontrolling interest ("NCI") on our
consolidated balance sheets. RNCI 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 NCI, which does not have redemption features and is classified within equity in the
consolidated balance sheets.
Redeemable Noncontrolling Interest
RNCI as of December 31, 2020 and 2019 comprised the ownership interests held by the Trident V Funds
(39.3%) and the Dowling Funds (1.7%) in our subsidiary North Bay. As discussed in Note 5 - "Divestitures, Held-for-
Sale Businesses and Discontinued Operations," North Bay owned our investments in Northshore, the holding
company that owns Atrium and Arden, and SSHL, the holding company for the StarStone group.
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, 2020 and 2019:
Balance at beginning of year
Capital contributions
Dividends paid
Net losses attributable to RNCI
Change in unrealized gains (losses) on AFS investments attributable to RNCI
Change in currency translation adjustments attributable to RNCI
2020
2019
$ 438,791 $ 458,543
—
—
13,127
(11,556)
(27,512)
(12,029)
1,517
(1,397)
(126)
10
Change in redemption value of RNCI
Cumulative effect of change in accounting principle attributable to RNCI (1)
Balance at end of year
$ 365,436 $ 438,791
(1) The Company adopted ASU 2016-13 and the related amendments on January 1, 2020. Refer to Note 2 - "Significant Accounting Policies" for
(46,224)
(9,178)
261
—
further details.
We carried the RNCI at its estimated redemption value, which is fair value, as of December 31, 2020 and
2019. The decrease in the year ended December 31, 2020 included $27.5 million of net losses attributable to RNCI
primarily arising on StarStone and which result from COVID-19 related net underwriting losses and exit costs
associated with the decision to place StarStone International into run-off, partially offset by the gain on sale of
StarStone U.S.; and $46.2 million due to change in redemption value. The redemption value decreased as a result
of the StarStone International Run-Off decision and the agreement to sell both StarStone U.S and Northshore.
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Following the completion of the Atrium Exchange Transaction on January 1, 2021, as described in Note 5 -
"Divestitures, Held-for-Sale Businesses and Discontinued Operations," we will deconsolidate the RNCI relating to
Northshore in the first quarter of 2021, and thereafter the remaining RNCI will be for StarStone International.
Refer to Note 23 - "Commitments and Contingencies" for additional information regarding RNCI.
Noncontrolling Interest
As of December 31, 2020 and 2019, we had $13.6 million and $14.2 million, respectively, of NCI primarily
related to external interests in three of our 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.
17. SHAREHOLDERS' EQUITY
As of December 31, 2020 and 2019, 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 under the "ESGR" ticker symbol on the NASDAQ Global
Select Market. Each Voting Ordinary Share entitles the holder thereof to one vote.
Share Repurchases
On March 9, 2020, our Board of Directors adopted a stock trading plan for the purpose of repurchasing a
limited number of our Company’s ordinary shares, not to exceed $150.0 million in aggregate (the "Repurchase
Program"). On March 23, 2020, we suspended our Repurchase Program due to uncertainty from the COVID-19
pandemic. The Repurchase Program resumed on September 21, 2020 and expires on March 1, 2021.
From inception to December 31, 2020, we repurchased 178,280 ordinary shares at an average price of
145.87, for an aggregate price of $26.0 million under the Repurchase Program. As of December 31, 2020, the
remaining capacity under the Repurchase Program was $124.0 million. We did not repurchase any shares
subsequent to December 31, 2020.
Joint Share Ownership Plan
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"). Voting rights in respect of shares held in the EB Trust have been
contractually waived. We have consolidated the EB Trust, and shares held in the EB Trust are classified like
treasury shares as contra-equity in our consolidated balance sheet. The EB Trust supports awards made under our
Joint Share Ownership Plan, as described in Note 19 - "Share-Based Compensation and Pensions."
Shares issued in acquisition of KaylaRe
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 - "Business Acquisitions".
Non-Voting Ordinary Shares
The Non-Voting Ordinary Shares are comprised of several different series as of December 31, 2020:
•
the Series C shares were originally issued in connection with investment transactions in April and
December of 2011 and on exercise of warrants in March 2017. 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.
•
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
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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, 2020. 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 - "Business 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, 2020, 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.
Series C Preferred Shares
As of December 31, 2020, 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 (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 depositary shares are listed and trade under the "ESGRP" ticker
symbol on the NASDAQ Global Select Market. The Series D Preferred Shares are not redeemable prior to
September 1, 2028, except in specified circumstances 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 depositary shares are listed and trade under the "ESGRO"
ticker symbol on the NASDAQ Global Select Market. The Series E Preferred Shares are not redeemable prior to
March 1, 2024, except in specified circumstances 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
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 the years ended December 31, 2020, 2019 and 2018, we declared and paid dividends on Series D
Preferred Shares of $28.0 million, $28.0 million and $12.1 million, respectively. During the years ended December
31, 2020 and 2019, we declared and paid dividends on Series E Preferred Shares of $7.7 million and $7.9 million,
respectively. On February 5, 2021, 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 1, 2021 to shareholders of record as of February 15, 2021.
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".
Accumulated Other Comprehensive Income
The following table presents a roll forward of accumulated other comprehensive income (loss):
Balance, December 31, 2017, net of tax
Unrealized gains (losses) on fixed income available-
for-sale investments arising during the year
Reclassification adjustment for net realized (gains)
losses included in net earnings
Change in currency translation adjustment
Decrease in defined benefit pension liability
Total other comprehensive income (loss)
Other comprehensive (income) loss attributable to
RNCI
Balance, December 31, 2018, net of tax
Unrealized gains (losses) on fixed income available-
for-sale investments arising during the year
Reclassification adjustment for net realized (gains)
losses included in net earnings
Change in currency translation adjustment
Decrease in defined benefit pension liability
Total other comprehensive income (loss)
Other comprehensive (income) loss attributable to
RNCI
Balance, December 31, 2019, net of tax
Unrealized gains (losses) on fixed income available-
for-sale investments arising during the year
Reclassification adjustment for change in allowance
for credit losses recognized in net earnings
Reclassification adjustment for net realized (gains)
losses included in net earnings
Reclassification to earnings on disposal of subsidiary
Change in currency translation adjustment
Decrease in defined benefit pension liability
Total other comprehensive income (loss)
Other comprehensive (income) loss attributable to
RNCI
Unrealized
gains (losses)
arising during
the year
Cumulative
Currency
Translation
Adjustment
Defined
Benefit
Pension
Liability
Total
$
2,440 $
11,171 $
(3,143) $
10,468
(2,284)
63
—
—
—
—
(202)
—
(2,221)
(202)
—
—
—
2,156
2,156
(2,284)
63
(202)
2,156
(267)
17
10,986
—
239
(987)
10,440
222
441
2,896
(3,894)
—
—
104,924
(509)
(18,033)
(11,856)
—
—
74,526
—
—
(2,428)
—
(998)
(2,428)
125
(432)
(10)
8,548
—
—
—
42
42
—
(945)
—
—
—
—
2,896
(3,894)
(2,428)
42
(3,384)
115
7,171
104,924
(509)
(18,033)
(11,822)
(2,103)
1,152
73,609
—
—
—
34
(2,103)
—
(2,069)
—
1,152
1,152
Balance, December 31, 2020, net of tax
$
72,576 $
7,876 $
207 $
80,659
215
(1,518)
1,397
—
(121)
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents details about the tax effects allocated to each component of other
comprehensive income (loss):
Twelve months ended December 31, 2020
Unrealized gains (losses) on fixed income available-for-sale
investments arising during the year
Reclassification adjustment for change in allowance for credit
losses recognized in net earnings
Reclassification adjustment for net realized (gains) losses
included in net earnings
Reclassification to earnings on disposal of subsidiary
Change in currency translation adjustment
Reclassification to earnings on disposal of subsidiary
Decrease in defined benefit pension liability
Before Tax
Amount
Tax (Expense)
Benefit
Net of Tax
Amount
$
115,610 $
(10,686) $
104,924
(499)
(10)
(509)
(19,766)
(15,008)
(2,294)
34
1,097
1,733
3,152
191
—
55
(18,033)
(11,856)
(2,103)
34
1,152
73,609
Other comprehensive income (loss)
$
79,174 $
(5,565) $
In the year ended December 31, 2019 and 2018, the deferred tax (expense) benefit associated with items
reported in other comprehensive income (loss) was subject to a full valuation allowance. For information on
valuation allowances on deferred tax assets, refer to “Assessment of Valuation Allowance on Deferred Tax Assets”
within Note 20 - "Income Taxation."
The following table presents details amounts reclassified from accumulated other comprehensive income:
Details about AOCI
components
Unrealized gains (losses) on
fixed income available-for-
sale investments
2020
2019
2018
18,682
16,591
35,273
(4,875)
30,398
3,894
—
3,894
—
3,894
Affected Line Item in
Statement where Net
Earnings are presented
Net realized and unrealized
gains (losses)
Net earnings from discontinued
operations
(63)
—
(63) Total before tax
—
Income tax (expense)
(63) Net of tax
Currency translation
adjustment on disposal of
subsidiary
Total reclassifications for the
period, net of tax
(34)
—
Net earnings from discontinued
operations
—
30,364
3,894
(63)
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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 net earnings per ordinary share for the
years ended December 31, 2020, 2019 and 2018:
2020
2019
2018
Numerator:
Earnings (loss) per share attributable to Enstar ordinary
shareholders:
Net earnings (loss) from continuing operations(1)
Net earnings from discontinued operations(2)
Net earnings (loss) attributable to Enstar ordinary shareholders
$ 1,711,810 $ 897,825 $
7,534
4,350
$ 1,719,344 $ 902,175 $
(163,232)
878
(162,354)
Denominator:
Weighted-average ordinary shares outstanding — basic(3)
Effect of dilutive securities:
Share-based compensation plans(4)
Warrants
Weighted-average ordinary shares outstanding — diluted
Earnings (loss) per share attributable to Enstar ordinary
shareholders:
Basic:
Net earnings (loss) from continuing operations
Net earnings from discontinued operations
Net earnings (loss) per ordinary share
Diluted (5):
Net earnings (loss) from continuing operations
Net earnings from discontinued operations
Net earnings (loss) per ordinary share
21,551,408
21,482,617
20,698,310
208,293
58,593
21,818,294
227,878
64,571
129,746
76,120
20,904,176
21,775,066
$
$
$
79.43 $
41.80 $
0.35
0.20
79.78 $
42.00 $
78.45 $
41.23 $
0.35
0.20
(7.89)
0.05
(7.84)
(7.89)
0.05
(7.84)
(1) Net earnings (loss) from continuing operations attributable to Enstar ordinary shareholders equals net earnings (loss) from continuing
41.43 $
78.80 $
$
operations, plus net loss (earnings) from continuing operations attributable to noncontrolling interest, less dividends on preferred shares.
(2) Net earnings (loss) from discontinued operations attributable to Enstar ordinary shareholders equals net earnings (loss) from discontinued
operations, net of income taxes, plus net loss (earnings) from discontinued operations attributable to noncontrolling interest; refer to Note 5 -
"Divestitures, Held-for-Sale Businesses and Discontinued Operations" for a breakdown by period.
(3) Weighted-average ordinary shares for basic earnings per share includes ordinary shares (voting and non-voting) but excludes ordinary shares
held in the EB Trust in respect of JSOP awards.
(4) Share-based dilutive securities include restricted shares, restricted share units, and performance share units. Certain share-based
compensation awards, including the ordinary shares held in the EB Trust in respect of JSOP awards, were excluded from the calculation for
the year ended December 31, 2020 because they were anti-dilutive.
(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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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, 2020, 2019
and 2018:
2020
2019
2018
Share-based compensation plans:
Restricted shares and restricted share units
$
8,286 $
6,564 $
Performance share units
Cash-settled stock appreciation rights
Joint share ownership plan expense
Other share-based compensation plans:
Northshore/Atrium incentive plan
StarStone incentive plan
Deferred compensation and ordinary share plan for non-employee directors
Employee share purchase plan
Total share-based compensation
12,678
215
4,296
971
(223)
1,183
339
23,582
2,575
—
3,652
223
992
411
7,641
1,968
(3,316)
—
2,792
—
1,155
430
$
27,745 $
37,999 $
10,670
The associated tax benefit recorded to income tax expense in the Consolidated statement of operations was
$2.7 million, $2.9 million and $1.9 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Restricted Shares and Restricted Share Units
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 2020:
Nonvested — January 1
Granted
Vested
Forfeited
Nonvested — December 31
Number of
Shares
Weighted-Average
Share Price
64,572
70,012
(38,961)
(373)
95,250
$180.49
152.28
174.93
177.73
161.60
The unrecognized compensation cost related to our unvested restricted share and restricted share unit
awards as of December 31, 2020 was $7.9 million. This cost is recognizable over the next 2.07 years, which is the
weighted average contractual life.
Performance Share Units ("PSUs")
PSUs are share-settled and vest following the end of the three-year performance period. 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 vested and unvested PSU awards at December 31,
2020, and the performance criteria and associated performance multipliers at various levels of achievement.
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Inception-to-date Activity Roll-forward
Grant
Year
PSUs
Granted
at Target Forfeited
Estimated
Change in
Multiplier
Vested
Unvested
at
December
31, 2020
Performance Criteria:
Change in FDBVPS (3 year)
Performance Multiplier
Levels Per Award Agreements
Threshold
Target
Target + Maximum Threshold
Target
Target + Maximum
2017
36,321
(12,267)
9,527
(33,581)
2017
91,875
—
18,100
(109,975)
—
—
20.00 % 30.00 %
30.30 % 35.65 %
2018
39,682
(12,545)
10,218
(6,700)
30,655
25.00 % 32.50 %
2019
18,308
(1,758)
7,835
2020
22,591
(2,151)
2020
52,948
—
—
—
(881)
(701)
23,504
20.00 % 30.00 %
19,739
25.00 % 32.50 %
N/A
N/A
N/A
N/A
N/A
40.00 %
50.00 % 100.00 %
41.00 %
50.00 % 100.00 %
40.00 %
50.00 % 100.00 %
40.00 %
60.00 % 100.00 %
40.00 %
60.00 % 100.00 %
N/A
N/A
N/A
N/A
N/A
150.00 %
150.00 %
150.00 %
150.00 %
150.00 %
—
52,948
33.10 % 36.80 % 44.30 %
52.10 %
50.00 % 100.00 % 150.00 % 200.00 %
261,725
(28,721)
45,680
(151,838)
126,846
For each type of PSU based on FDBVPS, a change in the FDBVPS Performance Criteria at each of
Threshold, Target and Maximum will result in the application of the respective Threshold, Target and Maximum
Performance Multiplier and a settlement of awards at that level. In addition, for the 2020 FDBVPS Type II award, a
change in the FDBVPS Performance Criteria at "Target +" will result in the application of the "Target +" Performance
Multiplier. 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 vested and unvested units at December 31, 2020,
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
PSUs
Granted
at Target Forfeited
Estimated
Change in
Multiplier
Vested
Unvested at
December 31,
2020
2019
18,308
2020
22,560
40,868
(1,756)
(2,151)
(3,907)
7,811
—
(930)
(701)
7,811
(1,631)
23,433
19,708
43,141
Threshold
Target Maximum Threshold
Target
Maximum
9.60 % 12.00 %
14.40 %
60.00 % 100.00 % 150.00 %
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
2020 FDBVPS Type I (32.50% Target Change)
2020 Average Operating ROE
2020 FDBVPS Type II (36.80% Target Change)
(1) Multipliers for the 2017 and 2018 awards are the final achieved terms.
219
2020
139%
120%
150%
150%
150%
100%
100%
100%
(1)
(1)
(1)
2019
139%
120%
100%
100%
100%
N/A
N/A
N/A
2018
50%
50%
50%
N/A
N/A
N/A
N/A
N/A
Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The unrecognized compensation cost related to our unvested PSU share awards as of December 31, 2020
was $14.4 million. This cost is recognizable over the next 1.9 years, which is the weighted average contractual life.
Roll-forward of Performance Share Units
The following table summarizes the activity related to PSUs during 2020:
Nonvested — January 1
Granted
Change in performance multiplier
Vested
Forfeited
Nonvested — December 31
Cash-Settled Stock Appreciation Rights
Number of
Shares
Weighted-Average
Share Price
206,949
$185.61
98,099
25,850
(153,469)
(7,442)
169,987
167.94
179.71
187.24
146.76
174.10
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 SARs since 2015.
The following table summarizes the activity related to SARs during 2020:
Balance, beginning of year
Exercised
89,227 $
(12,793)
143.33
136.94
Number of
SARs
Weighted-Average
Exercise
Price of SARs
Weighted-Average
Expected Term
(in years)
Aggregate
Intrinsic
Value(1)
Balance, end of year
(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 $204.89 on December 31, 2020.
1.90
$
144.40
76,434
4,623
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. There was no
unrecognized compensation cost related to our SARs as of December 31, 2020.
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, 2020, 2019 and 2018:
Weighted-average fair value per SAR
Weighted-average volatility
Weighted-average risk-free interest rate
Dividend yield
Joint Share Ownership Plan
2020
2019
2018
$
78.47
$
76.03
$
49.43 %
0.15 %
0.00 %
19.75 %
1.64 %
0.00 %
45.85
18.94 %
2.72 %
0.00 %
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. 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.
On January 21, 2020, a JSOP award comprising 565,630 underlying Voting Ordinary Shares was made to our
Chief Executive Officer which cliff-vests after 3 years. The value of the award at vesting, if any, is determined based
on the price of our Voting Ordinary Shares 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 Market Price, less $205.89, multiplied
220
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
by 565,630. If the Market Price is less than $266.00 on such date, the award will have no value. In addition, 20% of
the award is subject to a performance condition based on growth in fully diluted book value per share between
January 1, 2020 and December 31, 2022.
The accounting for stock-settled JSOP awards is similar to options, whereby the grant date fair value of $13.6
million is expensed over the life of the award. To determine the grant date fair value of $24.13 per share, we utilized
a Monte-Carlo valuation model with the following assumptions:
Weighted-average volatility
Weighted-average risk-free interest rate
Dividend yield
2020
18.66 %
1.55 %
0.00 %
The unrecognized compensation cost related to our unvested JSOP share awards as of December 31, 2020
was $9.4 million. This cost is recognizable over the next 2.1 years, which is the weighted average contractual life.
Other share-based compensation plans
Northshore and Atrium Incentive Plans
Our subsidiary, Northshore, had long-term incentive plans that award time-based restricted shares of
Northshore to certain Atrium employees. Shares generally vested over two to three years. These share awards
have been classified as liability awards. There is no unrecognized compensation as we de-consolidated Northshore
on January 1, 2021 as discussed in Note 5 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations."
StarStone Incentive Plan
Our subsidiary, StarStone, had long-term incentive plans that were cash-settled plans for StarStone
employees. The awards were based on StarStone's performance over two to three years. These share awards were
classified as liability awards. The plan was terminated and awards settled during 2020. There is no unrecognized
compensation cost.
Deferred Compensation and Ordinary Share Plan for Non-Employee Directors
The number of units credited to the accounts of non-employee directors for the years ended December 31,
2020, 2019 and 2018 under the Enstar Group Limited Deferred Compensation and Ordinary Share Plan for Non-
Employee Directors (the "Deferred Compensation Plan") were 7,204, 5,976 and 5,691, respectively.
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 number of shares issued to employees
under the Employee Share Purchase Plan for the years ended December 31, 2020, 2019 and 2018 were 16,914,
15,269 and 14,183, respectively.
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 expense related to our
Defined Contribution Plans and our Defined Benefit Plan for the years ended December 31, 2020, 2019 and 2018.
Defined contribution plans
Defined benefit plan
Total pension expense
2020
2019
2018
$
$
11,791 $
11,798 $
2,975
684
14,766 $
12,482 $
11,434
2,243
13,677
The increase in the 2020 defined benefit plan pension expense was driven by annuity purchases for partial
risk transfer of certain plan liabilities. During 2020, an actuarial review was performed on the defined benefit plan,
which determined that the plan’s unfunded liability, as of December 31, 2020 and 2019 was $6.9 million and $8.9
million, respectively. As of December 31, 2020 and 2019, we had an accrued liability of $6.9 million and $8.9 million,
respectively, for this plan.
221
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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. The undistributed earnings from our foreign subsidiaries will be indefinitely reinvested in those
jurisdictions where the undistributed earnings were earned.
Deferred tax liabilities have not been accrued with respect to the undistributed earnings of our foreign
subsidiaries. Generally, when earnings are distributed as dividends, 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 because, solely for U.S. Federal income tax purposes, there are no
accumulated positive earnings and profits that could be subject to U.S. dividend withholding tax. For our United
Kingdom subsidiaries, there are no withholding taxes imposed as a matter of UK domestic tax law. For our other
foreign subsidiaries, an insignificant amount of earnings is indefinitely reinvested; however, it would not be
practicable to compute the related amounts of withholding taxes 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.
Income Tax Expense
The following table presents earnings (loss) before income taxes by jurisdiction attributable to continuing
operations, including earnings from equity method investments, for the years ended December 31, 2020, 2019 and
2018:
Domestic (Bermuda)
Foreign
Total earnings (loss) before income taxes attributable to continuing operations
2020
2019
2018
$
$
1,503,505 $
576,338 $
(232,743)
231,444
356,878
15,293
1,734,949 $
933,216 $
(217,450)
The following table presents our current and deferred income tax expense (benefit) attributable to continuing
operations by jurisdiction for the years ended December 31, 2020, 2019 and 2018:
2020
2019
2018
Current:
Domestic (Bermuda)
Foreign
Deferred:
Domestic (Bermuda)
Foreign
$
— $
— $
15,232
15,232
—
8,595
8,595
16,330
16,330
—
(3,958)
(3,958)
Total income tax expense (benefit) attributable to continuing operations
$
23,827 $
12,372 $
—
(917)
(917)
—
(2,772)
(2,772)
(3,689)
222
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
The actual effective income tax rate differs from the statutory rate of 0 percent under Bermuda law to earnings
(loss) attributable to continuing operations before income taxes, including earnings (loss) from equity method
investments for the years ended December 31, 2020, 2019 and 2018 as shown in the following reconciliation:
Earnings (loss) before income taxes
Bermuda income taxes at statutory rate
Foreign income tax rate differential
Change in valuation allowance
U.S. base erosion and anti-abuse tax
Other
Effective tax rate
2020
2019
2018
$
1,734,949
$
933,216
$
(217,450)
0.0 %
1.2 %
0.1 %
— %
0.1 %
1.4 %
0.0 %
8.6 %
(7.2) %
0.3 %
(0.4) %
1.3 %
0.0 %
0.6 %
(1.8) %
(0.3) %
3.2 %
1.7 %
Our effective tax rate is generally driven by the geographical distribution of our pre-tax earnings between our
taxable and non-taxable jurisdictions.
Deferred Tax Assets and Liabilities
Deferred tax assets and liabilities (included in other assets and other liabilities, respectively, on the
consolidated balance sheet) 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, 2020 and 2019 were as follows:
Deferred tax assets:
Net operating loss carryforwards
Insurance reserves
Unearned premiums
Provisions for bad debt
Defendant asbestos and environmental liabilities
Other deferred tax assets
Deferred tax assets
Valuation allowance
Deferred tax assets, net of valuation allowance
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
Net deferred tax asset
Net Deferred Tax Asset (Liability) Balance by Major Jurisdiction:
United States
United Kingdom
Other
Total
2020
2019
$
141,459 $
144,609
22,238
68
407
121,006
16,696
301,874
(118,229)
183,645
(20,185)
(15,555)
—
(9,242)
(44,982)
7,535
151
6,172
140,000
3,230
301,697
(117,390)
184,307
(14,079)
(8,852)
(8,267)
(13,390)
(44,588)
$
138,663 $
139,719
December 31,
2020
Net Deferred Tax
Asset
2019
Net Deferred Tax
Asset
$
$
156,730 $
(18,095)
28
138,663 $
154,700
(16,074)
1,093
139,719
223
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Net Operating Loss Carryforwards:
As of December 31, 2020, we had net operating loss carryforwards that could be available to offset future
taxable income, as follows:
Tax Jurisdiction
Operating and Capital Loss Carryforwards:
United States - Net operating loss
United Kingdom
Luxembourg
Other
Loss Carryforwards
Tax effect
Expiration
$
428,732 $
185,230
17,200
48,683
90,034
35,194
4,300
11,931
2024-2038
Indefinitely
2035-2036
Indefinitely
The U.S. and UK net operating loss carryforwards are also subject to certain utilization limitations and have
been considered in management's assessment of Valuation Allowance.
Assessment of Valuation Allowance on Deferred Tax Assets
As of December 31, 2020 and 2019, we had deferred tax asset valuation allowances of $118.2 million and
$117.4 million, respectively, related to foreign subsidiaries. We recorded a net increase of $0.8 million in our
deferred tax valuation allowance primarily due to a change in deferred tax assets which management does not
believe meet the "more likely than not" realization standard.
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. Income 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, 2020, 2019 and 2018, there were no unrecognized tax benefits. There
were no accruals for the payment of interest and penalties related to unrecognized tax benefits as of each of
December 31, 2020, 2019 and 2018.
Open Tax Years
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, 2020:
Major Tax Jurisdiction
United States
United Kingdom
Australia
21. RELATED PARTY TRANSACTIONS
Stone Point Capital LLC
Open Tax Years
2017-2020
2019-2020
2015-2020
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 8.8% 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
224
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
of Stone Point, the manager of the Trident funds.
On November 30, 2020, we completed the sale and recapitalization of StarStone U.S. to Core Specialty in a
transaction described in Note 5 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations".
Pursuant to the terms of a Recapitalization Agreement entered into on August 13, 2020 among us, the Trident
V Funds, which are advised by Stone Point, and the Dowling Funds (the "Recapitalization Agreement"), we agreed
to exchange a portion of our indirect interest in Northshore, the holding company that owns Atrium and Arden, for all
of the Trident V Funds’ indirect interest in StarStone U.S. (the “Exchange Transaction”), which is described in Note
5 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations."
Our interests in StarStone and Atrium are held through North Bay, which is a joint venture between us, the
Trident V Funds and the Dowling Funds. As of December 31, 2020, we had an indirect 59.0% interest in North Bay
and the Trident V Funds and the Dowling Funds owned 39.3% and 1.7%, respectively. North Bay owned 100% of
StarStone Specialty Holdings Limited ("SSHL"), the holding company for the StarStone group, which included
StarStone U.S. and StarStone International. North Bay also owned 92% of Northshore. North Bay also owns the
preferred equity of three segregated cells within our wholly-owned subsidiary Fitzwilliam Insurance Limited (the
“Fitzwilliam Cells”) that have provided reinsurance to StarStone and are considered part of StarStone International.
Following the completion of the sale and recapitalization of StarStone U.S. and the Exchange Transaction, we now
own 25.23% of Core Specialty on a fully diluted basis, which owns StarStone U.S., and 13.8% of Northshore, which
continues to own Atrium and Arden. The Trident V Funds own 76.3% of Northshore, and the Dowling Funds own
0.4% of Core Specialty and 1.6% of Northshore. The Exchange Transaction had no impact on the ultimate
ownership of SSHL, which continues to own StarStone International, with us, the Trident V Funds and the Dowling
Funds retaining our and their prior ownership interests in SSHL of 59.0%, 39.3% and 1.7%, respectively.
In connection with the closing of the Exchange Transaction, we entered into amended and restated
shareholders’ agreements with the Trident V Funds and the Dowling Funds with respect to our investment in SSHL
and Northshore. With respect to SSHL, we have the right to designate three of five members of the SSHL board of
directors and the Trident V Funds have the right to designate the other two members. The Trident V Funds also
have certain customary rights as a minority shareholder to approve certain material matters and transactions. Each
shareholder of SSHL must provide us and the Trident V Funds with a right of first offer to acquire its shares in SSHL
if such shareholder wishes to sell them. Each shareholder will also have certain rights to participate in sales of
SSHL shares by the other shareholders, and we have certain rights to cause the Trident V Funds and the Dowling
Funds to sell their SSHL shares if we wish to sell control of SSHL or the StarStone International business.
Also pursuant to the terms of the shareholders’ agreement for SSHL, at any time after December 31, 2022,
the Trident V Funds have the right to cause us to purchase their shares in SSHL at their fair market value, and the
Dowling Funds have the right to participate in any such sale transaction initiated by the Trident V Funds. We would
be entitled to pay the purchase price for such SSHL shares in cash or in unrestricted ordinary shares of Enstar that
are then listed or admitted to trading on a national securities exchange. At any time after March 31, 2023, we will
have the right to cause the Trident V Funds and the Dowling Funds to sell their shares in SSHL to us at their fair
market value. We would be obligated to pay the purchase price for such SSHL shares in cash.
Pursuant to the terms of the shareholders’ agreement for Northshore, for so long as we own 50% or more of
the Northshore shares we held upon the closing of the Exchange Transaction, we have the right to designate one
member to the board of directors of Northshore and each of its material subsidiaries. Our shares in Northshore are
subject to an 18-month restriction on transfer following the closing of the Exchange Transaction, after which the
Trident V Funds have a right of first offer to acquire our shares in Northshore if we wish to sell them. We have
certain rights to participate in sales of Northshore shares by the Trident V Funds, and the Trident V Funds have
certain rights to cause us to sell our Northshore shares if the Trident V Funds wish to sell control of Northshore or
the Atrium business. We, in partnership with StarStone's other shareholders, have previously 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.
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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, 2020 and December 31, 2019, the RNCI on our balance sheet relating to these Trident
co-investment transactions was $350.2 million and $420.5 million, respectively.
As of December 31, 2020, 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;
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;
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; and
In the second quarter of 2020, we invested $10.0 million in a 2 year senior secured unrated floating rate
term loan facility with an extension option which was arranged and managed by Sound Point Capital. The
facility's borrower, Amplify U.S. Inc., is a subsidiary of Evergreen (as defined below) and has used the
proceeds to purchase AmTrust's preferred stock. The facility ranks senior to all other claims of the borrower,
the purchased preferred stock and cash flows therefrom serve as collateral, and AmTrust has provided an
unsecured guarantee for the facility. For further information on our relationships with Evergreen and
AmTrust, refer to the AmTrust section below.
226
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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, 2020 December 31, 2019
Short-term investments, AFS, at fair value
$
878 $
Fixed maturities, trading, at fair value
Fixed maturities, AFS, 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
Total investments
Cash and cash equivalents
Other assets
Other liabilities
Net investment
196,086
227,397
103,914
19,844
210,017
37,262
38,658
166,523
27,016
27,278
1,054,873
23,933
403
745
1,431
269,131
160,303
121,794
18,993
381,449
34,858
32,560
87,509
16,312
18,106
1,142,446
54,080
10
4,710
$
1,078,464 $
1,191,826
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
2020
2019
2018
$
$
16,325 $
8,733 $
23,750
26,631
40,075 $
35,364 $
7,424
207
7,631
On December 15, 2016, KaylaRe completed an initial capital raise of $620.0 million. We originally owned
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 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 on consolidation. Refer to Note 3 - "Business
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.
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Our consolidated statement of earnings for the year ended December 31, 2018 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
Total net earnings (loss)
Hillhouse
2018
$
1,453
(52,651)
31,654
18,774
$
(770)
Investment funds managed by Hillhouse Capital (defined below) collectively own 9.4% 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 16.6% economic interest in Enstar. The
warrants, which expire in April 2021, permit these funds to acquire 175,901 Series C Non-Voting Ordinary Shares
for an exercise price of $115.00 per share, subject to certain adjustments. From February 2017 to February 2021,
Jie Liu, a partner of AnglePoint (defined below), served on our Board.
We have made significant direct investments in funds (the "Hillhouse Funds") managed by Hillhouse Capital
Management, Ltd. and Hillhouse Capital Advisors, Ltd. (together, "Hillhouse Capital") and AnglePoint Asset
Management Ltd., an affiliate of Hillhouse Capital ("AnglePoint"). As of December 31, 2020, the carrying value (i.e.,
the net asset value) of our direct investment in the InRe Fund, L.P. (the "InRe Fund"), which is managed by
AnglePoint, was $2.4 billion (December 31, 2019: $918.6 million). The growth in the fund for the year ended
December 31, 2020 was generated by significant unrealized investment gains during the year and an increase in
our subscription to the fund of $300.0 million in June 2020. The InRe Fund qualifies as a variable interest entity and
our maximum exposure to loss is the amount of our investment in the fund, as disclosed in the table below. As of
December 31, 2020, the InRe Fund's assets were invested (5)% in net short fixed income securities, 20% in North
American equities, 67% in international equities and 18% in financing, derivatives and other items. The derivatives
in the InRe Fund are used for both hedging and investment purposes. The InRe Fund utilizes prime brokerage
borrowing facilities and has also securitized certain letters of credit relating to intragroup reinsurances. We do not
provide any financial support to the InRe Fund. Funds that employ leverage through borrowings and derivatives can
generate outsized returns but can also experience greater levels of volatility.
As of December 31, 2020 and 2019, our equity method investee, Enhanzed Re, had investments in a fund
managed by AnglePoint, as set forth in the table below.
Our consolidated balance sheet as of December 31, 2020 and 2019 included the following balances related to
transactions with Hillhouse Capital and AnglePoint (as applicable):
Investments in funds managed by AnglePoint, held by Enhanzed Re
Our ownership percentage of Enhanzed Re
Our share of investments in funds managed by AnglePoint held by
Enhanzed Re (through our equity method investment ownership)
Investment in other funds managed by AnglePoint and Hillhouse:
InRe Fund
Other funds
2020
2019
851,435
$
327,799
47.4 %
47.4 %
403,580
$
155,377
2,365,158
$
369,508
918,633
232,968
2,734,666
$
1,151,601
$
$
$
$
We incurred management and performance fees of $394.0 million, which is deducted from the Hillhouse
Funds' reported NAV, for the year ended December 31, 2020 in relation to the investment in funds managed by
Hillhouse Capital and AnglePoint as described above.
On February 21, 2021, we entered into a Termination and Release Agreement with InRe Fund, Hillhouse
Capital, AnglePoint, and certain of their affiliates to terminate certain relationships, primarily with respect to InRe
Fund, and to work collaboratively to effectuate the smooth transition of these changes. Pursuant to the Termination
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
and Release Agreement, AnglePoint will cease to serve as the InRe Fund's investment manager on or prior to April
1, 2021 in connection with the intended purchase of AnglePoint’s Hong Kong affiliate (“AnglePoint HK”) by us or our
designee from affiliates of Hillhouse Capital. As part of those transactions, AnglePoint will assign its investment
management agreement with InRe Fund to AnglePoint HK. In connection with AnglePoint ceasing to serve as
investment manager, affiliates of Hillhouse Capital agreed to a deduction of $100.0 million from amounts due to
them from the InRe Fund and to waive their right to receive any performance fees that could have been earned for
2021. The Agreement also includes mutual releases of certain liabilities and obligations between Enstar and its
affiliates on the one hand and Hillhouse and its affiliates on the other hand.
In the first quarter of 2021, as a result of the Termination and Release Agreement, we will re-evaluate our
conclusions with regard to consolidation of the InRe Fund in accordance with the accounting for variable interest
entities.
Monument Re
Monument Insurance Group Limited ("Monument Re") was established in October 2016 and Enstar has
invested a total of $59.6 million in the common and preferred shares of Monument Re as of December 31, 2020
(December 31, 2019: $26.6 million). We own 20% of the common shares of Monument Re, as well as different
classes of preferred shares which have fixed dividend yields, and which collectively represented a total economic
interest of 23.0% as of December 31, 2020 (December 31, 2019: 23.5%). In connection with our investment in
Monument Re, we entered into a Shareholders Agreement with the other shareholders and have accounted for our
equity interest in Monument Re as an equity method investment since we have significant influence over its
operating and financial policies.
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 Re. In this transaction, we transferred policy
benefits for life and annuity contracts with a carrying value of €88.8 million (or $99.1 million) and total assets with a
fair value of €91.1 million (or $101.6 million) to a subsidiary of Monument Re.
Our investment in the common and preferred shares of Monument Re, which is included in equity method
investments on our consolidated balance sheet, as of December 31, 2020 and 2019 was $193.7 million and $60.6
million, respectively.
During the twelve months ended December 31, 2020 and 2019 our share of net earnings on our investment in
Monument Re was $88.3 million and $19.8 million, respectively. In addition, we received director fees from
Monument Re of less than $0.1 million in connection with one of our representatives serving on Monument Re's
board of directors during the twelve months ended December 31, 2020.
Clear Spring (formerly SeaBright)
Effective January 1, 2017, we sold SeaBright Insurance Company (“SeaBright Insurance”) to Clear Spring PC
Acquisition Corp., a subsidiary of Delaware Life Insurance Company ("Delaware Life"). Following the sale,
SeaBright Insurance was capitalized with $56.0 million of equity, with Enstar retaining a 20% indirect equity interest
in SeaBright Insurance. Subsequently, SeaBright Insurance was renamed Clear Spring Property and Casualty
Company ("Clear Spring"). Effective December 30, 2020, we sold our remaining interest in Clear Spring to Delaware
Life for $12.2 million and recorded a gain on sale of $0.6 million in the fourth quarter of 2020. As a result, Clear
Spring was not a related party as of December 31, 2020.
Prior to the sale, we accounted for our equity interest in Clear Spring as an equity method investment as we
had significant influence over its operating and financial policies. Our investment in the common shares of Clear
Spring which is included in equity method investments on our consolidated balance sheet, as of December 31, 2020
and 2019 was $0 and $10.6 million, respectively.
During the twelve months ended December 31, 2020 and 2019 our share of net earnings on our investment in
Clear Spring was $1.0 million and $0.6 million, respectively.
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.
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As noted above, Clear Spring was not a related party as of December 31, 2020. Our consolidated balance
sheet as of December 31, 2019 included the following balances between us and Clear Spring:
Balances under StarStone ceding quota share included, in assets or liabilities held-for-sale:
Reinsurance balances recoverable on paid and unpaid losses
$
22,812
2019
Prepaid insurance premiums
Ceded payable
Ceded acquisition costs
Balances under assuming quota share:
Losses and LAE
Unearned reinsurance premiums
Funds held
51
3,616
21
6,135
13
8,611
Our consolidated statement of earnings for the years ended December 31, 2020, 2019 and 2018 included the
following amounts between us and Clear Spring:
2020
2019
2018
Transactions under StarStone ceding quota share,
included in net earnings (loss) from discontinued
operations:
Ceded premium earned
Net incurred losses and LAE
Acquisition costs
$
122 $
(14,994)
(29,520)
2,730
56
6,567
356
18,143
7,035
Transactions under assuming quota share:
Premium earned
Net incurred losses and LAE
Acquisition costs
Total net earnings (loss)
AmTrust
(15)
1,014
11
3,749
(2,202)
(92)
7,380
(4,536)
(1,836)
$
3,918 $
(6,616) $
(3,334)
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 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 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 8.5% of the equity interest in Evergreen and
Trident Pine owns 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 received upon closing, and the other
half was received on the first anniversary of the closing. The fee was 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, 2020 and 2019 was $230.3 million and $240.1 million, respectively.
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents the amounts included in net earnings related to our related party transactions
with AmTrust:
Net investment income
Net realized and unrealized gains
Total net earnings
Citco
2020
2019
2018
$
$
7,365 $
7,667 $
(11,183)
10,086
(3,818) $
17,753 $
299
—
299
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. As of December 31, 2020, we owned 31.9% of the common shares in HH
CTCO Holdings Limited, which in turn owns 15.4% of the convertible preferred shares, amounting to a 6.2% interest
in the total equity of Citco. Pursuant to an investment agreement and in consideration for participation therein, a
related party of Hillhouse Capital 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, 2020, Trident owned 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, which is included in equity method investments on our
consolidated balance sheet, as of December 31, 2020 and 2019 was $53.0 million and $51.7 million, respectively.
During the twelve months ended December 31, 2020 and 2019 our share of net earnings on our indirect
investment in Citco was $2.2 million and $2.7 million, respectively.
Enhanzed Re
Enhanzed Re is a joint venture between Enstar, Allianz SE ("Allianz") and Hillhouse Capital that was
capitalized in December 2018. Enhanzed Re is a Bermuda-based Class 4 and Class E reinsurer and will reinsure
life, Non-life Run-off, and property and casualty insurance business, initially sourced from Allianz and Enstar. Enstar,
Allianz and Hillhouse Capital affiliates have made equity investment commitments in the aggregate of $470.0 million
to Enhanzed Re. Enstar owns 47.4% of the entity, Allianz owns 24.9%, and an affiliate of Hillhouse Capital owns
27.7%. As of December 31, 2020, 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
fees and commission income, AnglePoint acts as the primary investment manager, and an affiliate of Allianz
provides investment management services. Enhanzed Re writes business from affiliates of its operating sponsors,
Allianz SE and Enstar. It also underwrites other business to maximize diversification by risk and geography.
Our investment in the common shares of Enhanzed Re, which is included in equity method investments on
our consolidated balance sheet, as of December 31, 2020 and 2019 was $330.3 million and $182.9 million,
respectively.
During the twelve months ended December 31, 2020 and 2019 our share of net earnings on our investment in
Enhanzed Re was $147.3 million and $28.9 million, respectively.
We have ceded 10% of the Zurich and AXA transactions, as discussed in Note 4 - "Significant New Business,"
to Enhanzed Re on the same terms and conditions as those received by Enstar.
During the year ended December 31, 2020, one of our UK-based Non-life Run-off subsidiaries ceded
$137.0 million of net loss reserves to Enhanzed Re. The reinsurance is on a funds held basis with fixed crediting
rates.
Our consolidated balance sheet as of December 31, 2020 and 2019 included the following balances between
us and Enhanzed Re:
Balances under ceding quota share:
Reinsurance balances recoverable
Funds held
Insurance balances payables
Other assets
2020
2019
$
208,379 $
193,981
1,276
730
59,601
50,089
1,443
1,033
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Our consolidated statement of earnings for the years ended December 31, 2020 and 2019 included the
following amounts between us and Enhanzed Re:
Amounts under ceding quota share:
Ceded premium earned
Net incurred losses and LAE
Acquisition costs
Net investment income
Net realized and unrealized gains
Other income
Fees and commission income
Total Net earnings
Change in unrealized gains (losses) on AFS investments
Core Specialty
2020
2019
$
(391) $
(5,977)
169
(4,272)
(740)
2,617
572
(8,022) $
(2,729) $
$
$
—
—
73
—
—
—
749
822
—
Following the sale and recapitalization of StarStone U.S. as described in Note 5 - "Divestitures, Held-for-Sale
Businesses and Discontinued Operations," our investment in the common shares of Core Specialty, which is
included in equity method investments on our consolidated balance sheet was $235.0 million as of December 31,
2020.
In connection with the sale and recapitalization of StarStone U.S. we entered into an LPT and ADC
reinsurance agreement with respect to StarStone U.S.’ legacy reserves. Concurrent with the closing of the LPT and
ADC reinsurance agreement, we entered into an ASA with StarStone U.S., through which one of our wholly-owned
subsidiaries was appointed as an independent contractor to provide certain administrative services covering the
business we assumed from StarStone U.S. through the LPT and ADC reinsurance agreement.
In addition, concurrent with the sale of StarStone U.S. to Core Specialty, one of our wholly-owned subsidiaries
entered into a TSA with Core Specialty through which our subsidiary and Core Specialty agreed to provide certain
transitional services to each other relating to the StarStone U.S. businesses, for a specified period of time.
On completion of the sale and recapitalization of StarStone U.S. on November 30, 2020, we received
$235.0 million of Core Specialty shares and $51.5 million of cash. Subsequently, the cash component of the
consideration has been determined to be $47.0 million. The surplus of $4.5 million is repayable to Core Specialty
and is recorded within other liabilities.
Furthermore, there are existing reinsurance agreements whereby (i) certain of our subsidiaries provide
reinsurance protection to StarStone U.S. ("the assuming reinsurances") and (ii) StarStone U.S. provides
reinsurance protection to certain of our subsidiaries ("the ceding reinsurances"). These arrangements remain in
place.
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Our consolidated balance sheet as of December 31, 2020 included the following balances between us and
Core Specialty:
Balances under assuming quota share, LPT and ADC reinsurances:
Funds held by reinsured companies
Other assets
Losses and loss adjustment expenses
Insurance and reinsurance balances payable
Other liabilities
Balances under ceding reinsurances:
Reinsurance balances recoverable on paid and unpaid losses
Balances under service agreements:
Other assets
Other liabilities
Balances under sale and recapitalization agreement:
Other liabilities
$
2020
58,086
38,846
682,637
24,806
5,003
1,736
6,727
328
4,512
Our consolidated statement of earnings for the year ended December 31, 2020 included the following
amounts between us and Core Specialty:
Transactions under assuming quota share, LPT and ADC reinsurances:
Net premiums earned
Net incurred losses and loss adjustment expenses
Acquisition costs
Transactions under service agreements:
Fees and commission income
Total net earnings
2020
76
(1,223)
458
4,004
3,315
$
$
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, 2020. 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 - "Shareholders' Equity" 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
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 (re)insurance subsidiaries
to distribute capital and pay dividends to us. Our (re)insurance 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 (re)insurance subsidiaries prepare their statutory financial statements in accordance with statutory
accounting practices prescribed or permitted by local regulators. Statutory and local 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, 2020 and 2019 and statutory
net income amounts for the years ended December 31, 2020, 2019 and 2018 for our (re)insurance 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
2020
2019
2020
2019
2020
2019
2018
Bermuda
U.K.
U.S.
Europe
Australia
$ 2,711,687 $ 2,138,395 $ 5,565,429 $ 4,016,663 $ 1,850,913 $ 643,683 $
803,685
185,904
95,746
18,858
837,104
364,507
94,334
18,110
1,224,208
554,339
214,115
58,531
1,532,751
861,379
229,344
37,815
43,219
(67,477)
(983)
(1,722)
154,644
121,406
11,816
4,847
29,486
(52,936)
(75,005)
(17,611)
1,761
As of December 31, 2020, the total amount of net assets of our consolidated subsidiaries that were restricted
was $3.8 billion.
Certain material aspects of these laws and regulations as they relate to solvency, dividends and capital and
surplus are summarized below.
Bermuda
Our Bermuda-based (re)insurance 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 (re)insurance 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. 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 as
provided by 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
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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, 2020 and 2019, each of our Bermuda-based (re)insurance subsidiaries exceeded their
respective minimum solvency and liquidity requirements. The Bermuda (re)insurance subsidiaries in aggregate
exceeded minimum solvency requirements by $2.9 billion as of December 31, 2020 (2019: $1.9 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 for determining compliance with the SCR.
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, 2020 and 2019, 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. Our U.K.-based
insurance subsidiaries, including our Lloyd's Syndicates described below, in aggregate, maintained capital in excess
of the minimum capital resources requirements by $420.5 million and $695.6 million as of December 31, 2020 and
2019, 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, 2020, 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; (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. We participated on each of the three syndicates through a
single, wholly owned Lloyd’s corporate member. SUL serves as managing agent for Syndicate 2008. On November
17, 2020, we announced an agreement to sell SUL, together with the right to operate StarStone's Syndicate 1301;
and on January 1, 2021, we sold the Atrium business. These transactions are discussed further in Note 5 -
"Divestitures, Held-for-Sale Businesses and Discontinued Operations."
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 (re)insurance 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 (re)insurance subsidiaries are commercially domiciled.
Generally, prior regulatory approval must be obtained before an insurer may make a distribution above a specified
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level.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
The U.S. (re)insurance 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 U.S. (re)insurance subsidiaries in relation to three major risk areas associated with:
(i) asset risk; (ii) insurance risk and (iii) other risks. For all of our U.S. (re)insurance 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, 2020, all of our U.S. non-life (re)insurance subsidiaries exceeded their required levels of
risk-based capital. On an aggregate basis, our U.S. non-life (re)insurance subsidiaries exceeded their minimum
levels of risk-based capital as of December 31, 2020 by $362.2 million (2019: $488.3 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, 2020, this
subsidiary exceeded the Solvency II requirements by $97.6 million (2019: $119.0 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.
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
prescribed capital adequacy requirements designed to ensure that insurers to meet their insurance obligations
under a wide range of scenarios.
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.
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. Our cash and investments are managed pursuant to
guidelines that follow prudent standards of diversification and liquidity, and limit the allowable holdings of a single
issue and issuers. 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 (re)insurance 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 (re)insurers.
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. However,
236
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
we generally have the contractual ability to offset any shortfall in the payment of the funds held balances with
amounts owed by us. As of December 31, 2020, we had a significant funds held concentration of $955.0 million 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, 2020. Our credit exposure to the U.S. government was $1.4 billion as of
December 31, 2020.
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
(re)insurance 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, 2020, we had unfunded commitments of $975.5 million to other investments, $68.7
million to equity method investments and $5.0 million to fixed maturity investments.
Guarantees
As of December 31, 2020 and 2019, parental guarantees and capital instruments supporting subsidiaries'
insurance obligations were $1.5 billion and $1.0 billion, respectively. We also guarantee the Junior Subordinated
Notes and the FAL facility, which are described in Note 15 - "Debt Obligations and Credit Facilities."
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"). Pursuant to the Exchange Transaction described in Note 21 - "Related Party
Transactions" we exchanged a portion of our indirect interest in Northshore, the holding company that owns Atrium
and Arden, for all of the Trident V Funds' indirect interest in StarStone U.S. on January 1, 2021. Following the
closing of the Exchange Transaction, we have maintained a call right over the portion of SSHL owned by the Trident
V Funds and the Dowling Funds, and they will maintain put rights to transfer those interests to us.
Leases
We have recognized a right-of-use asset and an offsetting lease liability on our consolidated balance sheets,
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 36 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.
Renewal options that we believe we are likely to exercise are considered 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 in determining the present value of lease payments.
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ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The table below provides the lease cost and other information relating to our operating leases for the years
ended December 31, 2020 and 2019:
Lease cost:
Operating lease cost
Short-term lease cost(1)
Total lease cost
Sub-lease income(2)
Total net lease cost
Other information:
Operating cash paid for amounts included in the measurement of lease liabilities
Non-cash activity: right-of-use assets relating to leases
Weighted-average remaining lease term
Weighted-average discount rate
2020
2019
$
12,720
$
13,627
$
$
246
12,966
(553)
—
13,627
(542)
12,413
$
13,085
13,421
$
295
6.1 years
6.5 %
11,129
57,536
6.3 years
6.3 %
(1) Leases with an initial lease term of twelve months or less are not recognized within our consolidated balance sheets.
(2) Sub-lease income consists of rental income received from third parties to whom we have sub-leased some of our leased office spaces and is
included within other income in our consolidated statements of earnings.
Lease expense for the year ended December 31, 2018 was $11.3 million, relating to office space and facilities
that we leased to conduct our business operations.
The table below provides a summary of the operating leases recorded on our consolidated balance sheets for
the years ended December 31, 2020 and 2019:
Right-of-use assets (1) (2)
46,747
Current lease liabilities (2)
11,403
Non-current lease liabilities (2)
34,785
(1) Following our decision to put the StarStone International operations into orderly run-off effective June 10, 2020, we recorded total impairment
7,959
27,064
32,297 $
$
Balance sheet classification
Other assets
Other liabilities
Other liabilities
2020
2019
charges of $3.5 million on the right-of-use assets relating to certain StarStone International operating leases as of December 31, 2020.
(2) The right-of-use assets and the total lease liability balances exclude balances of $1.0 million and $0.8 million respectively, related to Atrium
which have been reclassified to held-for-sale balances on our consolidated balance sheet as of December 31, 2020.
The table below provides a summary of the contractual maturities of our operating lease liabilities:
2021
2022
2023
2024
2025
2026 and
beyond
Total lease
payments
Less: Imputed
interest
Present value of
lease liabilities
Contractual maturities
$ 9,774
8,099
7,267
5,561
4,534
8,577
43,812
(8,789) $
35,023
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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."
As discussed in Note 5 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations," the strategic
transactions related to our Atrium and StarStone segments will enable us to focus on our core Non-life Run-off
business. We will review and assess our segment structure in 2021 to reflect the changes to the StarStone and
Atrium segments in the fourth quarter of 2020 and the first quarter of 2021, respectively.
The following tables set forth selected and consolidated statement of earnings results by segment for the
years ended December 31, 2020, 2019, and 2018:
Gross premiums written
Net premiums written
Net premiums earned
2020
Non-life
Run-off
Atrium
StarStone
Other
Total
$
$
$
5,191 $ 206,656
$ 326,695
2,987 $ 183,194
$ 233,202
58,695 $ 175,393
$ 318,115
$
$
$
13,441 $
551,983
13,441 $
432,824
19,889 $
572,092
Net incurred losses and LAE
(44,995)
(87,226)
(266,738)
(16,967)
(415,926)
Acquisition costs
Operating expenses
Underwriting income (loss)
Net investment income
Net realized and unrealized gains
Fees and commission income
Other income (losses)
Corporate expenses
Interest income (expense)
Net foreign exchange gains (losses)
(20,177)
(59,611)
(200,990)
(13,078)
(90,797)
(81,853)
(435)
(171,020)
—
(295,921)
(207,467)
15,478
(121,273)
2,487
(310,775)
282,048
1,627,526
19,462
99,940
5,542
4,165
22,984
131
27,443
10,328
—
3,734
(12,216)
302,817
—
—
1,642,019
42,446
(2,673)
101,132
(97,727)
(21,522)
(42,011)
(44,298)
(205,558)
(67,195)
(13,214)
—
4,327
31,105
(2,110)
(10,140)
9,997
2,634
(59,308)
(16,393)
(134,029)
(44,069)
1,496,380
EARNINGS (LOSS) BEFORE INCOME TAXES
1,643,373
Income tax 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) loss attributable to noncontrolling
interest
NET EARNINGS (LOSS) ATTRIBUTABLE TO
ENSTAR
Dividends on preferred shares
NET EARNINGS (LOSS) ATTRIBUTABLE TO
ENSTAR ORDINARY SHAREHOLDERS
(17,412)
(4,122)
238,569
—
(902)
—
(1,391)
(23,827)
—
238,569
1,864,530
26,983
(134,931)
(45,460)
1,711,122
—
—
16,251
—
16,251
1,864,530
26,983
(118,680)
(45,460)
1,727,373
1,597
(11,059)
37,133
—
27,671
1,866,127
15,924
(81,547)
(45,460)
1,755,044
—
—
—
(35,700)
(35,700)
$ 1,866,127 $ 15,924
$
(81,547)
$
(81,160) $ 1,719,344
Underwriting ratios:
Loss ratio
Acquisition expense ratio
Operating expense ratio
Combined ratio
49.7 %
34.0 %
7.5 %
91.2 %
83.8 %
28.5 %
25.8 %
138.1 %
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Gross premiums written
Net premiums written
Net premiums earned
2019
Non-life
Run-off
Atrium
StarStone
Other
Total
$
$
$
(25,069) $ 192,373
$ 472,815
(25,338) $ 172,356
$ 379,523
168,496 $ 164,059
$ 451,112
$
$
$
18,534 $
658,653
18,512 $
545,053
20,380 $
804,047
Net incurred losses and LAE
(51,625)
(77,276)
(469,240)
(16,038)
(614,179)
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)
(73,642)
(56,956)
(109,369)
(642)
(240,609)
(199,756)
(14,452)
(60,627)
(156,527)
15,375
(188,124)
275,236
968,350
18,293
34,809
7,049
6,195
10,160
140
(70,689)
(13,825)
(62,055)
9,918
—
(504)
34,396
31,572
—
329
(7,790)
(475)
(1,505)
—
3,700
(274,835)
(325,576)
(8,410)
308,271
5,849
1,011,966
—
1,792
28,453
37,070
(45,945)
(138,249)
9,989
(52,541)
3
7,912
EARNINGS (LOSS) BEFORE INCOME TAXES
1,017,335
24,590
(131,597)
(33,022)
877,306
Income tax expense
(7,250)
(4,033)
(1,004)
(85)
(12,372)
Earnings (losses) from equity method
investments
NET EARNINGS (LOSS) FROM CONTINUING
OPERATIONS
Net earnings from discontinued operations, net
of income taxes
56,128
—
(218)
—
55,910
1,066,213
20,557
(132,819)
(33,107)
920,844
—
—
7,375
—
7,375
NET EARNINGS (LOSS)
1,066,213
20,557
(125,444)
(33,107)
928,219
Net (earnings) loss attributable to noncontrolling
interest
NET EARNINGS (LOSS) ATTRIBUTABLE TO
ENSTAR
(6,409)
(8,432)
24,711
—
9,870
1,059,804
12,125
(100,733)
(33,107)
938,089
Dividends on preferred shares
—
—
—
(35,914)
(35,914)
NET EARNINGS (LOSS) ATTRIBUTABLE TO
ENSTAR ORDINARY SHAREHOLDERS
$ 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 %
104.0 %
24.2 %
13.5 %
141.7 %
240
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ENSTAR GROUP LIMITED
Gross premiums written
Net premiums written
Net premiums earned
2018
Non-life
Run-off
Atrium
StarStone
Other
Total
$
$
$
(8,910) $ 171,494
$ 622,570
(9,217) $ 153,488
$ 478,009
9,427 $ 146,315
$ 515,163
$
$
$
32,378 $
817,532
32,067 $
654,347
24,874 $
695,779
Net incurred losses and LAE
306,067
(69,810)
(543,080)
(16,899)
(323,722)
Acquisition costs
Operating expenses
Underwriting income (loss)
Net investment income
(4,006)
(50,646)
(120,517)
(2,686)
(177,855)
(158,731)
(17,777)
(98,137)
—
(274,645)
152,757
226,287
8,082
5,686
Net realized and unrealized losses
(381,712)
(3,251)
Fees and commission income
Other income (losses)
Corporate expenses
Interest income (expense)
Net foreign exchange gains (losses)
16,466
35,978
18,622
162
(39,093)
(6,921)
(30,616)
—
2,534
(3,394)
(246,571)
27,000
(12,320)
—
(550)
—
(103)
(2,832)
5,289
2,725
(80,443)
261,698
(10,249)
(407,532)
—
(1,517)
35,088
34,073
(28,127)
(74,141)
5,023
1,048
(25,696)
(2,644)
EARNINGS (LOSS) BEFORE INCOME TAXES
(17,399)
18,986
(235,376)
(25,808)
(259,597)
Income tax benefit (expense)
Earnings from equity method investments
NET EARNINGS (LOSS) FROM CONTINUING
OPERATIONS
Net earnings from discontinued operations, net
of income taxes
3,581
42,147
(3,732)
—
3,892
—
(52)
—
3,689
42,147
28,329
15,254
(231,484)
(25,860)
(213,761)
—
—
1,489
—
1,489
NET EARNINGS (LOSS)
28,329
15,254
(229,995)
(25,860)
(212,272)
Net (earnings) loss attributable to noncontrolling
interest
NET EARNINGS (LOSS) ATTRIBUTABLE TO
ENSTAR
(3,107)
(6,257)
71,415
—
62,051
25,222
8,997
(158,580)
(25,860)
(150,221)
Dividend on preferred shares
—
—
—
(12,133)
(12,133)
NET EARNINGS (LOSS) ATTRIBUTABLE TO
ENSTAR ORDINARY SHAREHOLDERS
$
25,222 $
8,997
$ (158,580)
$
(37,993) $
(162,354)
Underwriting ratios:
Loss ratio
Acquisition expense ratio
Operating expense ratio
Combined ratio
47.7 %
34.6 %
12.2 %
94.5 %
105.4 %
23.4 %
19.1 %
147.9 %
241
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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, 2020 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
$ 4,969
95.7 $ 103,411
50.1 $ 61,104
18.7 $ 13,441
100.0 $ 182,925
United Kingdom
(229)
(4.4)
14,054
6.8
105,057
Europe
Asia
1,615
31.1
19,705
—
—
7,834
Rest of World
(1,164)
(22.4)
61,652
9.5
3.8
29.8
62,181
60,262
38,091
32.2
19.0
18.4
11.7
—
—
—
—
—
118,882
—
—
—
83,501
68,096
98,579
33.2
21.5
15.1
12.3
17.9
Total
$ 5,191
100.0 $ 206,656
100.0 $ 326,695
100.0 $ 13,441
100.0 $ 551,983
100.0
Assets by Segment
Invested assets are managed on a subsidiary by subsidiary basis, and investment income and realized and
unrealized gains (losses) on investments are recognized in each segment as earned. Our total assets as of
December 31, 2020 and 2019 by segment and for our other activities were as follows:
Assets by Segment:
Non-life Run-off (1)
Atrium (2)
StarStone
Other
Total assets
2020
2019
$ 19,062,400 $ 15,775,409
615,778
580,405
2,583,247
3,985,137
(614,141)
(514,852)
$ 21,647,284 $ 19,826,099
(1) The total assets within the Non-life Run-off segment include assets of $95.5 million related to Arden's operations that have been included
within Northshore's held-for-sale assets in Note 5 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations" and Discontinued
Operations."
(2) The total assets within the Atrium segment are all included within Northshore's held-for-sale assets in Note 5 - "Divestitures, Held-for-Sale
Businesses and Discontinued Operations".
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
25. UNAUDITED CONDENSED QUARTERLY FINANCIAL DATA
ENSTAR GROUP LIMITED
INCOME
Net premiums earned
Fees and commission income
Net investment income
Net realized and unrealized gains
(losses)
Other income (losses)
EXPENSES
Net incurred losses and loss adjustment
expenses
Acquisition costs
December 31,
September 30,
June 30,
March 31,
2020
2019
2020
2019
2020
2019
2020
2019
$ 108,146 $ 185,336 $ 161,724 $ 175,802 $ 142,871 $ 190,962 $ 159,351 $ 251,947
14,121
9,522
10,787
6,437
10,010
6,017
7,528
6,477
61,530
76,847
72,130
81,502
94,443
74,271
74,714
75,651
803,467
153,477
500,005
145,060
967,608
260,669
(629,061) 452,760
33,372
21,703
48,404
822
(1,087)
8,831
20,443
5,714
1,020,636
446,885
793,050
409,623
1,213,845
540,750
(367,025) 792,549
76,248
48,068
109,686
163,258
186,692
146,554
43,300
256,299
38,202
78,417
37,708
33,310
49,067
51,081
46,043
77,801
General and administrative expenses
142,394
116,780
115,828
97,365
144,830
100,676
98,427
98,263
Interest expense
16,872
13,519
15,003
14,950
14,018
13,036
13,415
11,036
Net foreign exchange losses (gains)
15,018
12,186
8,156
(13,665)
5,158
(2,579)
(11,939)
(3,854)
288,734
268,970
286,381
295,218
399,765
308,768
189,246
439,545
EARNINGS (LOSS) BEFORE INCOME
TAXES
Income tax benefit (expense)
Earnings (losses) from equity method
investments
NET EARNINGS (LOSS) FROM
CONTINUING OPERATIONS
Net earnings (loss) from discontinued
operations, net of income taxes
731,902
177,915
506,669
114,405
814,080
231,982
(556,271) 353,004
1,468
12,893
(13,915) (13,465)
(16,652)
(7,698)
5,272
(4,102)
85,844
11,722
149,065
17,703
(8,790) 17,713
12,450
8,772
819,214
202,530
641,819
118,643
788,638
241,997
(538,549) 357,674
15,441
(4,666)
4,031
7,916
(1,152)
(3,943)
(2,069)
8,068
NET EARNINGS (LOSS)
834,655
197,864
645,850
126,559
787,486
238,054
(540,618) 365,742
Net (earnings) loss attributable to
noncontrolling interest
NET EARNINGS (LOSS)
ATTRIBUTABLE TO ENSTAR
Dividends on preferred shares
NET EARNINGS (LOSS)
ATTRIBUTABLE TO ENSTAR
ORDINARY SHAREHOLDERS
Earnings (loss) per ordinary share
attributable to Enstar ordinary
shareholders:
Basic:
Net earnings (loss) from continuing
operations
Net earnings (loss) from discontinued
operations
Basic
Diluted(1):
Net earnings (loss) from continuing
operations
Net earnings (loss) from discontinued
operations
(3,131)
4,900
(21,912)
109
19,992
2,713
32,722
2,148
831,524
202,764
623,938
126,668
807,478
240,767
(507,896) 367,890
(8,925)
(8,925)
(8,925)
(8,925)
(8,925)
(8,925)
(8,925)
(9,139)
$ 822,599 $ 193,839 $ 615,013 $ 117,743 $ 798,553 $ 231,842 $ (516,821) $ 358,751
$
37.91 $
9.15 $ 28.39 $
5.26 $
37.06 $ 10.90 $
(23.93) $
16.49
0.33
(0.13)
0.11
0.22
(0.03)
(0.11)
(0.05)
0.22
$
38.24 $
9.02 $ 28.50 $
5.48 $
37.03 $ 10.79 $
(23.98) $
16.71
$
37.47 $
9.02 $ 28.13 $
5.21 $
36.68 $ 10.81 $
(23.93) $
16.35
0.32
(0.13)
0.11
0.21
(0.03)
(0.11)
(0.05)
0.22
Net earnings (loss) per ordinary share $
8.89 $ 28.24 $
(1) During a period of loss, the basic weighted average ordinary shares outstanding is used in the denominator of the diluted loss per ordinary
36.65 $ 10.70 $
(23.98) $
37.79 $
5.42 $
16.57
share computation as the effect of including potentially dilutive securities would be anti-dilutive.
243
SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES
ENSTAR GROUP LIMITED
As of December 31, 2020
(Expressed in thousands of U.S. Dollars)
SCHEDULE I
Type of investment
Cost (1)
Fair Value
Short-term and fixed maturity investments — Trading and short-term and
fixed maturity investments within funds held - directly managed:(2)
Amount at which
shown in the
balance sheet
U.S. government and agency
$
219,487 $
233,050 $
U.K. government
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
Total
Short-term and fixed maturity investments — AFS:(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)
34,494
321,306
3,353,054
116,588
219,360
554,639
349,941
37,508
352,026
3,749,383
132,637
225,074
577,602
339,675
233,050
37,508
352,026
3,749,383
132,637
225,074
577,602
339,675
5,168,869
5,646,955
5,646,955
715,527
12,494
142,459
717,998
13,574
150,127
717,998
13,574
150,127
1,873,184
1,937,349
1,937,349
28,881
326,268
273,516
199,467
3,571,796
444,570
982,770
30,032
328,871
276,488
199,610
3,654,049
512,557
982,770
30,032
328,871
276,488
199,610
3,654,049
512,557
982,770
Total
(1) Original cost of fixed maturity securities is reduced by repayments and adjusted for amortization of premiums or accretion of discounts.
10,796,331 $
10,168,005 $
$
10,796,331
(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 $18.2 million as of December 31, 2020 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 $77.1 million as of December 31, 2020 for our investment in a registered investment company affiliated with entities owned by Trident, $26.9
million as a co-investor alongside Stone Point and a $230.3 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 $3.3 billion as of December 31, 2020 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.
244
Table of Contents
ENSTAR GROUP LIMITED
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Balance Sheets - Parent Company Only
As of December 31, 2020 and 2019
SCHEDULE II
2020
2019
(in thousands of U.S.
dollars, except share data)
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
$
7,872 $
18,951
7,887,255
8,047
7,922,125 $
4,568
134,897
6,050,197
6,391
6,196,053
$
$
903,447 $
1,191,207
300,987
43,296
135,532
27,131
1,247,730
1,353,870
Ordinary shares (par value $1 each, issued and outstanding 2020: 22,085,232; 2019: 21,511,505):
Voting Ordinary Shares (issued and outstanding 2020: 18,575,550; 2019: 18,001,823)
18,576
18,002
Non-voting convertible ordinary Series C Shares (issued and outstanding 2020 and 2019:
2,599,672)
Non-voting convertible ordinary Series E Shares (issued and outstanding 2020 and 2019:
910,010)
Preferred Shares:
Series C Preferred Shares (issued and held in treasury 2020 and 2019: 388,571)
Series D Preferred Shares (issued and outstanding 2020 and 2019: 16,000)
Series E Preferred Shares (issued and outstanding 2020 and 2019: 4,400)
Treasury shares, at cost (Series C Preferred Shares 2020 and 2019: 388,571)
Joint Share Ownership Plan (voting ordinary shares, held in trust 2020: 565,630; 2019: 0)
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
910
389
400,000
110,000
389
400,000
110,000
(421,559)
(421,559)
(566)
—
1,836,074
1,836,778
80,659
4,647,312
6,674,395
7,171
2,887,892
4,842,183
$
7,922,125 $
6,196,053
See accompanying notes to the Condensed Financial Information of Registrant
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CONDENSED FINANCIAL INFORMATION OF REGISTRANT - CONTINUED
ENSTAR GROUP LIMITED
SCHEDULE II
Statements of Earnings - Parent Company Only
For the Years Ended December 31, 2020, 2019 and 2018
2020
2019
(in thousands of U.S. dollars)
2018
INCOME
Net investment income
EXPENSES
General and administrative expenses
Interest expense
Net foreign exchange losses (gains)
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
$
1,680 $
3,649 $
1,680
3,649
45,689
51,739
44,964
51,508
(2,655)
(21,516)
142
142
68,977
27,353
7,655
94,773
74,956
103,985
(93,093)
(71,307)
(103,843)
1,831,886
1,002,021
(47,867)
16,251
7,375
1,489
1,755,044
938,089
(150,221)
(35,700)
(35,914)
(12,133)
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR GROUP
LIMITED ORDINARY SHAREHOLDERS
$ 1,719,344 $
902,175 $
(162,354)
See accompanying notes to the Condensed Financial Information of Registrant
Statements of Comprehensive Income - Parent Company Only
For the Years Ended December 31, 2020, 2019 and 2018
2020
2019
(in thousands of U.S. dollars)
2018
NET EARNINGS
$ 1,755,044 $
938,089 $
(150,221)
OTHER COMPREHENSIVE INCOME (LOSS) RELATING TO
SUBSIDIARIES, NET OF TAX
COMPREHENSIVE INCOME
73,488
(3,269)
(27)
$ 1,828,532 $
934,820 $
(150,248)
See accompanying notes to the Condensed Financial Information of Registrant
246
Table of Contents
CONDENSED FINANCIAL INFORMATION OF REGISTRANT - CONTINUED
ENSTAR GROUP LIMITED
SCHEDULE II
Statements of Cash Flows - Parent Company Only
For the Years Ended December 31, 2020, 2019 and 2018
2020
2019
(in thousands of U.S. dollars)
2018
OPERATING ACTIVITIES:
Net cash flows provided by (used in) operating activities
$
117,220 $
(128,462) $
(128,382)
INVESTING ACTIVITIES:
Dividends and return of capital from subsidiaries
Contributions to subsidiaries
Net cash flows provided by (used in) investing activities
FINANCING ACTIVITIES:
Net proceeds from the issuance of preferred shares
Dividends on preferred shares
Repurchase of shares
Repayment of loans
Receipt of loans
Net cash flows provided by (used in) financing activities
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
44,000
65,500
101,000
(26,000)
(240,382)
(660,339)
18,000
(174,882)
(559,339)
—
—
495,357
(35,700)
(35,914)
(12,133)
(26,006)
—
—
(449,210)
(219,000)
(898,633)
379,000
(131,916)
547,613
292,699
1,115,885
700,476
3,304
4,568
(10,645)
15,213
12,755
2,458
CASH AND CASH EQUIVALENTS, END OF YEAR
$
7,872 $
4,568 $
15,213
See accompanying notes to the Condensed Financial Information of Registrant
247
Table of Contents
Notes to the Condensed Financial Information of Registrant
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).
Net investment income relates to interest on loans to subsidiaries. For the years ended December 31, 2020,
2019, and 2018, interest paid was $46.5 million, $46.5 million, and $25.1 million, respectively.
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 business acquisitions and significant new business.
Non-Cash investing activities during the years ended December 31, 2020, 2019, and 2018, included:
i.
$130.0 million, $0 and $0, respectively, for dividends and return of capital from subsidiaries. In 2020, these
transactions were to settle intercompany balances, resulting in a net reduction in balances due to
subsidiaries and a decrease in investments in subsidiaries.
ii. $0, $0 and $414.8 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.
As of December 31, 2020 and 2019, parental guarantees and capital support instruments supporting
subsidiaries' insurance obligations were $1.5 billion and $1.0 billion, respectively. In addition, as of December 31,
2020 and 2019, there were $210.0 million and $252.0 million, respectively, of unsecured letters of credit for Funds
at Lloyd's which have a parental guarantee. Furthermore, as of December 31, 2020, we also guarantee the Junior
Subordinated Notes issued in 2020 for an aggregate principal amount of $350.0 million.
As of December 31, 2020 and 2019, retained earnings were $4,647.3 million and $2,887.9 million,
respectively, an increase of $1,759.4 million. This increase was primarily attributable to the net earnings of $1,719.3
million.
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Table of Contents
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
2020
Non-life Run-off (1) $
Atrium (1)
StarStone
Other
Total
2019
Non-life Run-off
$
$
Atrium
StarStone
Other
Total
2018
22,736 $ 9,235,082 $
71,629 $
— $
58,695 $
282,048 $
44,995 $
20,177 $
298,717 $
2,987
—
—
—
21,439
1,327,956
191,502
264
30,244
44,439 $ 10,593,282 $ 274,681 $
11,550
—
—
—
— $
175,393
318,115
19,889
572,092 $
5,542
27,443
(12,216)
302,817 $
87,226
266,738
16,967
415,926 $
59,611
90,797
435
171,020 $
34,600
123,864
44,298
501,479 $
183,194
233,202
13,441
432,824
41,753 $ 8,295,361 $ 129,715 $
— $
168,496 $
275,236 $
51,625 $
73,642 $
270,445 $
(25,338)
22,184
52,188
388
231,672
1,318,294
23,077
80,863
305,116
17,998
—
—
—
164,059
451,112
20,380
7,049
34,396
(8,410)
77,276
469,240
16,038
56,956
109,369
642
28,277
68,417
45,945
172,356
379,523
18,512
$
116,513 $ 9,868,404 $ 533,692 $
— $
804,047 $
308,271 $
614,179 $
240,609 $
413,084 $
545,053
Non-life Run-off
$
4,378 $ 7,540,662 $ 136,023 $
— $
9,427 $
226,287 $
(306,067) $
4,006 $
197,824 $
(9,217)
Atrium
StarStone
Other
Total
20,355
62,161
364
241,284
1,247,989
18,861
70,429
382,605
17,002
—
—
105,080
146,315
515,163
24,874
5,686
27,000
2,725
69,810
543,080
16,899
50,646
120,517
2,686
24,698
98,137
28,127
153,488
478,009
32,067
$
87,258 $ 9,048,796 $ 606,059 $
105,080 $
695,779 $
261,698 $
323,722 $
177,855 $
348,786 $
654,347
(1) As of December 31, 2020, the assets and liabilities of Northshore, the holding company which owns Atrium and Arden (a Non-life Run-off subsidiary), were classified as held-for-sale. Deferred
acquisition costs, reserves for losses and loss adjustment expenses and unearned premiums for Northshore were $24.0 million, $254.1 million and $91.4 million, respectively. Refer to Note 5 -
"Divestitures, Held-for-Sale Businesses and Discontinued Operations" for further information.
249
Table of Contents
ENSTAR GROUP LIMITED
REINSURANCE
For the Years Ended December 31, 2020, 2019 and 2018
(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
2020
Premiums earned:
Property and casualty
Total premiums earned
2019
Life insurance in force
Premiums earned:
Property and casualty
Life and annuities
$
$
542,119 $
(157,826) $
187,799 $
572,092
32.8 %
542,119 $
(157,826) $
187,799 $
572,092
$
725,293 $
(65,795) $
— $
659,498
— %
679,212
(145,460)
269,023
802,775
1,295
(23)
—
1,272
33.5 %
— %
Total premiums earned
$
680,507 $
(145,483) $
269,023 $
804,047
2018
Life insurance in force
Premiums earned:
Property and casualty
Life and annuities
$
855,366 $
(84,603) $
— $
770,763
— %
539,169
(166,308)
319,052
691,913
3,892
(26)
—
3,866
46.1 %
— %
Total premiums earned
$
543,061 $
(166,334) $
319,052 $
695,779
250
Table of Contents
ENSTAR GROUP LIMITED
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2020, 2019 and 2018
(Expressed in thousands of U.S. Dollars)
SCHEDULE V
December 31, 2020
Reinsurance balances recoverable on paid
and unpaid losses:
Allowance for estimated uncollectible
reinsurance
Insurance balances recoverable:
Allowance for estimated uncollectible
insurance
Valuation allowance for deferred tax assets
December 31, 2019
Reinsurance balances recoverable on paid
and unpaid losses:
Allowance for estimated uncollectible
reinsurance
Insurance balances recoverable:
Allowance for estimated uncollectible
insurance
Valuation allowance for deferred tax assets
December 31, 2018
Reinsurance balances recoverable on paid
and unpaid losses:
Allowance for estimated uncollectible
reinsurance
Valuation allowance for deferred tax assets
Balance at
Beginning of
Year
Charged to
costs and
expenses
Charged to
other accounts
(1)
Deductions (2)
Balance at End
of Year
$
147,639 $
— $
124 $
(10,641) $
137,122
3,818
117,390
—
3,854
1,006
—
—
4,824
(3,015)
118,229
156,732
—
111
(9,204)
147,639
—
212,113
—
2,792
3,818
—
—
3,818
(97,515)
117,390
165,213
188,300
—
(1,837)
(2,492)
18,000
(6,644)
8,305
156,732
212,113
(1) The 2020 amount includes $3.0 million for the cumulative effect of change in accounting principle.
(2) Credited to the related asset account.
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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, 2020, 2019 and 2018
(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
$
44,439 $ 10,593,282 $
274,681 $
572,092 $
302,817 $
405,178 $
10,748 $
(1,485,489) $
171,020 $
432,824
116,513
87,258
9,868,404
9,048,796
533,692
606,059
802,775
691,912
307,775
260,120
580,074
533,081
34,105
(1,788,470)
(209,359)
(1,334,786)
240,432
177,855
543,781
650,484
Affiliation with Registrant
Consolidated Subsidiaries
2020
2019
2018
252
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, 2020. 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, 2020, 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, 2020.
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, 2020
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, 2020 that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
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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’s and subsidiaries’ (the Company) internal control over financial reporting as
of December 31, 2020, based on criteria established by the Committee of Sponsoring Organizations of the
Treadway Commission in Internal Control – Integrated Framework (2013). In our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria
established by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control –
Integrated Framework (2013).
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, 2020 and 2019, 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, 2020, and the related notes and financial statement
schedules I to VI (collectively, the consolidated financial statements), and our report dated March 1, 2021 expressed
an unqualified opinion on those consolidated financial statements.
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
Management’s Annual Report on Internal Control Over Financial Reporting. 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
March 1, 2021
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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 2021 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, 2020 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.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
(b)
Financial Statements and Financial Statement Schedules: see Item 8 in Part II of this report.
Exhibits: see accompanying exhibit index that precedes the signature page of this report.
ITEM 16. FORM 10-K SUMMARY
Omitted at Company's option.
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Table of Contents
Exhibit Index
Exhibit
No.
2.1s
3.1
3.2
3.3
3.4
3.5
3.6
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
10.1
10.2
Description
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).
Junior Subordinated Indenture, dated as of August 26, 2020, among Enstar Finance LLC, 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 August 26, 2020).
First Supplemental Indenture, dated as of August 26, 2020, among Enstar Finance LLC, 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 August 26, 2020).
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).
Description of Securities (incorporated by reference to Exhibit 4.7 to the Company's Form 10-K filed on
February 27, 2020).
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).
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Table of Contents
10.3
10.4
10.5
10.6
10.7+
10.8+
10.9+
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).
10.10+
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).
10.11+
Employment Agreement, dated December 28, 2017, by and between Enstar Group Limited and Guy
Bowker (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on January 4, 2018).
10.12*+ Employment Agreement, dated August 21, 2020, by and between Enstar Group Limited and Zachary
Wolf.
10.13+
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).
10.14+
10.15+
10.16+
Employment Agreement, dated September 9, 2016, by and between Enstar Group Limited and Nazar
Alobaidat (incorporated by reference to Exhibit 10.13 to the Company's Form 10-K filed on February 27,
2020).
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).
10.17+
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).
10.18+ 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).
10.19+
10.20+
10.21+
10.22+
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).
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).
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Table of Contents
10.23+
10.24+
10.25+
10.26+
10.27+
10.28+
10.29+
10.30+
10.31+
10.32+
10.33+
10.34+
10.35s
10.36
10.37
10.38
10.39
10.40
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).
Form of Performance Stock Unit Award Agreement (Annual Cycle) (2020) under the Enstar Group
Limited 2016 Equity Incentive Plan (incorporated by reference to Exhibit 10.29 to the Company's Form
10-K filed on February 27, 2020).
Form of Restricted Stock Unit Award Agreement (2020) under the Enstar Group Limited 2016 Equity
Incentive Plan (incorporated by reference to Exhibit 10.30 to the Company's Form 10-K filed on February
27, 2020).
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).
Recapitalization Agreement, dated as of August 13, 2020, by and among North Bay Holdings Limited,
Enstar Group 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., Capital City Partners LLC, and StarStone
Specialty Holdings Limited (incorporated by reference to Exhibit 10.1 of the Company's Form 8-K filed
on August 17, 2020).
Voting and Shareholders' Agreement, dated as of January 1, 2021, among StarStone Specialty 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., and Capital City Partners LLC (incorporated by reference to
Exhibit 10.1 of the Company's Form 8-K filed on January 4, 2021).
Third Amended and Restated Shareholders' Agreement, dated as of January 1, 2021, among
Northshore Holdings Limited, Trident V, L.P., Trident V Parallel Fund, L.P., Trident V Professionals Fund,
L.P., Kenmare Holdings Ltd., Dowling Capital Partners I, L.P., Capital City Partners LLC, Atrium
Nominees Limited, and the other Persons who from time to time become a party thereto (incorporated by
reference to Exhibit 10.2 of the Company's Form 8-K filed on January 1, 2021).
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).
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Table of Contents
10.41
10.42s
10.43
10.44
10.45*
10.46
10.47
10.48
10.49*
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).
Stock Purchase Agreement, dated as of June 10, 2020, by and among StarStone Finance Limited, Core
Specialty Insurance Holdings, Inc., and North Bay Holdings Limited (incorporated by reference to Exhibit
10.1 to the Company's Form 8-K filed on June 11, 2020).
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 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 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).
Second Amendment to Revolving Credit Agreement, dated as of November 25, 2020, by and among
Enstar Group Limited and certain of its subsidiaries, National Australia Bank Limited, Barclays Bank
PLC, Wells Fargo Bank, National Association, and each of the lenders party thereto.
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).
Second Amendment to Letter of Credit Facility Agreement, dated as of June 3, 2020, 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 June 9, 2020).
Third Amendment to Letter of Credit Facility Agreement, dated as of November 25, 2020, 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.
10.50*s Termination and Release Agreement, dated as of February 21, 2021, by and among Enstar Group
Limited and certain of its subsidiaries and Hillhouse Capital Management, Ltd. and certain of its affiliates.
21.1*
23.1*
31.1*
31.2*
32.1**
32.2**
101*
104*
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,
2020, 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
259
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 March 1, 2021.
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 March 1, 2021.
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/ JAMES D. CAREY
James D. Carey
/s/ SUSAN L. CROSS
Susan L. Cross
/s/ HANS-PETER GERHARDT
Hans-Peter Gerhardt
/s/ MYRON HENDRY
Myron Hendry
/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
260
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
Managing Director
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
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
Susan L. Cross
EVP, Global Chief Actuary (former)
XL Group Ltd.
EXECUTIVE OFFICERS
Dominic Silvester
Chief Executive Officer
Paul O’Shea
President
Orla Gregory
Chief Operating Officer
Zachary Wolf
Chief Financial Officer
Paul Brockman
Chief Claims Officer
Nazar Alobaidat
Chief Investment Officer
Audrey B. Taranto
General Counsel
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