ENSTAR GROUP
ANNUAL
REPORT 2021
Realising Value
Financial Results
(in millions of U.S. dollars, except ratios and per share data)
Return on equity
Adjusted return on equity*
Run-off liability earnings
Adjusted run-off liability earnings*
Total investment return
Adjusted total investment return*
2021
7.1%
9.2%
2.8%
2.0%
2.5%
3.6%
2020
39.7%
43.6%
(0.1)%
2.5%
14.1%
12.4%
2019
26.6%
19.6%
(0.5)%
2.8%
10.0%
6.3%
Net earnings attributable to Enstar ordinary shareholders
$437
$1,719
$902
Book value per ordinary share
Adjusted book value per ordinary share*
$316.34
$310.80
$286.45
$281.20
$201.39
$197.93
*Non-GAAP financial measure, refer to pages 63-70 of our Annual Report on Form 10-K for the year ended December 31, 2021 for explanatory notes and a
reconciliation to the most directly comparable GAAP measure for the years ended December 31, 2021, 2020 and 2019.
Dear Fellow Shareholders,
2021 was another active year for Enstar. We delivered 10.4% growth in book value per ordinary
share and a 7.1% return on equity. We began 2022 in a position of strength as one of the
world’s leading run-off specialists and providers of capital release solutions.
To call-out some highlights from last year:
• We acquired record volumes of new legacy business, as we completed seven high-quality
acquisitions with industry leaders and assumed related assets of $3.8 billion.
• Following a spectacular equity market rally in 2020, we redeemed $2.7 billion from our
hedge fund investment, InRe, and took steps to realign our investment strategy to reduce
our exposure to single hedge fund investments and increase our operational resilience.
• We completed $942 million of share repurchases at a 24% discount to book value,
including the repurchase of the Hillhouse Group’s entire interest.
• We completed the sale and issuance of $500 million of 3.1% Senior Notes due 2031, locking
in attractive capital and bolstering our solvency position in advance of the maturity of our
outstanding 4.5% Senior Notes due 2022.
• We achieved profitable growth from our investment portfolio, despite unrealised losses in
our bond holdings that arose due to rising interest rates as the global economy recovered.
Finally, we have made extensive changes in how we present our year-end filings to make our
business and our performance easier to understand.
Acquiring Run-off Liabilities to Sustain our Growth
During the year, we completed and integrated seven run-off transactions and assumed more
than $3.8 billion of liabilities from repeat partners, Axa, RSA and Coca Cola, and from new
ones, Liberty Mutual, Hiscox, Prosight, and CNA.
TOTAL LIABILITIES ACQUIRED1
(in billons of U.S. dollars)
Book Value per Share Growth
10.4%
Return on Equity
7.1%
Total Third Party
Liabilities Acquired
$3.8bn
(cid:23)(cid:30)(cid:31)
(cid:25)(cid:30)(cid:31)
(cid:24)(cid:30)(cid:31)
(cid:26)(cid:30)(cid:31)
(cid:27)(cid:30)(cid:31)
(cid:28)(cid:30)(cid:31)
(cid:29)(cid:30)(cid:31)
(cid:31)(cid:30)(cid:31)
(cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:26)(cid:25)(cid:24)(cid:28)(cid:23)(cid:29)(cid:22)(cid:21)
(cid:20)(cid:22)(cid:19)(cid:24)(cid:23)(cid:22)(cid:27)(cid:26)(cid:25)(cid:24)(cid:28)(cid:23)(cid:29)(cid:22)(cid:21)(cid:18)
1
2
Represents gross loss
reserves, defendant A&E
liabilities and future
policyholder benefits.
Represents gross loss reserves
and future policyholder
benefits acquired via the
acquisition of Enhanzed Re.
(cid:28)(cid:31)(cid:29)(cid:23)
(cid:28)(cid:31)(cid:29)(cid:22)
(cid:28)(cid:31)(cid:29)(cid:21)
(cid:28)(cid:31)(cid:28)(cid:31)
(cid:28)(cid:31)(cid:28)(cid:29)
Net loss reserves grew by 35% year-over-year as a result of these deals, and now total nearly
$12 billion. Of this total, 75% originated from Loss Portfolio Transfer transactions, or LPTs ,
where Enstar commonly has claims management authority. These LPTs typically drive near
term Run-Off Liability Earnings, or RLE. The remaining $2.9 billion in net loss reserves were
sourced from recent Adverse Development Cover transactions, or ADCs, where we expect to
realise RLE over a longer time horizon.
i
Annual CEO letterFrom Dominic Silvester, Chief Executive Officer During 2021, we
crystallised the
InRe gains we
made in 2019 and
2020. Our exit from
this single-asset-
manager strategy
places us in a
strong position to
redeploy our assets
at what we consider
to be a favourable
entry point.
2021 Financial Performance
Enstar delivered net earnings of $437 million or $27.71 per diluted ordinary share during 2021.
This compared to net earnings of $1.7 billion in 2020 or $78.80 per diluted ordinary share,
primarily through our investment in the InRe Fund.
During 2021, we crystallised the InRe gains we made in 2019 and 2020. Our exit from this
single-asset-manager strategy, which had a significant allocation to Asian equities, places us
in a strong position to redeploy our assets at what we consider to be a favourable entry point.
We are redeploying $1.0 billion of the capital redeemed from the InRe Fund into various other
investments during 2022.
Interest rates fell globally in 2020 giving rise to $288 million in unrealised gains on our fixed
income securities that unwound in 2021 as interest rates increased. So, in 2021 we recorded
unrealised losses of $206 million related to fixed income securities which we intend to hold
to maturity to meet our liabilities as they fall due for payment. We anticipate that unrealised
gains and losses will fluctuate over time depending on market conditions.
The year we expanded the key performance measures, as follows:
BOOK VALUE PER ORDINARY SHARE OR BVPS, which is a measure of shareholder value,
increased 10.4%, driven by the impact of our earnings and share repurchases at a discount to
book value.
RETURN ON EQUITY OR ROE%, which measures the rate of return on our net assets, was 7.1%
(9.2% on adjusted basis1), reflecting solid claims management performance and the adverse
impact of some equity market declines in China and interest rate increases.
RUN-OFF LIABILITY EARNINGS OR RLE% is a metric unique to Enstar. It measures the
development of our loss liabilities, recorded as a percentage yield of average net loss reserves
for a given period.
Our RLE was 2.8% in 2021, driven largely by the successful management of our workers’
compensation portfolios, and managing rising ultimate liabilities in general casualty and
motor insurance. Rising interest rates favoured net losses by $75 million for acquisition years
2017 and 2018, where we elected the fair value option.
TOTAL INVESTMENT RETURN OR TIR%, which measures the recognised yield of our
investments, was 2.5%. This includes a TIR on our fixed income securities of 0.2%, and a TIR of
8.8% on our other investments, including equities.
1 Non-GAAP financial measure. Refer to pages 63 – 70 of our Annual Report on Form 10-K for the year ended December 31, 2021 for explanatory notes and a reconciliation to the most directly comparable GAAP measure for the
years ended December 31, 2021, 2020 and 2019.
ii
Annual CEO letterFrom Dominic Silvester, Chief Executive Officer Our Longer-Term Performance
Our business model, which is centred around providing capital release solutions, means our
performance is not as dependent on the underwriting cycle as it is for most insurers, which
primarily underwrite new business. While we maintain a close focus on annual operational
performance, we measure our success over a longer time frame by looking closely at our
three- and five-year financial results.
CHANGE IN BVPS THREE- AND FIVE-YEAR AVERAGE
(cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:26)(cid:25)(cid:24)(cid:23)(cid:22)(cid:21)(cid:20)(cid:19)(cid:24)(cid:18)
(cid:13)(cid:12)(cid:16)(cid:17)(cid:14)
(cid:18)(cid:17)(cid:16)(cid:15)(cid:14)
(cid:17)(cid:16)(cid:29)(cid:16)(cid:27)(cid:26)(cid:25)(cid:24)(cid:23)(cid:22)(cid:21)(cid:20)(cid:19)(cid:24)(cid:18)
(cid:31)(cid:30)(cid:29)(cid:28)(cid:28)(cid:27)(cid:26)(cid:28)(cid:25)(cid:29)(cid:24)(cid:23)(cid:22)(cid:28)(cid:29)(cid:25)(cid:21)(cid:28)
(cid:20)(cid:19)(cid:22)(cid:28)(cid:27)(cid:26)(cid:28)(cid:25)(cid:29)(cid:24)(cid:23)(cid:22)(cid:28)(cid:29)(cid:25)(cid:21)(cid:28)
ROE THREE- AND FIVE-YEAR AVERAGE
(cid:31)(cid:30)(cid:29)(cid:28)(cid:27)(cid:26)(cid:25)(cid:24)(cid:23)(cid:22)(cid:21)(cid:20)(cid:19)(cid:24)(cid:18)
(cid:13)(cid:12)(cid:16)(cid:17)(cid:14)
(cid:28)(cid:17)(cid:29)(cid:31)(cid:27)(cid:26)(cid:25)(cid:24)(cid:23)(cid:22)(cid:21)(cid:20)(cid:19)(cid:24)(cid:18)
(cid:18)(cid:17)(cid:16)(cid:15)(cid:14)
(cid:31)(cid:30)(cid:29)(cid:28)(cid:28)(cid:27)(cid:26)(cid:28)(cid:25)(cid:29)(cid:24)(cid:23)(cid:22)(cid:28)(cid:29)(cid:25)(cid:21)(cid:28)
(cid:20)(cid:19)(cid:22)(cid:28)(cid:27)(cid:26)(cid:28)(cid:25)(cid:29)(cid:24)(cid:23)(cid:22)(cid:28)(cid:29)(cid:25)(cid:21)(cid:28)
* Non-GAAP financial measure. Refer to pages 63 – 70 of our Annual Report on Form 10-K for the year ended December 31, 2021 for explanatory notes and a reconciliation to the most directly comparable GAAP measure for the
years ended December 31, 2021, 2020 and 2019 and pages 250-253 of this 2021 Annual Report for the years ended December 31, 2018 and 2017.
iii
Annual CEO letterFrom Dominic Silvester, Chief Executive Officer Enstar’s strong
liquidity and
capital position
enabled us to return
$942 million to our
shareholders via
share repurchases
in 2021.
Each transaction we complete has an individual earnings and capital consumption pattern.
For example, acquiring a significant volume of liabilities in run-off in a single year – as we
did in 2021 – can dilute single-year measures of our run-off performance, because recently
acquired portfolios typically do not generate significant returns during their first year.
Our RLE is impacted by loss portfolios we have managed and optimised over longer periods
of time such that expected future RLE on these reserves is lower. While we continue to earn
returns on the investment assets that support these reserves, we are working on restructuring
to optimise our position.
Although our investment portfolio has driven a strong consolidated financial result in recent
years, our core business of providing capital release solutions provides attractive returns
relative to the insurance risk acquired.
Our overall results outperformed in 2019 and 2020 as equity markets rallied despite short term
declines during the initial stages of the COVID-19 pandemic. We followed the fortunes of fixed
income securities from 2019-2021 as interest rates declined at the onset of COVID-19, then
rose again in 2021 in response to inflationary pressures.
S&P 500-TOTAL RETURN (DAILY)(%)
(cid:25)(cid:27)(cid:31)(cid:30)(cid:31)(cid:31)
(cid:25)(cid:29)(cid:31)(cid:30)(cid:31)(cid:31)
(cid:25)(cid:28)(cid:31)(cid:30)(cid:31)(cid:31)
(cid:25)(cid:31)(cid:31)(cid:30)(cid:31)(cid:31)
(cid:26)(cid:31)(cid:30)(cid:31)(cid:31)
(cid:27)(cid:31)(cid:30)(cid:31)(cid:31)
(cid:29)(cid:31)(cid:30)(cid:31)(cid:31)
(cid:28)(cid:31)(cid:30)(cid:31)(cid:31)
(cid:31)(cid:30)(cid:31)(cid:31)
(cid:28)(cid:31)(cid:25)(cid:24)
(cid:28)(cid:31)(cid:25)(cid:26)
(cid:28)(cid:31)(cid:25)(cid:23)
(cid:28)(cid:31)(cid:28)(cid:31)
(cid:28)(cid:31)(cid:28)(cid:25)
US TREASURY 5YR INTEREST RATES. 2017 - 2021
(cid:25)(cid:30)(cid:28)(cid:29)
(cid:25)(cid:30)(cid:31)(cid:29)
(cid:26)(cid:30)(cid:28)(cid:29)
(cid:26)(cid:30)(cid:31)(cid:29)
(cid:27)(cid:30)(cid:28)(cid:29)
(cid:27)(cid:30)(cid:31)(cid:29)
(cid:31)(cid:30)(cid:28)(cid:29)
(cid:31)(cid:30)(cid:31)(cid:29)
(cid:26)(cid:31)(cid:27)(cid:24)
(cid:26)(cid:31)(cid:27)(cid:23)
(cid:26)(cid:31)(cid:27)(cid:22)
(cid:26)(cid:31)(cid:26)(cid:31)
(cid:26)(cid:31)(cid:26)(cid:27)
iv
Annual CEO letterFrom Dominic Silvester, Chief Executive Officer We invest strategically in companies which we believe will deliver superior returns over the
long term, generally insurance sector firms, to complement our core business. Since 2016, we
have invested $739 million in this way to realise a compound annual growth rate of 24%. We
remain committed to supporting the successful development of these businesses, which also
delivers valuable marketplace insights.
We completed the exit of our active underwriting platform as a core business segment in 2021.
However, we retain strategic investments in the most attractive elements of our previously
consolidated platforms, through our minority ownership, and directly manage any legacy
reserves not exited.
Capital & Liquidity
Enstar’s strong liquidity and capital position enabled us to return $942 million to our
shareholders via share repurchases, including through the repurchase of the Hillhouse
Group’s entire 26.3% economic interest in Enstar. Given the weighted average 24% discount
to book value per share of these repurchases, this was highly accretive to our other
shareholders. The $100 million share repurchase programme we announced in November
2021 had remaining capacity of $59 million at year end, which we continue to use in 2022. We
participate in a very healthy pipeline of potential legacy transactions, and continually assess
opportunities to deliver value to shareholders.
ESG & Sustainability
We made significant advancements to Enstar’s Environmental, Social and Governance
strategy to focus on three critical areas: Climate Change, Investments and Human Capital.
We created an executive-level ESG oversight group and initiated a project to monitor our
Greenhouse Gas emissions. We also developed a range of Wellness and Diversity, Equity, and
Inclusion activities for our people, continued to contribute to charities aligned with our values,
and embedded ESG into our Investment Policy and Enterprise Risk Management framework.
Finally, our inaugural Corporate Sustainability Report, Sustainability Accounting Standards
Board Report, and Task-force on Climate-related Financial Disclosures Report were published
in March 2022.
We believe Enstar’s current initiatives and future accomplishments in this area will benefit the
global community and are a positive investment in our long-term value.
We believe
Enstar’s current
Environmental,
Social and
Governance
initiatives and future
accomplishments
in this area will
benefit the global
community and
are a positive
investment in our
long-term value.
v
Annual CEO letterFrom Dominic Silvester, Chief Executive Officer Looking Ahead
In December we negotiated a $3.12 billion ground-up loss portfolio transfer for a current
business partner, Aspen Insurance. The deal, which was announced early in January 2022,
provides an attractive growth opportunity, and underlines our reputation and commitment to
the market.
We consider run-off as a mainstream industry which serves the wider insurance industry
effectively. Enstar is the preferred partner of significant global insurers seeking the transfer of
large portfolios of risk. Our proven track record and differentiated business model position us
well to continue to compete and deliver successful outcomes.
We are working on initiatives to optimise our future return and capital position. They include
restructuring initiatives for some of the older liabilities we have carried for a number of years
and completing our redeployment of investment funds redeemed as a result of liquidating
the InRe Fund. All these activities, once completed, are expected to be accretive to Enstar’s
financial performance.
As always, I remain grateful for the commitment of our staff around the world, our
shareholders, and our business partners. I thank you all for your tremendous support over the
years and wish you prosperity and good health.
Sincerely,
Dominic Silvester
April 21, 2022
Enstar is the
preferred partner of
significant global
insurers seeking
the transfer of
large portfolios of
risk. Our proven
track-record and
differentiated
business model
position us well
to continue to
compete and
deliver successful
outcomes.
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, 2021 and are incorporated herein by reference. Furthermore, Enstar undertakes no obligation to update any written or oral forward-looking statements or publicly
announce any updates or revisions to any of the forward-looking statements contained herein, to reflect any change in its expectations with regard thereto or any change in events, conditions, circumstances or assumptions
underlying such statements, except as required by law.
vi
Annual CEO letterFrom Dominic Silvester, Chief Executive Officer
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, 2021
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
Ordinary shares, par value $1.00 per share
Depositary Shares, Each Representing a 1/1,000th Interest in a 7.00% ESGRP
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
Perpetual Non-Cumulative Preferred Share, Series E, Par Value $1.00
Per Share
Trading Symbol(s) Name of Each Exchange on Which Registered
ESGR
The NASDAQ Stock Market LLC
The NASDAQ Stock Market LLC
The NASDAQ Stock Market LLC
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, 2021 was $2.6 billion
based on the closing price of $238.92 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 22, 2022, the registrant had outstanding 16,522,526 voting ordinary shares and 1,597,712 non-voting convertible ordinary shares,
each par value $1.00 per share.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A
relating to its 2022 annual general meeting of shareholders are incorporated by reference in Part III of this Form 10-K
Auditor Name: KPMG Audit Limited
Auditor Location: Hamilton, Bermuda
Auditor Firm ID: 1297
AUDITOR INFORMATION
Enstar Group Limited
Annual Report on Form 10-K
For the Year Ended December 31, 2021
Table of Contents
Glossary of Key Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
•
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Our Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 Strategic Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
•
•
•
•
•
•
•
Our Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Human Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Enterprise Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
•
Available Information About Enstar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . . . .
Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
•
•
•
•
•
•
•
•
•
•
Operational Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Results of Operations - for the Years Ended December 31, 2021, 2020 and 2019 . . . . . . . . . . . . . . . . . . . . . . . .
Key Performance Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-GAAP Financial Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Financial Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Results of Operations by Segment - for the Years Ended December 31, 2021, 2020 and 2019 . . . . . . . . . . . . . . . . . . . . . . . . .
Current Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Critical Accounting Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
9
9
10
10
10
17
18
19
19
25
26
40
40
40
40
41
42
43
44
45
58
62
63
71
72
81
83
90
97
102
239
239
243
243
243
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243
243
243
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GLOSSARY OF KEY TERMS
Table of Contents
GLOSSARY OF DEFINED TERMS
A&E
Accident year
Acquisition costs
ADC
Adjusted BVPS
Adjusted RLE
Adjusted ROE
Adjusted TIR
AFS
Allianz
AmTrust
AOCI
APRA
Arden
ASC
ASU
Atrium
BMA
BSCR
BVPS
Cavello
CISSA
Citco
CLO
CNA
Asbestos and environmental
The annual calendar accounting period in which loss events occurred, regardless of
when the losses are actually reported, recorded or paid.
Costs that are directly related to the successful efforts of acquiring new insurance
contracts or renewing existing insurance contracts, and which principally consist of
incremental costs such as: commissions, brokerage expenses, premium taxes and other
fees incurred at the time that a contract or policy is issued
Adverse development cover – A retrospective reinsurance arrangement that will insure
losses in excess of an established reserve and provide protection up to a contractually
agreed amount.
Adjusted book value per ordinary share - Non-GAAP financial measure calculated by
dividing Enstar ordinary shareholders’ equity, adjusted to add the proceeds from
assumed exercise of warrants, by the number of ordinary shares outstanding, adjusted
for the exercise of warrants and equity awards granted and not yet vested. See “Non-
GAAP Financial Measures” in Item 7 for reconciliation.
Adjusted run-off liability earnings - Non-GAAP financial measure calculated by dividing
adjusted prior period development by average adjusted net loss reserves. See “Non-
GAAP Financial Measures” in Item 7 for reconciliation.
Adjusted return on equity - Non-GAAP financial measure calculated by dividing adjusted
operating income (loss) attributable to Enstar ordinary shareholders by adjusted opening
Enstar ordinary shareholders’ equity. See “Non-GAAP Financial Measures” in Item 7 for
reconciliation.
Adjusted total investment return - Non-GAAP financial measure calculated by dividing
adjusted total investment return by average adjusted total investable assets. See “Non-
GAAP Financial Measures” in Item 7 for reconciliation.
Available-for-sale
Allianz SE, joint venture partner in Enhanzed Re
AmTrust Financial Services, Inc.
Accumulated other comprehensive income (loss)
Australian Prudential Regulation Authority
Arden Reinsurance Company Ltd.
Accounting Standards Codification
Accounting Standards Update
Atrium Underwriting Group Limited and its subsidiaries
Bermuda Monetary Authority
Bermuda Solvency Capital Requirement
Book value per ordinary share - GAAP financial measure calculated by dividing Enstar
ordinary shareholders’ equity by the number of ordinary shares outstanding.
Cavello Bay Reinsurance Limited
Commercial Insurer's Solvency Self-Assessment
Citco III Limited
Collateralized loan obligation
Continental Casualty Company
Commutation
An agreement that provides for the complete discharge of all obligations between the
parties under a particular reinsurance contract for an agreed upon up-front fee
Core Specialty
Core Specialty Insurance Holdings, Inc.
DAC
DCo
Defendant A&E liabilities
Deferred acquisition costs
DCo, LLC
Defendant asbestos and environmental liabilities - Non-insurance liabilities relating to
amounts for indemnity and defense costs for pending and future claims, as well as
amounts for environmental liabilities associated with our properties
Enstar Group Limited | 2021 Form 10-K
3
Table of Contents
GLOSSARY OF DEFINED TERMS
DCA
Dowling Funds
EB Trust
ECR
EGL
EMAL
Enhanzed Re
Enstar
Enstar Finance
Exchange Transaction
FAL
FCA
Funds held
Funds held by reinsured
companies
Funds held - directly
managed
Future policyholder benefits
Group
GSSA
IBNR
Inigo
InRe Fund
Investable assets
JSOP
LAE
Lloyd's
LOC
LPT
Monument Re
Morse TEC
NAIC
NAV
NCI
New business
North Bay
Northshore
Deferred charge asset - The amount by which estimated ultimate losses payable exceed
the premium consideration received at the inception of a retroactive reinsurance
agreement
Dowling Capital Partners I, L.P. and Capital City Partners LLC
The Enstar Group Limited Employee Benefit Trust
Enhanced capital requirement
Enstar Group Limited
Enstar Managing Agency Limited
Enhanzed Reinsurance Ltd.
Enstar Group Limited and its consolidated subsidiaries
Enstar Finance LLC
The exchange of a portion of our indirect interest in Northshore for all of the Trident V
Funds’ indirect interest in StarStone U.S.
Funds at Lloyd's - A deposit in the form of cash, securities, letters of credit or other
approved capital instrument that satisfies the capital requirement to support the Lloyd's
syndicate underwriting capacity
U.K. Financial Conduct Authority
The account created with premium due to the reinsurer pursuant to the reinsurance
agreement, the balance of which is credited with investment income and losses paid are
deducted
Funds held, as described above, where we receive a fixed credit rating
Funds held, as described above, where we receive the underlying portfolio economics
The provision recorded on the balance sheet relating to life reinsurance contracts, which
are based on the present value of anticipated future cash flows and mortality rates
(Re)insurance companies of Enstar Group Limited
Group Solvency Self-Assessment
Incurred but not reported - In addition to unreported claims, may include provisions for
the possibility that reported claims may settle for amounts that differ from the established
case reserves as well as the potential for closed claims to re-open. These provisions are
shown net of reinsurance balances recoverable
Inigo Limited
InRe Fund, L.P.
The sum of total investments, cash and cash equivalents, restricted cash and cash
equivalents and funds held
Joint Share Ownership Program
Loss adjustment expenses
This term may refer to either the society of individual and corporate underwriting
members that pool and spread risks as members of one or more syndicates, or the
Corporation of Lloyd’s, which regulates and provides support services to the Lloyd’s
market
Letters of credit
Loss Portfolio Transfer - Retroactive reinsurance transaction in which loss obligations
that are already incurred are ceded to a reinsurer, subject to any stipulated limits
Monument Insurance Group Limited
Morse TEC LLC
National Association of Insurance Commissioners
Net asset value
Noncontrolling interest
Material transactions, other than business acquisitions, which generally take the form of
reinsurance or direct business transfers
North Bay Holdings Limited
Northshore Holdings Limited
4
Enstar Group Limited | 2021 Form 10-K
Table of Contents
GLOSSARY OF DEFINED TERMS
OLR
Parent Company
Policy buy-back
pp
PPD
PRA
Outstanding loss reserves - Provisions for claims that have been reported and accrued
but are unpaid at the balance sheet date
Enstar Group Limited and not any of its consolidated subsidiaries
Similar to a commutation, for direct insurance contracts
Percentage points - Numerical difference between two percentages
Prior period development - Changes to loss estimates recognized in the current calendar
year that relate to loss reserves established in previous calendar years
U.K. Prudential Regulation Authority
Private equity funds
Investments in limited partnerships and limited liability companies
PSU
Range of Outcomes
Performance share units
The range of gross loss and LAE reserves implied by the various methodologies used by
each of our (re)insurance subsidiaries
RBC
Risk-based capital
Reinsurance to close (RITC)
A business transaction to transfer estimated future liabilities attached to a given year of
account of a Lloyd's syndicate into a later year of account of either the same or different
Lloyd's syndicate in return for a premium
Reserves for losses and LAE Management's best estimate of the ultimate cost of settling losses as of the balance
sheet date. This includes OLR and IBNR
Retroactive reinsurance
Contracts that provide indemnification for losses and LAE with respect to past loss
events
RLE
RNCI
ROE
Run-off
Run-off liability earnings – GAAP-based financial measure calculated by dividing prior
period development by average net loss reserves
Redeemable noncontrolling interest
Return on equity - GAAP-based financial measure calculated by dividing net earnings
(loss) attributable to Enstar ordinary shareholders by opening Enstar ordinary
shareholders’ equity
A line of business that has been classified as discontinued by the insurer that initially
underwrote the given risk
Run-off portfolio
A group of insurance policies classified as run-off
SCR
SEC
SGL No. 1
SISE
SSHL
StarStone Group
StarStone International
StarStone U.S.
Step Acquisition
Solvency Capital Requirement
U.S. Securities and Exchange Commission
SGL No. 1 Limited
StarStone Insurance SE
StarStone Specialty Holdings Limited
StarStone U.S. Holdings, Inc. and its subsidiaries and StarStone International
StarStone's non-U.S. operations
StarStone U.S. Holdings, Inc. and its subsidiaries
The purchase of the entire equity interest of an affiliate of Hillhouse Capital Management
Ltd and Hillhouse Capital Advisors, Ltd. in Enhanzed Re
Stone Point
Stone Point Capital LLC
SUL
TIR
StarStone Underwriting Limited
Total investment return - GAAP financial measure calculated by dividing total investment
return recognized in earnings for the applicable period by average total investable assets
Trident V Funds
Trident V, L.P., Trident V Parallel Fund, L.P. and Trident V Professionals Fund, L.P.
TSA
2020 Repurchase Program
Transition Services Agreement
An ordinary share repurchase program adopted by our Board of Directors on March
9, 2020, for the purpose of repurchasing a limited number of our ordinary shares,
not to exceed $150 million in aggregate. This plan was terminated on July 15, 2021.
2021 Repurchase Program An ordinary share repurchase program adopted by our Board of Directors on
November 29, 2021, which is effective through November 30, 2022. Under this
program, we may repurchase a limited number of our ordinary shares, not to exceed
$100 million in aggregate.
Enstar Group Limited | 2021 Form 10-K
5
Table of Contents
GLOSSARY OF DEFINED TERMS
U.K. Regulator
U.S. GAAP
ULAE
The FCA together with the PRA
Accounting principles generally accepted in the United States of America
Unallocated loss adjustment expenses - Loss adjustment expenses relating to run-off
costs for the estimated payout of the run-off, such as internal claim management or
associated operational support costs
Unearned premium reserve
The unexpired portion of policy premiums that will be earned over the remaining term of
the insurance contract
VIE
Variable interest entities
6
Enstar Group Limited | 2021 Form 10-K
Table of Contents
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
This annual report and the documents incorporated by reference herein contain statements that constitute "forward-
looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the
Exchange Act, with respect to our financial condition, results of operations, business strategies, operating
efficiencies, competitive positions, growth opportunities, plans and objectives of our management, as well as the
markets for our securities and the reinsurance sectors in general.
Statements that include words such as "estimate," "project," "plan," "intend," "expect," "anticipate," "believe,"
"would," "should," "could," "seek," "may" and similar statements of a future or forward-looking nature identify
forward-looking statements for purposes of the federal securities laws or otherwise.
All forward-looking statements are necessarily estimates or expectations, and not statements of historical fact,
reflecting the best judgment of our management and involve a number of risks and uncertainties that could cause
actual results to differ materially from those suggested by the forward-looking statements.
These forward looking statements should, therefore, be considered in light of various important 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:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the adequacy of our loss reserves and the need to adjust such reserves as claims develop over time, including
due to the impact of emerging claim and coverage issues and disputes that could impact reserve adequacy;
risks relating to our acquisitions, including our ability to evaluate opportunities, successfully price acquisitions,
address operational challenges, support our planned growth and assimilate acquired portfolios and companies
into our internal control system in order to maintain effective internal controls, provide reliable financial reports
and prevent fraud;
increased competitive pressures, including increased competition in the market for run-off business;
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 Enhanzed Re’s life and annuity business, including the performance of assets to support the
liabilities, the risk of mismatch in asset/liability duration and assumptions used to estimate reserves for future
policy benefits proving to be inaccurate;
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;
risks relating to the availability and collectability of our ceded 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;
risks relating to climate change and its potential impact on the returns from our run-off business and 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 equity prices;
risks relating to our ability to structure our investments in a manner that recognizes our liquidity needs;
risks relating to our strategic investments in alternative asset classes and joint ventures, which are illiquid and
may be volatile;
Enstar Group Limited | 2021 Form 10-K
7
Table of Contents
•
•
•
•
•
•
•
risks relating to our ability to accurately value our investments, which requires methodologies, estimates and
assumptions that can be highly subjective, and the inaccuracy of which could adversely affect our financial
condition;
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;
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;
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; and
risks 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 not be 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.
8
Enstar Group Limited | 2021 Form 10-K
Table of Contents
PART I
ITEM 1. BUSINESS
Overview
Enstar Group Limited ("Enstar") is a leading global (re)insurance group that offers capital release solutions through
our network of group companies. We seek to create value by managing (re)insurance companies and portfolios of
(re)insurance and other liability business in run-off and striving to generate an attractive risk-adjusted return from
our investment portfolio. These solutions release capital, dispose of non-core businesses and portfolios, achieve
early finality, and manage claims volatility for our counterparties. In this report, the terms "Enstar," "the Company,"
"us," and "we" are used interchangeably to describe Enstar and our subsidiary companies.
We acquire legacy liabilities and (re)insurance reserves from companies and provide retroactive reinsurance
coverage for portfolios of (re)insurance business, primarily via loss portfolio transfer contracts (“LPTs”). Additionally,
we provide reinsurance contracts to other (re)insurers to mitigate some of their risk of future adverse development
(an adverse development cover, or “ADC”) on insurance risks relating to prior accident years.
A run-off portfolio is a group of insurance policies generally described by the accident year and line of business that
has been classified as discontinued business by the insurer that initially underwrote the risks. The facts and
circumstances underlying an insurer’s or company's (seller's) decision to put a portfolio into run-off or seek ADC
contracts varies. Usually, the portfolios of risks have become inconsistent with the seller’s core competencies,
provide unwanted exposure to a particular risk or segment of the market and/or absorb capital that the seller may
wish to deploy elsewhere. These discontinued portfolios are often associated with potentially large exposures and
lengthy time periods before resolution of the last remaining insured claims, resulting in uncertainty to the (re)insurer
covering those risks. An owner of a company with direct exposure to asbestos and environmental liabilities may
wish to dispose of their exposure to such liabilities for similar reasons.
We seek to obtain claims resolutions and settlements on the actual and potentially valid claims within each portfolio
quickly, where feasible, to avoid lengthy and continuing defense costs. If we are successful at settling claims or
otherwise manage the expected value of the losses for less than our carried reserves, we recognize favorable prior
period development within our net incurred loss and loss adjustment expenses. Similarly, we may experience
adverse development on the carried reserves. We include the development as a component of our performance, or
run-off liability earnings (“RLE”).
Our claims handling responsibilities and authorities can vary from contract to contract. Generally, we have direct
claims management authority for most of our LPT’s and passive claims monitoring, oversight and influence over our
ADC portfolios, where our counterparty would typically benefit from our experience with managing similar claims.
We may also seek to commute acquired reinsurance contracts and buy back underlying insurance policies, where
appropriate.
We receive premium for our retroactive reinsurance solutions and invest these funds to generate investment
earnings. We negotiate the investment class, fixed income duration and minimum asset quality needed for each
portfolio with the reinsured as these investments are typically pledged as collateral within the reinsurance contract.
For our remaining investments we decide within our investment allocation strategy the asset types, risk, liquidity and
expected returns.
The substantial majority of our acquisitions have been in the run-off business, which generally includes property and
casualty, workers’ compensation, asbestos and environmental (“A&E”), professional indemnity, directors and
officers, construction defect, motor, marine, aviation and transit, and other closed and discontinued blocks of
business.
110+
Transactions
Completed Since
2000
$32.4 billion*
Total Liabilities
Acquired Since
2000
27%
Increase in Book
Value Per Ordinary
Share
2019-2021
(Three Year Average)
24%
Return on Equity
2019-2021
(Three Year Average)
*Total liabilities acquired includes gross loss reserves and defendant A&E liabilities.
Enstar Group Limited | 2021 Form 10-K
9
Table of Contents
ITEM 1 | Business | Strategy
Our Strategy
Leverage Management’s Extensive Experience and Industry Relationships
We leverage our senior managements’ skills and experience to solidify our position as a leading run-off acquirer
with a demonstrated ability to identify and execute growth opportunities.
Engage in Disciplined Acquisition Practices
When assessing potential acquisition targets, we carefully analyze risk exposures, claims practices, reserves and
our return requirements as part of our detailed due diligence process. We value opportunities that include risk
exposures and other characteristics that we have had prior experience managing.
Manage Claims Professionally, Expeditiously, and Cost-Effectively
We aim to generate RLE by drawing on in-house expertise to dispose of claims efficiently, paying valid claims on a
timely basis, and relying on policy terms and exclusions where applicable, and litigation when necessary, to defend
against paying invalid claims.
Manage Assumed Liabilities and (Re)insurance Assets Cost-Effectively
Using detailed claims analysis and actuarial projections, we seek 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.
Prudently Manage Investments and Capital
We strive to achieve attractive risk-adjusted returns, while growing profitability and generating long-term growth in
shareholder value.
2021 Strategic Developments
Completed Exit of Active Underwriting Platforms
We completed the strategic exit from our active underwriting platforms with our sales 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").
In addition, we sold StarStone Underwriting Limited ("SUL"), a Lloyd's managing agency, together with the right to
operate Lloyd's Syndicate 1301, to Inigo Limited ("Inigo").
On January 1, 2021, we placed our Starstone International business into run-off and transferred the associated net
reserves from our legacy underwriting to our run-off segment.
While we continue to maintain minority equity investment interest in Northshore (13.8%) and Inigo (5.4%), as well as
Core Specialty, our previously owned Starstone U.S. active underwriting business (24.7%), these strategic
transactions enable us to focus on our core business of acquiring and managing (re)insurance companies and
portfolios of (re)insurance business in run-off.
Our Business
We acquire run-off (re)insurance reserves using retroactive reinsurance contracts where we are paid premium to
reinsure, up to a specified limit, underlying policies issued by other insurers who have written these risks in prior
accident years. On closing a transaction, the premium we receive is not recognized as income, nor are the liabilities
we acquire recognized as net incurred losses. These items are recorded to the balance sheet with any subsequent
changes to the value of ultimate losses and liabilities recorded in the consolidated statements of earnings.
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Enstar Group Limited | 2021 Form 10-K
Table of Contents
ITEM 1 | Business | Our Business
In addition, any difference between premium and losses recognized upon initial recognition of a transaction, is
recorded as a deferred charge asset (“DCA”) which is subsequently amortized.1
We acquire (re)insurance companies and legacy manufacturing companies with direct exposure to asbestos and
environmental liabilities (“defendant A&E liabilities”), which are either in run-off or can be placed into run-off
following our acquisition. We receive investment returns from the investment of the assets acquired with these
companies, which we use to settle the liabilities acquired and may take many years to complete.
We establish our best estimate of the liabilities we assume based upon actuarial analyses of the claims data
provided to us by the counterparties, our review of claims files and reinsurance assets, our analysis of claim trends
and other data supplied as part of our due diligence.
Accordingly, at the time we enter the arrangements, we do not reflect the potential impact of our claims
management efforts as we have no assurance that our efforts will be successful nor how any development may
emerge. Similarly, we do not anticipate settlements or commutations that we have not executed as we do not solely
control any such outcome.
We strive to generate attractive investment returns and favorable prior period development from our active claims
management and/or claims management influence, via our involvement in and oversight rights over the loss
portfolios. Our favorable or adverse outcomes are recorded as prior period development within net incurred losses
and loss adjustment expenses (“LAE”). We record changes to the value of our defendant A&E liabilities within other
income.
As a result, the traditional (re)insurance underwriting ratios (loss ratios and combined ratios) are not relevant to us.
Net earned premiums are not a significant source of revenue and current period net incurred losses and LAE from
those premiums are not a significant source of losses for our Run-off segment. Our ability to generate RLE from our
management of acquired portfolios can vary. RLE may be recognized shortly after acquisition of the new portfolio, or
may not appear for many years, if at all.
Our business success is predicated on our ability to:
1 Acquire New Business
Acquire legacy business from (re)insurers and others
leverage experience and industry relationships
•
• maintain disciplined acquisition practices
• manage our global footprint in sourcing transactions
•
offer loss portfolio transfers (“LPTs”), adverse development covers (“ADCs”), acquisitions and other unique
solutions
2 Manage Liabilities
Strive to generate RLE
• manage claims professionally, expeditiously and cost effectively
•
commute assumed reinsurance liabilities and ceded reinsurance contracts
3 Manage Investments
Strive to generate net investment returns on our assets
• manage our core fixed-income assets with goal of prudently providing current income while facilitating the prompt
•
payment of claims
use non-core assets to diversify our overall investment portfolio and increase our returns within our investment risk
framework
4 Redeploy Capital
Profits released from the underlying regulated entities can be redeployed into the business
• meet financing obligations
fund future transactions
•
return value to shareholders with share repurchases or dividends
•
1 This is further described in Note 2 in our consolidated financial statements.
Enstar Group Limited | 2021 Form 10-K
11
Table of Contents
ITEM 1 | Business | Our Business
Our Organization
Segments2
We report the results of our operations through four reportable segments:
•
•
•
•
Run-off: consists of our acquired property and casualty and other (re)insurance business.
Enhanzed Re: consists of life and catastrophe business that we have assumed via the acquisition of the
controlling interest in Enhanzed Reinsurance, Ltd. (“Enhanzed Re”).
Investments: consists of our investment activities and the performance of our investment portfolio, excluding
those investable assets attributable to our Legacy Underwriting segment.
Legacy Underwriting: consists of businesses that we have exited via the sale of the majority of our interest.
In addition, our corporate and other activities, which do not qualify as an operating segment, include income and
expense items that are not directly attributable to our reportable segments.
Major Operating Subsidiaries
Our (re)insurance business is regulated and requires licenses to operate in each relevant jurisdiction. Our major
operating insurance subsidiaries and their regulatory domiciles are listed below:
Regulated Company
Clarendon National Insurance Company
Fletcher Reinsurance Company
Yosemite Insurance Company
Cavello Bay Reinsurance Limited
Enhanzed Reinsurance Ltd.
Fitzwilliam Insurance Limited
StarStone Insurance Bermuda Limited
SGL No.1 Limited
Mercantile Indemnity Company Limited
River Thames Insurance Company Limited
Gordian Runoff Limited
StarStone Insurance SE
Jurisdiction
% of Net Loss Reserves
as of December 31, 2021
United States
9%
Bermuda
76%
United Kingdom
14%
Other
1%
100%
2 For further information on our reportable segments, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations – Results of Operations by Segment” and Note 3 to our consolidated financial statements.
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Enstar Group Limited | 2021 Form 10-K
Table of Contents
ITEM 1 | Business | Our Business
1 Acquire New Business
Sourcing
We leverage our industry relationships and our position as an experienced run-off specialist, together with our
footprint in the major (re)insurance hubs, to source new business opportunities. We engage directly with companies
and/or their representative brokers to bid for and negotiate new transactions.
Solutions
Our Run-off and Enhanzed Re businesses offer a variety of capital release solutions, including but not limited to:
LPTs: We offer LPTs in situations where our clients wish to divest
themselves of a portfolio of non-core insurance business. In such
instances, we are able to retroactively reinsure against deterioration of
the non-core portfolio of loss reserves, subject to any stipulated limits.
In the Lloyd's market, we provide similar solutions through reinsurance
to close (“RITC”) transactions.
ADCs: In situations where our clients are concerned about loss
deterioration on selected books of business, we offer ADCs whereby we
reinsure certain losses in excess of our clients’ established reserves, up
to a pre-determined limit.
Acquisitions: Where our clients or potential clients want to dispose of
a company in run-off, we may purchase the company. Such a
transaction is beneficial to the seller because it enables them to
monetize their investment in that company.
Pricing
We evaluate each opportunity presented by carefully reviewing and analyzing the portfolio’s risk exposures, claim
practices, reserve requirements and outstanding claims. This initial analysis allows us to determine whether the
opportunity aligns with our strategy and targeted return thresholds.
If we decide to pursue an opportunity, we proceed to price it based on certain assumptions, including: our ability to
apply our core competencies to negotiate with (re)insureds, resolve valid claims, manage the investments
associated with the portfolio and otherwise manage the nature of the risks posed by the business or portfolio.
LPTs and ADCs: Using actuarial analysis and our view of the exposure assumed, we determine the consideration
(premium) that we charge the ceding companies under retroactive reinsurance contracts.
This premium may be lower than the undiscounted estimated ultimate losses payable at inception due to the time
value of money, in recognition that we will earn an investment return on the assets which support the payment of
insurance claims in the future.
Acquisitions: In order to price the acquisition of a company in run-off, we estimate the fair value of assets and
liabilities acquired based on actuarial analyses and our views of the exposures assumed.
We may pay a discount to the book value of the company based on the risks assumed and the relative value to our
client of no longer having to manage the company in run-off.
Enstar Group Limited | 2021 Form 10-K
13
Loss Reserves, net(of Reinsurance)(in billions of U.S dollars)$11.6$8.5$8.7$7.3$2.9$1.2LPTs and otherADCs20212020
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ITEM 1 | Business | Our Business
2 Manage Liabilities
Non-Life Run-off
There is a period over which the reserve liabilities associated with LPTs, acquisitions and other similar transactions
are extinguished, as described below:
•
•
At take-on: upon integrating the acquired company or portfolio we record our best estimate of the value of loss
reserves. We then implement our plan to manage the book and its exposures that we gathered during the
course of the acquisition process.
Subsequent to take-on: in the proceeding years, we develop a deeper understanding of the claims portfolio from
a reserving perspective and employ our claims management strategies in order to generate RLE.
After applying our claims management strategies for a period of time, there are generally reduced opportunities
remaining to achieve RLE. At that point, our goal is to continue to manage costs and generate investment returns as
we run off the remaining reserves in an orderly manner.
Both the A&E losses and LAE and defendant A&E liabilities have much longer maturities than our general casualty
books of business, and therefore the period over which their reserve liabilities are extinguished tends to be
significantly longer than other lines of business.
The strategies we employ to manage our acquired companies and portfolios of business in run-off include:
Claims Management: Integral to our success is our ability to analyze, administer, and settle claims while managing
related expenses. We work with seasoned and well-trained claims professionals, along with claims reporting and
control procedures, in all of our claims units. Our claims management processes also include leveraging our
extensive relationships and developed protocols to manage outside counsel and other third parties more efficiently
to reduce expenses.
With respect to certain lines of business, we have entered into 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. The agreements clearly
define our claims handling guidelines, and we provide active oversight to manage these administrators on an
ongoing basis in order to ensure the third-party administrators are operating in accordance with our expectations.
Commutations and Policy Buybacks: Where possible, we negotiate with third-party (re)insureds to commute their
(re)insurance agreement (sometimes called policy buybacks for direct insurance) for an agreed upon up-front
payment by us to manage payment of (re)insurance claims more efficiently.
Commutations and policy buybacks provide us with an opportunity to exit exposures to certain policies and
(re)insureds generally at a discount to the ultimate liability. Commutations can reduce the duration, administrative
burden and ultimately the future cost we face as we manage the run-off of the claims and the amount of regulatory
capital we are required to maintain.
In certain lines of business, such as direct workers’ compensation insurance, commutations and policy buyback
opportunities are not typically available, and our strategy with respect to these businesses is to derive value through
efficient and effective management of claims.
Reinsurance Recoverables: We manage 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. Where appropriate we negotiate 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.
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Enstar Group Limited | 2021 Form 10-K
Table of Contents
ITEM 1 | Business | Our Business
Life Run-off
Enhanzed Re, a Bermuda-based Class 4 and Class E reinsurer which reinsures a closed block life annuity, other
closed block Spanish life insurance business and property aggregate excess of loss business (catastrophe) from
Allianz SE (“Allianz”) who retains direct claims management and operational responsibilities.
This business has the potential to provide us with a more stable long term cash flow that may counter some of the
volatility in our core non-life run-off business. Our objective for this business is to reinsure products that focus on
longevity and investment risks.
We seek to deliver returns by taking advantage of the relative diversification benefits on our composite capital
structure and the capital adjusted return profile of this business relative to our current run-off business.
Seasonality
We complete most of our loss reserve studies in the third and fourth quarters of each year and, as a result, we tend
to record the largest movements, both favorable or adverse, to net incurred losses and LAE in these periods.
However, we also monitor the progression of claims and claims settlements in the interim periods and may adjust
our reserves if, and when, we deem it appropriate.
Enstar Group Limited | 2021 Form 10-K
15
Table of Contents
ITEM 1 | Business | Our Business
3 Manage Investments
We manage our investments to obtain an attractive risk adjusted returns while maintaining prudent diversification of
assets and operating within the constraints of a regulated global (re)insurance group. We also consider the liquidity
requirements and duration of our claims and contract liabilities.
We have a group-wide investment policy and group mandate, which applies to our consolidated investment portfolio
and all subsidiary cash and investment portfolios.
Our investment policy:
• Outlines our investment objectives and constraints;
•
•
•
Prescribes permitted asset class limits and strategies;
Establishes risk tolerance limits; and
Establishes appropriate governance.
Our investment policy also includes constraints that impact our asset allocation and external asset manager
selection.
In pursuing our investment objectives, we typically allocate to assets with varying risk-return profiles that fall into two
classifications: core assets and non-core assets.
investment portfolio
Core Asset Strategy: Our core assets
is
predominantly invested in investment grade fixed maturity securities
that are duration and currency optimized and held against reserves in
accordance with our contractual obligations with our counterparty
insurers and as prescribed
liquidity and solvency
regulations. Our goal with these securities is to meet the expected
maturity and prompt payment of
the claims, while maximizing
investment income.
in statutory
Our fixed maturity assets include U.S. government and agency
investments, highly rated sovereign and supranational investments,
high-grade corporate investments as well as mortgage-backed and
asset-backed investments.
Non-Core Asset Strategy: Our goal with our non-core assets investment
portfolio is to provide diversification and increased return. Our non-core
assets typically include below-investment grade fixed income securities
and bank loans, public equity securities, hedge funds, private equity
funds, fixed income funds, collateralized loan obligation (“CLO”)
equities, real estate funds and private credit funds. In addition, we
include equity method investments as part of our Investable Assets.
Our core assets, or fixed income assets, include short-term and fixed maturity investments classified as trading and
available-for-sale (“AFS”), fixed maturity investments included within funds-held directly managed, cash and cash
equivalents, and funds held by reinsured companies.
Our non-core assets, or other investments, include equities, the remainder of the funds held-directly managed and
equity method investments.
The allocation and composition of our non-core assets may vary, depending on risk appetite, current market
conditions and the assessment of relative value between asset classes.
We believe our non-core investments provide diversification in our overall investment portfolio, because they
generally have low correlation with our fixed income investments, thereby providing an opportunity for improved
risk-adjusted rates of return while minimizing downside risk over the long term. The returns of our non-core
investments may be volatile, and we may experience significant unrealized gains or losses in a particular quarter or
year. Regulatory, rating agency, and other factors may limit our capacity to hold non-core assets.
16
Enstar Group Limited | 2021 Form 10-K
Investable Assets(in billions of U.S. dollars)$21.7$17.3$16.7$11.4$5.0$5.9Fixed income assetsOther investments20212020
Table of Contents
ITEM 1 | Business | Our Business
Portfolio Allocation: Our portfolio is diversified across several core and non-core asset classes and targets
attractive risk adjusted returns, while taking into account regulatory, capital, risk, and other relevant considerations.
We periodically review the performance of the portfolio and reallocate assets to take advantage of opportunities in
the market. This asset rebalancing is periodically reviewed by our Board Investment Committee.
Asset Manager Selection: Our investment portfolio is primarily managed by external managers through the
execution of investment management agreements and investment guidelines. We hold regular discussions with our
managers to monitor investment performance.
Performance and Compliance Monitoring: Our investment management agreements and guidelines with external
asset managers include performance benchmarks. The benchmarks take various factors into consideration,
including duration, currency, asset class, geography, sector, credit quality and other relevant metrics that impact
performance.
An investment compliance report for the aggregate investment policy is prepared for our Board Investment
Committee on a quarterly basis in arrears. The Board Investment Committee is responsible for ensuring that
investment compliance guidelines proposed are aligned to our stated risk appetite.
4 Redeploy Capital
Our regulated subsidiaries and group are subject to capital requirements, which require us to hold additional assets
to mitigate the risk of insufficient funds to fulfill our insurance obligations in adverse economic or operational
circumstances. Amounts beyond our internal capital levels are available for us to redeploy.
As we work to settle our liabilities, we reduce our required capital and any excess capital may be redeployed into
the business for further acquisitions. We believe that the best investment is in our business, by funding future
transactions and meeting our financing obligations. In addition, we may choose to add value by returning funds to
shareholders in the form of share repurchases or dividends. To date, we have not declared any dividends on our
ordinary shares.
Competition
Our 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 Run-off space has seen several new entrants to the market over the recent years which has increased
competition in the overall market.
We compete with different companies depending upon the size of the portfolio losses being contemplated and the
location of the insurer or insurance risks.
The acquisition and management of companies and portfolios in run-off is highly competitive, and driven by several
factors, including proposed acquisition price, operational reputation, and financial resources including new capital
and alternative forms of capital entering the markets.
We have established long-term and continuing business relationships throughout the (re)insurance industry, which
can be a significant competitive advantage for us. Additionally, we believe that we are competitive on price and have
a reputational ability to complete and manage transactions.
Enstar Group Limited | 2021 Form 10-K
17
Table of Contents
ITEM 1 | Business | Human Capital Resources
Human Capital Resources
As of December 31, 2021, we had 832 employees, as compared to 1,189 as of December 31, 2020. The reduction
in employees is primarily a result of our exit of our active underwriting platforms.
We seek to attract, retain and motivate a specialized workforce that supports our culture, target operating model
and business performance. We do this by applying the following strategies:
• Making use of a range of hiring channels and approaches and incorporating a total reward offering that includes
market competitive salaries, an annual bonus plan as well as comprehensive benefits to protect employee
health, wellness and financial security.
•
•
Promoting alignment of interests with investors through the use of an employee share purchase plan and long-
term equity-based incentives.
Encouraging our employees to periodically review development areas with their managers to identify
appropriate learning opportunities to better equip our work force 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.
For example, we provide all of our employees access to a digital platform containing learning resources designed to
support their role and career at Enstar. In addition, we deploy a Business Excellence Leadership Program designed
to enhance leadership and management capabilities across our senior management team.
We also understand the importance of diversity in our work force. 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.
As of December 31, 2021:
• Women comprised 47% of our global headcount.
•
43% of our work force was located in the United States, of whom 33% self-identified as being part of an ethnic
and/or racial minority group.3
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, Equity and Inclusion Policy.
We intend to continue conducting 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.
We also recognize the importance of our employees as individuals and the role we can play in promoting their
wellbeing. Our eligible Enstar employees may participate in our Enstar wellness program that reimburses
employees for eligible wellness-related expenses. In October 2021 we launched an internal wellbeing platform in an
effort to support our employees’ emotional, physical and financial wellbeing. Following a review of the needs of our
business and our employees, we have transitioned primarily to an agile working environment, where employees
who are designated as agile can work flexibly from multiple locations, whether it be an Enstar office, their home, or
another suitable location.
3Global racial and ethnic diversity information is not available due to limitations on our ability to maintain such details about our employees in
certain jurisdictions in which we operate.
18
Enstar Group Limited | 2021 Form 10-K
ITEM 1 | Business | Enterprise Risk Management
Table of Contents
Enterprise Risk Management
Effective enterprise risk management (“ERM”) and oversight is a top priority for our management and Boards of
Directors (both at the parent company and subsidiary levels). We aim to ensure that we have engaged in highly
comprehensive risk management framework to identify, measure, manage, monitor and report on risks that affect
the achievement of our strategic, operational and financial objectives.
We believe that an effective ERM framework is crucial to maintaining the strength of Enstar and our (re)insurance
companies (our "Group") and enhancing our operations. These include our business strategy and objectives, capital
management decision making, operations and processes, financial performance and financial reporting, regulatory
compliance, reputation with key stakeholders and business continuity planning. Through our ERM framework, we
aim to embed considerations of risk through all aspects of our business.
Risk Management Strategy
The Group’s Risk Strategy has been designed to help meet our core objectives, which is to:
•
•
engage in a highly disciplined and risk based, acquisition, management and (re)insurance practices across a
diverse portfolio of loss reserves;
seek investment risk where it is adequately rewarded;
• maintain loss reserving risk in line with risk appetite;
• minimize capital, liquidity, credit, operational and regulatory risks; and
•
promote the consideration of Environmental (specifically, climate change effects), Social and Governance
(“ESG”) risks in the business planning and strategic priorities process.
These strategies are pursued through the use of appropriate controls, governance structures and highly skilled
teams effectively working together.
Our risk management strategy is embedded across the organization by promoting a strong culture of risk
awareness. This is evidenced through our day-to-day approach to managing our business. In particular, risk matters
are regularly discussed at management and Board meetings, providing challenge and considering opportunities
against risks being assessed and managed.
The goal of our risk management strategy is to enable the proactive, pragmatic management of risks arising in day-
to-day operations, primarily through the implementation and maintenance of an effective ERM framework to ensure
a robust control environment.
Risk Appetite
The Risk Appetite Framework in place at both the Group and its regulated subsidiaries monitors risk taking
throughout the business by linking business strategy and planning with available capital and risk. It is designed to
consider material risks, protect the Group and its subsidiaries from an unacceptable level of loss, compliance
failures and/or adverse reputational impacts and support the wider strategic decision-making process.
A qualitative Risk Appetite statement is set for each material risk to represent the amount of risk the Board is willing
to accept, which is supported by quantitative tolerances (such as minimum capital required). The qualitative risk
appetite statements and supporting quantitative tolerances are reviewed and approved by the Board annually.
Subsidiary companies’ risk appetite and tolerances are reviewed against their specific risk profiles and strategy and
approved by the local Board(s), and are reviewed annually to ensure that subsidiary risk appetite does not in the
aggregate exceed Group Risk Appetite Framework.
Accountability for the implementation, monitoring and oversight of risk appetite is aligned with 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. On a quarterly basis,
risk tolerances are reported by the assigned first line business owner to Risk Management who collate, review and
provide challenge and aggregate tolerances. Individual tolerances are rated ‘Red’, ‘Amber’ or ‘Green’ relative to pre-
defined thresholds. As determined by the Board or Risk Committee, the Risk Appetite Framework and tolerance(s)
may be reviewed/updated outside of the annual review cycle in the event of a material change in risk profile.
Enstar Group Limited | 2021 Form 10-K
19
Table of Contents
ITEM 1 | Business | Enterprise Risk Management
Risk Governance and Culture
The Board of Directors actively oversees the management of risks to which the Group is exposed in a variety of
ways. To ensure comprehensive oversight, the Company has an EGL Risk Committee, as well as Group and
subsidiary Management Risk Committees comprised of executive and/or senior management responsible for the
management of key risks. These committees are supported by representatives from both our risk and internal audit
functions.
The Group, supported by the wider ERM Framework, promotes a strong risk culture through a rigorous hiring
process for employees, performing an annual Compensation Risk Assessment, ensuring employee understanding
and compliance with the Employee Code of Conduct, and by promoting employee risk awareness of compliance
and IT security matters through training.
Risk Ownership, Accountability and Assurance
Enstar has adopted the traditional Three Lines of Defense model (Management, Risk and Compliance & Internal
Audit) to delineate accountabilities and establish a ‘check and balance’ management of risks across the Group. The
Three Lines of Defense model has been selected to allow for clear ownership and accountability of risks, and
independent assurance that these have been considered appropriately via the Internal Audit function. This model
also allows for a clear assignment of risk management responsibilities across all Group activities and helps
communicate the approach to risk management throughout the organization.
The Risk Management function, headed by the Group Chief Risk Officer (“CRO”), is responsible for both designing
and operationalizing the various components of the ERM Framework throughout the Group. To ensure
independence, the CRO reports to the Enstar CEO and has direct access to the Chairperson of the EGL Risk
Committee. It should be noted that the CRO will obtain expertise from other functions / subject matter experts to
provide coverage over key risk areas.
The Group and its subsidiaries have internal controls in place, designed to manage risks to acceptable levels and
the effectiveness of controls is regularly considered in managing and balancing risk and appetite. These are
implemented within each 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.
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 Management Risk Committees and our Group 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. See "Item 1A. Risk Factors" for further detail on these risks.
20
Enstar Group Limited | 2021 Form 10-K
Table of Contents
ITEM 1 | Business | Regulation
Regulation
Overview
The business of (re)insurance is regulated in most countries, although the degree and type of regulation varies 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 Group.
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.
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.
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 (“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% 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.
Bermuda Operations
BMA Insurance Regulation
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 (re)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
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appointment of an independent auditor, the appointment of an approved loss reserve specialist to opine on the
statutory technical provisions of our insurance reserves, the filing of annual statutory and U.S generally accepted
accounting principles (“U.S. GAAP”) based 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).
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 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, 2021, 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 (re)insurance companies that are in run-off are required to seek BMA approval for any dividends or
distributions.
Economic Substance Act
Under the provisions of the Economic Substance Act 2018 (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.
U.K. Operations
PRA and FCA Regulation
Our U.K.-based insurance subsidiaries consist of wholly-owned run-off companies. These subsidiaries are
authorized and regulated 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.
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, 2021, 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 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
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who is already deemed to have "control" will require prior regulatory approval if the person increases the level of
"control" beyond 20%, 30% and 50%.
Lloyd’s Regulation
We participate in the Lloyd’s market through our interests in: (i) 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; (ii) Syndicate 1301 (2020 and prior underwriting years), which is managed by Enstar Managing Agency
Limited ("EMAL") (EMAL also serves as managing agent for Syndicate 2008); and (iii) Atrium's Syndicate 609 (2020
and prior underwriting years), which is managed by Atrium Underwriters Limited, a Lloyd's managing agent.
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" or “FAL”) in the form of cash, securities, letters of credit or other approved capital instrument in
satisfaction of its capital requirement. The amount of the FAL is assessed, from 2022, quarterly and is determined
by Lloyd’s in accordance with applicable capital adequacy rules. 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.
Business plans, including maximum underwriting capacity, for Lloyd’s syndicates require 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. 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.
U.S.
Our U.S. (re)insurance subsidiaries are subject to extensive governmental regulation and supervision by the states
in which they are domiciled, licensed and/or eligible to conduct business. We currently have wholly owned
subsidiary U.S. insurers and reinsurers domiciled in Texas, Missouri and Oklahoma and minority owned affiliates in
Pennsylvania, Delaware, New Jersey and Illinois.
Our U.S. insurers are generally 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, 2021, 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.
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
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ITEM 1 | Business | Regulation
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 or any person controlling such insurer, 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 (under a wide range of scenarios),
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 also prescribes prudential standards on risk management and governance. 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 with a valuation
prepared by an appointed actuary that demonstrates that the tangible assets of the insurer, after the proposed
capital reduction, are sufficient to cover its insurance liabilities to a 99.5% level of sufficiency of capital before APRA
will consent to a capital release or dividend 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 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 ("SISE"), a Liechtenstein-based company that
is regulated by the Financial Markets Authority. Our subsidiaries and branches in European jurisdictions are
regulated in their respective home countries. The UK branch of SISE will also be regulated by the UK Regulator
from 2024 following the expiration of Brexit transitional provisions. The application of the Solvency II framework
across such European jurisdictions generally results in a more uniform approach to regulation. Typically, such
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ITEM 1 | Business | Regulation
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 About Enstar
Our website is http://www.enstargroup.com. We make available free of charge, through our Investor Relations
section of our website, our annual reports 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, Executive,
Investment, Nominating and Governance, and Risk Committees of our Board of Directors are available free of
charge through our Corporate Governance section of our website.
The information contained on our website is not included as a part of, or incorporated by reference into, this filing.
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ITEM 1A. | Risk Factors
ITEM 1A. RISK FACTORS
Any of the following risk factors could cause our actual results to differ materially from historical or anticipated
results. These risks and uncertainties are not the only ones we face. There may be additional risks that we currently
consider not to be material or of which we are not currently aware, and any of these risks could cause our actual
results to differ materially from historical or anticipated results.
You should carefully consider these risks along with the other information included in this document, including the
matters addressed above under "Cautionary Note Regarding Forward-Looking Statements" before investing in any
of our securities. We may amend, supplement or add to the risk factors described below from time to time in future
reports filed with the SEC.
We have categorized our risk factors into the following areas:
•
•
•
•
•
•
•
Risks Relating to our Run-off Business
Risks Relating to our Life Insurance 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.
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, 2021, gross reserves for losses and LAE
reported on our balance sheet were $13.3 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. Further, our success is dependent upon our ability to assess accurately
the reserves associated with the business that we will acquire in the future.
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. 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. Such a charge could be material and would reduce our
net earnings and capital and surplus.
In our Run-off business, loss reserves include A&E liabilities of $2.4 billion as of December 31, 2021. We also hold
defendant liabilities associated with personal injury A&E claims from acquired companies with legacy manufacturing
businesses. As of December 31, 2021, defendant A&E liabilities reported on our balance sheet were $638 million.
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.
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ITEM 1A. | Risk Factors
In addition, evolving industry practices and legal, judicial, social, and environmental conditions may result in
unexpected claims and coverage issues that could adversely affect the adequacy of our loss reserves by 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. These trends may not become apparent until long after we have
acquired or assumed the affected insurance policies.
We may not be able to sustain our growth through acquisitions.
We pursue growth through financially beneficial acquisitions of reinsurance companies and portfolios of
reinsurance business in run-off. Because the execution of our claims management strategies results in the
reduction of our losses and LAE over time, 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 many factors, including proposed acquisition price, reputation, collateral arrangements, and financial
resources. Competitors continue to enter the insurance run-off space, and as a result, we may be unable to
consummate acquisition transactions at acceptable prices and on acceptable terms, or at all, which could hinder our
future growth.
The evaluation and negotiation of potential run-off acquisitions, as well as the integration of acquired businesses or
portfolios in run-off, can be complex and costly and requires substantial management resources. Once we have
signed a definitive agreement to acquire a business or portfolio, conditions to closing, such as obtaining regulatory
or shareholder approvals, must be met prior to completing the acquisition. These and other closing conditions may
not be satisfied, or may cause a material delay in the anticipated timing of closing. Such a failure or delay 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.
Our acquisitions could involve additional risks that we may not be able to identify during the due diligence process,
such as 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 other financial exposures.
Further, our counterparties may breach their representations and warranties and/or be unable or unwilling to meet
their contractual obligations to us.
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.
To achieve positive operating results from an acquisition, we must first price the transaction on favorable terms
relative to the risks posed, and then we must successfully manage the acquired reserves. Unlike traditional insurers
and reinsurers, our companies and portfolios in run-off no longer underwrite new policies or collect underwriting
premiums, and their stated provisions for losses and LAE may not be sufficient to cover future losses and the cost
of run-off. Failure to successfully manage such reserves, including by effectively managing claims, collecting from
insurers or reinsurers, controlling expenses and generating positive investment returns 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.
Further, the acquisitions we have made and expect to make in the future may pose operational challenges that
expose us to risks relating to:
•
•
•
•
the value of liabilities assumed being greater than expected;
the value of assets or our anticipated return on assets being lower than expected or diminishing 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;
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ITEM 1A. | Risk Factors
•
•
•
•
•
•
•
•
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.
Climate change may have an adverse impact on the returns from our run-off business as well as our
investments, which could have an adverse effect on our results of operations or financial condition.
Our core focus is on acquiring and managing reinsurance companies and portfolios of reinsurance business in run-
off, and as such climate change presents unique risks to our business stemming from insurance liabilities we
acquire and the assets that back those liabilities. As we acquire liabilities, there is a risk that our current practices
and processes do not successfully identify and/or price the risks arising from climate change, which could result in
actual returns deviating adversely from those assumed when the transaction was priced. In addition, the disruption
caused by changes in technology, governments and regulation as part of a societal transition to a lower carbon
emitting economy could expose our investment portfolio to a loss of value in the near term and long term. For
example, a swift, adverse repricing of carbon-intensive financial assets could expose our investments to losses in
the near term and in the long term if the transition to a lower carbon-emitting economy is associated with increased
production costs.
Risks Relating to our Life Insurance Business
Our life and annuity business within Enhanzed Re is subject to the typical risks relating to life and annuity
businesses, including the performance of assets to support the liabilities, the mismatch in asset/liability
duration, and assumptions used to estimate reserves for future policy benefits proving to be incorrect.
The profitability of Enhanzed Re’s life and annuity products depends in part on the value of the investments
supporting them, including structured products, which are illiquid and can fluctuate substantially depending on
market conditions. This results in an exposure to market and credit risk associated with Enhanzed Re’s life and
annuity products, which is the risk of loss from changes in interest rates and fixed income security prices. In
addition, Enhanzed Re is exposed to the risk of mismatch in asset/liability duration, which could expose Enhanzed
Re, and us in turn, to the risk of losses and liquidity stress. For example, if a greater number of policyholders than
expected elect to receive lump sum payments in lieu of retaining their policies and annuity contracts, it could expose
Enhanzed Re to liquidity stress and create losses. In addition, reserves for future policy benefits are based on
certain assumptions, including mortality, expenses, and discount rates based on expected yields at acquisition. The
adequacy of the future policyholder benefits reserves established by Enhanzed Re is contingent on actual
experience related to these key assumptions. If these assumptions are inaccurate, it could materially and adversely
impact our financial performance.
Risks Relating to Liquidity and Capital Resources
The amount of statutory capital that we must hold in order to maintain our credit ratings and meet certain
regulatory requirements can vary significantly 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. 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
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ITEM 1A. | Risk Factors
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, the deterioration of
market conditions due to global events, changes in interest rates and foreign currency exchange rates, as well as
changes to the relevant regulatory capital adequacy measures and frameworks. 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, regulators may restrict our activities and prohibit us and our subsidiaries
from completing acquisitions without raising additional capital. Additionally, if our BSCR falls below certain levels, it
could trigger counterparty recapture rights and/or additional collateral requirements in certain of our reinsurance
agreements.
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 applicable statutory capital requirements. We may need to raise additional capital and
liquidity through equity or debt financings. Our ability to secure this financing may be affected by a number of
factors, including volatility in the global financial markets, new or incremental tightening in the credit markets, low
liquidity and 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 other fees 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 are often 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 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 new reinsurance transactions on favorable terms or at all, which could negatively
impact our business, financial condition and results of operations. Depending on multiple 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 substitute collateral in the form of trust funds or other assets, limiting our
ability to invest (and consequently derive investment income from) such assets and constraining 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 reimburse the bank
that issued the letter of credit the amount of such drawn funds, which could increase our indebtedness and
negatively affect our liquidity and financial condition.
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ITEM 1A. | Risk Factors
Reinsurers may not satisfy their obligations to our reinsurance subsidiaries, which could result in
significant losses or liquidity issues for us.
Our reinsurance subsidiaries are subject to credit risk with respect to their reinsurers because the transfer of risk to
a reinsurer does not relieve our subsidiaries of their liability to the underlying insured. Reinsurance companies may
be negatively impacted or downgraded during difficult financial and economic conditions. 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 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 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 normal course financial obligations, 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 reinsurance subsidiaries to make distributions to us may be limited by various business
considerations and applicable insurance laws and regulations in jurisdictions in which we operate (which are
described in "Item 1. Business - Regulation"). The ability of our subsidiaries to make distributions to us may also be
restricted by, among other things, other applicable laws and regulations and the terms of our debt obligations and
our subsidiaries’ debt obligations. If our subsidiaries are restricted from making distributions to us, we may be
unable to maintain adequate liquidity to fund acquisitions or fulfill our financial obligations.
Fluctuations in currency exchange rates may cause us to experience losses.
We maintain a portion of our investments, insurance liabilities and insurance assets denominated in currencies
other than U.S. dollars. Consequently, we and our subsidiaries may experience foreign exchange losses, which
could adversely affect our results of operations. 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.
Risks Relating to our Investments
The value of our reinsurance subsidiaries’ investment portfolios and the investment income that our
reinsurance subsidiaries receive from these portfolios may decline materially as a result of market
fluctuations and economic conditions.
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 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 of fixed maturity securities 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 being 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.
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ITEM 1A. | Risk Factors
In addition, net investment income and net realized and unrealized gains or losses could vary materially from
expectations depending on general market conditions. For example, we may incur impairment charges resulting
from revaluations of debt and equity securities and other investments. 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.
Some of our fixed maturity securities, such as mortgage-based 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 AFS are reflected in our financial
statements. Credit losses on our AFS fixed maturity securities are recognized through an allowance account, which
is 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."
Additionally, we expect that uncertainty and volatility in financial markets, including in relation to the COVID-19
pandemic and various governmental responses thereto, 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.
Our investments in alternative investments, strategic investments in joint ventures and/or entities
accounted for using the equity method may be illiquid and volatile in terms of value and returns.
In addition to fixed maturity securities, we have invested, and may continue to invest, in alternative investments
such as hedge funds, fixed income funds, public equity funds, private equity funds and co-investments, CLO
equities, CLO equity funds, real estate funds and other alternative investments. In addition, we have invested, and
we may continue to make significant investments, in joint ventures and/or entities accounted for using the equity
method that we do not control, which may limit our ability to take actions that could protect or increase the value of
our investment. 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."
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, public 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.
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ITEM 1A. | Risk Factors
These valuation procedures involve estimates and judgments, and during periods of market disruptions (such as
periods of significantly rising or high interest rates, rapidly widening credit spreads or illiquidity), it may be difficult to
value certain of our securities if trading becomes less frequent or market data becomes less observable. In addition,
there may be certain asset classes that are now in active markets with significant observable data that become
illiquid due to changes in the financial environment. In these cases, the valuation of a greater number of securities in
our investment portfolio may require more subjectivity and management judgment. As a result, valuations may
include inputs and assumptions that are less observable or require greater estimation as well as valuation methods
that are more sophisticated or require greater estimation, which may result in valuations greater than the value at
which the investments could ultimately be sold. Further, rapidly changing and unpredictable credit and equity market
conditions could materially affect the valuation of securities carried at fair value as reported within our consolidated
financial statements and the period-to-period changes in value could vary significantly. Decreases in value could
have a material adverse effect on our financial condition and results of operations.
The nature of our liquidity demands and the structure of our investment portfolios may adversely affect the
performance of our investment portfolio and financial results, as well as 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 reinsurance policies issued by certain of our subsidiaries and as a result of our opportunistic commutation
strategy, our liquidity needs can be substantial and may arise at any time. In that regard, we attempt to correlate the
maturity and duration of our investment portfolio to our general liability profile. If we are unsuccessful in managing
our investment portfolio within the context of this strategy, we may be forced to liquidate our investments at times
and at prices that are not optimal, and we may have difficulty liquidating some of our alternative investments due to
restrictions on sales, transfers and redemption terms. This could have a material adverse effect on the performance
of our investment portfolio. 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 in 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 reinsurance
subsidiaries, prescribe solvency and capital adequacy standards, impose restrictions on the amount and type of
investments that can be held to meet solvency and capital adequacy requirements, require the maintenance of
reserve liabilities, and require pre-approval of acquisitions, 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 is likely to result in
significant expenses, which could have a negative impact on our profitability. To further understand these regulatory
requirements, see "Item 1. Business - Regulation."
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. 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. For example, 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
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ITEM 1A. | Risk Factors
in "Item 1. Business – Regulation." 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.
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.
Continued compliance with Solvency II and similar laws and regulations will result in additional costs for us.
Our U.K.-based insurance subsidiaries consist of wholly-owned run-off companies that are authorized and regulated
by the U.K. Regulator. Our U.K. run-off subsidiaries may not underwrite new business without the approval of the
U.K. Regulator. In addition, our Lloyd’s operations are subject to authorization and regulation by the U.K. Regulator
and compliance with the Lloyd’s Act(s) and Bylaws 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. Business
plans, including maximum underwriting capacity, for Lloyd’s syndicates require annual approval by the Lloyd’s
Franchise Board. Continued compliance with the PRA, Lloyd’s and similar regulators will result in additional costs
for us.
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, anti-bribery, anti-corruption and anti-
money laundering 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.
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 the ability of our senior management and other key employees to implement our business
strategy. For example, our ability to source run-off acquisitions is critical our business, and is in part dependent on
the relationships of our senior management and other key personnel. The loss of their services or the loss of the
services of or our relationships with any of our directors, could have a material adverse effect on our business. The
COVID-19 pandemic presents a unique risk in this regard, in that if any of our key personnel were 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.
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. 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
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ITEM 1A. | Risk Factors
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 outsourced service providers, including third-party administrators and investment managers. 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-
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. In addition, many of our employees
continue to work remotely as a result of the COVID-19 pandemic, 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. 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, it would
negatively impact our ability to settle claims efficiently, complete acquisitions, integrate our acquired businesses,
manage our investments, or otherwise conduct our business.
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.
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ITEM 1A. | Risk Factors
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 and
investment managers on an ongoing basis, we do not control them, and 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. For example, a third-party investment manager may breach our investment guidelines and
expose us to risk beyond our prescribed tolerances, which could have an immediate negative financial impact. We
may also be negatively impacted if third-party administrators mishandle claims, fail to administer claims effectively
or efficiently, fail to maintain accurate books and records, or fail to comply with laws or regulations.
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. 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 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"). Generally, a
company is considered a PFIC where 75% or more of its income constitutes “passive income” or 50% or more of its
assets were held to produce “passive income”. The Tax Act modified the PFIC insurance exception to apply, inter
alia, to insurance companies whose reserves constitute more than 25% of the company’s gross assets. We believe
that the Company is not a PFIC as our non-U.S. subsidiaries that are insurance companies meet the PFIC
insurance exception. We also believe that our domestic insurance companies meet the qualifying domestic
company exception. PFIC characterization of the Company under these rules could result in adverse tax
consequences to U.S. persons who own our ordinary shares.
The Organization for Economic Co-operation and Development (the "OECD") Pillar II initiative is intended to
propose a global minimum tax rate of 15% amongst its 140 member nations and other adopting countries. On
December 20, 2021, the OECD released the final model rules on Pillar II (“Model Rules”), which nations can adopt
into local legislation to implement Pillar II on a global basis.
Two components of the Model Rules, the Income Inclusion Rule (“IIR”) and the Under-Taxed Payment Rule
(“UTPR”), could potentially be applicable to our operations:
•
•
The IIR establishes a global minimum tax in the jurisdiction of the parent company of a multinational enterprise
(“MNE”). However, there is indication that Bermuda will choose to forgo adopting the IIR.
The other component of the Model Rules, the UTPR, allows a portion of an MNE’s global profits with an
effective tax rate below the 15% minimum rate to be taxed by other jurisdictions through an allocation model
based on headcount and fixed tangible assets. The Model Rules give flexibility to allow jurisdictions several
mechanisms to collect global profits. This includes directly taxing allocated income, reduction in any allowance
for equity or by imputing deemed income.
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ITEM 1A. | Risk Factors
How the UTPR impacts our operations will heavily depend on how these rules are ultimately transposed into the
local legislation of countries we operate in. The OECD, European Commission and the UK government will each
have an impact on the proposed legislation.
The OECD is targeting the implementation of the IIR by 2023, and UTPR by 2024. The timeline for the legislative
proposals from the European commission as well as the consultation from the UK government are generally
consistent with the targeted OECD timeline.
Accordingly, should we become subject to the Pillar II rules in the future, this could result in an increase in the total
amount of tax we pay, thereby having a material adverse impact on our business operations.
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 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. Furthermore, 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.
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. While recently proposed regulations put forth by the United States Department of
Treasury and Internal Revenue Service on January 24, 2022 may change some of the ownership thresholds needed
to qualify into RPII, we believe that some of the income thresholds above are not likely to be met. However, we
cannot assure you that this will be the case. Accordingly, it is possible that a direct or indirect United States
shareholder could be required to include amounts in its income in respect to RPII in any taxable year if the proposed
regulations are finalized in their current form. We believe that these proposed changes would not affect the gross
income threshold described above. These proposed regulations are subject to a 90-day comment period ending on
April 25, 2022. It is expected that comments will request changes to the proposed regulations to ask that structures
such as Enstar's not be subject to these rules. If these proposed regulations are finalized as proposed, they would
be effective for tax years ending on or after January 25, 2022. Whether they will be finalized as proposed is unclear.
Risks Relating to Ownership of our Shares
The market price for our securities may experience volatility, which could cause a potential loss of value to
our investors, and our ordinary shares are thinly traded, so the market value of our ordinary shares may
decline if large numbers of shares are sold.
The market price for our ordinary shares and for the depositary shares representing our preferred shares may
fluctuate substantially and could cause investment losses due to a number of factors. Such factors could include:
announcements with respect to a specific acquisition or investment; changes in the value of our assets; our financial
condition, performance and prospects; 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;
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ITEM 1A. | Risk Factors
changes in management; and adverse press or news announcements. For the depositary shares representing our
preferred shares, such factors could also include: whether dividends have been declared on the preferred shares;
whether the ratings on such depositary shares provided by any ratings agency have changed; changes in our credit
ratings; our total outstanding indebtedness; the level, direction and volatility of market interest rates generally; and
the market for similar securities.
Our ordinary shares have in the past been, and may 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.
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.
The interests of certain significant shareholders, including those that may be affiliated with members of our Board of
Directors (our “Board”), may not be fully aligned with those of other shareholders, which could lead to a strategy that
is not in such other shareholders’ best interests. As of December 31, 2021, the Canadian Pension Plan Investment
Board (“CPPIB”), funds managed by Stone Point Capital LLC and its affiliates, Beck Mack & Oliver, and three of
Enstar's executive officers (collectively) beneficially owned 13.5%, 9.8%, 4.1% and 5.3%, 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 20.0% as of December 31, 2021.
Although they do not act as a group, these shareholders 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 and certain regulatory limitations may discourage third-party
takeovers and other transactions or prevent the removal of our Board 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. For example, our
bye-laws contain restrictions on the ability of shareholders to (i) nominate persons to serve as directors, (ii) remove
directors, (iii) submit resolutions to a shareholder vote, and (iv) request special general meetings. In addition, our
Board may limit a shareholder’s exercise of voting rights or to register a transfer of ordinary shares where it deems it
necessary to do so to avoid adverse tax, legal or regulatory consequences. Our Board may also decline to register
a transfer of shares unless all applicable consents, authorizations, permissions or approvals of any governmental
body or agency in Bermuda and other applicable jurisdictions required to be obtained prior to such transfer shall
have been obtained. 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, and if a shareholder is unable to do so, we may eliminate the shareholder’s voting rights.
Insurance laws and regulations in the jurisdictions in which our reinsurance subsidiaries operate require prior
notices or regulatory approval of changes in control of an insurer or its holding company. Different jurisdictions
define changes in control differently, and generally any purchaser of 10% or more of the vote or value of our
ordinary shares could become subject to regulation and be required to file certain notices and reports with the
applicable insurance authorities. These laws and the aspects of our corporate structure outlined above may
discourage potential acquisition proposals or prevent the removal of members of our Board and management and
may delay, deter or prevent a change in control of us. 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.
Bermuda Law differs from the laws in effect in the United States. Shareholders who own our shares may
have more difficulty protecting their interests than shareholders of a U.S. corporation.
We are organized under the laws of Bermuda, and as a result our shareholders may have more difficulty protecting
their interests than shareholders 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;
Enstar Group Limited | 2021 Form 10-K
37
Table of Contents
ITEM 1A. | Risk Factors
•
•
•
•
a substantial portion of our assets and certain of our directors and officers and their assets are located outside
of the United States and as a result investors may have difficulty (i) effecting service of process within the
United States or (ii) recovering against us or these directors and officers on judgments of U.S. courts;
no claim may be brought in Bermuda against us or our directors and officers for violations of U.S. federal
securities laws, as such laws do not have force of law in Bermuda;
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;
and
some remedies available under the laws of U.S. jurisdictions, including U.S. federal securities laws, may be
prohibited in Bermuda courts as contrary to Bermuda’s public policy.
Certain regulatory and other constraints may limit our ability to pay dividends on our securities, and
dividends on our preferred shares are non-cumulative.
We do not currently intend to pay a cash dividend on our ordinary shares. If 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.
Dividends on our preferred shares are non-cumulative and payable only out of available funds under Bermuda law.
If our Board (or a duly authorized committee thereof) 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 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 and our ordinary
shares rank junior to our outstanding preferred shares.
Our preferred shares are equity interests and do not constitute indebtedness. As such, our 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. Our 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. Further, in the event of our liquidation, winding up or dissolution, 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 our ordinary shares.
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.
The voting rights of holders of our preferred shares and, in turn, the depositary shares representing our
preferred shares are limited.
38
Enstar Group Limited | 2021 Form 10-K
Table of Contents
ITEM 1A. | Risk Factors
Holders of our outstanding preferred shares and, in turn, the depositary shares representing the preferred shares
have no voting rights with respect to matters that generally require the approval of voting shareholders. In addition,
if dividends on any of our outstanding preferred shares have not been declared or paid for the equivalent of six
dividend payments, whether or not for consecutive dividend periods, holders of the outstanding preferred shares
and, in turn, the depositary shares, will, subject to the terms and conditions contained in the certificates of
designation governing the preferred shares, be entitled to vote for the election of two additional directors to our
Board. 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. 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 (as 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 NAIC may, 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. 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.
Enstar Group Limited | 2021 Form 10-K
39
Table of Contents
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.
ITEM 3. LEGAL PROCEEDINGS
For a discussion of legal proceedings, see Note 24 in the notes to our consolidated financial statements, which is
incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
40
Enstar Group Limited | 2021 Form 10-K
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 22, 2022, there were 1,240
shareholders of record of our voting ordinary shares and one shareholder 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. Furthermore, our ability to pay
dividends is subject to certain restrictions.4,5
Issuer Purchases of Equity Securities
The following table provides information about ordinary shares acquired by the Company during the three months
ended December 31, 2021.
Period
Total Number of
Shares Purchased
Average Price
Paid per Share
Beginning dollar amount available to be
repurchased
October 1, 2021 - October 31, 2021
November 1, 2021 - November 30, 2021
December 1, 2021 - December 31, 2021
3,063 $
164,554 $
167,617
223.32
241.46
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)
(in millions of U.S.
dollars)
$
3,063
164,554
167,617 $
100
—
(1)
(40)
59
(1) On November 29, 2021, our Board adopted an ordinary share repurchase program (the "2021 Repurchase Program"), effective through
November 30, 2022. Pursuant to the 2021 Repurchase Program, we may repurchase a limited number of our ordinary shares, not to exceed
$100.0 million. As of December 31, 2021, the remaining capacity under the 2021 Repurchase Program was $59 million.
4 Described in Note 23 to our consolidated financial statements, which is incorporated herein by reference.
5
For information on dividends on our preferred shares refer to Note 18 to our consolidated financial statements.
Enstar Group Limited | 2021 Form 10-K
41
Table of Contents
Item 5 | Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Performance Graph
The following performance graph compares the cumulative total return on our ordinary shares with the cumulative
total return on the S&P 500 Index and the S&P Property & Casualty Insurance Index for the period that commenced
December 31, 2016 and ended on December 31, 2021.
The performance graph shows the value as of December 31 of each calendar year of $100 invested on December
31, 2016 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.
Enstar (1)
S&P 500 Index (1)
Indexed Returns (2) for Years Ended December 31,
2016
2017
2018
2019
2020
2021
100.00
101.54
84.76
104.63
103.64
125.24
100.00
121.83
116.49
153.17
181.35
233.41
S&P Property & Casualty Index (1)
100.00
121.82
113.52
143.28
152.90
182.48
(1) Source: S&P Global Market Intelligence
(2) $100 invested on December 31, 2016 in stock or index, including reinvestment of dividends.
ITEM 6. RESERVED
42
Enstar Group Limited | 2021 Form 10-K
Comparison of 5 Year Cumulative Total ReturnEnstar (1)S&P 500 Index (1)S&P Property & Casualty Index (1)201620172018201920202021$75$100$125$150$175$200$225$250
Table of Contents
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in
conjunction with our consolidated financial statements and the related notes included elsewhere in this annual
report.
Some of the information contained in this discussion and analysis or included elsewhere in this annual report,
including information with respect to our plans and strategy for our business, includes forward-looking statements
that involve risks, uncertainties and assumptions. Our actual results and the timing of events could differ materially
from those anticipated by these forward-looking statements as a result of many factors, including those discussed
under "Cautionary Statement Regarding Forward-Looking Statements", "Item 1A. Risk Factors" and elsewhere in
this annual report.
For a comparison of our Results of Operations by Segment, Corporate and Other activities and Sources and Uses
of Cash within Liquidity and Capital Resources for the years ended December 31, 2020 and 2019, see our revised
Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations for the year
ended December 31, 2020 included in the Current Report on Form 8-K filed with the Securities and Exchange
Commission ("SEC") on June 11, 2021.
Table of Contents
•
Section
Operational Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Results of Operations — for the Years Ended December 31, 2021, 2020 and 2019 . . . .
Underwriting Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investment Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
•
• General and Administrative Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Key Performance Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-GAAP Financial Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Financial Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Results of Operations by Segment — for the Years Ended December 31, 2021 and 2020 . . . . . . . . . .
Run-off Segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Enhanzed Re Segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments Segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legacy Underwriting Segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Critical Accounting Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
•
•
•
•
Page
44
45
47
53
57
58
62
63
71
72
73
74
75
79
80
81
83
90
Enstar Group Limited | 2021 Form 10-K
43
Table of Contents
Item 7 | Management Discussion and Analysis | Operational Highlights
Operational Highlights
Our consolidated results for the year ended December 31, 2021 reflect our continued progress on providing capital
release solutions to our clients by acquiring and managing their run-off portfolios. We continue to operate our
business during heightened uncertainty and investment volatility as a result of the COVID-19 pandemic.
During 2021 we:
Assumed $3.8 billion of Loss Reserves from Run-off Transactions
We assumed $3.8 billion of liabilities in seven run-off transactions, including five LPTs totaling $2.2 billion of
liabilities, and two ADCs totaling $1.6 billion of liabilities.
We may generate favorable RLE through active claims management and/or claims management influence on these
run-off transactions.
We anticipate investment returns as we manage the $3.5 billion of investment assets we assumed in these
transactions. In addition, we recorded $0.3 billion of DCA in connection with these transactions which we will
subsequently amortize.
Exited Our Strategic Relationship with Hillhouse Group
We entered into a series of transactions with Hillhouse Capital Management Ltd and Hillhouse Capital Advisors, Ltd.
(together, “Hillhouse Group”), related parties6, in order to exit our strategic relationship, as follows:
•
•
•
Repurchased 3,749,400 of our ordinary shares held by funds managed by Hillhouse Group, for a price of
$234.52 per share, totaling $879 million in aggregate, which represented a discount to book value7.
Purchased the entire 27.7% equity interest in Enhanzed Re held by an affiliate of Hillhouse Group. Following
completion of the transaction, our equity interest in Enhanzed Re increased to 75.1% resulting in consolidation
(previously accounted for as an equity method investment).
Redeemed $2.7 billion and liquidated the InRe Fund L.P. (the “InRe Fund”), which was previously managed by
an affiliate of Hillhouse Group, as part of our strategic re-alignment to reduce our exposure to hedge fund
investments. Our investment in the InRe Fund has delivered an inception to date total return of 271.0% or
$1.3 billion (a 30.0% annualized average per year)8.
Executed Capital Transactions
We completed a $500 million senior notes offering9, the net proceeds of which were used to redeem $70 million of
debt expiring in 2022 through a tender offer and to engage in other corporate opportunities.
Continued our Exit of Active Underwriting Platforms
Completed the strategic exit from our active underwriting lines with our sales of:
•
◦
Northshore to the Trident V, L.P., Trident V Parallel Fund, L.P. and Trident V Professionals Fund, L.P. funds
(collectively, the “Trident V Funds”) through an exchange transaction (the “Exchange Transaction”), whereby we
exchanged a portion of our indirect interest in Northshore, the holding company that owns Atrium and Arden, for
an indirect interest in StarStone U.S. Holdings, Inc. and its subsidiaries (“StarStone U.S.”), now owned through
an interest in Core Specialty; and
SUL, together with the right to operate Lloyd's Syndicate 1301, to Inigo for consideration of $30 million in the
form of Inigo shares and $1 million in cash.
6 As described in Note 22 to our consolidated financial statements.
7 Book value per share as of June 30, 2021 was $309.07.
8 Total return of the InRe Fund inception to date and average per year were computed using the modified Dietz method, which divides the total
gain or loss in value of the portfolio, net of external flows, by the average value of the portfolio over the period of measurement.
9 Under the eligible capital rules of the BMA, the senior notes qualify as Tier 3 capital.
44
Enstar Group Limited | 2021 Form 10-K
Item 7 | Management Discussion and Analysis | Consolidated Results of Operations
Table of Contents
Consolidated Results of Operations - For the Years Ended December 31, 2021, 2020 and 2019
We use the following GAAP measures to monitor the performance of and manage the company:
•
•
•
•
BVPS which we use to measure the value of our company over time;
ROE which measures our profitability by dividing our earnings attributable to the company by our shareholders’
equity;
TIR which measures the annual rate of return we obtain, both realized and unrealized, on our investments; and
RLE which measures the rate of return we obtain on managing our run-off liabilities by dividing our prior period
net incurred losses and LAE by our average net loss reserves.
In addition to our key financial measures presented in accordance with GAAP, we present other non-GAAP financial
measures that we use to manage our business, compare our performance against prior periods and against our
peers, and as performance measures in our annual incentive compensation program.
Enstar Group Limited | 2021 Form 10-K
45
Table of Contents
Item 7 | Management Discussion and Analysis | Consolidated Results of Operations
The following table sets forth highlights from our consolidated statements of earnings for the years ended December
31, 2021, 2020 and 2019.
Underwriting Results
Net premiums earned
Net incurred losses and LAE
Current period
Prior Period
Total net incurred losses and LAE
Acquisition costs
Investment Results
Net investment income
Net realized (losses) gains
Net unrealized gains
Earnings from equity method investments
$
312
$
(61)
178
93
Year Ended December 31,
% Change
2021
2020
2019
(in millions of U.S. dollars)
2021 vs
2020
2020 vs
2019
$
245
$
572
$
804
(57.2) %
(28.9) %
(172)
283
111
(57)
(405)
(11)
(416)
(171)
303
19
1,623
239
(580)
(34)
(614)
(241)
(57.5) %
NM
(126.7) %
(66.7) %
(30.2) %
(67.6) %
(32.2) %
(29.0) %
$
308
3.0 %
(1.6) %
5
(421.1) %
280.0 %
1,007
56
(89.0) %
(61.1) %
61.2 %
326.8 %
General and administrative expenses
$
(367)
$
(502)
$
(413)
(26.9) %
21.5 %
NET EARNINGS ATTRIBUTABLE TO
ENSTAR ORDINARY SHAREHOLDERS
GAAP measures:
BVPS
ROE
RLE
TIR
Non-GAAP measures:
Adjusted BVPS*
Adjusted ROE*
Adjusted RLE *
Adjusted TIR*
$
437
$ 1,719
$
902
(74.6) %
90.6 %
$ 316.34
$ 286.45
$ 201.39
7.1 %
2.8 %
2.5 %
39.7 %
(0.1) %
14.1 %
26.6 %
(0.5) %
10.0 %
10.4 %
(32.6) pp
2.9 pp
(11.6) pp
$ 310.80
$ 281.20
$ 197.93
10.5 %
9.2 %
2.0 %
3.6 %
43.6 %
2.5 %
12.4 %
19.6 %
(34.4) pp
2.8 %
6.3 %
(0.5) pp
(8.8) pp
42.2 %
13.1 pp
0.4 pp
4.1 pp
42.1 %
24.0 pp
(0.3) pp
6.1 pp
NM - not meaningful
*Non-GAAP measure; refer to "Non-GAAP Financial Measures" section for reconciliation to the applicable GAAP financial measure.
46
Enstar Group Limited | 2021 Form 10-K
Item 7 | Management Discussion and Analysis | Consolidated Results of Operations
Table of Contents
Net earnings attributable to Enstar ordinary shareholders decreased by $1.3 billion from 2020 to 2021, mainly as a
result of:
•
•
significant outperformance by our investments in 2020 driven by net unrealized gains of $1.6 billion; partially
offset by
improved underwriting performance resulting from favorable actual versus expected experience in 2021.
Net earnings attributable to Enstar ordinary shareholders increased by $817 million from 2019 to 2020, mainly as a
result of:
•
•
the performance of our investments in 2020, driven by an increase of $616 million in net unrealized gains; and
strong performance in our earnings from equity method investments, which increased by $183 million from the
prior year.
We have discussed the results of our operations by aggregating certain captions from our consolidated statement of
earnings, as we believe it provides a more meaningful view of our results and eliminates repetition that would arise
if captions were discussed on an individual basis. In order to facilitate discussion, we have grouped the following
captions:
•
•
Underwriting results: includes net premiums earned, net incurred losses and LAE and acquisition costs.
Investment results: includes net investment income, net realized (losses) gains, net unrealized gains and
earnings from equity method investments.
• General and administrative results: includes general and administrative expenses.
Enstar Group Limited | 2021 Form 10-K
47
Table of Contents
Item 7 | Management Discussion and Analysis | Consolidated Results of Operations
Underwriting Results
Our strategy is focused on effectively managing portfolios and businesses in run-off. Although we have largely
exited our live underwriting platforms, we still record net premiums earned and the associated current period net
incurred losses and acquisition costs as a result of new transactions during the year and the run-off of unearned
premiums from transactions completed in recent years.
Premiums earned in the Run-off segment are offset by the related current period net incurred losses and LAE and
acquisition costs.
The components of underwriting results for the years ended December 31, 2021 and 2020 are as follows:
2021
2020
Run-off
Enhanzed
Re
Legacy
Underwriting
Corporate
and other
Total
Run-off
Legacy
Underwriting
Corporate
and other
Total
$
182 $
5 $
58 $
— $
245 $
59 $
513 $
— $
572
144
(338)
(194)
44
2
—
2
—
26
(6)
20
13
—
61
61
—
172
30
(283)
(175)
(111)
(145)
57
20
375
(4)
371
151
—
190
190
—
405
11
416
171
Net premiums
earned
Net incurred losses
and LAE:
Current period
Prior periods
Total net incurred
losses and LAE
Acquisition costs
Underwriting results
$
332 $
3 $
25 $
(61) $
299 $
184 $
(9) $
(190) $
(15)
2021 versus 2020:
Current Period
The current period underwriting results from our (re)insurance operations include net earned premiums that have
been declining as we transition away from active underwriting activities.
The decrease in current period net incurred losses and LAE
and acquisition costs were driven by reduced levels of activity
arising from our exit of our active underwriting platform. We
continue to earn premium from our StarStone International
and AmTrust RITC business. In comparison, the 2020 results
were primarily driven by the AmTrust RITCs entered into in
2019.
48
Enstar Group Limited | 2021 Form 10-K
(in millions of U.S. dollars)$229$576$245$572$57$171$172$405Net premiums earnedAcquisition costsCurrent period losses and LAE2021202120202020
Item 7 | Management Discussion and Analysis | Consolidated Results of Operations
Table of Contents
Prior Periods - RLE
The following tables summarize RLE and Adjusted RLE* by acquisition year for the years ended December 31,
2021 and 2020, which management believes is useful in measuring and monitoring performance of our claims
management activity on the portfolios that we have acquired. This permits comparability between acquisition years
of different loss reserve volumes. Our calculation of RLE includes the impact of DCA amortization, amortization of
fair value adjustments and changes to the discount and risk margin factors relating to the fair value of liabilities
where we elected the fair value option.
Refer to the table below for a summary of RLE and Adjusted RLE* for the year ended December 31, 2021:
RLE
2021
Acquisition Year
PPD
Average net
loss reserves
RLE %
Adjusted
PPD*
Adjusted RLE*
Average
adjusted net
loss reserves*
Adj RLE*
%
2011 and prior
$
28 $
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
(in millions of U.S. dollars)
5.4 % $
24 $
12.2 %
6.7 %
2.6 %
3.9 %
1.1 %
8.8 %
3.7 %
0.8 %
0.7 %
1.9 %
2
2
29
11
9
25
26
45
(3)
24
522
41
134
945
333
813
1,006
1,201
1,168
1,815
2,072
5
9
25
13
9
89
44
9
12
40
557
40
54
78
316
859
993
1,182
1,653
1,765
2,253
9,750
4.3 %
5.0 %
3.7 %
37.2 %
3.5 %
1.0 %
2.5 %
2.2 %
2.7 %
(0.2) %
1.1 %
2.0 %
$
283 $
10,050
2.8 % $
194 $
2021:
Overall, RLE % and Adjusted RLE* % were primarily driven by net favorable actual claims experience compared
with our expected claims trends. This was notable in the 2011 and prior, 2017 and 2018 acquisition years.
PPD was positively impacted by a decrease of $75 million in 2021 relating to the change in the discount rate
component of the fair value of liabilities for which we have elected the fair value option in the 2017 and 2018
acquisition years as a result of increases in interest rates.
Adjusted PPD* excludes the impact of the changes in the discount rate upon the fair value of liabilities where we
have elected the fair value option, the impact of changes in ULAE and the amortization of fair value adjustments
relating to purchased subsidiaries.
Other notable events within our acquisition years were:
Our 2019 acquisition year had lower than expected asbestos related claim frequency related to our defendant A&E
liabilities. RLE % does not include the impact of changes to our defendant A&E liabilities.
Our 2020 acquisition year had adverse development on the motor book offset by favorable development in other
portfolios relating to the 2018 and 2019 accident years.
Acquisition year 2021 experienced favorable claim activity in professional indemnity/directors’ and officers’ and
motor lines of business relative to expectations at take-on.
*Non-GAAP measure; refer to "Non-GAAP Financial Measures" section for reconciliation to the applicable GAAP financial measure.
Enstar Group Limited | 2021 Form 10-K
49
Table of Contents
Item 7 | Management Discussion and Analysis | Consolidated Results of Operations
Refer to the table below for a summary of RLE and Adjusted RLE* for the year ended December 31, 2020:
RLE
2020
Acquisition Year
PPD
Average net
loss reserves
RLE %
Adjusted
PPD*
Adjusted RLE*
Average
adjusted net
loss reserves*
Adjusted
RLE* %
2011 and prior
$
38 $
2012
2013
2014
2015
2016
2017
2018
2019
2020
Total
7
15
1
10
20
(50)
17
3
(72)
(11) $
$
(in millions of U.S. dollars)
6.1 % $
43 $
13.0 %
8.6 %
0.1 %
2.5 %
2.2 %
(4.5) %
1.2 %
0.2 %
(7.2) %
(0.1) % $
8
6
2
9
31
31
48
86
(77)
187 $
623
54
174
1,064
405
912
1,108
1,450
1,316
1,006
8,112
658
51
68
99
388
963
1,093
1,436
1,776
977
7,509
6.5 %
15.9 %
8.4 %
2.2 %
2.3 %
3.2 %
2.9 %
3.3 %
4.8 %
(7.9) %
2.5 %
2020:
Overall, RLE % and Adjusted RLE* % were primarily driven by a mix of favorable and unfavorable actual claims
experience compared with our expected claims trends. Our experience was notably favorable in our 2011 and prior,
2016, 2017 and 2018 acquisition years, offset by adverse development in our 2020 acquisition year as detailed
below.
PPD was adversely impacted by an increase of $119 million in 2020 relating to the change in the discount rate
component of the fair value of liabilities for which we have elected the fair value option in the 2017 and 2018
acquisition years as a result of decreases in interest rates. This did not impact Adjusted PPD*.
Other notable events within our acquisition years were:
Our 2016 and 2019 acquisition years were favorably impacted by lower than expected asbestos related claim
frequency related to our defendant A&E liabilities. RLE % does not include the impact of changes to our defendant
A&E liabilities.
Our 2017 and 2018 acquisition years had favorable development on losses relating primarily to older accident years
on asbestos related claims and reduced asbestos related claim frequency partially offset by the adverse impact on
RLE % of changes in the discount rate component of the fair value of liabilities for which we have elected the fair
value option.
Our 2020 acquisition year was driven by adverse development on the motor book, offset by favorable development
in other portfolios relating to older accident years.
*Non-GAAP measure; refer to "Non-GAAP Financial Measures" section for reconciliation to the applicable GAAP financial measure.
50
Enstar Group Limited | 2021 Form 10-K
Item 7 | Management Discussion and Analysis | Consolidated Results of Operations
Table of Contents
The components of underwriting results for the year ended December 31, 2019 are as follows:
Net premiums earned
Net incurred losses and LAE:
Current period
Prior periods
Total net incurred losses and LAE
Acquisition costs
Underwriting results
2020 versus 2019:
Current Period
2019
Run-off
Legacy
Underwriting
Corporate and
other
Total
$
168 $
636 $
— $
(in millions of U.S. dollars)
124
(277)
(153)
74
456
106
562
167
$
247 $
(93) $
—
205
205
— $
(205) $
804
580
34
614
241
(51)
The decrease in net premiums earned, current period net incurred
losses and LAE and acquisition costs were mainly driven by our exit of
certain lines of business in 2019 and StarStone International being
placed into an orderly run-off in 2020.
Current period net incurred losses and LAE and acquisition costs
incurred in 2020 were driven by net premiums earned, primarily due to
AmTrust RITCs entered into in 2019.
Our 2019 current period net incurred losses and LAE and acquisition
costs included business assumed as a result of the AmTrust RITC
transactions and the acquisition of Maiden Reinsurance North America.
Net incurred losses and LAE for 2020 included $71 million of COVID-19
related losses, mainly related to casualty and property and accident and
health business, and $19 million of exit costs associated with the
StarStone International run-off.
Prior Periods - RLE
Refer to the table below for a summary of RLE and Adjusted RLE* for the year ended December 31, 2019:
2019
RLE
Acquisition Year
PPD
Average net
loss reserves
RLE %
Adjusted
PPD*
Adjusted RLE*
Average
adjusted net
loss reserves*
Adjusted
RLE* %
2011 and prior
$
70 $
2 $
14
(110)
15
8
(84)
35
16
(in millions of U.S. dollars)
7.7 % $
71 $
3.0 %
4.8 %
(10.1) %
3.3 %
0.8 %
(7.6) %
1.9 %
2.3 %
—
5
2
10
10
(3)
82
8
(0.5) % $
185 $
905
67
289
1,094
453
1,019
1,107
1,830
703
7,467
931
63
80
118
427
1,079
1,162
1,850
907
6,617
7.6 %
— %
6.3 %
1.7 %
2.3 %
0.9 %
(0.3) %
4.4 %
0.9 %
2.8 %
$
(34) $
2012
2013
2014
2015
2016
2017
2018
2019
Total
Enstar Group Limited | 2021 Form 10-K
51
(in millions of U.S. dollars)$576$821$572$804$171$241$405$580Net premiums earnedAcquisition costsCurrent period losses and LAE2020202020192019
Table of Contents
Item 7 | Management Discussion and Analysis | Consolidated Results of Operations
2019:
Overall, RLE % and Adjusted RLE* % were primarily driven by a mix of favorable and unfavorable actual claims
experience compared with our expected claims trends. This was notably favorable in our 2011 and prior and 2018
acquisition years offset by adverse development in our 2017 acquisition year.
Additionally, PPD was adversely impacted by an increase of $117 million in 2019 relating to the change in the
discount rate component of the fair value of liabilities for which we have elected the fair value option in the 2017 and
2018 acquisition years as a result of decreases in interest rates. This did not impact Adjusted PPD*.
Our 2014 acquisition year had adverse development in our StarStone active underwriting business primarily relating
to casualty lines of business, which we exclude from our Adjusted RLE* calculation as we exclude our exited
underwriting businesses.
A $136 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.
A $39 million reduction in estimates of net ultimate losses in our professional indemnity/directors’ and officers’ line of
business arose based on the annual actuarial analysis which reflected the better than expected loss development
during 2019.
A $7 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 U.S. and U.K. exposure of the dismissal rate trending down in the range of 2 to 3 pp.
We completed 6 commutations across several portfolios that contributed to a $10 million reduction in estimates of
net ultimate losses.
*Non-GAAP measure; refer to "Non-GAAP Financial Measures" section for reconciliation to the applicable GAAP financial measure.
52
Enstar Group Limited | 2021 Form 10-K
Item 7 | Management Discussion and Analysis | Consolidated Results of Operations
Table of Contents
Investment Results
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 and future policyholder benefit expenses.
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.
The components of our investment results split between our fixed income ("Fixed Income") assets (which includes
our short-term and fixed maturity investments classified as trading and AFS, fixed maturity investments included
within funds held-directly managed, cash and cash equivalents, including restricted cash and cash equivalents, and
funds held by reinsured companies) and other investments ("Other Investments") (which includes equities, the
remainder of funds held-directly managed and equity method investments) for the years ended December 31, 2021,
2020 and 2019 are as follows:
2021
2020
2019
Fixed
Income
Other
Investments
Total
Fixed
Income
Other
Investments
Total
Fixed
Income
Other
Investments
Total
(in millions of U.S. dollars)
Net investment income
$ 239
$
73
$ 312
$ 256
$
Net realized gains (losses)
(4)
(57)
(61)
18
47
1
$ 303
$ 280
$
19
4
28
1
$ 308
5
Net unrealized (losses) gains
(206)
384
178
288
1,335
1,623
512
495
1,007
Earnings from equity method
investments
TIR ($)
TIR %
Adjusted TIR %*
—
93
93
—
239
239
—
56
56
$ 29
$
493
$ 522
$ 562
$
1,622
$ 2,184
$ 796
$
580
$ 1,376
0.2 %
1.6 %
8.8 %
2.5 %
8.8 %
3.6 %
5.1 %
2.4 %
36.9 % 14.1 %
36.9 % 12.4 %
7.5 %
2.7 %
18.5 % 10.0 %
18.5 %
6.3 %
*Non-GAAP measure; refer to "Non-GAAP Financial Measures" section for reconciliation to the applicable GAAP financial measure.
Net Investment Income
2021 versus 2020: Net investment income increased primarily due to:
•
•
increase in our average aggregate fixed income assets due to
2021 new business; partially offset by
decrease in the investment yield primarily due to reinvestment of
fixed maturities at lower yields and time required to invest premium
from 2021 transactions.
2020 versus 2019: Net investment income decreased primarily due to:
•
•
decrease in net investment income from fixed maturities and cash
and cash equivalents, reflective of a decrease in the investment
yield primarily due to lower rates; partially offset by
increase in our average aggregate fixed income assets from new
business transactions in 2020.
Enstar Group Limited | 2021 Form 10-K
53
Net investment income(in millions of U.S.dollars)$312$303$308202120202019
Table of Contents
Item 7 | Management Discussion and Analysis | Consolidated Results of Operations
Net Realized and Unrealized Gains (Losses)
2021 versus 2020: Net realized and unrealized gains (losses)
decreased primarily due to:
•
•
net realized and unrealized losses on fixed income securities of
$210 million in 2021 compared to net realized and unrealized
gains of $306 million in the prior year, a difference of $516 million,
which was primarily driven by rising interest rates across U.S.,
U.K. and European markets, partially offset by a tightening in
credit spreads.
net realized and unrealized gains on other investments, including
equities decreased by $1.0 billion or 75.5% from the prior year.
This was primarily driven by:
◦
◦
◦
net realized and unrealized losses of $58 million in the InRe
Fund primarily due to the deterioration of global and Chinese
equity markets through the second half of the year, including
Chinese American Depository Receipts ("ADRs"), to which the
fund had exposure; partially offset by
net realized and unrealized gains of $327 million in our public
equity, private equity and CLO equities driven by
the
tightening of high yield and loan spreads and rallies in global
equity markets.
This was in comparison to net realized and unrealized gains of
$1.3 billion recognized in 2020, mainly driven by unrealized
gains of $1.2 billion relating to the InRe Fund.
2020 versus 2019: Net realized and unrealized gains increased
primarily due to:
•
•
net realized and unrealized gains on fixed income securities
decreased by $209 million or 40.6%, primarily driven by a
decline in interest rates.
net realized and unrealized gains on other investments, including
equities, increased by $839 million or 169.0%, primarily a result
of:
◦
unrealized gains for 2020 primarily comprised unrealized
gains of $1.2 billion in the InRe Fund, which were driven by
strong performance in U.S. and Chinese equity markets
across multiple sectors, including consumer discretionary,
technology and
communication services,
consumer staples.
information
54
Enstar Group Limited | 2021 Form 10-K
Net realized andunrealized gains (losses)(in millions of U.S.dollars)$(61)$19$178$1,623Net realized (losses) gainsNet unrealized gains20212020Net realized andunrealized gains (losses)(in millions of U.S.dollars)$19$5$1,623$1,007Net realized gainsNet unrealized gains20202019
Item 7 | Management Discussion and Analysis | Consolidated Results of Operations
Table of Contents
Earnings from equity method investments
Effective September 1, 2021, Enhanzed Re was consolidated by us10. Prior to that date, the results of Enhanzed Re
were recorded in earnings from equity method investments on a one quarter lag.
2021 versus 2020: earnings from equity method investments
decreased, due to:
•
•
a reduction
in Enhanzed Re earnings, primarily driven by
catastrophe losses from the European storms, German floods and
worsening of COVID-19 claims sustained in the second quarter of
2021 for which our share of losses was $35 million, partially offset
by significant net realized and unrealized gains on investments in
the last quarter of 2020;
a reduction in Monument Re earnings as a result of a decrease in
bargain purchase gains relative to the comparative period.
2020 versus 2019: Earnings
increased, primarily due to:
from equity method
investments
•
an increase in earnings from Enhanzed Re, which reflected
significant net realized and unrealized gains on investments in the
second and third quarters of 2020, and an increase in earnings
from Monument Re.
10 Refer to Note 4 to the consolidated financial statements for further information.
Enstar Group Limited | 2021 Form 10-K
55
Equity MethodInvestment Earnings(in millions of U.S.dollars)$93$239$56202120202019
Table of Contents
Item 7 | Management Discussion and Analysis | Consolidated Results of Operations
Return on investments
The below charts are in millions of U.S. dollars
*Non-GAAP measure; refer to "Non-GAAP Financial Measures" section for reconciliation to the applicable GAAP financial measures.
Fixed income securities
•
•
•
The TIR on fixed income assets was $29 million in 2021, as the net investment income was partially offset by
decline in the market value of our fixed income securities, primarily driven by rising interest rates across U.S.,
U.K. and European markets.
The 2020 TIR on fixed income assets was $533 million higher than in 2021, driven by a significant decrease in
interest rates in 2020 as central banks lowered interest rates to mitigate the economic impact of COVID-19
pandemic.
The 2019 TIR on fixed income assets was $234 million higher than in 2020 as interest rates declined and credit
spreads tightened in 2019, benefiting fixed income securities.
Other investments, including equities
• Our 2021 TIR on other investments, including equities, was $493 million, primarily led by strong performances
in our public equity, private equity, and CLO equity positions, driven by the tightening of high yield and loan
spreads and a rally in global equity markets. This was partially offset by net realized and unrealized losses in
the InRe Fund, primarily due to the deterioration of global and Chinese equity markets through the second half
of 2021, including ADRs, to which the InRe Fund had exposure.
• Our 2020 TIR on other investments, including equities, was $1.6 billion primarily driven by unrealized gains of
$1.2 billion in the InRe Fund, driven by strong performance in U.S. and Chinese equity markets across multiple
sectors, including consumer discretionary, communication services, information technology and consumer
staples.
• Our 2019 TIR, on other investments, including equities, was $580 million, driven by positive performance of the
InRe Fund, along with our holdings across public equity, private equity, and CLO equity, against the backdrop of
benign market volatility, positive investor sentiment, and strong demand for risk assets.
56
Enstar Group Limited | 2021 Form 10-K
Fixed incomeassets - TIR$29$562$7960.2%5.1%7.5%202120202019Other investments,including equities -TIR$493$1,622$5808.8%36.9%18.5%202120202019Fixed incomeassets - AdjustedTIR*$239$256$2801.6%2.4%2.7%202120202019Other investments,including equities -Adjusted TIR*$493$1,622$5808.8%36.9%18.5%202120202019
Item 7 | Management Discussion and Analysis | Consolidated Results of Operations
Table of Contents
Duration and average credit rating
The fair value, duration and average credit rating by segment is as follows:
2021
2020
Fair Value ($)
Duration (in
years) (1)
Average Credit
Rating (2)
Fair Value ($)
Duration (in
years) (1)
Average Credit
Rating (2)
Segment
Investments
Run-off
Enhanzed Re
Total - Investments
Legacy Underwriting
$
12,680
1,454
14,134
212
4.54
14.62
5.69
2.37
5.72
A+
A-
A+
AA-
A+
$
9,781
—
9,781
911
$
10,692
5.09
n/a
5.09
1.96
4.82
A+
n/a
A+
AA-
A+
Total
$
14,346
(1) The duration calculation includes cash and cash equivalents, short-term investments, fixed maturity securities and the fixed maturity securities
within our funds held-directly managed portfolios at December 31, 2021 and 2020.
(2) The average credit ratings calculation includes cash and cash equivalents, short-term investments, fixed maturity securities and the fixed
maturity securities within our funds held - directly managed portfolios at December 31, 2021 and 2020.
As of both December 31, 2021 and 2020, our fixed income securities and cash and cash equivalents had an
average credit quality rating of A+. As of December 31, 2021 and 2020, our fixed income securities that were non-
investment grade (i.e. rated lower than BBB- and non-rated securities) comprised 5.6% and 3.7% of our total fixed
income securities portfolio, respectively.
The increase in the duration of our fixed income securities and cash and cash equivalents portfolio is due to the
impact of the Enhanzed Re acquisition. The increase in non-investment grade fixed income securities is due to the
fact that a portion of the InRe Fund redemption proceeds were reinvested into fixed income strategies involving
below investment grade investments during the year11.
General and administrative expenses
2021 to 2020: The $135 million decrease in general and administrative expenses was primarily driven by the
decision to place StarStone International in run-off and the sale of Atrium. There was an additional decrease in
salaries and benefits expenses due to reductions in performance-based salaries and benefits costs and lower
headcount.
2020 to 2019: The $89 million increase in general and administrative expenses was primarily driven by $64 million
of restructuring and other exit costs associated with placing StarStone International into run-off. Additionally, an
increase in salaries and benefits expenses from the comparative period was a result of increased performance-
based salaries and benefits costs driven by our strong performance in 2020.
11 Refer to the 'Results of Operations by Segment - Investments' section for further information.
Enstar Group Limited | 2021 Form 10-K
57
General and Administrative Expenses(in millions of U.S. dollars)$202$57$36$10$62$367$214$43$36$158$51$502$182$46$38$97$50$413202120202019Salaries andbenefitsProfessionalfeesIT CostsLegacyUnderwritingOtherTotal
Table of Contents
Item 7 | Management Discussion and Analysis | Key Performance Measures
Key Performance Measures
Overall Measures of Performance
BVPS and Adjusted BVPS* increased by 10.4% and 10.5%, respectively, from December 31, 2020 to December
31, 2021, as a result of repurchasing 18.6% of our ordinary shares at a 24.0% discount to book value, combined
with comprehensive income for the year which added 6.1% to both BVPS and Adjusted BVPS* as of December 31,
2021.
ROE and Adjusted ROE*
2021 versus 2020: decreased by 32.6 and 34.4 percentage points ("pp"), respectively, primarily as a result of:
i.
net unrealized gains from our investment in the InRe Fund of $1.2 billion in 2020 compared with net unrealized
and realized losses of $58 million in 2021. We have liquidated this fund, crystallizing much of the gains of 2020
and we are in the process of redeploying these amounts. This decline in net realized and unrealized gains in the
InRe Fund contributed 27.5 and 32.9 pp to the total reduction in ROE and Adjusted ROE*, respectively.
ii. net realized and unrealized gains on fixed maturity securities of $306 million in 2020 compared to losses of
$210 million in 2021, primarily driven by rising interest rates. This unfavorable movement impacted the ROE by
10.5 pp with no impact to Adjusted ROE* as this is excluded from the calculation of the measure.
This was partially offset by:
iii.
favorable prior period development ("PPD") of $283 million in 2021, which was $294 million better than 2020,
primarily due to improved actual versus expected experience on our workers’ compensation portfolios and
adverse development on our motor line of business in 2020 combined with a favorable change in the interest
rate components of the valuation of liabilities for which we have elected the fair value option. This favorable
result contributed 4.8 pp to the ROE.
2020 versus 2019: increased by 13.1 and 24.0 pp, respectively, primarily as a result of:
i.
an increase in net realized and unrealized gains from other investments and equities, including the InRe Fund,
of $839 million in 2020. This contributed 16.2 and 20.7 pp to the total increase in ROE and Adjusted ROE*,
respectively.
ii. an increase in earnings from equity method investments of $183 million driven by our investments in Enhanzed
Re12 and Monument Insurance Group Limited (“Monument Re”) in 2020. These earnings contributed 3.9 and
4.8 pp to ROE and Adjusted ROE*, respectively.
This was partially offset by:
iii. a decrease in net realized and unrealized gains on fixed maturity securities of $209 million in 2020. This
unfavorable movement impacted our ROE by 8.1 pp with no impact to Adjusted ROE* as this is excluded from
the calculation of the measure.
*Non-GAAP measure; refer to "Non-GAAP Financial Measures" section for reconciliation to the applicable GAAP financial measure.
12 Effective September 1, 2021, Enhanzed Re was consolidated by us.
58
Enstar Group Limited | 2021 Form 10-K
$316.34$310.80$286.45$281.2020212020Book Value PerOrdinary Share("BVPS")Adjusted Book ValuePer Ordinary Share("Adjusted BVPS")*7.1%9.2%39.7%43.6%26.6%19.6%202120202019Return on Equity("ROE")Adjusted Return onEquity("Adjusted ROE")*
Item 7 | Management Discussion and Analysis | Key Performance Measures
Table of Contents
Return on Run-off Liabilities
The below charts are in millions (RLE and Adjusted RLE*) and billions (Net Loss Reserves and Adjusted Net Loss Reserves*) of U.S. dollars.
2021 versus 2020: our RLE % increased by 2.9 pp from 2020 to 2.8%, whilst our Adjusted RLE* % decreased by
0.5 pp from 2020 to 2.0%.
Rate of Return: The 2.9 pp increase in RLE % primarily consists of:
i.
1.8 pp increase arising from the change in the discount rate component of the fair value of liabilities for which
we have elected the fair value option as a result of increases in interest rates;
ii. 0.8 pp decrease arising from an increase in the amortization of DCA. The increased amortization expense is the
result of cumulative effect adjustments due to favorable prior period development on recent acquisition years;
and
iii. 1.6 pp increase arising from additional favorable prior period development which is additionally analyzed within
our ‘Consolidated Results of Operations’ 13.
The 0.5 pp decrease in Adjusted RLE* % primarily consists of:
i.
1.0 pp decrease resulting from a reduced level of favorable prior period development on net ultimate defendant
A&E liabilities;
ii. 0.7 pp decrease arising from an increase in the amortization of DCA as noted above; and
iii. 1.2 pp increase in additional favorable prior period development which is additionally analyzed within our
‘Consolidated Results of Operations’ 13.
Volume: our net loss reserves and adjusted net loss reserves* increased by 35.2% and 43.2% respectively, as a
result of acquiring and assuming $4.5 billion of net loss reserves. This was partially offset by $1.4 billion of net
claims paid during the year.
2020 versus 2019: our RLE % increased by 0.4 pp from the prior year, whilst our Adjusted RLE* % decreased by
0.3 pp.
Rate of Return: The RLE % in 2020 was broadly consistent with 2019, with the increase of 0.4 pp arising from PPD
of $(11) million and $(34) million in 2020 and 2019 respectively. The key components of PPD in each of 2020 and
2019 were:
i. A reduction in estimates of net ultimate losses of $130 million and $111 million for 2020 and 2019; and
ii. Changes in the fair value of liabilities for which we have elected the fair value option of $119 million and $117
million for 2020 and 2019, with both of these charges arising from decreases in interest rates.
*Non-GAAP measure; refer to "Non-GAAP Financial Measures" section for reconciliation to the applicable GAAP financial measure.
13 Refer to ‘Underwriting Results’ below for further discussion.
Enstar Group Limited | 2021 Form 10-K
59
RLE$283$(11)$(34)2.8%(0.1)%(0.5)%202120202019Adjusted RLE*$194$187$1852.0%2.5%2.8%202120202019Net Loss Reserves$11.6$8.5LPTs and otherADCs20212020Adjusted Net LossReserves*$11.5$8.0LPTs and otherADCs20212020
Table of Contents
Item 7 | Management Discussion and Analysis | Key Performance Measures
The 0.3 pp decrease in Adjusted RLE* % consists of:
i.
1.6 pp decrease in Adjusted PPD* primarily due to adverse development on the motor book in 2020 compared
to 2019; and
ii. 1.3 pp increase in favorable prior period development on net ultimate defendant A&E liabilities in 2020
compared to 2019 driven by a lower than expected asbestos related claim frequency in 2020.
Volume: our net loss reserves and adjusted net loss reserves* increased by 11.3% and 15.3%, respectively from
201914 to 2020, as a result of acquiring and assuming $2.0 billion of net loss reserves. This was partially offset by
$1.5 billion of net claims paid during the year.
*Non-GAAP measure; refer to "Non-GAAP Financial Measures" section for reconciliation to the applicable GAAP financial measure.
14 Net loss reserves and Adjusted net loss reserves* as of December 31, 2019 were $7.7 billion and $6.9 billion, respectively.
60
Enstar Group Limited | 2021 Form 10-K
Item 7 | Management Discussion and Analysis | Key Performance Measures
Table of Contents
Return on Investments
The below charts are in billions of U.S. dollars.
2021 versus 2020: our TIR % and Adjusted TIR %* decreased by 11.6 pp and 8.8 pp, respectively, from 2020.
Rate of Return: our TIR and Adjusted TIR decreased largely as a result of net realized and unrealized gains of $1.6
billion in 2020 compared with net realized and unrealized gains of $117 million in 2021.
Significant equity market performance in 2020 contrasted with more moderate equity performance in 2021, resulting
in a $1.0 billion reduction in the gains on our other investments, including equities, coupled with a $516 million
reduction in the gains on our fixed maturity securities primarily as a result of interest rate reductions in 2020 and
rising interest rates in 2021.
In 2020, we earned net realized and unrealized gains of $1.6 billion, which included $1.2 billion in net unrealized
gains from our investment in the InRe Fund due to strong performance in U.S. and Chinese equity markets, and
$306 million from our fixed maturity securities primarily due to interest rate declines.
In 2021, we earned net realized and unrealized gains of $117 million, with $58 million in realized and unrealized
losses from our InRe Fund as we crystallized much of the gains we previously recorded, combined with gains of
$327 million in other equity, equity and CLO funds as a result of high yield and loan spread tightening and rallies in
global equity markets. This was offset by net realized and unrealized losses of $210 million on our fixed maturity
securities primarily from rising interest rates across U.S., U.K. and European markets, partially offset by tightening in
credit spreads.
Volume: Investable assets and Adjusted investable assets* grew by 25.7% and 29.4% from 2020 to 2021,
respectively, as a result of assuming $3.5 billion from new transactions during the year and an overall increase in
cash and cash equivalents of $495 million15.
2020 versus 2019: our TIR and Adjusted TIR* increased by 4.1 pp and 6.1 pp, respectively, from 2019.
Rate of Return: our TIR and Adjusted TIR* increased as a result of outstanding performance in our other
investments, including the InRe Fund, in comparison to the prior period. This was driven by rallies in equity markets
across multiple sectors, including consumer discretionary, communication services, information technology and
consumer staples.
Net realized and unrealized gains on other investments, including equities, were $1.3 billion in 2020, including net
unrealized gains of $1.2 billion in our InRe investment, in comparison to $496 million in 2019.
Volume: Investable assets and Adjusted investable assets* grew by 22.7% and 21.1% from 201916 to 2020,
respectively, as a result of assuming $1.7 billion from new transactions during the year and an overall increase in
cash and cash equivalents of $541 million17.
*Non-GAAP measure; refer to "Non-GAAP Financial Measures" section for reconciliation to the applicable GAAP financial measure.
15 Total cash, cash equivalents and restricted cash increased by $719 million from 2020 to 2021, of which $224 million related to cash of
businesses held-for-sale.
16 Investable assets and Adjusted investable assets* as of December 31, 2019 were $14.1 billion and $13.8 billion, respectively.
17Total cash, cash equivalents and restricted cash increased by $402 million from 2019 to 2020, which included a decrease of $139 million
related to cash of businesses held-for-sale.
Enstar Group Limited | 2021 Form 10-K
61
Total InvestmentReturn ("TIR")$0.5$2.2$1.42.5%14.1%10.0%202120202019Investable Assets$21.7$17.3Fixed income securitiesOther investments,including equities and EMICash and cash equivalentsFunds held by reinsuredcompanies20212020Adjusted TotalInvestment Return("Adjusted TIR")*$0.7$1.9$0.93.6%12.4%6.3%202120202019AdjustedInvestable Assets*$21.6$16.7Fixed income securitiesOther investments,including equities and EMICash and cash equivalentsFunds held by reinsuredcompanies20212020
Table of Contents
Item 7 | Management Discussion and Analysis | New Business
New Business
We define new business as material transactions other than business acquisitions which generally take the form of
reinsurance or direct business transfers.
When we acquire new business, the liabilities we assume typically exceed the fair value of the assets we receive.
This is generally due to the future earnings expected on the assets, as well as negotiations if we believe the
liabilities could be reduced in the future through successful claims management.
The difference between the liabilities assumed and the assets acquired is recorded as a deferred charge asset or
gain, which is then amortized over the expected settlement period. As such, the performance of the new business
is assessed over time by comparing the net of investment income, loss reserve development and amortization of
the deferred charge gain or asset.
The table below sets forth a summary of new business that we have completed between January 1, 2021 and
December 31, 2021:
Total
Assets
Assumed
Deferred
Charge
Asset (1)
Total Assets
from
Transactions
Total
Liabilities
from
Transactions
Type of
Transaction
Remaining
Limit upon
Acquisition
(in millions of U.S. dollars)
$
1,395 $
92 $
1,487 $
1,487
ADC
$
808
652
532
478
363
95
42
105
N/A
24
26
1
6
757
532
502
389
96
48
757
LPT
532
LPT
502
LPT/ADC
389
LPT
96
48
ADC
LPT
179
189
230
121
175
21
Transaction
AXA Group
(2)
CNA (2)
Hiscox
ProSight (3)
Liberty
Mutual (2)
RSA
Coca-Cola
Total 2021
$
3,557 $
254 $
3,811 $
3,811
Line of Business
Jurisdiction
Casualty and
professional lines
Excess workers'
compensation
Global
U.S.
Surplus lines broker
business
U.S., U.K.
and Europe
Workers'
compensation and
general liability
Energy, construction
and homebuilders
liability
Commercial and
personal lines
Workers'
compensation
U.S.
U.S.
U.K. and
Ireland
U.S.
(1) Where the estimated ultimate losses payable exceed the premium consideration received at the inception of the agreement, a DCA is
recorded.
(2) We have ceded 10% of these transactions to Enhanzed Re on the same terms and conditions as those received by us. Effective September 1,
2021 Enhanzed Re was consolidated by us (previously accounted for as an equity method investment) and all intercompany transactions and
balances between Enhanzed Re and Enstar were eliminated upon consolidation.
(3) Includes $178 million of liabilities from the ADC element of the transaction.
62
Enstar Group Limited | 2021 Form 10-K
Item 7 | Management Discussion and Analysis | Non-GAAP Financial Measures
Table of Contents
Non-GAAP Financial Measures
In addition to our key financial measures presented in accordance with GAAP, we present other non-GAAP financial
measures that we use to manage our business, compare our performance against prior periods and against our
peers, and as performance measures in our annual incentive compensation program.
These non-GAAP financial measures provide an additional view of our operational performance over the long-term
and provide the opportunity to analyze our results in a way that is more aligned with the manner in which our
management measures our underlying performance.
The presentation of these non-GAAP financial measures, which may be defined and calculated differently by other
companies, is used to enhance the understanding of certain aspects of our financial performance. It is not meant to
be considered in isolation, superior to, or as a substitute for the directly comparable financial measures prepared in
accordance with GAAP.
We have changed our non-GAAP measures in 2021 as follows:
•
•
•
Conformed our naming convention so that all non-GAAP measures are prefixed by the word, “adjusted”. We
believe this makes a clear distinction between GAAP and non-GAAP measures. For example, our fully diluted
book value per share (“FDBVPS”) is now named adjusted book value per ordinary share.
Replaced our claims saving metric with Adjusted RLE*, that now includes the amortization cost of DCA as we
believe this represents the notional lower yield we accept when we enter into a transaction where we record a
DCA. Additionally, we are representing this as a yield on average Adjusted net loss reserves* to facilitate
comparisons across acquisition years and different reporting periods.
Amended our calculation of operating income (loss) for the year by additionally adjusting for the amortization of
fair value adjustments as we believed it was relevant for this measure to be consistent with our calculation of
Adjusted RLE*. Additionally, we now express this measure as an Adjusted ROE* after adjustments to our
balance sheet items relating to any adjustments in the numerator.
• We created new measures of Adjusted TIR* and Adjusted RLE* to show performance yields on our two streams
of income arising from our capital release solutions.
• We added management’s view of investable assets which “looks through” the legal form of our investments to
the underlying economic exposure, consistent with the way we view our investment portfolio composition.
We have presented the results and GAAP reconciliations for these measures for the years ended 2019, 2020 and
2021.
Non-GAAP
Measure
Adjusted book
value per
ordinary share
Definition
Total Enstar ordinary shareholders' equity,
adjusted to add:
-proceeds from assumed exercise of warrants
Divided by
Number of ordinary shares outstanding, adjusted
for:
-shares issued from assumed exercise of
warrants,
-the ultimate effect of any dilutive securities on the
number of ordinary shares outstanding
Purpose of Non-GAAP Measure over GAAP
Measure
Increases the number of ordinary shares to reflect the
exercise of warrants and equity awards granted but
not yet vested as, over the long term, this presents a
prudent view of our book value per share.
We use this non-GAAP measure in our annual
incentive compensation program.
Enstar Group Limited | 2021 Form 10-K
63
Table of Contents
Item 7 | Management Discussion and Analysis | Non-GAAP Financial Measures
Non-GAAP
Measure
Adjusted return
on equity
Definition
Adjusted operating income (loss) attributable to
Enstar ordinary shareholders divided by adjusted
opening Enstar ordinary shareholder's equity
Adjusted
operating income
(loss) attributable
to Enstar
ordinary
shareholders
(numerator)
Net earnings (loss) attributable to Enstar ordinary
shareholders, adjusted for:
-net realized and unrealized (gains) losses on
fixed maturity investments and funds held-directly
managed
-change in fair value of insurance contracts for
which we have elected the fair value option (1)
-amortization of fair value adjustments
-net gain/loss on purchase and sales of
subsidiaries
-net earnings from discontinued operations
-tax effects of adjustments
-adjustments attributable to noncontrolling interest
Adjusted opening
Enstar ordinary
shareholders'
equity
(denominator)
Opening Enstar ordinary shareholders' equity,
less:
-unrealized gains (losses) on fixed maturity
investments and funds held-directly managed,
-fair value of insurance contracts for which we
have elected the fair value option (1),
-fair value adjustments, and
-net assets of held for sale or disposed
subsidiaries classified as discontinued operations
Purpose of Non-GAAP Measure over GAAP
Measure
Although we have historically disclosed adjusted
operating income (loss) attributable to Enstar ordinary
shareholders, calculating the operating income (loss)
as a percentage of our adjusted opening Enstar
ordinary shareholders' equity provides a more
valuable and consistent measure of the performance
of our business, and enhances comparisons to prior
periods:
•
•
•
by adjusting investment returns for the temporary
impact of the change in fair value of fixed
maturity securities (both credit spreads and
interest rates) which we hold until the earlier of
maturity or used to fund any settlement of related
liabilities which are generally recorded at cost.
by removing the impact of non-cash charges that
obscure our trends on a consistent basis.
by removing items that are not indicative of our
ongoing operations;
We use this non-GAAP measure in our annual
incentive compensation program.
We now include the amortization of fair value
adjustments as a non-GAAP adjustment to the
adjusted operating income (loss) attributable to
Enstar ordinary shareholders as it is considered to be
a non-cash charge and not indicative of our operating
results. Prior periods were restated for this revision.
Adjusted total
investment
return (%)
Adjusted total investment return (dollars)
recognized in earnings for the applicable period
divided by period average adjusted total
investable assets.
Adjusted total
investment return
($) (numerator)
Total investment return (dollars), adjusted for:
-net realized and unrealized (gains) losses on
fixed maturity investments and funds held-directly
managed
Adjusted average
aggregate total
investable assets
(denominator)
Total average investable assets, adjusted for:
-unrealized (gains) losses on fixed maturities,
AFS investments included within AOCI
-unrealized (gains) losses on fixed maturities,
trading instruments
Provides a key measure of the return generated on
the capital held in the business and is reflective of our
investment strategy.
Provides a consistent measure of investment returns
as a percentage of all assets generating investment
returns.
Adjusts investment returns for the temporary impact
of the change in fair value of fixed maturity securities
(both credit spreads and interest rates) which we hold
until the earlier of maturity or used to fund any
settlement of related liabilities which are generally
recorded at cost.
64
Enstar Group Limited | 2021 Form 10-K
Item 7 | Management Discussion and Analysis | Non-GAAP Financial Measures
Table of Contents
Non-GAAP
Measure
Adjusted run-
off liability
earnings (%)
Adjusted prior
period
development
(numerator)
Adjusted net loss
reserves
(denominator)
Investable
assets -
management's
view
Definition
Adjusted PPD divided by average adjusted net
loss reserves
Prior period net incurred losses and LAE,
adjusted to:
Remove:
-Legacy Underwriting and Enhanzed Re
operations
-the reduction/(increase) in provisions for
unallocated LAE (ULAE)
-amortization of fair value adjustments,
-change in fair value of insurance contracts for
which we have elected the fair value option (1),
and Add:
-the reduction/(increase) in estimates of our
defendant A&E ultimate net liabilities.
Net losses and LAE, adjusted to:
Remove:
-Legacy Underwriting and Enhanzed Re net loss
reserves
-the net ULAE provision
-net fair value adjustments associated with the
acquisition of companies,
-the fair value adjustments for contracts for which
we have elected the fair value option (1) and
Add:
-net nominal defendant asbestos and
environmental exposures.
Investable assets, adjusted to reallocate certain
categories of investments based on
management's view of the underlying economic
exposure of a particular investment.
Refer to the reconciliation for further details.
Purpose of Non-GAAP Measure over GAAP
Measure
Calculating the RLE as a percentage of our adjusted
average net loss reserves provides a more
meaningful measurement of our claims management
performance.
We use this measure to evaluate our ability to settle
our obligations for amounts less than our initial
estimate at the point of acquiring the obligations.
In order to provide a complete and consistent picture
of our claims performance, we combine the reduction
(increase) in estimates of prior period net ultimate
losses relating to our Run-off segment with the
amortization of deferred charge assets, both of which
are included in net incurred losses and LAE and have
an inverse effect on our results. We also include our
performance in managing our defendant A&E
liabilities, that do not form part of loss reserves.
The remaining components of net incurred losses and
LAE and net loss reserves are not considered key
components of our claims performance as they are
either not non-life run-off in nature, or are considered
to be non-cash charges that obscure our trends on a
consistent basis.
We use this measure to assess the performance of
our claim strategies and part of the performance
assessment of our past acquisitions.
Management’s view “looks through” the legal form of
an investment and aggregates the classification
based upon the underlying economic exposure of
each investment, which is consistent with the manner
in which management views our investment portfolio
composition.
(1) Comprises the discount rate and risk margin components.
Reconciliation of GAAP to Non-GAAP Measures
The table below presents a reconciliation of BVPS to Adjusted BVPS* as of December 31, 2021, 2020 and 2019:
2021
2020
2019
Equity
(1)
Ordinary
Shares
Per
Share
Amount
Equity
(1)
Ordinary
Shares
Per
Share
Amount
Equity
(1)
Ordinary
Shares
Per
Share
Amount
(in millions of U.S. dollars, except share and per share data)
Book value per ordinary share
$ 5,586
17,657,944 $ 316.34 $ 6,164
21,519,602 $ 286.45 $ 4,332
21,511,505 $ 201.39
Non-GAAP adjustments:
Share-based compensation plans
315,205
Warrants
—
—
298,095
20
175,901
302,565
20
175,901
Adjusted book value per
ordinary share*
$ 5,586
17,973,149 $ 310.80 $ 6,184
21,993,598 $ 281.20 $ 4,352
21,989,971 $ 197.93
(1) Equity comprises Enstar ordinary shareholders' equity, which is calculated as Enstar shareholders' equity less preferred shares ($510 million
as of December 31, 2021, 2020 and 2019, respectively), prior to any non-GAAP adjustments.
*Non-GAAP measure.
Enstar Group Limited | 2021 Form 10-K
65
Table of Contents
Item 7 | Management Discussion and Analysis | Non-GAAP Financial Measures
The table below presents a reconciliation of ROE to Adjusted ROE* for the years ended December 31, 2021, 2020
and 2019:
2021
2020
2019
Net
earnings
(1)
Opening
equity (1)
(Adj)
ROE
Net
earnings
(1)
Opening
equity (1)
(Adj)
ROE
Net
earnings
(1)
Opening
equity (1)
(Adj)
ROE
(in millions of U.S. dollars)
Net earnings/Opening equity/ROE (1)
$
437 $ 6,164
7.1 % $ 1,719 $ 4,332
39.7 % $
902 $
3,392
26.6 %
Non-GAAP adjustments:
Net realized and unrealized losses
(gains) on fixed maturity investments
and funds held - directly managed /
Unrealized (losses) gains on fixed
maturity investments and funds held
- directly managed (2)
Change in fair value of insurance
contracts for which we have elected
the fair value option / Fair value of
insurance contracts for which we
have elected the fair value option (3)
Amortization of fair value
adjustments / Fair value adjustments
Net gain on purchase and sales of
subsidiaries
Net earnings from discontinued
operations / Net assets of entities
classified as held for sale and
discontinued operations
Tax effects of adjustments (4)
Adjustments attributable to
noncontrolling interest (5)
Adjusted net earnings/Adjusted
opening equity/Adjusted ROE*
(73)
—
(21)
6
210
(560)
(306)
(277)
(516)
227
(75)
(33)
119
(130)
117
(244)
16
(128)
27
(152)
(3)
(199)
51
—
(16)
(266)
(7)
(210)
23
13
109
36
15
86
$
500 $ 5,443
9.2 % $ 1,576 $ 3,616
43.6 % $
598 $
3,052
19.6 %
(1) Net earnings comprises net earnings attributable to Enstar ordinary shareholders, prior to any non-GAAP adjustments. Opening equity
comprises Enstar ordinary shareholders' equity, which is calculated as opening Enstar shareholders' equity less preferred shares ($510 million
as of December 31, 2020, 2019 and 2018), prior to any non-GAAP adjustments.
(2) Represents the net realized and unrealized gains and losses related to fixed maturity securities. Our fixed maturity securities are held directly
on our balance sheet and also within the "Funds held - directly managed" balance18.
(3) Comprises the discount rate and risk margin components.
(4) 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.
(5) 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.
*Non-GAAP measure.
18 Refer to Note 6 to our consolidated financial statements for further details on our net realized and unrealized gains and losses.
66
Enstar Group Limited | 2021 Form 10-K
Item 7 | Management Discussion and Analysis | Non-GAAP Financial Measures
Table of Contents
The below tables present a reconciliation of PPD to Adjusted PPD* and RLE to Adjusted RLE*:
PPD/net loss reserves/RLE
Non-GAAP Adjustments:
Reduction in estimates of net ultimate losses - current period
Enhanzed Re
Legacy Underwriting
Reduction in provisions for ULAE
Amortization of fair value adjustments
Changes in fair value - fair value option (1)
Change in estimate of net ultimate liabilities - defendant A&E
As at December 31,
2021
2021
2020
2021
2021
PPD
Net loss
reserves
Net loss
reserves
Average
net loss
reserves
RLE %
(in millions of U.S. dollars)
$
283 $ 11,555 $
8,544 $
10,050
2.8 %
—
—
(7)
(61)
16
(75)
38
(142)
(179)
(140)
(412)
106
107
574
—
—
(955)
(334)
128
33
615
(71)
(90)
(548)
(373)
117
70
595
Adjusted PPD/Adjusted net loss reserves/Adjusted RLE*
$
194 $ 11,469 $
8,031 $
9,750
2.0 %
PPD/net loss reserves/RLE
Non-GAAP Adjustments:
As at December 31,
2020
2020
2019
2020
2020
PPD
Net loss
reserves
Net loss
reserves
Average
net loss
reserves
RLE %
(in millions of U.S. dollars)
$
(11) $
8,544 $
7,680 $
8,112
(0.1) %
Reduction in estimates of net ultimate losses - current period
—
(273)
—
Legacy Underwriting
Reduction in provisions for ULAE
Amortization of fair value adjustments
Changes in fair value - fair value option (1)
Change in estimate of net ultimate liabilities - defendant A&E
(4)
(702)
(1,184)
(48)
(334)
(332)
28
119
103
128
33
615
152
130
561
(137)
(943)
(333)
140
82
588
Adjusted PPD/Adjusted net loss reserves/Adjusted RLE*
$
187 $
8,011 $
7,007 $
7,509
2.5 %
PPD/Net loss reserves/RLE
Non-GAAP Adjustments:
Reduction in estimates of net ultimate losses - current period
Legacy Underwriting
Reduction in provisions for ULAE
Amortization of fair value adjustments
Changes in fair value - fair value option (1)
Change in estimate of net ultimate liabilities - defendant A&E
As at December 31,
2019
2019
2018
2019
2019
PPD
Net loss
reserves
Net loss
Reserves
Average
net loss
reserves
RLE %
(in millions of U.S. dollars)
$
(34) $
7,680 $
7,254 $
7,467
(0.5) %
—
105
(401)
—
(201)
(842)
(1,162)
(1,002)
(58)
(332)
(333)
(333)
51
117
4
152
130
561
199
244
85
176
187
323
Adjusted PPD/Adjusted net loss reserves/Adjusted RLE*
$
185 $
6,948 $
6,287 $
6,617
2.8 %
(1) Comprises the discount rate and risk margin components.
*Non-GAAP measure.
Enstar Group Limited | 2021 Form 10-K
67
Table of Contents
Item 7 | Management Discussion and Analysis | Non-GAAP Financial Measures
The table below presents a reconciliation of our TIR to our Adjusted TIR* for the years ended December 31, 2021,
2020 and 2019:
2021
2020
2019
Fixed
Income
Other
Investments
Total
Fixed
Income
Other
Investments
Total
Fixed
Income
Other
Investments
Total
(in millions of U.S. dollars)
Net investment income
$ 239
$
73
$ 312
$ 256
$
Net realized (losses) gains
(4)
(57)
(61)
18
47
1
$ 303
$ 280
$
19
4
28
1
$ 308
5
Net unrealized (losses) gains
(206)
384
178
288
1,335
1,623
512
495
1,007
Earnings from equity method
investments
—
93
93
—
239
239
—
56
56
TIR ($)
$ 29
$
493
$ 522
$ 562
$
1,622
$ 2,184
$ 796
$
580
$ 1,376
Non-GAAP adjustment:
Net realized and unrealized
losses (gains) on fixed maturity
investments and funds held-
directly managed
210
—
210
(306)
—
(306)
(516)
—
(516)
Adjusted TIR ($)*
$ 239
$
493
$ 732
$ 256
Total investments
$ 12,254 $
5,022
$ 17,276 $ 9,319
$
$
1,622
$ 1,878
$ 280
5,938
$ 15,257 $ 9,035
$
$
580
$ 860
3,585
$ 12,620
Cash and cash equivalents,
including restricted cash and
cash equivalents
Funds held by reinsured
companies
2,092
2,340
—
2,092
1,373
—
1,373
971
—
971
—
2,340
636
—
636
476
—
476
Total investable assets
$ 16,686 $
5,022
$ 21,708 $ 11,328 $
5,938
$ 17,266 $ 10,482 $
3,585
$ 14,067
Average aggregate invested
assets, at fair value (1)
15,250
5,590
20,840
11,046
4,397
15,443
10,631
3,127
13,758
TIR %
0.2 %
8.8 %
2.5 %
5.1 %
36.9 % 14.1 %
7.5 %
18.5 % 10.0 %
Non-GAAP adjustment:
Net unrealized (gains) on fixed
maturities, AFS investments
included within AOCI and net
unrealized (gains) on fixed
maturities, trading instruments
(89)
—
(89)
(560)
—
(560)
(275)
—
(275)
Adjusted investable assets*
$ 16,597 $
5,022
$ 21,619 $ 10,768 $
5,938
$ 16,706 $ 10,207 $
3,585
$ 13,792
Adjusted average aggregate
invested assets, at fair value (2)
Adjusted TIR %*
14,971
1.6 %
5,590
20,561
10,756
4,397
15,153
10,519
3,127
13,646
8.8 %
3.6 %
2.4 %
36.9 % 12.4 %
2.7 %
18.5 %
6.3 %
(1) This amount is a five period average of the total investable assets, as presented above, and is comprised of amounts disclosed in our quarterly
and annual U.S. GAAP consolidated financial statements.
(2) This amount is a five period average of the Adjusted investable assets*, as presented above.
*Non-GAAP measure.
68
Enstar Group Limited | 2021 Form 10-K
Item 7 | Management Discussion and Analysis | Non-GAAP Financial Measures
Table of Contents
The below tables present a reconciliation of our total investable assets from the consolidated balance sheet view in
accordance with GAAP to management's non-GAAP view of the underlying economic exposure for the years ended
December 31, 2021 and 2020:
Exchange
traded funds
backed by
fixed income
securities
Bonds, CLO
equities and
private debt
held in equity
format
Equities, privately
held equity, private
credit and real
estate held in fund
format
CLO equity
funds
Other assets
and liabilities
in funds held
format
Management's View
of Underlying
Economic Exposure
2021
Consolidated Balance
Sheet View
2021
Short-term and fixed
maturity investments,
trading and AFS and funds
held - directly managed,
excluding other assets
Total
$ 12,254
Other assets included within
funds held - directly managed
201
Equities
Publicly traded equities
281
Exchange-traded funds
1,342
(969)
Privately held equities
Total
Other Investments
372
1,995
(64)
(57)
969
64
32
25
Hedge funds
Fixed income funds
Equity funds
Private equity funds
CLO equities
CLO equity funds
Private credit funds
Real estate debt fund
291
573
5
752
161
207
275
69
Total
2,333
Equity method investments
493
Total investments
17,276
Cash and cash equivalents
(including restricted cash)
2,092
Funds held by reinsured
companies
Total investable assets
2,340
$ 21,708
*Non-GAAP financial measure.
5
(8)
(5)
(110)
85
33
207
(207)
$ 12,254 Fixed maturities
(201)
—
286
309
307
902 Equities*
291 Hedge funds
1,606 Bond/loan funds*
—
642 Private equity funds*
400 CLO equities*
—
385 Private credit*
102 Real estate*
3,426
Equity method
investments
493
17,075
Cash and cash
equivalents (including
restricted cash)
2,092
201 2,541 Funds held*
$ 21,708 Total investable assets
Enstar Group Limited | 2021 Form 10-K
69
Table of Contents
Item 7 | Management Discussion and Analysis | Non-GAAP Financial Measures
Consolidated Balance
Sheet View
2020
Exchange
traded funds
backed by
fixed income
securities
Bond fund
held in
equity
format
Equities,
privately held
equity, private
credit and real
estate held in
fund format
Real
estate
held in
other
CLO
equity
funds
Other assets
and
liabilities in
funds held
format
Management's View
of Underlying
Economic Exposure
2020
Short-term and fixed
maturity investments,
trading and AFS and funds
held - directly managed,
excluding other assets
Total
9,319
Other assets included within
funds held - directly managed
Equities
Publicly traded equities
Exchange-traded funds
Privately held equities
Total
Other Investments
15
261
311
275
847
Hedge funds
2,638
(156)
(54)
Fixed income funds
553
156
54
Equity funds
Private equity funds
CLO equities
CLO equity funds
Private credit funds
191
363
128
167
192
Real estate debt fund
—
Other
Total
12
4,244
Equity method investments
832
Total investments
15,257
Cash and cash equivalents
(including restricted cash)
1,373
Funds held by reinsured
companies
636
Total investable assets
$ 17,266
*Non-GAAP measure.
191
3
(191)
(137)
107
27
167
(167)
12
(12)
9,319 Fixed maturities
(15)
—
261
292
278
831 Equities*
2,638 Hedge funds
763 Bond/loan funds*
—
226 Private equity funds*
295 CLO equities*
—
299 Private credit*
39 Real estate*
—
4,260
832
Equity method
investments
15,242
Cash and cash
equivalents (including
restricted cash)
1,373
15
651 Funds held*
$ 17,266 Total investable assets
70
Enstar Group Limited | 2021 Form 10-K
Item 7 | Management Discussion and Analysis | Other Financial Measures
Table of Contents
Other Financial Measures
In addition to our non-GAAP financial measures presented above, we refer to TIR, which provides a key measure of
the return generated on the capital held in the business. It is reflective of our investment strategy and it provides a
consistent measure of investment returns as a percentage of all assets generating investment returns.
The following table provides the calculation of our TIR by segment for the years ended December 31, 2021, 2020
and 2019:
2021
Legacy
Underwriting
Investments
Total
Investments
2020
Legacy
Underwriting
2019
Total
Investments
Legacy
Underwriting
Total
(in millions of U.S. dollars)
4
1
5
481
488
969
56
$
$
$
—
$
4
—
—
1
5
$
31
512
7
38
—
79
495
$ 1,007
56
$ 1,376
Net investment income:
Fixed income securities
$
273
$
Cash and restricted cash
Other investments, including
equities
Less: Investment expenses
Net investment income
Net realized gains:
Fixed income securities
Other investments, including
equities
Net realized (losses) gains
Net unrealized (losses) gains):
$
$
$
—
73
(37)
309
$
3
—
—
—
3
$ 276
$
243
$
—
73
(37)
2
39
(14)
25
2
8
(2)
$ 268
$
250
$
4
47
(16)
9
20
(12)
30
5
8
(2)
$ 280
14
28
(14)
$ 312
$
270
$
33
$ 303
$
267
$
41
$ 308
(4)
$
—
$
(4)
$
16
$
2
$ 18
$
(57)
(61)
$
—
—
(57)
$ (61)
$
1
17
$
—
2
1
$ 19
$
Fixed income securities, trading
(203)
(3)
(206)
284
4
288
Other investments, including
equities
Net unrealized (losses) gains
$
Earnings from equity method
investments
384
181
93
—
384
1,327
$
(3)
$ 178
$
1,611
$
—
—
93
239
$ 522
$
2,137
$
1,335
$ 1,623
$
239
8
12
—
47
TIR ($)
$
522
$
$ 2,184
$
1,297
$
Fixed maturity and short-term
investments, trading and AFS and
funds held - directly managed
Other assets included within funds
held - directly managed
Equities
Other investments
Equity method investments
$ 12,072
$
182
$ 12,254
$
8,669
$
650
$ 9,319
$
8,171
$
864
$ 9,035
201
1,995
2,319
493
—
—
14
—
201
1,995
2,333
493
15
774
4,146
597
—
73
98
15
847
4,244
235
832
14
577
2,387
326
—
150
131
14
727
2,518
—
326
Total investments
$ 17,080
$
196
$ 17,276
$ 14,201
$
1,056
$ 15,257
$ 11,475
$
1,145
$ 12,620
Cash and cash equivalents,
including restricted cash and cash
equivalents
Funds held by reinsured companies
2,062
2,306
30
34
2,092
2,340
1,112
554
261
1,373
82
636
671
345
300
131
971
476
Total investable assets
$ 21,448
$
260
$ 21,708
$ 15,867
$
1,399
$ 17,266
$ 12,491
$
1,576
$ 14,067
Average aggregate invested assets,
at fair value (1)
TIR % (2)
Income from fixed income assets (3)
Average aggregate fixed income
assets, at cost (3)(4)
Investment book yield (5)
$ 20,594
$
246
$ 20,840
$ 13,982
$
1,461
$ 15,443
$ 12,140
$
1,618
$ 13,758
2.5 %
273
— %
2.5 %
15.3 %
3.2 %
14.1 %
10.7 %
4.9 %
10.0 %
3
276
245
27
272
259
35
294
14,733
231
14,964
9,508
1,246
10,754
9,104
1,414
10,518
1.9 %
1.3 %
1.8 %
2.6 %
2.2 %
2.5 %
2.8 %
2.5 %
2.8 %
(1) This amount is a five period average of the total investable assets, as presented above, and is comprised of amounts disclosed in our quarterly
and annual U.S. GAAP consolidated financial statements.
(2) Total investment return % is calculated by dividing total investment return ($) by average aggregate invested assets, at fair value.
(3) Fixed income assets include fixed income securities and cash and restricted cash, and funds held by reinsured companies.
(4) These amounts are an average of the amounts disclosed in our quarterly and annual U.S. GAAP consolidated financial statements.
(5) Investment book yield % is calculated by dividing income from fixed income assets by average aggregate fixed income assets, at cost.
Enstar Group Limited | 2021 Form 10-K
71
Table of Contents
Item 7 | Management Discussion and Analysis | Results of Operations by Segment
Results of Operations by Segment - For the Years Ended December 31, 2021 and 2020
Upon completion of our strategic transactions related to both Atrium and StarStone, our chief operating decision
maker, our CEO, changed their view of how to evaluate our businesses, allocate resources and assess
performance, as a result the segment structure was revised effective January 1, 2021.
Following the acquisition of Enhanzed Re on September 1, 2021, our business is organized into four reportable
segments: (i) Run-off; (ii) Enhanzed Re; (iii) Investments; and (iv) Legacy Underwriting. In addition, our corporate
and other activities, which do not qualify as an operating segment, includes income and expense items that are not
directly attributable to our reportable segments19.
The following is a discussion of our results of operations by segment.
19
For a description of our segments and our corporate and other activities, see "Item 1. Business - Operating Segments" and "Corporate and
Other" below, respectively.
72
Enstar Group Limited | 2021 Form 10-K
Item 7 | Management Discussion and Analysis | Results of Operations by Segment | Run-off Segment
Table of Contents
Run-off Segment
The following is a discussion and analysis of the results of operations for our Run-off segment.
INCOME
Net premiums earned
Other income:
Reduction in estimates of net ultimate defendant A&E liabilities - prior periods
Reduction in estimated future defendant A&E expenses
All other income
Total other income
EXPENSES
Net incurred losses and LAE:
Current period
Prior period
Total net incurred losses and LAE
Acquisition costs
General and administrative expenses
2021
2020
Change
(in millions of U.S. dollars)
$
182 $
59 $
123
38
5
30
73
255
144
(338)
(194)
44
188
38
103
9
20
132
191
30
(175)
(145)
20
173
48
(65)
(4)
10
(59)
64
114
(163)
(49)
24
15
(10)
74
SEGMENT NET EARNINGS
$
217 $
143 $
2021 versus 2020: Segment income from our Run-off segment increased by $74 million, primarily due to:
•
•
•
Net premiums earned increased by $123 million from StarStone International business and new business
transactions executed in this and recent periods. Net premiums earned of $182 million included $106 million of
premiums from StarStone International, which was transferred into the Run-off Segment on January 1, 2021,
whereas net premiums earned in 2020 were primarily related to AmTrust RITC transactions assumed in 2019.
Net incurred losses and LAE decreased by $49 million due to a $163 million increase in favorable development
on prior period losses partially offset by an increase in current period losses of $114 million due to the transfer
of the StarStone International business from the Legacy Underwriting segment on January 1, 2021.
The $163 million increase in favorable prior period development primarily consists of:
◦
◦
◦
◦
$51 million increase in favorable development on the workers’ compensation line of business in 2021 as a
result of reduced claims activity, favorable settlements on open claims and the completion of commutations;
$105 million reduction in adverse development on the motor line of business compared to 2020. 2020 was
impacted by higher than expected severity in respect of a recently assumed LPT;
$41 million increase in favorable development on the construction defect line of business in 2021;
$82 million increase in favorable development on the property and other lines of business in 2021.
This favorable prior period developments were partially offset by;
•
$142 million increases in prior period estimates of net ultimate losses in our general casualty line of
business due to an increase in opioid exposure and greater than expected adverse development.
In addition:
• Other income decreased by $59 million primarily driven by reduced levels of favorable development in our
estimate of ultimate net defendant A&E liabilities; and
•
Acquisition costs increased by $24 million primarily due to the transfer of StarStone International from the
Legacy Underwriting segment on January 1, 2021.
Enstar Group Limited | 2021 Form 10-K
73
Table of Contents
Item 7 | Management Discussion and Analysis | Results of Operations by Segment | Enhanzed Re Segment
Enhanzed Re Segment
We purchased an additional 27.7% in Enhanzed Re, a company that was previously accounted for as an equity
method investment. We now own 75.1% of this company and have consolidated it as of September 1, 2021. The
Enhanzed Re segment consists of life and property aggregate excess of loss (catastrophe) business.
As we report the results of this segment on a one quarter lag, our results for the year ended December 31, 2021
only include one month of earnings. The following is a discussion and analysis of the results of operations for our
Enhanzed Re segment.
INCOME
Net premiums earned
EXPENSES
Net incurred losses and LAE - current period
Policyholder benefit expenses
General and administrative expenses
SEGMENT NET EARNINGS
Overall Results
2021
(in millions of U.S.
dollars)
$
$
5
5
2
(4)
1
(1)
6
Segment earnings were $6 million as a result of net premiums earned and a reduction in policyholder benefit
expenses. This was partially offset by net incurred losses and LAE driven by the recognition of net premiums earned
during the period.
74
Enstar Group Limited | 2021 Form 10-K
Item 7 | Management Discussion and Analysis | Results of Operations by Segment | Investments Segment
Table of Contents
Investments Segment
The following is a discussion and analysis of the results of operations for our Investments segment.
INCOME
Net investment income:
Fixed income securities
Cash and restricted cash
Other investments, including equities
Less: Investment expenses
Total net investment income
Net realized (losses) gains:
Fixed income securities
Other investments, including equities
Total net realized (losses) gains
Net unrealized gains (losses):
Fixed income securities, trading
Other investments, including equities
Total net unrealized gains
EXPENSES
General and administrative expenses
Earnings from equity method investments
SEGMENT NET EARNINGS
Overall Results
2021
2020
Change
(in millions of U.S. dollars)
$
273 $
243 $
—
73
(37)
309
(4)
(57)
(61)
(203)
384
181
429
37
37
93
2
39
(14)
270
16
1
17
284
1,327
1,611
1,898
35
35
239
30
(2)
34
(23)
39
(20)
(58)
(78)
(487)
(943)
(1,430)
(1,469)
2
2
(146)
$
485 $
2,102 $
(1,617)
2021 versus 2020: Segment income from our Investments segment decreased by $1.6 billion primarily as a result
of decreases in net realized and unrealized gains of $1.5 billion. The decrease is largely a result of current year net
realized and unrealized losses of $58 million related to the InRe Fund, in comparison to net unrealized gains of
$1.2 billion in the prior year, and current year net realized and unrealized losses on our fixed income securities of
$207 million, in comparison to net realized and unrealized gains of $300 million in the prior year.
Enstar Group Limited | 2021 Form 10-K
75
Table of Contents
Item 7 | Management Discussion and Analysis | Results of Operations by Segment | Investments Segment
Total Investments
Fixed income securities
Refer to the below tables for the fair value, duration, and credit rating of our fixed income securities by business:
Run-off
2021
Enhanzed Re (1)
Fair
Value
%
Duration
(years) (2)
Credit
Rating (3)
Fair
Value
%
Duration
(years) (2)
Credit
Rating (3)
Total
Total %
(in millions of U.S. dollars, except percentages)
Fixed maturity and short-
term investments, trading
and AFS and funds held -
directly managed
U.S. government & agency $ 737
— %
— %
n/a
n/a
n/a
n/a
1.9 %
12.10
BBB
$
737
82
615
6.1 %
0.7 %
5.1 %
U.K. government
Other government
Corporate
Municipal
Residential mortgage-
backed
Commercial mortgage-
backed
Asset-backed
Structured products
6.1 %
0.7 %
3.2 %
82
387
6,532
54.1 %
272
2.3 %
597
4.9 %
1,074
937
—
8.9 %
7.8 %
— %
$ 10,618
88.0 %
6.4
9.8
6.8
6.4
9.2
2.8
3.1
0.3
n/a
5.4
AAA
AA-
AA
A-
AA-
AA+
AA+
AA-
n/a
A
$ —
—
228
193
—
—
—
—
1.6 %
— %
6.70
n/a
— %
— %
— %
n/a
n/a
n/a
1,033
8.5 %
19.20
$ 1,454
12.0 %
16.40
A-
n/a
n/a
n/a
n/a
A-
A-
6,725
55.7 %
272
2.3 %
597
4.9 %
1,074
937
1,033
8.9 %
7.8 %
8.5 %
$ 12,072
100.0 %
(1) Investments under the Enhanzed Re caption comprise those that support our life reinsurance business.
(2) The duration calculation includes short-term investments, fixed maturities and the fixed maturities within our funds held-directly managed
portfolios at December 31, 2021 and 2020.
(3) The average credit ratings calculation includes short-term investments, fixed maturities and the fixed maturities within our funds held - directly
managed portfolios at December 31, 2021 and 2020.
2020
Fair Value
%
Duration
(years) (1)
Credit
Rating (2)
(in millions of U.S. dollars, except percentages)
Fixed maturity and short-term
investments, trading and AFS and
funds held - directly managed
U.S. government & agency
$
U.K. government
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
Total
865
33
487
10.0 %
0.4 %
5.6 %
5,420
62.6 %
160
487
766
451
1.8 %
5.6 %
8.8 %
5.2 %
$
8,669
100.0 %
3.5
8.4
6.8
6.9
9.9
2.0
3.8
0.3
5.7
AAA
AA-
AA
A-
A+
AAA
AA+
AA-
A+
(1) The duration calculation includes short-term investments, fixed maturities and the fixed maturities within our funds held-directly managed
portfolios at December 31, 2021 and 2020.
(2) The average credit ratings calculation includes short-term investments, fixed maturities and the fixed maturities within our funds held - directly
managed portfolios at December 31, 2021 and 2020.
Run-off portfolio: As of December 31, 2021, our fixed income securities had an average credit quality of A and a
weighted average duration of 5.4 years.
76
Enstar Group Limited | 2021 Form 10-K
Item 7 | Management Discussion and Analysis | Results of Operations by Segment | Investments Segment
Table of Contents
Enhanzed Re portfolio: As of December 31, 2021, our fixed income securities had an average credit quality of A-
and a weighted average duration of 16.4 years.
Other investments, including equities
Refer to the below table for the composition of our other investments, including equities:
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
Private credit funds
Real estate debt fund
Other
Total
2021
2020
(in millions of U.S. dollars)
$
281 $
1,342
372
1,995
291
559
5
752
161
207
275
69
—
261
238
275
774
2,618
507
191
336
128
167
187
12
—
$
2,319 $
4,146
Our equities investments increased by $1.2 billion compared to the prior year, primarily due to fixed income
exchange-traded funds held in the Enhanzed Re portfolio. Our other hedge fund investments declined by $2.3
billion compared to the prior year, primarily due to the liquidation of the InRe Fund.
Equity Method Investments
Refer to the below table for a summary of our equity method investments, which does not include those investments
we have elected to measure under the fair value option:
Enhanzed Re
Citco (1)
Monument Re (2)
Core Specialty
Other
2021
2020
Ownership
%
Carrying
Value
Earnings from
equity method
investments
Ownership
%
Carrying
Value
Earnings from
Equity Method
Investments
— % $
— $
31.9 %
20.0 %
24.7 %
27.0 %
56
194
225
18
$
493 $
82
4
14
(6)
(1)
93
47.4 % $
330 $
31.9 %
20.0 %
25.2 %
27.0 %
53
194
235
20
$
832 $
147
2
88
—
2
239
(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
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.
The carrying value of our equity method investments decreased largely due to of our acquisition of Enhanzed Re
during the year, which resulted in us consolidating Enhanzed Re effective September 1, 202120.
Our earnings from equity method investments decreased, due to reductions in both Enhanzed Re and Monument
Re earnings. The reduction in Enhanzed Re earnings was primarily driven by catastrophe losses from the European
20 Refer to Note 4 to the consolidated financial statements for further information.
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Item 7 | Management Discussion and Analysis | Results of Operations by Segment | Investments Segment
storms, German Floods and worsening of COVID-19 claims sustained in the second quarter of 2021 for which our
share of losses was $35 million, partially offset by significant net realized and unrealized gains on investments in the
last quarter of 2020. The reduction in Monument Re earnings was as a result of a decrease in bargain purchase
gains in 2021 in comparison to 2020.
Earnings from equity method investments for the year ended December 31, 2020 were driven primarily by our
investments in Enhanzed Re, which reflected significant net realized and unrealized gains on investments in the
second and third quarters of 2020, and Monument Re.
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Item 7 | Management Discussion and Analysis | Results of Operations by Segment | Legacy Underwriting Segment
Table of Contents
Legacy Underwriting Segment
The following is a discussion and analysis of the results of operations for our Legacy Underwriting segment.
INCOME
Net premiums earned
Net investment income
Net realized gains
Net unrealized (losses) gains
Other (expenses) income
EXPENSES
Net incurred losses and LAE
Current Period
Prior Period
Total net incurred losses and LAE
Acquisition costs
General and administrative expenses
SEGMENT EARNINGS
Overall Results
2021 versus 2020:
2021
2020
(in millions of U.S. dollars)
Change
$
58 $
513 $
(455)
3
—
(3)
(15)
43
26
(6)
20
13
10
43
33
2
12
27
587
375
(4)
371
151
158
680
$
— $
(93) $
(30)
(2)
(15)
(42)
(544)
(349)
(2)
(351)
(138)
(148)
(637)
93
The results for 2021 comprise SGL No.1 Limited (“SGL No.1”)'s 25% gross share of the 2020 and prior underwriting
years of Atrium's syndicate 609 whereas the results for 2020 comprise SGL No.1's 25% net share of Atrium's
syndicate 609 and StarStone International, which was transferred to the Run-off segment effective January 1, 2021.
As of January 1, 2021, SGL No.1 settles its share of the 2020 and prior underwriting years for the economic benefit
of Atrium, and there is no net retention by Enstar.
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Item 7 | Management Discussion and Analysis | Corporate and Other
Corporate and Other
The following is a discussion and analysis of our results of operations for our corporate and other activities.
INCOME
Other income (expense):
2021
2020
Change
(in millions of U.S. dollars)
Amortization of fair value adjustments (1)
$
(16) $
(12) $
All other expense
Total other expense
Net gain on purchase and sales of subsidiaries
EXPENSES
Net incurred losses and LAE:
Amortization of DCAs (2)
Amortization of fair value adjustments
Changes in fair value - fair value option (3)
Total net incurred losses and LAE
Policyholder benefit expenses
General and administrative expenses
Interest expense
Net foreign exchange gains (losses)
Income tax expense
Net earnings from discontinued operations, net of income taxes
Net (earnings) loss attributable to noncontrolling interest
Dividends on preferred shares
—
(16)
73
57
120
16
(75)
61
1
131
193
(69)
12
(27)
—
(15)
(36)
(7)
(19)
3
(16)
43
28
119
190
—
136
326
(59)
(16)
(24)
16
28
(36)
NET LOSS ATTRIBUTABLE TO ENSTAR ORDINARY SHAREHOLDERS
$
(271) $
(433) $
(4)
7
3
70
73
77
(12)
(194)
(129)
1
(5)
(133)
(10)
28
(3)
(16)
(43)
—
162
(1) Amortization of fair value adjustments relates to the acquisition of DCo, LLC and Morse TEC LLC.
(2) For the years ended December 31, 2021, 2020 and 2019, amortization of deferred charge assets includes net cumulative effect adjustments of
$71 million, $2 million and $11 million, respectively, arising as a result of prior period development on net ultimate liabilities recorded in our
Run-off segment.
(3) Comprises the discount rate and risk margin components.
Overall Results
2021 versus 2020: Net loss from corporate and other activities decreased by $162 million, primarily due to:
•
•
Net gain recognized on the purchase and sales of subsidiaries of $73 million, which has two components: i) the
$47 million gain recognized on the Step Acquisition of Enhanzed Re and ii) the net gain on sales of subsidiaries
of $26 million, primarily as a result of the gain on the sale of SUL of $23 million;
Reduction in net incurred losses of $129 million primarily driven by the change in the fair value of liabilities for
which we have elected the fair value option due to increases in corporate bond yields, partially offset by
tightening credit spreads for the year ended December 31, 2021, in comparison to declining interest rates
partially offset by widening credit spreads for the year ended December 31, 2020.
This was partially offset by:
•
Unfavorable change in net (earnings) loss attributable to noncontrolling interest of $43 million, due to higher
earnings in 2021 for those companies where there is a noncontrolling interest.
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Item 7 | Management Discussion and Analysis | Current Outlook
Table of Contents
Current Outlook
We are subject to economic factors such as interest rates, inflationary pressures, foreign exchange rates, favorable
and unfavorable underwriting events, regulation, tax policy changes, political risks and other market risks that can
impact our strategy and operations21.
Impact of COVID-19
Due to the ongoing and evolving nature of the COVID-19 pandemic, we are continuing to assess the impact on our
business, operations and financial condition as it occurs. The overall financial and operational impact to us has
been minimal to-date, with virtually all of our employees working remotely or on an agile basis.
As of December 31, 2021, our Run-off, Enhanzed Re and Legacy Underwriting segments had COVID-19 related net
liabilities of $87 million, $56 million and $4 million, respectively.
Inflation
We continue to monitor inflationary impacts resulting from government stimulus, sharp increases in demand, labor
force and supply chain disruptions, among other factors, on our loss cost trends. Our run-off net loss reserves
primarily consists of casualty, workers’ compensation and asbestos lines of business which, as long tailed lines of
business, have not so far, been impacted by recent inflationary pressures in comparison to other property and auto
lines of business, for example.
Governmental policy responses to inflation may increase interest rates which, in the short term, will have a
significant impact on our investments, in particular our fixed maturity securities. We will continue to monitor our
liquidity, capital and potential earnings impact of these changes but remain focused on medium to long term asset
allocation decisions.
Inflation may result in increased wage pressures for our operating expenses, as we remain focused on being a
competitive employer in our market.
Run-off Outlook
We continue to evaluate transactions in our active pipeline including LPTs, ADCs, and other transaction types
including acquisitions, and seek opportunities to execute on creative and accretive transactions by offering
innovative capital release solutions that enable our clients to meet their capital and risk management objectives.
Transactions
On January 10, 2022, we entered into an agreement with Aspen Insurance Holdings Limited ("Aspen") to assume
$3.1 billion of net loss reserves in a LPT transaction, subject to a limit of $3.6 billion. An existing ADC between
Aspen and us that closed in June 2020 will be absorbed into this LPT.
Enhanzed Re
Upon completion of the Step Acquisition of Enhanzed Re on September 1, 2021, we acquired liabilities for future
policyholder benefits of $1.5 billion. We may enter into further life and annuity reinsurance transactions, which would
increase our exposure to interest rate movements and longevity risks, as well as other risks associated with life
reinsurance.
We also acquired Enhanzed Re's share of Allianz's catastrophe reinsurance business and associated net losses
related to events occurring during 2021. This includes the German Floods, Hurricane Ida, the European Storms and
the Texas Winter Storms, as well as net loss reserves relating to prior period loss events, which primarily relates to
business interruption claims arising from COVID-19.
Although we have not renewed the catastrophe treaties for 2022, our future results could be impacted by net
favorable or unfavorable prior period loss development on the acquired reserves.
21 For additional information on the risks, refer to "Item 1A. Risk Factors - Risks Relating to our Run-off Business."
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Item 7 | Management Discussion and Analysis | Current Outlook
Investment Outlook
Global financial markets were far more stable in 2021 than during 2020. Supportive fiscal and monetary policies and
gradual reopening of economies around the world resulted in strong economic growth. Risk assets rallied, M&A
activity accelerated, corporate credit spreads continued to tighten, and defaults remained well below average as
companies posted strong corporate earnings.
Against this backdrop, U.S. inflation reached levels unseen for 40 years.
As a result, we anticipate elevated volatility in the global investment markets this year as governments and central
banks take action to address rising inflation by tightening monetary policy. The U.S. Federal Reserve has indicated
that it intends to cut back on its bond-buying program and initiate a series of interest rate increases as early as the
first quarter of 2022.
Higher interest rates would create a negative unrealized impact on our fixed income investments, but could also
provide us with the opportunity to reinvest at higher yields as our securities mature or we invest premium received
from new business. Furthermore, a portion of our portfolio is allocated to floating-rate assets, which should mitigate
some of the impact of rising rates.
In addition to our core fixed income portfolio, our other investments, including equities, are expected to provide
higher returns and diversification benefits over the long-term, although this may be more volatile in the short term.
We are actively seeking investment opportunities with inflationary pass-through components, including private
credit, real estate, and infrastructure.
In the fourth quarter of 2021, we completed the orderly liquidation of the InRe Fund. We anticipate redeploying
$1.0 billion of this capital into various other investments in 2022, including those mentioned above.
Capital Outlook and Transactions
S&P Model
S&P has announced that it intends to change its capital adequacy model. While the proposed model proposes
changes to insurance diversification credits which could benefit us, it also proposes disallowing rating credit for Tier
3 Senior Debt and the recalibration of capital charges to higher confidence levels. The proposal has not been
finalized, but it could increase the level of capital S&P requires for a particular financial strength rating.
As part of our capital management strategy, we will continue to make our own assessment of the appropriate level
of capital to support our business operations.
Debt Issuance
On January 14, 2022, our wholly-owned subsidiary, Enstar Finance LLC ("Enstar Finance") issued Junior
Subordinated Notes due 2042 (the "2042 Junior Subordinated Notes") in an aggregate principal amount of
$500 million.
The 2042 Junior Subordinated Notes are unsecured junior subordinated obligations of Enstar Finance, and are fully
and unconditionally guaranteed by Enstar.
The net proceeds will be used to fund the payment at maturity of the outstanding $280 million aggregate principal
amount of our 4.5% Senior Notes, which mature on March 10, 2022. We intend to use the remaining net proceeds
from this offering for general corporate purposes, including, but not limited to, funding our acquisitions, working
capital and other business opportunities.
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Item 7 | Management Discussion and Analysis | Liquidity and Capital Resources
Table of Contents
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 new business, and develop relationships with lenders who provide borrowing capacity at
competitive rates.
Our capital resources as of December 31, 2021 included ordinary shareholders' equity of $5.6 billion, preferred
equity of $510 million, redeemable noncontrolling interest of $179 million and debt obligations of $1.7 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:
2021
Ordinary shareholders' equity
Series D and E Preferred Shares
Total Enstar Shareholders' Equity
Noncontrolling interest
Total Shareholders' Equity
Debt obligations
Redeemable noncontrolling interest
Total capitalization
Total capitalization attributable to Enstar
$
$
$
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
2020
(in millions of U.S. dollars)
$
$
5,586
510
6,096
230
6,326
6,164
510
6,674
14
6,688
$
$
1,691
179
8,196
7,787
20.6 %
26.9 %
21.7 %
28.3 %
$
$
1,373
365
8,426
8,047
16.3 %
22.3 %
17.1 %
23.4 %
Change
(578)
—
(578)
216
(362)
318
(186)
(230)
(260)
4.3 %
4.6 %
4.6 %
4.9 %
As of December 31, 2021, we had $1.6 billion of cash and cash equivalents, excluding restricted cash that supports
(re)insurance operations, and included in this amount was $314 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, 2021
for any material withholding taxes on dividends or other distributions.
Dividends
Historically, we have not declared and have no current expectation to declare a dividend on our ordinary shares.
Our 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. In 2021, we
repurchased 3,749,400 ordinary shares as part of our strategic separation with Hillhouse Group22.
We have issued 16,000 Series D Preferred Shares with an aggregate liquidation value of $400 million and 4,400
Series E Preferred Shares with an aggregate liquidation value of $110 million. The dividends on both Series of
Preferred Shares are non-cumulative and may be paid quarterly in arrears, only when, as and if declared.
22 As described in Note 18 to the consolidated financial statements.
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Item 7 | Management Discussion and Analysis | Liquidity and Capital Resources
Any payment of common or preferred dividends must be approved by our Board. Our ability to pay ordinary and
preferred dividends is subject to certain restrictions.
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.
On September 1, 2021, we acquired the obligations under Enhanzed Re's 5.50% Subordinated Notes due 2031
(the "2031 Subordinated Notes") which were issued to Allianz, Enhanzed Re's minority shareholder.
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
Senior Notes, our Junior Subordinated Notes and the 2031 Subordinated Notes (together with the Junior
Subordinated Notes, the "Subordinated Notes").
Under the eligible capital rules of the BMA, the Senior Notes qualify as Tier 3 capital and the Preferred Shares and
Subordinated Notes qualify as Tier 2 capital when considering the Bermuda Solvency Capital Requirements.
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
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 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
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.
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Item 7 | Management Discussion and Analysis | Liquidity and Capital Resources
Table of Contents
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.
As of December 31, 2021, all of our (re)insurance subsidiaries’ capital requirement levels were in excess of the
minimum levels required.
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.
Our sources of funds primarily consist of cash and investment portfolios acquired on the completion of acquisitions
and new business, investment income earned, proceeds from sales and maturities of investments and collection of
reinsurance receivable.
Cash balances acquired upon the purchase of (re)insurance companies are classified as cash provided by investing
activities, whereas cash from new business 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. Cash provided by operating activities was positive for 2021 and 2020 as the cash from
new business and the sale of trading securities exceeded cash used in the purchase of trading securities, with the
net proceeds being used in the purchase of AFS securities and other investments included within investing cash
flows.
Overall, we expect our cash flows, together with our existing capital base and cash and investments acquired and
from new 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
Net change in cash of businesses held-for-sale
Cash and cash equivalents, end of year
Reconciliation to Consolidated Balance Sheets:
Cash and cash equivalents
Restricted cash and cash equivalents
Total cash, cash equivalents and restricted cash
2021
2020
Change
(in millions of U.S. dollars)
$
$
$
$
3,801 $
(2,573)
(737)
—
4
495
1,373
224
2,092 $
1,646 $
446
2,092 $
2,786 $
(2,335)
118
(22)
(6)
541
971
(139)
1,373 $
901 $
472
1,373 $
1,015
(238)
(855)
22
10
(46)
402
363
719
745
(26)
719
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, 2021, 2020 and 2019" of this Annual
Report on Form 10-K.
2021 versus 2020: Cash and cash equivalents increased by $495 million in 2021 compared to $541 million during
2020.
2021: Cash and cash equivalents increased by $495 million in 2021, as cash provided by operating activities of $3.8
billion was partially offset by cash used in investing and financing activities of $2.6 billion and $737 million,
respectively.
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Item 7 | Management Discussion and Analysis | Liquidity and Capital Resources
Cash provided by operations in 2021 was predominantly driven by:
(i) the cash inflows from net sales and maturities of trading securities of $3.1 billion, primarily driven by the InRe
Fund; and
(ii) cash, restricted cash and cash equivalents from new business of $2.0 billion; partially offset by,
(iii) the timing of paid losses.
Cash used in investing activities in 2021 primarily related to:
(i) net purchases of AFS securities of $2.1 billion; and
(ii) net subscriptions of other investments of $580 million; partially offset by
(iii) the impact of consolidating the opening cash and restricted cash balances of the InRe Fund of $574 million.
Cash used in financing activities in 2021 was attributable to share repurchases and preferred share dividends,
partially offset by the net receipt of loans of $242 million.
The change in cash of businesses held-for-sale is due to the disposal of Northshore.
2020: Cash and cash equivalents increased by $541 million in 2020, as cash provided by operating and financing
activities of $2.8 billion and $118 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 Run-off reinsurance transactions of $1.6 billion; partially offset by
(iii) the timing of paid losses.
Cash provided by financing activities in 2020 was primarily attributable to the net receipt of loans of $180 million,
partially offset by share repurchases and preferred share dividends.
Cash used in investing activities in 2020 was primarily related to net purchases of AFS securities of $1.9 billion and
net subscriptions of other investments of $380 million.
The change in cash of businesses held-for-sale was due to the disposal of StarStone U.S. and the classification of
the assets and liabilities of Northshore as held-for-sale as of December 31, 2020.
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 $21.7 billion as of December 31, 2021 as compared to $17.3
billion as of December 31, 2020, an increase of 25.7% primarily attributable to the Step Acquisition of Enhanzed Re
and significant new business in 2021.
Reinsurance Balances Recoverable on Paid and Unpaid Losses
As of December 31, 2021 and 2020, we had reinsurance balances recoverable on paid and unpaid losses of $1.5
billion and $2.1 billion, respectively.
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. Previously, on an annual basis, StarStone
International, included within the Run-off segment from January 1, 2021, purchased a tailored outwards reinsurance
program designed to manage its risk profile. The majority of StarStone International'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.
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Item 7 | Management Discussion and Analysis | Liquidity and Capital Resources
Table of Contents
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, 2021 and 2020 were as follows:
Origination Date
Term
2021
2020
(in millions of U.S. dollars)
5 years
$
280 $
4.50% Senior Notes due 2022
4.95% Senior Notes due 2029
3.10% Senior Notes due 2031
Total Senior Notes
March 10, 2017
May 28, 2019
August 24, 2021
10 years
10 years
5.75% Junior Subordinated Notes due 2040
August 26, 2020
20 years
5.50% Enhanzed Re's Subordinated Notes
due 2031
December 20, 2018
12.1 years
Total Subordinated Notes
EGL Revolving Credit Facility
Total debt obligations
August 16, 2018
5 years
495
495
1,270
345
76
421
—
349
494
—
843
345
—
345
185
$
1,691 $
1,373
Our debt obligations increased by $318 million from December 31, 2020, primarily due to the issuance of our 2031
Senior Notes and the Step Acquisition of Enhanzed Re, where we acquired the obligations under the 2031
Subordinated Notes partially offset by the repayment of our Revolving Credit Facility and our tender offer for a
portion of our 2022 Senior Notes.
On January 14, 2022, Enstar Finance issued $500 million of junior subordinated notes due 2042 that are
guaranteed by us.
Credit Ratings
The following table presents our credit ratings as of February 24, 2022:
Credit ratings (1)
Long-term issuer
2022 and 2029 Senior Notes
2031 Senior Notes
2040 and 2042 Junior Subordinated Notes (2)
2031 Subordinated Notes
Series D and E preferred shares
Standard and Poor’s
BBB (Outlook: Positive)
BBB
BBB-
BB+
Not Rated
BB+
Fitch Ratings
BBB (Outlook: Positive)
BBB-
BBB-
BB+
Not Rated
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.
(2) 2042 Junior Subordinated Notes issued on January 14, 2022,see Note 25 to our consolidated financial statements for further information.
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 rating23.
23 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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Item 7 | Management Discussion and Analysis | Liquidity and Capital Resources
Contractual Obligations
The following table summarizes, as of December 31, 2021, our future payments under material contractual
obligations and estimated payments for losses and LAE and future policyholder benefits for the Run-off and
Enhanzed Re segments by expected payment date. The table includes only obligations that are expected to be
settled in cash.
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
Total outstanding losses and IBNR
ULAE
Estimated gross reserves for losses and LAE for
the Run-off segment (1)
Estimated gross reserves for losses and LAE
for the Enhanzed Re segment
Catastrophe
ULAE
Estimated gross reserves for losses and LAE
for the Enhanzed Re segment (1)
Future policyholder benefits (2)
Investing Activities
Short-term
Less than
1 Year
Total
Long Term
1 - 3
years
3 - 5
years
6 - 10
years
More than
10 Years
(in millions of U.S. dollars)
$
1,978 $
181 $
313 $
281 $
422 $
380
3,499
2,902
525
132
1,565
745
435
535
12,696
421
47
340
312
155
25
244
214
151
168
64
420
485
154
35
318
178
160
146
56
717
439
80
23
304
91
58
68
1,837
69
2,273
85
2,117
65
86
1,326
549
83
27
510
104
48
73
3,228
92
781
127
696
1,117
53
22
189
158
18
80
3,241
110
13,117
1,906
2,358
2,182
3,320
3,351
179
3
182
1,639
89
1
90
62
90
2
92
161
—
—
—
—
—
—
—
—
—
145
275
996
Unfunded investment commitments (3)
1,824
527
717
396
184
—
Financing Activities
Loan repayments (including estimated interest
payments)
2,471
354
130
129
1,327
531
Total
$
19,233 $
2,939 $
3,458 $
2,852 $
5,106 $
4,878
(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
consolidated 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, 2021 and do not take into account corresponding reinsurance
recoverable amounts that would be due to us. Furthermore, certain of the reserves included in the consolidated financial statements as of
December 31, 2021 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.
(2) Future policyholder benefits recorded in our audited consolidated balance sheet as of December 31, 2021 of $1.5 billion are computed on a
discounted basis, whereas the expected payments by period in the table above are the estimated payments at a future time and do not reflect
a discount of the amount payable.
(3) Refer to "Unfunded Investment Commitments" in Note 24 to our consolidated financial statements for further details.
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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. The settlement of liabilities also has the potential to accelerate the natural payout of losses and
policyholder benefits, which may require additional liquidity.
In addition to the contractual obligations noted in the table above, as of December 31, 2021, we have the right to
purchase the redeemable non-controlling interest (“RNCI”) related to StarStone International from the Trident V
Funds and Dowling Capital Partners I, L.P. and Capital City Partners LLC (collectively, the “Dowling Funds”) after a
certain time in the future (a "call right") and the RNCI holders have the right to sell their RNCI interests to us after a
certain time in the future (a "put right").
Off-Balance Sheet Arrangements
As of December 31, 2021, we have entered into certain investment commitments and parental guarantees24. We
also utilize unsecured and secured letters of credit (“LOCs”) and a deposit facility25. We do not believe it is
reasonably likely that these arrangements will have a material current or future effect on our financial condition,
changes in financial condition, revenues and expenses, results of operations, liquidity, cash requirements or capital
resources.
24 Refer to Note 24 to our consolidated financial statements for further details.
25 Refer to Note 16 to our consolidated financial statements for further details.
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Item 7 | Management Discussion and Analysis | Critical Accounting Estimates
Critical Accounting Estimates
We believe the following accounting policies are most dependent on significant judgments and estimates used in
the preparation of our financial statements.
Losses and LAE
Run-off
Losses and LAE liabilities represent our best estimate of the ultimate remaining liability for unpaid losses and LAE
for incurred claims as of the balance sheet date. This includes provisions for claims that have been reported but are
unpaid at the balance sheet date (Outstanding Loss Reserves, or "OLR") and for obligations on claims that have
been incurred but not reported ("IBNR") at the balance sheet date. IBNR may also include provisions to account for
the possibility that reported claims may settle for amounts that differ from the established case reserves as well as
the potential for closed claims to re-open.
Establishing loss reserves can be complex and is subject to considerable uncertainty. Because a significant amount
of time can lapse between our assumption of the risk, the occurrence of a loss event, the reporting of the event to
us and the ultimate payment of the claim on the loss event, the liability for unpaid losses and LAE is based largely
upon estimates. 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, and that could impact the amount of
reliance we place on our actual historical data.
We use considerable judgment in the process of developing these estimates of loss reserves, which involves
considerable uncertainty in several areas, including use of actual or industry data for model inputs, and variability of
projection assumptions and judgements depending on product lines, coverage type, or policy year. We may record
additional estimates based upon our judgement as to the applicability of the facts, circumstances and external
environment to each portfolio.
As of December 31, 2021 and 2020, IBNR reserves (net of reinsurance balances recoverable) accounted for $6.8
billion, or 59.4%, and $4.1 billion, or 54.1%, respectively, of our total Run-off net losses and LAE reserves, excluding
ULAE26.
Our estimate of loss reserves for each portfolio generally relies on the following key judgments:
•
•
The degree of reliance upon historic actual claims trends or industry data for claims trends.
Separation of each portfolio into homogenous data sets, generally by line of business, or reserving class.
• Methods used in analyzing and projecting potential reserve positions and the mix of methods selected to form
an aggregate reserve position for each portfolio27.
• Our degree of reliance or adjustment as a result of external factors such as economic conditions (inflation and
unemployment statistics), legal conditions (judicial rulings in each relevant jurisdiction) and social &
environmental factors (medical cost trends, changes in regulations or public health).
•
Consideration of additional information such as changes in claims handling activities, third party claims
operating reviews, third party actuarial reviews or changes in our reinsurance programs.
Judgments are based on numerous factors and may be revised as additional data becomes available, as new or
improved methods are developed, or as laws change. This means that ultimate loss payments may differ from the
losses and LAE estimate made at the balance sheet date.
In addition, key assumptions are made within each method, although the sensitivity to each assumption may vary
within each method and even within each reserving class and accident year of each method. Such assumptions
would include:
•
Loss development factors are used to extrapolate current losses on an accident year to its full expected losses
based upon judgements of historical trends on earlier accident years.
26
27
For a breakdown of our Run-off gross and net losses and LAE reserves by line of business, and ULAE, as of December 31, 2021 and 2020 to
Note 9 to our consolidated financial statements.
Refer to Note 9 to our consolidated financial statements for further description of the methodologies used for establishing reserves.
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•
•
•
Tail factors further extrapolate our longer tailed lines where payments expected in later years or decades can be
more uncertain than settlements that preceded them both in the timing and amount of cash flows. As such,
lines with more expected payments in the tail are more sensitive to tail assumptions.
Expected loss ratios are used for years that do not yet have credible experience.
Loss cost trend factors are used to extrapolate future loss expectations based upon observed trends.
We perform, at least annually, a formal review process of each portfolio of reserves in accordance with Actuarial
Standards of Practice. These reviews may be performed using internal or independent credentialed actuaries.
In addition, we 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.
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 (Latent Claims)
Asbestos Claims
A number of our subsidiaries, and counterparties who underwrote the insurance policy 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 written in 2005
and prior.
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, increases
the uncertainty of the asbestos claim reserve estimates.
As of December 31, 2021 and 2020, the net loss reserves for asbestos-related claims comprised 16.7% and 20.8%,
respectively, of total Run-off net reserves for losses and LAE liabilities excluding ULAE. In addition as of December
31, 2021 and 2020, we also have $826 million and $913 million of defendant asbestos liabilities28 .
Environmental Claims
Our subsidiaries and counterparties who underwrote the insurance policy 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 potentially responsible parties at any site, ultimate cost of the remediation, the number of ultimate
sites and changes to judicial precedence.
As of December 31, 2021 and 2020, the net loss reserves for environmental pollution-related claims comprised
3.2% and 3.5%, respectively, of total Run-off net reserves for losses and LAE excluding ULAE. In addition, we also
have $11 million of direct environmental liabilities29.
Asbestos and Environmental Reserving
The ultimate losses from A&E 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
28 As described in Note 11 in our consolidated financial statements.
29 As described in Note 11 in our consolidated financial statements.
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Item 7 | Management Discussion and Analysis | Critical Accounting Estimates
forecast the future claim payments. Our estimate of loss reserves for A&E claims relies on the following key factors
and judgements:
•
•
The degree of reliance or adjustment based on the legal and social environment, to which these liabilities are
particularly sensitive. The current legal environment and the impact of specific settlements that may be used as
precedents to settle future claims are key with these types of claims.
The degree of reliance upon actual claims data and trends or industry data for claims trends.
• Methods used in analyzing and projecting potential reserve positions and the mix of methods selected to form
an aggregate reserve position for each portfolio30.
Judgements are based on numerous factors and may be revised as additional data becomes available, as new or
improved methods are developed, or as laws change. This means that ultimate loss payments may differ from the
losses and LAE estimate made at the balance sheet date.
Key assumptions are made within each method, although the sensitivity to each assumption may vary within each
method and even within each reserving class and accident year of each method. Such assumptions would include:
•
•
Trends with respect to average claim indemnity, which are used to extrapolate future claim costs.
Trends in claim filing pattern, which will be used to estimate the number of future claim filings.
Sensitivity to Underlying Assumptions of our Actuarial Methods
While we believe our reserve for losses and LAE at December 31, 2021 is reasonable, the estimation of these
reserves is a complex process that depends on a number of factors and assumptions. As noted previously, our best
estimate of our loss reserves involves considerable judgement, considering the results from a number of reserving
methodologies. Therefore, these estimates are susceptible to changes in assumptions. We consider each of the
following sensitivities a reasonable deviation for the key assumptions for each of our significant lines of business.
Line of Business
Net
Reserves
Sensitivity
Estimated range in variation
Asbestos
$
1,898
General Casualty
Workers’
Compensation
Professional
Indemnity/Directors
and Officers
Motor
(in millions of U.S. Dollars)
+/- 10% in expected number of claims
+/- 10% in average indemnity
+/- 10% in tail development factor (5+ years)
+/- 1% in loss cost trend
3,369
2,629
+/- 2.5% increase in medical inflation
1,336
+/- 2.5% in loss cost trend
531
+/- 2.5% in loss cost trend
+/- $165
+/- $190
+/- $200
+/- $205
+/- $545
+/- $165
+/- $50
Asbestos – Reserve estimates for this line are subject to greater variability than reserves for more traditional
exposures. Claims are spread across multiple policy years based on the still evolving case law in various
jurisdictions and inconsistent court decisions and judicial interpretations, making historical development patterns
unreliable to forecast the future claim payments. A key consideration in setting our asbestos reserves is the volume
of future claim filings, and the average indemnity of those claims.
General Casualty – This is a long tail class of business with long reporting and paid developing factors, and we
generally use a combination of reserving methodologies on this line. Because of the long tail nature, the reserves
are susceptible to variation in loss development factors and loss cost trends that may develop over an extended
period of time over multiple accident years. A key assumption in setting our general casualty reserves is the
provision for claim payments in the tail.
Workers’ Compensation – We generally use a combination of loss development and expected loss ratio methods
due to the long tail nature of this line. A portion of our workers’ compensation reserves cover medical expense for
future treatments of injured workers. Given the long development patterns associated with workers’ compensation
business, these claims are exposed to medical inflation.
30 Refer to Note 9 in our consolidated financial statements, for further description of the methodologies used for establishing reserves.
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Professional Indemnity/Directors and Officers – Due to the nature of this line, there is increased uncertainty in
the number and severity of claims, which results in an expectation of high volatility and uncertainty in loss trends.
Motor - This business is generally more short tail in nature, and the majority of the claims are resolved within a few
years of occurrence. A key component in estimating motor reserves is the severity of claims.
Change in Reserve Assumptions
Changes in reserve estimates can be driven by updated experience and by changes in assumptions. These are
inextricably linked as updated information leads to changes in assumptions. We have estimated what portion of
changes in ultimate losses from acquisition years 2012 to 2021 are attributable to experience and what portion are
attributable to assumptions.
Line of Business
Ultimate Losses Change due to Experience
Change in
Change due to
Assumptions
Asbestos
General Casualty
Workers’ Compensation
Professional Indemnity/
Directors and Officers
Motor
All Lines
(0.6) %
2.3 %
(5.0) %
(1.0) %
2.3 %
(1.4) %
Defendant asbestos and environmental liabilities
(0.5) %
1.7 %
(3.8) %
(1.8) %
2.6 %
(1.1) %
(0.1) %
0.6 %
(1.2) %
0.8 %
(0.3) %
(0.3) %
Defendant A&E 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 A&E liabilities also include amounts for environmental liabilities associated with our properties. These
are non-insurance liabilities since they are held by non-insurance subsidiaries and are presented separately on our
consolidated balance sheets. These reserves will be sensitive to similar industry trends and assumptions as
observed in our A&E reserves as described under the Loss and LAE section above, specifically claim trends and
indemnity. However, we use utilize different methodologies to estimate the defendant A&E liabilities as compared to
our loss reserves31.
Key drivers for this estimate are the amount of future claim filings and average indemnity, which are key indicators
of the amount of liabilities. The table below provides sensitivities of these drivers for defendant A&E.
Net Liability
Sensitivity
Estimated Range in Variation
$573
Change in Liability Assumptions
(in millions of U.S. Dollars)
+/- 10% in future filed claims
+/- 10% in average indemnity
+/- $50
+/- $55
Similar to reserves, changes in defendant A&E liabilities can be driven by updated experience and by changes in
assumptions. These are inextricably linked as updated information leads to changes in assumptions. We have
estimated what portion of changes in the liabilities are attributable to experience and what portion are attributable to
assumptions32.
Change in Total Liability
Change due to Experience
Change due to Assumptions
$(38)
$(28)
$(10)
(in millions of U.S. Dollars)
31 As described in Note 11 in our consolidated financial statements.
32
For information on our defendant A&E liabilities, refer to Note 11 and Note 2 in our consolidated financial statements.
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Item 7 | Management Discussion and Analysis | Critical Accounting Estimates
Deferred Charge Assets
DCAs33 may be recorded at the inception of a Run-off retroactive reinsurance contract depending on whether the
estimated undiscounted ultimate losses payable are in excess of the premiums received (deferred charge asset).
The premium consideration that we charge ceding companies is generally contractual and not subject to significant
judgment, but is sometimes lower than the undiscounted estimated ultimate losses payable due to the time value of
money.
Additionally, any subsequent movement in ultimate losses on the contracts with a recognized DCA will result in an
adjustment to the deferral until that deferral is exhausted. The uncertainty in the timing and magnitude of the
movements in the DCA are directly tied to the uncertainty in the movement in ultimate losses.
Favorable or adverse movements to ultimate losses result in a 60% to 90% impact of that movement to the DCA,
depending on the loss payout patterns. During 2021, net favorable incurred loss movement of $88 million from
contracts with DCAs resulted in a net $71 million reduction in the deferred balance.
Valuation Allowances on Deferred Tax Assets
At each balance sheet date, we assess the need to establish a valuation allowance that reduces deferred tax assets
when it is more likely than not that all, or some portion, of the deferred tax assets will not be realized.
The determination of the need for a valuation allowance is based on all available information including
•
•
•
projections of future taxable income;
our forecast of future taxable income considers several factors, including actual net earnings in recent years,
future sustainability and likelihood of positive earnings; and
tax planning strategies.
Projections of future taxable income incorporate assumptions of future business and operations that may differ from
actual experience.
If our assumptions and estimates that resulted in our forecast of future taxable income prove to be incorrect, an
additional valuation allowance could become necessary, which could have a material adverse effect on our financial
condition.
While our forecasts of future taxable income have been consistent the past few years, resulting in a valuation
allowance reduction of $1.5 million from 2020 to 2021, these forecasts are a judgement and involve a level of
uncertainty, such that a 10% decrease to forecasted future income could increase the valuation allowance by up to
7% or $4 million34.
Level 3 Fair Value Measurements
Level 3 Investments
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).
Level 3 fair value measurements are based on unobservable inputs where there is little or no market activity. We
utilize unadjusted third party pricing sources and internal valuation models to determine these fair values. Our
assessment of the significance of these unobservable inputs to the fair value measurement requires judgement.
Our Level 3 investments consist primarily of privately held equity securities, and we value these securities using
unobservable inputs, the most prevalent being the median peer multiple. The median peer multiple calculates a
multiple based on the average value from a group of peer companies and that multiple is then applied to the
invested company as a key input to calculate the value. We consider the following sensitivity a reasonable deviation
for this key input:
33 As described under "Deferred Charge Assets" within Note 2 in our consolidated financial statements.
34
For information on valuation allowances on deferred tax assets, refer to "Income Taxes" within Note 2 in our consolidated financial statements.
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Sensitivity
Investments
Estimated Range in
Variation
Actual range for median
peer multiple
+/- 10% median peer multiple $
329
+/- $16*
+/- 2%
(in millions of U.S. dollars)
* No downside sensitivity due to the application of the distribution waterfall to the privately held security.
The 2% movement in the median peer multiple in 2021 was driven by the changes in the average value of the peer
company group, and resulted in a $4 million adjustment to the privately held equity securities.
Fair Value Option - Insurance Contracts
We have elected to apply the fair value option for certain LPT 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 LAE.
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, 2021 and 2020. 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 LAE and reinsurance recoverable
asset for certain retroactive reinsurance contracts where we have elected the fair value option.
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 fair value model uses a combination of observable and unobservable inputs in its use and application. While
the observable inputs are based on readily available market data, the unobservable inputs involve increased
uncertainty and judgement in their selection and application. Specifically, the risk margin calculated is dependent
on the following inputs:
a. Yield curve using high quality rated corporate bond rates across different currencies, notably the British Pound,
US dollar, and the Euro.
b. Weighted average cost of capital (“WACC”), which represents a proxy for the industry cost of capital, and is
calculated utilizing various inputs.
c. Average payout of the liabilities, which reflects the timing of expected future claim payments.
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Item 7 | Management Discussion and Analysis | Critical Accounting Estimates
We consider the following sensitivity a reasonable deviation for these key assumptions:35:
Net Fair Value Liabilities
Sensitivity
Estimated Range in Variation
$
$
$
(in millions of U.S. dollars)
1,557
+/- 50bps WACC
1,557
+/- 1 year in average payout
1,557
+/- 50bps yield curve
+/- $10
+/- $15
+/- $45
While the yield curve is an observable input since it is based on readily determinable corporate bond rates, it
generally has the biggest impact to the fair value in a given year apart from changes in loss estimates. At year-end
2021, there was a $97 million decrease in the liability due to an increase in the yield curve.
The WACC decreased 0.25% from 2019 to 2020, resulting in a $5 million decrease in the liability, and remained
unchanged from 2020 to 2021.
The average payout of the liability is adjusted every period to reflect actual net payments during the period and
expected future payments, and any acceleration or deceleration of the estimate payment pattern will impact the
average payout that would result in an impact of the value of the liability.
During 2021, there was an acceleration in the payment pattern, which decreased the average payout that resulted
in a $7 million increase to the liability.
Recently Issued Accounting Pronouncements Not Yet Adopted36
On August 15, 2018 Financial Accounting Standards Board (“FASB”) issued ASU 2018-12, Financial Services—
Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts.
The amendments are intended to improve the existing recognition, measurement, presentation, and disclosure
requirements for long-duration contracts issued by an insurance entity, and will require more frequent updating of
assumptions and a standardized discount rate for the future policy benefit liability.
Companies are required to apply the guidance as of January 1, 2021 (and record transition adjustments as of
January 1, 2021) in the 2023 financial statements. We intend to adopt ASU 2018-12 effective January 1, 2023.
This will impact our accounting and disclosure requirements for our long-duration life (re)insurance contracts. In
addition to the impact to our balance sheet upon adoption, we also expect this to impact our earnings thereafter.
35
36
The observable and unobservable inputs used in the model are further described in Note 12 in our consolidated financial statements.
See Note 2 to the consolidated financial statements for a more detailed discussion of ASU 2018-12, as well as other accounting
pronouncements issued but not yet adopted and newly adopted accounting pronouncements.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
The following risk management discussion and the estimated amounts generated from the 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 the 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 2021 are not materially different than those used in 2020, 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 and various governmental responses thereto, 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, contract liabilities and future policyholder benefits, 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:
Interest Rate Shift in Basis Points
As of December 31, 2021
-100
-50
—
(in millions of U.S. dollars)
+50
+100
Total Market Value (1)
Market Value Change from Base
Change in Unrealized Value
As of December 31, 2020
Total Market Value (1)
Market Value Change from Base
Change in Unrealized Value
$ 14,601
$ 14,182
$
13,796 $ 13,438
$ 13,099
5.8 %
2.8 %
—
(2.6) %
(5.1) %
$
805
$
386
$
— $
(358)
$
(697)
-100
-50
—
+50
+100
$ 10,632
$ 10,324
$
10,028 $ 9,756
$ 9,495
6.0 %
3.0 %
—
(2.7) %
(5.3) %
$
604
$
296
$
— $
(272)
$
(533)
(1) Excludes equity exchange-traded funds of $373 million and $155 million for the years ended December 31, 2021 and December 31, 2020,
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, fixed income funds and fixed income exchange-traded funds may be
materially different from the resulting change in value indicated in the tables above.
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
Enstar Group Limited | 2021 Form 10-K
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Table of Contents
Item 7A | Quantitative and Qualitative Disclosures About Market Risk
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, 2021
-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, 2020
Total Market Value (1)
Market Value Change from Base
Change in Unrealized Value
(in millions of U.S. dollars)
$ 14,560
5.5 %
$ 14,166
$
2.7 %
$
764
$
370
$
13,796 $ 13,448
$ 13,119
—
— $
(2.5) %
(4.9) %
(348)
$
(677)
-100
-50
—
+50
+100
$ 10,608
5.8 %
$ 10,308
$
2.8 %
$
580
$
280
$
10,028 $
—
— $
9,765
$
9,516
(2.6) %
(5.1) %
(263)
$
(512)
(1) Excludes equity exchange-traded funds of $373 million and $155 million for the years ended December 31, 2021 and December 31, 2020,
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, through customers, brokers and reinsurers in the form of premiums
receivable and reinsurance balances recoverable on paid and unpaid losses, respectively, and through ceding
companies who retain premium owed to us as collateral for the payment of claims, each as discussed below.
Fixed Maturity and Short-Term Investments
As a holder of $12.3 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 duration37. At
December 31, 2021, 38.6% of our fixed maturity and short-term investment portfolio was rated AA or higher by a
major rating agency (December 31, 2020: 41.2%) with 5.6% rated lower than BBB- or non-rated (December 31,
2020: 3.7%). 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, 2021 (December 31,
2020: 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 is as follows:
Credit rating
2021
2020
Change
AAA
AA
A
BBB
Non-investment grade
Not rated
Total
Average credit rating
23.5 %
15.1 %
30.2 %
25.6 %
5.3 %
0.3 %
100.0 %
A+
(6.0) %
3.4 %
(1.4) %
2.1 %
1.8 %
0.1 %
29.5 %
11.7 %
31.6 %
23.5 %
3.5 %
0.2 %
100.0 %
A+
37 A table of credit ratings for our fixed maturity and short-term investments is in Note 6 in our consolidated financial statements.
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Item 7A | Quantitative and Qualitative Disclosures About Market Risk
Table of Contents
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 (re)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 reinsurers38.
Funds Held
Under funds held arrangements, the reinsured company has retained funds that would otherwise have been
remitted to our reinsurance subsidiaries. The funds held 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, 2021 we had a significant
concentration of $3.2 billion (December 31, 2020: $955 million) and $1.2 billion (December 31, 2020: $182 million)
with two reinsured companies with financial strength credit ratings of A+ from A.M. Best and AA from S&P and A+
from A.M. Best and AA- from S&P, respectively.
Equity Price Risk
Our portfolio of equity investments, excluding our fixed income exchange-traded funds but including the equity
funds, 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 above, as these exchange-traded funds are
part of our fixed income investment strategy and are backed by fixed income instruments. 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:
2021
2020
Change
(in millions of U.S. dollars)
Publicly traded equity investments in common and preferred stocks
$
281 $
261 $
Privately held equity investments in common and preferred stocks
Private equity funds
Equity funds
Equity exchange traded funds
Fair value of equities at risk
Impact of 10% decline in fair value
Hedge Funds
372
752
5
373
275
363
191
155
$
$
1,783 $
1,245 $
178 $
125 $
20
97
389
(186)
218
538
53
As of December 31, 2021, we had investments of $291 million (December 31, 2020: $2.6 billion) in hedge funds,
included within our other investments, at fair value, that have exposure to interest rate, credit spread, and equity
price risk given the underlying assets in those funds.
As of December 31, 2021 and 2020, the impact of a 10% decline in the fair value of these investments would have
been $29 million and $264 million, respectively. These hedge funds may employ investment strategies that involve
the use of leverage and short sales, which would have the effect of increasing interest rate, credit spread, and
equity price sensitivity such that a 10% decline in market prices could reduce the fair value of our investment in the
funds by more than 10%.
38 A discussion of our reinsurance balances recoverable on paid and unpaid losses is in Note 8 in our consolidated financial statements.
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Table of Contents
Item 7A | Quantitative and Qualitative Disclosures About Market Risk
Convertible Bonds
As of December 31, 2021, we had investments of $223 million in convertible bonds, included within our fixed
income portfolio, that have exposure to equity price risk given the embedded derivatives in those investments.
As of December 31, 2021, a 10% decline in the underlying equity prices would result in a $22 million decline in the
fair value of these investments. The sensitivity of the convertible bonds to interest rate and credit spread shocks
have been included in the interest rate and credit spread analysis above.
Foreign Currency Risk
The table below summarizes our net exposures as of December 31, 2021 and 2020 to foreign currencies:
As of December 31, 2021
Total net foreign currency exposure
Pre-tax impact of a 10% movement in USD(1)
As of December 31, 2020
Total net foreign currency exposure
Pre-tax impact of a 10% movement in USD(1)
AUD
CAD
EUR
GBP
Other
Total
(in millions of U.S. dollars)
$
$
$
$
(6) $
(10) $
15 $
16 $
(1) $
(1) $
2 $
2 $
(3) $
— $
7 $
1 $
(2) $
— $
24 $
39 $
2 $
2 $
4 $
— $
12
1
70
7
(1) Assumes 10% change in U.S. dollar relative to other currencies.
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 in AOCI
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 AOCI 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.
We use foreign currency forward exchange rate contracts to manage foreign currency risk. 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.
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Item 7A | Quantitative and Qualitative Disclosures About Market Risk
Table of Contents
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 and our provision for future policyholder benefits 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. 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.
Enstar Group Limited | 2021 Form 10-K
101
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, 2021 and 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Earnings for the years ended December 31, 2021, 2020 and 2019 . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020 and 2019 . .
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2021, 2020
and 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019 . . . . . . . . . . . . . .
Notes to the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 1 - Basis of Presentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 2 - Significant Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 3 - Segment Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 4 - Business Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 - Losses and Loss Adjustment Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 10 - Future Policyholder Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 11 - Defendant Asbestos and Environmental Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 12 - Fair Value Measurements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 13 - Variable Interest Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 14 - Premiums Written and Earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 15 - Goodwill and Intangible Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 16 - Debt Obligations and Credit Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 17 - Noncontrolling Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 18 - Shareholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 19 - Earnings per Share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 20 - Share-Based Compensation and Pensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 21 - Income Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 22 - Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 23 - Dividend Restrictions and Statutory Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 24 - Commitments and Contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note 25 - Subsequent Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . .
103
106
107
108
109
110
112
112
113
124
128
130
136
147
148
150
184
185
188
197
199
200
201
204
205
209
210
214
218
224
228
229
231
232
235
236
237
238
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.
102
Enstar Group Limited | 2021 Form 10-K
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, 2021 and 2020, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash
flows for each of the years in the three‑year period ended December 31, 2021, 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, 2021, based on
criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission, and our report dated February 24, 2022 expressed an unqualified
opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these consolidated financial statements based on our audits. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free
of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the
risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating
the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our
opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated
financial statements that were communicated or required to be communicated to the audit committee and that: (1)
relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our
especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter
in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the
accounts or disclosures to which they relate.
Assessment of the estimate of loss reserves and asbestos and environmental liabilities
As discussed in Notes 1, 2(e), 2 (g), 9 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 $11,269 million and $638 million, respectively,
as of December 31, 2021. 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 primarily based on actuarially determined estimates of ultimate losses
and loss adjustment expenses, 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
Enstar Group Limited | 2021 Form 10-K
103
coverage disputes 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 not yet resolved 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; and
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 1, 2(e), 9 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 primarily 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 $1,989 million as of December 31, 2021.
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 disputes 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
104
Enstar Group Limited | 2021 Form 10-K
in the 1) estimation of nominal loss reserves; and 2) the estimation of the projected payout, including timing and
amount of the nominal cash flows used to develop the fair value. We involved actuarial professionals with
specialized skills and knowledge, who assisted in:
•
•
•
•
•
•
•
comparing the methodologies and assumptions used by the Company in estimating 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 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; and
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
February 24, 2022
Enstar Group Limited | 2021 Form 10-K
105
Table of Contents
ENSTAR GROUP LIMITED
CONSOLIDATED BALANCE SHEETS
As of December 31, 2021 and 2020
ASSETS
Short-term investments, trading, at fair value
Short-term investments, available-for-sale, at fair value (amortized cost: 2021 — $34; 2020 — $264; net of
allowance: 2021 — $0; 2020 — $0)
Fixed maturities, trading, at fair value
Fixed maturities, available-for-sale, at fair value (amortized cost: 2021 — $5,689; 2020 — $3,313; net of
allowance: 2021 — $10; 2020 — $0)
Funds held - directly managed
Equities, at fair value (cost: 2021 — $1,831; 2020 — $799)
Other investments, at fair value
Equity method investments
Total investments (Note 6 and Note 12)
Cash and cash equivalents
Restricted cash and cash equivalents
Reinsurance balances recoverable on paid and unpaid losses (net of allowance: 2021 — $136; 2020 — $137)
(Note 8)
Reinsurance balances recoverable on paid and unpaid losses, at fair value (Note 8 and Note 12)
Insurance balances recoverable (net of allowance: 2021 — $5; 2020 — $5) (Note 11)
Funds held by reinsured companies
Deferred charge assets
Other assets
Assets held-for-sale (Note 5)
TOTAL ASSETS
LIABILITIES
Losses and loss adjustment expenses (Note 9)
Losses and loss adjustment expenses, at fair value (Note 9 and Note 12)
Future policyholder benefits (Note 10)
Defendant asbestos and environmental liabilities (Note 11)
Insurance and reinsurance balances payable
Debt obligations (Note 16)
Other liabilities
Liabilities held-for-sale (Note 5)
TOTAL LIABILITIES
COMMITMENTS AND CONTINGENCIES (Note 24)
REDEEMABLE NONCONTROLLING INTEREST (Note 17)
SHAREHOLDERS’ EQUITY (Note 18)
Ordinary Shares (par value $1 each, issued and outstanding 2021: 18,223,574; 2020: 22,085,232):
Voting Ordinary Shares (issued and outstanding 2021: 16,625,862; 2020: 18,575,550)
Non-voting convertible ordinary Series C Shares (issued and outstanding 2021: 1,192,941; 2020: 2,599,672)
Non-voting convertible ordinary Series E Shares (issued and outstanding 2021: 404,771 and 2020: 910,010)
Preferred Shares:
Series C Preferred Shares (issued and held in treasury 2021 and 2020: 388,571)
Series D Preferred Shares (issued and outstanding 2021 and 2020: 16,000; liquidation preference $400)
Series E Preferred Shares (issued and outstanding 2021 and 2020: 4,400; liquidation preference $110)
Treasury shares, at cost (Series C Preferred Shares 2021 and 2020: 388,571)
Joint Share Ownership Plan (voting ordinary shares, held in trust 2021 and 2020: 565,630)
Additional paid-in capital
Accumulated other comprehensive (loss) income
Retained earnings
Total Enstar Shareholders’ Equity
Noncontrolling interest (Note 17)
TOTAL SHAREHOLDERS’ EQUITY
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY
See accompanying notes to the consolidated financial statements
2021
2020
(expressed in millions of U.S.
dollars, except share data)
$
6 $
5
34
3,756
5,652
3,007
1,995
2,333
493
17,276
1,646
446
1,085
432
213
2,340
371
620
—
24,429 $
11,269 $
1,989
1,502
638
254
1,691
581
—
17,924
264
4,595
3,395
1,075
847
4,244
832
15,257
901
472
1,568
521
250
636
219
1,092
711
21,627
8,140
2,453
—
706
475
1,373
943
484
14,574
$
$
179
365
17
1
—
—
400
110
(422)
(1)
922
(16)
5,085
6,096
230
6,326
$
24,429 $
19
3
1
—
400
110
(422)
(1)
1,836
81
4,647
6,674
14
6,688
21,627
106
Enstar Group Limited | 2021 Form 10-K
ENSTAR GROUP LIMITED
CONSOLIDATED STATEMENTS OF EARNINGS
For the Years Ended December 31, 2021, 2020 and 2019
Table of Contents
2021
2020
(expressed in millions of U.S.
dollars, except share and per share data)
2019
INCOME
Net premiums earned
Net investment income
Net realized (losses) gains
Net unrealized gains
Other income
Net gain on purchase and sales of subsidiaries
EXPENSES
Net incurred losses and loss adjustment expenses
Current Period
Prior Period
Total net incurred losses and loss adjustment expenses
Policyholder benefit expenses
Acquisition costs
General and administrative expenses
Interest expense
Net foreign exchange (gains) losses
EARNINGS BEFORE INCOME TAXES
Income tax expense
Earnings from equity method investments
NET EARNINGS FROM CONTINUING OPERATIONS
Net earnings from discontinued operations, net of income taxes
NET EARNINGS
Net (earnings) loss attributable to noncontrolling interest
NET EARNINGS ATTRIBUTABLE TO ENSTAR
Dividends on preferred shares
NET EARNINGS ATTRIBUTABLE TO ENSTAR ORDINARY
SHAREHOLDERS
Earnings per ordinary share attributable to Enstar:
Basic:
Net earnings from continuing operations
Net earnings from discontinued operations
Net earnings per ordinary share
Diluted:
Net earnings from continuing operations
Net earnings from discontinued operations
Net earnings per ordinary share
Weighted average ordinary shares outstanding:
Basic
Diluted
$
$
$
$
$
$
245 $
312
(61)
178
42
73
789
172
(283)
(111)
(3)
57
367
69
(12)
367
422
572 $
303
19
1,623
140
3
2,660
405
11
416
—
171
502
59
16
1,164
1,496
(27)
(24)
93
488
—
488
(15)
473
(36)
239
1,711
16
1,727
28
1,755
(36)
437 $
1,719 $
22.05 $
79.43 $
—
0.35
22.05 $
79.78 $
21.71 $
78.45 $
—
0.35
21.71 $
78.80 $
804
308
5
1,007
66
—
2,190
580
34
614
—
241
413
53
(8)
1,313
877
(12)
56
921
7
928
10
938
(36)
902
41.80
0.20
42.00
41.23
0.20
41.43
19,821,259
21,551,408
21,482,617
20,127,131
21,818,294
21,775,066
See accompanying notes to the consolidated financial statements
Enstar Group Limited | 2021 Form 10-K
107
Table of Contents
ENSTAR GROUP LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Years Ended December 31, 2021, 2020 and 2019
2021
2020
2019
(expressed in millions of U.S. dollars)
NET EARNINGS
$
488 $
1,727 $
928
Other comprehensive (loss) income, net of income taxes:
Unrealized (losses) gains 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 included in net
earnings
Reclassification to earnings on disposal of subsidiary
Unrealized (losses) gains arising during the year, net of reclassification
adjustments
Change in currency translation adjustment
Decrease in defined benefit pension liability
Total other comprehensive (loss) income
(106)
105
10
(6)
—
(102)
2
2
(98)
(1)
(18)
(12)
74
(2)
1
73
Comprehensive income
Comprehensive (income) loss attributable to noncontrolling interest
390
(15)
1,800
28
COMPREHENSIVE INCOME ATTRIBUTABLE TO ENSTAR
$
375 $
1,828 $
See accompanying notes to the consolidated financial statements
3
—
(4)
—
(1)
(2)
—
(3)
925
10
935
108
Enstar Group Limited | 2021 Form 10-K
ENSTAR GROUP LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2021, 2020 and 2019
Table of Contents
2021
2020
(expressed in millions of U.S. dollars)
2019
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 of year
Shares repurchased
Balance, end of year
Share Capital — Non-Voting Convertible Ordinary Series E Shares
Balance, beginning of year
Shares repurchased
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 and end of year
Share Capital - Series E Preferred Shares
Balance, beginning and 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
(Repurchase) issue of voting ordinary shares
Shares repurchased
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
Decrease in defined benefit pension liability
Balance, end of year
Unrealized (losses) gains on available-for-sale investments
Balance, beginning of year
Change in unrealized (losses) gains on available-for-sale investments
Balance, end of year
Balance, end of year
Retained Earnings
Balance, beginning of year
Net earnings
Net (earnings) 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
Increase due to acquisition
Dividends paid
Net (loss) earnings attributable to noncontrolling interest
Net movement in unrealized holding losses on investments
Balance, end of year
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
19 $
—
(2)
17 $
3 $
(2)
1 $
1 $
(1)
— $
18 $
1
—
19 $
3 $
—
3 $
1 $
—
1 $
— $
— $
400 $
400 $
110 $
110 $
18
—
—
18
3
—
3
1
—
1
—
400
110
(422) $
(422) $
(422)
(1) $
—
(1) $
1,836 $
(3)
(937)
26
922 $
— $
(1)
(1) $
1,837 $
(1)
(26)
26
1,836 $
81 $
7 $
8
1
9
—
2
2
73
(100)
(27)
(16) $
4,647 $
488
(15)
(36)
1
—
5,085 $
14 $
219
(1)
(1)
(1)
230 $
9
(1)
8
(1)
1
—
(1)
74
73
81 $
2,888 $
1,727
28
(36)
46
(6)
4,647 $
14 $
—
—
—
—
14 $
—
—
—
1,805
1
—
31
1,837
10
11
(2)
9
(1)
—
(1)
—
(1)
(1)
7
1,977
928
10
(36)
9
—
2,888
12
—
—
2
—
14
See accompanying notes to the consolidated financial statements
Enstar Group Limited | 2021 Form 10-K
109
Table of Contents
ENSTAR GROUP LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2021, 2020 and 2019
OPERATING ACTIVITIES:
Net earnings
Net earnings from discontinued operations, net of income taxes
Adjustments to reconcile net earnings to cash flows provided by operating activities:
Realized losses (gains) on sale of investments
Unrealized gains on investments
Depreciation and other amortization
Earnings from equity method investments
Sales and maturities of trading securities
Purchases of trading securities
Payments to cover securities sold short
Proceeds from securities sold short
Net payments for derivative contracts
Net gain on purchase and sales of subsidiaries
Other
Changes in:
2021
2020
2019
(expressed in millions of U.S.
dollars)
$
488 $ 1,727 $
928
—
(16)
(7)
61
(19)
(5)
(178)
(1,623)
(1,007)
74
(93)
59
(239)
35
(56)
6,175
3,792
5,362
(3,064)
(2,139)
(4,405)
(1,156)
534
(94)
(73)
30
—
—
—
(3)
26
—
—
—
—
34
Reinsurance balances recoverable on paid and unpaid losses
248
52
(316)
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 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
Other investing activities
Consolidation of the InRe Fund opening cash and restricted cash balances (Note 13)
Net cash flows used in investing activities
FINANCING ACTIVITIES:
Dividends on preferred shares
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 (used in) provided by financing activities
DISCONTINUED OPERATIONS CASH FLOWS:
Net cash flows provided by operating activities
110
Enstar Group Limited | 2021 Form 10-K
(1,491)
(192)
1,870
1,003
(141)
87
23
(68)
(300)
324
514
(68)
821
(18)
51
204
389
(129)
3,801
2,786
1,424
$
(206) $
— $
172
(214)
(14)
3,085
2,260
—
336
(5,233)
(4,181)
(1,827)
(910)
(975)
(794)
330
1
574
595
(20)
—
582
(72)
—
(2,573)
(2,335)
(1,603)
$
(36) $
(36) $
(36)
—
—
(1)
(942)
816
(574)
(737)
—
—
—
(26)
859
13
(45)
(12)
—
1,071
(679)
(743)
118
248
—
108
339
Table of Contents
(130)
(380)
—
(22)
(6)
541
971
45
4
—
73
902
(4)
Net cash flows used in 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 IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF YEAR
—
—
—
4
495
1,373
NET CHANGE IN CASH OF BUSINESSES HELD-FOR-SALE
224
(139)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF YEAR
$ 2,092 $ 1,373 $
971
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
$
$
10 $
25 $
64 $
51 $
5
49
$ 1,646 $
901 $
446
472
$ 2,092 $ 1,373 $
624
347
971
In addition to the cash flows presented above, for the year ended December 31, 2021 our non-cash financing activities included distributions to
redeemable noncontrolling interest ("RNCI") totaling $202 million, an increase in noncontrolling interest of $219 million due to the acquisition of a
subsidiary, the issuance of 89,590 shares following the exercise of 175,901 warrants on a non-cash basis, and a third-party capital withdrawal
from the InRe Fund totaling $61 million which was funded through the transfer of a trading security. For the year ended December 31, 2021 our
non-cash investing activities included: the removal of an equity method investment of $412 million relating to the acquisition of a subsidiary, the
receipt of other investments as consideration totaling $52 million; and contributions of $481 million to other investments, fully funded through the
redemption of other investments totaling $381 million and a $100 million reduction in investment fees. In addition to the cash flows presented
above, our non-cash 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, Note 17 and Note 22.
See accompanying notes to the consolidated financial statements
Enstar Group Limited | 2021 Form 10-K
111
Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021, 2020 and 2019
1. BASIS OF PRESENTATION
Enstar Group Limited ("Enstar") is a leading global (re)insurance group that offers innovative capital release
solutions through its network of group companies in Bermuda, the United States, the United Kingdom, Continental
Europe and Australia. Our core focus is acquiring and managing (re)insurance companies and portfolios of
(re)insurance business in run-off.
Our voting 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 majority owned subsidiary, Enhanzed Reinsurance, Ltd. ("Enhanzed Re"), is included in the consolidated
financial statements reported on a one quarter lag. The effect on our consolidated financial condition and results of
operations of all material events occurring at Enhanzed Re through December 31, 2021 has been considered for
adjustment and/or disclosure.
The accompanying consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States ("U.S. GAAP"). All intercompany accounts and transactions have been
eliminated. Certain comparative information has been reclassified to conform to the current presentation.
Use of Estimates, Risks and Uncertainties
The preparation of financial statements in accordance with U.S. GAAP requires us to make estimates and
assumptions that affect the reported amount of assets and liabilities, 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. Actual results could differ from those estimates.
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 (re)insurance company and the ultimate payment of the claim on the loss
event. 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.
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.
We are subject to economic factors such as interest rates, inflation, foreign exchange rates, adverse reserve
developments, regulation, tax policy changes, political risks and other market risks that can impact our strategy,
operations, and results.
112
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 2. Significant Accounting Policies
Table of Contents
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Retroactive Reinsurance Contracts
Retroactive reinsurance contracts provide indemnification for losses and loss adjustment expenses ("LAE") with
respect to past loss events. We do not record any income or expense on recognition of the contracts assets and
liabilities. Any subsequent remeasurement of the value of liabilities is recorded to net incurred losses and LAE within
the consolidated statements of earnings.
(b) Deferred Charge Assets
If, at the inception of a retroactive reinsurance contract, the estimated liabilities for losses and LAE exceed the
premiums received, a deferred charge asset (“DCA”) is recorded for this difference.
The premium consideration that we charge the ceding companies under retroactive reinsurance contracts may be
lower than our estimate of losses and LAE liabilities as these liabilities may not be settled for many years. Our
contractual counterparties (cedants) settle the premium consideration upon inception of the contract and we invest
the premium received over an extended period of time, thereby generating investment income. As a result, 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.
DCAs 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 DCAs 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 liability amount and the expected timing of related payments of unpaid losses may result
in a subsequent remeasurement of the DCAs and the amount of periodic amortization. Any change in ultimate
losses on the contracts with a recognized DCA will result in the recognition of an adjustment to the DCA, as if the
adjusted reserves had existed upon inception of the contract.
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 DCAs.
DCAs 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.
For each reinsurance contact where a DCA has been recorded we assess for impairment by determining the rate of
return that we are required to earn on the invested assets to ensure that all cashflows arising from the assumed
liabilities are met in full over the projected remaining payout period. This required rate of return is compared against
the modeled rate of return, the weighted average portfolio yield and the actual annualized rate of return in order to
identify indicators that would lead us to record an impairment of the DCA.
For the year ended December 31, 2021, we completed our assessment for impairment of DCA and concluded that
there had been no impairment of our carried DCA balances.
(c) Short-duration Insurance Contracts
Premiums written
Premiums written related to prospective risk policies are earned on a pro-rata basis over the period of the related
coverage. Reinsurance premiums on prospective risks 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 for prospective risks are recorded as premiums written in the period in
which they are determined.
Certain 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. These
Enstar Group Limited | 2021 Form 10-K
113
Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 2. Significant Accounting Policies
adjustments to the premium 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.
Unearned Premium Reserves and Premiums Receivable
Unearned premium reserves, included within other liabilities on the consolidated balance sheets, 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.
(d) Acquisition Costs
Acquisition costs, consisting principally of incremental costs including, commissions and brokerage expenses and
certain premium taxes and fees incurred at the time a contract or policy is issued and which 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 (“DAC”), included within other assets on the consolidated balance sheets, 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 LAE exceed unearned premiums, DAC and
anticipated investment income. A premium deficiency is initially recognized by charging any DAC to expense to the
extent required in order to eliminate the deficiency. If the premium deficiency exceeds the DAC, then a liability is
accrued for the excess deficiency.
(e) Losses and LAE
The liability for losses and LAE includes reserves for unpaid reported losses and losses incurred but not reported
("IBNR").
We establish reserves for unpaid reported losses and LAE based on reports from brokers, ceding companies and
insureds and these represent the estimated ultimate cost of events or conditions that have been reported to or
specifically identified by us.
The reserves for IBNR losses are established by us based on actuarially determined estimates of ultimate losses
and LAE. Inherent in the estimate of ultimate losses and LAE are expected trends in claim severity and frequency,
historical loss experience, industry statistics and other factors which may vary significantly as claims are settled.
These estimates are reviewed regularly and are subject to the impact of future changes in the factors noted above
as well as economic conditions including the impact of inflation, legal and judicial developments, and medical cost
trends.
Any subsequent remeasurement of our reserves will be recorded in earnings in the period in which they become
known and reflected as part of the net increase or reduction in the estimates of ultimate losses included within net
incurred losses and LAE in the consolidated statements of earnings.
Prior period development ("PPD") arises from changes to loss estimates recognized in the current calendar year
that relate to loss reserves established in previous calendar years.
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.
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
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further losses which can be beneficial to us as they legally extinguish liabilities in full, reducing the potential for
future adverse loss development and future claims handling costs.
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 are only executed directly with (re)insureds and any changes in ultimate losses are recognized upon
the execution of a commutation or policy buyback with the (re)insured.
Any material acceleration of payout together with the impact of any material loss reserve savings in any period will
also accelerate the amortization of any associated fair value adjustments or DCAs in that period.
Our (re)insurance subsidiaries also establish provisions for unallocated loss adjustment expenses ("ULAE") for LAE
relating to run-off costs for the estimated duration of the run-off, such as internal claim management or associated
operational support costs, which are included in the liability for losses and LAE. These provisions are assessed at
each reporting date, and provisions relating to future periods are adjusted to reflect any changes in estimates of the
periodic run-off costs or the duration of the run-off, including the impact of any acceleration of the run-off period that
may be caused by commutations. Provisions relating to the current period together with any adjustment to future
run-off provisions are included in net incurred losses and LAE in the consolidated statements of earnings.
Fair Value Option
We have elected to apply the fair value option for certain reinsurance contracts including, loss portfolio transfers
("LPTs") and reinsurance to close ("RITC") transactions. This is an irrevocable election that applies to all balances
under the reinsurance contract, including funds held assets, reinsurance balances recoverable on paid and unpaid
losses, and the liability for losses and LAE.
We use an internal model to calculate the fair value of the liability for losses and LAE 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 LAE, are inputs in our internal
model. These liabilities are included in losses and LAE, at fair value on the consolidated balance sheets, and the
changes in the liability are included in net incurred losses and LAE on the consolidated statements of earnings.
(f) Future Policyholder Benefits
Our life reinsurance contracts include traditional single payment premium immediate annuities, life contingent
deferred annuities, and whole life reversion annuity policies all possessing significant mortality risk in the form of
longevity risk.
Future policyholder benefit provisions are established based on the present value of anticipated future cash flows,
which includes judgments over estimates of mortality rates, investment yields, policy expenses, and other
assumptions by reference to cedants' historical data, regional mortality tables, industry standards, and other
available information sources as may be reasonably available. These estimates include provisions for adverse
deviation.
These assumptions are locked in at contract inception or assumption and are only unlocked and modified if it is
deemed that the provision for future policyholder benefits are insufficient. The actual versus anticipated experience
of the assumptions are reviewed periodically. The effects of changes in assumptions are recorded to the
consolidated statements of earnings as adjustments in the period in which the assumptions are unlocked and
changes are made.
The consideration received for life reinsurance contracts is calculated as the fair value of the assets received net of
commissions, brokerage, or fronting fees.
(g) Defendant Asbestos and Environmental Liabilities
Defendant asbestos and environmental liabilities ("defendant A&E liabilities") on our consolidated balance sheets
include amounts for indemnity and defense costs for pending and future asbestos-related claims, determined using
standard actuarial techniques for asbestos-related exposures.
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Defendant A&E liabilities also include amounts for environmental liabilities, associated with the acquired companies'
properties, relating to estimated clean-up costs associated with the acquired companies' former operations based
on engineering reports.
Changes to our estimate of these liabilities are recorded to other income (expense) within the consolidated
statements of earnings in the period that our estimate is revised.
(h) 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 LAE. We report our reinsurance balances recoverable on paid and unpaid losses net of an allowance for
estimated uncollectible amounts.
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 probability of default ("PD") and loss
given default ("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.
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 LAE in our consolidated statements of earnings.
On an ongoing basis, we also evaluate and monitor the credit risk of our reinsurers, including those under voluntary
schemes of arrangement, to minimize our exposure to significant losses from potential insolvencies.
(i) Insurance Balances Recoverable
Amounts billed to and due from insurers providing coverage for our defendant A&E liabilities are calculated in
accordance with the terms of the individual insurance contracts.
On an ongoing basis, we evaluate and monitor the credit risk related to our insurers and an allowance for estimated
uncollectible insurance balances recoverable on our defendant A&E 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 (h) Reinsurance Balances
Recoverable on Paid and Unpaid Losses above.
Amounts deemed to be uncollectible, including amounts due from known insolvent insurers, 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 other income (expense) in our consolidated statements of earnings.
(j) Investments, Cash and Cash Equivalents
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.
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.
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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,
respectively.
Short-term and fixed maturity investments classified as available-for-sale ("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.
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. Credit losses on our AFS fixed maturity 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 fixed maturity 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 fixed maturity security, effectively creating a
“fair value floor”.
For our AFS fixed maturity 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 record 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 recorded 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 fixed maturity 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 fixed maturity 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 fixed maturity 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.
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 PD and 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 securities: 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
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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.
• Municipal securities: 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 securities: 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.
We report the investment income accrued on our AFS fixed maturity securities within other assets and therefore
separately from the underlying AFS fixed maturity securities. 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.
Uncollectible fixed maturity securities are written off when we determine that no additional payments of principal or
interest will be received.
Equities
We hold investments in publicly traded equities, exchange-traded funds and privately held equities. Our equity
investments are carried at fair value with realized and unrealized gains and losses included in net earnings and
recorded as net realized and unrealized gains and losses, respectively.
Other investments, at fair value
Other investments include investments in limited partnerships and limited liability companies (collectively "private
equity funds") and hedge funds, fixed income funds, equity funds, private credit funds, real estate funds,
collateralized loan obligation ("CLO") equities and CLO equity funds that carry their investments at fair value and
CLO equities.
We have elected the fair value option for certain of our other investments that would otherwise be accounted for as
an equity method investment. The primary reason for electing the fair value option is because we believe this
measurement basis is consistent with the applicable accounting guidance used by the investment funds
themselves.
Our other investments are stated at fair value, which ordinarily will be the most recently reported net asset value
("NAV") as advised by the fund manager or administrator. The NAV is based on the fund manager's or
administrator's valuation of the underlying holdings in accordance with the fund's governing documents. Many of our
fund investments publish NAVs on a daily basis and provide daily liquidity while others report on a monthly or
quarterly basis. Unrealized gains and losses on other investments are included in net earnings and reported as net
unrealized gains and losses.
Equity method investments
Investments that we do not consolidate but in which we have 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 unless we have elected the fair value option.
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.
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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.
(k) 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 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 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.
(l) Funds Held
Under funds held arrangements, the reinsured company has retained funds that would otherwise have been
remitted to us. The funds balance is credited with investment income and losses paid 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, 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 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 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 investment returns on both categories of funds held are recognized in net investment income and net realized
and unrealized gains (losses), respectively. The change in the fair value of the embedded derivative is included in
net unrealized gains (losses).
(m) 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 AOCI.
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.
(n) Share-based Compensation
We primarily use three types of share-based compensation arrangements: (i) restricted shares, restricted share
units and performance share units ("PSUs"), (ii) joint share ownership program ("JSOP"), and (iii) shares issued
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under our employee share purchase plans. Our share-based compensation awards qualify for equity classification.
We issue new shares once the awards have vested.
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. Expenses for the PSU awards are adjusted for changes in the performance multiplier on the award. We
recognize forfeitures as they occur.
(o) Derivative Instruments
We use derivative instruments in our risk management strategies and investment operations. Derivatives, with the
exception of embedded derivatives, are recorded on a trade-date basis and carried at fair value within other assets
or other liabilities in the consolidated balance sheets.
Embedded derivatives are generally presented with the host contract in the consolidated balance sheets. The
corresponding host contract is accounted for according to the accounting guidance applicable for that instrument.
Our convertible bond portfolio, recorded within fixed maturities, trading and AFS on the consolidated balance
sheets, and certain of our funds held arrangements (as described above) contain embedded derivatives.
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 AOCI until the application of hedge accounting is discontinued. Any cumulative
gains or losses arising on designated net investment hedges are deferred in AOCI until the cumulative translation
adjustment from the underlying hedged net investment is recognized in net earnings due to a disposal,
deconsolidation or substantial liquidation.
(p) 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 using enacted tax laws and rates
applicable in the relevant jurisdiction in the period in which the income tax is accrued or realized. 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.
(q) 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.
(r) Acquisitions and Goodwill
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
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assets and liabilities are derived from probability-weighted ranges of the associated projected cash flows, based on
actuarially prepared information and our run-off strategy.
Our run-off strategy is expected to be different from the seller's, who generally do not specialize in running off
(re)insurance liabilities.
The key assumptions used by us 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. We carry unamortized FVA balances on the following consolidated balance sheet
captions: losses and loss adjustment expenses, defendant asbestos and environmental liabilities, debt obligations
and reinsurance balances recoverable on paid and unpaid losses.
To the extent the actual payout experience after the acquisition is materially faster or slower than anticipated at the
time of the acquisition as a result of, (i) our active claims management strategies, which include commutations and
policy buybacks, (ii) an adjustment to the estimated ultimate loss reserves, (iii) changes in bad debt provisions, or
(iv) changes in estimates of future run-off costs following accelerated payouts, then the amortization of the FVA is
adjusted to reflect such changes.
The difference between the fair value of net assets acquired and the purchase price is recorded as goodwill and
included as an asset on the consolidated balance sheet or as a gain from bargain purchase in the consolidated
statements of earnings. Goodwill is established initially upon acquisition and assessed at least annually for
impairment. If the goodwill asset is determined to be impaired it is written down in the period in which the
determination is made.
(s) Redeemable Noncontrolling Interest
In connection with historical acquisitions, noncontrolling interests continue to hold shares in certain of our
subsidiaries. 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.
(t) Held-for-sale Business and Discontinued Operations
We report a business as held-for-sale when certain criteria are met, which include (i) 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, (ii) the business is available for immediate sale in its present condition, (iii) the business is being
actively marketed for sale at a price that is reasonable in relation to its current fair value, and (iv) 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.
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.
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New Accounting Standards Adopted in 2021
Accounting Standards Update ("ASU") 2020-08 – Codification Improvements to Subtopic 310-20 -
Receivables - Nonrefundable Fees and Other Costs
In October 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-08 to clarify that an entity
should re-evaluate whether a callable debt security is within the scope of Accounting Standards Codification ("ASC")
310-20-35-33 during each reporting period and accelerate amortization of the premium associated with the callable
debt to the earliest call date. 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 adoption of ASU 2020-08 did not 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.
We early adopted the amendments in ASU 2020-06 as of January 1, 2021 and that adoption did not have an 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 adoption of ASU 2020-01 did not have an 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 adoption of ASU 2019-12 did not have any impact on our consolidated financial statements and disclosures.
Recently Issued Accounting Pronouncements Not Yet Adopted
ASU 2018-12 - Targeted Improvement to the Accounting for Long-Duration Contracts
In August 2018, the FASB issued ASU 2018-12 and subsequently issued ASUs 2019-09 and 2020-11 serving to
defer the effective date of implementation. These updates:
•
Require at least annual review of assumptions used to determine the provision for future policyholder benefits
with the recognition of any resulting re-measurement gains or losses, excluding those related to discount rate
changes, in the consolidated statement of earnings;
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Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 2. Significant Accounting Policies
Table of Contents
•
•
Use upper-medium grade fixed-income instrument discount rates to discount future cash flows with the impact
of these changes recognized in other comprehensive income; and
Introduce new disclosure requirements around the provisions for future policyholder benefits, policyholder
account balances, market risk benefits, separate account liabilities, and DAC, which includes information about
significant inputs, judgments, assumptions and methods used in measurement.
These amendments are effective for interim and annual reporting periods beginning after December 15, 2022. Early
adoption is permitted and certain provisions of the update are required to be adopted on a fully retrospective basis,
while others may be adopted on a modified retrospective basis.
We only recently assumed our life reinsurance contracts following the completion of the Step Acquisition of
Enhanzed Re on September 1, 2021. As such, we are currently evaluating the impact of ASU 2018-12 on our
consolidated financial statements and disclosures.
ASU 2021-04 - Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity -
Classified Written Call Options
In May 2021, the FASB issued ASU 2021-04 which requires issuers to account for modifications or exchanges of
freestanding equity-classified written call options that remain equity classified after the modification or exchange
based on the economic substance of the modification or exchange. Under the ASU, an issuer considers the facts
and circumstances of a modification or exchange and accounts for the resulting change in fair value of the written
call option based on whether the transaction was done to issue equity, to issue or modify debt, or for other reasons.
The guidance clarifies that to the extent applicable, issuers should first reference other GAAP to account for the
effect of a modification. If other GAAP is not applicable, the guidance clarifies whether to account for the
modification or exchange as either (i) an adjustment to equity, or (ii) an expense.
The ASU is to be applied prospectively and is effective for annual periods beginning after December 15, 2021, and
interim periods within those fiscal years. Early adoption is permitted, but entities need to apply the guidance as of
the beginning of the fiscal year in which they early adopt it.
The adoption of ASU 2021-04 is not expected to have an impact on our consolidated financial statements and
disclosures.
Enstar Group Limited | 2021 Form 10-K
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Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 3. Segment Information
3. SEGMENT INFORMATION
Effective January 1, 2021, we revised our segment structure to align with how our chief operating decision maker
("CODM"), who was determined to be our Chief Executive Officer, views our business, assesses performance and
allocates resources to our business components. Following the acquisition of Enhanzed Re on September 1, 2021,
our business is organized into four reportable segments:
•
•
•
•
Run-off: consists of our acquired property and casualty and other (re)insurance business, including our
defendant asbestos and environmental (“A&E”) businesses and StarStone International (from January 1, 2021)
following our decision to place it into an orderly run-off.
Our primary objective of the Run-off segment is to recognize favorable prior period development in our net
incurred losses and LAE (run-off liability earnings or “RLE”) over time by settling claims in a timely, cost efficient
manner using our claims management expertise, including settling claims for lower than outstanding ultimate
loss estimates and implementation of reinsurance and commutation strategies.
The Run-off segment results comprises net premiums earned, other income, net incurred losses and LAE,
acquisition costs and general and administrative expenses.
Enhanzed Re: consists of life and property aggregate excess of loss (catastrophe) business. Our primary
objective of the Enhanzed Re segment is to reinsure products that focus on longevity and investment risks.
The Enhanzed Re segment results comprises net premiums earned, net incurred losses and LAE, policyholder
benefit expenses, acquisition costs and general and administrative expenses.
Investments: consists of our investment activities and the performance of our investment portfolio, excluding
those investable assets attributable to our Legacy Underwriting segment.
Our primary objective of the Investments segment is to obtain the highest possible risk and capital adjusted
returns while maintaining prudent diversification of assets and operating within the constraints of a global
regulated (re)insurance company. We additionally consider the liquidity requirements and duration of our claims,
policyholder benefits and contract liabilities.
The Investments segment results comprises net investment income, net realized gains (losses), net unrealized
gains (losses), general and administrative expenses and earnings from equity method investments.
Legacy Underwriting: consists of businesses that we have either, in the case of Atrium, exited via the sale of
the majority of our interest in or, in the case of StarStone International (included in the Legacy Underwriting
Segment through December 31, 2020), placed into run-off.
Prior to January 1, 2021, this segment comprised SGL No. 1 Limited (“SGL No. 1”)'s 25% net share of Atrium's
Syndicate 609 business at Lloyd's and StarStone International. From January 1, 2021, this segment comprises
SGL No.1's 25% gross share of the 2020 and prior underwriting years of Atrium's Syndicate 609 at Lloyd's,
offset by the contractual transfer of the results of that business to the Atrium entities that were divested in an
exchange transaction (the “Exchange Transaction”)39. There is no net retention for Enstar on Atrium's 2020 and
prior underwriting years.
The Legacy Underwriting segment results comprises net premiums earned, net investment income, net realized
gains (losses), net unrealized gains (losses), other income (expense), net incurred losses and LAE, acquisition
costs and general and administrative expenses.
Management measures segment performance based on segment income (loss). Segment income (loss) is derived
by including certain items from total income and net earnings (loss) attributable to Enstar ordinary shareholders, as
defined above. Income and expense items that are not directly attributable to our reportable segments are included
within our corporate and other activities, which do not qualify as an operating segment. These include,
a. holding company income and expenses,
b.
c.
the amortization of DCAs on retroactive reinsurance contracts,
the amortization of fair value adjustments associated with the acquisition of companies,
39 Refer to Note 5 for a discussion of the Exchange Transaction.
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Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 3. Segment Information
Table of Contents
d. changes in the discount rate and risk margin components of the fair value of assets and liabilities related to our
assumed retroactive reinsurance contracts for which we have elected the fair value option,
e. corporate expenses not allocated to our reportable segments,
f.
debt servicing costs,
g. net foreign exchange (gains) losses,
h. gains (losses) arising on the purchases and sales of subsidiaries (if any),
i.
j.
income tax benefit (expense),
net earnings (losses) from discontinued operations, net of income tax (if any),
k. net (earnings) loss attributable to noncontrolling interest, and
l.
preferred share dividends.
Items b, c and d above form part of corporate and other activities as the CODM evaluates the performance of the
Run-off and Legacy Underwriting segments without consideration of these amounts.
Expenses that are directly attributable to our four reportable segments are disclosed under those segments while
non-direct expenses, as well as costs related to shared services that are not directly attributable to our reportable
segments, are allocated to our reportable segments as well as to our corporate and other activities, on the basis of
the actual or proportion of benefit derived from the services provided.
Our assets are reviewed on a consolidated basis by management for decision making purposes since they support
business operations across all of our four reportable segments as well as our corporate and other activities. We do
not allocate assets to our reportable segments with the exception of reinsurance balances recoverable on paid and
unpaid losses and goodwill that are directly attributable to our reportable segments.
Enstar Group Limited | 2021 Form 10-K
125
Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 3. Segment Information
The following tables set forth select consolidated statement of earnings results by segment for the years ended
December 31, 2021, 2020, and 2019:
2021
2020
2019
(in millions of U.S. dollars)
Income
Run-off
Enhanzed Re
Investments
Legacy Underwriting
Subtotal
Corporate and other
Total income
Earnings from equity method investments
Investments
Segment net earnings (loss)
Run-off
Enhanzed Re
Investments
Legacy Underwriting
Total segment net earnings
Corporate and other:
Other expense (1)
Net gain on purchase and sale of subsidiaries
Net incurred losses and LAE (2)
Policyholder benefit expenses
General and administrative expenses
Interest expense
Net foreign exchange gains (losses)
Income tax expense
$
255 $
191 $
5
429
43
732
57
—
1,898
587
2,676
(16)
789 $
2,660 $
235
—
1,241
726
2,202
(12)
2,190
$
$
$
93 $
239 $
56
217 $
143 $
6
485
—
708
(16)
73
(61)
(1)
(131)
(69)
12
(27)
—
(15)
(36)
—
2,102
(93)
2,152
(19)
3
(190)
—
(136)
(59)
(16)
(24)
16
28
(36)
(271)
437 $
(433)
1,719 $
141
—
1,267
(100)
1,308
(12)
—
(205)
—
(113)
(53)
8
(12)
7
10
(36)
(406)
902
Net earnings from discontinued operations, net of income tax
Net (earnings) loss attributable to noncontrolling interest
Dividends on preferred shares
Total - Corporate and other
Net earnings attributable to Enstar Ordinary Shareholders
$
(1) Other income (expense) for corporate and other activities includes the amortization of fair value adjustments associated with the acquisition of
DCo, LLC (“Dco”) and Morse TEC LLC (“Morse TEC”).
(2) Net incurred losses and LAE for corporate and other activities includes the amortization of DCAs on retroactive reinsurance contracts, fair
value adjustments associated with the acquisition of companies and the changes in the discount rate and risk margin components of the fair
value of assets and liabilities related to our assumed retroactive reinsurance contracts for which we have elected the fair value option. For the
years ended December 31, 2021, 2020 and 2019, amortization of DCAs includes net cumulative effect adjustments of $71 million, $2 million
and $11 million, respectively, arising as a result of prior period development on net ultimate liabilities recorded in our Run-off segment.
126
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 3. Segment Information
Table of Contents
Gross Premiums Written by Geographical Area
The following table summarizes our gross premiums written by geographical region, which is based upon the
location of the subsidiaries underwriting the policies, respectively, for the years ended December 31, 2021, 2020
and 2019.
Run-off
Enhanzed Re
Legacy Underwriting
Total
Total
%
Total
%
Total
%
Total
%
(In millions of U.S. dollars, except percentages)
2021
United States
$
United Kingdom
Europe
14
15
9
6
7
27.5 % $
29.4 %
17.6 %
11.8 %
13.7 %
—
—
3
—
—
3
— % $
— %
100.0 %
— %
— %
100.0 % $
25
48.1 % $
7.7 %
9.6 %
3.8 %
30.8 %
39
19
17
8
23
36.9 %
17.9 %
16.0 %
7.5 %
21.7 %
$
51
100.0 % $
100.0 % $
106
100.0 %
4
5
2
16
52
2020
Run-off
Legacy Underwriting
Total
Total
%
Total
%
Total
%
(In millions of U.S. dollars, except percentages)
$
$
5
—
1
—
(1)
5
100.0 % $
— %
20.0 %
— %
(20.0) %
100.0 % $
32.5 % $
21.8 %
15.0 %
12.4 %
18.3 %
183
119
83
68
99
33.2 %
21.6 %
15.0 %
12.3 %
17.9 %
100.0 % $
552
100.0 %
178
119
82
68
100
547
2019
Run-off
Legacy Underwriting
Total
Total
%
Total
%
Total
%
(In millions of U.S. dollars, except percentages)
$
(25)
100.0 % $
—
—
—
—
— %
— %
— %
— %
$
(25)
100.0 % $
215
127
122
93
127
684
31.4 % $
18.6 %
17.8 %
13.6 %
18.6 %
100.0 % $
190
127
122
93
127
659
28.8 %
19.3 %
18.5 %
14.1 %
19.3 %
100.0 %
Enstar Group Limited | 2021 Form 10-K
127
Asia
Rest of World
Total
United States
United Kingdom
Europe
Asia
Rest of World
Total
United States
United Kingdom
Europe
Asia
Rest of World
Total
Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 4. Business Acquisitions
4. BUSINESS ACQUISITIONS
Enhanzed Re
On September 1, 2021, we completed the purchase of the entire 27.7% equity interest in Enhanzed Re held by an
affiliate of Hillhouse Group for cash consideration of $217 million and assumed the Hillhouse Group's affiliate's
remaining outstanding capital commitment to Enhanzed Re of $40 million (the "Step Acquisition").
Following the completion of the Step Acquisition, our equity interest in Enhanzed Re increased from 47.4% to 75.1%
with joint venture partner Allianz SE ("Allianz") continuing to own the remaining 24.9%. Effective September 1, 2021,
we consolidated Enhanzed Re (previously accounted for as an equity method investment) and eliminated any
intercompany transactions and balances between us and Enhanzed Re.
The following table represents the fair value of net assets acquired, inclusive of the net effect of settlement of pre-
existing relationships.
Fair Value of Net
Assets Acquired,
Before Settlement
of Pre-existing
Relationships
Net Effect of
Settlement of
Pre-existing
Relationships
Net Effect of
Step
Acquisition
(in millions of U.S. dollars)
ASSETS
Fixed maturities, trading, at fair value
$
49 $
Funds held - directly managed
Equities, at fair value
Other investments, at fair value
Total investments
Cash and cash equivalents
Funds held by reinsured companies
Other assets
TOTAL ASSETS
LIABILITIES
Losses and LAE
Future policyholder benefits
Debt obligations
Insurance and reinsurance balances payable
Other liabilities
TOTAL LIABILITIES
NET ASSETS ACQUIRED AT FAIR VALUE
Less:
Cash consideration paid to Hillhouse Group affiliate
Fair value of previously held equity method investment
Fair value of noncontrolling interest
Adjustment for the fair value of pre-existing relationships
Total purchase price
Bargain purchase gain
2,576
855
14
3,494
11
214
8
— $
(304)
—
—
(304)
—
—
—
49
2,272
855
14
3,190
11
214
8
$
$
$
3,727 $
(304) $
3,423
1,113 $
1,539
76
102
16
(271) $
—
—
(6)
(7)
2,846
881 $
(284)
(20) $
$
$
842
1,539
76
96
9
2,562
861
217
418
219
(20)
834
27
128
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 4. Business Acquisitions
Table of Contents
During the third quarter of 2021, we recognized a total gain on the Step Acquisition of $47 million, which was
recorded in net gain on purchase and sales of subsidiaries in our consolidated statements of earnings, and
consisted of a bargain purchase gain, a gain on remeasurement of our previously held equity investment to fair
value and a gain on settlement of pre-existing relationships.
We recognized a bargain purchase gain of $27 million as the fair value of the interest in the net assets acquired
exceeded the total purchase price. The bargain purchase gain was attributable to the negotiation process with
Hillhouse Group and the resulting cash consideration paid was based on 90% of Enhanzed Re's total shareholders'
equity as of June 30, 2021 which was less than the fair value of the net assets acquired.
In accordance with the acquisition method of accounting, we remeasured our previously held equity method
investment in Enhanzed Re to fair value. The fair value of the previously held equity method investment and
noncontrolling interest was calculated as the fair value of Enhanzed Re's total net assets multiplied by the
respective ownership percentages. These fair value measurements are based on significant inputs not observable
in the market and thus represent Level 3 measurements. We also considered guideline market transactions, and the
implied multiple from those transactions corroborated the results of the fair value estimate.
At the time of the transaction, we held contractual pre-existing relationships with Enhanzed Re, consisting of quota
share reinsurance contracts and an agreement to act as the insurance manager for Enhanzed Re. The pre-existing
relationships were deemed to be effectively settled at fair value on the acquisition date.
We record Enhanzed Re's results on a one quarter lag. The table below summarizes the results of Enhanzed Re's
operations, which are included in our consolidated statement of earnings from September 1, 2021, the date of
acquisition, to December 31, 2021:
Total income
Net loss
Net loss attributable to Enstar ordinary shareholders
(1) Excludes earnings from our previously held equity method investment in Enhanzed Re40.
Supplemental Pro Forma Financial Information (Unaudited)
September 1 to December
31, 2021 (1)
(in millions of U.S. dollars)
$
(17)
(19)
(15)
The following selected unaudited pro forma financial information is a summary of our combined results with
Enhanzed Re, giving effect to the Step Acquisition as if it had occurred on January 1, 2020. The unaudited pro
forma financial information presented below is for informational purposes only and is not necessarily indicative of
the results that would have been achieved if the Step Acquisition had taken place on January 1, 2020, nor is it
indicative of future results.
Total income
Net earnings
Net earnings attributable to Enstar
Net earnings attributable to Enstar ordinary shareholders
2021
2020
(in millions of U.S. dollars)
$
1,071 $
494
445
409
3,070
1,942
1,892
1,856
The unaudited pro forma financial information is presented on a fully consolidated basis. Aside from a pro forma
adjustment made to recognize the gain on the Step Acquisition as of January 1, 2020, there were no further non-
recurring pro forma adjustments recorded.
40 Refer to Note 22 for further information.
Enstar Group Limited | 2021 Form 10-K
129
Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 5. Divestitures, Held-For-Sale Business and Discontinued Operations
5. DIVESTITURES, HELD-FOR-SALE BUSINESSES AND DISCONTINUED OPERATIONS
The following table provides a summary of the net gain on sales of subsidiaries which was recorded in net gain on
purchase and sales of subsidiaries included in our consolidated statement of earnings for the years ended
December 31, 2021 and 2020:
Atrium
SUL
PWIC
Other
Net gain on sales of subsidiaries
Atrium Exchange Transaction
2021
2020
(in millions of U.S. dollars)
$
$
(8) $
23
8
3
26 $
—
—
—
3
3
As of December 31, 2020, Enstar owned an indirect 59.0% interest in North Bay Holdings Limited ("North Bay") and
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") and Dowling Capital Partners I, L.P. and Capital City
Partners LLC (collectively, the "Dowling Funds") owned 39.3% and 1.7%, respectively.
North Bay owned 100.0% of StarStone Specialty Holdings Limited ("SSHL"), the holding company for the StarStone
group, which previously included StarStone's U.S. operations, including StarStone U.S. Holdings, Inc. and its
subsidiaries (“StarStone U.S.”) and StarStone's international operations ("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.
Effective January 1, 2021, we exchanged a portion of our indirect interest in Northshore for all of the Trident V
Funds' indirect interest in StarStone U.S., which is now owned through an interest in Core Specialty Insurance
Holdings, Inc. ("Core Specialty") in the "Exchange Transaction”, resulting in us owning 25.2% on a fully diluted basis
(24.7% as of December 31, 2021) of Core Specialty, and 13.8% of Northshore, which continues to own Atrium and
Arden. The Trident V Funds 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 ownership interests in SSHL of 59.0%,
39.3% and 1.7%, respectively.
Effective January 1, 2021, Northshore was deconsolidated and our remaining investment with a carrying value of
$37 million as of December 31, 2021 is accounted for as a privately held equity investment and carried at its fair
value. During the first quarter of 2021, we recognized a loss of $8 million on completion of the Exchange
Transaction.
Following the Exchange Transaction, North Bay no longer held any direct or indirect interest in Northshore, SSHL or
Core Specialty and on October 26, 2021, North Bay was liquidated.
Through our wholly owned subsidiary, SGL No. 1, a Lloyd’s corporate member, 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 Exchange Transaction, SGL No.1 ceased its provision of underwriting
capacity on Syndicate 609 for future underwriting years.
SGL No.1 is obligated to support underwriting capacity on Syndicate 609 through the provision of Funds at Lloyd’s
(“FAL”), and will settle its share of the 2020 and prior underwriting years for the economic benefit of Atrium via
reinsurance agreements with Arden and a Syndicate 609 Capacity Lease Agreement with Atrium 5 Limited, a UK
domiciled subsidiary of Atrium.
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Item 8 | Notes to Consolidated Financial Statements | Note 5. Divestitures, Held-For-Sale Business and Discontinued Operations
Table of Contents
As a result of these contractual arrangements, the net loss reserve liabilities, cash, investments and other assets
that support those liabilities, will be settled by: i) the distribution of SGL No.1’s share of the Syndicate 609 result; ii)
the settlement of the net payable or receivable position on the reinsurance agreement with Arden; and iii) the
required settlement, if any, of the Syndicate 609 Capacity Lease Agreement payable, each of which will occur no
earlier than December 31, 2022.
Balances due from (due to) under these contractual arrangements as of December 31, 2021 were as follows:
Distribution of SGL No.1 share of Syndicate 609 results
Due to Arden under reinsurance agreement
Due to Atrium 5 Limited under Capacity Lease Agreement
Net balances with Northshore Group
December 31, 2021
(in millions of U.S. dollars)
$
$
34
(22)
(12)
—
Until these balances are settled, as of December 31, 2021, the Company recognized gross loss reserves of
$215 million, reinsurance recoverable of $62 million, and $152 million of net assets required to support the net
insurance liabilities.
Additionally, although the value of and the change in other insurance assets and liabilities are recorded gross within
our Legacy Underwriting segment, there is no retention by Enstar of the net results of Atrium's 2020 and prior
underwriting years as the business was contractually transferred to the Atrium entities that were divested in the
Exchange Transaction. We recorded net unearned premium of $37 million and DAC of $20 million, included within
other liabilities and other assets on our consolidated balance sheet, respectively, as of January 1, 2021.
Effective January 1, 2021, balances that SGL No. 1 has with Atrium and Arden are no longer eliminated in our
consolidated financial statements.
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.
Enstar Group Limited | 2021 Form 10-K
131
Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 5. Divestitures, Held-For-Sale Business and Discontinued Operations
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
(in millions of U.S. dollars)
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
Reinsurance balances recoverable on paid and unpaid losses
Funds held by reinsured companies
Other assets
TOTAL ASSETS HELD-FOR-SALE
LIABILITIES
Losses and LAE
Insurance and reinsurance balances payable
Debt obligations
Other liabilities
TOTAL LIABILITIES HELD-FOR-SALE
NET ASSETS HELD-FOR-SALE
$
$
$
$
$
2
154
7
10
173
71
152
37
32
246
711
254
12
40
178
484
227
As of December 31, 2020, included in the table above were restricted investments of $94 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 million inclusive of $235 million of common shares of Core Specialty and cash of
$47 million. At the closing date, the $235 million of common shares of Core Specialty represented a 25.2% equity
interest in Core Specialty on a fully diluted basis (24.7% as of December 31, 2021).
132
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Item 8 | Notes to Consolidated Financial Statements | Note 5. Divestitures, Held-For-Sale Business and Discontinued Operations
Table of Contents
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 and 2019:
INCOME
Net premiums earned
Net investment income
Net realized gains
Net unrealized gains
EXPENSES
Net incurred losses and LAE
Acquisition costs
General and administrative expenses
Interest expense
LOSS BEFORE INCOME TAXES
2020
2019
(in millions of U.S.
dollars)
$
291 $
351
13
4
2
310
192
58
60
2
312
(2)
2
— $
282 $
(278)
12
16 $
16 $
(9)
7 $
16
—
19
386
258
65
61
3
387
(1)
8
7
—
—
—
—
7
(3)
4
Income tax benefit
NET EARNINGS 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
NET EARNINGS FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES
Net (earnings) from discontinued operations attributable to noncontrolling interest
NET EARNINGS FROM DISCONTINUED OPERATIONS ATTRIBUTABLE TO
ENSTAR ORDINARY SHAREHOLDERS
Continuing Involvement
$
$
$
$
$
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 insurance 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 million
from StarStone U.S. in exchange for a total reinsurance premium consideration of $478 million, subject to an
aggregate limit of $130 million above the assumed total net loss reserves.
Our subsidiary's obligations to StarStone U.S. under the LPT and ADC reinsurance agreement are guaranteed by
the Parent Company. The LPT and ADC reinsurance agreement between our subsidiary and StarStone U.S. will
continue in force until such time as our liability with respect to the assumed total net loss reserves terminates.
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Item 8 | Notes to Consolidated Financial Statements | Note 5. Divestitures, Held-For-Sale Business and Discontinued Operations
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 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 will continue in force (subject to certain limited exceptions) until such time as the LPT and ADC
reinsurance agreement terminates.
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 relating to transactions, primarily reinsurances, between StarStone U.S. and us:
Total income
Total expenses (1)
Net (loss) earnings
2021
2020
2019
(in millions of U.S. dollars)
$
$
(1) $
20
(21) $
12 $
(16)
28 $
11
63
(52)
(1) For the year ended December 31, 2021, negative total income was driven by a premium adjustment. 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, 2021,
2020 and 2019 were $(102) million, $99 million and $(54) 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 made up 25.2% of the total outstanding common shares in
Core Specialty on a fully diluted basis as of November 30, 2020, the date we completed the sale and
recapitalization of StarStone U.S. (24.7% as of December 31, 2021). Our investment in the common shares of Core
Specialty, which is included in equity method investments on our consolidated balance sheets, was $225 million as
of December 31, 2021 (2020: $235 million).
Following the completion of the Exchange Transaction on January 1, 2021 as described above, common shares in
Core Specialty with a carrying value of $4 million were distributed to redeemable noncontrolling interests41.
During the year ended December 31, 2021, our proportionate share of loss on our investment in Core Specialty was
$6 million, which is included within earnings from equity method investments in our consolidated statement of
earnings and is recorded on a quarter lag.
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. The results of StarStone International are included within
continuing operations.
On March 15, 2021, we sold StarStone Underwriting Limited ("SUL"), a Lloyd's managing agency, together with the
right to operate Lloyd's Syndicate 1301 for the 2021 and future years of account, to Inigo Limited ("Inigo"). As of
41 As discussed in Note 17.
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December 31, 2020, we had a 59.0% interest in SUL and the Trident V Funds and the Dowling Funds owned 39.3%
and 1.7%, respectively. Upon closing, Enstar, the Trident V Funds and the Dowling Funds received aggregate
consideration of $30 million in the form of Inigo shares and $1 million in cash.
Following the completion of the sale of SUL to Inigo on March 15, 2021, we recognized a gain on the sale of $23
million in the first quarter of 2021. In addition, Enstar and the Trident V Funds have committed to invest up to
$27 million and $18 million, respectively, in Inigo.
As of December 31, 2021, Enstar had funded $17 million of its capital commitment to Inigo, with $10 million yet to
be called by Inigo. As of December 31, 2021, our investment in Inigo was carried at $43 million (December 31,
2020: $17 million) representing 5.4% of the total outstanding ordinary shares of Inigo 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
years of account as this business runs off.
Disposal of Providence Washington
On October 1, 2021, we completed the sale of Providence Washington Insurance Company ("PWIC"), a Rhode
Island domiciled stock insurance company, to Everspan Insurance Company, a subsidiary of Ambac Financial
Group, Inc., for cash consideration of $22 million. We recognized a gain on the sale of $8 million in the fourth
quarter of 2021.
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Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 6. Investments
6. INVESTMENTS
We hold:
trading portfolios of short-term and fixed maturity investments and equities, carried at fair value;
i.
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
funds held - directly managed.
v.
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, 2021 and 2020:
2021
Short-term
investments,
trading
Short-term
investments,
AFS
Fixed
maturities,
trading
Fixed
maturities,
AFS
(in millions of U.S. dollars)
Fixed
maturities,
funds held -
directly
managed
Total
U.S. government and agency
$
3 $
25 $
102 $
434 $
183 $
U.K. government
Other government
Corporate (1)
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
Structured products
Total fixed maturity and short-
term investments
—
3
—
—
—
—
—
—
—
8
—
—
—
1
—
73
285
2,660
85
104
250
197
—
10
128
3,350
128
391
562
649
—
—
247
796
73
115
262
97
1,033
747
83
663
6,814
286
610
1,074
944
1,033
$
6 $
34 $
3,756 $
5,652 $
2,806 $
12,254
(1) Includes convertible bonds of $223 million, which includes embedded derivatives of $43 million.
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Item 8 | Notes to Consolidated Financial Statements | Note 6. Investments
Table of Contents
2020
Short-term
investments,
trading
Short-term
investments,
AFS
Fixed
maturities,
trading
Fixed
maturities,
AFS
(in millions of U.S. dollars)
Fixed
maturities,
funds held -
directly
managed
Total
U.S. government and agency
$
— $
244 $
124 $
474 $
109 $
U.K. government
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
Total fixed maturity and short-
term investments
$
—
3
2
—
—
—
—
—
3
17
—
—
—
—
37
328
14
147
3,228
1,920
80
154
347
297
30
329
277
204
—
21
520
53
71
230
56
951
51
502
5,687
163
554
854
557
5 $
264 $
4,595 $
3,395 $
1,060 $
9,319
Included within residential and commercial mortgage-backed securities as of December 31, 2021 were securities
issued by U.S. governmental agencies with a fair value of $460 million (as of December 31, 2020: $458 million).
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, 2021
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
(in millions of U.S. dollars)
$
395 $
813
2,623
2,545
3,161
611
1,070
947
398
820
2,637
2,566
3,205
610
1,074
944
3.2 %
6.7 %
21.5 %
20.9 %
26.2 %
5.0 %
8.8 %
7.7 %
$
12,165 $
12,254
100.0 %
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Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 6. Investments
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, 2021:
Amortized
Cost
Fair Value
% of
Total
AAA
Rated
AA Rated
A Rated
BBB
Rated
Non-
Investment
Grade
Not Rated
(in millions of U.S. dollars)
U.S. government and agency
$
6.1 % $
747
$
U.K. government
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
Structured products
Total
% of total fair value
748
83
658
747
83
663
0.7 %
5.4 %
6,705
6,814
55.6 %
272
611
1,070
947
1,071
286
610
1,074
944
1,033
2.3 %
5.0 %
8.8 %
7.7 %
8.4 %
—
203
166
17
569
793
389
—
—
75
143
593
147
—
115
255
523
$
$
$
—
8
147
—
—
58
3,144
2,407
97
4
90
207
—
25
8
69
69
510
$
—
—
112
478
—
27
4
24
—
—
—
—
26
—
2
3
—
—
31
$
12,165 $
12,254
100.0 % $ 2,884
$ 1,851
$ 3,697
$ 3,146
$
645
$
23.5 %
15.1 %
30.2 %
25.6 %
5.3 %
0.3 %
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, 2021 and 2020 were as follows:
As of December 31, 2021
Amortized Cost
U.S. government and agency
$
463 $
U.K. government
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
10
127
3,384
129
394
566
650
5,723 $
$
Gross Unrealized Losses
Gross
Unrealized
Gains
Non-Credit
Related Losses
Allowance for
Credit Losses
Fair Value
(in millions of U.S. dollars)
1 $
—
2
29
1
1
3
1
38 $
(5) $
—
(1)
(45)
(2)
(4)
(7)
(1)
(65) $
— $
—
—
(10)
—
—
—
—
(10) $
459
10
128
3,358
128
391
562
650
5,686
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Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 6. Investments
Table of Contents
As of December 31, 2020
Amortized Cost
U.S. government and agency
$
716 $
U.K. government
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
12
142
1,873
29
326
274
204
Gross Unrealized Losses
Gross
Unrealized
Gains
Non-Credit
Related Losses
Allowance for
Credit Losses
Fair Value
(in millions of U.S. dollars)
3 $
2
8
66
1
3
5
1
(1) $
—
—
(2)
—
—
(2)
(1)
(6) $
— $
—
—
—
—
—
—
—
718
14
150
1,937
30
329
277
204
— $
3,659
$
3,576 $
89 $
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, 2021
and 2020:
As of December 31, 2021
12 Months or Greater
Less Than 12 Months
Total
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
(in millions of U.S. dollars)
U.S. government and agency
$
22 $
(1) $
373 $
(4) $
395 $
UK government
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
Total short-term and fixed maturity
investments
As of December 31, 2020
—
—
11
—
6
21
—
—
—
—
—
—
(1)
—
5
46
1,545
77
315
419
516
—
(1)
(19)
(2)
(4)
(6)
(1)
5
46
1,556
77
321
440
516
(5)
—
(1)
(19)
(2)
(4)
(7)
(1)
$
60 $
(2) $
3,296 $
(37) $
3,356 $
(39)
12 Months or Greater
Less Than 12 Months
Total
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
(in millions of U.S. dollars)
U.S. government and agency
$
— $
— $
56 $
(1) $
56 $
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
Total short-term and fixed maturity
investments
—
—
—
5
—
—
—
—
—
—
—
—
8
198
2
79
67
117
—
(1)
—
—
(2)
(1)
8
198
2
84
67
117
$
5 $
— $
527 $
(5) $
532 $
Enstar Group Limited | 2021 Form 10-K
(1)
—
(1)
—
—
(2)
(1)
(5)
139
Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 6. Investments
As of December 31, 2021 and 2020, the number of securities classified as AFS in an unrealized loss position for
which an allowance for credit loss is not recorded was 2,930 and 407, respectively. Of these securities, the number
of securities that had been in an unrealized loss position for twelve months or longer was 93 and 2, 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
The following table provides a reconciliation of the beginning and ending allowance for credit losses on our AFS
debt securities:
December 31, 2021
Corporate
Commercial
mortgage
backed
Total
(in millions of U.S. dollars)
Allowance for credit losses, beginning of year
$
Allowances for credit losses on securities for which credit losses were not previously recorded
Decrease to the allowance for credit losses on securities that had an allowance recorded in the
previous period
— $
(16)
6
— $
—
—
Allowance for credit losses, end of year
$
(10) $
— $
Allowance for credit losses, beginning of year
Cumulative effect of change in accounting principle
Allowances for credit losses on securities for which credit losses were not previously recorded
Reductions for securities sold during the year
Decrease to the allowance for credit losses on securities that had an allowance recorded in the
previous period
December 31, 2020
Corporate
Commercial
mortgage
backed
Total
(in millions of U.S. dollars)
$
— $
(3)
(11)
3
11
— $
—
(1)
—
1
Allowance for credit losses, end of year
$
— $
— $
—
(16)
6
(10)
—
(3)
(12)
3
12
—
During the years ended December 31, 2021 and 2020, we did not have any write-offs charged against the
allowance for credit losses or any recoveries of amounts previously written-off.
Equity Investments
The following table summarizes our equity investments as of December 31, 2021 and 2020:
Publicly traded equity investments in common and preferred stocks
Exchange-traded funds
Privately held equity investments in common and preferred stocks
2021
2020
(in millions of U.S. dollars)
$
$
281 $
1,342
372
1,995 $
261
311
275
847
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
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Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 6. Investments
Table of Contents
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
investments42.
Other Investments, at fair value
The following table summarizes our other investments carried at fair value as of December 31, 2021 and 2020:
Hedge funds (1)
Fixed income funds
Private equity funds
Private credit funds
Equity funds
CLO equity funds
CLO equities
Real estate funds
2021
2020
(in millions of U.S. dollars)
291 $
573
752
275
5
207
161
69
2,333 $
2,638
553
363
192
191
167
128
12
4,244
$
$
(1) Includes our investment in the InRe Fund of $2.4 billion as of December 31, 2020.
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 lag43. 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 invest in fixed income, equity and other investments.
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 include primary, secondary, and direct co-investment opportunities.
Private credit funds invest in direct senior or collateralized loans.
Equity funds invest primarily in public equities.
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.
Real estate funds comprise of real estate funds that invest primarily in commercial real estate equity.
Certain 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
42 Refer to Note 22 for further information on certain privately held equity investments.
43 The valuation of our other investments is described in Note 12.
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Item 8 | Notes to Consolidated Financial Statements | Note 6. Investments
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 period by which proceeds would be received if we had provided notice of our
intent to redeem or initiated a sales process as of December 31, 2021:
Less than
1 Year
1-2 years
2-3 years
More than
3 years
Not
Eligible/
Restricted
Total
Redemption
Frequency
(in millions of U.S. dollars)
Hedge funds
$
291 $
— $
— $
— $
— $
291
Fixed income funds
Private equity funds
CLO equity funds
CLO equities
Private credit funds
Real estate fund
Equity funds
534
—
158
161
—
—
5
—
54
48
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
39
573
698
1
—
275
69
—
752
207
161
275
69
5
$
1,149 $
102 $
— $
— $
1,082 $
2,333
Monthly to
Quarterly
Daily to
Quarterly
Quarterly for
unrestricted
amount
Quarterly to Bi-
annually
Daily
N/A
N/A
Daily
As of December 31, 2021, none of our investments were subject to gates or side-pockets.
Equity Method Investments
The table below shows our equity method investments as of December 31, 2021 and 2020:
Enhanzed Re (1)
Citco (2)
Monument Re (3)
Core Specialty
Other
2021
2020
Ownership %
Carrying Value
Ownership %
Carrying Value
(in millions of U.S. dollars)
— % $
31.9 %
20.0 %
24.7 %
27%
$
—
56
194
225
18
493
47.4 % $
31.9 %
20.0 %
25.2 %
27%
$
330
53
194
235
20
832
(1) Effective September 1, 2021, Enhanzed Re was consolidated by us. Refer to Note 4 for further information.
(2) 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
to a 6.2% interest in the total equity of Citco III Limited ("Citco").
(3) 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.
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Item 8 | Notes to Consolidated Financial Statements | Note 6. Investments
Table of Contents
Summarized Financial Information
The following is the aggregated summarized financial information of our equity method investees, including those
for which the fair value option was elected and would otherwise be accounted for as an equity method investment,
and may be presented on a lag due to the availability of financial information from the investee:
Balance Sheet
Total assets
Total liabilities
Operating Results
Total income
Total expenses
Net income
2021
2020
(in millions of U.S. dollars)
$
45,741 $
33,858
35,913
27,469
2021
2020
2019
(in millions of U.S. dollars)
$
$
9,190 $
6,093 $
8,098
1,092 $
5,234
859 $
5,848
5,609
239
The following table presents the carrying value by ownership percentage of our equity method investees, including
those for which the fair value option was elected:
2021
2020
Equity Method
Investments
Fair Value Option
Equity Method
Investments
Fair Value Option
(in millions of U.S. dollars)
$
$
— $
493
—
— $
828
749
493 $
1,577 $
— $
832
—
832 $
—
517
202
719
Ownership percentage
100%
20%-99%
3%-19%
Total
Funds Held
Funds Held - Directly Managed
The following table summarizes the components of the funds held - directly managed as of December 31, 2021 and
2020:
Short-term and fixed maturity investments, trading
Cash and cash equivalents
Other assets
2021
2020
(in millions of U.S. dollars)
$
$
2,806 $
188
13
3,007 $
1,060
9
6
1,075
Enstar Group Limited | 2021 Form 10-K
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Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 6. Investments
The following table summarizes the short-term and fixed maturity investment components of funds held - directly
managed44 as of December 31, 2021 and 2020:
2021
Funds held
- Directly
Managed -
Fair Value
Option
Funds held
- Directly
Managed -
Variable
Return
Total
2020
Funds held
- Directly
Managed -
Fair Value
Option
Funds held
- Directly
Managed -
Variable
Return
Total
(in millions of U.S. dollars)
$
— $
2,815 $
2,815 $
107 $
859 $
966
—
—
—
—
14
—
14
(23)
(23)
10
—
—
—
84
—
10
84
—
$
— $
2,806 $
2,806 $
117 $
943 $
1,060
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
Change in fair value (1)
Short-term and fixed maturity
investments within funds held -
directly managed, at fair value
(1) Is clearly and closely related to the host contract.
Funds Held by Reinsured Companies
As of December 31, 2021 and 2020, we had funds held by reinsured companies of $2.3 billion and $636 million,
respectively. The increase from December 31, 2020 was primarily driven by the acquisition of Enhanzed Re and
transactions with AXA Group and Hiscox.
Net Investment Income
Major categories of net investment income for the years ended December 31, 2021, 2020 and 2019 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(1)
Investment income from equities and other investments
Gross investment income
Investment expenses
Net investment income
2021
2020
2019
(in millions of U.S. dollars)
$
191 $
199 $
219
—
57
28
276
32
41
73
349
5
34
34
272
20
27
47
319
(37)
312 $
(16)
303 $
$
15
22
38
294
16
12
28
322
(14)
308
(1) Effective April 1, 2021, the InRe Fund was consolidated by us and subsequently liquidated by December 31, 2021. Refer to Note 13 for
additional information. Prior to April 1, 2021, all income or loss from the InRe Fund was determined by the change in net asset value (NAV) of
our holdings in the fund, which was included within net realized and unrealized gains (losses) from other investments.
44 Refer to the sections above for details of the short-term and fixed maturity investments within our funds held - directly managed portfolios.
144
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Item 8 | Notes to Consolidated Financial Statements | Note 6. Investments
Table of Contents
Net Realized and Unrealized Gains (Losses)
Components of net realized and unrealized gains (losses) for the years ended December 31, 2021, 2020 and 2019
were as follows:
2021
2020
(in millions of U.S. dollars)
2019
Net realized gains (losses) on sale:
Gross realized gains on fixed maturity securities, AFS
Gross realized losses on fixed maturity securities, AFS
Increase in allowance for expected credit losses on fixed maturity
securities, AFS
Net realized gains recognized on equity securities sold during the period
Other investments (1)
Net realized investment losses on investment derivatives
Total net realized (losses) gains on sale
Net unrealized (losses) gains:
Fixed maturity securities, trading
Fixed maturity securities in funds held - directly managed
Net unrealized gains (losses) recognized on equity securities still held at
the reporting date
Other investments (1)
Investment derivatives
Total net unrealized gains
$
$
$
19 $
(13)
(10)
9
66
(132)
(61) $
(144)
(62)
146
259
(21)
178 $
26 $
(8)
—
1
—
—
19 $
228
60
(2)
1,336
1
5
(1)
—
1
—
—
5
423
89
54
441
—
1,623 $
1,007
(1) Effective April 1, 2021, the InRe Fund was consolidated by us and subsequently liquidated by December 31, 2021. Refer to Note 13 for
additional information. Prior to April 1, 2021, all income or loss from the InRe Fund was determined by the change in net asset value (NAV) of
our holdings in the fund, which was included within net realized and unrealized gains (losses) from other investments.
The gross realized gains and losses on AFS investments included in the table above resulted from sales of $2.5
billion, $2.0 billion and $303 million for the years ended December 31, 2021, 2020 and 2019, respectively.
The unrealized gains for 2020 primarily comprised unrealized gains of $1.2 billion attributable to the InRe Fund.
These unrealized gains were driven by strong performance in equity markets across multiple sectors, including
consumer discretionary, communication services, information technology and consumer staples.
We have presented all net recognized gains and losses on fixed maturity trading and the fixed maturities within our
funds held-directly managed for the years ended December 31, 2021, 2020 and 2019 within net unrealized gains in
the table above. This is a change to our previous presentation which split recognized gains between net realized
(losses) gains on sale and net unrealized gains. This change had no impact to net earnings for the years ended
December 31, 2020 and 2019. This change also resulted in a revision to the presentation of realized losses and
gains on sale of investments and unrealized gains on investments within the consolidated statements of cash flows
for the years ended December 31, 2020 and 2019.
Enstar Group Limited | 2021 Form 10-K
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Item 8 | Notes to Consolidated Financial Statements | Note 6. Investments
Reconciliation to the Consolidated Statements of Comprehensive Income
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, 2021, 2020 and 2019 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
Gross realized losses on fixed maturity securities, AFS
Tax effect
Included within discontinued operations:
Gross realized gains on fixed maturity securities, AFS
Total reclassification adjustment for net realized gains (losses) included in net
earnings
Included within continuing operations:
Credit losses on fixed maturity securities, AFS
Included within discontinued operations:
Credit recoveries on fixed maturity securities, AFS
Total reclassification adjustment for change in allowance for credit losses
recognized in net earnings
Restricted Assets
2021
2020
2019
(in millions of U.S. dollars)
$
$
$
$
$
19 $
(13)
—
—
26 $
(8)
(1)
1
6 $
18 $
(10) $
— $
— $
(10) $
1 $
1 $
5
(1)
—
—
4
—
—
—
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 $446 million and $472 million, as of December 31, 2021 and 2020, respectively,
was as follows:
Collateral in trust for third party agreements
Assets on deposit with regulatory authorities
Collateral for secured letter of credit facilities
FAL (1)
2021
2020
(in millions of U.S. dollars)
$
6,100 $
4,925
196
94
431
131
105
261
$
6,821 $
5,422
(1) Our businesses included two (2020: three) Lloyd's syndicates as at December 31, 2021. Lloyd's determines the required capital principally
through the annual business plan of each syndicate. This capital is referred to as FAL 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 FAL, as described in Note 16.
146
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Item 8 | Notes to Consolidated Financial Statements | Note 7. Derivative and Hedging Instruments
Table of Contents
7. DERIVATIVES AND HEDGING INSTRUMENTS
We use derivative instruments in our risk management strategies and investment operations.
Foreign currency forward exchange rate contracts are used in qualifying hedging relationships to hedge the foreign
currency exchange rate risk associated with certain of our net investments in foreign operations.
We also utilize foreign currency forward contracts in non-qualifying hedging relationships 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 and collectively managing credit and duration risk.
From time to time we may also utilize credit default swaps to both hedge and replicate credit exposure and
government bond futures contracts for interest rate management.
The following table presents the gross notional amounts and estimated fair values of our derivatives recorded within
other assets and liabilities on the consolidated balance sheets as of December 31, 2021 and 2020:
2021
Fair Value
2020
Fair Value
Gross Notional
Amount
Assets
Liabilities
Gross Notional
Amount
Assets
Liabilities
(in millions of U.S. dollars)
Derivatives designated as hedging
instruments
Foreign currency forward contracts
$
618 $
— $
7 $
604 $
1 $
29
Derivatives not designated as
hedging instruments
Foreign currency forward contracts
Others
Total
498
17
2
—
—
10
134
2
3
—
$
1,133 $
2 $
17 $
740 $
4 $
5
—
34
The following table presents the net gains and losses deferred in the cumulative translation adjustment account,
which is a component of AOCI in shareholders' equity, relating to our qualifying hedges and the net gains and losses
included in earnings relating to our non-qualifying hedges for the years ended December 31, 2021, 2020 and 2019:
2021
Amount of Gains (Losses)
2020
(in millions of U.S. dollars)
2019
Derivatives designated as hedging instruments
Foreign currency forward contracts
$
24 $
(30) $
Derivatives not designated as hedging instruments
Foreign currency forward contracts
(4)
(2)
(15)
13
Enstar Group Limited | 2021 Form 10-K
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Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 8. Reinsurance Balances Recoverable on Paid and Unpaid Losses
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 and 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:
Reinsurance balances recoverable on paid and unpaid losses
Reinsurance balances recoverable on paid and unpaid losses - fair value
option
Total
December 31, 2021
December 31, 2020
(in millions of U.S. dollars)
$
1,367 $
7
(8)
(34)
1,332
185
1,517 $
1,085 $
432
1,517 $
$
$
$
1,850
17
(16)
(21)
1,830
259
2,089
1,568
521
2,089
Certain of our subsidiaries and assumed portfolios, prior to acquisition, used retrocessional agreements to reduce
their exposure to the risk of (re)insurance assumed.
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 settlements45.
As of December 31, 2021 and 2020, we had reinsurance balances recoverable on paid and unpaid losses of $1.5
billion and $2.1 billion, respectively. The decrease of $0.6 billion was primarily due to the elimination of
intercompany cessions on consolidation of Enhanzed Re and cash collections, partially offset by assumed ceded
assets relating to CNA and Syndicate 609.
Top Ten Reinsurers
Top 10 reinsurers
Other reinsurers > $1 million
Other reinsurers < $1 million
Total
December 31, 2021
Total
%
December 31, 2020
Total
%
$
$
1,002
491
24
1,517
(in millions of U.S. dollars)
66.1 % $
32.4 %
1.5 %
100.0 % $
1,365
697
27
2,089
65.3 %
33.4 %
1.3 %
100.0 %
45
The determination of the fair value adjustments on the retroactive reinsurance contracts for which we have elected the fair value option is
described in Note 12.
148
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 8. Reinsurance Balances Recoverable on Paid and Unpaid Losses
Table of Contents
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, 2021 and 2020:
Lloyd's Syndicates (2)
Michigan Catastrophic Claims Association(3)
December 31, 2021 December 31, 2020
(in millions of U.S. dollars)
8
2
747 $
255
1,002 $
256 $
210 $
7
3
864
501
1,365
331
229
$
$
$
$
(1) The reinsurance balances recoverable from non-rated top 10 reinsurers was comprised of:
•
$210 million and $229 million as of December 31, 2021 and December 31, 2020 respectively, due from a U.S. state backed reinsurer that is
supported by assessments on active auto writers operating within the state;
•
•
•
$45 million as of December 31, 2021 due from a U.S. Workers' Compensation Reinsurance Pool that is secured through an allocation to
insurers actively writing workers' compensation in the covered state;
$74 million as of December 31, 2020 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. The reinsurer subsequently received an A- rating by A.M. Best and the collateral was released; and
$208 million as of December 31, 2020 due from Enhanzed Re to whom some of our subsidiaries have retroceded their exposures through
quota share reinsurance agreements46. Effective September 1, 2021, Enhanzed Re was consolidated by us (previously accounted for as an
equity method investment) and all intercompany transactions and balances between Enhanzed Re and Enstar were eliminated upon
consolidation.
(2) Lloyd's Syndicates are rated A+ by Standard & Poor's and A by A.M. Best.
(3) U.S. state backed reinsurer that is supported by assessments on active auto writers operating within the state.
The table below provides a reconciliation of the beginning and ending allowance for estimated uncollectible
reinsurance balances for the years ended December 31, 2021 and 2020:
Allowance for estimated uncollectible reinsurance, beginning of year
$
137 $
Current period change in the allowance
Write-offs charged against the allowance
Recoveries collected
Allowance for estimated uncollectible reinsurance, end of year
$
1
—
(2)
136 $
148
—
(10)
(1)
137
2021
2020
(in millions of U.S. dollars)
46 As discussed in Note 22.
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Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
9. 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 (Outstanding Loss Reserves, or "OLR") and includes losses that have been
incurred but not yet reported ("IBNR") 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 LAE ("ALAE") and unallocated
LAE ("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 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, marine, aviation and transit, construction defect, professional indemnity/directors and officers, motor,
property and other non-life lines of business.
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Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
Table of Contents
The table below provides a consolidated reconciliation of the beginning and ending liability for losses and LAE.
Balance as of January 1
Losses and LAE relating to SGL No.1 (1)
Reinsurance reserves recoverable (2)
Reinsurance reserves recoverable relating to SGL No. 1 (1)
DCAs on retroactive reinsurance
Cumulative effect of change in accounting principle on the determination of the
allowance for estimated uncollectible reinsurance balances
Net balance as of January 1
Net incurred losses and LAE:
Current period:
Increase in estimates of net ultimate losses
Increase in provisions for ULAE
Total current period
Prior periods:
Reduction in estimates of net ultimate losses
Reduction in provisions for ULAE
Amortization of DCAs
Amortization of fair value adjustments
Changes in fair value - fair value option (3)
Total prior periods
Total net incurred losses and LAE
Net paid losses:
Current period
Prior periods
Total net paid losses
Other changes:
Effect of exchange rate movement
Acquired business (4)
Assumed business (5)
Ceded business
Reclassification to assets and liabilities held-for-sale
Total other changes
Net balance as of December 31
Reinsurance reserves recoverable (2)
DCAs on retroactive reinsurance
Balance as of December 31
Reconciliation to Consolidated Balance Sheet:
Loss and loss adjustment expenses
Loss and loss adjustment expenses, at fair value
Total
2021
2020
2019
(in millions of U.S. dollars)
$
10,593 $
9,868 $
9,049
255
—
—
(1,830)
(1,928)
(1,708)
(90)
(219)
—
8,709
—
(260)
(1)
7,679
168
4
172
(281)
(63)
120
16
(75)
(283)
(111)
388
17
405
(130)
(48)
43
27
119
11
416
—
(89)
—
7,252
576
4
580
(111)
(61)
38
51
117
34
614
(29)
(1,402)
(1,431)
(72)
(1,413)
(1,485)
(179)
(1,609)
(1,788)
48
1
1,586
(33)
—
1,602
7,680
1,928
260
9,868
(63)
1,098
3,445
(92)
—
4,388
11,555
1,332
371
120
—
2,186
(155)
(217)
1,934
8,544
1,830
219
$
13,258 $
10,593 $
$
11,269 $
1,989
8,140
2,453
$
13,258 $
10,593
(1) This balance represents the gross up for our participation in Atrium's Syndicate 609 relating to the 2020 and prior underwriting years which is
no longer eliminated on our consolidated financial statements following the completion of the Exchange Transaction on January 1, 2021.
(2) Excludes paid losses recoverable.
(3) Comprises discount rate and risk margin components.
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Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
(4) 2021 acquired business of $1.1 billion includes $842 million of third party loss reserves and $257 million of loss reserves which are deemed to
effectively settle balances relating to pre-existing relationships, the latter comprising of $286 million of reinsurance recoverables, partially offset
by a deferred gain liability of $29 million, carried by two of our reinsurance subsidiaries. These pre-existing relationships were fair valued at
$271 million in accordance with the acquisition method of accounting.
(5) 2021, 2020 and 2019 assumed business is net of DCAs of $243 million, $2 million and $211 million, respectively.
Prior Period Development (“PPD”)
Reduction in Estimates of Net Ultimate Losses
The following table summarizes the reduction in estimates of net ultimate losses related to prior years by segment
and line of business:
Run-off segment:
Asbestos
Environmental
General casualty
Workers' compensation
Marine, aviation and transit
Construction defect
Professional indemnity/Directors and Officers
Motor
Property
All Other
Total Run-off segment
Total Enhanzed Re segment
Total Legacy Underwriting segment
Total
2021:
$
$
2021
2020
2019
(in millions of U.S. dollars)
(16) $
7
116
(234)
(47)
(33)
(31)
43
(45)
(37)
(277)
—
(4)
(281) $
(19) $
(13)
(26)
(183)
(31)
8
(12)
148
(17)
18
(127)
—
(3)
(130) $
7
15
(7)
(136)
(20)
(1)
(39)
(37)
13
(14)
(219)
—
108
(111)
Prior period net incurred losses and LAE additionally includes $120 million for the amortization of DCA, including
$71 million in cumulative effect adjustments relating to recent acquisition years as a result of PPD primarily in our
General Casualty, Workers’ compensation and Other lines of business.
The reduction in estimates of net ultimate losses of $281 million related to prior periods was primarily driven by net
favorable development in the following lines of business:
• Workers’ Compensation - The workers' compensation line of business experienced a $234 million favorable
development as a result of reduced claims activity and favorable settlements on open claims in 2011 & prior
accident years in one portfolio as well as recent 2015 - 2018 accident years on another.
During 2021, we also completed 15 commutations that resulted in a net reduction of ultimate losses of
$10 million in our workers' compensation line of business.
• General Casualty - The experience in the general casualty reserves was adverse by $116 million. This was
partially due to an increase in opioid exposure from our 2020 acquisition year and increased expectations of
latent claims and a lengthening of the payment pattern related to our 2019 acquisition year.
During 2021, we also completed 18 commutations that resulted in a net reduction of ultimate losses of $2 million
in our general casualty line of business.
• Marine, Aviation and Transit - The marine, aviation and transit line of business experienced a $47 million
reduction in estimates of net ultimate losses due to favorable experience across a variety of claim types.
152
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Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
Table of Contents
During 2021, we also completed 4 commutations that resulted in a net increase of ultimate losses of $1 million
in our marine, aviation and transit line of business.
• Motor - The experience in the motor line was adverse by $43 million due to higher-than-expected claims
severity relating to our 2020 acquisition year.
2020: The reduction in estimates of net ultimate losses of $130 million related to prior years was primarily driven by
the Run-off segment which experienced a reduction in estimates of net ultimate losses of $127 million primarily
related to the following lines of business:
• Workers’ Compensation - The workers' compensation line of business experienced a $183 million reduction in
estimates of net ultimates losses as a result of favorable actual development versus expected development
across nearly all of our acquired companies and assumed portfolios.
During 2020, we paid net losses of $143 million and released case and LAE reserves of $177 million. This
represents a decline in reported losses of $34 million for the year.
As a result of the favorable claims development, we recorded a release of $149 million primarily attributed to a
settlement of an outwards reinsurance agreement resulting in the reduction in gross ultimate losses inuring to
our benefit.
During 2020, we also completed 10 commutations that resulted in a net reduction of ultimate losses of
$11 million in our workers' compensation line of business.
• Motor - The experience in the motor line was adverse by $148 million due to higher than expected severity
related to a recent assumed LPT 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.
2019: The reduction in estimates of net ultimate losses of $111 million related to prior years was primarily driven by
the Run-off segment which experienced a reduction in estimates of net ultimate losses of $219 million, partially
offset by the Legacy Underwriting segment which experienced an increase in estimates of net ultimate losses of
$108 million due to our strategy to exit certain lines of business in 2019.
The favorable development in our Run-off segment primarily related to the following line of business:
• Workers' Compensation - A $136 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 million in loss payments to
release a corresponding $54 million of associated case reserves for $14 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.
During 2019, we also completed 6 commutations across several workers' compensation portfolios that
contributed to a $6 million reduction in estimates of net ultimate losses.
Changes in Fair Value - Fair Value Option
During 2021, 2020 and 2019, changes in the fair value of liabilities related to assumed retroactive reinsurance
agreements for which we have elected the fair value option of $(75) million, $119 million and $117 million,
respectively, was primarily driven by an increase in corporate bond yields in 2021 and narrowing credit spreads in
corporate bond yields in 2020 and 2019.
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Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
Reconciliation of the Net Liability for Losses and LAE, Prior to the Provision for Bad debt to the Gross
Liability for Losses and LAE included in the Consolidated Balance Sheet
The table below presents the reconciliation of the loss development tables disclosed further below to the liability for
losses and LAE in the consolidated balance sheet.
December 31, 2021
Net Liability
for Losses
and LAE,
Prior to
Provision
for Bad Debt
Provision
for Bad Debt
Net Liability
for Losses
and LAE
Reinsurance
Recoverable
on
Liabilities
for Losses
and LAE
Gross
Liabilities
for Losses
and LAE
(in millions of U.S. dollars)
Presented in the loss development tables:
Run-off segment:
Asbestos
General casualty
Workers' compensation
Professional indemnity/Directors and Officers
Motor
Excluded from the loss development tables:
Run-off segment:
Environmental
Marine, aviation and transit
Construction defect
Property
Other
Total Run-off segment OLR and IBNR
Enhanzed Re segment OLR and IBNR
Legacy Underwriting segment OLR and IBNR
ULAE
Fair value adjustments - acquired companies
Fair value adjustments - fair value option
Total
DCAs on retroactive reinsurance
$
1,876 $
22 $
1,898 $
80 $
3,362
2,628
1,334
529
357
415
131
256
455
11,343
179
153
418
(106)
(107)
11,880
(371)
7
1
2
2
3
3
—
2
4
46
—
—
—
—
—
46
—
3,369
2,629
1,336
531
360
418
131
258
459
130
273
229
214
20
107
1
177
76
1,978
3,499
2,902
1,565
745
380
525
132
435
535
11,389
1,307
12,696
179
153
418
(106)
(107)
—
60
7
(8)
(34)
179
213
425
(114)
(141)
11,926 $
1,332 $
13,258
(371)
Total
$
11,509 $
46 $
11,555
Loss Development Information
Methodology for Establishing Reserves (Excluding Asbestos and Environmental Claims)
We perform our analysis of loss reserves and IBNR by each portfolio that we have acquired. Exposures for each
portfolio are separated into homogenous reserving classes, generally lines of business, within each portfolio. Each
reserving class contains either direct insurance or assumed reinsurance reserves and groups of relatively similar
types of risks and exposures and lines of business written.
Based upon the exposure characteristics and the nature of available data for each individual reserving class, we
select loss development extrapolation methods to calculate an estimate of ultimate losses.
We establish our recorded reserves as an estimate of unpaid losses for each class primarily by utilizing actuarial
expertise and projection methods. The actuarial methodologies are selected after consideration of exposure
characteristics, data limitations, and strengths and weaknesses of each method applied.
We use generally accepted actuarial methodologies to estimate ultimate losses and LAE, including:
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•
•
•
•
•
Cumulative Reported and Paid Loss Development Methods: The Cumulative Reported (Case Incurred)
Loss Development method estimates ultimate losses by multiplying cumulative reported losses (paid losses
plus case reserves) by a cumulative development factor.
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.
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.
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.
Bornhuetter-Ferguson Expected Loss Projection Reported and Paid Methods: The Bornhuetter-Ferguson
Expected Loss Projection method produces expected unreported losses by multiplying the expected losses,
which are based on initial selected ultimate loss ratios by year, by the unreported percentage. 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.
Reserve Run-off Method: This method first projects the future values of case reserves for all underwriting
years to future ages of development by selecting a run-off pattern of case reserves 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.
We also consider additional information, such as, but not limited to, changes in the legal, regulatory and judicial
environment; medical cost trends and general inflation; and adjust the estimate of ultimate losses as deemed
necessary.
Paid-to-date losses are then deducted from the estimate of ultimate losses and LAE 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.
These estimates are reviewed regularly and, as experience develops and new information becomes known, the
reserves are adjusted as necessary. We generally perform a full review of each portfolio annually and additionally
we perform interim reviews quarterly to ascertain whether changes to claims paid or case reserve amounts have
varied from our expectations developed during the last annual reserve review. In this event, we consider the timing
and magnitude of the actual versus expected development and may record an interim adjustment to our recorded
reserves.
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Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
Asbestos and Environmental Reserving Methodologies
The ultimate losses from A&E 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,
generally from 1985 and prior, based on the still evolving case law in each jurisdiction, making historical
development patterns unreliable to forecast the future claim payments.
As such, we estimate IBNR reserves for each of our portfolios with A&E exposures separately using the following
methodologies:
•
•
•
•
•
•
•
Paid Survival Ratio Method: In this method, 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 and accepted industry benchmarks are used in determining an expected number of future
payment years.
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.
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.
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.
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.
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.
Asbestos Ground-up Exposure Analysis Using Frequency-Severity Method: This method is used when we
have policy and claim data at the defendant or claimant level. In a frequency-severity method there are two
components that need to be estimated, namely, (1) the number of claims that will ultimately be settled with
payment and (2) the severity of these claims including legal costs.
The estimate of future settled claims is based on the historical claim filing rates, historical claim dismissal rates,
current pending claims and epidemiological forecasts of asbestos disease incident for future claim filings.
The net liability for unpaid losses and LAE as of December 31, 2021 and 2020 included $2.3 billion and $1.9 billion,
respectively, which represented an estimate of the net ultimate liability for A&E claims. The gross liability for such
claims as of December 31, 2021 and 2020 was $2.4 billion and $2.1 billion, respectively.
The increase of $407 million and $277 million on a net and gross basis, respectively, in 2021 was primarily due the
Step Acquisition of Enhanzed Re where business previously ceded to Enhanzed Re was no longer eliminated upon
consolidation, partially offset by net paid losses during the year.
Disclosures of Incurred and Paid Loss Development, IBNR, Claims Counts and Payout Percentages
The loss development tables set forth our historic incurred and paid loss development through December 31, 2021,
net of reinsurance, as well as the cumulative number of reported claims, IBNR balances, and other supplementary
information for our segment lines of business with material net losses and LAE balances as of December 31, 2021.
The following factors are relevant to the loss development information presented in the tables below:
•
Level of Disaggregation: In addition to accident year, we have disaggregated the information in the loss
development tables by segment, line of business and acquisition year. We have presented only the last 10
years of portfolio acquisitions as we believe that the current activity on the preceding acquisition years is not
meaningful. We have presented only our Run-off segment as we retain no net economic interest in the activity
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Table of Contents
of our Legacy Underwriting segment. We have not presented empty rows where we did not acquire any
business for that combination of line of business, acquisition and accident year.
We present acquisition year information so that the impact of take-on positions from acquired and assumed
business (as described below) is additionally separated and provides a consistent trend of the development of
our ultimate loss reserves.
StarStone International: In 2014, we acquired an active underwriting business, Starstone Group. In 2020, we
sold the StarStone US business and effective January 1, 2021, StarStone International reserves totaling
$955 million were transferred from the Legacy Underwriting segment to the Run-off segment.
As such, on a prospective basis we have separately presented the Starstone International loss development
tables on a standalone basis from the date of acquisition (April 2014). Additionally, the loss development
information for StarStone International has been included in the Run-off segment loss development tables as an
acquisition in 2021. In both instances, we have aligned the StarStone International lines of business with the
Run-off segment lines of business.
Cessions to Enhanzed Re: Following the Step Acquisition of Enhanzed Re, the Run-off segment business
previously ceded to Enhanzed Re was no longer eliminated upon consolidation. As such, the loss development
disclosures presented for the Run-off segment have been restated to exclude the historical incurred and paid
loss development related to these cessions.
Acquired and Assumed Business: Acquired and assumed net reserves arising from business acquisitions
and retroactive reinsurance agreements are included in the loss development tables on a prospective basis 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 our acquisition is not relevant with respect to our own
experience managing these acquired loss reserves. Furthermore, the information required to prepare the loss
development disclosures on a retrospective basis is not always available to us or reliable.
Commutations and Policy Buybacks: The loss development tables include the net incurred effect of agreeing
a commutation or policy buyback in the year in which the commutation or policy buyback is contractually agreed
and the related settlement in the year in which it is paid or received.
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.
Net Liabilities for Losses and LAE and Net Paid Losses and LAE: The loss development tables include
reported case reserves and IBNR liabilities as well as cumulative paid losses, both of which include ALAE and
are net of reinsurance recoveries.
The loss development tables exclude ULAE, fair value adjustments related to both business acquisitions and
retroactive reinsurance agreements for which we have elected the fair value option as well as DCAs.
PPD: PPD included in the loss development tables is calculated as follows: i) for acquisition years 2020 and
prior, subtract the 2020 calendar year net cumulative incurred losses and ALAE from the 2021 calendar year for
all accident years excluding 2021; and ii) add the result of subtracting the 2021 acquisition year net reserves
acquired from the 2021 net cumulative incurred losses and ALE for all accident year excluding 2021.
Foreign Exchange: The loss development tables exclude the impact of foreign exchange rates. Historical
amounts are disclosed on a constant-currency basis, which is achieved by using constant foreign exchange
rates between years in the loss development tables, and translating prior year amounts denominated in
currencies other than the U.S. dollar, which is our reporting currency, using the closing exchange rates as of
December 31, 2021.
Reported Claim Counts: Reported claim counts are included in the loss development tables on a cumulative
basis. We measure claim frequency information on an individual claim count basis as follows:
◦
The claim frequency information includes direct and assumed open and closed claims 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.
•
•
•
•
•
•
•
•
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Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
◦
◦
◦
The claim count numbers exclude counts related to claims within policy deductibles where the insured is
responsible for the payment of losses within the deductible layer.
Individual claim counts related to certain assumed reinsurance contracts such as excess-of-loss and quota
share treaties are not available to us, and the losses arising from these treaties have been treated as single
claims for the purposes of determining claim counts. Therefore, each treaty year within the reinsurance
contract is deemed a single claim because the detailed underlying individual claim information is generally
not reported to us by our cedants.
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.
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. Reported claim counts include
open claims which have outstanding reserves but excludes claim counts that may relate to IBNR. 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.
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.
Annual Percentage Payout: Annual percentage payout disclosures are based on the payout of claims by age,
net of reinsurance. Claim age reflects the number of years that have lapsed since the original acquisition to the
date the claim is paid, or in the case of StarStone International, the number of years that have lapsed since the
claim’s accident year to the date the claims is paid.
There may be occasions where, due to our claims management strategies (including commutations and policy
buybacks) 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.
Supplemental Information: The information related to net incurred and paid loss development for all calendar
years preceding the year ended December 31, 2021, as well as 2011 and prior accident year and all acquisition
year information (including net acquired reserves and PPD), and the related historical average claims payout
percentage disclosure is unaudited and is presented as supplementary information.
•
•
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Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
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Run-off Segment
Asbestos
Acquisition
Year
Accident
Year
Net
Acquired
Reserves
Net cumulative incurred losses and allocated loss adjustment expenses
For the years ended December 31
Year Ended
December 31,
2021
As of December 31,
2021
2013
2014
2015
2016
2017
2018
2019
2020
2021
PPD
IBNR
(in millions of U.S. dollars, except cumulative number of claims)
Unaudited
Unaudited
Cumulative
number of
claims
2013
2016
2017
2018
2019
2021
2011 and
Prior
$
15 $
15 $
15 $
14 $
15 $
15 $
14 $
10 $
10 $
10 $
— $
5
214
2011 and
Prior
2011 and
Prior
2011 and
Prior
2011 and
Prior
2011 and
Prior
Grand
Total
507
957
54
366
385
506
565
563
582
632
635
3
194
2,118
885
825
864
856
840
(16)
550
5,382
49
46
3
—
(3)
3
31
367
354
356
2
156
2,060
385
—
194
2,059
$
2,284
$ 2,226 $
(14) $ 1,102
11,864
Net cumulative paid losses and ALAE (from table below)
2012- 2021 acquisition years - net liabilities for losses and ALAE
(534)
1,692
2011 and prior acquisition years - net liabilities for losses and ALAE / net increase (reduction) in estimates of net
ultimate losses related to prior years
184
(2)
Total net liabilities for losses and ALAE / net increase (reduction) in estimates of net ultimate losses related to
prior years
$ 1,876 $
(16)
Run-off Segment
Asbestos
Net cumulative paid losses and allocated loss adjustment expenses
For the years ended December 31
2013
2014
2015
2016
2017
2018
2019
2020
2021
(in millions of U.S. dollars, except cumulative number of claims)
Unaudited
$ — $ — $ — $
1 $
2 $
2 $
2 $
3 $
3
20
71 124 183 228 267
19
53
89 131 177
(1)
(3)
(2)
(3)
4
45
89
1
$ 534
Acquisition
Year
Accident
Year
2013
2016
2017
2018
2019
2021
2011 and
Prior
2011 and
Prior
2011 and
Prior
2011 and
Prior
2011 and
Prior
2011 and
Prior
Grand
Total
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Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
Run-off Segment
Asbestos
Annual Percentage Payout of Incurred Losses since Year of Acquisition, Net of Reinsurance
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Acquisition Year
Unaudited
2013
2016
2017
2018
2019
2021
— %
— %
— % 10.00 % 20.00 % 20.00 % 20.00 % 30.00 % 30.00 %
3.15 % 11.18 % 19.53 % 28.82 % 35.91 % 42.05 %
2.26 %
6.31 % 10.60 % 15.60 % 21.07 %
— %
— %
— %
— %
1.12 % 12.64 % 25.00 %
0.26 %
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Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
Table of Contents
Run-off Segment
General Casualty
Acquisition
Year
Accident
Year
Net
Reserves
Acquired
Net cumulative incurred losses and allocated loss adjustment expenses
For the years ended December 31
Year Ended
December 31,
2021
As of December 31,
2021
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
PPD
IBNR
(in millions of U.S. dollars, except cumulative number of claims)
Unaudited
Unaudited
Cumulative
number of
claims
2011 and
Prior
$
81 $ 94 $ 86 $ 102 $ 90 $ 89 $ 87 $ 85 $ 86 $ 85 $ 85 $
— $
2012
2012
2012
2012
2012
2012
2012
2012
2013
2013
2013
2013
2013
2014
2014
2014
2014
2014
2014
2014
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2016
2017
2017
2017
2017
2017
2012
2013
2014
2016
2018
2019
2020
Total
2011 and
Prior
2012
2013
2014
2015
Total
2011 and
Prior
2012
2013
2014
2015
2016
2017
Total
2011 and
Prior
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
2011 and
Prior
Total
2011 and
Prior
2012
2013
2014
2015
Total
77
1
—
—
—
78
38
15
10
—
—
—
—
63
38
38
53
33
4
—
—
—
—
—
—
166
—
—
174
9
7
6
5
201
— — — — — — — — — — —
—
—
—
—
—
—
— — — — — — — — —
— — — — — — — —
— — — — — —
— — — —
— — —
— —
81
94
86 102
90
89
87
85
86
85
85
76
76
96
96
97 100 101 106 106
2
1
1
1
1 — — — —
—
1 — — — — — — —
— — — — — — — —
— — — — — — —
78
78
97
97
98 100 101 106 106
52
48
48
49
49
50
56
18
23
28
24
22
21
22
9
1
10
9
1 —
9
1
13
14
11
1
2
2
49
20
10
1
— — — — — — —
— — — — — —
— — — — —
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(7)
(2)
(1)
(1)
—
—
—
80
82
85
83
85
87
91
80
(11)
35
30
31
30
27
31
26
32
34
32
30
29
29
34
36
36
35
35
20
23
27
29
45
38
10
9
2
9
2
11
16
21
2
2
3
29
32
35
37
18
5
— — — — —
2
1
2
1
2
2
1
2
2
1
120 130 139 142 158 162 162
4
4
9
9
9
9
8
8
6
6
5
5
158 145 132 127 123
7
6
3
4
6
5
3
4
5
4
2
4
5
5
3
4
6
6
2
4
178 163 147 144 141
(2)
3
—
(1)
(3)
2
—
—
—
—
—
(1)
(1)
(1)
(4)
1
1
(1)
—
(3)
Enstar Group Limited | 2021 Form 10-K
3
—
—
—
—
—
—
—
3
3
1
—
—
—
4
1
1
1
—
—
—
—
3
2
—
3
2
3
2
—
1
2
2
1
6,493
1
4
2
1
2
1
3
6,507
655
3
1
2
1
662
726
152
74
3
2
1
1
959
4,035
782
779
1,161
1,345
250
37
12
1
—
—
18
8,402
—
—
7
—
—
—
—
7
1,764
1,764
261
6
7
1
1
276
161
Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
Run-off Segment
General Casualty
Acquisition
Year
Accident
Year
Net
Reserves
Acquired
Net cumulative incurred losses and allocated loss adjustment expenses
For the years ended December 31
Year Ended
December 31,
2021
As of December 31,
2021
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
PPD
IBNR
(in millions of U.S. dollars, except cumulative number of claims)
Unaudited
Unaudited
Cumulative
number of
claims
2018
2018
2018
2018
2018
2018
2018
2018
2018
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2020
2020
2020
2020
2020
2020
2020
2020
2020
2020
2021
2021
2021
2021
2021
2021
2021
2021
2021
2021
2021
2011 and
Prior
2012
2013
2014
2015
2016
2017
2018
2019
Total
2011 and
Prior
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
2011 and
Prior
2012
2013
2014
2015
2016
2017
2018
2019
2020
102
24
57
53
96
65
38
40
—
475
18
16
21
27
76
37
41
49
—
—
—
285
70
56
62
89
143
145
145
143
203
84
Total
1,140
2011 and
Prior
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
124
35
51
66
139
194
302
376
429
61
—
82
80
83
24
21
20
53
48
44
50
49
45
92
94
92
63
81
81
39
44
49
40
41
39
7
6
82
17
47
46
93
82
51
36
7
443 465 459 461
16
15
11
11
16
16
22
21
67
61
39
39
48
46
49
49
1
2
12
11
23
29
76
47
55
53
2
— —
—
(1)
(3)
3
1
1
1
2
(3)
1
2
(3)
—
7
8
15
8
9
4
—
—
—
9
1
1
4
9
6
12
8
1
45,716
1,979
2,201
2,194
3,211
3,442
500
186
36
51
59,465
2
5
14
26
39
33
44
49
—
—
—
1,857
668
888
765
1,290
2,595
1,827
387
237
127
64
269 260 308
48
212
10,705
70
56
57
92
76
37
44
77
144 120
148 173
139 154
140 145
202 235
83
95
1,131 1,156
126
36
52
66
142
204
310
371
432
76
1
893
3,008
6
(19)
(13)
(15)
(24)
25
15
63
31
28
52
77
115
119
5
119
33
12
25
2
1
1
—
204
85
123
32
48
56
3
117
10
172
8
258
(5)
345
3
407
15
—
43
1
84
68
169
215
331
429
502
343
429
438
288
1,150
619
481
2,739
2,963
6,605
6,517
6,100
2,773
73
162
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
Table of Contents
Run-off Segment
General Casualty
Acquisition
Year
Accident
Year
Net
Reserves
Acquired
Total
Grand
Total
1,777
$
4,266
Net cumulative incurred losses and allocated loss adjustment expenses
For the years ended December 31
Year Ended
December 31,
2021
As of December 31,
2021
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
PPD
IBNR
(in millions of U.S. dollars, except cumulative number of claims)
Unaudited
Unaudited
Cumulative
number of
claims
1,816
38 1,602
30,308
$ 4,320 $
97 $ 2,793
122,056
Net cumulative paid losses and ALAE (from table below)
2012 - 2021 acquisition years - net liabilities for losses and ALAE
(1,055)
3,265
2011 and prior acquisition years - net liabilities for losses and ALAE / net increase (reduction) in estimates of net
ultimate losses related to prior years
97
19
Total net liabilities for losses and ALAE / net increase (reduction) in estimates of net ultimate losses related to prior
years
$ 3,362 $
116
Acquisition
Year
Accident
Year
2012
2013
2014
2014
2014
2014
2015
2015
2015
2015
2015
2015
2016
2017
2017
2017
2017
2017
2011 and
Prior
Total
2011 and
Prior
Total
2011 and
Prior
2012
2013
2014
Total
2011 and
Prior
2012
2013
2014
2015
2016
Total
2011 and
Prior
Total
2011 and
Prior
2012
2013
2014
2015
Total
Run-off Segment
General Casualty
Net cumulative paid losses and allocated loss adjustment expenses
For the years ended December 31
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
(in millions of U.S. dollars, except cumulative number of claims)
Unaudited
$ 20 $ 39 $ 50 $ 57 $ 63 $ 65 $ 69 $ 73 $ 75 $ 76
20
39
50
57
63
65
69
73
75
76
5
5
22
44
57
75
84
89
90
22
44
57
75
84
89
90
27
28
33
33
34
35
35
5
1
7
1
10
14
14
14
14
1
2
6
7
1
7
1
— — — — —
97
97
39
14
7
1
33
36
44
49
54
57
57
61
12
13
14
17
18
21
7
7
3
1
11
17
21
25
28
13
18
25
30
30
7
1
15
21
29
33
2
5
11
13
— — —
1
1
23
30
31
34
13
2
30
45
66
89 114 126 133
1
1
2
2
2
2
3
3
4
4
4
4
25
50
67
76
83
3
3
2
1
6
6
3
3
6
8
4
3
8
9
4
4
8
8
4
4
34
68
88 101 107
Enstar Group Limited | 2021 Form 10-K
163
Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
Acquisition
Year
Accident
Year
Run-off Segment
General Casualty
Net cumulative paid losses and allocated loss adjustment expenses
For the years ended December 31
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
(in millions of U.S. dollars, except cumulative number of claims)
Unaudited
2018
2018
2018
2018
2018
2018
2018
2018
2018
2019
2019
2019
2019
2019
2019
2019
2019
2019
2020
2020
2020
2020
2020
2020
2020
2020
2020
2020
2021
2021
2021
2021
2021
2021
2021
2021
2021
2021
2011 and
Prior
2012
2013
2014
2015
2016
2017
2018
2019
Total
2011 and
Prior
2012
2013
2014
2015
2016
2017
2018
2019
Total
2011 and
Prior
2012
2013
2014
2015
2016
2017
2018
2019
2020
Total
2011 and
Prior
2012
2013
2014
2015
2016
2017
2018
2019
2020
Total
Grand
Total
9
3
8
5
21
32
9
11
18
30
17
23
16
31
44
10
33
45
—
12
25
—
9
2
17
3
38
13
36
28
59
55
33
26
6
51 152 230 294
1
2
3
3
3
4
6
1
—
2
2
4
6
6
4
4
6
13
19
6
8
2
1
8
10
3
1
23
44
61
—
—
3
6
11
10
4
—
—
2
3
4
5
15
22
35
24
17
19
9
36 153
3
1
1
1
8
15
23
4
3
10
69
$ 1,055
164
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
Table of Contents
Run-off Segment
General Casualty
Annual Percentage Payout of Incurred Losses since Year of Acquisition, Net of Reinsurance
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Year of Acquisition
Unaudited
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
23.53 % 45.88 % 58.82 % 67.06 % 74.12 % 76.47 % 81.18 % 85.88 % 88.24 % 89.41 %
4.85 % 20.75 % 41.51 % 53.77 % 70.75 % 79.25 % 83.96 % 84.91 % 91.51 %
41.25 % 45.00 % 55.00 % 61.25 % 67.50 % 71.25 % 71.25 % 75.63 %
18.52 % 27.78 % 40.74 % 54.94 % 70.37 % 77.78 % 82.10 %
20.00 % 40.00 % 40.00 % 60.00 % 80.00 % 80.00 %
24.11 % 48.23 % 62.41 % 71.63 % 75.89 %
10.95 % 32.97 % 49.89 % 63.77 %
7.47 % 14.29 % 19.81 %
3.11 % 13.19 %
3.80 %
Enstar Group Limited | 2021 Form 10-K
165
Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
Run-off Segment
Workers' Compensation
Acquisition
Year
Accident
Year
Net
Reserves
Acquired
Net cumulative incurred losses and allocated loss adjustment expenses
For the years ended December 31
Year Ended
December 31,
2021
As of December 31,
2021
2013
2014
2015
2016
2017
2018
2019
2020
2021
PPD
IBNR
(in millions of U.S. dollars, except cumulative number of claims)
Unaudited
Unaudited
Cumulative
number of
claims
2013
2013
2013
2013
2015
2015
2015
2015
2015
2015
2015
2015
2016
2016
2017
2017
2017
2017
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2011 and
Prior
$
2012
2013
2014
Total
2011 and
Prior
2012
2013
2014
2015
2016
2017
2018
Total
2011 and
Prior
2012
Total
2011 and
Prior
2012
2013
2014
Total
2011 and
Prior
2012
2013
2014
2015
2016
2017
2018
2019
2020
Total
2011 and
Prior
2012
2013
2014
2015
2016
2017
2018
2019
2020
288 $ 303 $ 308 $ 298 $ 290 $ 280 $ 265 $ 253 $ 244 $ 243 $
(1) $
130
124
118
116
112
107
106
105
103
103
12
90
91
89
85
82
79
80
79
—
4
3
3
3
2
2
2
78
2
430
517
521
506
490
472
452
440
428
426
—
(1)
—
(2)
5
1
1
—
62,758
10,419
5,656
172
7
79,005
1,029
121
149
84
7
—
—
—
942
639
586
557
516
500
485
(15)
33
110
109
108
100
99
99
99
125
123
123
114
114
115
115
87
19
84
16
1
84
15
1
—
81
15
1
—
—
80
14
1
—
—
82
15
1
—
—
83
13
1
—
—
—
—
1
(2)
—
—
—
3
6
2
—
—
—
—
9,884
1,832
2,454
3,953
5,279
10,722
2,251
10
1,390
1,283
972
917
868
824
812
796
(16)
44
36,385
453
13
466
86
22
19
18
145
155
39
49
62
37
45
53
65
—
—
505
8
6
16
35
55
83
88
119
—
—
453
419
408
399
384
382
13
15
13
11
11
11
466
434
421
410
395
393
59
18
17
10
71
17
16
8
78
16
14
9
71
15
16
8
67
14
16
7
104
112
117
110
104
149
159
159
164
37
47
63
36
45
54
65
28
38
57
34
40
50
60
21
28
34
53
32
39
47
60
21
—
27
34
51
30
40
47
55
21
—
496
487
473
469
6
6
17
37
54
82
88
6
6
15
37
54
83
90
119
119
—
—
—
19
8
14
31
44
61
66
82
—
—
(2)
—
(2)
(4)
(1)
—
(1)
(6)
5
(1)
—
(2)
(2)
1
—
(5)
—
—
(4)
19
1
9,921
612
20
10,533
22
3
1
—
26
53
9
11
14
10
16
19
15
4
—
15
1
1
—
17
2,386
422
844
1,308
1,291
1,211
1,084
887
383
1
151
9,817
13
17
10,190
2
(1)
(6)
(10)
(22)
(24)
(37)
—
—
8
14
26
39
49
59
81
—
—
1,114
2,366
3,192
4,074
4,822
2,362
358
13
1
166
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
Table of Contents
Run-off Segment
Workers' Compensation
Net cumulative incurred losses and allocated loss adjustment expenses
For the years ended December 31
Year Ended
December 31,
2021
As of December 31,
2021
2013
2014
2015
2016
2017
2018
2019
2020
2021
PPD
IBNR
(in millions of U.S. dollars, except cumulative number of claims)
Unaudited
Unaudited
Cumulative
number of
claims
409
410
325
(85)
293
28,492
121
105
—
—
2
3
2
10
32
33
2
3
2
8
26
26
(16)
—
—
—
—
(2)
(6)
(7)
41
—
1
1
1
3
7
8
203
172
(31)
62
8
15
57
126
126
325
644
1,180
2,481
911
(65)
350
11,518
19
37
15
35
54
46
61
47
58
23
—
(1)
1
(7)
(1)
1
(2)
(1)
10
—
12
28
9
20
31
24
37
22
25
13
617
5
29
120
220
456
815
1,284
3,434
4,003
1,306
(65)
571
22,501
$ 3,991 $
(211) $ 1,174
189,231
Acquisition
Year
Accident
Year
Net
Reserves
Acquired
Total
2011 and
Prior
2014
2015
2016
2017
2018
2019
2020
Total
2011 and
Prior
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2020
2020
2020
2020
2020
2020
2020
2020
2021
2021
2021
2021
2021
2021
2021
2021
2021
2021
2021
410
208
—
2
3
2
10
32
32
289
976
19
38
14
42
55
45
63
48
48
—
Total
Grand
Total
1,348
$
4,983
Net cumulative paid losses and ALAE (from table below)
2012 - 2021 acquisition years - net liabilities for losses and ALAE
(1,513)
2,478
2011 and prior acquisition years - net liabilities for losses and ALAE / net increase (reduction) in estimates of net
ultimate losses related to prior years
150
(23)
Total net liabilities for losses and ALAE / net increase (reduction) in estimates of net ultimate losses related to
prior years
$ 2,628 $
(234)
Run-off Segment
Workers' Compensation
Net cumulative paid losses and allocated loss adjustment expenses
For the years ended December 31
2013
2014
2015
2016
2017
2018
2019
2020
2021
(in millions of U.S. dollars, except cumulative number of claims)
Unaudited
$
78 $ 132 $ 168 $ 195 $ 200 $ 206 $ 208 $ 208 $ 214
33
17
58
37
1
74
53
1
85
63
2
91
68
2
95
71
2
98
75
2
96
74
2
97
75
2
128
228
296
345
361
374
383
380
388
Acquisition
Year
Accident
Year
2013
2013
2013
2013
2011 and
Prior
2012
2013
2014
Total
Enstar Group Limited | 2021 Form 10-K
167
Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
Acquisition
Year
Accident
Year
Run-off Segment
Workers' Compensation
Net cumulative paid losses and allocated loss adjustment expenses
For the years ended December 31
2013
2014
2015
2016
2017
2018
2019
2020
2021
(in millions of U.S. dollars, except cumulative number of claims)
Unaudited
2015
2015
2015
2015
2015
2016
2016
2017
2017
2017
2017
2018
2018
2018
2018
2018
2018
2018
2018
2018
2019
2019
2019
2019
2019
2019
2020
2020
2020
2020
2020
2021
2021
2021
2021
2021
2021
2011 and
Prior
2012
2013
2014
2015
Total
2011 and
Prior
2012
Total
2011 and
Prior
2012
2013
2014
Total
2011 and
Prior
2012
2013
2014
2015
2016
2017
2018
2019
Total
2011 and
Prior
2014
2015
2016
2017
2018
Total
2011 and
Prior
2016
2018
2019
2020
Total
2011 and
Prior
2012
2013
2014
2015
2016
36
25
28
18
3
95
147
182
211
236
263
53
56
39
6
66
76
54
10
80
88
91
93
93
102
105
107
67
11
75
12
78
12
79
13
110
249
353
433
488
522
555
38
71
98
136
167
191
3
5
6
7
8
9
41
76
104
143
175
200
15
18
25
32
4
4
3
5
6
4
7
9
5
8
12
5
26
33
46
57
2
2
2
3
1
—
—
—
17
32
6
8
14
3
5
7
29
13
9
12
21
8
8
10
34
16
34
9
12
6
61
36
11
15
28
11
13
13
36
16
10
102
150
179
1
2
3
5
2
1
1
3
4
9
4
1
1
4
4
10
5
1
14
22
25
2
—
—
1
1
4
10
1
1
10
10
32
14
1
1
2
3
4
168
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
Table of Contents
Run-off Segment
Workers' Compensation
Net cumulative paid losses and allocated loss adjustment expenses
For the years ended December 31
2013
2014
2015
2016
2017
2018
2019
2020
2021
(in millions of U.S. dollars, except cumulative number of claims)
Unaudited
7
4
9
24
4
73
$ 1,513
Acquisition
Year
Accident
Year
2021
2021
2021
2021
2021
2017
2018
2019
2020
2021
Total
Grand
Total
Run-off Segment
Workers' Compensation
Annual Percentage Payout of Incurred Losses since Year of Acquisition, Net of Reinsurance
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year of Acquisition
Unaudited
2013
2015
2016
2017
2018
2019
2020
2021
30.05 % 53.52 % 69.48 % 80.99 % 84.74 % 87.79 % 89.91 % 89.04 % 91.08 %
13.81 % 31.27 % 44.32 % 54.37 % 61.28 % 65.49 % 69.70 %
10.43 % 19.34 % 26.46 % 36.39 % 44.53 % 50.89 %
25.00 % 31.73 % 44.23 % 54.81 % 58.65 %
2.13 % 21.75 % 31.98 % 38.17 %
4.31 %
6.77 %
7.69 %
2.33 % 18.60 %
5.59 %
Enstar Group Limited | 2021 Form 10-K
169
Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
Run-off Segment
Professional Indemnity / Directors and Officers
Net cumulative incurred losses and allocated loss adjustment expenses
For the years ended December 31
Year Ended
December 31,
2021
As of December 31,
2021
Acquisition
Year
Accident
Year
Net
Reserves
Acquired 2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
PPD
IBNR
(in millions of U.S. dollars, except cumulative number of claims)
Unaudited
Unaudited
Cumulative
number of
claims
118 $ 149 $ 152 $ 136 $ 167 $ 161 $ 152 $ 152 $ 149 $ 144 $ 144 $
— $
2012
2012
2012
2012
2012
2012
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2016
2016
2016
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2019
2019
2019
2019
2019
2019
2019
2019
2011 and
Prior
$
2012
2013
2014
2015
2016
Total
2011 and
Prior
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
2011 and
Prior
2012
2013
Total
2011 and
Prior
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
— —
1
1
3
1 — — — — —
—
—
—
—
— — —
1 — — — — —
— — — — — — — —
— — — — — — —
— — — — — —
118 149 153 137 170 163 152 152 149 144 144
23
49
32
—
—
—
—
—
—
—
—
104
123
—
—
123
264
67
56
73
52
19
1
—
—
—
—
22
26
23
24
24
24
24
39
51
49
46
44
45
43
43
61
54
59
54
48
46
7
5
—
5
7
4
8
6
7
5
5
5
5
24
42
48
9
2
— — — — — —
— — — — —
— — — —
— — —
— —
—
111 143 138 141 135 127 123 125
119 121 121 109 106
94
— — — — — —
— — — — — —
119 121 121 109 106
94
238 200 196 197
77
70
69
60
53
64
69
70
61
61
78
81
33
38
45
2
—
6
1
7
1
79
59
56
80
47
9
1
— — —
— —
—
Total
532
540 516 524 528
2011 and
Prior
2012
2013
2014
2015
2016
2017
2018
15
21
29
39
62
20
9
1
13
13
11
21
9
23
24
33
32
56
39
34
40
18
32
4
3
9
27
26
42
47
35
3
170
Enstar Group Limited | 2021 Form 10-K
—
—
—
—
—
—
—
(1)
2
4
(3)
—
—
—
—
—
—
2
(12)
—
—
(12)
1
10
(5)
(5)
(1)
2
2
—
—
—
—
4
(2)
—
3
(6)
3
7
3
6
—
—
—
—
—
6
1
1
5
6
—
—
—
—
—
—
—
8,495
6
3
2
2
3
8,511
1,757
2,164
1,628
548
76
18
24
13
5
5
3
13
6,241
(2)
—
—
(2)
8
4
4
2
5
3
—
—
—
—
—
2,858
1
1
2,860
55,421
4,047
3,988
4,277
4,366
2,719
230
13
6
12
3
26
75,082
1
1
4
2
4
6
5
7,249
2,524
3,204
3,590
4,206
4,849
2,855
308
—
—
Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
Table of Contents
Run-off Segment
Professional Indemnity / Directors and Officers
Net cumulative incurred losses and allocated loss adjustment expenses
For the years ended December 31
Year Ended
December 31,
2021
As of December 31,
2021
Acquisition
Year
Accident
Year
Net
Reserves
Acquired 2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
PPD
IBNR
(in millions of U.S. dollars, except cumulative number of claims)
Unaudited
Unaudited
Cumulative
number of
claims
2019
2019
2019
2020
2020
2020
2020
2020
2020
2020
2020
2020
2020
2021
2021
2021
2021
2021
2021
2021
2021
2021
2021
2021
2019
2020
2021
Total
2011 and
Prior
2012
2013
2014
2015
2016
2017
2018
2019
2020
Total
2011 and
Prior
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total
Grand
Total
—
—
—
196
4
2
8
12
17
16
17
26
100
35
237
33
24
28
21
46
49
76
152
183
50
—
662
$ 1,972
2
2
2
— —
—
—
—
—
—
—
58
30
3
204 194 202
8
23
28,876
4
2
8
12
17
16
17
26
100
35
15
7
7
11
17
26
26
38
55
37
237 239
37
24
35
22
48
48
69
143
170
41
10
11
15
5
(1)
(1)
—
10
9
12
(45)
2
2
4
—
7
1
2
(1)
(7)
(9)
7
6
11
16
26
26
30
37
21
195
33
21
27
19
35
36
53
98
(13)
129
(9)
—
31
8
4
4
6
4
4
9
43
116
139
138
467
402
195
176
54
1,006
1,671
2,745
5,681
6,673
1,486
218
647
(25)
490
20,307
$ 1,979 $
(21) $
751
142,344
Net cumulative paid losses and ALAE (from table below)
2012 - 2021 acquisition years - net liabilities for losses and ALAE
(658)
1,321
2011 and prior acquisition years - net liabilities for losses and ALAE / net increase (reduction) in estimates of net
ultimate losses related to prior years
13
Total net liabilities for losses and ALAE / net increase (reduction) in estimates of net ultimate losses related to
prior years
$ 1,334 $
(10)
(31)
Enstar Group Limited | 2021 Form 10-K
171
Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
Run-off Segment
Professional Indemnity / Directors and Officers
Net cumulative paid losses and allocated loss adjustment expenses
For the years ended December 31
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
(in millions of U.S. dollars, except cumulative number of claims)
Unaudited
$ 28 $ 52 $ 68 $ 84 $ 97 $ 107 $ 113 $ 117 $ 122 $ 126
28
52
68
84
97 107 113 117 122 126
10
14
17
18
21
21
22
14
25
32
35
34
35
35
15
27
31
40
40
40
41
—
1
1
— —
1
1
3
2
3
2
3
3
22
34
42
3
2
39
67
81
95 100 101 104 103
10
21
32
30
34
10
21
32
30
34
39
61
50
17
25
31
9
14
19
18
29
36
15
27
37
6
20
29
—
—
2
1
4
1
36
36
50
49
29
38
45
31
8
1
104 179 207 251
2
4
3
9
8
5
2
2
4
3
11
11
18
11
—
1
— —
5
3
8
17
18
23
13
2
1
33
61
90
1
—
—
—
1
2
1
(1)
4
9
9
22
4
1
1
2
3
3
3
9
Acquisition
Year
Accident
Year
2012
2014
2014
2014
2014
2014
2016
2018
2018
2018
2018
2018
2018
2018
2018
2019
2019
2019
2019
2019
2019
2019
2019
2019
2020
2020
2020
2020
2020
2021
2021
2021
2021
2021
2021
2021
2021
2011 and
Prior
Total
2011 and
Prior
2012
2013
2014
2015
Total
2011 and
Prior
Total
2011 and
Prior
2012
2013
2014
2015
2016
2017
2018
Total
2011 and
Prior
2012
2013
2014
2015
2016
2017
2018
2019
Total
2013
2017
2018
2019
2020
Total
2011 and
Prior
2012
2013
2014
2015
2016
2017
2018
172
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
Table of Contents
Run-off Segment
Professional Indemnity / Directors and Officers
Net cumulative paid losses and allocated loss adjustment expenses
For the years ended December 31
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
(in millions of U.S. dollars, except cumulative number of claims)
Unaudited
2
1
1
30
$ 658
Acquisition
Year
Accident
Year
2021
2021
2021
2019
2020
2021
Total
Grand
Total
Run-off Segment
Professional Indemnity/Directors & Officers
Annual Percentage Payout of Incurred Losses since Year of Acquisition, Net of Reinsurance
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Year of Acquisition
Unaudited
2012
2014
2016
2018
2019
2020
2021
19.44 % 36.11 % 47.22 % 58.33 % 67.36 % 74.31 % 78.47 % 81.25 % 84.72 % 87.50 %
31.20 % 53.60 % 64.80 % 76.00 % 80.00 % 80.80 % 83.20 % 82.40 %
10.64 % 22.34 % 34.04 % 31.91 % 36.17 % 38.30 %
19.70 % 33.90 % 39.20 % 47.54 %
16.34 % 30.20 % 44.55 %
0.84 %
9.21 %
4.64 %
Enstar Group Limited | 2021 Form 10-K
173
Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
Run-off Segment
Motor
Acquisition
Year
Accident
Year
Net
Reserves
Acquired
Net cumulative incurred losses and allocated loss adjustment expenses
For the years ended December 31
Year Ended
December 31,
2021
As of December 31,
2021
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
PPD
IBNR
(in millions of U.S. dollars, except cumulative number of claims)
Unaudited
Unaudited
Cumulative
number of
claims
2012
2011 and
Prior
$
2 $
2 $
2 $
2 $
2 $
2 $
3 $
2 $
1 $
1 $
1 $
— $ —
Total
2
2
2
2
2
2
3
2
1
1
1
—
—
2014
2014
2014
2014
2014
2014
2014
2015
2015
2015
2015
2015
2015
2015
2015
2017
2017
2017
2017
2017
2017
2018
2018
2018
2018
2018
2018
2018
2018
2018
2019
2019
2019
2020
2020
2011 and
Prior
2012
2013
2014
2015
2016
2017
Total
2011 and
Prior
2012
2013
2014
2015
2016
2017
2018
Total
2011 and
Prior
2012
2013
2014
2015
2016
Total
2011 and
Prior
2012
2013
2014
2015
2016
2017
2018
2019
Total
2011 and
Prior
2012
2013
Total
2015
2016
13
12
9
—
—
—
—
34
23
14
15
8
4
—
—
—
64
6
7
5
7
1
—
26
65
60
76
119
127
109
101
181
—
838
16
6
—
22
2
49
15
17
17
17
17
19
18
17
18
19
19
19
19
19
6
7
6
— — —
6
1
6
1
6
1
6
1
17
19
6
1
— — — — — — —
— — — — — —
— — — — —
38
42
42
43
43
45
44
43
24
25
28
26
25
25
21
22
21
22
22
22
17
18
18
17
17
17
12
13
12
13
12
12
7
6
8
8
8
8
25
22
17
12
8
1 — — — — —
— — — — —
— — — —
81
85
87
86
84
84
84
11
6
5
5
1
6
5
5
5
2
— —
7
5
5
5
1
1
8
6
6
5
1
1
10
4
7
4
1
1
28
23
24
27
27
57
57
59
47
57
52
65
67
62
104
91
86
58
53
62
79
116 121 117 113
104 110 104 102
101
99 102 102
181 158 160 161
39
39
40
(1)
—
—
—
—
—
—
(1)
—
—
—
—
—
—
—
—
—
2
(2)
1
1
—
—
—
(1)
1
—
(7)
(4)
(2)
—
1
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
1
—
—
—
—
—
1
4
4
3
1
6
5
10
12
2
10
10
694
989
443
5
1
1
1
2,134
72
243
817
668
1,385
229
14
5
3,433
109
4
6
26
15
4
164
2,004
1,567
1,190
1,146
1,322
1,174
2,843
3,731
1,200
775 799 781 770
(11)
47
16,177
16
15
14
7
6
6
— — —
23
21
20
3
3
42
49
(1)
—
—
(1)
—
7
1
1
—
2
—
4
3,193
397
6
3,596
19
223
174
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
Table of Contents
Run-off Segment
Motor
Acquisition
Year
Accident
Year
Net
Reserves
Acquired
Net cumulative incurred losses and allocated loss adjustment expenses
For the years ended December 31
Year Ended
December 31,
2021
As of December 31,
2021
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
PPD
IBNR
(in millions of U.S. dollars, except cumulative number of claims)
Unaudited
Unaudited
Cumulative
number of
claims
2020
2020
2021
2021
2021
2021
2021
2021
2021
2021
2021
2021
2017
2018
Total
2011 and
Prior
2012
2013
2014
2015
2016
2017
2018
2019
2020
Total
Grand
Total
154
250
455
3
4
6
6
7
7
6
7
9
5
60
186 215
397 415
628 682
3
4
5
6
4
5
5
8
11
6
57
29
18
54
—
—
(1)
—
(3)
(2)
(1)
1
2
1
19
70
93
3
4
4
6
3
5
4
8
11
6
1,157
2,353
3,752
16
77
748
521
1,623
1,398
815
1
1
1
(3)
54
5,201
$
1,501
$ 1,684 $
38 $ 197
34,467
Net cumulative paid losses and ALAE (from table below)
2012 - 2021 acquisition years - net liabilities for losses and ALAE
(1,178)
506
2011 and prior acquisition years - net liabilities for losses and ALAE / net increase (reduction) in estimates of net
ultimate losses related to prior years
23
Total net liabilities for losses and ALAE / net increase (reduction) in estimates of net ultimate losses related to prior
years
$ 529 $
5
43
Enstar Group Limited | 2021 Form 10-K
175
Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
Run-off Segment
Motor
Net cumulative paid losses and allocated loss adjustment expenses
For the years ended December 31
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
(in millions of U.S. dollars, except cumulative number of claims)
Unaudited
$ — $ — $ — $ — $ — $ — $ — $ — $
1 $
— — — — — — — —
1
7
15
16
17
17
17
17
11
14
16
18
19
19
19
1
5
5
— — —
6
1
6
1
6
1
6
1
1
1
17
19
6
1
19
34
37
42
43
43
43
43
4
6
8
11
13
14
14
18
20
20
21
21
7
4
3
12
15
16
17
17
8
4
9
6
11
11
11
7
7
8
—
1 — — —
15
21
17
12
8
1
32
48
59
65
69
71
74
8
2
1
1
2
1
1
10
11
13
12
3
3
1
1
2
3
2
1
1
3
3
2
1
1
— —
— — —
12
14
19
22
22
13
25
28
11
21
28
11
29
35
23
50
60
20
60
81
6
43
66
—
48
73
36
31
44
63
89
78
83
—
87 120 136
22
30
36
84 385 521 596
—
2
— —
—
2
2
2
2
4
3
25
40
69 148
110 247
206 438
$ 1,178
Acquisition
Year
Accident
Year
2012
2014
2014
2014
2014
2015
2015
2015
2015
2015
2015
2017
2017
2017
2017
2017
2017
2018
2018
2018
2018
2018
2018
2018
2018
2018
2019
2019
2020
2020
2020
2020
2011 and
Prior
Total
2011 and
Prior
2012
2013
2014
Total
2011 and
Prior
2012
2013
2014
2015
2016
Total
2011 and
Prior
2012
2013
2014
2015
2016
Total
2011 and
Prior
2012
2013
2014
2015
2016
2017
2018
2019
Total
2011 and
Prior
2012
Total
2015
2016
2017
2018
Total
Grand
Total
176
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
Table of Contents
Run-off Segment
Motor
Annual Percentage Payout of Incurred Losses since Year of Acquisition, Net of Reinsurance
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Year of Acquisition
Unaudited
2012
2014
2015
2017
2018
2019
2020
2021
— %
— %
— %
— %
— %
— %
— %
— % 100.00 % 100.00 %
44.19 % 79.07 % 86.05 % 97.67 % 100.00 % 100.00 % 100.00 % 100.00 %
38.10 % 57.14 % 70.24 % 77.38 % 82.14 % 84.52 % 88.10 %
44.69 % 54.04 % 71.63 % 82.38 % 83.69 %
10.91 % 50.00 % 67.66 % 77.40 %
— % 10.00 % 20.00 %
30.21 % 64.22 %
— %
Enstar Group Limited | 2021 Form 10-K
177
Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
StarStone International
As described above, the loss development information for StarStone International has been included in the Run-off
segment loss development tables above as an acquisition in 2021 and also presented separately on a standalone
basis from the date of acquisition (April 1, 2014) below.
StarStone International
General Casualty
Net Cumulative Incurred Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
For The Years Ended December 31,
For The Year
Ended
December 31,
2021
As of December 31, 2021
Accident
Year
2014
2015
2016
2017
2018
2019
2020
2021
PPD
IBNR(1)
Cumulative
Number of
Claims
(in millions of U.S. dollars, except cumulative number of claims)
(unaudited)
(unaudited)
2011 and
Prior
$
8 $
12 $
11 $
11 $
16 $
16 $
16 $
17 $
1 $
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
24
31
42
19
28
42
52
18
36
41
53
54
15
35
41
55
53
60
17
36
41
62
79
95
41
17
39
47
70
103
18
41
45
67
98
131
141
48
10
50
11
30
18
41
43
68
106
150
45
16
47
1
—
—
(2)
1
8
9
(5)
5
17
—
—
—
3
4
4
18
21
17
7
22
1
3,443
2,537
3,369
3,968
3,514
3,605
3,616
2,579
1,614
767
73
Total $
552 $
34 $
97
29,085
(1) Total of IBNR plus expected development on reported losses.
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
Accident
Year
For The Years Ended December 31,
2014
2015
2016
2017
2018
2019
2020
2021
2011 and
Prior
$
5 $
10 $
11 $
11 $
16 $
16 $
16 $
(unaudited)
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
3
10
3
10
13
9
3
12
24
17
10
1
13
26
23
21
15
3
18
30
28
31
32
24
2
18
35
30
45
52
61
6
1
18
36
32
48
66
98
23
4
1
17
18
37
33
54
79
118
25
5
9
—
Total outstanding liabilities for unpaid losses and ALAE, net of reinsurance
$
157
Total $
395
178
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
Table of Contents
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, 2021 is set forth below:
2021
(in millions of U.S. dollars)
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 $
157
37
194
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
General Casualty
3.88 % 13.73 % 18.12 % 21.47 % 11.52 %
6.11 % 16.57 %
1.19 %
0.81 %
2.94 %
Enstar Group Limited | 2021 Form 10-K
179
Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
StarStone International
Workers' Compensation
Net Cumulative Incurred Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
For The Years Ended December 31,
For The Year
Ended
December 31,
2021
As of December 31, 2021
Accident
Year
2011 and
Prior
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2014
2015
2016
2017
2018
2019
2020
2021
PPD
IBNR(1)
(in millions of U.S. dollars, except cumulative number of claims)
(unaudited)
(unaudited)
Cumulative
Number of
Claims
$
105 $
104 $
104 $
104 $
104 $
104 $
104 $
104 $
— $
3
3
15
3
3
17
42
3
3
17
44
55
3
4
16
40
53
42
4
3
16
38
53
42
38
4
3
16
37
56
38
38
18
4
4
16
36
52
40
39
24
32
4
4
16
36
53
40
39
26
42
8
—
—
—
—
1
—
—
2
10
—
—
—
1
1
2
3
2
2
1
18
7
3,194
302
401
1,476
2,888
2,920
2,594
3,378
3,819
2,747
73
$
372 $
13 $
37
23,792
(1) Total of IBNR plus expected development on reported losses.
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
For The Years Ended December 31,
Accident
Year
2011 and
Prior
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2014
2015
2016
2017
2018
2019
2020
2021
(unaudited)
$
103 $
104 $
104 $
104 $
104 $
104 $
104 $
104
3
2
2
3
2
7
5
3
3
10
17
7
3
3
12
26
26
6
4
3
13
29
36
18
14
4
3
13
32
43
28
24
3
4
3
14
33
45
32
31
18
5
4
3
14
33
47
34
32
21
21
—
$
$
313
59
Total outstanding liabilities for unpaid losses and ALAE, net of reinsurance
180
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
Table of Contents
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, 2021 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 ULAE and fair value adjustments
2021
(in millions of U.S. dollars)
$
$
59
9
68
The following is unaudited supplementary information for average annual historical duration of claims:
Average Annual Percentage Payout of Incurred Losses by Age, Net of Reinsurance
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9 Year 10
Workers Compensation
16.28 % 35.98 % 16.73 % 9.07 % 3.34 % 1.09 % 6.25 %
— %
— %
— %
Enstar Group Limited | 2021 Form 10-K
181
Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
StarStone International
Professional Indemnity / Directors and Officers
Net Cumulative Incurred Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
For The Years Ended December 31,
For The Year
Ended
December 31,
2021
As of December 31, 2021
Accident
Year
2014
2015
2016
2017
2018
2019
2020
2021
PPD
IBNR(1)
Cumulative
Number of
Claims
(in millions of U.S. dollars, except cumulative number of claims)
(unaudited)
(unaudited)
2011 and
Prior
$
5 $
3 $
5 $
5 $
7 $
8 $
8 $
8 $
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
14
20
22
11
16
21
21
10
17
21
26
27
9
15
22
26
26
31
12
17
20
30
27
43
30
15
21
24
30
26
38
33
21
16
22
22
33
24
31
36
27
34
15
28
23
34
24
29
39
28
29
10
— $
(1)
6
1
1
—
(2)
3
1
(5)
—
1
2
7
6
5
4
6
11
18
24
8
716
936
1,346
929
1,175
835
970
1,153
1,230
838
217
$
267 $
4 $
92
10,345
(1) Total of IBNR plus expected development on reported losses.
Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of
Reinsurance
Accident
Year
For The Years Ended December 31,
2014
2015
2016
2017
2018
2019
2020
2021
2011 and
Prior
$
3 $
3 $
7
4
—
7
7
3
2
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
(unaudited)
4 $
7
10
6
7
1
4 $
7 $
7 $
7 $
8
11
9
12
8
2
11
11
14
15
14
11
3
11
12
14
19
16
17
10
1
11
14
14
21
17
21
13
4
1
7
11
14
16
22
18
22
20
5
2
1
Total outstanding liabilities for unpaid losses and ALAE, net of reinsurance
$
$
138
129
182
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 9. Losses and Loss Adjustment Expenses
Table of Contents
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, 2021 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 ULAE and fair value adjustments
2021
(in millions of U.S. dollars)
$
$
129
14
143
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
Professional Indemnity /
Directors and Officers
5.95 % 17.84 % 13.63 %
9.08 %
8.17 %
2.79 % 12.80 %
3.96 %
— %
— %
Enstar Group Limited | 2021 Form 10-K
183
Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 10. Future Policyholder Benefits
10. FUTURE POLICYHOLDER BENEFITS
The provision for future policyholder benefits includes provisions for life contingent liabilities assumed as well as
other policy benefits for insureds. The future policyholder benefits are equal to the present value of the future
benefits payments and related expenses less the present value of future net premiums.
The mortality assumptions are based on cedant historical data, regional mortality tables, and industry standards.
The present value of the liabilities are discounted utilizing the discount rate derived from the yield on the assets
supporting the liabilities and may include certain reinvestment assumptions. The future policyholder benefits related
to traditional annuity products include provisions for adverse deviation.
The table below summarizes the liability for future policyholder benefits:
Deferred life contingent annuities
Whole of life reversion annuities
In-payment annuities
Total
2021
(in millions of U.S. dollars)
$
$
294
165
1,043
1,502
We believe that the assumptions used represent a realistic and appropriate basis for estimating the provision for
future policyholder benefits as of December 31, 2021. However, these assumptions are subject to change and we
regularly review and adjust our estimates and provisioning methodologies taking into account all currently known
information and updated assumptions relating to unknown information.
184
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 11. Defendant Asbestos and Environmental Liabilities
Table of Contents
11. DEFENDANT ASBESTOS AND ENVIRONMENTAL LIABILITIES
We acquired DCo and Morse TEC in 2016 and 2019, respectively. These companies 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 A&E liabilities on our consolidated balance sheets include amounts for indemnity and defense costs for
pending and future asbestos-related claims, determined using standard actuarial techniques for asbestos-related
exposures.
Defendant A&E liabilities also include amounts for environmental liabilities, associated with DCo's and Morse TEC's
properties, relating to 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 our defendant asbestos 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 A&E 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 defendant A&E liabilities, insurance recoveries, future estimated expenses and the fair
value adjustments related to DCo and Morse TEC as of December 31, 2021 and 2020 was as follows:
2021
2020
(in millions of U.S. dollars)
Defendant A&E liabilities:
Defendant asbestos liabilities
Defendant environmental liabilities
Estimated future expenses
Fair value adjustments
Defendant A&E liabilities
Insurance balances recoverable:
Insurance recoveries related to defendant asbestos liabilities (net of allowance: 2021 - $5;
2020 - $5)
Fair value adjustments
Insurance balances recoverable
$
826 $
11
37
(236)
638
264
(51)
213
Net liabilities relating to defendant A&E exposures
$
425 $
913
12
43
(262)
706
310
(60)
250
456
Enstar Group Limited | 2021 Form 10-K
185
Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 11. Defendant Asbestos and Environmental Liabilities
The table below provides a consolidated reconciliation of the beginning and ending liability for defendant A&E
liabilities for the years ended December 31, 2021, 2020 and 2019:
2021
2020
2019
(in millions of U.S. dollars)
Balance as of January 1
Insurance balances recoverable
$
706 $
848 $
(250)
(449)
Cumulative effect of change in accounting principle on the determination of the
allowance for estimated uncollectible insurance balances
Net balance as of January 1
Amounts recorded in other (income) expense:
Reduction in estimate of net ultimate liabilities
Reduction in estimated future expenses
Amortization of fair value adjustments
Total other (income) expense
Total net (paid claims) recoveries
Acquired on purchase of subsidiaries
Net balance as of December 31
Insurance balances recoverable
Balance as of December 31
—
456
(38)
(5)
16
(27)
(4)
—
425
213
3
402
(103)
(9)
12
(100)
154
—
456
250
$
638 $
706 $
203
(136)
—
67
(4)
(3)
13
6
(10)
336
399
449
848
Total other income from our defendant A&E liabilities was $27 million for the year ended December 31, 2021 and
was driven by a reduction in the actuarially estimated ultimate net liabilities as a result of a decline in mesothelioma
filings.
Total other income from our defendant A&E liabilities was $100 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 $167 million, net of fair value adjustments,
for consideration of $180 million; and recovery of $19 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 $826 million and $913 million as of December 31,
2021 and 2020, respectively.
186
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 11. Defendant Asbestos and Environmental Liabilities
Table of Contents
Defendant Environmental Liabilities
As a result of our acquisition of DCo and Morse TEC, we have been identified by the United States Environmental
Protection Agency and certain U.S. state environmental agencies and private parties as potentially responsible
parties ("PRP") at various hazardous waste disposal sites under the Comprehensive Environmental Response,
Compensation and Liability Act ("Superfund") and equivalent U.S. state laws.
The PRPs may currently be liable for the cost of clean-up and other remedial activities at 22 such sites.
Responsibility for clean-up and other remedial activities at a Superfund site is typically shared among PRPs based
on an allocation formula.
We have a liability for defendant environmental liabilities of $11 million and $12 million as of December 31, 2021
and 2020, 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
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, 2021 and 2020:
Allowance for estimated uncollectible insurance balances, Balance as of January 1
$
Cumulative effect of change in accounting principle
Current period change in the allowance
Allowance for estimated uncollectible insurance balances, Balance as of December 31 $
2021
2020
(in millions of U.S. dollars)
5 $
—
—
5 $
4
3
(2)
5
During the years ended December 31, 2021 and 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.
Enstar Group Limited | 2021 Form 10-K
187
Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 12. Fair Value Measurements
12. FAIR VALUE MEASUREMENTS
Fair Value Hierarchy
Fair value is defined as the price that would be received to sell an asset or paid to 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 that we have the ability to access for
identical assets or liabilities. 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 significant inputs that 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.
188
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 12. Fair Value Measurements
Table of Contents
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, 2021
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
(in millions of U.S. dollars)
Investments:
Short-term and Fixed maturity
investments:
U.S. government and agency
$
— $
747 $
— $
— $
U.K. government
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
Structured products
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
Private credit funds
Real estate fund
Total Investments
Cash and cash equivalents
Reinsurance balances recoverable
on paid and unpaid losses:
Other Assets:
Derivatives not qualifying as hedges
Losses and LAE:
Other Liabilities:
Derivatives qualifying as hedging
Derivatives not qualifying as hedges
Derivative instruments
$
$
$
$
$
$
$
83
663
6,814
286
610
1,074
944
1,033
12,254
201
42
—
—
42
—
231
5
—
161
—
—
—
397
—
—
—
—
—
—
—
—
—
—
—
—
347
347
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
25
25
291
342
—
752
—
207
275
69
1,936
12,894 $
347 $
1,961 $
747
83
663
6,814
286
610
1,074
944
1,033
12,254
201
281
1,342
372
1,995
291
573
5
752
161
207
275
69
2,333
16,783
—
—
—
—
—
—
—
—
—
—
239
1,342
—
1,581
—
—
—
—
—
—
—
—
—
1,581 $
1,295 $
112 $
— $
— $
1,407
— $
— $
432 $
— $
432
— $
— $
— $
—
— $
2 $
— $
7 $
10
17 $
— $
1,989 $
— $
—
— $
— $
— $
— $
—
— $
2
1,989
7
10
17
Enstar Group Limited | 2021 Form 10-K
189
Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 12. Fair Value Measurements
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
(in millions of U.S. dollars)
Investments:
Short-term and Fixed maturity
investments:
U.S. government and agency
$
— $
951 $
— $
— $
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 (1)
Fixed income funds
Equity funds
Private equity funds
CLO equities
CLO equity funds
Private credit funds
Real estate fund
—
—
—
—
—
—
—
—
—
229
311
—
540
—
—
—
—
—
—
—
—
—
51
502
5,687
163
554
854
557
9,319
15
32
—
—
32
—
286
5
—
128
—
—
—
419
—
—
—
—
—
—
—
—
—
—
—
275
275
—
—
—
—
—
—
9
—
9
—
—
—
—
—
—
—
—
—
—
—
—
—
267
186
363
—
167
183
12
3,816
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
$
$
$
$
$
$
$
$
540 $
386 $
9,785 $
284 $
3,816 $
208 $
— $
— $
— $
— $
521 $
— $
— $
—
— $
— $
— $
—
— $
1 $
3
4 $
— $
—
— $
— $
2,453 $
29 $
5
34 $
— $
—
— $
— $
—
— $
— $
— $
—
— $
(1)
Includes InRe Fund of $2.4 billion as of December 31, 2020.
190
Enstar Group Limited | 2021 Form 10-K
951
51
502
5,687
163
554
854
557
9,319
15
261
311
275
847
553
191
363
128
167
192
12
4,244
14,425
594
521
1
3
4
2,453
29
5
34
2,638
2,638
Item 8 | Notes to Consolidated Financial Statements | Note 12. Fair Value Measurements
Table of Contents
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 obtained or validated from independent pricing services either directly or through our accounting
service provider or investment managers.
We record the unadjusted price 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 our service providers 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. and non-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, or 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.
• 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 and commercial and residential mortgaged-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. 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. These are considered
observable market inputs and therefore the fair value of these securities are classified as Level 2.
Enstar Group Limited | 2021 Form 10-K
191
Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 12. Fair Value Measurements
•
Structured products consist of funds withheld securities which are utilized to achieve asset-liability matching
requirements and to reduce our exposure to credit risk. We utilize observable benchmark yields, issue spreads,
issuer credit ratings, loss given default rates, and probability of default rates to discount the future cash flows to
derive the fair value of these investments. These are considered observable market inputs and, therefore, the
fair values of these securities are classified as Level 2.
Equities
Our investments in equities consist of a combination of publicly and privately traded investments. Our publicly
traded equity investments in common and preferred stocks predominantly trade on major exchanges and are
managed by our external advisors. Our 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. Two equity securities
trade in an inactive market and, as a result have 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. For the majority of these we use a combination of cost, internal models and
reported values from co-investors/managers to calculate the fair value of the privately held equity investments. The
fair value estimates of these are based on unobservable market data so have been categorized as Level 3. We also
have one direct investment in the equity of a privately held business development company which values its
underlying investments using NAV as a practical expedient; and therefore, has not been categorized within the fair
value hierarchy.
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 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 and investment managers.
The following describes the techniques generally used to determine the fair value of our other investments.
•
For our investments in hedge funds, private equity funds, CLO equity funds, private credit funds and the real
estate debt fund, we primarily 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.
192
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 12. Fair Value Measurements
Table of Contents
• We measure the fair value of our direct investment in CLO equities based on valuations provided by
independent pricing services. The fair values measured using prices provided by independent pricing services
have been classified as Level 2.
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 LAE and reinsurance
balances recoverable on paid and unpaid losses for certain retroactive reinsurance contracts where we have
elected the fair value option.
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 are classified as Level 2. The fair values are based upon prices in
active markets for identical contracts.
Level 3 Measurements and Changes in Leveling
Transfers into or out of levels are recorded at their fair values as of the end of the reporting period, consistent with
the date of determination of fair value.
Investments
The following 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, 2021 and 2020:
Enstar Group Limited | 2021 Form 10-K
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Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 12. Fair Value Measurements
2021
2020
Privately-held
Equities
Other
Investments
Total
Privately-held
Equities
Other
Investments
Total
(in millions of U.S. dollars)
Beginning fair value
$
275 $
9 $
284 $
266 $
88 $
Purchases
Sales
Total net unrealized gains (losses)
Transfer out of Level 3 into Level 2
65
—
7
—
—
(9)
—
—
65
(9)
7
—
20
—
(11)
—
47
(1)
(40)
(85)
Ending fair value
$
347 $
— $
347 $
275 $
9 $
354
67
(1)
(51)
(85)
284
Net unrealized gains (losses) related to Level 3 assets in the table above are included in unrealized gains (losses)
in our consolidated statements of earnings.
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:
Valuation Techniques
Fair Value as of December 31, 2021
Unobservable Input
Range (Average) (1)
Qualitative Information about Level 3 Fair Value Measurements
Guideline company methodology
$
224 Distribution waterfall
12.63
(in millions of U.S. dollars)
Dividend discount model;
Guideline companies method
Cost as approximation of fair value
Multiple on Invested capital
Discount rate
Exit multiple
105
0.79x - 1.13x
9.0% - 12.3%
1.2x - 1.4x (1.3x)
18 Cost as approximation of fair value
$
347
(1) The average represents the arithmetic average of the inputs and is not weighted by the relative fair value.
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, 2021 and
2020:
2021
Reinsurance
balances
recoverable
on paid and
unpaid losses
Liability for
losses and
LAE
2020
Reinsurance
balances
recoverable
on paid and
unpaid losses
Net
Liability for
losses and
LAE
Net
(in millions of U.S. dollars)
Beginning fair value
Assumed business
Incurred losses and LAE:
Reduction in estimates of ultimate
losses
Reduction in unallocated LAE
Change in fair value
Total incurred losses and LAE
Paid losses
Effect of exchange rate movements
$
2,453 $
521 $
1,932 $
2,621 $
696 $
—
—
—
2
(181)
(59)
(18)
(88)
(165)
(274)
(25)
(6)
—
(13)
(19)
(65)
(5)
(53)
(18)
(75)
(146)
(209)
(20)
(74)
(17)
158
67
(300)
63
59
—
39
98
(101)
9
1,925
183
(133)
(17)
119
(31)
(199)
54
Ending fair value
$
1,989 $
432 $
1,557 $
2,453 $
521 $
1,932
194
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 12. Fair Value Measurements
Table of Contents
The net assumed business of $183 million in 2020 relates to the Hannover Re novation transaction. 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,
2021, 2020 and 2019:
Changes in fair value due to changes in:
Average payout
Corporate bond yield
Weighted cost of capital
Risk cost of capital
Change in fair value
2021
2020
2019
(in millions of U.S. dollars)
$
$
22 $
21 $
(97)
—
—
96
(5)
7
(75) $
119 $
23
94
—
117
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, 2021 and 2020:
Valuation
Technique
Unobservable (U) and Observable (O) Inputs
Weighted Average Weighted Average
2021
2020
Internal model
Corporate bond yield (O)
Internal model
Credit spread for non-performance risk (U)
Internal model
Risk cost of capital (U)
Internal model
Weighted average cost of capital (U)
Internal model
Average payout - liability (U)
Internal model
Average payout - reinsurance balances recoverable on paid and unpaid
losses (U)
A rated
0.2%
5.1%
8.25%
7.95 years
7.63 years
A rated
0.2%
5.1%
8.25%
8.17 years
8.23 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.
In addition, the estimate of the capital required to support the liabilities is based upon current industry standards for
capital adequacy.
Disclosure of Fair Values for Financial Instruments Carried at Cost
Senior Notes
As of December 31, 2021, our 4.50% Senior Notes due 2022 (the "2022 Senior Notes"), our 4.95% Senior Notes
due 2029 (the "2029 Senior Notes") and our 3.10% Senior Notes due 2031 (the "2031 Senior Notes" and, together
with the 2022 Senior Notes and 2029 Senior notes, the "Senior Notes") were carried at amortized cost of $280
million, $495 million and $495 million, respectively, while the fair value based on observable market pricing from a
third party pricing service was $281 million, $559 million and $489 million, respectively. The Senior Notes are
classified as Level 2.
Subordinated Notes
As of December 31, 2021, our 5.75% Fixed-Rate Reset Junior Subordinated Notes due 2040 (the “Junior
Subordinated Notes”) were carried at amortized cost of $345 million, while the fair value based on observable
market pricing from a third party pricing service was $362 million.
As of December 31, 2021, Enhanzed Re's 5.50% Subordinated Notes due 2031 (the "2031 Subordinated Notes"
together with the Junior Subordinated Notes, the "Subordinated Notes"), were carried at amortized cost of $76
million, while the fair value based on observable market pricing for comparable debt from a third party pricing
service was $75 million.
The Subordinated Notes are classified as Level 2.
Enstar Group Limited | 2021 Form 10-K
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Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 12. Fair Value Measurements
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, 2021 and 2020.
196
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 13. Variable Interest Entities
Table of Contents
13. VARIABLE INTEREST ENTITIES
We have investments in certain limited partnership funds which are deemed to be variable interest entities ("VIEs").
The activities of these VIEs are generally limited to holding investments and our involvement in these entities is
passive in nature. We consolidate all VIEs in which we are considered to be the primary beneficiary.
InRe Fund
Since April 1, 2021, we have redeemed an aggregate of $2.7 billion from the InRe Fund and, during the fourth
quarter of 2021, we completed the liquidation of our investment in the InRe Fund.
On April 1, 2021, we obtained control of the InRe Fund following redemption by the general partner, an affiliate of
Hillhouse Group, of all of its outstanding ownership interests and the termination of its investment management
activities. From that date we had both full ownership of the InRe Fund and the power to direct its activities, which led
to our determination to consolidate the InRe Fund.
Prior to consolidation, our investment in the InRe Fund was recorded at fair value using the NAV as a practical
expedient, with any changes included within net unrealized gains in the consolidated statements of earnings. Thus,
there was no gain or loss upon consolidation.
During the years ended December 31, 2021, 2020 and 2019 we recognized net investment expenses for the InRe
Fund of $13 million, $0 and $0, respectively; net realized losses of $58 million, $0 and $0, respectively; and net
unrealized gains of $0, $1,151 million and $243 million respectively.
During the year ended December 31, 2021, our consolidated statements of cash flows included net operating cash
flows of $2.1 billion driven by net sales of trading securities, partially offset by net payments to cover securities sold
short, and net investing cash flows of $574 million resulting from the initial consolidation of the InRe Fund's cash
and restricted cash balances.
Nonconsolidated VIEs
The tables below present the fair value of our investments in nonconsolidated VIEs as well as our maximum
exposure to loss associated with these VIEs:
As of December 31, 2021
Fair Value
Equities
Publicly traded equity investment in common stock
Other investments
Hedge funds
Fixed income funds
Private equity funds
CLO equity funds
Private credit funds
Real estate funds
Total
Total investments in nonconsolidated VIEs
$
$
$
$
Unfunded
Commitments
Maximum Exposure
to Loss
(in millions of U.S. dollars)
64 $
— $
64
291 $
45 $
171
697
207
14
69
1,449 $
1,513 $
36
930
31
166
418
1,626 $
1,626 $
336
207
1,627
238
180
487
3,075
3,139
Enstar Group Limited | 2021 Form 10-K
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Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 13. Variable Interest Entities
As of December 31, 2020
Fair Value
Unfunded
Commitments
Maximum Exposure
to Loss
(in millions of U.S. dollars)
Equities
Publicly traded equity investment in common stock
Other investments
Hedge fund
Fixed income funds
Private equity funds
CLO equity funds
Real estate funds
Total
Total investments in nonconsolidated VIEs
$
$
$
$
54 $
2,638 $
99
362
167
12
3,278 $
3,332 $
— $
— $
16
762
—
18
796 $
796 $
54
2,638
115
1,124
167
30
4,074
4,128
198
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 14. Premiums Written and Earned
Table of Contents
14. PREMIUMS WRITTEN AND EARNED
The following tables provide a summary of net premiums written and earned for the years ended December 31,
2021, 2020 and 2019:
2021
2020
2019
Premiums
Written
Premiums
Earned
Premiums
Written
Premiums
Earned
Premiums
Written
Premiums
Earned
(in millions of U.S. dollars)
$
$
106 $
(44)
62 $
373 $
(128)
245 $
552 $
(119)
433 $
730 $
(158)
572 $
659 $
(113)
546 $
950
(146)
804
Total
Total gross
Total ceded
Total net
Gross premiums written for the years ended December 31, 2021 and 2020 decreased by $446 million and $107
million, respectively, primarily due to our strategic exit from our active underwriting platforms beginning in 2020.
Enstar Group Limited | 2021 Form 10-K
199
Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 15. Goodwill and Intangible Assets
15. 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, 2021 and 2020:
Goodwill
Intangible
assets with
a definite life
Intangible
assets with an
indefinite life
(in millions of U.S. dollars)
Total
Balance as of December 31, 2019
$
110 $
Amortization
Impairment losses (StarStone International) (1)
Reclassification to assets held-for-sale (Atrium) (2)
Balance as of December 31, 2020 and 2021
—
(8)
(39)
$
63 $
15 $
(2)
—
(13)
— $
67 $
—
(4)
(63)
— $
192
(2)
(12)
(115)
63
(1) On June 10, 2020, we announced the run-off of StarStone International. During the year ended December 31, 2020, we recognized
impairment losses of $8 million related to the goodwill allocated to StarStone International and $4 million on StarStone's Lloyd's syndicate
capacity.
(2) On August 13, 2020, we announced the Exchange Transaction, which resulted in the assets and liabilities of Atrium being classified as held-
for-sale as of December 31, 2020.
The gross carrying value, accumulated impairments and net carrying value of goodwill in the Run-off segment was
$71 million, $8 million and $63 million, respectively, as of December 31, 2021 and 2020.
The amortization recorded on the intangible assets of the Legacy Underwriting segment, prior to the reclassification
of Atrium to held-for-sale, was $2 million for the year ended December 31, 2020.
200
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 16. Debt Obligations and Credit Facilities
Table of Contents
16. DEBT OBLIGATIONS AND CREDIT FACILITIES
We utilize debt financing 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
Origination Date
Term
Principal
December 31, 2021
December 31, 2020
(Unamortized
Cost) / Fair
Value
Adjustments
Carrying
Value
(Unamortized
Cost) / Fair
Value
Adjustments
Carrying
Value
(in millions of U.S. dollars)
4.50% Senior Notes due 2022 (1)
March 10, 2017
5 years
$
280 $
— $
280 $
4.95% Senior Notes due 2029
May 28, 2019
10 years
3.10% Senior Notes due 2031
August 24, 2021
10 years
Total Senior Notes
5.75% Junior Subordinated
Notes due 2040
August 26, 2020
20 years
5.50% Enhanzed Re's
Subordinated Notes due 2031
December 20,
2018
12.1 years
Total Subordinated Notes
EGL Revolving Credit Facility
August 16, 2018
5 years
500
500
350
70
(5)
(5)
(5)
6
495
495
1,270
345
76
421
—
(1) $
(6)
—
(5)
—
349
494
—
843
345
—
345
185
Total debt obligations
$
1,691
$
1,373
(1) Principal was $350 million as of December 31, 2020.
The table below provides a summary of the total interest expense for the years ended December 31, 2021, 2020
and 2019:
Interest expense on debt obligations
Amortization of debt issuance costs
Total interest expense
Senior Notes
2021
2020
2019
(in millions of U.S. dollars)
$
$
68 $
1
69 $
58 $
1
59 $
51
2
53
During the third quarter of 2021, we completed the issuance and sale of the 2031 Senior Notes, and on August 25,
2021, we completed a related tender offer for a portion of our 2022 Senior Notes. The aggregate principal amount
tendered was $70 million and we recorded a loss on the partial extinguishment of $2 million during the third quarter
of 2021 which was included within general and administrative expenses on our consolidated statements of earnings.
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.
We may repurchase the 2029 Senior Notes and 2031 Senior Notes at any time prior to the date which is three
months and six months, respectively, prior to maturity, subject to the payment of a make-whole premium. After such
respective date, we may repurchase the 2029 Senior Notes and the 2031 Senior Notes at a purchase price equal to
100% of the outstanding principal amount, plus accrued and unpaid interest. In each case, any such repurchases
are also subject to satisfying certain regulatory requirements.
Except upon the occurrence of certain specified events, we do not have the right to repurchase the 2022 Senior
Notes prior to their maturity.
Enstar Group Limited | 2021 Form 10-K
201
Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 16. Debt Obligations and Credit Facilities
Subordinated Notes
On September 1, 2021, we acquired the obligations under Enhanzed Re's 5.50% Subordinated Notes due 2031
which were issued in the aggregate amount of $70 million and have an $80 million ceiling, to Allianz, Enhanzed Re's
minority shareholder. The 2031 Subordinated Notes were recorded at their determined fair value of $76 million as of
the date of acquisition.
The Junior Subordinated Notes were issued by our wholly-owned subsidiary, Enstar Finance LLC ("Enstar Finance")
and bear interest (i) during the initial five-year period ending August 30, 2025, at a fixed rate per annum 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 unsecured junior subordinated obligations of Enstar Finance, are fully and
unconditionally guaranteed by the Parent Company on an unsecured and junior subordinated basis, and are
contractually subordinated in right of payment to the existing and future obligations of our other subsidiaries (other
than Enstar Finance).
Subject to threshold regulatory requirements, Enstar Finance may repurchase the Junior Subordinated Notes, in
whole or in part, at any time during a par call period, at a repurchase price equal to 100% of the principal amount of
such notes, plus accrued and unpaid interest, and at any time not during a par call period, plus an additional "make-
whole" premium.
Maturities
As of December 31, 2021, the amount of outstanding debt obligations that will become due in each of the next five
years and thereafter was as follows: 2022, $280 million47; 2023, $0; 2024, $0; 2025, $0; and thereafter, $1.4 billion.
EGL Revolving Credit Facility
As of December 31, 2021, we were permitted to borrow up to an aggregate amount of $600 million under our
unsecured revolving credit agreement. We may request additional commitments under the facility up to an
additional $400 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, 2021, there was $600 million of available unutilized capacity under the facility.
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 our long term senior unsecured debt ratings. The
applicable reference rate is adjusted base rate for base rate loans, adjusted daily Sterling Overnight Index Average
("SONIA") for SONIA loans and adjusted LIBOR or adjusted Euribor for Eurocurrency rate loans denominated in
U.S. dollars or Euros, respectively. 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 SONIA loans and Eurocurrency rate
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.
47 As discussed in Note 25.
202
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 16. Debt Obligations and Credit Facilities
Table of Contents
Credit and Deposit Facilities
We utilize unsecured and secured letters of credit ("LOCs") and a deposit facility to support certain of our
(re)insurance performance obligations. We also utilize unsecured LOCs to support the regulatory capital
requirements of certain of our subsidiaries.
Our credit and deposit facilities were as follows:
Aggregate Amount Issued /
Requested as Deposits /
Face Amount
Commitment
Additional
Commitments
Available (1)
December 31,
2021
December 31,
2020
$275.0 million FAL LOC Facility (2)
$90.0 million FAL Deposit Facility (2)
$250.0 million LOC Facility
$100.0 million LOC Facility
$120.0 million LOC Facility
$800.0 million Syndicated LOC Facility
$65.0 million LOC Facility
$100.0 million Bermuda LOC Facility (3)
$1.0 million LOC Facility
$
275 $
75 $
210 $
(in millions of U.S. dollars)
90
250
100
120
800
65
100
1
10
—
—
60
—
—
—
—
90
250
100
111
568
61
100
1
£32.0 million United Kingdom LOC Facility (4)
£
32 £
— $
43 $
210
—
—
—
116
587
61
100
—
44
(1) We may request additional commitments under the facility in an aggregate amount not to exceed this amount.
(2) The FAL LOC and Deposit facilities will expire on December 31, 2022 and May 6, 2023, respectively. Under the FAL Deposit facility, a third-
party lender deposits a requested market valuation amount of eligible securities into Lloyd’s on behalf of our Lloyd’s corporate member. As of
December 31, 2021 and December 31, 2020, our combined FAL comprised cash and investments of $520 million (including $89 million
provided under the FAL Deposit Facility) and $261 million, respectively, and unsecured LOCs of $210 million as of both dates.
(3) The LOC issued under this facility qualifies as Eligible Capital for one of our Bermuda regulated subsidiaries.
(4) The LOC issued under this facility qualifies as Ancillary Own Funds capital for one of our U.K. regulated subsidiaries.
We also utilize secured operating LOCs. As of December 31, 2021 and 2020, the total balance of such secured
operating LOCs issued and outstanding was $85 million and $90 million, respectively.
Enstar Group Limited | 2021 Form 10-K
203
Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 17. Noncontrolling Interests
17. 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 is classified within temporary
equity in the consolidated balance sheets and carried at fair value. The change in fair value is recognized through
retained earnings. In addition, we also have NCI, which is carried at book value, does not have redemption features
and is classified within equity in the consolidated balance sheets.
Redeemable Noncontrolling Interest
As of December 31, 2020, the RNCI comprised the ownership interests held by the Trident V Funds (39.3%) and
the Dowling Funds (1.7%) in our subsidiary North Bay. North Bay owned our investment in Northshore48, the holding
company that owns Atrium and Arden, and SSHL, the holding company for the StarStone group, which includes
StarStone International and which also owned StarStone U.S. prior to its sale to Core Specialty which was
completed on November 30, 2020. Following the completion of the Exchange Transaction on January 1, 2021, there
is no RNCI in respect of Northshore and the remaining RNCI as of December 31, 2021 relates only to StarStone
International.
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, 2021 and 2020:
Balance as of January 1
Distributions paid
Net earnings (losses) attributable to RNCI
Change in unrealized (losses) gains on AFS investments attributable to RNCI
Change in currency translation adjustments attributable to RNCI
Change in redemption value of RNCI
Balance as of December 31
2021
2020
(in millions of U.S. dollars)
$
365 $
(202)
16
(1)
2
(1)
$
179 $
439
—
(28)
2
(2)
(46)
365
The decrease in RNCI for the year ended December 31, 2021 was primarily driven by the Exchange Transaction,
which was completed on January 1, 2021, whereas the decrease in the year ended December 31, 2020 was
primarily attributable to net losses arising in StarStone International during that period49.
Noncontrolling Interest
As of December 31, 2021 and 2020, we had $230 million and $14 million, respectively, of NCI primarily related to
external interests in three of our subsidiaries, including, as of December 31, 2021, Enhanzed Re. A reconciliation of
the beginning and ending carrying amount of the equity attributable to NCI is included in the consolidated
statements of changes in shareholder's equity.
48 As discussed in Note 5.
49 Refer to Note 24 for additional information regarding RNCI.
204
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 18. Shareholders' Equity
Table of Contents
18. SHAREHOLDERS' EQUITY
As of December 31, 2021 and 2020, our 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.
Ordinary Shares
The following is a reconciliation of our beginning and ending ordinary shares for the years ended December 31,
2021, 2020 and 2019:
Voting Ordinary
Shares
Non-Voting
Convertible
Ordinary Series
C Shares
Non-Voting
Convertible
Ordinary Series
E Shares
Total Ordinary
Shares
Balance as of January 1, 2019
17,950,315
2,599,672
910,010
21,459,997
Shares issued
Shares repurchased
51,508
—
—
—
—
—
51,508
—
Balance as of December 31, 2019
18,001,823
2,599,672
910,010
21,511,505
Shares issued
Shares repurchased
752,007
(178,280)
—
—
—
—
752,007
(178,280)
Balance as of December 31, 2020
18,575,550
2,599,672
910,010
22,085,232
Shares issued
59,447
—
—
59,447
Shares repurchased
Warrant exercise (1)
Balance as of December 31, 2021
(2,009,135)
(1,496,321)
(505,239)
(4,010,695)
—
89,590
—
89,590
16,625,862
1,192,941
404,771
18,223,574
(1) Warrants to acquire 175,901 Series C Non-Voting Ordinary Shares for an exercise price of $115.00 per share were exercised on a non-cash
basis during the year ended December 31, 2021, which resulted in a total of 89,590 Series C Non-Voting Ordinary Shares being issued in the
year.
Voting Ordinary Shares
Each voting ordinary share entitles the holder thereof to one vote.
Share Repurchases
On March 9, 2020, our Board of Directors (our “Board”) adopted a stock trading plan for the purpose of
repurchasing a limited number of our ordinary shares, not to exceed $150 million in aggregate (the "2020
Repurchase Program"). On March 23, 2020, we suspended our 2020 Repurchase Program due to uncertainty from
the COVID-19 pandemic. The 2020 Repurchase Program resumed on September 21, 2020 and was set to expire
on March 1, 2021.
On February 25, 2021, our Board approved an extension of the duration of the 2020 Repurchase Program through
March 1, 2022. Pursuant to the extended 2020 Repurchase Program, we are able to repurchase a limited number of
our ordinary shares, not to exceed $150 million in aggregate, including shares repurchased prior to the extension of
the 2020 Repurchase Program.
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 million under the 2020 Repurchase Program. For the year ended December 31, 2021, we
repurchased 93,678 ordinary shares at an average price of $236.42, for an aggregate price of $22 million under the
2020 Repurchase Program before it was terminated on July 15, 2021.
On July 22, 2021, we repurchased 3,749,400 of our ordinary shares, comprising (a) 1,747,840 of our voting ordinary
shares, (b) 1,496,321 of our Series C non-voting ordinary shares, and (c) 505,239 of our Series E non-voting
ordinary shares, held by funds managed by Hillhouse Group (the “Hillhouse Funds”), a related party, for a price of
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Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 18. Shareholders' Equity
$234.52 per share, totaling $879 million in aggregate. The shares represented the Hillhouse Funds' entire interest in
Enstar, which constituted 16.9% of our total ordinary shares and 9.4% of our voting ordinary shares.
On November 29, 2021, our Board entered into an ordinary share repurchase program (the "2021 Repurchase
Program"), effective through November 30, 2022. Pursuant to the 2021 Repurchase Program, we may repurchase a
limited number of our ordinary shares, not to exceed $100 million in aggregate.
For the year ended December 31, 2021, we repurchased 167,617 ordinary shares at an average price of $241.13,
for an aggregate price of $41 million under the 2021 Repurchase Program. As of December 31, 2021, the remaining
capacity under the 2021 Repurchase Program was $59 million.
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 Plan50.
Non-Voting Ordinary Shares
Our non-voting ordinary shares comprised several different series as of December 31, 2021:
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; 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 D shares are authorized, but no shares in these series are issued and outstanding. Holders of the Series
C shares have the right to convert such shares, on a share-for-share basis, subject to certain adjustments, into
Series D shares at their option. There is no economic difference in Series C or D shares, but there are slight
differences in the conversion rights and the limited voting rights of each series.
The Series E shares have substantially the same rights as the Series C shares, except that:
i.
ii.
they are convertible only into voting ordinary shares; and
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 C or D non-voting ordinary shares.
50 As described in Note 20.
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Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 18. Shareholders' Equity
Table of Contents
Preferred Shares
Series C Preferred Shares
As of December 31, 2021, 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 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 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 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 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, 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 an alternative reference rate (with
spread adjustment) to three-month LIBOR, as determined by the calculation agent consistent with accepted market
practice, plus 4.015% per annum. Dividends that are not declared will not accumulate and will not be payable.
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Item 8 | Notes to Consolidated Financial Statements | Note 18. Shareholders' Equity
During the years ended December 31, 2021, 2020 and 2019, we declared and paid dividends on Series D Preferred
Shares of $28 million and on Series E Preferred Shares of $8 million for all three years.
Any payment of dividends must be approved by our Board. Our ability to pay dividends is subject to certain
restrictions51.
Accumulated Other Comprehensive Income
The following table presents details about the tax effects allocated to each component of other comprehensive
income (loss):
Unrealized (losses) gains on fixed
income AFS 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
2021
Tax
(Expense)
Benefit
Before Tax
Amount
Net of Tax
Amount
Before Tax
Amount
(in millions of U.S. dollars)
2020
Tax
(Expense)
Benefit
Net of Tax
Amount
$
(112) $
6 $
(106) $
116 $
(11) $
105
10
(7)
—
2
2
—
1
—
—
—
10
(1)
(6)
(20)
—
2
2
(15)
(2)
1
—
2
3
—
—
(1)
(18)
(12)
(2)
1
73
Other comprehensive (loss) income
$
(105) $
7 $
(98) $
79 $
(6) $
During the year ended December 31, 2019, the deferred tax (expense) benefit associated with items reported in
other comprehensive income (loss) was subject to a full valuation allowance52.
The following table presents details amounts reclassified from AOCI:
Details about AOCI components
2021
2020
2019
Affected Line Item in Statement
where Net Earnings are presented
Unrealized (losses) gains on fixed
income AFS investments
$
(6) $
19 $
4 Net unrealized (losses) gains
(in millions of U.S. dollars)
—
(6)
(1)
(7)
17
36
(5)
31
Net earnings from discontinued
operations
—
4 Total before tax
—
Income tax expense
4 Net of tax
Total reclassifications for the
period, net of tax
$
(7) $
31 $
4
51 As described in Note 23.
52 For information, refer to “Assessment of Valuation Allowance on Deferred Tax Assets” within Note 21.
208
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 19. Earnings Per Share
Table of Contents
19. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net earnings per ordinary share:
Numerator:
Earnings per share attributable to Enstar ordinary shareholders:
Net earnings from continuing operations (1)
Net earnings from discontinued operations (2)
Net earnings attributable to Enstar ordinary shareholders
Denominator:
Weighted-average ordinary shares outstanding — basic (3)
Effect of dilutive securities:
Share-based compensation plans (4)
Warrants (5)
Weighted-average ordinary shares outstanding — diluted
Earnings per share attributable to Enstar ordinary shareholders:
Basic:
Net earnings from continuing operations
Net earnings from discontinued operations
Net earnings per ordinary share
Diluted:
Net earnings from continuing operations
Net earnings from discontinued operations
Net earnings per ordinary share
2021
2020
2019
(in millions of U.S. dollars, except share data)
$
$
$
$
$
$
437 $
1,712 $
—
7
437 $
1,719 $
898
4
902
19,821,259
21,551,408
21,482,617
225,213
80,659
208,293
58,593
227,878
64,571
20,127,131
21,818,294
21,775,066
22.05 $
79.43 $
—
0.35
22.05 $
79.78 $
21.71 $
78.45 $
—
0.35
21.71 $
78.80 $
41.80
0.20
42.00
41.23
0.20
41.43
(1) Net earnings from continuing operations attributable to Enstar ordinary shareholders equals net earnings from continuing operations, plus net
(earnings) loss from continuing operations attributable to noncontrolling interest, less dividends on preferred shares.
(2) Net earnings from discontinued operations attributable to Enstar ordinary shareholders equals net earnings from discontinued operations, net
of income taxes, plus net (earnings) from discontinued operations attributable to noncontrolling interest53.
(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, 2021 because they were anti-dilutive.
(5) Warrants to acquire 175,901 Series C Non-Voting Ordinary Shares for an exercise price of $115.00 per share were exercised on a non-cash
basis during the year ended December 31, 2021, which resulted in a total of 89,590 Series C Non-Voting Ordinary Shares being issued in the
year. As of December 31, 2021, there were no warrants outstanding following the exercise described. The warrants presented in the table
above are a weighted-average of the warrants outstanding for the year.
53 Refer to Note 5 for a breakdown by period.
Enstar Group Limited | 2021 Form 10-K
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Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 20. Share-based Compensation and Pensions
20. SHARE-BASED COMPENSATION AND PENSIONS
Share-based compensation
The 2016 Equity Incentive Plan is our primary share-based compensation plan. 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, 2021, 2020 and 2019:
Share-based compensation plans:
Restricted shares and restricted share units
Performance share units
Joint share ownership plan expense
Other share-based compensation plans
Total share-based compensation
2021
2020
2019
(in millions of U.S. dollars)
$
7 $
8 $
13
5
3
13
4
3
$
28 $
28 $
7
24
—
7
38
The associated tax benefit recorded to income tax expense in the consolidated statement of operations was $3
million for each of the years ended December 31, 2021, 2020 and 2019.
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 by multiplying the number of shares subject to the award by the closing price of our
ordinary shares on the grant date and expensed over the service period.
The following table summarizes the activity related to restricted shares and restricted share awards during 2021:
Nonvested — January 1
Granted
Vested
Forfeited
Nonvested — December 31
Number of
Shares
Weighted-Average
Share Price
95,250
40,759
(36,301)
(7,050)
92,658
$161.60
244.68
158.34
151.41
200.44
The unrecognized compensation cost related to our unvested restricted share and restricted share unit awards as of
December 31, 2021 was $10 million. This cost is recognizable over the next 1.97 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 fair value of these
awards is measured by multiplying the number of shares subject to the award by the closing price of our ordinary
shares on the grant date and considering any performance related adjustments. 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 Group for the 2020 and
2019 grant years only.
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Item 8 | Notes to Consolidated Financial Statements | Note 20. Share-based Compensation and Pensions
Table of Contents
Performance Share Units based on FDBVPS
The following table summarizes the awards granted, the vested and unvested PSU awards at December 31, 2021,
and the performance criteria and associated performance multipliers at various levels of achievement.
Inception-to-date Activity Roll-forward
Performance Criteria:
Change in FDBVPS (3 year)
Performance Multiplier
Levels Per Award Agreements
Grant
Year
PSUs
Granted
at Target Forfeited
Estimated
Change in
Multiplier
Vested
Unvested at
December
31, 2021
Threshold
Target
Target + Maximum Threshold
Target
Target + Maximum
2018
39,682
(13,084)
9,889
(36,487)
—
25.0 %
32.5 %
2019
18,308
(3,543)
6,620
(1,526)
2020
22,591
(8,331)
6,637
(985)
2020
52,948
—
26,474
—
2021
14,429
(1,850)
—
(447)
19,859
19,912
79,422
12,132
147,958
(26,808)
49,620
(39,445)
131,325
N/A
N/A
N/A
20.0 %
30.0 %
25.0 %
32.5 %
33.1 %
36.8 %
44.3 %
25.0 %
32.5 %
N/A
40.0 %
40.0 %
40.0 %
52.1 %
40.0 %
50.0 %
100.0 %
60.0 %
100.0 %
60.0 %
100.0 %
N/A
N/A
N/A
150.0 %
150.0 %
150.0 %
50.0 %
100.0 % 150.0 %
200.0 %
60.0 %
100.0 %
N/A
150.0 %
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, 2021, 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,
2021
2019
18,308
2020
22,560
2021
14,401
(3,538)
(8,330)
(1,848)
6,598
(1,574)
6,623
—
(985)
(448)
55,269
(13,716)
13,221
(3,007)
19,794
19,868
12,105
51,767
Threshold
Target Maximum Threshold
Target
Maximum
9.6 % 12.0 %
9.6 % 12.0 %
9.6 % 12.0 %
14.4 %
14.4 %
14.4 %
60.0 % 100.0 %
150.0 %
60.0 % 100.0 %
150.0 %
60.0 % 100.0 %
150.0 %
Annual Operating ROE is calculated based upon the non-GAAP operating income return on opening shareholder's
equity, excluding StarStone for the 2020 and 2019 grant years only. 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 100.0% to a maximum of 150.0% of the units granted, respectively.
An Average Annual Operating ROE of Threshold to Target results in a settlement of 60.0% to 100.0%. 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
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)
2021 FDBVPS
2021 Average Operating ROE
(1) Multipliers for the 2018 awards are the final achieved terms.
2021
150.0%
150.0%
150.0%
150.0%
150.0%
150.0%
100.0%
100.0%
(1.0)
2020
150.0%
150.0%
150.0%
100.0%
100.0%
100.0%
NA
NA
2019
100.0%
100.0%
100.0%
N/A
N/A
N/A
N/A
N/A
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Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 20. Share-based Compensation and Pensions
The unrecognized compensation cost related to our unvested PSU share awards as of December 31, 2021 was $13
million. This cost is recognizable over the next 1.48 years, which is the weighted average contractual life.
Roll-forward of Performance Share Units
The following table summarizes the activity related to PSUs during 2021:
Nonvested — January 1
Granted
Change in performance multiplier
Vested
Forfeited
Nonvested — December 31
Joint Share Ownership Plan
Number of
Shares
Weighted-Average
Share Price
169,987
$174.10
28,830
37,136
(32,698)
(20,163)
183,092
241.97
176.25
189.61
156.23
185.97
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 by 565,630. If the
Market Price is less than $266.00 on such date, the award will have no value. In addition, 20.0% of the award is
subject to a performance condition based on growth in FDBVPS 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 $14 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
2021
18.7 %
1.6 %
0.0 %
The unrecognized compensation cost related to our unvested JSOP share awards as of December 31, 2021 was $5
million. This cost is recognizable over the next 1.1 years, which is the weighted average contractual life.
Other share-based compensation plans
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, 2021,
2020 and 2019 under the Enstar Group Limited Deferred Compensation and Ordinary Share Plan for Non-
Employee Directors (the "Deferred Compensation Plan") were 5,092, 7,204 and 5,976, respectively.
Employee Share Purchase Plan
We provide an Employee Share Purchase Plan ("ESPP") whereby eligible employees may purchase Enstar shares
at a 15.0% discount to market price, in an amount of share value limited to the lower of $21,250 or 15.0% of the
employee's base salary. The 15.0% discount is expensed as compensation cost. The number of shares issued to
employees under the ESPP for the years ended December 31, 2021, 2020 and 2019 were 9,432, 16,914 and
15,269, respectively.
212
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 20. Share-based Compensation and Pensions
Table of Contents
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 and benefit plans for the years ended
December 31, 2021, 2020 and 2019.
Defined contribution plans
Defined benefit plan
Total pension expense
2021
2020
2019
(in millions of U.S. dollars)
$
$
9 $
—
9 $
12 $
3
15 $
12
1
13
The reduction in the 2021 defined contribution plan pension expense was driven by a reduction in headcount as a
result of the sale of StarStone U.S. and the Exchange Transaction54, whereas the reduction in the 2021 defined
benefit plan pension expense was driven by the annuity purchases in 2020 as described below.
The increase in the 2020 defined benefit plan pension expense was driven by annuity purchases for partial risk
transfer of certain plan liabilities.
During 2021, an actuarial review was performed on the defined benefit plan, which determined that the plan’s
unfunded liability, as of December 31, 2021 and 2020 was $3 million and $7 million, respectively. As of December
31, 2021 and 2020, we had an accrued liability of $3 million and $7 million, respectively, for this plan.
54 Refer to Note 5 for further information.
Enstar Group Limited | 2021 Form 10-K
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Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 21. Income Taxation
21. INCOME TAXATION
Enstar 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 U.K. 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 before income taxes by jurisdiction attributable to continuing operations,
including earnings from equity method investments, for the years ended December 31, 2021, 2020 and 2019:
Domestic (Bermuda)
Foreign
2021
2020
2019
(in millions of U.S. dollars)
$
370 $
1,504 $
145
231
Total earnings before income taxes and earnings from equity method
investments attributable to continuing operations
$
515 $
1,735 $
576
357
933
The following table presents our current and deferred income tax expense attributable to continuing operations by
jurisdiction for the years ended December 31, 2021, 2020 and 2019:
Current:
Domestic (Bermuda)
Foreign
Deferred:
Domestic (Bermuda)
Foreign
2021
2020
2019
(in millions of U.S. dollars)
$
— $
— $
6
6
—
21
21
15
15
—
9
9
Total income tax expense attributable to continuing operations
$
27 $
24 $
214
Enstar Group Limited | 2021 Form 10-K
—
16
16
—
(4)
(4)
12
Item 8 | Notes to Consolidated Financial Statements | Note 21. Income Taxation
Table of Contents
The actual effective income tax rate differs from the statutory rate of 0 percent under Bermuda law applied to
earnings attributable to continuing operations before income taxes, including earnings from equity method
investments for the years ended December 31, 2021, 2020 and 2019 as shown in the following reconciliation:
Earnings before income taxes
Bermuda income taxes at statutory rate
Foreign income tax rate differential
Change in valuation allowance
Effect of change in foreign income tax rate
Other
Effective income tax rate
2021
2020
2019
(in millions of U.S. dollars)
$
515
$
1,735
$
0.0 %
5.9 %
1.9 %
(1.4) %
(1.2) %
5.2 %
0.0 %
1.2 %
0.1 %
— %
0.1 %
1.4 %
933
0.0 %
8.6 %
(7.2) %
— %
(0.1) %
1.3 %
Our effective tax rate is generally driven by the geographical distribution of our earnings before income taxes
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, in the consolidated
balance sheets) 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, 2021 and 2020
were as follows:
Deferred tax assets:
Net operating loss carryforwards
Insurance reserves
Provisions for bad debt
Defendant A&E 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
Other deferred tax liabilities
Deferred tax liabilities
Net deferred tax asset
2021
2020
(in millions of U.S. dollars)
$
166 $
17
3
98
27
311
(129)
182
(17)
(19)
(23)
(59)
$
123 $
141
22
—
121
24
308
(118)
190
(20)
(16)
(15)
(51)
139
Enstar Group Limited | 2021 Form 10-K
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Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 21. Income Taxation
Net Deferred Tax Asset (Liability) Balance by Major Jurisdiction
United States
United Kingdom
Total
Net Operating Loss Carryforwards
Net Deferred Tax Asset
2021
2020
(in millions of U.S. dollars)
$
151 $
(28)
123
157
(18)
139
As of December 31, 2021, we had net operating loss carryforwards that could be available to offset future taxable
income, as follows:
Tax Jurisdiction
Net Operating Loss Carryforwards:
United States - Net operating loss
United States - Net operating loss
United Kingdom
Luxembourg
Other
Loss
Carryforwards
Tax effect
Expiration
(in millions of U.S. dollars)
$
458 $
25
186
15
62
96
5
47
4
14
2023-2041
Indefinitely
Indefinitely
2035-2036
Indefinitely
The U.S. and U.K. 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, 2021 and 2020, we had deferred tax asset valuation allowances of $129 million and $118
million, respectively, related to foreign subsidiaries. We recorded a net increase of $11 million in our deferred tax
valuation allowance for the year ended December 31, 2021 primarily due to impact of the U.K. tax rate change and
associated increase in deferred tax assets which management does not believe meet the “more likely than not”
realization threshold.
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 the 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.
ii.
net earnings or losses in recent years;
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.
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Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 21. Income Taxation
Table of Contents
Unrecognized Tax Benefits
During the years ended December 31, 2021, 2020 and 2019, there were no unrecognized tax benefits. There were
no accruals for the payment of interest and penalties related to income taxes as of each of December 31, 2021,
2020 and 2019.
Open Tax Years
Our operating subsidiaries may be subject to examination by various tax authorities and may have different statutes
of limitations expiration dates. Taxing 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,
2021:
Major Tax Jurisdiction
United States
United Kingdom
Open Tax Years
2018-2021
2020-2021
Enstar Group Limited | 2021 Form 10-K
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Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 22. Related Party Transactions
22. RELATED PARTY TRANSACTIONS
The following tables summarize our related party balances and transactions. Additional details about the nature of
our relationships and transactions are included further below.
As of December 31, 2021
Stone
Point (1)
AnglePoint
HK (2)
Northshore Monument AmTrust
Citco
Core
Specialty
Other
(in millions of U.S. dollars)
Assets
Fixed maturities, trading, at fair value $
122 $
— $
180 $
— $
— $
— $
— $
Fixed maturities, AFS, at fair value
Equities, at fair value
Other investments, at fair value
Equity method investments
Total investments
Cash and cash equivalents
Restricted cash and cash equivalents
Reinsurance balances recoverable
on paid and unpaid losses
Funds held by reinsured company
Other assets
Liabilities
Losses and LAE
Insurance and reinsurance balances
payable
Other liabilities
332
153
563
—
1,170
14
—
—
—
—
—
—
—
—
—
9
—
9
—
—
—
—
—
—
—
—
1
37
14
—
232
27
4
63
35
28
226
63
63
—
—
—
194
194
—
—
—
—
—
—
—
—
—
224
—
—
224
—
—
—
—
—
—
—
—
—
—
—
56
56
—
—
—
—
—
—
—
—
—
—
—
225
225
—
—
2
41
13
504
5
—
—
—
—
1,278
—
1,278
—
—
—
—
—
—
—
—
Net assets (liabilities)
$ 1,184 $
9 $
37 $
194 $
224 $
56 $
(228) $
1,278
Redeemable noncontrolling interest
$
172 $
— $
— $
— $
— $
— $
— $
—
(1) As of December 31, 2021, we had unfunded commitments of $229 million to other investments, $25 million to privately held equity and
$10 million to fixed maturity investments managed by Stone Point and its affiliated entities.
(2) Subsequent to December 31, 2021, AnglePoint HK ceased to be a related party.
218
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 22. Related Party Transactions
Table of Contents
As of December 31, 2020
Stone
Point
Hillhouse
(1)
Monument AmTrust
Citco
Enhanzed
Re (2)
Core
Specialty
Other
(in millions of U.S. dollars)
Assets
Short-term investments, AFS, at fair value $
1 $
— $
— $
— $ — $
— $
— $
Fixed maturities, trading, at fair value
Fixed maturities, AFS, at fair value
Equities, at fair value
Other investments, at fair value
Equity method investments
196
227
104
527
—
—
—
—
2,735
—
Total investments
1,055
2,735
Cash and cash equivalents
Reinsurance balances recoverable on
paid and unpaid losses
Funds held by reinsured company
Other assets
Liabilities
Losses and LAE
Insurance and reinsurance balances
payable
Other liabilities
Net assets (liabilities)
Redeemable noncontrolling interest
$
$
24
—
—
—
—
1
—
—
—
—
—
—
—
—
—
—
—
194
194
—
—
—
—
—
—
—
—
—
230
—
—
230
—
—
—
—
—
—
—
—
—
—
—
53
53
—
—
—
—
—
—
—
—
—
—
—
330
330
—
208
194
1
—
1
—
—
—
—
—
235
235
—
2
58
46
683
25
10
—
—
—
—
931
—
931
—
—
—
—
—
—
—
1,078 $ 2,735 $
194 $
230 $
53 $
732 $
(377) $
931
350 $
— $
— $
— $ — $
— $
— $
—
(1) As of December 31, 2020, the carrying value of our direct investment in the InRe Fund, which was then managed by AnglePoint Cayman, was
$2.4 billion. The Hillhouse Group ceased to be a related party on July 22, 2021.
(2) As of December 31, 2020, Enhanzed Re held investments in funds managed by AnglePoint Cayman of $851 million for which our share
(through our equity method investment ownership) was $404 million. During the second quarter of 2021, Enhanzed Re redeemed $902 million
of its investments in funds managed by AnglePoint Cayman. Following completion of the Step Acquisition and related consolidation, Enhanzed
Re ceased to be a related party on September 1, 2021.
Stone
Point
Hillhouse
(1)
AnglePoint
HK (2)
Northshore Monument AmTrust Citco
Enhanzed
Re (3)
Core
Specialty Other
(in millions of U.S. dollars)
2021
Net premiums earned $ — $
— $
— $
58 $
— $
— $ — $
(2) $
8 $ —
Net investment
income (expense)
Net realized gains
Net unrealized gains
(losses)
Other (expense)
income
Net incurred losses
and LAE
Acquisition costs
General and
administrative
expenses
Earnings from equity
method investments
Total net earnings
(loss)
21
—
83
—
104
—
—
—
—
—
—
77
20
—
97
—
—
—
—
—
(13)
—
(69)
—
(82)
—
—
—
—
—
3
—
—
(15)
46
(18)
(13)
(10)
(41)
—
—
—
—
—
—
—
—
—
—
14
6
—
(4)
—
3
—
—
(6) —
—
—
—
—
—
—
—
—
—
—
—
—
—
4
—
—
2
—
—
—
136
15
—
(4)
23
139
—
1
—
1
82
32
—
6
—
—
—
38
—
(6) —
$
104 $
97 $
(82) $
5 $
14 $
— $
4 $
79 $
55 $ 139
Enstar Group Limited | 2021 Form 10-K
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Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 22. Related Party Transactions
(1) Includes earnings from our direct investment in the InRe Fund, which was managed by AnglePoint Cayman through March 31, 2021, and the
impact of a $100 million deduction from amounts due to affiliates of Hillhouse Group from the InRe Fund, which had the effect of increasing our
NAV in the InRe Fund on February 21, 2021. The Hillhouse Group ceased to be a related party on July 22, 2021.
(2) Includes earnings from our direct investment in the InRe Fund, which was managed by AnglePoint HK from April 1, 2021 to October 15, 2021,
and another fund managed by AnglePoint HK. For the year ended December 31, 2021, we incurred management and performance fees of
$16 million in relation to the InRe Fund, which consisted of a $10 million minimum performance fee and operating expense reimbursements of
$6 million. These fees were deducted from the AnglePoint HK funds’ reported net asset values and recorded as net investment expenses in
the consolidated statements of earnings.
(3) Following completion of the Step Acquisition and related consolidation, Enhanzed Re ceased to be a related party on September 1, 2021.
Stone Point
Hillhouse (1)
Monument
AmTrust
Citco
Enhanzed Re
Other
(in millions of U.S. dollars)
2020
Net investment income
$
16 $
— $
— $
7 $
— $
(4) $
Net unrealized gains
(losses)
Other income
Net incurred losses and
LAE
Earnings from equity
method investments
24
—
40
—
—
—
1,288
—
1,288
—
—
—
—
—
—
—
—
88
(11)
—
(4)
—
—
—
—
—
—
—
—
2
(1)
3
(2)
(6)
(6)
147
Total net earnings (loss)
$
40 $
1,288 $
88 $
(4) $
2 $
139 $
Change in unrealized
losses on AFS
investments
$
— $
— $
— $
— $
— $
(3) $
—
76
—
76
—
—
—
76
—
(1) Includes earnings from our direct investment in the InRe Fund and other funds, which were then managed by AnglePoint Cayman. For the year
ended December 31, 2020, we incurred management and performance fees of $489 million which were deducted from the Hillhouse Funds’
reported net asset values.
Stone Point
Hillhouse (1)
Monument
AmTrust
Citco
Enhanzed Re
Other
(in millions of U.S. dollars)
2019
Net investment income
$
9 $
— $
— $
8 $
— $
— $
Net unrealized gains
Other income
Earnings from equity method
investments
26
—
35
—
310
—
310
—
—
—
—
20
10
—
18
—
—
—
—
3
—
1
1
29
Total net earnings
$
35 $
310 $
20 $
18 $
3 $
30 $
—
41
—
41
—
41
(1) Includes earnings from our direct investment in the InRe Fund and other funds, which were then managed by AnglePoint Cayman. For the year
ended December 31, 2019, we incurred management and performance fees of $89 million which were deducted from the Hillhouse Funds’
reported net asset values.
Stone Point
As of December 31, 2021, investment funds managed by Stone Point own 1,635,986 of our voting ordinary shares,
which constitutes 9.8% of our outstanding voting ordinary shares. James D. Carey, a managing director of Stone
Point, is a member of our Board.
As of December 31, 2021, investment funds managed by Stone Point have a 39.3% interest in our subsidiary SSHL
and a 76.3% interest in Northshore55. Additional information relating to our remaining interest in Northshore is set
forth under the heading "Northshore" below. As of December 31, 2021 and December 31, 2020, the RNCI on our
balance sheet relating to these co-investment transactions was $172 million and $350 million, respectively.
55 Refer to Note 5 for a description of transactions impacting Stone Point's interests in SSHL and Northshore that occurred during 2021 and
2020.
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Item 8 | Notes to Consolidated Financial Statements | Note 22. Related Party Transactions
Table of Contents
We have made various investments in funds and separate accounts managed by Stone Point or affiliates of Stone
Point, and we have also made direct investments in entities affiliated with Stone Point. Where we have made an
investment in a fund, the manager of such fund generally charges certain fees to the fund, which are deducted from
the net asset value.
We also have certain co-investments alongside Stone Point and its affiliates, including our investments in AmTrust
and Northshore, which are described below, and Mitchell TopCo Holdings, the parent company of Mitchell
International ("Mitchell"), and Genex Services in which we have invested $25 million. Mitchell provides third-party
outsourcing managed care services to one of our subsidiaries in the ordinary course of its business.
Hillhouse Group
On July 22, 2021, we repurchased the Hillhouse Funds’ (as defined below) entire equity interest in Enstar, and as a
result the Hillhouse Group (as defined below) ceased to be a related party on the same date56.
We have historically made significant direct investments in funds (the "Hillhouse Funds") managed by Hillhouse
Capital Management, Ltd. and Hillhouse Capital Advisors, Ltd. (together, "Hillhouse Group") and AnglePoint Asset
Management Ltd., an affiliate of Hillhouse Group ("AnglePoint Cayman"). From February 2017 to February 2021, Jie
Liu, a partner of AnglePoint HK (as defined below), served on our Board.
On February 21, 2021, we entered into a Termination and Release Agreement (the "TRA") with the InRe Fund,
Hillhouse Group, AnglePoint Cayman, AnglePoint Asset Management Limited (“AnglePoint HK”), and InRe Fund
GP, Ltd. pursuant to which we agreed to terminate certain relationships with Hillhouse and its affiliates, primarily with
respect to the InRe Fund. In connection with AnglePoint Cayman ceasing to serve as investment manager of the
InRe Fund, affiliates of Hillhouse Group agreed to a deduction of $100 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. We also
redeemed our investments in the other Hillhouse Funds at their carrying value plus an implied interim return and
received $381 million in the form of additional interest in the InRe Fund.
AnglePoint Cayman previously received sub-advisory services with respect to the InRe Fund from its affiliate,
AnglePoint HK, an investment advisory company licensed by the Securities and Futures Commission in Hong Kong.
Pursuant to the TRA, we acquired an option to buy AnglePoint HK, which we also had the right to assign to a third-
party. On April 1, 2021, we entered into a Designation Agreement with Jie Liu (the "Designation Agreement"),
pursuant to which we designated Mr. Liu, an AnglePoint HK partner, as the purchaser of AnglePoint HK, and he
acquired the company from an affiliate of Hillhouse Group on the same day. AnglePoint Cayman simultaneously
assigned its investment management agreement with the InRe Fund to AnglePoint HK. The Designation Agreement
required us and AnglePoint HK to amend the InRe Fund investment management agreement and limited
partnership agreement to incorporate a revised fee structure for AnglePoint HK and certain other agreed changes.
The revised fee structure consisted of a reimbursement of AnglePoint HK's reasonable operating expenses, plus a
performance fee equal to 10% of our return on investment in the InRe Fund. For the calendar year 2021, there was
also a minimum performance fee payable to AnglePoint HK of $10 million.
As a result of the terms of the Designation Agreement, the InRe Fund qualified as a VIE and was consolidated
effective April 1, 2021. During the fourth quarter of 2021, we completed the liquidation of our investment in the InRe
Fund57.
On September 1, 2021, we completed the purchase of the Hillhouse Group's entire 27.7% interest in Enhanzed Re
for a purchase price of $217 million58.
AnglePoint HK
As described above, on April 1, 2021, AnglePoint Cayman assigned its investment management agreement with the
InRe Fund to AnglePoint HK which is owned by Mr. Liu. On October 15, 2021, we delivered written notice to
AnglePoint HK of our decision to terminate the investment management agreement among the InRe Fund, the
general partner of the InRe Fund, and AnglePoint HK.
56
Refer to Note 18 for transactions involving Hillhouse Group, which included the exercise of warrants in the first quarter of 2021 and our
repurchase of our ordinary shares held by funds managed by Hillhouse Group in the third quarter of 2021.
Refer to Note 13 for further details.
57
58 Refer to Note 4 for further information regarding the Step Acquisition of Enhanzed Re.
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Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 22. Related Party Transactions
At the same time, the InRe Fund, the general partner of InRe Fund and Neuberger Berman Investment Advisers
LLC ("Neuberger Berman") entered into an investment management agreement pursuant to which Neuberger
Berman was retained as investment manager to oversee an orderly liquidation of InRe Fund.
As of December 31, 2021, we had one remaining direct investment in a fund managed by AnglePoint HK.
Northshore
Following the completion of the Exchange Transaction59 on January 1, 2021, our equity interest in Northshore, the
holding company that owns Atrium and Arden, was reduced to 13.8% from 54.1%. We have accounted for our
residual equity interest in Northshore as an investment in a privately held equity security at fair value.
Concurrent with the closing of the Exchange Transaction:
• One of our wholly-owned subsidiaries and Northshore entered into a TSA through which our wholly-owned
subsidiary agreed to provide certain transitional services to Northshore over a transition period of up to 18
months.
•
•
Arden entered into an LPT retrocession agreement with one of our majority owned subsidiaries, through which
Arden fully reinsured its run-off portfolio with total liabilities of $19 million to our majority owned subsidiary, in
exchange for a retrocession premium consideration of an equal amount.
Arden retained the premium under a funds held arrangement, to secure the payment obligations of our majority
owned subsidiary.
SGL No.1 ceased its provision of underwriting capacity on Syndicate 609. We will continue to report SGL No.
1's 25% gross 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.
Monument Re
On July 27, 2021, we entered into a subscription agreement with Monument Insurance Group Limited ("Monument
Re") with the other common shareholders to subscribe to a newly issued class of Monument Re preferred stock. As
part of this agreement, our existing classes of preferred shares in Monument Re (including any accrued unpaid
dividends thereon) was exchanged for the new class of preferred shares.
Following the transaction we continue to own 20.0% of the common shares of Monument Re and 24.4% of the new
class of preferred shares as of December 31, 2021, which is reduced to 13.7% on a committed capital basis. A fund
managed by Stone Point has acquired 6.7% of the new class of preferred shares as of December 31, 2021, which
increases to 11.2% on a committed capital basis. This transaction closed on December 14, 2021.
We have accounted for our investment in the common and preferred shares of Monument Re as an equity method
investment.
AmTrust
We own 8.4% of the equity interest in Evergreen Parent L.P. ("Evergreen") and Trident Pine Acquisition LP ("Trident
Pine") owns 21.8%. Evergreen owns all of the equity interest in AmTrust Financial Services, Inc. (“AmTrust"). Trident
Pine is an entity owned by private equity funds managed by Stone Point.
We have accounted for our investment in the shares of AmTrust an investment in a privately held equity security at
fair value.
Citco
As of December 31, 2021 and 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 III
Limited ("Citco"). Pursuant to an investment agreement and in consideration for participation therein, a related party
of Hillhouse Group provided us with investment support. As of December 31, 2021 and 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.
59 Refer to Note 5 for further details on the Exchange Transaction.
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Item 8 | Notes to Consolidated Financial Statements | Note 22. Related Party Transactions
Table of Contents
We have accounted for our indirect investment in the shares of Citco as an equity method investment.
Enhanzed Re
Enhanzed Re was a joint venture between Enstar, Allianz and Hillhouse Group that was capitalized in December
2018. Enhanzed Re is a Bermuda-based Class 4 and Class E reinsurer that reinsures life, non-life run-off, and
property and casualty insurance business, initially sourced from Allianz and Enstar. Enstar, Allianz and Hillhouse
Group have made initial equity investment commitments in the aggregate of $470 million to Enhanzed Re.
Enstar acts as the (re)insurance manager for Enhanzed Re, and an affiliate of Allianz provides investment
management services to Enhanzed Re.
We ceded 10% of certain 2019, 2020 and 2021 transactions to Enhanzed Re on the same terms and conditions as
those received by Enstar. In addition, one of our UK-based Run-off subsidiaries entered into a 50% quota share
reinsurance agreement with Enhanzed Re during the fourth quarter of 2020. The reinsurance is on a funds held
basis with fixed crediting rates.
As described above, on September 1, 2021, we completed the purchase of the Hillhouse Group's entire 27.7%
interest in Enhanzed Re for a purchase price of $217 million and assumed its remaining outstanding capital
commitment to Enhanzed Re of $40 million. Following the completion of the transaction, our equity interests in
Enhanzed Re increased from 47.4% to 75.1% with Allianz continuing to own the remaining 24.9%. Upon closing, we
consolidated Enhanzed Re (previously accounted for as an equity method investment) and as a result, it ceased to
be a related party on the same date60.
Core Specialty
Following the sale and recapitalization of StarStone U.S., our investment in the common shares of Core Specialty,
was accounted for as an equity method investment on a one quarter lag.
In connection with the sale and recapitalization of StarStone U.S, we entered into an LPT and ADC reinsurance
agreement, as well as an ASA and a TSA, between certain of our subsidiaries and StarStone U.S. and Core
Specialty61.
Furthermore, there are existing reinsurance agreements whereby (i) certain of our subsidiaries provide reinsurance
protection to StarStone U.S. and (ii) StarStone U.S. provides reinsurance protection to certain of our subsidiaries.
These arrangements remain in place.
As a result of the completion of the Exchange Transaction on January 1, 2021, our investment in Core Specialty
was reduced by $4.0 million.
Other
We also have certain other investments, including investments in limited partnerships and partnership-like limited
liability companies, that had we not elected the fair value option would otherwise be accounted for as equity method
investments62. We have disclosed our investments in these entities on an aggregated basis as they are individually
immaterial.
60 Refer to Note 4 for further information regarding the Step Acquisition of Enhanzed Re.
61 As described in Note 5.
62 Refer to Note 6 for further information regarding our other investments, including summarized financial information of our equity method
investees, including those for which the fair value option was elected.
Enstar Group Limited | 2021 Form 10-K
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Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 23. Dividend Restrictions and Statutory Requirements
23. 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, 2021. 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 annum63.
The Bermuda Monetary Authority ("BMA") acts as group supervisor to Enstar. On an annual basis, we are required
to file group statutory financial statements, a group statutory financial return, a group capital and solvency return,
audited group financial statements and a Group Solvency Self-Assessment ("GSSA") with the BMA. The GSSA is
designed to document our perspective on the capital resources necessary to achieve our business strategies and
remain solvent, and to provide the BMA with insights on our risk management, governance procedures and
documentation related to this process. We are required to maintain available group statutory capital and surplus in
an amount that is at least equal to the group enhanced capital requirement (“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 as of December 31, 2021 and 2020 and statutory net income (loss)
amounts for the years ended December 31, 2021, 2020 and 2019 for our (re)insurance subsidiaries based in
Bermuda, the United Kingdom, the United States, Continental Europe and Australia are summarized in the table
below which includes information relating to acquisitions from the year of acquisition:
Statutory Capital and Surplus
Actual
Statutory Income (Loss)
2021
2020
2019
Required
2021
2020
Bermuda
U.K.
U.S.
Europe
Australia
$
3,338 $
804
151
99
15
2,712 $
804
186
96
19
2021
2020
(in millions of U.S. dollars)
5,819 $
1,247
534
182
57
5,565 $
1,224
554
214
59
524 $
163
23
(2)
2
1,851 $
43
(67)
(1)
(2)
644
155
121
12
5
63 Refer to Note 18 for details regarding dividends on preferred shares.
224
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 23. Dividend Restrictions and Statutory Requirements
Table of Contents
As of December 31, 2021, the total amount of net assets of our consolidated subsidiaries that were restricted was
$4.4 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 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 (re)insurance companies that are in run-off are required to seek BMA approval for any dividends or
distributions.
As of December 31, 2021 and 2020, 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 $2.5 billion as of December 31, 2021 (2020: $2.9 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, 2021 and 2020, 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 $443 million and $421 million as of December 31, 2021 and
2020, 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.
Enstar Group Limited | 2021 Form 10-K
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Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 23. Dividend Restrictions and Statutory Requirements
Lloyd’s
As of December 31, 2021, we participated in the Lloyd’s market through our interests in: (i) 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; (ii) Syndicate 1301 (2020 and prior underwriting years, which is managed
by Enstar Managing Agency Limited ("EMAL") (EMAL also serves as managing agent for Syndicate 2008); and (iii)
Atrium’s Syndicate 609 (2020 and prior underwriting years), which is managed by Atrium Underwriters Limited, a
Lloyd's managing agent.
We participated on each of the three syndicates through a single, wholly owned Lloyd’s corporate member. On
January 1, 2021, we sold the Atrium business and on March 15, 2021, we sold the right to operate Syndicate
130164.
The underwriting capacity of a member of Lloyd’s is supported by providing FAL65. Business plans, including
maximum underwriting capacity, for Lloyd’s syndicates require 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. 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 level.
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, 2021, all of our U.S. non-life (re)insurance subsidiaries exceeded their required levels of RBC.
On an aggregate basis, our U.S. non-life (re)insurance subsidiaries exceeded their minimum levels of RBC as of
December 31, 2021 by $383 million (2020: $362 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, 2021, this subsidiary exceeded
the Solvency II requirements by $57 million (2020: $98 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.
64 These transactions are discussed further in Note 5.
65
As described in Note 6.
226
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 23. Dividend Restrictions and Statutory Requirements
Table of Contents
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 to a 99.5% probability of sufficiency.
Enstar Group Limited | 2021 Form 10-K
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Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 24. Commitments and Contingencies
24. 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 are not typically placed into trust or subject to other security arrangements. However, 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, 2021, we had a significant funds held concentration of $3.2 billion (December 31, 2020: $955
million) and $1.2 billion (December 31, 2020: $182 million) to reinsured companies with financial strength credit
ratings of A+ from A.M. Best and AA from S&P, and A+ from A.M. Best and AA- from S&P, respectively.
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 reinsurance counterparties noted above, exceeded 10% of
shareholders’ equity as of December 31, 2021. As of December 31, 2021 our credit exposure to the U.S.
government was $1.2 billion (December 31, 2020: $1.4 billion).
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 A&E and other claims.
Unfunded Investment Commitments
As of December 31, 2021, we had unfunded commitments of $1.7 billion to other investments, $35 million to
privately held equity, $10 million to fixed maturity investments and $109 million to our majority owned subsidiary
Enhanzed Re.
Guarantees
As of December 31, 2021 and 2020, parental guarantees supporting reinsurance obligations, defendant A&E
liabilities, subsidiary capital support arrangements and credit facilities were $2.7 billion and $1.7 billion, respectively.
We also guarantee the Junior Subordinated Notes of $350 million66.
66 As described in Note 16.
228
Enstar Group Limited | 2021 Form 10-K
Item 8 | Notes to Consolidated Financial Statements | Note 24. Commitments and Contingencies
Table of Contents
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").
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.
Enstar Group Limited | 2021 Form 10-K
229
Table of Contents
Item 8 | Notes to Consolidated Financial Statements | Note 25. Subsequent Events
25. SUBSEQUENT EVENTS
Debt obligations
On January 14, 2022, our wholly-owned subsidiary, Enstar Finance, completed the issuance and sale of a series of
junior subordinated notes due 2042 (the "2042 Junior Subordinated Notes") in an aggregate principal amount of
$500 million. The 2042 Junior Subordinated Notes bear interest (i) during the initial five-year period ending January
14, 2027, at a fixed rate per annum of 5.50% and (ii) during each five-year reset period thereafter beginning January
15, 2027, 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 4.006%.
The 2042 Junior Subordinated Notes are unsecured junior subordinated obligations of Enstar Finance, are fully and
unconditionally guaranteed by the Parent Company on an unsecured and junior subordinated basis, and are
contractually subordinated in right of payment to the existing and future obligations of our other subsidiaries (other
than Enstar Finance).
Subject to threshold regulatory requirements, Enstar Finance may repurchase the 2042 Junior Subordinated Notes,
in whole or in part, at any time during a par call period, at a repurchase price equal to 100% of the principal amount
of such notes, plus accrued and unpaid interest, and at any time not during a par call period, plus an additional
"make-whole" premium.
We incurred costs of $6 million in issuing the 2042 Junior Subordinated Notes. The net proceeds of the 2042 Junior
Subordinated Notes will be used to fund the payment at maturity of the outstanding $280 million aggregate principal
amount of our 2022 Senior Notes, which mature on March 10, 2022. We intend to use the remaining net proceeds
for general corporate purposes, including, but not limited to, funding our acquisitions, working capital and other
business opportunities.
Dividends on Preferred Shares
On February 4, 2022, we declared $7 million and $2 million of dividends on the Series D and E Preferred Shares,
respectively, to be paid on March 1, 2022 to shareholders of record as of February 15, 2022.
Shareholders' Equity
Subsequent to December 31, 2021, and through February 22, 2022, we repurchased 111,398 voting ordinary
shares for $27 million for an average price per share of $256.98 under the 2021 Repurchase Program. As of
February 22, 2022, the remaining capacity under the 2021 Repurchase Program was $32 million.
Transactions
Aspen
On January 10, 2022, we entered into an agreement with Aspen Insurance Holdings Limited ("Aspen") to assume
$3.1 billion of net loss reserves on a diverse mix of property, liability and specialty lines of business in a LPT
transaction, subject to a limit of $3.6 billion in exchange for a premium of $3.2 billion. The amount of net loss
reserves assumed, as well as the premium and limit amounts provided in the LPT agreement, will be adjusted for
claims paid between October 1, 2021 and the closing date of the transaction.
The premium includes $770 million of premium previously paid with respect to reserves ceded under the existing
ADC transaction, which will continue to be held in trust accounts to secure Cavello Bay Reinsurance Limited's
obligations under the LPT Agreement.
The incremental new premium will initially be held in funds withheld accounts maintained by the Aspen companies.
These funds will be credited with interest at an annual rate of 1.75% plus, for periods after October 1, 2022, an
additional amount equal to 50% of the amount by which the total return on the investments and cash and cash
equivalents of Aspen Insurance Holdings Limited and its subsidiaries exceeds 1.75%.
Additionally, we will assume claims control of the subject business upon closing and entrance into an administrative
services agreement.
The transaction is subject to regulatory approvals and satisfaction of various other closing conditions, during which
time the ADC will remain in place. The transaction is expected to close in the first half of 2022.
230
Enstar Group Limited | 2021 Form 10-K
Table of Contents
Item 8 | Schedules
SCHEDULE I
ENSTAR GROUP LIMITED
SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES67
As of December 31, 2021
(Expressed in millions of U.S. Dollars)
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
$
285 $
288 $
U.K. government
Other government
Corporate
Municipal
Residential mortgage-backed
Commercial mortgage-backed
Asset-backed
Structured Products
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)
Total
73
531
3,321
143
217
504
287
1,071
6,432
463
10
127
3,384
129
394
566
625
5,698
1,454
1,771
73
535
3,456
158
219
512
284
1,033
6,558
459
10
128
3,358
128
391
562
625
5,661
1,629
1,771
$
15,355 $
15,619 $
288
73
535
3,456
158
219
512
284
1,033
6,558
459
10
128
3,358
128
391
562
625
5,661
1,629
1,771
15,619
(1) Original cost of fixed maturity securities is reduced by repayments and adjusted for amortization of premiums or accretion of discounts.
(2) The difference in the amount of fixed maturities shown at fair value and the fixed maturities shown in our consolidated balance sheet relates to
the fair value of $35 million as of December 31, 2021 for our investment in fixed maturities issued by affiliates of Stone Point.
(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 $92 million as of December 31, 2021 for our investment in a registered investment company affiliated with entities owned by Trident, $50
million as a co-investor alongside Stone Point and a $224 million investment in AmTrust.
(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 $562 million as of December 31, 2021 for our other investments in funds or companies owned by or affiliated with
certain related parties.
67 Refer to Note 22 in our consolidated financial statements.
Enstar Group Limited | 2021 Form 10-K
231
Table of Contents
Item 8 | Schedules
SCHEDULE II
ENSTAR GROUP LIMITED
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Balance Sheets - Parent Company Only
As of December 31, 2021 and 2020
2021
2020
(in millions of U.S.
dollars, except share data)
ASSETS
Equities, at fair value (cost: 2021 - $2; 2020 - $0)
$
2 $
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
Ordinary shares (par value $1 each, issued and outstanding 2021: 18,223,574; 2020: 22,085,232):
Voting Ordinary Shares (issued and outstanding 2021: 16,625,862; 2020: 18,575,550)
Non-voting convertible ordinary Series C Shares (issued and outstanding 2021: 1,192,941 and
2020: 2,599,672)
Non-voting convertible ordinary Series E Shares (issued and outstanding 2021: 404,771 and
2020: 910,010)
Preferred Shares:
Series C Preferred Shares (issued and held in treasury 2021 and 2020: 388,571)
Series D Preferred Shares (issued and outstanding 2021 and 2020: 16,000)
Series E Preferred Shares (issued and outstanding 2021 and 2020: 4,400)
Treasury shares, at cost (Series C Preferred Shares 2021 and 2020: 388,571)
Joint Share Ownership Plan (voting ordinary shares, held in trust 2021 and 2020: 565,630)
Additional paid-in capital
Accumulated other comprehensive income
Retained earnings
Total Enstar Group Limited Shareholders’ Equity
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
$
72
29
7,677
5
7,785 $
1,270 $
381
38
1,689
17
1
—
—
400
110
(422)
(1)
922
(16)
5,085
6,096
$
7,785 $
See accompanying notes to the Condensed Financial Information of Registrant
—
8
19
7,887
8
7,922
903
301
44
1,248
19
3
1
—
400
110
(422)
(1)
1,836
81
4,647
6,674
7,922
232
Enstar Group Limited | 2021 Form 10-K
Table of Contents
Item 8 | Schedules
SCHEDULE II
ENSTAR GROUP LIMITED
CONDENSED FINANCIAL INFORMATION OF REGISTRANT - CONTINUED
Statements of Earnings - Parent Company Only
For the Years Ended December 31, 2021, 2020 and 2019
2021
2020
(in millions of U.S. dollars)
2019
INCOME
Net investment income
EXPENSES
General and administrative expenses
Interest expense
Net foreign exchange losses (gains)
NET LOSS BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF
SUBSIDIARIES
Equity in undistributed earnings of subsidiaries - continuing operations
Equity in undistributed earnings of subsidiaries - discontinued operations
NET EARNINGS
Dividends on preferred shares
$
— $
—
41
54
3
98
2 $
2
46
52
(3)
95
4
4
45
52
(22)
75
(98)
(93)
(71)
571
—
473
1,832
16
1,755
(36)
(36)
1,002
7
938
(36)
NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED
ORDINARY SHAREHOLDERS
$
437 $
1,719 $
902
See accompanying notes to the Condensed Financial Information of Registrant
Statements of Comprehensive Income - Parent Company Only
For the Years Ended December 31, 2021, 2020 and 2019
2021
2020
(in millions of U.S. dollars)
2019
NET EARNINGS
Other comprehensive (loss) income relating to subsidiaries, net of
tax
COMPREHENSIVE INCOME
$
$
473 $
1,755 $
938
(98)
375 $
73
1,828 $
(3)
935
See accompanying notes to the Condensed Financial Information of Registrant
Enstar Group Limited | 2021 Form 10-K
233
Table of Contents
Item 8 | Schedules
SCHEDULE II
ENSTAR GROUP LIMITED
CONDENSED FINANCIAL INFORMATION OF REGISTRANT - CONTINUED
Statements of Cash Flows - Parent Company Only
For the Years Ended December 31, 2021, 2020 and 2019
OPERATING ACTIVITIES:
Net cash flows (used in) provided by operating activities
$
(72) $
117 $
(128)
2021
2020
2019
(in millions of U.S. dollars)
INVESTING ACTIVITIES:
Dividends and return of capital from subsidiaries
Contributions to subsidiaries
Net cash flows provided by (used in) investing activities
FINANCING ACTIVITIES:
Dividends on preferred shares
Repurchase of shares
Repayment of loans
Receipt of loans
675
—
675
(36)
(942)
(429)
868
Net cash flows (used in) provided by financing activities
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
(539)
(132)
64
8
3
5
CASH AND CASH EQUIVALENTS, END OF YEAR
$
72 $
8 $
See accompanying notes to the Condensed Financial Information of Registrant
44
(26)
18
(36)
(26)
65
(240)
(175)
(36)
—
(449)
(219)
379
548
293
(10)
15
5
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, 2021, 2020,
and 2019, interest paid was $41 million, $47 million, and $46 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, 2021, 2020, and 2019, included:
i.
$0, $130 million 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.
As of December 31, 2021 and 2020, parental guarantees and capital support instruments supporting subsidiaries'
insurance obligations were $2.1 billion and $1.7 billion, respectively. In addition, as of December 31, 2021 and
2020, there were $210 million and $210 million, respectively, of unsecured letters of credit for FAL which have a
parental guarantee. Furthermore, as of December 31, 2021, we also guarantee the Junior Subordinated Notes
issued in 2020 for an aggregate principal amount of $350 million.
As of December 31, 2021 and 2020, retained earnings were $5.1 billion and $4.6 billion, respectively, an increase of
$438 million. This increase was primarily attributable to the net earnings of $437 million.
234
Enstar Group Limited | 2021 Form 10-K
SCHEDULE III
ENSTAR GROUP LIMITED
SUPPLEMENTARY INSURANCE INFORMATION
(Expressed in millions of U.S. Dollars)
As of 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
Year ended December 31,
Losses and
Loss
Expenses
and Policy
Benefits
Amortization
of Deferred
Acquisition
Costs
Other
Operating
Expenses
Net
Premiums
Written
Table of Contents
Item 8 | Schedules
2021
Run-off
Enhanzed Re
Investments
Legacy
Underwriting
Corporate &
Other
Total
2020
Run-off (1)
Investments
Legacy
Underwriting (1)
Corporate &
Other
Total
2019
Run-off
Investments
Legacy
Underwriting
Corporate &
Other
Total
$
$
$
$
$
14 $
13,117 $
171 $
— $
182 $
— $
—
—
2
—
181
—
215
(255)
5
—
12
—
1,502
—
—
—
5
—
58
—
—
309
3
—
(194) $
(2)
—
20
62
—
—
13
—
44 $
188 $
16 $
13,258 $
188 $
1,502 $
245 $
312 $
(114) $
57 $
23 $
9,433 $
—
21
—
—
1,358
(198)
72 $
—
203
—
— $
—
—
—
59 $
—
513
—
— $
(145) $
270
33
—
—
371
190
20 $
—
151
—
44 $
10,593 $
275 $
— $
572 $
303 $
416 $
171 $
502 $
42 $
8,684 $
130 $
— $
168 $
— $
(153) $
74 $
173 $
—
75
—
—
1,570
(386)
—
404
—
—
—
—
—
636
—
267
41
—
—
562
205
—
167
—
$
117 $
9,868 $
534 $
— $
804 $
308 $
614 $
241 $
30
97
113
413 $
1
37
10
131
367 $
173 $
35
158
136
35
3
—
24
—
62
3
—
430
—
433
(25)
—
571
—
546
(1) As of December 31, 2020, the assets and liabilities of Northshore, the holding company which owns Atrium and Arden (a Run-off subsidiary), were classified as held-for-sale. Deferred
acquisition costs, reserves for losses and LAE and unearned premiums for Northshore were $24 million, $254 million and $91 million, respectively68.
68 Refer to Note 5 in our consolidated financial statements for further information.
Enstar Group Limited | 2021 Form 10-K
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Table of Contents
Item 8 | Schedules
SCHEDULE IV
ENSTAR GROUP LIMITED
REINSURANCE
For the Years Ended December 31, 2021, 2020 and 2019
(Expressed in millions of U.S. Dollars)
Gross
Ceded to
Other
Companies
Assumed from
Other
Companies
Net Amount
Percentage of
Amount
Assumed to
Net
295 $
(128) $
—
295 $
—
(128) $
75 $
3
78 $
242
3
245
31.0 %
— %
542
542 $
(158)
(158) $
188
188 $
572
572
32.9 %
725 $
(66) $
— $
659
— %
2021
Premiums earned:
Property and casualty
Future policyholder
benefits
Total premiums earned
2020
Premiums earned:
Property and casualty
Total premiums earned
2019
Life insurance in force
Premiums earned:
Property and casualty
Future policyholder
benefits
$
$
$
$
Total premiums earned
$
681 $
680
1
(146)
—
(146) $
269
—
269 $
803
1
804
33.5 %
— %
236
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Table of Contents
Item 8 | Schedules
SCHEDULE V
ENSTAR GROUP LIMITED
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 2021, 2020 and 2019
(Expressed in millions of U.S. Dollars)
Balance at
Beginning of
Year
Charged to
costs and
expenses
Charged to
other accounts
(1)
Deductions (2)
Balance at
End of Year
December 31, 2021
Reinsurance balances recoverable on paid and
unpaid losses:
Allowance for estimated uncollectible reinsurance $
137 $
— $
1 $
(2) $
136
Insurance balances recoverable:
Allowance for estimated uncollectible insurance
Valuation allowance for deferred tax assets
December 31, 2020
Reinsurance balances recoverable on paid and
unpaid losses:
5
118
—
12
—
—
—
(1)
5
129
Allowance for estimated uncollectible reinsurance $
148 $
— $
— $
(11) $
137
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:
4
117
—
4
1
—
—
(3)
5
118
Allowance for estimated uncollectible reinsurance $
157 $
— $
— $
(9) $
148
Insurance balances recoverable:
Allowance for estimated uncollectible insurance
Valuation allowance for deferred tax assets
—
212
—
3
4
—
—
(98)
4
117
(1)
(2)
The 2020 amount includes $3 million for the cumulative effect of change in accounting principle.
Credited to the related asset account.
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Table of Contents
Item 8 | Schedules
SCHEDULE VI
ENSTAR GROUP LIMITED
SUPPLEMENTARY INFORMATION CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS
As of and for the years ended December 31, 2021, 2020 and 2019
(Expressed in millions 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
Net Losses and Loss
Expenses Incurred
Current
Period
Prior Periods
Net Paid
Losses and
Loss
Expenses
Amortization
of Deferred
Acquisition
Costs
Net Premiums
Written
$
16 $
13,258 $
188 $
242 $
312 $
172 $
(283) $
(1,431) $
57 $
44
117
10,593
9,868
275
534
572
803
303
308
405
580
11
34
(1,485)
(1,788)
171
240
59
433
544
Affiliation with Registrant
Consolidated Subsidiaries
2021
2020
2019
238
Enstar Group Limited | 2021 Form 10-K
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, 2021. Based on that evaluation, our Chief
Executive Officer and our Chief Financial Officer have concluded, except as noted below, 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.
On September 1, 2021, we completed our acquisition of the controlling interest of Enhanzed Re. As of December
31, 2021, Enhanzed Re represented 13.6% of our total assets. As Enhanzed Re is reported on a on quarter lag, its
results for the month of September 2021 represented (2.2)% of total income as a consolidated subsidiary. We are in
the process of evaluating internal control over financial reporting for Enhanzed Re and accordingly, have excluded
Enhanzed Re from our evaluation of internal control over financial reporting and related disclosure controls and
procedures.
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,
2021, 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, 2021.
As noted above, we are in the process of evaluating internal control over financial reporting for Enhanzed Re and
accordingly, have excluded Enhanzed Re from management’s annual report on internal control over financial
reporting.
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, 2021
and their attestation report on our internal control over financial reporting appears below.
Enstar Group Limited | 2021 Form 10-K
239
Table of Contents
Item 9 | Item 9A. Controls and Procedures
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, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
240
Enstar Group Limited | 2021 Form 10-K
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Enstar Group Limited:
Opinion on Internal Control Over Financial Reporting
We have audited Enstar Group Limited and subsidiaries’ (the Company) internal control over financial reporting as
of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained,
in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, 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, 2021 and the related notes and financial statement
schedules I to VI (collectively, the consolidated financial statements), and our report dated February 24, 2022
expressed an unqualified opinion on those consolidated financial statements.
The Company acquired Enhanzed Reinsurance Ltd. (“Enhanzed Re”) on September 1, 2021, and management
excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2021, Enhanzed Re’s internal control over financial reporting associated with 13.6% of total assets
and (2.2)% of total income included in the consolidated financial statements of the Company as of and for the year
ended December 31, 2021. Our audit of internal control over financial reporting of the Company also excluded an
evaluation of the internal control over financial reporting of Enhanzed Re.
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.
Enstar Group Limited | 2021 Form 10-K
241
/s/ KPMG Audit Limited
KPMG Audit Limited
Hamilton, Bermuda
February 24, 2022
242
Enstar Group Limited | 2021 Form 10-K
Table of Contents
ITEM 9B. OTHER INFORMATION
Not applicable.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT
PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10.
GOVERNANCE
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
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 2022 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, 2021 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) Financial Statements and Financial Statement Schedules: see Item 8 in Part II of this report.
(b) Exhibits: see accompanying exhibit index that precedes the signature page of this report.
ITEM 16. FORM 10-K SUMMARY
Omitted at Company's option.
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243
Table of Contents
Exhibit Index
Exhibit
No.
Description
EXHIBIT INDEX
3.1
3.2
3.3
3.4
3.5
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
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).
Sixth Amended and Restated Bye-Laws of Enstar Group Limited (incorporated by reference to Exhibit
3.1 to the Company’s Form 8-K filed on June 15, 2021).
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).
Fourth Supplemental Indenture, dated as of August 24, 2021, 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 August 24, 2021).
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).
Second Supplemental Indenture dated as of January 14, 2022, 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 January 14, 2022).
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).
244
Enstar Group Limited | 2021 Form 10-K
Table of Contents
Exhibit Index
10.1
10.2
10.3
10.4
10.5
10.6+
10.38+
10.8+
10.9+
10.10+
10.11+
10.12+
10.13+
10.14+
10.15+
10.16+
10.17+
10.18+
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 to the Company’s Form 8-K12B filed on January 31, 2007).
Registration Rights Agreement, dated as of April 20, 2011, by and among Enstar Group Limited, GSCP
VI AIV Navi, Ltd., GSCP VI Offshore Navi, Ltd., GSCP VI Parallel AIV Navi, Ltd., GSCP VI Employee
Navi, Ltd., and GSCP VI GmbH Navi, L.P. (incorporated by reference to Exhibit 99.3 to the Company’s
Form 8-K filed on April 21, 2011).
Registration Rights Agreement, dated April 1, 2014, among Enstar Group Limited, FR XI Offshore AIV,
L.P., First Reserve Fund XII, L.P., FR XII A Parallel Vehicle L.P., FR Torus Co-Investment, L.P. and
Corsair Specialty Investors, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K
filed on April 4, 2014).
Form of Waiver Agreement (incorporated herein by reference to Exhibit 4.7 to the Company's Form S-3
filed on October 10, 2017).
Shareholder Rights Agreement, dated June 3, 2015, between Enstar Group Limited and Canada
Pension Plan Investment Board (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K
filed on June 3, 2015.
Form of Director Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Company’s
Form S-3 (No. 333-151461) initially filed on June 5, 2008).
Amended and Restated Employment Agreement, dated as of March 31, 2021, by and between Enstar
Group Limited and Dominic F. Silvester (incorporated by reference to Exhibit 10.38 to the Company’s
Form 8-K filed on April 6, 2021).
Amended and Restated Employment Agreement, dated as of January 21, 2020, by and between Enstar
Group Limited and Paul J. O’Shea (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K
filed on January 27, 2020).
Amended and Restated Employment Agreement, dated January 21, 2020, by and between Enstar
Group Limited and Orla M. Gregory (incorporated by reference to Exhibit 10.4 to the Company’s Form 8-
K filed on January 27, 2020).
Amendment No. 1 to Amended and Restated Employment Agreement, dated September 16, 2021, by
and between Enstar Group Limited and Orla M. Gregory (incorporated by reference to Exhibit 10.1 to the
Company's Form 8-K filed on September 21, 2021).
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).
Transition Agreement, dated July 17, 2020, 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 July 17, 2021).
Employment Agreement, dated August 21, 2020, by and between Enstar Group Limited and Zachary
Wolf (incorporated by reference to Exhibit 10.12 to the Company's Form 10-K filed on March 1, 2021).
Agreement and General Release, dated August 11, 2021, by and between Enstar Group Limited and
Zachary Wolf (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on August 13,
2021).
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).
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).
Enstar Group Limited | 2021 Form 10-K
245
Table of Contents
Exhibit Index
10.19+
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).
10.20+ 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).
10.21+
10.22+
10.23+
10.24+
10.25+
10.26+
10.27+
10.28+
10.29+
10.30+
10.31+
10.32s
10.33
10.34
10.35
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 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).
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 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).
Form of Performance Stock Unit Award Agreement (2021) 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 May 7,
2021).
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 to 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 to 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 to the Company's Form 8-K filed on January 1, 2021).
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 to
the Company’s Form 8-K filed on August 21, 2018).
246
Enstar Group Limited | 2021 Form 10-K
Table of Contents
Exhibit Index
10.36
10.37
10.38s
10.39
10.40
10.41
10.42
10.43
10.44
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 (incorporated by
reference to Exhibit 10.45 to the Company's Form 10-K filed on March 1, 2021).
Third Amendment to Revolving Credit Agreement, dated as of March 31, 2021, 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 10.2 to the Company's Form 10-Q filed on May 7, 2021).
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 (incorporated by reference to Exhibit
10.49 to the Company's Form 10-K filed on March 1, 2021).
Fourth Amendment to Letter of Credit Facility Agreement, dated as of March 31, 2021, 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 10.3
to the Company's Form 10-Q filed on May 7, 2021).
Fifth Amendment to Letter of Credit Facility Agreement, dated as of August 16, 2021, 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 10.4
to the Company's Form 10-Q filed on November 4, 2021).
10.45s
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
(incorporated by reference to Exhibit 10.50 to the Company's Form 10-K filed on March 1, 2021).
10.46
10.47
21.1*
22.1*
23.1*
31.1*
31.2*
Purchase Agreement dated as of July 15, 2021 by and among Enstar Group Limited, HHLR Fund, L.P.,
YHG Investment, L.P. and Hillhouse Fund III, L.P. (incorporated by reference to Exhibit 10.1 to the
Company's Form 8-K filed on July 15, 2021).
Purchase Agreement dated as of July 15, 2021 by and among Cavello Bay Reinsurance Limited and HH
ENZ Holdings, Ltd. (incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed on July
15, 2021).
List of Subsidiaries.
List of Subsidiary Issuers of Guaranteed Securities.
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.
Enstar Group Limited | 2021 Form 10-K
247
Table of Contents
Exhibit Index
32.1**
32.2**
101*
104*
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,
2021, 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
248
Enstar Group Limited | 2021 Form 10-K
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on February 24, 2022.
ENSTAR GROUP LIMITED
By: /S/ DOMINIC F. SILVESTER
Dominic F. Silvester
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities indicated on February 24, 2022.
Signature
/s/ ROBERT J. CAMPBELL
Robert J. Campbell
/s/ DOMINIC F. SILVESTER
Dominic F. Silvester
/s/ ORLA GREGORY
Orla Gregory
/s/ MICHAEL P. MURPHY
Michael P. Murphy
/s/ PAUL J. O’SHEA
Paul J. O’Shea
/s/ B. FREDERICK BECKER
B. Frederick Becker
/s/ SHARON A. BEESLEY
Sharon A. Beesley
/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
Acting Chief Financial Officer, Chief Operating Officer,
and Director (signing in her capacity as
Principal Financial Officer)
Deputy Chief Financial Officer (signing in his capacity as
Principal Accounting Officer)
President and Director
Director
Director
Director
Director
Director
Director
Director
Director
Enstar Group Limited | 2021 Form 10-K
249
For explanatory notes and a reconciliation to the most directly comparable GAAP measure for the years ended December 31, 2021, 2020 and 2019 refer to
pages 63 – 70 of our Annual Report on Form 10-K for the year ended December 31, 2021.
The tables below present a reconciliation to the most directly comparable GAAP measure for the years ended December 31, 2018 and 2017.
Reconciliation to Adjusted Return on Equity
(in millions of U.S. dollars)
Net earnings/Opening equity/ROE1
Non-GAAP adjustments:
Net realized and unrealized losses (gains) on fixed maturity
investments and funds held - directly managed / Unrealized (losses)
gains on fixed maturity investments and funds held - directly managed2
Change in fair value of insurance contracts for which we have elected
the fair value option / Fair value of insurance contracts for which we
have elected the fair value option3
Amortization of fair value adjustments / Fair value adjustments
Net gain on purchase and sales of subsidiaries
Net earnings from discontinued operations / Net assets of entities
classified as held for sale and discontinued operations
Tax effects of adjustments4
Adjustments attributable to noncontrolling interest5
Adjusted net earnings/Adjusted opening equity/Adjusted ROE*
For the Year Ended December 31,
2018
2017
Net
earnings1
Opening
Equity1,6
Ratio
Net
earnings1
Opening
Equity1,6
Ratio
$(163)
$3,137
(5.2%)
$311
$2,802
11.1%
237
(101)
(71)
66
7
7
-
(1)
(18)
(3)
$66
(183)
(104)
-
(157)
-
65
30
7
16
-
(108)
-
(11)
(94)
4
6
-
-
$2,657
2.5%
$292
$2,666
11.0%
1 Net earnings comprises net earnings attributable to Enstar ordinary shareholders, prior to any non-GAAP adjustments. Opening equity comprises Enstar shareholders’ equity, prior to any non-GAAP adjustments.
2 Represents the net realised and unrealised gains and losses related to fixed maturity securities. Our fixed maturity securities are held directly on our balance sheet and also within the “Funds held - directly managed” balance.
3 Comprises the discount rate and risk margin components.
4 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.
5 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.
6 The 2017 statement of earnings and 2016, 2017 and 2018 balance sheets have not been restated to reflect the impact of the 2020 StarStone U.S. discontinued operations classification.
* Non-GAAP financial measure.
250
Financial CalculationsReconciliation of GAAP to Non-GAAP Measures
Reconciliation to Adjusted Run-Off Liability Earnings
(in millions of U.S. dollars)
PPD/Net loss reserves/RLE
Non-GAAP Adjustments:
Increase in estimates of net ultimate losses - current period
Legacy Underwriting
Reduction in provisions for ULAE
Amortization of fair value adjustments
Changes in fair value - fair value option1
Change in estimate of net ultimate liabilities - defendant A&E
As of December 31,
2018
2018
2017
2018
2018
PPD
$209
-
115
(65)
7
7
23
Net Loss
Reserves2
Net Loss
Reserves2
Average net
loss Reserves2
$7,254
$5,448
$6,351
RLE%
3.3%
(357)
(818)
(333)
199
244
84
-
(946)
(301)
103
182
113
(179)
(882)
(317)
151
213
99
Adjusted PPD/Adjusted net loss reserves/Adjusted RLE*
$296
$6,273
$4,599
$5,436
5.4%
PPD/Net loss reserves/RLE
Non-GAAP Adjustments:
Increase in estimates of the net ultimate losses - current period
Legacy Underwriting
Reduction in provisions for ULAE
Amortization of fair value adjustments
Changes in fair value - fair value option1
Change in estimate of net ultimate liabilities - defendant A&E
As of December 31,
2017
2017
2016
2017
2017
PPD2
$244
-
(44)
(54)
6
30
(3)
Net Loss
Reserves2
Net Loss
Reserves2
Average net
loss Reserves2
$5,448
$4,505
$4,977
RLE%
4.9%
(356)
(593)
(301)
103
182
113
-
(870)
(218)
107
-
118
(178)
(732)
(260)
105
91
116
Adjusted PPD/Adjusted net loss reserves/Adjusted RLE*
$179
$4,596
$3,642
$4,119
4.3%
1 Comprises the discount rate and risk margin components.
2 The 2017 statement of earnings and 2016, 2017, and 2018 balance sheets have not been restated to reflect the impact of the 2020 StarStone U.S. discontinued operations classification.
* Non-GAAP financial measure.
251
Financial CalculationsReconciliation of GAAP to Non-GAAP Measures
Reconciliation to Adjusted Total Investment Return
(in millions of U.S. dollars)
For the Year Ended December 31,
2018
20173
Investment results
Net investment income
Total net realized (losses) gains
Total net unrealized (losses) gains
Earnings from equity method investments
TIR ($)
Non-GAAP adjustment:
Net realized and unrealized losses (gains) on
fixed maturity investments and funds held-directly managed
Adjusted TIR ($)*
Total investments
Cash and cash equivalents, including restricted cash and cash equivalents
Funds held by reinsured companies
Total investable assets
Average aggregate invested assets, at fair value1
TIR (%)
Non-GAAP adjustment:
Net unrealized losses (gains) on fixed maturities, AFS investments included within
AOCI and net unrealized losses (gains) on fixed maturities, trading instruments
Adjusted investable assets*
Adjusted average aggregate invested assets, at fair value2
Adjusted TIR (%)*
$262
(1)
(407)
42
$(104)
237
$133
11,242
983
321
$209
1
189
6
$405
(71)
$334
8,755
1,213
175
$12,546
$10,143
$10,332
$8,343
(1.0%)
(4.9%)
222
(100)
$12,768
$10,043
$10,393
$8,303
1.3%
4.0%
1 This amount is a five period average of the total investable assets, as presented above, and is comprised of amounts disclosed in our quarterly and annual U.S. GAAP consolidated financial statements.
2 This amount is a five period average of the adjusted investable assets, as presented above.
3 The 2017 statement of earnings and 2016 and 2017 balance sheets have not been restated to reflect the impact of the 2020 StarStone U.S. discontinued operations classification.
*Non-GAAP financial measure.
252
Financial CalculationsReconciliation of GAAP to Non-GAAP Measures
Reconciliation to Adjusted Book Value Per Share
(in millions of U.S. dollars, except share and per share data)
Book value per ordinary share
Non-GAAP adjustments:
Share-based compensation plans
Warrants
As of December 31,
2018
2017
Equity1
Ordinary
Shares
Per Share
Amount
Equity1
Ordinary
Shares
Per Share
Amount
$3,392
21,459,997 $158.06
$3,137
19,406,722
$161.63
-
245,165
20
175,901
-
248,144
20
175,901
Adjusted book value per ordinary share*
$3,412
21,881,063
$155.94
$3,157
19,830,767
$159.19
1 Equity comprises Enstar ordinary shareholders’ equity, which is calculated as Enstar shareholders’ equity less preferred shares ($510 million as of December 31, 2018), prior to any non-GAAP adjustments.
*Non-GAAP financial measure.
253
Financial CalculationsReconciliation of GAAP to Non-GAAP Measures
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
ORLA GREGORY
Acting Chief Financial Officer and
Chief Operating Officer
Enstar Group Limited
W. MYRON HENDRY
Executive VP,
Chief Platform Officer (former)
XL Group (now AXA XL)
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 (now AXA XL)
SHARON A. BEESLEY
Founder – BeesMont Group
Chief Executive Officer
Beesmont Law Limited
Executive Officers
DOMINIC SILVESTER
Chief Executive Officer
PAUL O’SHEA
President
ORLA GREGORY
Acting Chief Financial Officer
and Chief Operating Officer
PAUL BROCKMAN
Chief Claims Officer
NAZAR ALOBAIDAT
Chief Investment Officer
AUDREY 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
enstargroup.com