ENDURING
MOMENTUM
2018 ANNUAL REPORT
300 First Stamford Place
Stamford, CT 06902
odysseygroup.com
CONTENTS
02 LETTER FROM THE CEO
05 MISSION STATEMENT
06 AT A GLANCE
07 FINANCIAL HIGHLIGHTS
08 OPERATIONS OVERVIEW
11 ODYSSEY GROUP FOUNDATION
12 REINSURANCE
16
18 INSURANCE INTERNATIONAL
20 EXECUTIVE LEADERSHIP
21 FINANCIAL REPORT
INSURANCE U.S. ONLY
Odyssey Group
ENDURING
MOMENTUM
Unlike billiard balls colliding chaotically after an
impact, the balls in Newton’s cradle react to force in
a steady, orderly fashion. The same can be said for Odyssey Group.
Despite the challenging dynamics and events that occurred during
2018, Odyssey Group has weathered the market forces exceptionally well
by staying true to its core values of discipline, diversification and service.
Our underwriters understand that for every action, there can be an equal
and opposite reaction. They know Odyssey’s enduring strength and stability
were not created overnight. They have witnessed both the benefit of
remaining patient and the momentum generated by our business model.
As predictable as the swing of a pendulum, Odyssey Group will
continue to meet clients’ (re)insurance needs around the world
today, tomorrow and for many years to come.
LETTER FROM THE CEO
Dear Friends, Business Partners and Colleagues,
Nothing frustrates momentum in the (re)insurance business more than underwriting losses.
If it happens one year, ok… but two years in a row, without any meaningful correction…
that’s a problem. Doubt kicks in, you become introspective, questioning your risk appetite,
your people and your process. The drama in London that drew widespread attention last
fall is a prime example of the second-guessing and instability that’s created by repeated
underwriting losses.
02
ANNUAL REPORT 2018
Fortunately for Odyssey, 2018 was another fantastic year. Once again we bucked the market
trend by delivering an underwriting profit, something we have been doing consistently for
many years. In fact, over the last five years, our average combined ratio was 90.2%, and
over the last ten it was 92.5%.
What separates us from the pack is the continuity of our team, the consistency of our
underwriting approach and our steady engagement with the market. While many around us
have changed ownership, strategy or risk appetite over the last two decades, we have steadily
marched forward, judiciously growing our portfolio, expanding our capabilities, enhancing
our processes and improving our service. The Enduring Momentum we have created in our
business is a testament to our disciplined underwriting culture, the power of our three
diverse and distinctive underwriting platforms: OdysseyRe, Hudson and Newline, strong
enterprise risk management and an unwavering commitment to delivering quality service.
2018 was another difficult year for our industry, and yet the Odyssey Group ran to a
combined ratio of 93.6%, generating $175 million of underwriting profit. Extraordinary
current year loss activity, both Cat and non-Cat, added 7 points to the combined ratio,
but this was more than offset by 12 points of prior year favorable development. Strong
reserving, an essential companion of disciplined underwriting, has been a hallmark of
our operation, with favorable reserve development contributing to earnings in each
of the last 11 years.
Odyssey Group’s net income dropped from $325 million in 2017 to $224 million in 2018.
While underwriting profits more than trebled year on year, our investment returns suffered
from rising interest rates and falling equity markets. Our total equity was unchanged for the
year at $4 billion as our income gain was offset by unrealized investment losses, foreign
exchange adjustments and dividends paid to our parent, Fairfax.
During 2018, gross premiums written expanded 20% to $3.3 billion, with solid growth
recorded across each of our 3 platforms and in 26 of our 35 business units around the world.
Over the last two years, our top line has expanded 40% from $2.4 billion to $3.3 billion, while
total assets have increased $1.7 billion to $11.9 billion and float has increased by $570 million.
It’s worth highlighting that our growth in assets and float the last two years occurred despite
the fact that we have paid out more than $3.4 billion in claims over the same period. Paying
claims promptly is our number one priority and key to our value proposition to clients.
Needless to say, the last two years have been very active from a claims perspective and
we’ve had plenty of opportunity to show our worth.
Our underwriting success in 2017 was driven by a 91.9% combined ratio in our Hudson and
Newline insurance operations. In 2018, it was our reinsurance business, OdysseyRe, that
“carried the ball,” generating a market-shattering combined ratio of 89.9%. Our results over
the last two years are a convincing display of the value of our portfolio diversification.
We have 19 reinsurance business units in OdysseyRe spread across five regions: North
America, Latin America & Caribbean, London, EMEA and AsiaPac. All but two of our
business units generated underwriting profits in 2018, and the two that didn’t came close
with combined ratios of 100.5% and 100.2%. Even in our U.S. Property treaty unit we
managed to deliver a 94.2% combined ratio despite the impact of the California Wildfires
and Hurricanes Florence and Michael. In AsiaPac, we were also able to generate an
underwriting profit while absorbing significant losses from Typhoons Jebi and Trami.
As our reinsurance bottom line improved significantly last year, our gross premiums
written increased as well with 13 of our 19 reinsurance business units expanding in 2018.
The strongest growth came from the U.S., EMEA and AsiaPac in Property, Crop, Motor,
A&H and Cyber.
“The Enduring
Momentum we have
created in our business
is a testament to our
disciplined underwriting
culture…”
03
LETTER FROM THE CEO (continued)
Newline, our London-based insurance operation, had another fantastic year in 2018
delivering a 92.1% combined ratio and solid premium growth of nearly 10%. Newline,
an international casualty specialist with operating hubs in London, Cologne, Singapore
and Melbourne, has delivered an underwriting profit in each of the last six years. The
international casualty arena has been incredibly competitive for more than a decade,
but with rates finally starting to rise in the majority of our seven business units, Newline
is well-positioned for future profitable growth.
Hudson, our U.S. specialty insurance arm, celebrated its 100-year anniversary in 2018.
In 2017, Hudson passed the billion dollar premium threshold and in 2018, the top line
propelled to $1.4 billion. Over the last two years, Hudson has expanded more than 50%!
Every one of Hudson’s nine business units experienced growth in 2018, and we expect
this to continue in 2019 thanks to rising rates and new business opportunities. While results
deteriorated in 2018, Hudson still managed to eke out an underwriting profit with a 99.5%
combined ratio. Exceptional loss activity in our Crop, Commercial Auto and Liability business
units weighed on the combined ratio, but the fundamentals in these three business units are
improving and we expect better results going forward.
In the pages that follow, you will find an operational and financial review of the Odyssey
Group, as well as separate, more detailed narratives for each of our three operating platforms.
We hope you find this information helpful and I invite you to learn more by visiting
odysseygroup.com, from which the OdysseyRe, Hudson and Newline websites can be accessed.
Fortunately, our success in 2018 again enables us to advance our philanthropic endeavors.
Our culture of giving is vital to who we are and core to our mission as a Company. Each year
we donate a portion of our profits to charitable organizations, and I’m pleased to announce
that we have earmarked an additional $2.5 million for the Odyssey Group Foundation and
its business affiliates. Since 2007, we have pledged over $45 million, donating to more than
300 charities around the world with a particular emphasis on disaster relief, education,
healthcare and cancer research.
As we reflect on another outstanding year, we would like to take this opportunity to thank
you, our valued clients and business partners, for your business and loyal support. We exist
to serve you and recognize that our prosperity is wholly dependent on providing value in
addressing your (re)insurance needs.
To Prem Watsa, Andy Barnard and Paul Rivett, we are forever grateful for your leadership,
guidance and unwavering support. The decentralized structure of Fairfax that you have
created and the entrepreneurial culture that you have promoted have been key to our
Enduring Momentum and long-term success.
To my 1,016 colleagues around the world, congratulations on another great year. It’s my
privilege to represent Odyssey and an honor to work with each and every one of you. There
are no limits to what we can achieve if we continue to work together for the benefit of our
clients, business partners and Fairfax. We are on a roll, let’s keep the momentum going!
“PAYING CLAIMS
PROMPTLY IS OUR
NUMBER ONE
PRIORITY AND
KEY TO OUR VALUE
PROPOSITION
TO CLIENTS.”
“WHAT SEPARATES
US FROM THE PACK
IS THE CONTINUITY
OF OUR TEAM,
THE CONSISTENCY
OF OUR
UNDERWRITING
APPROACH AND
OUR STEADY
ENGAGEMENT
WITH THE MARKET.”
Brian D. Young
President & Chief Executive Officer
04
ANNUAL REPORT 2018
OUR MISSION
We are an underwriting company that
aspires to be a world-class reinsurer and
specialty insurer, providing excellent security
and high-quality service to our clients.
We seek to maintain a global business focus
that emphasizes patient, profitable growth
and ultimately supports Fairfax Financial
Holdings’ goal to achieve a 15% annual
return over the long term.
We aim to meet this financial objective by:
• Maximizing underwriting profitability and
growing invested assets
• Responding to clients’ needs with local
resources
• Delivering exceptional service to clients
and colleagues alike
• Expanding our global reach through
product and territorial diversification
• Possessing superior underwriting, claims
and actuarial expertise
• Adapting to changing market conditions
while maintaining a consistent, disciplined
underwriting approach
• Investing in our employees and providing
opportunities for growth within the
organization to preserve our culture for
the long term
• Embracing Fairfax Financial Holdings’
values and guiding principles
We recognize that our prosperity and good
fortune are dependent on our underwriting
prowess and our clients’ success; and when
we succeed, those in the communities in
which our employees live and work will
benefit too.
05
AT A GLANCE
Odyssey Group Holdings, Inc. and its subsidiaries,
collectively referred to as Odyssey Group, is one of
the world’s leading providers of reinsurance and
specialty insurance, with total assets of $11.9 billion
and $4 billion in total equity as of December 31, 2018.
Reinsurance is available around the world through
OdysseyRe, while specialty insurance is offered by
Hudson Insurance Group in the U.S. and by Newline
Group internationally.
Odyssey Group Holdings, Inc. is wholly-owned by
Fairfax Financial Holdings Limited, a financial services
holding company with total assets of $64.4 billion and
$17.4 billion in total equity as of December 31, 2018.
Fairfax is traded on the Toronto Stock Exchange under
the symbol FFH.
Odyssey Group is rated ‘A’ (Excellent) by A.M. Best
Company and ‘A-’ (Strong) by Standard & Poor’s.
A
(EXCELLENT)
A.M. BEST
A-
(STRONG)
STANDARD
& POOR’S
06
NET INCOME:
$223.8
COMBINED RATIO:
93.6%
GROSS PREMIUMS
WRITTEN:
$3,328.6
TOTAL EQUITY:
$4,015.8
STATUTORY SURPLUS:
$3,297.0
U.S. $ in millions
ANNUAL REPORT 2018 FINANCIAL HIGHLIGHTS
ODYSSEY GROUP HOLDINGS, INC.
(U.S. $ in millions)
Gross premiums written
Net premiums written
Net premiums earned
Net investment income
Operating income before income taxesa
Net realized investment (losses) gains
Income before income taxes
Net income
Total assets
Total equity
Underwriting income
Combined ratio
2018
$3,328.6
2,897.8
2,755.4
209.2
364.4
(117.4 )
247.0
223.8
11,870.1
4,015.8
175.1
93.6 %
a Represents income before income taxes excluding net realized investment gains and losses.
GROSS PREMIUMS WRITTEN BY DIVISION
(U.S. $ in millions)
North America
Latin America
EuroAsia
London Market
U.S. Insurance
Total gross premiums written
2018
$881.6
112.6
620.8
309.1
1,404.5
$3,328.6
2017
$
2,783.1
2,495.9
2,333.4
191.8
240.2
378.1
618.3
325.3
11,207.6
4,012.5
55.2
97.6 %
2017
$774.6
102.5
533.6
288.0
1,084.4
$2,783.1
2016
$2,380.7
2,100.2
2,074.1
215.1
367.2
(201.9 )
165.3
160.9
10,182.5
3,833.2
229.5
88.9 %
2016
$654.6
104.8
460.2
244.3
916.8
$2,380.7
07
OPERATIONS OVERVIEW
Odyssey Group is a globally diversified underwriter of property and
casualty reinsurance and specialty insurance that operates through
five Divisions: North America, Latin America, EuroAsia, London Market
and U.S. Insurance.
DIVERSIFICATION
Diversification is a critical focus of our business strategy as it provides portfolio stability.
With our global network, we are able to rapidly respond to business opportunities as they
emerge around the world. We have 35 discrete business units organized along different
product, territorial and distribution lines, with 19 of these focused on reinsurance and
16 dedicated to insurance markets.
PROPERTY
Property accounted for 27% of gross premiums written compared to 31% in 2017. Our
property portfolio is heavily weighted to reinsurance where margins remain more attractive,
tail risk is more limited and we can respond to changing market conditions more rapidly.
Catastrophe business, which represents 31% of our property book, was impacted in 2018
by losses from the California Wildfires, Hurricane Michael and Typhoon Jebi. While we have
seen improvement in rates and terms in loss-affected areas following the catastrophe events
of 2017 and 2018, we will need to see further price increases globally before we consider
deploying significantly more capacity.
$3.3
BILLION
2018 GROSS PREMUIMS
WRITTEN
NORTH AMERICA
27%
LATIN AMERICA
EUROASIA
LONDON MARKET
U.S. INSURANCE
3%
19%
9%
42%
GROSS PREMIUMS WRITTEN BY DIVISION AND YEAR
(in millions)
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
882
775
655
1,405
1,084
917
621
534
460
244 288
309
105
103
113
North America
Latin America
EuroAsia
London Market
U.S. Insurance
Gross Premiums Written ($ Billions)
2016
2017
2018
$2.4
$2.8
$3.3
08
ANNUAL REPORT 2018
WRITING BUSINESS IN MORE THAN 100 TERRITORIES
THROUGH A NETWORK OF 36 OFFICES LOCATED IN
13 COUNTRIES.
CASUALTY
Casualty represented 30% of our gross premiums written compared to 31% in 2017. Casualty
insurance currently represents 72% of our total casualty portfolio. The book of business is
very diverse in terms of product mix and geographic scope. While the casualty reinsurance
market remains difficult, we are fortunate to have a core base of quality clients with whom
we have partnered for many years. We remain attuned to new opportunities, and are
an attractive partner for willing buyers due to our expertise and lead market capabilities,
particularly in specialty casualty. We have more appetite for casualty insurance today
because we not only have control over pricing, risk selection and claims handling, but
we can use reinsurance to reduce volatility.
SPECIALTY
Other specialty lines, including Crop, Surety, Credit, Marine, Aerospace, Motor, Accident &
Health and Affinity & Special Risks, represented 43% of gross premiums written compared
to 38% in 2017. Crop, Motor and Accident & Health were significant premium drivers and
we expect specialty lines will continue to be a growth area for us. The pricing environment
in many specialty lines tends to be more local, and with our global reach, we have been able
to respond to opportunities as they have arisen. Specialty lines are generally less volatile
and capital-intensive, making further expansion attractive, especially in the face of tougher
trading conditions in standard property and casualty lines.
REINSURANCE
Underwritten primarily through our flagship company, Odyssey Reinsurance Company, we
write a global reinsurance portfolio of $1.7 billion through a branch and representative office
network of 14 offices in 10 countries. In 2018 we saw growth across all regions and most
product lines. Our reinsurance results were excellent despite higher than expected losses
from catastrophes. We produced a net combined ratio of 89.9% in 2018, compared to
101.9% in 2017.
INSURANCE
Specialty insurance is underwritten in the U.S. through Hudson Insurance Group and outside
the U.S. through Newline Group. Global gross premiums written generated by our insurance
operations were $1.6 billion, and the net combined ratio was 98.4% in 2018, compared to
91.9% in 2017. We expect our insurance portfolio to continue to be a key driver of Odyssey’s
growth and profitability.
PROPERTY
CASUALTY
SPECIALTY
27%
30%
43%
MOTOR/AUTO
CROP
15%
15%
SURETY & CREDIT
5%
ACCIDENT
& HEALTH
MARINE
& AVIATION
4%
4%
U.S. TOTAL
67%
REINSURANCE
INSURANCE
25%
42%
NON-U.S. TOTAL
33%
REINSURANCE
INSURANCE
26%
7%
REINSURANCE
INSURANCE
51%
49%
09
OPERATIONS OVERVIEW (continued)
2018 UNDERWRITING RESULT
Odyssey Group reported a net combined ratio of 93.6% for 2018, which was 4 points lower
than 2017, mostly driven by reduced Cat activity. This result was based on disciplined
underwriting throughout the Group and a focus on growing only where profitable.
Reserve releases in 2018 were $340 million, which reduced the combined ratio by 12.3 points,
compared to 12.4 points the previous year. Favorable development was recorded in all
operating Divisions. Decreases in non-Cat loss reserves represented 51% of the releases
in 2018, compared to 64% in 2017.
Property Cat losses for 2018 were $94 million greater than expectations, impacting the
combined ratio by 3.4 points, compared to 2017 when property Cat losses were $228 million
greater than expectations, impacting the combined ratio by 9.8 points.
93.6%
COMBINED RATIO
$175
MILLION
UNDERWRITING
PROFIT
90.2%
FIVE-YEAR AVERAGE
COMBINED RATIO
UNDERWRITING PROFIT AND COMBINED RATIO HISTORY
2014 – 2018
Underwriting Profit
97.6
88.9
84.8
84.9
$1.1B
2014-2017
$974M
2018
$175M
100%
93.6
90%
C
o
m
b
i
n
e
d
R
a
t
i
o
80%
70%
60%
2014
2015
2016
2017
2018
(in millions)
t
fi
o
r
P
g
n
i
t
i
r
w
r
e
d
n
U
$400
$350
$300
$250
$200
$150
$100
$50
$0
10
ANNUAL REPORT 2018
ODYSSEY GROUP FOUNDATION
The Odyssey Group Foundation provides funding to charitable organizations active in
communities in which our employees live and work, as well as those dedicated to worldwide
disaster relief efforts.
The Foundation’s “Good Works” encompasses cancer research and healthcare, education,
human services and disaster relief, which includes help to rebuild homes, schools and
hospitals and provide medical supplies, improve access to food and water, assist with
community mobilization and enable economic recovery.
Since its inception in 2007, the Foundation and its business affiliates have pledged over
$45 million to more than 300 charities around the world.
THE ODYSSEY GROUP FOUNDATION’S CONTRIBUTIONS AT WORK:
Helping Those
Who Need
it Most
Keeping
Patients Safe
Rebuilding
Communities
Preventing
Hunger
“WE HAVE SEEN
FIRST-HAND HOW
OUR CHARITABLE
CONTRIBUTIONS
HAVE MADE A
DIFFERENCE IN
CANCER RESEARCH,
HEALTHCARE AND
DISASTER RELIEF.
WE ARE VERY PROUD
TO SUPPORT THESE
AND MANY OTHER
CHARITABLE
ORGANIZATIONS
AROUND THE WORLD.”
- Alane Carey,
Executive Vice President
of Odyssey Group and
Grants Review Officer for
the Foundation
Providing
Hope
Educating
the Leaders of
Tomorrow
11
REINSURANCE
12
PROPERTY
CASUALTY
MOTOR/AUTO
ACCIDENT & HEALTH
SURETY & TRADE CREDIT
MARINE & AVIATION
AGRICULTURE
NORTH AMERICA
LATIN AMERICA
EMEA
ASIAPACIFIC
LONDON
51%
16%
11%
7%
6%
5%
4%
52%
7%
23%
13%
5%
PRODUCT OFFERING
TREATY
Property (Assumed & Retro)
Casualty
Surety & Trade Credit
Marine & Aviation
Motor/Auto
Accident & Health
Agriculture
Terrorism
Cyber Liability
FACULTATIVE
Casualty (U.S. and Latin America Only)
Property (Latin America Only)
Terrorism
Energy
ANNUAL REPORT 2018 OdysseyRe prides itself on its consistent, long-term underwriting approach, well-defined
risk appetite and commitment to providing quality service. Our reinsurance operations
include a global network of 14 branch and representative offices across five regions:
• North America
• Latin America
• Europe, Middle East and Africa (EMEA)
• AsiaPacific
• London
Each region is comprised of talented, dedicated teams of underwriters, actuaries, auditors,
claims professionals and catastrophe modelers.
Reinsurance is primarily underwritten through our flagship company, Odyssey Reinsurance
Company, with Odyssey Re Europe S.A. available under special circumstances as needed.
In 2018, gross premiums written for reinsurance grew by 14% from 2017. All of our regions
and most product lines contributed to this growth, with Accident & Health, Motor/Auto and
Property as the primary drivers.
Our reinsurance results were excellent despite Cat losses from the California Wildfires,
Hurricane Michael and Typhoon Jebi, as well as continued deterioration from Irma. We
produced a net combined ratio of 89.9% compared to 101.9% in the prior year. Our risk
appetite and diversified underwriting strategy served us well, as did favorable prior
year development in many lines.
While market conditions remain challenging, we strive to be a credible source of guidance
and market leadership. We are committed to investing in both talent and technology so that
we can continue to meet our clients’ unique reinsurance needs for many years to come.
OFFICE LOCATIONS
STAMFORD
300 First Stamford Place
Stamford, CT 06902
USA
+1 203 977 8000
BEIJING
+86 10 8800 3999
CHICAGO
+1 312 596 0226
LONDON
MEXICO CITY
+52 55 5662 8660
MIAMI
+1 305 722 8401
MONTREAL
+1 514 228 7560
NEW YORK
+1 212 978 2700
PARIS
+44 020 7090 1800
+33 1 49 26 1000
SÃO PAULO
+55 11 3512 6922
SINGAPORE
+65 6438 3806
STOCKHOLM
+46 8 598 115 00
TOKYO
+81 3 3261 2570
TORONTO
+1 416 862 0162
89.9%
2018 COMBINED
RATIO
$1.7
BILLION
2018 GROSS PREMUIMS
WRITTEN
13
REINSURANCE
Global Regions
Brian D. Quinn
Chief Executive
Officer
North America
OdysseyRe’s North America team offers
treaty and facultative reinsurance to
clients in the U.S. and Canada. Treaty
facilities are based in Stamford, with
additional offices in Toronto and Montreal.
Casualty facultative underwriters operate
from New York and Chicago.
$881.6
MILLION
2018
GROSS PREMIUMS
WRITTEN
Philippe E. Mallier
Chief Executive
Officer
$112.6
MILLION
U.S.
CANADA
93%
7%
PROPERTY
CASUALTY
ACCIDENT
& HEALTH
45%
24%
11%
MOTOR/AUTO
10%
FACULTATIVE
CASUALTY
SURETY
MARINE
6%
2%
2%
Latin America
OdysseyRe provides treaty and facultative
reinsurance to clients located in all
countries throughout Latin America and
the Caribbean. Underwriters are based in
Mexico City, Miami and São Paulo, Brazil.
TREATY
FACULTATIVE
87%
13%
2018
GROSS PREMIUMS
WRITTEN
PROPERTY
SURETY
CROP
ACCIDENT
& HEALTH
MOTOR/AUTO
CASUALTY
MARINE
50%
22%
13%
5%
4%
3%
3%
Carl A. Overy
Chief Executive
Officer
$87.3
MILLION
2018
GROSS PREMIUMS
WRITTEN
PROPERTY
MARINE
& AEROSPACE
MOTOR/AUTO
CASUALTY
46%
27%
22%
5%
London
OdysseyRe’s London branch provides treaty
solutions to reinsurance clients in the London
Market, including Lloyd’s. Its remit is global
in scope allowing access to business where
we have particular expertise.
14
ANNUAL REPORT 2018
Isabelle
Dubots-Lafitte
Chief Executive
Officer
EMEA
OdysseyRe offers treaty reinsurance in
Continental Europe, the Middle East and
Africa (EMEA) from its offices in Paris and
Stockholm. The Paris-based underwriting
team is responsible for writing property
and casualty treaties in EMEA, while the
Stockholm office services the Nordic,
Russian and Baltic markets.
Lucien Pietropoli
Chief Executive
Officer
AsiaPacific
OdysseyRe’s AsiaPacific team underwrites
treaty reinsurance from Singapore, with
the support of two representative offices
in Beijing and Tokyo. Its geographical focus
includes China, Japan, South Korea,
Indonesia, Hong Kong, India, South East
Asia, Australia and New Zealand.
$394.4
MILLION
2018
GROSS PREMIUMS
WRITTEN
$226.5
MILLION
2018
GROSS PREMIUMS
WRITTEN
EUROPE
MIDDLE EAST
AFRICA
63%
31%
6%
PROPERTY
MOTOR/AUTO
MARINE
& AEROSPACE
CREDIT & BOND
CROP
CASUALTY
ACCIDENT
& HEALTH
57%
19%
7%
7%
4%
3%
3%
PROPERTY
CROP
CREDIT & BOND
MARINE
& AEROSPACE
MOTOR/AUTO
CASUALTY
67%
17%
10%
3%
2%
1%
CHINA
JAPAN
SOUTH EAST
ASIA/PACIFIC
INDIA
SOUTH KOREA
43%
23%
19%
9%
6%
GLOBAL REACH.
IMMEASURABLE
EXPERTISE.
With the right people in the right places, OdysseyRe
consistently delivers exceptional service, excellent
security and innovative reinsurance solutions to our
clients and business partners around the world.
15
INSURANCE
U.S. Only
16
HUDSON INSURANCE
COMPANY
HUDSON SPECIALTY
INSURANCE COMPANY
HUDSON EXCESS
INSURANCE COMPANY
78%
16%
6%
CROP
COMMERCIAL AUTO
SPECIALTY LIABILITY
PROFESSIONAL LINES
GENERAL LIABILITY
& PACKAGE
SURETY
SPECIALTY PROPERTY
& ENERGY
32%
22%
15%
11%
11%
5%
4%
PRODUCTS
Commercial Auto
Commercial Excess & Umbrella
Commercial Primary Casualty
Crop
General Liability & Package
Management Liability
Medical Malpractice
Personal Umbrella
Professional Liability
Specialty Property & Energy
Subcontractor Default Insurance
Surety
ANNUAL REPORT 2018 Hudson Insurance Group is a market-leading specialty insurer that operates in the United
States and offers a wide range of property and casualty products to corporations, professional
firms and individuals through a vast network of retail and wholesale brokers, MGUs and
program administrators.
From its headquarters in New York and offices across the U.S. and in Vancouver, Canada,
Hudson offers primary and excess insurance on an admitted basis through Hudson Insurance
Company and on a non-admitted basis through Hudson Specialty Insurance Company and
Hudson Excess Insurance Company.
Its nine business units include Commercial Auto, Crop, Financial Products, General Liability
& Package, Healthcare Liability, Non-Medical Professional Liability, Specialty Property &
Energy, Surety and Tribal.
In 2018, Hudson celebrated its 100th anniversary, which was made even more memorable
as we reached a record $1.4 billion in gross premiums written. This represents an increase
of 30% compared to gross premiums written of $1.1 billion in 2017. We experienced growth
across most lines, though it was predominantly driven by our Crop, Commercial Auto,
Liability & Package and Tribal businesses.
Our underwriting performance was positive despite current year extraordinary losses.
Crop was impacted by drought in Texas, Hurricane Michael and reduced commodity prices.
Commercial Auto was impacted by a larger frequency of severe claims.
However, our results benefitted from favorable prior year development, principally from
liability lines of business. For the year, we produced a net combined ratio of 99.5% compared
to 91.8% in 2017.
We continue to see the benefit from the investments made to expand into niche products
and specialized services. Our newest business, Subcontractor Default Insurance, launched
in March 2018, generated gross premiums written of $9 million in less than 12 months. Our
third-party administrator, Napa River Insurance Services, grew its client base significantly and
increased staff accordingly across the safety and risk management team, as well as its claims
team, which has tripled in size since 2017.
Our efforts to build underwriting operations from the ground-up, acquire niche businesses
and partner with key distributors has fueled our growth and ultimately created the Hudson you
know today. We are proud of our history and will continue to invest in talent and technology
to ensure our future sustainability. As Hudson enters its second century of operation, we are
excited by the many new ways we can deliver innovative specialty insurance products and
services to our valued clients.
OFFICE LOCATIONS
NEW YORK
100 William Street
New York, NY 10038
USA
+1 212 978 2800
ATLANTA
+1 678 331 4200
AVON
+1 203 977 6400
CALABASAS
+1 818 206 1500
CHICAGO
+1 312 596 0222
CORONA
+1 951 278 5648
LAKE MARY
+1 407 710 1880
MINEOLA
+1 212 384 0100
FORT WASHINGTON
+1 212 978 2714
MORRISTOWN
+1 212 384 0125
INDIANAPOLIS
+1 317 582 0073
KANSAS CITY
+1 816 778 0708
NAPA
+1 707 225 3300
OVERLAND PARK
+1 913 345 1515
SAN FRANCISCO
+1 415 423 1333
SCOTTSDALE
+1 480 566 6601
STAMFORD
+1 203 977 8000
VANCOUVER
+1 604 449 5360
WESTLAKE
+1 440 925 1995
Christopher L.
Gallagher
Chief Executive
Officer
Hudson Insurance
Group
99.5%
2018 COMBINED
RATIO
$1.4
BILLION
2018 GROSS PREMUIMS
WRITTEN
17
INSURANCE
International
18
ANNUAL REPORT 2018
NEWLINE SYNDICATE
87%
AT LLOYD’S
NEWLINE INSURANCE
COMPANY LIMITED
13%
LIABILITY
MEDICAL MALPRACTICE
FINANCIAL INSTITUTIONS
PROFESSIONAL LIABILITY
DIRECTORS & OFFICERS
AFFINITY & SPECIAL RISKS
SPACE, CARGO & SPECIE
50%
13%
9%
8%
7%
7%
6%
PRODUCTS
Affinity & Special Risks
Cargo & Specie
Crime
Directors & Officers
Liability
Medical Malpractice
Professional Liability
Space
Newline Group offers a suite of specialty casualty insurance products in more than 80
countries around the world. Our territorial focus is predominantly the U.K., Continental
Europe, Australia, Asia Pacific and Canada.
Headquartered in London, Newline Group operates through two underwriting platforms,
Newline Syndicate 1218 and Newline Insurance Company Limited. Newline Syndicate 1218
transacts business at its underwriting box at Lloyd’s and through its service companies that
act as “coverholders” around the world, providing local, customized service from its offices
in Singapore, Melbourne, Malaysia and Toronto. Newline also participates in Lloyd’s
Insurance Company (China) Limited’s platform in Shanghai.
With a branch office in Cologne and a regional office in Leeds, Newline Insurance Company
Limited provides casualty insurance throughout the European Community and facultative
reinsurance in most jurisdictions around the world.
Our product offerings include Public Liability, Employers Liability, Products Liability,
Commercial Crime, Bankers Blanket Bond, Professional Liability, Directors & Officers
Liability, Medical Malpractice, Satellite, Cargo, Specie and Affinity & Special Risks.
Newline delivered excellent results in 2018, with gross premiums written of $221.7 million
and a net combined ratio of 92.1%. This compares to gross premiums written of $205.1 million
and a net combined ratio of 92.4% in 2017. We saw continued growth in Liability, and our
Directors & Officers and Affinity & Special Risks portfolios expanded as well. In addition, we
were encouraged by improving terms and conditions across all Financial and Professional
Lines as well as Cargo. Our performance across the year benefitted from favourable loss
emergence together with negligible exposure to the catastrophe events of 2018.
Highlights from 2018 include the establishment of a new service company, Newline Canada
Insurance Limited, which is based in Toronto and offers a suite of specialty insurance products
primarily focused on small- and mid-sized clients. Our business in Cologne continues to grow
and now enters its third year of operation. We are seeing the benefits of being closer to our
distribution partners and our clients, which will provide further opportunites for growth.
Moving forward, we anticipate continued improvement of terms and conditions across Cargo
and most casualty classes. We also expect our footprint to expand as our newer operations
in Toronto and Cologne become more established.
OFFICE LOCATIONS
LONDON
Corn Exchange
55 Mark Lane
London EC3R 7NE
England
+44 020 7090 1700
COLOGNE
+49 221 9669 4510
LABUAN
+65 6212 1290
LEEDS
+44 0113 350 8734
MELBOURNE
+61 03 9999 1901
SINGAPORE
+65 6212 1290
SHANGHAI
Newline Underwriting
Division at Lloyd’s
+86 021 6162 8278
TORONTO
+1 416 572 4729
Carl A. Overy
Chief Executive
Officer
Newline Group
92.1%
2018 COMBINED
RATIO
$221.7
MILLION
2018 GROSS PREMUIMS
WRITTEN
19
EXECUTIVE LEADERSHIP
ODYSSEY GROUP
HOLDINGS, INC.
BOARD OF DIRECTORS
Andrew A. Barnard (1)
Brandon W. Sweitzer (1) (2)
Peter S. Clarke (2)
(1) Compensation Committee
(2) Audit Committee
Chairman of the Board,
President and
Chief Operating Officer
Fairfax Insurance Group
Dean, School of Risk
Management
Vice President and
Chief Operating Officer
St. John’s University School
of Risk Management
Fairfax Financial Holdings
Limited
Brian D. Young
President and
Chief Executive Officer
Odyssey Group Holdings, Inc.
David J. Bonham (2)
Vice President and
Chief Financial Officer
Fairfax Financial Holdings
Limited
Paul C. Rivett
President
Fairfax Financial Holdings
Limited
OFFICERS
Brian D. Young
President and
Chief Executive Officer
Michael G. Wacek
Elizabeth A. Sander
Executive Vice President and
Chief Risk Officer
Executive Vice President and
Chief Actuary
Jan Christiansen
Executive Vice President and
Chief Financial Officer
Peter H. Lovell
Senior Vice President,
General Counsel and
Corporate Secretary
EXECUTIVE TEAM
Alane R. Carey
Executive Vice President
Director of Global Marketing
Philippe E. Mallier
Chief Executive Officer
Latin America
Isabelle Dubots-Lafitte
Carl A. Overy
Chief Executive Officer
Europe, Middle East & Africa
Chief Executive Officer
London Market
Christopher L. Gallagher
Lucien Pietropoli
Chief Executive Officer
U.S. Insurance
Chief Executive Officer
AsiaPacific
Brian D. Quinn
Chief Executive Officer
North America
Jeffrey M. Rubin
Senior Vice President
Director of Global Claims
20
ANNUAL REPORT 2018
To the Board of Directors of Odyssey Group Holdings, Inc.:
Report of Independent Auditors
We have audited the accompanying consolidated financial statements of Odyssey Group Holdings, Inc.
(formerly known as Odyssey Re Holdings Corp.) and its subsidiaries, which comprise the consolidated
balance sheets as of December 31, 2018 and 2017, and the related consolidated statements of operations,
comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended
December 31, 2018.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with accounting principles generally accepted in the United States of America; this
includes the design, implementation, and maintenance of internal control relevant to the preparation and
fair presentation of consolidated financial statements that are free from material misstatement, whether due
to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on the consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on our judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to
fraud or error. In making those risk assessments, we consider internal control relevant to the Company's
preparation and fair presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness of significant
accounting estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Odyssey Group Holdings, Inc. (formerly known as Odyssey Re Holdings
Corp.) and its subsidiaries as of December 31, 2018 and 2017, and the results of their operations and their
cash flows for the three years in the period ended December 31, 2018 in accordance with accounting
principles generally accepted in the United States of America.
Other Matters
Accounting principles generally accepted in the United States of America require that information about
incurred and paid claims development that precedes the current reporting period and the historical claims
payout percentages included in Note 6 from page 57 to 63 be presented to supplement the basic financial
statements. Such information, although not a part of the basic financial statements, is required by the
Financial Accounting Standards Board (FASB) who considers it to be an essential part of financial reporting
for placing the basic financial statements in an appropriate operational, economic, or historical context. We
PricewaterhouseCoopers LLP, 300 Madison Avenue, New York, NY 10017
T: (646) 471 3000, F: (646) 471 8320, www.pwc.com/us
have applied certain limited procedures to the required supplementary information in accordance with
auditing standards generally accepted in the United States of America, which consisted of inquiries of
management about the methods of preparing the information and comparing the information for
consistency with management's responses to our inquiries, the basic financial statements, and other
knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or
provide any assurance on the information because the limited procedures do not provide us with sufficient
evidence to express an opinion or provide any assurance.
/s/ PricewaterhouseCoopers LLP
New York, New York
March 1, 2019
PricewaterhouseCoopers LLP, 300 Madison Avenue, New York, NY 10017
T: (646) 471 3000, F: (646) 471 8320, www.pwc.com/us
ODYSSEY GROUP HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
Investments and cash:
ASSETS
(cid:3)
(cid:3)
(cid:3)
Fixed income securities, available for sale, at fair value (amortized cost $74,648
(cid:3)(cid:3)(cid:3)and $621,394, respectively) ................................................................................... (cid:3) $
Fixed income securities, held for trading, at fair value (amortized cost $4,445,491
(cid:3)(cid:3)(cid:3)and $1,251,075, respectively) ................................................................................ (cid:3)
Preferred stocks, held for trading, at fair value (cost $31,395 and $32,307,
(cid:3)(cid:3)(cid:3)respectively) ........................................................................................................... (cid:3)
Equity securities:
(cid:3)
Common stocks, available for sale, at fair value (cost $106,367 and $108,200,
(cid:3)(cid:3)(cid:3)respectively) ..................................................................................................... (cid:3)
Common stocks, held for trading and fair value options, at fair value (cost
(cid:3)(cid:3)(cid:3)$1,028,168 and $913,429, respectively) .......................................................... (cid:3)
Common stocks, at equity................................................................................... (cid:3)
Short(cid:882)term investments, held for trading, at fair value (amortized cost $484,549
(cid:3)(cid:3)(cid:3)and $2,095,823, respectively) ................................................................................ (cid:3)
Cash and cash equivalents ........................................................................................ (cid:3)
Cash and cash equivalents held as collateral ............................................................ (cid:3)
Other invested assets................................................................................................ (cid:3)
Total investments and cash................................................................................. (cid:3)
Accrued investment income ........................................................................................... (cid:3)
Premiums receivable....................................................................................................... (cid:3)
Reinsurance recoverable on paid losses ......................................................................... (cid:3)
Reinsurance recoverable on unpaid losses ..................................................................... (cid:3)
Prepaid reinsurance premiums ....................................................................................... (cid:3)
Funds held by reinsureds ................................................................................................ (cid:3)
Deferred acquisition costs .............................................................................................. (cid:3)
Federal and foreign income taxes receivable ................................................................. (cid:3)
Other assets .................................................................................................................... (cid:3)
Total assets ......................................................................................................... (cid:3) $
(cid:3)
LIABILITIES
(cid:3)
(cid:3)
Commitments and Contingencies (Note 11)
(cid:3)(cid:3)
Unpaid losses and loss adjustment expenses ................................................................. (cid:3) $
Unearned premiums ....................................................................................................... (cid:3)
Reinsurance balances payable ........................................................................................ (cid:3)
Funds held under reinsurance contracts......................................................................... (cid:3)
Debt obligations .............................................................................................................. (cid:3)
Other liabilities................................................................................................................ (cid:3)
Total liabilities ..................................................................................................... (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
SHAREHOLDERS' EQUITY
(cid:3)
Non(cid:882)controlling interest(cid:3)(cid:882)(cid:3)preferred shares of subsidiaries ............................................ (cid:3)
Common shares, $10.00 par value; 60,000 shares authorized; 49,170 shares issued
(cid:3)(cid:3) and outstanding ........................................................................................................... (cid:3)
Additional paid(cid:882)in capital ................................................................................................ (cid:3)
Accumulated other comprehensive (loss) income, net of deferred income taxes ......... (cid:3)
Retained earnings ........................................................................................................... (cid:3)
Total shareholders’ equity .................................................................................. (cid:3)
Total liabilities and shareholders’ equity ............................................................ (cid:3) $
(cid:3)
(cid:3)
(cid:3)
2017
2018
(cid:3)
December 31,
(cid:3) (cid:3)
(cid:3) (cid:3)
(In thousands, except share and per
share amounts)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)(cid:3)
(cid:3)
76,654(cid:3) (cid:3) $
651,083
4,432,603(cid:3) (cid:3)
24,125(cid:3) (cid:3)
(cid:3) (cid:3)
111,665(cid:3) (cid:3)
785,330(cid:3) (cid:3)
816,322(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
531,957(cid:3) (cid:3)
(cid:3)
786,019(cid:3) (cid:3)
(cid:3)
28,381(cid:3) (cid:3)
(cid:3)
1,182,069(cid:3) (cid:3)
(cid:3)
8,775,125(cid:3) (cid:3)
(cid:3)
24,232(cid:3) (cid:3)
(cid:3)
1,089,758(cid:3) (cid:3)
(cid:3)
159,611(cid:3) (cid:3)
(cid:3)
927,035(cid:3) (cid:3)
(cid:3)
121,465(cid:3) (cid:3)
(cid:3)
163,372(cid:3) (cid:3)
(cid:3)
230,335(cid:3) (cid:3)
(cid:3)
232,863(cid:3) (cid:3)
(cid:3)
146,346(cid:3) (cid:3)
(cid:3)
11,870,142(cid:3) (cid:3) $
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3) (cid:3)(cid:3)
5,728,203(cid:3) (cid:3) $
1,077,182(cid:3) (cid:3)
(cid:3)
277,902(cid:3) (cid:3)
(cid:3)
78,223(cid:3) (cid:3)
(cid:3)
89,900(cid:3) (cid:3)
(cid:3)
602,962(cid:3) (cid:3)
(cid:3)
7,854,372(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)(cid:3)
(cid:3) (cid:3)
29,299(cid:3) (cid:3)
(cid:3)
492(cid:3) (cid:3)
(cid:3)
1,725,992(cid:3) (cid:3)
(cid:3)
(68,729) (cid:3)
(cid:3)
2,328,716(cid:3) (cid:3)
(cid:3)
4,015,770(cid:3) (cid:3)
(cid:3)
11,870,142(cid:3) (cid:3) $
1,289,610
31,983
166,911
872,027
809,638
2,095,823
1,710,485
230,074
881,879
8,739,513
21,039
850,272
29,680
866,985
79,439
145,618
201,994
144,357
128,745
11,207,642
5,463,595
909,078
171,048
89,906
89,857
471,625
7,195,109
29,299
492
1,738,968
37,222
2,206,552
4,012,533
11,207,642
23
See accompanying notes to consolidated financial statements.
ODYSSEY GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(cid:3)
(cid:3)
(cid:3)
2018
Years Ended December 31,
2017
(cid:3)(cid:3)
(cid:3)
(cid:3)
(cid:3)
2016
REVENUES
Gross premiums written................................................................... $ 3,328,628
430,808
Ceded premiums written..................................................................
2,897,820
Net premiums written.................................................................
(142,391)
Increase in net unearned premiums.................................................
2,755,429
Net premiums earned .................................................................
Net investment income ....................................................................
209,226
Net realized investment (losses) gains:
Realized investment (losses) gains..............................................
Other(cid:882)than(cid:882)temporary impairment losses..................................
Total net realized investment (losses) gains..........................
Total revenues.............................................................................
(cid:3)
EXPENSES
Losses and loss adjustment expenses ..............................................
Acquisition costs ...............................................................................
Other underwriting expenses...........................................................
Other expenses, net .........................................................................
Interest expense ...............................................................................
Total expenses.............................................................................
Income before income tax................................................................
(cid:3)(cid:3)
Federal and foreign income tax provision (benefit):
Current ........................................................................................
Deferred ......................................................................................
Total federal and foreign income tax provision.....................
Net income ....................................................................................... $
(117,106)
(299)
(117,405)
2,847,250
1,715,745
588,740
275,868
15,811
4,132
2,600,296
246,954
51,071
(27,892)
23,179
223,775
(In thousands)
(185,688)
(16,227)
(201,915)
2,087,254
(cid:3)(cid:3)
(cid:3)(cid:3)
$ 2,783,105(cid:3)(cid:3) $ 2,380,747
280,570
(cid:3)(cid:3)
2,100,177
(cid:3)(cid:3)
(26,081)
(cid:3)(cid:3)
2,074,096
(cid:3)(cid:3)
215,073
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
$
287,218(cid:3)(cid:3)
2,495,887(cid:3)(cid:3)
(162,486)
2,333,401(cid:3)(cid:3)
191,790(cid:3)(cid:3)
(cid:3)(cid:3)
390,367(cid:3)(cid:3)
(12,286)
378,081(cid:3)(cid:3)
2,903,272(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
1,539,522(cid:3)(cid:3)
492,482(cid:3)(cid:3)
246,181(cid:3)(cid:3)
3,526(cid:3)(cid:3)
3,260(cid:3)(cid:3)
2,284,971(cid:3)(cid:3)
618,301(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
144,491(cid:3)(cid:3)
148,556(cid:3)(cid:3)
293,047(cid:3)(cid:3)
325,254(cid:3)(cid:3) $
1,171,825
431,417
241,329
74,559
2,801
1,921,931
165,323
28,508
(24,093)
4,415
160,908
See accompanying notes to consolidated financial statements.
24
ODYSSEY GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(cid:3)
(cid:3)
(cid:3)
(cid:3)
2018
Years Ended December 31,
2017
(cid:3)
(cid:3)
(cid:3)
(In thousands) (cid:3)
(cid:3)
(cid:3)
(cid:3)
2016
Net income ....................................................................................... $
223,775
OTHER COMPREHENSIVE (LOSS) INCOME, BEFORE TAX
Unrealized net (depreciation) appreciation on securities arising
(cid:3)(cid:3) during the year..............................................................................
Reclassification adjustment for net realized investment gains
included in net income..................................................................
Foreign currency translation adjustments........................................
Benefit plan liabilities .......................................................................
Other comprehensive loss, before tax ........................................
(cid:3)
TAX BENEFIT (PROVISION)
Unrealized net depreciation (appreciation) on securities arising
(64,946)
(17,956)
(62,689)
11,411
(134,180)
during the year..............................................................................
13,690
Reclassification adjustment for net realized investment gains
included in net income..................................................................
Foreign currency translation adjustments........................................
Benefit plan liabilities .......................................................................
Total tax benefit ..........................................................................
Other comprehensive loss, net of tax....................................
Comprehensive income.................................................... $
3,771
13,164
(2,396)
28,229
(105,951)
117,824
(cid:3)
$
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
$
325,254(cid:3) $
160,908
(cid:3)
(cid:3)
56,831(cid:3)
(cid:3)
(100,845)
528(cid:3)
(13,180)
(56,666)
(cid:3)
(cid:3)
(53,043)
(48,910)
(24,166)
(2,440)
(128,559)
(20,025)
(cid:3)
35,296(cid:3)
(185)
4,613(cid:3)
19,699(cid:3)
(36,967)
288,287(cid:3) $
18,546
17,118
8,458
854
44,976
(83,583)
77,325
See accompanying notes to consolidated financial statements.
25
ODYSSEY GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(cid:3)
(cid:3)
NON(cid:882)CONTROLLING INTEREST(cid:3)(cid:882) PREFERRED SHARES OF
(cid:3)(cid:3)(cid:3)(cid:3)SUBSIDIARIES
Balance, beginning and end of year ................................................. $$
COMMON SHARES (par value)
Balance, beginning and end of year .................................................
ADDITIONAL PAID(cid:882)IN CAPITAL
Balance, beginning of year ...............................................................
(cid:3)(cid:3)(cid:3)(cid:3)Net change due to stock option exercises and
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)restricted share awards ............................................................
Balance, end of year .........................................................................
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
NET OF DEFERRED INCOME TAXES
Balance, beginning of year ...............................................................
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)Unrealized depreciation on securities, net of reclassification
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3) adjustments .............................................................................
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)Foreign currency translation adjustments ...................................
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)Benefit plan liabilities...................................................................
(cid:3) U.S. tax reform deferred income tax reclassification...................
Balance, end of year .........................................................................
RETAINED EARNINGS
Balance, beginning of year ...............................................................
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)Net income...................................................................................
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)Dividends to preferred shareholders and non(cid:882)controlling
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)interest .....................................................................................
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)Dividends to common shareholder..............................................
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)U.S. tax reform deferred income tax reclassification...................
Balance, end of year .........................................................................
2018
Years Ended December 31,
2017
(cid:3)
(In thousands, except common share amounts)
2016
(cid:3)
(cid:3)
(cid:3)
29,299
492
1,738,968
(12,976)
1,725,992
37,222
(cid:3)
$$
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(65,441)
(49,525)
9,015
(68,729)
(cid:3)
(cid:3)
(cid:3)
—— (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
2,206,552
223,775
(cid:3)
29,299(cid:3) $$
29,299
(cid:3)
492(cid:3)
(cid:3)
1,746,290(cid:3)
(7,322)
1,738,968(cid:3)
(cid:3)
(cid:3)
67,581(cid:3)
(28,743)
343(cid:3)
(8,567)
6,608(cid:3)
37,222(cid:3)
(cid:3)
1,989,517(cid:3)
325,254(cid:3)
492
1,747,017
(727)
1,746,290
151,164
(66,289)
(15,708)
(1,586)
——
67,581
2,030,220
160,908
(1,611)
(100,000)
(1,611)
(100,000)
(6,608)
2,206,552(cid:3)
(1,611)
(cid:3)
(200,000)
(cid:3)
—— (cid:3)
——
1,989,517
(cid:3)
$$ 4,012,533(cid:3) $$ 3,833,179
2,328,716
TOTAL SHAREHOLDERS' EQUITY........................................ $$ 4,015,770
(cid:3)
SHARES OUTSTANDING
Balance, beginning and end of year .................................................
49,170
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
49,170(cid:3)
49,170
See accompanying notes to consolidated financial statements.
26
ODYSSEY GROUP HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
2018
Years Ended December 31,
2017
(cid:3)(cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
2016
(cid:3)
(cid:3)
(cid:3)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ...........................................................................................................................
Adjustments to reconcile net income to net cash provided by operating activities:
$
Increase in premiums receivable and funds held, net of reinsurance............................
Increase in unearned premiums and prepaid reinsurance premiums, net ....................
Increase in unpaid losses and loss adjustment expenses, net of reinsurance................
(Increase) decrease in current and deferred federal and foreign income taxes, net .....
Increase in deferred acquisition costs............................................................................
Change in other assets and liabilities, net......................................................................
Net realized investment losses (gains) ...........................................................................
Bond discount amortization, net....................................................................................
Amortization of compensation plans .............................................................................
Net cash provided by operating activities ...............................................................
(cid:3)(cid:3)
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities of fixed income securities, available for sale.......................................................
Sales of fixed income securities, available for sale ...............................................................
Purchases of fixed income securities, available for sale .......................................................
Sales of equity securities, available for sale..........................................................................
Purchases of equity securities, available for sale..................................................................
Net settlements of other invested assets .............................................................................
Purchases of other invested assets.......................................................................................
Net change in cash and cash equivalents held as collateral..................................................
Sales of trading securities .....................................................................................................
Purchases of trading securities .............................................................................................
Net purchases of fixed assets ...............................................................................................
Net cash (used in) provided by investing activities..................................................
(cid:3)
CASH FLOWS FROM FINANCING ACTIVITIES
Purchases of restricted shares..............................................................................................
Dividends paid to preferred shareholders ............................................................................
Dividends paid to common shareholder...............................................................................
Net cash used in financing activities........................................................................
(cid:3)
Effect of exchange rate changes on cash and cash equivalents............................................
(cid:3)
(Decrease) increase in cash and cash equivalents ................................................................
Cash and cash equivalents, beginning of year ......................................................................
Cash and cash equivalents, end of year .........................................................................
(cid:3)
disclosures of cash flow information:
Interest paid...................................................................................................................
Income taxes paid ..........................................................................................................
(cid:3)
$
$
$
Non(cid:882)cash activity:
Dividends paid to common shareholder ........................................................................
$
(cid:3) (cid:3)
325,254
(71,061)
159,249
200,386
277,366
(33,549)
(55,752)
(378,081)
(10,803)
15,021
428,030
(cid:3)
(In thousands)
(cid:3)
223,775(cid:3) (cid:3) $
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
786,019(cid:3) (cid:3) $
(cid:3) (cid:3)
(302,471) (cid:3)
139,269(cid:3) (cid:3)
292,180(cid:3) (cid:3)
(60,301) (cid:3)
(28,766) (cid:3)
129,996(cid:3) (cid:3)
117,405(cid:3) (cid:3)
(27,982) (cid:3)
17,234(cid:3) (cid:3)
500,339(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
530,941(cid:3) (cid:3)
43,750(cid:3) (cid:3)
(13,983) (cid:3)
5,771(cid:3) (cid:3)
(29,584) (cid:3)
244,245(cid:3) (cid:3)
(486,805) (cid:3)
194,860(cid:3) (cid:3)
5,063,733(cid:3) (cid:3)
(6,854,273) (cid:3)
(15,323) (cid:3)
(1,316,668) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(29,492) (cid:3)
(1,611) (cid:3)
(50,001) (cid:3)
(81,104) (cid:3)
(cid:3) (cid:3)
(27,033) (cid:3)
(cid:3) (cid:3)
(924,466) (cid:3)
1,710,485(cid:3) (cid:3)
147,492
158,332
(15,179)
275,373
(362,353)
485,327
(308,411)
(36,676)
4,272,564
(3,930,490)
(10,769)
675,210
(22,696)
(1,611)
(1)
(24,308)
1,105,624
604,861
1,710,485
26,692
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
4,068(cid:3) (cid:3) $
83,367(cid:3) (cid:3) $
(cid:3)
(cid:3)
49,999(cid:3) (cid:3) $
(cid:3) (cid:3)
(cid:3) (cid:3)
3,193
17,991
$
160,908
(26,572)
26,792
10,496
(148,440 )
(11,419 )
41,937
201,915
(4,183 )
14,655
266,089
63,890
501,833
(5,330 )
584
(95,254 )
(9,944 )
(112,762)
(11,280 )
5,345,260
(5,748,858)
(10,680 )
(82,541)
(15,382)
(1,611 )
(2 )
(16,995 )
(21,959 )
144,594
460,267
604,861
2,741
152,842
$
$
$
99,999
$
199,998
See accompanying notes to consolidated financial statements.
27
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Odyssey Group Holdings, Inc., formerly known as Odyssey Re Holdings Corp., a Delaware corporation
(together with its subsidiaries, the “Company”, or “OGHI” on a stand(cid:882)alone basis), is an underwriter of reinsurance,
providing a full range of property and casualty products on a worldwide basis, and an underwriter of specialty
insurance, primarily in the United States and through the Lloyd’s of London (“Lloyd’s”) marketplace. OGHI owns all
of the common shares of Odyssey Reinsurance Company (“ORC”), its principal operating subsidiary, which is
domiciled in the state of Connecticut. ORC directly or indirectly owns all of the common shares of the following
subsidiaries:
Hudson Insurance Company (“Hudson”) and its subsidiaries:
Hudson Specialty Insurance Company (“Hudson Specialty”);
Hudson Excess Insurance Company (“Hudson Excess”);(cid:3)
Greystone Insurance Company (“Greystone”), formerly known as Clearwater Select Insurance Company;
Newline Holdings U.K. Limited and its subsidiaries (collectively, “Newline”):
Newline Underwriting Management Limited, which manages Newline Syndicate (1218), a member of
Lloyd’s;
Newline Insurance Company Limited (“NICL”);
Newline Corporate Name Limited (“NCNL”), which provides capital for and receives distributed
earnings from Newline Syndicate (1218); and
Newline Verwaltungs AG (“NV”).
Odyssey Re Europe Holdings S.A.S. (“OREH”):
Odyssey Re Europe S.A. (“ORESA”).
Fairfax Financial Holdings Limited (“Fairfax”), a publicly traded financial services holding company based in
Canada, ultimately owns 100% of the common shares of OGHI and 100% of the non(cid:882)controlling interest(cid:3)(cid:882)(cid:3)preferred
shares of OGHI’s subsidiaries. OGHI’s direct 100% owner is Odyssey US Holdings Inc. (“OUSHI”), all of the common
shares of which are ultimately owned by Fairfax.
Dividends and returns of capital from the Company are expected to be the source of funds for servicing
OUSHI’s debt obligations owed to various Fairfax entities.
28
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2. Summary of Significant Accounting Policies
(a) Basis of Presentation.(cid:3) The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of America (“GAAP”). The
consolidated financial statements include the accounts of the Company and its subsidiaries.
Intercompany
transactions have been eliminated.
The preparation of consolidated financial statements in conformity with GAAP requires the Company to
make estimates and assumptions that could differ materially from actual results affecting the reported amounts of
assets, liabilities, revenues and expenses and disclosures of contingent assets and liabilities.(cid:3) (cid:3) The Company
considers its accounting policies that are most dependent on the application of estimates and assumptions as
critical accounting estimates, which are defined as estimates that are both: i) important to the portrayal of the
Company’s financial condition and results of operations and ii) require the Company to exercise significant
judgment. These estimates, by necessity, are based on assumptions about numerous factors.
The Company reviews its critical accounting estimates and assumptions on a quarterly basis, including: the
estimate of reinsurance premiums and premium related amounts; establishing deferred acquisition costs; goodwill
and intangible impairment evaluations; an evaluation of the adequacy of reserves for unpaid losses and loss
adjustment expenses; review of its reinsurance and retrocession agreements; estimates related to income taxes,
including an analysis of the recoverability of deferred income tax assets; and an evaluation of its investment
portfolio, including a review for other(cid:882)than(cid:882)temporary declines in estimated fair value.
(b) Investments.(cid:3)(cid:3)The majority of the Company’s investments in fixed income securities and common stocks
are categorized as “available for sale” or “held for trading” and are recorded at their estimated fair value based on
quoted market prices (see Note 3).(cid:3) Most investments in common stocks of affiliates are carried at the Company’s
proportionate share of the equity of those affiliates. Short(cid:882)term investments, which are classified as “held for
trading” and which have a maturity of one year or less from the date of purchase, are carried at fair value. The
Company considers all highly liquid debt instruments purchased with an original maturity of three months or less
to be cash equivalents. Cash equivalents include certificates of deposits totaling $19.5 million and $17.7 million as
of December 31, 2018 and 2017, respectively. Investments in limited partnerships, investment funds, mortgage
loans and real estate have been reported in other invested assets. Other invested assets also include trust
accounts relating to the Company’s benefit plans and derivative securities, all of which are carried at fair value. The
Company routinely evaluates the carrying value of its investments in common stocks of affiliates and in
partnerships and investment funds. In the case of limited partnerships and investment funds, the carrying value is
generally established on the basis of the net valuation criteria as determined by the managers of the investments.
Such valuations could differ significantly from the values that would have been available had markets existed for
the securities. Investment transactions are recorded on their trade date, with balances pending settlement
reflected in the consolidated balance sheets as a component of other assets or other liabilities.
Investment income, which is reported net of applicable investment expenses, is recorded as earned. Realized
investment gains or losses are determined on the basis of average cost. The Company records, in investment
income, its proportionate share of income or loss, including realized gains or losses, for those securities for which
the equity method of accounting is utilized, which include most common stocks of affiliates, limited partnerships
and investment funds. Due to the timing of when financial information is reported by equity investees and
received by the Company, results attributable to these investments are generally reported by the Company on a
one month or one quarter lag. Unrealized appreciation and depreciation related to trading securities is recorded as
realized investment gains or losses in the consolidated statements of operations.
The net amount of unrealized appreciation or depreciation on the Company’s available for sale investments,
net of applicable deferred income taxes, is reflected in shareholders’ equity in accumulated other comprehensive
income. A decline in the fair value of an available for sale investment below its cost or amortized cost that is
deemed other(cid:882)than(cid:882)temporary is recorded as a realized investment loss in the consolidated statements of
operations, resulting in a new cost or amortized cost basis for the investment. Other(cid:882)than(cid:882)temporary declines in
the carrying values of investments recorded in accordance with the equity method of accounting are recorded in
net investment income in the consolidated statements of operations.
29
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(c) Revenue Recognition. Reinsurance assumed premiums written and related costs are based upon reports
received from ceding companies. When reinsurance assumed premiums written have not been reported by the
ceding company they are estimated, at the individual contract level, based on historical patterns and experience
from the ceding company and judgment of the Company. Subsequent adjustments to premiums written, based on
actual results or revised estimates from the ceding company, are recorded in the period in which they become
known. Reinsurance assumed premiums written related to proportional treaty business are established on a basis
that is consistent with the coverage periods under the terms of the underlying insurance contracts. Reinsurance
assumed premiums written related to excess of loss and facultative reinsurance business are recorded over the
coverage term of the contracts, which is generally one year. Unearned premium reserves are established for the
portion of reinsurance assumed premiums written that are to be recognized over the remaining contract period.
Unearned premium reserves related to proportional treaty contracts are computed based on reports received
from ceding companies, which show premiums written but not yet earned. Premium adjustments made over the
life of the contract are recognized as earned premiums based on the applicable contract period. Insurance
premiums written are based upon the effective date of the underlying policy and are generally earned on a pro
rata basis over the policy period, which is usually one year. A reserve for uncollectible premiums is established
when deemed necessary. The Company has established a reserve for potentially uncollectible premium receivable
balances of $8.4 million and $10.7 million as of December 31, 2018 and 2017, respectively, which has been netted
against premiums receivable.
The cost of reinsurance purchased by the Company (reinsurance premiums ceded) is reported as prepaid
reinsurance premiums and amortized over the contract period in proportion to the amount of reinsurance
protection provided. The ultimate amount of premiums, including adjustments, is recognized as premiums ceded,
and amortized over the applicable contract period. Premiums earned are reported net of reinsurance ceded
premiums earned in the consolidated statements of operations. Amounts paid by the Company for retroactive
reinsurance that meet the conditions for reinsurance accounting are reported as reinsurance receivables to the
extent those amounts do not exceed the associated liabilities.
If the liabilities exceed the amounts paid,
reinsurance receivables are increased to reflect the difference, and the resulting gain is deferred and amortized
over the estimated settlement period. If the amounts paid for retroactive reinsurance exceed the liabilities, the
related liabilities are increased or the reinsurance receivable is reduced, or both, at the time the reinsurance
contract is effective, and the excess is charged to net income. Changes in the estimated amount of liabilities
relating to the underlying reinsured contracts are recognized in net income in the period of the changes. Assumed
and ceded reinstatement premiums represent additional premiums related to reinsurance coverages, principally
catastrophe excess of loss contracts, which are paid when the incurred loss limits have been utilized under the
reinsurance contract and such limits are reinstated. Premiums written and earned premiums related to a loss
event are estimated and accrued as earned. The accrual is adjusted based upon any change to the ultimate losses
incurred under the contract.
Leasing revenue is generally recognized ratably over the term of the leases. All of the Company’s leasing
revenue are generated from operating leases. Assets held for leases consist of land and buildings with estimated
useful lives of 30 to 40 years and are valued at $130.2 million.
(d) Deferred Acquisition Costs.(cid:3) Acquisition costs, which are reported net of costs recovered under ceded
contracts, consist of commissions and brokerage expenses incurred on insurance and reinsurance business written,
and premium taxes on direct insurance written, and are deferred and amortized over the period in which the
related premiums are earned. Commission adjustments are accrued based on changes in premiums and losses
recorded by the Company in the period in which they become known. Deferred acquisition costs are limited to
their estimated realizable value based on the related unearned premium, which considers anticipated losses and
loss adjustment expenses and estimated remaining costs of servicing the business, all based on historical
experience. The realizable value of the Company’s deferred acquisition costs is determined without consideration
of investment income.
Included in acquisition costs in the consolidated statements of operations are amortized deferred acquisition
costs of $569.8 million, $483.6 million and $418.2 million for the years ended December 31, 2018, 2017 and 2016,
respectively.
30
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(e) Goodwill and Intangible Assets. The Company accounts for goodwill and intangible assets as permitted or
required by GAAP. A purchase price paid that is in excess of net assets arising from a business combination is
recorded as an asset (“goodwill”) and is not amortized. Intangible assets with finite lives are amortized over the
estimated useful life of the asset. Intangible assets with indefinite useful lives are not amortized. Goodwill and
intangible assets are analyzed for impairment on a quarterly basis to determine if the carrying amount may not be
recoverable. If the goodwill or intangible asset is impaired, it is written down to its realizable value with a
corresponding expense reflected in the consolidated statements of operations. For the year ended December 31,
2018, the Company did not impair any goodwill or intangible assets. For the year ended December 31, 2017, the
Company impaired $0.3 million of intangible assets with finite lives related to its acquisition of an agency
producing surety business. For the year ended December 31, 2016, the Company impaired $6.8 million of goodwill
related to its acquisition of an agency producing financial products.(cid:3)(cid:3)
The following table reflects the carrying amount of goodwill, intangible assets with indefinite lives and
intangible assets with finite lives as of December 31, 2018 and 2017 (in thousands):
(cid:3)
Balance, January 1, 2017 .................................................... $
Amortization during 2017 .............................................
Impairment during 2017 ...............................................
Balance, December 31, 2017 ..............................................
Acquired during 2018....................................................
Amortization during 2018 .............................................
(cid:3)
Balance, December 31, 2018 .............................................. $
(cid:3)
Goodwill
Indefinite Lives (cid:3) (cid:3)
Finite Lives
Intangible Assets
52,257 $
—— (cid:3)
——
52,257
11
——
52,268 $
5,813(cid:3)(cid:3)(cid:3) $
——(cid:3) (cid:3) (cid:3)
——(cid:3)(cid:3)(cid:3) (cid:3)
5,813(cid:3)(cid:3)(cid:3) (cid:3)
——(cid:3)(cid:3)(cid:3) (cid:3)
——(cid:3)(cid:3)(cid:3) (cid:3)
5,813(cid:3)(cid:3)(cid:3) $
6,723 $
(3,674)
(329)
2,720
11,416
(2,581)
11,555 $
Total
64,793
(3,674)
(329)
60,790
11,427
(2,581)
69,636
The following table provides the estimated amortization expense related to intangible assets for the
succeeding years (in thousands):
Years Ended December 31,
2024 and
thereafter
Amortization of intangible assets ..................... $ 2,132 $ 1,712 $ 1,712 $ 1,712(cid:3) $ 1,712 $ 2,573
2022
2020
2023
2021
2019
(cid:3)
(cid:3)
(cid:3)
(f) Unpaid losses and loss adjustment expenses. The reserves for losses and loss adjustment expenses are
estimates of amounts needed to pay reported and unreported claims and related loss adjustment expenses. The
estimates are based on assumptions related to the ultimate cost to settle such claims. The inherent uncertainties
of estimating reserves are greater for reinsurers than for primary insurers due to the diversity of development
patterns among different types of reinsurance contracts and the necessary reliance on ceding companies for
information regarding reported claims. As a result, there can be no assurance that the ultimate liability will not
exceed amounts reserved, with a resulting adverse effect on the Company.
The reserves for unpaid losses and loss adjustment expenses are based on the Company’s evaluations of
reported claims and individual case estimates received from ceding companies for reinsurance business or the
estimates advised by the Company’s claims adjusters for insurance business. The Company utilizes generally
accepted actuarial methodologies to determine reserves for losses and loss adjustment expenses on the basis of
historical experience and other estimates. The reserves are reviewed continually during the year and changes in
estimates in losses and loss adjustment expenses are reflected as an expense in the consolidated statements of
operations in the period the adjustment is made. Reinsurance recoverables on unpaid losses and loss adjustment
expenses are reported as assets. A reserve for uncollectible reinsurance recoverables is established based on an
evaluation of each reinsurer or retrocessionaire and historical experience. The Company uses tabular reserving for
workers’ compensation indemnity loss reserves, which are considered to be fixed and determinable, and discounts
such reserves using an interest rate of 3.5% and the Life Table for Total Population: United States, 2009.
31
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(g) Deposit Assets and Liabilities. The Company may enter into assumed and ceded reinsurance contracts
that contain certain loss limiting provisions and, as a result, do not meet the risk transfer provisions of GAAP.
These contracts are deemed as either transferring only significant timing risk or only significant underwriting risk or
transferring neither significant timing nor underwriting risk and are accounted for using the deposit accounting
method, under which revenues and expenses from reinsurance contracts are not recognized as written premium
and incurred losses. Instead, the profits or losses from these contracts are recognized net, as other income or
other expense, over the contract or contractual settlement periods.(cid:3)
For such contracts, the Company initially records the amount of consideration paid as a deposit asset or
received as a deposit liability. Revenue or expense is recognized over the term of the contract, with any deferred
amount recorded as a component of assets or liabilities until such time it is earned. The ultimate asset or liability
under these contracts is estimated, and the asset or liability initially established, which represents the
consideration transferred, is increased or decreased over the term of the contract. The change during the period is
recorded in the Company’s consolidated statements of operations, with increases and decreases in the ultimate
asset or liability shown in other expense, net. As of December 31, 2018 and 2017, the Company had reflected $5.2
million and $5.9 million in other assets and $0.4 million and $0.5 million in other liabilities, respectively, related to
deposit contracts. In cases where cedants retain the consideration on a funds held basis, the Company records
those assets in other assets, and records the related investment income on the assets in the Company’s
consolidated statements of operations as investment income.
(h) Income Taxes.(cid:3)(cid:3)The Company records deferred income taxes to provide for the net tax effect of
temporary differences between the carrying values of assets and liabilities in the Company’s consolidated financial
statements and their tax bases. Such differences relate principally to deferred acquisition costs, unearned
premiums, unpaid losses and loss adjustment expenses, investments and tax credits. Deferred tax assets are
reduced by a valuation allowance when the Company believes it is more likely than not that all or a portion of
deferred taxes will not be realized. As of December 31, 2018 and 2017, a valuation allowance was not required.
The Company has elected to recognize accrued interest and penalties associated with uncertain tax positions
as part of the income tax provision.(cid:3)(cid:3)
(i) Derivatives.(cid:3) The Company utilizes derivative instruments to manage against potential adverse changes in
the value of its assets and liabilities. Derivatives include total return swaps, interest rate swaps, forward currency
contracts, U.S. Treasury bond forward contracts, CPI(cid:882)linked derivative contracts, credit default swaps, call options
and warrants and other equity and credit derivatives. In addition, the Company holds options on certain securities
within its fixed income portfolio that allow the Company to extend the maturity date on fixed income securities or
convert fixed income securities to equity securities. The Company categorizes these investments as trading
securities, and changes in fair value are recorded as realized investment gains or losses in the consolidated
statements of operations. All derivative instruments are recognized as either assets or liabilities on the
consolidated balance sheets and are measured at their fair value. Gains or losses from changes in the derivative
values are reported based on how the derivative is used and whether it qualifies for hedge accounting. For
derivative instruments that do not qualify for hedge accounting, changes in fair value are included in realized
investment gains and losses in the consolidated statements of operations. Margin balances required by
counterparties in support of derivative positions are included in fixed income securities and short(cid:882)term
investments.
(j) Foreign Currency.(cid:3) Foreign currency transaction gains or losses resulting from a change in exchange rates
between the currency in which a transaction is denominated, or the original currency, and the functional currency
are reflected in the consolidated statements of operations in the period in which they occur. The Company
translates the financial statements of its foreign subsidiaries and branches that have functional currencies other
than the U.S. dollar into U.S. dollars by translating balance sheet accounts at the balance sheet date exchange rate
and income statement accounts at the rate at which the transaction occurs or the average exchange rate for each
quarter. Translation gains or losses are recorded, net of deferred income taxes, as a component of accumulated
other comprehensive income.
32
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents the foreign exchange effects, net of the effects of foreign currency forward
contracts purchased as an economic hedge against foreign exchange rate volatility and of tax, on specific line items
in the Company’s financial statements for the years ended December 31, 2018, 2017 and 2016 (in thousands):
Statements of operations:
Realized investment gains (losses):
Foreign currency forward contracts gains (losses)...................... $
Other investment (losses) gains..................................................
Total realized investment gains (losses) ................................
Net investment (loss) income .....................................................
Other income (expenses), net.....................................................
Income (loss) before income tax ...........................................
Total federal and foreign income tax provision (benefit) ...........
Net income (loss) ...................................................................
Other comprehensive (loss) income:
Other comprehensive (loss) income before income tax .............
Federal and foreign income tax (benefit) provision before
(cid:3)(cid:3)(cid:3)income tax ................................................................................
Other comprehensive (loss) income, net of tax ...............................
Total effects on comprehensive (loss) income and
(cid:3)(cid:3)(cid:3)shareholders' equity ........................................................... $
2018
2017
(cid:3)
(cid:3)
$
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
58,841
(24,139)
34,702
(4,214)
1,575
32,063
6,734
25,329
(62,689)
(13,164)
(49,525)
(cid:3)
(cid:3)
2016
(cid:3)
(cid:3)
(cid:3)
(35,407) $
35,187(cid:3)
(220)
868(cid:3)
18,552(cid:3)
19,200(cid:3)
6,720(cid:3)
12,480(cid:3)
(cid:3)
528
185(cid:3)
343(cid:3)
4,330
41,940
46,270
1,240
(52,084)
(4,574)
(1,600)
(2,974)
(24,166)
(8,458)
(15,708)
(24,196) $
12,823(cid:3) $
(18,682)
(k) Stock(cid:882)Based Compensation Plans.(cid:3) The Company reflects awards of restricted common stock of Fairfax to
employees as a reduction to additional paid(cid:882)in(cid:882)capital when the shares are purchased. The award value is
amortized through compensation expense over the related vesting periods.
(l) Claims Payments.(cid:3) Payments of claims by the Company, as reinsurer, to a broker on behalf of a reinsured
company are recorded in the Company’s financial statements as paid losses at the time the cash is disbursed and are
treated as paid to the reinsured.(cid:3) Premiums due to the Company from the reinsured are recorded as receivables from
the reinsured until the cash is received by the Company, either directly from the reinsured or from the broker.
(m) Funds Held Balances.(cid:3)(cid:3)“Funds held under reinsurance contracts” represents amounts due to reinsurers
arising from the Company’s receipt of a deposit from a reinsurer, or the withholding of a portion of the premiums
due, in accordance with contractual terms, as a guarantee that the reinsurer will meet its loss and other obligations.
Interest generally accrues on withheld funds in accordance with contract terms. “Funds held by reinsured” represents
amount due from a ceding company that withholds, in accordance with the contractual terms, a portion of the
premium due the Company as a guarantee that the Company will meet its loss and other obligations.
(n) Fixed Assets.(cid:3) Fixed assets, with a net book value of $32.7 million and $28.2 million as of December 31,
2018 and 2017, respectively, are recorded at amortized cost and are included in other assets.(cid:3)(cid:3)Depreciation and
amortization are generally computed on a straight(cid:882)line basis over the following estimated useful lives:
Leasehold improvements ................................................................................. (cid:3) 10 years or term of lease, if shorter
Electronic data processing equipment and furniture.......................................
Personal computers and software....................................................................
5 years
3 years
Depreciation and amortization expense for the years ended December 31, 2018, 2017 and 2016 was $11.4
million, $9.4 million and $9.8 million, respectively.
(o) Contingent Liabilities.(cid:3)(cid:3)Amounts are accrued for the resolution of claims that have either been asserted or
are deemed probable of assertion if, in the opinion of the Company, it is both probable that a liability has been
incurred and the amount of the liability can be reasonably estimated.(cid:3)(cid:3)In many cases it is not possible to determine
whether a liability has been incurred or to estimate the ultimate or minimum amount of that liability until years
after the contingency arises, in which case no accrual is made until that time. As of December 31, 2018 and 2017,
no contingent liabilities have been recorded (see Note 11).
33
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(p) Recent Accounting Pronouncements. The Financial Accounting Standards Board (“FASB”)
is the
organization responsible for establishing and improving GAAP.(cid:3)(cid:3)
In January 2016, the FASB issued Accounting Standards Update (“ASU”) 2016(cid:882)01, “Financial Instruments(cid:3)(cid:882)
Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016(cid:882)01 generally requires that
equity investments (excluding those investments for which the equity method of accounting is utilized) be
measured at fair value with changes in fair value recognized in net income. Under existing GAAP, changes in fair
value of available(cid:882)for(cid:882)sale equity investments are recorded in other comprehensive income. ASU 2016(cid:882)01 is
effective for the Company in 2019, with the cumulative effect of the adoption made to the balance sheet as of
January 1, 2019. The adoption will result in a reclassification of the related accumulated unrealized appreciation
currently included in accumulated other comprehensive income to retained earnings, with no impact on the
Company’s shareholders’ equity.(cid:3) (cid:3) If ASU 2016(cid:882)01 had been adopted as of December 31, 2018, the required
reclassification would have decreased other comprehensive income and increased retained earnings by
approximately $5.8 million.
In February 2016 and July 2018, the FASB issued ASU 2016(cid:882)02 and ASU 2018(cid:882)11, respectively, both entitled
“Leases”, requiring a lessee i)(cid:3)(cid:3)to recognize in the statement of financial position a liability to make lease payments
and a right(cid:882)of(cid:882)use asset representing its right to use the underlying asset for the lease term, and ii) to make
additional qualitative and quantitative disclosures about its leases.(cid:3) (cid:3) Under ASU 2016(cid:882)02, the new guidance was
required to be applied retroactively with previously issued financial statements restated.(cid:3) (cid:3) Under the additional
transition guidance provided by ASU 2018(cid:882)11, entities may elect to recognize a cumulative(cid:882)effect adjustment to
the opening balance of retained earnings in the year of adoption. Consequently, if the transition option available
under ASU 2018(cid:882)11 is elected, an entity’s reporting for the comparative periods prior to adoption presented in the
consolidated financial statements would continue to be in accordance with current lease guidance. ASU 2016(cid:882)02
and ASU(cid:882)2018(cid:882)11 are effective for the Company in 2020, with early adoption permitted. If ASU 2016(cid:882)02 and ASU
2018(cid:882)11 had been adopted as of December 31, 2018, the Company would have been required to establish a right(cid:882)
of(cid:882)use asset and a lease obligation of $86.7 million.
In June 2016, the FASB issued ASU 2016(cid:882)13, “Financial Instruments(cid:3)(cid:882)(cid:3)Credit Losses,” which provides for the
recognition and measurement at the reporting date of all expected credit losses for financial assets that are not
accounted for at fair value through net income, including investments in available(cid:882)for(cid:882)sale debt securities and
loans, premiums receivable and reinsurance recoverable. The updated guidance amends the current other(cid:882)than(cid:882)
temporary impairment model for available(cid:882)for(cid:882)sale debt securities by requiring the recognition of impairments
relating to credit losses through an allowance account and limits the amount of credit loss to the difference
between a security’s amortized cost basis and its fair value. This guidance also applies a new current expected
credit loss model for determining credit(cid:882)related impairments for financial instruments measured at amortized cost.
ASU 2016(cid:882)13 is effective for the Company in 2021, with early adoption permitted. The Company is evaluating the
effect this standard will have on its consolidated financial statements, although such effect is not expected to be
significant.(cid:3)(cid:3)(cid:3)
In November 2016, the FASB issued ASU 2016(cid:882)18, “Statement of Cash Flows (Topic 230): Restricted Cash.”
ASU 2016(cid:882)18 requires that the statement of cash flows explain the change during the period in the total of cash,
cash equivalents, and amounts described as restricted cash or restricted cash equivalents.(cid:3) Disclosure will be
required to reconcile such total to amounts on the balance sheet and to describe the nature of the restrictions.
ASU 2016(cid:882)18 is effective for the Company in 2019, with early adoption permitted. The Company is evaluating the
effect this standard will have on its consolidated financial statements, although such effect is not expected to be
significant.(cid:3)(cid:3)(cid:3)
In March 2017, the FASB issued ASU 2017(cid:882)07, “Improving the Presentation of Net Periodic Pension Cost
and Net Periodic Postretirement Benefit Cost.” ASU 2017(cid:882)07 requires that the service cost component of net
periodic benefit costs be reported within the same line items of the statements of operations as other
compensation costs are reported. Other components of net periodic benefit costs should be reported separately.
Disclosure is required to state within which line items of the statements of operations each component is
reported. ASU 2017(cid:882)07 is effective for the Company in 2019. As there is no change in the total cost reported,(cid:3) the
adoption of ASU 2017(cid:882)07 will not have a material impact on the Company’s consolidated financial statements.(cid:3)(cid:3)
In March 2017, the FASB issued ASU 2017(cid:882)08, “Receivables(cid:3) (cid:882) Nonrefundable Fees and Other Costs
(Subtopic 310(cid:882)20): Premium Amortization on Purchased Callable Debt Securities.” ASU 2017(cid:882)08 requires that the
premium on callable debt securities be amortized through the earliest call date rather than through the maturity
34
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
date of the callable security. ASU 2017(cid:882)08 is effective for the Company in 2020. The Company does not expect the
adoption of ASU 2017(cid:882)08 to have a material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU 2018(cid:882)13, “Changes to the Disclosure Requirements for Fair Value
Measurement.” ASU 2018(cid:882)13 is effective for the Company in 2020. Implementation is on a prospective or
retroactive basis, depending on the specific disclosure element. Early adoption is permitted. The Company does
not expect the adoption of ASU 2018(cid:882)13 to have a material impact on the Company’s consolidated financial
statements.
In August 2018, the FASB issued ASU 2018(cid:882)15, “Customer’s Accounting for Implementation Costs Incurred
in a Cloud Computing Arrangement That Is a Service Contract.” ASU 2018(cid:882)15 requires that implementation costs of
a cloud computing arrangement that is a service contract must be capitalized and expensed in accordance with the
requirements for capitalizing implementation costs incurred to develop or obtain internal(cid:882)use software.
In
addition, any capitalized implementation costs should be amortized over the term of the hosting arrangement.
ASU 2018(cid:882)15 is effective for the Company in 2021. Early adoption is permitted. The Company does not expect the
adoption of ASU 2018(cid:882)15 to have a material impact on the Company’s consolidated financial statements.
(q) Subsequent Events.(cid:3) The Company has evaluated the significance of events occurring subsequent to
December 31, 2018 with respect to disclosing the nature and expected impact of such events as of March 1, 2019,
the date these consolidated financial statements were available to be issued.
3. Fair Value Measurements
The Company accounts for a significant portion of its financial instruments at fair value as permitted or
required by GAAP.
Fair Value Hierarchy
The assets and liabilities recorded at fair value in the consolidated balance sheets are measured and
classified in a three level hierarchy for disclosure purposes based on the observability of inputs available in the
marketplace used to measure fair values.(cid:3) (cid:3) The fair value hierarchy gives the highest priority to quoted prices in
active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
When the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the
fair value measurement is categorized is based on the lowest level input that is significant to the fair value
measurement in its entirety. Gains and losses for assets and liabilities categorized within the Level 3 table below,
therefore, may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and
unobservable inputs (Level 3). Financial assets and liabilities recorded in the consolidated balance sheets are
categorized based on the inputs to the valuation techniques as follows:
Level 1:(cid:3) Level 1 financial instruments are financial assets and liabilities for which the values are based on
unadjusted quoted prices for identical assets or liabilities in an active market that the Company has the ability to
access.(cid:3) Market price data generally is obtained from exchange markets.(cid:3) The Company does not adjust the quoted
price for such instruments. (cid:3) The majority of the Company’s Level 1 investments are common stocks that are
actively traded in a public market and short(cid:882)term investments and cash equivalents, for which the cost basis
approximates fair value.
Level 2:(cid:3)(cid:3)Level 2 financial instruments are financial assets and liabilities for which the values are based on
quoted prices in markets that are not active, or model inputs that are observable either directly or indirectly for
substantially the full term of the asset or liability. Level 2 inputs include the following:
a)
b)
c)
d)
Quoted prices for similar assets or liabilities in active markets;
Quoted prices for identical or similar assets or liabilities in non(cid:882)active markets;
Pricing models, the inputs for which are observable for substantially the full term of the asset or
liability; and
Pricing models, the inputs for which are derived principally from, or corroborated by, observable
market data through correlation or other means, for substantially the full term of the asset or liability.
35
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Assets and liabilities measured at fair value on a recurring basis and classified as Level 2 include government
and corporate fixed income securities, which are priced using publicly traded over(cid:882)the(cid:882)counter prices and broker(cid:882)
dealer quotes. Observable inputs such as benchmark yields, reported trades, broker(cid:882)dealer quotes, issuer spreads
and bids are available for these investments.(cid:3)(cid:3)Also included in Level 2 are inactively traded convertible corporate
debentures that are valued using a pricing model that includes observable inputs such as credit spreads and
discount rates in the calculation.
Level 3:(cid:3) Level 3 financial instruments are financial assets and liabilities for which the values are based on
prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair
value measurement. These measurements include circumstances in which there is little, if any, market activity for
the asset or liability.(cid:3)(cid:3)In certain cases, the inputs used to measure fair value may fall into different levels of the fair
value hierarchy.(cid:3) (cid:3) In such cases, the level in the fair value hierarchy within which the fair value measurement is
categorized is based on the lowest level input that is significant to the fair value measurement in its entirety.(cid:3)
Therefore, these inputs reflect the Company’s own assumptions about the methodology and valuation techniques
that a market participant would use in pricing the asset or liability.
For the years ended December 31, 2018 and 2016, no securities were transferred into or out of Level 3. For
the year ended December 31, 2017, the Company transferred $79.2 million of Level 2 securities to Level 3 after
determining that the valuation technique required unobservable inputs.(cid:3)(cid:3)(cid:3)
(cid:3) During the years ended December 31, 2018, 2017 and 2016, the Company purchased $83.4 million, $159.0
million and $258.1 million, respectively, of investments that are classified as Level 3.(cid:3)(cid:3)As of December 31, 2018 and
2017, the Company held $470.0 million and $518.9 million, respectively, of investments that are classified as Level
3.(cid:3) (cid:3) Level 3 investments include CPI(cid:882)linked derivative contracts, and certain loans, bonds, preferred stocks and
common stocks.
A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability
of valuation inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications
impacting Level 3 of the fair value hierarchy are generally reported as transfers in or out of the Level 3 category as
of the beginning of the period in which the reclassifications occur. The Company has determined, after carefully
considering the impact of recent economic conditions and liquidity in the credit markets on the Company’s
portfolio, that it should not re(cid:882)classify any of its investments from Level 1 or Level 2 to Level 3 for the years ended
December 31, 2018 or 2016.(cid:3)(cid:3)There were no transfers of securities between Level 1 and Level 2 during the years
ended December 31, 2018 and 2017.(cid:3)(cid:3)For the year ended December 31, 2016, $0.9 million common stock – held
for trading and fair value option was transferred from Level 1 to Level 2.(cid:3)
The Company is responsible for determining the fair value of its investment portfolio by utilizing market
driven fair value measurements obtained from active markets, where available, by considering other observable
and unobservable inputs and by employing valuation techniques that make use of current market data. For the
majority of the Company’s investment portfolio, the Company uses quoted prices and other information from
independent pricing sources to determine fair values.
36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
GROUP HOLDINGS, INC.
The following tables present the fair value hierarchy for those assets and liabilities measured at fair value on
a recurring basis as of December 31, 2018 and 2017 (in thousands):
Fixed income securities, available for sale:
(cid:3)
(cid:3)
Reported
Fair Value
Fair Value Measurements as of December 31, 2018
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
Level 2
Level 1
(cid:3)
Level 3
United States government, government agencies
(cid:3)(cid:3)(cid:3)and authorities ..................................................... $$
States, municipalities and political subdivisions .....
Corporate ................................................................
Total fixed income securities, available for
(cid:3)(cid:3)(cid:3)sale ..................................................................
$$
617
39,062
36,975
76,654
Fixed income securities, held for trading:
——(cid:3)(cid:3)(cid:3) $$
—— (cid:3) (cid:3)
1,968 (cid:3) (cid:3)
1,968(cid:3)(cid:3)(cid:3) (cid:3)
(cid:3) (cid:3)
$$
617
39,062
35,007
74,686
United States government, government agencies
(cid:3)(cid:3)(cid:3)and authorities .....................................................
States, municipalities and political subdivisions .....
Foreign governments ..............................................
Corporate ................................................................
Total fixed income securities, held for trading ..
Preferred stocks, held for trading.................................
Common stocks, available for sale ...............................
Common stocks, held for trading and fair value
(cid:3)(cid:3)(cid:3)options .......................................................................
Short(cid:882)term investments, held for trading.....................
Cash equivalents...........................................................
Derivatives ....................................................................
Other investments........................................................
459,088
531,957
258,386
61,399
55,305
Total assets measured at fair value ................... $$ 5,999,529
2,583,063
54,635
624,229
1,170,676
4,432,603
24,125
100,012
——(cid:3)(cid:3)(cid:3) (cid:3) 2,583,063
54,635
—— (cid:3) (cid:3)
624,229
—— (cid:3) (cid:3)
788,364
—— (cid:3) (cid:3)
—— (cid:3) (cid:3) 4,050,291
——
3,667
1,109 (cid:3) (cid:3)
96,345 (cid:3) (cid:3)
(cid:3)(cid:3)
Derivative liabilities ...................................................... $$
Total liabilities measured at fair value............... $$
30,236
30,236
$$
$$
(cid:3) (cid:3)
—— (cid:3) $$
—— (cid:3) $$
30,236
30,236
18,330
419,610(cid:3)(cid:3)(cid:3) (cid:3)
84,608
447,349 (cid:3) (cid:3)
258,386 (cid:3) (cid:3)
——
58,284
—— (cid:3) (cid:3)
14,875
—— (cid:3) (cid:3)
$$ 1,224,767 (cid:3) $$ 4,304,741
$$
$$
$$
——
——
——
——
——
——
——
382,312
382,312
23,016
——
21,148
——
——
3,115
40,430
470,021
——
——
37
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fair Value Measurements as of December 31, 2017
Reported
Fair Value
Level 1
(cid:3)
Level 2
Level 3
(cid:3)
Fixed income securities, available for sale:
United States government, government
(cid:3)(cid:3)(cid:3)agencies and authorities ...................................... $$
States, municipalities and political subdivisions .....
Corporate ................................................................
Total fixed income securities, available for
(cid:3)(cid:3)(cid:3)sale ..................................................................
Fixed income securities, held for trading:
United States government, government
(cid:3)(cid:3)(cid:3)agencies and authorities ......................................
States, municipalities and political subdivisions .....
Foreign governments ..............................................
Corporate ................................................................
Total fixed income securities, held for trading ..
Preferred stocks, held for trading.................................
Common stocks, available for sale ...............................
Common stocks, held for trading and fair value
(cid:3)(cid:3) options .......................................................................
Short(cid:882)term investments, held for trading.....................
Cash equivalents...........................................................
Derivatives ....................................................................
Other investments........................................................
514,584
2,095,823
1,541,866
48,321
13,812
Total assets measured at fair value ................... $$ 6,339,251
$$
5,894
590,633
54,556
651,083
184,013
382,975
267,772
454,850
1,289,610
31,983
152,169
——(cid:3) (cid:3)(cid:3) $$
—— (cid:3)(cid:3) (cid:3)
1,170 (cid:3)(cid:3) (cid:3)
5,894
590,633
53,386
$$
1,170(cid:3) (cid:3)(cid:3) (cid:3)
(cid:3)(cid:3) (cid:3)
649,913
——(cid:3) (cid:3)(cid:3) (cid:3)
—— (cid:3)(cid:3) (cid:3)
—— (cid:3)(cid:3) (cid:3)
—— (cid:3)(cid:3) (cid:3)
——
1,199 (cid:3)(cid:3) (cid:3)
147,909 (cid:3)(cid:3) (cid:3)
184,013
382,975
267,772
26,556
861,316
——
4,260
30,469
435,912(cid:3) (cid:3)(cid:3) (cid:3)
34,576
2,061,247 (cid:3)(cid:3) (cid:3)
1,541,866 (cid:3)(cid:3) (cid:3)
——
36,731
—— (cid:3)(cid:3) (cid:3)
13,812
—— (cid:3)(cid:3) (cid:3)
$$ 4,189,303 (cid:3)(cid:3) $$ 1,631,077
(cid:3)
Derivative liabilities ...................................................... $$
Total liabilities measured at fair value............... $$
60,952
60,952
$$
$$
(cid:3)(cid:3) (cid:3)
—— (cid:3)(cid:3) $$
—— (cid:3)(cid:3) $$
60,952
60,952
——
——
——
——
——
——
——
428,294
428,294
30,784
——
48,203
——
——
11,590
——
518,871
——
——
$$
$$
$$
In accordance with ASU 2015(cid:882)17, “Fair Value Measurement (Topic 820): Disclosure for Investments in Certain
Entities That Calculate Net Asset Value (NAV) per Share (or Its Equivalent),” investments that are measured at fair
value using the NAV per share (or its equivalent) as a practical expedient, have not been classified in the fair value
hierarchy. As of December 31, 2018 and 2017, $1,003.0 million and $965.5 million, respectively, of investments,
reported as equity securities and other invested assets are not included within the fair value hierarchy tables.(cid:3)
The following table provides a summary of changes in the fair value of Level 3 financial assets for the years
ended December 31, 2018 and 2017 (in thousands):
(cid:3)
Fixed Income
Securities
Other Invested (cid:3)
Assets
(cid:3)
Equity
Securities
Balance, January 1, 2017 .................................................................. $
(cid:3)(cid:3)(cid:3)(cid:3) Change in value related to securities sold ...................................
(cid:3)(cid:3)(cid:3)(cid:3) Change in value related to securities held ...................................
(cid:3)(cid:3)(cid:3)(cid:3) Purchases / advances...................................................................
(cid:3)(cid:3)(cid:3)(cid:3) Settlements / paydowns ..............................................................
(cid:3)(cid:3)Transfers from Level 2 to Level 3 .................................................
Balance, December 31, 2017 ............................................................
(cid:3)(cid:3)(cid:3)(cid:3) Change in value related to securities sold ...................................
(cid:3)(cid:3)(cid:3)(cid:3) Change in value related to securities held ...................................
(cid:3)(cid:3)(cid:3)(cid:3) Purchases / advances...................................................................
(cid:3)(cid:3)(cid:3)(cid:3) Settlements / paydowns ..............................................................
Balance, December 31, 2018 ............................................................ $
221,198
8,480
81,871
122,410
(84,865)
79,200
428,294
(2,634)
(63,953)
48,916
(28,311)
382,312
$
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
$
13,614(cid:3) $
(8,164)
——(cid:3)
6,140(cid:3)
——(cid:3)
——(cid:3)
11,590(cid:3)
(670)
2,768(cid:3)
34,470(cid:3)
(4,613)
43,545(cid:3) $
53,936
——
(5,441)
30,492
——
——
78,987
10,693
(17,451)
——
(28,065)
44,164
38
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following tables present changes in value included in net income related to Level 3 assets for the years
ended December 31, 2018, 2017, and 2016 (in thousands):
(cid:3)
Year ended December 31, 2018
Net
Investment
Income (Losses)
Net
Realized Capital
Gains (Losses)
(cid:3)
(cid:3)
Currency
Translation
Fixed income securities .............................................. $
Other invested assets .................................................
Equity securities..........................................................
Total changes in value included in net loss ........... $
(1,458) $
——
——
(1,458) $
Year ended December 31, 2017
Fixed income securities .............................................. $
Other invested assets .................................................
Equity securities..........................................................
Total changes in value included in net income ..... $
865 $
——
——
865 $
Year ended December 31, 2016
Fixed income securities .............................................. $
Other invested assets .................................................
Equity securities..........................................................
Total changes in value included in net loss ........... $
(2,842) $
——
——
(2,842) $
(64,078) $
2,023 (cid:3)
(6,630) (cid:3)
(68,685) $
(cid:3)
(cid:3) (cid:3)
89,489 $
(8,164) (cid:3)
(5,696) (cid:3)
75,629 $
(cid:3)
(20,691) $
(48,695) (cid:3)
9,118 (cid:3)
(60,268) $
(1,051) $
75
(128)
(1,104) $
(cid:3)
(3) $
——
255
252 $
Total
(66,587)
2,098
(6,758)
(71,247)
90,351
(8,164)
(5,441)
76,746
(2,616) $
——
(259)
(2,875) $
(26,149)
(48,695)
8,859
(65,985)
39
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company uses valuation techniques to establish the fair value of Level 3 investments. The following
table provides information on the valuation techniques, significant unobservable inputs and ranges for each major
category of Level 3 assets measured at fair value on a recurring basis at December 31, 2018 and 2017 (in
thousands):
Valuation Technique/Asset Type
Market Approach
(cid:3)
(cid:3)
(cid:3)
As of December 31,
2017
2018
Significant Unobservable (cid:3)
Inputs
(cid:3)
(cid:3)
(cid:3)
(cid:3)
Range
2018
(cid:3)
2017
(cid:3)
260,956
$
121,356
306,938
Risk premium for
credit risk
121,356 Net Asset Valuation
Fixed income securities, held for
(cid:3)(cid:3) trading ............................................... $
(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)(cid:3)
Preferred stocks, held for trading ........
(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)(cid:3)
CPI(cid:882)linked derivatives (1) .....................
(cid:3)
(cid:3)
(cid:3)(cid:3)
Warrants ..............................................
(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)
Total valued using market
(cid:3)(cid:3)(cid:3)approach .....................................
(cid:3)
Income Approach
Common stocks, held for trading.........
Market Price to Book Value
Common stocks, fair value option........
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
Total(cid:3)(cid:882) Level 3 ................................. $
Par Value
Other investments ...............................
(cid:3)(cid:3)
(cid:3)(cid:3)
20,516
28,284
2,500
3,115
——
2,500
6,382
5,209
408,443
470,669
——
17,499
21,148
30,703
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) 2.6%(cid:882)5.7%
(cid:3)
(cid:3) 60%(cid:882)100%
for secured loans and
(cid:3)
Comparable transactions (cid:3)
(cid:3)
(cid:3)
(cid:3) 5.1%(cid:882)5.7%
Risk premium for
credit risk
(cid:3)
Transaction price
(cid:3)
(cid:3)
(cid:3)
Broker quotes
(cid:3)
(cid:3)
(cid:3)
Volatility
(cid:3)
(cid:3)
(cid:3)
(cid:3)
—
(cid:3)
(cid:3)
(cid:3)
—
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
EV/EBITDA multiple
(cid:3)
(cid:3)
Time lag in receiving
book value of
comparable companies
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
—
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
5.0%
(cid:3)
(cid:3)
1.6%(cid:882)4.0%
(cid:3)
60%(cid:882)100%
(cid:3)
(cid:3)
(cid:3)
3.5%(cid:882)3.6%
(cid:3)
—
(cid:3)
(cid:3)
(cid:3)
30.7%(cid:882)31.2%
(cid:3)
(cid:3)
(cid:3)
(cid:3)
7.5x
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
—
(cid:3)
(cid:3)
40,430
—— Yield to Maturity
470,021
$
518,871
(cid:3)
(cid:3)
(1)
Valued using broker(cid:882)dealer quotes that use market observable inputs except for the inflation volatility input,
which is not market observable.
Fair Value Option
The fair value option (“FVO”) allows companies to irrevocably elect fair value as the initial and subsequent
measurement attribute for certain financial assets and liabilities. Changes in the fair value of assets and liabilities
for which the election is made are recognized in net income as they occur. The FVO election is permitted on an
instrument(cid:882)by(cid:882)instrument basis at initial recognition of an asset or liability or upon the occurrence of an event that
gives rise to a new basis of accounting for that instrument.
The Company elected the FVO for its investment in Advent Capital (Holdings) PLC (“Advent”) as, at the time
of the election, Advent was publicly traded and its trading price was believed to be a better indicator of its value
than an amount computed under the equity method.(cid:3) Fairfax and its subsidiaries currently own 100% of Advent’s
common stock, of which the Company holds 17.0%.(cid:3) For 2018, following the placement of Advent into run(cid:882)off, the
Company began using Advent’s book value as the best approximation of its fair value. Prior to 2018, in order to
determine the fair value of Advent, the Company evaluated observable price(cid:882)to(cid:882)book multiples of peer companies
and applied such to Advent’s most recently available book value per share.(cid:3)(cid:3)As of December 31, 2018 and 2017,
the Company’s interest in Advent was recorded at fair value of $21.1 million and $30.7 million, respectively, in
common stocks held for trading and fair value options, with related changes in fair value recognized as a realized
40
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
investment gain or loss in the period in which they occurred.(cid:3) The change in Advent’s fair value resulted in the
recognition of realized investment losses of $9.6 million and $8.6 million for the years ended December 31, 2018
and 2017, respectively, and a realized investment gain of $5.8 million for the year ended December 31, 2016. The
value of the Company’s interest in Advent as of December 31, 2018, calculated in accordance with the equity
method of accounting, would have been $24.3 million.
The Company owns Classes A, C, E, G, H, J, K(cid:3)(cid:3)and Q common shares of HWIC Asia Fund (“HWIC Asia”), which
is 100% owned by Fairfax and of which the Company owns 30.1% as of December 31, 2018. At the time of the
purchase of each class of shares, the Company elected the FVO for these investments, as HWIC Asia is a multi(cid:882)class
investment company that reports its investments at fair value and provides a Net Asset Value on a monthly basis.
The carrying value of the Company’s investment in the various HWIC Asia common share issues as of
December 31, 2018 and 2017, which is included in common stocks held for trading and fair value option on the
balance sheet, and the changes in fair value for each issue for the years then ended, are summarized below (in
thousands):
HWIC Asia HWIC Asia HWIC Asia HWIC Asia HWIC Asia HWIC Asia (cid:3) (cid:3)HWIC Asia (cid:3) HWIC Asia
(cid:3)
Fair value as of January 1, 2017 ................(cid:3) $
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)Purchases .............................................(cid:3) (cid:3)
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)Change in fair value ..............................(cid:3) (cid:3)
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)Currency translation adjustment ..........(cid:3) (cid:3)
Fair value as of December 31, 2017 ..........(cid:3) (cid:3)
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)Purchases (sales) ..................................(cid:3) (cid:3)
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)Change in fair value ..............................(cid:3) (cid:3)
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)Currency translation adjustment ..........(cid:3) (cid:3)
Fair value as of December 31, 2018 ..........(cid:3) $
Class A
Class C
Class E
Class G
Class H
Class J
(cid:3) (cid:3) Class K (cid:3)
Class Q
Total
—— $
4,189
396
——
4,585
1,000
(1,482 )
——
4,103 $
35,400 $
——
1,482
——
36,882
——
(12,226 )
——
24,656 $
—— $
——
——
——
——
272
(227 )
——
45 $
76,073 $ 112,249 $
——
11,462
——
87,535
500
(3,587 )
——
——
49,929
163
162,341
(22,565 )
(22,885 )
(113 )
84,448 $ 116,778 $
44,177(cid:3) $
——(cid:3)
(cid:3)
(541 ) (cid:3)
1,113 (cid:3)
(cid:3)
44,749(cid:3)
(cid:3)
——(cid:3)
(cid:3)
1,803(cid:3)
(cid:3)
(775 ) (cid:3)
45,777(cid:3) $
—— (cid:3) $
—— (cid:3) (cid:3)
—— (cid:3) (cid:3)
—— (cid:3) (cid:3)
—— (cid:3) (cid:3)
33,578 (cid:3) (cid:3)
(2,606 ) (cid:3)
(223 ) (cid:3)
30,749 (cid:3) $
——
754
928
21,351
19,669 $ 287,568
4,189
63,482
2,204
357,443
—— 12,785
(42,261)
(1,725 )
19,686 $ 326,242
(1,051 )
(614 )
HWIC Asia’s fair value decreased by $10.0 million for the year ended December 31, 2016.
The Company did not elect the FVO for its other affiliated investments, as these affiliated investments were
ultimately 100% owned by Fairfax and its subsidiaries, and fair values were deemed to be not readily obtainable.
As of December 31, 2018 and 2017, respectively, the Company has not elected the FVO for any of its
liabilities.
4. Investments and Cash
A summary of the Company’s available for sale investment portfolio as of December 31, 2018 and 2017, is as
follows (in thousands):
2018
Fixed income securities:
(cid:3)
Cost or
Amortized
Cost
Gross
Unrealized
Appreciation
Gross
(cid:3)
(cid:3) Unrealized
(cid:3) Depreciation
(cid:3)(cid:3) (cid:3)
Fair Value
United States government, government
(cid:3)(cid:3)(cid:3)agencies and authorities ...................................... $$
States, municipalities and political
(cid:3)(cid:3)(cid:3)subdivisions ..........................................................
Corporate ................................................................
Total fixed income securities .............................
Common stocks ............................................................
Total ................................................................... $$
567
$$
50(cid:3) (cid:3)(cid:3) $$
—— $$
617
37,106
36,975
74,648
106,367
181,015
$$
1,956(cid:3) (cid:3)(cid:3) (cid:3)
—— (cid:3)(cid:3) (cid:3)
2,006 (cid:3)(cid:3) (cid:3)
13,101 (cid:3)(cid:3) (cid:3)
15,107 (cid:3)(cid:3) $$
——
——
——
7,803
7,803
$$
39,062
36,975
76,654
111,665
188,319
41
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2017
Fixed income securities:
(cid:3)
United States government, government
(cid:3)(cid:3)(cid:3)agencies and authorities .............................
States, municipalities and political
(cid:3)(cid:3)(cid:3)subdivisions .................................................
Corporate .......................................................
Total fixed income securities ....................
Common stocks ...................................................
Total ..........................................................
Cost or
Amortized
Cost
Gross
Unrealized
Appreciation
Gross
(cid:3)
(cid:3) Unrealized
(cid:3) Depreciation
(cid:3)(cid:3) (cid:3)
Fair Value
$$
5,225
$$
669(cid:3) (cid:3)(cid:3) $$
—— $$
5,894
560,973
55,196
621,394
108,200
729,594
$$
$$
29,716(cid:3) (cid:3)(cid:3) (cid:3)
—— (cid:3)(cid:3) (cid:3)
30,385 (cid:3)(cid:3) (cid:3)
58,711 (cid:3)(cid:3) (cid:3)
89,096 (cid:3)(cid:3) $$
56
640
696
——
696
$$
590,633
54,556
651,083
166,911
817,994
Common stocks accounted for under the equity method of accounting were carried at $816.3 million and
$809.6 million as of December 31, 2018 and 2017, respectively. Common stocks at equity had gross unrealized
appreciation of $14.9 million and $6.8 million and gross unrealized depreciation of $20.5 million and $9.6 million
as of December 31, 2018 and 2017, respectively. Other invested assets were carried at $1,182.1 million and
$881.9 million as of December 31, 2018 and 2017, respectively, reflecting no gross unrealized appreciation or
depreciation.
A summary of the Company’s held for trading and fair value option portfolios as of December 31, 2018 and
2017 is as follows (in thousands):
Fixed income securities:
United States government, government agencies
(cid:3)(cid:3)(cid:3)and authorities ........................................................................................... (cid:3) $$
States, municipalities and political subdivisions ...........................................
Foreign governments ....................................................................................
Corporate ......................................................................................................
Total fixed income securities ...................................................................
Preferred stocks..................................................................................................
Common stocks ..................................................................................................
Short(cid:882)term investments......................................................................................
Cash and cash equivalents..................................................................................
Cash and cash equivalents held as collateral......................................................
Total ......................................................................................................... $$
2018
Fair Value
2017
Fair Value
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
2,583,063(cid:3) (cid:3) $$
54,635(cid:3) (cid:3)
(cid:3)
624,229(cid:3) (cid:3)
(cid:3)
1,170,676(cid:3) (cid:3)
(cid:3)
4,432,603(cid:3) (cid:3)
(cid:3)
24,125(cid:3) (cid:3)
(cid:3)
785,330(cid:3) (cid:3)
(cid:3)
531,957(cid:3) (cid:3)
(cid:3)
786,019(cid:3) (cid:3)
(cid:3)
28,381(cid:3) (cid:3)
(cid:3)
6,588,415(cid:3) (cid:3) $$
184,013
382,975
267,772
454,850
1,289,610
31,983
872,027
2,095,823
1,710,485
230,074
6,230,002
(a)
Fixed Income Maturity Schedule
The amortized cost and fair value of fixed income securities as of December 31, 2018, by contractual
maturity, are shown below (in thousands):
At December 31, 2018
(cid:3)
(cid:3)
Available for Sale
Cost or
Amortized
Cost
9,240 $
(cid:3)
Due in one year or less .............................. $
Due after one year through five years.......
Due after five years through ten years......
Due after ten years ....................................
Fair Value
9,240
27,846
16,598
22,970
Total fixed income securities................ $ 74,648 $ 76,654
27,843
15,845
21,720
Held for Trading
(cid:3) (cid:3)
Amortized (cid:3) (cid:3)
Cost or
(cid:3)(cid:3)
(cid:3)(cid:3)
Cost
(cid:3) (cid:3) Fair Value
% of Total
Fair Value
12.0% $1,923,405(cid:3)(cid:3)(cid:3) $1,923,130
2,138,611(cid:3)(cid:3)(cid:3) 2,120,217
36.3
111,312
21.7
106,741(cid:3)(cid:3)(cid:3)
30.0
277,944
276,734(cid:3)(cid:3)(cid:3)
100.0% $4,445,491(cid:3)(cid:3)(cid:3) $4,432,603
% of Total
Fair Value
43.4%
47.8
2.5
6.3
100.0%
42
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Actual maturities may differ from the contractual maturities shown in the previous table due to the
existence of call options. In the case of securities containing call options, the actual maturity will be the same as
the contractual maturity if the issuer elects not to exercise its call option. Total securities subject to call options
represent approximately 13.5% of the total fair value.
(b) Net Investment Income and Realized Investment Gains (Losses)
The following table sets forth the sources and components of net investment income for the years ended
December 31, 2018, 2017 and 2016 (in thousands):
Interest on fixed income securities .................................................. $
Dividends on preferred stocks..........................................................
Dividends on common stocks ...........................................................
Net income of common stocks, at equity.........................................
Interest on cash and short(cid:882)term investments ..................................
Net income from other invested assets ...........................................
Gross investment income............................................................
Less: investment expenses ...............................................................
Net investment income............................................................... $
2018
112,428
1,495
16,396
21,300
26,816
65,666
244,101
34,875
209,226
$
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
$
(cid:3)
2017
103,052(cid:3) $
60(cid:3)
20,831(cid:3)
46,679(cid:3)
20,984(cid:3)
26,020(cid:3)
217,626(cid:3)
25,836(cid:3)
191,790(cid:3) $
2016
189,520
6,112
25,954
22,890
6,049
24,489
275,014
59,941
215,073
The following table summarizes the Company’s net realized investment gains and losses for the years ended
December 31, 2018, 2017 and 2016 (in thousands):
2018
2017
Available for sale:
From sales ................................................................................... $
Other(cid:882)than(cid:882)temporary impairments...........................................
Total available for sale ...........................................................
Held for trading:
From sales and settlements ........................................................
From mark to market adjustments .............................................
Total held for trading .............................................................
Total net realized investment(cid:3)(cid:3)(losses) gains ................... $
12,106
(299)
11,807
(cid:3)
$
(cid:3)
(cid:3)
(cid:3)
49,431
(cid:3)
(178,643)
(cid:3)
(129,212)
(cid:3)
(117,405) $
2016
(cid:3)
(cid:3)
114,085(cid:3) $
(12,286)
101,799(cid:3)
(cid:3)
(1,912)
278,194(cid:3)
276,282(cid:3)
378,081(cid:3) $
58,547
(16,227)
42,320
(264,734)
20,499
(244,235)
(201,915)
43
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table sets forth the components of net realized investment gains and losses on the Company’s
available for sale securities for the years ended December 31, 2018, 2017 and 2016 (in thousands):
2018
2017
(cid:3)
2016
Fixed income securities:
Realized investment gains........................................................... $
Realized investment losses .........................................................
Other(cid:882)than(cid:882)temporary impairments...........................................
Net realized investment gains ...............................................
(cid:3)
Equity securities:
Realized investment gains...........................................................
Realized investment losses .........................................................
Other(cid:882)than(cid:882)temporary impairments...........................................
Net realized investment (losses) gains ..................................
(cid:3)
Common stocks, at equity:
Realized investment gains...........................................................
Realized investment losses .........................................................
Net realized investment gains ...............................................
(cid:3)
Total available for sale securities:
Realized investment gains...........................................................
Realized investment losses .........................................................
Other(cid:882)than(cid:882)temporary impairments...........................................
Net realized investment gains ............................................... $
18,805
(6,526)
(56)
12,223
(173)
(243)
(416)
$
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
—— (cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
—— (cid:3)(cid:3)
—— (cid:3)(cid:3)
—— (cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
$
18,805
(6,699)
(299)
11,807
67,281(cid:3) $
(1,523)
——(cid:3)
65,758(cid:3)
(cid:3)
(cid:3)
20,052(cid:3)
——(cid:3)
(12,286)
7,766(cid:3)
(cid:3)
(cid:3)
30,854(cid:3)
(2,579)
28,275(cid:3)
(cid:3)
(cid:3)
118,187(cid:3)
(4,102)
(12,286)
101,799(cid:3) $
68,081
(9,905)
——
58,176
724
(353)
(16,227)
(15,856)
——
——
——
68,805
(10,258)
(16,227)
42,320
For those fixed income securities that were determined to be other(cid:882)than(cid:882)temporarily impaired, the
Company determined that such impairments were related to credit, requiring the recognition of an impairment
charge to income, and not related to other factors (e.g., interest rates and market conditions) which would have
required charges to other comprehensive income.
44
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The net realized investment gains or losses on disposal of held for trading securities in the table below
represent the total gains or losses from the purchase dates of the investments and have been reported in net
realized investment gains in the consolidated statements of operations.(cid:3) The change in fair value presented below
consists of two components:(cid:3)(cid:3)(i) the reversal of the gain or loss recognized in previous years on securities sold and
(ii) the change in fair value resulting from mark(cid:882)to(cid:882)market adjustments on contracts still outstanding.(cid:3) (cid:3) The
following table sets forth the total net realized investment gains and losses on held for trading securities for the
years ended December 31, 2018, 2017 and 2016 (in thousands):
2018
2017
2016
(cid:3)
(cid:3)
Fixed income securities:
Net realized investment (losses) gains on disposal..................... $
Change in fair value.....................................................................
Net realized investment (losses) gains ..................................
(cid:3)(cid:3)
Preferred stock:
Net realized investment gains (losses) on disposal.....................
Change in fair value.....................................................................
Net realized investment (losses) gains ..................................
(cid:3)(cid:3)
Equity securities:
Net realized investment gains (losses) on disposal.....................
Change in fair value.....................................................................
Net realized investment (losses) gains ..................................
(cid:3)(cid:3)
Derivative securities:
Net realized investment losses on disposal/
settlement ................................................................................
Change in fair value.....................................................................
Net realized investment gains (losses) ..................................
(cid:3)(cid:3)
Other securities:
Net realized investment gains (losses) on disposal.....................
Change in fair value.....................................................................
Net realized investment gains ...............................................
(cid:3)(cid:3)
Total held for trading securities:
Net realized investment gains (losses) on disposal.....................
Change in fair value.....................................................................
Net realized investment (losses) gains .................................. $
(7,141)
(7,141)
62,577
(206,038)
(143,461)
(cid:3)
(13,227) $
(50,425)
(cid:3)
(63,652)
(cid:3)
(cid:3)
(cid:3)
—— (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
49,431
(cid:3)
(178,643)
(cid:3)
(129,212) $
(32,456)
48,221
15,765
32,537
36,740
69,277
13,551(cid:3) $
105,547(cid:3)
119,098(cid:3)
(cid:3)
(cid:3)
410(cid:3)
(301)
109(cid:3)
(cid:3)
(cid:3)
84,714(cid:3)
60,434(cid:3)
145,148(cid:3)
(cid:3)
(cid:3)
(cid:3)
(95,186)
(20,215)
(115,401)
(cid:3)
(cid:3)
(5,401)
132,729(cid:3)
127,328(cid:3)
(cid:3)
(cid:3)
(1,912)
278,194(cid:3)
276,282(cid:3) $
75,991
47,776
123,767
(41,989)
34,719
(7,270)
(20,756)
(15,490)
(36,246)
(327,402)
(79,779)
(407,181)
49,422
33,273
82,695
(264,734)
20,499
(244,235)
45
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(c)
Unrealized (Depreciation) Appreciation
The following table sets forth the changes in net unrealized (depreciation) appreciation of investments, and
the related tax effect, reflected in accumulated other comprehensive income for the years ended December 31,
2018, 2017 and 2016 (in thousands):
Fixed income securities .................................................................... $
Equity securities................................................................................
Other.................................................................................................
Decrease in unrealized net appreciation of
investments ..............................................................................
Deferred income tax benefit on disposal....................................
Change in net unrealized depreciation of
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3) investments included in other comprehensive
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3) (loss) income................................................................. $
2018
(27,720) $
(55,290)
(cid:3)
108
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(82,902)
17,461
(cid:3)
2017
(77,126) $
33,160(cid:3)
(48)
(cid:3)
(44,014)
15,271(cid:3)
2016
(88,131)
(13,578)
(244)
(101,953)
35,664
(65,441) $
(28,743) $
(66,289)
On a quarterly basis, the Company reviews its investment portfolio classified as available for sale for declines
in value and specifically evaluates securities with fair values that have declined to less than 80% of their cost or
amortized cost at the time of review. Declines in the fair value of investments that are determined to be
temporary are recorded as unrealized depreciation, net of tax, in accumulated other comprehensive income. If the
Company determines that a decline relating to credit issues is “other(cid:882)than(cid:882)temporary,” the cost or amortized cost
of the investment will be written down to the fair value, and a realized loss will be recorded in the Company’s
consolidated statements of operations.(cid:3)(cid:3)If the Company determines that a decline related to other factors (e.g.,
interest rates or market conditions) is “other(cid:882)than(cid:882)temporary,” the cost or amortized cost of the investment will
be written down to the fair value within other comprehensive income.
In assessing the value of the Company’s debt and equity securities that are classified as available for sale and
possible impairments of such securities, the Company reviews (i) the issuer’s current financial position and
disclosures related thereto, (ii) general and specific market and industry developments, (iii) the timely payment by
the issuer of its principal, interest and other obligations, (iv) the outlook and expected financial performance of the
issuer, (v) current and historical valuation parameters for the issuer and similar companies, (vi) relevant forecasts,
analyses and recommendations by research analysts, rating agencies and investment advisors, and (vii) other
information the Company may consider relevant. Generally, a change in the market or interest rate environment
would not, of itself, result in an impairment of an investment. In addition, the Company considers its ability and
intent to hold the security to recovery when evaluating possible impairments.
The facts and circumstances involved in making a decision regarding an other(cid:882)than(cid:882)temporary impairment
are those that exist at that time. Should the facts and circumstances change such that an other(cid:882)than(cid:882)temporary
impairment is considered appropriate, the Company will recognize the impairment by reducing the cost, amortized
cost or carrying value of the investment to its fair value, and recording the loss in its consolidated statements of
operations. Upon the disposition of a security where an “other(cid:882)than(cid:882)temporary” impairment has been taken, the
Company will record a gain or loss based on the adjusted cost or carrying value of the investment.
The following table reflects the fair value and gross unrealized depreciation of the Company’s fixed income
securities and common stocks, at fair value classified as available for sale, aggregated by investment category for
individual securities that have been in a continuous unrealized depreciation position for less than 12 months, as of
December 31, 2018 and 2017 (in thousands):
December 31, 2018
Common stock securities:
Industrial and miscellaneous................................................ $
Total common stock securities .......................................
Total temporarily impaired securities .................................. $
71,395
71,395
71,395
$
$
Fair
Value
Number
of
Securities
(cid:3)
Gross
Unrealized
Depreciation
(cid:3)
(cid:3)(cid:3)(cid:3)
(cid:3)(cid:3)(cid:3)
7,803(cid:3)(cid:3)(cid:3)
7,803(cid:3)(cid:3)(cid:3)
7,803(cid:3)(cid:3)(cid:3)
2
2
2
46
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fair
Value
December 31, 2017
Fixed income securities:
States, municipalities and political subdivisions .................. $
Corporate .............................................................................
Total fixed income securities ..........................................
Total temporarily impaired securities .................................. $
—— $
11,000
11,000
11,000
$
Gross
Unrealized
Depreciation
(cid:3)
(cid:3)
(cid:3)(cid:3)(cid:3)(cid:3)
(cid:3)(cid:3)(cid:3)(cid:3)
56(cid:3)(cid:3)(cid:3)(cid:3)
640(cid:3)(cid:3)(cid:3)(cid:3)
696(cid:3)(cid:3)(cid:3)(cid:3)
696(cid:3)(cid:3)(cid:3)(cid:3)
Number
of
Securities
1
1
2
2
The Company did not own any fixed income or common stocks, at fair value classified as available for sale,
that have been in a continuous unrealized loss position for more than 12 months as of December 31, 2018 or 2017.(cid:3)(cid:3)(cid:3)
The Company believes the gross unrealized depreciation for securities classified as available for sale is
temporary in nature and has not recorded a realized investment loss related to these securities. Given the size of
the Company’s investment portfolio and capital position, the Company believes it is likely that it will not be
required to sell or liquidate these securities before the fair value recovers the gross unrealized depreciation.
(d)
Common Stocks, at Equity
The following table sets forth the components of common stocks, at equity, as of December 31, 2018 and
2017 (in thousands):
(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
Carrying Value
Goodwill and Other
included in
Carrying Value
2018
2017
2018
2017
Quoted
Market Value
(cid:3) (cid:3)
(cid:3)
2018
2017
2,710 $
Grivalia Properties Real Estate
(cid:3)(cid:3)(cid:3) Investment Company ...................... (cid:3) $ 198,791 $ 201,691 $
Recipe Unlimited Corporation............. (cid:3) (cid:3) 134,678
Fairfax India Holdings Corp .................(cid:3)(cid:3) (cid:3) 132,479
Fairfax Africa Holdings Corp................(cid:3)(cid:3) (cid:3) 125,206
71,998
Apple Bidco Limited ............................ (cid:3) (cid:3)
39,212
Zenith National Insurance Corp. .........(cid:3)(cid:3) (cid:3)
25,215
Boat Rocker Media Inc. .......................(cid:3)(cid:3) (cid:3)
22,083
Sigma Companies International Corp..(cid:3)(cid:3) (cid:3)
18,525
2018296 Alberta ULC ..........................(cid:3)(cid:3) (cid:3)
17,679
Davos Brands LLC ................................(cid:3)(cid:3) (cid:3)
14,446
Farmers Edge Inc.................................(cid:3)(cid:3) (cid:3)
11,910
Peak Achievement Athletics Inc. .........(cid:3)(cid:3) (cid:3)
4,100
Toys "R" Us (Canada) Ltd.....................(cid:3)(cid:3) (cid:3)
2,847 $ 174,609(cid:3) (cid:3) $201,845
(cid:3) 126,992
136,678(cid:3) (cid:3) (cid:3)
87,467
—— 129,388(cid:3) (cid:3) (cid:3)
(cid:3) 151,679
——
(cid:3) 144,162
93,976(cid:3) (cid:3) (cid:3)
n/a
n/a(cid:3) (cid:3) (cid:3)
(653)
n/a
n/a(cid:3) (cid:3) (cid:3)
3,928
n/a
n/a(cid:3) (cid:3) (cid:3)
15,923
——
n/a
n/a(cid:3) (cid:3) (cid:3)
——
n/a
n/a(cid:3) (cid:3) (cid:3)
n/a
n/a(cid:3) (cid:3) (cid:3)
12,824
n/a
n/a(cid:3) (cid:3) (cid:3)
15,747
n/a
n/a(cid:3) (cid:3) (cid:3)
469
——
n/a
n/a(cid:3) (cid:3) (cid:3)
Total common stocks, at equity .... (cid:3) $ 816,322 $ 809,638 $ 144,270 $ 138,552
(cid:3) (cid:3) (cid:3)
134,887
137,217
106,822
73,752
37,084
28,356
21,705
18,298
18,298
16,940
14,588
——
93,160
——
2,779
(653)
3,928
14,607
——
——
12,824
14,446
469
——
(cid:3)
Relative
Economic
Ownership (cid:3)
2018
18.8%
11.7%
6.6%
18.8%
16.9%
6.1%
27.3%
41.9%
27.3%
14.3%
7.1%
3.8%
25.0%
During 2017, the Company and Fairfax purchased additional common shares of Grivalia Properties Real
Estate Investment Company (“Grivalia”), resulting in Grivalia becoming an affiliate of the Company and a change in
the accounting for the Company’s investment in Grivalia to the equity method.(cid:3) Prior to 2017, the Company’s
investment in Grivalia was reported as a common stock, held for trading, at fair value.
Zenith National Insurance Corp., Toys “R” Us (Canada) Ltd. and 2018296 Alberta ULC are wholly(cid:882)owned
subsidiaries of Fairfax, while Fairfax is the controlling or largest shareholder of Grivalia (52.7%), Fairfax India
Holdings Corp. (33.7%), Recipe(cid:3) Limited Corporation (43.7%), Fairfax Africa Holdings Corp. (58.7%), Apple Bidco
Limited (67.8%), Boat Rocker Media Inc. (58.2%), Sigma Companies International Corp. (81.1%), Davos Brands LLC
(35.7%), Farmers Edge Inc. (49.2%) and Peak Achievement Athletics Inc. (42.6%).
47
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(e) Other Invested Assets
The following table shows the components of other invested assets as of December 31, 2018 and 2017 (in
thousands):
2018
(cid:3)
(cid:3)
2017
Investment funds and partnerships, at fair value............................................... $
Investment funds and partnerships, at equity ...................................................
Real estate ..........................................................................................................
Affiliate loans......................................................................................................
Derivatives, at fair value .....................................................................................
Mortgage loans...................................................................................................
Benefit plan funds, at fair value..........................................................................
Other...................................................................................................................
Total other invested assets ........................................................................... $
665,143(cid:3)(cid:3)(cid:3)(cid:3) $
176,911(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)
136,891(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)
99,873(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)
61,399(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)
20,837(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)
14,874(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)
6,141(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)
1,182,069(cid:3)(cid:3)(cid:3)(cid:3) $
568,586
186,567
39,912
19,155
48,322
——
13,812
5,525
881,879
The Company’s investment funds and partnership investments may be subject
to restrictions on
redemptions or sales, which are determined by the governing documents thereof, and may limit the Company’s
ability to liquidate these investments in the short term. Due to a time lag in reporting by a majority of investment
fund and partnership fund managers, valuations for these investments are recorded by the Company on a one
month or one quarter lag. For the years ended December 31, 2018, 2017 and 2016, the Company recognized net
investment income of $38.5 million, $15.8 million and $20.0 million, respectively, from its investment funds and
partnership investments. For the years ended December 31, 2018, 2017 and 2016, the Company recognized net
realized investment gains of $73.8 million, $145.6 million and $67.7 million, respectively, from its investment funds
and partnerships that are held as trading securities. With respect to the Company’s $842.1 million in investments
in investment funds and partnerships, the Company has commitments that may require additional funding of up to
$87.4 million.(cid:3)(cid:3)
The Company’s investments in real estate consists of land of $43.7 million and $25.0 million and buildings of
$94.4 million and $15.1 million less accumulated depreciation of $1.2 million and $0.2 million, as of December 31,
2018 and 2017, respectively.(cid:3)(cid:3)
The Company’s investments in mortgage loans consists of loans collateralized by commercial property in
various locations in Canada as of December 31, 2018.
(f)
Derivative Investments
The Company has utilized CPI(cid:882)linked derivative contracts, total return swaps, forward currency contracts, U.S.
Treasury bond forward contracts and various other contracts, to manage against adverse changes in the values of
assets and liabilities. These products are typically not directly linked to specific assets or liabilities on the
consolidated balance sheets or a forecasted transaction. The following tables set forth the Company’s derivative
positions, which are included in other invested assets or other liabilities in the consolidated balance sheets, as of
December 31, 2018 and 2017, respectively (in thousands):
Exposure/
Notional
Amount
As of December 31, 2018
CPI(cid:882)linked derivative contracts ........................................... $34,359,534 $ 229,779(cid:3) (cid:3)(cid:3)$
Forward currency contracts................................................
——(cid:3) (cid:3)(cid:3)(cid:3)
7,519(cid:3) (cid:3)(cid:3)(cid:3)
Option contracts.................................................................
Long total return swaps......................................................
——(cid:3) (cid:3)(cid:3)(cid:3)
Short total return swaps.....................................................
——(cid:3) (cid:3)(cid:3)(cid:3)
U.S. Treasury bond forward contracts................................
——(cid:3) (cid:3)(cid:3)(cid:3)
$ 237,298(cid:3) (cid:3)(cid:3)$
Total ..............................................................................
1,077,687
437,500
135,147
134,586
10,175
Cost
(cid:3)
(cid:3)
Fair Value
Asset
Fair Value
Liability
3,115 $
42,965
7,431
2,396
5,492
——
61,399 $
——
11,896
——
17,732
——
608
30,236
48
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Exposure/
Notional
Amount
As of December 31, 2017
CPI(cid:882)linked derivative contracts ........................................... $35,399,630 $ 229,779(cid:3) (cid:3)(cid:3)$
Forward currency contracts................................................
——(cid:3) (cid:3)(cid:3)(cid:3)
U.S. Treasury bond forward contracts................................
——(cid:3) (cid:3)(cid:3)(cid:3)
Long total return swaps......................................................
——(cid:3) (cid:3)(cid:3)(cid:3)
Short total return swaps.....................................................
——(cid:3) (cid:3)(cid:3)(cid:3)
Warrants.............................................................................
12,074(cid:3) (cid:3)(cid:3)(cid:3)
$ 241,853(cid:3) (cid:3)(cid:3)$
Total ..............................................................................
829,519
230,875
230,820
120,136
117,913
Cost
(cid:3)
(cid:3)
Fair Value
Asset
Fair Value
Liability
6,382 $
28,502
——
6,546
1,493
5,399
48,322 $
——
47,757
6,905
4,159
2,131
——
60,952
The Company held long position common stock total return swaps, with a total notional value of $135.1
million and $230.8 million as of December 31, 2018 and 2017, respectively, as replications of investments in
publicly(cid:882)listed common stocks.(cid:3) The common stock total return swaps, which are carried at fair value, are recorded
in other invested assets or other liabilities based on the positive or negative value of the underlying contracts as of
the financial statement date.(cid:3) (cid:3) Changes in the fair value of common stock total return swaps are recorded as
realized investment gains or losses in the consolidated statements of operations in the period in which they occur.
As of December 31, 2018 and 2017, the Company held short position common stock total return swaps with
a notional value of $134.6 million and $120.1 million, respectively.(cid:3) (cid:3) The common stock total return swaps are
recorded at fair value in other invested assets or other liabilities based on the positive or negative value of the
underlying contracts as of the financial statement date.(cid:3) (cid:3)Changes in the fair value of the swaps are recorded as
realized investment gains or losses in the consolidated statements of operations in the period in which they occur.
As a result of fundamental changes to the macroeconomic outlook for the U.S. during the fourth quarter of
2016 and the ensuing potential for a significant increase in market interest rates, the Company reduced its
exposure to interest rate risk by selling certain U.S. state and municipal bonds and long dated U.S. Treasury bonds.
To further reduce its exposure to interest rate risk (specifically exposure to U.S. state and municipal bonds and any
remaining long dated U.S. Treasury bonds held in its fixed income portfolio), the Company began entering into,
and continues to hold, forward contracts to sell long dated U.S. Treasury bonds. These contracts have an average
term to maturity of less than one year and may be renewed at market rates.(cid:3) The U.S. Treasury bond forward
contracts are recorded at fair value in other invested assets or in other liabilities based on the positive or negative
value of the underlying contracts as of the financial statement date, with the related changes in fair value
recognized as realized investment gains or losses in the consolidated statements of operations in the period in
which they occur.
As an economic hedge against the potential adverse impact on the Company of decreasing price levels in the
economy, the Company has purchased derivative contracts referenced to consumer price indices (“CPI”) in various
geographic regions in which the Company operates. These contracts had a remaining average life of 3.1 years and
4.1 years as of December 31, 2018 and 2017, respectively.(cid:3) (cid:3) As the remaining life of a contract declines, the fair
value of the contract (excluding the impact of CPI changes) will generally decline.(cid:3) The initial premium paid for the
contracts is recorded as a derivative asset and subsequently adjusted for changes in the unrealized fair value of the
contracts at each balance sheet date.(cid:3) Changes in the unrealized fair value of the contracts are recorded as realized
gains or losses on investments in the Company’s consolidated statements of operations with a corresponding
adjustment to the carrying value of the derivative asset.(cid:3) In the event of a sale, expiration or early settlement of
one of the Company’s CPI(cid:882)linked derivative contracts, the Company would receive the fair value of that contract on
the date of the transaction.(cid:3)(cid:3)The Company’s maximum potential cash loss is limited to the premiums already paid
to enter into the derivative contracts.
The Company has entered into forward currency contracts to manage its foreign currency exchange rate risk
on a macro basis.(cid:3) (cid:3) Under a forward currency contract, the Company and the counterparty are obligated to
purchase or sell an underlying currency at a specified price and time.(cid:3)(cid:3)Forward currency contracts are recorded at
fair value in other invested assets or other liabilities based on the positive or negative value of the underlying
contracts as of the financial statement date, with the related changes in fair value recognized as realized
investment gains or losses in the consolidated statements of operations in the period in which they occur.
49
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company has investments in call options, which are contracts that grant the holder the right (but not the
obligation) to purchase a financial instrument at a specified price within a specific time period. Call options, which
are included in other invested assets, are recorded at fair value, with changes in the fair value recognized as
realized investment gains or losses in the consolidated statement of operations in the period in which they occur.
The Company had investments in warrants, which are contracts that grant the holder the right, but not the
obligation, to purchase an underlying financial instrument at a given price and time or at a series of prices and
times. Warrants, which were included in other invested assets, are recorded at fair value, with the related changes
in fair value recognized as realized investment gains or losses in the consolidated statements of operations in the
period in which they occur.(cid:3)(cid:3)
Pursuant to the agreements governing various derivative contracts, the fair value of collateral deposited by
the Company with the contracts’ counterparties totaled $38.3 million and $51.2 million as of December 31, 2018
and 2017, respectively, while the fair value of collateral deposited by various counterparties for the benefit of the
Company was $7.8 million and $8.8 million as of December 31, 2018 and 2017, respectively.
Counterparties to the derivative instruments expose the Company to credit risk in the event of non(cid:882)
performance. The Company believes this risk is low, given the diversification of the placement of the contracts
among various highly rated counterparties.(cid:3)(cid:3)The credit risk exposure is reflected in the fair value of the derivative
instruments.
50
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The net realized investment gains or losses on disposal of derivatives in the table below represent the total
gains or losses for the years ended December 31, 2018, 2017 and 2016 from the purchase dates of the investments
and have been reported in net realized investment gains in the consolidated statements of operations; the change
in fair value presented consists of two components: (i) the reversal of the gain or loss recognized in previous years
on securities sold and (ii) the change in fair value resulting from mark(cid:882)to(cid:882)market adjustments on contracts still
outstanding (in thousands):
(cid:3)
2018
2017
CPI(cid:882)linked derivative contracts:
Change in fair value..................................................................... $
Net realized investment losses ..............................................
(cid:3)
Forward currency contracts:
Net realized investment gains (losses) on disposal.....................
Change in fair value.....................................................................
Net realized investment gains (losses) ..................................
(cid:3)(cid:3)
U.S. Treasury bond forward contracts:
Net realized investment gains (losses) on disposal.....................
Change in fair value.....................................................................
Net realized investment gains (losses) ..................................
(cid:3)
Long total return swaps:
Net realized investment (losses) gains on disposal.....................
Change in fair value.....................................................................
Net realized investment (losses) gains ..................................
(cid:3)
Short total return swaps:
Net realized investment losses on disposal ................................
Change in fair value.....................................................................
Net realized investment losses ..............................................
(cid:3)
Warrants:
Net realized investment losses on disposal ................................
Change in fair value.....................................................................
Net realized investment losses ..............................................
(cid:3)
Call options:
Net realized investment gains on disposal..................................
Change in fair value.....................................................................
Net realized investment (losses) gains ..................................
(cid:3)(cid:3)
Other:
Net realized investment losses on disposal ................................
Change in fair value.....................................................................
Net realized investment losses ..............................................
(cid:3)
Total derivatives:
Net realized investment losses on disposal ................................
Change in fair value.....................................................................
Net realized investment gains (losses) .................................. $
(14,451)
6,130
(8,321)
(16,258)
(17,722)
(33,980)
8,636
50,205
58,841
388
6,297
6,685
(cid:3)
(3,267) $
(3,267)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
—— (cid:3)
(87)
(cid:3)
(87)
(cid:3)
(cid:3)
(cid:3)
—— (cid:3)
—— (cid:3)
—— (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
$
(10,771)
6,665
(4,106)
(32,456)
48,221
15,765
2016
(cid:3)
(cid:3)
(7,233) $
(7,233)
(cid:3)
(cid:3)
(8,241)
(27,166)
(35,407)
(cid:3)
(cid:3)
(35,950)
6,961(cid:3)
(28,989)
(cid:3)
(cid:3)
6,469(cid:3)
(367)
6,102(cid:3)
(cid:3)
(cid:3)
(53,848)
7,605(cid:3)
(46,243)
(cid:3)
(cid:3)
——(cid:3)
(6,638)
(6,638)
(cid:3)
(cid:3)
3,007(cid:3)
——(cid:3)
3,007(cid:3)
(cid:3)
(cid:3)
(6,623)
6,623(cid:3)
——(cid:3)
(cid:3)
(cid:3)
(95,186)
(20,215)
(115,401) $
(48,695)
(48,695)
23,037
(18,707)
4,330
33,143
(13,866)
19,277
1,674
5,282
6,956
(308,629)
(80,359)
(388,988)
——
——
——
——
——
——
(76,627)
76,566
(61)
(327,402)
(79,779)
(407,181)
51
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(g)
Assets on Deposit
The Company is required to maintain assets on deposit with various regulatory authorities to support its
insurance and reinsurance operations. These requirements are generally promulgated in the statutes and
regulations of the individual jurisdictions. The assets on deposit are available to settle insurance and reinsurance
liabilities. For certain reinsurance contracts, derivative contracts and affiliate guarantees, the Company utilizes
trust funds to collateralize its obligations or potential obligations to the ceding companies and counterparties. As
of December 31, 2018, restricted assets supporting these deposits and trust fund requirements totaled $1.0 billion,
as depicted in the following table (in thousands):
Restricted Assets Relating to:
Fixed
Income
Securities
Cash
Cash Equivalents
Short(cid:882)term
Investments
84,622
$
—— $
Common
Stocks
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) Partnerships
(cid:3)
(cid:3)
(cid:3)
(cid:3)
——(cid:3) (cid:3)(cid:3) $
Total
—— $
84,622
194,196
38,295
381,590
33,457
732,160
$
60,563
——
46,289
1,954
108,806
$
20,036(cid:3) (cid:3)(cid:3) (cid:3)
——(cid:3) (cid:3)(cid:3) (cid:3)
109,857(cid:3) (cid:3)(cid:3) (cid:3)
——(cid:3) (cid:3)(cid:3) (cid:3)
129,893(cid:3) (cid:3)(cid:3) $
——
——
19,372
——
19,372
$
274,795
38,295
557,108
35,411
990,231
(cid:3)
(cid:3)
(cid:3)
U.S. regulatory requirements ................ $
Foreign regulatory/Lloyd's
(cid:3)(cid:3)(cid:3) requirements .....................................
Derivative collateral requirements........
Reinsurance collateral requirements ....
Guarantee collateral requirements .......
Total ................................................. $
52
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
5. Accumulated Other Comprehensive Income
The following table shows the components of the change in accumulated other comprehensive income, net
of deferred income taxes, for the years ended December 31, 2018, 2017 and 2016 (in thousands):
Beginning balance of unrealized net appreciation on securities
prior to U.S. tax reform adjustment............................................ $
Beginning balance adjustment for U.S. tax reform ..........................
Beginning balance of unrealized net appreciation on securities
after U.S. tax reform adjustment ................................................
Ending balance of unrealized net appreciation on securities...........
Current period change in unrealized net depreciation
(cid:3)(cid:3)(cid:3)on securities .............................................................................
Beginning balance of foreign currency translation adjustments
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3) prior to U.S. tax reform adjustment............................................
Beginning balance adjustment for U.S. tax reform ..........................
Beginning balance of foreign currency translation adjustments
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3) after U.S. tax reform adjustment ................................................
Ending balance of foreign currency translation adjustments...........
Current period change in foreign currency translation
(cid:3)(cid:3)(cid:3) adjustments.............................................................................
Beginning balance of benefit plan liabilities prior to U.S. tax
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3) reform adjustment ......................................................................
Beginning balance adjustment for U.S. tax reform ..........................
Beginning balance of benefit plan liabilities after U.S. tax reform
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3) adjustment ..................................................................................
Ending balance of benefit plan liabilities..........................................
Current period change in benefit plan liabilities.........................
Other comprehensive loss ..................................................... $
(cid:3)(cid:3)
balance of accumulated other comprehensive income .. $
Other comprehensive loss................................................................
U.S. tax reform deferred income tax reclassification .......................
Ending balance of accumulated other comprehensive
(cid:3)(cid:3)(cid:3) (loss) income............................................................................ $
2018
2017
58,115
12,531
70,646
5,205
(65,441)
11,197
2,412
13,609
(35,916)
(49,525)
(38,698)
(8,335)
(cid:3) (cid:3)(cid:3)
$
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(47,033)
(cid:3)
(38,018)
(cid:3)
9,015
(cid:3)
(105,951) $
37,222
(105,951)
(cid:3) (cid:3)(cid:3)
$
(cid:3)
—— (cid:3)
2016
(cid:3)
(cid:3)
86,858(cid:3) $
——(cid:3)
(cid:3)
86,858(cid:3)
58,115(cid:3)
153,147
——
153,147
86,858
(28,743)
(66,289)
10,854(cid:3)
——(cid:3)
10,854(cid:3)
11,197(cid:3)
26,562
——
26,562
10,854
343(cid:3)
(15,708)
(30,131)
——(cid:3)
(30,131)
(38,698)
(8,567)
(36,967) $
(cid:3)
67,581(cid:3) $
(36,967)
6,608(cid:3)
(28,545)
——
(28,545)
(30,131)
(1,586)
(83,583)
151,164
(83,583)
——
(68,729) $
37,222(cid:3) $
67,581
53
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In February 2018, the FASB issued ASU 2018(cid:882)02, “Income Statement – Reporting Comprehensive Income
(Topic 220).” This ASU allows the effect of remeasuring deferred tax assets and liabilities related to the Tax Cuts
and Jobs Act of 2017 with respect to items with accumulated other comprehensive income to be reclassified to
retained earnings. The amount of the reclassification is the difference between the amount initially charged or
credited directly to other comprehensive income at the previously enacted U.S. federal corporate income tax rate
that remains in accumulated other comprehensive income and the amount that would have been charged or
credited using the newly enacted 21 percent rate.(cid:3) The Company implemented this ASU in its 2017 consolidated
financial statements; the effect of the reclassification was to increase accumulated other comprehensive income
and decrease retained earnings by $6.6 million.
The following table shows the components of accumulated other comprehensive income and the related
deferred income taxes on each component, as of December 31, 2018 and 2017 (in thousands):
Gross:
Unrealized appreciation on securities........................................................... $
Foreign currency translation adjustments ....................................................
Benefit plan liabilities....................................................................................
(cid:3)(cid:3)(cid:3) Total accumulated other comprehensive (loss) income,
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)gross of deferred income taxes ..............................................................(cid:3) $
(cid:3)(cid:3)
Deferred taxes:
Unrealized depreciation on securities........................................................... $
Foreign currency translation adjustments ....................................................
Benefit plan liabilities....................................................................................
(cid:3)(cid:3)(cid:3) Total deferred taxes on accumulated
(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)(cid:3)other comprehensive income (loss)........................................................(cid:3) $
2018
(cid:3)
2017
(cid:3)
(cid:3) (cid:3)
(cid:3)(cid:3)
6,543(cid:3) (cid:3) $
(cid:3)(cid:3)
(cid:3)(cid:3)
(45,463) (cid:3)
(48,125) (cid:3)
89,445
17,227
(59,537)
(87,045) (cid:3) $
47,135
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(1,338) (cid:3) $
9,547(cid:3) (cid:3)
(cid:3)(cid:3)
10,107(cid:3) (cid:3)
(cid:3)(cid:3)
(18,799)
(3,618)
12,504
18,316(cid:3) (cid:3) $
(9,913)
The following table shows the changes in the balances of each component of accumulated other
comprehensive income (loss), for the years ended December 31, 2018, 2017 and 2016 (in thousands):
Unrealized
Gains and
Losses on
Securities
Foreign
Currency
Items
(cid:3) (cid:3)
Benefit Plan
Items
(28,545) $ 151,164
(61,743)
(3,017)
Total
Balance, January 1, 2016 ..................................................... $ 153,147
(34,497)
Amounts arising during the period ................................
$
26,562(cid:3)(cid:3)(cid:3) $
(24,229) (cid:3) (cid:3)
Reclassification adjustment included in
(cid:3)(cid:3)(cid:3)net (loss) income....................................................
Net other comprehensive loss.............................................
Balance, December 31, 2016 ....................................
Amounts arising during the period ................................
Reclassification adjustment included in
(cid:3)(cid:3)(cid:3)net (loss) income....................................................
Net other comprehensive (loss) income .............................
Adjustment for U.S. Tax Reform ..........................................
Balance, December 31, 2017 ....................................
Amounts arising during the period ................................
Reclassification adjustment included in
(cid:3)(cid:3)(cid:3)net (loss) income....................................................
Net other comprehensive (loss) income .............................
Balance, December 31, 2018 .................................... $
(31,792)
(66,289)
86,858
36,806
(65,549)
(28,743)
12,531
70,646
(51,256)
8,521(cid:3)(cid:3)(cid:3) (cid:3)
(15,708) (cid:3) (cid:3)
10,854(cid:3)(cid:3)(cid:3) (cid:3)
11,116(cid:3)(cid:3)(cid:3) (cid:3)
(10,773) (cid:3) (cid:3)
343(cid:3)(cid:3)(cid:3) (cid:3)
2,412(cid:3)(cid:3)(cid:3) (cid:3)
13,609(cid:3)(cid:3)(cid:3) (cid:3)
(51,137) (cid:3) (cid:3)
1,431
(1,586)
(30,131)
(10,000)
1,433
(8,567)
(8,335)
(47,033)
6,204
(21,840)
(83,583)
67,581
37,922
(74,889)
(36,967)
6,608
37,222
(96,189)
(14,185)
(65,441)
5,205
$
1,612(cid:3)(cid:3)(cid:3) (cid:3)
(49,525) (cid:3) (cid:3)
(35,916) (cid:3) $
2,811
9,015
(38,018) $
(9,762)
(105,951)
(68,729)
54
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table shows the significant amounts reclassified out of each component of accumulated other
comprehensive income for the years ended of December 31, 2018, 2017 and 2016 (in thousands):
Details about Accumulated Other
Comprehensive Income Components
(cid:3)
Unrealized net depreciation
of securities:
(cid:3)(cid:3)
currency translations:
Amount Reclassified from
Accumulated Other Comprehensive Income (a)
2017
2018
2016
Affected Line Item in the
Consolidated Statement of Operations
Where Net Income is Presented
(cid:3)
(cid:3)
$
(cid:3)
17,956
(3,771)
$ 100,845
(35,296)
(cid:3)
$
(cid:3)
48,910 Net realized investment gains
(17,118) Total federal and foreign
income tax benefit
$
14,185
$
65,549
$
31,792 Net income (loss)
$
(2,041) $
16,574
$ (13,109) Net realized investment (losses)
gains
429
(5,801)
4,588 Total federal and foreign
income tax provision (benefit)
$
(1,612) $
10,773
$
(8,521) Net (loss) gain
of benefit plan items:
Net actuarial loss............................ $
(cid:3)(cid:3)
Prior service costs ..........................
(cid:3)(cid:3)
(3,563) $
(2,242) $
(2,239) Other underwriting expenses (b)
5
37
37 Other underwriting expenses (b)
(3,558)
(2,205)
(2,202) Loss before federal and foreign
747
772
income tax benefit
771 Total federal and foreign
income tax provision
$
(2,811) $
(1,433) $
(1,431) Net loss
reclassifications .......................... $
9,762
$
74,889
$
21,840
(a) Amounts in parentheses indicate decreases to the indicated line item of the consolidated statements of
operations.
(b) These accumulated other comprehensive income components are included in the computation of net periodic
benefit plan costs (see Note 14 for additional details).
55
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
6. Unpaid Losses and Loss Adjustment Expenses
Estimates of reserves for unpaid losses and loss adjustment expenses, which relate to loss events that have
occurred on or before the balance sheet date, are contingent on many assumptions that may or may not occur in
the future. The estimates reflect assumptions regarding initial expectations of losses and patterns of loss reporting,
both for claims with higher frequency and lower severity as well as for claims with lower frequency and higher
severity associated with individual large loss events, such as earthquakes, windstorms, and floods. The eventual
outcome of these loss events may be different from the assumptions underlying the Company’s reserve estimates.
When the business environment and loss trends diverge from expected trends, the Company may have to adjust
its reserves accordingly, potentially resulting in adverse or favorable effects to the Company’s financial results. The
Company believes that the recorded estimate represents the best estimate of unpaid losses and loss adjustment
expenses based on the information available as of December 31, 2018. The estimate is reviewed on a quarterly
basis and the ultimate liability may be greater or less than the amounts provided, for which any adjustments will
be reflected in the periods in which they become known.
The Company’s estimate of ultimate loss is determined based on a review of the results of several commonly
accepted actuarial projection methodologies incorporating the quantitative and qualitative information described
above. The specific methodologies the Company utilizes in its loss reserve review process include, but may not be
limited to (i) incurred and paid loss development methods, (ii) incurred and paid Bornhuetter Ferguson (“BF”)
methods and (iii) loss ratio methods. The incurred and paid loss development methods utilize loss development
patterns derived from historical loss emergence trends usually based on cedant/insured claim information to
determine ultimate loss. These methods assume that the ratio of losses in one period to losses in an earlier period
will remain constant in the future. Loss ratio methods multiply expected loss ratios, derived from aggregated
analyses of internally developed pricing trends, by earned premium to determine ultimate loss. The incurred and
paid BF methods are a blend of the loss development and loss ratio methods. These methods utilize both loss
development patterns, as well as expected loss ratios, to determine ultimate loss. When using the BF methods, the
initial treaty year ultimate loss is based predominantly on expected loss ratios. As loss experience matures, the
estimate of ultimate loss using this methodology is based predominantly on loss development patterns. The
Company generally does not utilize methodologies that are dependent on claim counts reported, claim counts
settled or claim counts open. Due to the nature of the Company’s business, this information is not routinely
provided for every treaty/program. Consequently, actuarial methods utilizing this information generally cannot be
relied upon by the Company in its loss reserve estimation process. As a result, for much of the Company’s business,
the separate analysis of frequency and severity of loss activity underlying overall loss emergence trends is not
practical. Generally, the Company relies on BF and loss ratio methods for estimating ultimate loss liabilities for
more recent treaty years. These methodologies, at least in part, apply a loss ratio, determined from aggregated
analyses of internally developed pricing trends across reserve cells, to premium earned on that business.
Adjustments to premium estimates generate appropriate adjustments to ultimate loss estimates in the quarter in
which they occur, using the BF and loss ratio methods. To estimate losses for more mature treaty years, the
Company generally relies on the incurred loss development methodology, which does not rely on premium
estimates. In addition, the Company may use other methods to estimate liabilities for specific types of claims. For
property catastrophe losses, the Company may utilize vendor catastrophe models to estimate ultimate loss soon
after a loss occurs, where loss information is not yet reported to the Company from cedants/insureds. Incurred but
not reported reserves are determined by subtracting the total of paid loss and case reserves including additional
case reserves from ultimate loss.
The Company completes comprehensive loss reserve reviews, which include a reassessment of loss
development and expected loss ratio assumptions, on an annual basis. The Company completed this year’s annual
review in the fourth quarter of 2018. The results of these reviews are reflected in the period in which they are
completed. Quarterly, the Company compares actual
loss emergence to expectations established by the
comprehensive loss reserve review process. In the event that loss trends diverge from expected trends, the
Company may have to adjust its reserves for losses and loss adjustment expenses (“LAE”) accordingly. Any
adjustments will be reflected in the periods in which they become known, potentially resulting in adverse or
favorable effects to our financial results. The Company believes that the recorded estimate represents the best
estimate of unpaid losses and LAE based on the information available at December 31, 2018. The Company’s most
significant assumptions underlying its estimate of losses and LAE reserves are as follows: (i) that historical loss
emergence trends are indicative of future loss development trends; (ii) that internally developed pricing trends
provide a reasonable basis for determining loss ratio expectations for recent underwriting years; and (iii) that no
56
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
provision is made for extraordinary future emergence of new classes of loss or types of loss that are not
sufficiently represented in its historical database or that are not yet quantifiable if not in its database.
(cid:3)
U.S. Casualty Reinsurance
The following tables present i) incurred loss and allocated loss adjustment expenses (net of reinsurance), ii)
total incurred but not reported ("IBNR") liabilities plus expected development on reported loss and iii) cumulative
paid loss and allocated loss adjustment expenses (net of reinsurance) for the U.S. Casualty Reinsurance line of
business for the year ended and as of December 31, 2018 (in thousands):
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
(cid:3) (cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
Accident
Year
2013
2014
2015
2016
2017
2018
(cid:3)
2018
(cid:3)
2013
2014
(cid:3) (cid:3)
(cid:3)
(cid:3) (unaudited) (cid:3) (cid:3) (unaudited)
(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3) (cid:3)
173,475(cid:3) (cid:3) $
(cid:3) $
——(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3)
——(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3)
——(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3)
——(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3)
——(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3) (cid:3)
179,282 $
186,478
——
——
——
——
2015
(unaudited)
(cid:3)
2016
(unaudited)
(cid:3)
2017
(unaudited)
(cid:3)
(cid:3)
185,531 $
192,000
192,427
——
——
——
(cid:3)
171,977(cid:3) $
190,283(cid:3)
(cid:3)
196,147(cid:3)
(cid:3)
209,386(cid:3)
(cid:3)
230,950(cid:3)
(cid:3)
259,565(cid:3)
(cid:3)
(cid:3)
(cid:3)
Total incurred loss and loss adjustment expenses $ 1,258,308(cid:3)
(cid:3)
188,566 $
194,204
190,234
202,231
——
——
185,102 $
194,920
193,610
206,349
225,702
——
(cid:3)
(cid:3)
(cid:3)
(cid:3)
As of
(cid:3) (cid:3)
(cid:3) (cid:3)December 31, 2018
Total of IBNR
(cid:3) (cid:3)
Liabilities Plus
(cid:3) (cid:3)
Expected
(cid:3) (cid:3)
(cid:3) (cid:3) Development on
(cid:3) (cid:3) Reported Losses
(cid:3)
(cid:3)
47,623
68,913
72,940
86,149
138,327
190,539
(cid:3)
(cid:3)
Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
2013
(unaudited)
Accident
Year
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
2014
(unaudited)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
2015
(unaudited)
(cid:3)
(cid:3)
(cid:3)
2016
(unaudited)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
2017
(unaudited)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3) $
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3) (cid:3)
9,984(cid:3) (cid:3) $
——(cid:3) (cid:3)
(cid:3)
——(cid:3) (cid:3)
(cid:3)
——(cid:3) (cid:3)
(cid:3)
——(cid:3) (cid:3)
(cid:3)
——(cid:3) (cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
$
$
2013
2014
2015
2016
2017
2018
(cid:3)
17,035
13,175
——
——
——
——
89,405(cid:3) $
75,105(cid:3)
56,614(cid:3)
44,284(cid:3)
20,463(cid:3)
——(cid:3)
(cid:3)
Total paid loss and loss adjustment expenses(cid:3)
Total incurred loss and loss adjustment expenses(cid:3)
Outstanding liabilities for loss and allocated loss adjustment expenses for accident years prior to 2013(cid:3)
(cid:3)
(cid:3)
46,501
31,159
11,710
——
——
——
70,275
52,671
29,654
18,189
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
$
(cid:3)
(cid:3)
(cid:3)
—— (cid:3)
—— (cid:3)
(cid:3)
(cid:3)
2018
(cid:3)
102,698
92,812
79,814
68,958
42,549
31,578
418,409
1,258,308
317,364
(cid:3)
(cid:3)
(cid:3)
Liabilities for loss and allocated loss adjustment expenses, net of reinsurance(cid:3) $
1,157,263
Average Annual Percentage Payout of Incurred Loss and Allocated Loss Adjustment Expenses by Age,
Net of Reinsurance
In Year:
Average of
each year
(cid:3)
1
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
2
(cid:3)
3
(cid:3)
4
(cid:3)
5
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
8.4%
(cid:3)
(cid:3)
8.1%
12.8%
11.1%
10.0%
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
6
9.4%
57
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
U.S. Property Reinsurance
The following tables present i) incurred loss and allocated loss adjustment expenses (net of reinsurance), ii)
total IBNR liabilities plus expected development on reported loss and iii) cumulative paid loss and allocated loss
adjustment expenses (net of reinsurance) for the U.S. Property Reinsurance line of business for the year ended and
as of December 31, 2018 (in thousands):
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)
Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
(cid:3)(cid:3)
(cid:3)
(cid:3) (cid:3)(cid:3)
(cid:3)
Accident
Year
2013
2014
2015
2016
2017
2018
(cid:3)
2013
2014
(cid:3)
(cid:3) (cid:3)
(cid:3) (unaudited) (cid:3) (cid:3) (unaudited)
(cid:3) (cid:3) (cid:3)
(cid:3) $
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3) (cid:3) (cid:3)
228,551(cid:3) (cid:3) $
——(cid:3) (cid:3) (cid:3)
——(cid:3) (cid:3) (cid:3)
——(cid:3) (cid:3) (cid:3)
——(cid:3) (cid:3) (cid:3)
——(cid:3) (cid:3) (cid:3)
227,495 $
155,687
——
——
——
——
(cid:3) (cid:3) (cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
2015
(unaudited)
(cid:3)
2016
(unaudited)
(cid:3)
As of
(cid:3) (cid:3)
(cid:3) (cid:3)December 31, 2018
Total of IBNR
(cid:3) (cid:3)
Liabilities Plus
(cid:3) (cid:3)
Expected
(cid:3) (cid:3)
(cid:3) (cid:3) Development on
(cid:3) (cid:3) Reported Losses
(cid:3) (cid:3) (cid:3)
196,987(cid:3) (cid:3) $
137,587(cid:3) (cid:3) (cid:3)
133,765(cid:3) (cid:3) (cid:3)
136,690(cid:3) (cid:3) (cid:3)
275,398(cid:3) (cid:3) (cid:3)
314,964(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3) (cid:3)
Total incurred loss and loss adjustment expenses $ 1,195,391(cid:3) (cid:3) (cid:3)
204,527 $
141,365
142,206
141,628
——
——
215,505 $
154,915
147,224
——
——
——
197,149 $
138,129
134,285
137,728
318,837
——
1,532
1,345
2,622
7,144
16,723
185,917
2017
(unaudited)
(cid:3)
2018
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
2013
(unaudited)
Accident
Year
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
2014
(unaudited)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
2015
(unaudited)
(cid:3)
(cid:3)
(cid:3)
2016
(unaudited)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
2017
(unaudited)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3) $
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3) (cid:3)
90,254(cid:3) (cid:3) $
——(cid:3) (cid:3)
(cid:3)
——(cid:3) (cid:3)
(cid:3)
——(cid:3) (cid:3)
(cid:3)
——(cid:3) (cid:3)
(cid:3)
——(cid:3) (cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
$
$
2013
2014
2015
2016
2017
2018
(cid:3)
149,693
53,366
——
——
——
——
190,908(cid:3) $
132,480(cid:3)
116,884(cid:3)
117,928(cid:3)
93,193(cid:3)
——(cid:3)
(cid:3)
Total paid loss and loss adjustment expenses(cid:3)
Total incurred loss and loss adjustment expenses(cid:3)
Outstanding liabilities for loss and allocated loss adjustment expenses for accident years prior to 2013(cid:3)
(cid:3)
(cid:3)
177,151
96,611
65,507
——
——
——
188,531
124,154
100,427
48,509
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
$
(cid:3)
(cid:3)
(cid:3)
—— (cid:3)
—— (cid:3)
(cid:3)
(cid:3)
2018
(cid:3)
191,500
134,507
125,285
122,071
236,758
78,189
888,310
1,195,391
8,998
(cid:3)
(cid:3)
(cid:3)
Liabilities for loss and allocated loss adjustment expenses, net of reinsurance(cid:3) $
316,079
Average Annual Percentage Payout of Incurred Loss and Allocated Loss Adjustment Expenses by Age,
Net of Reinsurance
In Year:
Average of
each year
(cid:3)
1
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
2
(cid:3)
3
(cid:3)
4
(cid:3)
5
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
35.9%
(cid:3)
(cid:3)
43.8%
9.6%
6.0%
2.0%
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
6
0.0%
58
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Non(cid:882)U.S. Casualty Reinsurance
The following tables present i) incurred loss and allocated loss adjustment expenses (net of reinsurance), ii)
total IBNR liabilities plus expected development on reported loss and iii) cumulative paid loss and allocated loss
adjustment expenses (net of reinsurance) for the Non(cid:882)U.S. Casualty Reinsurance line of business for the year
ended and as of December 31, 2018 (in thousands):
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
Accident
Year
2013
2014
2015
2016
2017
2018
(cid:3)
(cid:3)
(cid:3)
2013
(cid:3)
(cid:3)
2014
(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3) (unaudited) (cid:3) (cid:3) (unaudited)
(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3) (cid:3)
97,521(cid:3) (cid:3) $
(cid:3) $
——(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3)
——(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3)
——(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3)
——(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3)
——(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3) (cid:3)
95,200 $
86,093
——
——
——
——
(cid:3)
(cid:3)
2015
(unaudited)
(cid:3)
(cid:3)
(cid:3)
2016
(unaudited)
(cid:3)
(cid:3)
(cid:3)
2017
(unaudited)
(cid:3)
96,136 $
87,538
84,179
——
——
——
95,800 $
92,910
85,159
91,993
——
——
84,295 $
98,499
103,918
98,499
122,881
——
(cid:3)
(cid:3)
(cid:3)
Total incurred loss and loss adjustment expenses $
As of
(cid:3) (cid:3)
(cid:3) (cid:3)December 31, 2018
Total of IBNR
(cid:3) (cid:3)
Liabilities Plus
(cid:3) (cid:3)
Expected
(cid:3) (cid:3)
(cid:3) (cid:3) Development on
(cid:3) (cid:3) Reported Losses
(cid:3)
(cid:3)
(cid:3)
(cid:3)
2018
(cid:3)
(cid:3)
(cid:3)
(cid:3)
80,658(cid:3) $
97,190(cid:3)
(cid:3)
102,892(cid:3)
(cid:3)
104,331(cid:3)
(cid:3)
126,079(cid:3)
(cid:3)
137,907(cid:3)
(cid:3)
(cid:3)
(cid:3)
649,057(cid:3)
(cid:3)
20,060
32,133
35,735
38,113
62,809
100,081
(cid:3)
(cid:3)
Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
2013
(unaudited)
Accident
Year
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
2014
(unaudited)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
2015
(unaudited)
(cid:3)
(cid:3)
(cid:3)
2016
(unaudited)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
2017
(unaudited)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3) $
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3) (cid:3)
13,131(cid:3) (cid:3) $
——(cid:3) (cid:3)
(cid:3)
——(cid:3) (cid:3)
(cid:3)
——(cid:3) (cid:3)
(cid:3)
——(cid:3) (cid:3)
(cid:3)
——(cid:3) (cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
$
$
2013
2014
2015
2016
2017
2018
(cid:3)
23,028
9,434
——
——
——
——
36,288(cid:3) $
31,738(cid:3)
25,142(cid:3)
23,283(cid:3)
11,022(cid:3)
——(cid:3)
(cid:3)
Total paid loss and loss adjustment expenses(cid:3)
Total incurred loss and loss adjustment expenses(cid:3)
Outstanding liabilities for loss and allocated loss adjustment expenses for accident years prior to 2013(cid:3)
(cid:3)
(cid:3)
28,121
20,585
8,480
——
——
——
31,966
26,668
18,275
8,733
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
$
(cid:3)
(cid:3)
(cid:3)
—— (cid:3)
—— (cid:3)
(cid:3)
(cid:3)
2018
(cid:3)
39,134
35,888
29,187
30,122
25,625
14,087
174,043
649,057
351,789
(cid:3)
(cid:3)
(cid:3)
Liabilities for loss and allocated loss adjustment expenses, net of reinsurance(cid:3) $
826,803
Average Annual Percentage Payout of Incurred Loss and Allocated Loss Adjustment Expenses by Age,
Net of Reinsurance
In Year:
Average of
each year
(cid:3)
1
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
2
(cid:3)
3
(cid:3)
4
(cid:3)
5
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
10.0%
(cid:3)
(cid:3)
11.7%
6.9%
4.5%
7.5%
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
6
7.9%
59
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Non(cid:882)U.S. Property Reinsurance
The following tables present i) incurred loss and allocated loss adjustment expenses (net of reinsurance), ii)
total IBNR liabilities plus expected development on reported loss and iii) cumulative paid loss and allocated loss
adjustment expenses (net of reinsurance) for the Non(cid:882)U.S. Property Reinsurance line of business for the year
ended and as of December 31, 2018 (in thousands):
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
(cid:3)
Accident
Year
2013
2014
2015
2016
2017
2018
(cid:3)
(cid:3)
2013
(cid:3)
2014
(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3) (unaudited) (cid:3) (cid:3) (unaudited)
(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3) (cid:3)
393,481(cid:3) (cid:3) $
(cid:3) $
——(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3)
——(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3)
——(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3)
——(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3)
——(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3) (cid:3)
326,973 $
390,301
——
——
——
——
(cid:3)
2015
(unaudited)
(cid:3)
(cid:3)
2016
(unaudited)
(cid:3)
(cid:3)
2017
(unaudited)
(cid:3)
(cid:3)
2018
(cid:3)
(cid:3)
306,362 $
331,084
394,745
——
——
——
(cid:3)
275,751(cid:3) $
280,875(cid:3)
(cid:3)
245,200(cid:3)
(cid:3)
336,811(cid:3)
(cid:3)
357,498(cid:3)
(cid:3)
412,985(cid:3)
(cid:3)
(cid:3)
(cid:3)
Total incurred loss and loss adjustment expenses $ 1,909,120(cid:3)
(cid:3)
295,180 $
306,912
298,307
378,789
——
——
280,945 $
287,891
253,938
353,333
438,555
——
(cid:3)
(cid:3)
(cid:3)
(cid:3)
5,083
9,532
19,044
35,780
76,346
177,481
(cid:3)
(cid:3)
As of
(cid:3) (cid:3)
(cid:3) (cid:3)December 31, 2018
Total of IBNR
(cid:3) (cid:3)
Liabilities Plus
(cid:3) (cid:3)
Expected
(cid:3) (cid:3)
(cid:3) (cid:3) Development on
(cid:3) (cid:3) Reported Losses
(cid:3)
(cid:3)
Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
2013
(unaudited)
Accident
Year
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
2014
(unaudited)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
2015
(unaudited)
(cid:3)
(cid:3)
(cid:3)
2016
(unaudited)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
2017
(unaudited)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3) $
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3) (cid:3)
60,835(cid:3) (cid:3) $
——(cid:3) (cid:3)
(cid:3)
——(cid:3) (cid:3)
(cid:3)
——(cid:3) (cid:3)
(cid:3)
——(cid:3) (cid:3)
(cid:3)
——(cid:3) (cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
$
$
2013
2014
2015
2016
2017
2018
(cid:3)
162,658
84,168
——
——
——
——
253,247(cid:3) $
246,345(cid:3)
189,346(cid:3)
196,495(cid:3)
87,883(cid:3)
——(cid:3)
(cid:3)
Total paid loss and loss adjustment expenses(cid:3)
Total incurred loss and loss adjustment expenses(cid:3)
Outstanding liabilities for loss and allocated loss adjustment expenses for accident years prior to 2013(cid:3)
(cid:3)
(cid:3)
220,232
186,629
68,131
——
——
——
242,312
231,818
160,618
78,492
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
$
(cid:3)
(cid:3)
(cid:3)
—— (cid:3)
—— (cid:3)
(cid:3)
(cid:3)
2018
(cid:3)
259,597
254,456
203,240
240,718
215,878
60,879
1,234,768
1,909,120
104,525
(cid:3)
(cid:3)
(cid:3)
Liabilities for loss and allocated loss adjustment expenses, net of reinsurance(cid:3) $
778,877
Average Annual Percentage Payout of Incurred Loss and Allocated Loss Adjustment Expenses by Age,
Net of Reinsurance
In Year:
Average of
each year
(cid:3)
1
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
2
(cid:3)
3
(cid:3)
4
(cid:3)
5
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
23.1%
(cid:3)
(cid:3)
38.6%
15.8%
8.8%
4.9%
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
6
2.9%
60
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
U.S. Casualty Insurance
The following tables present i) incurred loss and allocated loss adjustment expenses (net of reinsurance), ii)
total
iii) cumulative number of reported loss
IBNR liabilities plus expected development on reported loss,
(determined by the number of events, not claimants, regardless of whether or not any payments were ultimately
made) and iv) cumulative paid loss and allocated loss adjustment expenses (net of reinsurance) for the U.S.
Casualty Insurance line of business for the year ended and as of December 31, 2018 (in thousands):
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3) (cid:3) (cid:3)
(cid:3) (cid:3) (cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
Incurred Loss and Allocated Loss Adjustment Expenses , Net of Reinsurance
For the Years Ended December 31,
(cid:3)
(cid:3)
2014
(cid:3)(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)
(cid:3)(cid:3)(unaudited) (cid:3)(cid:3) (cid:3) (unaudited)
2015
(cid:3)
(cid:3)
2016
(unaudited)
(cid:3)
(cid:3)
2017
(unaudited)
(cid:3)
(cid:3)
2018
(cid:3)(cid:3)
As of
December 31, 2018
Total of IBNR
Liabilities Plus
Expected
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
Development on
Cumulative Number
(cid:3) (cid:3) (cid:3) (cid:3)
241,873(cid:3)(cid:3)(cid:3)(cid:3) $
294,177(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)
——(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)
——(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)
——(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)
——(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)
(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)
(cid:3)
$
238,051
275,305
287,419
——
——
——
(cid:3)
$
217,364
269,942
286,650
278,509
——
——
207,109
259,288
278,209
278,025
341,698
——
Total incurred loss and loss adjustment expenses
(cid:3)
Reported Losses
(cid:3) (cid:3)
$ 206,216 $
252,427 (cid:3)
258,870 (cid:3)
263,819 (cid:3)
356,730 (cid:3)
458,328 (cid:3)
10,457
25,092
30,691
66,349
174,508
306,165
of Reported Claims
(cid:3)(cid:3)
23,067
29,583
27,503
18,219
15,595
14,326
(cid:3) (cid:3)
$1,796,390 (cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)
(cid:3)(cid:3)
2013
(cid:3)(cid:3)
(cid:3)
(cid:3)(cid:3)(unaudited) (cid:3)
(cid:3) (cid:3) (cid:3)
(cid:3) $
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3) (cid:3)(cid:3)
(cid:3) (cid:3) (cid:3) (cid:3)
244,726(cid:3) (cid:3)(cid:3) $
——(cid:3) (cid:3)(cid:3) (cid:3)
——(cid:3) (cid:3)(cid:3) (cid:3)
——(cid:3) (cid:3)(cid:3) (cid:3)
——(cid:3) (cid:3)(cid:3) (cid:3)
——(cid:3) (cid:3)(cid:3) (cid:3)
(cid:3) (cid:3)(cid:3) (cid:3) (cid:3)(cid:3)
Accident
Year
2014
2015
2016
2017
2018
(cid:3)(cid:3)
Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
2013
(unaudited)
Accident
Year
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
2014
(unaudited)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
2015
(unaudited)
(cid:3)
(cid:3)
(cid:3)
2016
(unaudited)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
2017
(unaudited)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3) $
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3) (cid:3)
51,986(cid:3) (cid:3) $
——(cid:3) (cid:3)
(cid:3)
——(cid:3) (cid:3)
(cid:3)
——(cid:3) (cid:3)
(cid:3)
——(cid:3) (cid:3)
(cid:3)
——(cid:3) (cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
$
$
2013
2014
2015
2016
2017
2018
(cid:3)
86,527
59,690
——
——
——
——
174,795(cid:3) $
177,765(cid:3)
154,993(cid:3)
100,615(cid:3)
60,032(cid:3)
——(cid:3)
(cid:3)
Total paid loss and loss adjustment expenses(cid:3)
Total incurred loss and loss adjustment expenses(cid:3)
Outstanding liabilities for loss and allocated loss adjustment expenses for accident years prior to 2013(cid:3)
(cid:3)
(cid:3)
128,490
94,896
66,555
——
——
——
162,146
143,152
103,030
59,657
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
$
(cid:3)
(cid:3)
(cid:3)
—— (cid:3)
—— (cid:3)
(cid:3)
(cid:3)
2018
(cid:3)
186,538
209,941
196,107
154,153
118,611
74,198
939,548
1,796,390
24,822
(cid:3)
(cid:3)
(cid:3)
Liabilities for loss and allocated loss adjustment expenses, net of reinsurance(cid:3) $
881,664
Average Annual Percentage Payout of Incurred Loss and Allocated Loss Adjustment Expenses by Age,
Net of Reinsurance
In Year:
Average of
each year
(cid:3)
1
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
2
(cid:3)
3
(cid:3)
4
(cid:3)
5
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
20.7%
(cid:3)
(cid:3)
16.9%
21.5%
15.5%
9.2%
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
6
6.6%
61
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
U.S. Property Insurance
The following tables present i) incurred loss and allocated loss adjustment expenses (net of reinsurance), ii)
total
iii) cumulative number of reported loss
IBNR liabilities plus expected development on reported loss,
(determined by the number of events, not claimants, regardless of whether or not any payments were ultimately
made) and iv) cumulative paid loss and allocated loss adjustment expenses (net of reinsurance) for the U.S.
Property Insurance line of business for the year ended and as of December 31, 2018 (in thousands):
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)
Incurred Loss and Allocated Loss Adjustment Expenses , Net of Reinsurance
For the Years Ended December 31,
(cid:3)
(cid:3)
2014
(cid:3)(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3) (cid:3)
(cid:3)(cid:3)(unaudited) (cid:3)(cid:3) (cid:3) (unaudited)
2015
(cid:3)
(cid:3)
2016
(unaudited)
(cid:3)
(cid:3)
2017
(unaudited)
(cid:3)
(cid:3)
2018
(cid:3)(cid:3)
As of
December 31, 2018
Total of IBNR
Liabilities Plus
Expected
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
Development on
Cumulative Number
(cid:3)(cid:3)(cid:3)(cid:3) (cid:3) (cid:3)(cid:3)
203,970(cid:3)(cid:3)(cid:3)(cid:3) $
227,198(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)
——(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)
——(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)
——(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)
——(cid:3)(cid:3)(cid:3)(cid:3) (cid:3)
197,496
233,124
187,266
——
——
——
(cid:3)(cid:3)
$
197,124
232,178
197,486
221,585
——
——
(cid:3)(cid:3)
$
196,391
231,401
195,061
209,572
230,670
——
(cid:3)(cid:3)(cid:3)(cid:3) (cid:3) (cid:3)(cid:3)
(cid:3)(cid:3)
Total incurred loss and loss adjustment expenses
(cid:3)(cid:3)
(cid:3)(cid:3)
Reported Losses
(cid:3) (cid:3)
$ 196,374 $
230,867 (cid:3)
194,253 (cid:3)
205,659 (cid:3)
224,065 (cid:3)
289,059 (cid:3)
3 (cid:3)(cid:3)
18 (cid:3)(cid:3)
213 (cid:3)(cid:3)
523 (cid:3)(cid:3)
5,234 (cid:3)(cid:3)
106,029 (cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3) (cid:3)
$1,340,277 (cid:3) (cid:3)
of Reported Claims
10,604
12,399
11,332
11,563
15,587
18,055
(cid:3)(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3) (cid:3)(cid:3) (cid:3) (cid:3)(cid:3)
(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)
(cid:3)(cid:3)
2013
(cid:3)(cid:3)
(cid:3)
(cid:3)(cid:3)(unaudited) (cid:3)
(cid:3) (cid:3) (cid:3)(cid:3)
(cid:3) $
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3) (cid:3)(cid:3)
212,167(cid:3) (cid:3)(cid:3) $
——(cid:3) (cid:3)(cid:3) (cid:3)
——(cid:3) (cid:3)(cid:3) (cid:3)
——(cid:3) (cid:3)(cid:3) (cid:3)
——(cid:3) (cid:3)(cid:3) (cid:3)
——(cid:3) (cid:3)(cid:3) (cid:3)
(cid:3) (cid:3)(cid:3) (cid:3) (cid:3)(cid:3)
Accident
Year
2014
2015
2016
2017
2018
(cid:3)(cid:3)
Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
2013
(unaudited)
Accident
Year
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
2014
(unaudited)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
2015
(unaudited)
(cid:3)
(cid:3)
(cid:3)
2016
(unaudited)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
2017
(unaudited)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3) $
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3) (cid:3)
101,466(cid:3) (cid:3) $
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
$
$
——(cid:3) (cid:3)
——(cid:3) (cid:3)
——(cid:3) (cid:3)
——(cid:3) (cid:3)
——(cid:3) (cid:3)
(cid:3) (cid:3)
2013
2014
2015
2016
2017
2018
(cid:3)
190,056
80,295
——
——
——
——
195,998(cid:3) $
230,614(cid:3)
193,617(cid:3)
199,384(cid:3)
77,377(cid:3)
——(cid:3)
(cid:3)
Total paid loss and loss adjustment expenses(cid:3)
Total incurred loss and loss adjustment expenses(cid:3)
Outstanding liabilities for loss and allocated loss adjustment expenses for accident years prior to 2013(cid:3)
(cid:3)
(cid:3)
192,033
221,162
77,398
——
——
——
194,391
228,772
181,585
75,333
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
$
(cid:3)
(cid:3)
(cid:3)
—— (cid:3)
—— (cid:3)
(cid:3)
(cid:3)
2018
(cid:3)
196,122
230,488
193,539
203,238
208,714
113,119
1,145,220
1,340,277
429
(cid:3)
(cid:3)
(cid:3)
Liabilities for loss and allocated loss adjustment expenses, net of reinsurance(cid:3) $
195,486
Average Annual Percentage Payout of Incurred Loss and Allocated Loss Adjustment Expenses by Age,
Net of Reinsurance
In Year:
Average of
each year
(cid:3)
1
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
2
(cid:3)
3
(cid:3)
4
(cid:3)
5
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
39.2%
(cid:3)
(cid:3)
56.0%
3.6%
0.7%
0.3%
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
6
0.0%
62
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Non(cid:882)U.S. Casualty Insurance
The following tables present i) incurred loss and allocated loss adjustment expenses (net of reinsurance) and(cid:3)(cid:3)
ii) total IBNR liabilities plus expected development on reported loss and iii) cumulative paid loss and allocated loss
adjustment expenses (net of reinsurance) for the Non(cid:882)U.S. Casualty Insurance line of business for the year ended
and as of December 31, 2018 (in thousands):
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)
Incurred Loss and Allocated Loss Adjustment Expenses , Net of Reinsurance
For the Years Ended December 31,
Accident
Year
2013
2014
2015
2016
2017
2018
(cid:3)
(cid:3)
(cid:3)
2013
(cid:3)
(cid:3)
2014
(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3) (unaudited) (cid:3) (cid:3) (unaudited)
(cid:3) (cid:3) (cid:3)
(cid:3) $
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3) (cid:3) (cid:3)
85,602(cid:3) (cid:3) $
——(cid:3) (cid:3) (cid:3)
——(cid:3) (cid:3) (cid:3)
——(cid:3) (cid:3) (cid:3)
——(cid:3) (cid:3) (cid:3)
——(cid:3) (cid:3) (cid:3)
82,127
86,045
——
——
——
——
(cid:3) (cid:3) (cid:3) (cid:3)
(cid:3)
(cid:3)
2015
(unaudited)
(cid:3)
(cid:3)
(cid:3)
2016
(unaudited)
(cid:3)
(cid:3)
(cid:3)
2017
(unaudited)
(cid:3)
$
$
82,531
87,342
86,053
——
——
——
$
83,780
85,787
84,689
80,613
——
——
82,181
83,280
83,112
77,205
90,998
——
(cid:3)
$
(cid:3)
(cid:3)
(cid:3)
(cid:3)
Total incurred loss and loss adjustment expenses
$
(cid:3)
(cid:3)
2018
(cid:3)
As of
(cid:3) (cid:3)
(cid:3) (cid:3)December 31, 2018
Total of IBNR
Liabilities Plus
Expected
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3) Development on
(cid:3) (cid:3) Reported Losses
(cid:3)
(cid:3)
(cid:3)
86,126(cid:3) $
77,193(cid:3)
(cid:3)
75,657(cid:3)
(cid:3)
80,111(cid:3)
(cid:3)
92,579(cid:3)
(cid:3)
103,988(cid:3)
(cid:3)
(cid:3)
(cid:3)
515,654(cid:3)
(cid:3)
25,847
23,792
32,771
45,093
70,206
90,802
(cid:3)
(cid:3)
Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance
For the Years Ended December 31,
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
2013
(unaudited)
Accident
Year
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
2014
(unaudited)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
2015
(unaudited)
(cid:3)
(cid:3)
(cid:3)
2016
(unaudited)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
2017
(unaudited)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3) $
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3) (cid:3)
5,683(cid:3) (cid:3) $
——(cid:3) (cid:3)
(cid:3)
——(cid:3) (cid:3)
(cid:3)
——(cid:3) (cid:3)
(cid:3)
——(cid:3) (cid:3)
(cid:3)
——(cid:3) (cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
$
$
2013
2014
2015
2016
2017
2018
(cid:3)
9,210
5,013
——
——
——
——
34,998(cid:3) $
32,143(cid:3)
19,028(cid:3)
10,611(cid:3)
4,119(cid:3)
——(cid:3)
(cid:3)
Total paid loss and loss adjustment expenses(cid:3)
Total incurred loss and loss adjustment expenses(cid:3)
Outstanding liabilities for loss and allocated loss adjustment expenses for accident years prior to 2013(cid:3)
(cid:3)
(cid:3)
17,040
11,990
3,843
——
——
——
25,228
19,725
8,828
3,399
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
$
(cid:3)
(cid:3)
(cid:3)
—— (cid:3)
—— (cid:3)
(cid:3)
(cid:3)
2018
(cid:3)
41,112
37,394
26,185
18,244
12,683
5,072
140,690
515,654
233,501
(cid:3)
(cid:3)
(cid:3)
Liabilities for loss and allocated loss adjustment expenses, net of reinsurance(cid:3) $
608,465
Average Annual Percentage Payout of Incurred Loss and Allocated Loss Adjustment Expenses by Age,
Net of Reinsurance
In Year:
Average of
each year
(cid:3)
1
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
2
(cid:3)
3
(cid:3)
4
(cid:3)
5
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
5.3%
(cid:3)
(cid:3)
7.7%
10.2%
11.8%
9.4%
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
6
3.4%
63
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The reconciliation of the net incurred and paid claims development tables (preceding) to the liability for
unpaid losses and loss adjustment expenses in the consolidated statement of financial position as of December 31,
2018 is as follows (in thousands):
2018
(cid:3) December 31,
(cid:3)
(cid:3)
(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
Net unpaid loss and allocated loss adjustment expenses:
(cid:3) (cid:3)
(cid:3) (cid:3)
U.S. Casualty Reinsurance ............................................................................................... (cid:3) $
U.S. Property Reinsurance .............................................................................................. (cid:3)
(cid:3)
Non(cid:882)U.S. Casualty Reinsurance ....................................................................................... (cid:3)
(cid:3)
Non(cid:882)U.S. Property Reinsurance....................................................................................... (cid:3)
(cid:3)
U.S. Casualty Insurance ................................................................................................... (cid:3)
(cid:3)
U.S. Property Insurance .................................................................................................. (cid:3)
(cid:3)
Non(cid:882)U.S. Casualty Insurance ........................................................................................... (cid:3)
(cid:3)
Unallocated loss adjustment expenses........................................................................... (cid:3)
(cid:3)
Workers' compensation discount ................................................................................... (cid:3)
(cid:3)
Other ............................................................................................................................... (cid:3)
(cid:3)
Effect of foreign exchange rates ..................................................................................... (cid:3)
(cid:3)
Total unpaid loss and allocated loss adjustment expenses,
(cid:3)(cid:3)(cid:3) net of reinsurance ................................................................................................ (cid:3)
(cid:3)
(cid:3)
U.S. Casualty Reinsurance ............................................................................................... (cid:3)
U.S. Property Reinsurance .............................................................................................. (cid:3)
Non(cid:882)U.S. Casualty Reinsurance ....................................................................................... (cid:3)
Non(cid:882)U.S. Property Reinsurance....................................................................................... (cid:3)
U.S. Casualty Insurance ................................................................................................... (cid:3)
U.S. Property Insurance .................................................................................................. (cid:3)
Non(cid:882)U.S. Casualty Insurance ........................................................................................... (cid:3)
Unallocated loss adjustment expenses........................................................................... (cid:3)
Effect of foreign exchange rates ..................................................................................... (cid:3)
Other ............................................................................................................................... (cid:3)
Total reinsurance recoverable on unpaid losses..................................................... (cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
Total gross unpaid loss and loss adjustment expenses................................................... (cid:3) $
(cid:3)(cid:3)
Reinsurance recoverable on unpaid losses and loss adjustment expenses:
1,157,263
316,079
826,803
778,877
881,664
195,486
608,465
71,749
(36,979)
149,945
(148,184)
4,801,168 (cid:3)(cid:3)
18,670
142,839
84
152,246
225,454
131,249
222,624
300
(11,237)
44,806
927,035
5,728,203
(cid:3)(cid:3)
64
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table sets forth the activity in the liability for unpaid losses and loss adjustment expenses for
the years ended December 31, 2018, 2017 and 2016 (in thousands):
Gross unpaid losses and loss adjustment expenses,
(cid:3)(cid:3)(cid:3)beginning of year ........................................................................... $ 5,463,595
Less: Ceded unpaid losses and loss adjustment
(cid:3)(cid:3)(cid:3)expenses, beginning of year ..........................................................
866,985
$ 4,876,848(cid:3) $ 5,002,422
(cid:3)
658,607(cid:3)
690,884
2018
2017
(cid:3)
2016
Net unpaid losses and loss adjustment expenses,
(cid:3)(cid:3)(cid:3)beginning of year......................................................................
(cid:3)(cid:3)
Add: Net incurred losses and loss adjustment expenses related to:
Current year ................................................................................
Prior years ...................................................................................
Total net incurred losses and loss adjustment
(cid:3)(cid:3)(cid:3)expenses..............................................................................
(cid:3)(cid:3)
Less: Net paid losses and loss adjustment expenses related to:
4,596,610
2,061,397
(345,652)
1,715,745
Current year ................................................................................
Prior years ...................................................................................
399,891
1,033,807
Total net paid losses and loss adjustment
(cid:3)(cid:3)(cid:3)expenses..............................................................................
(cid:3)(cid:3)
Effect of exchange rate changes.......................................................
(cid:3)(cid:3)
Net unpaid losses and loss adjustment expenses, end of year ........
Add: Ceded unpaid losses and loss adjustment
(cid:3)(cid:3)(cid:3)expenses, end of year ....................................................................
1,433,698
(77,489)
4,801,168
(cid:3)
(cid:3) (cid:3)(cid:3)
(cid:3) (cid:3)(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)(cid:3)
(cid:3) (cid:3)(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)(cid:3)
(cid:3)
(cid:3) (cid:3)(cid:3)
(cid:3)
4,218,241(cid:3)
(cid:3)
(cid:3)
1,827,571(cid:3)
(288,049)
1,539,522(cid:3)
(cid:3)
(cid:3)
376,331(cid:3)
953,050(cid:3)
1,329,381(cid:3)
(cid:3)
168,228(cid:3)
(cid:3)
4,596,610(cid:3)
4,311,538
1,438,311
(266,486)
1,171,825
264,582
972,915
1,237,497
(27,625)
4,218,241
927,035
(cid:3)
866,985(cid:3)
658,607
Gross unpaid losses and loss adjustment
(cid:3)(cid:3)(cid:3)expenses, end of year ......................................................... $ 5,728,203
$ 5,463,595(cid:3) $ 4,876,848
Net incurred losses and loss adjustment expenses related to the current year were $2,061.4 million, $1,827.6
million and $1,438.3 million for the years ended December 31, 2018, 2017 and 2016, respectively.(cid:3) The increase in
incurred losses and loss adjustment expenses for the year ended December 31, 2018 was principally attributable
to increased losses associated with premium growth partially offset by a reduction in current year catastrophe
losses.(cid:3)(cid:3)The increase in incurred losses and loss adjustment expenses for the year ended December 31, 2017 was
principally attributable to an increase in current year catastrophe losses and increased losses associated with
premium growth.(cid:3) For the years ended December 31, 2018, 2017 and 2016, current year property catastrophe
losses were $257.4 million, $406.0 million and $190.3 million, respectively.(cid:3) For the year ended December 31,
2018, current year catastrophe losses included $35.0 million related to the Northern California Wildfires, $30.9
million related to Hurricane Michael, $28.1 million related to Typhoon Jebi, and $15.0 million related to the
Southern California Wildfires.(cid:3)(cid:3)For the year ended December 31, 2017, current year property catastrophe losses
included $105.9 million related to Hurricane Maria, $75.7 million related to Hurricane Irma, $54.1 million related
to Hurricane Harvey, $25.0 million related to the Northern California Wildfires, and $25.0 million related to the
Southern California Wildfires.(cid:3) For the year ended December 31, 2016, current year property catastrophe losses
included $30.8 million related to Hurricane Matthew.(cid:3)
Net incurred losses and loss adjustment expenses related to prior years included reductions in loss estimates
of $345.7 million, $288.0 million and $266.5 million for the years ended December 31, 2018, 2017 and 2016,
respectively. The reductions in prior years’ incurred losses and loss adjustment expenses were attributable to
decreased loss estimates due to loss emergence lower than expectations in most regions and lines of business.
Net paid losses and loss adjustment expenses related to the current year were $399.9 million, $376.3 million
and $264.6 million for the years ended December 31, 2018, 2017 and 2016, respectively.(cid:3) (cid:3) The increase in paid
losses and loss adjustment expenses for the year ended December 31, 2018 was principally attributable to
increased losses associated with premium growth partially offset by a reduction in current year catastrophe losses.(cid:3)
65
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The increase in paid losses and loss adjustment expenses for the year ended December 31, 2017 was principally
due to increased current year catastrophe losses.(cid:3)(cid:3)
The effects of exchange rate changes on net unpaid losses and loss adjustment expenses resulted in a
decrease of $77.5 million for the year ended December 31, 2018, an increase of $168.2 million for the year ended
December 31, 2017, and a decrease of $27.6 million for the year ended December 31, 2016, and were attributable
to Non(cid:882)U.S. Reinsurance and Non(cid:882)U.S. Insurance.
Ceded unpaid losses and loss adjustment expenses were $927.0 million, $867.0 million and $658.6 million as
of December 31, 2018, 2017 and 2016, respectively.(cid:3) The increase in ceded unpaid losses and loss adjustment
expenses for the year ended December 31, 2018 was principally attributable to an increase in ceded unpaid
reinsurance recoverables on catastrophe losses.(cid:3) The increase in ceded unpaid losses and loss adjustment
expenses for the year ended December 31, 2017 was principally attributable to an increase in ceded unpaid
reinsurance recoverables as a result of Hurricanes Irma and Maria, and the Northern California Wildfires.(cid:3)
The Company uses tabular reserving for workers’ compensation indemnity loss reserves, which are
considered to be fixed and determinable, and discounts such reserves using an interest rate of 3.5%.(cid:3) (cid:3) Workers’
compensation indemnity loss reserves have been discounted using the Life Table for Total Population: United
States, 2009.(cid:3)(cid:3)Reserves reported at the discounted value were $52.4 million and $53.4 million as of December 31,
2018 and 2017, respectively.(cid:3) (cid:3) The amount of case reserve discount was $16.8 million and $17.5 million as of
December 31, 2018 and 2017, respectively.(cid:3) The amount of incurred but not reported reserve discount was $20.2
million and $20.5 million as of December 31, 2018 and 2017, respectively.
The Company is not materially exposed to asbestos and environmentally(cid:882)related liabilities and does not
establish a specific reserve for such exposures.
7. Reinsurance and Retrocessions
The Company utilizes reinsurance and retrocessional agreements to reduce and spread the risk of loss on its
insurance and reinsurance business and to limit exposure to multiple claims arising from a single occurrence. The
Company is subject to accumulation risk with respect to catastrophic events involving multiple treaties, facultative
certificates and insurance policies. To protect against these risks, the Company purchases catastrophe excess of
loss protection. The retention, the level of capacity purchased, the geographical scope of the coverage and the
costs vary from year to year. Additionally, the Company purchases specific protections related to the insurance
business underwritten in both the U.S. and abroad.
There is credit risk with respect to reinsurance, which would result in the Company recording a charge to
earnings in the event that such reinsuring companies are unable, at some later date, to meet their obligations
under the reinsurance agreements in force. Reinsurance recoverables are recorded as assets and a reserve for
uncollectible reinsurance recoverables is established based on the Company’s evaluation of each reinsurer’s or
retrocessionaire’s ability to meet its obligations under the agreements. Premiums written and earned are stated
net of reinsurance ceded in the consolidated statements of operations. Direct, reinsurance assumed, reinsurance
ceded and net amounts for the years ended December 31, 2018, 2017 and 2016 follow (in thousands):
Premiums Written
(cid:3)
2018
Year Ended December 31,
2017
(cid:3)
(cid:3)
(cid:3) (cid:3)
2016
Direct.................................................................................... $$
Add: assumed.......................................................................
Less: ceded ...........................................................................
Net .................................................................................. $$
1,626,198
1,702,430
430,808
2,897,820
(cid:3)(cid:3)
Earned
Direct.................................................................................... $$
Add: assumed.......................................................................
Less: ceded ...........................................................................
Net .................................................................................. $$
1,491,083
1,652,231
387,885
2,755,429
$$
$$
$$
$$
$$
1,289,551
1,493,554(cid:3) (cid:3)
287,218(cid:3) (cid:3)
2,495,887(cid:3) (cid:3) $$
1,086,119
1,294,628
280,570
2,100,177
(cid:3) (cid:3)
(cid:3) (cid:3)
1,195,849(cid:3) (cid:3) $$
1,420,639(cid:3) (cid:3)
283,087(cid:3) (cid:3)
2,333,401(cid:3) (cid:3) $$
1,070,553
1,303,878
300,335
2,074,096
66
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The total amount of reinsurance recoverable on paid and unpaid losses as of December 31, 2018 and 2017
was $1,086.6 million and $896.7 million, respectively. The reserve for uncollectible reinsurance recoverable was
$14.0 million and $13.1 million, as of December 31, 2018 and 2017, respectively, and has been netted against
reinsurance recoverables on loss payments in the consolidated balance sheets.
In accordance with the terms of certain reinsurance agreements, the Company has recorded interest
expense associated with its ceded reinsurance agreements of less than $0.1 million for each of the years ended
December 31, 2018, 2017 and 2016.
8. Reinsurance Recoverables
The Company’s ten largest reinsurers represent 78.4% of its total reinsurance recoverables as of
December 31, 2018. Amounts due from all other reinsurers are diversified, with no other individual reinsurer
representing more than $20.0 million, or 1.9%, of reinsurance recoverables as of December 31, 2018, and the
average balance is less than $1.6 million. The Company held total collateral of $373.6 million as of December 31,
2018, representing 34.4% of total reinsurance recoverables. The following table shows the total amount as of
December 31, 2018 that is recoverable from each of the Company’s ten largest reinsurers for paid and unpaid
losses, the amount of collateral held and each reinsurer’s A.M. Best rating (in thousands):
Reinsurer
Markel CatCo Reinsurance Ltd. ................................................ $
Federal Crop Insurance Corporation ........................................
Lloyd's Syndicates (excluding Brit PLC Syndicate 2987) ...........
CRC Reinsurance Limited ..........................................................
Chubb Tempest Reinsurance Ltd. .............................................
Berkley Insurance Company .....................................................
National Indemnity Company...................................................
Markel Global Reinsurance Company ......................................
Hannover Rueck SE...................................................................
Brit (Lloyds Syndicate 2987) .....................................................
Sub(cid:882)total..............................................................................
All other ....................................................................................
Reinsurance
Recoverable
251,328
245,990
130,157
51,492
34,750
34,142
29,076
27,283
27,188
21,006
852,412
234,234
Total ............................................................................... $ 1,086,646
% of
Total
(cid:3)(cid:3) (cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)
(cid:3)
23.1%(cid:3) $
22.7(cid:3)
(cid:3) (cid:3)
12.0(cid:3)
(cid:3) (cid:3)
4.7(cid:3)
(cid:3) (cid:3)
3.2(cid:3)
(cid:3) (cid:3)
3.1(cid:3)
(cid:3) (cid:3)
2.7(cid:3)
(cid:3) (cid:3)
2.5(cid:3)
(cid:3) (cid:3)
2.5(cid:3)
(cid:3) (cid:3)
1.9(cid:3)
(cid:3) (cid:3)
78.4(cid:3)
(cid:3) (cid:3)
21.6(cid:3)
(cid:3) (cid:3)
100.0%(cid:3) $
(cid:3)
Collateral
A.M.
Best
Rating
251,328 NR
—— NR
4,050 A
51,271 NR
27,318 A++
—— A+
—— A++
—— A
328 A+
—— A
334,295
39,258
373,553
Several individual reinsurers are part of the same corporate group. The following table shows the five largest
aggregate amounts that are recoverable from all individual entities that form part of the same corporate group as
of December 31, 2018 and the amount of collateral held from each group (in thousands):
Reinsurance
Recoverable
Reinsurer
Markel Corporation .......................................................................... $
Federal Crop Insurance Corporation ................................................
Lloyd's Syndicates (excluding Brit PLC Syndicate 2987) ...................
Fairfax Financial Holdings Ltd. ..........................................................
Chubb................................................................................................
Sub(cid:882)total......................................................................................
All other ............................................................................................
296,514
245,990
130,157
91,260
35,184
799,105
287,541
Total ....................................................................................... $ 1,086,646
% of
Total
(cid:3)
(cid:3)
27.3% $
22.6(cid:3)(cid:3)
12.0(cid:3)(cid:3)
8.4(cid:3)(cid:3)
3.2(cid:3)(cid:3)
73.5(cid:3)(cid:3)
26.5(cid:3)(cid:3)
100.0% $
Collateral
251,813
——
4,050
52,824
27,318
336,005
37,548
373,553
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
Reinsurance recoverables were $896.7 million and collateral was $265.1 million, or 29.6% of the reinsurance
recoverable balance, as of December 31, 2017.
67
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company is the beneficiary of letters of credit, cash and other forms of collateral to secure certain
amounts due from its reinsurers. Collateral held by the Company as of December 31, 2018 was comprised of the
following forms (in thousands):
Form of Collateral
Trust agreements............................................................................................... $
Funds withheld from reinsurers ........................................................................
Letters of credit .................................................................................................
Total ............................................................................................................. $
Collateral
(cid:3)(cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
274,230(cid:3) (cid:3)
62,944(cid:3) (cid:3)
36,379(cid:3) (cid:3)
373,553(cid:3) (cid:3)
% of
Recoverables
(cid:3)
(cid:3)
(cid:3)
(cid:3)
25.3%
5.8
3.3
34.4%
Each reinsurance contract between the Company and the reinsurer describes the losses that are covered
under the contract and terms upon which payments are to be made. The Company generally has the ability to
utilize collateral to settle unpaid balances due under its reinsurance contracts when it determines that the
reinsurer has not met its contractual obligations. Letters of credit are for the sole benefit of the Company to
support the obligations of the reinsurer, providing the Company with the unconditional ability,
in its sole
discretion, to draw upon the letters of credit in support of any unpaid amounts due under the relevant contracts.
Cash and investments supporting funds withheld from reinsurers are included in the Company’s invested assets.
Funds withheld from reinsurers are typically used to automatically offset payments due to the Company in
accordance with the terms of the relevant reinsurance contracts. Amounts held under trust agreements are
typically comprised of cash and investment grade fixed income securities and are not included in the Company’s
invested assets. The ability of the Company to draw upon funds held under trust agreements to satisfy any unpaid
amounts due under the relevant reinsurance contracts is typically unconditional and at the sole discretion of the
Company.
9. Debt Obligations, Common Shares and Non(cid:882)Controlling Interest – Preferred Shares of Subsidiaries
Debt Obligations
The amortized cost by component of the Company’s debt obligations as of December 31, 2018 and 2017
were as follows (in thousands):
Series A Floating Rate Senior Debentures due 2021 .......................................... $
Series C Floating Rate Senior Debentures due 2021 ..........................................
Total debt obligations ................................................................................... $
49,944(cid:3) (cid:3) $
39,956(cid:3) (cid:3)
(cid:3)(cid:3)
89,900(cid:3) (cid:3) $
49,917
39,940
89,857
December 31,
2018
(cid:3)
(cid:3)
(cid:3)
(cid:3)
December 31,
2017
On November 28, 2006, the Company completed the private sale of a $40.0 million aggregate principal
amount of floating rate senior debentures, Series C, due December 15, 2021 (the “Series C Notes”). Interest on the
Series C Notes accrues at a rate per annum equal to the three(cid:882)month London Interbank Offer Rate (“LIBOR”), reset
quarterly, plus 2.50%, and is payable quarterly in arrears on March 15, June 15, September 15 and December 15 of
each year. The Company has the option to redeem the Series C Notes at par, plus accrued and unpaid interest, in
whole or in part on any interest payment date. For the years ended December 31, 2018 and 2017, the average
annual interest rate on the Series C Notes was 4.65% and 3.69%, respectively.
On February 22, 2006, the Company issued a $50.0 million aggregate principal amount of floating rate senior
debenture Series A, due March 15, 2021 (the “Series A Notes”), pursuant to a private placement offering. Interest
on the Series A Notes is due quarterly in arrears on March 15, June 15, September 15 and December 15 of each
year at an interest rate equal to the three(cid:882)month LIBOR, reset quarterly, plus 2.20%. The Series A Notes are
callable by the Company on any interest payment date at their par value, plus accrued and unpaid interest. For the
years ended December 31, 2018 and 2017, the average annual interest rate on Series A Notes was 4.35% and
3.39%, respectively.
As of December 31, 2018 and 2017, the estimated fair value of the Company’s debt obligations was $92.3
million and $92.9 million, respectively. The estimated fair value is based on quoted market prices of the Company’s
debt, where available, for debt similar to the Company’s, and discounted cash flow calculations.
68
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Common Shares
The Company did not issue any common shares during the years ended December 31, 2018, 2017 and 2016.
The Company declared and paid $100.0 million in common share dividends during each of the years ended
December 31, 2018 and 2017. The Company declared and paid $200.0 million in common share dividends during
the year ended December 31, 2016.(cid:3)(cid:3)
Non(cid:882)Controlling Interest – Preferred Shares of Subsidiaries
TIG Insurance Company (“TIG”), a Fairfax affiliate, holds all 23,807 shares of Hudson’s 5.5% Series A
preferred stock with a liquidation preference of $1,000 per share and an aggregate book value of $23.8 million,
and all 5,492 shares of Greystone’s 5.5% Series A preferred stock, with a liquidation preference of $1,000 per share
and an aggregate book value of $5.5 million. The shares are not redeemable by Hudson or Greystone prior to
January 1, 2031. On or after January 1, 2031, the shares are redeemable, in whole or in part, by Hudson or
Greystone. On October 4, 2018, Greystone’s Board of Directors declared a preferred dividend to TIG in the amount
of $0.3 million, which was paid on October 22, 2018. On December 6, 2018, Hudson’s Board of Directors declared a
preferred dividend to TIG in the amount of $1.3 million, which was paid on December 21, 2018.(cid:3)(cid:3) On October 3,
2017, Greystone’s Board of Directors declared a preferred dividend to TIG in the amount of $0.3 million and
Hudson’s Board of Directors declared a preferred dividend to TIG in the amount of $1.3 million.(cid:3) Both dividends
were paid on October 20, 2017. On October 6, 2016, Greystone’s Board of Directors declared a preferred dividend
to TIG in the amount of $0.3 million and Hudson’s Board of Directors declared a preferred dividend to TIG in the
amount of $1.3 million.(cid:3) Both dividends were paid on October 20, 2016. The aggregate amount of the preferred
shares of Hudson and Greystone owned by TIG is presented on the balance sheet as non(cid:882)controlling interest –
preferred shares of subsidiaries in the amount of $29.3 million.
10. Federal and Foreign Income Taxes
The components of the federal and foreign income tax provision included in the consolidated statements of
operations for the years ended December 31, 2018, 2017 and 2016 are as follows (in thousands):
2018
2017
Current:
United States............................................................................... $
Foreign ........................................................................................
Total current income tax provision........................................
Deferred:
United States...............................................................................
Foreign ........................................................................................
Total deferred income tax (benefit) provision.......................
Total federal and foreign income tax provision ............... $
19,516
31,555
51,071
(28,134)
242
(27,892)
23,179
(cid:3)
$
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
$
2016
(cid:3)
(cid:3)
98,131(cid:3) $
46,360(cid:3)
144,491(cid:3)
(cid:3)
158,583(cid:3)
(10,027)
148,556(cid:3)
293,047(cid:3) $
5,593
22,915
28,508
(19,766)
(4,327)
(24,093)
4,415
69
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Deferred federal and foreign income taxes reflect the tax impact of temporary differences between the
amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and
regulations. Components of federal and foreign income tax assets and liabilities as of December 31, 2018 and 2017
are as follows (in thousands):
Unpaid losses and loss adjustment expenses..................................................... $
Unearned premiums...........................................................................................
Reserve for potentially uncollectible balances...................................................
Pension and benefit accruals..............................................................................
Investments ........................................................................................................
Foreign tax credit................................................................................................
Other...................................................................................................................
Total deferred tax assets...............................................................................
Deferred acquisition costs ..................................................................................
Foreign deferred items .......................................................................................
Subsidiary net operating loss..............................................................................
Other...................................................................................................................
Total deferred tax liabilities ..........................................................................
Net deferred tax assets............................................................................
Deferred income taxes on accumulated other
(cid:3)(cid:3)(cid:3)comprehensive income (loss) ...............................................................(cid:3)(cid:3)
Deferred federal and foreign income tax asset ..................................................
Current federal and foreign income tax payable ..........................................
Federal and foreign income taxes receivable..................................................... $
2018
(cid:3) (cid:3)
2017
44,322(cid:3) (cid:3) $
36,388(cid:3) (cid:3)
(cid:3)
3,170(cid:3) (cid:3)
(cid:3)
25,538(cid:3) (cid:3)
(cid:3)
142,456(cid:3) (cid:3)
(cid:3)
19,381(cid:3) (cid:3)
(cid:3)
3,966(cid:3) (cid:3)
(cid:3)
275,221(cid:3) (cid:3)
(cid:3)
44,139(cid:3) (cid:3)
(cid:3)
9,913(cid:3) (cid:3)
(cid:3)
4,653(cid:3) (cid:3)
(cid:3)
——(cid:3) (cid:3)
(cid:3)
58,705(cid:3) (cid:3)
(cid:3)
216,516(cid:3) (cid:3)
(cid:3)
18,316(cid:3) (cid:3)
(cid:3)
234,832(cid:3) (cid:3)
(cid:3)
(1,969) (cid:3)
(cid:3)
232,863(cid:3) (cid:3) $
50,867
31,291
3,111
23,640
98,593
35,112
——
242,614
38,684
10,155
4,653
500
53,992
188,622
(9,909)
178,713
(34,356)
144,357
The following table reconciles federal and foreign income taxes at the statutory federal income tax rate to
the Company’s tax provision and effective tax rate for the years ended December 31, 2018, 2018 and 2016 (in
thousands):
(cid:3)(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
% of
Pre(cid:882)tax
Income
Amount
2018
2017
(cid:3)
% of
(cid:3)
Pre(cid:882)tax (cid:3)
Income (cid:3)
(cid:3)
2016
(cid:3)
(cid:3) (cid:3)
(cid:3) (cid:3)
(cid:3) Amount
(cid:3) $165,323
% of
Pre(cid:882)tax
Income
Amount
$618,301
Income before income tax................................ $246,954
Income tax provision computed at the
(cid:3)(cid:3)(cid:3)U.S. statutory tax rate on income .................. $ 51,860
increase in income tax
(cid:3)(cid:3)(cid:3)resulting from:
Dividend received deduction ......................
Tax(cid:882)exempt income.....................................
Proration recovery of tax preferred
(cid:3)(cid:3)(cid:3)income ......................................................
Foreign tax expense ....................................
State tax expense ........................................
True(cid:882)up of prior year taxes .........................
Write(cid:882)off of subsidiary NOL DTL..................
U.S. tax reform(cid:3)(cid:882)(cid:3)tax rate adjustment .........
U.S. tax reform(cid:3)(cid:882)(cid:3)mandatory deemed
(cid:3)(cid:3)(cid:3)repatriation...............................................
Other, net....................................................
(1,499)
(3,325)
831
380
1,226
(7,434)
——
(22,156)
——
3,296
Total federal and foreign income
(cid:3)(cid:3)(cid:3)tax provision........................................ $ 23,179
70
21.0% $216,405
35.0%(cid:3) $ 57,863
35.0%
(cid:3)
(0.6)
(1.3)
0.3(cid:3)
0.2
0.5
(3.0)
——
(9.0)
——(cid:3)
1.3
(3,013)
(14,135)
2,140
(176)
(364)
(430)
——
95,074
(6,643)
4,189
(cid:3) (cid:3)
(cid:3)
(0.5) (cid:3) (cid:3)
(3,259)
(2.3) (cid:3) (cid:3) (23,353)
0.3(cid:3)
(cid:3) (cid:3)
(0.0) (cid:3) (cid:3)
(0.1) (cid:3) (cid:3)
(0.1) (cid:3) (cid:3)
——(cid:3)
15.4(cid:3)
——
——
——
——
(cid:3) (cid:3) (32,999)
——
(cid:3) (cid:3)
(1.1) (cid:3) (cid:3)
0.8(cid:3)
(cid:3) (cid:3)
——
6,163
(cid:3)
(2.0)
(14.1)
——(cid:3)
——
——
——
(20.0)
——
——(cid:3)
3.7
9.4% $293,047
47.4%(cid:3) $
4,415
2.6%
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Pre(cid:882)tax income (loss) generated in the United States was $132.0 million, $463.7 million and $(3.3) million for
the years ended December 31, 2018, 2017 and 2016, respectively. Foreign pre(cid:882)tax income was $115.0 million,
$154.6 million and $168.6 million for the years ended December 31, 2018, 2017 and 2016, respectively.
The Company has claimed the benefit of a foreign tax credit in the tax years ended December 31, 2018, 2017
and 2016.(cid:3)
During 2016, the Company released the deferred tax liability relating to a contingent contractual obligation
to a former subsidiary of the Company as a result of the Company’s utilization of the former subsidiary’s net
operating losses in years prior to the sale of the former subsidiary, pursuant to tax sharing agreements in effect for
those years, following the determination that such liability will not be realized.
The Company is included in the United States tax group of Fairfax (US) Inc. (“Fairfax (US)”).(cid:3)(cid:3)The method of
allocation among the companies is subject to a written agreement.(cid:3) (cid:3) Tax payments are made to, or refunds
received from, Fairfax (US) in amounts equal to the amounts as if separate income tax returns were filed with
federal taxing authorities.
The United States Tax Cuts and Jobs Act (the “Act”) was signed into law on December 22, 2017. The Act
reduces the U.S. federal corporate tax rate from 35% to 21% and requires companies to pay a one(cid:882)time transition
tax on earnings of certain foreign subsidiaries that were previously tax deferred. The Act also includes the
following provisions for tax years beginning after December 31, 2017: repeal of the alternative minimum tax
regime, changes to loss reserve discounting, a new minimum base erosion and anti(cid:882)abuse tax (“BEAT”) on certain
payments to foreign affiliates and a US tax on foreign earnings for certain global intangible low(cid:882)taxed income
("GILTI"), as well as a number of other provisions expected to have an immaterial impact on the Company. As of
December 31, 2018, the Company completed the estimates of the impact of the Act, as discussed below.
Pursuant to Accounting Standards Codification(cid:3) (“ASC”) 740 “Income Taxes”, deferred tax assets ("DTAs")
and deferred tax liabilities ("DTLs") as of December 31, 2017, were measured using the new enacted tax rate of
21% that is expected to apply to taxable income in the periods in which the DTAs and DTLs are expected to be
settled or realized. The impact of the federal rate change was determined as of December 31, 2017. Any difference
between the impact measured as of that date and the date of enactment was considered not material to the
financial statements. Changes in DTAs and DTLs resulting from changes in tax law or tax rates are recognized in
continuing operations, including DTAs and DTLs related to accumulated other comprehensive income.(cid:3) (cid:3) The
remeasurement of deferred taxes due to the change in tax rate resulted in a reduction of net deferred tax assets of
$95.1 million, as of December 31, 2017.(cid:3) The Company recorded a benefit of $22.2 million in 2018 for the effects of
the change in tax rates on certain return(cid:882)to(cid:882)provision adjustments reflected on the 2017 filed US corporate income
tax return. See Note 5 for discussion of the effects on accumulated other comprehensive income and the
application of ASU 2018(cid:882)02.
For tax years beginning before January 1, 2018, the Act requires that U.S. companies include in income the
impacts of a mandatory deemed repatriation of post(cid:882)1986 undistributed foreign earnings ("transition tax" or "toll
charge"). As of December 31, 2017, the Company estimated that income on previously untaxed foreign earnings
would be $36.8 million. The amount estimated as of December 31, 2017 noted above was finalized with the filing
of the 2017 income tax return during 2018, which included $32.4 million in taxable income related to mandatory
deemed repatriation. The effects of the $4.4 million adjustment to the transition tax estimate had no material
impact due to the Company utilizing foreign tax credits to reduce the transition tax liability to zero . As a result of
the transition tax, as of December 31, 2017 the Company recognized a reduction in net deferred tax liability of
$37.6 million related to previously deferred earnings of the Newline Group as well as a reduction in its foreign tax
credits of $31.3 million related to foreign tax credits that no longer have value due to the mandatory repatriation.
In accordance with Staff Accounting Bulletin No. 118 (SAB 118), for the year ended December 31, 2018 the
estimate has been updated and the Company has recognized a reduction in net deferred tax liability of $43.9
million related to previously deferred earnings of the Newline Group as well as a reduction in its foreign tax credits
of $36.7 million. The net $0.9 million adjustment to the SAB 118 estimate in foreign deferred tax attributes results
in an effective tax rate benefit of 0.4%.(cid:3)
The effects of the Act related to loss reserve discounting have been computed for the years ended December
31, 2018 and 2017. Due to special transition rules, the changes to loss reserve discounting are spread ratably over
71
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
8 years. The Company will recognize a benefit of $9.4 million ratably from years ending December 31, 2018 to
December 31, 2025.(cid:3)
The tax effects included in these consolidated financial statements represent the Company's best estimate
based upon the information available, as of December 31, 2018. The finalization during 2019 of proposed
regulations issued by the U.S. tax authorities during 2018 could potentially affect the estimates of the tax impacts
related to BEAT and GILTI as of December 31, 2018. The Company will recognize the charges, if any, related to
BEAT or GILTI in the period in which it is included on the Company’s income tax return. The Company has,
therefore, not included impacts from BEAT or GILTI in measuring its current or deferred taxes as of December 31,
2018 or 2017.
The Company paid federal and foreign income taxes of $83.4 million, $18.0 million and $152.8 million for the
years ended December 31, 2018, 2017 and 2016, respectively.(cid:3) (cid:3) As of December 31, 2018, the Company had a
current tax payable of $2.0 million, which included $6.4 million receivable from Fairfax (US) and a net payable of
$8.4 million to various foreign governments.(cid:3) As of December 31, 2017, the Company had a current tax payable of
$34.4 million, which included $6.4 million payable to Fairfax (US) and a net payable of $28.0 million to various
foreign governments.(cid:3) The Company files income tax returns with various federal, state and foreign jurisdictions.(cid:3)
The Company’s U.S. federal income tax returns for tax years prior to 2017 are closed. The Internal Revenue
Service (“IRS”) is expected to complete their audit of the Company’s 2017 returns during 2019.(cid:3) Effective for 2017
and 2018 tax years, the Company participates in the IRS’s Compliance Assurance Program (“CAP”). Under CAP, the
IRS begins their examination of the tax year before the income tax return is filed. The goal of CAP is to expedite the
exam process and reduce the level of uncertainty regarding a taxpayer’s filing positions by examining significant
transactions and events as they occur.(cid:3) The IRS has not proposed any material adjustments as part of the
Company’s ongoing examinations. Income tax returns filed with various state and foreign jurisdictions remain open
to examination in accordance with individual statutes.
The Company has elected to recognize accrued interest and penalties associated with uncertain tax positions
as part of the income tax provision.(cid:3)(cid:3)The Company does not have any material unrecognized tax benefits and has
not recognized any accrued interest or penalties associated with uncertain tax positions.
For federal income tax return purposes, the Company has foreign tax credit carryovers of $19.4 million, of
which $13.9 million and $4.2 million expire in 2027 and 2028, respectively.
72
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
11. Commitments and Contingencies
(a)
Contingencies
The Company participates in Lloyd’s through its 100% ownership of the capital provider for Newline
Syndicate (1218), for which the Company directly or indirectly provides 100% of the capacity. The results of
Newline Syndicate (1218) are consolidated in the financial statements of the Company. In support of Newline
Syndicate (1218)’s capacity at Lloyd’s, the Company has pledged securities and cash with a fair value of
$291.7 million as of December 31, 2018 in a deposit trust account in favor of the Society and Council of Lloyd’s.
The securities may be substituted with other securities at the discretion of the Company, subject to approval by
Lloyd’s. The securities are carried at fair value and are included in investments and cash in the Company’s
consolidated balance sheets. Interest earned on the securities is included in investment income. The pledge of
assets in support of Newline Syndicate (1218) provides the Company with the ability to participate in writing
business through Lloyd’s, which remains an important part of the Company’s business. The pledged assets
effectively secure the contingent obligations of Newline Syndicate (1218) should it not meet its obligations. The
Company’s contingent liability to the Society and Council of Lloyd’s is limited to the aggregate amount of the
pledged assets. The Company has the ability to remove funds at Lloyd’s annually, subject to certain minimum
amounts required to support outstanding liabilities as determined under risk(cid:882)based capital models and approved
by Lloyd’s. The funds used to support outstanding liabilities are adjusted annually and the obligations of the
Company to support these liabilities will continue until they are settled or the liabilities are reinsured by a third
party approved by Lloyd’s. The Company expects to continue to actively operate Newline Syndicate (1218) and
support its requirements at Lloyd’s. The Company believes that Newline Syndicate (1218) maintains sufficient
liquidity and financial resources to support its ultimate liabilities and the Company does not anticipate that the
pledged assets will be utilized.
ORC agreed to guarantee the performance of all the insurance and reinsurance contract obligations of
Compagnie Transcontinentale de Réassurance (“CTR”), a subsidiary of Fairfax, in the event CTR became insolvent
and CTR was not otherwise indemnified under its guarantee agreement with a Fairfax affiliate. Fairfax has agreed
its obligations incurred under its guarantee. The Company’s potential exposure in
to indemnify ORC for all
connection with this agreement stems from CTR’s remaining gross reserves, which are estimated to be
$54.7 million as of December 31, 2018. The Company believes that the financial resources of the Fairfax
subsidiaries that have assumed CTR’s liabilities provide adequate protection to satisfy the obligations that are
subject to this guarantee. The Company does not expect to make payments under this guarantee and does not
consider its potential exposure under this guarantee to be material to its consolidated financial position.
ORC has agreed to guarantee the payment of all of the insurance contract obligations (the “Subject
Contracts”), whether incurred before or after the agreement, of Falcon Insurance Company (Hong Kong) Limited
(“Falcon”), a subsidiary of Fairfax Asia, in the event Falcon becomes insolvent. The guarantee by ORC was made to
assist Falcon in writing business through access to ORC’s financial strength ratings and capital resources. ORC is
paid a fee for this guarantee of one quarter of one percent of all gross premiums earned associated with the
Subject Contracts on a quarterly basis. For each of the years ended December 31, 2018, 2017 and 2016, Falcon
paid $0.1 million to ORC in connection with this guarantee. ORC’s potential exposure in connection with this
agreement is estimated to be $125.6 million, based on Falcon’s loss reserves at December 31, 2018. Fairfax has
agreed to indemnify ORC for any obligation under this guarantee. The Company believes that the financial
resources of Falcon provide adequate protection to support its liabilities in the ordinary course of business. The
Company anticipates that Falcon will meet all of its obligations in the normal course of business and does not
expect to make any payments under this guarantee. The Company does not consider its potential exposure under
this guarantee to be material to its consolidated financial position.
During 2015, in consideration for an appropriate fee, ORC agreed to guarantee the payment of certain
obligations of TIG with respect to a certain contract of reinsurance of asbestos, pollution and health hazard claims
(the “APH contract”) entered into by TIG with an unrelated third party.(cid:3) The guarantee was made to enable TIG to
access ORC’s financial strength ratings and capital resources for securing the APH Contract.(cid:3) ORC’s maximum
exposure in connection with this guarantee is $350.0 million; as of December 31, 2018, the Company’s estimated
exposure under the guarantee is $63.5 million, based on TIG’s loss reserves for the APH Contract at December 31,
2018.(cid:3) (cid:3) The Company i) believes that the financial resources of TIG provide adequate protection to support is
liabilities in the ordinary course of business; ii) anticipates that TIG will meet all of its obligations in the normal
course of business and iii) does not expect to make any payments under this guarantee.
73
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company and its subsidiaries are involved from time to time in ordinary litigation and arbitration
proceedings as part of the Company’s business operations. In the Company’s opinion, the outcome of these suits,
individually or collectively, is not likely to result in judgments that would be material to the financial condition or
results of operations of the Company.
(b)
Commitments
The Company and its subsidiaries lease office space and furniture and equipment under long(cid:882)term operating
leases expiring through the year 2033. Minimum annual rentals follow (in thousands):
2019............................................................................................................................................(cid:3)(cid:3)(cid:3) $
2020............................................................................................................................................(cid:3)(cid:3)(cid:3) (cid:3)
2021............................................................................................................................................(cid:3)(cid:3)(cid:3) (cid:3)
2022............................................................................................................................................(cid:3)(cid:3)(cid:3) (cid:3)
2023............................................................................................................................................(cid:3)(cid:3)(cid:3) (cid:3)
2024 and thereafter....................................................................................................................(cid:3)(cid:3)(cid:3) (cid:3)
Total ...................................................................................................................................... (cid:3)(cid:3)(cid:3)(cid:3) $
11,289
11,184
10,692
9,929
9,459
55,639
108,192
(cid:3)
Amount
The Company leases certain office and retail space held as an investment under various operating leases.(cid:3)(cid:3)
Lease income for the years ended December 31, 2018 and(cid:3)(cid:3)2017(cid:3)(cid:3)was $5.6 million and $1.1 million, respectively.
There was no lease income for the year ended December 31, 2016. Future rental income from these leases are as
follows (in thousands):
2019............................................................................................................................................(cid:3)(cid:3)(cid:3) $
2020............................................................................................................................................(cid:3)(cid:3)(cid:3) (cid:3)
2021............................................................................................................................................(cid:3)(cid:3)(cid:3) (cid:3)
2022............................................................................................................................................(cid:3)(cid:3)(cid:3) (cid:3)
2023............................................................................................................................................(cid:3)(cid:3)(cid:3) (cid:3)
2024 and thereafter....................................................................................................................(cid:3)(cid:3)(cid:3) (cid:3)
Total ...................................................................................................................................... (cid:3)(cid:3)(cid:3)(cid:3) $
4,428
4,156
3,107
2,277
1,685
6,633
22,286
(cid:3)
Amount
Rental expense, before sublease income under these operating leases, was $12.2 million, $11.9 million and
$12.1 million for the years ended December 31, 2018, 2017 and 2016, respectively. The Company recovered $0.1
million for each of the years ended December 31, 2018, 2017 and 2016.(cid:3)
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
GROUP HOLDINGS, INC.
12. Statutory Information and Dividend Restrictions
ORC, the Company’s principal operating subsidiary, is subject to state regulatory restrictions that limit the
maximum amount of dividends payable. In any 12(cid:882)month period, ORC may pay dividends equal to the greater of
(i) 10% of statutory capital and surplus as of the prior year end or (ii) net income for such prior year, without prior
approval of the Insurance Commissioner of the State of Connecticut (the “Connecticut Commissioner”).
Connecticut law further provides that (i) ORC must report to the Connecticut Commissioner, for informational
purposes, all dividends and other distributions within five business days after the declaration thereof and at least
ten days prior to payment and (ii) ORC may not pay any dividend or distribution in excess of its earned surplus,
defined as the insurer’s “unassigned funds surplus” reduced by 25% of unrealized appreciation in value or
revaluation of assets or unrealized profits on investments, as reflected in its most recent statutory annual
statement on file with the Connecticut Commissioner, without the Connecticut Commissioner’s approval. The
maximum ordinary dividend capacity available during 2019, without prior approval, is $329.7 million.(cid:3) ORC
declared and paid to OGHI dividends of $150.0 million, $100.0 million and $200.0 million during the years ended
December 31, 2018, 2017 and 2016, respectively.(cid:3) Hudson declared and paid dividends on its preferred shares
owned by TIG of $1.3 million during each of the years ended December 31, 2018, 2017 and 2016.(cid:3) Greystone
declared and paid dividends on its preferred shares owned by TIG of $0.3 million during each of the years ended
December 31, 2018, 2017 and 2016.(cid:3)(cid:3)
The following is the consolidated statutory basis net income and policyholders’ surplus of ORC and its
subsidiaries, for each of the years ended and as of December 31, 2018, 2017 and 2016 (in thousands):
Net income ....................................................................................... $
Policyholders' surplus .......................................................................
2018
302,562
3,336,595
2017
(cid:3)
64,095(cid:3) $
3,285,326(cid:3)
2016
145,455
3,223,232
$
(cid:3)
13. Related Party Transactions
The Company has entered into various reinsurance arrangements with Fairfax and its affiliates. The amounts
included in or deducted from income, expense, assets and liabilities in the accompanying consolidated financial
statements with respect to reinsurance assumed and ceded from and to affiliates as of and for the years ended
December 31, 2018, 2017 and 2016, follow (in thousands):
2018
2017
Assumed:
Premiums written........................................................................ $
Premiums earned ........................................................................
Losses and loss adjustment expenses .........................................
Acquisition costs..........................................................................
Reinsurance payable on paid losses............................................
Reinsurance balances receivable ................................................
Unpaid losses and loss adjustment expenses .............................
Unearned premiums ...................................................................
(cid:3)(cid:3)
Ceded:
Premiums written........................................................................ $
Premiums earned ........................................................................
Losses and loss adjustment expenses .........................................
Acquisition costs..........................................................................
Ceded reinsurance balances payable..........................................
Reinsurance recoverables on paid losses....................................
Reinsurance recoverables on unpaid losses ...............................
Unearned premiums ...................................................................
75,672
81,975
59,295
14,749
6,873
22,033
158,833
22,751
44,805
41,883
12,989
7,020
4,316
950
99,673
18,489
(cid:3)
$
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
$
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
(cid:3)
2016
(cid:3)
(cid:3)
57,691(cid:3) $
53,713(cid:3)
43,705(cid:3)
9,523(cid:3)
1,223(cid:3)
13,956(cid:3)
147,010(cid:3)
22,871(cid:3)
(cid:3)
(cid:3)
43,283(cid:3) $
37,309(cid:3)
29,132(cid:3)
5,574(cid:3)
1,817(cid:3)
3,143(cid:3)
110,186(cid:3)
15,651(cid:3)
25,267
23,148
8,278
1,722
667
4,604
57,896
8,826
32,661
32,566
22,066
3,253
2,705
1,299
99,585
10,588
75
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company’s subsidiaries have entered into investment management agreements with Fairfax and its
wholly(cid:882)owned subsidiary, Hamblin Watsa Investment Counsel Ltd. These agreements generally provide for an
annual base fee, calculated and paid quarterly based upon each subsidiary’s average invested assets for the
preceding three months, and an incentive fee, which is payable if realized gains on equity investments exceed
certain benchmarks. These agreements may be terminated by either party on 30 days’ notice. For the years ended
December 31, 2018, 2017 and 2016, total fees, including incentive fees, of $22.4 million, $13.5 million and $21.5
million, respectively, are included in the consolidated statements of operations.
Included in other expenses, net, for the years ended December 31, 2018, 2017 and 2016, are charitable
contribution expenses of $2.5 million, $6.0 million and $1.6 million, respectively, primarily representing amounts
to be funded by OGHI to the Odyssey Group Foundation, a not(cid:882)for(cid:882)profit entity through which the Company
provides funding to charitable organizations active in the communities in which the Company operates.
Due to expense sharing and investment management agreements with Fairfax and its affiliates, the Company
has accrued, on its consolidated balance sheet, amounts receivable from affiliates of $2.4 million and $3.6 million
as of December 31, 2018 and 2017, respectively, and amounts payable to affiliates of $9.4 million and $5.2 million
as of December 31, 2018 and 2017, respectively.
On December 6, 2016, the Company loaned to 9938982 Canada Inc., $50.1 million, the proceeds of which
were used to fund a debtor in possession loan to a Canadian retail company. The loan to 9938982 Canada Inc. bore
interest at 8.0% per annum and was repaid on February 28, 2017.
During 2017, the Company loaned an affiliate, Farmers Edge Inc. (“Farmers Edge”), $19.2 million. The loans
to Farmers Edge bore interest at 7% per annum and came due on January 31, 2018.(cid:3) (cid:3) Under the same loan
agreement, the Company loaned Farmers Edge an additional $4.3 million during January 2018.(cid:3) (cid:3) On February 1,
2018, the Company exchanged its $23.4 million loan to Farmers Edge for a new $19.9 million loan and $3.9 million
of warrants. The new loan bears interest at a rate of 5% per annum until January 1, 2019 and then at 10% per
annum until the maturity date of March 31, 2019.(cid:3) (cid:3) On August 17, 2018 and November 15, 2018, the Company
loaned Farmers Edge an additional $6.4 million and $8.2 million and purchased warrants for $2.4 million and $2.8
million.(cid:3) These loans bear interest at a rate of 5% per annum until January 1, 2019 and then at 12% per annum until
the maturity date of January 7, 2019.
On January 22, 2018, the Company loaned an affiliate, Exco Resources Inc., $59.4 million in the form of a
senior secured debtor(cid:882)in(cid:882)possession revolving credit facility loan.(cid:3) The notes bear interest at 4.9% per annum on
Tranche A and 5.9% per annum on Tranche B and has a maturity date of January 22, 2019, with a maturity
extension clause until July 22, 2019.(cid:3)(cid:3)(cid:3)
On August 10, 2018 and October 29, 2018, the Company loaned to Fairfax (US), $50.0 million and $50.0
million, respectively, at interest rates of 2.42% and 2.55% per annum, respectively.(cid:3) (cid:3) The loans were repaid on
September 28, 2018 and December 19, 2018, respectively.(cid:3) On July 17, 2017, September 15, 2017 and October 11,
2017, the Company loaned to Fairfax (US), $150.0 million, $50.0 million and $150.0 million, respectively, at interest
rates of 1.22%, 1.29% and 1.27% per annum, respectively.(cid:3) The July 17, 2017 loan was repaid on September 13,
2017. The September 15, 2017 and October 11, 2017 loans were repaid on December 28, 2017.
In the ordinary course of the Company’s investment activities, the Company makes investments in
investment funds, limited partnerships and other investment vehicles in which Fairfax or its affiliates may also be
investors.
14. Employee Benefits
The Company provides its employees with benefits through various plans as described below.
Defined Benefit Pension Plan
The Company maintains a qualified, non(cid:882)contributory, defined benefit pension plan (the “Pension Plan”)
covering substantially all employees in the United States hired prior to August 1, 2011 who have reached age
twenty(cid:882)one.(cid:3) (cid:3) Employer contributions to the Pension Plan are in accordance with the minimum funding
requirements of the Employee Retirement Income Security Act of 1974, as amended.
76
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The amortization period for unamortized pension costs and credits, including prior service costs, if any, and
actuarial gains and losses, is based on the remaining service period for those employees expected to receive
pension benefits. Actuarial gains and losses result when actual experience differs from that assumed or when
actuarial assumptions are changed.
The following tables set forth the Pension Plan’s unfunded status and accrued pension cost recognized in the
Company’s consolidated financial statements as of December 31, 2018 and 2017 (in thousands):
Change in projected benefit obligation:
Benefit obligation at beginning of year................................................................ $
Service cost ..........................................................................................................
Interest cost .........................................................................................................
Actuarial (gain) loss ..............................................................................................
Benefits paid ........................................................................................................
Benefit obligation at end of year ....................................................................
Change in Plan assets:
Fair value of Pension Plan assets at beginning of year ........................................
Actual (depreciation) appreciation on Pension Plan assets .................................
Actual contributions during the year ...................................................................
Benefits paid ........................................................................................................
Fair value of Pension Plan assets at end of year.............................................
Funded status and accrued pension cost .................................................. $
2018
(cid:3)(cid:3)
(cid:3)
2017
207,314(cid:3) $
9,739(cid:3)
7,607(cid:3)
(18,546)
(10,666)
195,448(cid:3)
(cid:3)
142,969(cid:3)
(12,920)
7,800(cid:3)
(10,666)
127,183(cid:3)
(68,265) $
179,299
9,003
7,438
17,676
(6,102)
207,314
130,263
8,508
10,300
(6,102)
142,969
(64,345)
The net amount reported in the consolidated balance sheets related to the accrued pension cost for the
Pension Plan of $68.3 million and $64.3 million, as of December 31, 2018 and 2017, respectively, is included in
other liabilities. The unamortized amount of accumulated other comprehensive loss related to the Pension Plan is
$43.5 million and $43.6 million, before taxes, as of December 31, 2018 and 2017, respectively.
As of December 31, 2018 and 2017, the fair value and percentage of fair value of the total Pension Plan
assets by type of investment are as follows (in thousands):
(cid:3)
As of December 31,
(cid:3)
(cid:3)
2017
2018
Equity securities........................................................................... $ 95,587
24,556
Mutual funds(cid:3)(cid:882) fixed income securities .......................................
7,039
Money market .............................................................................
Fair value of Plan assets ......................................................... $ 127,182
75.2%(cid:3) $ 94,482
19.3(cid:3)(cid:3) (cid:3) (cid:3)(cid:3) 38,721
9,766
5.5(cid:3)(cid:3) (cid:3) (cid:3)(cid:3)
100.0%(cid:3) $ 142,969
66.1%
27.1
6.8
100.0%
The Pension Plan seeks to maximize the economic value of its investments by applying a long(cid:882)term, value(cid:882)
oriented approach to optimize the total investment returns of the Pension Plan’s invested assets. Assets are
transferred and allocated among various investment vehicles, when appropriate. The long(cid:882)term rate of return
assumption is based on this flexibility to adjust to market conditions. The actual return on assets has historically
been in line with the Company’s assumptions of expected returns.(cid:3)(cid:3)During the years ended December 31, 2018 and
2016, the Company contributed $7.8 million to the Pension Plan. The Company contributed $10.3 million to the
Pension Plan during the year ended December 31, 2017.(cid:3)(cid:3) The Company currently expects to make a contribution
to the Pension Plan of $7.8 million during 2019.
The Company accounts for its Pension Plan assets at fair value as required by GAAP. The Company has
categorized its Pension Plan assets, based on the priority of the inputs to the valuation technique, into a three(cid:882)
level fair value hierarchy, using the three(cid:882)level hierarchy approach described in Note 3.(cid:3)
Quoted market prices are used for determining the fair value of the Company’s Pension Plan assets. The
majority of these Pension Plan assets are common stocks and mutual funds that are actively traded in a public
market. The Pension Plan’s money market account, for which the cost basis approximates fair value, is also
classified as a Level 1 investment.(cid:3)(cid:3)As of December 31, 2017, all of the Pension Plan’s assets were categorized as
Level 1 assets.
77
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company’s Level 3 Pension Plan assets are valued by a third party, providing a net asset value, by using
valuation techniques that include unobservable inputs. Generally, hedge funds invest in securities that trade in
active markets, and as a result, their net asset values reflect their fair values.(cid:3) (cid:3) As of December 31, 2018, the
Pension Plan investments that are classified as Level 3 had a fair value of $12.9 million. For the year ended
December 31, 2018, there was a decrease in the market value of $1.6 million for the Pension Plan investments that
are classified as Level 3.
The following table presents a summary of changes in the fair value of investments that are classified as Level 3:
Balance, January 1, 2018 ............................................................................................................(cid:3)(cid:3)(cid:3) $
Purchases....................................................................................................................................(cid:3)(cid:3)(cid:3) (cid:3)
Unrealized investment loss related to securities held................................................................
Balance, December 31, 2018................................................................................................. (cid:3)(cid:3)(cid:3)(cid:3) $
——
14,500
(1,562)
12,938
(cid:3)(cid:3)
Hedge Fund
The following table presents the targeted asset allocation percentages for the Pension Plan’s assets by type:
Equities ..................................................................................................................................................
Mutual funds(cid:3)(cid:882) fixed income securities .................................................................................................
Total target asset allocations ...........................................................................................................
Targeted
Asset
Allocation
%
80.00
20.00
100.00
The weighted average assumptions used to calculate the benefit obligation as of December 31, 2018 and
2017 are as follows:
(cid:3)
Discount rate ............................................................................................................................ (cid:3)
Rate of compensation increase ................................................................................................(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
2018
2017
4.25%
3.60%
3.75%
3.80%
The discount rate represents the Company’s estimate of the interest rate at which the Pension Plan’s
benefits could be effectively settled. The discount rates are used in the measurement of the expected and
accumulated Pension Plan benefit obligations and the service and interest cost components of net periodic
Pension Plan benefit cost.
The net periodic benefit cost included in the Company’s consolidated statements of operations for the years
ended December 31, 2018, 2017 and 2016 is comprised of the following (in thousands):
Net Periodic Benefit Cost:
Service cost ......................................................................................... $
Interest cost ........................................................................................
Return on Plan assets..........................................................................
Recognized actuarial loss ....................................................................
Net periodic benefit cost ............................................................... $
(cid:3)(cid:3)
in accumulated other comprehensive loss:
Beginning balance ............................................................................... $
Actuarial loss and return on plan assets arising during the year ........
Amortization of actuarial gain recognized in net periodic costs.........
Accumulated other comprehensive loss at end of year ................ $
2018
(cid:3) (cid:3)
(cid:3) (cid:3) (cid:3)
9,739(cid:3) (cid:3) $
7,607(cid:3) (cid:3) (cid:3)
(8,483) (cid:3) (cid:3)
2,933(cid:3) (cid:3) (cid:3)
11,796(cid:3) (cid:3) $
(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3) (cid:3)
43,612(cid:3) (cid:3) $
2,857(cid:3) (cid:3) (cid:3)
(2,933) (cid:3) (cid:3)
43,536(cid:3) (cid:3) $
2017
2016
9,003
7,438
(7,709)
1,252
9,984
27,987
16,877
(1,252)
43,612
$
$
$
$
8,819
6,935
(6,582)
1,504
10,676
28,729
762
(1,504)
27,987
The Company estimates that the net periodic benefit cost for the Pension Plan will be $12.0 million for the
year ended December 31, 2019. The Company does not expect any refunds of Pension Plan assets during the year
ended December 31, 2019.
78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
GROUP HOLDINGS, INC.
The weighted average assumptions used to calculate the net periodic benefit cost for the years ended
December 31, 2018, 2017 and 2016 are as follows:
Discount rate ..............................................................................................................
Rate of compensation increase ..................................................................................
Expected long term rate of return on Pension Plan assets ........................................
2018 (cid:3)(cid:3)
(cid:3)
(cid:3)(cid:3) 3.75%(cid:3)
(cid:3)(cid:3) 3.80%(cid:3)
(cid:3)(cid:3) 6.00%(cid:3)
2017
(cid:3)(cid:3) 4.25%
(cid:3)(cid:3) 3.80%
(cid:3)(cid:3) 6.00%
2016
4.50%
3.80%
6.00%
The accumulated benefit obligation for the Pension Plan was $171.0 million and $178.4 million as of the
December 31, 2018 and 2017 measurement dates, respectively.
The Pension Plan’s expected future benefit payments for the next 10 years are shown below (in thousands):
Year
2019..................................................................................................................................................... (cid:3)(cid:3)(cid:3) $
2020..................................................................................................................................................... (cid:3)(cid:3)(cid:3)
2021..................................................................................................................................................... (cid:3)(cid:3)(cid:3)
2022..................................................................................................................................................... (cid:3)(cid:3)(cid:3)
2023..................................................................................................................................................... (cid:3)(cid:3)(cid:3)
2024 – 2028 ......................................................................................................................................... (cid:3)(cid:3)(cid:3)
(cid:3)
Amount
8,722
9,893
10,341
10,863
11,151
68,581
The amortization of actuarial losses and of prior service costs (currently reflected in accumulated other
comprehensive income) as components of net periodic cost are expected to be $2.7 million and $0.0 million,
respectively, for the year ended December 31, 2019.
Excess Benefit Plans
The Company maintains two non(cid:882)qualified excess benefit plans (the “Excess Plans”) that provide more highly
compensated officers and employees in the United States hired prior to August 1, 2011 with defined retirement
benefits in excess of qualified plan limits imposed by federal tax law. The following tables set forth the combined
amounts recognized for the Excess Plans in the Company’s consolidated financial statements as of December 31,
2018 and 2017 (in thousands):
Change in projected benefit obligation:
Benefit obligation at beginning of year................................................................ $
Service cost ..........................................................................................................
Interest cost .........................................................................................................
Actuarial (gain) loss ..............................................................................................
Benefits paid ........................................................................................................
Benefit obligation at end of year ....................................................................
Change in Excess Plans’ assets:
Fair value of Excess Plans’ assets at beginning of year........................................
Actual contributions during the year ...................................................................
Benefits paid ........................................................................................................
Fair value of Excess Plans’ assets at end of year ............................................
Funded status and accrued pension cost .................................................. $
2018
(cid:3)(cid:3)
(cid:3)(cid:3)
2017
27,974(cid:3)(cid:3) $
1,410(cid:3)(cid:3)
1,011(cid:3)(cid:3)
(3,078)
(484)
26,833(cid:3)(cid:3)
(cid:3)(cid:3)
——(cid:3)(cid:3)
484(cid:3)(cid:3)
(484)
——(cid:3)(cid:3)
(26,833) $
26,600
1,378
1,105
23
(1,132)
27,974
——
1,132
(1,132)
——
(27,974)
The net amount reported in the consolidated balance sheets related to the accrued pension cost for the
Excess Plans of $26.8 million and $28.0 million, as of December 31, 2018 and 2017, respectively, is included in
other liabilities. The unamortized amount of accumulated other comprehensive loss related to the Excess Plan is
$1.9 million and $5.2 million, before taxes, as of December 31, 2018 and 2017, respectively.
79
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The weighted average assumptions used to calculate the benefit obligation as of December 31, 2018 and
2017 are as follows:
(cid:3)
Discount rate ............................................................................................................................ (cid:3)
Rate of compensation increase ................................................................................................(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
2018
2017
4.25%
3.60%
3.75%
3.80%
The discount rate represents the Company’s estimate of the interest rate at which the Excess Plans’ benefits
could be effectively settled. The discount rates are used in the measurement of the expected and accumulated
Excess Plans’ benefit obligations and the service and interest cost components of net periodic Excess Plans’ benefit
cost.
Net periodic benefit cost included in the Company’s consolidated statements of operations for the years
ended December 31, 2018, 2017 and 2016 is comprised of the following (in thousands):
Net Periodic Benefit Cost:
Service cost ......................................................................................... $
Interest cost ........................................................................................
Recognized net actuarial loss ..............................................................
Recognized prior service cost..............................................................
Net periodic benefit cost ............................................................... $
(cid:3)(cid:3)
in accumulated other comprehensive loss:
Beginning balance ............................................................................... $
Actuarial (gain) loss arising during the year ........................................
Amortization of actuarial gain recognized in net periodic costs.........
Amortization of prior service costs recognized in net periodic costs .
Accumulated other comprehensive loss at end of year ................ $
2018
(cid:3)
(cid:3)
(cid:3) (cid:3) (cid:3)
1,410(cid:3) (cid:3) $
1,011(cid:3) (cid:3) (cid:3)
279(cid:3) (cid:3) (cid:3)
(5) (cid:3) (cid:3)
2,695(cid:3) (cid:3) $
(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3) (cid:3)
5,270(cid:3) (cid:3) $
(3,077) (cid:3) (cid:3)
(279) (cid:3) (cid:3)
5(cid:3) (cid:3) (cid:3)
1,919(cid:3) (cid:3) $
2017
2016
1,378
1,105
309
(37)
2,755
5,519
23
(309)
37
5,270
$
$
$
$
1,232
1,046
242
(37)
2,483
4,740
985
(243)
37
5,519
The weighted average assumptions used to calculate the net periodic benefit cost for the years ended
December 31, 2018, 2017 and 2016 are as follows:
Discount rate ..............................................................................................................
Rate of compensation increase ..................................................................................
(cid:3)
2018 (cid:3)(cid:3)
(cid:3)(cid:3) 3.75%(cid:3)
(cid:3)(cid:3) 3.80%(cid:3)
2017
(cid:3)(cid:3) 4.25%
(cid:3)(cid:3) 3.80%
2016
4.50%
3.80%
The accumulated benefit obligation for the Excess Plans was $22.3 million and $21.6 million as of
December 31, 2018 and 2017, respectively.
The Excess Plans’ expected benefit payments for the next 10 years are shown below (in thousands):
Year
2019..................................................................................................................................................(cid:3) $
2020..................................................................................................................................................(cid:3)
(cid:3)
2021..................................................................................................................................................(cid:3)
(cid:3)
2022..................................................................................................................................................(cid:3)
(cid:3)
2023..................................................................................................................................................(cid:3)
(cid:3)
2024 – 2028 ...............................................................................................................................
.......(cid:3)
.
(cid:3)
(cid:3)
Amount
2,011
2,189
3,138
3,051
2,743
13,754
The amortization of actuarial losses and of prior service costs (currently reflected in accumulated other
comprehensive income) as components of net periodic costs are expected to be less than $0.1 million and $0.0
million, respectively, for the year ended December 31, 2019.
The Company expects to contribute $2.0 million to the Excess Plans during the year ended December 31,
2019, which represents the amount necessary to fund the 2019 expected benefit payments.
80
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Postretirement Benefit Plan
The Company provides certain health care and life insurance (“postretirement”) benefits for retired
employees in the United States. Substantially all employees in the United States hired prior to August 1, 2011 may
become eligible for these benefits if they reach retirement age while working for the Company. The Company’s
cost for providing postretirement benefits other than pensions is accounted for in accordance with ASC 715,
“Compensation – Retirement Benefits.” The following tables set forth the amounts recognized for the
postretirement benefit plan in the Company’s consolidated financial statements as of December 31, 2018 and
2017 (in thousands):
Change in accumulated post retirement obligation:
(cid:3)(cid:3)
Accumulated postretirement obligation at beginning of year............................. $$
Service cost .....................................................................................................
(cid:3)(cid:3)
Interest cost ....................................................................................................
(cid:3)(cid:3)
Actuarial gain ..................................................................................................
(cid:3)(cid:3)
Benefits paid ...................................................................................................
(cid:3)(cid:3)
Participant contributions ................................................................................
(cid:3)(cid:3)
Retiree Drug Subsidy receipts.........................................................................
(cid:3)(cid:3)
Accumulated post retirement obligation at end of year...........................
(cid:3)(cid:3)
Funded status and accrued prepaid pension cost ............................... $$
2018
$$
(cid:3)
(cid:3)(cid:3)
80,956(cid:3)(cid:3)
4,007(cid:3)(cid:3)
3,010(cid:3)(cid:3)
(7,631)
(1,382)
120(cid:3)(cid:3)
103(cid:3)(cid:3)
79,183(cid:3)(cid:3)
(79,183) $$
2017
75,431
4,638
3,176
(1,515)
(848)
74
——
80,956
(80,956)
The net amount reported in the consolidated balance sheets related to the accrued benefit cost for the
postretirement plan of $79.2 million and $81.0 million, as of December 31, 2018 and 2017, respectively, is included
in other liabilities. The unamortized amount of accumulated other comprehensive loss related to the
postretirement plan is $2.7 million and $10.7 million, before taxes, as of December 31, 2018 and 2017,
respectively.
The weighted average assumptions used to calculate the benefit obligation as of December 31, 2018 and
2017 are as follows:
Discount rate ............................................................................................................................ (cid:3)
Rate of compensation increase ................................................................................................(cid:3)
(cid:3)(cid:3)
(cid:3)(cid:3)
4.25%
3.80%
3.75%
3.80%
(cid:3)
2018
2017
The discount rate represents the Company’s estimate of the interest rate at which the postretirement
benefit plan benefits could be effectively settled. The discount rates are used in the measurement of the expected
and accumulated postretirement benefit obligations and the service and interest cost of net periodic
postretirement benefit cost.
Net periodic benefit cost included in the Company’s consolidated statements of operations for the years
ended December 31, 2018, 2017 and 2016 is comprised of the following (in thousands):
Net Periodic Benefit Cost:
Service cost ......................................................................................... $
Interest cost ........................................................................................
Recognized actuarial loss ....................................................................
Net periodic benefit cost ............................................................... $
(cid:3)(cid:3)
in accumulated other comprehensive loss:
Beginning balance ............................................................................... $
Actuarial (gain) loss arising during the year ........................................
Amortization of actuarial gain recognized in net periodic costs.........
Accumulated other comprehensive loss at end of year ................ $
2018
(cid:3)
(cid:3)
(cid:3) (cid:3) (cid:3)
4,007(cid:3) (cid:3) $
3,010(cid:3) (cid:3) (cid:3)
351(cid:3) (cid:3) (cid:3)
7,368(cid:3) (cid:3) $
(cid:3) (cid:3) (cid:3)
(cid:3) (cid:3) (cid:3)
10,655(cid:3) (cid:3) $
(7,631) (cid:3) (cid:3)
(351) (cid:3) (cid:3)
2,673(cid:3) (cid:3) $
2017
2016
4,638
3,176
681
8,495
12,851
(1,515)
(681)
10,655
$
$
$
$
4,181
2,947
492
7,620
10,447
2,896
(492)
12,851
81
ODYSSEY GROUP HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The weighted average assumptions used to calculate the net periodic benefit cost for the years ended
December 31, 2018, 2017 and 2016 are as follows:
Discount rate ..............................................................................................................
Rate of compensation increase ..................................................................................
(cid:3)
2018 (cid:3)(cid:3)
(cid:3)(cid:3) 3.75%(cid:3)
(cid:3)(cid:3) 3.80%(cid:3)
2017
(cid:3)(cid:3) 4.25%
(cid:3)(cid:3) 3.80%
2016
4.50%
3.80%
The postretirement plan’s expected benefit payments for the next 10 years are shown below (in thousands):
Year
2019..................................................................................................................................................(cid:3) $
2020..................................................................................................................................................(cid:3)
(cid:3)
2021..................................................................................................................................................(cid:3)
(cid:3)
2022..................................................................................................................................................(cid:3)
(cid:3)
2023..................................................................................................................................................(cid:3)
(cid:3)
2024 – 2028 ...............................................................................................................................
.......(cid:3)
.
(cid:3)
(cid:3)
Amount
1,770
2,112
2,455
2,847
3,123
20,448
For the year ended December 31, 2019, there will be no amortization of actuarial losses and of prior service
costs (currently reflected in accumulated other comprehensive income) as components of net periodic costs.
The annual assumed rate of increase in the per capita cost of covered benefits (i.e., health care cost trend
rate) is assumed to be 5.96% in 2019, gradually decreasing to 4.50% in 2038 and remaining constant thereafter.
The health care cost trend rate assumption has a significant effect on the amounts reported. For example,
increasing the assumed health care cost trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation by $15.1 million (19.12% of the benefit obligation as of
December 31, 2018) and the service and interest cost components of net periodic postretirement benefit costs by
$1.7 million for the year ended December 31, 2018. Decreasing the assumed health care cost trend rates by one
percentage point in each year would decrease the accumulated postretirement benefit obligation and the service
and interest cost components of net periodic postretirement benefit cost for the year ended December 31, 2018
by $12.1 million and $1.3 million, respectively.
Other Plans
The Company also maintains a defined contribution profit sharing plan for all eligible employees. Each year,
the Board of Directors may authorize payment of an amount equal to a percentage of each participant’s basic
annual earnings based on the results of the Company for that year. These amounts are credited to the employees’
accounts maintained by a third party, which has contracted to provide benefits under the plan. No contributions
were authorized for the years ended December 31, 2018, 2017 or 2016.
The Company maintains a qualified deferred compensation plan pursuant to Section 401(k) of the Internal
Revenue Code of 1986, as amended. Employees may contribute up to 50% of base salary on a pre(cid:882)tax basis,
subject to annual maximum contributions set by law ($19,000 in 2019 plus an additional $6,000 if an employee is
age 50 or older). The Company contributes an amount equal to 100% of each employee’s pre(cid:882)tax contribution up
to certain limits. The maximum matching contribution is 4.0% of annual base salary, with certain government(cid:882)
mandated restrictions on contributions to highly compensated employees. The Company also maintains a non(cid:882)
qualified deferred compensation plan to allow for contributions in excess of qualified plan limitations. The
Company’s contributions to both of these plans, which totaled $3.1 million, $3.7 million, and $3.1 million for the
years ended December 31, 2018, 2017 and 2016, respectively, are included primarily in other underwriting
expenses in the consolidated statements of operations.
All employees in the United States hired on or after August 1, 2011 are eligible for an annual profit sharing
contribution, subject to the profit sharing plan limitations. The Company makes this contribution regardless of
whether or not elective deferrals were made during the year.(cid:3)(cid:3)The profit sharing contribution is paid each January
and uses the prior year’s 401(k) compensation (base pay, short(cid:882)term disability earnings and any overtime earnings)
to determine the actual contribution for each employee. These profit sharing contributions are calculated as a
percentage of earnings at the end of each year and allocated to participant accounts in January of the following
year.
82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
GROUP HOLDINGS, INC.
The profit sharing contribution percentages are based upon each employee’s years of service as follows:
Years of Service
Less than or equal to 5 years .......................................................................................................................
More than 5 years but less than or equal to 15 ..........................................................................................
More than 15 years .....................................................................................................................................
Percent
6%
7%
8%
The profit sharing contribution amounts vest based upon the following vesting schedule:
Years of Service
Less than 2 years..........................................................................................................................................
2 years but less than 3 .................................................................................................................................
3 years but less than 4 .................................................................................................................................
4 years but less than 5 .................................................................................................................................
5 years but less than 6 .................................................................................................................................
6 years or more............................................................................................................................................
Percent
0%
20%
40%
60%
80%
100%
83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
GROUP HOLDINGS, INC.
15. Stock(cid:882)Based Compensation Plans
Fairfax Restricted Share Plan and Share Option Plan
In 1999, Fairfax established the Fairfax Financial 1999 Restricted Share Plan (the “Fairfax Restricted Share
Plan”) and the Share Option Plan (the “Option Plan”) (collectively, the “Fairfax Plans”), in which the Company
participates.(cid:3)(cid:3)The Fairfax Plans generally provide officers, key employees and directors who were employed by or
provided services to the Company with awards of restricted shares or stock options (with a grant price of zero) of
Fairfax common stock (collectively, “Restricted Share Awards”).(cid:3) The Restricted Share Awards generally vest over
five years. The Company had 314,204 Restricted Share Awards outstanding as of December 31, 2018.
The fair value of the Restricted Share Awards is estimated on the date of grant based on the market price of
Fairfax’s stock and is amortized to compensation expense on a straight(cid:882)line basis over the related vesting periods.(cid:3)
The Company purchases Fairfax common stock on the open market to cover the grant of a Restricted Share Award
and reflects such purchase as a reduction in the Company’s additional paid(cid:882)in capital.(cid:3)(cid:3)As of December 31, 2018,
there was $70.1 million of unrecognized compensation cost related to unvested Restricted Share Awards granted
from the Fairfax Plans that was netted against additional paid(cid:882)in capital, which is expected to be recognized over a
remaining weighted(cid:882)average vesting period of 2.5 years.(cid:3) (cid:3) The total fair values of the Restricted Share Awards
granted for the years ended December 31, 2018, 2017 and 2016 were $18.8 million, $28.9 million and $14.2
million, respectively. As of December 31, 2018, the aggregate fair value of the Restricted Share Awards outstanding
was $76.7 million. For the years ended December 31, 2018, 2017 and 2016, the Company recognized expense
related to the Fairfax Plans of $17.2 million, $14.7 million and $14.2 million, respectively.
The following table summarizes activity for the Fairfax Plans for the year ended December 31, 2018:
Awards outstanding as of December 31, 2017
Granted .........................................................................................................
Vested ...........................................................................................................
Forfeited........................................................................................................
Unallocated ...................................................................................................
(cid:3)
Awards outstanding as of December 31, 2018...................................................
(cid:3)
Vested and exercisable as of December 31, 2018..............................................
Shares /
Options
(cid:3)
(cid:3)
Weighted(cid:882)
Average Value
at Grant Date
273,990(cid:3) (cid:3) $
36,928(cid:3) (cid:3)
(cid:3)
(43,844) (cid:3)
(cid:3)
(2,734) (cid:3)
(cid:3)
49,864(cid:3) (cid:3)
(cid:3)
(cid:3)
(cid:3) (cid:3)
314,204(cid:3) (cid:3) $
(cid:3) (cid:3)
(cid:3)
7,256(cid:3) (cid:3) $
463.55
509.54
378.45
481.40
458.92
479.94
363.98
Employee Share Purchase Plans
Under the terms off the Odyssey Re Holdings Corp. (Non(cid:882)Qualified) 2010 Employee Share Purchase Plan (the
“2010 ESPP”), eligible employees are given the election to purchase Fairfax common shares in an amount up to
10% of their annual base salary. The Company matches these contributions by purchasing, on the employee’s
behalf, a number of Fairfax’s common shares equal in value to 30% of the employee’s contribution. In the event
that the Company achieves a net combined ratio in any calendar year that is less than the lesser of i) 100% or ii)
the average of the reported net combined ratios of the ten (10) most recent calendar years prior to the current
calendar year, additional shares are purchased by the Company for the employee’s benefit, in an amount equal in
value to 20% of the employee’s contribution during that year. During the year ended December 31, 2018, the
Company purchased 13,404 Fairfax common shares on behalf of employees pursuant to the 2010 ESPP, at an
average purchase price of $522.71. The compensation expense recognized by the Company for purchases of
Fairfax’s common shares under the 2010 ESPP was $1.5 million, $1.9 million and $2.7 million for the years ended
December 31, 2018, 2017 and 2016, respectively.
84
CONTENTS
02 LETTER FROM THE CEO
05 MISSION STATEMENT
06 AT A GLANCE
07 FINANCIAL HIGHLIGHTS
08 OPERATIONS OVERVIEW
11 ODYSSEY GROUP FOUNDATION
12 REINSURANCE
16
18 INSURANCE INTERNATIONAL
20 EXECUTIVE LEADERSHIP
21 FINANCIAL REPORT
INSURANCE U.S. ONLY
ENDURING
MOMENTUM
2018 ANNUAL REPORT
300 First Stamford Place
Stamford, CT 06902
odysseygroup.com