Odyssey Re Holdings Corp.
Annual Report 2020

Plain-text annual report

(cid:18)(cid:75)(cid:69)(cid:94)(cid:75)(cid:62)(cid:47)(cid:24)(cid:4)(cid:100)(cid:28)(cid:24) (cid:38)(cid:47)(cid:69)(cid:4)(cid:69)(cid:18)(cid:47)(cid:4)(cid:62) (cid:94)(cid:100)(cid:4)(cid:100)(cid:28)(cid:68)(cid:28)(cid:69)(cid:100)(cid:94) (cid:75)(cid:24)(cid:122)(cid:94)(cid:94)(cid:28)(cid:122) (cid:39)(cid:90)(cid:75)(cid:104)(cid:87) (cid:44)(cid:75)(cid:62)(cid:24)(cid:47)(cid:69)(cid:39)(cid:94)(cid:853) (cid:47)(cid:69)(cid:18)(cid:856) (cid:4)(cid:69)(cid:24) (cid:94)(cid:104)(cid:17)(cid:94)(cid:47)(cid:24)(cid:47)(cid:4)(cid:90)(cid:47)(cid:28)(cid:94) (cid:4)(cid:94) (cid:75)(cid:38) (cid:24)(cid:28)(cid:18)(cid:28)(cid:68)(cid:17)(cid:28)(cid:90) (cid:1007)(cid:1005)(cid:853) (cid:1006)(cid:1004)(cid:1006)(cid:1004) (cid:4)(cid:69)(cid:24) (cid:1006)(cid:1004)(cid:1005)(cid:1013) (cid:4)(cid:69)(cid:24) (cid:38)(cid:75)(cid:90) (cid:100)(cid:44)(cid:28) (cid:122)(cid:28)(cid:4)(cid:90)(cid:94) (cid:28)(cid:69)(cid:24)(cid:28)(cid:24) (cid:24)(cid:28)(cid:18)(cid:28)(cid:68)(cid:17)(cid:28)(cid:90) (cid:1007)(cid:1005)(cid:853) (cid:1006)(cid:1004)(cid:1006)(cid:1004)(cid:853) (cid:1006)(cid:1004)(cid:1005)(cid:1013) (cid:4)(cid:69)(cid:24) (cid:1006)(cid:1004)(cid:1005)(cid:1012) Report of Independent Auditors To the Board of Directors of Odyssey Group Holdings, Inc.: We have audited the accompanying consolidated financial statements of Odyssey Group Holdings, Inc. and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2020 and 2019, 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, 2020. 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. and its subsidiaries as of December 31, 2020 and 2019, and the results of their operations and their cash flows for the three years in the period ended December 31, 2020 in accordance with accounting principles generally accepted in the United States of America. PricewaterhouseCoopers LLP, 300 Madison Avenue, New York, NY 10017 T: (646) 471 3000, F: (646) 471 8320, www.pwc.com/us Other Matters Accounting principles generally accepted in the United States of America require that the 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 38 to 44 be presented to supplement the basic financial statements. Such information is the responsibility of management and, although not a part of the basic financial statements, is required by the Financial Accounting 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 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. New York, New York March 1, 2021 2 ODYSSEY GROUP HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS December 31, 2020 2019 (In thousands, except share and per share amounts) Investments and cash: ASSETS Fixed income securities, available for sale, at fair value (amortized cost $15,748 and $15,902, respectively)....................................................................................... $ 15,941 $ 16,503 Fixed income securities, held for trading, at fair value (amortized cost $3,170,518 and $3,329,206, respectively).................................................................................. Preferred stocks, held for trading, at fair value (cost $16,396 and $16,273, 3,415,732 3,362,775 respectively) ............................................................................................................ 18,798 17,082 Equity securities: Common stocks, at fair value (cost $889,757 and $1,729,805, respectively) ...... Common stocks, at equity.................................................................................... Short-term investments, held for trading, at fair value (amortized cost $2,334,190 and $1,912,842, respectively).................................................................................. Cash and cash equivalents ......................................................................................... Cash and cash equivalents held as collateral ............................................................. Other invested assets ................................................................................................. Total investments and cash.................................................................................. Accrued investment income............................................................................................. Premiums receivable ........................................................................................................ Reinsurance recoverable on paid losses .......................................................................... Reinsurance recoverable on unpaid losses ...................................................................... Prepaid reinsurance premiums ........................................................................................ Funds held by reinsureds ................................................................................................. Deferred acquisition costs................................................................................................ Federal and foreign income taxes receivable................................................................... Other assets...................................................................................................................... Total assets........................................................................................................... $ LIABILITIES Unpaid losses and loss adjustment expenses .................................................................. $ Unearned premiums ........................................................................................................ Reinsurance balances payable ......................................................................................... Funds held under reinsurance contracts.......................................................................... Debt obligations ............................................................................................................... Other liabilities ................................................................................................................. Total liabilities ...................................................................................................... Commitments and Contingencies (Note 11) 740,088 1,472,718 2,334,201 919,712 155,496 1,779,237 10,851,923 41,452 1,468,667 166,661 1,047,812 282,708 207,262 299,661 228,710 258,213 14,853,069 6,844,631 1,681,350 396,419 135,761 89,984 930,835 10,078,980 $ $ 1,649,983 580,280 1,913,820 866,712 21,910 1,465,675 9,894,740 40,186 1,286,325 85,256 894,255 158,857 188,738 260,222 213,467 219,528 13,241,574 6,080,670 1,338,051 248,757 91,475 89,942 802,779 8,651,674 SHAREHOLDERS' EQUITY Non-controlling interest - preferred shares of subsidiaries ............................................. Common shares, $10.00 par value; 60,000 shares authorized; 51,752 and 51,752 shares issued and outstanding, respectively ................................................................. Additional paid-in capital ................................................................................................. Accumulated other comprehensive loss, net of deferred income taxes.......................... Retained earnings............................................................................................................. Total shareholders’ equity ................................................................................... Total liabilities and shareholders’ equity ............................................................. $ 29,299 29,299 518 1,936,893 (129,497) 2,936,876 4,774,089 14,853,069 $ 518 1,962,263 (80,560) 2,678,380 4,589,900 13,241,574 See accompanying notes to consolidated financial statements. 3 ODYSSEY GROUP HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS Years Ended December 31, 2019 2018 2020 REVENUES Gross premiums written ................................................................... $ 4,446,677 657,126 Ceded premiums written .................................................................. 3,789,551 Net premiums written ................................................................. (202,911) Increase in net unearned premiums................................................. 3,586,640 Net premiums earned ................................................................. Net investment income .................................................................... 168,393 Net realized investment gains (losses): (In thousands) $ 3,815,959 422,190 3,393,769 (214,616) 3,179,153 245,773 $ 3,328,628 430,808 2,897,820 (142,391) 2,755,429 209,226 Realized investment gains (losses) .............................................. Other-than-temporary impairment losses .................................. Total net realized investment (losses) gains .......................... Total revenues ............................................................................. 26,639 (34,480) (7,841) 3,747,192 211,327 — 211,327 3,636,253 (117,106) (299) (117,405) 2,847,250 EXPENSES Losses and loss adjustment expenses............................................... Acquisition costs ............................................................................... Other underwriting expenses ........................................................... Other expenses, net.......................................................................... Interest expense ............................................................................... Total expenses............................................................................. Income before income tax ................................................................ 2,424,562 693,498 318,983 7,196 6,410 3,450,649 296,543 2,154,031 629,859 305,396 6,013 7,814 3,103,113 533,140 1,715,745 588,740 275,868 15,811 4,132 2,600,296 246,954 Federal and foreign income tax (benefit) provision: Current ........................................................................................ Deferred ...................................................................................... Total federal and foreign income tax provision ..................... Net income........................................................................................ $ (20,502) 56,938 36,436 260,107 $ 106,812 20,937 127,749 405,391 $ 51,071 (27,892) 23,179 223,775 See accompanying notes to consolidated financial statements. 4 ODYSSEY GROUP HOLDINGS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31, 2019 2018 2020 (In thousands) Net income........................................................................................ $ 260,107 $ 405,391 $ 223,775 OTHER COMPREHENSIVE (LOSS) INCOME, BEFORE TAX Unrealized net (depreciation) appreciation on securities arising during the year .............................................................................. (66,407) 55,502 (64,946) Reclassification adjustment for net realized investment losses (gains) included in net income ....................................................... Foreign currency translation adjustments ........................................ Change in benefit plan liabilities....................................................... Other comprehensive loss, before tax ........................................ 17,566 (14,898) 1,810 (61,929) (71,544) 40,447 (40,433) (16,028) (17,956) (62,689) 11,411 (134,180) TAX BENEFIT (PROVISION) Unrealized net depreciation (appreciation) on securities arising during the year .............................................................................. 13,933 (11,729) 13,690 Reclassification adjustment for net realized investment (losses) gains included in net income......................................................... Foreign currency translation adjustments ........................................ Change in benefit plan liabilities....................................................... Total tax benefit .......................................................................... Other comprehensive loss, net of tax .................................... Comprehensive income .................................................... $ (3,689) 3,128 (380) 12,992 (48,937) 211,170 $ 15,024 (8,494) 8,491 3,292 (12,736) 392,655 $ 3,771 13,164 (2,396) 28,229 (105,951) 117,824 See accompanying notes to consolidated financial statements. 5 ODYSSEY GROUP HOLDINGS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY NON-CONTROLLING INTEREST - PREFERRED SHARES OF SUBSIDIARIES Balance, beginning and end of year.................................................. $ COMMON SHARES (par value) Balance, beginning of year................................................................ Common shares capital contributions........................................... Balance, beginning and end of year.................................................. ADDITIONAL PAID-IN CAPITAL Balance, beginning of year................................................................ Common shares capital contributions........................................... Net change due to stock option exercises and restricted share awards ............................................................ Balance, end of year ......................................................................... ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME NET OF DEFERRED INCOME TAXES Balance, beginning of year................................................................ Unrealized - cumulative effect of adoption of accounting changes........................................................................ Adjusted beginning balance.............................................................. Unrealized depreciation on securities, net of reclassification adjustments ............................................................................. Foreign currency translation adjustments ................................... Change in benefit plan liabilities .................................................. Balance, end of year ......................................................................... RETAINED EARNINGS Balance, beginning of year................................................................ Retained earnings - cumulative effect of adoption of accounting changes........................................................................ Adjusted beginning balance.............................................................. Net income ................................................................................... Dividends to preferred shareholder and non-controlling Years Ended December 31, 2019 2018 2020 (In thousands, except common share amounts) 29,299 $ 29,299 $ 29,299 518 — 518 492 26 518 492 — 492 1,962,263 — 1,725,992 225,480 1,738,968 — (25,370) 1,936,893 10,791 1,962,263 (12,976) 1,725,992 (80,560) (68,729) 37,222 — (80,560) (38,597) (11,770) 1,430 (129,497) 905 (67,824) (12,747) 31,953 (31,942) (80,560) — 37,222 (65,441) (49,525) 9,015 (68,729) 2,678,380 2,328,716 2,206,552 — 2,678,380 260,107 (4,116) 2,324,600 405,391 — 2,206,552 223,775 interest...................................................................................... Dividends to common shareholder .............................................. Balance, end of year ......................................................................... (1,611) — 2,936,876 TOTAL SHAREHOLDERS' EQUITY ......................................... $ 4,774,089 (1,611) (50,000) 2,678,380 $ 4,589,900 (1,611) (100,000) 2,328,716 $ 4,015,770 COMMON SHARES OUTSTANDING Balance, beginning of year................................................................ Shares issued ................................................................................ Balance, end of year ......................................................................... 51,752 — 51,752 49,170 2,582 51,752 49,170 — 49,170 See accompanying notes to consolidated financial statements. 6 ODYSSEY GROUP HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS 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 other liabilities, net.............................................................. Net realized investment losses (gains) ............................................................................ Bond discount amortization, net ..................................................................................... Amortization of compensation plans............................................................................... Net cash provided by operating activities................................................................. 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 ........................................................................................ Sales of trading securities....................................................................................................... Purchases of trading securities............................................................................................... Net purchases of fixed assets ................................................................................................. Net cash used in investing activities ......................................................................... Years Ended December 31, 2019 2018 2020 (In thousands) 260,107 $ 405,391 $ 223,775 (64,545) 201,449 478,761 (1,455) (39,211) 107,438 7,841 (8,810) 16,939 958,514 100 — — 39,138 (76,608) 71,821 (392,292) 6,419,324 (6,815,806) (15,600) (769,923) (165,974) 219,148 375,281 23,947 (29,909) 18,346 (211,327) (15,442) 17,023 636,484 22,782 4,125 — 57,025 (5,030) 525,991 (654,997) 4,392,909 (4,835,657) (12,785) (505,637) (302,471) 139,269 292,180 (60,301) (28,766) 129,620 117,405 (27,041) 17,234 500,904 530,941 43,750 (13,983) 5,771 (29,584) 244,245 (486,805) 5,063,733 (6,854,273) (15,323) (1,511,528) CASH FLOWS FROM FINANCING ACTIVITIES Purchases of restricted shares................................................................................................ Dividends paid to preferred shareholder ............................................................................... Dividends paid to common shareholder ................................................................................ Net cash used in financing activities ......................................................................... (41,955) (1,611) — (43,566) (6,950) (1,611) (45,424) (53,985) (29,492) (1,611) (50,001) (81,104) Effect of exchange rate changes on cash and cash equivalents ............................................. 41,561 (2,640) (34,431) Increase (decrease) in cash and cash equivalents .................................................................. Cash and cash equivalents, beginning of year........................................................................ Cash and cash equivalents, end of year........................................................................... $ 186,586 888,622 1,075,208 Supplemental disclosures of cash flow information: Interest paid..................................................................................................................... $ Income taxes paid............................................................................................................ $ 2,857 37,588 74,222 814,400 888,622 4,381 104,271 $ $ $ Non-cash activity: Dividends paid to common shareholder.......................................................................... $ Receipt of securities for issuance of common shares...................................................... $ — $ — $ 4,576 225,506 (1,126,159) 1,940,559 814,400 4,068 83,367 49,999 — $ $ $ $ $ See accompanying notes to consolidated financial statements. 7 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization Odyssey Group Holdings, Inc., a Delaware corporation (together with its subsidiaries, the “Company”, or “OGHI” on a stand-alone basis), is an underwriter of reinsurance, providing a full range of property and casualty products on a worldwide basis, and 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: • • Hilltop Specialty Insurance Company (“Hilltop”), formerly known as Hudson Specialty Insurance Company; Hudson Excess Insurance Company (“Hudson Excess”); Greystone Insurance Company (“Greystone”); 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 Europe Holdings GmbH • Newline Europe Versicherung AG (“NV”); and Newline Corporate Name Limited (“NCNL”), which provides capital for and receives distributed earnings from Newline Syndicate (1218); 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-controlling interest - 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. 8 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 2. Summary of Significant Accounting Policies (a) Basis of Presentation. 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. 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 valuation of the reserves for unpaid losses and loss adjustment expenses; analysis of the recoverability of deferred income tax assets; and valuation of the investment portfolio, including a review for other-than-temporary declines in estimated fair value and the pricing of level 3 securities. (b) Investments. The majority of the Company’s investments in fixed income securities and common stocks are categorized as “held for trading” and are recorded at their estimated fair value based on quoted market prices (see Note 3). Most investments in common stocks of affiliates are carried at the Company’s proportionate share of the equity of those affiliates. Short-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 $10.8 million and $10.6 million as of December 31, 2020 and 2019, respectively. Investments in limited partnerships, investment funds, mortgage loans, affiliate loans and real estate have been reported in other invested assets. Other invested assets also include accounts relating to the Company’s unqualified 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-than-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-than-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. 9 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 $11.0 million and $10.9 million as of December 31, 2020 and 2019, 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 39 years and are valued at $291.9 million. (d) Deferred Acquisition Costs. 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 $675.5 million, $613.6 million and $569.8 million for the years ended December 31, 2020, 2019 and 2018, respectively. 10 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 years ended December 31, 2020, 2019 and 2018 the Company did not impair any goodwill or intangible assets. The following table reflects the carrying amount of goodwill, intangible assets with indefinite lives and intangible assets with finite lives as of December 31, 2020 and 2019 (in thousands): Goodwill Indefinite Lives Finite Lives Intangible Assets Balance, January 1, 2019 ..................................................... $ Acquired during 2019..................................................... Amortization during 2019 .............................................. Balance, December 31, 2019............................................... Amortization during 2020 .............................................. Balance, December 31, 2020............................................... $ 52,268 $ — — 52,268 — 52,268 $ 5,813 $ — — 5,813 — 5,813 $ 11,555 $ 12,768 (4,453) 19,870 (4,818) 15,052 $ Total 69,636 12,768 (4,453) 77,951 (4,818) 73,133 The Company amortized $2.6 million during the year ended December 31, 2018 related to its intangible assets with finite lives. The following table provides the estimated amortization expense related to intangible assets for the succeeding years (in thousands): Amortization of intangible assets ..................... $ 4,818 $ 4,421 $ 3,062 $ 1,867 $ 850 $ Years Ended December 31, 2021 2022 2023 2024 2025 2026 and thereafter 5 f) Unpaid losses and loss adjustment expenses. Unpaid loss and loss adjustment expenses represent reserves for the estimated amounts that the Company is obligated to pay for reported and unreported claims and related loss adjustment expenses incurred under its contracts of insurance and reinsurance. The estimates are based on assumptions related to the ultimate cost to settle such claims. The inherent uncertainties of estimating reserves are greater for reinsurance contracts than for direct insurance policies 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 for losses and loss adjustment expenses are reflected as expenses in the consolidated statements of operations in the period that the changes are 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. 11 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. 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, 2020 and 2019, the Company had reflected $1.6 million and $3.1 million in other assets and $0.2 million and $0.3 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. 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. The Company assessed the realization of its foreign tax credit carryovers (“FTC”) and determined that it is more likely than not that all FTC carryovers related to foreign branch income will not be utilized prior to their expiration. As a result, a valuation allowance of $28.1 million was recorded against the FTC deferred tax asset as of December 31, 2020. The Company has elected to recognize accrued interest and penalties associated with uncertain tax positions as part of the income tax provision. (i) Derivatives. 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-linked derivative contracts, credit default swaps, call options, put options, 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-term investments. (j) Foreign Currency. 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. 12 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, 2020, 2019 and 2018 (in thousands): 2020 2019 2018 Statements of operations: Realized investment (losses) gains: Foreign currency forward contracts (losses) gains ...................... $ Other investment gains (losses) .................................................. Non-Investment realized gains.................................................... Total realized investment gains (losses) ................................ Net investment income (loss)......................................................) Other income, net ....................................................................... Income (loss) before income tax............................................ Total federal and foreign income tax provision (benefit)............ Net income (loss) ................................................................... (17,553) $ 10,931 14,942 8,320 375 — 8,695 1,827 6,868 (26,919) $ (38,289) 16,742 (48,466) (378) — (48,844) (10,257) (38,587) 58,841 (24,139) — 34,702 (4,214) 1,575 32,063 6,734 25,329 Other comprehensive (loss) income: Other comprehensive (loss) income before income tax ............. Federal and foreign income tax (benefit) provision before (14,898) 40,447 (62,689) income tax ................................................................................ Other comprehensive (loss) income, net of tax................................ (3,128) (11,770) 8,494 31,953 (13,164) (49,525) Total effects on comprehensive loss and shareholders' equity............................................................ $ (4,902) $ (6,634) $ (24,196) (k) Stock-Based Compensation Plans. The Company reflects awards of restricted common stock of Fairfax to employees as a reduction to additional paid-in-capital when the shares are purchased. The award value is amortized through compensation expense over the related vesting periods. (l) Claims Payments. 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. 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. “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. Fixed assets, with a net book value of $106.3 million and $95.9 million as of December 31, 2020 and 2019, respectively, are recorded at amortized cost and are included in other assets. Depreciation and amortization are generally computed on a straight-line basis over the following estimated useful lives: Leasehold improvements .................................................................................. 10 years or term of lease, if shorter Electronic data processing equipment and furniture........................................ 5 years Personal computers and software .................................................................... 3 years Depreciation and amortization expense for the years ended December 31, 2020, 2019 and 2018 was $27.6 million, $26.9 million and $11.4 million, respectively. (o) Contingent Liabilities. 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. 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 13 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) after the contingency arises, in which case no accrual is made until that time. As of December 31, 2020 and 2019, no contingent liabilities have been recorded (see Note 11). (p) Recent Accounting Pronouncements. The Financial Accounting Standards Board (“FASB”) is the organization responsible for establishing and improving GAAP. In January 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-01, “Financial Instruments - Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 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-for-sale equity investments are recorded in other comprehensive income. The Company adopted ASU 2016-01 effective January 1, 2019 and elected to utilize a cumulative effect adjustment to the opening balance of retained earnings for the year of adoption. Accordingly, the Company’s reporting for the comparative periods prior to adoption continue to be presented in the financial statements in accordance with the previous guidance where changes in fair value of available-for-sale equity investments were recorded in other comprehensive income. The adoption of ASU 2016-01, as of January 1, 2019, resulted in a cumulative change adjustment of $0.9 million between accumulated other comprehensive income and retained earnings, with no net impact on the Company’s shareholders’ equity. In February 2016 and July 2018, the FASB issued ASU 2016-02 and ASU 2018-11, respectively, both entitled “Leases”, requiring a lessee i) to recognize in the statement of financial position a liability to make lease payments and a right-of-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. The Company adopted ASU 2016-02 effective January 1, 2019 and elected to utilize a cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption. In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - 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-for-sale debt securities and loans, premiums receivable and reinsurance recoverable. The updated guidance amends the current other-than- temporary impairment model for available-for-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-related impairments for financial instruments measured at amortized cost. In November 2019, the FASB issued ASU 2019-10, which deferred the effective date of ASU 2016-13 to 2023 (with early adoption permitted), and ASU 2019-11, which amended and clarified certain guidance contained in ASU 2016-13. The Company is evaluating the effect this standard will have on its consolidated financial statements, although such effect is not expected to be significant. In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash,” which 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. The Company adopted ASU 2016-18 effective January 1, 2019 using a retrospective transition method to the prior periods presented on the consolidated statements of cash flows. The adoption of ASU 2016-18 did not have a material impact on the Company’s financial statements. In January 2017, the FASB issued 2017-04, “Intangibles – Goodwill and Other – Simplifying the Test for Goodwill Impairment,” which eliminates the requirement to determine the implied value of goodwill in measuring an impaired loss. The effective date of ASU 2017-07 for the Company is 2023, 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. In March 2017, the FASB issued ASU 2017-08, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities,” which the Company adopted in 2020. ASU 2017-08 requires that the premium on callable debt securities be amortized through the earliest call date rather than through the maturity date of the callable security. In October 2020, the FASB issued ASU 2020-08, which clarified an entity’s accounting responsibilities related to callable debt securities that have multiple call dates. The 14 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) adoption of ASU 2017-08 and ASU 2020-08 did not have a significant impact on the Company’s financial statements. In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging,” which simplifies and expands the eligible hedging strategies for financial and nonfinancial risks and enhances the transparency of how hedging results are presented and disclosed. ASU 2017-12 also provides partial relief on the timing of certain aspects of hedge documentation and eliminates the requirement to recognize hedge ineffectiveness separately in earnings. In November 2019, the FASB issued 2019-10, which amended the effective date of ASU 2017-12 to 2021. The Company is currently evaluating the impact of the adoption of ASU 2017-12 and ASU 2019-10 on the Company’s consolidated financial statements but does not expect this guidance to have a material effect on the Company’s consolidated financial statements. In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes.” ASU 2019- 12 provides the simplification of existing guidance for income taxes, including the removal of certain exceptions related to the recognition of deferred tax liabilities on foreign subsidiaries and is effective for the Company in 2022. The Company is currently evaluating the impact of the adoption of ASU 2019-12 on the Company’s consolidated financial statements but does not expect this guidance to have a material effect on the Company’s consolidated financial statements. In March 2020, the FASB issued ASU 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which provides optional expedients and exceptions for applying GAAP to investments, derivatives, or other transactions that reference the London Interbank Offered Rate (LIBOR) or another reference rate that is expected to be discontinued because of reference rate reform. Along with the optional expedients, the amendments include a general principle that permits an entity to consider contract modifications due to reference reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. This standard may be elected over time through December 31, 2022 as reference rate reform activities occur. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements but does not expect this guidance to have a material effect on the Company’s consolidated financial statements. In October 2020, the FASB issued ASU 2020-10, “Codification Improvements,” which provides disclosure guidance and was issued because of previous guidance that allowed companies the option to disclose information either on the face of financial statements or as a disclosure. ASU 2020-10 codifies the disclosure option so that it appears in both Section 45, Other Presentation Matters, and Section 50, Disclosure. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements but does not expect this guidance to have a material effect on the Company’s consolidated financial statements. The Company has determined that all recently issued guidance and pronouncements, other than those directly referenced above, are either not applicable or are immaterial to the Company’s consolidated financial statements. (q) Misclassification of Equity Method Investments. The Company has concluded that, as a result of i) the December 19, 2019 removal of certain veto rights held by a Greek regulatory entity with a minority interest in financial services provider Eurobank Ergasias Services & Holdings S.A. (“Eurobank”), in which the Company and Fairfax hold significant equity interests, and ii) the acquisition of additional shares of Seaspan Corporation (“Seaspan”) on December 17, 2019, Fairfax and the Company had obtained significant influence over Eurobank and Seaspan as of those dates. As a result, the investments in common stock of Eurobank and Seaspan as of December 31, 2019 should have been recorded using the equity method of accounting. Both investments had been reported at fair value. The effect of the misclassifications were such that the December 31, 2019 investments at fair value were overstated by $887.5 million, while investments in subsidiaries and affiliates were understated by $851.6 million. Similarly, net realized gains on investments was overstated by $35.9 million, pre-tax, for the year ended December 31, 2019. The realized gain differences were corrected in the income statement in 2020, while the investment classifications were properly reflected in the consolidated financial statements for the year ended December 31, 2020. 15 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Company performed both a qualitative and quantitative assessment of the materiality of the adjustments and concluded that the effects were not material to the Company’s financial position or results of operations within the 2019 annual financial statements or for the 2020 annual financial statements in which they were adjusted. (r) Subsequent Events. The Company has evaluated the significance of events occurring subsequent to December 31, 2020 with respect to disclosing the nature and expected impact of such events as of March 1, 2021, 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. 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: 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. Market price data generally is obtained from exchange markets. The Company does not adjust the quoted price for such instruments. The majority of the Company’s Level 1 investments are common stocks that are actively traded in a public market and short-term investments and cash equivalents, for which the cost basis approximates fair value. Level 2: 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-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. 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-the-counter prices and broker- dealer quotes. Observable inputs such as benchmark yields, reported trades, broker-dealer quotes, issuer spreads and bids are available for these investments. 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: 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. In certain cases, the inputs used to measure fair value may fall into different levels of the fair In such cases, the level in the fair value hierarchy within which the fair value measurement is value hierarchy. 16 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. 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, 2020, 2019 and 2018, no securities were transferred into or out of Level 3. During the years ended December 31, 2020, 2019 and 2018, the Company purchased $332.3 million, $19.7 million and $83.4 million, respectively, of investments that are classified as Level 3. As of December 31, 2020 and 2019, the Company held $492.4 million and $347.4 million, respectively, of investments that are classified as Level 3. Level 3 investments include CPI-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-classify any of its investments from Level 1 or Level 2 to Level 3 for the years ended December 31, 2020, 2019 and 2018. There were no transfers of securities between Level 1 and Level 2 during the years ended December 31, 2020, 2019 and 2018. 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. 17 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 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, 2020 and 2019 (in thousands): Fair Value Measurements as of December 31, 2020 Reported Fair Value Level 1 Level 2 Level 3 Fixed income securities, available for sale: United States government, government agencies and authorities ..................................................... States, municipalities and political subdivisions ..... Total fixed income securities, available for $ 512 $ 15,429 — $ — 512 $ 15,429 sale .................................................................. 15,941 — 15,941 Fixed income securities, held for trading: United States government, government 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, at fair value ....................................... Short-term investments, held for trading..................... Cash equivalents........................................................... Derivatives .................................................................... Other investments ........................................................ Total assets measured at fair value ................... 306,075 118,778 241,689 2,749,190 3,415,732 18,798 431,179 2,334,201 461,190 57,833 226,074 — — — 6,671 6,671 3,403 430,992 2,292,701 461,190 — — 306,075 118,778 241,689 2,470,178 3,136,720 — 187 41,500 — 57,438 21,760 $ 6,960,948 $ 3,194,957 $ 3,273,546 $ — — — — — — 272,341 272,341 15,395 — — — 395 204,314 492,445 Derivative liabilities ...................................................... Total liabilities measured at fair value............... $ $ 64,131 $ 64,131 $ — $ — $ 64,131 $ 64,131 $ — — 18 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Fair Value Measurements as of December 31, 2019 Reported Fair Value Level 1 Level 2 Level 3 Fixed income securities, available for sale: United States government, government agencies and authorities ..................................................... States, municipalities and political subdivisions ..... Total fixed income securities, available for $ 612 $ 15,891 — $ — 612 $ 15,891 sale .................................................................. 16,503 — 16,503 Fixed income securities, held for trading: United States government, government agencies and authorities ..................................................... States, municipalities and political subdivisions ..... Foreign governments .............................................. Corporate ................................................................ Total fixed income securities, held for trading .. Convertible preferred stocks, held for trading ............. Preferred stocks, held for trading................................. Common stocks, at fair value ....................................... Short-term investments, held for trading..................... Cash equivalents........................................................... Derivatives .................................................................... Other investments ........................................................ Total assets measured at fair value ................... 948,213 64,988 642,495 1,707,079 3,362,775 — 17,082 1,382,296 1,913,820 378,315 34,922 61,624 — — — 5,476 5,476 — 2,230 1,367,875 1,333,984 375,913 — — 948,213 64,988 642,495 1,426,646 3,082,342 — — 165 579,836 2,402 34,193 19,041 $ 7,167,337 $ 3,085,478 $ 3,734,482 $ — — — — — — 274,957 274,957 — 14,852 14,256 — — 729 42,583 347,377 Derivative liabilities ...................................................... Total liabilities measured at fair value............... $ $ 61,581 $ 61,581 $ — $ — $ 61,581 $ 61,581 $ — — In accordance with ASU 2015-17, “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, 2020 and 2019, $979.1 million and $923.4 million, respectively, of investments reported as equity securities and other invested assets, based upon NAV, are not included within the fair value hierarchy tables. The following table provides a summary of changes in the fair value of Level 3 financial assets for the years ended December 31, 2020 and 2019 (in thousands): Fixed Income Securities Other Invested Assets Equity Securities Balance, January 1, 2019................................................................... $ Change in value related to securities sold.................................... Change in value related to securities held ................................... Purchases / additions ................................................................... Settlements / paydowns............................................................... Balance, December 31, 2019 ............................................................ Change in value related to securities sold.................................... Change in value related to securities held ................................... Purchases / additions ................................................................... Settlements / paydowns............................................................... Balance, December 31, 2020 ............................................................ $ 382,312 (5,713) (50,912) 19,715 (70,445) 274,957 (1,420) 86,219 167,011 (254,426) 272,341 $ $ 43,545 — (233) — — 43,312 (12,197) 8,305 165,289 — 204,709 $ $ 44,164 1,276 (3,795) — (12,537) 29,108 (1,933) 543 — (12,323) 15,395 19 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, 2020, 2019, and 2018 (in thousands): Year ended December 31, 2020 Fixed income securities.............................................. $ Other invested assets................................................. Equity securities ......................................................... Total changes in value included in net (loss) income .................................................................. $ Year ended December 31, 2019 Fixed income securities.............................................. $ Other invested assets................................................. Equity securities ......................................................... Total changes in value included in net (loss) income .................................................................. $ Net Investment Losses Net Realized Capital Gains (Losses) Currency Translation (1,529) $ — — 86,328 $ (3,892) (1,523) — $ — 133 Total 84,799 (3,892) (1,390) (1,529) $ 80,913 $ 133 $ 79,517 (1,863) $ — — (54,762) $ (233) (2,603) — $ — 84 (56,625) (233) (2,519) (1,863) $ (57,598) $ 84 $ (59,377) Year ended December 31, 2018 Fixed income securities.............................................. $ Other invested assets................................................. Equity securities ......................................................... Total changes in value included in net loss .......... $ (1,458) $ — — (1,458) $ (64,078) $ 2,023 (6,630) (68,685) $ (1,051) $ 75 (128) (1,104) $ (66,587) 2,098 (6,758) (71,247) 20 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, 2020 and 2019 (in thousands): Valuation Technique/Asset Type Market Approach Fixed income securities, held for As of December 31, 2019 2020 Significant Unobservable Inputs Range 2020 2019 trading .............................................. $ 253,839 $ 255,846 12,290 12,214 6,212 6,897 Preferred stocks, held for trading ....... 12,895 12,352 2,500 2,500 Risk premium for credit risk Risk premium for credit risk Risk premium for credit risk Risk premium for credit risk Transaction price CPI-linked derivatives (1) .................... 394 729 Broker quotes Put options.......................................... 1 — Broker quotes 4.3% 1.8% 5.4% 4.4%-5.1% 1.4%-1.9% 3.5%-4.2% 4.2% 3.6%-4.2% — — — — — — Total valued using market approach .................................... 288,131 290,538 Market Price to Book Value Common stocks, at fair value (2) ........ — 14,256 Par Value Other investments .............................. 204,314 42,583 Total - Level 3................................ $ 492,445 $ 347,377 Time lag in receiving book value of comparable companies — — Risk premium for credit risk Underlying stock price 6.7%-13.3% 11.9%-13.6% $ 1.09 — (1) Valued using broker-dealer quotes that use market observable inputs except for the inflation volatility input, which is not market observable. (2) The Company evaluates observable price-to-book multiples of peer companies and applies such to the most recently available book value per share. 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-by-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 owns Classes A, C, E, G, H, J, K and Q common shares of HWIC Asia Fund (“HWIC Asia”), which is 100% owned by Fairfax and of which the Company owns 29.7% as of December 31, 2020. 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-class investment company that reports its investments at fair value and provides a NAV on a monthly basis. 21 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Company owns shares of HWIC QIAIF Value Opportunities Fund ("HWIC VOF"), shares in HWIC QIAIF Property Fund I ("HWIC PFI") and shares in HWIC QIAIF Property Fund II (“HWIC PF2”), which are each 100% owned by Fairfax and of which the Company owns 3.7%, 29.4% and 31.4%, respectively. At the time of purchase of the HWIC VOF and the HWIC PFI investments, the Company elected the FVO for these investments, as they are investment companies that report investments at fair value and provide a NAV on a monthly basis. The carrying values of the Company’s investment in the various HWIC Asia, HWIC VOF and HWIC PFI and HWIC PF2 common share issues as of December 31, 2020 and 2019, which are included in common stocks at fair value 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 Class A HWIC Asia Class C HWIC Asia Class E HWIC Asia Class G HWIC Asia Class H HWIC Asia Class J HWIC Asia Class K HWIC Asia Class Q HWIC VOF HWIC PFI HWIC PF2 Total Fair value as of January 1, 2019 ................ $ 4,103 (Sales) purchases............ Change in fair value........ Currency translation (952 ) $ 24,656 — (18,000 ) (1,477 ) adjustment .................. — — Fair value as of December 31, 2019.......... Purchases ....................... Change in fair value........ Currency translation 3,151 — (318 ) 5,179 — 2,573 adjustment .................. — — Fair value as of $ 45 — 11 — 56 — (2 ) — $ 84,448 3,501 (11,026 ) $ 116,778 — (44,108 ) $ 45,777 — (5,200 ) $ 30,749 5,242 (9,065 ) $ 19,686 — 2,286 $ — $ — $ — $ 326,242 9,097 — — (69,235 ) 12,771 (7 ) 5,583 303 — 44 444 93 430 96 476 — 1,583 76,923 — (7,462 ) 72,714 — (4,853 ) 41,021 — 2,009 27,019 2,827 (5,535 ) 22,402 — (2,385 ) 5,982 — (644 ) 13,240 — 50,051 (60 ) 221 — 267,687 52,878 (16,456 ) — 28 380 76 270 354 436 3,256 4,800 December 31, 2020.......... $ 2,833 $ 7,752 $ 54 $ 69,461 $ 67,889 $ 43,410 $ 24,387 $ 20,287 $ 5,692 $ 13,897 $ 53,247 $ 308,909 HWIC Asia’s fair value decreased by $42.3 million for the year ended December 31, 2018. 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, 2020 and 2019, 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, 2020 and 2019, is as follows (in thousands): 2020 Fixed income securities: United States government, government Cost or Amortized Cost Gross Unrealized Appreciation Gross Unrealized Depreciation Fair Value agencies and authorities....................................... $ 441 $ 71 $ — $ 512 States, municipalities and political subdivisions .......................................................... Total fixed income securities ............................. $ 15,307 15,748 $ 122 193 $ — — $ 15,429 15,941 2019 Fixed income securities: United States government, government Cost or Amortized Cost Gross Unrealized Appreciation Gross Unrealized Depreciation Fair Value agencies and authorities....................................... $ 553 $ 59 $ — $ 612 States, municipalities and political subdivisions .......................................................... Total fixed income securities ............................. $ 15,349 15,902 $ 542 601 $ — — $ 15,891 16,503 22 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Common stocks accounted for under the equity method of accounting were carried at $1,472.7 million and $580.3 million as of December 31, 2020 and 2019, respectively. Common stocks at equity had gross unrealized appreciation of $13.7 million and $10.2 million and gross unrealized depreciation of $82.3 million and $30.4 million as of December 31, 2020 and 2019, respectively. Other invested assets were carried at $1,779.2 million and $1,465.7 million as of December 31, 2020 and 2019, 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, 2020 and 2019 is as follows (in thousands): Fixed income securities: United States government, government agencies and authorities ........................................................................................... States, municipalities and political subdivisions ........................................... Foreign governments .................................................................................... Corporate ...................................................................................................... Total fixed income securities ................................................................... Preferred stocks.................................................................................................. Common stocks .................................................................................................. Short-term investments ..................................................................................... Cash and cash equivalents.................................................................................. Cash and cash equivalents held as collateral...................................................... Total......................................................................................................... $ $ 2020 Fair Value 2019 Fair Value 306,075 $ 118,778 241,689 2,749,190 3,415,732 18,798 740,088 2,334,201 919,712 155,496 7,584,027 $ 948,213 64,988 642,495 1,707,079 3,362,775 17,082 1,649,983 1,913,820 866,712 21,910 7,832,282 (a) Fixed Income Maturity Schedule The amortized cost and fair value of fixed income securities as of December 31, 2020, by contractual maturity, are shown below (in thousands): Available for Sale Held for Trading At December 31, 2020 Cost or Amortized Cost 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 — 15,935 — 6 Total fixed income securities................ $ 15,748 $ 15,941 15,744 — 4 — $ % of Total Fair Value Cost or Amortized Cost Fair Value % of Total Fair Value 100.0 0.0 0.0 0.0% $ 508,998 $ 496,259 2,309,444 2,092,761 374,832 351,508 235,197 217,251 100.0% $3,170,518 $3,415,732 14.5% 67.6 11.0 6.9 100.0% 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 55.8% of the total fair value. 23 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (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, 2020, 2019 and 2018 (in thousands): Interest on fixed income securities................................................... $ Dividends on preferred stocks .......................................................... Dividends on common stocks ........................................................... Net income (loss) of common stocks, at equity............................... Interest on cash and short-term investments .................................. Net income from other invested assets............................................ Gross investment income............................................................ Less: investment expenses................................................................ Net investment income ............................................................... $ 2020 110,359 814 6,976 8,865 21,562 80,672 229,248 60,855 168,393 $ $ 2019 111,489 1,435 24,891 (35,331) 34,828 165,670 302,982 57,209 245,773 $ $ 2018 112,428 1,495 16,396 21,300 26,816 65,666 244,101 34,875 209,226 The following table summarizes the Company’s net realized investment gains and losses for the years ended December 31, 2020, 2019 and 2018 (in thousands): 2020 2019 2018 Available for sale / equity method: From sales.................................................................................... $ Other-than-temporary impairments ........................................... Total available for sale ........................................................... $ 18,271 (34,480) (16,209) 69,625 — 69,625 Held for trading: From sales and settlements......................................................... From mark to market adjustments.............................................. Total held for trading ............................................................. Total net realized investment (losses) gains..................... $ (403,596) 411,964 8,368 (7,841) $ (15,991) 157,693 141,702 211,327 $ $ 12,106 (299) 11,807 49,431 (178,643) (129,212) (117,405) 24 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 and equity method securities for the years ended December 31, 2020, 2019 and 2018 (in thousands): Fixed income securities: Realized investment gains ........................................................... $ Realized investment losses.......................................................... Other-than-temporary impairments ........................................... Net realized investment gains................................................ — $ — — — $ 1,054 — — 1,054 18,805 (6,526) (56) 12,223 2020 2019 2018 Equity securities: Realized investment gains ........................................................... Realized investment losses.......................................................... Other-than-temporary impairment.............................................s Net realized investment gains (losses)................................... 5 — — 5 — — — — Common stocks, at equity: Realized investment gains ........................................................... Realized investment losses.......................................................... Other-than-temporary impairments ........................................... Net realized investment (losses) gains................................... 18,266 — (34,480) (16,214) 73,356 (4,785) — 68,571 — (173) (243) (416) — — — — Total available for sale securities: Realized investment gains ........................................................... Realized investment losses.......................................................... Other-than-temporary impairments ........................................... Net realized investment (losses) gains................................... $ 18,271 — (34,480) (16,209) $ 74,410 (4,785) — 69,625 $ 18,805 (6,699) (299) 11,807 25 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. The change in fair value presented below 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-to-market adjustments on contracts still outstanding. The following table sets forth the total net realized investment gains and losses on held for trading securities for the years ended December 31, 2020, 2019 and 2018 (in thousands): Fixed income securities: Net realized investment gains (losses) on disposal ..................... $ Change in fair value ..................................................................... Net realized investment gains (losses)................................... $ 18,703 211,758 230,461 (62,683) $ 53,378 (9,305) (13,227) (50,425) (63,652) 2020 2019 2018 Preferred stock: Net realized investment losses on disposal................................. Change in fair value ..................................................................... Net realized investment gains (losses)................................... — 1,582 1,582 (3,748) 8,079 4,331 — (7,141) (7,141) Equity securities: Net realized investment (losses) gains on disposal ..................... Change in fair value ..................................................................... Net realized investment (losses) gains................................... (106,335) 26,500 (79,835) 14,027 158,433 172,460 62,577 (206,038) (143,461) Derivative securities: Net realized investment (losses) gains on disposal/ settlement ................................................................................ Change in fair value ..................................................................... Net realized investment (losses) gains................................... (394,623) 129,138 (265,485) 8,718 (83,138) (74,420) (32,456) 48,221 15,765 Other securities: Net realized investment gains on disposal .................................. Change in fair value ..................................................................... Net realized investment gains................................................ 78,659 42,986 121,645 27,695 20,941 48,636 32,537 36,740 69,277 Total held for trading securities: Net realized investment (losses) gains on disposal ..................... Change in fair value ..................................................................... Net realized investment gains (losses)................................... $ (403,596) 411,964 8,368 $ (15,991) 157,693 141,702 $ 49,431 (178,643) (129,212) 26 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, 2020, 2019 and 2018 (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 investments included in other comprehensive 2020 2019 (407) $ (1,407) $ (48,308) (126) (48,841) 10,244 (14,694) 59 (16,042) 3,295 2018 (27,720) (55,290) 108 (82,902) 17,461 (loss) income ................................................................. $ (38,597) $ (12,747) $ (65,441) 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-than-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. If the Company determines that a decline related to other factors (e.g., interest rates or market conditions) is “other-than-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-than-temporary impairment are those that exist at that time. Should the facts and circumstances change such that an other-than-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-than-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 Company did not have any fixed income or common stocks, at fair value classified as available for sale, that have been in a continuous unrealized depreciation position for more than 12 months or less than 12 months, as of December 31, 2020 or 2019, respectively. 27 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 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, 2020 and 2019 (in thousands): Goodwill and Other included in Carrying Value Quoted Market Value Carrying Value 2020 2019 2019 2020 Atlas Corporation ................................. $ 533,632 $ Eurobank Ergasias ................................ Fairfax India Holdings Corp................... Recipe Unlimited Corporation.............. EXCO Resources, Inc. ............................ Dexterra Group Inc............................... Helios Fairfax Partners Corporation. .... Zenith National Insurance Corp............ Sigma Companies International Corp... 2018296 Alberta ULC............................ Peak Achievement Athletics Inc. .......... AGT Food and Ingredients, Inc. ............ Sterling Roads Films ............................. Apple Bidco Limited.............................. Davos Brands LLC ................................. Toys "R" Us (Canada) Ltd...................... — $ 445,353 — 295,243 82,690 — 93,947 98,121 n/a (6,569) 55,939 — 62,060 2,779 n/a 3,928 n/a — n/a — n/a 469 n/a 411 n/a — n/a (944) n/a 12,824 n/a (812) Total common stocks, at equity ..... $1,472,718 $ 580,280 $ 264,572 $ 110,207 2020 — $ (78,347) $ — 245,626 — 99,873 (6,569) — — 3,928 — — 469 419 — — — (827) 429,839 134,638 126,251 73,266 54,986 34,990 31,765 15,970 15,155 11,348 8,878 2,000 — — — 116,522 133,021 74,413 — 103,741 36,886 20,912 14,636 9,757 17,306 — 26,457 16,132 10,497 Relative Economic Ownership 2020 15.2% 11.3% 5.8% 12.9% 14.2% 17.0% 10.8% 6.1% 41.9% 27.3% 3.8% 7.8% 20.0% 0.0% 0.0% 28.2% $ 2019 — — 110,082 108,735 n/a n/a 69,389 n/a n/a n/a n/a n/a n/a n/a n/a n/a Zenith National Insurance Corp., Toys “R” Us (Canada) Ltd. and 2018296 Alberta ULC are wholly-owned subsidiaries of Fairfax, while Fairfax is the controlling or largest shareholder of Eurobank (33.4%), Atlas (44.5%), Fairfax India Holdings Corp. (31.9%), Recipe Limited Corporation (44.8%), Helios Fairfax Partners Corporation (34.2%), Sigma Companies International Corp. (81.1%), AGT Food and Ingredients, Inc. (59.0%), EXCO Resources, Inc. (44.3%), Peak Achievement Athletics Inc. (42.6%), Dexterra Group Inc (49.0%) and Sterling Road Films (20%). The Company impaired Helios Fairfax Partners to its current market value on September 30, 2020 in the amount of $34.5 million. (e) Other Invested Assets The following table shows the components of other invested assets as of December 31, 2020 and 2019 (in thousands): 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 ........................................................................... $ 2020 670,144 70,370 300,150 204,314 57,833 454,666 21,760 — 1,779,237 $ $ 2019 655,717 64,058 306,475 163,437 34,922 216,886 19,041 5,139 1,465,675 28 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 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, 2020, 2019 and 2018, the Company recognized net investment income of $2.3 million, $98.1 million and $38.5 million, respectively, from its investment funds and partnership investments. For the years ended December 31, 2020, 2019 and 2018, the Company recognized net realized investment gains of $93.3 million, $35.0 million and $73.8 million, respectively, from its investment funds and partnerships that are held as trading securities. With respect to the Company’s $740.5 million in investments in investment funds and partnerships, the Company has commitments that may require additional funding of up to $136.1 million. The Company’s investments in real estate consists of land of $81.9 million and buildings of $231.7 million as of December 31, 2020 and 2019, less accumulated depreciation of $13.4 million and $7.1 million as of December 31, 2020 and 2019, respectively. The Company’s investments in mortgage loans consist of loans collateralized by commercial property in various locations in Canada, Great Britain, Ireland, California, Colorado and Hawaii, as of December 31, 2020. (f) Derivative Investments The Company has utilized CPI-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, 2020 and 2019, respectively (in thousands): Exposure/ Notional Amount As of December 31, 2020 CPI-linked derivative contracts............................................ $22,467,705 $ 118,599 $ Call option contracts............................................................ Forward currency contracts ................................................ Long total return swaps....................................................... Put option contracts ............................................................ U.S. Treasury bond forward contracts................................. Put option contracts – written ............................................ Total ............................................................................... 2,000,000 977,972 349,861 210,001 71,844 20,747 32,830 — — 2,527 — (1,411) $ 152,545 $ Cost Exposure/ Notional Amount As of December 31, 2019 CPI-linked derivative contracts............................................ $33,365,759 $ 221,407 $ Forward currency contracts ................................................ Option contracts.................................................................. Long total return swaps....................................................... Short total return swaps...................................................... U.S. Treasury bond forward contracts................................. Total ............................................................................... 2,437,500 701,822 224,175 129,836 89,400 40,349 — — — — $ 261,756 $ Cost Fair Value Asset Fair Value Liability 394 $ 3,619 23,843 29,308 1 668 — 57,833 $ — — 60,969 3,133 — — 29 64,131 Fair Value Asset Fair Value Liability 729 $ 2,959 25,257 1,602 4,375 — 34,922 $ — — 37,826 55 1,194 22,506 61,581 The Company held long position common stock total return swaps, with a total notional value of $349.9 million and $129.8 million as of December 31, 2020 and 2019, respectively, as replications of investments in publicly-listed common stocks. 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 29 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) the financial statement date. 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, 2019, the Company held short position common stock total return swaps with a notional value of $89.4 million. 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. 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. The Company closed all of its short position common stock total return swap contracts during 2020. To reduce its exposure to interest rate risk, the Company holds 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. 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 2.2 years as of December 31, 2020 and 2019. As the remaining life of a contract declines, the fair value of the contract (excluding the impact of CPI changes) will generally decline. 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. 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. In the event of a sale, expiration or early settlement of one of the Company’s CPI-linked derivative contracts, the Company would receive the fair value of that contract on the date of the transaction. 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. 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. 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. 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. The Company has investments in written put 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. Written put options, which were included in other liabilities, are recorded at fair value, with the changes in the fair value recognized as realized gains or losses in the consolidated statements of operations in the period in which they occur. 30 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Company had investments in put options, which are contracts that grant the holder the right (but not the obligation) to sell a financial instrument at a specified price within a specific time period. Put options, which were included in other invested assets, are recorded at fair value, with the changes in the fair value recognized as realized gains or losses in the consolidated statements of operations in the period in which they occur. Pursuant to the agreements governing various derivative contracts, the fair value of collateral deposited by the Company with the contracts’ counterparties totaled $116.9 million and $44.9 million as of December 31, 2020 and 2019, respectively, while the fair value of collateral deposited by various counterparties for the benefit of the Company was $25.1 million and $5.2 million as of December 31, 2020 and 2019, respectively. Counterparties to the derivative instruments expose the Company to credit risk in the event of non- performance. The Company believes this risk is low, given the diversification of the placement of the contracts among various highly rated counterparties. The credit risk exposure is reflected in the fair value of the derivative instruments. 31 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, 2020, 2019 and 2018 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-to-market adjustments on contracts still outstanding (in thousands): CPI-linked derivative contracts: Net realized investment losses on disposal ............................................ $ Change in fair value ................................................................................ Net realized investment losses ......................................................... (102,808) $ 102,474 (334) (8,371) $ 5,985 (2,386) — (3,267) (3,267) 2020 2019 2018 Forward currency contracts: Net realized investment gains on disposal ............................................. Change in fair value ................................................................................ Net realized investment (losses) gains ............................................. U.S. Treasury bond forward contracts: Net realized investment (losses) gains on disposal ................................ Change in fair value ................................................................................ Net realized investment (losses) gains ............................................. Long total return swaps: Net realized investment losses on disposal ............................................ Change in fair value ................................................................................ Net realized investment gains (losses) ............................................. 7,438 (24,991) (17,553) (18,437) (879) (19,316) (10,040) 22,994 12,954 Short total return swaps: Net realized investment (losses) gains on disposal ................................ Change in fair value ................................................................................ Net realized investment losses ......................................................... (254,189) 22,506 (231,683) Warrants: Net realized investment losses on disposal ............................................ Change in fair value ................................................................................ Net realized investment losses ......................................................... — — — Put options: Net realized investment losses on disposal ............................................ Change in fair value ................................................................................ Net realized investment losses ......................................................... (9,671) (2,527) (12,198) Call options: Net realized investment losses on disposal ............................................ Change in fair value ................................................................................ Net realized investment gains (losses) ............................................. Put options - written Net realized investment gains on disposal ............................................. Change in fair value ................................................................................ Net realized investment gains .......................................................... (7,102) 8,179 1,077 186 1,382 1,568 17,576 (44,495) (26,919) (5,644) 2,155 (3,489) (3,282) 18,517 15,235 15,479 (27,997) (12,518) — — — (7,040) — (7,040) — (37,303) (37,303) — — — 8,636 50,205 58,841 388 6,297 6,685 (16,258) (17,722) (33,980) (14,451) 6,130 (8,321) (10,771) 6,665 (4,106) — — — — (87) (87) — — — Total derivatives: Net realized investment (losses) gains on disposal ................................ Change in fair value ................................................................................ Net realized investment (losses) gains ............................................. $ (394,623) 129,138 (265,485) $ 8,718 (83,138) (74,420) $ (32,456) 48,221 15,765 32 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, 2020, restricted assets supporting these deposits and trust fund requirements totaled $1.3 billion, as depicted in the following table (in thousands): U.S. regulatory requirements............... $ 70,762 $ Foreign regulatory/Lloyd's Requirements ................................... Derivative collateral requirements ...... Reinsurance collateral requirements ... Guarantee collateral requirements...... 90,984 44,232 286,698 46,112 Restricted Assets Relating to: Fixed Income Securities Cash Cash Equivalents Short-term Investments Common Stocks Partnerships Mortgage Loans — $ — $ — $ — $ Total 70,762 268,368 72,649 179,861 2,468 23,555 — 207,829 — — — 36,403 — 382,907 116,881 724,460 48,580 36,403 $ 13,669 $1,343,590 — — 13,669 — Total................................................ $ 538,788 $ 523,346 $ 231,384 $ 33 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, 2020, 2019 and 2018 (in thousands): Beginning balance of unrealized net (depreciation) appreciation on securities prior to adjustments.................................................................... $ Adjustment for U.S. tax reform ................................................... Adjustment for ASU 2016-01....................................................... Beginning balance of unrealized net (depreciation) appreciation 2020 2019 2018 (13,381) $ — — 5,205 $ — (5,839) 58,115 12,531 — on securities after adjustments................................................... (13,381) (634) 70,646 Ending balance of unrealized net (depreciation) appreciation on securities................................................................................... Current period change in unrealized net depreciation on securities.............................................................................. Beginning balance of foreign currency translation adjustments prior to adjustments.................................................................... Adjustment for U.S. tax reform .................................................... Adjustment for ASU 2016-01........................................................ Beginning balance of foreign currency translation adjustments after adjustments ........................................................................ Ending balance of foreign currency translation adjustments ........... Current period change in foreign currency translation adjustments ............................................................................. Beginning balance of benefit plan liabilities prior to adjustments ... Adjustment for U.S. tax reform .................................................... Beginning balance of benefit plan liabilities after adjustments........ Ending balance of benefit plan liabilities .......................................... Current period change in benefit plan liabilities ......................... Other comprehensive loss ..................................................... $ (51,978) (13,381) 5,205 (38,597) (12,747) (65,441) 2,781 — — (35,916) — 6,744 11,197 2,412 — 2,781 (8,989) (29,172) 2,781 13,609 (35,916) (11,770) (69,960) — (69,960) (68,530) 1,430 (48,937) $ 31,953 (38,018) — (38,018) (69,960) (31,942) (12,736) $ (49,525) (38,698) (8,335) (47,033) (38,018) 9,015 (105,951) Beginning balance of accumulated other comprehensive (loss) income ........................................................................................ $ Beginning balance adjustment for ASU 2016-01 .............................. Adjusted beginning balance.............................................................. Other comprehensive loss ................................................................ (80,560) $ — (80,560) (48,937) (68,729) $ 905 (67,824) (12,736) 37,222 — 37,222 (105,951) Ending balance of accumulated other comprehensive loss ........................................................................................... $ (129,497) $ (80,560) $ (68,729) In February 2018, the FASB issued ASU 2018-02, “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. 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. 34 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The following table shows the components of accumulated other comprehensive income and the related deferred income taxes on each component, as of December 31, 2020 and 2019 (in thousands): Gross: Unrealized depreciation on securities........................................................... $ Foreign currency translation adjustments .................................................... Benefit plan liabilities.................................................................................... Total accumulated other comprehensive loss, gross of deferred income taxes .............................................................. $ (65,732) $ (11,378) (86,748) (16,891) 3,520 (88,558) (163,858) $ (101,929) 2020 2019 Deferred taxes: Unrealized appreciation on securities........................................................... $ Foreign currency translation adjustments .................................................... Benefit plan liabilities.................................................................................... Total deferred taxes on accumulated other comprehensive loss....................................................................... $ 13,754 $ 2,389 18,218 3,510 (739) 18,598 34,361 $ 21,369 The following table shows the changes in the balances of each component of accumulated other comprehensive income (loss), for the years ended December 31, 2020, 2019 and 2018 (in thousands): Balance, January 1, 2018 ................................................................. $ Amounts arising during the period ............................................ 70,646 $ (51,256) Unrealized Gains and Losses on Securities Benefit Plan Items Foreign Currency Items 13,609 $ (47,033) $ 6,204 (51,137) Total 37,222 (96,189) Reclassification adjustment included in net (loss) income................................................................ Net other comprehensive (loss) income ......................................... Balance, December 31, 2018 ................................................ Unrealized - adjustment for ASU 2016-01....................................... Adjusted balance, December 31, 2018 ................................. Amounts arising during the period ............................................ Reclassification adjustment included in net (loss) income................................................................ Net other comprehensive (loss) income ......................................... Balance, December 31, 2019 ................................................ Amounts arising during the period ............................................ (14,185) (65,441) 5,205 (5,839) (634) 43,773 1,612 (49,525) (35,916) 6,744 (29,172) 39,961 2,811 9,015 (38,018) — (38,018) (34,108) (9,762) (105,951) (68,729) 905 (67,824) 49,626 (56,520) (12,747) (13,381) (52,474) (8,008) 31,953 2,781 (12,842) 2,166 (31,942) (69,960) (41,558) (62,362) (12,736) (80,560) (106,874) Reclassification adjustment included in net income .......................................................................... Plan amendment arising during the year................................... Net other comprehensive (loss) income ......................................... 13,877 — (38,597) Balance, December 31, 2020 ................................................ $ (51,978) $ 1,072 — (11,770) 19,658 4,709 38,279 38,279 (48,937) 1,430 (8,989) $ (68,530) $ (129,497) 35 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, 2020, 2019 and 2018 (in thousands): Details about Accumulated Other Comprehensive Income Components Unrealized net depreciation (appreciation) of securities: Foreign currency translations: Amount Reclassified from Accumulated Other Comprehensive Income (a) 2019 2018 2020 Affected Line Item in the Consolidated Statement of Operations Where Net Income is Presented $ 17,566 $ (71,544) $ 17,956 Net realized investment gains (losses) (3,689) 15,024 (3,771) Total federal and foreign income tax (benefit) provision $ 13,877 $ (56,520) $ 14,185 Net income (loss) $ 1,357 $ (10,137) $ (2,041) Net realized investment gains (losses) (285) 2,129 429 Total federal and foreign income tax (benefit) provision $ 1,072 $ (8,008) $ (1,612) Net gain (loss) Amortization of benefit plan items: Net actuarial gain............................ $ 5,961 $ 2,742 $ (3,563) Other underwriting expenses (b) Prior service costs (income) ............ — — 5 Other underwriting expenses (b) 5,961 2,742 (3,558) Gain (loss) before federal and (1,252) (576) foreign income tax benefit 747 Total federal and foreign income tax (benefit) provision $ 4,709 $ 2,166 $ (2,811) Net gain (loss) Total reclassifications ........................... $ 19,658 $ (62,362) $ 9,762 (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). 36 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, 2020. 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 2020. 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, 2020. 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 37 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. 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, 2020 (in thousands): Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance For the Years Ended December 31, 2013 2016 (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) 2014 2019 2017 2018 2015 As of December 31, 2020 Total of IBNR Liabilities Plus Expected Development on Reported Losses 2020 $ 173,475 $ 179,282 $ 185,531 $ 188,566 $ 185,102 $ 171,977 $ 160,416 $ 157,240 176,206 188,509 213,269 243,688 287,211 282,169 — 288,779 180,073 191,416 215,396 238,206 274,182 — 266,667 — 193,123 189,549 — 202,289 — — — — 193,832 192,900 206,397 — 224,911 — — — 190,946 — 191,774 — — — — — 189,183 195,409 209,425 229,958 — 259,960 — — — 185,498 — — — — — — $ 19,604 31,968 20,501 29,849 62,821 108,980 150,902 234,646 Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 Total incurred loss and loss adjustment expenses $1,837,071 Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance For the Years Ended December 31, Accident Year 2013 (unaudited) 2014 (unaudited) 2015 (unaudited) 2016 (unaudited) 2017 (unaudited) 2018 (unaudited) 2019 (unaudited) 2020 2013 2014 2015 2016 2017 2018 2019 2020 $ 9,984 — — — — — — — $ 17,035 13,067 — — — — — — $ 46,501 30,912 11,379 — — — — — $ 70,275 52,326 29,271 18,126 — — — — $ 89,405 74,662 56,207 44,246 19,897 — — — $ 102,698 92,160 79,217 68,903 42,168 30,483 — — $ 111,886 107,407 111,846 102,620 78,251 63,380 24,416 — $ 121,338 122,213 135,032 136,165 121,772 108,248 69,092 19,824 Total paid loss and loss adjustment expenses Total incurred loss and loss adjustment expenses Outstanding liabilities for loss and allocated loss adjustment expenses for accident years prior to 2013 833,684 1,837,071 220,377 Liabilities for loss and allocated loss adjustment expenses, net of reinsurance $1,223,764 Average Annual Percentage Payout of Incurred Loss and Allocated Loss Adjustment Expenses by Age, Net of Reinsurance In Year: 1 2 3 4 5 6 7 8 Average of each year 8.0% 11.1% 13.3% 13.4% 12.6% 7.7% 4.1% 7.0% 38 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, 2020 (in thousands): Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance For the Years Ended December 31, Accident Year 2013 2014 2015 2016 2017 2018 (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) 2019 (unaudited) 2020 2013 2014 2015 2016 2017 2018 2019 2020 $ 228,723 $ 227,622 $ 215,655 $ 204,675 $ 197,291 $ 197,131 $ 196,885 $ 195,295 139,007 133,895 137,822 284,261 255,388 248,145 364,499 138,666 133,905 136,811 285,033 266,038 — 255,198 — — 138,706 134,425 136,687 276,053 — 285,489 — — 155,969 — 147,845 — — — — — 139,211 134,926 137,726 — 319,629 — — — 142,420 142,830 — 141,626 — — — — — 156,711 — — — — — — As of December 31, 2020 Total of IBNR Liabilities Plus Expected Development on Reported Losses $ 364 307 523 1,107 1,257 5,978 16,983 195,550 Total incurred loss and loss adjustment expenses $1,758,312 Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance For the Years Ended December 31, Accident Year 2013 (unaudited) 2014 (unaudited) 2015 (unaudited) 2016 (unaudited) 2017 (unaudited) 2018 (unaudited) 2019 (unaudited) 2020 2013 2014 2015 2016 2017 2018 2019 2020 $ 90,335 — — — — — — — $ 149,768 53,489 — — — — — — $ 177,272 96,981 65,688 — — — — — $ 188,655 124,648 100,692 48,509 — — — — $ 191,034 133,035 117,186 117,928 93,758 — — — $ 191,628 135,316 125,750 122,070 237,341 67,361 — — $ 193,349 136,543 129,873 132,132 269,187 202,370 54,932 — Total paid loss and loss adjustment expenses Total incurred loss and loss adjustment expenses Outstanding liabilities for loss and allocated loss adjustment expenses for accident years prior to 2013 $ 193,939 137,345 131,389 134,990 277,326 228,879 207,777 115,163 1,426,808 1,758,312 1,908 Liabilities for loss and allocated loss adjustment expenses, net of reinsurance $ 333,412 Average Annual Percentage Payout of Incurred Loss and Allocated Loss Adjustment Expenses by Age, Net of Reinsurance In Year: 1 2 3 4 5 6 6 7 Average of each year 33.5% 46.3% 10.9% 5.5% 1.3% 0.6% 0.8% 0.4% 39 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Non-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-U.S. Casualty Reinsurance line of business for the year ended and as of December 31, 2020 (in thousands): Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance For the Years Ended December 31, Accident Year 2013 (unaudited) 2014 (unaudited) 2015 (unaudited) 2016 (unaudited) 2017 (unaudited) 2018 (unaudited) 2019 (unaudited) 2020 As of December 31, 2020 Total of IBNR Liabilities Plus Expected Development on Reported Losses 2013 2014 2015 2016 2017 2018 2019 2020 $ 94,258 $ — — — — — — — 91,877 $ 83,256 — — — — — — 92,770 $ 84,708 81,623 — — — — — 92,439 $ 89,751 82,495 89,229 — — — — 81,348 $ 95,255 100,628 95,537 119,298 — — — 78,004 $ 93,999 99,382 101,036 122,069 135,010 — — 73,250 $ 72,565 84,340 84,775 87,277 89,839 91,089 93,783 118,442 119,461 131,895 132,783 162,781 165,267 — 167,192 $ 11,050 18,174 18,761 15,060 37,538 47,976 85,975 128,974 Total incurred loss and loss adjustment expenses $ 915,581 Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance For the Years Ended December 31, Accident Year 2013 (unaudited) 2014 (unaudited) 2015 (unaudited) 2016 (unaudited) 2017 (unaudited) 2018 (unaudited) 2019 (unaudited) 2020 2013 2014 2015 2016 2017 2018 2019 2020 $ 12,665 $ — — — — — — — $ 22,119 9,044 — — — — — — $ 27,048 19,814 8,161 — — — — — $ 30,787 25,710 17,656 8,405 — — — — $ 35,033 30,627 24,315 22,484 10,335 — — — $ 37,862 34,738 28,321 29,174 24,292 13,528 — — $ 42,063 39,067 32,692 34,095 34,882 31,507 16,457 — 44,440 41,835 35,899 39,508 42,950 44,879 35,065 15,205 Total paid loss and loss adjustment expenses Total incurred loss and loss adjustment expenses Outstanding liabilities for loss and allocated loss adjustment expenses for accident years prior to 2013 299,781 915,581 257,453 Liabilities for loss and allocated loss adjustment expenses, net of reinsurance $ 873,253 Average Annual Percentage Payout of Incurred Loss and Allocated Loss Adjustment Expenses by Age, Net of Reinsurance In Year: 1 2 3 4 5 6 6 7 Average of each year 10.2% 12.9% 8.7% 5.0% 5.6% 3.9% 7.3% 7.8% 40 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Non-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-U.S. Property Reinsurance line of business for the year ended and as of December 31, 2020 (in thousands): Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance For the Years Ended December 31, Accident Year 2013 2014 2015 2016 2017 2018 (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) 2019 (unaudited) 2020 2013 2014 2015 2016 2017 2018 2019 2020 $ 361,223 $ 333,642 $ 309,945 $ 297,643 $ 282,609 $ 277,237 $ 277,169 $ 273,947 260,046 226,256 320,388 332,068 384,143 461,199 585,452 262,756 229,750 325,886 336,339 394,782 — 501,289 — — 266,549 235,385 335,500 350,776 — 401,334 — — 318,662 — 355,809 — — — — — 273,639 250,196 359,757 — 380,575 — — — 292,987 268,403 — 363,840 — — — — — 345,289 — — — — — — As of December 31, 2020 Total of IBNR Liabilities Plus Expected Development on Reported Losses $ 2,339 3,801 5,644 17,775 22,027 40,302 54,101 309,696 Total incurred loss and loss adjustment expenses $2,843,499 Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance For the Years Ended December 31, Accident Year 2013 (unaudited) 2014 (unaudited) 2015 (unaudited) 2016 (unaudited) 2017 (unaudited) 2018 (unaudited) 2019 (unaudited) 2020 2013 2014 2015 2016 2017 2018 2019 2020 $ 49,033 — — — — — — — $ 158,656 66,035 — — — — — — $ 220,087 170,602 52,524 — — — — — $ 243,386 217,347 150,746 60,100 — — — — $ 255,052 231,920 182,215 190,545 62,265 — — — $ 261,521 240,014 192,416 233,487 193,857 51,241 — — $ 265,234 243,964 204,510 258,289 257,512 208,307 63,607 — $ 267,188 247,043 210,481 269,712 283,441 271,009 244,692 90,720 Total paid loss and loss adjustment expenses Total incurred loss and loss adjustment expenses Outstanding liabilities for loss and allocated loss adjustment expenses for accident years prior to 2013 1,884,286 2,843,499 62,127 Liabilities for loss and allocated loss adjustment expenses, net of reinsurance $1,021,340 Average Annual Percentage Payout of Incurred Loss and Allocated Loss Adjustment Expenses by Age, Net of Reinsurance In Year: 1 2 3 4 5 6 7 8 Average of each year 17.4% 40.9% 18.6% 8.7% 4.1% 4.5% 1.8% 1.6% 41 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, 2020 (in thousands): Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance For the Years Ended December 31, Accident Year 2013 2016 (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) 2019 2015 2014 2017 2018 As of December 31, 2020 Total of IBNR Liabilities Plus Cumulative Number of Development on Reported Reported Losses Expected Claims 2020 2013 $ 244,726 $ 241,873 $ 238,051 $ 217,364 $ 207,109 $ 206,216 $ 205,180 $ 204,319 $ 2014 2015 2016 2017 2018 2019 2020 238,953 246,180 238,673 328,917 464,897 546,450 — 580,703 243,118 250,801 244,709 349,488 476,153 — 541,703 — — 294,177 — — — — — — 275,305 — 287,419 — — — — — 259,288 278,209 278,025 — 341,698 — — — 252,427 258,870 263,819 356,730 — 458,328 — — 269,942 286,650 — 278,509 — — — — 6,624 $ 23,076 29,612 5,008 27,627 8,735 18,757 9,309 17,608 30,588 18,432 111,239 17,129 254,348 12,671 396,928 Total incurred loss and loss adjustment expenses $2,849,092 Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance For the Years Ended December 31, Accident Year 2013 (unaudited) 2014 (unaudited) 2015 (unaudited) 2016 (unaudited) 2017 (unaudited) 2018 (unaudited) 2019 (unaudited) 2020 2013 2014 2015 2016 2017 2018 2019 2020 $ 51,986 — — — — — — — $ 86,527 59,690 — — — — — — $ 128,490 94,896 66,555 — — — — — $ 162,146 143,152 103,030 59,657 — — — — $ 174,795 177,765 154,993 100,615 60,032 — — — $ 186,538 209,941 196,107 154,153 118,611 74,198 — — $ 192,374 221,230 217,701 187,563 191,339 177,531 91,475 — Total paid loss and loss adjustment expenses Total incurred loss and loss adjustment expenses Outstanding liabilities for loss and allocated loss adjustment expenses for accident years prior to 2013 $ 194,170 225,533 224,885 207,489 249,507 271,354 191,714 95,102 1,659,754 2,849,092 9,363 Liabilities for loss and allocated loss adjustment expenses, net of reinsurance $1,198,701 Average Annual Percentage Payout of Incurred Loss and Allocated Loss Adjustment Expenses by Age, Net of Reinsurance In Year: 1 2 3 4 5 6 7 8 Average of each year 19.6% 18.9% 22.1% 16.8% 9.9% 4.5% 2.5% 0.8% 42 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, 2020 (in thousands): Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance For the Years Ended December 31, 2013 2016 (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) 2018 2014 2015 2017 2019 2020 — — 227,198 — 233,124 — 187,266 — $ 212,167 $ 203,970 $ 197,496 $ 197,124 $ 196,391 $ 196,374 $ 196,272 $ 196,351 229,508 193,990 205,178 221,359 267,160 371,941 365,423 229,538 193,911 205,579 221,793 267,568 — 374,697 — — 230,867 194,253 205,659 224,065 — 289,059 — 231,401 195,061 209,572 — 230,670 — 232,178 197,486 — 221,585 — — — — — — — — — — — — — — — Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 As of December 31, 2020 Total of IBNR Liabilities Plus Expected Cumulative Number of Development on Reported Reported Losses Claims $ 1 $ 10,604 12,402 5 13,916 20 14,011 81 19,421 251 24,860 754 29,459 3,064 22,976 94,813 Total incurred loss and loss adjustment expenses $2,050,910 Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance For the Years Ended December 31, Accident Year 2013 (unaudited) 2014 (unaudited) 2015 (unaudited) 2016 (unaudited) 2017 (unaudited) 2018 (unaudited) 2019 (unaudited) 2020 2013 2014 2015 2016 2017 2018 2019 2020 $ 101,466 $ — — — — — — — 190,056 $ 80,295 — — — — — — 192,033 $ 221,162 77,398 — — — — — 194,391 $ 228,772 181,585 75,333 — — — — 195,998 $ 230,614 193,617 199,384 77,377 — — — 196,122 $ 230,488 193,539 203,238 208,714 113,119 — — 196,126 $ 196,143 229,236 229,213 193,750 193,551 204,164 204,060 219,374 217,062 263,470 259,647 358,872 205,868 194,751 — Total paid loss and loss adjustment expenses Total incurred loss and loss adjustment expenses Outstanding liabilities for loss and allocated loss adjustment expenses for accident years prior to 2013 1,859,760 2,050,910 380 Liabilities for loss and allocated loss adjustment expenses, net of reinsurance $ 191,530 Average Annual Percentage Payout of Incurred Loss and Allocated Loss Adjustment Expenses by Age, Net of Reinsurance In Year: 1 2 3 4 5 6 7 8 Average of each year 45.1% 50.9% 2.8% 0.7% 0.3% 0.0% 0.0% 0.0% 43 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Non-U.S. Casualty Insurance The following tables present i) incurred loss and allocated loss adjustment expenses (net of reinsurance) and 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-U.S. Casualty Insurance line of business for the year ended and as of December 31, 2020 (in thousands): Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance For the Years Ended December 31, Accident Year 2013 (unaudited) 2014 (unaudited) 2015 (unaudited) 2016 (unaudited) 2017 (unaudited) 2018 (unaudited) 2019 (unaudited) 2020 2013 2014 2015 2016 2017 2018 2019 2020 $ 87,312 $ — — — — — — — 83,838 $ 87,602 — — — — — — 84,287 $ 88,889 87,511 — — — — — 85,590 $ 87,326 86,119 81,750 — — — — 83,983 $ 84,846 84,535 78,300 91,883 87,932 $ 78,702 77,172 81,596 93,689 — 104,647 — — 81,960 $ 82,076 78,441 78,286 81,262 80,044 76,246 79,862 87,251 90,402 105,981 105,084 143,615 — 141,357 — 173,035 — As of December 31, 2020 Total of IBNR Liabilities Plus Expected Development on Reported Losses $ 11,312 19,177 28,995 27,279 37,025 43,246 85,909 147,895 Total incurred loss and loss adjustment expenses $827,907 Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance For the Years Ended December 31, Accident Year 2013 (unaudited) 2014 (unaudited) 2015 (unaudited) 2016 (unaudited) 2017 (unaudited) 2018 (unaudited) 2019 (unaudited) 2020 $ 2013 2014 2015 2016 2017 2018 2019 2020 5,781 $ — — — — — — — 9,409 $ 5,081 — — — — — — 17,380 $ 12,155 3,894 — — — — — 25,775 $ 20,064 8,943 3,427 — — — — 35,706 $ 32,630 19,259 10,703 4,135 — — — $ 41,909 37,941 26,497 18,471 12,827 5,037 — — $ 47,917 44,484 33,850 24,818 21,041 20,731 13,508 — 57,258 47,824 41,633 37,487 32,249 38,003 35,581 12,223 Total paid loss and loss adjustment expenses Total incurred loss and loss adjustment expenses Outstanding liabilities for loss and allocated loss adjustment expenses for accident years prior to 2013 302,258 827,907 201,142 Liabilities for loss and allocated loss adjustment expenses, net of reinsurance $ 726,791 Average Annual Percentage Payout of Incurred Loss and Allocated Loss Adjustment Expenses by Age, Net of Reinsurance In Year: 1 2 3 4 5 6 7 8 Average of each year 6.4% 10.4% 9.4% 8.8% 10.6% 7.4% 6.7% 10.1% 44 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, 2020 is as follows (in thousands): December 31, 2020 Net unpaid loss and allocated loss adjustment expenses: $ U.S. Casualty Reinsurance................................................................................................ U.S. Property Reinsurance ............................................................................................... Non-U.S. Casualty Reinsurance........................................................................................ Non-U.S. Property Reinsurance ....................................................................................... U.S. Casualty Insurance.................................................................................................... U.S. Property Insurance ................................................................................................... Non-U.S. Casualty Insurance............................................................................................ Unallocated loss adjustment expenses............................................................................ Workers' compensation discount .................................................................................... Other................................................................................................................................ Effect of foreign exchange rates ...................................................................................... Total unpaid loss and allocated loss adjustment expenses, 1,223,764 333,412 873,253 1,021,340 1,198,701 191,530 726,791 90,744 (32,248) 177,224 (7,692) net of reinsurance................................................................................................. 5,796,819 Reinsurance recoverable on unpaid losses and loss adjustment expenses: U.S. Casualty Reinsurance................................................................................................ U.S. Property Reinsurance ............................................................................................... Non-U.S. Casualty Reinsurance........................................................................................ Non-U.S. Property Reinsurance ....................................................................................... U.S. Casualty Insurance.................................................................................................... U.S. Property Insurance ................................................................................................... Non-U.S. Casualty Insurance............................................................................................ Unallocated loss adjustment expenses............................................................................ Effect of foreign exchange rates ...................................................................................... Other................................................................................................................................ Total reinsurance recoverable on unpaid losses ..................................................... 10,472 104,700 197 72,580 330,552 122,816 353,704 300 (1,744) 54,235 1,047,812 Total gross unpaid loss and loss adjustment expenses.................................................... $ 6,844,631 45 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, 2020, 2019 and 2018 (in thousands): Gross unpaid losses and loss adjustment expenses, beginning of year............................................................................ $ 6,080,670 $ 5,728,203 $ 5,463,595 2020 2019 2018 Less: Ceded unpaid losses and loss adjustment expenses, beginning of year........................................................... 894,255 927,035 866,985 Net unpaid losses and loss adjustment expenses, beginning of year ...................................................................... 5,186,415 4,801,168 4,596,610 Add: Net incurred losses and loss adjustment expenses related to: Current year ................................................................................ Prior years ................................................................................... Total net incurred losses and loss adjustment 2,644,068 (219,506) 2,383,580 (229,549) 2,061,397 (345,652) expenses.............................................................................. 2,424,562 2,154,031 1,715,745 Less: Net paid losses and loss adjustment expenses related to: Current year ................................................................................ Prior years ................................................................................... 574,232 1,366,281 521,425 1,254,766 399,891 1,033,807 Total net paid losses and loss adjustment expenses.............................................................................. 1,940,513 1,776,191 1,433,698 Effect of exchange rate changes ....................................................... 126,355 7,407 (77,489) Net unpaid losses and loss adjustment expenses, end of year......... Add: Ceded unpaid losses and loss adjustment 5,796,819 5,186,415 4,801,168 expenses, end of year .................................................................... 1,047,812 894,255 927,035 Gross unpaid losses and loss adjustment expenses, end of year.......................................................... $ 6,844,631 $ 6,080,670 $ 5,728,203 Net incurred losses and loss adjustment expenses related to the current year were $2,644.1 million, $2,383.6 million and $2,061.4 million for the years ended December 31, 2020, 2019 and 2018, respectively. The increases in incurred losses and loss adjustment expenses for the years ended December 31, 2020 and December 31, 2019 were principally attributable to increased losses associated with premium growth. 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. For the years ended December 31, 2020, 2019 and 2018, current year property catastrophe losses were $196.4 million, $289.4 million and $257.4 million, respectively. For the year ended December 31, 2020, current year property catastrophe losses included $27.3 million related to Hurricane Laura and $17.7 million related to Midwest Derecho. In addition, for the year ended December 31, 2020, current year losses included $146.3 million related to the COVID-19 pandemic. For the year ended December 31, 2019, current year property catastrophe losses included $91.5 million related to Typhoon Hagibis, $46.5 million related to Typhoon Faxai, and $25.9 million related to Hurricane Dorian. 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. Net incurred losses and loss adjustment expenses related to prior years included reductions in loss estimates of $219.5 million, $229.5 million and $345.7 million for the years ended December 31, 2020, 2019 and 2018, 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. 46 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Net paid losses and loss adjustment expenses related to the current year were $574.2 million, $521.4 million and $399.9 million for the years ended December 31, 2020, 2019 and 2018, respectively. The increase in paid losses and loss adjustment expenses for the year ended December 31, 2020 was principally due increased payments on current year catastrophe losses. The increase in paid losses and loss adjustment expenses for the year ended December 31, 2019 was principally due to Crop business in U.S. Property Insurance. 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. The effects of exchange rate changes on net unpaid losses and loss adjustment expenses resulted in increases of $126.4 million and $7.4 million for the years ended December 31, 2020 and 2019, respectively, and a decrease of $77.5 million for the year ended December 31, 2018, and were attributable to Non-U.S. Reinsurance and Non-U.S. Insurance. Ceded unpaid losses and loss adjustment expenses were $1,047.8 million, $894.3 million and $927.0 million as of December 31, 2020, 2019 and 2018, respectively. The increase in ceded unpaid losses and loss adjustment expenses for the year ended December 31, 2020 was principally attributable to Insurance business. The decrease in ceded unpaid losses and loss adjustment expenses for the year ended December 31, 2019 was principally attributable to a decrease in ceded unpaid reinsurance recoverables on catastrophe losses. 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%. Workers’ compensation indemnity loss reserves have been discounted using the Life Table for Total Population: United States, 2009. Reserves reported at the discounted value were $46.9 million and $49.9 million as of December 31, 2020 and 2019, respectively. The amount of case reserve discount was $13.9 million and $16.2 million as of December 31, 2020 and 2019, respectively. The amount of incurred but not reported reserve discount was $18.3 million and $18.7 million as of December 31, 2020 and 2019, respectively. The Company is not materially exposed to asbestos and environmentally-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. 47 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 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, 2020, 2019 and 2018 follow (in thousands): Premiums Written Direct .................................................................................... Add: assumed ....................................................................... Less: ceded ........................................................................... Net .................................................................................. Premiums Earned Direct .................................................................................... Add: assumed ....................................................................... Less: ceded ........................................................................... Net .................................................................................. $ $ $ $ 2020 Year Ended December 31, 2019 2018 2,232,629 $ 2,214,048 657,126 3,789,551 $ 1,967,401 $ 1,848,558 422,190 3,393,769 $ 1,626,198 1,702,430 430,808 2,897,820 2,055,922 $ 2,065,821 535,103 3,586,640 $ 1,784,599 $ 1,779,967 385,413 3,179,153 $ 1,491,083 1,652,231 387,885 2,755,429 The total amount of reinsurance recoverable on paid and unpaid losses as of December 31, 2020 and 2019 was $1,214.5 million and $979.5 million, respectively. The reserve for uncollectible reinsurance recoverable was $9.7 million and $11.7 million, as of December 31, 2020 and 2019, respectively, and has been netted against reinsurance recoverables on loss payments in the consolidated balance sheets. 8. Reinsurance Recoverables The Company’s ten largest reinsurers represent 70.6% of its total reinsurance recoverables as of December 31, 2020. Amounts due from all other reinsurers are diversified, with no other individual reinsurer representing more than $25.1 million, or 2.1%, of reinsurance recoverables as of December 31, 2020, and the average balance is less than $2.3 million. The Company held total collateral of $276.4 million as of December 31, 2020, representing 22.8% of total reinsurance recoverables. The following table shows the total amount as of December 31, 2020 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 Federal Crop Insurance Corporation ......................................... Lloyd's Syndicates (excluding Brit PLC Syndicate 2987) ............ Markel CatCo Reinsurance Ltd. ................................................. CRC Reinsurance Limited........................................................... Markel Global Reinsurance Company ....................................... Berkley Insurance Company ...................................................... Hannover Rueck SE.................................................................... Swiss Reinsurance America Corporation ................................... Everest Reinsurance (Bermuda) Ltd. ......................................... Brit (Lloyd's Syndicate 2987) ..................................................... Sub-total............................................................................... All other ..................................................................................... Total................................................................................ Reinsurance Recoverable 244,145 $ 210,323 118,010 79,240 48,555 43,034 36,384 26,860 25,797 25,209 857,557 356,916 $ 1,214,473 % of Total Collateral A.M. Best Rating 20.2% $ 17.3 9.7 6.5 4.0 3.5 3.0 2.2 2.1 2.1 70.6 29.4 100.0% $ — NR 3,005 A 117,903 NR 79,240 NR — A — A+ 223 A+ — A+ — A+ 954 A 201,325 75,027 276,352 48 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 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, 2020 and the amount of collateral held from each group (in thousands): Reinsurer Federal Crop Insurance Corporation................................................. Lloyd's Syndicates (excluding Brit PLC Syndicate 2987).................... Markel Corporation........................................................................... Fairfax Financial Holdings Ltd. .......................................................... WR Berkley Corporation ................................................................... Sub-total ...................................................................................... All other ............................................................................................ Total ....................................................................................... Reinsurance Recoverable $ 244,145 210,323 183,060 134,512 43,034 815,074 399,399 $ 1,214,473 % of Total 20.2% $ 17.3 15.0 11.1 3.5 67.1 32.9 100.0% $ Collateral — 3,005 117,911 82,920 — 203,836 72,516 276,352 Reinsurance recoverables were $979.5 million and collateral was $296.5 million, or 30.3% of the reinsurance recoverable balance, as of December 31, 2019. 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, 2020 was comprised of the following forms (in thousands): Form of Collateral Trust agreements ............................................................................................... $ Funds withheld from reinsurers ......................................................................... Letters of credit .................................................................................................. Total .............................................................................................................. $ Collateral % of Recoverables 133,876 88,904 53,572 276,352 11.0% 7.3 4.5 22.8% 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 often 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-Controlling Interest – Preferred Shares of Subsidiaries Debt Obligations The amortized cost by component of the Company’s debt obligations as of December 31, 2020 and 2019 were as follows (in thousands): Series A Floating Rate Senior Debentures due 2021 .......................................... $ Series C Floating Rate Senior Debentures due 2021 .......................................... Total debt obligations ................................................................................... $ 49,998 39,986 89,984 $ $ 49,971 39,971 89,942 December 31, 2020 December 31, 2019 49 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 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-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, 2020 and 2019, the average annual interest rate on the Series C Notes was 3.22% and 4.94%, 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-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, 2020 and 2019, the average annual interest rate on Series A Notes was 2.92% and 4.64%, respectively. As of December 31, 2020 and 2019, the estimated fair value of the Company’s debt obligations was $91.0 million and $92.6 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. Common Shares The Company issued 2,582 common shares to OUSHI during the fourth quarter of 2019, in exchange for a $225.5 million capital contribution. The Company did not issue any common shares during the years ended December 31, 2020 and 2018. The Company did not declare or pay any common share dividends during the year ended December 31, 2020. The Company declared and paid $50.0 million in common share dividends during the year ended December 31, 2019. The Company declared and paid $100.0 million in common share dividends during the year ended December 31, 2018. Non-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 5, 2020, Greystone’s Board of Directors declared a preferred dividend to TIG in the amount of $0.3 million, which was paid on October 21, 2020 and Hudson’s Board of Directors declared a preferred dividend to TIG in the amount of $1.3 million, which was paid on November 2, 2020. On October 9, 2019, Greystone’s Board of Directors declared a preferred dividend to TIG in the amount of $0.3 million, which was paid on October 23, 2019 and Hudson’s Board of Directors declared a preferred dividend to TIG in the amount of $1.3 million, which was paid on October 24, 2019. 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. The aggregate amount of the preferred shares of Hudson and Greystone owned by TIG is presented on the balance sheet as non-controlling interest – preferred shares of subsidiaries in the amount of $29.3 million. 50 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 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, 2020, 2019 and 2018 are as follows (in thousands): Current: United States ............................................................................... $ Foreign......................................................................................... Total current income tax (benefit) provision ......................... (22,140) $ 1,638 (20,502) $ 71,233 35,579 106,812 19,516 31,555 51,071 2020 2019 2018 Deferred: United States tax expense (benefit) ............................................ United States change in valuation allowance on certain foreign tax credits ................................................. Foreign tax expense (benefit)...................................................... Total deferred income tax provision (benefit) ....................... Total federal and foreign income tax provision................ $ 49,548 (1,987) (28,134) — 7,390 56,938 36,436 $ 28,124 (5,200) 20,937 127,749 $ — 242 (27,892) 23,179 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, 2020 and 2019 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............................................................................... Less valuation allowance .................................................................................... Deferred tax assets after valuation allowance.............................................. Deferred acquisition costs .................................................................................. Foreign deferred items ....................................................................................... Other .................................................................................................................. Total deferred tax liabilities .......................................................................... Net deferred tax assets............................................................................ Deferred income taxes on accumulated other comprehensive income (loss) ............................................................... Deferred federal and foreign income tax asset .................................................. Current federal and foreign income tax receivable (payable) ...................... Federal and foreign income taxes receivable..................................................... $ 2020 2019 54,084 51,988 2,982 29,867 40,371 51,017 — 230,309 (28,124) 202,185 54,706 7,723 20 62,449 139,736 34,361 174,097 54,613 228,710 $ $ 48,583 44,011 2,981 27,952 108,869 50,860 5,084 288,340 (28,124) 260,216 48,430 15,113 — 63,543 196,673 21,369 218,042 (4,575) 213,467 51 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 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, 2020, 2019 and 2018 (in thousands): 2020 2019 2018 Income before income tax................................ $296,543 Income tax provision computed at the % of Pre-tax Income Amount % of Pre-tax Income % of Pre-tax Income Amount $246,954 Amount $533,140 U.S. statutory tax rate on income .................. $ 62,274 21.0% $111,959 21.0% $ 51,860 21.0% (Decrease) increase in income tax resulting from: Dividend received deduction ...................... Tax-exempt income..................................... Proration recovery of tax preferred income ...................................................... Foreign tax expense .................................... State tax expense ........................................ True-up of prior year taxes.......................... Write-off of subsidiary NOL DTL.................. U.S. tax reform - tax rate adjustment ......... Change in valuation allowance.................... Other, net.................................................... Total federal and foreign income (6,147) (814) 215 774 (455) (4,243) — (11,145) — (4,023) (2.1) (0.3) 0.1 0.3 (0.2) (1.4) — (3.8) — (1.3) (4,400) (719) 205 1,300 483 (5,659) (3,473) (2,249) 28,124 2,178 (0.8) (0.1) 0.0 0.2 0.1 (1.1) (0.7) (0.4) 5.3 0.5 (1,499) (3,325) 831 380 1,226 (7,434) — (22,156) — 3,296 (0.6) (1.3) 0.3 0.2 0.5 (3.0) — (9.0) — 1.3 tax provision........................................ $ 36,436 12.3% $127,749 24.0% $ 23,179 9.4% Pre-tax income (loss) generated in the United States was $140.5 million, $515.9 million, and $132.0 million for the years ended December 31, 2020, 2019 and 2018, respectively. Foreign pre-tax income was $156.1 million, $17.2 million and $115.0 million for the years ended December 31, 2020, 2019 and 2018, respectively. The Company has claimed the benefit of a foreign tax credit (“FTC”) in the tax years ended December 31, 2020, 2019 and 2018. The Company is included in the United States tax group of Fairfax (US) Inc. (“Fairfax (US)”). The method of allocation among the companies is subject to a written agreement. 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 included a minimum base erosion and anti-abuse tax (“BEAT”) on certain payments to foreign affiliates and a US tax on foreign earnings for certain global intangible low-taxed income ("GILTI"). The Company has evaluated the accounting policy election related to the BEAT and GILTI provisions and has concluded both will be treated as period costs. As a result, no related deferred taxes were recorded. The effects of the Act related to loss reserve discounting included a special transition rule allowing for the changes to loss reserve discounting as of December 31, 2017 to be spread ratably over 8 years. During 2019 the Internal Revenue Service (“IRS”) issued final regulations and Revenue Procedure 2019-31 resulting in a $2.0 million increase to the initial computation. The Company will recognize the adjusted benefit of $11.4 million ratably from years ending December 31, 2018 to December 31, 2025. The Company paid federal and foreign income taxes of $37.6 million, $104.3 million and $83.4 million for the years ended December 31, 2020, 2019 and 2018, respectively. As of December 31, 2020, the Company had a current tax receivable of $54.6 million, which included $38.1 million receivable from Fairfax (US) and a net receivable of $16.5 million to various foreign governments. As of December 31, 2019, the Company had a current 52 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) tax payable of $4.6 million, which included $2.7 million receivable from Fairfax (US) and a net payable of $7.3 million to various foreign governments. The Company files income tax returns with various federal, state and foreign jurisdictions. The Company’s U.S. federal income tax returns for tax years prior to 2019 are closed. The IRS is expected to complete their audit of the Company’s 2019 returns during 2021. Effective for 2018 and 2019 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. The IRS has not proposed any material adjustments as part of the Company’s ongoing examinations. Effective for tax year 2020 the IRS changed requirements for continued participation in CAP, the Company no longer participates in the program and will be subject to the normal IRS audit selection process. 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. 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 FTC carryovers of $51.0 million, of which $2.6 million, $18.4 million, $5.6 million, $21.5 million and $2.9 million expire in 2026, 2027, 2028, 2029 and 2030 respectively. When necessary, valuation allowances are established to reduce the deferred tax assets to amounts that are “more likely than not” to be realized. In assessing the need for a valuation allowance, the Company considers all available evidence for each tax jurisdiction, including past operating results, estimates of future taxable income, and the feasibility of tax planning strategies. The Company assessed the realization of its FTC carryovers based on currently enacted U.S. and foreign tax laws and determined that it is “more likely than not” that FTC carryovers related to foreign branch income will not be utilized prior to their expiration. As a result, a valuation allowance of $28.1 million was recorded against the FTC carryovers, which is included in the Company’s 2019 effective tax rate reconciliation as change in valuation allowance. The amount of the deferred tax asset considered realizable, however, could change if future taxable income during the carryforward period differs from current estimates. After considering the realization of its FTC carryovers related to current foreign branch income, the Company had no material change to the previously recorded valuation allowance for tax year ended December 31, 2020. 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 $402.9 million as of December 31, 2020 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-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 and Company believes that Newline Syndicate (1218) maintains sufficient 53 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 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 former subsidiary of Fairfax, in the event CTR became insolvent and CTR was not otherwise indemnified under its guarantee agreement with a Fairfax affiliate. CTR was dissolved and its assets and liabilities were assumed by subsidiaries of Fairfax that have the responsibility for the run-off of its liabilities. Fairfax has agreed to indemnify ORC for all its obligations incurred under its guarantee. The Company’s potential exposure in connection with this agreement stems from the remaining gross reserves relating to these liabilities, which are estimated to be $50.4 million as of December 31, 2020. 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, 2020, 2019 and 2018, 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 $152.9 million, based on Falcon’s loss reserves at December 31, 2020. 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. The guarantee was made to enable TIG to access ORC’s financial strength ratings and capital resources for securing the APH Contract. ORC’s maximum exposure in connection with this guarantee is $350.0 million; as of December 31, 2020, the Company’s estimated exposure under the guarantee is $32.2 million, based on TIG’s loss reserves for the APH Contract at December 31, 2020. 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. The Company and its subsidiaries are involved, from time to time, in ordinary litigation, arbitration proceedings and regulatory assessments as part of the Company’s business operations. In the Company’s opinion, the outcome of these actions, individually or collectively, is not likely to result in outcomes 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-term operating leases expiring through the year 2033. Minimum annual rentals follow (in thousands): 2021 ............................................................................................................................................ $ 2022 ............................................................................................................................................ 2023 ............................................................................................................................................ 2024 ............................................................................................................................................ 2025 ............................................................................................................................................ 2026 and thereafter .................................................................................................................... Total....................................................................................................................................... $ Amount 10,711 10,339 10,271 10,160 8,790 44,550 94,821 54 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Company leases certain office and retail space held as an investment under various operating leases. Lease income for the years ended December 31, 2020, 2019 and 2018 was $35.6 million, $37.0 million and $5.6 million, respectively. Future rental income from these leases are as follows (in thousands): 2021 ............................................................................................................................................ $ 2022 ............................................................................................................................................ 2023 ............................................................................................................................................ 2024 ............................................................................................................................................ 2025 ............................................................................................................................................ 2026 and thereafter .................................................................................................................... Total....................................................................................................................................... $ Amount 27,074 25,341 23,881 16,703 13,876 82,427 189,302 Rental expense, before sublease income under these operating leases, was $18.1 million, $15.9 million and $12.2 million for the years ended December 31, 2020, 2019 and 2018, respectively. The Company recovered less than $0.1 million for the years ended December 31, 2020 and 2019. The Company recovered $0.1 million for the year ended December 31, 2018. The adoption of ASU 2016-02 and ASU 2018-11, both entitled “Leases”, did not have a material effect on the Company’s results of operations or liquidity. Additional information regarding the Company’s operating leases are as follows (in thousands): As of 12/31/2020 As of 12/31/2019 Operating lease right of use asset....................................................................$ 66,093 Operating lease liabilities.................................................................................$ 82,557 Weighted average remaining operating lease term ........................................ Weighted average discount rate on operating leases ..................................... 5 years 4.18% $ $ 60,722 67,071 4 years 4.45% Maturities of the existing lease liabilities are expected to occur as follows: 2021 ................................................................................................................. 2022 ................................................................................................................. 2023 ................................................................................................................. 2024 ................................................................................................................. 2025 ................................................................................................................. Thereafter ........................................................................................................ Undiscounted lease payments......................................................................... Less: present value adjustment ...................................................................... Total operating lease liability ...........................................................................$ 10,413 9,716 9,681 9,822 8,675 44,925 93,232 10,675 82,557 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-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 55 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) maximum ordinary dividend capacity available during 2021, without prior approval, is $362.4 million. ORC declared and paid to OGHI dividends of $200.0 million, $50.0 million and $150.0 million during the years ended December 31, 2020, 2019 and 2018, respectively. Hudson declared and paid dividends on its preferred shares owned by TIG of $1.3 million during each of the years ended December 31, 2020, 2019 and 2018. Greystone declared and paid dividends on its preferred shares owned by TIG of $0.3 million during each of the years ended December 31, 2020, 2019 and 2018. 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, 2020, 2019 and 2018 (in thousands): Net income........................................................................................ $ Policyholders' surplus ....................................................................... 2020 (108,039) $ 3,666,493 2019 317,879 3,518,242 $ 2018 302,562 3,336,595 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, 2020, 2019 and 2018, follow (in thousands): 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 .................................................................................. 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 .................................................................................. 2020 2019 2018 182,879 $ 144,822 108,916 22,530 11,709 44,919 211,148 71,286 89,842 $ 71,597 58,117 15,899 6,135 1,957 137,146 46,773 92,225 $ 82,125 66,579 16,201 5,838 28,108 167,154 32,953 56,189 $ 46,279 21,956 8,183 4,598 1,181 106,695 28,433 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 The Company’s subsidiaries have entered into investment management agreements with Fairfax and its wholly-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, 2020, 2019 and 2018, total fees, including incentive fees, of $17.3 million, $18.7 million and $22.4 million, respectively, are included in the consolidated statements of operations. Included in other expenses, net, for the years ended December 31, 2020, 2019 and 2018, are charitable contribution expenses of $2.7 million, $5.2 million and $2.5 million, respectively, primarily representing amounts to be funded by OGHI to the Odyssey Group Foundation, a not-for-profit entity through which the Company provides funding to charitable organizations active in the communities in which the Company operates. 56 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 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 $3.1 million and $2.9 million as of December 31, 2020 and 2019, respectively, and amounts payable to affiliates of $0.3 million and $2.3 million as of December 31, 2020 and 2019, respectively. Between 2017 and 2020, the Company loaned an affiliate, Farmers Edge Inc. (“Farmers Edge”), $74.2 million. The loans bear interest at 12% per annum and are due on June 30, 2021. The Farmers Edge loans contain a conversion feature where the Company has the option (but not the obligation) to convert all or part of the unpaid principal amount and the accrued and unpaid interest on the loans as of the conversion into common shares at the conversion price. On January 22, 2018, the Company loaned an affiliate, EXCO Resources, Inc. (“EXCO”), $59.4 million in the form of a senior secured debtor-in-possession revolving credit facility loan. The notes bear interest at 4.9% per annum on Tranche A and 5.9% per annum on Tranche B and had a maturity date of January 22, 2019, with a maturity extension clause until July 22, 2019. The EXCO loans were repaid on June 28, 2019. On February 13, 2020 and March 9, 2020, the Company loaned Fairfax (US), $130.0 million and $30.0 million, respectively, at interest rates of 1.59% and 1.50% per annum, respectively. The loans were repaid on March 19, 2020. On July 9, 2019 and October 8, 2019, the Company loaned Fairfax (US), $100.0 million and $50.0 million, respectively, at interest rates of 2.13% and 1.69% per annum, respectively. The loans were repaid on September 27, 2019 and December 27, 2019, respectively. 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. The loans were repaid on September 28, 2018 and December 19, 2018, respectively. During 2020 and 2019, the Company loaned an affiliate, Sigma Co International Corp, $6.1 million. The loan bears interest at 5.0% and has a maturity date of June 19, 2024. On April 17, 2019, the Company loaned an affiliate, AGT Food and Ingredients Inc. (“AGT”), $70.8 million. The loan to AGT bears interest at 6.0% and has a maturity date of April 16, 2020. The loan may be successively extended an additional 364 days with written notice. The maturity on this loan was extended to April 16, 2021. On April 17, 2019, the Company loaned an affiliate, Alliance Pulse Processors Inc. (“Alliance”), $16.7 million. The loan to Alliance bears interest at 6.0% and has a maturity date of April 16, 2020. The loan may be successively extended an additional 364 days with written notice. The maturity on this loan was extended to April 16, 2021. On January 28, 2020, the Company loaned an affiliate, Toys “R” Us (Canada) Ltd. (“Toys”), 18.9 million. The loan to Toys bears interest at 9.5% and has a maturity date of January 28, 2023. 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-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-one. 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. 57 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 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, 2020 and 2019 (in thousands): Change in projected benefit obligation: Benefit obligation at beginning of year ................................................................ $ Service cost........................................................................................................... Interest cost.......................................................................................................... Actuarial loss......................................................................................................... Benefits paid......................................................................................................... Benefit obligation at end of year .................................................................... Change in Plan assets: Fair value of Pension Plan assets at beginning of year ......................................... Actual 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 .................................................. $ 2020 2019 $ 242,035 10,052 7,708 34,086 (9,926) 283,955 140,500 1,389 18,600 (9,926) 150,563 (133,392) $ 195,448 8,669 8,123 36,196 (6,401) 242,035 127,183 11,918 7,800 (6,401) 140,500 (101,535) The net amount reported in the consolidated balance sheets related to the accrued pension cost for the Pension Plan of $133.4 million and $101.5 million, as of December 31, 2020 and 2019, respectively, is included in other liabilities. The unamortized amount of accumulated other comprehensive loss related to the Pension Plan is $108.2 million and $72.6 million, before taxes, as of December 31, 2020 and 2019, respectively. As of December 31, 2020 and 2019, the fair value and percentage of fair value of the total Pension Plan assets by type of investment are as follows (in thousands): Equity securities ........................................................................... $ 129,622 17,486 Mutual funds - fixed income securities ........................................ 3,455 Money market.............................................................................. Fair value of Plan assets.......................................................... $ 150,563 86.1% $ 102,627 25,585 11.6 12,288 2.3 100.0% $ 140,500 73.0% 18.2 8.8 100.0% As of December 31, 2020 2019 The Pension Plan seeks to maximize the economic value of its investments by applying a long-term, value- 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-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. The Company contributed $18.6 million to the Pension Plan during the year ended December 31, 2020. During each of the years ended December 31, 2019 and 2018, the Company contributed $7.8 million to the Pension Plan. The Company currently expects to make a contribution to the Pension Plan of $7.8 million during 2021. 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- level fair value hierarchy, using the three-level hierarchy approach described in Note 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. As of December 31, 2020, a majority of the Pension’s assets were categorized as Level 1 assets except for the investments measured using NAV. 58 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) In accordance with ASU 2015-07, investments that are measured at fair value using NAV per share (or its equivalent) as a practical expedient, have not been classified in the fair value hierarchy. The Company reclassified the hedge fund from Level 3 assets to NAV during the year ended December 31, 2020. As of December 31, 2020, $23.9 million of investments reported as equity securities are not included within the fair value hierarchy tables. The Company’s Level 3 Pension Plan assets were 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. 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 were classified as Level 3. The Plan did not have Level 3 investments as of December 31, 2019. The Plan did have Level 3 investments as of December 31, 2018. The following table provides a summary of changes in the fair value of Level 3 financial assets for the years ended December 31, 2020 and 2019 (in thousands): Balance, January 1, 2019............................................................................................................. $ Reclassify from Level 3 to NAV ................................................................................................ Balance, December 31, 2019 and 2020....................................................................................... $ Hedge Fund 12,938 (12,938) — The following table provides a summary of the Plan’s investment that is measured at fair value using reported NAV per share as a practical expedient for the year ended December 31, 2020 (in thousands): Investment Fair Value India Fund.............................................. $ 23,909 Unfunded Commitment $ — Settlement Terms (1) Redemption Frequency Monthly Redemption Notice Period Frequency 60 days + month end Fair Value Estimated Using Net Asset Value per Share as of December 31, 2020 (1) The last business day of each month. The NAV of each share is determined by dividing the NAV of that class of share by the number of redeemable participating preference shares in issue in that class of shares. The Plan invests in a fund that is valued at NAV per share as a practical expedient. The following table presents the targeted asset allocation percentages for the Pension Plan’s assets by type: Equities................................................................................................................................................... Mutual funds - 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, 2020 and 2019 are as follows: Discount rate ............................................................................................................................ Rate of compensation increase ................................................................................................ 2.50% 3.60% 3.25% 3.60% 2020 2019 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 Pension Plan’s accumulated benefit obligations and the service and interest cost components of net periodic Pension Plan benefit cost. 59 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The net periodic benefit cost included in the Company’s consolidated statements of operations for the years ended December 31, 2020, 2019 and 2018 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 ................................................................ $ 10,052 7,708 (8,311) 5,499 14,948 $ $ 8,669 8,123 (7,544) 2,714 11,962 $ $ 9,739 7,607 (8,483) 2,933 11,796 2020 2019 2018 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 $9.4 million and $0.0 million, respectively, for the year ended December 31, 2021. 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. 2020 2019 2018 Change 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.......... 72,644 41,007 (5,498) Accumulated other comprehensive loss at end of year ................. $ 108,153 $ $ 43,536 31,822 (2,714) 72,644 $ $ 43,612 2,857 (2,933) 43,536 The weighted average assumptions used to calculate the net periodic benefit cost for the years ended December 31, 2020, 2019 and 2018 are as follows: Discount rate .............................................................................................................. Rate of compensation increase .................................................................................. Expected long term rate of return on Pension Plan assets ........................................ 2020 3.25% 3.60% 6.00% 2019 4.25% 3.60% 6.00% 2018 3.75% 3.80% 6.00% The accumulated benefit obligation for the Pension Plan was $247.2 million and $211.5 million as of the December 31, 2020 and 2019 measurement dates, respectively. The Pension Plan’s expected future benefit payments for the next 10 years are shown below (in thousands): Year 2021 ..................................................................................................................................................... $ 2022 ..................................................................................................................................................... 2023 ..................................................................................................................................................... 2024 ..................................................................................................................................................... 2025 ..................................................................................................................................................... 2026 – 2030 ......................................................................................................................................... Amount 11,658 11,873 12,494 13,736 14,373 82,930 60 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Excess Benefit Plans The Company maintains two non-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, 2020 and 2019 (in thousands): Change in projected benefit obligation: Benefit obligation at beginning of year ................................................................ $ Service cost........................................................................................................... Interest cost.......................................................................................................... Actuarial 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 .................................................. $ 2020 2019 $ 31,094 1,275 969 8,972 (504) 41,806 — 504 (504) — (41,806) $ 26,833 1,100 1,098 3,671 (1,608) 31,094 — 1,608 (1,608) — (31,094) The net amount reported in the consolidated balance sheets related to the accrued pension cost for the Excess Plans of $41.8 million and $31.1 million, as of December 31, 2020 and 2019, respectively, is included in other liabilities. The unamortized amount of accumulated other comprehensive loss related to the Excess Plan is $14.2 million and $5.6 million, before taxes, as of December 31, 2020 and 2019, respectively. The weighted average assumptions used to calculate the benefit obligation as of December 31, 2020 and 2019 are as follows: Discount rate ............................................................................................................................ Rate of compensation increase ................................................................................................ 2.50% 3.60% 3.25% 3.60% 2020 2019 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 Excess Plans’ accumulated 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, 2020, 2019 and 2018 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 ................................................................ $ 1,275 969 301 — 2,545 $ $ 1,100 1,098 27 — 2,225 $ $ 1,410 1,011 279 (5) 2,695 2020 2019 2018 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 $1.3 million and less than $0.0 million, respectively, for the year ended December 31, 2021. 61 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The Company expects to contribute $4.7 million to the Excess Plans during the year ended December 31, 2021, which represents the amount necessary to fund the 2021 expected benefit payments. Change in accumulated other comprehensive loss: Beginning balance ................................................................................ $ Actuarial loss (gain) 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 ................. $ 5,563 8,972 (301) — 14,234 $ $ 1,919 3,671 (27) — 5,563 $ $ 5,270 (3,077) (279) 5 1,919 2020 2019 2018 The weighted average assumptions used to calculate the net periodic benefit cost for the years ended December 31, 2020, 2019 and 2018 are as follows: Discount rate .............................................................................................................. Rate of compensation increase .................................................................................. 2020 3.25% 3.60% 2019 4.25% 3.60% 2018 3.75% 3.80% The accumulated benefit obligation for the Excess Plans was $33.2 million and $26.1 million as of December 31, 2020 and 2019, respectively. The Excess Plans’ expected benefit payments for the next 10 years are shown below (in thousands): Year 2021.................................................................................................................................................. $ 2022.................................................................................................................................................. 2023.................................................................................................................................................. 2024.................................................................................................................................................. 2025.................................................................................................................................................. 2026 – 2030 ...................................................................................................................................... Amount 4,711 4,369 3,835 4,314 3,760 18,385 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, 2020 and 2019 (in thousands): 2020 2019 Change in accumulated post retirement obligation: Accumulated postretirement obligation at beginning of year ............................. $ Service cost ..................................................................................................... Interest cost .................................................................................................... Actuarial loss ................................................................................................... Plan amendment............................................................................................. Benefits paid ................................................................................................... Participant contributions ................................................................................ Retiree Drug Subsidy receipts ......................................................................... Accumulated post retirement obligation at end of year ........................... Funded status and accrued prepaid pension cost................................ $ $ 92,123 2,890 2,963 2,626 (48,454) (1,769) 173 — 50,552 (50,552) $ 79,183 3,715 3,330 7,681 — (1,980) 140 54 92,123 (92,123) The net amount reported in the consolidated balance sheets related to the accrued benefit cost for the postretirement plan of $50.6 million and $92.1 million, as of December 31, 2020 and 2019, respectively, is included 62 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) in other liabilities. The liability for accumulated other comprehensive (income) loss related to the postretirement plan is $(35.6) million and $10.4 million, before taxes, as of December 31, 2020 and 2019, respectively. The postretirement plan was amended during the year ended December 31, 2020 to provide Medicare eligible participants a flat dollar stipend for supplemental Medicare coverage. The flat dollar stipend is assumed to increase 5% every three years. This plan amendment reduced the postretirement plan obligation by $48.5 million as of December 31, 2020. The weighted average assumptions used to calculate the benefit obligation as of December 31, 2020 and 2019 are as follows: Discount rate ............................................................................................................................ Rate of compensation increase ................................................................................................ 2.50% 3.80% 3.25% 3.80% 2020 2019 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 postretirement 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, 2020, 2019 and 2018 is comprised of the following (in thousands): Net Periodic Benefit Cost: Service cost .......................................................................................... $ Interest cost ......................................................................................... Recognized actuarial loss ..................................................................... Net periodic benefit cost ................................................................ $ 2,890 2,963 162 6,015 $ $ 3,715 3,330 — 7,045 $ $ 4,007 3,010 351 7,368 2020 2019 2018 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 $1.1 million and $(11.0) million, respectively, for the year ended December 31, 2021. 2020 2019 2018 Change in accumulated other comprehensive loss: Beginning balance................................................................................. $ Prior service cost - plan amendment.................................................... Actuarial loss (gain) arising during the year ......................................... Amortization of actuarial gain recognized in net periodic costs .......... Accumulated other comprehensive (income) loss at end of year .. $ $ 10,354 (48,454) 2,626 (162) (35,636) $ 2,673 — 7,681 — 10,354 $ $ 10,655 — (7,631) (351) 2,673 The weighted average assumptions used to calculate the net periodic benefit cost for the years ended December 31, 2020, 2019 and 2018 are as follows: Discount rate .............................................................................................................. Rate of compensation increase .................................................................................. 2020 3.25% 3.80% 2019 4.25% 3.80% 2018 3.75% 3.80% The postretirement plan’s expected benefit payments for the next 10 years are shown below (in thousands): Year 2021.................................................................................................................................................. $ 2022.................................................................................................................................................. 2023.................................................................................................................................................. 2024.................................................................................................................................................. 2025.................................................................................................................................................. 2026 – 2030 ...................................................................................................................................... Amount 1,806 2,026 2,183 2,346 2,549 14,689 63 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 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 5.47% in 2021, 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 $6.9 million (13.63% of the benefit obligation as of December 31, 2020) and the service and interest cost components of net periodic postretirement benefit costs by $1.4 million for the year ended December 31, 2020. 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, 2020 by $5.7 million and $1.0 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 additional discretionary contributions were authorized for the years ended December 31, 2020, 2019 or 2018. 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-tax basis, subject to annual maximum contributions set by law ($19,500 in 2021 plus an additional $6,500 if an employee is age 50 or older). The Company contributes an amount equal to 100% of each employee’s pre-tax contribution up to certain limits. The maximum matching contribution is 4.0% of annual base salary, with certain government- mandated restrictions on contributions to highly compensated employees. The Company also maintains a non- 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 $3.8 million, $3.4 million, and $3.1 million for the years ended December 31, 2020, 2019 and 2018, 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. The profit sharing contribution is paid each January and uses the prior year’s 401(k) compensation (base pay, short-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, with contribution percentages 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% 64 ODYSSEY GROUP HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 15. Stock-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. 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”). The Restricted Share Awards generally vest over five years. The Company had 470,684 Restricted Share Awards outstanding as of December 31, 2020. 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-line basis over the related vesting periods. 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-in capital. As of December 31, 2020, there was $39.9 million of unrecognized compensation cost related to unvested Restricted Share Awards granted from the Fairfax Plans that was netted against additional paid-in capital, which is expected to be recognized over a remaining weighted-average vesting period of 2.4 years. The total fair values of the Restricted Share Awards granted for the years ended December 31, 2020, 2019 and 2018 were $19.9 million, $17.8 million and $18.8 million, respectively. As of December 31, 2020, the aggregate fair value of the Restricted Share Awards outstanding was $120.6 million. For the years ended December 31, 2020, 2019 and 2018, the Company recognized expense related to the Fairfax Plans of $16.8 million, $16.0 million and $17.2 million, respectively. The following table summarizes activity for the Fairfax Plans for the year ended December 31, 2020: Awards outstanding as of December 31, 2019 Granted ......................................................................................................... Vested ........................................................................................................... Forfeited........................................................................................................ Unallocated ................................................................................................... Shares / Options 341,821 59,982 (53,603) (2,126) 124,610 Awards outstanding as of December 31, 2020................................................... 470,684 Vested and exercisable as of December 31, 2020 .............................................. 58,387 Weighted- Average Value at Grant Date 481.83 331.37 463.35 420.62 300.66 417.08 498.32 $ $ $ Employee Share Purchase Plans Under the terms of the Odyssey Re Holdings Corp. (Non-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, 2020, the Company purchased 25,688 Fairfax common shares on behalf of employees pursuant to the 2010 ESPP, at an average purchase price of $327.81. The compensation expense recognized by the Company for purchases of Fairfax’s common shares under the 2010 ESPP was $1.8 million, $1.8 million and $1.5 million for the years ended December 31, 2020, 2019 and 2018, respectively. 65 

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