NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016
and
December 31, 2015
(Tabular information expressed in thousands of U.S. dollars except share and per share data)
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation and Consolidation
These unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, these financial statements reflect all adjustments consisting of normal recurring items considered necessary for a fair presentation under U.S. GAAP. The results of operations for any interim period are not necessarily indicative of results of the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2015. Inter-company accounts and transactions have been eliminated. Results of operations for subsidiaries acquired are included from the dates on which we acquired them. In these notes, the terms "we," "us," "our," or "the Company" refer to Enstar Group Limited and its consolidated subsidiaries. Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings.
The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ materially from these estimates. Results of changes in estimates are reflected in earnings in the period in which the change is made. Our principal estimates include, but are not limited to:
|
|
•
|
liability for losses and loss adjustment expenses ("LAE");
|
|
|
•
|
liability for policy benefits for life and annuity contracts;
|
|
|
•
|
reinsurance balances recoverable;
|
|
|
•
|
gross and net premiums written and net premiums earned;
|
|
|
•
|
impairment charges, including other-than-temporary impairments on investment securities classified as available-for-sale or held-to-maturity, and impairments on goodwill, intangible assets and deferred charges;
|
|
|
•
|
fair value measurements of investments;
|
|
|
•
|
fair value estimates associated with accounting for acquisitions; and
|
|
|
•
|
redeemable noncontrolling interests.
|
New Accounting Standards Adopted in 2016
Accounting Standards Update ("ASU") 2015-16, Business Combinations, Simplifying the Accounting for Measurement-Period Adjustment
In September 2015, the Financial Accounting Standards Board ("FASB") issued ASU 2015-16, which eliminates the requirement for an acquirer to retrospectively adjust the financial statements for measurement-period adjustments that occur in periods after a business combination is consummated. Under the new guidance, an acquirer must recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The adoption of this guidance did not have a
material impact on our consolidated financial statements and disclosures.
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ASU 2015-07, Disclosures for Investments in Certain Entities that Calculate Net Asset Value or its Equivalent
In May 2015, the FASB issued ASU No. 2015-07, which eliminates the requirement to categorize investments in the fair value hierarchy if their fair value is measured at the net asset value ("NAV") per share (or its equivalent) using the practical expedient in the FASB’s fair value measurement guidance. Instead, an entity is required to include those investments as a reconciling line item so that the total fair value amount of investments in the disclosure is consistent with the amount on the balance sheet. In addition, the scope of current disclosure requirements for investments eligible to be measured at NAV is limited to investments for which the practical expedient is applied. While the adoption of this guidance impacted our disclosures, it did not have an impact on our consolidated financial statements.
ASU 2015-02, Amendments to the Consolidation Analysis
In February 2015, the FASB issued ASU 2015-02, which requires entities to evaluate whether they should consolidate certain legal entities. The new consolidation guidance changes the way entities evaluate whether (1) they should consolidate limited partnerships and similar entities; (2) fees paid to a decision maker or service provider are variable interests in a variable interest entity ("VIE"), and (3) variable interests in a VIE held by related parties of a registrant require the registrant to consolidate the VIE. The new guidance also eliminates the VIE consolidation model based on majority exposure to variability that applied to certain investment companies and similar entities. The ASU also significantly changes how to evaluate voting rights for entities that are not similar to limited partnerships when determining whether the entity is a VIE, which may affect entities for which decision making rights are conveyed through a contractual arrangement. The adoption of this guidance did not have a material impact on our consolidated financial statements and disclosures.
Recently Issued Accounting Pronouncements Not Yet Adopted
ASU 2016-13, Financial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU 2016-13, which amends the guidance on impairment of financial instruments and significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The ASU will replace the existing “incurred loss” approach, with an “expected loss” model for instruments measured at amortized cost and require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount under the existing other-than-temporary-impairment model. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. The ASU is effective for interim and annual reporting periods beginning after December 15, 2019. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.
ASU 2016-09, Improvements to Employee Share-Based Payment Accounting
In March 2016, the FASB issued ASU 2016-09, which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The ASU is effective for interim and annual reporting periods beginning after December 15, 2016. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.
ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
In March 2016, the FASB issued ASU 2016-08, which amends the principal-versus agent implementation guidance and illustrations in its new revenue standard (ASU 2014-09). The ASU clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. Similar to ASU 2014-09, this guidance is effective for interim and reporting periods beginning after December 15, 2017, as amended by the one-year deferral and the early adoption provisions in ASU 2015-14. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.
ASU 2016-07, Simplifying the Transition to the Equity Method of Accounting
In March 2016, the FASB issued ASU 2016-07, which simplifies the equity method of accounting by eliminating the requirement to retrospectively apply the equity method to an investment that subsequently qualifies for such accounting as a result of an increase in the level of ownership interest or degree of influence. Entities are therefore required to apply the guidance prospectively to increases in the level of ownership interest or degree of influence occurring after the ASU’s effective date. The ASU further requires that unrealized holding gains or losses in accumulated
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
other comprehensive income related to an available-for-sale security that becomes eligible for the equity method be recognized in earnings as of the date on which the investment qualifies for the equity method. The ASU is effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.
ASU 2016-02, Leases
In February 2016, the FASB issued ASU 2016-02, which amends the guidance on the classification, measurement and disclosure of leases for both lessors and lessees. The ASU requires lessees to recognize a right-of-use asset and a lease liability on the balance sheet and to disclose qualitative and quantitative information about leasing arrangements. The ASU is effective for interim and annual reporting periods beginning after December 15, 2018. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.
ASU 2016-01, Recognition and Measurement of Financial Instruments
In January 2016, the FASB issued ASU 2016-01, which amends the guidance on the classification and measurement of financial instruments. Although the ASU retains many of the current requirements, it significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities, and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments. The ASU is effective for interim and annual reporting periods beginning after December 15, 2017. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.
2. SIGNIFICANT NEW BUSINESS
2016
Coca-Cola
On August 5, 2016, we entered into a reinsurance transaction with The Coca-Cola Company and its subsidiaries (“Coca-Cola”) pursuant to which we
reinsured certain of Coca-Cola’s retention and deductible risks under its subsidiaries’ U.S. workers’ compensation, auto liability, general liability, and product liability insurance coverage. We assumed total gross reserves of
$109.1 million
, received total assets of
$102.7 million
and recorded a deferred charge of
$6.4 million
, included in other assets. We have transferred approximately
$109.1 million
into trust to support our obligations under the reinsurance agreements. We provided a limited parental guarantee, subject to an overall maximum of approximately
$27.0 million
.
Allianz
On March 31, 2016, we completed our previously announced transaction with Allianz SE ("Allianz") to reinsure portfolios of Allianz's run-off business. Pursuant to the reinsurance agreement effective January 1, 2016, our subsidiary reinsured
50%
of certain portfolios of workers' compensation, construction defect, and asbestos, pollution, and toxic tort business originally held by Fireman's Fund Insurance Company, and assumed net reinsurance reserves of approximately
$1.1 billion
. Affiliates of Allianz retained approximately
$1.1 billion
of reinsurance premium as funds withheld collateral for the obligations of our subsidiary under the reinsurance agreement, and we transferred approximately
$110.0 million
to a reinsurance trust to further support our subsidiary's obligations. Interest on the funds withheld is earned by us based upon an initial fixed interest rate. We have also provided a limited parental guarantee, which is subject to a maximum cap. The combined monetary total of the support offered by us through the trust and parental guarantee is calculated in accordance with contractually defined terms and is capped at
$270.0 million
.
In addition
to the reinsurance transaction described above, we have entered into a claims consulting agreement with San Francisco Reinsurance Company, an affiliate of Allianz, with respect to the entire
$2.2 billion
portfolio, including the
50%
share retained by affiliates of Allianz.
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
3. INVESTMENTS
We hold: (i) trading portfolios of fixed maturity investments, short-term investments and equities, carried at fair value; (ii) a held-to-maturity portfolio of fixed maturity investments carried at amortized cost; (iii) available-for-sale portfolios of short-term and fixed maturity investments carried at fair value; and (iv) other investments carried at either fair value or cost.
Trading
The fair values of our fixed maturity investments, short-term investments and equities classified as trading were as follows:
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
December 31,
2015
|
U.S. government and agency
|
$
|
771,489
|
|
|
$
|
750,957
|
|
Non-U.S. government
|
309,794
|
|
|
359,002
|
|
Corporate
|
2,612,211
|
|
|
2,631,682
|
|
Municipal
|
8,691
|
|
|
22,247
|
|
Residential mortgage-backed
|
474,820
|
|
|
391,247
|
|
Commercial mortgage-backed
|
281,052
|
|
|
284,575
|
|
Asset-backed
|
651,304
|
|
|
638,434
|
|
Total fixed maturity and short-term investments
|
5,109,361
|
|
|
5,078,144
|
|
Equities — U.S.
|
109,903
|
|
|
108,793
|
|
Equities — International
|
7,390
|
|
|
7,148
|
|
|
$
|
5,226,654
|
|
|
$
|
5,194,085
|
|
Included within residential and commercial mortgage-backed securities as at
June 30, 2016
were securities issued by U.S. governmental agencies with a fair value of
$447.0 million
(as at
December 31, 2015
:
$359.4 million
). Included within corporate securities as at
June 30, 2016
were senior secured loans of
$89.9 million
(as at
December 31, 2015
:
$94.4 million
).
The contractual maturities of our fixed maturity and short-term investments classified as trading are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call o
r prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
As at June 30, 2016
|
|
Amortized
Cost
|
|
Fair Value
|
|
% of Total
Fair
Value
|
One year or less
|
|
$
|
732,723
|
|
|
$
|
723,589
|
|
|
14.2
|
%
|
More than one year through two years
|
|
927,837
|
|
|
928,798
|
|
|
18.2
|
%
|
More than two years through five years
|
|
1,266,491
|
|
|
1,279,337
|
|
|
25.0
|
%
|
More than five years through ten years
|
|
551,552
|
|
|
563,660
|
|
|
11.0
|
%
|
More than ten years
|
|
197,290
|
|
|
206,801
|
|
|
4.0
|
%
|
Residential mortgage-backed
|
|
473,782
|
|
|
474,820
|
|
|
9.3
|
%
|
Commercial mortgage-backed
|
|
280,949
|
|
|
281,052
|
|
|
5.5
|
%
|
Asset-backed
|
|
669,975
|
|
|
651,304
|
|
|
12.8
|
%
|
|
|
$
|
5,100,599
|
|
|
$
|
5,109,361
|
|
|
100.0
|
%
|
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Held-to-maturity
We hold a portfolio of held-to-maturity securities to support our annuity business. The amortized cost and fair values of our fixed maturity investments classified as held-to-maturity were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at June 30, 2016
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
Non-OTTI
|
|
Fair
Value
|
U.S. government and agency
|
|
$
|
19,886
|
|
|
$
|
1,068
|
|
|
$
|
(62
|
)
|
|
$
|
20,892
|
|
Non-U.S. government
|
|
33,233
|
|
|
1,193
|
|
|
—
|
|
|
34,426
|
|
Corporate
|
|
717,536
|
|
|
36,782
|
|
|
(1,457
|
)
|
|
752,861
|
|
|
|
$
|
770,655
|
|
|
$
|
39,043
|
|
|
$
|
(1,519
|
)
|
|
$
|
808,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2015
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
Non-OTTI
|
|
Fair Value
|
U.S. government and agency
|
|
$
|
19,771
|
|
|
$
|
8
|
|
|
$
|
(458
|
)
|
|
$
|
19,321
|
|
Non-U.S. government
|
|
40,503
|
|
|
48
|
|
|
(1,493
|
)
|
|
39,058
|
|
Corporate
|
|
730,592
|
|
|
3,398
|
|
|
(23,298
|
)
|
|
710,692
|
|
|
|
$
|
790,866
|
|
|
$
|
3,454
|
|
|
$
|
(25,249
|
)
|
|
$
|
769,071
|
|
The contractual maturities of our fixed maturity investments classified as held-to-maturity are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
As at June 30, 2016
|
|
Amortized
Cost
|
|
Fair
Value
|
|
% of Total
Fair
Value
|
One year or less
|
|
$
|
17,293
|
|
|
$
|
17,318
|
|
|
2.1
|
%
|
More than one year through two years
|
|
23,600
|
|
|
23,784
|
|
|
3.0
|
%
|
More than two years through five years
|
|
66,940
|
|
|
68,813
|
|
|
8.5
|
%
|
More than five years through ten years
|
|
107,660
|
|
|
110,845
|
|
|
13.7
|
%
|
More than ten years
|
|
555,162
|
|
|
587,419
|
|
|
72.7
|
%
|
|
|
$
|
770,655
|
|
|
$
|
808,179
|
|
|
100.0
|
%
|
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Available-for-sale
The amortized cost and fair values of our short-term and fixed maturity investments classified as available-for-sale were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at June 30, 2016
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
Non-OTTI
|
|
Fair
Value
|
U.S. government and agency
|
|
$
|
13,364
|
|
|
$
|
164
|
|
|
$
|
—
|
|
|
$
|
13,528
|
|
Non-U.S. government
|
|
89,836
|
|
|
2,530
|
|
|
(2,159
|
)
|
|
90,207
|
|
Corporate
|
|
184,886
|
|
|
3,820
|
|
|
(1,945
|
)
|
|
186,761
|
|
Municipal
|
|
6,500
|
|
|
102
|
|
|
—
|
|
|
6,602
|
|
Residential mortgage-backed
|
|
569
|
|
|
55
|
|
|
—
|
|
|
624
|
|
Asset-backed
|
|
4,578
|
|
|
30
|
|
|
—
|
|
|
4,608
|
|
|
|
$
|
299,733
|
|
|
$
|
6,701
|
|
|
$
|
(4,104
|
)
|
|
$
|
302,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2015
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
Non-OTTI
|
|
Fair
Value
|
U.S. government and agency
|
|
$
|
25,102
|
|
|
$
|
80
|
|
|
$
|
(341
|
)
|
|
$
|
24,841
|
|
Non-U.S. government
|
|
89,631
|
|
|
42
|
|
|
(3,889
|
)
|
|
$
|
85,784
|
|
Corporate
|
|
182,773
|
|
|
1,040
|
|
|
(3,429
|
)
|
|
$
|
180,384
|
|
Municipal
|
|
5,959
|
|
|
4
|
|
|
(36
|
)
|
|
$
|
5,927
|
|
Residential mortgage-backed
|
|
665
|
|
|
51
|
|
|
(1
|
)
|
|
$
|
715
|
|
Asset-backed
|
|
4,660
|
|
|
—
|
|
|
(10
|
)
|
|
$
|
4,650
|
|
|
|
$
|
308,790
|
|
|
$
|
1,217
|
|
|
$
|
(7,706
|
)
|
|
$
|
302,301
|
|
The contractual maturities of our short-term and fixed maturity investments classified as available-for-sale are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
As at June 30, 2016
|
|
Amortized
Cost
|
|
Fair
Value
|
|
% of Total
Fair
Value
|
One year or less
|
|
$
|
51,327
|
|
|
$
|
50,119
|
|
|
16.6
|
%
|
More than one year through two years
|
|
68,189
|
|
|
67,500
|
|
|
22.3
|
%
|
More than two years through five years
|
|
87,040
|
|
|
86,492
|
|
|
28.6
|
%
|
More than five years through ten years
|
|
41,192
|
|
|
42,841
|
|
|
14.2
|
%
|
More than ten years
|
|
46,838
|
|
|
50,146
|
|
|
16.6
|
%
|
Residential mortgage-backed
|
|
569
|
|
|
624
|
|
|
0.2
|
%
|
Asset-backed
|
|
4,578
|
|
|
4,608
|
|
|
1.5
|
%
|
|
|
$
|
299,733
|
|
|
$
|
302,330
|
|
|
100.0
|
%
|
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Gross Unrealized Losses
The following tables summarize our fixed maturity and short-term investments in a gross unrealized loss position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 Months or Greater
|
|
Less Than 12 Months
|
|
Total
|
As at June 30, 2016
|
|
Fair
Value
|
|
Gross Unrealized
Losses
|
|
Fair
Value
|
|
Gross Unrealized
Losses
|
|
Fair
Value
|
|
Gross Unrealized
Losses
|
Fixed maturity and short-term investments, at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. government
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
20,177
|
|
|
$
|
(2,159
|
)
|
|
$
|
20,177
|
|
|
$
|
(2,159
|
)
|
Corporate
|
|
3,089
|
|
|
(137
|
)
|
|
32,647
|
|
|
(1,808
|
)
|
|
35,736
|
|
|
(1,945
|
)
|
Total
|
|
$
|
3,089
|
|
|
$
|
(137
|
)
|
|
$
|
52,824
|
|
|
$
|
(3,967
|
)
|
|
$
|
55,913
|
|
|
$
|
(4,104
|
)
|
Fixed maturity investments, at amortized cost
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency
|
|
$
|
447
|
|
|
$
|
(62
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
447
|
|
|
$
|
(62
|
)
|
Corporate
|
|
18,469
|
|
|
(643
|
)
|
|
37,889
|
|
|
(814
|
)
|
|
56,358
|
|
|
(1,457
|
)
|
Total
|
|
18,916
|
|
|
(705
|
)
|
|
37,889
|
|
|
(814
|
)
|
|
56,805
|
|
|
(1,519
|
)
|
Total fixed maturity and short-term investments
|
|
$
|
22,005
|
|
|
$
|
(842
|
)
|
|
$
|
90,713
|
|
|
$
|
(4,781
|
)
|
|
$
|
112,718
|
|
|
$
|
(5,623
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 Months or Greater
|
|
Less Than 12 Months
|
|
Total
|
As at December 31, 2015
|
|
Fair
Value
|
|
Gross Unrealized
Losses
|
|
Fair
Value
|
|
Gross Unrealized
Losses
|
|
Fair
Value
|
|
Gross Unrealized
Losses
|
Fixed maturity and short-term investments, at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency
|
|
$
|
523
|
|
|
$
|
(2
|
)
|
|
$
|
21,694
|
|
|
$
|
(339
|
)
|
|
$
|
22,217
|
|
|
$
|
(341
|
)
|
Non-U.S. government
|
|
18,995
|
|
|
(2,633
|
)
|
|
50,080
|
|
|
(1,256
|
)
|
|
69,075
|
|
|
(3,889
|
)
|
Corporate
|
|
54,295
|
|
|
(2,394
|
)
|
|
81,047
|
|
|
(1,035
|
)
|
|
135,342
|
|
|
(3,429
|
)
|
Municipal
|
|
—
|
|
|
—
|
|
|
4,609
|
|
|
(36
|
)
|
|
4,609
|
|
|
(36
|
)
|
Residential mortgage-backed
|
|
71
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
71
|
|
|
(1
|
)
|
Asset-backed
|
|
4,649
|
|
|
(10
|
)
|
|
—
|
|
|
—
|
|
|
4,649
|
|
|
(10
|
)
|
Total
|
|
$
|
78,533
|
|
|
$
|
(5,040
|
)
|
|
$
|
157,430
|
|
|
$
|
(2,666
|
)
|
|
$
|
235,963
|
|
|
$
|
(7,706
|
)
|
Fixed maturity investments, at amortized cost
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency
|
|
$
|
7,221
|
|
|
$
|
(48
|
)
|
|
$
|
12,024
|
|
|
$
|
(410
|
)
|
|
$
|
19,245
|
|
|
$
|
(458
|
)
|
Non-U.S. government
|
|
24,424
|
|
|
(1,255
|
)
|
|
8,885
|
|
|
(238
|
)
|
|
33,309
|
|
|
(1,493
|
)
|
Corporate
|
|
209,000
|
|
|
(9,038
|
)
|
|
330,833
|
|
|
(14,260
|
)
|
|
539,833
|
|
|
(23,298
|
)
|
Total
|
|
240,645
|
|
|
(10,341
|
)
|
|
351,742
|
|
|
(14,908
|
)
|
|
592,387
|
|
|
(25,249
|
)
|
Total fixed maturity and short-term investments
|
|
$
|
319,178
|
|
|
$
|
(15,381
|
)
|
|
$
|
509,172
|
|
|
$
|
(17,574
|
)
|
|
$
|
828,350
|
|
|
$
|
(32,955
|
)
|
As at
June 30, 2016
and
December 31, 2015
, the number of securities classified as available-for-sale in an unrealized loss position was
120
and
332
, respectively. Of these securities, the number of securities that had been in an unrealized loss position for twelve months or longer was
13
and
124
, respectively.
As at
June 30, 2016
and
December 31, 2015
, the number of securities classified as held-to-maturity in an unrealized loss position was
14
and
109
, respectively. Of these securities, the number of securities that had been in an unrealized loss position for twelve months or longer was
6
and
53
, respectively.
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other-Than-Temporary Impairment
For the
six
months ended
June 30, 2016
and 2015, we did not recognize any other-than-temporary impairment losses on either our available-for-sale or held-to-maturity securities. We determined that
no
credit losses existed as at
June 30, 2016
. A description of our other-than-temporary impairment process is included in Note 2 to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended
December 31, 2015
. There were no changes to our process during the
six
months ended
June 30, 2016
.
Credit Ratings
The following table sets forth the credit ratings of our fixed maturity and short-term investments as of
June 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Fair Value
|
|
% of Total
Investments
|
|
AAA Rated
|
|
AA Rated
|
|
A Rated
|
|
BBB
Rated
|
|
Non-
Investment
Grade
|
|
Not Rated
|
Fixed maturity and short-term investments, at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency
|
|
$
|
771,905
|
|
|
$
|
785,017
|
|
|
12.6
|
%
|
|
$
|
778,456
|
|
|
$
|
6,561
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Non-U.S. government
|
|
405,688
|
|
|
400,001
|
|
|
6.4
|
%
|
|
129,956
|
|
|
185,750
|
|
|
52,705
|
|
|
20,284
|
|
|
11,306
|
|
|
—
|
|
Corporate
|
|
2,777,899
|
|
|
2,798,972
|
|
|
45.1
|
%
|
|
164,171
|
|
|
451,121
|
|
|
1,312,900
|
|
|
721,700
|
|
|
143,010
|
|
|
6,070
|
|
Municipal
|
|
14,987
|
|
|
15,293
|
|
|
0.2
|
%
|
|
5,395
|
|
|
7,710
|
|
|
2,188
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Residential mortgage-backed
|
|
474,351
|
|
|
475,444
|
|
|
7.6
|
%
|
|
465,622
|
|
|
452
|
|
|
6,029
|
|
|
2,302
|
|
|
1,036
|
|
|
3
|
|
Commercial mortgage-backed
|
|
280,949
|
|
|
281,052
|
|
|
4.5
|
%
|
|
114,235
|
|
|
34,730
|
|
|
73,995
|
|
|
15,538
|
|
|
2,674
|
|
|
39,880
|
|
Asset-backed
|
|
674,553
|
|
|
655,912
|
|
|
10.6
|
%
|
|
232,047
|
|
|
128,948
|
|
|
182,307
|
|
|
43,362
|
|
|
69,051
|
|
|
197
|
|
Total
|
|
5,400,332
|
|
|
5,411,691
|
|
|
87.0
|
%
|
|
1,889,882
|
|
|
815,272
|
|
|
1,630,124
|
|
|
803,186
|
|
|
227,077
|
|
|
46,150
|
|
% of total fair value
|
|
|
|
|
|
|
|
34.9
|
%
|
|
15.1
|
%
|
|
30.0
|
%
|
|
14.9
|
%
|
|
4.2
|
%
|
|
0.9
|
%
|
Fixed maturity investments, at amortized cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency
|
|
19,886
|
|
|
20,892
|
|
|
0.3
|
%
|
|
19,491
|
|
|
1,378
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
23
|
|
Non-U.S. government
|
|
33,233
|
|
|
34,426
|
|
|
0.6
|
%
|
|
—
|
|
|
9,446
|
|
|
24,980
|
|
|
—
|
|
|
—
|
|
|
|
Corporate
|
|
717,536
|
|
|
752,861
|
|
|
12.1
|
%
|
|
41,800
|
|
|
114,014
|
|
488,429
|
|
108,522
|
|
|
—
|
|
|
96
|
|
Total
|
|
770,655
|
|
|
808,179
|
|
|
13.0
|
%
|
|
61,291
|
|
|
124,838
|
|
|
513,409
|
|
|
108,522
|
|
|
—
|
|
|
119
|
|
% of total fair value
|
|
|
|
|
|
|
|
8.3
|
%
|
|
15.4
|
%
|
|
64.7
|
%
|
|
11.5
|
%
|
|
—
|
%
|
|
0.1
|
%
|
Total fixed maturity and short-term investments
|
|
$
|
6,170,987
|
|
|
$
|
6,219,870
|
|
|
100.0
|
%
|
|
$
|
1,951,173
|
|
|
$
|
940,110
|
|
|
$
|
2,143,533
|
|
|
$
|
911,708
|
|
|
$
|
227,077
|
|
|
$
|
46,269
|
|
% of total fair value
|
|
|
|
|
|
|
|
31.4
|
%
|
|
15.1
|
%
|
|
34.4
|
%
|
|
14.7
|
%
|
|
3.7
|
%
|
|
0.7
|
%
|
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other Investments, at fair value
The following table summarizes our other investments carried at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
December 31,
2015
|
Private equities and private equity funds
|
|
$
|
229,756
|
|
|
$
|
254,883
|
|
Fixed income funds
|
|
248,815
|
|
|
291,736
|
|
Fixed income hedge funds
|
|
111,543
|
|
|
109,400
|
|
Equity funds
|
|
163,050
|
|
|
147,390
|
|
Multi-strategy hedge fund
|
|
98,416
|
|
|
99,020
|
|
Real estate debt fund
|
|
—
|
|
|
54,829
|
|
CLO equities
|
|
65,156
|
|
|
61,702
|
|
CLO equity funds
|
|
13,513
|
|
|
13,928
|
|
Call options on equities
|
|
4,850
|
|
|
—
|
|
Other
|
|
1,059
|
|
|
1,144
|
|
|
|
$
|
936,158
|
|
|
$
|
1,034,032
|
|
The valuation of our other investments is described in Note 4 - "Fair Value Measurements." Due to a lag in the valuations of certain funds reported by the managers, we may record changes in valuation with up to a
three
-month lag. We regularly review and discuss fund performance with the fund managers to corroborate the reasonableness of the reported net asset values and to assess whether any events have occurred within the lag period that would affect the valuation of the investments. The following is a description of the nature of each of these investment categories:
|
|
•
|
Private equities and private equity funds
invest primarily in the financial services industry. All of our investments in private equities and private equity funds are subject to restrictions on redemptions and sales that are determined by the governing documents and limit our ability to liquidate those investments. These restrictions have been in place since the dates of our initial investments.
|
|
|
•
|
Fixed income funds
comprise a number of positions in diversified fixed income funds that are managed by third-party managers. Underlying investments vary from high-grade corporate bonds to non-investment grade senior secured loans and bonds, but are generally invested in liquid fixed income markets. These funds have regularly published prices. The funds have liquidity terms that vary from daily up to quarterly.
|
|
|
•
|
Fixed income hedge funds
invest in a diversified portfolio of debt securities. The hedge funds have imposed lock-up periods of up to
three
years from the time of initial investment. Once eligible, redemptions are permitted quarterly with
60
days’ notice.
|
|
|
•
|
Equity funds
invest in a diversified portfolio of international publicly traded equity securities. The funds are eligible for bi-monthly redemption.
|
|
|
•
|
Multi-strategy hedge fund
comprises an investment in a hedge fund that invests in a variety of asset classes including funds, fixed income, equity securities and other investments. The fund is eligible for quarterly redemption after September 1, 2016. Once eligible, redemptions will be permitted quarterly with
60
days’ notice.
|
|
|
•
|
Real estate debt fund
invests primarily in U.S. commercial real estate loans and securities. A redemption request for this fund can be made
10 days
after the date of any monthly valuation. The fund was fully redeemed as at March 31, 2016.
|
|
|
•
|
CLO equities
comprise investments in the equity tranches of term-financed securitizations of diversified pools of corporate bank loans. CLO equities denote direct investments by us in these securities.
|
|
|
•
|
CLO equity funds
comprise
two
funds that invest primarily in the equity tranches of term-financed securitizations of diversified pools of corporate bank loans. One of the funds has a fair value of
$3.6 million
, part of a self-liquidating structure that is expected to pay out over
two
to
six
years. The other fund has a fair value of
$9.9 million
and is eligible for redemption in 2018.
|
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
•
|
Call options on equities
comprise directly held options to purchase the common equity of publicly traded corporations.
|
|
|
•
|
Other
primarily comprises a fund that provides loans to educational institutions throughout the United States and its territories.
|
Investments of
$0.8 million
in fixed income hedge funds were subject to gates or side-pockets, where redemptions are subject to the sale of underlying investments. A gate is the ability to deny or delay a redemption request, whereas a side-pocket is a designated account for which the investor loses its redemption rights.
As at
June 30, 2016
, we had unfunded commitments to private equity funds of
$138.4 million
.
Other Investments, at cost
Our other investments carried at cost of
$129.6 million
as of
June 30, 2016
consist of life settlement contracts acquired during 2015. During the six months ended
June 30, 2016
and 2015, net investment income included
$10.0 million
and
$2.0 million
, respectively, related to investments in life settlements. There were impairment charges of
$2.9 million
and
nil
recognized during the six month periods ended June 30, 2016 and 2015, respectively. The following table presents further information regarding our investments in life settlements as of
June 30, 2016
and December 31, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
|
|
Number of Contracts
|
|
Carrying
Value
|
|
Face Value (Death Benefits)
|
|
Number of Contracts
|
|
Carrying
Value
|
|
Face Value (Death Benefits)
|
Remaining Life Expectancy of Insureds:
|
|
|
|
|
|
|
|
|
|
|
|
|
0 – 1 year
|
|
2
|
|
|
$
|
436
|
|
|
$
|
700
|
|
|
2
|
|
|
$
|
417
|
|
|
$
|
700
|
|
1 – 2 years
|
|
3
|
|
|
2,725
|
|
|
4,500
|
|
|
4
|
|
|
3,032
|
|
|
5,000
|
|
2 – 3 years
|
|
18
|
|
|
25,556
|
|
|
53,900
|
|
|
19
|
|
|
24,072
|
|
|
39,123
|
|
3 – 4 years
|
|
16
|
|
|
14,855
|
|
|
30,328
|
|
|
14
|
|
|
9,695
|
|
|
20,932
|
|
4 – 5 years
|
|
21
|
|
|
9,882
|
|
|
22,759
|
|
|
16
|
|
|
9,025
|
|
|
22,457
|
|
Thereafter
|
|
187
|
|
|
76,182
|
|
|
432,601
|
|
|
221
|
|
|
86,830
|
|
|
491,499
|
|
Total
|
|
247
|
|
|
$
|
129,636
|
|
|
$
|
544,788
|
|
|
276
|
|
|
$
|
133,071
|
|
|
$
|
579,711
|
|
Remaining life expectancy for year 0-1 in the table above references policies whose current life expectancy is less than
12
months as of the reporting date. Remaining life expectancy is not an indication of expected maturity. Actual maturity in any category above may vary significantly (either earlier or later) from the remaining life expectancies reported.
At
June 30, 2016
, our best estimate of the life insurance premiums required to keep the policies in force, payable in the 12 months ending June 30, 2017 and the four succeeding years ending June 30, 2021 is
$17.5 million
,
$17.4 million
,
$17.5 million
,
$17.2 million
and
$15.7 million
, respectively.
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net Realized and Unrealized Gains (Losses)
Components of net realized and unrealized gains (losses) for the
three and six
months ended
June 30, 2016
and
2015
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Net realized gains on sale:
|
|
|
|
|
|
|
|
|
Gross realized gains on fixed maturity securities, available-for-sale
|
|
$
|
114
|
|
|
$
|
39
|
|
|
$
|
379
|
|
|
$
|
153
|
|
Gross realized (losses) on fixed maturity securities, available-for-sale
|
|
(1
|
)
|
|
(1
|
)
|
|
(244
|
)
|
|
(9
|
)
|
Net realized investment gains (losses) on fixed maturity securities, trading
|
|
1,535
|
|
|
1,886
|
|
|
(377
|
)
|
|
3,752
|
|
Net realized investment gains on equity securities, trading
|
|
555
|
|
|
5,169
|
|
|
1,028
|
|
|
15,886
|
|
Total net realized gains on sale
|
|
$
|
2,203
|
|
|
$
|
7,093
|
|
|
$
|
786
|
|
|
$
|
19,782
|
|
Net unrealized gains (losses):
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities, trading
|
|
$
|
40,472
|
|
|
$
|
(22,953
|
)
|
|
$
|
82,212
|
|
|
$
|
(9,065
|
)
|
Equity securities, trading
|
|
617
|
|
|
(6,445
|
)
|
|
2,223
|
|
|
(13,564
|
)
|
Other investments
|
|
(5,305
|
)
|
|
11,056
|
|
|
(9,270
|
)
|
|
34,618
|
|
Total net unrealized gains (losses)
|
|
35,784
|
|
|
(18,342
|
)
|
|
75,165
|
|
|
11,989
|
|
Net realized and unrealized gains (losses)
|
|
$
|
37,987
|
|
|
$
|
(11,249
|
)
|
|
$
|
75,951
|
|
|
$
|
31,771
|
|
The gross realized gains and losses on available-for-sale securities included in the table above resulted from sales of
$18.2 million
and
$33.6 million
for the
three and six
months ended
June 30, 2016
, respectively, and
$16.5 million
and
$59.8 million
for the three and six months ended June 30,
2015
, respectively.
Net Investment Income
Major categories of net investment income for the
three and six
months ended
June 30, 2016
and
2015
are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Fixed maturity investments
|
|
$
|
40,531
|
|
|
$
|
28,551
|
|
|
$
|
77,109
|
|
|
$
|
54,800
|
|
Short-term investments and cash and cash equivalents
|
|
870
|
|
|
1,387
|
|
|
2,049
|
|
|
4,106
|
|
Equity securities
|
|
1,387
|
|
|
1,315
|
|
|
2,509
|
|
|
2,996
|
|
Other investments
|
|
5,693
|
|
|
3,558
|
|
|
11,727
|
|
|
4,440
|
|
Funds held
|
|
7,633
|
|
|
(184
|
)
|
|
15,237
|
|
|
(10
|
)
|
Life settlements and other
|
|
1,335
|
|
|
2,788
|
|
|
10,161
|
|
|
3,095
|
|
Gross investment income
|
|
57,449
|
|
|
37,415
|
|
|
118,792
|
|
|
69,427
|
|
Investment expenses
|
|
(3,226
|
)
|
|
(2,760
|
)
|
|
(4,506
|
)
|
|
(4,355
|
)
|
Net investment income
|
|
$
|
54,223
|
|
|
$
|
34,655
|
|
|
$
|
114,286
|
|
|
$
|
65,072
|
|
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Restricted Assets
We are required to maintain investments and cash and cash equivalents on deposit to support our insurance and reinsurance operations. The investments and cash and cash equivalents on deposit are available to settle insurance and reinsurance liabilities. We also utilize trust accounts to collateralize business with our insurance and reinsurance counterparties. These trust accounts generally take the place of letter of credit requirements. The assets in trusts as collateral are primarily highly rated fixed maturity securities. The carrying value of our restricted assets, including restricted cash of
$446.3 million
and
$511.3 million
, as of
June 30, 2016
and
December 31, 2015
, respectively, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
December 31,
2015
|
Collateral in trust for third party agreements
|
|
$
|
2,863,608
|
|
|
$
|
3,053,692
|
|
Assets on deposit with regulatory authorities
|
|
955,123
|
|
|
915,346
|
|
Collateral for secured letter of credit facilities
|
|
195,277
|
|
|
212,544
|
|
Funds at Lloyd's
(1)
|
|
350,146
|
|
|
382,624
|
|
|
|
$
|
4,364,154
|
|
|
$
|
4,564,206
|
|
(1)
Our underwriting businesses include
three
Lloyd's syndicates. Lloyd's determines the required capital principally through the annual business plan of each syndicate. This capital is referred to as "Funds at Lloyd's" and will be drawn upon in the event that a syndicate has a loss that cannot be funded from other sources. As at June 30, 2016, our combined Funds at Lloyd's were comprised of cash and investments of
$312.2 million
and letters of credit supported by collateral of
$37.9 million
.
4. FAIR VALUE MEASUREMENTS
Fair Value Hierarchy
Fair value is defined as the price at which to sell an asset or transfer a liability (i.e. the "exit price") in an orderly transaction between market participants. We use a fair value hierarchy that gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. The hierarchy is broken down into three levels as follows:
|
|
•
|
Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments.
|
|
|
•
|
Level 2 - Valuations based on quoted prices in active markets for similar assets or liabilities, quoted prices for identical assets or liabilities in inactive markets, or for which significant inputs are observable (e.g. interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.
|
|
|
•
|
Level 3 - Valuations based on unobservable inputs where there is little or no market activity. Unadjusted third party pricin
g sources or management's assumptions and internal valuation models may be used to determine the fair values.
|
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We have categorized our investments that are recorded at fair value on a recurring basis among levels based on the observability of inputs as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant
Other Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total Fair
Value
|
U.S. government and agency
|
|
$
|
—
|
|
|
$
|
785,017
|
|
|
$
|
—
|
|
|
$
|
785,017
|
|
Non-U.S. government
|
|
—
|
|
|
400,001
|
|
|
—
|
|
|
400,001
|
|
Corporate
|
|
—
|
|
|
2,771,188
|
|
|
27,784
|
|
|
2,798,972
|
|
Municipal
|
|
—
|
|
|
15,293
|
|
|
—
|
|
|
15,293
|
|
Residential mortgage-backed
|
|
—
|
|
|
472,663
|
|
|
2,781
|
|
|
475,444
|
|
Commercial mortgage-backed
|
|
—
|
|
|
226,217
|
|
|
54,835
|
|
|
281,052
|
|
Asset-backed
|
|
—
|
|
|
579,208
|
|
|
76,704
|
|
|
655,912
|
|
Equities — U.S.
|
|
102,734
|
|
|
7,169
|
|
|
—
|
|
|
109,903
|
|
Equities — International
|
|
2,850
|
|
|
4,540
|
|
|
—
|
|
|
7,390
|
|
Other investments
|
|
—
|
|
|
310,266
|
|
|
80,470
|
|
|
390,736
|
|
Total investments
|
|
$
|
105,584
|
|
|
$
|
5,571,562
|
|
|
$
|
242,574
|
|
|
$
|
5,919,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant
Other Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Total Fair
Value
|
U.S. government and agency
|
|
$
|
—
|
|
|
$
|
775,798
|
|
|
$
|
—
|
|
|
$
|
775,798
|
|
Non-U.S. government
|
|
—
|
|
|
444,786
|
|
|
—
|
|
|
444,786
|
|
Corporate
|
|
—
|
|
|
2,812,066
|
|
|
—
|
|
|
2,812,066
|
|
Municipal
|
|
—
|
|
|
28,174
|
|
|
—
|
|
|
28,174
|
|
Residential mortgage-backed
|
|
—
|
|
|
391,962
|
|
|
—
|
|
|
391,962
|
|
Commercial mortgage-backed
|
|
—
|
|
|
255,169
|
|
|
29,406
|
|
|
284,575
|
|
Asset-backed
|
|
—
|
|
|
458,328
|
|
|
184,756
|
|
|
643,084
|
|
Equities — U.S.
|
|
99,467
|
|
|
9,326
|
|
|
—
|
|
|
108,793
|
|
Equities — International
|
|
2,702
|
|
|
4,446
|
|
|
—
|
|
|
7,148
|
|
Other investments
|
|
—
|
|
|
321,076
|
|
|
77,016
|
|
|
398,092
|
|
Total investments
|
|
$
|
102,169
|
|
|
$
|
5,501,131
|
|
|
$
|
291,178
|
|
|
$
|
5,894,478
|
|
Certain of our other investments are measured at fair value using NAV per share (or its equivalent) as a practical expedient and have not been classified within the fair value hierarchy above. The following table reconciles our other investments in the tables above with the amounts presented on our consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
Other investments:
|
|
June 30, 2016
|
|
December 31, 2015
|
Other investments measured at fair value
|
|
$
|
390,736
|
|
|
$
|
398,092
|
|
Other investments measured at NAV as practical expedient
|
|
545,422
|
|
|
635,940
|
|
Total other investments shown on balance sheets
|
|
$
|
936,158
|
|
|
$
|
1,034,032
|
|
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Valuation Methodologies of Financial Instruments Measured at Fair Value
Fixed Maturity Investments
The fair values for all securities in the fixed maturity investments portfolio are independently provided by the investment accounting service providers, investment managers and investment custodians, each of which utilize internationally recognized independent pricing services. We record the unadjusted price provided by the investment accounting service providers, investment managers or investment custodians and validate this price through a process that includes, but is not limited to: (i) comparison of prices against alternative pricing sources; (ii) quantitative analysis (e.g. comparing the quarterly return for each managed portfolio to its target benchmark); (iii) evaluation of methodologies used by external parties to estimate fair value, including a review of the inputs used for pricing; and (iv) comparing the price to our knowledge of the current investment market. Our internal price validation procedures and review of fair value methodology documentation provided by independent pricing services have not historically resulted in adjustment in the prices obtained from the pricing service.
The independent pricing services used by the investment accounting service providers, investment managers and investment custodians obtain actual transaction prices for securities that have quoted prices in active markets. For determining the fair value of securities that are not actively traded, in general, pricing services use "matrix pricing" in which the independent pricing service uses observable market inputs including, but not limited to, reported trades, benchmark yields, broker-dealer quotes, interest rates, prepayment speeds, default rates and such other inputs as are available from market sources to determine a reasonable fair value. In addition, pricing services use valuation models, using observable data, such as an Option Adjusted Spread model, to develop prepayment and interest rate scenarios. The Option Adjusted Spread model is commonly used to estimate fair value for securities such as mortgage-backed and asset-backed securities.
The following describes the techniques generally used to determine the fair value of our fixed maturity investments by asset class.
|
|
•
|
U.S. government and agency securities consist of securities issued by the U.S. Treasury and mortgage pass-through agencies such as the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and other agencies. Non-U.S. government securities consist of bonds issued by non-U.S. governments and agencies along with supranational organizations. The significant inputs used to determine the fair value of these securities include the spread above the risk-free yield curve, reported trades and broker-dealer quotes. These are considered to be observable market inputs and, therefore, the fair values of these securities are classified as Level 2.
|
|
|
•
|
Corporate securities consist primarily of investment-grade debt of a wide variety of corporate issuers and industries. The fair values of these securities are determined using the spread above the risk-free yield curve, reported trades, broker-dealer quotes, benchmark yields, and industry and market indicators. These are considered observable market inputs and, therefore, the fair values of these securities are classified as Level 2. Where pricing is unavailable from pricing services, such as in periods of low trading activity or when transactions are not orderly, we obtain non-binding quotes from broker-dealers. Where significant inputs are unable to be corroborated with market observable information, we classify the securities as Level 3.
|
|
|
•
|
Municipal securities consist primarily of bonds issued by U.S.-domiciled state and municipal entities. The fair values of these securities are determined using the spread above the risk-free yield curve, reported trades, broker-dealer quotes and benchmark yields. These are considered observable market inputs and, therefore, the fair values of these securities are classified as Level 2.
|
|
|
•
|
Asset-backed securities consist primarily of investment-grade bonds backed by pools of loans with a variety of underlying collateral. Residential and commercial mortgage-backed securities include both agency and non-agency originated securities. The significant inputs used to determine the fair value of these securities include the spread above the risk-free yield curve, reported trades, benchmark yields, broker-dealer quotes, prepayment speeds and default rates. These are considered observable market inputs and, therefore, the fair values of these securities are classified as Level 2. Where pricing is unavailable from pricing services, we obtain non-binding quotes from broker-dealers. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. Where significant inputs are unable to be corroborated with market observable information, we classify the securities as Level 3.
|
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Equities
Our investments in equities are predominantly traded on the major exchanges and are primarily managed by our external advisors. We use an internationally recognized pricing service to estimate the fair value of our equities. Our equities are widely diversified and there is no significant concentration in any specific industry.
We have categorized all of our investments in equities other than preferred stock as Level 1 investments because the fair values of these investments are based on unadjusted quoted prices in active markets for identical assets or liabilities. The fair value estimates of our investments in preferred stock are based on observable market data and, as a result, have been categorized as Level 2.
Other investments, at fair value
We have ongoing due diligence processes with respect to the other investments carried at fair value in which we invest and their managers. These processes are designed to assist us in assessing the quality of information provided by, or on behalf of, each fund and in determining whether such information continues to be reliable or whether further review is warranted. Certain funds do not provide full transparency of their underlying holdings; however, we obtain the audited financial statements for funds annually, and regularly review and discuss the fund performance with the fund managers to corroborate the reasonableness of the reported net asset values.
The use of NAV as an estimate of the fair value for investments in certain entities that calculate NAV is a permitted practical expedient. Due to the time lag in the NAV reported by the fund managers we adjust the valuation for capital calls and distributions. Other investments measured at fair value using NAV as a practical expedient have not been classified in the fair value hierarchy. Other investments for which we do not use NAV as a practical expedient have been valued using prices from independent pricing services, investment managers and broker-dealers.
The following describes the techniques generally used to determine the fair value of our other investments.
|
|
•
|
For our investments in private equities and private equity funds, we measure fair value by obtaining the most recently available NAV from the external fund manager or third-party administrator. The fair values of these investments are measured using the NAV as a practical expedient and therefore have not been categorized within the fair value hierarchy.
|
|
|
•
|
Our investments in fixed income funds and equity funds are valued based on a combination of prices from independent pricing services, external fund managers or third-party administrators. For the publicly available prices we have classified the investments as Level 2. For the non-publicly available prices we are using NAV as a practical expedient and therefore these have not been categorized within the fair value hierarchy.
|
|
|
•
|
For our investments in fixed income and multi-strategy hedge funds, we measure fair value by obtaining the most recently available NAV as advised by the external fund manager or third-party administrator. The fair values of these investments are measured using the NAV as a practical expedient and therefore have not been categorized within the fair value hierarchy.
|
|
|
•
|
Our investment in the real estate debt fund is valued based on the most recently available NAV from the external fund manager. The fair value of this investment is measured using the NAV practical expedient and therefore has not been categorized within the fair value hierarchy. As at March 31, 2016 this fund was fully redeemed.
|
|
|
•
|
We measure the fair value of our direct investment in CLO equities based on valuations provided by our external CLO equity manager. If the investment does not involve an external CLO equity manager, the fair value of the investment is valued based on valuations provided by the broker or lead underwriter of the investment (the "broker"). Our CLO equity investments have been classified as Level 3 due to the use of unobservable inputs in the valuation and the limited number of relevant trades in secondary markets.
|
In providing valuations, the CLO equity manager and brokers use observable and unobservable inputs. Of the significant unobservable market inputs used, the default and loss severity rates involve the most judgment and create the most sensitivity. A significant increase (or decrease) in either of these significant inputs in isolation would result in lower (or higher) fair value estimates for direct investments in CLO equities and, in general, a change in default rate assumptions will be accompanied by a directionally similar change in loss severity rate assumptions. Collateral spreads and estimated maturity dates are less judgmental inputs because they are based on the historical average of actual spreads and the weighted average life of the current underlying
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
portfolios, respectively. A significant increase (or decrease) in either of these significant inputs in isolation would result in higher (or lower) fair value estimates for direct investments in CLO equities. In general, these inputs have no significant interrelationship with each other or with default and loss severity rates.
On a quarterly basis, we receive the valuation from the external CLO manager and brokers and then review the underlying cash flows and key assumptions used by the manager/broker. We review and update the significant unobservable inputs based on information obtained from secondary markets. These inputs are our responsibility and we assess the reasonableness of the inputs (and if necessary, update the inputs) through communicating with industry participants, monitoring of the transactions in which we participate (for example, to evaluate default and loss severity rate trends), and reviewing market conditions, historical results, and emerging trends that may impact future cash flows.
If valuations from the external CLO equity manager or brokers are not available, we use an income approach based on certain observable and unobservable inputs to value these investments. An income approach is also used to corroborate the reasonableness of the valuations provided by the external manager and brokers. Where an income approach is followed, the valuation is based on available trade information, such as expected cash flows and market assumptions on default and loss severity rates. Other inputs used in the valuation process include asset spreads, loan prepayment speeds, collateral spreads and estimated maturity dates.
|
|
•
|
For our investments in the CLO equity funds, we measure fair value by obtaining the most recently available NAV as advised by the external fund manager or third party administrator. The fair values of these investments are measured using the NAV as a practical expedient and therefore have not been categorized within the fair value hierarchy.
|
|
|
•
|
For our investments in call options on publicly traded equities, we measure fair value by obtaining the latest option price as of our reporting date. These are classified as Level 2.
|
Changes in Leveling of Financial Instruments
Transfers into or out of levels are recorded at their fair values as of the end of the reporting period, consistent with the date of determination of fair value. During the six months ended June 30,
2016
, we transferred
$28.2 million
of corporate,
$24.1 million
of asset-backed,
$40.1 million
of commercial mortgaged-backed and
$2.8 million
of residential mortgaged-backed securities from Level 2 to Level 3. The transfers from Level 2 to Level 3 were securities valued using single prices for which we were unable to obtain sufficient information to determine whether the inputs used were observable. Where we utilize single unadjusted broker-dealer quotes, they are generally provided by market makers or broker-dealers who are recognized as market participants in the markets in which they are providing the quotes. During the six months ended June 30,
2016
, we transferred
$12.1 million
of commercial mortgaged-backed and
$126.2 million
of asset-backed securities from Level 3 to Level 2. The transfers from Level 3 to Level 2 were based upon us obtaining market observable information regarding the valuations of the specific assets. There were
no
transfers between Levels 1 and 2.
The following table presents a reconciliation of the beginning and ending balances for all investments measured at fair value on a recurring basis using Level 3 inputs during the three months ended
June 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2016
|
|
Three Months Ended June 30, 2015
|
|
|
Fixed
Maturity
Investments
|
|
Other Investments
|
|
Equity Securities
|
|
Total
|
|
Fixed
Maturity
Investments
|
|
Other Investments
|
|
Equity Securities
|
|
Total
|
Beginning fair value
|
|
$
|
112,577
|
|
|
$
|
74,289
|
|
|
$
|
—
|
|
|
$
|
186,866
|
|
|
$
|
—
|
|
|
$
|
427,362
|
|
|
$
|
—
|
|
|
$
|
427,362
|
|
Purchases
|
|
32,616
|
|
|
664
|
|
|
—
|
|
|
33,280
|
|
|
—
|
|
|
54,407
|
|
|
—
|
|
|
54,407
|
|
Sales
|
|
(12,618
|
)
|
|
—
|
|
|
—
|
|
|
(12,618
|
)
|
|
—
|
|
|
(28,533
|
)
|
|
—
|
|
|
(28,533
|
)
|
Total realized and unrealized gains
|
|
1,576
|
|
|
5,517
|
|
|
—
|
|
|
7,093
|
|
|
—
|
|
|
10,669
|
|
|
—
|
|
|
10,669
|
|
Net transfers into (out of) Level 3
|
|
27,953
|
|
|
—
|
|
|
—
|
|
|
27,953
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ending fair value
|
|
$
|
162,104
|
|
|
$
|
80,470
|
|
|
$
|
—
|
|
|
$
|
242,574
|
|
|
$
|
—
|
|
|
$
|
463,905
|
|
|
$
|
—
|
|
|
$
|
463,905
|
|
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents a reconciliation of the beginning and ending balances for all investments measured at fair value on a recurring basis using Level 3 inputs during the six months ended
June 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2016
|
|
Six Months Ended June 30, 2015
|
|
|
Fixed
Maturity
Investments
|
|
Other Investments
|
|
Equity Securities
|
|
Total
|
|
Fixed
Maturity
Investments
|
|
Other Investments
|
|
Equity Securities
|
|
Total
|
Beginning fair value
|
|
$
|
214,162
|
|
|
$
|
77,016
|
|
|
$
|
—
|
|
|
$
|
291,178
|
|
|
$
|
600
|
|
|
$
|
349,790
|
|
|
$
|
4,850
|
|
|
$
|
355,240
|
|
Purchases
|
|
32,616
|
|
|
6,885
|
|
|
—
|
|
|
39,501
|
|
|
—
|
|
|
136,385
|
|
|
—
|
|
|
136,385
|
|
Sales
|
|
(36,720
|
)
|
|
(4,658
|
)
|
|
—
|
|
|
(41,378
|
)
|
|
(600
|
)
|
|
(42,415
|
)
|
|
(5,000
|
)
|
|
(48,015
|
)
|
Total realized and unrealized gains (losses)
|
|
(4,851
|
)
|
|
1,227
|
|
|
—
|
|
|
(3,624
|
)
|
|
—
|
|
|
20,145
|
|
|
150
|
|
|
20,295
|
|
Net transfers into (out of) Level 3
|
|
(43,103
|
)
|
|
—
|
|
|
—
|
|
|
(43,103
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Ending fair value
|
|
$
|
162,104
|
|
|
$
|
80,470
|
|
|
$
|
—
|
|
|
$
|
242,574
|
|
|
$
|
—
|
|
|
$
|
463,905
|
|
|
$
|
—
|
|
|
$
|
463,905
|
|
Net realized and unrealized gains (losses) related to Level 3 assets in the table above are included in net realized and unrealized gains (losses) in our unaudited condensed consolidated statements of earnings.
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Disclosure of Fair Values for Financial Instruments Carried at Cost
The following tables present our fair value hierarchy for those assets carried at cost or amortized cost in the unaudited condensed consolidated balance sheet but for which disclosure of the fair value is required:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant
Other Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Fair Value
|
|
Carrying Value
|
Fixed maturity investments, held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency
|
|
$
|
—
|
|
|
$
|
20,892
|
|
|
$
|
—
|
|
|
$
|
20,892
|
|
|
$
|
19,886
|
|
Non-U.S. government
|
|
—
|
|
|
34,426
|
|
|
—
|
|
|
34,426
|
|
|
33,233
|
|
Corporate
|
|
—
|
|
|
752,861
|
|
|
—
|
|
|
752,861
|
|
|
717,536
|
|
Sub-total
|
|
—
|
|
|
808,179
|
|
|
—
|
|
|
808,179
|
|
|
770,655
|
|
Other investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life settlements
|
|
—
|
|
|
—
|
|
|
126,442
|
|
|
126,442
|
|
|
129,636
|
|
Total
|
|
$
|
—
|
|
|
$
|
808,179
|
|
|
$
|
126,442
|
|
|
$
|
934,621
|
|
|
$
|
900,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
|
Significant
Other Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Fair Value
|
|
Carrying Value
|
Fixed maturity investments, held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency
|
|
$
|
—
|
|
|
$
|
19,321
|
|
|
$
|
—
|
|
|
$
|
19,321
|
|
|
$
|
19,771
|
|
Non-U.S. government
|
|
—
|
|
|
39,058
|
|
|
—
|
|
|
39,058
|
|
|
40,503
|
|
Corporate
|
|
—
|
|
|
710,692
|
|
|
—
|
|
|
710,692
|
|
|
730,592
|
|
Sub-total
|
|
—
|
|
|
769,071
|
|
|
—
|
|
|
769,071
|
|
|
790,866
|
|
Other investments:
|
|
|
|
|
|
|
|
|
|
|
Life settlements
|
|
—
|
|
|
—
|
|
|
130,268
|
|
|
130,268
|
|
|
133,071
|
|
Total
|
|
$
|
—
|
|
|
$
|
769,071
|
|
|
$
|
130,268
|
|
|
$
|
899,339
|
|
|
$
|
923,937
|
|
The fair value of investments in life settlement contracts, in the table above, is determined using a discounted cash flow methodology that utilizes unobservable inputs. Due to the individual nature of each investment in life settlement contracts and the illiquidity of the existing market, significant inputs to the fair value include our estimates of premiums necessary to keep the policies in-force, and our assumptions for mortality and discount rates. Our mortality assumptions are based on a combination of medical underwriting information obtained from a third-party underwriter for each referenced life and internal proprietary mortality studies of older aged U.S. insured lives. These assumptions are used to develop an estimate of future net cash flows that, after discounting, are intended to be reflective of the asset's value in the life settlement market.
Disclosure of fair value of amounts relating to insurance contracts is not required. Our remaining assets and liabilities were generally carried at cost or amortized cost, which due to their short-term nature approximates fair value as of
June 30, 2016
and
December 31, 2015
.
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
5. DERIVATIVE INSTRUMENTS
From time to time, we may utilize derivative instruments as part of our overall foreign currency risk management strategy or to obtain exposure to a particular financial market, as well as for yield enhancement.
The following table sets forth the estimated fair value of derivative instruments recorded within other investments on the unaudited condense
d consolidated balance sheet as at
June 30, 2016
and the unrealized losses on derivative instruments recorded in net earnings for the three and six months ended
June 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Unrealized losses in net earnings
|
|
|
Purchase Date
|
|
June 30, 2016
|
|
December 31, 2015
|
|
Three Months Ended June 30, 2016
|
|
Six Months Ended June 30, 2016
|
Call options on equities
|
|
March 1, 2016
|
|
$
|
4,850
|
|
|
$
|
—
|
|
|
$
|
(1,210
|
)
|
|
$
|
(650
|
)
|
The derivatives in the table above are not designated as hedging instruments. We had no derivative instruments as at
June 30, 2015
and
December 31, 2015
or during the three and six months ended
June 30, 2015
.
Subsequent to June 30, 2016, we entered into forward exchange contracts for notional amounts of AUD
$63.0 million
and CAD
$50.0 million
. These contracts are designated as hedges of the net investments in our Australian and Canadian operations.
6. REINSURANCE BALANCES RECOVERABLE
The following tables provide the total reinsurance balances recoverable as at
June 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
|
Non-life
Run-off
|
|
Atrium
|
|
StarStone
|
|
Life and
Annuities
|
|
Total
|
Recoverable from reinsurers on unpaid:
|
|
|
|
|
|
|
|
|
|
|
Outstanding losses
|
|
$
|
502,667
|
|
|
$
|
7,142
|
|
|
$
|
171,289
|
|
|
$
|
20,940
|
|
|
$
|
702,038
|
|
IBNR
|
|
441,240
|
|
|
17,798
|
|
|
121,997
|
|
|
298
|
|
|
581,333
|
|
Fair value adjustments
|
|
(16,182
|
)
|
|
1,916
|
|
|
(4,085
|
)
|
|
—
|
|
|
(18,351
|
)
|
Total reinsurance reserves recoverable
|
|
927,725
|
|
|
26,856
|
|
|
289,201
|
|
|
21,238
|
|
|
1,265,020
|
|
Paid losses recoverable
|
|
62,454
|
|
|
762
|
|
|
15,885
|
|
|
994
|
|
|
80,095
|
|
|
|
$
|
990,179
|
|
|
$
|
27,618
|
|
|
$
|
305,086
|
|
|
$
|
22,232
|
|
|
$
|
1,345,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
Non-life
Run-off
|
|
Atrium
|
|
StarStone
|
|
Life and
Annuities
|
|
Total
|
Recoverable from reinsurers on unpaid:
|
|
|
|
|
|
|
|
|
|
|
Outstanding losses
|
|
$
|
587,164
|
|
|
$
|
6,772
|
|
|
$
|
182,076
|
|
|
$
|
22,786
|
|
|
$
|
798,798
|
|
IBNR
|
|
465,211
|
|
|
16,581
|
|
|
123,732
|
|
|
306
|
|
|
605,830
|
|
Fair value adjustments
|
|
(17,628
|
)
|
|
2,499
|
|
|
(6,025
|
)
|
|
—
|
|
|
(21,154
|
)
|
Total reinsurance reserves recoverable
|
|
1,034,747
|
|
|
25,852
|
|
|
299,783
|
|
|
23,092
|
|
|
1,383,474
|
|
Paid losses recoverable
|
|
72,213
|
|
|
430
|
|
|
16,568
|
|
|
1,319
|
|
|
90,530
|
|
|
|
$
|
1,106,960
|
|
|
$
|
26,282
|
|
|
$
|
316,351
|
|
|
$
|
24,411
|
|
|
$
|
1,474,004
|
|
Our insurance and reinsurance run-off subsidiaries, prior to acquisition, used retrocessional agreements to reduce their exposure to the risk of insurance and reinsurance assumed. On an annual basis, both Atrium and StarStone purchase a tailored outwards reinsurance program designed to manage their risk profiles. The majority of Atrium’s and StarStone's third-party reinsurance cover is with highly rated reinsurers or is collateralized by letters of credit.
The fair value adjustments, determined on acquisition of insurance and reinsurance subsidiaries, are based on the estimated timing of loss and LAE recoveries and an assumed interest rate equivalent to a risk free rate for securities with similar duration to the acquired reinsurance recoverables plus a spread for credit risk, and are amortized over the estimated recovery period, as adjusted for accelerations in timing of payments as a result of commutation settlements.
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of
June 30, 2016
and
December 31, 2015
, we had reinsurance balances recoverable of approximately
$1.35 billion
and
$1.47 billion
, respectively. The decrease of
$128.9 million
in reinsurance balances recoverable was primarily a result of
commutations in our Non-life Run-off segment and
cash collections made during the
six
months ended
June 30, 2016
in our Non-life Run-off and StarStone segments.
Top Ten Reinsurers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
|
Non-life
Run-off
|
|
Atrium
|
|
StarStone
|
|
Life and
Annuities
|
|
Total
|
|
% of
Total
|
|
Non-life
Run-off
|
|
Atrium
|
|
StarStone
|
|
Life and
Annuities
|
|
Total
|
|
% of
Total
|
Top ten reinsurers
|
$
|
661,380
|
|
|
$
|
22,369
|
|
|
$
|
146,115
|
|
|
$
|
12,211
|
|
|
$
|
842,075
|
|
|
62.6
|
%
|
|
$
|
713,743
|
|
|
$
|
21,394
|
|
|
$
|
155,171
|
|
|
$
|
13,254
|
|
|
$
|
903,562
|
|
|
61.3
|
%
|
Other reinsurers > $1 million
|
317,169
|
|
|
4,508
|
|
|
156,576
|
|
|
8,298
|
|
|
486,551
|
|
|
36.2
|
%
|
|
383,898
|
|
|
4,253
|
|
|
158,417
|
|
|
8,363
|
|
|
554,931
|
|
|
37.6
|
%
|
Other reinsurers < $1 million
|
11,630
|
|
|
741
|
|
|
2,395
|
|
|
1,723
|
|
|
16,489
|
|
|
1.2
|
%
|
|
9,319
|
|
|
635
|
|
|
2,763
|
|
|
2,794
|
|
|
15,511
|
|
|
1.1
|
%
|
Total
|
$
|
990,179
|
|
|
$
|
27,618
|
|
|
$
|
305,086
|
|
|
$
|
22,232
|
|
|
$
|
1,345,115
|
|
|
100.0
|
%
|
|
$
|
1,106,960
|
|
|
$
|
26,282
|
|
|
$
|
316,351
|
|
|
$
|
24,411
|
|
|
$
|
1,474,004
|
|
|
100.0
|
%
|
Seven
of the top
ten
external reinsurers, as at
June 30, 2016
and
December 31, 2015
, were rated A- or better, with the remaining
three
being non-rated reinsurers from which
$297.0 million
was recoverable (
December 31, 2015
:
$337.6 million
recoverable from
three
reinsurers). For the
three
non-rated reinsurers, we hold security in the form of pledged assets in trust or letters of credit issued to us in the full amount of the recoverable. As at
June 30, 2016
, reinsurance balances recoverable of
$158.4 million
(
December 31, 2015
:
$165.6 million
) related to Lloyd’s syndicates and represented
10%
or more of total reinsurance balances recoverable. Lloyd’s is rated A+ by Standard & Poor’s and A by A.M. Best.
Provisions for Uncollectible Reinsurance Recoverables
We remain liable to the extent that retrocessionaires do not meet their obligations under these agreements, and therefore, we evaluate and monitor concentration of credit risk among our reinsurers. Provisions are made for amounts considered potentially uncollectible.
The following table shows our reinsurance balances recoverable by rating of reinsurer and our provisions for uncollectible reinsurance balances recoverable ("provisions for bad debt") as at
June 30, 2016
and
December 31, 2015
. The provisions for bad debt all relate to the Non-life Run-off segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
|
Gross
|
|
Provisions for Bad Debt
|
|
Net
|
|
Provisions as a
% of Gross
|
|
Gross
|
|
Provisions for Bad Debt
|
|
Net
|
|
Provisions as a
% of Gross
|
Reinsurers rated A- or above
|
$
|
983,600
|
|
|
$
|
39,264
|
|
|
$
|
944,336
|
|
|
4.0
|
%
|
|
$
|
1,051,927
|
|
|
$
|
46,969
|
|
|
$
|
1,004,958
|
|
|
4.5
|
%
|
Reinsurers rated below A-, secured
|
338,795
|
|
|
—
|
|
|
338,795
|
|
|
—
|
%
|
|
388,399
|
|
|
—
|
|
|
388,399
|
|
|
—
|
%
|
Reinsurers rated below A-, unsecured
|
219,445
|
|
|
157,461
|
|
|
61,984
|
|
|
71.8
|
%
|
|
244,005
|
|
|
163,358
|
|
|
80,647
|
|
|
66.9
|
%
|
Total
|
$
|
1,541,840
|
|
|
$
|
196,725
|
|
|
$
|
1,345,115
|
|
|
12.8
|
%
|
|
$
|
1,684,331
|
|
|
$
|
210,327
|
|
|
$
|
1,474,004
|
|
|
12.5
|
%
|
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
7. LOSSES AND LOSS ADJUSTMENT EXPENSES
The liability for losses and loss adjustment expenses ("LAE") includes an amount determined from reported claims and an amount based on historical loss experience and industry statistics for incurred but not reported ("IBNR") using a variety of actuarial methods. Our loss reserves cover multiple lines of business, which include workers' compensation, general casualty, asbestos and environmental, marine, aviation and transit, construction defects and other non-life lines of business. Refer to Note 9 to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended
December 31, 2015
for more information on establishing the liability for losses and LAE.
The following
table summarizes the liability for losses and LAE by segment as at
June 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
|
Non-life
Run-off
|
|
Atrium
|
|
StarStone
|
|
Total
|
|
Non-life
Run-off
|
|
Atrium
|
|
StarStone
|
|
Total
|
Outstanding losses
|
$
|
2,991,786
|
|
|
$
|
69,268
|
|
|
$
|
476,941
|
|
|
$
|
3,537,995
|
|
|
$
|
2,757,774
|
|
|
$
|
68,913
|
|
|
$
|
457,175
|
|
|
$
|
3,283,862
|
|
IBNR
|
2,385,358
|
|
|
129,422
|
|
|
518,558
|
|
|
3,033,338
|
|
|
1,991,009
|
|
|
115,613
|
|
|
477,990
|
|
|
2,584,612
|
|
Fair value adjustments
|
(151,017
|
)
|
|
14,534
|
|
|
(1,005
|
)
|
|
(137,488
|
)
|
|
(163,329
|
)
|
|
16,491
|
|
|
(1,487
|
)
|
|
(148,325
|
)
|
Total
|
$
|
5,226,127
|
|
|
$
|
213,224
|
|
|
$
|
994,494
|
|
|
$
|
6,433,845
|
|
|
$
|
4,585,454
|
|
|
$
|
201,017
|
|
|
$
|
933,678
|
|
|
$
|
5,720,149
|
|
The overall increase in the liability for losses and LAE between
December 31, 2015
and
June 30, 2016
was primarily attributable to the assumed reinsurance agreement with Allianz in our Non-life Run-off segment as described in Note 2 - "Significant New Business."
The table below provides a reconciliation of the beginning and ending liability for losses and LAE for the
three and six
months ended
June 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Balance as at beginning of period
|
$
|
6,641,507
|
|
|
$
|
5,724,623
|
|
|
$
|
5,720,149
|
|
|
$
|
4,509,421
|
|
Less: reinsurance reserves recoverable
|
1,302,738
|
|
|
1,518,102
|
|
|
1,360,382
|
|
|
1,154,196
|
|
Less: deferred charges on retroactive reinsurance
|
254,300
|
|
|
—
|
|
|
255,911
|
|
|
—
|
|
Net balance as at beginning of period
|
5,084,469
|
|
|
4,206,521
|
|
|
4,103,856
|
|
|
3,355,225
|
|
Net incurred losses and LAE:
|
|
|
|
|
|
|
|
|
Current period
|
126,634
|
|
|
121,335
|
|
|
241,936
|
|
|
234,349
|
|
Prior periods
|
(30,172
|
)
|
|
(55,435)
|
|
|
(62,256
|
)
|
|
(98,313
|
)
|
Total net incurred losses and LAE
|
96,462
|
|
|
65,900
|
|
|
179,680
|
|
|
136,036
|
|
Net paid losses:
|
|
|
|
|
|
|
|
|
Current period
|
(17,022
|
)
|
|
(21,490)
|
|
|
(22,356
|
)
|
|
(32,654
|
)
|
Prior periods
|
(203,010
|
)
|
|
(194,485)
|
|
|
(389,413
|
)
|
|
(312,641
|
)
|
Total net paid losses
|
(220,032
|
)
|
|
(215,975)
|
|
|
(411,769
|
)
|
|
(345,295
|
)
|
Effect of exchange rate movement
|
(28,127
|
)
|
|
24,723
|
|
|
(23,246
|
)
|
|
(29,423
|
)
|
Acquired on purchase of subsidiaries
|
10,019
|
|
|
—
|
|
|
10,019
|
|
|
774,758
|
|
Assumed business
|
—
|
|
|
305,763
|
|
|
1,084,251
|
|
|
495,631
|
|
Net balance as at June 30
|
4,942,791
|
|
|
4,386,932
|
|
|
4,942,791
|
|
|
4,386,932
|
|
Plus: reinsurance reserves recoverable
|
1,243,782
|
|
|
1,491,113
|
|
|
1,243,782
|
|
|
1,491,113
|
|
Plus: deferred charge on retroactive reinsurance
|
247,272
|
|
|
265,426
|
|
|
247,272
|
|
|
265,426
|
|
Balance as at June 30
|
$
|
6,433,845
|
|
|
$
|
6,143,471
|
|
|
$
|
6,433,845
|
|
|
$
|
6,143,471
|
|
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The tables below provide the net incurred losses and LAE in the Non-life Run-off, Atrium and StarStone segments for the
three and six
months ended
June 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2016
|
|
Three Months Ended June 30, 2015
|
|
Non-life Run-off
|
|
Atrium
|
|
StarStone
|
|
Total
|
|
Non-life
Run-off
|
|
Atrium
|
|
StarStone
|
|
Total
|
Net losses paid
|
$
|
143,056
|
|
|
$
|
12,523
|
|
|
$
|
64,453
|
|
|
$
|
220,032
|
|
|
$
|
164,440
|
|
|
$
|
12,121
|
|
|
$
|
39,414
|
|
|
$
|
215,975
|
|
Net change in case and LAE reserves
|
(74,560
|
)
|
|
2,035
|
|
|
21,736
|
|
|
(50,789
|
)
|
|
(104,330
|
)
|
|
136
|
|
|
46,729
|
|
|
(57,465
|
)
|
Net change in IBNR reserves
|
(102,836
|
)
|
|
3,538
|
|
|
17,285
|
|
|
(82,013
|
)
|
|
(75,957
|
)
|
|
5,186
|
|
|
(5,690
|
)
|
|
(76,461
|
)
|
Increase (reduction) in estimates of net ultimate losses
|
(34,340
|
)
|
|
18,096
|
|
|
103,474
|
|
|
87,230
|
|
|
(15,847
|
)
|
|
17,443
|
|
|
80,453
|
|
|
82,049
|
|
Reduction in provisions for bad debt
|
(5,184
|
)
|
|
—
|
|
|
—
|
|
|
(5,184
|
)
|
|
(625
|
)
|
|
—
|
|
|
—
|
|
|
(625
|
)
|
Increase (reduction) in provisions for unallocated LAE
|
(6,571
|
)
|
|
50
|
|
|
758
|
|
|
(5,763
|
)
|
|
(7,711
|
)
|
|
(8
|
)
|
|
1,055
|
|
|
(6,664
|
)
|
Amortization of fair value adjustments
|
21,405
|
|
|
(1,013
|
)
|
|
(213
|
)
|
|
20,179
|
|
|
(4,687
|
)
|
|
(3,678
|
)
|
|
(495
|
)
|
|
(8,860
|
)
|
Net incurred losses and LAE
|
$
|
(24,690
|
)
|
|
$
|
17,133
|
|
|
$
|
104,019
|
|
|
$
|
96,462
|
|
|
$
|
(28,870
|
)
|
|
$
|
13,757
|
|
|
$
|
81,013
|
|
|
$
|
65,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2016
|
|
Six Months Ended June 30, 2015
|
|
Non-life Run-off
|
|
Atrium
|
|
StarStone
|
|
Total
|
|
Non-life
Run-off
|
|
Atrium
|
|
StarStone
|
|
Total
|
Net losses paid
|
$
|
275,369
|
|
|
$
|
20,271
|
|
|
$
|
116,129
|
|
|
$
|
411,769
|
|
|
$
|
229,700
|
|
|
$
|
24,032
|
|
|
$
|
91,563
|
|
|
$
|
345,295
|
|
Net change in case and LAE reserves
|
(183,345
|
)
|
|
263
|
|
|
34,391
|
|
|
(148,691
|
)
|
|
(111,330
|
)
|
|
(883
|
)
|
|
44,943
|
|
|
(67,270
|
)
|
Net change in IBNR reserves
|
(139,899
|
)
|
|
13,429
|
|
|
44,372
|
|
|
(82,098
|
)
|
|
(113,235
|
)
|
|
1,376
|
|
|
20,049
|
|
|
(91,810
|
)
|
Increase (reduction) in estimates of net ultimate losses
|
(47,875
|
)
|
|
33,963
|
|
|
194,892
|
|
|
180,980
|
|
|
5,135
|
|
|
24,525
|
|
|
156,555
|
|
|
186,215
|
|
Reduction in provisions for bad debt
|
(6,630
|
)
|
|
—
|
|
|
—
|
|
|
(6,630
|
)
|
|
(20,439
|
)
|
|
—
|
|
|
—
|
|
|
(20,439
|
)
|
Increase (reduction) in provisions for unallocated LAE
|
(14,361
|
)
|
|
134
|
|
|
1,768
|
|
|
(12,459
|
)
|
|
(21,686
|
)
|
|
(70
|
)
|
|
1,711
|
|
|
(20,045
|
)
|
Amortization of fair value adjustments
|
20,622
|
|
|
(1,375
|
)
|
|
(1,458
|
)
|
|
17,789
|
|
|
(4,980
|
)
|
|
(3,678
|
)
|
|
(1,037
|
)
|
|
(9,695
|
)
|
Net incurred losses and LAE
|
$
|
(48,244
|
)
|
|
$
|
32,722
|
|
|
$
|
195,202
|
|
|
$
|
179,680
|
|
|
$
|
(41,970
|
)
|
|
$
|
20,777
|
|
|
$
|
157,229
|
|
|
$
|
136,036
|
|
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Non-Life Run-off Segment
The table below provides a reconciliation of the beginning and ending reserves for losses and LAE for the
three and six
months ended
June 30, 2016
and
2015
for the Non-life Run-off segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Balance as at beginning of period
|
$
|
5,459,216
|
|
|
$
|
4,693,262
|
|
|
$
|
4,585,454
|
|
|
$
|
3,435,010
|
|
Less: reinsurance reserves recoverable
|
977,096
|
|
|
1,210,933
|
|
|
1,034,747
|
|
|
800,709
|
|
Less: deferred charges on retroactive insurance
|
254,300
|
|
|
—
|
|
|
255,911
|
|
|
—
|
|
Net balance as at beginning of period
|
4,227,820
|
|
|
3,482,329
|
|
|
3,294,796
|
|
|
2,634,301
|
|
Net incurred losses and LAE:
|
|
|
|
|
|
|
|
Current period
|
518
|
|
|
22,547
|
|
|
6,587
|
|
|
43,273
|
|
Prior periods
|
(25,208)
|
|
|
(51,417
|
)
|
|
(54,831)
|
|
|
(85,243
|
)
|
Total net incurred losses and LAE
|
(24,690)
|
|
|
(28,870
|
)
|
|
(48,244)
|
|
|
(41,970
|
)
|
Net paid losses:
|
|
|
|
|
|
|
|
Current period
|
(2,058)
|
|
|
(9,434
|
)
|
|
(4,048)
|
|
|
(14,005
|
)
|
Prior periods
|
(140,998)
|
|
|
(155,006
|
)
|
|
(271,321)
|
|
|
(215,695
|
)
|
Total net paid losses
|
(143,056)
|
|
|
(164,440
|
)
|
|
(275,369)
|
|
|
(229,700
|
)
|
Effect of exchange rate movement
|
(18,963)
|
|
|
25,876
|
|
|
(14,323)
|
|
|
(12,362
|
)
|
Acquired on purchase of subsidiaries
|
10,019
|
|
|
—
|
|
|
10,019
|
|
|
774,758
|
|
Assumed business
|
0
|
|
|
305,763
|
|
|
1,084,251
|
|
|
495,631
|
|
Net balance as at June 30
|
4,051,130
|
|
|
3,620,658
|
|
|
4,051,130
|
|
|
3,620,658
|
|
Plus: reinsurance reserves recoverable
|
927,725
|
|
|
1,178,053
|
|
|
927,725
|
|
|
1,178,053
|
|
Plus: deferred charge on retroactive reinsurance
|
247,272
|
|
|
265,426
|
|
|
247,272
|
|
|
265,426
|
|
Balance as at June 30
|
$
|
5,226,127
|
|
|
$
|
5,064,137
|
|
|
$
|
5,226,127
|
|
|
$
|
5,064,137
|
|
Net incurred losses and LAE in the Non-life Run-off segment for the three months ended
June 30, 2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
2016
|
|
2015
|
|
Prior
Period
|
|
Current
Period
|
|
Total
|
|
Prior
Period
|
|
Current
Period
|
|
Total
|
Net losses paid
|
$
|
140,998
|
|
|
$
|
2,058
|
|
|
$
|
143,056
|
|
|
$
|
155,006
|
|
|
$
|
9,434
|
|
|
$
|
164,440
|
|
Net change in case and LAE reserves
|
(74,832
|
)
|
|
272
|
|
|
(74,560
|
)
|
|
(108,819
|
)
|
|
4,489
|
|
|
(104,330
|
)
|
Net change in IBNR reserves
|
(101,240
|
)
|
|
(1,596
|
)
|
|
(102,836
|
)
|
|
(84,581
|
)
|
|
8,624
|
|
|
(75,957
|
)
|
Increase (reduction) in estimates of net ultimate losses
|
(35,074
|
)
|
|
734
|
|
|
(34,340
|
)
|
|
(38,394
|
)
|
|
22,547
|
|
|
(15,847
|
)
|
Increase (reduction) in provisions for bad debt
|
(5,184
|
)
|
|
—
|
|
|
(5,184
|
)
|
|
(625
|
)
|
|
—
|
|
|
(625
|
)
|
Increase (reduction) in provisions for unallocated LAE
|
(6,355
|
)
|
|
(216
|
)
|
|
(6,571
|
)
|
|
(7,711
|
)
|
|
—
|
|
|
(7,711
|
)
|
Amortization of fair value adjustments
|
21,405
|
|
|
—
|
|
|
21,405
|
|
|
(4,687
|
)
|
|
—
|
|
|
(4,687
|
)
|
Net incurred losses and LAE
|
$
|
(25,208
|
)
|
|
$
|
518
|
|
|
$
|
(24,690
|
)
|
|
$
|
(51,417
|
)
|
|
$
|
22,547
|
|
|
$
|
(28,870
|
)
|
Net change in case and LAE reserves comprises the movement during the year in specific case reserve liabilities as a result of claims settlements or changes advised to us by our policyholders and attorneys, less changes in case reserves recoverable advised by us to our reinsurers as a result of the settlement or movement of assumed claims. Net change in IBNR represents the gross change in our actuarial estimates of IBNR, less amounts recoverable.
Three Months Ended June 30, 2016
The reduction in net incurred losses and LAE for the three months ended
June 30, 2016
of
$24.7 million
included net incurred losses a
nd LAE of
$0.5 million
related to current period net earned premium of
$0.5 million
, primarily for
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the run-off business acquired with Sussex. Excluding current period net incurred losses and LAE of
$0.5 million
, net incurred losses and LAE liabilities relating to prior periods were reduced by
$25.2 million
, which was attributable to a reduction in estimates of net ultimate losses of
$35.1 million
, a reduction in provisions for bad debt of
$5.2 million
and a reduction in provisions for unallocated LAE of
$6.4 million
, relating to
2016
run-off activity, partially offset by amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to
$21.4 million
.
The reduction in provisions for bad debt of
$5.2 million
was a result of the collection of certain reinsurance recoverables against which provisions for bad debt had been provided in earlier periods.
Three Months Ended June 30, 2015
The reduction in net incurred losses and LAE for the three months ended
June 30, 2015
of
$28.9 million
included net incurred losses and LAE of
$22.5 million
related to current period net earned premium of
$17.2 million
, primarily for the run-off business acquired with Sussex. Excluding current period net incurred losses and LAE of
$22.5 million
, net incurred losses and LAE liabilities relating to prior periods were reduced by
$51.4 million
, which was attributable to a reduction
in estimates of net ultimate losses of
$38.4 million
,
a reduction in provisions for bad debt of
$0.6 million
, a reduction in provisions for unallocated LAE of
$7.7 million
, relating to
2015
run-off activity, and amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to
$4.7 million
.
Net incurred losses and LAE in the Non-life Run-off segment for the
six
months ended
June 30, 2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2016
|
|
2015
|
|
Prior
Period
|
|
Current
Period
|
|
Total
|
|
Prior
Period
|
|
Current
Period
|
|
Total
|
Net losses paid
|
$
|
271,321
|
|
|
$
|
4,048
|
|
|
$
|
275,369
|
|
|
$
|
215,695
|
|
|
$
|
14,005
|
|
|
$
|
229,700
|
|
Net change in case and LAE reserves
|
(183,801
|
)
|
|
456
|
|
|
(183,345
|
)
|
|
(118,813
|
)
|
|
7,483
|
|
|
(111,330
|
)
|
Net change in IBNR reserves
|
(141,753
|
)
|
|
1,854
|
|
|
(139,899
|
)
|
|
(135,020
|
)
|
|
21,785
|
|
|
(113,235
|
)
|
Increase (reduction) in estimates of net ultimate losses
|
(54,233
|
)
|
|
6,358
|
|
|
(47,875
|
)
|
|
(38,138
|
)
|
|
43,273
|
|
|
5,135
|
|
Increase (reduction) in provisions for bad debt
|
(6,630
|
)
|
|
—
|
|
|
(6,630
|
)
|
|
(20,439
|
)
|
|
—
|
|
|
(20,439
|
)
|
Increase (reduction) in provisions for unallocated LAE
|
(14,590
|
)
|
|
229
|
|
|
(14,361
|
)
|
|
(21,686
|
)
|
|
—
|
|
|
(21,686
|
)
|
Amortization of fair value adjustments
|
20,622
|
|
|
—
|
|
|
20,622
|
|
|
(4,980
|
)
|
|
—
|
|
|
(4,980
|
)
|
Net incurred losses and LAE
|
$
|
(54,831
|
)
|
|
$
|
6,587
|
|
|
$
|
(48,244
|
)
|
|
$
|
(85,243
|
)
|
|
$
|
43,273
|
|
|
$
|
(41,970
|
)
|
Six Months Ended June 30, 2016
The reduction in net incurred losses and LAE for the
six
months ended
June 30, 2016
of
$48.2 million
included net incurred losses a
nd LAE of
$6.6 million
related to current period net earned premium of
$5.0 million
, primarily for the run-off business acquired with Sussex. Excluding current period net incurred losses and LAE of
$6.6 million
, net incurred losses and LAE liabilities relating to prior periods were reduced by
$54.8 million
, which was attributable to a reduction in estimates of net ultimate losses of
$54.2 million
, a reduction in provisions for bad debt of
$6.6 million
and a reduction in provisions for unallocated LAE of
$14.6 million
, relating to
2016
run-off activity, partially offset by amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to
$20.6 million
.
The reduction in provisions for bad debt of
$6.6 million
was a result of the collection of certain reinsurance recoverables against which provisions for bad debt had been provided in earlier periods.
Six Months Ended June 30, 2015
The reduction in net incurred losses and LAE for the
six
months ended
June 30, 2015
of
$42.0 million
included net incurred losses and LAE of
$43.3 million
related to current period net earned premium of
$35.8 million
, primarily for the run-off business acquired with Sussex. Excluding current period net incurred losses and LAE of
$43.3 million
, net incurred losses and LAE liabilities relating to prior periods were reduced by
$85.2 million
, which was attributable to a reduction in estimates of net ultimate losses of
$38.1 million
, reduction in provisions for bad debt of
$20.4 million
, a reduction in provisions for unallocated LAE liabilities of
$21.7 million
, relating to 2015 run-off activity, and amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to
$5.0 million
.
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Atrium
The table below provides a reconciliation of the beginning and ending liability for losses and LAE for the
three and six
months ended
June 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Balance as at beginning of period
|
$
|
209,919
|
|
|
$
|
202,873
|
|
|
$
|
201,017
|
|
|
$
|
212,611
|
|
Less: reinsurance reserves recoverable
|
26,249
|
|
|
26,629
|
|
|
25,852
|
|
|
28,278
|
|
Net balance as at beginning of period
|
183,670
|
|
|
176,244
|
|
|
175,165
|
|
|
184,333
|
|
Net incurred losses and LAE:
|
|
|
|
|
|
|
|
Current period
|
20,568
|
|
|
17,495
|
|
|
36,631
|
|
|
32,373
|
|
Prior periods
|
(3,435)
|
|
|
(3,738)
|
|
|
(3,909)
|
|
|
(11,596)
|
|
Total net incurred losses and LAE
|
17,133
|
|
|
13,757
|
|
|
32,722
|
|
|
20,777
|
|
Net paid losses:
|
|
|
|
|
|
|
|
Current period
|
(5,255)
|
|
|
(4,538)
|
|
|
(7,493)
|
|
|
(7,408)
|
|
Prior periods
|
(7,268)
|
|
|
(7,583)
|
|
|
(12,778)
|
|
|
(16,624)
|
|
Total net paid losses
|
(12,523)
|
|
|
(12,121)
|
|
|
(20,271)
|
|
|
(24,032)
|
|
Effect of exchange rate movement
|
(1,912)
|
|
|
1,608
|
|
|
(1,248)
|
|
|
(1,590)
|
|
Net balance as at June 30
|
186,368
|
|
|
179,488
|
|
|
186,368
|
|
|
179,488
|
|
Plus: reinsurance reserves recoverable
|
26,856
|
|
|
26,011
|
|
|
26,856
|
|
|
26,011
|
|
Balance as at June 30
|
$
|
213,224
|
|
|
$
|
205,499
|
|
|
$
|
213,224
|
|
|
$
|
205,499
|
|
Net incurred losses and LAE in the Atrium segment for the
three and six
months ended
June 30, 2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
2016
|
|
2015
|
|
Prior
Period
|
|
Current
Period
|
|
Total
|
|
Prior
Period
|
|
Current
Period
|
|
Total
|
Net losses paid
|
$
|
7,268
|
|
|
$
|
5,255
|
|
|
$
|
12,523
|
|
|
$
|
7,583
|
|
|
$
|
4,538
|
|
|
$
|
12,121
|
|
Net change in case and LAE reserves
|
(3,391
|
)
|
|
5,426
|
|
|
2,035
|
|
|
(3,946
|
)
|
|
4,082
|
|
|
136
|
|
Net change in IBNR reserves
|
(6,181
|
)
|
|
9,719
|
|
|
3,538
|
|
|
(3,560
|
)
|
|
8,746
|
|
|
5,186
|
|
Increase (reduction) in estimates of net ultimate losses
|
(2,304
|
)
|
|
20,400
|
|
|
18,096
|
|
|
77
|
|
|
17,366
|
|
|
17,443
|
|
Increase (reduction) in provisions for unallocated LAE
|
(118
|
)
|
|
168
|
|
|
50
|
|
|
(137
|
)
|
|
129
|
|
|
(8
|
)
|
Amortization of fair value adjustments
|
(1,013
|
)
|
|
—
|
|
|
(1,013
|
)
|
|
(3,678
|
)
|
|
—
|
|
|
(3,678
|
)
|
Net incurred losses and LAE
|
$
|
(3,435
|
)
|
|
$
|
20,568
|
|
|
$
|
17,133
|
|
|
$
|
(3,738
|
)
|
|
$
|
17,495
|
|
|
$
|
13,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2016
|
|
2015
|
|
Prior Period
|
|
Current Period
|
|
Total
|
|
Prior Period
|
|
Current Period
|
|
Total
|
Net losses paid
|
$
|
12,778
|
|
|
$
|
7,493
|
|
|
$
|
20,271
|
|
|
$
|
16,624
|
|
|
$
|
7,408
|
|
|
$
|
24,032
|
|
Net change in case and LAE reserves
|
(7,351)
|
|
|
7,614
|
|
|
263
|
|
|
(7,657)
|
|
|
6,774
|
|
|
(883)
|
|
Net change in IBNR reserves
|
(7,772)
|
|
|
21,201
|
|
|
13,429
|
|
|
(16,553)
|
|
|
17,929
|
|
|
1,376
|
|
Increase (reduction) in estimates of net ultimate losses
|
(2,345)
|
|
|
36,308
|
|
|
33,963
|
|
|
(7,586)
|
|
|
32,111
|
|
|
24,525
|
|
Increase (reduction) in provisions for unallocated LAE
|
(189)
|
|
|
323
|
|
|
134
|
|
|
(332)
|
|
|
262
|
|
|
(70)
|
|
Amortization of fair value adjustments
|
(1,375)
|
|
|
—
|
|
|
(1,375)
|
|
|
(3,678)
|
|
|
—
|
|
|
(3,678)
|
|
Net incurred losses and LAE
|
$
|
(3,909
|
)
|
|
$
|
36,631
|
|
|
$
|
32,722
|
|
|
$
|
(11,596
|
)
|
|
$
|
32,373
|
|
|
$
|
20,777
|
|
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
StarStone
The table below provides a reconciliation of the beginning and ending liability for losses and LAE for the
three and six
months ended
June 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended
June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Balance as at beginning of period
|
$
|
972,372
|
|
|
$
|
828,488
|
|
|
$
|
933,678
|
|
|
$
|
861,800
|
|
Less: reinsurance reserves recoverable
|
299,393
|
|
|
280,540
|
|
|
299,783
|
|
|
325,209
|
|
Net balance as at beginning of period
|
672,979
|
|
|
547,948
|
|
|
633,895
|
|
|
536,591
|
|
Net incurred losses and LAE:
|
|
|
|
|
|
|
|
Current period
|
105,548
|
|
|
81,293
|
|
|
198,718
|
|
|
158,703
|
|
Prior periods
|
(1,529)
|
|
|
(280
|
)
|
|
(3,516
|
)
|
|
(1,474
|
)
|
Total net incurred losses and LAE
|
104,019
|
|
|
81,013
|
|
|
195,202
|
|
|
157,229
|
|
Net paid losses:
|
|
|
|
|
|
|
|
Current period
|
(9,709)
|
|
|
(7,518
|
)
|
|
(10,815
|
)
|
|
(11,241
|
)
|
Prior periods
|
(54,744)
|
|
|
(31,896
|
)
|
|
(105,314
|
)
|
|
(80,322
|
)
|
Total net paid losses
|
(64,453)
|
|
|
(39,414
|
)
|
|
(116,129
|
)
|
|
(91,563
|
)
|
Effect of exchange rate movement
|
(7,252)
|
|
|
(2,761
|
)
|
|
(7,675
|
)
|
|
(15,471
|
)
|
Net balance as at June 30
|
705,293
|
|
|
586,786
|
|
|
705,293
|
|
|
586,786
|
|
Plus: reinsurance reserves recoverable
|
289,201
|
|
|
287,049
|
|
|
289,201
|
|
|
287,049
|
|
Balance as at June 30
|
$
|
994,494
|
|
|
$
|
873,835
|
|
|
$
|
994,494
|
|
|
$
|
873,835
|
|
Net incurred losses and LAE in the StarStone segment for the
three and six
months ended
June 30, 2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
2016
|
|
2015
|
|
Prior Period
|
|
Current Period
|
|
Total
|
|
Prior Period
|
|
Current Period
|
|
Total
|
Net losses paid
|
$
|
54,744
|
|
|
$
|
9,709
|
|
|
$
|
64,453
|
|
|
$
|
31,896
|
|
|
$
|
7,518
|
|
|
$
|
39,414
|
|
Net change in case and LAE reserves
|
(26,737
|
)
|
|
48,473
|
|
|
21,736
|
|
|
6,397
|
|
|
40,332
|
|
|
46,729
|
|
Net change in IBNR reserves
|
(28,321
|
)
|
|
45,606
|
|
|
17,285
|
|
|
(38,584
|
)
|
|
32,894
|
|
|
(5,690
|
)
|
Increase (reduction) in estimates of net ultimate losses
|
(314
|
)
|
|
103,788
|
|
|
103,474
|
|
|
(291
|
)
|
|
80,744
|
|
|
80,453
|
|
Increase (reduction) in provisions for unallocated LAE
|
(1,002
|
)
|
|
1,760
|
|
|
758
|
|
|
506
|
|
|
549
|
|
|
1,055
|
|
Amortization of fair value adjustments
|
(213
|
)
|
|
—
|
|
|
(213
|
)
|
|
(495
|
)
|
|
—
|
|
|
(495
|
)
|
Net incurred losses and LAE
|
$
|
(1,529
|
)
|
|
$
|
105,548
|
|
|
$
|
104,019
|
|
|
$
|
(280
|
)
|
|
$
|
81,293
|
|
|
$
|
81,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2016
|
|
2015
|
|
Prior Period
|
|
Current Period
|
|
Total
|
|
Prior Period
|
|
Current Period
|
|
Total
|
Net losses paid
|
$
|
105,314
|
|
|
$
|
10,815
|
|
|
$
|
116,129
|
|
|
$
|
80,322
|
|
|
$
|
11,241
|
|
|
$
|
91,563
|
|
Net change in case and LAE reserves
|
(22,102
|
)
|
|
56,493
|
|
|
34,391
|
|
|
(3,934
|
)
|
|
48,877
|
|
|
44,943
|
|
Net change in IBNR reserves
|
(83,234
|
)
|
|
127,606
|
|
|
44,372
|
|
|
(76,262
|
)
|
|
96,311
|
|
|
20,049
|
|
Increase (reduction) in estimates of net ultimate losses
|
(22
|
)
|
|
194,914
|
|
|
194,892
|
|
|
126
|
|
|
156,429
|
|
|
156,555
|
|
Increase (reduction) in provisions for unallocated LAE
|
(2,036
|
)
|
|
3,804
|
|
|
1,768
|
|
|
(563
|
)
|
|
2,274
|
|
|
1,711
|
|
Amortization of fair value adjustments
|
(1,458
|
)
|
|
—
|
|
|
(1,458
|
)
|
|
(1,037
|
)
|
|
—
|
|
|
(1,037
|
)
|
Net incurred losses and LAE
|
$
|
(3,516
|
)
|
|
$
|
198,718
|
|
|
$
|
195,202
|
|
|
$
|
(1,474
|
)
|
|
$
|
158,703
|
|
|
$
|
157,229
|
|
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
8. POLICY BENEFITS FOR LIFE AND ANNUITY CONTRACTS
Policy benefits for life and annuity contracts as at
June 30, 2016
and
December 31, 2015
were as follows:
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
December 31,
2015
|
Life
|
$
|
419,453
|
|
|
$
|
436,603
|
|
Annuities
|
916,729
|
|
|
921,654
|
|
|
1,336,182
|
|
|
1,358,257
|
|
Fair value adjustments
|
(49,906
|
)
|
|
(53,560
|
)
|
|
$
|
1,286,276
|
|
|
$
|
1,304,697
|
|
Refer to Note 10 of the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2015 for more information on establishing policy benefit reserves.
9. PREMIUMS WRITTEN AND EARNED
The following table provides a summary of net premiums written and earned in our Non-life Run-off, Atrium, StarStone and Life and Annuities segments for the
three and six
months ended
June 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
Premiums
Written
|
|
Premiums
Earned
|
|
Premiums
Written
|
|
Premiums
Earned
|
|
Premiums
Written
|
|
Premiums
Earned
|
|
Premiums
Written
|
|
Premiums
Earned
|
Non-life Run-off
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
$
|
7,066
|
|
|
$
|
9,216
|
|
|
$
|
14,797
|
|
|
$
|
53,184
|
|
|
$
|
13,763
|
|
|
$
|
17,163
|
|
|
$
|
24,914
|
|
|
$
|
78,157
|
|
Ceded
|
(4,290
|
)
|
|
(4,740
|
)
|
|
(39,590
|
)
|
|
(35,886
|
)
|
|
(5,716
|
)
|
|
(7,252
|
)
|
|
(39,867
|
)
|
|
(42,367
|
)
|
Net
|
$
|
2,776
|
|
|
$
|
4,476
|
|
|
$
|
(24,793
|
)
|
|
$
|
17,298
|
|
|
$
|
8,047
|
|
|
$
|
9,911
|
|
|
$
|
(14,953
|
)
|
|
$
|
35,790
|
|
Atrium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
$
|
37,781
|
|
|
$
|
35,908
|
|
|
$
|
35,786
|
|
|
$
|
37,913
|
|
|
$
|
79,299
|
|
|
$
|
71,342
|
|
|
$
|
84,699
|
|
|
$
|
76,067
|
|
Ceded
|
(4,619
|
)
|
|
(4,150
|
)
|
|
(3,966
|
)
|
|
(3,956
|
)
|
|
(7,957
|
)
|
|
(7,673
|
)
|
|
(8,521
|
)
|
|
(8,238
|
)
|
Net
|
$
|
33,162
|
|
|
$
|
31,758
|
|
|
$
|
31,820
|
|
|
$
|
33,957
|
|
|
$
|
71,342
|
|
|
$
|
63,669
|
|
|
$
|
76,178
|
|
|
$
|
67,829
|
|
StarStone
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
$
|
223,368
|
|
|
$
|
208,548
|
|
|
$
|
241,057
|
|
|
$
|
195,963
|
|
|
$
|
440,412
|
|
|
$
|
402,664
|
|
|
$
|
431,754
|
|
|
$
|
364,495
|
|
Ceded
|
(41,023
|
)
|
|
(37,513
|
)
|
|
(59,692
|
)
|
|
(58,267
|
)
|
|
(107,930
|
)
|
|
(77,547
|
)
|
|
(125,566
|
)
|
|
(103,177
|
)
|
Net
|
$
|
182,345
|
|
|
$
|
171,035
|
|
|
$
|
181,365
|
|
|
$
|
137,696
|
|
|
$
|
332,482
|
|
|
$
|
325,117
|
|
|
$
|
306,188
|
|
|
$
|
261,318
|
|
Life and Annuities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
|
$
|
20,533
|
|
|
$
|
19,659
|
|
|
$
|
22,922
|
|
|
$
|
23,072
|
|
|
$
|
38,459
|
|
|
$
|
37,640
|
|
|
$
|
45,655
|
|
|
$
|
45,992
|
|
Total
|
$
|
238,816
|
|
|
$
|
226,928
|
|
|
$
|
211,314
|
|
|
$
|
212,023
|
|
|
$
|
450,330
|
|
|
$
|
436,337
|
|
|
$
|
413,068
|
|
|
$
|
410,929
|
|
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
10. GOODWILL, INTANGIBLE ASSETS AND DEFERRED CHARGE
The following table presents a reconciliation of the beginning and ending goodwill, intangible assets and the deferred charge during the
six
months ended
June 30, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
Intangible
assets with
a definite life - Other
|
|
Intangible
assets with
an indefinite life
|
|
Total
|
|
Intangible
assets with
a definite life - FVA
|
|
Other assets - Deferred Charge
|
Balance as at December 31, 2015
|
$
|
73,071
|
|
|
$
|
31,202
|
|
|
$
|
87,031
|
|
|
$
|
191,304
|
|
|
$
|
180,730
|
|
|
$
|
255,911
|
|
Amortization
|
—
|
|
|
(3,749
|
)
|
|
—
|
|
|
(3,749
|
)
|
|
(11,687
|
)
|
|
(8,639
|
)
|
Balance as at June 30, 2016
|
$
|
73,071
|
|
|
$
|
27,453
|
|
|
$
|
87,031
|
|
|
$
|
187,555
|
|
|
$
|
169,043
|
|
|
$
|
247,272
|
|
Refer to Note 12 to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended
December 31, 2015
for more information on goodwill, intangible assets and the deferred charge.
Intangible asset amortization for the three and six months ended
June 30, 2016
and
2015
was
$15.3 million
and
$15.4 million
, respectively, compared to
$(4.9) million
and
$(2.2) million
for the comparative periods in 2015.
The gross carrying value, accumulated amortization and net carrying value of intangible assets by type and the deferred charge at
June 30, 2016
and
December 31, 2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016
|
|
December 31, 2015
|
|
Gross
Carrying
Value
|
|
Accumulated
Amortization
|
|
Net
Carrying
Value
|
|
Gross
Carrying
Value
|
|
Accumulated
Amortization
|
|
Net
Carrying
Value
|
Intangible assets with a definite life:
|
|
|
|
|
|
|
|
|
|
|
|
Fair value adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
Losses and LAE liabilities
|
$
|
458,202
|
|
|
$
|
(320,714
|
)
|
|
$
|
137,488
|
|
|
$
|
456,110
|
|
|
$
|
(307,785
|
)
|
|
$
|
148,325
|
|
Reinsurance balances recoverable
|
(175,924
|
)
|
|
157,573
|
|
|
(18,351
|
)
|
|
(175,774
|
)
|
|
154,619
|
|
|
(21,155
|
)
|
Policy benefits for life and annuity contracts
|
86,332
|
|
|
(36,426
|
)
|
|
49,906
|
|
|
86,332
|
|
|
(32,772
|
)
|
|
53,560
|
|
Total
|
$
|
368,610
|
|
|
$
|
(199,567
|
)
|
|
$
|
169,043
|
|
|
$
|
366,668
|
|
|
$
|
(185,938
|
)
|
|
$
|
180,730
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
Distribution channel
|
$
|
20,000
|
|
|
$
|
(3,445
|
)
|
|
$
|
16,555
|
|
|
$
|
20,000
|
|
|
$
|
(2,777
|
)
|
|
$
|
17,223
|
|
Technology
|
15,000
|
|
|
(9,294
|
)
|
|
5,706
|
|
|
15,000
|
|
|
(6,561
|
)
|
|
8,439
|
|
Brand
|
7,000
|
|
|
(1,808
|
)
|
|
5,192
|
|
|
7,000
|
|
|
(1,460
|
)
|
|
5,540
|
|
Total
|
$
|
42,000
|
|
|
$
|
(14,547
|
)
|
|
$
|
27,453
|
|
|
$
|
42,000
|
|
|
$
|
(10,798
|
)
|
|
$
|
31,202
|
|
Intangible assets with an indefinite life:
|
|
|
|
|
|
|
|
|
|
|
|
Lloyd’s syndicate capacity
|
$
|
37,031
|
|
|
$
|
—
|
|
|
$
|
37,031
|
|
|
$
|
37,031
|
|
|
$
|
—
|
|
|
$
|
37,031
|
|
Licenses
|
19,900
|
|
|
—
|
|
|
19,900
|
|
|
19,900
|
|
|
—
|
|
|
19,900
|
|
Management contract
|
30,100
|
|
|
—
|
|
|
30,100
|
|
|
30,100
|
|
|
—
|
|
|
30,100
|
|
Total
|
$
|
87,031
|
|
|
$
|
—
|
|
|
$
|
87,031
|
|
|
$
|
87,031
|
|
|
$
|
—
|
|
|
$
|
87,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred charge on retroactive reinsurance
|
$
|
271,176
|
|
|
$
|
(23,904
|
)
|
|
$
|
247,272
|
|
|
$271,176
|
|
$
|
(15,265
|
)
|
|
$255,911
|
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
11. LOANS PAYABLE
We utilize debt facilities primarily for acquisitions and, from time to time, for general corporate purposes. Under these facilities, loans payable and accrued interest as of
June 30, 2016
and
December 31, 2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility
|
|
Origination Date
|
|
Term
|
|
June 30, 2016
|
|
December 31, 2015
|
EGL Revolving Credit Facility
|
|
September 16, 2014
|
|
5 years
|
|
$
|
549,798
|
|
|
$
|
505,750
|
|
Sussex Facility
|
|
December 24, 2014
|
|
4 years
|
|
63,500
|
|
|
94,000
|
|
Total long-term bank debt
|
|
|
|
613,298
|
|
|
599,750
|
|
Accrued interest
|
|
|
|
732
|
|
|
500
|
|
Total loans payable
|
|
|
|
$
|
614,030
|
|
|
$
|
600,250
|
|
For the three months ended
June 30, 2016
and
2015
, interest expense was
$5.4 million
and
$4.8 million
, respectively.
For the
six
months ended
June 30, 2016
and
2015
, interest expense was
$10.8 million
and
$8.8 million
, respectively.
EGL Revolving Credit Facility
This
5
-year revolving credit facility, originated on September 16, 2014, and amended on February 27, 2015, February 15, 2016, and most recently on August 5, 2016, is among Enstar Group Limited and certain of its subsidiaries, as borrowers and as guarantors, and various financial institutions. We are permitted to borrow up to an aggregate of
$665.0 million
, and as of August 5, 2016 we have an option to obtain additional commitments of up to
$166.25 million
. As of
June 30, 2016
, there was
$115.2 million
of available unutilized capacity under this facility. We are in compl
iance with the covenants of the EGL Revolving Credit Facility.
During the three months ended June 30, 2016 we borrowed
€75.0 million
. This has been designated as a non-derivative hedge of
our net investment in certain subsidiaries whose functional currency is denominated in Euros. The foreign exchange effect of revaluing these Euro borrowings resulted in a gain of
$2.1 million
recognized in the currency translation adjustment within accumulated other comprehensive income (loss) for the three and six months ended June 30, 2016. This gain was offset against an equivalent loss recognized upon the translation of those subsidiaries' financial statements from functional currency into U.S. dollars. There were no ineffective portions of the net investment hedge during the three or six months ended June 30, 2016, which would have required reclassification from accumulated other comprehensive income (loss) into earnings.
Sussex Facility
On December 24, 2014, we entered into a
4
-year term loan (the "Sussex Facility", formerly called the Companion Facility) with
two
financial institutions. This facility was fully utilized to initially borrow
$109.0 million
to fund
50%
of the consideration payable for the acquisition of Sussex, which was completed on
January 27, 2015
. During 2015, we repaid
$15.0 million
and during the six months ended
June 30, 2016
, we repaid
$30.5 million
of the outstanding principal on the facility, bringing the outstanding principal to
$63.5 million
. We are in compliance with the covenants of the Sussex Facility.
Refer to Note 13 to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended
December 31, 2015
for further information on the terms of the above facilities.
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
12. NONCONTROLLING INTERESTS
Redeemable Noncontrolling Interest
Redeemable noncontrolling interest ("RNCI") as of
June 30, 2016
and
December 31, 2015
comprised the ownership interests held by Trident (
39.32%
) and Dowling (
1.71%
) in our subsidiary North Bay Holdings Limited ("North Bay"). North Bay owns our investments in StarStone and Atrium as well as certain non-life run-off portfolios. The following is a reconciliation of the beginning and ending carrying amount of the equity attributable to the RNCI as of
June 30, 2016
and
December 31, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2016
|
|
Year Ended December 31, 2015
|
Balance at beginning of period
|
|
$
|
417,663
|
|
|
$
|
374,619
|
|
Capital contributions
|
|
—
|
|
|
15,728
|
|
Dividends paid
|
|
—
|
|
|
(16,128
|
)
|
Net earnings (loss) attributable to RNCI
|
|
18,541
|
|
|
(8,797
|
)
|
Accumulated other comprehensive earnings (loss) attributable to RNCI
|
|
1,649
|
|
|
(745
|
)
|
Transfer from noncontrolling interest
|
|
—
|
|
|
15,801
|
|
Accretion of RNCI to redemption value
|
|
1,803
|
|
|
37,185
|
|
Balance at end of period
|
|
$
|
439,656
|
|
|
$
|
417,663
|
|
Refer to Note 17 - "Related Party Transactions" and
Note 18 - "Commitments and Contingencies" for additional information regarding RNCI.
Noncontrolling Interest
As of
June 30, 2016
and
December 31, 2015
, we had
$3.6 million
and
$3.9 million
, respectively, of noncontrolling interest ("NCI") primarily related to an external interest in one of our non-life run-off subsidiaries.
13. SHARE CAPITAL
In June 2016, pursuant to an internal reorganization, we issued Series C Participating Non-Voting Perpetual Preferred Stock (“Series C Preferred Shares”) to one of our wholly-owned subsidiaries to be held in treasury, in exchange for all our Series A Non-Voting Convertible Ordinary Shares (“Series A Non-Voting Shares”), which had been issued to, and held in treasury by, one of our wholly-owned subsidiaries. The Series A Non-Voting Shares were subsequently canceled. The Series C Preferred Shares have no voting rights, other than with respect to certain limited matters whereby the consent of a majority of the holders of the outstanding Series C Preferred Shares, voting as a separate class, would be required.
Refer to Note 15 of the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2015 for additional information on our Share Capital.
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
14. EARNINGS PER SHARE
The following table sets forth the comparison of basic and diluted earnings per share for the
three and six
months ended
June 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Basic earnings per ordinary share:
|
|
|
|
|
|
|
|
Net earnings attributable to Enstar Group Limited
|
$
|
40,594
|
|
|
$
|
14,545
|
|
|
$
|
86,114
|
|
|
$
|
59,392
|
|
Weighted-average ordinary shares outstanding — basic
|
19,295,280
|
|
|
19,252,359
|
|
|
19,289,119
|
|
|
19,244,951
|
|
Net earnings per ordinary share attributable to Enstar Group Limited — basic
|
$
|
2.10
|
|
|
$
|
0.76
|
|
|
$
|
4.46
|
|
|
$
|
3.09
|
|
Diluted earnings per ordinary share:
|
|
|
|
|
|
|
|
Net earnings attributable to Enstar Group Limited
|
$
|
40,594
|
|
|
$
|
14,545
|
|
|
$
|
86,114
|
|
|
$
|
59,392
|
|
Weighted-average ordinary shares outstanding — basic
|
19,295,280
|
|
|
19,252,359
|
|
|
19,289,119
|
|
|
19,244,951
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
Unvested shares
|
25,762
|
|
|
39,524
|
|
|
25,448
|
|
|
38,017
|
|
Restricted share units
|
17,092
|
|
|
13,620
|
|
|
16,014
|
|
|
12,031
|
|
Warrants
|
92,330
|
|
|
78,250
|
|
|
89,960
|
|
|
69,776
|
|
Weighted-average ordinary shares outstanding — diluted
|
19,430,464
|
|
|
19,383,753
|
|
|
19,420,541
|
|
|
19,364,775
|
|
Net earnings per ordinary share attributable to Enstar Group Limited — diluted
|
$
|
2.09
|
|
|
$
|
0.75
|
|
|
$
|
4.43
|
|
|
$
|
3.07
|
|
15. EMPLOYEE BENEFITS
We provide various employee benefits including share-based compensation, an employee share purchase plan, an annual incentive compensation program, and pension plans. These are described in Note 17 to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2015.
On June 14, 2016, our shareholders approved the 2016 Equity Incentive Plan, which governs the terms of awards granted subsequent to its adoption. The plan replaced the expiring 2006 Equity Incentive Plan. Any outstanding awards granted under the 2006 plan remain in effect pursuant to their terms.
Share-based compensation expense for the
three and six
months ended
June 30, 2016
was
$3.7 million
and
$11.9 million
, respectively, as compared to
$7.7 million
and
$9.1 million
for the comparative periods in
2015
.
Employee share purchase plan expense for the
three and six
months ended
June 30, 2016
and
2015
, was less than
$0.1 million
and
$0.2 million
, respectively.
Annual incentive compensation program expense for the
three and six
months ended
June 30, 2016
, was
$4.2 million
and
$5.0 million
, respectively, as compared to
$(0.9) million
and
$7.0 million
for the comparative periods in
2015
.
Pension expense for the
three and six
months ended
June 30, 2016
was
$2.8 million
and
$5.9 million
, respectively, as compared to
$2.8 million
and
$5.2 million
for the comparative periods in
2015
.
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
16. TAXATION
Interim Tax Calculation Method
We use the estimated annual effective tax rate method for computing our interim tax provision. This method applies our best estimate of the effective tax rate expected for the full year to our year-to-date earnings before income taxes. We provide for income tax expense or benefit based upon our pre-tax earnings and the provisions of currently enacted tax laws. Certain items deemed to be unusual, infrequent or not reliably estimated, are excluded from the estimated annual effective tax rate. In the event such items are identified, the actual tax expense or benefit is reported in the same period as the related item. Certain other items are not included in the estimated annual effective tax rate, such as changes in the assessment of valuation allowance on deferred tax assets and uncertain tax positions, if any.
Interim Tax Expense (Benefit)
The effective tax rates on income for the
three and six
months ended
June 30, 2016
were
14.5%
and
13.3%
, respectively, as compared to
24.2%
and
18.8%
, respectively, for the comparative periods in 2015. The effective tax rate on income differs from the statutory rate of
0%
due to tax on foreign operations (primarily the United States and United Kingdom) and an increase in the assessment of valuation allowance on deferred tax assets. We have foreign operating subsidiaries and branch operations principally located in the United States, United Kingdom, Continental Europe and Australia that are subject to federal, foreign, state and local taxes in those jurisdictions. Deferred income tax lia
bilities have not been accrued with respect to the undistributed earnings of our foreign subsidiaries. If the earnings were to be distributed, as dividends or other distributions, withholding taxes may be imposed by the jurisdiction of the paying subsidiary. For our U.S. subsidiaries, we have not currently accrued any withholding taxes with respect to un-remitted earnings as management has no current intention of remitting these earnings. For our United Kingdom subsidiaries, there are no withholding taxes imposed. For our other foreign subsidiaries, it would not be practicable to compute such amounts due to a variety of factors, including the amount, timing, and manner of any repatriation.
Because we operate in many jurisdictions, our net earnings are subject to risk due to changing tax laws and tax rates around the world. The current, rapidly changing economic environment may increase the likelihood of substantial changes to tax laws in the jurisdictions in which we operate.
Assessment of Valuation Allowance on Deferred Tax Assets
We have estimated the future taxable income of our foreign subsidiaries and have provided a valuation allowance in respect of loss carryforwards where we do not expect to realize a benefit. We have considered all available evidence using a “more likely than not” standard in determining the amount of the valuation allowance. During the
three and six
months ended
June 30, 2016
, we recognized an increase of
$1.3 million
and
$2.2 million
, respectively, in our deferred tax asset valuation allowance.
Accounting for Uncertainty in Income Taxes
We had
no
unrecognized tax benefits relating to uncertain tax positions as at either
June 30, 2016
or
December 31, 2015
.
Tax Examinations
Our operating subsidiaries may be subject to audit by various tax authorities and may have different statutes of limitations expiration dates. With limited exceptions, our major subsidiaries that operate in the United States, United Kingdom and Australia are no longer subject to tax examinations for years before 2012, 2012 and 2009, respectively.
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
17. RELATED PARTY TRANSACTIONS
Stone Point Capital LLC
Through several private transactions occurring from May 2012 to July 2012, Trident acquired
1,350,000
of our Voting Ordinary Shares (which now constitutes approximately
8.3%
of our outstanding Voting Ordinary Shares). On November 6, 2013, we appointed James D. Carey to our Board of Directors. Mr. Carey is the sole member of an entity that is
one
of
four
general partners of the entities serving as general partners for Trident, is a member of the investment committees of such general partners, and is a member and senior principal of Stone Point Capital LLC ("Stone Point"), the manager of the Trident funds.
In addition, we have entered into certain agreements with Trident with respect to Trident’s co-investments in the Atrium, Arden, and StarStone acquisitions. These include investors’ agreements and shareholders’ agreements, which provide for, among other things: (i) our right to redeem Trident’s equity interest in the Atrium/Arden and StarStone transactions in cash at fair market value within the
90
days following the fifth anniversary of the Arden and StarStone closings, respectively, and at any time following the seventh anniversary of the Arden and StarStone closings, respectively; and (ii) Trident’s right to have its equity co-investment interests in the Atrium/Arden and StarStone transactions redeemed by us at fair market value (which we may satisfy in either cash or our ordinary shares) following the seventh anniversaries of the Arden closing and StarStone closing, respectively. As of
June 30, 2016
, we have included
$439.7 million
(
December 31, 2015
:
$417.7 million
) as RNCI on our balance sheet relating to these Trident co-investment transactions. Pursuant to the terms of the shareholders’ agreements, Mr. Carey serves as a Trident representative on the boards of the holding companies established in connection with the Atrium/Arden and StarStone co-investment transactions. Trident also has a second representative on these boards who is a Stone Point employee.
As at
June 30, 2016
, we had investments in funds (carried within other investments) and a registered investment company affiliated with entities owned by Trident or otherwise affiliated with Stone Point. The fair value of the investments in the funds was
$190.1 million
and
$237.9 million
as of
June 30, 2016
and
December 31, 2015
, respectively. The decrease was primarily due to a sale of one of the fund investments during the three months ended June 30, 2016. The fair value of our investment in the registered investment company was
$21.2 million
and
$21.0 million
as at
June 30, 2016
and December 31,
2015
, respectively. For the
six
months ended
June 30, 2016
and
2015
, we recognized net realized and unrealized gains of
$5.8 million
and
$5.5 million
, respectively, in respect of the fund investments and net unrealized losses of
$0.5 million
and net unrealized gains of
$0.2 million
, respectively, in respect of the registered investment company investment. For the
six
months ended
June 30, 2016
and
2015
, we recognized interest income of
$1.3 million
in respect of the registered investment company.
We also have separate accounts, with a balance of
$237.9 million
and
$157.8 million
as at
June 30, 2016
and
December 31, 2015
, respectively, managed by Eagle Point Credit Management and PRIMA Capital Advisors, which are affiliates of entities owned by Trident, with respect to which we incurred approximately
$0.2 million
and
$0.1 million
in management fees for the
six
months ended
June 30, 2016
and
2015
, respectively.
In addition, we are invested in funds (carried within other investments) managed by Sound Point Capital, an entity in which Mr. Carey has an indirect minority ownership interest and serves as a director. The fair value of our investments in Sound Point Capital funds was
$24.1 million
and
$34.5 million
as of
June 30, 2016
and
December 31, 2015
, respectively; the decrease was primarily due to a partial sale of a fund investment during the six months ended June 30, 2016. For the
six
months ended
June 30, 2016
and
2015
, we have recognized net unrealized gains of
$0.7 million
and
$1.6 million
, respectively, in respect of investments managed by Sound Point Capital.
Sound Point Capital has acted as collateral manager for certain of our direct investments in CLO equity securities. The fair value of these investments was
$18.8 million
and
$18.2 million
as at
June 30, 2016
and
December 31, 2015
, respectively. For the
six
months ended
June 30, 2016
and 2015, we recognized net unrealized gains of
$0.7 million
and net unrealized losses of
$0.7 million
, respectively. For the six months ended June 30, 2016 and 2015, we recognized interest income of
$3.6 million
and
$0.9 million
in respect of these investments
During 2015 we opened a separate account managed by Sound Point Capital, with a balance of
$56.8 million
and
$53.5 million
as at
June 30, 2016
and
December 31, 2015
, respectively, with respect to which we incurred approximately
$0.1 million
in management fees for the
six
months ended
June 30, 2016
and
2015
, respectively.
Fees charged pursuant to investments affiliated with entities owned by Trident or Sound Point Capital were negotiated on an arm's-length basis.
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Goldman Sachs & Co.
Affiliates of Goldman Sachs own approximately
4.1%
of our Voting Ordinary Shares and
100%
of our Series C Non-Voting Ordinary Shares. Sumit Rajpal, a managing director of Goldman Sachs, was appointed to our Board of Directors in connection with Goldman Sachs’ investment in Enstar. As of both
June 30, 2016
and December 31, 2015, we had investments in funds (carried within other investments) affiliated with entities owned by Goldman Sachs, which had a fair value of $
13.9 million
and
$39.6 million
, respectively. The decrease was primarily due to a sale of one of the fund investments during the three months ended June 30, 2016. As of
June 30, 2016
and December 31, 2015, we had an indirect investment in non-voting interests of
two
companies affiliated with Hastings Insurance Group Limited, which had a fair value of
$42.6 million
and
$44.6 million
, respectively. Goldman Sachs affiliates have an approximately
38%
interest in the Hastings companies, and Mr. Rajpal serves as a director of the entities in which we have invested. For the
six
months ended
June 30, 2016
and
2015
, we recognized net unrealized gains of $
2.8 million
and net unrealized losses of $
2.4 million
, respectively, in respect of the Goldman Sachs-affiliated investments. For the six months ended June 30, 2016 and 2015, we recognized interest income of
$0.7 million
and $
nil
in respect of the Goldman Sachs-affiliated investments.
During 2015, a Goldman Sachs affiliate began providing investment management services to one of our subsidiaries. Our interests are held in accounts managed by affiliates of Goldman Sachs, with a balance of
$786.6 million
and
$758.9 million
as at
June 30, 2016
and December 31, 2015, respectively, with respect to which we incurred approximately
$0.4 million
and
$0.3 million
in management fees for the
six
months ended
June 30, 2016
and
2015
, respectively.
Fees charged pursua
nt to investments with affiliates of Goldman Sachs were negotiated on an arm's-length basis.
CPPIB
Canada Pension Plan Investment Board ("CPPIB"), together with management of Wilton Re, own
100%
of the common stock of Wilton Re. Subsequent to the closing of our transaction with Wilton Re, on June 3, 2015, CPPIB purchased voting and non-voting shares in Enstar from FR XI Offshore AIV, L.P., First Reserve Fund XII, L.P., FR XII-A Parallel Vehicle L.P. and FR Torus Co-Investment, L.P. (collectively, "First Reserve", and the transaction, the "CPPIB-First Reserve Transaction"). These shares constitute a
9.3%
voting interest and a
9.8%
aggregate economic interest in Enstar. On September 29, 2015, CPPIB exercised its acquired right to appoint a representative to our Board of Directors. In addition,
4.6%
of our voting shares are held indirectly by CPPIB through CPPIB Epsilon Ontario Limited Partnership ("CPPIB LP"). CPPIB is the sole limited partner of CPPIB LP, CPPIB Epsilon Ontario Trust ("CPPIB Trust") is the general partner, and CPPIB's director representative is the trustee of CPPIB Trust.
We also have a pre-existing reinsurance recoverable based on normal commercial terms from a company later acquired by Wilton Re, which was carried on our balance sheet at
$11.2 million
as of
June 30, 2016
.
18. COMMITMENTS AND CONTINGENCIES
Concentrations of Credit Risk
We believe that there are no significant concentrations of credit risk associated with our cash and cash equivalents, fixed maturity investments, or other investments. Cash, cash equivalents and fixed maturity investments are managed pursuant to guidelines that follow prudent standards of diversification and limit the allowable holdings of a single issue and issuers. Other investments are managed pursuant to guidelines that emphasize diversification and liquidity. Pursuant to these guidelines, we manage and monitor risk across a variety of investment funds and vehicles, markets and counterparties. We are also subject to custodial credit risk on our fixed maturity and equity investments, which we manage by diversifying our holdings amongst large financial institutions that are highly regulated.
We have exposure to credit risk on certain of our assets pledged to ceding companies under insurance contracts. In addition, we are potentially exposed should any insurance intermediaries be unable to fulfill their contractual obligations with respect to payments of balances owed to and by us.
Credit risk exists in relation to reinsurance balances recoverable. We remain liable to the extent that retrocessionaires do not meet their contractual obligations and, therefore, we evaluate and monitor concentration of credit risk among our reinsurers. These amounts are discussed in Note 6 - "Reinsurance Balances Recoverable."
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We are also subject to credit risk in relation to funds held by reinsured companies. Under funds held arrangements, the reinsured company has retained funds that would otherwise have been remitted to our reinsurance subsidiaries. The funds balance is credited with investment income and losses payable are deducted. We are subject to credit risk if the reinsured company is unable to honor the value of the funds held balances, such as in the event of insolvency. However, we generally have the contractual ability to offset any shortfall in the payment of the funds held balances with amounts owed by us to the reinsured for losses payable and other amounts contractually due. We routinely monitor the creditworthiness of reinsured companies with whom we have funds held arrangements. We have a significant concentration of
$1.1 billion
to one reinsured company which has financial strength credit ratings of A+ from A.M. Best and AA from Standard & Poor's.
We limit the amount of credit exposure to any one counterparty, and none of our counterparty credit exposures, excluding U.S. Government instruments and the funds held counterparty noted above, exceeded
10%
of shareholders’ equity as of
June 30, 2016
.
Legal Proceedings
We are, from time to time, involved in various legal proceedings in the ordinary course of business, including litigation and arbitration regarding claims. Estimated losses relating to claims arising in the ordinary course of business, including the anticipated outcome of any pending arbitration or litigation, are included in the liability for losses and LAE in our consolidated balance sheets. In addition to claims litigation, we may be subject to other lawsuits and regulatory actions in the normal course of business, which may involve, among other things, allegations of underwriting errors or omissions, employment claims or regulatory activity. We do not believe that the resolution of any currently pending legal proceedings, either individually or taken as a whole, will have a material effect on our business, results of operations or financial condition. We anticipate that, similar to the rest of the insurance and reinsurance industry, we will continue to be subject to litigation and arbitration proceedings in the ordinary course of business, including litigation generally related to the scope of coverage with respect to asbestos and environmental and other claims.
Unfunded Investment Commitments
As at
June 30, 2016
, we had original commitments to investment funds of
$380.0 million
, of which
$241.6 million
has been funded, and
$138.4 million
remains outstanding as unfunded commitments.
Guarantees
As at
June 30, 2016
and
December 31, 2015
, parental guarantees supporting subsidiaries' insurance obligations were
$501.7 million
and
$334.2 million
, respectively.
Redeemable Noncontrolling Interest
We have the right to purchase the RNCI interests from the RNCI holders at certain times in the future (each such right, a "call right"), and the RNCI holders have the right to sell their RNCI interests to us at certain times in the future (each such right, a "put right"). The RNCI rights held by Trident are described in Note 17 - "Related Party Transactions." Dowling has a right to participate if Trident exercises its put right.
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
19. SEGMENT INFORMATION
We monitor and report our results of operations in
four
segments: Non-life Run-off, Atrium, StarStone and Life and Annuities. These segments are described in Note 1 and Note 22 to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended
December 31, 2015
.
The following tables set forth selected and condensed consolidated statement of earnings results by segment for the
three and six
months ended
June 30, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2016
|
|
Non-life
Run-off
|
|
Atrium
|
|
StarStone
|
|
Life and
Annuities
|
|
Eliminations
|
|
Consolidated
|
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
$
|
4,476
|
|
|
$
|
31,758
|
|
|
$
|
171,035
|
|
|
$
|
19,659
|
|
|
$
|
—
|
|
|
$
|
226,928
|
|
Fees and commission income
|
865
|
|
|
6,378
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,243
|
|
Net investment income
|
37,581
|
|
|
635
|
|
|
5,753
|
|
|
11,113
|
|
|
(859
|
)
|
|
54,223
|
|
Net realized and unrealized gains (losses)
|
26,161
|
|
|
68
|
|
|
8,021
|
|
|
3,737
|
|
|
—
|
|
|
37,987
|
|
Other income
|
2,036
|
|
|
65
|
|
|
1,584
|
|
|
363
|
|
|
—
|
|
|
4,048
|
|
|
71,119
|
|
|
38,904
|
|
|
186,393
|
|
|
34,872
|
|
|
(859
|
)
|
|
330,429
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
Net incurred losses and LAE
|
(24,690
|
)
|
|
17,133
|
|
|
104,019
|
|
|
—
|
|
|
—
|
|
|
96,462
|
|
Life and annuity policy benefits
|
—
|
|
|
—
|
|
|
—
|
|
|
19,778
|
|
|
—
|
|
|
19,778
|
|
Acquisition costs
|
(56
|
)
|
|
11,240
|
|
|
32,518
|
|
|
2,804
|
|
|
(17
|
)
|
|
46,489
|
|
General and administrative expenses
|
61,449
|
|
|
6,629
|
|
|
31,311
|
|
|
6,467
|
|
|
22
|
|
|
105,878
|
|
Interest expense
|
6,016
|
|
|
—
|
|
|
—
|
|
|
272
|
|
|
(864
|
)
|
|
5,424
|
|
Net foreign exchange losses (gains)
|
(3,096
|
)
|
|
256
|
|
|
1,027
|
|
|
(43
|
)
|
|
—
|
|
|
(1,856
|
)
|
|
39,623
|
|
|
35,258
|
|
|
168,875
|
|
|
29,278
|
|
|
(859
|
)
|
|
272,175
|
|
EARNINGS BEFORE INCOME TAXES
|
31,496
|
|
|
3,646
|
|
|
17,518
|
|
|
5,594
|
|
|
—
|
|
|
58,254
|
|
INCOME TAXES
|
(3,486
|
)
|
|
(580
|
)
|
|
(3,970
|
)
|
|
(437
|
)
|
|
—
|
|
|
(8,473
|
)
|
NET EARNINGS
|
28,010
|
|
|
3,066
|
|
|
13,548
|
|
|
5,157
|
|
|
—
|
|
|
49,781
|
|
Less: Net losses (earnings) attributable to noncontrolling interest
|
(2,370
|
)
|
|
(1,258
|
)
|
|
(5,559
|
)
|
|
—
|
|
|
—
|
|
|
(9,187
|
)
|
NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED
|
$
|
25,640
|
|
|
$
|
1,808
|
|
|
$
|
7,989
|
|
|
$
|
5,157
|
|
|
$
|
—
|
|
|
$
|
40,594
|
|
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2016
|
|
Non-life
run-off
|
|
Atrium
|
|
StarStone
|
|
Life and annuities
|
|
Eliminations
|
|
Consolidated
|
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
$
|
9,911
|
|
|
$
|
63,669
|
|
|
$
|
325,117
|
|
|
$
|
37,640
|
|
|
$
|
—
|
|
|
$
|
436,337
|
|
Fees and commission income
|
7,431
|
|
|
10,210
|
|
|
—
|
|
|
—
|
|
|
(5,051
|
)
|
|
12,590
|
|
Net investment income
|
73,811
|
|
|
1,189
|
|
|
11,033
|
|
|
29,534
|
|
|
(1,281
|
)
|
|
114,286
|
|
Net realized and unrealized gains (losses)
|
49,551
|
|
|
108
|
|
|
22,370
|
|
|
3,922
|
|
|
—
|
|
|
75,951
|
|
Other income
|
3,836
|
|
|
99
|
|
|
1,595
|
|
|
931
|
|
|
—
|
|
|
6,461
|
|
|
144,540
|
|
|
75,275
|
|
|
360,115
|
|
|
72,027
|
|
|
(6,332
|
)
|
|
645,625
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
Net incurred losses and LAE
|
(48,244
|
)
|
|
32,722
|
|
|
195,202
|
|
|
—
|
|
|
—
|
|
|
179,680
|
|
Life and annuity policy benefits
|
—
|
|
|
—
|
|
|
—
|
|
|
40,758
|
|
|
—
|
|
|
40,758
|
|
Acquisition costs
|
1,926
|
|
|
22,327
|
|
|
64,578
|
|
|
5,206
|
|
|
(283
|
)
|
|
93,754
|
|
General and administrative expenses
|
119,562
|
|
|
13,037
|
|
|
61,466
|
|
|
11,027
|
|
|
(4,768
|
)
|
|
200,324
|
|
Interest expense
|
11,496
|
|
|
—
|
|
|
—
|
|
|
610
|
|
|
(1,281
|
)
|
|
10,825
|
|
Net foreign exchange losses (gains)
|
(2,216
|
)
|
|
2,071
|
|
|
(272
|
)
|
|
333
|
|
|
—
|
|
|
(84
|
)
|
|
82,524
|
|
|
70,157
|
|
|
320,974
|
|
|
57,934
|
|
|
(6,332
|
)
|
|
525,257
|
|
EARNINGS BEFORE INCOME TAXES
|
62,016
|
|
|
5,118
|
|
|
39,141
|
|
|
14,093
|
|
|
—
|
|
|
120,368
|
|
INCOME TAXES
|
(8,159
|
)
|
|
(1,258
|
)
|
|
(5,988
|
)
|
|
(577
|
)
|
|
—
|
|
|
(15,982
|
)
|
NET EARNINGS
|
53,857
|
|
|
3,860
|
|
|
33,153
|
|
|
13,516
|
|
|
—
|
|
|
104,386
|
|
Less: Net earnings attributable to noncontrolling interest
|
(3,085
|
)
|
|
(1,584
|
)
|
|
(13,603
|
)
|
|
—
|
|
|
—
|
|
|
(18,272
|
)
|
NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED
|
$
|
50,772
|
|
|
$
|
2,276
|
|
|
$
|
19,550
|
|
|
$
|
13,516
|
|
|
$
|
—
|
|
|
$
|
86,114
|
|
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2015
|
|
Non-life
Run-off
|
|
Atrium
|
|
StarStone
|
|
Life and
Annuities
|
|
Eliminations
|
|
Consolidated
|
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
$
|
17,298
|
|
|
$
|
33,957
|
|
|
$
|
137,696
|
|
|
$
|
23,072
|
|
|
$
|
—
|
|
|
$
|
212,023
|
|
Fees and commission income
|
4,892
|
|
|
7,457
|
|
|
—
|
|
|
—
|
|
|
(3,218
|
)
|
|
9,131
|
|
Net investment income
|
18,569
|
|
|
523
|
|
|
4,058
|
|
|
11,577
|
|
|
(72
|
)
|
|
34,655
|
|
Net realized and unrealized gains
|
(4,308
|
)
|
|
38
|
|
|
(3,355
|
)
|
|
(3,624
|
)
|
|
—
|
|
|
(11,249
|
)
|
Other income
|
9,875
|
|
|
76
|
|
|
1,303
|
|
|
584
|
|
|
—
|
|
|
11,838
|
|
|
46,326
|
|
|
42,051
|
|
|
139,702
|
|
|
31,609
|
|
|
(3,290
|
)
|
|
256,398
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
Net incurred losses and LAE
|
(28,870
|
)
|
|
13,757
|
|
|
81,013
|
|
|
—
|
|
|
—
|
|
|
65,900
|
|
Life and annuity policy benefits
|
—
|
|
|
—
|
|
|
—
|
|
|
28,090
|
|
|
—
|
|
|
28,090
|
|
Acquisition costs
|
(5,871
|
)
|
|
12,301
|
|
|
27,365
|
|
|
3,299
|
|
|
—
|
|
|
37,094
|
|
General and administrative expenses
|
53,168
|
|
|
6,670
|
|
|
32,891
|
|
|
4,452
|
|
|
(3,218
|
)
|
|
93,963
|
|
Interest expense
|
2,826
|
|
|
1,482
|
|
|
—
|
|
|
640
|
|
|
(72
|
)
|
|
4,876
|
|
Net foreign exchange losses (gains)
|
(4,543
|
)
|
|
2,213
|
|
|
4,200
|
|
|
582
|
|
|
—
|
|
|
2,452
|
|
|
16,710
|
|
|
36,423
|
|
|
145,469
|
|
|
37,063
|
|
|
(3,290
|
)
|
|
232,375
|
|
EARNINGS BEFORE INCOME TAXES
|
29,616
|
|
|
5,628
|
|
|
(5,767
|
)
|
|
(5,454
|
)
|
|
—
|
|
|
24,023
|
|
INCOME TAXES
|
(6,104
|
)
|
|
(2,252
|
)
|
|
694
|
|
|
1,846
|
|
|
—
|
|
|
(5,816
|
)
|
NET EARNINGS
|
23,512
|
|
|
3,376
|
|
|
(5,073
|
)
|
|
(3,608
|
)
|
|
—
|
|
|
18,207
|
|
Less: Net losses (earnings) attributable to noncontrolling interest
|
(3,761
|
)
|
|
(1,982
|
)
|
|
2,081
|
|
|
—
|
|
|
—
|
|
|
(3,662
|
)
|
NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED
|
$
|
19,751
|
|
|
$
|
1,394
|
|
|
$
|
(2,992
|
)
|
|
$
|
(3,608
|
)
|
|
$
|
—
|
|
|
$
|
14,545
|
|
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2015
|
|
Non-life
run-off
|
|
Atrium
|
|
StarStone
|
|
Life and annuities
|
|
Eliminations
|
|
Consolidated
|
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
$
|
35,790
|
|
|
$
|
67,829
|
|
|
$
|
261,318
|
|
|
$
|
45,992
|
|
|
$
|
—
|
|
|
$
|
410,929
|
|
Fees and commission income
|
9,729
|
|
|
16,985
|
|
|
14
|
|
|
—
|
|
|
(6,117
|
)
|
|
20,611
|
|
Net investment income
|
37,433
|
|
|
1,030
|
|
|
6,189
|
|
|
20,652
|
|
|
(232
|
)
|
|
65,072
|
|
Net realized and unrealized gains (losses)
|
30,352
|
|
|
129
|
|
|
1,347
|
|
|
(57
|
)
|
|
—
|
|
|
31,771
|
|
Other income
|
12,915
|
|
|
154
|
|
|
1,366
|
|
|
879
|
|
|
—
|
|
|
15,314
|
|
|
126,219
|
|
|
86,127
|
|
|
270,234
|
|
|
67,466
|
|
|
(6,349
|
)
|
|
543,697
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
Net incurred losses and LAE
|
(41,970
|
)
|
|
20,777
|
|
|
157,229
|
|
|
—
|
|
|
—
|
|
|
136,036
|
|
Life and annuity policy benefits
|
—
|
|
|
—
|
|
|
—
|
|
|
50,937
|
|
|
—
|
|
|
50,937
|
|
Acquisition costs
|
(7,576
|
)
|
|
21,707
|
|
|
51,508
|
|
|
6,005
|
|
|
—
|
|
|
71,644
|
|
General and administrative expenses
|
108,159
|
|
|
18,293
|
|
|
63,104
|
|
|
7,122
|
|
|
(6,117
|
)
|
|
190,561
|
|
Interest expense
|
5,346
|
|
|
2,965
|
|
|
—
|
|
|
800
|
|
|
(232
|
)
|
|
8,879
|
|
Net foreign exchange losses (gains)
|
595
|
|
|
(302
|
)
|
|
(2,180
|
)
|
|
(732
|
)
|
|
—
|
|
|
(2,619
|
)
|
|
64,554
|
|
|
63,440
|
|
|
269,661
|
|
|
64,132
|
|
|
(6,349
|
)
|
|
455,438
|
|
EARNINGS BEFORE INCOME TAXES
|
61,665
|
|
|
22,687
|
|
|
573
|
|
|
3,334
|
|
|
—
|
|
|
88,259
|
|
INCOME TAXES
|
(11,211
|
)
|
|
(4,136
|
)
|
|
12
|
|
|
(1,225
|
)
|
|
—
|
|
|
(16,560
|
)
|
NET EARNINGS
|
50,454
|
|
|
18,551
|
|
|
585
|
|
|
2,109
|
|
|
—
|
|
|
71,699
|
|
Less: Net earnings attributable to noncontrolling interest
|
(3,357
|
)
|
|
(8,710
|
)
|
|
(240
|
)
|
|
—
|
|
|
—
|
|
|
(12,307
|
)
|
NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED
|
$
|
47,097
|
|
|
$
|
9,841
|
|
|
$
|
345
|
|
|
$
|
2,109
|
|
|
$
|
—
|
|
|
$
|
59,392
|
|
Assets by Segment
Invested assets are managed on a subsidiary-by-subsidiary basis, and investment income and realized and unrealized gains (losses) on investments are recognized in each segment as earned. Our total assets as at
June 30, 2016
and
December 31, 2015
by segment were as follows (the elimination items include the elimination of intersegment assets):
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
Total assets:
|
|
|
|
Non-life Run-off
|
$
|
8,337,022
|
|
|
$
|
7,629,184
|
|
Atrium
|
577,235
|
|
|
555,621
|
|
StarStone
|
2,915,503
|
|
|
2,778,275
|
|
Life and annuities
|
1,687,902
|
|
|
1,734,945
|
|
Less:
|
|
|
|
Eliminations
|
(858,496
|
)
|
|
(865,893
|
)
|
|
$
|
12,659,166
|
|
|
$
|
11,832,132
|
|