Enstar Group Limited (Nasdaq: ESGR) filed its quarterly report on
Form 10-Q with the SEC earlier today. An audio presentation
reviewing the first quarter 2023 results with expanded commentary
is available on Enstar's investor relations website at
investor.enstargroup.com.
First Quarter 2023
Highlights:
-
Net earnings of $424 million, or $24.79 per diluted ordinary share,
compared to net loss of $267 million, or $15.19 per diluted
ordinary share, for the three months ended March 31, 2022.
-
Return on equity ("ROE") of 9.5% and Adjusted ROE* of 6.8% for the
quarter compared to (4.6)% and (1.1)%, respectively, in the first
quarter of 2022. ROE performance was driven by investment returns
of $355 million and a one-time net gain recognized on the
completion of the novation of the Enhanzed Re reinsurance closed
block of life annuity policies of $194 million. Adjusted ROE*
excludes $41 million of net realized and unrealized gains on our
fixed income securities.
-
Run-off liability earnings ("RLE") of $10 million, driven by
favorable development on our workers' compensation line of business
and partially offset by increases in the value of certain
portfolios that are held at fair value. In comparison, RLE of $176
million in the prior-year period benefited from reductions in the
value of certain portfolios that we hold at fair value and
favorable results on our inactive catastrophe programs held by
Enhanzed Re.
-
Annualized total investment return (“TIR”) of 9.5% and Annualized
Adjusted TIR* of 6.3%, compared to (11.0)% and 0.5%, respectively,
for the three months ended March 31, 2022. Recognized investment
results benefited from net realized and unrealized gains on our
fixed income securities and other investments, including equities,
of $275 million and an increase in net investment income of $76
million.
-
Entered into $1.9 billion Loss Portfolio Transfer (“LPT”) agreement
with certain subsidiaries of QBE Insurance Group Limited (“QBE”)
and AUD$360 million (USD $245 million) LPT with RACQ Insurance
Limited (“RACQ”). Subsequent to quarter-end, completed the LPT
transaction with QBE.
-
Repurchased remaining $341 million of non-voting convertible
ordinary shares, at a price that represented a 13% discount to
year-end book value at the time the repurchase was negotiated as
reported in our Annual Report on Form 10-K for the year ended
December 31, 2022, simplifying Enstar’s capital structure.
Following the adoption of ASU 2018-12 on a retrospective basis, the
price paid in the repurchase transaction represented a 23% discount
to year-end book value as reported in and further described in our
Quarterly Report on Form 10-Q for the three months ended March 31,
2023.
* Non-GAAP measure; refer to "Non-GAAP Financial
Measures" further below for explanatory notes and a reconciliation
to the most directly comparable GAAP measure.
Dominic Silvester, Enstar CEO,
said:
“We had a solid start to 2023, delivering strong
net earnings largely driven by positive performance in our
investment portfolio. We continued to build on our M&A
successes from the prior year, entering into a $1.9 billion
ground-up LPT with QBE, which we completed at the beginning of
April, and a second USD $245 million transaction with RACQ, which
we expect to close later this month. We are well-equipped to take
advantage of the many opportunities we continue to see in an
ever-growing sector of the market.
We also took the opportunity to simplify our
capital structure through an accretive repurchase of all
outstanding non-voting convertible ordinary shares. Looking ahead,
strengthened by our scale, differentiated expertise, claims
management function, and strong balance sheet, we remain
well-positioned to provide long-term value to our
shareholders.”
Key Financial and Operating
Metrics
We use the following GAAP and Non-GAAP measures
to monitor the performance of and manage the company:
|
Three Months Ended |
|
March 31, 2023 |
|
March 31, 2022 |
|
$ / pp / bpChange |
|
(in millions of U.S. dollars, except per share
data) |
Key Earnings Metrics |
|
|
|
|
|
Net earnings (loss) attributable to Enstar ordinary
shareholders |
$ |
424 |
|
|
$ |
(267 |
) |
|
$ |
691 |
|
Adjusted operating income (loss) attributable to Enstar ordinary
shareholders* |
$ |
401 |
|
|
$ |
(60 |
) |
|
$ |
461 |
|
ROE |
|
9.5 |
% |
|
(4.6) |
% |
|
14.1 pp |
Annualized ROE |
|
38.0 |
% |
|
(18.4) |
% |
|
56.4 pp |
Adjusted ROE* |
|
6.8 |
% |
|
(1.1) |
% |
|
7.9 pp |
Annualized Adjusted ROE* |
|
27.3 |
% |
|
(4.4) |
% |
|
31.7 pp |
|
|
|
|
|
|
Key Run-off Metrics |
|
|
|
|
|
Prior period development |
$ |
10 |
|
|
$ |
176 |
|
|
$ |
(166 |
) |
Adjusted prior period development* |
$ |
36 |
|
|
$ |
53 |
|
|
$ |
(17 |
) |
RLE |
|
0.1 |
% |
|
|
1.5 |
% |
|
(1.4) |
pp |
Adjusted RLE* |
|
0.3 |
% |
|
|
0.4 |
% |
|
(0.1) pp |
|
|
|
|
|
|
Key Investment Return Metrics |
|
|
|
|
|
Total investable assets |
$ |
17,773 |
|
|
$ |
20,618 |
|
|
$ |
(2,845 |
) |
Adjusted total investable assets* |
$ |
18,767 |
|
|
$ |
21,139 |
|
|
$ |
(2,372 |
) |
Investment book yield |
|
3.58 |
% |
|
|
1.91 |
% |
|
167 bp |
Annualized TIR |
|
9.5 |
% |
|
(11.0) |
% |
|
20.5 pp |
Annualized Adjusted TIR* |
|
6.3 |
% |
|
|
0.5 |
% |
|
5.8 pp |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of |
|
|
Key Shareholder Metrics |
March 31, 2023 |
|
December 31, 2022 |
|
|
Book value per ordinary share |
$ |
282.74 |
|
|
$ |
262.24 |
|
|
$ |
20.50 |
|
Adjusted book value per ordinary share* |
$ |
277.38 |
|
|
$ |
258.92 |
|
|
$ |
18.46 |
|
pp - Percentage point(s) bp - Basis point(s)
*Non-GAAP measure; refer to "Non-GAAP Financial Measures" further
below for explanatory notes and a reconciliation to the most
directly comparable GAAP measure.
Results of Operations By Segment - For
the Three Months Ended March 31, 2023, and 2022
Run-off Segment
The following is a discussion and analysis of
the results of operations for our Run-off segment.
|
Three Months EndedMarch 31, |
|
|
|
|
|
|
2023 |
|
|
|
2022 |
|
|
$Change |
|
(in millions of U.S. dollars) |
|
INCOME |
|
Net premiums earned |
$ |
8 |
|
|
$ |
17 |
|
|
$ |
(9 |
) |
Other income: |
|
|
|
|
|
Reduction in estimates of net ultimate defendant A&E
liabilities - prior periods |
|
2 |
|
|
|
3 |
|
|
|
(1 |
) |
Reduction in estimated future defendant A&E expenses |
|
1 |
|
|
|
— |
|
|
|
1 |
|
All other income |
|
2 |
|
|
|
7 |
|
|
|
(5 |
) |
Total other income |
|
5 |
|
|
|
10 |
|
|
|
(5 |
) |
Total income |
|
13 |
|
|
|
27 |
|
|
|
(14 |
) |
|
|
|
|
|
|
EXPENSES |
|
|
|
|
|
Net incurred losses and LAE: |
|
|
|
|
|
Current period |
|
10 |
|
|
|
11 |
|
|
|
(1 |
) |
Prior periods: |
|
|
|
|
|
Reduction in estimates of net ultimate losses |
|
(15 |
) |
|
|
(29 |
) |
|
|
14 |
|
Reduction in provisions for ULAE |
|
(18 |
) |
|
|
(21 |
) |
|
|
3 |
|
Total prior periods |
|
(33 |
) |
|
|
(50 |
) |
|
|
17 |
|
Total net incurred losses and LAE |
|
(23 |
) |
|
|
(39 |
) |
|
|
16 |
|
Acquisition costs |
|
2 |
|
|
|
8 |
|
|
|
(6 |
) |
General and administrative expenses |
|
39 |
|
|
|
39 |
|
|
|
— |
|
Total expenses |
|
18 |
|
|
|
8 |
|
|
|
10 |
|
|
|
|
|
|
|
SEGMENT NET (LOSS) EARNINGS |
$ |
(5 |
) |
|
$ |
19 |
|
|
$ |
(24 |
) |
Overall Results
Three Months Ended March 31, 2023 versus
2022: Net loss from our Run-off segment was $5 million
compared to net earnings of $19 million in the comparative quarter,
primarily due to:
-
A $17 million decrease in the reduction in estimates of net
ultimate losses in the current quarter, mainly driven by a $14
million decrease in favorable prior period development in
comparison to the comparative quarter.
-
We recognized favorable development of $11 million on our workers’
compensation line of business in the current quarter as a result of
continued favorable claims experience, most notably in the 2021
acquisition year.
-
In comparison, we recognized favorable development of $34 million
on our workers’ compensation line of business in the comparative
quarter as a result of favorable loss activity in the period,
partially offset by adverse development of $13 million on our
property line of business due to unfavorable loss emergence
relating to construction risks; and
- Reductions in net
premiums earned that were greater than the reductions in current
period net incurred losses and LAE and acquisition costs, following
our exit of our StarStone International business beginning in
2020.
Investments Segment
The following is a discussion and analysis of
the results of operations for our Investments segment.
|
Three Months Ended |
|
$ Change |
|
March 31, |
|
|
|
2023 |
|
|
|
2022 |
|
|
|
(in millions of U.S. dollars) |
INCOME |
|
|
|
|
|
Net investment income: |
|
|
|
|
|
Fixed income securities |
$ |
131 |
|
|
$ |
68 |
|
|
$ |
63 |
|
Cash and restricted cash |
|
5 |
|
|
|
— |
|
|
|
5 |
|
Other investments, including equities |
|
24 |
|
|
|
19 |
|
|
|
5 |
|
Less: Investment expenses |
|
(4 |
) |
|
|
(11 |
) |
|
|
7 |
|
Total net investment income |
|
156 |
|
|
|
76 |
|
|
|
80 |
|
Net realized losses: |
|
|
|
|
|
Fixed income securities |
|
(25 |
) |
|
|
(35 |
) |
|
|
10 |
|
Other investments, including equities |
|
(11 |
) |
|
|
(2 |
) |
|
|
(9 |
) |
Net realized losses: |
|
(36 |
) |
|
|
(37 |
) |
|
|
1 |
|
Net unrealized gains (losses): |
|
|
|
|
|
Fixed income securities |
|
66 |
|
|
|
(293 |
) |
|
|
359 |
|
Other investments, including equities |
|
158 |
|
|
|
(82 |
) |
|
|
240 |
|
Total net unrealized gains (losses): |
|
224 |
|
|
|
(375 |
) |
|
|
599 |
|
Total income |
|
344 |
|
|
|
(336 |
) |
|
|
680 |
|
|
|
|
|
|
|
EXPENSES |
|
|
|
|
|
General and administrative expenses |
|
11 |
|
|
|
9 |
|
|
|
2 |
|
Total expenses |
|
11 |
|
|
|
9 |
|
|
|
2 |
|
|
|
|
|
|
|
Earnings from equity method investments |
|
11 |
|
|
|
31 |
|
|
|
(20 |
) |
|
|
|
|
|
|
SEGMENT NET EARNINGS (LOSS) |
$ |
344 |
|
|
$ |
(314 |
) |
|
$ |
658 |
|
Overall Results
Three Months Ended March 31, 2023 versus
2022: Net earnings from our Investments segment was
$344 million for the three months ended March 31, 2023
compared to net losses of $314 million for the three months ended
March 31, 2022. The favorable movement of $658 million was
primarily due to:
-
net realized and unrealized gains on fixed income securities of $41
million, compared to net realized and unrealized losses of $328
million in the comparative period. The favorable variance of $369
million was primarily driven by a decline in interest rates in the
current period, in comparison to an increase in interest rates
across U.S., U.K. and European markets and widening credit spreads
in the prior period;
-
net realized and unrealized gains on other investments, including
equities, of $147 million, compared to net realized and unrealized
losses of $84 million in the comparative period. The favorable
variance of $231 million was primarily driven by:
-
Net unrealized gains for the three months ended March 31, 2023
primarily from our public equities, CLO equity, fixed income funds,
private equity funds and hedge funds, largely as a result of a
rally in global equity markets;
-
Net losses for the three months ended March 31, 2022 driven by our
fixed income funds, public equities, hedge funds and CLO equities,
largely as a result of global equity market declines and the
widening of high yield credit spreads. This was partially offset by
gains on our private equity funds, private credit funds and real
estate funds, which are typically recorded on a one quarter lag;
and
- an increase in our net investment
income of $80 million, which is primarily due to the investment of
new premium and reinvestment of fixed income securities at higher
yields and the impact of rising interest rates on the
$3.0 billion of our fixed income securities that are subject
to floating interest rates. Our floating rate investments generated
increased net investment income of $27 million, which equates
to an increase of 361 basis points on those investments in
comparison to the prior period.
Income and (Loss) Earnings by Segment -
For the Three Months Ended March 31, 2023 and 2022
|
Three Months Ended |
|
March 31, 2023 |
|
March 31, 2022 |
|
$ Change |
|
(in millions of U.S. dollars) |
INCOME |
|
|
|
|
|
Run-off |
$ |
13 |
|
|
$ |
27 |
|
|
$ |
(14 |
) |
Assumed Life |
|
275 |
|
|
|
14 |
|
|
|
261 |
|
Investments |
|
344 |
|
|
|
(336 |
) |
|
|
680 |
|
Legacy Underwriting |
|
— |
|
|
|
2 |
|
|
|
(2 |
) |
Subtotal |
|
632 |
|
|
|
(293 |
) |
|
|
925 |
|
Corporate and other |
|
— |
|
|
|
3 |
|
|
|
(3 |
) |
Total income |
$ |
632 |
|
|
$ |
(290 |
) |
|
$ |
922 |
|
|
|
|
|
|
|
SEGMENT NET EARNINGS (LOSS) |
|
|
|
|
|
Run-off |
$ |
(5 |
) |
|
$ |
19 |
|
|
$ |
(24 |
) |
Assumed Life |
|
275 |
|
|
|
29 |
|
|
|
246 |
|
Investments |
|
344 |
|
|
|
(314 |
) |
|
|
658 |
|
Legacy Underwriting |
|
— |
|
|
|
— |
|
|
|
— |
|
Total segment net earnings (loss) |
|
614 |
|
|
|
(266 |
) |
|
|
880 |
|
Corporate and other |
|
(190 |
) |
|
|
(1 |
) |
|
|
(189 |
) |
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR ORDINARY
SHAREHOLDERS |
$ |
424 |
|
|
$ |
(267 |
) |
|
$ |
691 |
|
|
|
|
|
|
|
For additional detail on the Assumed Life
segment, the Legacy Underwriting segment and Corporate and other
activities, please refer to our Quarterly Report on Form 10-Q for
the three months ended March 31, 2023.
Cautionary Statement
This press release contains certain
forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements include
statements regarding the intent, belief or current expectations of
Enstar and its management team. Investors can identify these
statements by the fact that they do not relate strictly to
historical or current facts. They use words such as ‘aim’,
‘anticipate’, ‘estimate’, ‘expect’, ‘intend’, ‘will’, ‘project’,
‘plan’, ‘believe’, ‘target’ and other words and terms of similar
meaning in connection with any discussion of future events or
performance. Investors are cautioned that any such forward-looking
statements speak only as of the date they are made, are not
guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from
those projected in the forward-looking statements as a result of
various factors. Important risk factors regarding Enstar can be
found under the heading "Risk Factors" in our Form 10-K for the
year ended December 31, 2022 and are incorporated herein by
reference. Furthermore, Enstar undertakes no obligation to update
any written or oral forward-looking statements or publicly announce
any updates or revisions to any of the forward-looking statements
contained herein, to reflect any change in its expectations with
regard thereto or any change in events, conditions, circumstances
or assumptions underlying such statements, except as required by
law.
About Enstar
Enstar is a NASDAQ-listed leading global
(re)insurance group that offers innovative capital release
solutions through its network of group companies in Bermuda, the
United States, the United Kingdom, Continental Europe and
Australia. A market leader in completing legacy acquisitions,
Enstar has acquired over 110 companies and portfolios since its
formation. For further information about Enstar, see
www.enstargroup.com.
Contacts
For Investors: Matthew Kirk
(investor.relations@enstargroup.com)
For Media: Jenna Kerr
(communications@enstargroup.com)
ENSTAR GROUP
LIMITED CONDENSED CONSOLIDATED STATEMENTS OF
EARNINGS For the Three Months Ended March 31,
2023 and 2022
|
Three Months EndedMarch 31, |
|
|
2023 |
|
|
|
2022 |
|
|
(expressed in millions of U.S. dollars, except share and
per share data) |
INCOME |
|
|
|
Net premiums earned |
$ |
8 |
|
|
$ |
34 |
|
Net investment income |
|
156 |
|
|
|
80 |
|
Net realized losses |
|
(36 |
) |
|
|
(37 |
) |
Net unrealized gains (losses) |
|
224 |
|
|
|
(381 |
) |
Other income |
|
280 |
|
|
|
14 |
|
Total income |
|
632 |
|
|
|
(290 |
) |
|
|
|
|
EXPENSES |
|
|
|
Net incurred losses and loss adjustment expenses |
|
|
|
Current period |
|
10 |
|
|
|
13 |
|
Prior periods |
|
(10 |
) |
|
|
(176 |
) |
Total net incurred losses and loss adjustment expenses |
|
— |
|
|
|
(163 |
) |
Policyholder benefit expenses |
|
— |
|
|
|
12 |
|
Amortization of net deferred charge assets |
|
17 |
|
|
|
18 |
|
Acquisition costs |
|
2 |
|
|
|
8 |
|
General and administrative expenses |
|
89 |
|
|
|
85 |
|
Interest expense |
|
23 |
|
|
|
25 |
|
Net foreign exchange (gains) losses |
|
(6 |
) |
|
|
3 |
|
Total expenses |
|
125 |
|
|
|
(12 |
) |
|
|
|
|
EARNINGS (LOSS) BEFORE INCOME TAXES |
|
507 |
|
|
|
(278 |
) |
Income tax benefit |
|
1 |
|
|
|
— |
|
Earnings from equity method investments |
|
11 |
|
|
|
31 |
|
NET EARNINGS (LOSS) |
|
519 |
|
|
|
(247 |
) |
Net earnings attributable to noncontrolling interests |
|
(86 |
) |
|
|
(11 |
) |
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR |
|
433 |
|
|
|
(258 |
) |
Dividends on preferred shares |
|
(9 |
) |
|
|
(9 |
) |
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR ORDINARY
SHAREHOLDERS |
$ |
424 |
|
|
$ |
(267 |
) |
|
|
|
|
Earnings (loss) per ordinary share attributable to Enstar: |
Basic |
$ |
24.97 |
|
|
$ |
(15.19 |
) |
Diluted |
$ |
24.79 |
|
|
$ |
(15.19 |
) |
Weighted average ordinary shares outstanding: |
|
|
|
Basic |
|
16,980,240 |
|
|
|
17,578,019 |
|
Diluted |
|
17,100,954 |
|
|
|
17,785,121 |
|
ENSTAR GROUP
LIMITED CONDENSED CONSOLIDATED BALANCE
SHEETS As of March 31, 2023 and December 31,
2022
|
March 31, 2023 |
|
December 31, 2022 |
|
(in millions of U.S. dollars, except share
data) |
ASSETS |
|
|
|
Short-term investments, trading, at fair value |
$ |
3 |
|
|
$ |
14 |
|
Short-term investments, available-for-sale, at fair value
(amortized cost: 2023 — $25; 2022 — $37) |
|
25 |
|
|
|
38 |
|
Fixed maturities, trading, at fair value |
|
2,153 |
|
|
|
2,370 |
|
Fixed maturities, available-for-sale, at fair value (amortized
cost: 2023 — $5,713; 2022 — $5,871; net of allowance:
2023 — $21; 2022 — $33) |
|
5,183 |
|
|
|
5,223 |
|
Funds held - directly managed, at fair value |
|
1,103 |
|
|
|
2,040 |
|
Equities, at fair value (cost: 2023 — $1,092; 2022 — $1,357) |
|
1,078 |
|
|
|
1,250 |
|
Other investments, at fair value (includes consolidated variable
interest entity: 2023 - $14; 2022 - $3) |
|
3,417 |
|
|
|
3,296 |
|
Equity method investments |
|
410 |
|
|
|
397 |
|
Total investments |
|
13,372 |
|
|
|
14,628 |
|
Cash and cash equivalents |
|
828 |
|
|
|
822 |
|
Restricted cash and cash equivalents |
|
315 |
|
|
|
508 |
|
Reinsurance balances recoverable on paid and unpaid losses (net of
allowance: 2023 — $135; 2022 — $131) |
|
883 |
|
|
|
856 |
|
Reinsurance balances recoverable on paid and unpaid losses, at fair
value |
|
265 |
|
|
|
275 |
|
Insurance balances recoverable (net of allowance: 2023 and 2022 —
$5) |
|
176 |
|
|
|
177 |
|
Funds held by reinsured companies |
|
3,258 |
|
|
|
3,582 |
|
Net deferred charge assets |
|
641 |
|
|
|
658 |
|
Other assets |
|
607 |
|
|
|
648 |
|
TOTAL ASSETS |
$ |
20,345 |
|
|
$ |
22,154 |
|
LIABILITIES |
|
|
|
Losses and loss adjustment expenses |
$ |
10,936 |
|
|
$ |
11,721 |
|
Losses and loss adjustment expenses, at fair value |
|
1,250 |
|
|
|
1,286 |
|
Future policyholder benefits |
|
— |
|
|
|
821 |
|
Defendant asbestos and environmental liabilities |
|
596 |
|
|
|
607 |
|
Insurance and reinsurance balances payable |
|
74 |
|
|
|
100 |
|
Debt obligations |
|
1,830 |
|
|
|
1,829 |
|
Other liabilities |
|
605 |
|
|
|
462 |
|
TOTAL LIABILITIES |
|
15,291 |
|
|
|
16,826 |
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
REDEEMABLE NONCONTROLLING INTERESTS |
|
170 |
|
|
|
168 |
|
|
|
|
|
SHAREHOLDERS’ EQUITY |
|
|
|
Ordinary Shares (par value $1 each, issued and outstanding 2023:
16,010,758; 2022: 17,588,050): |
|
|
|
Voting Ordinary Shares (issued and outstanding 2023: 16,010,758;
2022: 15,990,338) |
|
16 |
|
|
|
16 |
|
Non-voting convertible ordinary Series C Shares (issued and
outstanding 2023: 0; 2022: 1,192,941) |
|
— |
|
|
|
1 |
|
Non-voting convertible ordinary Series E Shares (issued and
outstanding 2023: 0; 2022: 404,771) |
|
— |
|
|
|
— |
|
Preferred Shares: |
|
|
|
Series C Preferred Shares (issued and held in treasury 2023 and
2022: 388,571) |
|
— |
|
|
|
— |
|
Series D Preferred Shares (issued and outstanding 2023 and 2022:
16,000; liquidation preference $400) |
|
400 |
|
|
|
400 |
|
Series E Preferred Shares (issued and outstanding 2023 and 2022:
4,400; liquidation preference $110) |
|
110 |
|
|
|
110 |
|
Treasury shares, at cost (Series C Preferred Shares 2023 and 2022:
388,571) |
|
(422 |
) |
|
|
(422 |
) |
Joint Share Ownership Plan (voting ordinary shares, held in trust
2023 and 2022: 565,630) |
|
(1 |
) |
|
|
(1 |
) |
Additional paid-in capital |
|
440 |
|
|
|
766 |
|
Accumulated other comprehensive loss |
|
(496 |
) |
|
|
(302 |
) |
Retained earnings |
|
4,830 |
|
|
|
4,406 |
|
Total Enstar Shareholders’ Equity |
|
4,877 |
|
|
|
4,974 |
|
Noncontrolling interests |
|
7 |
|
|
|
186 |
|
TOTAL SHAREHOLDERS’ EQUITY |
|
4,884 |
|
|
|
5,160 |
|
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND
SHAREHOLDERS’ EQUITY |
$ |
20,345 |
|
|
$ |
22,154 |
|
Non-GAAP Financial Measures
In addition to our key financial measures presented
in accordance with GAAP, we present other non-GAAP financial
measures that we use to manage our business, compare our
performance against prior periods and against our peers, and as
performance measures in our incentive compensation program. These
non-GAAP financial measures provide an additional view of our
operational performance over the long-term and provide the
opportunity to analyze our results in a way that is more aligned
with the manner in which our management measures our underlying
performance.The presentation of these non-GAAP financial measures,
which may be defined and calculated differently by other companies,
is used to enhance the understanding of certain aspects of our
financial performance. It is not meant to be considered in
isolation, superior to, or as a substitute for the directly
comparable financial measures prepared in accordance with GAAP.
Some of the adjustments reflected in our
non-GAAP measures are recurring items, such as the exclusion of
adjustments to net realized and unrealized (gains)/losses on fixed
maturity investments recognized in our income statement, the fair
value of certain of our loss reserve liabilities for which we have
elected the fair value option, and the amortization of fair value
adjustments.
Management makes these adjustments in assessing
our performance so that the changes in fair value due to interest
rate movements, which are applied to some but not all of our assets
and liabilities as a result of preexisting accounting elections, do
not impair comparability across reporting periods.
It is important for the readers of our periodic
filings to understand that these items will recur from period to
period.
However, we exclude these items for the purpose
of presenting a comparable view across reporting periods of the
impact of our underlying claims management and investments without
the effect of interest rate fluctuations on assets that we
anticipate to hold to maturity and non-cash changes to the fair
value of our reserves.
Similarly, our non-GAAP measures reflect the
exclusion of certain items that we deem to be nonrecurring, unusual
or infrequent when the nature of the charge or gain is such that it
is not reasonably likely that such item may recur within two years,
nor was there a similar charge or gain in the preceding two years.
This includes adjustments related to bargain purchase gains on
acquisitions of businesses, net gains or losses on sales of
subsidiaries, net assets of held for sale or disposed subsidiaries
classified as discontinued operations and other items that we
separately disclose.
The following table presents more information on
each non-GAAP measure. The results and GAAP reconciliations for
these measures are set forth further below.
Non-GAAP Measure |
|
Definition |
|
Purpose of Non-GAAP Measure over GAAP Measure |
Adjusted book value per ordinary share |
|
Total Enstar ordinary shareholders' equityDivided byNumber of
ordinary shares outstanding, adjusted for:-the ultimate effect of
any dilutive securities on the number of ordinary shares
outstanding |
|
Increases the number of ordinary shares to reflect the exercise of
equity awards granted but not yet vested as, over the long term,
this presents both management and investors with a more
economically accurate measure of the realizable value of
shareholder returns by factoring in the impact of share dilution.
We use this non-GAAP measure in our incentive compensation
program. |
Adjusted return on equity (%) |
|
Adjusted operating income (loss) attributable to Enstar ordinary
shareholders divided by adjusted opening Enstar ordinary
shareholder's equity |
|
Calculating the operating income (loss) as a percentage of our
adjusted opening Enstar ordinary shareholders' equity provides a
more consistent measure of the performance of our business by
enabling comparison between the financial periods presented. We
eliminate the impact of net realized and unrealized (gains) losses
on fixed maturity investments and funds-held directly managed and
the change in fair value of insurance contracts for which we have
elected the fair value option, as:
- we typically hold most of our fixed
income securities until the earlier of maturity or the time that
they are used to fund any settlement of related liabilities which
are generally recorded at cost; and
- removing the fair value option
improves comparability since there are limited acquisition years
for which we elected the fair value option.
Therefore, we believe that excluding their impact on our earnings
improves comparability of our core operational performance across
periods. We include fair value adjustments
as non-GAAP adjustments to the adjusted operating income (loss)
attributable to Enstar ordinary shareholders as they are non-cash
charges that are not reflective of the impact of our claims
management strategies on our loss portfolios. We eliminate the
net gain (loss) on the purchase and sales of subsidiaries and net
earnings from discontinued operations, as these items are not
indicative of our ongoing operations. We use this
non-GAAP measure in our incentive compensation program. |
Adjusted operating income (loss) attributable to Enstar
ordinary
shareholders(numerator) |
|
Net earnings (loss) attributable to Enstar ordinary shareholders,
adjusted for:-net realized and unrealized (gains) losses on fixed
maturity investments and funds held-directly managed,-change in
fair value of insurance contracts for which we have elected the
fair value option (1),-amortization of fair value adjustments,-net
gain/loss on purchase and sales of subsidiaries (if any),-net
earnings from discontinued operations (if any),-tax effects of
adjustments, and-adjustments attributable to noncontrolling
interests |
|
Adjusted opening Enstar ordinary shareholders' equity
(denominator) |
|
Opening Enstar ordinary shareholders' equity, less:-net unrealized
gains (losses) on fixed maturity investments and funds
held-directly managed,-fair value of insurance contracts for which
we have elected the fair value option (1),-fair value adjustments,
and-net assets of held for sale or disposed subsidiaries classified
as discontinued operations (if any) |
|
Adjusted total investment return (%) |
|
Adjusted total investment return (dollars) recognized in earnings
for the applicable period divided by period average adjusted total
investable assets. |
|
Provides a key measure of the return generated on the capital held
in the business and is reflective of our investment strategy.
Provides a consistent measure of investment returns as a percentage
of all assets generating investment returns. We adjust our
investment returns to eliminate the impact of the change in fair
value of fixed income securities (both credit spreads and interest
rates), as we typically hold most of these investments until the
earlier of maturity or used to fund any settlement of related
liabilities which are generally recorded at cost. |
Adjusted total investment return ($)
(numerator) |
|
Total investment return (dollars), adjusted for:-net realized and
unrealized (gains) losses on fixed income securities and funds
held-directly managed; and-unrealized (gains) losses on fixed
income securities, AFS included within OCI, net of reclassification
adjustments and excluding foreign exchange. |
|
Adjusted average aggregate total investable assets
(denominator) |
|
Total investment return (dollars), adjusted for:-net realized and
unrealized (gains) losses on fixed income securities and funds
held-directly managed; and-unrealized (gains) losses on fixed
income securities, AFS included within OCI, net of reclassification
adjustments and excluding foreign exchange. |
|
Adjusted run-off liability earnings (%) |
|
Adjusted PPD divided by average adjusted net loss reserves |
|
Calculating the RLE as a percentage of our adjusted average net
loss reserves provides a more meaningful and comparable measurement
of the impact of our claims management strategies on our loss
portfolios across acquisition years and also to our overall
financial periods. We use this measure to evaluate
the impact of our claims management strategies because it provides
visibility into our ability to settle our claims obligations for
amounts less than our initial estimate at the point of acquiring
the obligations. The
following components of periodic recurring net incurred losses and
LAE and net loss reserves are not considered key components of our
claims management performance for the following reasons:
- The results of our Legacy Underwriting
segment have been economically transferred to a third party
primarily through use of reinsurance and a Capacity Lease
Agreement(2); as such, the results are not a relevant contribution
to Adjusted RLE, which is designed to analyze the impact of our
claims management strategies;
- The results of our Assumed Life
segment relate only to our exposure to active property catastrophe
business; as this business is not in run-off, the results are not a
relevant contribution to Adjusted RLE;
- The change in fair value of insurance
contracts for which we have elected the fair value option(1) has
been removed to support comparability between the two acquisition
years for which we elected the fair value option in reserves
assumed and the acquisition years for which we did not make this
election (specifically, this election was only made in the 2017 and
2018 acquisition years and the election of such option is
irrevocable); and
- The amortization of fair value
adjustments are non-cash charges that obscure our trends on a
consistent basis.
We include our performance in managing claims and estimated future
expenses on our defendant A&E liabilities because such
performance is relevant to assessing our claims management
strategies even though such liabilities are not included within the
loss reserves.We use this measure to assess the performance of our
claim strategies and part of the performance assessment of our past
acquisitions. |
Adjusted prior period
development(numerator) |
|
Prior period net incurred losses and LAE, adjusted to: Remove:
-Legacy Underwriting and Assumed Life operations -amortization of
fair value adjustments, -change in fair value of insurance
contracts for which we have elected the fair value option (1), and
Add: -the reduction/(increase) in estimates of net
ultimate liabilities and reduction in estimated future expenses of
our defendant A&E liabilities. |
|
Adjusted net loss reserves
(denominator) |
|
Net losses and LAE, adjusted to:Remove:-Legacy Underwriting and
Assumed Life net loss reserves-current period net loss reserves-net
fair value adjustments associated with the acquisition of
companies,-the fair value adjustments for contracts for which we
have elected the fair value option (1) andAdd:-net nominal
defendant A&E liability exposures and estimated future
expenses |
|
(1) |
Comprises the
discount rate and risk margin components. |
(2) |
As described in Note 5 to our consolidated financial statements
in our Annual Report on Form 10-K for the year ended December 31,
2022. |
*Non-GAAP measure.
Reconciliation of GAAP to Non-GAAP
Measures
The table below presents a reconciliation of
BVPS to Adjusted BVPS*:
|
|
March 31, 2023 |
|
December 31, 2022 |
|
|
Equity (1) |
|
Ordinary Shares |
|
Per Share Amount |
|
Equity (1) (2) |
|
Ordinary Shares |
|
Per Share Amount |
|
|
(in millions of U.S. dollars, except share and per share
data) |
Book value per ordinary share |
|
$ |
4,367 |
|
15,445,128 |
|
$ |
282.74 |
|
$ |
4,464 |
|
17,022,420 |
|
$ |
262.24 |
Non-GAAP adjustment: |
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation plans |
|
|
|
298,797 |
|
|
|
|
|
218,171 |
|
|
Adjusted book value per ordinary share* |
|
$ |
4,367 |
|
15,743,925 |
|
$ |
277.38 |
|
$ |
4,464 |
|
17,240,591 |
|
$ |
258.92 |
(1) |
Equity
comprises Enstar ordinary shareholders' equity, which is calculated
as Enstar shareholders' equity less preferred shares ($510 million)
prior to any non-GAAP adjustments. |
(2) |
Enstar ordinary shareholders’ equity as of December 31, 2022
has been retrospectively adjusted for the impact of adopting ASU
2018-12. Refer to Note 7 to our condensed consolidated financial
statements in our Quarterly Report on Form 10-Q for the three
months ended March 31, 2023 for further information. |
The table below presents a reconciliation of ROE
to Adjusted ROE* and Annualized ROE to Annualized Adjusted
ROE*:
|
Three Months Ended |
|
March 31, 2023 |
|
March 31, 2022 |
|
Net (loss) earnings (1) |
|
Opening equity (1)
(2) |
|
(Adj) ROE |
|
Annualized(Adj) ROE |
|
Net (loss) earnings (1) |
|
Opening equity (1) |
|
(Adj) ROE |
|
Annualized (Adj) ROE |
|
(in millions of U.S. dollars) |
Net (loss) earnings/Opening equity/ROE/Annualized
ROE (1) |
$ |
424 |
|
|
$ |
4,464 |
|
|
9.5 |
% |
|
38.0 |
% |
|
$ |
(267 |
) |
|
$ |
5,813 |
|
|
(4.6)% |
|
(18.4)% |
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remove: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized (gains) losses on fixed income
securities and funds held - directly managed / Net unrealized
(gains) losses on fixed income securities and funds held - directly
managed (3) |
|
(41 |
) |
|
|
1,827 |
|
|
|
|
|
|
|
334 |
|
|
|
(89 |
) |
|
|
|
|
Change in fair value of insurance contracts for which we have
elected the fair value option / Fair value of insurance contracts
for which we have elected the fair value option (4) |
|
20 |
|
|
|
(294 |
) |
|
|
|
|
|
|
(98 |
) |
|
|
(107 |
) |
|
|
|
|
Amortization of fair value adjustments / Fair value
adjustments |
|
3 |
|
|
|
(124 |
) |
|
|
|
|
|
|
2 |
|
|
|
(106 |
) |
|
|
|
|
Tax effects of adjustments (5) |
|
(3 |
) |
|
|
— |
|
|
|
|
|
|
|
(26 |
) |
|
|
— |
|
|
|
|
|
Adjustments attributable to noncontrolling interests (6) |
|
(2 |
) |
|
|
— |
|
|
|
|
|
|
|
(5 |
) |
|
|
— |
|
|
|
|
|
Adjusted operating (loss) income/Adjusted opening
equity/Adjusted ROE/Annualized adjusted ROE* |
$ |
401 |
|
|
$ |
5,873 |
|
|
6.8 |
% |
|
27.3 |
% |
|
$ |
(60 |
) |
|
$ |
5,511 |
|
|
(1.1)% |
|
(4.4)% |
(1) |
Net (loss)
earnings comprises net (loss) earnings attributable to Enstar
ordinary shareholders, prior to any non-GAAP adjustments. Opening
equity comprises Enstar ordinary shareholders' equity, which is
calculated as opening Enstar shareholders' equity less preferred
shares ($510 million), prior to any non-GAAP adjustments. |
(2) |
Enstar ordinary shareholders’ equity as of December 31, 2022
has been retrospectively adjusted for the impact of adopting ASU
2018-12. Refer to Note 7 to our condensed consolidated financial
statements in our Quarterly Report on Form 10-Q for the three
months ended March 31, 2023 for further information. |
(3) |
Represents the net realized and unrealized losses (gains)
related to fixed maturity securities. Our fixed maturity securities
are held directly on our balance sheet and also within the "Funds
held - directly managed" balance. |
(4) |
Comprises the discount rate and risk margin components. |
(5) |
Represents an aggregation of the tax expense or benefit
associated with the specific country to which the pre-tax
adjustment relates, calculated at the applicable jurisdictional tax
rate. |
(6) |
Represents the impact of the adjustments on the net earnings
(loss) attributable to noncontrolling interests associated with the
specific subsidiaries to which the adjustments relate. |
*Non-GAAP measure.
The tables below present a reconciliation of RLE
to Adjusted RLE* and Annualized RLE to Annualized Adjusted
RLE*:
|
Three Months Ended |
|
As of |
|
Three Months Ended |
|
March 31, 2023 |
|
March 31, 2023 |
|
December 31, 2023 |
|
March 31, 2023 |
|
March 31, 2023 |
|
RLE / PPD |
|
Net loss reserves |
|
Net lossreserves |
|
Average net loss reserves |
|
RLE % |
|
Annualized RLE % |
|
(in millions of U.S. dollars) |
|
|
PPD/net loss reserves/RLE/Annualized RLE |
$ |
10 |
|
$ |
11,226 |
|
|
$ |
12,011 |
|
|
$ |
11,619 |
|
|
0.1 |
% |
|
0.3 |
% |
Non-GAAP Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
Legacy Underwriting |
|
— |
|
|
— |
|
|
|
(139 |
) |
|
|
(70 |
) |
|
|
|
|
Net loss reserves - current period |
|
— |
|
|
(9 |
) |
|
|
— |
|
|
|
(5 |
) |
|
|
|
|
Amortization of fair value adjustments / Net fair value adjustments
associated with the acquisition of companies |
|
3 |
|
|
121 |
|
|
|
124 |
|
|
|
123 |
|
|
|
|
|
Changes in fair value - fair value option / Net fair value
adjustments for contracts for which we have elected the fair value
option (1) |
|
20 |
|
|
278 |
|
|
|
294 |
|
|
|
286 |
|
|
|
|
|
Change in estimate of net ultimate liabilities - defendant A&E
/ Net nominal defendant A&E liabilities |
|
2 |
|
|
560 |
|
|
|
572 |
|
|
|
566 |
|
|
|
|
|
Reduction in estimated future expenses - defendant A&E /
Estimated future expenses - defendant A&E |
|
1 |
|
|
34 |
|
|
|
35 |
|
|
|
35 |
|
|
|
|
|
Adjusted PPD/Adjusted net loss reserves/ Adjusted
RLE/Annualized Adjusted RLE* |
$ |
36 |
|
$ |
12,210 |
|
|
$ |
12,897 |
|
|
$ |
12,554 |
|
|
0.3 |
% |
|
1.1 |
% |
|
Three Months Ended |
|
As of |
|
Three Months Ended |
|
March 31, 2022 |
|
March 31, 2022 |
|
December 31, 2022 |
|
March 31, 2022 |
|
March 31, 2022 |
|
RLE / PPD |
|
Net loss reserves |
|
Net loss reserves |
|
Average net loss reserves |
|
RLE % |
|
Annualized RLE % |
|
(in millions of U.S. dollars) |
|
|
PPD/net loss reserves/RLE/Annualized RLE |
$ |
176 |
|
|
$ |
11,300 |
|
|
$ |
11,926 |
|
|
$ |
11,613 |
|
|
1.5 |
% |
|
6.1 |
% |
Non-GAAP Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
Assumed Life |
|
(29 |
) |
|
|
(152 |
) |
|
|
(181 |
) |
|
|
(166 |
) |
|
|
|
|
Legacy Underwriting |
|
(1 |
) |
|
|
(143 |
) |
|
|
(153 |
) |
|
|
(149 |
) |
|
|
|
|
Net loss reserves - current period |
|
— |
|
|
|
(13 |
) |
|
|
— |
|
|
|
(7 |
) |
|
|
|
|
Amortization of fair value adjustments / Net fair value adjustments
associated with the acquisition of companies |
|
2 |
|
|
|
104 |
|
|
|
106 |
|
|
|
105 |
|
|
|
|
|
Changes in fair value - fair value option / Net fair value
adjustments for contracts for which we have elected the fair value
option (1) |
|
(98 |
) |
|
|
201 |
|
|
|
107 |
|
|
|
154 |
|
|
|
|
|
Change in estimate of net ultimate liabilities - defendant A&E
/ Net nominal defendant A&E liabilities |
|
3 |
|
|
|
586 |
|
|
|
573 |
|
|
|
580 |
|
|
|
|
|
Reduction in estimated future expenses - defendant A&E /
Estimated future expenses - defendant A&E |
|
— |
|
|
|
37 |
|
|
|
37 |
|
|
|
37 |
|
|
|
|
|
Adjusted PPD/Adjusted net loss reserves/Adjusted
RLE/Annualized Adjusted RLE* |
$ |
53 |
|
|
$ |
11,920 |
|
|
$ |
12,415 |
|
|
$ |
12,167 |
|
|
0.4 |
% |
|
1.7 |
% |
(1) |
Comprises the
discount rate and risk margin components. |
*Non-GAAP measure.
The tables below present a reconciliation of our
Annualized TIR to our Annualized Adjusted TIR*:
|
Three Months Ended |
|
March 31, 2023 |
|
March 31, 2022 |
|
(in millions of U.S. dollars) |
Net investment income |
$ |
156 |
|
|
$ |
80 |
|
Net realized losses |
|
(36 |
) |
|
|
(37 |
) |
Net unrealized gains (losses) |
|
224 |
|
|
|
(381 |
) |
Earnings from equity method investments |
|
11 |
|
|
|
31 |
|
Other comprehensive income: |
|
|
|
Unrealized gains (losses) on fixed income securities, AFS, net of
reclassification adjustments excluding foreign exchange |
|
87 |
|
|
|
(252 |
) |
TIR ($) |
$ |
442 |
|
|
$ |
(559 |
) |
|
|
|
|
Non-GAAP adjustment: |
|
|
|
Net realized and unrealized (gains) losses on fixed maturity
investments and funds held-directly managed |
$ |
(41 |
) |
|
$ |
334 |
|
Unrealized (gains) losses on fixed income securities, AFS, net of
reclassification adjustments excluding foreign exchange |
|
(87 |
) |
|
|
252 |
|
Adjusted TIR ($)* |
$ |
314 |
|
|
$ |
27 |
|
|
|
|
|
Total investments |
$ |
13,372 |
|
|
$ |
17,242 |
|
Cash and cash equivalents, including restricted cash and cash
equivalents |
|
1,143 |
|
|
|
1,135 |
|
Funds held by reinsured companies |
|
3,258 |
|
|
|
2,241 |
|
Total investable assets |
$ |
17,773 |
|
|
$ |
20,618 |
|
|
|
|
|
Average aggregate invested assets, at fair value (1) |
|
18,615 |
|
|
|
20,243 |
|
Annualized TIR % (2) |
|
9.5 |
% |
|
(11.0) % |
Non-GAAP adjustment: |
|
|
|
Net unrealized losses (gains) on fixed maturities, AFS investments
included within AOCI and net unrealized losses (gains) on fixed
maturities, trading instruments |
|
994 |
|
|
|
521 |
|
Adjusted investable assets* |
$ |
18,767 |
|
|
$ |
21,139 |
|
|
|
|
|
Adjusted average aggregate invested assets, at fair value* (3) |
$ |
20,020 |
|
|
$ |
20,459 |
|
Annualized adjusted TIR %*
(4) |
|
6.3 |
% |
|
|
0.5 |
% |
(1) |
This amount is
a two period average of the total investable assets for the three
months ended March 31, 2023 and 2022 as presented above, and is
comprised of amounts disclosed in our quarterly and annual U.S.
GAAP consolidated financial statements. |
(2) |
Annualized TIR % is calculated by dividing the annualized TIR
($) by average aggregate invested assets, at fair value. |
(3) |
This amount is a two period average of the adjusted investable
assets* for the three months ended March 31, 2023 and 2022 as
presented above. |
(4) |
Annualized adjusted TIR %* is calculated by dividing the
annualized adjusted TIR* ($) by adjusted average aggregate invested
assets, at fair value*. |
*Non-GAAP measure.
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