Edgar Filing: Enstar Group LTD

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2015

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From to

001-33289

Commission File Number

ENSTAR GROUP LIMITED

(Exact name of registrant as specified in its charter)

Bermuda

N/A

(State or other jurisdiction

of incorporation or organization)

(I.R.S. Employer

Identification No.)

P.O. Box HM 2267

Windsor Place, 3rd Floor

22 Queen Street

Hamilton HM JX

Bermuda

(Address of principal executive office, including zip code)

(441) 292-3645

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ

As of August 3, 2015, the registrant had outstanding 15,939,972 voting ordinary shares and 3,315,215 non-voting convertible ordinary shares, each par value $1.00 per share.

TABLE OF CONTENTS


		Page
	PART I—FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014 (Unaudited)	1
	Condensed Consolidated Statements of Earnings for the Three and Six Month Periods Ended June 30, 2015 and 2014 (Unaudited)	2
	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Month Periods Ended June 30, 2015 and 2014 (Unaudited)	3
	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Six Month Periods Ended June 30, 2015 and 2014 (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Six Month Periods Ended June 30, 2015 and 2014 (Unaudited)	5
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	6
	Report of Independent Registered Public Accounting Firm	65
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	66
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	123
Item 4.	Controls and Procedures	126

	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	127
Item 1A.	Risk Factors	127
Item 6.	Exhibits	128
Signature		129

PART I—FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

ENSTAR GROUP LIMITED

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

As of June 30, 2015 and December 31, 2014


	June 30, 2015			December 31, 2014
	(expressed in thousands of U.S. dollars, except share data)
ASSETS
Short-term investments, trading, at fair value	$	210,438		$	130,516
Fixed maturities, trading, at fair value		5,016,891			3,832,291
Fixed maturities, held-to-maturity, at amortized cost		802,595			813,233
Fixed maturities, available-for-sale, at fair value (amortized cost: 2015—$190,072; 2014—$244,110)		185,647			241,111
Equities, trading, at fair value		129,276			150,130
Other investments, at fair value		959,283			836,868
Other investments, at cost		140,375			—

Total investments		7,444,505			6,004,149
Cash and cash equivalents		1,076,959			963,402
Restricted cash and cash equivalents		612,373			534,974
Accrued interest receivable		41,992			37,581
Accounts receivable		169,434			79,237
Premiums receivable		414,978			391,008
Income taxes recoverable		5,279			11,510
Deferred tax assets		54,092			50,506
Prepaid reinsurance premiums		145,485			114,197
Reinsurance balances recoverable		1,613,622			1,331,555
Funds held by reinsured companies		116,376			134,628
Deferred acquisition costs		105,619			61,706
Goodwill and intangible assets		198,155			201,150
Other assets		333,491			21,282

TOTAL ASSETS	$	12,332,360		$	9,936,885

LIABILITIES
Losses and loss adjustment expenses	$	6,143,471		$	4,509,421
Policy benefits for life and annuity contracts		1,206,131			1,220,864
Unearned premiums		580,636			468,626
Insurance and reinsurance balances payable		300,887			276,723
Accounts payable and accrued liabilities		241,781			126,721
Income taxes payable		25,487			22,450
Deferred tax liabilities		41,086			43,958
Loans payable		650,507			320,041
Other liabilities		314,416			50,642

TOTAL LIABILITIES		9,504,402			7,039,446

COMMITMENTS AND CONTINGENCIES REDEEMABLE NONCONTROLLING INTEREST		395,030			374,619

SHAREHOLDERS’ EQUITY
Share capital
Authorized, issued and fully paid, par value $1 each (authorized 2015: 156,000,000; 2014: 156,000,000)
Ordinary shares (issued and outstanding 2015: 15,827,102; 2014: 15,761,365)		15,827			15,761
Non-voting convertible ordinary shares:
Series A (issued 2015: 2,972,892; 2014: 2,972,892)		2,973			2,973
Series C (issued and outstanding 2015: 2,725,637; 2014: 2,725,637)		2,726			2,726
Series E (issued and outstanding 2015: 701,615; 2014: 714,015)		702			714
Treasury shares at cost (Series A non-voting convertible ordinary shares 2015: 2,972,892; 2014: 2,972,892)		(421,559	)		(421,559	)
Additional paid-in capital		1,365,016			1,321,715
Accumulated other comprehensive income		(21,473	)		(12,686	)
Retained earnings		1,454,598			1,395,206

Total Enstar Group Limited Shareholders’ Equity		2,398,810			2,304,850
Noncontrolling interest		34,118			217,970

TOTAL SHAREHOLDERS’ EQUITY		2,432,928			2,522,820

TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY	$	12,332,360		$	9,936,885

See accompanying notes to the unaudited condensed consolidated financial statements

ENSTAR GROUP LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

For the Three and Six Month Periods Ended June 30, 2015 and 2014


	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(expressed in thousands of U.S. dollars, except share and per share data)
INCOME
Net premiums earned	$	212,023		$	216,916		$	410,929		$	278,574
Fees and commission income		9,131			7,509			20,611			14,507
Net investment income		46,493			33,649			80,386			57,997
Net realized and unrealized (losses) gains		(11,249	)		38,411			31,771			72,984

		256,398			296,485			543,697			424,062

EXPENSES
Net increase in ultimate losses and loss adjustment expense liabilities		65,900			59,749			136,036			47,699
Life and annuity policy benefits		28,090			27,732			50,937			54,541
Acquisition costs		37,094			50,379			71,644			63,540
Salaries and benefits		52,691			55,683			110,463			87,073
General and administrative expenses		41,272			37,177			80,098			59,427
Interest expense		4,876			3,529			8,879			7,263
Net foreign exchange losses (gains)		2,452			(525	)		(2,619	)		1,070

		232,375			233,724			455,438			320,613

EARNINGS BEFORE INCOME TAXES		24,023			62,761			88,259			103,449
INCOME TAXES		(5,816	)		(8,452	)		(16,560	)		(15,728	)

NET EARNINGS		18,207			54,309			71,699			87,721
Less: Net earnings attributable to noncontrolling interest		(3,662	)		(2,516	)		(12,307	)		(6,341	)

NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED	$	14,545		$	51,793		$	59,392		$	81,380

EARNINGS PER SHARE—BASIC
Net earnings per ordinary share attributable to Enstar Group Limited shareholders	$	0.76		$	2.78		$	3.09		$	4.62

EARNINGS PER SHARE—DILUTED
Net earnings per ordinary share attributable to Enstar Group Limited shareholders	$	0.75		$	2.68		$	3.07		$	4.52

Weighted average ordinary shares outstanding—basic		19,252,359			18,636,085			19,244,951			17,605,808
Weighted average ordinary shares outstanding—diluted		19,383,753			19,327,516			19,364,775			18,004,873

See accompanying notes to the unaudited condensed consolidated financial statements

ENSTAR GROUP LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Three and Six Month Periods Ended June 30, 2015 and 2014


	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
	(expressed in thousands of U.S. dollars)

NET EARNINGS	$	18,207		$	54,309		$	71,699		$	87,721

Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) on investments arising during the period		2,162			906			(2,194	)		459
Reclassification adjustment for net realized and unrealized losses included in net earnings		(38	)		(253	)		(144	)		(134	)

Unrealized gains (losses) arising during the period, net of reclassification adjustment		2,124			653			(2,338	)		325
Currency translation adjustment		3,299			4,714			(12,587	)		6,772

Total other comprehensive income (loss)		5,423			5,367			(14,925	)		7,097

Comprehensive income		23,630			59,676			56,774			94,818
Less comprehensive income attributable to noncontrolling interest		(533	)		(3,552	)		(6,169	)		(8,546	)

COMPREHENSIVE INCOME ATTRIBUTABLE TO ENSTAR GROUP LIMITED	$	23,097		$	56,124		$	50,605		$	86,272

See accompanying notes to the unaudited condensed consolidated financial statements

ENSTAR GROUP LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Six Month Periods Ended June 30, 2015 and 2014


	Six Months Ended June 30,
	2015			2014
	(expressed in thousands of U.S. dollars)
Share Capital—Ordinary Shares
Balance, beginning of period	$	15,761		$	13,803
Issue of shares		6			1,901
Conversion of Series E Non-Voting Convertible Ordinary Shares		12			—
Share awards granted/vested		48			43

Balance, end of period	$	15,827		$	15,747

Share Capital—Series A Non-Voting Convertible Ordinary Shares
Balance, beginning and end of period	$	2,973		$	2,973

Share Capital—Series C Non-Voting Convertible Ordinary Shares
Balance, beginning and end of period	$	2,726		$	2,726

Share Capital—Series E Non-Voting Convertible Ordinary Shares
Balance, beginning of period	$	714		$	—
Shares converted to Ordinary Shares		(12	)		—
Conversion of Series B Convertible Participating Non-Voting Perpetual Preferred Stock		—			714

Balance, end of period	$	702		$	714

Share Capital—Series B Convertible Participating Non-Voting Perpetual Preferred Stock
Balance, beginning of period	$	—		$	—
Issue of stock		—			714
Convert to Series E Non-Voting Convertible Ordinary Shares		—			(714	)

Balance, end of period	$	—		$	—

Treasury Shares
Balance, beginning and end of period	$	(421,559	)	$	(421,559	)

Additional Paid-in Capital
Balance, beginning of period	$	1,321,715		$	962,145
Issue of shares and warrants, net		911			353,832
Amortization of equity incentive plan		2,821			1,525
Equity attributable to Enstar Group Limited on acquisition of noncontrolling shareholders’ interest in subsidiaries		39,569			—

Balance, end of period	$	1,365,016		$	1,317,502

Accumulated Other Comprehensive Income Attributable to Enstar Group Limited
Balance, beginning of period	$	(12,686	)	$	13,978
Currency translation adjustment
Balance, beginning of period		(2,779	)		14,264
Change in currency translation adjustment		(10,227	)		4,791
Purchase of noncontrolling shareholders’ interest in subsidiaries		2,937			—

Balance, end of period		(10,069	)		19,055
Defined benefit pension liability
Balance, beginning and end of period		(7,726	)		(2,249	)

Unrealized (losses) gains on investments
Balance, beginning of period		(2,181	)		1,963
Change in unrealized (losses) gains on investments, net of tax		(1,809	)		101
Purchase of noncontrolling shareholders’ interest in subsidiaries		312			—

Balance, end of period		(3,678	)		2,064

Balance, end of period	$	(21,473	)	$	18,870

Retained Earnings
Balance, beginning of period	$	1,395,206		$	1,181,457
Net earnings attributable to Enstar Group Limited		59,392			81,380

Balance, end of period	$	1,454,598		$	1,262,837

Noncontrolling Interest
Balance, beginning of period	$	217,970		$	222,000
Sale of noncontrolling shareholders’ interest in subsidiaries		(182,819	)		—
Return of capital		—			(9,980	)
Contribution of capital		680			35,699
Dividends Paid		(323	)		—
Reallocation to redeemable noncontrolling interest		—			1,028
Net earnings attributable to noncontrolling interest*		291			7,460
Foreign currency translation adjustments		(1,558	)		1,993
Net movement in unrealized holding losses on investments		(123	)		(156	)

Balance, end of period	$	34,118		$	258,044

*	Excludes net loss attributable to redeemable noncontrolling interest. See Note 11 to the unaudited condensed consolidated financial statements.

See accompanying notes to the unaudited condensed consolidated financial statements

ENSTAR GROUP LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Month Periods Ended June 30, 2015 and 2014


	Six Months Ended June 30,
	2015			2014
	(expressed in thousands of U.S. dollars)
OPERATING ACTIVITIES:
Net earnings	$	71,699		$	87,721
Adjustments to reconcile net earnings to cash flows provided by operating activities:
Net realized and unrealized investment losses (gains)		2,847			(38,596	)
Net realized and unrealized gains from other investments		(34,618	)		(34,388	)
Other items		5,553			158
Depreciation and amortization		2,744			2,019
Net amortization of premiums and discounts		25,518			28,144
Net movement of trading securities held on behalf of policyholders		1,728			(164	)
Sales and maturities of trading securities		1,669,290			1,699,428
Purchases of trading securities		(2,299,395	)		(1,188,935	)
Changes in assets and liabilities:
Reinsurance balances recoverable		210,401			240,415
Funds held by reinsured companies		20,773			101,571
Other assets		(113,235	)		(48,924	)
Losses and loss adjustment expenses		(188,793	)		(363,957	)
Policy benefits for life and annuity contracts		(14,028	)		(31,244	)
Insurance and reinsurance balances payable		33,828			(127,555	)
Unearned premiums		26,505			12,367
Accounts payable and accrued liabilities		111,531			(10,906	)
Other liabilities		(10,393	)		(2,957	)

Net cash flows (used in) provided by operating activities		(478,045	)		324,197

INVESTING ACTIVITIES:
Acquisitions, net of cash acquired		56,369			37,540
Sales and maturities of available-for-sale securities		97,733			78,967
Purchase of available-for-sale securities		(48,548	)		(71,025	)
Maturities of held-to-maturity securities		5,246			311
Movement in restricted cash and cash equivalents		242,365			(94,022	)
Purchase of other investments		(133,411	)		(120,768	)
Redemption of other investments		42,415			10,692
Other investing activities		(2,016	)		(9	)

Net cash flows provided by (used in) investing activities		260,153			(158,314	)

FINANCING ACTIVITIES:
Distribution of capital to noncontrolling interest		—			(9,980	)
Contribution by redeemable noncontrolling interest		15,728			254,635
Contribution by noncontrolling interest		680			35,699
Dividends paid to noncontrolling interest		(7,433	)		—
Receipt of loans		374,700			70,000
Repayment of loans		(46,000	)		(133,250	)

Net cash flows provided by financing activities		337,675			217,104

EFFECT OF EXCHANGE RATE CHANGES ON FOREIGN CURRENCY CASH AND CASH EQUIVALENTS		(6,226	)		1,327

NET INCREASE IN CASH AND CASH EQUIVALENTS		113,557			384,314
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		963,402			643,841

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	1,076,959		$	1,028,155

Supplemental Cash Flow Information
Net income taxes paid	$	13,343		$	17,018
Interest paid	$	7,952		$	10,236

See accompanying notes to the unaudited condensed consolidated financial statements

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015 and December 31, 2014

(Tabular information expressed in thousands of U.S. dollars except share and per share data)

(unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation and Consolidation

The Company’s condensed consolidated financial statements have not been audited. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. 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 accruals) considered necessary for a fair presentation of the Company’s financial position and results of operations as at the end of and for the periods presented. Results of operations for subsidiaries acquired are included from the dates of their acquisition by the Company. The results of operations for any interim period are not necessarily indicative of the results for a full year. Inter-company accounts and transactions have been eliminated. In these notes, the terms “we,” “us,” “our,” or “the Company” refer to Enstar Group Limited and its direct and indirect subsidiaries.

The preparation of these unaudited condensed consolidated 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 unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. While management believes that the amounts included in the unaudited condensed consolidated financial statements reflect its best estimates and assumptions, actual results could differ from those estimates. The Company’s principal estimates include, but are not limited to:

•

reserves for losses and loss adjustment expenses;

•

policy benefits for life and annuity contracts;

•

gross and net premiums written and net premiums earned;

•

reinsurance balances recoverable, including the provisions for uncollectible amounts;

•

impairment charges, including the other-than-temporary impairment of the carrying value of available-for-sale investment securities and the impairment of investments in life settlements;

•

valuation of certain other investments that are measured using significant unobservable inputs;

•

valuation of goodwill and intangible assets; and

•

fair value estimates associated with accounting for acquisitions.

Significant New Accounting Policies

As a result of the acquisition of the life settlement contracts from Wilton Re Limited (“Wilton Re”) as described in Note 2—“Acquisitions” and the completion of the transaction with Voya Financial, Inc. (“Voya”) as described in Note 3—“Significant New Business and Transactions,” the Company has adopted certain significant new accounting policies during the three months ended June 30, 2015. Other than the policies described below, there have been no material changes to the Company’s significant accounting policies from those described in Note 2 to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

1. SIGNIFICANT ACCOUNTING POLICIES—(Continued)

(a) Life Settlements

Investments in life settlements are accounted for under the investment method whereby the Company recognizes its initial investment in the life settlement contracts at the transaction price plus all initial direct external costs. Continuing costs to keep the policy in force, primarily life insurance premiums, increase the carrying amount of the investment. The Company recognizes income on individual investments in life settlements when the insured dies, at an amount equal to the excess of the investment proceeds over the carrying amount of the investment at that time. The investments are subject to quarterly impairment review on a contract-by-contract basis. Impaired contracts are written down to their estimated fair value with the impairment charges included within net realized and unrealized (losses) gains.

(b) Retroactive reinsurance

Retroactive reinsurance policies provide indemnification of losses and loss adjustment expenses with respect to past loss events, and related claims are generally expected to be paid over long periods of time. At the inception of a contract, a deferred charge asset is recorded for the excess, if any, of the estimated ultimate losses payable over the premiums received. Deferred charges are amortized over the estimated ultimate claim payment period with the periodic amortization reflected in earnings as a component of losses and loss adjustment expenses. Deferred charge balances are adjusted periodically to reflect new estimates of the amount and timing of remaining loss payments. Significant changes in the estimated amount and the timing of payments of unpaid losses may have a significant effect on the unamortized deferred reinsurance charges and the amount of periodic amortization. Deferred charges are evaluated for recoverability quarterly on an individual contract basis with reference to anticipated future investment income.

Recently Issued Accounting Pronouncements Not Yet Adopted

Accounting Standards Update (“ASU”) 2015-09, Disclosures about Short-Duration Contracts

In May 2015, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2015-09, which makes targeted improvements to disclosure requirements for insurance companies that issue short-duration contracts. The ASU requires enhanced disclosures, on an annual basis, related to the reserve for losses and loss expenses which include (1) net incurred and paid claims development information by accident year, (2) a reconciliation of incurred and paid claims development information to the aggregate carrying amount of the reserve for losses and loss expenses, (3) for each accident year presented of incurred claims development, information about claim frequency (unless impracticable), and the amounts of incurred but not reported (IBNR) liabilities, including expected development on reported claims included in the reserve for losses and loss expenses, (4) a description of, and any significant changes to, the methods for determining both IBNR and expected development on reported claims, and (5) for each accident year presented of incurred claims development, quantitative information about claims frequency, as well as a description of methodologies used for determining claim frequency information. The ASU is effective for annual periods beginning after December 15, 2015, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial statement disclosures.

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

1. SIGNIFICANT ACCOUNTING POLICIES—(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 will eliminate 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. Reporting entities are required to adopt the ASU retrospectively. The ASU is effective for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. The Company is currently evaluating the impact of this guidance, however it does not expect the adoption of the guidance to have a material impact on its consolidated financial statement disclosures.

2. ACQUISITIONS

Nationale Suisse Assurance S.A.

On February 5, 2015, the Company’s wholly-owned subsidiary, Harper Holding SARL, entered into a definitive agreement with Nationale Suisse to acquire its Belgian subsidiary, Nationale Suisse Assurance S.A. (“NSA”). NSA is a Belgium-based insurance company writing non-life insurance (which the Company expects to operate in run-off as part of its non-life run-off segment) and life insurance (which the Company expects to operate in run-off as part of its life and annuities segment).

The total consideration for the transaction will be €33.7 million (approximately $38.5 million) (subject to certain possible closing adjustments). The Company expects to finance the purchase price from cash on hand. Completion of the transaction is conditioned on, among other things, governmental and regulatory approvals and satisfaction of various customary closing conditions. The transaction is expected to close during the third quarter of 2015.

Wilton Re Life Settlements

On May 5, 2015, the Company, through its wholly owned subsidiary, Guillamene Holdings Limited (“Guillamene”), completed the acquisitions of two Delaware companies from subsidiaries of Wilton Re that own interests in life insurance policies acquired in the secondary and tertiary markets and through collateralized lending transactions.

The total consideration for the transaction was $173.1 million, which will be paid in two installments. The first installment of $89.1 million was paid on closing and was financed in part by borrowings under the Company’s revolving credit facility (the “EGL Revolving Credit Facility”). The second installment of $83.9 million, due on the first anniversary of closing, is expected to be funded from cash on hand.


Purchase price	$	173,058

Net assets acquired at fair value	$	173,058

Excess of purchase price over fair value of net assets acquired	$	—

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

2. ACQUISITIONS—(Continued)

The purchase price was allocated to the acquired assets and liabilities of the two companies acquired based on estimated fair values at the acquisition date.

Results related to Guillamene are included within the Company’s life and annuities segment.

The following table summarizes the provisional fair values of the assets acquired and liabilities assumed at the acquisition date.


	Guillamene
ASSETS
Other investments		142,182
Cash and cash equivalents		5,043
Other assets		26,376

TOTAL ASSETS	$	173,601
TOTAL LIABILITIES		543

NET ASSETS ACQUIRED AT FAIR VALUE	$	173,058

From the date of acquisition to June 30, 2015, the Company recorded $1.4 million in net earnings attributable to Enstar Group Limited in its consolidated statement of earnings related to Guillamene’s life settlement contract business.

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 the Company’s transaction with Wilton Re, CPPIB separately acquired certain voting and non-voting shares of the Company pursuant to the CPPIB-First Reserve Transaction, as described in Note 3 – “Significant New Business and Transactions”.

Sussex Insurance Company (formerly known as Companion)

On January 27, 2015, the Company and Sussex Holdings, Inc. (“Sussex Holdings”), a wholly owned subsidiary of the Company, completed the acquisition of Companion Property and Casualty Insurance Company (“Companion”) from Blue Cross and Blue Shield of South Carolina, an independent licensee of the Blue Cross Blue Shield Association. Companion is a South Carolina-based insurance group writing property, casualty, specialty and workers compensation business, and has also provided fronting and third party administrative services.

The total consideration for the transaction was $218.0 million in cash, which was financed 50% through borrowings under a Term Facility Agreement with National Australia Bank Limited and Barclays Bank PLC (the “Sussex Facility”) and 50% from cash on hand.

The Company changed the name of Companion to Sussex Insurance Company (“Sussex”) following the acquisition and is operating the company as part of its non-life run-off business.


Purchase price	$	218,000

Net assets acquired at fair value	$	218,000

Excess of purchase price over fair value of net assets acquired	$	—

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

2. ACQUISITIONS—(Continued)

The purchase price was allocated to the acquired assets and liabilities of Sussex based on estimated fair values at the acquisition date.

The Company has not completed the process of determining the fair value of its losses and loss adjustment expense reserves acquired in the Sussex acquisition. The valuation will be completed within the measurement period, which cannot exceed 12 months from the acquisition date. As a result, the fair value recorded is a provisional estimate and may be subject to adjustment. Once completed, any adjustments resulting from the valuations may impact the individual amounts recorded for assets acquired and liabilities assumed.

Results related to Sussex are included within the Company’s non-life run-off segment.

The following table summarizes the provisional fair values of the assets acquired and liabilities assumed at the acquisition date.


	Sussex
ASSETS
Short-term investments, trading, at fair value	$	85,309
Fixed maturities, trading, at fair value		523,227
Equities, trading, at fair value		31,439

Total investments		639,975
Cash and cash equivalents		358,458
Restricted cash and cash equivalents		15,279
Accrued interest receivable		3,984
Premiums receivable		35,279
Reinsurance balances recoverable		486,570
Prepaid reinsurance premiums		28,751
Other assets		47,143

TOTAL ASSETS	$	1,615,439

LIABILITIES
Losses and loss adjustment expenses	$	1,255,040
Insurance and reinsurance balances payable		3,030
Unearned premium		85,505
Funds withheld		42,090
Other liabilities		11,774

TOTAL LIABILITIES		1,397,439

NET ASSETS ACQUIRED AT FAIR VALUE	$	218,000

From the date of acquisition to June 30, 2015, the Company earned premiums of $36.5 million, recorded net increase in ultimate losses and loss adjustment expense liabilities of $37.2 million on those earned premiums, and recorded $1.5 million in net losses attributable to Enstar Group Limited in its consolidated statement of earnings related to Sussex’s non-life run-off business.

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

3. SIGNIFICANT NEW BUSINESS AND TRANSACTIONS

JCF II Funds

On June 30, 2015, the Company entered into a Sale and Purchase Agreement with J.C. Flowers II L.P., J.C. Flowers II-A L.P., J.C. Flowers II-B, L.P. and Financial Service Opportunities L.P., collectively, the JCF II Funds, pursuant to which the Company will purchase all of the non-voting preference shares of Cumberland Holdings Ltd. and Courtenay Holdings Ltd., which represents all of the noncontrolling interest owned directly by the JCF II Funds in the Company, for an aggregate price of $140.0 million. The purchase and sale transaction is scheduled to close no later than October 1, 2015 and the closing is not subject to any material conditions. Immediately prior to the repurchase, the JCF II Funds’ noncontrolling interest totaled $182.8 million.

CPPIB Investment

On June 3, 2015, CPPIB purchased 1,501,211 voting ordinary shares of the Company and 404,771 shares of Series E non-voting convertible ordinary shares of the Company 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”), which resulted in CPPIB owning a 9.5% voting interest and a 9.9% aggregate economic interest in the Company. In connection with the CPPIB-First Reserve Transaction, the Company and CPPIB entered into a Shareholder Rights Agreement granting CPPIB contractual shareholder rights that are substantially similar to those rights previously held by First Reserve. Simultaneously, First Reserve waived all of its rights under the Shareholder Rights Agreement, dated April 1, 2014, among the Company, First Reserve and Corsair Specialty Investors, L.P. (“Corsair”), including its right to designate a representative to the Company’s Board of Directors.

The new Shareholder Rights Agreement grants CPPIB the right to designate one representative to the Company’s Board of Directors. This designation right terminates if CPPIB ceases to beneficially own at least 75% of the total number of voting and non-voting shares acquired in the CPPIB-First Reserve Transaction. Pursuant to this contractual right, CPPIB expects to designate a representative to the Company’s Board of Directors at a future time. First Reserve also assigned to CPPIB substantially all of its rights under the Registration Rights Agreement, dated April 1, 2014, among the Company, First Reserve and Corsair, other than certain rights related to the Company’s resale shelf registration statement filed with the Securities and Exchange Commission on April 29, 2014.

Voya Financial

On May 27, 2015, the Company, through its wholly owned subsidiary Fitzwilliam Insurance Limited (“Fitzwilliam”), entered into two 100% reinsurance agreements and related administration services agreements with a subsidiary of Voya, pursuant to which Fitzwilliam reinsured all of the run-off workers compensation and occupational accident assumed reinsurance business of the Voya subsidiary and that of its Canadian branch. Pursuant to the transaction, the Voya subsidiary transferred assets into two reinsurance collateral trusts securing the obligations of Fitzwilliam under the coinsurance agreements. Fitzwilliam assumed reinsurance reserves of $572.4 million, received total assets of $307.0 million and recorded a deferred charge of $265.4 million included within other assets.

The Company transferred approximately $67.2 million of additional funds to the trusts to further support the obligations under the reinsurance agreements, which the Company funded through a draw

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

3. SIGNIFICANT NEW BUSINESS AND TRANSACTIONS—(Continued)

on the EGL Revolving Credit Facility. In addition to the trusts, the Company provided a limited parental guarantee supporting certain obligations of Fitzwilliam initially in the amount of $58.0 million.

Reciprocal of America

On January 15, 2015, the Company’s wholly-owned subsidiary, Providence Washington Insurance Company, completed the loss portfolio transfer reinsurance transaction with Reciprocal of America (in Receivership) and its Deputy Receiver relating to a portfolio of workers compensation business in run-off. The total insurance reserves assumed were approximately $162.1 million, with an equivalent amount of cash and/or investments being received as consideration.

Shelbourne RITC Transaction

Effective January 1, 2015, Lloyd’s Syndicate 2008, which is managed by the Company’s wholly-owned subsidiary and Lloyd’s managing agent, Shelbourne Syndicate Services Limited, entered into a reinsurance to close contract (“RITC”) of the 2012 and prior underwriting years of account of another Lloyd’s syndicate, under which Syndicate 2008 assumed total insurance reserves of approximately £17.2 million (approximately $26.9 million) for cash consideration of an equal amount.

4. INVESTMENTS

The Company holds: (i) trading portfolios of fixed maturity investments, short-term investments, equities and other investments, carried at fair value; (ii) a held-to-maturity portfolio of fixed maturity investments carried at amortized cost; (iii) available-for-sale portfolios of fixed maturity investments carried at fair value; and (iv) other investments carried at cost.

Trading

The estimated fair values of the Company’s fixed maturity investments, short-term investments and equities classified as trading securities were as follows:


	June 30 2015		December 31, 2014
U.S. government and agency	$	808,811	$	744,660
Non-U.S. government		338,026		368,945
Corporate		2,605,138		1,986,873
Municipal		117,883		25,607
Residential mortgage-backed		429,877		308,621
Commercial mortgage-backed		204,036		139,907
Asset-backed		723,558		388,194

Total fixed maturity and short-term investments		5,227,329		3,962,807
Equities—U.S.		105,972		106,895
Equities—International		23,304		43,235

	$	5,356,605	$	4,112,937

Included within residential and commercial mortgage-backed securities as at June 30, 2015 were securities issued by U.S. governmental agencies with a fair value of $386.4 million (as at December 31, 2014: $263.4 million).

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. INVESTMENTS—(Continued)

Included within the corporate securities as at June 30, 2015 were senior secured loans of $75.4 million (as at December 31, 2014: $33.5 million).

The contractual maturities of the Company’s short-term and fixed maturity investments classified as trading are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


As at June 30, 2015	Amortized Cost		Fair Value		% of Total Fair Value
One year or less	$	945,331	$	928,833		17.8	%
More than one year through two years		799,988		794,281		15.2	%
More than two years through five years		1,576,115		1,574,989		30.1	%
More than five years through ten years		506,853		500,832		9.6	%
More than ten years		75,409		70,923		1.4	%

		3,903,696		3,869,858		74.1	%
Residential mortgage-backed		430,924		429,877		8.2	%
Commercial mortgage-backed		204,560		204,036		3.9	%
Asset-backed		721,476		723,558		13.8	%

	$	5,260,656	$	5,227,329		100.0	%


As at December 31, 2014	Amortized Cost		Fair Value		% of Total Fair Value
One year or less	$	837,557	$	829,644		20.9	%
More than one year through two years		787,810		780,979		19.7	%
More than two years through five years		1,161,708		1,159,917		29.3	%
More than five years through ten years		289,359		289,911		7.3	%
More than ten years		66,793		65,634		1.7	%

		3,143,227		3,126,085		78.9	%
Residential mortgage-backed		307,847		308,621		7.8	%
Commercial mortgage-backed		139,984		139,907		3.5	%
Asset-backed		389,529		388,194		9.8	%

	$	3,980,587	$	3,962,807		100.0	%

The following tables set forth certain information regarding the credit ratings (provided by major rating agencies) of the Company’s fixed maturity and short-term investments classified as trading:


As at June 30, 2015	Fair Value		% of Total Fair Value
AAA	$	1,823,334		34.9	%
AA		848,336		16.2	%
A		1,725,866		33.0	%
BBB		648,686		12.4	%
Non-Investment Grade		177,855		3.4	%
Not Rated		3,252		0.1	%

	$	5,227,329		100.0	%

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. INVESTMENTS—(Continued)


As at December 31, 2014	Fair Value		% of Total Fair Value
AAA	$	527,466		13.3	%
AA		1,747,389		44.1	%
A		1,164,604		29.4	%
BBB		391,107		9.9	%
Non-Investment Grade		111,777		2.8	%
Not Rated		20,464		0.5	%

	$	3,962,807		100.0	%

Held-to-maturity

The Company holds a portfolio of held-to-maturity securities to support the annuity business acquired with Pavonia Holdings (US) Inc. (“Pavonia”). The amortized cost and estimated fair values of the Company’s fixed maturity investments classified as held-to-maturity were as follows:


As at June 30, 2015	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses Non-OTTI			Fair Value
U.S. government and agency	$	20,075	$	12	$	(434	)	$	19,653
Non-U.S. government		38,293		177		(651	)		37,819
Corporate		744,227		3,689		(17,285	)		730,631

	$	802,595	$	3,878	$	(18,370	)	$	788,103


As at December 31, 2014	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses Non-OTTI			Fair Value
U.S. government and agency	$	20,257	$	322	$	(20	)	$	20,559
Non-U.S. government		38,613		325		(249	)		38,689
Corporate		754,363		16,182		(3,421	)		767,124

	$	813,233	$	16,829	$	(3,690	)	$	826,372

As at June 30, 2015 and December 31, 2014, none of these securities were considered to be other than temporarily impaired.

The contractual maturities of the Company’s fixed maturity investments classified as held-to-maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


As at June 30, 2015	Amortized Cost		Fair Value		% of Total Fair Value
One year or less	$	20,792		20,834		2.6	%
More than one year through two years		18,678		18,694		2.4	%
More than two years through five years		65,825		66,225		8.4	%
More than five years through ten years		100,563		99,232		12.6	%
More than ten years		596,737		583,118		74.0	%

	$	802,595	$	788,103		100.0	%

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. INVESTMENTS—(Continued)


As at December 31, 2014	Amortized Cost		Fair Value		% of Total Fair Value
One year or less	$	10,369	$	10,350		1.2	%
More than one year through two years		19,939		19,957		2.4	%
More than two years through five years		68,945		69,031		8.4	%
More than five years through ten years		99,171		98,922		12.0	%
More than ten years		614,809		628,112		76.0	%

	$	813,233	$	826,372		100.0	%

The following tables set forth certain information regarding the credit ratings (provided by major rating agencies) of the Company’s fixed maturity investments classified as held-to-maturity:


As at June 30, 2015	Amortized Cost		Fair Value		% of Total Fair Value
AAA	$	65,406	$	64,367		8.2	%
AA		167,775		162,490		20.6	%
A		507,058		499,397		63.3	%
BBB		56,599		55,960		7.1	%
Non-Investment Grade		5,445		5,575		0.7	%
Not Rated		312		314		0.1	%

	$	802,595	$	788,103		100.0	%


As at December 31, 2014	Amortized Cost		Fair Value		% of Total Fair Value
AAA	$	53,893	$	54,895		6.6	%
AA		245,460		246,764		29.9	%
A		466,317		476,642		57.7	%
BBB		42,107		42,748		5.2	%
Non-Investment Grade		5,456		5,323		0.6	%

	$	813,233	$	826,372		100.0	%

Available-for-sale

The amortized cost and estimated fair values of the Company’s fixed maturity investments classified as available-for-sale were as follows:


As at June 30, 2015	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses Non-OTTI			Fair Value
U.S. government and agency	$	25,481	$	199	$	(10	)	$	25,670
Non-U.S. government		36,454		56		(3,210	)		33,300
Corporate		117,513		1,060		(2,487	)		116,086
Municipal		264		2		—			266
Residential mortgage-backed		2,439		82		(134	)		2,387
Asset-backed		7,921		17		—			7,938

	$	190,072	$	1,416	$	(5,841	)	$	185,647

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. INVESTMENTS—(Continued)


As at December 31, 2014	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses Non-OTTI			Fair Value
U.S. government and agency	$	24,167	$	182		(7	)	$	24,342
Non-U.S. government		72,913		386		(2,805	)		70,494
Corporate		101,745		964		(1,653	)		101,056
Residential mortgage-backed		3,305		76		(138	)		3,243
Asset-backed		41,980		15		(19	)		41,976

	$	244,110	$	1,623	$	(4,622	)	$	241,111

Included within residential mortgage-backed securities as at June 30, 2015 were securities issued by U.S. governmental agencies with a fair value of $1.0 million (as at December 31, 2014: $1.1 million).

The following tables summarize the Company’s fixed maturity investments classified as available-for-sale in an unrealized loss position as well as the aggregate fair value and gross unrealized loss by length of time the securities have continuously been in an unrealized loss position:


	12 Months or Greater					Less Than 12 Months					Total
As at June 30, 2015	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. government and agency	$	—	$	—		$	5,375	$	(10	)	$	5,375	$	(10	)
Non-U.S. government		1,784		(306	)		24,063		(2,904	)		25,847		(3,210	)
Corporate		7,934		(61	)		51,043		(2,426	)		58,977		(2,487	)
Residential mortgage-backed		753		(4	)		588		(130	)		1,341		(134	)

	$	10,471	$	(371	)	$	81,069	$	(5,470	)	$	91,540	$	(5,841	)


	12 Months or Greater					Less Than 12 Months					Total
As at December 31, 2014	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. government and agency	$	528	$	—		$	3,678	$	(6	)	$	4,206	$	(6	)
Non-U.S. government		17,051		(1,534	)		20,300		(1,271	)		37,351		(2,805	)
Corporate		39,964		(1,003	)		40,072		(651	)		80,036		(1,654	)
Residential mortgage-backed		2,073		(138	)		—		—			2,073		(138	)
Asset-backed		11,215		(12	)		14,720		(7	)		25,935		(19	)

	$	70,831	$	(2,687	)	$	78,770	$	(1,935	)	$	149,601	$	(4,622	)

As at June 30, 2015 and December 31, 2014, the number of securities classified as available-for-sale in an unrealized loss position was 159 and 212, respectively, with a fair value of $91.5 million and $149.6 million, respectively. Of these securities, the number of securities that had been in an unrealized loss position for twelve months or longer was 19 and 120, respectively. As of June 30, 2015, none of these securities were considered to be other than temporarily impaired.

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. INVESTMENTS—(Continued)

The contractual maturities of the Company’s fixed maturity investments classified as available-for-sale are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


As at June 30, 2015	Amortized Cost		Fair Value		% of Total Fair Value
One year or less	$	32,587	$	30,763		16.5	%
More than one year through two years		62,134		61,416		33.1	%
More than two years through five years		80,542		78,917		42.5	%
More than five years through ten years		4,449		4,226		2.3	%

		179,712		175,322		94.4	%
Residential mortgage-backed		2,439		2,387		1.3	%
Asset-backed		7,921		7,938		4.3	%

	$	190,072	$	185,647		100.0	%


As at December 31, 2014	Amortized Cost		Fair Value		% of Total Fair Value
One year or less	$	54,491	$	53,496		22.2	%
More than one year through two years		53,936		52,343		21.7	%
More than two years through five years		86,157		84,970		35.2	%
More than five years through ten years		1,890		1,858		0.8	%
More than ten years		2,351		3,225		1.3	%

		198,825		195,892		81.2	%
Residential mortgage-backed		3,305		3,243		1.4	%
Asset-backed		41,980		41,976		17.4	%

	$	244,110	$	241,111		100.0	%

The following tables set forth certain information regarding the credit ratings (provided by major rating agencies) of the Company’s fixed maturity investments classified as available-for-sale:


As at June 30, 2015	Amortized Cost		Fair Value		% of Total Fair Value
AAA	$	73,246	$	70,245		37.8	%
AA		38,071		36,810		19.9	%
A		54,183		54,218		29.2	%
BBB		24,572		24,374		13.1	%

	$	190,072	$	185,647		100.0	%


As at December 31, 2014	Amortized Cost		Fair Value		% of Total Fair Value
AAA	$	117,866	$	115,691		48.0	%
AA		62,707		61,970		25.7	%
A		49,039		49,063		20.3	%
BBB		14,498		14,387		6.0	%

	$	244,110	$	241,111		100.0	%

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. INVESTMENTS—(Continued)

Other-Than-Temporary Impairment Process

The Company assesses whether declines in the fair value of its fixed maturity investments classified as available-for-sale and held-to-maturity represent impairment losses that are other-than-temporary and whether a credit loss exists in accordance with its accounting policies. In assessing whether it is more likely than not that the Company will be required to sell a fixed maturity investment before its anticipated recovery, the Company considers various factors including its future cash flow requirements, legal and regulatory requirements, the level of its cash, cash equivalents, short-term investments and fixed maturity investments available-for-sale in an unrealized gain position, and other relevant factors. For the six months ended June 30, 2015, the Company did not recognize any other-than-temporary impairment losses due to required sales. The Company determined that, as at June 30, 2015, no credit losses existed.

Other Investments, at fair value

The estimated amounts of the Company’s other investments carried at fair value were as follows:


	June 30, 2015		December 31, 2014
Private equities and private equity funds	$	204,324	$	197,269
Fixed income funds		335,917		335,026
Fixed income hedge funds		97,812		59,627
Equity funds		159,494		150,053
Real estate debt fund		76,216		33,902
CLO equities		67,475		41,271
CLO equity fund		16,432		16,022
Other		1,613		3,698

	$	959,283	$	836,868

Private equities and private equity funds

This class comprises several private equities and private equity funds that invest primarily in the financial services industry. All of the Company’s 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 the Company’s ability to liquidate those investments. These restrictions have been in place since the dates the initial investments were made by the Company.

As of June 30, 2015 and December 31, 2014, the Company had $204.3 million and $197.3 million, respectively, of other investments recorded in private equities and private equity funds. Due to a lag in the valuations reported by the managers, the Company records changes in the investment value with up to a three-month lag. Management regularly reviews and discusses fund performance with the Company’s 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.

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. INVESTMENTS—(Continued)

Fixed income funds

This class comprises 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

This class comprises hedge funds that invest in a diversified portfolio of debt securities. The hedge funds have imposed lock-up periods of three years from the time of the Company’s initial investment. Once eligible, redemptions will be permitted quarterly with 90 days’ notice.

Equity funds

This class comprises equity funds that invest in a diversified portfolio of international publicly-traded equity securities.

Real estate debt fund

This class comprises a real estate debt fund that 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 states that it will make commercially reasonable efforts to redeem the investment within the next monthly period.

CLO equities

This class comprises investments in the equity tranches of term-financed securitizations of diversified pools of corporate bank loans. CLO equities denote direct investments by the Company in these securities.

CLO equity funds

This class comprises two funds that invest primarily in the equity tranches of term-financed securitizations of diversified pools of corporate bank loans.

Other

As at June 30, 2015, this class primarily comprises a fund that provides loans to educational institutions throughout the U.S. and its territories. Through these investments, the Company participates in the performance of the underlying loan pools. This investment matures when the loans are paid down and cannot be redeemed before maturity. Previously included within this class was a catastrophe bond acquired as part of the Company’s acquisition of Torus Insurance Holdings Limited and its subsidiaries (“Torus”) on April 1, 2014. This catastrophe bond matured during the three months ended March 31, 2015.

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. INVESTMENTS—(Continued)

Redemption restrictions on other investments

Certain funds included in other investments are subject to a lock-up period. A lock-up period refers to the initial amount of time an investor is contractually required to invest before having the ability to redeem the investment. Funds that do provide for periodic redemptions may, depending on the funds’ governing documents, have the ability to deny or delay a redemption request, which is called a “gate.” The fund may restrict redemptions because the aggregate amount of redemption requests as of a particular date exceeds a specified level. The gate is a method for executing an orderly redemption process that allows for redemption requests to be executed in a timely manner to reduce the possibility of adversely affecting the remaining investors in the fund. Typically, the imposition of a gate delays a portion of the requested redemption, with the remaining portion to be settled in cash sometime after the redemption date.

Certain funds included in other investments may be allowed to invest a portion of their assets in illiquid securities, such as private equity or convertible debt. In such cases, a common mechanism used is a “side-pocket,” whereby the illiquid security is assigned to a separate memorandum capital account or designated account. Typically, the investor loses its redemption rights in the designated account. Only when the illiquid security is sold, or is otherwise deemed liquid by the fund, may investors redeem their interest in the side-pocket.

At June 30, 2015, the Company had $12.5 million of investments subject to gates/side-pockets ($13.0 million as of December 31, 2014). As of June 30, 2015, management has not made any adjustments to the fair value estimate reported by the fund managers for the gate/side-pocketed investments.

The following tables present the fair value, unfunded commitments and redemption frequency for the funds included within other investments at fair value. These investments are all valued at net asset value as at June 30, 2015 and December 31, 2014:


June 30, 2015	Total Fair Value		Gated/Side Pocket Investments		Investments without Gates or Side Pockets		Unfunded Commitments		Redemption Frequency
Private equity funds	$	199,324	$	—	$	199,324	$	88,805	Not eligible
Fixed income funds		335,917		—		335,917		—	Daily, monthly and quarterly
Fixed income hedge funds		97,812		1,294		96,518		9,352	Quarterly after lock-up periods expire
Equity funds		159,494		—		159,494		—	Bi-monthly
Real estate debt fund		76,216		—		76,216		—	Monthly
CLO equity funds		16,432		11,202		5,230		—	Quarterly after lock-up periods expire
Other		1,299		—		1,299			Not eligible

	$	886,494	$	12,496	$	873,998	$	98,157

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. INVESTMENTS—(Continued)


December 31, 2014	Total Fair Value		Gated/Side Pocket Investments		Investments without Gates or Side Pockets		Unfunded Commitments		Redemption Frequency
Private equity funds	$	197,269	$	—	$	197,269	$	99,885	Not eligible
Fixed income funds		335,026		—		335,026		—	Daily, monthly and quarterly
Fixed income hedge funds		59,627		1,958		57,669		—	Quarterly after lock-up periods expire
Equity funds		150,053		—		150,053		—	Bi-monthly
Real estate debt fund		33,902		—		33,902		—	Monthly
CLO equity funds		16,022		11,022		5,000		—	Quarterly after lock-up periods expire
Other		1,363		—		1,363		—	Not eligible

	$	793,262	$	12,980	$	780,282	$	99,885

Other Investments, at cost

The Company’s other investments carried at cost were as follows:


	June 30, 2015		December 31, 2014
Life settlements	$	140,375	$	—

Investments in Life Settlements

Investments in life settlements are accounted for under the investment method, whereby we recognize our initial investment in life settlements at the transaction price plus all initial direct external costs. Continuing costs to keep the policy in force, primarily life insurance premiums, increase the carrying amount of the investment. We recognize income on individual investments in life settlements when the insured dies, at an amount equal to the excess of the investment proceeds over the carrying amount of the investment at that time. These investments are subject to impairment review, as discussed below.

During the three and six month periods ended June 30, 2015, the amount of net investment income included in earnings attributable to investments in life settlements was $2.0 million. For 2014 the Company did not have an investment in life settlements.

Impairment of Investments in Life Settlements

Impairment to investments in life settlement contracts may occur in the future due to the fact that continued payment of premiums required to maintain policies will cause the expected lifetime undiscounted cash flows for some policies to become negative in future reporting periods, even in the absence of future changes to the mortality assumptions. Impairment may also occur due to our future sale or lapse of select policies at a value that is below carrying amount.

Our investments in life settlements are monitored for impairment on a contract-by-contract basis quarterly. An investment in life settlements is considered impaired if the undiscounted cash flows resulting from the expected proceeds from the investment in life settlements would not be sufficient to

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. INVESTMENTS—(Continued)

recover our estimated future carrying amount of the investment in life settlements, which is the current carrying amount for the investment in life settlements plus anticipated undiscounted future premiums and other capitalizable future costs, if any. Impaired investments in life settlements are written down to their estimated fair value which is determined on a discounted cash flow basis, incorporating current market longevity assumptions and market yields. Impairment charges, if any, are included in net realized and unrealized gains. There were no impairment charges recognized in the period.

Fair Value of Financial Instruments

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. The Company uses 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 the Company has 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 inputs that are unobservable and significant to the overall fair value measurement. The unobservable inputs reflect the Company’s own judgment about assumptions that market participants might use.

The following is a summary of valuation techniques or models the Company uses to measure fair value by asset and liability classes.

Fixed Maturity Investments

The Company’s fixed maturity investments portfolio is managed by the Company’s Chief Investment Officer and outside investment advisors with oversight from the Company’s Investment Committee. Fair values for all securities in the fixed maturity investments portfolio are independently provided by the investment custodians, investment accounting service providers and investment managers, each of which utilize internationally recognized independent pricing services. Interactive Data Corporation is, however, the main pricing service utilized to estimate the fair value measurements for the Company’s fixed maturity investments. The Company records the unadjusted price provided by the investment custodians, investment accounting service providers or the investment managers and validates 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 the Company’s knowledge of the current investment market. The Company’s 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.

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. INVESTMENTS—(Continued)

The independent pricing services used by the investment custodians, investment accounting service providers and investment managers 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 the Company’s 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. 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 within Level 2.

•

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 within 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 within Level 2. Where pricing is unavailable from pricing services, the Company obtains 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. In this event, securities are classified within Level 3. As at June 30, 2015, the Company had no corporate securities classified 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 within Level 2.

•

Asset-backed securities consist primarily of investment-grade bonds backed by pools of loans with a variety of underlying collateral. 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 within Level 2.

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. INVESTMENTS—(Continued)

•

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 within Level 2. Where pricing is unavailable from pricing services, the Company obtains 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. In this event, securities are classified within Level 3. As at June 30, 2015, the Company had no residential or commercial mortgage-backed securities classified as Level 3.

Equities

The Company’s equities are predominantly traded on the major exchanges and are primarily managed by an external advisor. The Company uses Interactive Data Corporation, an internationally recognized pricing service, to estimate the fair value for all of its equities. The Company’s equities are widely diversified and there is no significant concentration in any specific industry.

The Company has categorized all of its investments in equities other than preferred stock as Level 1 investments because the fair values of these investments are based on quoted prices in active markets for identical assets or liabilities. The fair value estimates of the Company’s preferred stock is based on observable market data and, as a result, has been categorized as Level 2.

Other investments, at fair value

The Company has ongoing due diligence processes with respect to the other investments in which it invests and their managers. These processes are designed to assist the Company in assessing the quality of information provided by, or on behalf of, each other investment and in determining whether such information continues to be reliable or whether further review is warranted. Certain other investments do not provide full transparency of their underlying holdings; however, the Company obtains the audited financial statements annually, and regularly reviews and discusses the performance with the managers to corroborate the reasonableness of the reported net asset values. The use of net asset value as an estimate of the fair value for investments in certain entities that calculate net asset value is a permitted practical expedient. While reported net asset value is the primary input to the review, when the net asset value is deemed not to be indicative of fair value, the Company may incorporate adjustments to the reported net asset value (and not use the permitted practical expedient) on an investment by investment basis. These adjustments may involve significant management judgment. As at June 30, 2015, there were no material adjustments made to the reported net asset value.

For its investments in private equities and private equity funds, the Company measures fair value by obtaining the most recently provided capital statement from the external manager or third-party administrator. The capital statements calculate the net asset value on a fair value basis. For all publicly-traded companies, the Company adjusts the reported net asset value based on the latest share price as of the Company’s reporting date. The Company has classified its investments in private equities and private equity funds as Level 3.

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. INVESTMENTS—(Continued)

The fixed income funds and equity funds in which the Company invests have been classified as Level 2 investments because their fair value is estimated using the published net asset value and because the fixed income funds and equity funds are highly liquid.

For its investments in fixed income hedge funds, the Company measures fair value by obtaining the most recently published net asset value as advised by the external fund manager or third-party administrator. The investments in the funds are classified as Level 3.

The real estate debt fund in which the Company invests has been valued based on the most recent published net asset value. This investment has been classified as Level 3.

The Company measures the fair value of its direct investment in CLO equities based on valuations provided by the Company’s 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”). The Company’s 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 the Company’s 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 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 the Company’s CLO equities. In general, these inputs have no significant interrelationship with each other or with default and loss severity rates.

On a quarterly basis, the Company receives the valuation from the external CLO manager and brokers and then reviews the underlying cash flows and key assumptions used by the manager/broker. The Company reviews and updates the significant unobservable inputs based on information obtained from secondary markets. These inputs are the responsibility of the Company and the Company assesses the reasonableness of the inputs (and if necessary, updates the inputs) through communicating with industry participants, monitoring of the transactions in which the Company participates (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 were not available, the Company would 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.

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. INVESTMENTS—(Continued)

For its investments in the CLO equity funds, the Company measures fair value by obtaining the most recently published net asset value as advised by the external fund manager. The Company uses an income approach to corroborate the reasonableness of reported net asset value. The CLO equity funds have been classified as Level 3 due to a lack of observable and relevant trades in secondary markets.

The Company’s remaining other investments have been valued based on the latest available capital statements, and have all been classified as Level 3.

Fair Value Measurements

In accordance with the provisions of the Fair Value Measurement and Disclosure topic of the FASB Accounting Standards Codification (“ASC”) 820, the Company has categorized its investments that are recorded at fair value among levels as follows:


	June 30, 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	$	—	$	834,481	$	—	$	834,481
Non-U.S. government		—		371,326		—		371,326
Corporate		—		2,721,224		—		2,721,224
Municipal		—		118,149		—		118,149
Residential mortgage-backed		—		432,264		—		432,264
Commercial mortgage-backed		—		204,036		—		204,036
Asset-backed		—		731,496		—		731,496
Equities—U.S.		90,464		15,508		—		105,972
Equities—International		15,220		8,084		—		23,304
Other investments, at fair value		—		495,378		463,905		959,283

Total investments	$	105,684	$	5,931,946	$	463,905	$	6,501,535

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. INVESTMENTS—(Continued)


	December 31, 2014
	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	$	—	$	769,002	$	—	$	769,002
Non-U.S. government		—		439,439		—		439,439
Corporate		—		2,087,329		600		2,087,929
Municipal		—		25,607		—		25,607
Residential mortgage-backed		—		311,864		—		311,864
Commercial mortgage-backed		—		139,907		—		139,907
Asset-backed		—		430,170		—		430,170
Equities—U.S.		96,842		5,203		4,850		106,895
Equities—International		24,365		18,870		—		43,235
Other investments, at fair value		—		487,078		349,790		836,868

Total investments	$	121,207	$	4,714,469	$	355,240	$	5,190,916

The following tables present the Company’s fair value hierarchy for those assets classified as held-to-maturity in the consolidated balance sheet but for which disclosure of the fair value is required as of June 30, 2015 and December 31, 2014:


	June 30, 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	$	—	$	19,653	$	—	$	19,653
Non-U.S. government		—		37,819		—		37,819
Corporate		—		730,631		—		730,631

Total investments	$	—	$	788,103	$	—	$	788,103


	December 31, 2014
	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	$	—	$	20,559	$	—	$	20,559
Non-U.S. government		—		38,689		—		38,689
Corporate		—		767,124		—		767,124

Total investments	$	—	$	826,372	$	—	$	826,372

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. INVESTMENTS—(Continued)

During the six months ended June 30, 2015 and the year ended December 31, 2014, the Company had 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, 2015:


	Fixed Maturity Investments		Other Investments			Equity Securities		Total
Level 3 investments as of April 1, 2015	$	—	$	427,362		$	—	$	427,362
Purchases		—		54,407			—		54,407
Sales		—		(28,533	)		—		(28,533	)
Total realized and unrealized gains through earnings		—		10,669			—		10,669
Net transfers into and/or (out of) Level 3		—		—			—		—

Level 3 investments as of June 30, 2015	$	—	$	463,905		$	—	$	463,905

The amount of net gains for the three months ended June 30, 2015 included in earnings attributable to the fair value of changes in assets still held at June 30, 2015 was $10.7 million. All of this amount was included in net realized and unrealized gains.


	Fixed Maturity Investments		Other Investments			Equity Securities		Total
Level 3 investments as of April 1, 2014	$	607	$	296,651		$	4,750	$	302,008
Purchases		—		28,461			—		28,461
Sales		—		(7,709	)		—		(7,709	)
Total realized and unrealized gains through earnings		3		10,761			125		10,889
Net transfers into and/or (out of) Level 3		—		—			—		—

Level 3 investments as of June 30, 2014	$	610	$	328,164		$	4,875	$	333,649

The amount of net gains for the three months ended June 30, 2014 included in earnings attributable to the fair value of changes in assets still held at June 30, 2014 was $10.9 million. All of this amount was included in net realized and unrealized gains.

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. INVESTMENTS—(Continued)


	Fixed Maturity Investments			Other Investments			Equity Securities			Total
Level 3 investments as of January 1, 2015	$	600		$	349,790		$	4,850		$	355,240
Purchases		—			136,385			—			136,385
Sales		(600	)		(42,415	)		(5,000	)		(48,015	)
Total realized and unrealized gains through earnings		—			20,145			150			20,295
Net transfers into and/or (out of) Level 3		—			—			—			—

Level 3 investments as of June 30, 2015	$	—		$	463,905		$	—		$	463,905

The amount of net gains for the six months ended June 30, 2015 included in earnings attributable to the fair value of changes in assets still held at June 30, 2015 was $20.3 million. All of this amount was included in net realized and unrealized gains.


	Fixed Maturity Investments		Other Investments			Equity Securities		Total
Level 3 investments as of January 1, 2014	$	609	$	265,569		$	4,725	$	270,903
Purchases		—		51,753			—		51,753
Sales		—		(10,692	)		—		(10,692	)
Total realized and unrealized gains through earnings		1		21,534			150		21,685
Net transfers into and/or (out of) Level 3		—		—			—		—

Level 3 investments as of June 30, 2014	$	610	$	328,164		$	4,875	$	333,649

The amount of net gains for the six months ended June 30, 2014 included in earnings attributable to the fair value of changes in assets still held at June 30, 2014 was $21.7 million. All of this amount was included in net realized and unrealized gains.

Fair Value Measurements for Life Settlements

The Company measures the fair value of its investments in life settlements (acquired in the Guillamene transaction on May 5, 2015), carried at cost, on a non-recurring basis, generally quarterly,

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. INVESTMENTS—(Continued)

annually or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Impaired investments in life settlements are written down to their estimated fair value and the impairment charges are included in net realized and unrealized (losses) gains. For the three and six months ended June 30, 2015, no impairment charges attributable to life settlements were included in net realized and unrealized (losses) gains.

The estimated fair value of investments in life settlements at June 30, 2015 was $146.8 million (December 31, 2014 - $nil). The fair value estimates use unobservable inputs and as such are classified within level 3 in the fair value hierarchy.

Net Realized and Unrealized (Losses) Gains

Components of net realized and unrealized (losses) gains for the three and six months ended June 30, 2015 and 2014 were as follows:


	Three Months Ended June 30,					Six Months Ended June 30,
	2015			2014		2015			2014
Gross realized gains on available-for-sale securities	$	39		$	253	$	153		$	279
Gross realized losses on available-for-sale securities		(1	)		—		(9	)		(145	)
Net realized gains on trading securities		7,055			12,010		19,638			17,927
Net unrealized (losses) gains on trading securities		(29,398	)		8,757		(22,629	)		20,535
Net realized and unrealized gains on other investments		11,056			17,391		34,618			34,388

Net realized and unrealized (losses) gains	$	(11,249	)	$	38,411	$	31,771		$	72,984

Proceeds from sales and maturities of available-for-sale securities	$	48,492		$	26,179	$	97,733		$	78,967

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. INVESTMENTS—(Continued)

Net Investment Income

Major categories of net investment income for the three and six months ended June 30, 2015 and 2014 are summarized as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Interest from fixed maturity investments	$	41,466		$	39,644		$	80,318		$	73,850
Interest from cash and cash equivalents and short-term investments		1,387			1,800			4,106			3,425
Net amortization of bond premiums and discounts		(12,915	)		(15,682	)		(25,518	)		(28,144	)
Dividends from equities		1,315			1,626			2,996			3,030
Other investments		3,558			648			4,440			740
Interest on other receivables		358			656			639			882
Other income		11,714			7,164			14,617			7,186
Net income from investments in life settlements		1,959			—			1,959			—
Interest on deposits held with clients		139			292			619			1,022
Policy loan interest		272			304			565			615
Investment expenses		(2,760	)		(2,803	)		(4,355	)		(4,609	)

	$	46,493		$	33,649		$	80,386		$	57,997

Restricted Assets

The Company is required to maintain investments and cash and cash equivalents on deposit with various regulatory authorities to support its insurance and reinsurance operations. The investments and cash and cash equivalents on deposit are available to settle insurance and reinsurance liabilities. The Company also utilizes trust accounts to collateralize business with its 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 the Company’s restricted assets, including restricted cash of $612.4 million and $535.0 million, as of June 30, 2015 and December 31, 2014 was as follows:


	June 30, 2015		December 31, 2014
Collateral in trust for third party agreements	$	3,098,311	$	2,630,259
Assets on deposit with regulatory authorities		1,091,505		653,192
Collateral for secured letter of credit facility		262,243		300,468

	$	4,452,059	$	3,583,919

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

5. REINSURANCE BALANCES RECOVERABLE

The following table provides the total reinsurance balances recoverable as at June 30, 2015 and December 31, 2014:


	June 30, 2015
	Non-life Run-off			Atrium		Torus			Life and Annuities		Total
Recoverable from reinsurers on:
Outstanding losses	$	684,305		$	6,520	$	191,193		$	24,048	$	906,066
Losses incurred but not reported		515,797			16,317		105,189			449		637,752
Fair value adjustments		(22,049	)		3,174		(9,333	)		—		(28,208	)

Total reinsurance reserves recoverable		1,178,053			26,011		287,049			24,497		1,515,610
Paid losses recoverable		77,233			770		19,585			424		98,012

	$	1,255,286		$	26,781	$	306,634		$	24,921	$	1,613,622


	December 31, 2014
	Non-life Run-off			Atrium		Torus			Life and Annuities		Total
Recoverable from reinsurers on:
Outstanding losses	$	568,386		$	9,582	$	181,067		$	25,125	$	784,160
Losses incurred but not reported		278,696			14,565		154,850			467		448,578
Fair value adjustments		(46,373	)		4,131		(10,708	)		—		(52,950	)

Total reinsurance reserves recoverable		800,709			28,278		325,209			25,592		1,179,788
Paid losses recoverable		129,750			1,289		19,845			883		151,767

	$	930,459		$	29,567	$	345,054		$	26,475	$	1,331,555

The Company’s acquired insurance and reinsurance run-off subsidiaries, prior to acquisition, used retrocessional agreements to reduce their exposure to the risk of insurance and reinsurance assumed. The Company’s insurance and reinsurance subsidiaries remain liable to the extent that retrocessionaires do not meet their obligations under these agreements, and therefore, the Company evaluates and monitors concentration of credit risk among its reinsurers. Provisions are made for amounts considered potentially uncollectible.

On an annual basis, both Atrium Underwriting Group Limited and its subsidiaries (“Atrium”) and Torus purchase a tailored outwards reinsurance program designed to manage their risk profiles. The majority of Atrium’s total third party reinsurance cover is with Lloyd’s Syndicates or other highly rated reinsurers. The majority of Torus’ total 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 loss adjustment expense recoveries and an assumed interest rate equivalent to a risk free rate for securities with similar duration to the reinsurance recoverables acquired plus a spread to reflect 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)

5. REINSURANCE BALANCES RECOVERABLE—(Continued)

As of June 30, 2015 and December 31, 2014, the Company had reinsurance balances recoverable of $1.61 billion and $1.33 billion, respectively. The increase of $282.0 million in reinsurance balances recoverable was primarily a result of the Companion acquisition, partially offset by commutations and cash collections made during the six months ended June 30, 2015 in the Company’s non-life run-off and Torus segments.

Top Ten Reinsurers

The following table shows, for each segment, the total reinsurance balances recoverable by reinsurer as at June 30, 2015 and December 31, 2014:


	As at June 30, 2015
	Reinsurance Balances Recoverable
	Non-life run-off		Atrium		Torus		Life and annuities		Total		% of Total
Top ten reinsurers	$	882,658	$	21,365	$	121,542	$	14,564	$	1,040,129		64.5	%
Other reinsurers balances > $1 million		357,401		4,856		179,497		10,219		551,973		34.2	%
Other reinsurers balances < $1 million		15,227		560		5,595		138		21,520		1.3	%

Total	$	1,255,286	$	26,781	$	306,634	$	24,921	$	1,613,622		100.0	%


	As at December 31, 2014
	Reinsurance Balances Recoverable
	Non-life run-off		Atrium		Torus		Life and annuities		Total		% of Total
Top ten reinsurers	$	667,325	$	23,635	$	158,117	$	15,089	$	864,166		64.9	%
Other reinsurers balances > $1 million		256,929		4,917		181,196		10,692		453,734		34.1	%
Other reinsurers balances < $1 million		6,205		1,015		5,741		694		13,655		1.0	%

Total	$	930,459	$	29,567	$	345,054	$	26,475	$	1,331,555		100.0	%

At June 30, 2015 and December 31, 2014, the top ten reinsurers of the Company’s business accounted for 64.5% and 64.9%, respectively, of total reinsurance balances recoverable (which includes total reinsurance reserves and paid losses recoverable) and included $464.8 million and $310.9 million, respectively, of incurred but not reported (“IBNR”) reserves recoverable. With the exception of three non-rated reinsurers from which $400.2 million was recoverable (December 31, 2014: $175.2 million related to one reinsurer), the other top ten reinsurers, as at June 30, 2015 and December 31, 2014, were all rated A- or better.

As at June 30, 2015, reinsurance balances recoverable with a carrying value of $175.3 million were associated with one reinsurer that represented 10% or more of total reinsurance balances recoverable. At December 31, 2014, reinsurance balances recoverable with a carrying value of $314.5 million were associated with two reinsurers which represented 10% or more of total reinsurance balances recoverable.

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

5. REINSURANCE BALANCES RECOVERABLE—(Continued)

Provisions for Uncollectible Reinsurance Balances Recoverable

The following table shows the total reinsurance balances recoverable by rating of reinsurer along with the Company’s provisions for uncollectible reinsurance balances recoverable (“provisions for bad debt”) as at June 30, 2015 and December 31, 2014. The provisions for bad debt all relate to the non-life run-off segment.


	As at June 30, 2015
	Reinsurance Balances Recoverable
	Gross		Provisions for Bad Debt			Net
Reinsurers rated A- or above	$	1,122,408	$	53,911		$	1,068,497
Reinsurers rated below A-, secured (trust funds or letters of credit)		471,033		—			471,033
Reinsurers rated below A-, unsecured		277,522		203,430			74,092

Total	$	1,870,963	$	257,341		$	1,613,622

Provisions for bad debt as a percentage of gross reinsurance balances recoverable				13.8	%


	As at December 31, 2014
	Reinsurance Balances Recoverable
	Gross		Provisions for Bad Debt			Net
Reinsurers rated A- or above	$	1,126,944	$	80,995		$	1,045,949
Reinsurers rated below A-, secured (trust funds or letters of credit)		204,544		—			204,544
Reinsurers rated below A-, unsecured		289,976		208,914			81,062

Total	$	1,621,464	$	289,909		$	1,331,555

Provisions for bad debt as a percentage of gross reinsurance balances recoverable				17.9	%

6. LOSSES AND LOSS ADJUSTMENT EXPENSES

The following table provides the total losses and loss adjustment expense liabilities as at June 30, 2015 and December 31, 2014:


	June 30, 2015
	Non-life Run-off			Atrium		Torus			Total
Outstanding	$	2,996,468		$	69,261	$	437,776		$	3,503,505
Incurred but not reported		2,218,816			115,215		438,356			2,772,387
Fair value adjustment		(151,147	)		21,023		(2,297	)		(132,421	)

Total	$	5,064,137		$	205,499	$	873,835		$	6,143,471

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6. LOSSES AND LOSS ADJUSTMENT EXPENSES—(Continued)



	December 31, 2014
	Non-life Run-off			Atrium		Torus			Total
Outstanding	$	2,202,187		$	73,803	$	387,171		$	2,663,161
Incurred but not reported		1,406,420			113,149		477,264			1,996,833
Fair value adjustment		(173,597	)		25,659		(2,635	)		(150,573	)

Total	$	3,435,010		$	212,611	$	861,800		$	4,509,421

The overall increase in losses and loss adjustment expense liabilities for the Company between December 31, 2014 and June 30, 2015 was primarily attributable to the Company’s acquisition of Companion and the completion of the Voya transaction.

Refer to Note 8 to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 for more information on establishing reserves for losses and loss adjustment expense liabilities.

The total net (reduction) increase in ultimate losses and loss adjustment expense liabilities in the Company’s non-life run-off, Atrium and Torus segments for the three and six months ended June 30, 2015 and 2014 was as follows:


	Three Months Ended June 30, 2015
	Non-life Run-off			Atrium			Torus			Total
Net losses paid	$	164,440		$	12,121		$	39,415		$	215,976
Net change in case and LAE reserves		(104,330	)		136			46,729			(57,465	)
Net change in IBNR reserves		(75,957	)		5,186			(5,690	)		(76,461	)

(Reduction) increase in estimates of net ultimate losses		(15,847	)		17,443			80,454			82,050
Reduction in provisions for bad debt		(625	)		—			—			(625	)
(Reduction) increase in provisions for unallocated loss adjustment expense liabilities		(7,711	)		(8	)		1,053			(6,666	)
Amortization of fair value adjustments		(4,687	)		(3,678	)		(494	)		(8,859	)

Net (reduction) increase in ultimate losses and loss adjustment expense liabilities	$	(28,870	)	$	13,757		$	81,013		$	65,900

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6. LOSSES AND LOSS ADJUSTMENT EXPENSES—(Continued)



	Three Months Ended June 30, 2014
	Non-life Run-off			Atrium		Torus		Total
Net losses paid	$	116,575		$	12,008	$	14,249	$	142,832
Net change in case and LAE reserves		(78,421	)		2,241		42,264		(33,916	)
Net change in IBNR reserves		(54,730	)		2,329		23,727		(28,674	)

(Reduction) increase in estimates of net ultimate losses		(16,576	)		16,578		80,240		80,242
Paid loss recoveries on bad debt provisions		(11,206	)		—		—		(11,206	)
(Reduction) increase in provisions for unallocated loss adjustment expense liabilities		(12,874	)		33		—		(12,841	)
Amortization of fair value adjustments		3,454			—		100		3,554

Net (reduction) increase in ultimate losses and loss adjustment expense liabilities	$	(37,202	)	$	16,611	$	80,340	$	59,749


	Six Months Ended June 30, 2015
	Non-life Run-off			Atrium			Torus			Total
Net losses paid	$	229,700		$	24,032		$	91,563		$	345,295
Net change in case and LAE reserves		(111,330	)		(883	)		44,943			(67,270	)
Net change in IBNR reserves		(113,235	)		1,376			20,049			(91,810	)

Increase in estimates of net ultimate losses		5,135			24,525			156,555			186,215
Reduction in provisions for bad debt		(20,439	)		—			—			(20,439	)
(Reduction) increase in provisions for unallocated loss adjustment expense liabilities		(21,686	)		(70	)		1,711			(20,045	)
Amortization of fair value adjustments		(4,980	)		(3,678	)		(1,037	)		(9,695	)

Net (reduction) increase in ultimate losses and loss adjustment expense liabilities	$	(41,970	)	$	20,777		$	157,229		$	136,036

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6. LOSSES AND LOSS ADJUSTMENT EXPENSES—(Continued)


	Six Months Ended June 30, 2014
	Non-life Run-off			Atrium		Torus		Total
Net losses paid	$	204,262		$	24,843	$	14,249	$	243,354
Net change in case and LAE reserves		(140,819	)		3,016		42,264		(95,539	)
Net change in IBNR reserves		(92,078	)		5,798		23,727		(62,553	)

(Reduction) increase in estimates of net ultimate losses		(28,635	)		33,657		80,240		85,262
Paid loss recoveries on bad debt provisions		(11,206	)		—		—		(11,206	)
(Reduction) increase in provisions for unallocated loss adjustment expense liabilities		(26,233	)		85		—		(26,148	)
Amortization of fair value adjustments		(309	)		—		100		(209	)

Net (reduction) increase in ultimate losses and loss adjustment expense liabilities	$	(66,383	)	$	33,742	$	80,340	$	47,699

Non-Life Run-off Segment

The table below provides a reconciliation of the beginning and ending reserves for losses and loss adjustment expenses for the three months ended June 30, 2015 and 2014 of the non-life run-off segment (losses incurred and paid are reflected net of reinsurance balances recoverable):


	Non-life Run-off
	Three Months Ended June 30,
	2015			2014
Balance as at April 1	$	4,693,262		$	3,821,878
Less: total reinsurance reserves recoverable		1,210,933			1,028,162

		3,482,329			2,793,716
Net increase (reduction) in ultimate losses and loss adjustment expense liabilities:
Current period		22,547			10,209
Prior periods		(51,417	)		(47,411	)

Total net reduction in ultimate losses and loss adjustment expense liabilities		(28,870	)		(37,202	)

Net losses paid:
Current period		(9,434	)		(260	)
Prior periods		(155,006	)		(105,108	)

Total net losses paid		(164,440	)		(105,368	)

Effect of exchange rate movement		25,876			8,032
Acquired on purchase of subsidiaries		—			386,074
Assumed business		305,763			—

Net balance as at June 30		3,620,658			3,045,252
Plus: total reinsurance reserves recoverable		1,178,053			935,319
Plus: total deferred charge on retroactive reinsurance		265,426			—

Balance as at June 30	$	5,064,137		$	3,980,571

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6. LOSSES AND LOSS ADJUSTMENT EXPENSES—(Continued)

Total net losses paid for the three months ended June 30, 2014 are shown net of paid loss recoveries on bad debt provisions of $11.2 million.

The net (reduction) increase in ultimate losses and loss adjustment expense liabilities in the non-life run-off segment for the three months ended June 30, 2015 and 2014 was as follows:


	Non-Life Run-off
	Three Months Ended June 30, 2015
	Prior Period			Current Period		Total
Net losses paid	$	155,006		$	9,434	$	164,440
Net change in case and LAE reserves		(108,819	)		4,489		(104,330	)
Net change in IBNR reserves		(84,581	)		8,624		(75,957	)

(Reduction) increase in estimates of net ultimate losses		(38,394	)		22,547		(15,847	)
Reduction in provisions for bad debt		(625	)		—		(625	)
Reduction in provisions for unallocated loss adjustment expense liabilities		(7,711	)		—		(7,711	)
Amortization of fair value adjustments		(4,687	)		—		(4,687	)

Net (reduction) increase in ultimate losses and loss adjustment expense liabilities	$	(51,417	)	$	22,547	$	(28,870	)


	Non-Life Run-off
	Three Months Ended June 30, 2014
	Prior Period			Current Period		Total
Net losses paid	$	116,315		$	260	$	116,575
Net change in case and LAE reserves		(78,596	)		175		(78,421	)
Net change in IBNR reserves		(64,504	)		9,774		(54,730	)

(Reduction) increase in estimates of net ultimate losses		(26,785	)		10,209		(16,576	)
Paid loss recoveries on bad debt provisions		(11,206	)		—		(11,206	)
Reduction in provisions for unallocated loss adjustment expense liabilities		(12,874	)		—		(12,874	)
Amortization of fair value adjustments		3,454			—		3,454

Net (reduction) increase in ultimate losses and loss adjustment expense liabilities	$	(47,411	)	$	10,209	$	(37,202	)

Net change in case and loss adjustment expense (“LAE”) reserves comprises the movement during the period in specific case reserve liabilities as a result of claims settlements or changes advised to the Company by its policyholders and attorneys, less changes in case reserves recoverable advised by the Company to its reinsurers as a result of the settlement or movement of assumed claims. Net change in IBNR reserves represents the change in the Company’s actuarial estimates of losses incurred but not reported, less amounts recoverable.

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6. LOSSES AND LOSS ADJUSTMENT EXPENSES—(Continued)

Three Months Ended June 30, 2015

The net reduction in ultimate losses and loss adjustment expense liabilities for the three months ended June 30, 2015 of $28.9 million included incurred losses of $22.5 million related to current period earned premium of $17.2 million, related primarily to the portion of the run-off business acquired with Sussex. Excluding current period incurred losses of $22.5 million, ultimate losses and loss adjustment expenses 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, reduction in provisions for bad debt of $0.6 million, reduction in provisions for unallocated loss adjustment expense liabilities 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.

The reduction in estimates of net ultimate losses relating to prior periods of $38.4 million was primarily related to:

(i)

the Company’s review of historic case reserves for which no updated advices had been received for a number of years. This review identified the redundancy of a number of advised case reserves with an estimated aggregate value of approximately $6.4 million;

(ii)

a reduction in IBNR reserves of $23.0 million primarily as a result of the application, on a basis consistent with the assumptions applied in the prior period, of the Company’s actuarial methodologies to revised historical loss development data to estimate loss reserves required to cover liabilities for unpaid loss and loss adjustment expenses relating to non-commuted exposures in Lloyd’s Syndicate 2008. The prior period estimate of aggregate IBNR liabilities was reduced as a result of the continued favorable trend of loss development compared to prior forecasts; and

(iii)

favorable claims settlements during the three months ended June 30, 2015 resulting in a reduction in estimates of net ultimate losses of approximately $9.0 million.

Three Months Ended June 30, 2014

The net reduction in ultimate losses and loss adjustment expense liabilities for the three months ended June 30, 2014 of $37.2 million included incurred losses of $10.2 million related to current period earned premium, related primarily to the portion of the run-off business acquired with Torus. Excluding current period incurred losses of $10.2 million, ultimate losses and loss adjustment expenses relating to prior periods were reduced by $47.4 million, which was attributable to a reduction in estimates of net ultimate losses of $26.8 million, paid loss recoveries on bad debt provisions of $11.2 million and a reduction in provisions for unallocated loss adjustment expense liabilities of $12.9 million, relating to 2014 run-off activity, partially offset by amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $3.5 million.

The reduction in estimates of net ultimate losses relating to prior periods of $26.8 million was primarily related to:

(i)

(ii)

a reduction in IBNR reserves of $10.0 million primarily as a result of the application, on a basis consistent with the assumptions applied in the prior period, of the Company’s actuarial

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6. LOSSES AND LOSS ADJUSTMENT EXPENSES—(Continued)

methodologies to revised historical loss development data to estimate loss reserves required to cover liabilities for unpaid loss and loss adjustment expenses relating to non-commuted exposures in Lloyd’s Syndicate 2008. The prior period estimate of aggregate IBNR liabilities was reduced as a result of the continued favorable trend of loss development compared to prior forecasts; and

(iii)

favorable claims settlements during the three months ended June 30, 2014 resulting in a reduction in estimates of net ultimate losses of approximately $12.8 million.

Six Months Ended June 30, 2015 and 2014

The table below provides a reconciliation of the beginning and ending reserves for losses and loss adjustment expenses for the six months ended June 30, 2015 and 2014 of the non-life run-off segment (losses incurred and paid are reflected net of reinsurance balances recoverable):


	Non-Life Run-off
	Six Months Ended June 30,
	2015			2014
Balance as at January 1	$	3,435,010		$	4,004,513
Less: total reinsurance reserves recoverable		800,709			1,121,533

		2,634,301			2,882,980
Net increase (reduction) in ultimate losses and loss adjustment expense liabilities:
Current period		43,273			11,641
Prior periods		(85,243	)		(78,024	)

Total net reduction in ultimate losses and loss adjustment expense liabilities		(41,970	)		(66,383	)

Net losses paid:
Current period		(14,005	)		(792	)
Prior periods		(215,695	)		(192,263	)

Total net losses paid		(229,700	)		(193,055	)

Effect of exchange rate movement		(12,362	)		7,006
Acquired on purchase of subsidiaries		774,758			386,074
Assumed business		495,631			28,630

Net balance as at June 30		3,620,658			3,045,252
Plus: total reinsurance reserves recoverable		1,178,053			935,319
Plus: total deferred charge on retroactive reinsurance		265,426			—

Balance as at June 30	$	5,064,137		$	3,980,571

Total net losses paid for the six months ended June 30, 2014 are shown net of paid loss recoveries on bad debt provisions of $11.2 million.

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6. LOSSES AND LOSS ADJUSTMENT EXPENSES—(Continued)

The net (reduction) increase in ultimate losses and loss adjustment expense liabilities in the non-life run-off segment for the six months ended June 30, 2015 and 2014 was as follows:


	Non-Life Run-off
	Six Months Ended June 30, 2015
	Prior Period			Current Period		Total
Net losses paid	$	215,695		$	14,005	$	229,700
Net change in case and LAE reserves		(118,813	)		7,483		(111,330	)
Net change in IBNR reserves		(135,020	)		21,785		(113,235	)

(Reduction) increase in estimates of net ultimate losses		(38,138	)		43,273		5,135
Reduction in provisions for bad debt		(20,439	)		—		(20,439	)
Reduction in provisions for unallocated loss adjustment expense liabilities		(21,686	)		—		(21,686	)
Amortization of fair value adjustments		(4,980	)		—		(4,980	)

Net (reduction) increase in ultimate losses and loss adjustment expense liabilities	$	(85,243	)	$	43,273	$	(41,970	)


	Non-Life Run-off
	Six Months Ended June 30, 2014
	Prior Period			Current Period		Total
Net losses paid	$	203,470		$	792	$	204,262
Net change in case and LAE reserves		(141,845	)		1,026		(140,819	)
Net change in IBNR reserves		(101,901	)		9,823		(92,078	)

(Reduction) increase in estimates of net ultimate losses		(40,276	)		11,641		(28,635	)
Paid loss recoveries on bad debt provisions		(11,206	)		—		(11,206	)
Reduction in provisions for unallocated loss adjustment expense liabilities		(26,233	)		—		(26,233	)
Amortization of fair value adjustments		(309	)		—		(309	)

Net (reduction) increase in ultimate losses and loss adjustment expense liabilities	$	(78,024	)	$	11,641	$	(66,383	)

Six Months Ended June 30, 2015

The net reduction in ultimate losses and loss adjustment expense liabilities for the six months ended June 30, 2015 of $42.0 million included incurred losses of $43.3 million related to current period earned premium of $35.8 million primarily related to the portion of the run-off business acquired with Sussex. Excluding current period incurred losses of $43.3 million, ultimate losses and loss adjustment expenses 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 loss adjustment expense liabilities of $21.7 million, relating to

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6. LOSSES AND LOSS ADJUSTMENT EXPENSES—(Continued)

2015 run-off activity, and amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $5.0 million.

The reduction in estimates of net ultimate losses relating to prior periods of $38.1 million was related primarily to:

(i)

(ii)

(iii)

favorable claims settlements during the six months ended June 30, 2015 resulting in a reduction in estimates of net ultimate losses of approximately $8.7 million.

The reduction in provisions for bad debt of $20.4 million for the six months ended June 30, 2015 resulted from the cash collection and commutation of certain reinsurance receivables against which bad debt provisions had been provided for in earlier periods.

Six Months Ended June 30, 2014

The net reduction in ultimate losses and loss adjustment expense liabilities for the six months ended June 30, 2014 of $66.4 million included incurred losses of $11.6 million related to current period earned premium of $17.3 million primarily related to the portion of the run-off business acquired with Torus. Excluding current period incurred losses of $11.6 million, ultimate losses and loss adjustment expenses relating to prior periods were reduced by $78.0 million, which was attributable to a reduction in estimates of net ultimate losses of $40.3 million, paid loss recoveries on bad debt provisions of $11.2 million and a reduction in provisions for unallocated loss adjustment expense liabilities of $26.2 million, relating to 2014 run-off activity, and amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $0.3 million.

The reduction in estimates of net ultimate losses relating to prior periods of $40.3 million was related primarily to:

(i)

(ii)

a reduction in IBNR reserves of $10.0 million primarily as a result of the application, on a basis consistent with the assumptions applied in the prior period, of the Company’s actuarial methodologies to revised historical loss development data to estimate loss reserves required to cover liabilities for unpaid loss and loss adjustment expenses relating to non-commuted

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6. LOSSES AND LOSS ADJUSTMENT EXPENSES—(Continued)

exposures in Lloyd’s Syndicate 2008. The prior period estimate of aggregate IBNR liabilities was reduced as a result of the continued favorable trend of loss development compared to prior forecasts; and

(iii)

favorable claims settlements during the six months ended June 30, 2014 resulting in a reduction in estimates of net ultimate losses of approximately $19.5 million.

Atrium Segment

The tables below provide a reconciliation of the beginning and ending reserves for losses and loss adjustment expenses for the three months ended June 30, 2015 and 2014 for the Atrium segment (losses incurred and paid are reflected net of reinsurance recoverables):


	Atrium
	Three Months Ended June 30,
	2015			2014
Balance as at April 1	$	202,873		$	220,252
Less: total reinsurance reserves recoverable		26,629			25,626

		176,244			194,626
Net increase (reduction) in ultimate losses and loss adjustment expense liabilities:
Current period		17,495			18,904
Prior periods		(3,738	)		(2,293	)

Total net increase in ultimate losses and loss adjustment expense liabilities		13,757			16,611

Net losses paid:
Current period		(4,538	)		(5,132	)
Prior periods		(7,583	)		(6,876	)

Total net losses paid		(12,121	)		(12,008	)
Effect of exchange rate movement		1,608			698

Net balance as at June 30		179,488			199,927
Plus: total reinsurance reserves recoverable		26,011			26,993

Balance as at June 30	$	205,499		$	226,920

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6. LOSSES AND LOSS ADJUSTMENT EXPENSES—(Continued)



	Atrium
	Six Months Ended June 30,
	2015			2014
Balance as at January 1	$	212,611		$	215,392
Less: total reinsurance reserves recoverable		28,278			25,055

		184,333			190,337
Net increase (reduction) in ultimate losses and loss adjustment expense liabilities:
Current period		32,373			40,218
Prior periods		(11,596	)		(6,476	)

Total net increase in ultimate losses and loss adjustment expense liabilities		20,777			33,742

Net losses paid:
Current period		(7,408	)		(9,816	)
Prior periods		(16,624	)		(15,027	)

Total net losses paid		(24,032	)		(24,843	)
Effect of exchange rate movement		(1,590	)		691

Net balance as at June 30		179,488			199,927
Plus: total reinsurance reserves recoverable		26,011			26,993

Balance as at June 30	$	205,499		$	226,920

The net (reduction) increase in ultimate losses and loss adjustment expense liabilities for the Atrium segment for the three and six months ended June 30, 2015 and 2014 was as follows:


	Atrium
	Three Months Ended June 30,
	2015								2014
	Prior Period			Current Period		Total			Prior Period			Current Period		Total
Net losses paid	$	7,583		$	4,538	$	12,121		$	6,876		$	5,132	$	12,008
Net change in case and LAE reserves		(3,946	)		4,082		136			(3,857	)		6,098		2,241
Net change in IBNR reserves		(3,560	)		8,746		5,186			(5,019	)		7,348		2,329

Increase (reduction) in estimates of net ultimate losses		77			17,366		17,443			(2,000	)		18,578		16,578
(Reduction) increase in provisions for unallocated loss adjustment expense liabilities		(137	)		129		(8	)		(293	)		326		33
Amortization of fair value adjustments		(3,678	)		—		(3,678	)		—			—		—

Net (reduction) increase in ultimate losses and loss adjustment expense liabilities	$	(3,738	)	$	17,495	$	13,757		$	(2,293	)	$	18,904	$	16,611

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6. LOSSES AND LOSS ADJUSTMENT EXPENSES—(Continued)



	Atrium
	Six Months Ended June 30,
	2015								2014
	Prior Period			Current Period		Total			Prior Period			Current Period		Total
Net losses paid	$	16,624		$	7,408	$	24,032		$	15,027		$	9,816	$	24,843
Net change in case and LAE reserves		(7,657	)		6,774		(883	)		(7,842	)		10,858		3,016
Net change in IBNR reserves		(16,553	)		17,929		1,376			(13,420	)		19,218		5,798

(Reduction) increase in estimates of net ultimate losses		(7,586	)		32,111		24,525			(6,235	)		39,892		33,657
(Reduction) increase in provisions for unallocated loss adjustment expense liabilities		(332	)		262		(70	)		(241	)		326		85
Amortization of fair value adjustments		(3,678	)		—		(3,678	)		—			—		—

Net (reduction) increase in ultimate losses and loss adjustment expense liabilities	$	(11,596	)	$	32,373	$	20,777		$	(6,476	)	$	40,218	$	33,742

Torus Segment

The tables below provide a reconciliation of the beginning and ending reserves for losses and loss adjustment expenses for the three months ended June 30, 2015 and 2014 for the Torus segment (losses incurred and paid are reflected net of reinsurance recoverables):


	Torus
	Three Months Ended June 30,
	2015			2014
Balance as at April 1	$	828,488		$	—
Less: total reinsurance reserves recoverable		280,540			—

		547,948			—
Net increase (reduction) in ultimate losses and loss adjustment expense liabilities:
Current period		81,293			80,340
Prior periods		(280	)		—

Total net increase in ultimate losses and loss adjustment expense liabilities		81,013			80,340

Net losses paid:
Current period		(7,518	)		(2,851	)
Prior periods		(31,896	)		(11,398	)

Total net losses paid		(39,414	)		(14,249	)
Effect of exchange rate movement		(2,761	)		(114	)
Acquired on purchase of subsidiaries		—			515,373

Net balance as at June 30		586,786			581,350
Plus: total reinsurance reserves recoverable		287,049			336,150

Balance as at June 30	$	873,835		$	917,500

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6. LOSSES AND LOSS ADJUSTMENT EXPENSES—(Continued)


	Torus
	Six Months Ended June 30,
	2015			2014⁽¹⁾
Balance as at January 1	$	861,800		$	—
Less: total reinsurance reserves recoverable		325,209			—

		536,591			—
Net increase (reduction) in ultimate losses and loss adjustment expense liabilities:
Current period		158,703			80,340
Prior periods		(1,474	)		—

Total net increase in ultimate losses and loss adjustment expense liabilities		157,229			80,340

Net losses paid:
Current period		(11,241	)		(2,851	)
Prior periods		(80,322	)		(11,398	)

Total net losses paid		(91,563	)		(14,249	)
Effect of exchange rate movement		(15,471	)		(114	)
Acquired on purchase of subsidiaries		—			515,373

Net balance as at June 30		586,786			581,350
Plus: total reinsurance reserves recoverable		287,049			336,150

Balance as at June 30	$	873,835		$	917,500

(1)	The Company began reporting with respect to its Torus segment following the acquisition of Torus in the second quarter of 2014.

The net (reduction) increase in ultimate losses and loss adjustment expense liabilities for the Torus segment for the three and six months ended June 30, 2015 and 2014 was as follows:


	Torus
	Three Months Ended June 30,
	2015								2014
	Prior Period			Current Period		Total			Prior Period			Current Period		Total
Net losses paid	$	31,896		$	7,518	$	39,414		$	11,398		$	2,851	$	14,249
Net change in case and LAE reserves		6,397			40,332		46,729			34,414			7,850		42,264
Net change in IBNR reserves		(38,584	)		32,894		(5,690	)		(45,812	)		69,539		23,727

(Reduction) increase in estimates of net ultimate losses		(291	)		80,744		80,453			—			80,240		80,240
Increase (reduction) in provisions for unallocated loss adjustment expense liabilities		506			549		1,055			—			—		—
Amortization of fair value adjustments		(495	)		—		(495	)		—			100		100

Net (reduction) increase in ultimate losses and loss adjustment expense liabilities	$	(280	)	$	81,293	$	81,013		$	—		$	80,340	$	80,340

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

6. LOSSES AND LOSS ADJUSTMENT EXPENSES—(Continued)


	Torus
	Six Months Ended June 30,
	2015								2014
	Prior Period			Current Period		Total			Prior Period			Current Period		Total
Net losses paid	$	80,322		$	11,241	$	91,563		$	11,398		$	2,851	$	14,249
Net change in case and LAE reserves		(3,934	)		48,877		44,943			34,414			7,850		42,264
Net change in IBNR reserves		(76,262	)		96,311		20,049			(45,812	)		69,539		23,727

Increase in estimates of net ultimate losses		126			156,429		156,555			—			80,240		80,240
(Reduction) increase in provisions for unallocated loss adjustment expense liabilities		(563	)		2,274		1,711			—			—		—
Amortization of fair value adjustments		(1,037	)		—		(1,037	)		—			100		100

Net (reduction) increase in ultimate losses and loss adjustment expense liabilities	$	(1,474	)	$	158,703	$	157,229		$	—		$	80,340	$	80,340

7. POLICY BENEFITS FOR LIFE AND ANNUITY CONTRACTS

Policy benefits for life and annuity contracts as at June 30, 2015 and December 31, 2014 were as follows:


	June 30, 2015			December 31, 2014
Life	$	333,486		$	344,215
Annuities		929,959			938,121

		1,263,445			1,282,336
Fair value adjustments		(57,314	)		(61,472	)

	$	1,206,131		$	1,220,864

Refer to Note 9 to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 for more information on establishing policy benefit reserves.

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

8. PREMIUMS WRITTEN AND EARNED

The following tables provide a summary of net premiums written and earned in our non-life run-off, Atrium, Torus and life and annuities segments for the three and six month periods ended June 30, 2015 and 2014:


	Three Months Ended June 30,												Six Months Ended June 30,
	2015						2014						2015						2014
	Premiums Written			Premiums Earned			Premiums Written			Premiums Earned			Premiums Written			Premiums Earned			Premiums Written			Premiums Earned
Non-life run-off
Gross	$	14,797		$	53,184		$	6,720		$	22,406		$	24,914		$	78,157		$	8,039		$	25,174
Ceded		(39,590	)		(35,886	)		(904	)		(5,322	)		(39,867	)		(42,367	)		(1,180	)		(5,563	)

Net	$	(24,793	)	$	17,298		$	5,816		$	17,084		$	(14,953	)	$	35,790		$	6,859		$	19,611

Atrium
Gross	$	35,786		$	37,913		$	39,857		$	38,142		$	84,699		$	76,067		$	87,434		$	76,299
Ceded		(3,966	)		(3,956	)		(3,868	)		(4,145	)		(8,521	)		(8,238	)		(9,720	)		(9,663	)

Net	$	31,820		$	33,957		$	35,989		$	33,997		$	76,178		$	67,829		$	77,714		$	66,636

Torus
Gross	$	241,057		$	195,963		$	170,646		$	185,753		$	431,754		$	364,495		$	170,646		$	185,753
Ceded		(59,692	)		(58,267	)		(40,205	)		(47,514	)		(125,566	)		(103,177	)		(40,205	)		(47,514	)

Net	$	181,365		$	137,696		$	130,441		$	138,239		$	306,188		$	261,318		$	130,441		$	138,239

Life and annuities
Life	$	22,922		$	23,072		$	27,189		$	27,596		$	45,655		$	45,992		$	53,185		$	54,088

Total	$	211,314		$	212,023		$	199,435		$	216,916		$	413,068		$	410,929		$	268,199		$	278,574

9. GOODWILL, INTANGIBLE ASSETS AND DEFERRED CHARGE

The following table shows the Company’s goodwill, intangible assets and deferred charge as at June 30, 2015 and December 31, 2014:


	Goodwill		Intangible assets with a definite life- Other			Intangible assets with an indefinite life		Total			Intangible assets with a definite life - FVA			Deferred charge
Balance as at December 31, 2014	$	73,071	$	41,048		$	87,031	$	201,150		$	159,095		$	—
Acquired during the period		—		—			—		—			(2,759	)		265,426
Intangible assets amortization		—		(2,995	)		—		(2,995	)		5,191			—

Balance as at June 30, 2015	$	73,071	$	38,053		$	87,031	$	198,155		$	161,527		$	265,426

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

9. GOODWILL, INTANGIBLE ASSETS AND DEFERRED CHARGE—(Continued)

Refer to Note 11 to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 for more information on intangible assets with a definite and an indefinite life. Refer to Note 1—”Significant Accounting Policies—(b) Retroactive reinsurance” above for more information on deferred charge.

Intangible asset amortization for the three and six month periods ended June 30, 2015 was $(4.9) million and $(2.2) million, respectively, as compared to $7.9 million and $6.7 million for the comparative periods in 2014.

The gross carrying value, accumulated amortization and net carrying value of intangible assets by type at June 30, 2015 and December 31, 2014 were as follows:


	June 30, 2015									December 31, 2014
	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 loss adjustment expenses	$	429,063		$	(296,642	)	$	132,421		$	449,986		$	(299,413	)	$	150,573
Reinsurance balances recoverable		(175,453	)		147,245			(28,208	)		(193,617	)		140,667			(52,950	)
Policy benefits for life and annuity contracts		86,332			(29,018	)		57,314		$	86,332		$	(24,860	)	$	61,472

	$	339,942		$	(178,415	)	$	161,527		$	342,701		$	(183,606	)	$	159,095

Other:
Distribution channel	$	20,000		$	(2,111	)	$	17,889			20,000			(1,444	)		18,556
Technology		15,000			(4,686	)		10,314			15,000			(3,125	)		11,875
Brand		12,000			(2,150	)		9,850			12,000			(1,383	)		10,617

	$	47,000		$	(8,947	)	$	38,053		$	47,000		$	(5,952	)	$	41,048

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

	$	87,031		$	—		$	87,031		$	87,031		$	—		$	87,031

Deferred charge on retroactive reinsurance	$	265,426		$	—		$	265,426		$	—		$	—		$	—

As at June 30, 2015 and December 31, 2014, the allocation of the goodwill to the Company’s non-life run-off, Atrium and Torus segments was $21.2 million, $38.9 million and $13.0 million, respectively.

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

10. LOANS PAYABLE

The Company’s long-term debt consists of its EGL Revolving Credit Facility, which can be used for permitted acquisitions and for general corporate purposes, and the Sussex Facility, an acquisition term loan facility used to partially finance the Company’s acquisition of Companion on January 27, 2015.

The EGL Revolving Credit Facility was entered into on September 16, 2014. On February 27, 2015, the EGL Revolving Credit Facility was amended and restated primarily in order to: (1) increase the size of the facility from $500 million to $665 million; (2) add Lloyd’s Bank plc as a new lender within the facility, and (3) reallocate the amounts provided by each of the four lenders under the facility such that each lender agreed to provide an equal amount of $166.25 million, on and subject to the terms of the restated facility agreement.

On December 24, 2014, Sussex Holdings, a wholly-owned subsidiary of the Company, as borrower and guarantor, entered into the Sussex Facility with National Australia Bank Limited and Barclays Bank PLC. The Sussex Facility provides for a four-year term loan facility pursuant to which Sussex Holdings was permitted to borrow up to an aggregate of $109.0 million to fund 50% of the consideration payable for the acquisition of Companion. Sussex Holdings fully drew down on the Sussex Facility and completed the acquisition of Companion on January 27, 2015.

Borrowings and repayments under the Company’s loan facilities during the six months ended June 30, 2015 are described below.

EGL Revolving Credit Facility

The Company’s borrowings under the facility increased from $319.6 million as at December 31, 2014 to $544.3 million as at June 30, 2015. The increase of $224.7 million was attributable to the following drawdowns:

(i)

a total of $149.7 million related to the Wilton Re life settlements acquisition and the Voya transaction;

(ii)

$50.0 million to capitalize a newly-formed Bermuda registered wholly-owned reinsurance company; and

(iii)

$25.0 million for general corporate purposes.

Sussex Facility

On May 5, 2015, the Company repaid $5.0 million of the outstanding principal of the Sussex Facility, reducing the outstanding principal to $104.0 million as at June 30, 2015.

As of June 30, 2015, all of the covenants relating to the EGL Revolving Credit Facility and the Sussex Facility were met.

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

10. LOANS PAYABLE—(Continued)

Amounts of loans payable outstanding, and accrued interest, as of June 30, 2015 and December 31, 2014 total $650.5 million and $320.0 million, respectively, and comprise:


Facility	Date of Facility		Facility Term		June 30, 2015		December 31, 2014
EGL Revolving Credit Facility		September 16, 2014		5 Years	$	544,250	$	319,550
Sussex Facility		December 24, 2014		4 Years		104,000		—

Total long-term bank debt						648,250		319,550
Accrued interest						2,257		491

Total loans payable					$	650,507	$	320,041

11. REDEEMABLE NONCONTROLLING INTEREST

Refer to Note 13 to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 for more information on redeemable noncontrolling interest (“RNCI”).

A reconciliation of the beginning and ending carrying amount of the equity attributable to the RNCI is as follows:


Redeemable noncontrolling interest	June 30, 2015			December 31, 2014
Balance as at beginning of period	$	374,619		$	100,859
Capital contributions		15,728			272,722
Dividends paid		(7,110	)		—
Net earnings attributable to RNCI		12,016			4,059
Accumulated other comprehensive income attributable to RNCI		(223	)		(1,993	)
Transfer of net loss from noncontrolling interest		—			(1,028	)

Balance at end of period	$	395,030		$	374,619

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

12. EARNINGS PER SHARE

The following table sets forth the comparison of basic and diluted earnings per share for the three and six month periods ended June 30, 2015 and 2014:


	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Basic earnings per ordinary share:
Net earnings attributable to Enstar Group Limited	$	14,545	$	51,793	$	59,392	$	81,380
Weighted average ordinary shares outstanding—basic		19,252,359		18,636,085		19,244,951		17,605,808

Net earnings per ordinary share attributable to Enstar Group Limited—basic	$	0.76	$	2.78	$	3.09	$	4.62

Diluted earnings per ordinary share:
Net earnings attributable to Enstar Group Limited	$	14,545	$	51,793	$	59,392	$	81,380
Weighted average ordinary shares outstanding—basic		19,252,359		18,636,085		19,244,951		17,605,808
Share equivalents:
Unvested shares		39,524		64,564		38,017		53,152
Restricted share units		13,620		21,543		12,031		21,012
Preferred shares		—		549,242		—		276,138
Warrants		78,250		56,082		69,776		48,763

Weighted average ordinary shares outstanding—diluted		19,383,753		19,327,516		19,364,775		18,004,873

Net earnings per ordinary share attributable to Enstar Group Limited—diluted	$	0.75	$	2.68	$	3.07	$	4.52

13. EMPLOYEE BENEFITS

The Company’s share-based compensation plans provide for the grant of various awards to its employees and to members of the Board of Directors. These are described in Note 16 to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. The information below includes both the employee and director components of the Company’s share based compensation.

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

13. EMPLOYEE BENEFITS—(Continued)

2006 Equity Incentive Plan

The employee share awards for the six months ended June 30, 2015 and 2014 are summarized as follows:


	Six Months Ended June 30,
	2015					2014
	Number of Shares			Weighted Average Fair Value of the Award		Number of Shares			Weighted Average Fair Value of the Award
Nonvested—beginning of period		101,181		$	15,470		115,159		$	15,997
Granted		42,395			5,852		27,418			3,666
Forfeited		(2,932	)		448		—			—
Vested		(54,441	)		7,851		(45,559	)		6,091

Nonvested—end of period		86,203		$	13,357		97,018		$	14,624

The total unrecognized compensation cost related to the Company’s non-vested share awards under the 2006 Equity Incentive Plan (the “Equity Plan”) as at June 30, 2015 and 2014 was $7.0 million and $6.5 million, respectively. The total unrecognized compensation cost as of June 30, 2015 is expected to be recognized over the next 1.8 years which is the weighted average contractual life of the awards. Compensation costs of $1.5 million and $2.7 million relating to these share awards were recognized in the Company’s statement of earnings for the three and six months ended June 30, 2015, respectively, as compared to costs of $0.8 million and $1.5 million for the comparative periods in 2014.

For the six months ended June 30, 2015 and 2014, 36,020 and 24,412 shares, respectively, were awarded to non-executive officer employees under the Equity Plan.

Cash-Settled Stock Appreciation Rights

Refer to Note 16 to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 for more information on cash-settled stock appreciation rights (“SARs”).

During the six months ended June 30, 2015 and 2014, the Company granted 190,000 and 373,315 SARs, respectively, to certain employees pursuant to the terms of the Equity Plan. Compensation costs of $5.7 million and $5.8 million relating to these share awards were recognized in the Company’s statement of earnings for the three and six months ended June 30, 2015, respectively, as compared to costs of $1.0 million and $1.0 million for the comparative periods in 2014.

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

13. EMPLOYEE BENEFITS—(Continued)

The following table sets forth the assumptions used to estimate the fair value of the Company’s outstanding SARs using the Black-Scholes option valuation model as at June 30, 2015:


	As at June 30, 2015
Weighted average fair value of the SARs	$	33.72
Weighted average volatility		20.24
Weighted average risk-free interest rate		0.53	%
Dividend yield		—

The following table summarizes SARs activity for the six months ended June 30, 2015:


	June 30, 2015
	Number of SAR’s		Weighted Average Exercise Price per SAR		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Balance, beginning of period		1,068,001	$	140.53		2.39	$	13,199
Granted		190,000