Edgar Filing: Enstar Group LTD

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Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

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 September 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 November 3, 2015, the registrant had outstanding 16,130,640 voting ordinary shares and 3,130,408 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 September 30, 2015 and December 31, 2014 (Unaudited)	1
	Condensed Consolidated Statements of Earnings for the Three and Nine Month Periods Ended September 30, 2015 and 2014 (Unaudited)	2
	Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Month Periods Ended September 30, 2015 and 2014 (Unaudited)	3
	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Nine Month Periods Ended September 30, 2015 and 2014 (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Nine Month Periods Ended September 30, 2015 and 2014 (Unaudited)	5
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	57
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	98
Item 4.	Controls and Procedures	101

	PART II—OTHER INFORMATION
Item 1.	Legal Proceedings	102
Item 1A.	Risk Factors	102
Item 6.	Exhibits	102
Signature		103

PART I—FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

ENSTAR GROUP LIMITED

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

As of September 30, 2015 and December 31, 2014


	September 30, 2015			December 31, 2014
	(expressed in thousands of U.S. dollars, except share data)
ASSETS
Short-term investments, trading, at fair value	$	161,612		$	130,516
Fixed maturities, trading, at fair value		4,925,459			3,832,291
Fixed maturities, held-to-maturity, at amortized cost		798,570			813,233
Fixed maturities, available-for-sale, at fair value (amortized cost: 2015—$190,023; 2014—$244,110)		184,932			241,111
Equities, trading, at fair value		123,739			150,130
Other investments, at fair value		988,387			836,868
Other investments, at cost		136,069			—

Total investments		7,318,768			6,004,149
Cash and cash equivalents		1,026,052			963,402
Restricted cash and cash equivalents		484,304			534,974
Premiums receivable		513,276			391,008
Deferred tax assets		54,465			50,506
Prepaid reinsurance premiums		130,271			114,197
Reinsurance balances recoverable		1,571,560			1,331,555
Funds held by reinsured companies		112,129			134,628
Deferred acquisition costs		112,806			61,706
Goodwill and intangible assets		192,752			201,150
Other assets		537,227			149,610

TOTAL ASSETS	$	12,053,610		$	9,936,885

LIABILITIES
Losses and loss adjustment expenses	$	6,019,206		$	4,509,421
Policy benefits for life and annuity contracts		1,196,343			1,220,864
Unearned premiums		540,735			468,626
Insurance and reinsurance balances payable		327,067			276,723
Deferred tax liabilities		38,550			43,958
Loans payable		730,720			320,041
Other liabilities		359,032			199,813

TOTAL LIABILITIES		9,211,653			7,039,446

COMMITMENTS AND CONTINGENCIES
REDEEMABLE NONCONTROLLING INTEREST		383,314			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: 16,127,708; 2014: 15,761,365)		16,128			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: 404,771; 2014: 714,015)		405			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		1,369,268			1,321,715
Accumulated other comprehensive income		(35,507	)		(12,686	)
Retained earnings		1,503,640			1,395,206

Total Enstar Group Limited Shareholders’ Equity		2,438,074			2,304,850
Noncontrolling interest		20,569			217,970

TOTAL SHAREHOLDERS’ EQUITY		2,458,643			2,522,820

TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY	$	12,053,610		$	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 Nine Month Periods Ended September 30, 2015 and 2014


	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
	(expressed in thousands of U.S. dollars, except share and per share data)
INCOME
Net premiums earned	$	231,051		$	195,987		$	641,980		$	474,561
Fees and commission income		8,977			6,801			29,588			21,308
Net investment income		43,169			27,984			123,555			85,981
Net realized and unrealized (losses) gains		(15,130	)		(18,336	)		16,641			54,648

		268,067			212,436			811,764			636,498

EXPENSES
Net incurred losses and loss adjustment expenses		32,359			17,533			168,395			65,232
Life and annuity policy benefits		22,989			26,549			73,926			81,090
Acquisition costs		49,806			36,261			121,450			99,801
Salaries and benefits		55,440			54,525			165,903			141,598
General and administrative expenses		44,895			41,039			124,993			100,466
Interest expense		5,156			3,307			14,035			10,570
Net foreign exchange (gains) losses		(841	)		6,365			(3,460	)		7,435

		209,804			185,579			665,242			506,192

EARNINGS BEFORE INCOME TAXES		58,263			26,857			146,522			130,306
INCOME TAXES		(12,262	)		(5,660	)		(28,822	)		(21,388	)

NET EARNINGS		46,001			21,197			117,700			108,918
Less: Net losses (earnings) attributable to noncontrolling interest		3,041			5,232			(9,266	)		(1,109	)

NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED	$	49,042		$	26,429		$	108,434		$	107,809

EARNINGS PER SHARE—BASIC
Net earnings per ordinary share attributable to Enstar Group Limited shareholders	$	2.55		$	1.38		$	5.63		$	5.94

EARNINGS PER SHARE—DILUTED
Net earnings per ordinary share attributable to Enstar Group Limited shareholders	$	2.53		$	1.37		$	5.59		$	5.84

Weighted average ordinary shares outstanding—basic		19,256,184			19,198,475			19,248,737			18,142,531
Weighted average ordinary shares outstanding—diluted		19,408,627			19,331,390			19,387,285			18,445,885

See accompanying notes to the unaudited condensed consolidated financial statements

ENSTAR GROUP LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Three and Nine Month Periods Ended September 30, 2015 and 2014


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

NET EARNINGS	$	46,001		$	21,197		$	117,700		$	108,918

Other comprehensive loss, net of tax:
Unrealized holding losses on investments arising during the period		(2,002	)		(3,852	)		(4,196	)		(3,393	)
Reclassification adjustment for net realized and unrealized (losses) gains included in net earnings		(27	)		87			(171	)		(47	)

Unrealized losses arising during the period, net of reclassification adjustment		(2,029	)		(3,765	)		(4,367	)		(3,440	)
Currency translation adjustment		(11,290	)		(14,815	)		(23,877	)		(8,043	)

Total other comprehensive loss		(13,319	)		(18,580	)		(28,244	)		(11,483	)

Comprehensive income		32,682			2,617			89,456			97,435
Less comprehensive loss (income) attributable to noncontrolling interest		2,326			8,922			(3,843	)		376

COMPREHENSIVE INCOME ATTRIBUTABLE TO ENSTAR GROUP LIMITED	$	35,008		$	11,539		$	85,613		$	97,811

See accompanying notes to the unaudited condensed consolidated financial statements

ENSTAR GROUP LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Nine Month Periods Ended September 30, 2015 and 2014


	Nine Months Ended September 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		10			1,914
Conversion of Series E Non-Voting Convertible Ordinary Shares		309			—
Share awards granted/vested		48			43

Balance, end of period	$	16,128		$	15,760

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		(309	)		—
Conversion of Series B Convertible Participating Non-Voting Perpetual Preferred Stock		—			714

Balance, end of period	$	405		$	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		1,352			354,368
Amortization of equity incentive plan		4,504			3,885
Equity attributable to Enstar Group Limited on acquisition of noncontrolling shareholders’ interest in subsidiaries		41,697			—

Balance, end of period	$	1,369,268		$	1,320,398

Accumulated Other Comprehensive Income
Balance, beginning of period	$	(12,686	)	$	13,978
Currency translation adjustment
Balance, beginning of period		(2,779	)		14,264
Change in currency translation adjustment		(22,501	)		(7,791	)
Purchase of noncontrolling shareholders’ interest in subsidiaries		2,937			—

Balance, end of period		(22,343	)		6,473
Defined benefit pension liability
Balance, beginning and end of period		(7,726	)		(2,249	)

Unrealized gain on investments
Balance, beginning of period		(2,181	)		1,963
Change in unrealized gain on investments, net of tax		(3,569	)		(2,207	)
Purchase of noncontrolling shareholders’ interest in subsidiaries		312			—

Balance, end of period		(5,438	)		(244	)

Balance, end of period	$	(35,507	)	$	3,980

Retained Earnings
Balance, beginning of period	$	1,395,206		$	1,181,457
Net earnings attributable to Enstar Group Limited		108,434			107,809

Balance, end of period	$	1,503,640		$	1,289,266

Noncontrolling Interest
Balance, beginning of period	$	217,970		$	222,000
Sale of noncontrolling shareholders’ interest in subsidiaries		(195,347	)		—
Return of capital		—			(9,980	)
Contribution of capital		680			18,081
Dividends paid		(733	)		(13,908	)
Reallocation to redeemable noncontrolling interest		—			1,028
Net (losses) earnings attributable to noncontrolling interest*		(308	)		7,131
Foreign currency translation adjustments		(1,558	)		(246	)
Net movement in unrealized holding losses on investments		(135	)		(339	)

Balance, end of period	$	20,569		$	223,767

*	Excludes net earnings 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 Nine Month Periods Ended September 30, 2015 and 2014


	Nine Months Ended September 30,
	2015			2014
	(expressed in thousands of U.S. dollars)
OPERATING ACTIVITIES:
Net earnings	$	117,700		$	108,918
Adjustments to reconcile net earnings to cash flows (used in) provided by operating activities:
Net realized and unrealized investment losses (gains)		12,939			(28,509	)
Net realized and unrealized gains from other investments		(29,580	)		(26,139	)
Other non-cash items		4,129			3,083
Depreciation and other amortization		42,659			45,570
Net change in trading securities held on behalf of policyholders		(8,452	)		3,013
Sales and maturities of trading securities		2,690,081			2,302,138
Purchases of trading securities		(3,189,379	)		(1,585,871	)
Changes in:
Reinsurance balances recoverable		251,660			287,760
Funds held by reinsured companies		25,020			98,099
Losses and loss adjustment expenses		(307,872	)		(630,417	)
Policy benefits for life and annuity contracts		(23,843	)		(44,457	)
Insurance and reinsurance balances payable		60,518			(77,625	)
Unearned premiums		(13,396	)		(23,766	)
Other operating assets and liabilities		(169,635	)		6,028

Net cash flows (used in) provided by operating activities		(537,451	)		437,825

INVESTING ACTIVITIES:
Acquisitions, net of cash acquired	$	56,369		$	37,540
Sales and maturities of available-for-sale securities		113,128			98,314
Purchase of available-for-sale securities		(65,036	)		(97,322	)
Maturities of held-to-maturity securities		6,520			5,477
Movement in restricted cash and cash equivalents		370,434			(81,966	)
Purchase of other investments		(189,164	)		(278,265	)
Redemption of other investments		62,732			30,707
Other investing activities		(2,949	)		837

Net cash flows provided by (used in) investing activities		352,034			(284,678	)

FINANCING ACTIVITIES:
Distribution of capital to noncontrolling interest	$	—		$	(9,980	)
Contribution by redeemable noncontrolling interest		15,728			272,722
Contribution by noncontrolling interest		680			18,081
Dividends paid to redeemable noncontrolling interest		(16,128	)		—
Dividends paid to noncontrolling interest		(733	)		(13,908	)
Purchase of noncontrolling interest		(150,400	)		—
Receipt of loans		537,700			70,000
Repayment of loans		(128,500	)		(199,245	)

Net cash flows provided by financing activities		258,347			137,670

EFFECT OF EXCHANGE RATE CHANGES ON FOREIGN CURRENCY
CASH AND CASH EQUIVALENTS		(10,280	)		(13,043	)

NET INCREASE IN CASH AND CASH EQUIVALENTS		62,650			277,774
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		963,402			643,841

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	1,026,052		$	921,615

Supplemental Cash Flow Information
Income taxes paid, net of refunds	$	25,119		$	31,207
Interest paid	$	13,455		$	13,589

See accompanying notes to the unaudited condensed consolidated financial statements

ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 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

These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, these financial statements reflect all adjustments consisting of normal recurring items considered necessary for a fair presentation under U.S. GAAP. The results of operations for any interim period are not necessarily indicative of results for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2014. Inter-company accounts and transactions have been eliminated. Results of operations for subsidiaries acquired are included from the dates on which we acquired them. In these notes, the terms “we,” “us,” “our,” or “the Company” refer to Enstar Group Limited and its direct and indirect subsidiaries. On September 14, 2015, Torus Insurance Holdings Limited, previously referred to as “Torus,” changed its name to StarStone Insurance Holdings Limited (“StarStone”).

The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ materially from these estimates. Results of changes in estimates are reflected in earnings in the period in which the change is made. Our principal estimates include, but are not limited to:

•

reserves for losses and loss adjustment expenses (“LAE”);

•

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 fixed maturity 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 transactions with Voya Financial, Inc. (“Voya”) and Sun Life Assurance Company of Canada and its U.S. branch (“Sun Life”) as described in Note 3—“Significant New Business and Transactions,” we have adopted certain significant new accounting policies during the nine months ended September 30, 2015. Other than the policies described below, there have been no material changes to our significant accounting policies from those described in Note 2 to the consolidated financial statements contained in our 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 we recognize our 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. 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. 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 (“LAE”) with respect to past loss events. 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, recorded in other assets, are amortized over the estimated claim payment period of the related contract with the periodic amortization reflected in earnings as a component of losses and LAE. Deferred charges amortization may also be accelerated periodically to reflect changes to the amount and timing of remaining estimated loss payments. Deferred charges are evaluated for recoverability quarterly on an individual contract basis.

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. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statement disclosures.

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.

ENSTAR GROUP LIMITED

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

1. SIGNIFICANT ACCOUNTING POLICIES—(Continued)

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. We are currently evaluating the impact of this guidance, however we do not expect the adoption of the guidance to have a material impact on our consolidated financial statement disclosures.

ASU 2015-16, Business Combinations, Simplifying the Accounting for Measurement-Period Adjustments

In September 2015, the FASB issued ASU 2015-16, which eliminates the requirement for an acquirer to retrospectively adjust the financial statements for measurement-period adjustments that occur in periods after a business combination is consummated. Under the new guidance, an acquirer must recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The ASU is effective for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. We do not expect this guidance to have a material impact on our consolidated financial statements and disclosures.

2. ACQUISITIONS

Nationale Suisse Assurance S.A.

On February 5, 2015, we 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 and life insurance.

The total consideration for the transaction will be €39.7 million (approximately $44.4 million) (subject to certain possible closing adjustments). We expect to finance the purchase price from cash on hand. We have received conditional governmental and regulatory approvals and completion of the transaction is conditioned on the satisfaction of various customary closing conditions. The transaction is expected to close during the fourth quarter of 2015.

Wilton Re Life Settlements

On May 5, 2015, we 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. The second installment of $83.9 million, due on the first anniversary of closing, is expected to be funded from cash on hand. The companies are operating as part of the life and annuities segment.


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


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 September 30, 2015, we recorded $5.3 million in net earnings attributable to Enstar Group Limited related to the 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 our transaction with Wilton Re, CPPIB separately acquired certain of our voting and non-voting shares pursuant to the CPPIB-First Reserve Transaction, as described in Note 15—“Related Party Transactions”.

Sussex Insurance Company (formerly known as Companion)

On January 27, 2015, we 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 with 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. We changed the name of Companion to Sussex Insurance Company (“Sussex”) following the acquisition and the company is operating as part of the non-life run-off segment. In addition, StarStone is renewing certain business from Sussex.


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


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 LAE	$	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

We have not completed the process of determining the fair value of the liabilities 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.

From the date of acquisition to September 30, 2015, we earned premiums of $48.9 million, recorded net incurred losses and LAE of $52.0 million on those earned premiums, and recorded $1.4 million in net earnings attributable to Enstar Group Limited related to Sussex’s non-life run-off business.

3. SIGNIFICANT NEW BUSINESS

Sun Life

On September 30, 2015, we entered into two 100% reinsurance agreements and a related administration services agreement with Sun Life pursuant to which we reinsured all of the run-off workers compensation carve-out and occupational accident business of Sun Life. We assumed

ENSTAR GROUP LIMITED

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

3. SIGNIFICANT NEW BUSINESS—(Continued)

reinsurance reserves of $128.3 million, received total assets of $122.5 million and recorded a deferred charge of $5.8 million included in other assets. We transferred approximately $30.6 million of additional funds into trust to further support our obligations under the reinsurance agreements. We provided limited parental guarantees, subject to an overall maximum of approximately $36.8 million.

Voya Financial

On May 27, 2015, we entered into two 100% reinsurance agreements and related administration services agreements with a subsidiary of Voya, pursuant to which we 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 our obligations under the reinsurance agreements. We assumed reinsurance reserves of $572.4 million, received total assets of $307.0 million and recorded a deferred charge of $265.4 million included in other assets. We transferred approximately $67.2 million of additional funds to the trusts to further support our obligations under the reinsurance agreements. We provided a limited parental guarantee, subject to a maximum cap with respect to the reinsurance liabilities. As of September 30, 2015, the amount of the parental guarantee was $58.0 million.

Reciprocal of America

On January 15, 2015, we completed a loss portfolio transfer reinsurance transaction with Reciprocal of America (in Receivership) and its Deputy Receiver relating to a portfolio of workers compensation business that has been in run-off since 2003. The total insurance reserves assumed were $162.1 million with an equivalent amount of cash and investments received as consideration.

4. INVESTMENTS

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

ENSTAR GROUP LIMITED

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

4. INVESTMENTS—(Continued)

Trading

The fair values of our fixed maturity investments, short-term investments and equities classified as trading were as follows:


	September 30 2015		December 31, 2014
U.S. government and agency	$	709,010	$	744,660
Non-U.S. government		334,941		368,945
Corporate		2,633,548		1,986,873
Municipal		55,238		25,607
Residential mortgage-backed		361,678		308,621
Commercial mortgage-backed		266,503		139,907
Asset-backed		726,153		388,194

Total fixed maturity and short-term investments		5,087,071		3,962,807
Equities—U.S.		116,568		106,895
Equities—International		7,171		43,235

	$	5,210,810	$	4,112,937

Included within residential and commercial mortgage-backed securities as at September 30, 2015 were securities issued by U.S. governmental agencies with a fair value of $324.8 million (as at December 31, 2014: $263.4 million). Included within corporate securities as at September 30, 2015 were senior secured loans of $94.8 million (as at December 31, 2014: $33.5 million).

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


As at September 30, 2015	Amortized Cost		Fair Value		% of Total Fair Value
One year or less	$	786,859	$	772,118		15.2	%
More than one year through two years		774,490		768,279		15.1	%
More than two years through five years		1,592,842		1,591,580		31.3	%
More than five years through ten years		475,739		473,923		9.3	%
More than ten years		129,135		126,837		2.5	%
Residential mortgage-backed		361,438		361,678		7.1	%
Commercial mortgage-backed		266,587		266,503		5.2	%
Asset-backed		731,469		726,153		14.3	%

	$	5,118,559	$	5,087,071		100.0	%

ENSTAR GROUP LIMITED

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

4. INVESTMENTS—(Continued)

Held-to-maturity

We hold a portfolio of held-to-maturity securities to support our annuity business. The amortized cost and fair values of our fixed maturity investments classified as held-to-maturity were as follows:


As at September 30, 2015	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses Non-OTTI			Fair Value
U.S. government and agency	$	19,873	$	21	$	(175	)	$	19,719
Non-U.S. government		38,130		247		(726	)		37,651
Corporate		740,567		5,935		(13,001	)		733,501

	$	798,570	$	6,203	$	(13,902	)	$	790,871


As at December 31, 2014	Amortized Cost		Gross Unrealized Gains		Gross Unrealized 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

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


As at September 30, 2015	Amortized Cost		Fair Value		% of Total Fair Value
One year or less	$	17,783	$	17,809		2.3	%
More than one year through two years		12,110		12,147		1.5	%
More than two years through five years		64,989		65,500		8.3	%
More than five years through ten years		100,188		99,682		12.6	%
More than ten years		603,500		595,733		75.3	%

	$	798,570	$	790,871		100.0	%

ENSTAR GROUP LIMITED

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

4. INVESTMENTS—(Continued)

Available-for-sale

The amortized cost and fair values of our fixed maturity investments classified as available-for-sale were as follows:


As at September 30, 2015	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses Non-OTTI			Fair Value
U.S. government and agency	$	24,195	$	205	$	—		$	24,400
Non-U.S. government		35,806		40		(4,005	)		31,841
Corporate		120,842		1,154		(2,541	)		119,455
Municipal		1,996		6		(1	)		2,001
Residential mortgage-backed		1,488		62		(39	)		1,511
Asset-backed		5,696		28		—			5,724

	$	190,023	$	1,495	$	(6,586	)	$	184,932


As at December 31, 2014	Amortized Cost		Gross Unrealized Gains		Gross Unrealized 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

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


As at September 30, 2015	Amortized Cost		Fair Value		% of Total Fair Value
One year or less	$	37,155	$	34,242		18.5	%
More than one year through two years		59,933		58,513		31.7	%
More than two years through five years		79,717		78,102		42.2	%
More than five years through ten years		3,752		3,592		1.9	%
More than ten years		2,282		3,248		1.8	%
Residential mortgage-backed		1,488		1,511		0.8	%
Asset-backed		5,696		5,724		3.1	%

	$	190,023	$	184,932		100.0	%

ENSTAR GROUP LIMITED

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

4. INVESTMENTS—(Continued)

Gross Unrealized Losses

The following tables summarize our fixed maturity and short-term investments in a gross unrealized loss position:


	12 Months or Greater					Less Than 12 Months					Total
At September 30, 2015	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Fixed maturity and short-term investments, at fair value
Non-U.S. government	$	19,784	$	(3,501	)	$	7,212	$	(504	)	$	26,996	$	(4,005	)
Corporate		29,922		(2,135	)		26,227		(406	)		56,149		(2,541	)
Municipal		—		—			1,017		(1	)		1,017		(1	)
Residential mortgage-backed		157		(34	)		499		(5	)		656		(39	)

Total	$	49,863	$	(5,670	)	$	34,955	$	(916	)	$	84,818	$	(6,586	)

Fixed maturity investments, at amortized cost
U.S. government and agency		12,311		(144	)		478		(31	)		12,789		(175	)
Non-U.S. government		24,062		(726	)		—		—			24,062		(726	)
Corporate		398,626		(11,568	)		64,148		(1,433	)		462,774		(13,001	)

Total	$	434,999	$	(12,438	)	$	64,626	$	(1,464	)	$	499,625	$	(13,902	)

Total fixed maturity and short-term investments	$	484,862	$	(18,108	)	$	99,581	$	(2,380	)	$	584,443	$	(20,488	)


	12 Months or Greater					Less Than 12 Months					Total
At December 31, 2014	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Fixed maturity and short-term investments, at fair value
U.S. government and agency	$	528	$	(1	)	$	3,678	$	(6	)	$	4,206	$	(7	)
Non-U.S. government		17,051		(1,534	)		20,300		(1,271	)		37,351		(2,805	)
Corporate		39,964		(1,003	)		40,072		(650	)		80,036		(1,653	)
Residential mortgage-backed		2,073		(138	)		—		—			2,073		(138	)
Asset-backed		11,215		(12	)		14,720		(7	)		25,935		(19	)

Total	$	70,831	$	(2,688	)	$	78,770	$	(1,934	)	$	149,601	$	(4,622	)

Fixed maturity investments, at amortized cost
U.S. government and agency		7,312		(19	)		245		(1	)		7,557		(20	)
Non-U.S. government		25,960		(249	)		—		—			25,960		(249	)
Corporate		243,908		(3,377	)		6,030		(44	)		249,938		(3,421	)

Total	$	277,180	$	(3,645	)	$	6,275	$	(45	)	$	283,455	$	(3,690	)

Total fixed maturity and short-term investments	$	348,011	$	(6,333	)	$	85,045	$	(1,979	)	$	433,056	$	(8,312	)

ENSTAR GROUP LIMITED

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

4. INVESTMENTS—(Continued)

As at September 30, 2015 and December 31, 2014, the number of securities classified as available-for-sale in an unrealized loss position was 162 and 212, respectively. Of these securities, the number of securities that had been in an unrealized loss position for twelve months or longer was 88 and 120, respectively.

As at September 30, 2015 and December 31, 2014, the number of securities classified as held-to-maturity in an unrealized loss position was 86 and 61, respectively. Of these securities, the number of securities that had been in unrealized loss position for twelve months or longer was 76 and 57, respectively.

For the three and nine months ended September 30, 2015, we did not recognize any other-than-temporary impairment losses on either our available-for-sale or held-to-maturity securities. We determined that no credit losses existed as at September 30, 2015. A description of our other-than-temporary impairment process is included in our Annual Report on Form 10-K for the year ended December 31, 2014. There were no changes to our process during the nine months ended September 30, 2015.

Credit Ratings

The following table sets forth the credit ratings of our fixed maturity and short-term investments as of September 30, 2015:


At September 30, 2015	Amortized Cost		Fair Value			% of Total			AAA Rated			AA Rated			A Rated			BBB Rated			Non-Investment Grade			Not Rated
Fixed maturity and short-term investments, at fair value
U.S. government and agency	$	727,688	$	733,410			12.1	%	$	691,436		$	8,703		$	33,271		$	—		$	—		$	—
Non-U.S. government		382,513		366,782			6.1	%		112,493			170,320			49,078			10,947			23,944			—
Corporate		2,774,076		2,753,003			45.4	%		164,337			444,919			1,418,644			610,486			114,612			5
Municipal		57,627		57,239			0.9	%		3,998			22,945			30,296			—			—			—
Residential mortgage-backed		362,926		363,189			6.0	%		346,584			858			8,631			5,877			1,234			5
Commercial mortgage-backed		266,587		266,503			4.4	%		111,729			30,440			53,522			26,802			3,983			40,027
Asset-backed		737,165		731,877			12.1	%		313,262			164,445			133,164			42,921			77,532			553

Total		5,308,582		5,272,003			87.0	%		1,743,839			842,630			1,726,606			697,033			221,305			40,590

% of total fair value				100	%					33.1	%		16.0	%		32.7	%		13.2	%		4.2	%		0.8	%

Fixed maturity investments, at amortized cost
U.S. government and agency		19,873		19,719			0.3	%		18,306			1,373			—		$	—			—			40
Non-U.S. government		38,130		37,651			0.6	%		—			29,897			7,754			—			—			—
Corporate		740,567		733,501			12.1	%		46,679			132,153			493,297			61,197			—			175

Total		798,570		790,871			13.0	%		64,985			163,423			501,051			61,197			—			215

% of total fair value				100	%					8.2	%		20.7	%		63.4	%		7.7	%		0	%		0.0	%

Total fixed maturity and short-term investments	$	6,107,152	$	6,062,874			100.0	%	$	1,808,824			$1,006,053		$	2,227,657		$	758,230		$	221,305		$	40,805

% of total fair value				100	%					29.8	%		16.6	%		36.7	%		12.5	%		3.7	%		0.7	%

ENSTAR GROUP LIMITED

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

4. INVESTMENTS—(Continued)

Other Investments, at fair value

The following table summarizes our other investments carried at fair value:


	September 30, 2015		December 31, 2014
Private equities and private equity funds	$	245,563	$	197,269
Fixed income funds		329,768		335,026
Fixed income hedge funds		105,212		59,627
Equity funds		142,118		150,053
Real estate debt fund		76,326		33,902
CLO equities		72,118		41,271
CLO equity funds		15,765		16,022
Other		1,517		3,698

	$	988,387	$	836,868

The valuation of our other investments is described later in this note under “Fair Value Measurements”. Due to a lag in the valuations of certain funds reported by the managers, we may record changes in valuation with up to a three-month lag. Management regularly reviews and discusses fund performance with the fund managers to corroborate the reasonableness of the reported net asset values and to assess whether any events have occurred within the lag period that would affect the valuation of the investments. The following is a description of the nature of each of these investment categories:

•

Private equities and private equity funds invest primarily in the financial services industry. All of our investments in private equities and private equity funds are subject to restrictions on redemptions and sales that are determined by the governing documents and limit our ability to liquidate those investments. These restrictions have been in place since the dates of our initial investments.

•

Fixed income funds comprise a number of positions in diversified fixed income funds that are managed by third party managers. Underlying investments vary from high grade corporate bonds to non-investment grade senior secured loans and bonds, but are generally invested in liquid fixed income markets. These funds have regularly published prices. The funds have liquidity terms that vary from daily up to quarterly.

•

Fixed income hedge funds invest in a diversified portfolio of debt securities. The hedge funds have imposed lock-up periods of three years from the time of our initial investment. Once eligible, redemptions are permitted quarterly with 90 days’ notice.

•

Equity funds invest in a diversified portfolio of international publicly-traded equity securities.

•

The real estate debt fund invests primarily in U.S. commercial real estate loans and securities. A redemption request for this fund can be made 10 days after the date of any monthly valuation; the fund states that it will make commercially reasonable efforts to redeem the investment within the next monthly period.

•

CLO equities comprise investments in the equity tranches of term-financed securitizations of diversified pools of corporate bank loans. CLO equities denote direct investments by us in these securities.

ENSTAR GROUP LIMITED

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

4. INVESTMENTS—(Continued)

•

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

•

Other primarily comprises a fund that provides loans to educational institutions throughout the U.S. and its territories. Through these investments, we participate in the performance of the underlying loan pools. This investment matures when the loans are paid down and cannot be redeemed before maturity.

Redemption restrictions and unfunded commitments

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.

The following table presents the fair value, unfunded commitments and redemption frequency as at September 30, 2015 for all funds included within other investments at fair value:


	Fair Value		Gated/Side Pocket Investments		Investments without Gates or Side Pockets		Unfunded Commitments		Redemption Frequency
Private equity funds	$	240,563	$	—	$	240,563	$	68,477	Not eligible
Fixed income funds		329,768		—		329,768		—	Daily, monthly and quarterly
Fixed income hedge funds		105,212		31,097		74,115		—	Quarterly after lock-up periods expire
Equity funds		142,118		—		142,118		—	Bi-monthly
Real estate debt fund		76,326		—		76,326		—	Monthly
CLO equity funds		15,765		10,367		5,398		—	Quarterly after lock-up periods expire
Other funds		1,199		—		1,199		3,073	Not eligible

	$	910,951	$	41,464	$	869,487	$	71,550

These investments are all valued at net asset value as at September 30, 2015. As of September 30, 2015, management has not made any adjustments to the fair value estimate reported by the fund managers for the gated/side-pocketed investments.

ENSTAR GROUP LIMITED

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

4. INVESTMENTS—(Continued)

Other Investments, at cost

Our other investments carried at cost of $136.1 million as of September 30, 2015 consist of life settlement contracts acquired during the year. Refer to Note 2—“Acquisitions” for information about this transaction, and Note 1—“Significant Accounting Policies” for a description of our accounting policies. For 2014 we did not have an investment in life settlements. During the three and nine month periods ended September 30, 2015, net investment income included $7.4 million and $9.3 million, respectively, related to investments in life settlements.

There were no impairment charges recognized during the period since acquisition. 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 are not sufficient to 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.

Fair Value Measurements

Fair value is defined as the price at which to sell an asset or transfer a liability (i.e. the “exit price”) in an orderly transaction between market participants. We use a fair value hierarchy that gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. The hierarchy is broken down into three levels as follows:

•

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments.

•

Level 2—Valuations based on quoted prices in active markets for similar assets or liabilities, quoted prices for identical assets or liabilities in inactive markets, or for which significant inputs are observable (e.g. interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.

•

Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The unobservable inputs reflect our own judgment about assumptions that market participants might use.

ENSTAR GROUP LIMITED

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

4. INVESTMENTS—(Continued)

We have categorized our investments that are recorded at fair value on a recurring basis among levels based on the observability of inputs as follows:


	September 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	$	—	$	733,410	$	—	$	733,410
Non-U.S. government		—		366,782		—		366,782
Corporate		—		2,753,003		—		2,753,003
Municipal		—		57,239		—		57,239
Residential mortgage-backed		—		363,189		—		363,189
Commercial mortgage-backed		—		266,503		—		266,503
Asset-backed		—		731,877		—		731,877
Equities—U.S.		101,297		15,271		—		116,568
Equities—International		2,620		4,551		—		7,171
Other investments		—		471,890		516,497		988,387

Total investments	$	103,917	$	5,763,715	$	516,497	$	6,384,129


	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		—		487,078		349,790		836,868

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

The following is a summary of valuation techniques or models we use to measure fair value.

Fixed Maturity Investments

Our fixed maturity investments portfolio is managed by our Chief Investment Officer and outside investment advisors with oversight from our 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

ENSTAR GROUP LIMITED

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

4. INVESTMENTS—(Continued)

recognized independent pricing services. Interactive Data Corporation is, however, the main pricing service utilized to estimate the fair value measurements for our fixed maturity investments. We record the unadjusted price provided by the investment custodians, investment accounting service providers or the investment managers and validate this price through a process that includes, but is not limited to: (i) comparison of prices against alternative pricing sources; (ii) quantitative analysis (e.g. comparing the quarterly return for each managed portfolio to its target benchmark); (iii) evaluation of methodologies used by external parties to estimate fair value, including a review of the inputs used for pricing; and (iv) comparing the price to our knowledge of the current investment market. Our internal price validation procedures and review of fair value methodology documentation provided by independent pricing services have not historically resulted in adjustment in the prices obtained from the pricing service.

The independent pricing services used by the investment 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 our fixed maturity investments by asset class.

•

U.S. government and agency securities consist of securities issued by the U.S. Treasury and mortgage pass-through agencies such as the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and other agencies. 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, we obtain non-binding quotes from broker-dealers. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. In this event, securities are classified within Level 3. As at September 30, 2015, we had no corporate securities classified as Level 3.

ENSTAR GROUP LIMITED

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

4. INVESTMENTS—(Continued)

•

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. 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, we obtain non-binding quotes from broker-dealers. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. In this event, securities are classified within Level 3. As at September 30, 2015, we had no residential or commercial mortgage-backed securities classified as Level 3.

Equities

Our investments in equities are predominantly traded on the major exchanges and are primarily managed by our external advisor. We use Interactive Data Corporation, an internationally recognized pricing service, to estimate the fair value of our equities. Our equities are widely diversified and there is no significant concentration in any specific industry.

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

Other investments, at fair value

We have ongoing due diligence processes with respect to the other investments in which we invest and their managers. These processes are designed to assist us in assessing the quality of information provided by, or on behalf of, each fund and in determining whether such information continues to be reliable or whether further review is warranted. Certain funds do not provide full transparency of their underlying holdings; however, we obtain the audited financial statements for funds annually, and regularly review and discuss the fund performance with the fund managers to corroborate the reasonableness of the reported net asset values. The use of 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, we 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 September 30, 2015, there were no material adjustments made to the reported net asset value.

ENSTAR GROUP LIMITED

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

4. INVESTMENTS—(Continued)

For our investments in private equities and private equity funds, we measure fair value by obtaining the most recently provided capital statement from the external fund manager or third-party administrator. The capital statements calculate the net asset value on a fair value basis. Where we can identify publicly-traded companies held within a fund, we adjust the reported net asset value based on the latest share price as of our reporting date. We have classified our investments in private equities and private equity funds as Level 3.

The fixed income funds and equity funds in which we invest 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 our investments in fixed income hedge funds, we measure 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 we invest has been valued based on the most recent published net asset value. This investment has been classified as Level 3.

We measure the fair value of our direct investment in CLO equities based on valuations provided by our external CLO equity manager. If the investment does not involve an external CLO equity manager, the fair value of the investment is valued based on valuations provided by the broker or lead underwriter of the investment (the “broker”). Our CLO equity investments have been classified as Level 3 due to the use of unobservable inputs in the valuation and the limited number of relevant trades in secondary markets.

In providing valuations, the CLO equity manager and brokers use observable and unobservable inputs. Of the significant unobservable market inputs used, the default and loss severity rates involve the most judgment and create the most sensitivity. A significant increase (or decrease) in either of these significant inputs in isolation would result in lower (or higher) fair value estimates for direct investments in CLO equities and, in general, a change in default rate assumptions will be accompanied by a directionally similar change in loss severity rate assumptions. Collateral spreads and estimated maturity dates are less judgmental inputs because they are based on the historical average of actual spreads and the weighted average life of the current underlying portfolios, respectively. A significant increase (or decrease) in either of these significant inputs in isolation would result in higher (or lower) fair value estimates for direct investments in CLO equities. In general, these inputs have no significant interrelationship with each other or with default and loss severity rates.

On a quarterly basis, we receive the valuation from the external CLO manager and brokers and then review the underlying cash flows and key assumptions used by the manager/broker. We review and update the significant unobservable inputs based on information obtained from secondary markets. These inputs are our responsibility and we assess the reasonableness of the inputs (and if necessary, update the inputs) through communicating with industry participants, monitoring of the transactions in which we participate (for example, to evaluate default and loss severity rate trends), and reviewing market conditions, historical results, and emerging trends that may impact future cash flows.

ENSTAR GROUP LIMITED

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

4. INVESTMENTS—(Continued)

If valuations from the external CLO equity manager or brokers were not available, we use an income approach based on certain observable and unobservable inputs to value these investments. An income approach is also used to corroborate the reasonableness of the valuations provided by the external manager and brokers. Where an income approach is followed, the valuation is based on available trade information, such as expected cash flows and market assumptions on default and loss severity rates. Other inputs used in the valuation process include asset spreads, loan prepayment speeds, collateral spreads and estimated maturity dates.

For our investments in the CLO equity funds, we measure fair value by obtaining the most recently published net asset value as advised by the external fund manager. We use 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.

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

Changes in Leveling of Financial Instruments

During the nine months ended September 30, 2015 and the year ended December 31, 2014, there were no transfers between Levels 1 and 2, or between Levels 2 and 3. Transfers into or out of Level 3 are recorded at their fair values as of the end of the reporting period, consistent with the date of determination of fair value. Transfers are based on the evidence available to corroborate significant inputs with market observable information.

The following table presents a reconciliation of the beginning and ending balances for our investments measured at fair value on a recurring basis using Level 3 inputs during the three months ended September 30, 2015 and 2014:


	Three months ended September 30, 2015										Three months ended September 30, 2014
	Fixed Maturity Investments		Other Investments			Equity Securities		Total			Fixed Maturity Investments		Other Investments			Equity Securities		Total
Beginning fair value	$	—	$	463,905		$	—	$	463,905		$	610	$	328,164		$	4,875	$	333,649
Purchases		—		56,839			—		56,839			—		64,923			—		64,923
Sales		—		(21,488	)		—		(21,488	)		—		(20,015	)		—		(20,015	)
Net realized and unrealized gains		—		17,241			—		17,241			4		2,092			—		2,096
Net transfers into (out of) Level 3		—		—			—		—			—		—			—		—

Ending fair value	$	—	$	516,497		$	—	$	516,497		$	614	$	375,164		$	4,875	$	380,653

Net realized and unrealized gains related to Level 3 assets in the table above are included in Net realized and unrealized (losses) gains in our unaudited condensed consolidated statements of earnings.

ENSTAR GROUP LIMITED

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

4. INVESTMENTS—(Continued)


	Nine Months Ended September 30, 2015												Nine Months Ended September 30, 2014
	Fixed Maturity Investments			Other Investments			Equity Securities			Total			Fixed Maturity Investments		Other Investments			Equity Securities		Total
Beginning fair value	$	600		$	349,790		$	4,850		$	355,240		$	609	$	265,569		$	4,725	$	270,903
Purchases		—			193,224			—			193,224			—		116,676			—		116,676
Sales		(600	)		(63,903	)		(5,000	)		(69,503	)		—		(30,707	)		—		(30,707	)
Net realized and unrealized gains		—			37,386			150			37,536			5		23,626			150		23,781
Net transfers into (out of) Level 3		—			—			—			—			—		—			—		—

Ending fair value	$	—		$	516,497		$	—		$	516,497		$	614	$	375,164		$	4,875	$	380,653

Net realized and unrealized gains related to Level 3 assets in the table above are included in net realized and unrealized (losses) gains in our unaudited condensed consolidated statements of earnings.

Disclosure of Fair Values for Financial Instruments Carried at Cost

The following tables present our fair value hierarchy for those assets carried at cost or amortized cost in the consolidated balance sheet but for which disclosure of the fair value is required as of September 30, 2015 and December 31, 2014:


	September 30, 2015
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value		Total Carrying Value
Fixed maturity investments, held-to-maturity:
U.S. government and agency	$	—	$	19,719	$	—	$	19,719	$	19,873
Non-U.S. government		—		37,651		—		37,651		38,130
Corporate		—		733,501		—		733,501		740,567
Other investments:
Life settlements		—		—		150,140		150,140		136,069

Total	$	—	$	790,871	$	150,140	$	941,011	$	934,639

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)		Fair Value		Total Carrying Value
Fixed maturity investments, held-to-maturity:
U.S. government and agency	$	—	$	20,559	$	—	$	20,559	$	20,257
Non-U.S. government		—		38,689		—		38,689		38,613
Corporate		—		767,124		—		767,124		754,363

Total	$	—	$	826,372	$	—	$	826,372	$	813,233

The fair value of investments in life settlement contracts, in the tables above, is determined using a discounted cash flow methodology that utilizes market assumptions for longevity as well as market yields based on reported transactions. Due to the individual life nature of each investment in life settlement contracts and the illiquidity of the existing market, significant inputs to the fair value are unobservable.

Disclosure of fair value of amounts relating to insurance contracts is not required. Our remaining assets and liabilities were generally carried at cost or amortized cost, which approximates fair value as of September 30, 2015 and December 31, 2014. The fair value measurements were based on observable inputs and therefore would be considered to be Level 1 or Level 2.

Net Realized and Unrealized (Losses) Gains

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Gross realized gains on available-for-sale securities	$	126		$	—		$	279		$	185
Gross realized losses on available-for-sale securities		(99	)		(87	)		(108	)		(138	)
Net realized (losses) gains on trading securities		(1,248	)		4,141			18,390			22,068
Net unrealized (losses) gains on trading securities		(8,871	)		(14,141	)		(31,500	)		6,394
Net realized and unrealized (losses) gains on other investments		(5,038	)		(8,249	)		29,580			26,139

Net realized and unrealized (losses) gains	$	(15,130	)	$	(18,336	)	$	16,641		$	54,648

The gross realized gains and losses on available-for-sale securities included in the table above resulted from sales of $15.4 million and $113.1 million for the three and nine month periods ended September 30, 2015, and from sales of $19.3 million and $98.3 million for the three and nine month periods ended September 30, 2014, respectively.

ENSTAR GROUP LIMITED

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

4. INVESTMENTS—(Continued)

Net Investment Income

Major categories of net investment income are summarized as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Interest from fixed maturity investments	$	44,438		$	40,184		$	124,756		$	114,034
Interest from cash and cash equivalents and short-term investments		1,181			1,575			5,287			5,000
Net amortization of bond premiums and discounts		(13,260	)		(14,344	)		(38,778	)		(42,488	)
Dividends from equities		1,407			1,040			4,403			4,070
Other investments		3,451			(152	)		7,891			588
Interest on other receivables		(1,337	)		(193	)		(698	)		689
Other income		2,883			2,278			17,500			9,464
Net income from investments in life settlements		7,360			—			9,319			—
Interest on deposits held with clients		33			340			652			1,362
Policy loan interest		320			296			885			911
Investment expenses		(3,307	)		(3,040	)		(7,662	)		(7,649	)

	$	43,169		$	27,984		$	123,555		$	85,981

Other income of $17.5 million for the nine months ended September 30, 2015 is primarily comprised of gains on acquired insolvent debts.

Restricted Assets

We are required to maintain investments and cash and cash equivalents on deposit with various regulatory authorities to support our insurance and reinsurance operations. The investments and cash and cash equivalents on deposit are available to settle insurance and reinsurance liabilities. We also utilize trust accounts to collateralize business with our insurance and reinsurance counterparties. These trust accounts generally take the place of letter of credit requirements. The assets in trusts as collateral are primarily highly rated fixed maturity securities. The carrying value of our restricted assets, including restricted cash of $484.3 million, as of September 30, 2015 was as follows:


	September 30, 2015
Collateral in trust for third party agreements	$	3,036,252
Assets on deposit with regulatory authorities		1,076,492
Collateral for secured letter of credit facility		252,328

	$	4,365,072

ENSTAR GROUP LIMITED

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

5. REINSURANCE BALANCES RECOVERABLE


	September 30, 2015													December 31, 2014
	Non-life Run-off			Atrium		StarStone			Life and Annuities		Total			Non-life Run-off			Atrium		StarStone			Life and Annuities		Total
Recoverable from reinsurers on unpaid:
Outstanding losses	$	658,816		$	7,018	$	179,405		$	21,771	$	867,010		$	568,386		$	9,582	$	181,067		$	25,125	$	784,160
Losses incurred but not reported		526,430			17,140		88,471			309		632,350			278,696			14,565		154,850			467		448,578
Fair value adjustments		(21,923	)		3,174		(8,678	)		—		(27,427	)		(46,373	)		4,131		(10,708	)		—		(52,950	)

Total reinsurance reserves recoverable		1,163,323			27,332		259,198			22,080		1,471,933			800,709			28,278		325,209			25,592		1,179,788
Paid losses recoverable		70,862			117		27,962			686		99,627			129,750			1,289		19,845			883		151,767

	$	1,234,185		$	27,449	$	287,160		$	22,766	$	1,571,560		$	930,459		$	29,567	$	345,054		$	26,475	$	1,331,555

Our insurance and reinsurance run-off subsidiaries, prior to acquisition, used retrocessional agreements to reduce their exposure to the risk of insurance and reinsurance assumed. We remain liable to the extent that retrocessionaires do not meet their obligations under these agreements, and therefore, we evaluate and monitor concentration of credit risk among our reinsurers. Provisions are made for amounts considered potentially uncollectible.

On an annual basis, both Atrium Underwriting Group Limited and its subsidiaries (“Atrium”) and StarStone 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 StarStone’s 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.

As of September 30, 2015 and December 31, 2014, we had reinsurance balances recoverable of approximately $1.6 billion and $1.3 billion, respectively. The increase of $240.0 million in reinsurance balances recoverable was primarily a result of the Sussex acquisition, partially offset by commutations and cash collections made during the nine months ended September 30, 2015 in our non-life run-off and StarStone segments.

ENSTAR GROUP LIMITED

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

5. REINSURANCE BALANCES RECOVERABLE—(Continued)

Top Ten Reinsurers


	As at September 30, 2015													As at December 31, 2014
	Reinsurance Balances Recoverable													Reinsurance Balances Recoverable
	Non-life run-off		Atrium		StarStone		Life and annuities		Total		% of Total			Non-life run-off		Atrium		StarStone		Life and annuities		Total		% of Total
Top ten reinsurers	$	833,793	$	21,869	$	127,672	$	13,687	$	997,021		63.4	%	$	667,325	$	23,635	$	158,117	$	15,089	$	864,166		64.9	%
Other reinsurers > $1 million		384,519		4,979		154,873		8,677		553,048		35.2	%		256,929		4,917		181,196		10,692		453,734		34.1	%
Other reinsurers < $1 million		15,873		601		4,615		402		21,491		1.4	%		6,205		1,015		5,741		694		13,655		1.0	%

Total	$	1,234,185	$	27,449	$	287,160	$	22,766	$	1,571,560		100.0	%	$	930,459	$	29,567	$	345,054	$	26,475	$	1,331,555		100.0	%

The top ten reinsurers, as at September 30, 2015 and December 31, 2014, were all rated A- or better, with the exception of three non-rated reinsurers from which $390.4 million was recoverable (December 31, 2014: $175.2 million related to one reinsurer). For the three non-rated reinsurers, we hold security in the form of pledged assets in trust or letters of credit issued to us. As at September 30, 2015, reinsurance balances recoverable of $167.7 million related to Lloyd’s of London syndicates which represented 10% or more of total reinsurance balances recoverable. Lloyd’s is rated ‘A+’ by Standard & Poor’s and ‘A’ by A.M. Best. 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.

Provisions for Uncollectible Reinsurance Balances Recoverable

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


	As at September 30, 2015									As at December 31, 2014
	Reinsurance Balances Recoverable									Reinsurance Balances Recoverable
	Gross		Provisions for Bad Debt		Net		Provision as a % of Gross			Gross		Provisions for Bad Debt		Net		Provision as a % of Gross
Reinsurers rated A- or above	$	1,116,398	$	53,538	$	1,062,860		4.8	%	$	1,126,944	$	80,995	$	1,045,949		7.2	%
Reinsurers rated below A-, secured		451,288		—		451,288		0.0	%		204,544		—		204,544		0.0	%
Reinsurers rated below A-, unsecured		253,776		196,364		57,412		77.4	%		289,976		208,914		81,062		72.0	%

Total	$	1,821,462	$	249,902	$	1,571,560		13.7	%	$	1,621,464	$	289,909	$	1,331,555		17.9	%

ENSTAR GROUP LIMITED

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

6. LOSSES AND LOSS ADJUSTMENT EXPENSES

The following table provides our losses and loss adjustment expense liabilities by segment as at September 30, 2015 and December 31, 2014:


	September 30, 2015											December 31, 2014
	Non-life Run-off			Atrium		StarStone			Total			Non-life Run-off			Atrium		StarStone			Total
Outstanding	$	2,915,660		$	67,680	$	433,749		$	3,417,089		$	2,202,187		$	73,803	$	387,171		$	2,663,161
Incurred but not reported		2,173,892			115,700		443,816			2,733,408			1,406,420			113,149		477,264			1,996,833
Fair value adjustment		(150,180	)		21,023		(2,134	)		(131,291	)		(173,597	)		25,659		(2,635	)		(150,573	)

Total	$	4,939,372		$	204,403	$	875,431		$	6,019,206		$	3,435,010		$	212,611	$	861,800		$	4,509,421

The increase in our liability for losses and LAE between December 31, 2014 and September 30, 2015 was primarily attributable to our acquisition of Sussex and the completion of the Sun Life and Voya transactions.

Refer to Note 8 to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2014 for more information on establishing the liability for losses and LAE.

The net incurred losses and LAE in our segments for the three and nine months ended September 30, 2015 and 2014 were as follows:


	Three Months Ended September 30,
	2015												2014
	Non-life Run-off			Atrium			StarStone			Total			Non-life Run-off			Atrium			StarStone			Total
Net losses paid	$	143,012		$	12,459		$	63,661		$	219,132		$	127,908		$	15,800		$	62,083		$	205,791
Net change in case and LAE reserves		(99,186	)		(1,712	)		14,547			(86,351	)		(107,780	)		(177	)		(22,858	)		(130,815	)
Net change in IBNR reserves		(99,242	)		353			18,121			(80,768	)		(98,664	)		(135	)		39,013			(59,786	)

(Reduction) increase in estimates of net ultimate losses		(55,416	)		11,100			96,329			52,013			(78,536	)		15,488			78,238			15,190
Reduction in provisions for bad debt		(3,632	)		—			—			(3,632	)		(5,019	)		—			—			(5,019	)
(Reduction) increase in provisions for unallocated LAE		(20,269	)		1			555			(19,713	)		(13,317	)		53			977			(12,287	)
Amortization of fair value adjustments		4,184			—			(493	)		3,691			19,649			—			—			19,649

Net incurred losses and LAE	$	(75,133	)	$	11,101		$	96,391		$	32,359		$	(77,223	)	$	15,541		$	79,215		$	17,533

ENSTAR GROUP LIMITED

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

6. LOSSES AND LOSS ADJUSTMENT EXPENSES—(Continued)


	Nine Months Ended September 30,
	2015												2014
	Non-life Run-off			Atrium			StarStone			Total			Non-life Run-off			Atrium		StarStone		Total
Net losses paid	$	372,712		$	36,491		$	155,224		$	564,427		$	332,169		$	40,643	$	76,331	$	449,143
Net change in case and LAE reserves		(210,516	)		(2,595	)		59,490			(153,621	)		(248,599	)		2,839		19,406		(226,354	)
Net change in IBNR reserves		(212,477	)		1,729			38,170			(172,578	)		(190,742	)		5,663		62,740		(122,339	)

(Reduction) increase in estimates of net ultimate losses		(50,281	)		35,625			252,884			238,228			(107,172	)		49,145		158,477		100,450
Paid loss recoveries on bad debt provisions		—			—			—			—			(11,206	)		—		—		(11,206	)
Reduction in provisions for bad debt		(24,071	)		—			—			(24,071	)		(5,019	)		—		—		(5,019	)
(Reduction) increase in provisions for unallocated LAE		(41,955	)		(69	)		2,266			(39,758	)		(39,549	)		138		978		(38,433	)
Amortization of fair value adjustments		(796	)		(3,678	)		(1,530	)		(6,004	)		19,340			—		100		19,440

Net incurred losses and LAE	$	(117,103	)	$	31,878		$	253,620		$	168,395		$	(143,606	)	$	49,283	$	159,555	$	65,232

ENSTAR GROUP LIMITED

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

6. LOSSES AND LOSS ADJUSTMENT EXPENSES—(Continued)

Non-Life Run-off Segment

The table below provides a reconciliation of the beginning and ending liability for losses and LAE in the Non-Life Run-off segment for the three and nine months ended September 30, 2015 and 2014:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Balance as at beginning of period	$	5,064,137		$	4,031,262		$	3,435,010		$	4,004,513
Less: total reinsurance reserves recoverable		1,178,053			935,319			800,709			1,121,533
Less: total deferred charge on retroactive reinsurance		265,426			—			—			—

		3,620,658			3,095,943			2,634,301			2,882,980
Net incurred losses and LAE:
Current period		10,565			8,841			53,838			20,482
Prior periods		(85,698	)		(86,064	)		(170,941	)		(164,088	)

Total net incurred losses and LAE		(75,133	)		(77,223	)		(117,103	)		(143,606	)

Net losses paid:
Current period		(4,558	)		(3,081	)		(18,563	)		(3,873	)
Prior periods		(138,454	)		(124,827	)		(354,149	)		(317,090	)

Total net losses paid		(143,012	)		(127,908	)		(372,712	)		(320,963	)

Effect of exchange rate movement		(12,344	)		(36,838	)		(24,706	)		(29,832	)
Acquired on purchase of subsidiaries		1,593			—			776,351			436,765
Assumed business		116,810			—			612,441			28,630

Net balance as at September 30		3,508,572			2,853,974			3,508,572			2,853,974
Plus: total reinsurance reserves recoverable		1,163,323			896,865			1,163,323			896,865
Plus: total deferred charge on retroactive reinsurance		267,477			—			267,477			—

Balance as at September 30	$	4,939,372		$	3,750,839		$	4,939,372		$	3,750,839

ENSTAR GROUP LIMITED

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

6. LOSSES AND LOSS ADJUSTMENT EXPENSES—(Continued)

The net incurred losses and LAE in the Non-Life Run-off segment for the three months ended September 30, 2015 and 2014 were as follows:


	Non-Life Run-off
	Three Months Ended September 30,
	2015								2014
	Prior Period			Current Period		Total			Prior Period			Current Period		Total
Net losses paid	$	138,454		$	4,558	$	143,012		$	124,827		$	3,081	$	127,908
Net change in case and LAE reserves		(101,820	)		2,634		(99,186	)		(108,933	)		1,153		(107,780	)
Net change in IBNR reserves		(102,615	)		3,373		(99,242	)		(103,271	)		4,607		(98,664	)

(Reduction) increase in estimates of net ultimate losses		(65,981	)		10,565		(55,416	)		(87,377	)		8,841		(78,536	)
Reduction in provisions for bad debt		(3,632	)		—		(3,632	)		(5,019	)		—		(5,019	)
Reduction in provisions for unallocated LAE		(20,269	)		—		(20,269	)		(13,317	)		—		(13,317	)
Amortization of fair value adjustments		4,184			—		4,184			19,649			—		19,649

Net incurred losses and LAE	$	(85,698	)	$	10,565	$	(75,133	)	$	(86,064	)	$	8,841	$	(77,223	)

Net change in case and LAE reserves comprises the movement during the period in specific case reserves as a result of claims settlements or changes advised to us by our policyholders and attorneys, less changes in case reserves recoverable advised by us to our reinsurers as a result of the settlement or movement of assumed claims. Net change in incurred but not reported (“IBNR”) reserves represents the change in our actuarial estimates of gross IBNR, less amounts recoverable.

Three Months Ended September 30, 2015

The net reduction in incurred losses and LAE for the three months ended September 30, 2015 of $75.1 million included net incurred losses and LAE of $10.6 million related to current period earned premium of $16.8 million primarily for the portion of the run-off business acquired with Sussex. The net incurred losses and LAE relating to prior periods were reduced by $85.7 million, due to a reduction in our estimates of net ultimate losses of $66.0 million, a reduction in our provisions for bad debt of $3.6 million and a reduction in our provisions for unallocated LAE of $20.3 million, relating to 2015 run-off activity, partially offset by amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $4.2 million.

ENSTAR GROUP LIMITED

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

6. LOSSES AND LOSS ADJUSTMENT EXPENSES—(Continued)

The reduction in estimates of net ultimate losses relating to prior periods of $66.0 million was primarily related to:

(i)

our 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 $18.6 million;

(ii)

an aggregate reduction in IBNR reserves of $14.1 million as a result of the application, on a basis consistent with the assumptions applied in the prior period, of our actuarial methodologies to historical loss development data to estimate loss reserves required to cover liabilities for unpaid losses and LAE relating to non-commuted exposures in eleven of our insurance and reinsurance subsidiaries. The prior period estimate of aggregate net IBNR liabilities for these subsidiaries was reduced as a result of the combined impact on all classes of business of loss development activity during 2015, including commutations and the favorable trend of loss development related to non-commuted policies compared to prior forecasts; and

(iii)

net favorable claims settlements during the three months ended September 30, 2015 resulting in a reduction in estimates of net ultimate losses of $33.3 million.

The reduction in provisions for bad debt of $3.6 million for the three months ended September 30, 2015 resulted from the collection of receivables against which bad debt provisions had been provided for in earlier periods.

Three Months Ended September 30, 2014

The net reduction in incurred losses and LAE for the three months ended September 30, 2014 of $77.2 million included net incurred losses and LAE of $8.8 million related to current period earned premium of $13.9 million primarily for the portion of the run-off business acquired with StarStone. The net incurred losses and LAE relating to prior periods were reduced by $86.1 million, due to a reduction in estimates of net ultimate losses of $87.4 million, a reduction in our provisions for bad debt of $5.0 million and a reduction in our provisions for unallocated LAE of $13.3 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 $19.6 million.

The reduction in our estimates of net ultimate losses relating to prior periods of $87.4 million was primarily related to:

(i)

(ii)

an aggregate reduction in IBNR reserves of $36.3 million as a result of the application, on a basis consistent with the assumptions applied in the prior period, of our actuarial methodologies to historical loss development data to estimate loss reserves required to cover liabilities for unpaid losses and LAE relating to non-commuted exposures in thirteen of our insurance and reinsurance subsidiaries. The prior period estimate of aggregate net IBNR liabilities for these subsidiaries was reduced as a result of the combined impact on all classes

ENSTAR GROUP LIMITED

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

6. LOSSES AND LOSS ADJUSTMENT EXPENSES—(Continued)

of business of loss development activity during 2014, including commutations and the favorable trend of loss development related to non-commuted policies compared to prior forecasts; and

(iii)

a reduction in estimates of net ultimate losses of $44.4 million following the completion of 6 commutations of assumed reinsurance liabilities.

The reduction in provisions for bad debt of $5.0 million for the three months ended September 30, 2014 resulted from the collection of receivables against which bad debt provisions had been provided for in earlier periods.

The net incurred losses and LAE in the Non-Life Run-off segment for the nine months ended September 30, 2015 and 2014 were as follows:


	Non-Life Run-off
	Nine Months Ended September 30,
	2015								2014
	Prior Period			Current Period		Total			Prior Period			Current Period		Total
Net losses paid	$	354,149		$	18,563	$	372,712		$	328,296		$	3,873	$	332,169
Net change in case and LAE reserves		(220,633	)		10,117		(210,516	)		(250,778	)		2,179		(248,599	)
Net change in IBNR reserves		(237,635	)		25,158		(212,477	)		(205,172	)		14,430		(190,742	)

(Reduction) increase in estimates of net ultimate losses		(104,119	)		53,838		(50,281	)		(127,654	)		20,482		(107,172	)
Reduction in provisions for bad debt		(24,071	)		—		(24,071	)		(16,225	)		—		(16,225	)
Reduction in provisions for unallocated LAE		(41,955	)		—		(41,955	)		(39,549	)		—		(39,549	)
Amortization of fair value adjustments		(796	)		—		(796	)		19,340			—		19,340

Net incurred losses and LAE	$	(170,941	)	$	53,838	$	(117,103	)	$	(164,088	)	$	20,482	$	(143,606	)

Nine Months Ended September 30, 2015

The net reduction in incurred losses and LAE for the nine months ended September 30, 2015 of $117.1 million included net incurred losses and LAE of $53.8 million related to current period earned premium of $49.8 million primarily related to the portion of the run-off business acquired with Sussex. The net incurred losses and LAE relating to prior periods were reduced by $170.9 million, due to a reduction in estimates of net ultimate losses of $104.1 million, a reduction in our provisions for bad debt of $24.1 million, a reduction in our provisions for unallocated LAE of $42.0 million, relating to 2015 run-off activity, and amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $0.8 million.

ENSTAR GROUP LIMITED

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

6. LOSSES AND LOSS ADJUSTMENT EXPENSES—(Continued)

The reduction in estimates of net ultimate losses relating to prior periods of $104.1 million was related primarily to:

(i)

(ii)

a reduction in IBNR reserves of $33.4 million primarily as a result of the application, on a basis consistent with the assumptions applied in the prior period, of our actuarial methodologies to historical loss development data to estimate loss reserves required to cover liabilities for unpaid loss and LAE relating to non-commuted exposures in twelve of our insurance and reinsurance subsidiaries. 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)

net favorable claims settlements during the nine months ended September 30, 2015 resulting in a reduction in estimates of net ultimate losses of approximately $45.7 million.

The reduction in provisions for bad debt of $24.1 million for the nine months ended September 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.

Nine Months Ended September 30, 2014

The net reduction in incurred losses and LAE for the nine months ended September 30, 2014 of $143.6 million included net incurred losses and LAE of $20.5 million related to current period earned premium of $33.5 million primarily for the portion of the run-off business acquired with StarStone. Net incurred losses and LAE relating to prior periods were reduced by $164.1 million, due to a reduction in estimates of net ultimate losses of $127.7 million, a reduction in our provisions for bad debt of $16.2 million and a reduction in our provisions for unallocated LAE of $39.5 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 $19.3 million.

The reduction in estimates of net ultimate losses relating to prior periods of $127.7 million was related primarily to:

(i)

(ii)

a reduction in IBNR reserves of $46.3 million primarily as a result of the application, on a basis consistent with the assumptions applied in the prior period, of our actuarial methodologies to historical loss development data to estimate loss reserves required to cover liabilities for unpaid losses and LAE relating to non-commuted exposures in fourteen of our insurance and reinsurance subsidiaries. The prior period estimate of aggregate IBNR liabilities was reduced as a result of the combined impact on all classes of business of loss development activity during 2014, including commutations and the favorable trend of loss development related to non-commuted policies compared to prior forecasts;

ENSTAR GROUP LIMITED

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

6. LOSSES AND LOSS ADJUSTMENT EXPENSES—(Continued)

(iii)

a reduction in estimates of net ultimate losses of $44.4 million following the completion of six commutations of assumed reinsurance liabilities; and

(iv)

favorable claims settlements during the nine months ended September 30, 2014 resulting in a reduction in estimates of net ultimate losses of approximately $11.1 million.

Atrium Segment

The tables below provide a reconciliation of the beginning and ending reserves for losses and LAE in the Atrium segment for the three and nine months ended September 30, 2015 and 2014:


	Atrium
	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Balance as at beginning of period	$	205,499		$	226,920		$	212,611		$	215,392
Less: total reinsurance reserves recoverable		26,011			26,993			28,278			25,055

		179,488			199,927			184,333			190,337
Net incurred losses and LAE:
Current period		16,416			19,348			48,788			59,566
Prior periods		(5,315	)		(3,807	)		(16,910	)		(10,283	)

Total net incurred losses and LAE		11,101			15,541			31,878			49,283

Net losses paid:
Current period		(6,065	)		(8,914	)		(13,473	)		(18,730	)
Prior periods		(6,394	)		(6,886	)		(23,018	)		(21,913	)

Total net losses paid		(12,459	)		(15,800	)		(36,491	)		(40,643	)
Effect of exchange rate movement		(1,059	)		(2,786	)		(2,649	)		(2,095	)

Net balance as at September 30		177,071			196,882			177,071			196,882
Plus: total reinsurance reserves recoverable		27,332			29,778			27,332			29,778

Balance as at September 30	$	204,403		$	226,660		$	204,403		$	226,660

ENSTAR GROUP LIMITED

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

6. LOSSES AND LOSS ADJUSTMENT EXPENSES—(Continued)

The net incurred losses and LAE in the Atrium segment for the three and nine months ended September 30, 2015 and 2014 were as follows:


	Atrium
	Three Months Ended September 30,
	2015								2014
	Prior Period			Current Period		Total			Prior Period			Current Period		Total
Net losses paid	$	6,394		$	6,065	$	12,459		$	6,886		$	8,914	$	15,800
Net change in case and LAE reserves		(4,251	)		2,539		(1,712	)		(5,128	)		4,951		(177	)
Net change in IBNR reserves		(7,342	)		7,695		353			(5,486	)		5,351		(135	)

(Reduction) increase in estimates of net ultimate losses		(5,199	)		16,299		11,100			(3,728	)		19,216		15,488

(Reduction) increase in provisions for unallocated LAE		(116	)		117		1			(79	)		132		53

Net incurred losses and LAE	$	(5,315	)	$	16,416	$	11,101		$	(3,807	)	$	19,348	$	15,541


	Atrium
	Nine Months Ended September 30,
	2015								2014
	Prior Period			Current Period		Total			Prior Period			Current Period		Total
Net losses paid	$	23,018		$	13,473	$	36,491		$	21,913		$	18,730	$	40,643
Net change in case and LAE reserves		(11,908	)		9,313		(2,595	)		(12,970	)		15,809		2,839
Net change in IBNR reserves		(23,895	)		25,624		1,729			(18,906	)		24,569		5,663

(Reduction) increase in estimates of net ultimate losses		(12,785	)		48,410		35,625			(9,963	)		59,108		49,145

(Reduction) increase in provisions for unallocated LAE		(447	)		378		(69	)		(320	)		458		138
Amortization of fair value adjustments		(3,678	)		—		(3,678	)		—			—		—

Net incurred losses and LAE	$	(16,910	)	$	48,788	$	31,878		$	(10,283	)	$	59,566	$	49,283

ENSTAR GROUP LIMITED

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

6. LOSSES AND LOSS ADJUSTMENT EXPENSES—(Continued)

StarStone Segment

The tables below provide a reconciliation of the beginning and ending reserves for losses and LAE in the StarStone segment for the three and nine months ended September 30, 2015 and 2014:


	StarStone
	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014⁽¹⁾
Balance as at beginning of period	$	873,835		$	866,809		$	861,800		$	—
Less: total reinsurance reserves recoverable		287,049			336,150			325,209			—

		586,786			530,659			536,591			—
Net incurred losses and LAE:
Current period		96,360			84,580			255,062			164,920
Prior periods		31			(5,365	)		(1,442	)		(5,365	)

Total net incurred losses and LAE		96,391			79,215			253,620			159,555

Net losses paid:
Current period		(25,358	)		(22,787	)		(36,599	)		(25,637	)
Prior periods		(38,303	)		(39,296	)		(118,624	)		(50,694	)

Total net losses paid		(63,661	)		(62,083	)		(155,223	)		(76,331	)
Effect of exchange rate movement		(3,285	)		(5,243	)		(18,756	)		(5,358	)
Acquired on purchase of subsidiaries		—			—			—			464,682

Net balance as at September 30		616,232			542,548			616,232			542,548
Plus: total reinsurance reserves recoverable		259,199			331,864			259,199			331,864

Balance as at September 30	$	875,431		$	874,412		$	875,431		$	874,412

(1)	We began reporting with respect to the StarStone segment following the acquisition of StarStone in the second quarter of 2014.

ENSTAR GROUP LIMITED

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

6. LOSSES AND LOSS ADJUSTMENT EXPENSES—(Continued)

The net incurred losses and LAE in the StarStone segment for the three and nine months ended September 30, 2015 and 2014 were as follows:


	StarStone
	Three Months Ended September 30,
	2015								2014
	Prior Period			Current Period		Total			Prior Period			Current Period			Total
Net losses paid	$	38,303		$	25,358	$	63,661		$	39,296		$	22,787		$	62,083
Net change in case and LAE reserves		(4,188	)		18,735		14,547			(14,819	)		(8,039	)		(22,858	)
Net change in IBNR reserves		(34,054	)		52,175		18,121			(29,117	)		68,130			39,013

Increase (reduction) in estimates of net ultimate losses		61			96,268		96,329			(4,640	)		82,878			78,238
Increase (reduction) in provisions for unallocated LAE		463			92		555			(725	)		1,702			977
Amortization of fair value adjustments		(493	)		—		(493	)		—			—			—

Net incurred losses and LAE	$	31		$	96,360	$	96,391		$	(5,365	)	$	84,580		$	79,215


	StarStone
	Nine Months Ended September 30,
	2015								2014
	Prior Period			Current Period		Total			Prior Period			Current Period			Total
Net losses paid	$	118,625		$	36,599	$	155,224		$	50,694		$	25,637		$	76,331
Net change in case and LAE reserves		(8,122	)		67,612		59,490			19,595			(189	)		19,406
Net change in IBNR reserves		(110,315	)		148,486		38,170			(74,929	)		137,669			62,740

Increase (reduction) in estimates of net ultimate losses		187			252,697		252,884			(4,640	)		163,117			158,477
(Reduction) increase in provisions for unallocated LAE		(99	)		2,365		2,266			(725	)		1,703			978
Amortization of fair value adjustments		(1,530	)		—		(1,530	)		—			100			100

Net incurred losses and LAE	$	(1,442	)	$	255,062	$	253,620		$	(5,365	)	$	164,920		$	159,555

ENSTAR GROUP LIMITED

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

7. POLICY BENEFITS FOR LIFE AND ANNUITY CONTRACTS

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


	September 30, 2015			December 31, 2014
Life	$	327,083		$	344,215
Annuities		924,666			938,121

		1,251,749			1,282,336
Fair value adjustments		(55,406	)		(61,472	)

	$	1,196,343		$	1,220,864

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

8. PREMIUMS WRITTEN AND EARNED

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


	Three Months Ended September 30,												Nine Months Ended September 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	$	6,874		$	31,257		$	8,308		$	18,364		$	31,788		$	109,414		$	16,347		$	43,539
Ceded		(3,064	)		(17,223	)		(2,012	)		(4,490	)		(42,931	)		(59,590	)		(3,191	)		(10,054	)

Net	$	3,810		$	14,034		$	6,296		$	13,874		$	(11,143	)	$	49,824		$	13,156		$	33,485

Atrium
Gross	$	31,348		$	36,083		$	34,081		$	38,800		$	116,047		$	112,150		$	121,515		$	115,099
Ceded		(2,888	)		(3,052	)		(3,899	)		(3,950	)		(11,409	)		(11,290	)		(13,619	)		(13,613	)

Net	$	28,460		$	33,031		$	30,182		$	34,850		$	104,638		$	100,860		$	107,896		$	101,486

StarStone
Gross	$	173,424		$	205,361		$	157,655		$	176,978		$	605,178		$	569,856		$	328,301		$	362,731
Ceded		(35,139	)		(42,828	)		(43,776	)		(56,749	)		(160,705	)		(146,005	)		(83,981	)		(104,263	)

Net	$	138,285		$	162,533		$	113,879		$	120,229		$	444,473		$	423,851		$	244,320		$	258,468

Life and annuities
Life	$	21,365		$	21,453		$	26,701		$	27,034		$	67,020		$	67,445		$	79,885		$	81,122

Total	$	191,920		$	231,051		$	177,058		$	195,987		$	604,988		$	641,980		$	445,257		$	474,561

ENSTAR GROUP LIMITED

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

9. GOODWILL, INTANGIBLE ASSETS AND DEFERRED CHARGE

The following table presents a reconciliation of the beginning and ending goodwill, intangible assets and deferred charge during the nine months ended September 30, 2015:


	Goodwill		Intangible assets with a definite life - Other			Intangible assets with an indefinite life		Total			Intangible assets with a definite life - FVA			Other assets - Deferred Charge
Balance as at December 31, 2014	$	73,071	$	41,048		$	87,031	$	201,150		$	159,095		$	—
Acquired during the period		—		—			—		—			(2,759	)		271,176
Intangible assets amortization		—		(8,398	)		—		(8,398	)		2,934			(3,699	)

Balance as at September 30, 2015	$	73,071	$	32,650		$	87,031	$	192,752		$	159,270		$	267,477

Refer to Note 11 to the consolidated financial statements contained in our 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 the deferred charge.

Intangible asset amortization for the three and nine month periods ended September 30, 2015 was $11.4 million and $9.2 million, respectively, as compared to $24.1 million and $30.7 million for the comparative periods in 2014.

For the three and nine months ended September 30, 2015 we recognized an impairment charge of $4.0 million related to the Torus brand in relation to the StarStone rebranding exercise.

ENSTAR GROUP LIMITED

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

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

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


	September 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		$	(297,772	)	$	131,291		$	449,986		$	(299,413	)	$	150,573
Reinsurance balances recoverable		(175,453	)		148,026			(27,427	)		(193,617	)		140,667			(52,950	)
Policy benefits for life and annuity contracts		86,332			(30,926	)		55,406			86,332			(24,860	)		61,472

	$	339,942		$	(180,672	)	$	159,270		$	342,701		$	(183,606	)	$	159,095

Other:
Distribution channel	$	20,000		$	(2,444	)	$	17,556		$	20,000		$	(1,444	)	$	18,556
Technology		15,000			(5,623	)		9,377			15,000			(3,125	)		11,875
Brand		12,000			(6,283	)		5,717			12,000			(1,383	)		10,617

	$	47,000		$	(14,350	)	$	32,650		$	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	$	271,176		$	(3,699	)	$	267,477		$	—		$	—		$	—

As at September 30, 2015 and December 31, 2014, the allocation of the goodwill to our non-life run-off, Atrium and StarStone 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

We utilize debt facilities primarily for permitted acquisitions and, from time to time, for general corporate purposes. Under these facilities, loans payable as of September 30, 2015 and December 31, 2014 were as follows:


Facility	Origination Date		Term		September 30, 2015		December 31, 2014
EGL Revolving Credit Facility		September 16, 2014		5 Years	$	624,750	$	319,550
Sussex Facility		December 24, 2014		4 Years		104,000		—

Total long-term bank debt						728,750		319,550
Accrued interest						1,970		491

Total loans payable					$	730,720	$	320,041

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. We utilized an additional $224.7 million under the facility during the year primarily for the acquisition of the life settlements from Wilton Re, the Voya transaction, and also to capitalize a newly-formed wholly-owned reinsurance company in Bermuda. As of September 30, 2015, there was $40.3 million of available unutilized capacity under this facility. Subsequent to September 30, 2015 we repaid $139.0 million of the outstanding principal on the facility, which increased our current available unutilized capacity to $179.3 million.

On December 24, 2014, we entered into the Sussex Facility with National Australia Bank Limited and Barclays Bank plc. This facility was fully utilized to borrow $109.0 million to fund 50% of the acquisition of Sussex which was completed on January 27, 2015. A repayment of $5.0 million was made on May 5, 2015.

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

11. NONCONTROLLING INTERESTS

Redeemable Noncontrolling Interest

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

ENSTAR GROUP LIMITED

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

11. NONCONTROLLING INTERESTS—(Continued)

The following is a reconciliation of the beginning and ending carrying amount of the equity attributable to the RNCI:


	September 30, 2015			December 31, 2014
Balance as at beginning of period	$	374,619		$	100,859
Capital contributions		15,728			272,722
Dividends paid		(16,128	)		—
Net earnings attributable to RNCI		9,575			4,059
Accumulated other comprehensive income attributable to RNCI		(480	)		(1,993	)
Transfer of net loss from noncontrolling interest		—			(1,028	)

Balance as at end of period	$	383,314		$	374,619

Refer to Note 15 “Related Party Transactions” Stone Point Capital LLC for additional information regarding RNCI.

Noncontrolling Interest

On June 30, 2015, we 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 we purchased all of the non-voting preference shares of Cumberland Holdings Ltd. and Courtenay Holdings Ltd., which represent all of the noncontrolling interest owned directly by the JCF II Funds in our subsidiaries, for an aggregate price of $140.0 million. Immediately prior to the repurchase, the book value of the JCF II Funds’ noncontrolling interest was $182.8 million. The transaction closed on September 30, 2015.

On September 3, 2015, we entered into a Sale and Purchase Agreement with Shinsei Bank, Limited (“Shinsei”), pursuant to which we purchased all of the Class B shares of Comox Holdings Ltd., which represents all of the noncontrolling interest owned directly by Shinsei in our subsidiaries, for an aggregate price of $10.4 million. Immediately prior to the repurchase, the book value of Shinsei’s noncontrolling interest was $12.5 million. The transaction closed on September 8, 2015.

ENSTAR GROUP LIMITED

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

12. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share for the three and nine month periods ended September 30, 2015 and 2014:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Basic earnings per ordinary share:
Net earnings attributable to Enstar Group Limited	$	49,042	$	26,429	$	108,434	$	107,809
Weighted average ordinary shares outstanding—basic		19,256,184		19,198,475		19,248,737		18,142,531

Net earnings per ordinary share attributable to Enstar Group Limited—basic	$	2.55	$	1.38	$	5.63	$	5.94

Diluted earnings per ordinary share:
Net earnings attributable to Enstar Group Limited	$	49,042	$	26,429	$	108,434	$	107,809
Weighted average ordinary shares outstanding—basic		19,256,184		19,198,475		19,248,737		18,142,531
Share equivalents:
Unvested shares		51,253		56,455		49,863		47,955
Restricted share units		13,321		10,671		12,466		17,527
Preferred shares		—		—		—		183,081
Warrants		87,869		65,789		76,219		54,791

Weighted average ordinary shares outstanding—diluted		19,408,627		19,331,390		19,387,285		18,445,885

Net earnings per ordinary share attributable to Enstar Group Limited—diluted	$	2.53	$	1.37	$	5.59	$	5.84

13. EMPLOYEE BENEFITS

We provide various employee benefits including share-based compensation, an employee share purchase plan, an annual incentive compensation program, and pensions. These are described in Note 16 to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2014.

Share-based compensation expense for the three and nine months ended September 30, 2015 was $2.1 million and $10.6 million, respectively, as compared to $3.5 million and $6.4 million for the comparative periods in 2014.

Employee share purchase plan expense for each of the three and nine months ended September 30, 2015 and 2014, was less than $0.1 million and $0.2 million, respectively.

Annual incentive compensation program expense for the three and nine months ended September 30, 2015 was $6.5 million and $13.5 million, respectively, as compared to $4.4 million and $18.8 million for the comparative periods in 2014.

ENSTAR GROUP LIMITED

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

13. EMPLOYEE BENEFITS—(Continued)

Pension expense for the three and nine months ended September 30, 2015 was $2.5 million and $7.7 million, respectively, as compared to $2.9 million and $8.5 million for the comparative periods in 2014.

14. TAXATION

We use the estimated annual effective tax rate method for computing our interim tax provision. This method applies our best estimate of the effective tax rate expected for the full year to our year-to-date earnings before income taxes. We provide for income tax expense or benefit based upon our pre-tax earnings and the provisions of currently enacted tax laws. Discrete tax adjustments are recorded in the quarter in which the event occurs.

The following table presents our earnings before income taxes by jurisdiction:


	Three Months Ended September 30,					Nine Months Ended September 30,
	2015		2014			2015			2014
Domestic (Bermuda)	$	3,141	$	(22,740	)	$	(3,663	)	$	11,238
Foreign		55,122		49,597			150,185			119,068

Total	$	58,263	$	26,857		$	146,522		$	130,306

The following table presents our current and deferred income tax expense (benefit) by jurisdiction:


	Three Months Ended September 30,					Nine Months Ended September 30,
	2015		2014			2015			2014
Current:
Domestic (Bermuda)	$	—	$	—		$	—		$	—
Foreign		10,855		6,540			33,590			26,522

		10,855		6,540			33,590			26,522

Deferred:
Domestic (Bermuda)		—		—			—			—
Foreign		1,407		(880	)		(4,768	)		(5,134	)

		1,407		(880	)		(4,768	)		(5,134	)

Total tax expense	$	12,262	$	5,660		$	28,822		$	21,388

ENSTAR GROUP LIMITED

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

14. TAXATION—(Continued)

The actual income tax rate differs from the amount computed by applying the effective rate of 0% under Bermuda law to earnings before income taxes as shown in the following reconciliation:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Earnings before income tax	$	58,263		$	26,857		$	146,522		$	130,306

Expected tax rate		0.0	%		0.0	%		0.0	%		0.0	%
Foreign taxes at local expected rates		21.3	%		19.3	%		19.2	%		17.4	%
Change in uncertain tax positions		—	%		—	%		—	%		(1.7	)%
Change in valuation allowance		(0.5	)%		(0.4	)%		(2.8	)%		—	%
Prior year true-up		—	%		—	%		3.0	%		—	%
Other		0.2	%		2.2	%		0.3	%		0.7	%

Effective tax rate		21.0	%		21.1	%		19.7	%		16.4	%

Our effective tax rate is driven by the geographical distribution of our pre-tax net earnings between our taxable and non-taxable jurisdictions. Under current Bermuda law, we are exempted from paying any taxes in Bermuda on income or capital gains until March 2035. The local expected rates for foreign taxes, in the table above, were computed as the sum of the calculations of pre-tax income in each jurisdiction multiplied by that jurisdiction’s applicable weighted average statutory tax rate.

We have foreign operating subsidiaries and branch operations principally located in the United Kingdom, Australia, the United States and Europe which are subject to federal, foreign, state and local taxes in those jurisdictions. In addition, certain distributions from some foreign sources may be subject to withholding taxes. Because we operate in many jurisdictions, our net earnings are subject to risk due to changing tax laws and tax rates around the world. The current, rapidly changing economic environment may increase the likelihood of substantial changes to tax laws in the jurisdictions in which we operate.

We have estimated the future taxable income of its foreign subsidiaries and have provided a valuation allowance in respect of loss carryforwards where we do not expect to realize a benefit. We have considered all available evidence using a “more likely than not” standard in determining the amount of the valuation allowance.

We had no unrecognized tax benefits relating to uncertain tax positions as at both September 30, 2015 and December 31, 2014.

Our operating subsidiaries may be subject to audit by various tax authorities and may have different statutes of limitations expiration dates. With limited exceptions, our major subsidiaries that operate in the United States, United Kingdom and Australia are no longer subject to tax examinations for years before 2011, 2011 and 2008, respectively.

ENSTAR GROUP LIMITED

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

15. RELATED PARTY TRANSACTIONS

Stone Point Capital LLC

Following several private transactions occurring from May 2012 to July 2012, Trident acquired 1,350,000 of our Voting Ordinary Shares (which now constitutes approximately 8.4% of our outstanding Voting Ordinary Shares). On November 6, 2013, we appointed James D. Carey to its Board of Directors. Mr. Carey is the sole member of an entity that is one of four general partners of the entities serving as general partners for Trident, is a member of the investment committees of such general partners, and is a member and senior principal of Stone Point Capital LLC, the manager of the Trident funds.

In addition, we have entered into certain agreements with Trident with respect to Trident’s co-investments in the Atrium, Arden, and StarStone acquisitions. These include investors’ agreements and shareholders’ agreements, which provide for, among other things: (i) our right to redeem Trident’s equity interest in the Atrium/Arden and StarStone transactions in cash at fair market value within the 90 days following the fifth anniversary of the Arden and StarStone closings, respectively, and at any time following the seventh anniversary of the Arden and StarStone closings, respectively; and (ii) Trident’s right to have its equity co-investment interests in the Atrium/Arden and StarStone transactions redeemed by us at fair market value (which we may satisfy in either cash or its ordinary shares) following the seventh anniversaries of the Arden closing and StarStone closing, respectively. As of September 30, 2015, we have included $383.3 million (December 31, 2014: $374.6 million) as redeemable noncontrolling interest on its balance sheet relating to these Trident co-investment transactions. Pursuant to the terms of the shareholders’ agreements, Mr. Carey serves as a Trident representative on the boards of StarStone and the holding companies established in connection with the Atrium/Arden and StarStone co-investment transactions. Trident also has a second representative on these boards who is a Stone Point Capital employee.

As at September 30, 2015, we have investments in four funds (carried within other investments) and a registered investment company affiliated with entities owned by Trident or otherwise affiliated with Stone Point Capital LLC. The fair value of the investments in the four funds was $260.5 million and $202.6 million as at September 30, 2015 and December 31, 2014, respectively, while the fair value of our investment in the registered investment company was $24.3 million and $25.6 million as at September 30, 2015 and December 31, 2014, respectively. For the nine months ended September 30, 2015 and 2014, we recognized net losses of $0.7 million and net gains of $2.4 million respectively in net realized and unrealized (losses) gains in respect of these investments.

We also have separate accounts managed by Eagle Point Credit Management, and PRIMA Capital Advisors, which are affiliates of entities owned by Trident, with respect to which we incurred approximately $0.3 million and $0.2 million in management fees for each of the nine months ended September 30, 2015 and 2014, respectively.

During 2015, we received investment-related consulting services from a firm in which Trident V is a minority investor, pursuant to arms-length terms and conditions. We incurred approximately $0.2 million in expenses for these services for the nine months ended September 30, 2015. In addition, we are invested in two funds (carried within other investments) managed by Sound Point Capital, an entity in which Mr. Carey has an indirect minority ownership interest and serves as director. The fair value of our investments in Sound Point Capital funds was $40.9 million and $39.9 million as at September 30, 2015 and December 31, 2014, respectively. For the nine months ended September 30, 2015 and 2014, we have recognized $1.0 million and $0.8 million, respectively, in net realized and unrealized gains in respect of Sound Point Capital investments.

ENSTAR GROUP LIMITED

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

15. RELATED PARTY TRANSACTIONS—(Continued)

We also have separate accounts managed by Sound Point Capital pursuant to an arms-length agreement reflecting customary terms and conditions, with respect to which we incurred approximately $0.1 million and $nil in management fees for the nine months ended September 30, 2015 and 2014, respectively.

Goldman Sachs & Co.

Affiliates of Goldman Sachs own approximately 4.1% of our Voting Ordinary Shares, 100% of our Series C Non-Voting Ordinary Shares, and 100% of the outstanding warrants. Sumit Rajpal, a managing director of Goldman Sachs, was appointed to the Board of Directors in connection with Goldman Sachs’ investment in Enstar. As of September 30, 2015 and December, 31, 2014, we had investments in two funds (carried within other investments) affiliated with entities owned by Goldman Sachs, which had a fair value of $39.8 million and $36.3 million, respectively. As of September 30, 2015 and December 31, 2014, we had an indirect investment in non-voting interests of two companies affiliated with Hastings Insurance Group Limited which had a fair value of $37.6 million and $25.1 million respectively. Goldman Sachs affiliates have an approximately 50% interest in the Hastings companies, and Mr. Rajpal serves as a director of the entities in which we have invested. For the nine months ended September 30, 2015 and 2014, we recognized $14.0 million and $1.1 million in net realized and unrealized gains, respectively, in respect of the Goldman Sachs-affiliated investments.

During 2015, a Goldman Sachs affiliate began providing investment management services to one of our subsidiaries pursuant to an arms-length agreement reflecting customary terms and conditions. Our interests are held in accounts managed by affiliates of Goldman Sachs, with respect to which we incurred approximately $0.4 million and $nil in management fees for the nine months ended September 30, 2015 and 2014, respectively.

CPPIB

Canada Pension Plan Investment Board (“CPPIB”), together with management of Wilton Re, own 100% of the common stock of Wilton Re. Subsequent to the closing of our transaction with Wilton Re (described in Note 2—“Acquisitions”), on June 3, 2015, CPPIB purchased voting and non-voting shares in Enstar from FR XI Offshore AIV, L.P., First Reserve Fund XII, L.P., FR XII-A Parallel Vehicle L.P. and FR Torus Co-Investment, L.P. (collectively, “First Reserve”, and the transaction, the “CPPIB-First Reserve Transaction”). These shares constitute a 9.3% voting interest and a 9.9% aggregate economic interest in Enstar. On September 29, 2015, CPPIB exercised its acquired right to appoint a representative to our Board of Directors. CPPIB has also signed a definitive agreement to acquire additional voting shares that would increase its ownership in Enstar to a 13.9% voting interest and a 13.8% aggregate economic interest, subject to regulatory approval.

16. COMMITMENTS AND CONTINGENCIES

Concentration of Credit Risk

We believe that there are no significant concentrations of credit risk associated with our cash and cash equivalents, fixed maturity investments, or other investments. Cash, cash equivalents and fixed maturity investments are managed pursuant to guidelines that follow prudent standards of

ENSTAR GROUP LIMITED

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

16. COMMITMENTS AND CONTINGENCIES—(Continued)

diversification and limit the allowable holdings of a single issue and issuers. Other investments are managed pursuant to guidelines that emphasize diversification and liquidity. Pursuant to these guidelines, we manage and monitor risk across a variety of investment funds and vehicles, markets and counterparties. We are also subject to custodial credit risk on our fixed maturity and equity investments, which we manage by diversifying our holdings amongst large financial institutions that are highly regulated.

We have exposure to credit risk on certain of our assets pledged to ceding companies under insurance contracts. In addition, we are potentially exposed should any insurance intermediaries be unable to fulfill their contractual obligations with respect to payments of balances owed to and by us.

Credit risk exists in relation to our reinsurance balances recoverable. We remain liable to the extent that retrocessionaires do not meet their contractual obligations and, therefore, we evaluate and monitor concentration of credit risk among our reinsurers. These amounts are discussed in Note 5—“Reinsurance Balances Recoverable”.

We limit the amount of credit exposure to any one counterparty and none of our counterparty credit exposures, excluding U.S. Government instruments, exceeded 10% of shareholders’ equity as of September 30, 2015.

Unfunded Investment Commitments

As at September 30, 2015, we had original commitments to investment funds of $320.0 million, of which $248.4 million has been funded, and $71.6 million remains outstanding as an unfunded commitment.

Guarantees

As at September 30, 2015 and December 31, 2014, we had, in total, parental guarantees supporting our insurance obligations in the amount of $382.5 million and $238.6 million, respectively.

Acquisitions and Significant New Business

As of September 30, 2015, we had entered into a definitive agreement with respect to the purchase of NSA which is expected to close in the fourth quarter of 2015. The NSA acquisition agreement is described in Note 2—“Acquisitions”.

Legal Proceedings

We are, from time to time, involved in various legal proceedings in the ordinary course of business, including litigation and arbitration regarding claims. Estimated losses relating to claims arising in the ordinary course of business, including the anticipated outcome of any pending arbitration or litigation are included in the liability for losses and LAE in our consolidated balance sheets. In addition to claims litigation, we may be subject to other lawsuits and regulatory actions in the normal course of business, which may involve, among other things, allegations of underwriting errors or omissions, employment claims or regulatory activity. We do not believe that the resolution of any

ENSTAR GROUP LIMITED

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

16. COMMITMENTS AND CONTINGENCIES—(Continued)

currently pending legal proceedings, either individually or taken as a whole, will have a material effect on our business, results of operations or financial condition. We anticipate that, similar to the rest of the insurance and reinsurance industry, we will continue to be subject to litigation and arbitration proceedings in the ordinary course of business, including litigation generally related to the scope of coverage with respect to asbestos and environmental and other claims.

17. SEGMENT INFORMATION

We monitor and report our results of operations in four segments: Non-Life Run-off, Atrium, StarStone and Life and Annuities. These segments are described in both Note 1 and Note 21 to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2014.

Our total assets by segment were as follows:


	September 30, 2015			December 31, 2014
Total assets:
Non-life run-off	$	7,851,758		$	5,936,187
Atrium		617,738			598,037
StarStone		2,584,689			2,876,734
Life and annuities		1,547,292			1,344,593
Less:
Eliminations		(547,867	)		(818,666	)

	$	12,053,610		$	9,936,885

ENSTAR GROUP LIMITED

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

17. SEGMENT INFORMATION—(Continued)

The following tables set forth selected and unaudited condensed consolidated statement of earnings results by segment for the three and nine months ended September 30, 2015 and 2014:


	Three Months Ended September 30, 2015
	Non-life run-off			Atrium		StarStone			Life and annuities		Eliminations			Consolidated
INCOME
Net premiums earned	$	14,034		$	33,031	$	162,533		$	21,453	$	—		$	231,051
Fees and commission income		4,680			7,487		1			—		(3,191	)		8,977
Net investment income		23,938			645		2,842			16,147		(403	)		43,169
Net realized and unrealized (losses) gains		(12,589	)		27		(3,193	)		625		—			(15,130	)

		30,063			41,190		162,183			38,225		(3,594	)		268,067

EXPENSES
Net incurred losses and loss adjustment expenses		(75,133	)		11,101		96,391			—		—			32,359
Life and annuity policy benefits		—			—		—			22,989		—			22,989
Acquisition costs		1,267			10,409		32,797			5,333		—			49,806
Salaries and benefits		33,280			4,061		16,572			1,527		—			55,440
General and administrative expenses		23,513			3,167		18,038			3,368		(3,191	)		44,895
Interest expense		4,723			228		—			608		(403	)		5,156
Net foreign exchange (gains) losses		(3,379	)		814		1,626			98		—			(841	)

		(15,729	)		29,780		165,424			33,923		(3,594	)		209,804