e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Quarterly Period Ended
June 30,
2010
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Transition Period
From to
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001-33289
Commission File Number
ENSTAR GROUP LIMITED
(Exact name of registrant as
specified in its charter)
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Bermuda
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N/A
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(State or other jurisdiction
of incorporation or organization)
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(I.R.S. Employer
Identification No.)
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P.O. Box HM
2267
Windsor Place,
3rd
Floor
18 Queen Street
Hamilton HM JX
Bermuda
(Address of principal executive
office, including zip code)
(441) 292-3645
(Registrants 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 o
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 o No o
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. (Check one):
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of August 5, 2010, the registrant had outstanding
13,835,787 ordinary shares, par value $1.00 per share.
PART I
FINANCIAL INFORMATION
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Item 1.
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FINANCIAL
STATEMENTS
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June 30,
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December 31,
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2010
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2009
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(expressed in thousands of U.S. dollars, except share
data)
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ASSETS
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Short-term investments, available-for-sale, at fair value
(amortized cost: 2010 $nil; 2009
$45,046)
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$
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$
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45,206
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Short-term investments, held-to-maturity, at amortized cost
(fair value: 2010 $90,008; 2009 $159,333)
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90,084
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159,210
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Short-term investments, trading, at fair value (amortized cost:
2010 $522,060; 2009 $nil)
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521,544
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Fixed maturities, available-for-sale, at fair value (amortized
cost: 2010 $33,388; 2009 $69,976)
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33,633
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69,892
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Fixed maturities, held-to-maturity, at amortized cost (fair
value: 2010 $1,360,245; 2009
$1,169,934)
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1,340,764
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1,152,330
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Fixed maturities, trading, at fair value (amortized cost:
2010 $241,587; 2009 $85,775)
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247,037
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88,050
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Equities, trading, at fair value (cost: 2010
$41,421; 2009 $21,257)
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41,722
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24,503
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Other investments, at fair value (cost: 2010
$240,351; 2009 $165,872)
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166,781
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81,801
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Total investments
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2,441,565
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1,620,992
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Cash and cash equivalents
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723,735
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1,266,445
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Restricted cash and cash equivalents
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382,123
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433,660
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Accrued interest receivable
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20,259
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16,108
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Accounts receivable, net
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58,868
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17,657
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Income taxes recoverable
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6,990
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3,277
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Reinsurance balances receivable
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756,081
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638,262
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Investment in partly owned company
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20,850
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Goodwill
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21,222
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21,222
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Other assets
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193,050
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132,369
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TOTAL ASSETS
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$
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4,603,893
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$
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4,170,842
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LIABILITIES
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Losses and loss adjustment expenses
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$
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2,894,353
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$
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2,479,136
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Reinsurance balances payable
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189,023
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162,576
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Accounts payable and accrued liabilities
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35,609
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60,878
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Income taxes payable
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23,022
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51,854
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Loans payable
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270,919
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254,961
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Other liabilities
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79,974
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85,285
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TOTAL LIABILITIES
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3,492,900
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3,094,690
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COMMITMENTS AND CONTINGENCIES
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SHAREHOLDERS EQUITY
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Share capital
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Authorized issued and fully paid, par value $1 each (authorized
2010: 156,000,000; 2009: 156,000,000)
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Ordinary shares (issued and outstanding 2010: 13,703,981; 2009:
13,580,793)
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13,704
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13,581
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Non-voting convertible ordinary shares (issued 2010: 2,972,892;
2009: 2,972,892)
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2,973
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2,973
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Treasury shares at cost (non-voting convertible ordinary shares
2010: 2,972,892; 2009: 2,972,892)
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(421,559
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)
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(421,559
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)
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Additional paid-in capital
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727,323
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721,120
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Accumulated other comprehensive income
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(6,416
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)
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8,709
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Retained earnings
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505,408
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477,057
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Total Enstar Group Limited Shareholders Equity
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821,433
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801,881
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Noncontrolling interest
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289,560
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274,271
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TOTAL SHAREHOLDERS EQUITY
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1,110,993
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1,076,152
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TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
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$
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4,603,893
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$
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4,170,842
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See accompanying notes to the unaudited condensed consolidated
financial statements
1
ENSTAR
GROUP LIMITED
For the Three and Six Month Periods Ended June 30,
2010 and 2009
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Three Months Ended
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Six Months Ended
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June 30,
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June 30,
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June 30,
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June 30,
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2010
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2009
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2010
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2009
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(expressed in thousands of U.S. dollars, except share and per
share data)
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INCOME
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Consulting fees
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$
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3,500
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$
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4,179
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$
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17,628
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$
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7,515
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Net investment income
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22,998
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18,493
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49,119
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35,802
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Net realized (losses) gains
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(4,227
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)
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5,080
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(2,025
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)
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(930
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)
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22,271
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27,752
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64,722
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42,387
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EXPENSES
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Net reduction in ultimate loss and loss adjustment expense
liabilities:
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Reduction in estimates of net ultimate losses
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(35,104
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)
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(17,742
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)
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(37,046
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)
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(47,566
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)
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Reduction in provisions for bad debt
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(7,768
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)
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(13,107
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)
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(9,714
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)
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Reduction in provisions for unallocated loss and loss adjustment
expense liabilities
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(11,696
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)
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(9,422
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)
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(20,661
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)
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(19,540
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)
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Amortization of fair value adjustments
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12,202
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9,771
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18,852
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32,748
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(42,366
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)
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(17,393
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)
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(51,962
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)
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(44,072
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)
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Salaries and benefits
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14,254
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11,914
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29,444
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24,331
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General and administrative expenses
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15,801
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10,910
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26,288
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23,292
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Interest expense
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2,805
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4,675
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5,199
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9,640
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Net foreign exchange (gain) loss
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(5,615
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)
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(1,611
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)
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1,973
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(13
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)
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(15,121
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)
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8,495
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10,942
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13,178
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EARNINGS BEFORE INCOME TAXES AND SHARE OF NET EARNINGS OF PARTLY
OWNED COMPANY
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37,392
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19,257
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53,780
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29,209
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INCOME TAXES
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(16,115
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)
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23
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(22,037
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)
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641
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SHARE OF NET EARNINGS OF PARTLY OWNED COMPANY
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2,203
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9,353
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269
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NET EARNINGS
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23,480
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19,280
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41,096
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30,119
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Less: Net earnings attributable to noncontrolling interests
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(11,050
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)
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(10,529
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)
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(12,745
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)
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(9,837
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)
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NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED
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$
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12,430
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$
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8,751
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$
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28,351
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$
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20,282
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EARNINGS PER SHARE BASIC:
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Net earnings attributable to Enstar Group Limited ordinary
shareholders
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$
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0.91
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$
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0.65
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$
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2.08
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$
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1.51
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EARNINGS PER SHARE DILUTED:
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Net earnings attributable to Enstar Group Limited ordinary
shareholders
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$
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0.89
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$
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0.63
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$
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2.04
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$
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1.48
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Weighted average shares outstanding basic
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13,702,832
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13,532,608
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13,661,516
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13,448,525
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Weighted average shares outstanding diluted
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14,019,489
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13,787,553
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13,925,551
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13,700,853
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See accompanying notes to the unaudited condensed consolidated
financial statements
2
ENSTAR
GROUP LIMITED
For the Three and Six Month Periods Ended June 30,
2010 and 2009
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Three Months Ended
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Six Months Ended
|
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June 30,
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June 30,
|
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June 30,
|
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June 30,
|
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2010
|
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2009
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2010
|
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2009
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(expressed in thousands of U.S. dollars)
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NET EARNINGS
|
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$
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23,480
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$
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19,280
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$
|
41,096
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$
|
30,119
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|
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Other comprehensive income:
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|
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|
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|
|
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Unrealized holding losses on investments arising during the
period
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(6,412
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)
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|
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(7,024
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)
|
|
|
(5,652
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)
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|
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(14,873
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)
|
Reclassification adjustment for net realized losses (gains)
included in net earnings
|
|
|
4,227
|
|
|
|
(5,080
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)
|
|
|
2,025
|
|
|
|
930
|
|
Currency translation adjustment
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|
|
(22,688
|
)
|
|
|
41,207
|
|
|
|
(17,116
|
)
|
|
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37,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total other comprehensive (loss) income:
|
|
|
(24,873
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)
|
|
|
29,103
|
|
|
|
(20,743
|
)
|
|
|
23,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Comprehensive (loss) income
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(1,393
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)
|
|
|
48,383
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|
|
|
20,353
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|
|
|
53,401
|
|
Less comprehensive income attributable to noncontrolling
interests
|
|
|
(3,965
|
)
|
|
|
(18,674
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)
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|
|
(7,125
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)
|
|
|
(20,668
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)
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|
|
|
|
|
|
|
|
|
|
|
|
|
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COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO ENSTAR GROUP LIMITED
|
|
$
|
(5,358
|
)
|
|
$
|
29,709
|
|
|
$
|
13,228
|
|
|
$
|
32,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
See accompanying notes to the unaudited condensed consolidated
financial statements
3
ENSTAR
GROUP LIMITED
IN
SHAREHOLDERS EQUITY
For the
Six Month Periods Ended June 30, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(expressed in thousands of U.S. dollars)
|
|
|
Share Capital Ordinary Shares
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
13,581
|
|
|
$
|
13,334
|
|
Issue of shares
|
|
|
44
|
|
|
|
167
|
|
Share awards granted/vested
|
|
|
79
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
13,704
|
|
|
$
|
13,578
|
|
|
|
|
|
|
|
|
|
|
Share Capital Non-Voting Convertible Ordinary
Shares
|
|
|
|
|
|
|
|
|
Balance, beginning and end of period
|
|
$
|
2,973
|
|
|
$
|
2,973
|
|
|
|
|
|
|
|
|
|
|
Treasury Shares
|
|
|
|
|
|
|
|
|
Balance, beginning and end of period
|
|
$
|
(421,559
|
)
|
|
$
|
(421,559
|
)
|
|
|
|
|
|
|
|
|
|
Additional Paid-in Capital
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
721,120
|
|
|
$
|
709,485
|
|
Share awards granted/vested
|
|
|
5,286
|
|
|
|
3,567
|
|
Issue of shares
|
|
|
318
|
|
|
|
5,195
|
|
Amortization of share awards
|
|
|
599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
727,323
|
|
|
$
|
718,247
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive (Loss) Income Attributable to
Enstar Group Limited
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
8,709
|
|
|
$
|
(30,871
|
)
|
Cumulative translation adjustments
|
|
|
(12,103
|
)
|
|
|
26,434
|
|
Net movement in unrealized holding gains on investments
|
|
|
(3,022
|
)
|
|
|
(13,983
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
(6,416
|
)
|
|
$
|
(18,420
|
)
|
|
|
|
|
|
|
|
|
|
Retained Earnings
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
477,057
|
|
|
$
|
341,847
|
|
Net earnings attributable to Enstar Group Limited
|
|
|
28,351
|
|
|
|
20,282
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
505,408
|
|
|
$
|
362,129
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling Interest
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
274,271
|
|
|
$
|
256,022
|
|
Return of capital
|
|
|
(13,579
|
)
|
|
|
(18,783
|
)
|
Contribution of capital
|
|
|
28,742
|
|
|
|
|
|
Dividends paid
|
|
|
(7,000
|
)
|
|
|
(979
|
)
|
Net earnings attributable to noncontrolling interest
|
|
|
12,745
|
|
|
|
9,837
|
|
Cumulative translation adjustments
|
|
|
(5,013
|
)
|
|
|
10,791
|
|
Net movement in unrealized holding (losses) gains on investments
|
|
|
(606
|
)
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
289,560
|
|
|
$
|
256,928
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the unaudited condensed consolidated
financial statements
4
ENSTAR
GROUP LIMITED
For the
Six Month Periods Ended June 30, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(expressed in thousands of U.S. dollars)
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
41,096
|
|
|
$
|
30,119
|
|
Adjustments to reconcile net earnings to cash flows (used in)
provided by operating activities:
|
|
|
|
|
|
|
|
|
Share of undistributed net earnings of partly owned company
|
|
|
(9,353
|
)
|
|
|
(269
|
)
|
Net realized and unrealized investment loss
|
|
|
2,025
|
|
|
|
930
|
|
Share of net (gain) loss from other investments
|
|
|
(9,410
|
)
|
|
|
1,458
|
|
Other items
|
|
|
(1,155
|
)
|
|
|
4,381
|
|
Depreciation and amortization
|
|
|
374
|
|
|
|
491
|
|
Amortization of bond premiums and discounts
|
|
|
2,507
|
|
|
|
4,781
|
|
Net movement of trading securities held on behalf of
policyholders
|
|
|
23,306
|
|
|
|
14,159
|
|
Sales of trading securities
|
|
|
64,695
|
|
|
|
|
|
Purchases of trading securities
|
|
|
(755,925
|
)
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Reinsurance balances receivable
|
|
|
(68,415
|
)
|
|
|
(18,642
|
)
|
Other assets
|
|
|
(104,969
|
)
|
|
|
5,570
|
|
Losses and loss adjustment expenses
|
|
|
166,148
|
|
|
|
(64,558
|
)
|
Reinsurance balances payable
|
|
|
11,284
|
|
|
|
24,131
|
|
Accounts payable and accrued liabilities
|
|
|
(24,558
|
)
|
|
|
5,139
|
|
Other liabilities
|
|
|
(33,293
|
)
|
|
|
21,441
|
|
|
|
|
|
|
|
|
|
|
Net cash flows (used in) provided by operating activities
|
|
|
(695,643
|
)
|
|
|
29,131
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
|
|
157,184
|
|
|
|
8,504
|
|
Purchase of
available-for-sale
securities
|
|
|
|
|
|
|
(237,887
|
)
|
Sales and maturities of
available-for-sale
securities
|
|
|
54,872
|
|
|
|
247,988
|
|
Purchase of
held-to-maturity
securities
|
|
|
(608,680
|
)
|
|
|
(233,001
|
)
|
Maturity of
held-to-maturity
securities
|
|
|
461,810
|
|
|
|
47,549
|
|
Movement in restricted cash and cash equivalents
|
|
|
87,052
|
|
|
|
(120,331
|
)
|
Funding of other investments
|
|
|
(66,245
|
)
|
|
|
(23,327
|
)
|
Sale of investment in partly owned company
|
|
|
29,400
|
|
|
|
|
|
Other investing activities
|
|
|
278
|
|
|
|
(1,714
|
)
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) investing activities
|
|
|
115,671
|
|
|
|
(312,219
|
)
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
|
|
|
|
2,796
|
|
Distribution of capital to noncontrolling interest
|
|
|
(13,579
|
)
|
|
|
(18,780
|
)
|
Contribution to surplus of subsidiary by noncontrolling interest
|
|
|
28,742
|
|
|
|
|
|
Dividends paid to noncontrolling interest
|
|
|
(7,000
|
)
|
|
|
(979
|
)
|
Receipt of loans
|
|
|
21,400
|
|
|
|
|
|
Repayment of loans
|
|
|
|
|
|
|
(57,571
|
)
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) financing activities
|
|
|
29,563
|
|
|
|
(74,534
|
)
|
|
|
|
|
|
|
|
|
|
TRANSLATION ADJUSTMENT
|
|
|
7,699
|
|
|
|
39,242
|
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(542,710
|
)
|
|
|
(318,380
|
)
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
1,266,445
|
|
|
|
1,866,546
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
723,735
|
|
|
$
|
1,548,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
41,089
|
|
|
$
|
8,279
|
|
Interest paid
|
|
$
|
5,738
|
|
|
$
|
6,892
|
|
See accompanying notes to the unaudited condensed consolidated
financial statements
5
ENSTAR
GROUP LIMITED
June 30, 2010 and December 31, 2009
(Tabular information expressed in thousands of U.S. dollars
except share and per share data)
(unaudited)
|
|
1.
|
BASIS OF
PREPARATION AND CONSOLIDATION
|
The Companys condensed consolidated financial statements
have not been audited. These statements have been prepared in
accordance with accounting principles generally accepted in the
United States of America (U.S. GAAP) for
interim financial information and with the instructions to
Form 10-Q
and Article 10 of
Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by U.S. GAAP for complete financial
statements. In the opinion of management, these financial
statements reflect all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
of the Companys financial position and results of
operations as at the end of and for the periods presented.
Results of operations for subsidiaries acquired are included
from the dates of their acquisition by the Company. The results
of operations for any interim period are not necessarily
indicative of the results for a full year. All significant
inter-company accounts and transactions have been eliminated. In
these notes, the terms we, us,
our, or the Company refer to Enstar
Group Limited and its direct and indirect subsidiaries. The
following information should be read in conjunction with the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2009.
Adoption
of New Accounting Standards
In January 2010, the Company adopted the revised guidance issued
by the U.S. Financial Accounting Standards Board
(FASB) for the consolidation of variable interest
entities. The revised guidance requires an entity to perform an
analysis to determine whether the entitys variable
interest or interests give it a controlling financial interest
in a variable interest entity. It prescribes the determination
of whether a reporting entity is required to consolidate another
entity based on, among other things, the other entitys
purpose and design and the reporting entitys ability to
direct the activities of the other entity that most
significantly impact the other entitys economic
performance. The adoption of the revised guidance did not have
any impact on the consolidated financial statements.
The Company adopted the revised guidance issued by FASB for the
accounting for transfers of financial assets in January 2010.
The revised guidance eliminates the concept of a
qualifying special-purpose entity; changes the
requirements for derecognizing financial assets; and enhances
information reported to financial statement users by increasing
the transparency of disclosures about transfers of financial
assets and an entitys continuing involvement with
transferred financial assets. The adoption of the revised
guidance did not have any impact on the consolidated financial
statements.
Also in January 2010, the Company adopted the revised guidance
issued by FASB for the disclosures about fair value
measurements. The revised guidance requires additional
disclosures about transfers into and out of Levels 1 and 2
and separate disclosures about purchases, sales, issuances and
settlements relating to Level 3 measurements. The revised
guidance also clarifies existing fair value disclosures about
the level of disaggregation and about inputs and valuation
techniques used to measure fair value. The revised guidance is
effective for the first reporting period (including interim
periods) beginning after December 15, 2009, except for the
requirement to provide the Level 3 activity of purchases,
sales, issuances and settlements on a gross basis, which will be
effective for fiscal years beginning after December 15,
2010, and for interim periods within those fiscal years. The
adoption of the revised guidance did not have a material impact
on the consolidated financial statements.
On February 24, 2010, FASB amended its guidance on
subsequent events to no longer require companies filing periodic
reports with the U.S. Securities and Exchange Commission
(SEC) to disclose the date through which subsequent
events have been evaluated in originally issued and revised
financial statements in order to alleviate potential conflicts
between FASBs guidance and the SECs filing
requirements. This guidance was effective immediately upon
issuance. The adoption of this guidance had no impact on the
Companys results of operations or financial condition.
While the Companys consolidated financial statements no
longer disclose the date through
6
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
1.
|
BASIS OF
PREPARATION AND
CONSOLIDATION (contd)
|
which it has evaluated subsequent events, the Company continues
to be required to evaluate subsequent events through the date
when its financial statements are issued.
The Company has determined that all other recently issued
accounting pronouncements will not have a material impact on its
consolidated financial statements, or do not apply to its
operations.
The Company accounts for acquisitions using the purchase method
of accounting, which requires that the acquirer record the
assets and liabilities acquired at their estimated fair value.
The fair values of reinsurance assets and liabilities acquired
are derived from probability weighted ranges of the associated
projected cash flows, based on actuarially prepared information
and managements run-off strategy. Any amendment to the
fair values resulting from changes in such information or
strategy will be recognized when the changes occur.
Knapton Insurance (formerly British Engine)
On March 2, 2010, the Company, through its wholly-owned
subsidiary, Knapton Holdings Limited (Knapton
Holdings), completed the acquisition of Knapton Insurance
Limited, formerly British Engine Insurance Limited
(Knapton), from RSA Insurance Group plc for a total
purchase price of approximately £28.8 million
(approximately $44.0 million). Knapton is a U.K.-domiciled
reinsurer that is in run-off. The acquisition was funded from
available cash on hand.
The purchase price and fair value of the assets acquired in the
Knapton acquisition were as follows:
|
|
|
|
|
Total purchase price
|
|
$
|
44,031
|
|
|
|
|
|
|
Net assets acquired at fair value
|
|
$
|
44,031
|
|
|
|
|
|
|
The following summarizes the estimated fair values of the assets
acquired and the liabilities assumed at the date of the
acquisition:
|
|
|
|
|
Cash
|
|
$
|
153,286
|
|
Restricted cash
|
|
|
35,515
|
|
Investments:
|
|
|
|
|
Short-term investments, trading
|
|
|
5,990
|
|
Fixed maturity investments, trading
|
|
|
27,923
|
|
|
|
|
|
|
Total investments
|
|
|
33,913
|
|
Reinsurance balances receivable
|
|
|
50,942
|
|
Other assets
|
|
|
5,840
|
|
Losses and loss adjustment expenses
|
|
|
(216,871
|
)
|
Insurance and reinsurance balances payable
|
|
|
(12,347
|
)
|
Accounts payable
|
|
|
(6,247
|
)
|
|
|
|
|
|
Net assets acquired at fair value
|
|
$
|
44,031
|
|
|
|
|
|
|
From March 2, 2010, the date of acquisition, to
June 30, 2010, the Company has recorded in its consolidated
statement of earnings, revenues and net losses related to
Knapton of $0.2 million and $(2.8) million,
respectively.
7
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
2.
|
ACQUISITIONS (contd)
|
In April 2010, Knapton Holdings entered into a term facility
agreement with a London-based bank (the Knapton
Facility). On April 20, 2010, Knapton Holdings drew
down $21.4 million from the Knapton Facility.
Assuransinvest
On March 30, 2010, the Company, through its wholly-owned
subsidiary, Nordic Run-Off Limited, completed the acquisition of
Forsakringsaktiebolaget Assuransinvest MF
(Assuransinvest) for a purchase price of SEK
78.8 million (approximately $11.0 million).
Assuransinvest is a Swedish-domiciled reinsurer that is in
run-off. The purchase price was funded from available cash on
hand.
The purchase price and fair value of the assets acquired in the
Assuransinvest acquisition were as follows:
|
|
|
|
|
Total purchase price
|
|
$
|
11,042
|
|
|
|
|
|
|
Net assets acquired at fair value
|
|
$
|
11,042
|
|
|
|
|
|
|
The following summarizes the estimated fair values of the assets
acquired and the liabilities assumed at the date of the
acquisition:
|
|
|
|
|
Cash
|
|
$
|
58,971
|
|
Fixed maturity investments, trading
|
|
|
579
|
|
Other assets
|
|
|
5
|
|
Losses and loss adjustment expenses
|
|
|
(45,021
|
)
|
Insurance and reinsurance balances payable
|
|
|
(3,130
|
)
|
Accounts payable
|
|
|
(362
|
)
|
|
|
|
|
|
Net assets acquired at fair value
|
|
$
|
11,042
|
|
|
|
|
|
|
From March 30, 2010, the date of acquisition, to
June 30, 2010, the Company has recorded in its consolidated
statement of earnings, revenues and net losses related to
Assuransinvest of $0.1 million and $(1.2) million,
respectively.
Providence Washington
On July 20, 2010, the Company, through its wholly-owned
subsidiary, PWAC Holdings, Inc, completed the acquisition of PW
Acquisition Company (PWAC) for a purchase price of
$25.0 million. PWAC owns the entire share capital of
Providence Washington Insurance Company. Providence Washington
Insurance Company and its two subsidiaries are Rhode
Island-domiciled insurers that are in run-off. The purchase
price was financed by a term facility provided by a London-based
bank (the Enstar Facility). Since the accounting for
the business combination has not been completed at the time of
issuance of these financial statements, the disclosure required
for business combinations will be made in a subsequent filing.
|
|
3.
|
SIGNIFICANT
NEW BUSINESS
|
Shelbourne RITC Transactions
In December 2007, Enstar, in conjunction with JCF FPK I L.P.
(JCF FPK) and a newly-hired executive management
team, formed U.K.-based Shelbourne Group Limited
(Shelbourne) to invest in Reinsurance to Close or
RITC transactions (the transferring of liabilities
from one Lloyds syndicate to another) with Lloyds of
London insurance and reinsurance syndicates in run-off. The
Company owns approximately 56.8% of Shelbourne, which in turn
owns 100% of Shelbourne Syndicate Services Limited, the Managing
Agency for Lloyds Syndicate
8
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
3.
|
SIGNIFICANT
NEW BUSINESS (contd)
|
2008, a syndicate approved by Lloyds of London on
December 16, 2007 to undertake RITC transactions with
Lloyds syndicates in run-off.
In February 2010, Lloyds Syndicate 2008 entered into RITC
agreements with two Lloyds syndicates with total gross
insurance reserves of approximately $170.3 million. The
capital commitment to Lloyds Syndicate 2008 with respect
to these two RITC agreements amounted to £25.0 million
(approximately $37.5 million), which was fully financed by
Enstar from available cash on hand.
JCF FPK is a joint investment program between Fox-Pitt, Kelton,
Cochran, Caronia & Waller (USA) LLC (FPK)
and J.C. Flowers II L.P. (the Flowers Fund). The
Flowers Fund is a private investment fund advised by J.C.
Flowers & Co. LLC. J. Christopher Flowers, a member of
the Companys board of directors and one of the
Companys largest shareholders, is the Chairman and Chief
Executive Officer of J.C. Flowers & Co. LLC. John J.
Oros, the Companys Executive Chairman and a member of the
Companys board of directors, is a Managing Director of
J.C. Flowers & Co. LLC. In addition, an affiliate of
the Flowers Fund controlled approximately 41% of FPK until its
sale of FPK in December 2009.
Fitzwilliam
In February 2010, the Company, through its wholly-owned
subsidiary, Fitzwilliam Insurance Limited
(Fitzwilliam) entered into a 100% quota share
reinsurance agreement with Allianz Global Corporate &
Specialty AG (UK) Branch (Allianz) with respect to a
specific portfolio of run-off business of Allianz whereby
Fitzwilliam received total assets and assumed total gross
reinsurance reserves of approximately $112.6 million.
In July 2010, following the acquisition of the entire issued
share capital of Glacier Insurance AG by Torus Insurance
(Bermuda) Limited (Torus), Fitzwilliam entered into
two quota share reinsurance agreements with Torus protecting the
prior year reserve development of two portfolios of business
reinsured by them: a 79% quota share of Torus 95% quota
share reinsurance of Glacier Insurance AG, and a 75% quota share
of Torus 100% quota share reinsurance of Glacier
Reinsurance AG. Fitzwilliam received total assets and assumed
total gross reinsurance reserves of approximately
$105.0 million.
Bosworth
In May 2010, a specific portfolio of run-off business
underwritten by Mitsui Sumitomo Insurance Co., Ltd. of Japan
(Mitsui) was transferred to our 50.1% owned
subsidiary, Bosworth Run-off Limited (Bosworth).
This transfer, which occurred under Part VII of the UK
Financial Services and Markets Act 2000, was approved by the UK
Court and took effect on May 31, 2010. As a result of the
transfer, Bosworth received total assets and assumed net
reinsurance reserves of approximately $117.5 million.
Shinsei Bank, Ltd owns the remaining 49.9% of Bosworth. J.
Christopher Flowers, a member of the Companys board of
directors and one of its largest shareholders, is a director and
the largest shareholder of Shinsei Bank, Ltd.
|
|
4.
|
RESTRICTED
CASH AND CASH EQUIVALENTS
|
Restricted cash and cash equivalents were $382.1 million
and $433.7 million as of June 30, 2010 and
December 31, 2009, respectively. The restricted cash and
cash equivalents are used as collateral against letters of
credit and as guarantee under trust agreements. Letters of
credit are issued to ceding insurers as security for the
obligations of insurance subsidiaries under reinsurance
agreements with those ceding insurers.
9
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
4.
|
RESTRICTED
CASH AND CASH EQUIVALENTS (Continued)
|
Available-for-sale
The amortized cost and estimated fair value of the
Companys fixed maturity securities classified as
available-for-sale
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Holding
|
|
|
|
|
|
|
Amortized
|
|
|
Holding
|
|
|
Losses
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Non-OTTI
|
|
|
Value
|
|
|
As at June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency
|
|
$
|
3,160
|
|
|
$
|
314
|
|
|
$
|
|
|
|
$
|
3,474
|
|
Non-U.S.
government
|
|
|
10,939
|
|
|
|
41
|
|
|
|
(3
|
)
|
|
|
10,977
|
|
Corporate
|
|
|
17,750
|
|
|
|
261
|
|
|
|
(324
|
)
|
|
|
17,687
|
|
Residential mortgage-backed
|
|
|
1,539
|
|
|
|
66
|
|
|
|
(110
|
)
|
|
|
1,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33,388
|
|
|
$
|
682
|
|
|
$
|
(437
|
)
|
|
$
|
33,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Holding
|
|
|
|
|
|
|
Amortized
|
|
|
Holding
|
|
|
Losses
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Non-OTTI
|
|
|
Value
|
|
|
As at December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency
|
|
$
|
14,079
|
|
|
$
|
227
|
|
|
$
|
|
|
|
$
|
14,306
|
|
Non-U.S.
government
|
|
|
37,166
|
|
|
|
33
|
|
|
|
(13
|
)
|
|
|
37,186
|
|
Corporate
|
|
|
62,092
|
|
|
|
825
|
|
|
|
(867
|
)
|
|
|
62,050
|
|
Residential mortgage-backed
|
|
|
1,685
|
|
|
|
31
|
|
|
|
(160
|
)
|
|
|
1,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
115,022
|
|
|
$
|
1,116
|
|
|
$
|
(1,040
|
)
|
|
$
|
115,098
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables summarize the Companys fixed maturity
securities classified as
available-for-sale
in an unrealized loss position as well as the aggregate fair
value and gross unrealized loss by length of time the security
has continuously been in an unrealized loss position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 Months or Greater
|
|
|
Less Than 12 Months
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
As at June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
government
|
|
$
|
|
|
|
$
|
|
|
|
$
|
741
|
|
|
$
|
(3
|
)
|
|
$
|
741
|
|
|
$
|
(3
|
)
|
Corporate
|
|
|
8,437
|
|
|
|
(324
|
)
|
|
|
|
|
|
|
|
|
|
|
8,437
|
|
|
|
(324
|
)
|
Residential mortgage-backed
|
|
|
389
|
|
|
|
(110
|
)
|
|
|
|
|
|
|
|
|
|
|
389
|
|
|
|
(110
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,826
|
|
|
$
|
(434
|
)
|
|
$
|
741
|
|
|
$
|
(3
|
)
|
|
$
|
9,567
|
|
|
$
|
(437
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
INVESTMENTS (contd)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 Months or Greater
|
|
|
Less Than 12 Months
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
As at December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S.
government
|
|
$
|
|
|
|
$
|
|
|
|
$
|
782
|
|
|
$
|
(13
|
)
|
|
$
|
782
|
|
|
$
|
(13
|
)
|
Corporate
|
|
|
10,894
|
|
|
|
(786
|
)
|
|
|
5,348
|
|
|
|
(81
|
)
|
|
|
16,242
|
|
|
|
(867
|
)
|
Residential mortgage-backed
|
|
|
369
|
|
|
|
(160
|
)
|
|
|
|
|
|
|
|
|
|
|
369
|
|
|
|
(160
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,263
|
|
|
$
|
(946
|
)
|
|
$
|
6,130
|
|
|
$
|
(94
|
)
|
|
$
|
17,393
|
|
|
$
|
(1,040
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at June 30, 2010 and December 31, 2009, the number
of securities classified as
available-for-sale
in an unrealized loss position was 14 and 20, respectively, with
a fair value of $9.6 million and $17.4 million,
respectively. Of these securities, the number of securities that
had been in an unrealized loss position for twelve months or
longer was 12 and 11, respectively. As at June 30, 2010,
none of these securities were considered to be
other-than-temporarily
impaired.
The contractual maturities of the Companys fixed
maturities classified as
available-for-sale
are shown below. Actual maturities may differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
% of Total
|
|
|
|
Cost
|
|
|
Value
|
|
|
Fair Value
|
|
|
As at June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
3,965
|
|
|
$
|
4,016
|
|
|
|
11.9
|
%
|
Due after one year through five years
|
|
|
23,603
|
|
|
|
23,710
|
|
|
|
70.6
|
%
|
Due after five years through ten years
|
|
|
4,181
|
|
|
|
4,300
|
|
|
|
12.8
|
%
|
Due after ten years
|
|
|
100
|
|
|
|
112
|
|
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,849
|
|
|
|
32,138
|
|
|
|
95.6
|
%
|
Residential mortgage-backed
|
|
|
1,539
|
|
|
|
1,495
|
|
|
|
4.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33,388
|
|
|
$
|
33,633
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
% of Total
|
|
|
|
Cost
|
|
|
Value
|
|
|
Fair Value
|
|
|
As at December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
64,202
|
|
|
$
|
64,606
|
|
|
|
56.1
|
%
|
Due after one year through five years
|
|
|
39,951
|
|
|
|
40,305
|
|
|
|
35.0
|
%
|
Due after five years through ten years
|
|
|
5,811
|
|
|
|
5,783
|
|
|
|
5.0
|
%
|
Due after ten years
|
|
|
3,373
|
|
|
|
2,848
|
|
|
|
2.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
113,337
|
|
|
|
113,542
|
|
|
|
98.6
|
%
|
Residential mortgage-backed
|
|
|
1,685
|
|
|
|
1,556
|
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
115,022
|
|
|
$
|
115,098
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
INVESTMENTS (contd)
|
The following tables set forth certain information regarding the
credit ratings (provided by major rating agencies) of the
Companys fixed maturity securities classified as
available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
% of Total
|
|
|
|
Cost
|
|
|
Value
|
|
|
Fair Value
|
|
|
As at June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA
|
|
$
|
16,051
|
|
|
$
|
16,358
|
|
|
|
48.6
|
%
|
AA
|
|
|
744
|
|
|
|
741
|
|
|
|
2.2
|
%
|
A
|
|
|
7,206
|
|
|
|
7,461
|
|
|
|
22.2
|
%
|
BBB or lower
|
|
|
8,389
|
|
|
|
8,073
|
|
|
|
24.0
|
%
|
Not Rated
|
|
|
998
|
|
|
|
1,000
|
|
|
|
3.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33,388
|
|
|
$
|
33,633
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
% of Total
|
|
|
|
Cost
|
|
|
Value
|
|
|
Fair Value
|
|
|
As at December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA
|
|
$
|
54,157
|
|
|
$
|
54,229
|
|
|
|
47.1
|
%
|
A
|
|
|
32,764
|
|
|
|
32,886
|
|
|
|
28.6
|
%
|
BBB or lower
|
|
|
13,848
|
|
|
|
13,596
|
|
|
|
11.8
|
%
|
Not Rated
|
|
|
14,253
|
|
|
|
14,387
|
|
|
|
12.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
115,022
|
|
|
$
|
115,098
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
The amortized cost and estimated fair value of the
Companys fixed maturity securities classified as
held-to-maturity
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Holding
|
|
|
|
|
|
|
Amortized
|
|
|
Holding
|
|
|
Losses
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Non-OTTI
|
|
|
Value
|
|
|
As at June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency
|
|
$
|
129,034
|
|
|
$
|
2,224
|
|
|
$
|
(29
|
)
|
|
$
|
131,229
|
|
Non-U.S.
government
|
|
|
288,407
|
|
|
|
3,810
|
|
|
|
(536
|
)
|
|
|
291,681
|
|
Corporate
|
|
|
922,210
|
|
|
|
16,101
|
|
|
|
(1,271
|
)
|
|
|
937,040
|
|
Municipal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential mortgage-backed
|
|
|
34,260
|
|
|
|
295
|
|
|
|
(204
|
)
|
|
|
34,351
|
|
Commercial mortgage-backed
|
|
|
27,253
|
|
|
|
806
|
|
|
|
(2,046
|
)
|
|
|
26,013
|
|
Asset backed
|
|
|
29,684
|
|
|
|
861
|
|
|
|
(606
|
)
|
|
|
29,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,430,848
|
|
|
$
|
24,097
|
|
|
$
|
(4,692
|
)
|
|
$
|
1,450,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
INVESTMENTS (contd)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Holding
|
|
|
|
|
|
|
Amortized
|
|
|
Holding
|
|
|
Losses
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Non-OTTI
|
|
|
Value
|
|
|
As at December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency
|
|
$
|
164,706
|
|
|
$
|
1,659
|
|
|
$
|
(196
|
)
|
|
$
|
166,169
|
|
Non-U.S.
government
|
|
|
276,506
|
|
|
|
3,069
|
|
|
|
(131
|
)
|
|
|
279,444
|
|
Corporate
|
|
|
780,099
|
|
|
|
15,794
|
|
|
|
(1,284
|
)
|
|
|
794,609
|
|
Municipal
|
|
|
9,649
|
|
|
|
6
|
|
|
|
(1
|
)
|
|
|
9,654
|
|
Residential mortgage-backed
|
|
|
15,894
|
|
|
|
165
|
|
|
|
(427
|
)
|
|
|
15,632
|
|
Commercial mortgage-backed
|
|
|
30,608
|
|
|
|
1,130
|
|
|
|
(1,970
|
)
|
|
|
29,768
|
|
Asset backed
|
|
|
34,078
|
|
|
|
477
|
|
|
|
(564
|
)
|
|
|
33,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,311,540
|
|
|
$
|
22,300
|
|
|
$
|
(4,573
|
)
|
|
$
|
1,329,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables summarize the Companys fixed maturity
securities classified as
held-to-maturity
in an unrealized loss position and the aggregate fair value and
gross unrealized loss by length of time the security has
continuously been in an unrealized loss position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 Months or Greater
|
|
|
Less Than 12 Months
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
As at June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency
|
|
$
|
|
|
|
$
|
|
|
|
$
|
18,704
|
|
|
$
|
(29
|
)
|
|
$
|
18,704
|
|
|
$
|
(29
|
)
|
Non-U.S.
government
|
|
|
1,998
|
|
|
|
(5
|
)
|
|
|
32,691
|
|
|
|
(531
|
)
|
|
|
34,689
|
|
|
|
(536
|
)
|
Corporate
|
|
|
8,969
|
|
|
|
(141
|
)
|
|
|
272,429
|
|
|
|
(1,130
|
)
|
|
|
281,398
|
|
|
|
(1,271
|
)
|
Residential mortgage-backed
|
|
|
2,129
|
|
|
|
(136
|
)
|
|
|
13,944
|
|
|
|
(68
|
)
|
|
|
16,073
|
|
|
|
(204
|
)
|
Commercial mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
12,618
|
|
|
|
(2,046
|
)
|
|
|
12,618
|
|
|
|
(2,046
|
)
|
Asset backed
|
|
|
795
|
|
|
|
(69
|
)
|
|
|
9,966
|
|
|
|
(537
|
)
|
|
|
10,761
|
|
|
|
(606
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
13,891
|
|
|
$
|
(351
|
)
|
|
$
|
360,352
|
|
|
$
|
(4,341
|
)
|
|
$
|
374,243
|
|
|
$
|
(4,692
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 Months or Greater
|
|
|
Less Than 12 Months
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
As at December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency
|
|
$
|
|
|
|
$
|
|
|
|
$
|
53,674
|
|
|
$
|
(196
|
)
|
|
$
|
53,674
|
|
|
$
|
(196
|
)
|
Non-U.S.
government
|
|
|
|
|
|
|
|
|
|
|
44,477
|
|
|
|
(131
|
)
|
|
|
44,477
|
|
|
|
(131
|
)
|
Corporate
|
|
|
3,892
|
|
|
|
(249
|
)
|
|
|
153,220
|
|
|
|
(1,034
|
)
|
|
|
157,112
|
|
|
|
(1,283
|
)
|
Municipal
|
|
|
|
|
|
|
|
|
|
|
8,641
|
|
|
|
(1
|
)
|
|
|
8,641
|
|
|
|
(1
|
)
|
Residential mortgage-backed
|
|
|
2,109
|
|
|
|
(277
|
)
|
|
|
6,494
|
|
|
|
(151
|
)
|
|
|
8,603
|
|
|
|
(428
|
)
|
Commercial mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
11,931
|
|
|
|
(1,970
|
)
|
|
|
11,931
|
|
|
|
(1,970
|
)
|
Asset backed
|
|
|
889
|
|
|
|
(86
|
)
|
|
|
21,817
|
|
|
|
(478
|
)
|
|
|
22,706
|
|
|
|
(564
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,890
|
|
|
$
|
(612
|
)
|
|
$
|
300,254
|
|
|
$
|
(3,961
|
)
|
|
$
|
307,144
|
|
|
$
|
(4,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
INVESTMENTS (contd)
|
As at June 30, 2010 and December 31, 2009, the number
of fixed maturity securities classified as
held-to-maturity
in an unrealized loss position was 212 and 135, respectively,
with a fair value of $374 million and $307.1 million,
respectively. Of these securities, the number of securities that
had been in an unrealized loss position for 12 months or
longer was 24 and 19, respectively. As of June 30, 2010,
none of these securities were considered to be
other-than-temporarily
impaired. The Company has no intent to sell and it is not more
likely than not that the Company will be required to sell these
securities before their anticipated recovery. The unrealized
losses from these securities were not a result of credit,
collateral or structural issues.
The contractual maturities of the Companys fixed maturity
securities classified as
held-to-maturity
are shown below. Actual maturities may differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
% of Total
|
|
|
|
Cost
|
|
|
Value
|
|
|
Fair Value
|
|
|
As at June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
511,922
|
|
|
$
|
515,011
|
|
|
|
35.5
|
%
|
Due after one year through five years
|
|
|
809,063
|
|
|
|
824,776
|
|
|
|
56.9
|
%
|
Due after five years through ten years
|
|
|
13,893
|
|
|
|
15,436
|
|
|
|
1.1
|
%
|
Due after ten years
|
|
|
4,773
|
|
|
|
4,727
|
|
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,339,651
|
|
|
|
1,359,950
|
|
|
|
93.8
|
%
|
Residential mortgage-backed
|
|
|
34,260
|
|
|
|
34,351
|
|
|
|
2.4
|
%
|
Commercial mortgage-backed
|
|
|
27,253
|
|
|
|
26,013
|
|
|
|
1.8
|
%
|
Asset backed
|
|
|
29,684
|
|
|
|
29,939
|
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,430,848
|
|
|
|
1,450,253
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
% of Total
|
|
|
|
Cost
|
|
|
Value
|
|
|
Fair Value
|
|
|
As at December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in one year or less
|
|
$
|
569,133
|
|
|
$
|
572,881
|
|
|
|
43.1
|
%
|
Due after one year through five years
|
|
|
607,499
|
|
|
|
621,344
|
|
|
|
46.7
|
%
|
Due after five years through ten years
|
|
|
51,660
|
|
|
|
53,228
|
|
|
|
4.0
|
%
|
Due after ten years
|
|
|
2,668
|
|
|
|
2,423
|
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,230,960
|
|
|
|
1,249,876
|
|
|
|
94.0
|
%
|
Residential mortgage-backed
|
|
|
15,894
|
|
|
|
15,632
|
|
|
|
1.2
|
%
|
Commercial mortgage-backed
|
|
|
30,608
|
|
|
|
29,768
|
|
|
|
2.2
|
%
|
Asset backed
|
|
|
34,078
|
|
|
|
33,991
|
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,311,540
|
|
|
$
|
1,329,267
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
INVESTMENTS (contd)
|
The following tables set forth certain information regarding the
credit ratings (provided by major rating agencies) of the
Companys fixed maturity securities classified as
held-to-maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
% of Total
|
|
|
|
Cost
|
|
|
Value
|
|
|
Fair Value
|
|
|
As at June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA
|
|
$
|
571,932
|
|
|
$
|
579,812
|
|
|
|
40.0
|
%
|
AA
|
|
|
319,749
|
|
|
|
324,443
|
|
|
|
22.4
|
%
|
A
|
|
|
441,604
|
|
|
|
447,073
|
|
|
|
30.8
|
%
|
BBB or lower
|
|
|
96,025
|
|
|
|
97,387
|
|
|
|
6.7
|
%
|
Not Rated
|
|
|
1,538
|
|
|
|
1,538
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,430,848
|
|
|
$
|
1,450,253
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
% of Total
|
|
|
|
Cost
|
|
|
Value
|
|
|
Fair Value
|
|
|
As at December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA
|
|
$
|
598,949
|
|
|
$
|
603,017
|
|
|
|
45.4
|
%
|
AA
|
|
|
271,954
|
|
|
|
276,507
|
|
|
|
20.8
|
%
|
A
|
|
|
367,750
|
|
|
|
375,416
|
|
|
|
28.2
|
%
|
BBB or lower
|
|
|
68,436
|
|
|
|
69,876
|
|
|
|
5.3
|
%
|
Not Rated
|
|
|
4,451
|
|
|
|
4,451
|
|
|
|
0.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,311,540
|
|
|
$
|
1,329,267
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading
The estimated fair value of the Companys investments in
fixed maturity securities, short-term investments and equities
classified as trading was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
Amortized
|
|
|
Holding
|
|
|
Holding
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Losses
|
|
|
Value
|
|
|
As at June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency
|
|
$
|
69,209
|
|
|
$
|
3,541
|
|
|
$
|
(10
|
)
|
|
$
|
72,740
|
|
Non-U.S.
government
|
|
|
110,031
|
|
|
|
24
|
|
|
|
(132
|
)
|
|
|
109,923
|
|
Corporate
|
|
|
577,535
|
|
|
|
2,339
|
|
|
|
(628
|
)
|
|
|
579,246
|
|
Residential mortgage-backed
|
|
|
5,821
|
|
|
|
50
|
|
|
|
(14
|
)
|
|
|
5,857
|
|
Commercial mortgage-backed
|
|
|
1,051
|
|
|
|
|
|
|
|
(236
|
)
|
|
|
815
|
|
Equities
|
|
|
41,421
|
|
|
|
3,199
|
|
|
|
(2,898
|
)
|
|
|
41,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
805,068
|
|
|
$
|
9,153
|
|
|
$
|
(3,918
|
)
|
|
$
|
810,303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
INVESTMENTS (contd)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
Amortized
|
|
|
Holding
|
|
|
Holding
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gain
|
|
|
Losses
|
|
|
Value
|
|
|
As at December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency
|
|
$
|
60,355
|
|
|
$
|
1,696
|
|
|
$
|
(131
|
)
|
|
$
|
61,920
|
|
Corporate
|
|
|
23,894
|
|
|
|
1,139
|
|
|
|
|
|
|
|
25,033
|
|
Residential mortgage-backed
|
|
|
474
|
|
|
|
4
|
|
|
|
(22
|
)
|
|
|
456
|
|
Commercial mortgage-backed
|
|
|
1,051
|
|
|
|
|
|
|
|
(410
|
)
|
|
|
641
|
|
Equities
|
|
|
21,258
|
|
|
|
3,854
|
|
|
|
(609
|
)
|
|
|
24,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
107,032
|
|
|
$
|
6,693
|
|
|
$
|
(1,172
|
)
|
|
$
|
112,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Investments
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Private equity
|
|
$
|
83,512
|
|
|
|
77,359
|
|
Short-duration high yield bond fund
|
|
|
50,004
|
|
|
|
|
|
Hedge funds
|
|
|
20,000
|
|
|
|
|
|
Other
|
|
|
13,265
|
|
|
|
4,442
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
166,781
|
|
|
$
|
81,801
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2010 and December 31, 2009, the Company
had $83.5 million and $77.4 million, respectively, of
private equity investments recorded in limited partnerships and
limited liability companies. These private equity investments
represented 2.4% and 2.3% of total investments and cash and cash
equivalents at June 30, 2010 and December 31, 2009,
respectively. All of the Companys investments in limited
partnerships and limited liability companies are subject to
restrictions on redemptions and sales that are determined by the
governing documents and limit the Companys ability to
liquidate these investments in the short term. Due to a lag in
the valuations reported by the managers, the Company records
changes in the investment value with up to a three-month lag.
These investments are accounted for at estimated fair value
determined by the Companys proportionate share of the net
asset value of the investee reduced by any impairment charges.
As at June 30, 2010 and December 31, 2009, the Company
had unfunded capital commitments relating to its private equity
investments of $100.5 million and $101.1 million,
respectively.
Other-Than-Temporary
Impairment Process
Upon the adoption of the new guidance on investments in debt and
equity securities, effective April 1, 2009, the Company
changed its quarterly process for assessing whether declines in
the fair value of its fixed maturity investments, both
available-for-sale
and
held-to-maturity,
represented impairments that are
other-than-temporary.
The process now includes reviewing each fixed maturity
investment that is impaired and determining: (1) if the
Company has the intent to sell the fixed maturity investment or
(2) if it is more likely than not that the Company will be
required to sell the fixed maturity investment before its
anticipated recovery; and (3) assessing whether a credit
loss exists, that is, where the Company expects that the present
value of the cash flows expected to be collected from the fixed
maturity investment are less than the amortized cost basis of
the investment.
16
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
INVESTMENTS (contd)
|
The Company had no planned sales of its fixed maturity
investments classified as
available-for-sale
or
held-to-maturity
in an unrealized loss position as at June 30, 2010. In
assessing whether it is more likely than not that the Company
will be required to sell a fixed maturity investment before its
anticipated recovery, the Company considers various factors
including its future cash flow requirements, legal and
regulatory requirements, the level of its cash, cash
equivalents, short-term investments and fixed maturity
investments available for sale in an unrealized gain position,
and other relevant factors. For the six months ended
June 30, 2010, the Company did not recognize any
other-than-temporary
impairments due to required sales.
In evaluating credit losses, the Company considers a variety of
factors in the assessment of a fixed maturity investment
including: (1) the time period during which there has been
a significant decline below cost; (2) the extent of the
decline below cost and par; (3) the potential for the fixed
maturity investment to recover in value; (4) an analysis of
the financial condition of the issuer; (5) the rating of
the issuer; and (6) failure of the issuer of the fixed
maturity investment to make scheduled interest or principal
payments.
Based on the factors described above, the Company determined
that, as at June 30, 2010, no credit losses existed.
Fair
Value of Financial Instruments
Fair value is defined as the price to sell an asset or transfer
a liability (i.e. the exit price) in an orderly
transaction between market participants. The Company uses a fair
value hierarchy that gives the highest priority to quoted prices
in active markets and the lowest priority to unobservable data.
The hierarchy is broken down into three levels as follows:
|
|
|
|
|
Level 1 Valuations based on unadjusted quoted
prices in active markets for identical assets or liabilities
that the Company has the ability to access. Valuation
adjustments and block discounts are not applied to Level 1
instruments.
|
|
|
|
Level 2 Valuations based on quoted prices in
active markets for similar assets or liabilities, quoted prices
for identical assets or liabilities in inactive markets, or for
which significant inputs are observable (e.g. interest rates,
yield curves, prepayment speeds, default rates, loss severities,
etc.) or can be corroborated by observable market data.
|
|
|
|
Level 3 Valuations based on inputs that are
unobservable and significant to the overall fair value
measurement. The unobservable inputs reflect the Companys
own judgment about assumptions that market participants might
use.
|
The following is a summary of valuation techniques or models the
Company uses to measure fair value by asset and liability
classes.
Fixed
Maturity Investments
The Companys fixed maturity portfolio is managed by its
outside investment advisors. Through these third parties, the
Company uses nationally recognized pricing services, including
pricing vendors, index providers and broker-dealers to estimate
fair value measurements for all of its fixed maturity
investments. These pricing services include Barclays Capital
Aggregate Index (formerly Lehman Index), Reuters Pricing
Service, FT Interactive Data and others.
The pricing services use market quotations for securities (e.g.,
public common and preferred securities) that have quoted prices
in active markets. When quoted market prices are unavailable,
the pricing service prepares estimates of fair value
measurements for these securities using its proprietary pricing
applications, which include
17
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
INVESTMENTS (contd)
|
available relevant market information, benchmark curves,
benchmarking of like securities, sector groupings, and matrix
pricing.
With the exception of two securities within the Companys
trading portfolio, the fair value estimates of its fixed
maturity investments are based on observable market data. The
Company has therefore included these as Level 2 investments
within the fair value hierarchy. The two securities in its
trading portfolio that do not have observable inputs have been
included as Level 3 investments within the fair value
hierarchy.
To validate the techniques or models used by the pricing
services, the Company compares the fair value estimates to its
knowledge of the current market and challenges any prices deemed
not to be representative of fair value.
As of June 30, 2010 there were no material differences
between the prices obtained from the pricing services and the
fair value estimates developed by the Company.
Equity
Securities
The Companys equity securities are managed by two external
advisors. Through these third parties, the Company uses
nationally recognized pricing services, including pricing
vendors, index providers and broker-dealers to estimate fair
value measurements for all of its equity securities. These
pricing services include FT Interactive Data and others.
The Company has categorized all but one of its equity securities
as Level 1 investments because these securities are based
on quoted prices in active markets for identical assets or
liabilities. The one equity security that was not categorized as
Level 1 was instead categorized as Level 3 because,
due to the nature of the investment, management had to make
assumptions regarding its valuation.
Other
Investments
For its investments in hedge funds, limited partnerships and
limited liability companies, the Company measures fair value by
obtaining the most recently published net asset value as advised
by the external fund manager or third-party administrator. The
financial statements of each fund generally are audited
annually, using fair value measurement for the underlying
investments. For all publicly traded companies within the funds,
the Company has valued those investments based on the latest
share price. The value of Affirmative Investment LLC (in which
the Company owns a non-voting 7% membership interest) is based
on the market value of the shares of Affirmative Insurance
Holdings, Inc., a publicly traded company.
All of the Companys investments in limited partnerships
and limited liability companies are subject to restrictions on
redemptions and sales that are determined by the governing
documents and limit the Companys ability to liquidate
those investments in the short term.
The Company has classified its hedge funds, limited partnerships
and limited liability companies as Level 3 investments
because they reflect the Companys own judgment about the
assumptions that market participants might use.
The short duration high yield fund is classified within
Level 2 as its fair value is estimated using the net asset
value reported by Bloomberg and it has daily liquidity.
18
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
INVESTMENTS (contd)
|
Fair
Value Measurements
In accordance with the provisions of the Fair Value measurement
and Disclosure topic of the FASB Accounting Standards
Codification, the Company has categorized its investments that
are recorded at fair value among levels as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
|
|
|
for Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
Total Fair
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Value
|
|
|
U.S. government and agency
|
|
$
|
|
|
|
$
|
76,214
|
|
|
$
|
|
|
|
$
|
76,214
|
|
Non-U.S.
government
|
|
|
|
|
|
|
120,900
|
|
|
|
|
|
|
|
120,900
|
|
Corporate
|
|
|
|
|
|
|
596,354
|
|
|
|
579
|
|
|
|
596,933
|
|
Residential mortgage-backed
|
|
|
|
|
|
|
7,352
|
|
|
|
|
|
|
|
7,352
|
|
Commercial mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
815
|
|
|
|
815
|
|
Equities
|
|
|
38,484
|
|
|
|
|
|
|
|
3,238
|
|
|
|
41,722
|
|
Other investments
|
|
|
|
|
|
|
62,702
|
|
|
|
104,079
|
|
|
|
166,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
38,484
|
|
|
$
|
863,522
|
|
|
$
|
108,711
|
|
|
$
|
1,010,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
|
|
|
for Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
Total Fair
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Value
|
|
|
U.S. government and agency
|
|
$
|
|
|
|
$
|
76,226
|
|
|
$
|
|
|
|
$
|
76,226
|
|
Non-U.S.
government
|
|
|
|
|
|
|
37,186
|
|
|
|
|
|
|
|
37,186
|
|
Corporate
|
|
|
|
|
|
|
87,083
|
|
|
|
|
|
|
|
87,083
|
|
Residential mortgage-backed
|
|
|
|
|
|
|
2,012
|
|
|
|
|
|
|
|
2,012
|
|
Commercial mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
641
|
|
|
|
641
|
|
Equities
|
|
|
21,203
|
|
|
|
|
|
|
|
3,300
|
|
|
|
24,503
|
|
Other investments
|
|
|
|
|
|
|
|
|
|
|
81,801
|
|
|
|
81,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
21,203
|
|
|
$
|
202,507
|
|
|
$
|
85,742
|
|
|
$
|
309,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents a reconciliation of the beginning
and ending balances for all investments measured at fair value
on a recurring basis using Level 3 inputs during the three
months ended June 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
|
Other
|
|
|
Equity
|
|
|
|
|
|
|
Investments
|
|
|
Investments
|
|
|
Securities
|
|
|
Total
|
|
|
Level 3 investments as of April 1, 2010
|
|
$
|
1,336
|
|
|
$
|
91,294
|
|
|
$
|
3,450
|
|
|
$
|
96,080
|
|
Net purchases (sales and distributions)
|
|
|
|
|
|
|
13,197
|
|
|
|
|
|
|
|
13,197
|
|
Total realized and unrealized losses (gains)
|
|
|
58
|
|
|
|
(412
|
)
|
|
|
(212
|
)
|
|
|
(566
|
)
|
Net transfers in and/or (out) of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 investments as of June 30, 2010
|
|
$
|
1,394
|
|
|
$
|
104,079
|
|
|
$
|
3,238
|
|
|
$
|
108,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
INVESTMENTS (contd)
|
The amount of net gains/(losses) for the three months ended
June 30, 2010 included in earnings attributable to the fair
value of changes in assets still held at June 30, 2010 was
$1.5 million. Of this amount $(0.2) million was
included in net realized gains/(losses) and $1.7 million
was included in net investment income.
The following table presents a reconciliation of the beginning
and ending balances for all investments measured at fair value
on a recurring basis using Level 3 inputs during the three
months ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
|
Other
|
|
|
Equity
|
|
|
|
|
|
|
Investments
|
|
|
Investments
|
|
|
Securities
|
|
|
Total
|
|
|
Level 3 investments as of April 1, 2009
|
|
$
|
284
|
|
|
$
|
69,566
|
|
|
$
|
2,091
|
|
|
$
|
71,941
|
|
Net purchases (sales and distributions)
|
|
|
|
|
|
|
(212
|
)
|
|
|
|
|
|
|
(212
|
)
|
Total realized and unrealized (gains) losses
|
|
|
(21
|
)
|
|
|
1,685
|
|
|
|
1,109
|
|
|
|
2,773
|
|
Net transfers in and/or (out) of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 investments as of June 30, 2009
|
|
$
|
263
|
|
|
$
|
71,039
|
|
|
$
|
3,200
|
|
|
$
|
74,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of net gains/(losses) for the three months ended
June 30, 2009 included in earnings attributable to the fair
value of changes in assets still held at June 30, 2009 was
$1.8 million. Of this amount $1.1 million was included
in net realized gains/(losses) and $0.7 million was
included in net investment income.
The following table presents a reconciliation of the beginning
and ending balances for all investments measured at fair value
on a recurring basis using Level 3 inputs during the six
months ended June 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
|
Other
|
|
|
Equity
|
|
|
|
|
|
|
Investments
|
|
|
Investments
|
|
|
Securities
|
|
|
Total
|
|
|
Level 3 investments as of January 1, 2010
|
|
$
|
641
|
|
|
$
|
81,801
|
|
|
$
|
3,300
|
|
|
$
|
85,742
|
|
Net purchases (sales and distributions)
|
|
|
579
|
|
|
|
16,246
|
|
|
|
|
|
|
|
16,825
|
|
Total realized and unrealized losses (gains)
|
|
|
174
|
|
|
|
6,032
|
|
|
|
(62
|
)
|
|
|
6,144
|
|
Net transfers in and/or (out) of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 investments as of June 30, 2010
|
|
$
|
1,394
|
|
|
$
|
104,079
|
|
|
$
|
3,238
|
|
|
$
|
108,711
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of net gains for the six months ended June 30,
2010 included in earnings attributable to the fair value of
changes in assets still held at June 30, 2010 was
$9.4 million. Of this amount $0.1 million was included
in net realized gains and $9.3 million in net investment
income.
The following table presents a reconciliation of the beginning
and ending balances for all investments measured at fair value
on a recurring basis using Level 3 inputs during the six
months ended June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
|
Other
|
|
|
Equity
|
|
|
|
|
|
|
Investments
|
|
|
Investments
|
|
|
Securities
|
|
|
Total
|
|
|
Level 3 investments as of January 1, 2009
|
|
$
|
352
|
|
|
$
|
60,237
|
|
|
$
|
|
|
|
$
|
60,589
|
|
Net purchases (sales and distributions)
|
|
|
|
|
|
|
12,415
|
|
|
|
2,006
|
|
|
|
14,421
|
|
Total realized and unrealized (gains) losses
|
|
|
(89
|
)
|
|
|
(1,613
|
)
|
|
|
1,194
|
|
|
|
(508
|
)
|
Net transfers in and/or (out) of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 investments as of June 30, 2009
|
|
$
|
263
|
|
|
$
|
71,039
|
|
|
$
|
3,200
|
|
|
$
|
74,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
5.
|
INVESTMENTS (contd)
|
The amount of net losses/(gains) for the six months ended
June 30, 2009 included in earnings attributable to the fair
value of changes in assets still held at June 30, 2009 was
$(0.6) million. Of this amount $1.1 million was
included in net realized gains/(losses) and $(1.7) million
in net investment income.
During the period ended June 30, 2010 and 2009, proceeds
from the sale and maturities of available-for-sale securities
were $54.9 million and $248.0 million, respectively.
Gross realized gains on sale of available-for-sale securities
were $0.1 million and $0.1 million, respectively, and
gross unrealized losses on sale of
available-for-sale
securities, were $nil and $0.1 million, respectively.
Restricted
Investments
The Company is required to maintain investments on deposit with
various regulatory authorities to support its insurance and
reinsurance operations. The investments on deposit are available
to settle insurance and reinsurance liabilities. The Company
also utilizes trust accounts to collateralize business with its
insurance and reinsurance counterparties. These trust accounts
generally take the place of letter of credit requirements. The
investments in trust as collateral are primarily highly rated
fixed maturity securities. The carrying value of the
Companys restricted investments as of June 30, 2010
and December 31, 2009 was as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Assets used for collateral in trust for third-party agreements
|
|
$
|
247,964
|
|
|
$
|
214,149
|
|
Deposits with regulatory authorities
|
|
|
17,558
|
|
|
|
12,998
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
265,522
|
|
|
$
|
227,147
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
INVESTMENT
IN PARTLY OWNED COMPANIES
|
On June 13, 2008, the Companys indirect subsidiary
Virginia Holdings Ltd. (Virginia), completed the
acquisition from Dukes Place Holdings, L.P. (a portfolio company
of GSC European Mezzanine Fund II, L.P.) of 44.4% of the
outstanding capital stock of Stonewall Acquisition Corporation
(SAC), the parent of two Rhode Island-domiciled
insurers in run-off, Stonewall Insurance Company and Seaton
Insurance Company. The total purchase price, including
acquisition costs, was $21.4 million and was funded from
available cash on hand. SAC entered into a definitive agreement
on December 3, 2009 for the sale of its shares in Stonewall
Insurance Company to Columbia Insurance Company, an affiliate of
National Indemnity Company (an indirect subsidiary of Berkshire
Hathaway, Inc.), for a sale price of $56.0 million, subject
to certain post-closing purchase price adjustments that brought
the total consideration received to $60.4 million. The
transaction received the required regulatory approval on
March 31, 2010 and subsequently closed on April 7,
2010. The proceeds received by SAC are being distributed among
Dukes Place Holdings, L.P. and Virginia. The investment is
carried on the equity basis whereby the investment is initially
recorded at cost and adjusted to reflect the Companys
share of after-tax earnings or losses and unrealized investment
gains and losses and reduced by dividends. During the three
months and six months ended June 30, 2010 the Company
recorded earnings of $2.2 million and $9.4 million,
respectively, representing the Companys share of after-tax
earnings as compared to $nil and $0.3 million for the same
periods in 2009.
21
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
INVESTMENT
IN PARTLY OWNED
COMPANIES (contd)
|
The following summarized financial information for SAC is
derived from its unaudited quarterly financial statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Total revenues
|
|
$
|
4,937
|
|
|
$
|
2,007
|
|
|
$
|
5,749
|
|
|
$
|
3,104
|
|
Total expenses
|
|
|
(530
|
)
|
|
|
(2,007
|
)
|
|
|
12,958
|
|
|
|
(2,497
|
)
|
Income from continuing operations
|
|
|
4,407
|
|
|
|
|
|
|
|
18,707
|
|
|
|
607
|
|
Net income
|
|
$
|
4,407
|
|
|
$
|
|
|
|
$
|
18,707
|
|
|
$
|
607
|
|
The balance of the investment in partly owned company was $nil
and $20.9 million at June 30, 2010 and
December 31, 2009, respectively.
|
|
7.
|
LOSSES
AND LOSS ADJUSTMENT EXPENSES
|
The table below provides a reconciliation of the beginning and
ending reserves for losses and loss adjustment expenses for the
three months ended June 30, 2010 and 2009. Losses incurred
and paid are reflected net of reinsurance recoverables.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Balance as at April 1
|
|
$
|
2,890,723
|
|
|
$
|
2,797,827
|
|
Less: total reinsurance reserves recoverable
|
|
|
435,680
|
|
|
|
379,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,455,043
|
|
|
|
2,418,212
|
|
Net reduction in ultimate losses and loss adjustment expense
liabilities
|
|
|
(42,366
|
)
|
|
|
(17,393
|
)
|
Net losses paid
|
|
|
(47,863
|
)
|
|
|
(67,449
|
)
|
Effect of exchange rate movement
|
|
|
(26,454
|
)
|
|
|
72,776
|
|
Retroactive reinsurance contracts assumed
|
|
|
134,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance as at June 30
|
|
$
|
2,472,489
|
|
|
$
|
2,406,146
|
|
Plus: total reinsurance reserves recoverable
|
|
|
421,864
|
|
|
|
375,431
|
|
|
|
|
|
|
|
|
|
|
Balance as at June 30
|
|
$
|
2,894,353
|
|
|
$
|
2,781,577
|
|
|
|
|
|
|
|
|
|
|
22
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
7.
|
LOSSES
AND LOSS ADJUSTMENT
EXPENSES (contd)
|
The following table shows the components of the movement in the
net reduction in ultimate loss and loss adjustment expense
liabilities for the three months ended June 30, 2010 and
2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Net losses paid
|
|
$
|
(47,863
|
)
|
|
$
|
(67,449
|
)
|
Net change in case and loss adjustment expense (LAE) reserves
|
|
|
53,718
|
|
|
|
26,896
|
|
Net change in incurred but not reported (IBNR) reserves
|
|
|
29,249
|
|
|
|
58,295
|
|
|
|
|
|
|
|
|
|
|
Reduction in estimates of net ultimate losses
|
|
|
35,104
|
|
|
|
17,742
|
|
Reduction in provisions for bad debt
|
|
|
7,768
|
|
|
|
|
|
Reduction in provisions for unallocated loss and loss adjustment
expense liabilities
|
|
|
11,696
|
|
|
|
9,422
|
|
Amortization of fair value adjustments
|
|
|
(12,202
|
)
|
|
|
(9,771
|
)
|
|
|
|
|
|
|
|
|
|
Net reduction in ultimate loss and loss adjustment expense
liabilities
|
|
$
|
42,366
|
|
|
$
|
17,393
|
|
|
|
|
|
|
|
|
|
|
Net change in case and LAE reserves comprises the movement
during the quarter in specific case reserve liabilities as a
result of claims settlements or changes advised to us by the
Companys policyholders and attorneys, less changes in case
reserves recoverable advised by the Company to its reinsurers as
a result of the settlement or movement of assumed claims. Net
change in IBNR reserves represents the change in the
Companys actuarial estimates of losses incurred but not
reported.
The net reduction in ultimate loss and loss adjustment expense
liabilities for the three months ended June 30, 2010 of
$42.4 million was attributable to a reduction in estimates
of net ultimate losses of $35.1 million, a reduction in
provisions for bad debt of $7.8 million and a reduction in
provisions for unallocated loss and loss adjustment expense
liabilities of $11.7 million, relating to 2010 run-off activity,
partially offset by the amortization, over the estimated payout
period, of fair value adjustments relating to companies acquired
amounting to $12.2 million.
The reduction in estimates of net ultimate losses of
$35.1 million comprised net favorable incurred loss
development of $5.9 million along with reductions in IBNR
reserves of $29.2 million. Subsequent to June 30,
2010, claims liabilities of certain policyholders within a
number of our insurance and reinsurance subsidiaries were
commuted at levels that required the reduction in IBNR reserves
for those subsidiaries. The reductions in provisions for bad
debt of $7.8 million resulted from the collection of
receivables against which bad debt provisions had been provided
in earlier periods.
The net reduction in loss and loss adjustment expense
liabilities for the three months ended June 30, 2009 of
$17.4 million was attributable to a reduction in estimates
of net ultimate losses of $17.7 million and a reduction in
loss adjustment expense of $9.4 million, relating to 2009
run-off activity, partially offset by the amortization, over the
estimated payout period, of fair value adjustments of
$9.8 million relating to companies acquired. The reduction
in estimates of net ultimate losses of $17.7 million
primarily related to the reduction in estimates of net ultimate
losses of $13.0 million in one of the Companys
subsidiaries. This reduction in estimates of net ultimate losses
of $13.0 million was comprised of net favorable incurred
loss development for the six months ended June 30, 2009 of
$2.6 million and reductions in IBNR reserves of
$10.4 million. The net favorable incurred loss development
of $2.6 million, whereby net advised case and LAE reserves
of $6.6 million were settled for net paid losses of
$4.0 million, arose from the settlement of losses during
the period below carried reserves. The net reduction in the
estimate of the subsidiarys IBNR loss and loss adjustment
expense liabilities of $10.4 million was the result of the
application of the Companys reserving methodologies to the
reduced case and LAE reserves following the subsidiarys
semi-annual actuarial review of reserves as required by local
regulation.
23
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
7.
|
LOSSES
AND LOSS ADJUSTMENT
EXPENSES (contd)
|
The table below provides a reconciliation of the beginning and
ending reserves for losses and loss adjustment expenses for the
six months ended June 30, 2010 and 2009. Losses incurred
and paid are reflected net of reinsurance recoverables.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Balance as of January 1
|
|
$
|
2,479,136
|
|
|
$
|
2,798,287
|
|
Less: total reinsurance reserves recoverable
|
|
|
347,728
|
|
|
|
394,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,131,408
|
|
|
|
2,403,712
|
|
Net reduction in ultimate losses and loss adjustment expense
liabilities
|
|
|
(51,962
|
)
|
|
|
(44,072
|
)
|
Net losses paid
|
|
|
(131,088
|
)
|
|
|
(79,821
|
)
|
Effect of exchange rate movement
|
|
|
(62,429
|
)
|
|
|
66,126
|
|
Retroactive reinsurance contracts assumed
|
|
|
364,518
|
|
|
|
48,818
|
|
Acquired on purchase of subsidiaries
|
|
|
222,042
|
|
|
|
11,383
|
|
|
|
|
|
|
|
|
|
|
Net balance as at June 30
|
|
$
|
2,472,489
|
|
|
$
|
2,406,146
|
|
Plus: total reinsurance reserves recoverable
|
|
|
421,864
|
|
|
|
375,431
|
|
|
|
|
|
|
|
|
|
|
Balance as at June 30
|
|
$
|
2,894,353
|
|
|
$
|
2,781,577
|
|
|
|
|
|
|
|
|
|
|
The following table shows the components of the movement in the
net reduction in ultimate loss and loss adjustment expense
liabilities for the six months ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Net losses paid
|
|
$
|
(131,088
|
)
|
|
$
|
(79,821
|
)
|
Net change in case and LAE reserves
|
|
|
132,572
|
|
|
|
58,904
|
|
Net change in IBNR
|
|
|
35,562
|
|
|
|
68,483
|
|
|
|
|
|
|
|
|
|
|
Reduction in estimates of net ultimate losses
|
|
|
37,046
|
|
|
|
47,566
|
|
Reduction in provisions for bad debt
|
|
|
13,107
|
|
|
|
9,714
|
|
Reduction in provisions for unallocated loss and loss adjustment
expense liabilities
|
|
|
20,661
|
|
|
|
19,540
|
|
Amortization of fair value adjustments
|
|
|
(18,852
|
)
|
|
|
(32,748
|
)
|
|
|
|
|
|
|
|
|
|
Net reduction in ultimate loss and loss adjustment expense
liabilities
|
|
$
|
51,962
|
|
|
$
|
44,072
|
|
|
|
|
|
|
|
|
|
|
The net reduction in ultimate loss and loss adjustment expense
liabilities for the six months ended June 30, 2010 of
$52.0 million was attributable to a reduction in estimates
of net ultimate losses of $37.0 million, a reduction in
provisions for bad debt of $13.1 million and a reduction in
provisions for unallocated loss and loss adjustment expense
liabilities of $20.7 million, relating to 2010 run-off activity,
partially offset by the amortization, over the estimated payout
period, of fair value adjustments relating to companies acquired
amounting to $18.9 million.
The reduction in estimates of net ultimate losses of
$37.0 million comprised net favorable incurred loss
development of $1.5 million along with reductions in IBNR
reserves of $35.6 million. Subsequent to June 30,
2010, claims liabilities of certain policyholders within a
number of our insurance and reinsurance subsidiaries were
commuted at levels that required the reduction in IBNR reserves
for those subsidiaries. The reductions in provisions for bad
debt of $13.1 million resulted from the collection of
receivables against which bad debt provisions had been provided
in earlier periods.
24
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
7.
|
LOSSES
AND LOSS ADJUSTMENT
EXPENSES (contd)
|
The net reduction in loss and loss adjustment expense
liabilities for the six months ended June 30, 2009 of
$44.1 million was attributable to a reduction in estimates
of net ultimate losses of $47.6 million, a reduction in
provisions for bad debts of $9.7 million and a reduction in
estimates of loss adjustment expense liabilities of
$19.5 million, relating to 2009 run-off activity, partially
offset by the amortization, over the estimated payout period, of
fair value adjustments relating to companies acquired amounting
to $32.7 million.
The reduction in estimates of net ultimate losses of
$47.6 million primarily related to a reduction in estimates
of loss reserves in two of the Companys subsidiaries of
$33.9 million following the commutation of one of the
Companys largest ten assumed and ceded exposures at less
than case and LAE reserves and the agreement of claims
liabilities of certain policyholders at levels that required a
reassessment of IBNR reserves.
In addition, the Company recognized a reduction in estimates of
net ultimate losses of $13.0 million in one of the
Companys subsidiaries as a result of net favorable
incurred loss development for the six months ended June 30,
2009 of $2.6 million and reductions in IBNR reserves of
$10.4 million. The net favorable incurred loss development
of $2.6 million, whereby net advised case and LAE reserves
of $6.6 million were settled for net paid losses of
$4.0 million, arose from the settlement of losses during
the period below carried reserves. The net reduction in the
estimate of the subsidiarys IBNR loss and loss adjustment
expense liabilities of $10.4 million was the result of the
application of the Companys reserving methodologies to the
reduced case and LAE reserves following the subsidiarys
semi-annual actuarial review of reserves as required by local
regulation.
Total amounts of long-term debt outstanding as of June 30,
2010 and December 31, 2009 totaled $270.9 million and
$255.0 million, respectively, and were comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
Facility
|
|
Date of Facility
|
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
Cumberland Facility B
|
|
March 4, 2008
|
|
$
|
63,926
|
|
|
$
|
67,071
|
|
Unionamerica Facility A
|
|
December 30, 2008
|
|
|
153,292
|
|
|
|
155,268
|
|
Unionamerica Facility B
|
|
December 30, 2008
|
|
|
32,164
|
|
|
|
32,622
|
|
Knapton
|
|
April 20, 2010
|
|
|
21,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
270,919
|
|
|
$
|
254,961
|
|
|
|
|
|
|
|
|
|
|
|
|
In April 2010, Knapton Holdings entered into the Knapton
Facility, a term facility agreement with a London-based bank. On
April 20, 2010, Knapton Holdings drew down
$21.4 million from the Knapton Facility to partially
refinance the acquisition of Knapton. The interest rate on the
Knapton Facility is LIBOR plus 2.75%. The Knapton Facility is
repayable in three years and is secured by a first charge over
Knapton Holdings shares in Knapton. The Knapton Facility
contains various financial and business covenants, including
limitations on mergers and consolidations involving Knapton
Holdings and its subsidiaries. As of June 30, 2010, all of
the financial covenants relating to the Knapton Facility were
met.
On July 16, 2010, the Company entered into a term facility
agreement with a London-based bank (the Enstar
Facility). On July 19, 2010, the Company drew down
$25.0 million from the Enstar Facility to fund the
acquisition of PWAC. The interest rate on the Enstar Facility is
LIBOR plus 2.75%. The Facility is repayable in three months and
is unsecured. The Enstar Facility contains various financial and
business undertakings.
The Cumberland and Unionamerica facilities are described in
Note 10 to the Consolidated Financial Statements contained
in the Companys Annual Report on Form
10-K for the
year ended December 31, 2009.
25
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Companys share-based compensation plans provide for
the grant of various awards to our employees and to members of
the board of directors. These are described in Note 13 to
the Consolidated Financial Statements contained in the
Companys Annual Report on
Form 10-K
for the year ended December 31, 2009. The information below
includes both the employee and director components of the
Companys share-based compensation.
Employee stock awards for the six months ended June 30,
2010 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average Fair
|
|
|
|
Number of
|
|
|
Value of
|
|
|
|
Shares
|
|
|
the Award
|
|
|
Nonvested January 1, 2010
|
|
|
1,636
|
|
|
$
|
102
|
|
Granted
|
|
|
235,811
|
|
|
|
16,041
|
|
Vested
|
|
|
(83,517
|
)
|
|
|
(5,656
|
)
|
|
|
|
|
|
|
|
|
|
Nonvested June 30, 2010
|
|
|
153,930
|
|
|
$
|
10,227
|
|
|
|
|
|
|
|
|
|
|
i) 2006-2010
Annual Incentive Plan and 2006 Equity Incentive Plan
For the six months ended June 30, 2010 and 2009, 78,664 and
64,378 shares, respectively, were awarded to directors,
officers and employees under the 2006 Equity Incentive Plan. The
total value of the award for the six months ended June 30,
2010 and 2009 was $5.4 million and $3.3 million,
respectively, and was charged against the
2006-2010
Annual Incentive Plan accrual established for the years ended
December 31, 2009 and 2008, respectively.
In addition, for the six months ended June 30, 2010,
153,930 restricted shares were awarded to certain employees
under the 2006 Equity Incentive Plan. The total unrecognized
compensation cost related to the non-vested share award as at
June 30, 2010 was $9.9 million. These costs are
expected to be recognized evenly over the next 5.5 years.
Compensation costs of $0.4 million and $0.6 million
relating to the share award were recognized in the
Companys statement of earnings for the three and six
months ended June 30, 2010, respectively.
The accrued expense relating to the
2006-2010
Annual Incentive Plan for the three and six months ended
June 30, 2010 was $2.2 million and $5.0 million,
respectively, as compared to $1.6 million and
$3.6 million, respectively, for the three and six months
ended June 30, 2009.
ii) Enstar
Group Limited Employee Share Purchase Plan
Compensation costs of less than $0.1 million and
$0.2 million relating to the shares issued have been
recognized in the Companys statement of earnings for both
the three and six months ended June 30, 2010 and 2009. As
at June 30, 2010, 11,505 shares have been issued to
employees under the Enstar Group Limited Employee Share Purchase
Plan.
26
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
9.
|
EMPLOYEE
BENEFITS (contd)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Value of
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Outstanding January 1, 2010
|
|
|
327,586
|
|
|
$
|
29.49
|
|
|
$
|
14,261
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(106,920
|
)
|
|
|
28.29
|
|
|
|
(3,741
|
)
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding June 30, 2010
|
|
|
220,666
|
|
|
$
|
30.07
|
|
|
$
|
8,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding and exercisable as of June 30,
2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ranges of
|
|
|
|
|
|
|
|
Weighted Average
|
|
Exercise
|
|
Number of
|
|
|
Weighted Average
|
|
|
Remaining
|
|
Prices
|
|
Options
|
|
|
Exercise Price
|
|
|
Contractual Life
|
|
|
$10 $20
|
|
|
112,785
|
|
|
$
|
19.03
|
|
|
|
1.0 years
|
|
$40 $60
|
|
|
107,881
|
|
|
|
41.61
|
|
|
|
3.2 years
|
|
|
|
(c)
|
Deferred
Compensation and Stock Plan for Non-Employee
Directors
|
For the six months ended June 30, 2010 and 2009, 3,134 and
3,431 restricted share units, respectively, were credited to the
accounts of non-employee directors under the Companys
Deferred Compensation and Ordinary Share Plan for Non-Employee
Directors.
27
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the comparison of basic and
diluted earnings per share of amounts attributable to the
Companys ordinary shareholders for the three and six-month
periods ended June 30, 2010 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Enstar Group Limited
|
|
$
|
12,430
|
|
|
$
|
8,751
|
|
|
$
|
28,351
|
|
|
$
|
20,282
|
|
Weighted average shares outstanding basic
|
|
|
13,702,832
|
|
|
|
13,532,608
|
|
|
|
13,661,516
|
|
|
|
13,448,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to Enstar Group
Limited basic
|
|
$
|
0.91
|
|
|
$
|
0.65
|
|
|
$
|
2.08
|
|
|
$
|
1.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Enstar Group Limited
|
|
$
|
12,430
|
|
|
$
|
8,751
|
|
|
$
|
28,351
|
|
|
$
|
20,282
|
|
Weighted average shares outstanding basic
|
|
|
13,702,832
|
|
|
|
13,532,608
|
|
|
|
13,661,516
|
|
|
|
13,448,525
|
|
Share equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested Shares
|
|
|
154,088
|
|
|
|
1,769
|
|
|
|
97,018
|
|
|
|
7,726
|
|
Restricted share units
|
|
|
16,059
|
|
|
|
7,633
|
|
|
|
15,233
|
|
|
|
7,532
|
|
Options
|
|
|
146,510
|
|
|
|
245,543
|
|
|
|
151,784
|
|
|
|
237,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
14,019,489
|
|
|
|
13,787,553
|
|
|
|
13,925,551
|
|
|
|
13,700,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to Enstar Group
Limited diluted
|
|
$
|
0.89
|
|
|
$
|
0.63
|
|
|
$
|
2.04
|
|
|
$
|
1.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11.
|
RELATED
PARTY TRANSACTIONS
|
The Company has entered into certain transactions with companies
and partnerships that are affiliated with J. Christopher
Flowers and John J. Oros. Mr. Flowers is a member of
the Companys board of directors and one of the
Companys largest shareholders, and Mr. Oros is an
executive officer and member of the Companys board of
directors.
|
|
|
|
|
In March 2010, the Company committed to invest
$20.0 million in Varadero International Ltd.
(Varadero), a hedge fund. The investment manager of
Varadero is Varadero Capital, L.P., of which Varadero GP, LLC is
the general partner. Both the investment manager and general
partner are partially owned by an entity affiliated with
Messrs. Flowers and Oros.
|
|
|
|
During the six months ended June 30, 2010, and excluding
Varadero, the Company did not fund any of its remaining
outstanding capital commitments to entities affiliated with
Messrs. Flowers and Oros. The Company had, as of
June 30, 2010 and December 31, 2009, investments in
entities affiliated with Messrs. Flowers and Oros
(excluding Varadero) with a total value of $78.1 million
and $76.1 million, respectively, and outstanding
commitments to entities managed by Mr. Flowers, as of those
same dates, of $98.1 million and $98.1 million,
respectively. The Companys outstanding commitments may be
drawn down over approximately the next four years.
|
28
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
11.
|
RELATED
PARTY TRANSACTIONS (contd)
|
As at June 30, 2010, the related party investments
associated with Messrs. Flowers and Oros accounted for
97.5% of the total unfunded capital commitments of the Company,
58.8% of the total amount of investments classified as other
investments by the Company.
The determination of reportable segments is based on how senior
management monitors the Companys operations. The Company
measures the results of its operations under two major business
categories: reinsurance and consulting.
The Companys consulting segment comprises the operations
and financial results of those subsidiaries that provide
management and consulting services, forensic claims inspections
services and reinsurance collection services to third-party
clients, as well as to the Companys reinsurance segment,
in return for management fees. The Company provides consulting
and management services through its subsidiaries located in the
United States, Bermuda and Europe to large multinational company
clients with insurance and reinsurance companies and portfolios
in run-off relating to risks spanning the globe. As a result,
extracting and quantifying revenues attributable to certain
geographic locations would be impracticable given the global
nature of the business.
All of the consulting fees for the reinsurance segment relate to
intercompany fees paid to the consulting segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2010
|
|
|
|
Reinsurance
|
|
|
Consulting
|
|
|
Total
|
|
|
Consulting fees
|
|
$
|
(10,089
|
)
|
|
$
|
13,589
|
|
|
$
|
3,500
|
|
Net investment income
|
|
|
23,825
|
|
|
|
(827
|
)
|
|
|
22,998
|
|
Net realized losses
|
|
|
(4,227
|
)
|
|
|
|
|
|
|
(4,227
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,509
|
|
|
|
12,762
|
|
|
|
22,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net reduction in ultimate loss and loss adjustment expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction in estimates of net ultimate losses
|
|
|
(35,104
|
)
|
|
|
|
|
|
|
(35,104
|
)
|
Reduction in provisions for bad debt
|
|
|
(7,768
|
)
|
|
|
|
|
|
|
(7,768
|
)
|
Reduction in provisions for unallocated loss and loss adjustment
expense liabilities
|
|
|
(11,696
|
)
|
|
|
|
|
|
|
(11,696
|
)
|
Amortization of fair value adjustments
|
|
|
12,202
|
|
|
|
|
|
|
|
12,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42,366
|
)
|
|
|
|
|
|
|
(42,366
|
)
|
Salaries and benefits
|
|
|
3,834
|
|
|
|
10,420
|
|
|
|
14,254
|
|
General and administrative expenses
|
|
|
10,630
|
|
|
|
5,171
|
|
|
|
15,801
|
|
Interest expense
|
|
|
2,805
|
|
|
|
|
|
|
|
2,805
|
|
Net foreign exchange (gain) loss
|
|
|
(5,904
|
)
|
|
|
289
|
|
|
|
(5,615
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(31,001
|
)
|
|
|
15,880
|
|
|
|
(15,121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
SEGMENT
INFORMATION (contd)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2010
|
|
|
|
Reinsurance
|
|
|
Consulting
|
|
|
Total
|
|
|
Earnings (loss) before income taxes and share of net earnings of
partly owned company
|
|
|
40,510
|
|
|
|
(3,118
|
)
|
|
|
37,392
|
|
Income taxes
|
|
|
(16,235
|
)
|
|
|
120
|
|
|
|
(16,115
|
)
|
Share of net earnings of partly owned company
|
|
|
2,203
|
|
|
|
|
|
|
|
2,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
26,478
|
|
|
|
(2,998
|
)
|
|
|
23,480
|
|
Less: Net earnings attributable to noncontrolling interest
|
|
|
(11,050
|
)
|
|
|
|
|
|
|
(11,050
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Enstar Group Limited
|
|
$
|
15,428
|
|
|
$
|
(2,998
|
)
|
|
$
|
12,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2009
|
|
|
|
Reinsurance
|
|
|
Consulting
|
|
|
Total
|
|
|
Consulting fees
|
|
$
|
(8,247
|
)
|
|
$
|
12,426
|
|
|
$
|
4,179
|
|
Net investment income
|
|
|
17,593
|
|
|
|
900
|
|
|
|
18,493
|
|
Net realized gains
|
|
|
5,080
|
|
|
|
|
|
|
|
5,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,426
|
|
|
|
13,326
|
|
|
|
27,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net reduction in ultimate loss and loss adjustment expense
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction in estimates of net ultimate losses
|
|
|
(17,742
|
)
|
|
|
|
|
|
|
(17,742
|
)
|
Reduction in provisions for unallocated loss and loss adjustment
expense liabilities
|
|
|
(9,422
|
)
|
|
|
|
|
|
|
(9,422
|
)
|
Amortization of fair value adjustments
|
|
|
9,771
|
|
|
|
|
|
|
|
9,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,393
|
)
|
|
|
|
|
|
|
(17,393
|
)
|
Salaries and benefits
|
|
|
2,961
|
|
|
|
8,953
|
|
|
|
11,914
|
|
General and administrative expenses
|
|
|
6,727
|
|
|
|
4,183
|
|
|
|
10,910
|
|
Interest expense
|
|
|
4,675
|
|
|
|
|
|
|
|
4,675
|
|
Net foreign exchange gain
|
|
|
(948
|
)
|
|
|
(663
|
)
|
|
|
(1,611
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,978
|
)
|
|
|
12,473
|
|
|
|
8,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
|
|
18,404
|
|
|
|
853
|
|
|
|
19,257
|
|
Income taxes
|
|
|
1,723
|
|
|
|
(1,700
|
)
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
20,127
|
|
|
|
(847
|
)
|
|
|
19,280
|
|
Less: Net earnings attributable to noncontrolling interest
|
|
|
(10,529
|
)
|
|
|
|
|
|
|
(10,529
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Enstar Group Limited
|
|
$
|
9,598
|
|
|
$
|
(847
|
)
|
|
$
|
8,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
SEGMENT
INFORMATION (contd)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2010
|
|
|
|
Reinsurance
|
|
|
Consulting
|
|
|
Total
|
|
|
Consulting fees
|
|
$
|
(31,592
|
)
|
|
$
|
49,220
|
|
|
$
|
17,628
|
|
Net investment income
|
|
|
49,126
|
|
|
|
(7
|
)
|
|
|
49,119
|
|
Net realized losses
|
|
|
(2,025
|
)
|
|
|
|
|
|
|
(2,025
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,509
|
|
|
|
49,213
|
|
|
|
64,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net reduction in ultimate loss and loss adjustment expense
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction in estimates of net ultimate losses
|
|
|
(37,046
|
)
|
|
|
|
|
|
|
(37,046
|
)
|
Reduction in provisions for bad debt
|
|
|
(13,107
|
)
|
|
|
|
|
|
|
(13,107
|
)
|
Reduction in provisions for unallocated loss and loss adjustment
expense liabilities
|
|
|
(20,661
|
)
|
|
|
|
|
|
|
(20,661
|
)
|
Amortization of fair value adjustments
|
|
|
18,852
|
|
|
|
|
|
|
|
18,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51,962
|
)
|
|
|
|
|
|
|
(51,962
|
)
|
Salaries and benefits
|
|
|
6,135
|
|
|
|
23,309
|
|
|
|
29,444
|
|
General and administrative expenses
|
|
|
16,534
|
|
|
|
9,754
|
|
|
|
26,288
|
|
Interest expense
|
|
|
5,199
|
|
|
|
|
|
|
|
5,199
|
|
Net foreign exchange loss
|
|
|
1,321
|
|
|
|
652
|
|
|
|
1,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,773
|
)
|
|
|
33,715
|
|
|
|
10,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and share of net earnings of partly
owned company
|
|
|
38,282
|
|
|
|
15,498
|
|
|
|
53,780
|
|
Income taxes
|
|
|
(18,583
|
)
|
|
|
(3,454
|
)
|
|
|
(22,037
|
)
|
Share of net earnings of partly owned company
|
|
|
9,353
|
|
|
|
|
|
|
|
9,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
29,052
|
|
|
|
12,044
|
|
|
|
41,096
|
|
Less: Net earnings attributable to noncontrolling interest
|
|
|
(12,745
|
)
|
|
|
|
|
|
|
(12,745
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Enstar Group Limited
|
|
$
|
16,307
|
|
|
$
|
12,044
|
|
|
$
|
28,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
12.
|
SEGMENT
INFORMATION (contd)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2009
|
|
|
|
Reinsurance
|
|
|
Consulting
|
|
|
Total
|
|
|
Consulting fees
|
|
$
|
(16,243
|
)
|
|
$
|
23,758
|
|
|
$
|
7,515
|
|
Net investment income
|
|
|
34,690
|
|
|
|
1,112
|
|
|
|
35,802
|
|
Net realized losses
|
|
|
(930
|
)
|
|
|
|
|
|
|
(930
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,517
|
|
|
|
24,870
|
|
|
|
42,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net reduction in ultimate loss and loss adjustment expense
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reduction in estimates of net ultimate losses
|
|
|
(47,566
|
)
|
|
|
|
|
|
|
(47,566
|
)
|
Reduction in provisions for bad debt
|
|
|
(9,714
|
)
|
|
|
|
|
|
|
(9,714
|
)
|
Reduction in provisions for unallocated loss and loss adjustment
expense liabilities
|
|
|
(19,540
|
)
|
|
|
|
|
|
|
(19,540
|
)
|
Amortization of fair value adjustments
|
|
|
32,748
|
|
|
|
|
|
|
|
32,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44,072
|
)
|
|
|
|
|
|
|
(44,072
|
)
|
Salaries and benefits
|
|
|
6,427
|
|
|
|
17,904
|
|
|
|
24,331
|
|
General and administrative expenses
|
|
|
14,784
|
|
|
|
8,508
|
|
|
|
23,292
|
|
Interest expense
|
|
|
9,640
|
|
|
|
|
|
|
|
9,640
|
|
Net foreign exchange loss (gain)
|
|
|
361
|
|
|
|
(374
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,860
|
)
|
|
|
26,038
|
|
|
|
13,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes and share of net earnings of
partly owned company
|
|
|
30,377
|
|
|
|
(1,168
|
)
|
|
|
29,209
|
|
Income taxes
|
|
|
1,848
|
|
|
|
(1,207
|
)
|
|
|
641
|
|
Share of net earnings of partly owned company
|
|
|
269
|
|
|
|
|
|
|
|
269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
32,494
|
|
|
|
(2,375
|
)
|
|
|
30,119
|
|
Less: Net earnings attributable to noncontrolling interest
|
|
|
(9,837
|
)
|
|
|
|
|
|
|
(9,837
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Enstar Group Limited
|
|
$
|
22,657
|
|
|
$
|
(2,375
|
)
|
|
$
|
20,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
of Enstar Group Limited
We have reviewed the accompanying condensed consolidated balance
sheet of Enstar Group Limited and subsidiaries (the
Company) as of June 30, 2010, and the related
condensed consolidated statements of earnings and comprehensive
income for the three-month and six-month periods ended
June 30, 2010 and 2009 and changes in shareholders
equity and cash flows for the six-month periods ended
June 30, 2010 and 2009. These interim financial statements
are the responsibility of the Companys management.
We conducted our review in accordance with the standards of the
Public Company Accounting Oversight Board (United States). A
review of interim financial information consists principally of
applying analytical procedures and making inquiries of persons
responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting
Oversight Board (United States), the objective of which is the
expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to such condensed consolidated
interim financial statements for them to be in conformity with
accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United States),
the consolidated balance sheet of Enstar Group Limited and
subsidiaries as of December 31, 2009 and the related
consolidated statements of earnings, comprehensive income,
changes in shareholders equity, and cash flows for the
year then ended; and in our report dated March 3, 2010, we
expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of
December 31, 2009 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from
which it has been derived.
/s/ Deloitte & Touche
Hamilton, Bermuda
August 6, 2010
33
|
|
Item 2.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The following is a discussion and analysis of our results of
operations for the three and six months ended June 30, 2010
and 2009. This discussion and analysis should be read in
conjunction with the attached unaudited condensed consolidated
financial statements and notes thereto and the audited
consolidated financial statements and notes thereto contained in
our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2009.
Business
Overview
Enstar Group Limited, or Enstar, was formed in August 2001 under
the laws of Bermuda to acquire and manage insurance and
reinsurance companies in run-off and portfolios of insurance and
reinsurance business in run-off, and to provide management,
consulting and other services to the insurance and reinsurance
industry.
Since our formation, we have acquired a number of insurance and
reinsurance companies and several portfolios of insurance and
reinsurance business and are now administering those businesses
in run-off. We derive our net earnings from the ownership and
management of these companies and portfolios of business in
run-off primarily by settling insurance and reinsurance claims
below the recorded loss reserves and from returns on the
portfolio of investments retained to pay future claims. In
addition, we provide management and consultancy services, claims
inspection services and reinsurance collection services to our
affiliates and third-party clients for both fixed and
success-based fees.
Recent
Transactions
Providence
Washington
On July 20, 2010, we, through our wholly-owned subsidiary
PWAC Holdings, Inc., completed the acquisition of PW Acquisition
Company, or PWAC, for a purchase price of $25.0 million.
PWAC owns the entire share capital of Providence Washington
Insurance Company. Providence Washington Insurance Company and
its two subsidiaries are Rhode Island-domiciled insurers that
are in run-off. The purchase price was financed by a term
facility provided by a London-based bank, or the Enstar Facility.
Sale
of Interest in Stonewall
On June 13, 2008, our indirect subsidiary Virginia Holdings
Ltd., or Virginia, completed the acquisition from Dukes Place
Holdings, L.P. (a portfolio company of GSC European Mezzanine
Fund II, L.P.) of 44.4% of the outstanding capital stock of
Stonewall Acquisition Corporation, or SAC, the parent of two
Rhode Island-domiciled insurers in run-off, Stonewall Insurance
Company and Seaton Insurance Company. The total purchase price,
including acquisition costs, was $21.4 million and was
funded from available cash on hand. SAC entered into a
definitive agreement on December 3, 2009 for the sale of
its shares in Stonewall Insurance Company to Columbia Insurance
Company, an affiliate of National Indemnity Company (an indirect
subsidiary of Berkshire Hathaway, Inc.), for a sale price of
$56.0 million, subject to certain post-closing purchase
price adjustments that brought the total consideration received
to $60.4 million. The transaction received the required
regulatory approval on March 31, 2010 and subsequently
closed on April 7, 2010. The proceeds received by SAC are
being distributed among Dukes Place Holdings, L.P. and Virginia.
Knapton
Insurance (formerly British Engine)
On March 2, 2010, we, through our wholly-owned subsidiary,
Knapton Holdings Limited, or Knapton Holdings, completed the
acquisition of Knapton Insurance Limited, formerly British
Engine Insurance Limited, or Knapton, from RSA Insurance Group
plc for a total purchase price of £28.8 million
(approximately $44.0 million). Knapton is a U.K.-domiciled
reinsurer that is in run-off. The acquisition was funded from
available cash on hand.
In April 2010, Knapton Holdings entered into a term facility
agreement with a London-based bank, or the Knapton Facility. On
April 20, 2010, Knapton Holdings drew down
$21.4 million from the Knapton Facility.
34
Assuransinvest
On March 30, 2010, we, through our wholly-owned subsidiary
Nordic Run-Off Limited, completed the acquisition of
Forsakringsaktiebolaget Assuransinvest MF, or Assuransinvest,
for a purchase price of SEK 78.8 million (approximately
$11.0 million). Assuransinvest is a Swedish-domiciled
reinsurer that is in run-off. The acquisition was funded from
available cash on hand.
Significant
New Business
Shelbourne
RITC Transactions
In December 2007, we, in conjunction with JCF FPK I L.P., or JCF
FPK, and a newly-hired executive management team, formed
U.K.-based Shelbourne Group Limited, or Shelbourne, to invest in
Reinsurance to Close or RITC transactions (the
transferring of liabilities from one Lloyds Syndicate to
another) with Lloyds of London insurance and reinsurance
syndicates in run-off. We own approximately 56.8% of Shelbourne,
which in turn owns 100% of Shelbourne Syndicate Services
Limited, the Managing Agency for Lloyds Syndicate 2008, a
syndicate approved by Lloyds of London on
December 16, 2007 to undertake RITC transactions with
Lloyds syndicates in run-off.
In February 2010, Lloyds Syndicate 2008 entered into RITC
agreements with two Lloyds syndicates with total gross
insurance reserves of approximately $170.3 million. The
capital commitment to Lloyds Syndicate 2008 with respect
to these two RITC agreements amounted to £25.0 million
(approximately $37.5 million), which was fully funded from
available cash on hand.
JCF FPK is a joint investment program between J.C.
Flowers II L.P., or the Flowers Fund, and Fox-Pitt Kelton
Cochran Caronia & Waller (USA) LLC, or FPK. The
Flowers Fund is a private investment fund advised by J.C.
Flowers & Co. LLC. J. Christopher Flowers, a member of
our board of directors and one of our largest shareholders, is
the Chairman and Chief Executive Officer of J.C.
Flowers & Co. LLC. John J. Oros, who is our Executive
Chairman and a member of our board of directors, is a Managing
Director of J.C. Flowers & Co. LLC. In addition, an
affiliate of the Flowers Fund controlled approximately 41% of
FPK until its sale of FPK in December 2009.
Fitzwilliam
In February 2010, we, through our wholly-owned subsidiary,
Fitzwilliam Insurance Limited, or Fitzwilliam, entered into a
100% quota share reinsurance agreement with Allianz Global
Corporate & Specialty AG (UK) Branch, or Allianz, with
respect to a specific portfolio of run-off business of Allianz.
Fitzwilliam received total assets and assumed total gross
reinsurance reserves of approximately $112.6 million.
In July 2010, following the acquisition of the entire issued
share capital of Glacier Insurance AG by Torus Insurance
(Bermuda) Limited, or Torus, Fitzwilliam entered into two quota
share reinsurance agreements with Torus protecting the prior
year reserve development of two portfolios of business reinsured
by them: a 79% quota share of Torus 95% quota share
reinsurance of Glacier Insurance AG, and a 75% quota share of
Torus 100% quota share reinsurance of Glacier Reinsurance
AG. Fitzwilliam received total assets and assumed total gross
reinsurance reserves of approximately $105.0 million.
Bosworth
In May 2010, a specific portfolio of business in run-off
underwritten by Mitsui Sumitomo Insurance Co., Ltd. of Japan, or
Mitsui, was transferred to our 50.1% owned subsidiary, Bosworth
Run-off Limited, or Bosworth. This transfer, which occurred
under Part VII of the U.K. Financial Services and Markets
Act 2000, was approved by the U.K. Court and took effect on
May 31, 2010. As a result of the transfer, Bosworth
received total assets and assumed net reinsurance reserves of
approximately $117.5 million. Shinsei Bank, Ltd owns the
remaining 49.9% of Bosworth. J. Christopher Flowers, a member of
the Companys board of directors and one of its largest
shareholders, is a director and the largest shareholder of
Shinsei Bank, Ltd.
35
Results
of Operations
The following table sets forth our selected consolidated
statement of operations data for each of the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting fees
|
|
$
|
3,500
|
|
|
$
|
4,179
|
|
|
$
|
17,628
|
|
|
$
|
7,515
|
|
Net investment income
|
|
|
22,998
|
|
|
|
18,493
|
|
|
|
49,119
|
|
|
|
35,802
|
|
Net realized (losses) gains
|
|
|
(4,227
|
)
|
|
|
5,080
|
|
|
|
(2,025
|
)
|
|
|
(930
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,271
|
|
|
|
27,752
|
|
|
|
64,722
|
|
|
|
42,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net reduction in ultimate loss and loss adjustment expense
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reductions in estimates of net ultimate losses
|
|
|
(35,104
|
)
|
|
|
(17,742
|
)
|
|
|
(37,046
|
)
|
|
|
(47,566
|
)
|
Reductions in provisions for bad debt
|
|
|
(7,768
|
)
|
|
|
|
|
|
|
(13,107
|
)
|
|
|
(9,714
|
)
|
Reduction in provisions for unallocated loss and loss adjustment
expense liabilities
|
|
|
(11,696
|
)
|
|
|
(9,422
|
)
|
|
|
(20,661
|
)
|
|
|
(19,540
|
)
|
Amortization of fair value adjustments
|
|
|
12,202
|
|
|
|
9,771
|
|
|
|
18,852
|
|
|
|
32,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(42,366
|
)
|
|
|
(17,393
|
)
|
|
|
(51,962
|
)
|
|
|
(44,072
|
)
|
Salaries and benefits
|
|
|
14,254
|
|
|
|
11,914
|
|
|
|
29,444
|
|
|
|
24,331
|
|
General and administrative expenses
|
|
|
15,801
|
|
|
|
10,910
|
|
|
|
26,288
|
|
|
|
23,292
|
|
Interest expense
|
|
|
2,805
|
|
|
|
4,675
|
|
|
|
5,199
|
|
|
|
9,640
|
|
Net foreign exchange (gain) loss
|
|
|
(5,615
|
)
|
|
|
(1,611
|
)
|
|
|
1,973
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,121
|
)
|
|
|
8,495
|
|
|
|
10,942
|
|
|
|
13,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes and share of net earnings of partly
owned company
|
|
|
37,392
|
|
|
|
19,257
|
|
|
|
53,780
|
|
|
|
29,209
|
|
Income taxes
|
|
|
(16,115
|
)
|
|
|
23
|
|
|
|
(22,037
|
)
|
|
|
641
|
|
Share of net earnings of partly owned company
|
|
|
2,203
|
|
|
|
|
|
|
|
9,353
|
|
|
|
269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
|
|
|
23,480
|
|
|
|
19,280
|
|
|
|
41,096
|
|
|
|
30,119
|
|
Less: Net earnings attributable to noncontrolling interest
|
|
|
(11,050
|
)
|
|
|
(10,529
|
)
|
|
|
(12,745
|
)
|
|
|
(9,837
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED
|
|
$
|
12,430
|
|
|
$
|
8,751
|
|
|
$
|
28,351
|
|
|
$
|
20,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison
of the Three Months Ended June 30, 2010 and
2009
We reported consolidated net earnings, before net earnings
attributable to noncontrolling interest, of approximately
$23.5 million and $19.3 million for the three months
ended June 30, 2010 and 2009, respectively. The increase in
earnings of approximately $4.2 million was primarily
attributable to the following:
|
|
|
|
(i)
|
an increase in the net reduction in ultimate loss and loss
adjustment expense liabilities of $25.0 million;
|
|
|
(ii)
|
an increase of $4.5 million in net investment income due
primarily to an increase in the fair value of our investments
classified as other investments;
|
|
|
(iii)
|
an increase of $2.3 million in salaries and benefits;
|
|
|
(iv)
|
an increase in net foreign exchange gains of
$4.0 million; and
|
36
|
|
|
|
(v)
|
an increase of $2.2 million in income earned from our
investment in our partly owned subsidiary; partially offset by
|
|
|
(vi)
|
an increase in income taxes of $16.1 million due to higher
tax liabilities recorded on the results of our taxable
subsidiaries;
|
|
|
(vii)
|
a decrease in net realized gains of $9.3 million due to
movement in the value of our equity portfolios; and
|
|
|
(viii)
|
an increase in our general and administrative expenses of
$4.9 million due to increased bank charges associated with
increased letter of credit costs and loan structure fees along
with increased expenses associated with Shelbourne and
Lloyds Syndicate 2008.
|
We recorded noncontrolling interest in earnings of
$11.1 million and $10.5 million for the three months
ended June 30, 2010 and 2009, respectively. Net earnings
attributable to Enstar Group Limited increased from
$8.8 million for the three months ended June 30, 2009
to $12.4 million for the three months ended June 30,
2010.
Consulting
Fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Variance
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
Consulting
|
|
$
|
13,589
|
|
|
$
|
12,426
|
|
|
$
|
1,163
|
|
Reinsurance
|
|
|
(10,089
|
)
|
|
|
(8,247
|
)
|
|
|
(1,842
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,500
|
|
|
$
|
4,179
|
|
|
$
|
(679
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We earned consulting fees of approximately $13.6 million
and $12.4 million for the three months ended June 30,
2010 and 2009, respectively. The increase in consulting fees
primarily related to additional fees received from our
reinsurance segment.
Internal management fees of $10.1 million and
$8.2 million were paid for the three months ended
June 30, 2010 and 2009, respectively, by our reinsurance
companies to our consulting companies. The increase in internal
fees paid to the consulting segment was due primarily to fees
earned from new acquisitions that were completed subsequent to
June 30, 2009.
Net
Investment Income and Net Realized (Losses)/Gains:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
Net Realized
|
|
|
|
Net Investment Income
|
|
|
(Losses)/Gains
|
|
|
|
2010
|
|
|
2009
|
|
|
Variance
|
|
|
2010
|
|
|
2009
|
|
|
Variance
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
Consulting
|
|
$
|
(827
|
)
|
|
$
|
900
|
|
|
$
|
(1,727
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Reinsurance
|
|
|
23,825
|
|
|
|
17,593
|
|
|
|
6,232
|
|
|
|
(4,227
|
)
|
|
|
5,080
|
|
|
|
(9,307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
22,998
|
|
|
$
|
18,493
|
|
|
$
|
4,505
|
|
|
$
|
(4,227
|
)
|
|
$
|
5,080
|
|
|
$
|
(9,307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income for the three months ended June 30,
2010 increased by $4.5 million to $23.0 million, as
compared to $18.5 million for the same period in 2009. The
increase was primarily attributable the combination of the
following items:
|
|
|
|
(i)
|
an increase of $1.7 million in the fair value of our
private equity investments compared to an increase of
$0.5 million for the three months ended June 30, 2009;
and
|
|
|
(ii)
|
an increase of $2.2 million in investment income during the
three months ended June 30, 2010 from the return on a
particular security classified as other investments.
|
During the three months ended June 30, 2010, we also
transferred a significant percentage of our cash holdings into
short-term and fixed maturity investments in an effort to seek
higher returns. For the three months ended June 30, 2010
and 2009, we had 62.9% and 39.8%, respectively, of our total
cash and investments in short-term and
37
fixed maturity investments. The average return on our total cash
and investments, excluding other investments, for the three
months ended June 30, 2010 was 1.46%, as compared to the
average return of 1.96% for the three months ended June 30,
2009. The average Standard & Poors credit rating
of our fixed income investments at June 30, 2010 was AA-.
Net realized (losses) gains for the three months ended
June 30, 2010 and 2009 were $(4.2) million and
$5.1 million, respectively. The decrease in net realized
gains relates primarily to mark-to-market changes in the market
value of our equity investments.
Fair Value Measurements
In accordance with the provisions of the fair value measurement
and disclosure topic of the FASB Accounting Standards
Codification, the Company has categorized its investments that
are recorded at fair value among levels as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
for Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
Total Fair
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Value
|
|
|
U.S. government and agency
|
|
$
|
|
|
|
$
|
76,214
|
|
|
$
|
|
|
|
$
|
76,214
|
|
Non-U.S.
government
|
|
|
|
|
|
|
120,900
|
|
|
|
|
|
|
|
120,900
|
|
Corporate
|
|
|
|
|
|
|
596,354
|
|
|
|
579
|
|
|
|
596,933
|
|
Residential mortgage-backed
|
|
|
|
|
|
|
7,352
|
|
|
|
|
|
|
|
7,352
|
|
Commercial mortgage-backed
|
|
|
|
|
|
|
|
|
|
|
815
|
|
|
|
815
|
|
Equities
|
|
|
38,484
|
|
|
|
|
|
|
|
3,238
|
|
|
|
41,722
|
|
Other investments
|
|
|
|
|
|
|
62,702
|
|
|
|
104,079
|
|
|
|
166,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
38,484
|
|
|
$
|
863,522
|
|
|
$
|
108,711
|
|
|
$
|
1,010,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Reduction in Ultimate Loss and Loss Adjustment Expense
Liabilities:
The following table shows the components of the movement in the
net reduction in ultimate loss and loss adjustment expense
liabilities for the three months ended June 30, 2010 and
2009:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands of
|
|
|
|
U.S. dollars)
|
|
|
Net losses paid
|
|
$
|
(47,863
|
)
|
|
$
|
(67,449
|
)
|
Net change in case and LAE reserves
|
|
|
53,718
|
|
|
|
26,896
|
|
Net change in IBNR reserves
|
|
|
29,249
|
|
|
|
58,295
|
|
|
|
|
|
|
|
|
|
|
Reduction in estimates of net ultimate losses
|
|
|
35,104
|
|
|
|
17,742
|
|
Reduction in provisions for bad debt
|
|
|
7,768
|
|
|
|
|
|
Reduction in provisions for unallocated loss and loss adjustment
expense liabilities
|
|
|
11,696
|
|
|
|
9,422
|
|
Amortization of fair value adjustments
|
|
|
(12,202
|
)
|
|
|
(9,771
|
)
|
|
|
|
|
|
|
|
|
|
Net reduction in ultimate loss and loss adjustment expense
liabilities
|
|
$
|
42,366
|
|
|
$
|
17,393
|
|
|
|
|
|
|
|
|
|
|
Net change in case and loss adjustment expense reserves, or LAE
reserves, comprises the movement during the quarter in specific
case reserve liabilities as a result of claims settlements or
changes advised to us by our policyholders and attorneys, less
changes in case reserves recoverable advised by us to our
reinsurers as a result of the settlement or movement of assumed
claims. Net change in Incurred But Not Reported reserves, or
IBNR reserves, represents the change in our actuarial estimates
of losses incurred but not reported.
38
The net reduction in ultimate loss and loss adjustment expense
liabilities for the three months ended June 30, 2010 of
$42.4 million was attributable to a reduction in estimates
of net ultimate losses of $35.1 million, a reduction in
provisions for bad debt of $7.8 million and a reduction in
provisions for unallocated loss and loss adjustment expense
liabilities of $11.7 million, relating to 2010 run-off activity,
partially offset by the amortization, over the estimated payout
period, of fair value adjustments relating to companies acquired
amounting to $12.2 million.
The reduction in estimates of net ultimate losses of
$35.1 million comprised net favorable incurred loss
development of $5.9 million along with reductions in IBNR
reserves of $29.2 million. Subsequent to June 30,
2010, claims liabilities of certain policyholders within a
number of our insurance and reinsurance subsidiaries were
commuted at levels that required the reduction in IBNR reserves
for those subsidiaries. The reductions in provisions for bad
debt of $7.8 million resulted from the collection of
receivables against which bad debt provisions had been provided
in earlier periods.
The net reduction in loss and loss adjustment expense
liabilities for the three months ended June 30, 2009 of
$17.4 million was attributable to a reduction in estimates
of net ultimate losses of $17.7 million and a reduction in
loss adjustment expense of $9.4 million, relating to 2009
run-off activity, partially offset by the amortization, over the
estimated payout period, of fair value adjustments of
$9.8 million relating to companies acquired. The reduction
in estimates of net ultimate losses of $17.7 million
primarily related to the reduction in estimates of net ultimate
losses of $13.0 million in one of our subsidiaries. This
reduction in estimates of net ultimate losses of
$13.0 million was comprised of net favorable incurred loss
development for the six months ended June 30, 2009 of
$2.6 million and reductions in IBNR reserves of
$10.4 million. The net favorable incurred loss development
of $2.6 million, whereby net advised case and LAE reserves
of $6.6 million were settled for net paid losses of
$4.0 million, arose from the settlement of losses during
the period below carried reserves. The net reduction in the
estimate of the subsidiarys IBNR loss and loss adjustment
expense liabilities of $10.4 million was the result of the
application of our reserving methodologies to the reduced case
and LAE reserves following the subsidiarys semi-annual
actuarial review of reserves as required by local regulation.
The table below provides a reconciliation of the beginning and
ending reserves for losses and loss adjustment expenses for the
three months ended June 30, 2010 and 2009. Losses incurred
and paid are reflected net of reinsurance recoverables.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
Balance as at April 1
|
|
$
|
2,890,723
|
|
|
$
|
2,797,827
|
|
Less: total reinsurance reserves recoverable
|
|
|
435,680
|
|
|
|
379,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,455,043
|
|
|
|
2,418,212
|
|
Net reduction in ultimate losses and loss adjustment expense
liabilities
|
|
|
(42,366
|
)
|
|
|
(17,393
|
)
|
Net losses paid
|
|
|
(47,863
|
)
|
|
|
(67,449
|
)
|
Effect of exchange rate movement
|
|
|
(26,454
|
)
|
|
|
72,776
|
|
Retroactive reinsurance contracts assumed
|
|
|
134,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance as at June 30
|
|
$
|
2,472,489
|
|
|
$
|
2,406,146
|
|
Plus: total reinsurance reserves recoverable
|
|
|
421,864
|
|
|
|
375,431
|
|
|
|
|
|
|
|
|
|
|
Balance as at June 30
|
|
$
|
2,894,353
|
|
|
$
|
2,781,577
|
|
|
|
|
|
|
|
|
|
|
39
Salaries
and Benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Variance
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
Consulting
|
|
$
|
10,420
|
|
|
$
|
8,953
|
|
|
$
|
(1,467
|
)
|
Reinsurance
|
|
|
3,834
|
|
|
|
2,961
|
|
|
|
(873
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,254
|
|
|
$
|
11,914
|
|
|
$
|
(2,340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits, which include expenses relating to our
discretionary bonus and employee share plans, were
$14.3 million and $11.9 million for the three months
ended June 30, 2010 and 2009, respectively.
The increase in salaries and benefits is primarily attributable
to:
|
|
|
|
(i)
|
increased staff costs due to an increase in average staff
numbers from 286 for the three months ended June 30, 2009
to 309 for the three months ended June 30, 2010;
|
|
|
(ii)
|
an increase in the discretionary bonus expense for the three
months ended June 30, 2010 of $0.6 million as a result
of higher earnings;
|
|
|
(iii)
|
the amortization for the three months ended June 30, 2010
of the unrecognized compensation costs of $0.5 million in
respect of the restricted shares that were awarded to certain
employees in 2010 under our 2006 Equity Incentive Plan; and
|
|
|
(iv)
|
increased U.S. dollar costs of our U.K.-based staff
following an increase in the average British pound exchange rate
from approximately 1.4950 for the three months ended
June 30, 2009 to 1.5256 for the three months ended
June 30, 2010, respectively.
|
Of our total headcount as at June 30, 2009 and
June 30, 2010, approximately 67% and 68%, respectively, had
their salaries paid in British pounds. Expenses relating to our
discretionary bonus plan will be variable and are dependent on
our overall profitability.
General and Administrative Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Variance
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
Consulting
|
|
$
|
5,171
|
|
|
$
|
4,183
|
|
|
$
|
(988
|
)
|
Reinsurance
|
|
|
10,630
|
|
|
|
6,727
|
|
|
|
(3,903
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,801
|
|
|
$
|
10,910
|
|
|
$
|
(4,891
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses attributable to the
reinsurance segment increased by $3.9 million during the
three months ended June 30, 2010, as compared to the three
months ended June 30, 2009. The increase of
$3.9 million was primarily due to: (i) increased bank
costs of $1.5 million primarily associated with the costs
of establishing and maintaining our letters of credit, along
with structure fees paid in relation to the establishment of the
Knapton Facility; and (ii) increased other general and
administrative expenses of $2.4 million relating primarily
to increased expenses associated with Shelbourne and
Lloyds Syndicate 2008.
Interest Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Variance
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
Consulting
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Reinsurance
|
|
|
2,805
|
|
|
|
4,675
|
|
|
|
1,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,805
|
|
|
$
|
4,675
|
|
|
$
|
1,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
Interest expense of $2.8 million and $4.7 million were
recorded for the three months ended June 30, 2010 and 2009,
respectively. The decrease in interest expense is primarily
attributable to the decrease in the principal remaining on
outstanding bank borrowings as at June 30, 2010 as compared
to June 30, 2009, as well as lower interest rates. As at
June 30, 2009, we had approximately $354.8 million of
outstanding bank debt as compared to approximately
$270.9 million as at June 30, 2010.
Foreign Exchange Gain/(Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Variance
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
Consulting
|
|
$
|
(289
|
)
|
|
$
|
663
|
|
|
$
|
(952
|
)
|
Reinsurance
|
|
|
5,904
|
|
|
|
948
|
|
|
|
4,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,615
|
|
|
$
|
1,611
|
|
|
$
|
4,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We recorded a foreign exchange gain of $5.6 million and
$1.6 million for the three months ended June 30, 2010
and 2009, respectively. The foreign exchange gain for the three
months ended June 30, 2010 arose primarily as a result of
the holding of surplus U.S. dollar assets in one of our
subsidiaries whose functional currency is Australian dollars at
a time when the U.S. dollar had been appreciating against
the currency, partially offset by foreign exchange losses
arising as a result of our holding surplus British pounds.
For the three months ended June 30, 2009, the foreign
exchange gain arose primarily as a result of holding surplus
British pounds relating primarily to cash collateral
requirements to support British pound denominated letters of
credit required by U.K. regulators, partially offset by foreign
exchange losses arising as a result of the holding of surplus
U.S. dollar assets in one of our subsidiaries whose
functional currency is Australian dollars at a time when the
U.S. dollar had been depreciating against the currency.
In addition to the foreign exchange gains recorded in our
consolidated statement of earnings for the three months ended
June 30, 2010, we recorded in our condensed consolidated
statement of comprehensive income currency translation
adjustment losses, net of noncontrolling interest, of
$16.0 million as compared to gains of $27.7 million
for the same period in 2009. For the three months ended
June 30, 2010 and 2009, the currency translation
adjustments related primarily to our Australian subsidiaries,
or, collectively, Gordian. Since the functional currency of
Gordian is Australian dollars, we are required to record any
U.S. dollar gains or losses on the translation of the net
Australian dollar assets of Gordian through accumulated other
comprehensive income.
Income Tax (Expense)/Recovery:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Variance
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
Consulting
|
|
$
|
120
|
|
|
$
|
(1,700
|
)
|
|
$
|
1,820
|
|
Reinsurance
|
|
|
(16,235
|
)
|
|
|
1,723
|
|
|
|
(17,958
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(16,115
|
)
|
|
$
|
23
|
|
|
$
|
(16,138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We recorded income tax (expense)/recovery of
$(16.1) million and $0.1 million for the three months
ended June 30, 2010 and 2009, respectively. The increase in
taxes for the three months ended June 30, 2010 was due
primarily to an increase in earnings of some of our companies
operating in tax paying jurisdictions.
41
Share of
Net Earnings of Partly Owned Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Variance
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
Consulting
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Reinsurance
|
|
|
2,203
|
|
|
|
|
|
|
|
2,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,203
|
|
|
$
|
|
|
|
$
|
2,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2010, we recorded
$2.2 million for our share of net earnings of partly owned
company as compared to $nil for the three months ended
June 30, 2009. The $2.2 million was our share of the
earnings of SAC which related primarily to the post-closing
purchase price adjustment in connection with SACs sale of
its interest in Stonewall Insurance Company (discussed above in
Recent Transactions).
Noncontrolling
Interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Variance
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
Consulting
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Reinsurance
|
|
|
(11,050
|
)
|
|
|
(10,529
|
)
|
|
|
(521
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(11,050
|
)
|
|
$
|
(10,529
|
)
|
|
$
|
(521
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We recorded noncontrolling interest in earnings of
$11.1 million and $10.5 million for the three months
ended June 30, 2010 and 2009, respectively. The costs
associated with our noncontrolling interest are variable and
wholly dependent on the results for the period of those
subsidiaries for which there exists a noncontrolling interest.
Comparison
of the Six Months Ended June 30, 2010 and
2009
We reported consolidated net earnings, before net earnings
attributable to noncontrolling interest, of approximately
$41.1 million and $30.1 million for the six months
ended June 30, 2010 and 2009, respectively. The increase in
earnings of approximately $11.0 million was primarily
attributable to the following:
|
|
|
|
(i)
|
an increase in investment income (net of realized
gains/(losses)) of $12.2 million primarily as a result of
an increase in 2010 in the fair value of our private equity
portfolio classified as other investments of $11.1 million
as compared to a writedown in 2009 of $1.4 million;
|
|
|
(ii)
|
an increase in consulting fee income of $10.1 million due
to increased fees earned in respect of incentive-based
engagements;
|
|
|
(iii)
|
an increase in the reduction in ultimate loss and loss
adjustment expense liabilities of $7.9 million;
|
|
|
(iv)
|
an increase of $9.1 million in income earned from our
investment in our partly owned subsidiary; and
|
|
|
(v)
|
reduced interest expense of $4.4 million due primarily to
an overall reduction in loan facility balances outstanding as at
June 30, 2010; partially offset by
|
|
|
(vi)
|
an increase in income taxes of $22.7 million due to higher
tax liabilities recorded on the results of our taxable
subsidiaries;
|
|
|
|
|
(vii)
|
an increase in our general and administrative expenses of
$3.0 million;
|
|
|
(viii)
|
an increase in salary and benefits costs of $5.1 million
primarily due to increased salary costs related to our
discretionary bonus plan as a result of increased net earnings
in the period along with an increase in our overall headcount;
and
|
|
|
|
|
(xi)
|
an increase in net foreign exchange losses of $2.0 million.
|
42
We recorded noncontrolling interest in earnings of
$12.7 million and $9.8 million for the six months
ended June 30, 2010 and 2009, respectively. Net earnings
attributable to Enstar Group Limited increased from
$20.3 million for the six months ended June 30, 2009
to $28.4 million for the six months ended June 30,
2010.
Consulting
Fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Variance
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
Consulting
|
|
$
|
49,220
|
|
|
$
|
23,758
|
|
|
$
|
25,462
|
|
Reinsurance
|
|
|
(31,592
|
)
|
|
|
(16,243
|
)
|
|
|
(15,349
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17,628
|
|
|
$
|
7,515
|
|
|
$
|
10,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We earned consulting fees of approximately $49.2 million
and $23.8 million for the six months ended June 30,
2010 and 2009, respectively. The increase in consulting fees
primarily related to the combination of additional fees received
from our reinsurance segment and increased incentive fees earned
from third party agreements.
Internal management fees of $31.6 million and
$16.2 million were paid for the six months ended
June 30, 2010 and 2009, respectively, by our reinsurance
companies to our consulting companies. The increase in internal
fees paid to the consulting segment was due primarily to
additional fees paid by our reinsurance companies relating to
allocated charges for increases in salary and general and
administrative expenses.
Net
Investment Income and Net Realized Losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
Net Investment Income
|
|
|
Net Realized Losses
|
|
|
|
2010
|
|
|
2009
|
|
|
Variance
|
|
|
2010
|
|
|
2009
|
|
|
Variance
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
Consulting
|
|
$
|
(7
|
)
|
|
$
|
1,112
|
|
|
$
|
(1,119
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Reinsurance
|
|
|
49,126
|
|
|
|
34,690
|
|
|
|
14,436
|
|
|
|
(2,025
|
)
|
|
|
(930
|
)
|
|
|
(1,095
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
49,119
|
|
|
$
|
35,802
|
|
|
$
|
13,317
|
|
|
$
|
(2,025
|
)
|
|
$
|
(930
|
)
|
|
$
|
(1,095
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income for the six months ended June 30,
2010 increased by $13.3 million to $49.1 million, as
compared to $35.8 million for the same period in 2009. The
increase was primarily attributable to an increase in the fair
value of our private equity investments of $12.5 million,
from a writedown of $1.4 million for the six months ended
June 30, 2009 to an increase of $11.1 million for the
six months ended June 30, 2010.
The average return on our total cash and investments, excluding
other investments, for the six months ended June 30, 2010
was 1.84%, as compared to the average return of 1.76% for the
six months ended June 30, 2009. The average
Standard & Poors credit rating of our fixed
income investments at June 30, 2010 was AA-.
Net realized losses for the six months ended June 30, 2010
and 2009 were $2.0 million and $0.9 million,
respectively. The net realized losses were a result of
writedowns in the market value of our equity investments.
43
Net
Reduction in Ultimate Loss and Loss Adjustment Expense
Liabilities:
The following table shows the components of the movement in the
net reduction in ultimate loss and loss adjustment expense
liabilities for the six months ended June 30, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
Net losses paid
|
|
$
|
(131,088
|
)
|
|
$
|
(79,821
|
)
|
Net change in case and LAE reserves
|
|
|
132,572
|
|
|
|
58,904
|
|
Net change in IBNR reserves
|
|
|
35,562
|
|
|
|
68,483
|
|
|
|
|
|
|
|
|
|
|
Reduction in estimates of net ultimate losses
|
|
|
37,046
|
|
|
|
47,566
|
|
Reduction in provisions for bad debt
|
|
|
13,107
|
|
|
|
9,714
|
|
Reduction in provisions for unallocated loss and loss adjustment
expense liabilities
|
|
|
20,661
|
|
|
|
19,540
|
|
Amortization of fair value adjustments
|
|
|
(18,852
|
)
|
|
|
(32,748
|
)
|
|
|
|
|
|
|
|
|
|
Net reduction in ultimate loss and loss adjustment expense
liabilities
|
|
$
|
51,962
|
|
|
$
|
44,072
|
|
|
|
|
|
|
|
|
|
|
The net reduction in ultimate loss and loss adjustment expense
liabilities for the six months ended June 30, 2010 of
$52.0 million was attributable to a reduction in estimates
of net ultimate losses of $37.0 million, a reduction in
provisions for bad debt of $13.1 million and a reduction in
provisions for unallocated loss and loss adjustment expense
liabilities of $20.7 million, relating to 2010 run-off activity,
partially offset by the amortization, over the estimated payout
period, of fair value adjustments relating to companies acquired
amounting to $18.8 million.
The reduction in estimates of net ultimate losses of
$37.0 million comprised net favorable incurred loss
development of $1.5 million along with reductions in IBNR
reserves of $35.6 million. Subsequent to the period end,
claims liabilities of certain policyholders within a number of
our insurance and reinsurance subsidiaries were commuted at
levels that required the reduction in IBNR reserves for those
subsidiaries. The reductions in provisions for bad debt of
$13.1 million resulted from the collection of receivables
against which bad debt provisions had been provided in earlier
periods.
The net reduction in loss and loss adjustment expense
liabilities for the six months ended June 30, 2009 of
$44.1 million was attributable to a reduction in estimates
of net ultimate losses of $47.6 million, a reduction in
provisions for bad debts of $9.7 million and a reduction in
estimates of loss adjustment expense liabilities of
$19.5 million, relating to 2009 run-off activity, partially
offset by the amortization, over the estimated payout period, of
fair value adjustments relating to companies acquired amounting
to $32.7 million.
The reduction in estimates of net ultimate losses of
$47.6 million primarily related to a reduction in estimates
of loss reserves in two of our subsidiaries of
$33.9 million following the commutation of one of our
largest ten assumed and ceded exposures at less than case and
LAE reserves and the agreement of claims liabilities of certain
policyholders at levels that required a reassessment of IBNR
reserves.
In addition, we recognized a reduction in estimates of net
ultimate losses of $13.0 million in one of our subsidiaries
as a result of net favorable incurred loss development for the
six months ended June 30, 2009 of $2.6 million and
reductions in IBNR reserves of $10.4 million. The net
favorable incurred loss development of $2.6 million,
whereby net advised case and LAE reserves of $6.6 million
were settled for net paid losses of $4.0 million, arose
from the settlement of losses during the period below carried
reserves. The net reduction in the estimate of the
subsidiarys IBNR loss and loss adjustment expense
liabilities of $10.4 million was the result of the
application of our reserving methodologies to the reduced case
and LAE reserves following the subsidiarys semi-annual
actuarial review of reserves as required by local regulation.
44
The table below provides a reconciliation of the beginning and
ending reserves for losses and loss adjustment expenses for the
six months ended June 30, 2010 and June 30, 2009.
Losses incurred and paid are reflected net of reinsurance
recoverables.
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
Balance as of January 1
|
|
$
|
2,479,136
|
|
|
$
|
2,798,287
|
|
Less: total reinsurance reserves recoverable
|
|
|
347,728
|
|
|
|
394,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,131,408
|
|
|
|
2,403,712
|
|
Net reduction in ultimate losses and loss adjustment expense
liabilities
|
|
|
(51,962
|
)
|
|
|
(44,072
|
)
|
Net losses paid
|
|
|
(131,088
|
)
|
|
|
(79,821
|
)
|
Effect of exchange rate movement
|
|
|
(62,429
|
)
|
|
|
66,126
|
|
Retroactive reinsurance contracts assumed
|
|
|
364,518
|
|
|
|
48,818
|
|
Acquired on purchase of subsidiaries
|
|
|
222,042
|
|
|
|
11,383
|
|
|
|
|
|
|
|
|
|
|
Net balance as at June 30
|
|
$
|
2,472,489
|
|
|
$
|
2,406,146
|
|
Plus: total reinsurance reserves recoverable
|
|
|
421,864
|
|
|
|
375,431
|
|
|
|
|
|
|
|
|
|
|
Balance as at June 30
|
|
$
|
2,894,353
|
|
|
$
|
2,781,577
|
|
|
|
|
|
|
|
|
|
|
Salaries
and Benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Variance
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
Consulting
|
|
$
|
23,309
|
|
|
$
|
17,904
|
|
|
$
|
(5,405
|
)
|
Reinsurance
|
|
|
6,135
|
|
|
|
6,427
|
|
|
|
292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
29,444
|
|
|
$
|
24,331
|
|
|
$
|
(5,113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits, which include expenses relating to our
discretionary bonus and employee share plans, were
$29.4 million and $24.3 million for the six months
ended June 30, 2010 and 2009, respectively.
The increase in salaries and benefits is primarily attributable
to:
|
|
|
|
(i)
|
increased staff costs due to an increase in average staff
numbers from 287 for the six months ended June 30, 2009 to
302 for the six months ended June 30, 2010;
|
|
|
(ii)
|
amortization of the unrecognized compensation costs of
$0.6 million relating to the restricted shares that were
awarded to certain employees in 2010 under our 2006 Equity
Incentive Plan;
|
|
|
|
|
(iii)
|
an increase in the discretionary bonus expense for the six
months ended June 30, 2010 of $1.4 million due to
higher earnings; and
|
|
|
|
|
(iv)
|
increased U.S. dollar costs of our U.K.-based staff
following an increase in the average British pound exchange rate
from approximately 1.4929 for the six months ended June 30,
2009 to 1.5269 for the six months ended June 30, 2010,
respectively.
|
Of our total headcount as at June 30, 2009 and
June 30, 2010, approximately 67% and 68%, respectively, had
their salaries paid in British pounds. Expenses relating to our
discretionary bonus plan will be variable and are dependent on
our overall profitability.
45
General
and Administrative Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Variance
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
Consulting
|
|
$
|
9,754
|
|
|
$
|
8,508
|
|
|
$
|
(1,246
|
)
|
Reinsurance
|
|
|
16,534
|
|
|
|
14,784
|
|
|
|
(1,750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
26,288
|
|
|
$
|
23,292
|
|
|
$
|
(2,996
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses attributable to the
reinsurance segment increased by $1.8 million during the
six months ended June 30, 2010, as compared to the six
months ended June 30, 2009. The increase of
$1.8 million was primarily due to: (i) increased bank
costs of $1.5 million primarily associated with the costs
of establishing and maintaining our letters of credit along with
structure fees paid in relation to the establishment of the
Knapton Facility; and (ii) increased other general and
administrative expenses of $2.0 million relating primarily
to increased expenses associated with Shelbourne and
Lloyds Syndicate 2008; partially offset by
(iii) reduced rent expense of $0.8 million in relation
to reassessment of lease shortfall and dilapidation costs for
office space we acquired upon the acquisition of Copenhagen
Reinsurance Company Ltd.; and (iv) reduced professional
fees of $0.8 million.
Interest
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Variance
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
Consulting
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Reinsurance
|
|
|
5,199
|
|
|
|
9,640
|
|
|
|
4,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,199
|
|
|
$
|
9,640
|
|
|
$
|
4,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense of $5.2 million and $9.6 million was
recorded for the six months ended June 30, 2010 and 2009,
respectively. The decrease in interest expense is primarily
attributable to the decrease in the principal remaining on
outstanding bank borrowings as at June 30, 2010 as compared
to June 30, 2009, as well as lower interest rates. As at
June 30, 2009 we had approximately $354.8 million of
outstanding bank debt as compared to approximately
$270.9 million as at June 30, 2010.
Foreign
Exchange (Loss)/Gain:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
Variance
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
Consulting
|
|
$
|
(652
|
)
|
|
$
|
374
|
|
|
$
|
(1,026
|
)
|
Reinsurance
|
|
|
(1,321
|
)
|
|
|
(361
|
)
|
|
|
(960
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(1,973
|
)
|
|
$
|
13
|
|
|
$
|
(1,986
|
)
|
|