Document

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2016
Commission File Number 001-33289

ENSTAR GROUP LIMITED
(Exact name of Registrant as specified in its charter)
BERMUDA
N/A
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

Windsor Place, 3rd Floor, 22 Queen Street, Hamilton HM JX, Bermuda
(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (441) 292-3645

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
 
Accelerated filer
¨
 
Non-accelerated filer
¨
 
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  ¨    No  þ
As of August 5, 2016, the registrant had outstanding 16,225,391 voting ordinary shares and 3,130,408 non-voting convertible ordinary shares, each par value $1.00 per share.
 


Table of Contents



Enstar Group Limited
Quarterly Report on Form 10-Q
For the Period Ended June 30, 2016

Table of Contents
 
 
 
Page
PART I
 
 
 
 
Item 1.
Item 2.
Item 3.
Item 4.
 
 
 
PART II
 
 
 
 
Item 1.
Item 1A.
Item 6.
 
 
 




Table of Contents


PART I — FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS
ENSTAR GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 2016 and December 31, 2015
 
June 30,
2016
 
December 31,
2015
 
(expressed in thousands of U.S. dollars, except share data)
ASSETS
 
 
 
Short-term investments, trading, at fair value
$
122,746

 
$
87,350

Short-term investments, available-for-sale, at fair value (amortized cost: 2016 — $2,406; 2015 — $8,630)
2,401

 
8,622

Fixed maturities, trading, at fair value
4,986,615

 
4,990,794

Fixed maturities, held-to-maturity, at amortized cost
770,655

 
790,866

Fixed maturities, available-for-sale, at fair value (amortized cost: 2016 — $297,327; 2015 — $300,160)
299,929

 
293,679

Equities, trading, at fair value
117,293

 
115,941

Other investments, at fair value
936,158

 
1,034,032

Other investments, at cost
129,636

 
133,071

Total investments
7,365,433

 
7,454,355

Cash and cash equivalents
800,846

 
821,925

Restricted cash and cash equivalents
446,293

 
511,339

Premiums receivable
416,354

 
381,412

Deferred tax assets
116,047

 
121,035

Prepaid reinsurance premiums
145,184

 
121,427

Reinsurance balances recoverable
1,345,115

 
1,474,004

Funds held by reinsured companies
1,190,899

 
109,358

Deferred acquisition costs
101,227

 
89,123

Goodwill and intangible assets
187,555

 
191,304

Other assets
544,213

 
556,850

TOTAL ASSETS
$
12,659,166

 
$
11,832,132

 
 
 
 
LIABILITIES
 
 
 
Losses and loss adjustment expenses
$
6,433,845

 
$
5,720,149

Policy benefits for life and annuity contracts
1,286,276

 
1,304,697

Unearned premiums
576,970

 
542,771

Insurance and reinsurance balances payable
318,072

 
274,598

Deferred tax liabilities
94,676

 
92,588

Loans payable
614,030

 
600,250

Other liabilities
276,186

 
358,633

TOTAL LIABILITIES
9,600,055

 
8,893,686

 
 
 
 
COMMITMENTS AND CONTINGENCIES

 

 
 
 
 
REDEEMABLE NONCONTROLLING INTEREST
439,656

 
417,663

 
 
 
 
SHAREHOLDERS’ EQUITY
 
 
 
Share capital authorized, issued and fully paid, par value $1 each (authorized 2016 and 2015: 156,000,000):

 

Ordinary shares (issued and outstanding 2016: 16,166,652; 2015: 16,133,334)
16,167

 
16,133

Non-voting convertible ordinary shares:
 
 
 
Series A (issued 2016: nil; 2015: 2,972,892)

 
2,973

Series C (issued and outstanding 2016: 2,725,637; 2015: 2,725,637)
2,726

 
2,726

Series E (issued and outstanding 2016: 404,771; 2015: 404,771)
405

 
405

Series C Preferred Shares (issued and outstanding 2016: 388,571; 2015: nil)
389

 

Treasury shares at cost (Preferred shares 2016: 388,571; Series A non-voting convertible ordinary shares 2015: 2,972,892)
(421,559
)
 
(421,559
)
Additional paid-in capital
1,376,590

 
1,373,044

Accumulated other comprehensive loss
(21,527
)
 
(35,162
)
Retained earnings
1,662,623

 
1,578,312

Total Enstar Group Limited Shareholders’ Equity
2,615,814

 
2,516,872

Noncontrolling interest
3,641

 
3,911

TOTAL SHAREHOLDERS’ EQUITY
2,619,455

 
2,520,783

TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY
$
12,659,166

 
$
11,832,132

See accompanying notes to the unaudited condensed consolidated financial statements

1

Table of Contents


ENSTAR GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Three and Six Months Ended June 30, 2016 and 2015
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
 
(expressed in thousands of U.S.
dollars, except share and per share data)
INCOME
 
 
 
 
 
 
 
Net premiums earned
$
226,928

 
$
212,023

 
$
436,337

 
$
410,929

Fees and commission income
7,243

 
9,131

 
12,590

 
20,611

Net investment income
54,223

 
34,655

 
114,286

 
65,072

Net realized and unrealized gains (losses)
37,987

 
(11,249
)
 
75,951

 
31,771

Other income
4,048

 
11,838

 
6,461

 
15,314

 
330,429

 
256,398

 
645,625

 
543,697

EXPENSES
 
 
 
 
 
 
 
Net incurred losses and loss adjustment expenses
96,462

 
65,900

 
179,680

 
136,036

Life and annuity policy benefits
19,778

 
28,090

 
40,758

 
50,937

Acquisition costs
46,489

 
37,094

 
93,754

 
71,644

General and administrative expenses
105,878

 
93,963

 
200,324

 
190,561

Interest expense
5,424

 
4,876

 
10,825

 
8,879

Net foreign exchange losses (gains)
(1,856
)
 
2,452

 
(84
)
 
(2,619
)
 
272,175

 
232,375

 
525,257

 
455,438

EARNINGS BEFORE INCOME TAXES
58,254

 
24,023

 
120,368

 
88,259

INCOME TAXES
(8,473
)
 
(5,816
)
 
(15,982
)
 
(16,560
)
NET EARNINGS
49,781

 
18,207

 
104,386

 
71,699

Less: Net earnings attributable to noncontrolling interest
(9,187
)
 
(3,662
)
 
(18,272
)
 
(12,307
)
NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED
$
40,594

 
$
14,545

 
$
86,114

 
$
59,392

EARNINGS PER SHARE — BASIC
 
 
 
 
 
 
 
Net earnings per ordinary share attributable to Enstar Group Limited shareholders
$
2.10

 
$
0.76

 
$
4.46

 
$
3.09

EARNINGS PER SHARE — DILUTED
 
 
 
 
 
 
 
Net earnings per ordinary share attributable to Enstar Group Limited shareholders
$
2.09

 
$
0.75

 
$
4.43

 
$
3.07

Weighted average ordinary shares outstanding — basic
19,295,280

 
19,252,359

 
19,289,119

 
19,244,951

Weighted average ordinary shares outstanding — diluted
19,430,464

 
19,383,753

 
19,420,541

 
19,364,775


See accompanying notes to the unaudited condensed consolidated financial statements


2

Table of Contents


ENSTAR GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three and Six Months Ended June 30, 2016 and 2015
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
 
(expressed in thousands of U.S. dollars)
NET EARNINGS
$
49,781

 
$
18,207

 
$
104,386

 
$
71,699

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Unrealized holding gains (losses) on fixed income investments arising during the period
2,174

 
2,162

 
9,094

 
(2,194
)
Reclassification adjustment for net realized losses (gains) included in net earnings
113

 
(38
)
 
135

 
(144
)
Unrealized gains (losses) arising during the period, net of reclassification adjustment
2,287

 
2,124

 
9,229

 
(2,338
)
Currency translation adjustment
(4,542
)
 
3,299

 
6,053

 
(12,587
)
Total other comprehensive income (loss)
(2,255
)
 
5,423

 
15,282

 
(14,925
)
Comprehensive income
47,526

 
23,630

 
119,668

 
56,774

Less comprehensive income attributable to noncontrolling interest
(9,353
)
 
(533
)
 
(19,919
)
 
(6,169
)
COMPREHENSIVE INCOME ATTRIBUTABLE TO ENSTAR GROUP LIMITED
$
38,173

 
$
23,097

 
$
99,749

 
$
50,605


See accompanying notes to the unaudited condensed consolidated financial statements


3

Table of Contents


ENSTAR GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Six Months Ended June 30, 2016 and 2015
 
Six Months Ended
June 30,
 
2016
 
2015
 
(expressed in thousands of U.S. dollars)
Share Capital — Ordinary Shares
 
 
 
Balance, beginning of period
$
16,133

 
$
15,761

Issue of shares
34

 
54

Conversion of Series E Non-Voting Convertible Ordinary Shares

 
12

Balance, end of period
$
16,167

 
$
15,827

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

 
$
2,973

Shares converted to Series C Convertible Participating Non-Voting Perpetual Preferred Stock
(2,973
)
 

Balance, end of period
$

 
$
2,973

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

 
$
2,726

Share Capital — Series E Non-Voting Convertible Ordinary Shares
 
 
 
Balance, beginning of period
$
405

 
$
714

Conversion to Ordinary Shares

 
(12
)
Balance, end of period
$
405

 
$
702

Share Capital — Series C Convertible Participating Non-Voting Perpetual Preferred Stock
 
 
 
Balance, beginning of period
$

 
$

Conversion of Series A Non-Voting Convertible Ordinary Stock
389

 

Balance, end of period
$
389

 
$

Treasury Shares
 
 
 
Balance, beginning and end of period
$
(421,559
)
 
$
(421,559
)
Additional Paid-in Capital
 
 
 
Balance, beginning of period
$
1,373,044

 
$
1,321,715

Issue of shares and warrants
360

 
911

Conversion of Series A Non-Voting Convertible Ordinary Stock
2,584

 

Amortization of equity incentive plan
602

 
2,821

Equity attributable to Enstar Group Limited on acquisition of noncontrolling shareholders’ interest in subsidiaries

 
39,569

Balance, end of period
$
1,376,590

 
$
1,365,016

Accumulated Other Comprehensive Income (Loss)
 
 
 
Balance, beginning of period
$
(35,162
)
 
$
(12,686
)
Currency translation adjustment
 
 
 
Balance, beginning of period
(23,790
)
 
(2,779
)
Change in currency translation adjustment
6,053

 
(10,227
)
Purchase of noncontrolling shareholder's interest in subsidiaries

 
2,937

Balance, end of period
(17,737
)
 
(10,069
)
Defined benefit pension liability
 
 
 
Balance, beginning and end of period
(7,723
)
 
(7,726
)
Unrealized gains (losses) on investments
 
 
 
Balance, beginning of period
(3,649
)
 
(2,181
)
Change in unrealized losses on investments
7,582

 
(1,809
)
Purchase of noncontrolling shareholders’ interest in subsidiaries

 
312

Balance, end of period
3,933

 
(3,678
)
Balance, end of period
$
(21,527
)
 
$
(21,473
)
Retained Earnings
 
 
 
Balance, beginning of period
$
1,578,312

 
$
1,395,206

Net earnings attributable to Enstar Group Limited
86,114

 
59,392

Accretion of redeemable noncontrolling interests to redemption value
(1,803
)
 

Balance, end of period
$
1,662,623

 
$
1,454,598

Noncontrolling Interest (excludes redeemable noncontrolling interests)
 
 
 
Balance, beginning of period
$
3,911

 
$
217,970

Sale of noncontrolling shareholders' interest in subsidiaries

 
(182,819
)
Dividends paid

 
680


4

Table of Contents


Contribution of capital

 
(323
)
Net earnings (loss) attributable to noncontrolling interest
(270
)
 
291

Foreign currency translation adjustments

 
(1,558
)
Net movement in unrealized holding losses on investments

 
(123
)
Balance, end of period
$
3,641

 
$
34,118

 
See accompanying notes to the unaudited condensed consolidated financial statements

5

Table of Contents


ENSTAR GROUP LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2016 and 2015
 
Six Months Ended
June 30,
 
2016
 
2015
 
(expressed in thousands
 of U.S. dollars)
OPERATING ACTIVITIES:
 
 
 
Net earnings
$
104,386

 
$
71,699

Adjustments to reconcile net earnings to cash flows used in operating activities:
 
 
 
Realized gains on sale of investments
(786
)
 
(19,782
)
Unrealized gains on investments
(75,165
)
 
(11,989
)
Other non-cash items
3,811

 
5,553

Depreciation and other amortization
24,320

 
28,262

Net change in trading securities held on behalf of policyholders
(996
)
 
1,728

Sales and maturities of trading securities
1,666,796

 
1,669,290

Purchases of trading securities
(1,615,299
)
 
(2,299,395
)
Changes in:
 
 
 
Reinsurance balances recoverable
132,938

 
210,401

Funds held by reinsured companies
(17
)
 
20,773

Losses and loss adjustment expenses
(380,111
)
 
(188,793
)
Policy benefits for life and annuity contracts
(20,881
)
 
(14,028
)
Insurance and reinsurance balances payable
41,473

 
33,828

Unearned premiums
34,200

 
26,505

Other operating assets and liabilities
(131,001
)
 
(12,097
)
Net cash flows used in operating activities
(216,332
)
 
(478,045
)
INVESTING ACTIVITIES:
 
 
 
Acquisitions, net of cash acquired
$
9,924

 
$
56,369

Sales and maturities of available-for-sale securities
55,443

 
97,733

Purchase of available-for-sale securities
(47,798
)
 
(48,548
)
Maturities of held-to-maturity securities
15,302

 
5,246

Movement in restricted cash and cash equivalents
65,116

 
242,365

Purchase of other investments
(40,166
)
 
(133,411
)
Redemption of other investments
125,100

 
42,415

Other investing activities
(1,597
)
 
(2,016
)
Net cash flows provided by investing activities
181,324

 
260,153

FINANCING ACTIVITIES:
 
 
 
Contribution by noncontrolling interest
$

 
$
680

Contribution by redeemable noncontrolling interest

 
15,728

Dividends paid to noncontrolling interest

 
(7,433
)
Receipt of loans
154,048

 
374,700

Repayment of loans
(140,500
)
 
(46,000
)
Net cash flows provided by financing activities
13,548

 
337,675

EFFECT OF EXCHANGE RATE CHANGES ON FOREIGN CURRENCY CASH AND CASH EQUIVALENTS
381

 
(6,226
)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(21,079
)
 
113,557

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
821,925

 
963,402

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
800,846

 
$
1,076,959

 
 
 
 
Supplemental Cash Flow Information:
 
 
 
Income taxes paid, net of refunds
$
15,830

 
$
13,343

Interest paid
$
10,578

 
$
7,952


See accompanying notes to the unaudited condensed consolidated financial statements

6

Table of Contents


ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016 and December 31, 2015

(Tabular information expressed in thousands of U.S. dollars except share and per share data)
 
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation and Consolidation
These unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, these financial statements reflect all adjustments consisting of normal recurring items considered necessary for a fair presentation under U.S. GAAP. The results of operations for any interim period are not necessarily indicative of results of the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2015. Inter-company accounts and transactions have been eliminated. Results of operations for subsidiaries acquired are included from the dates on which we acquired them. In these notes, the terms "we," "us," "our," or "the Company" refer to Enstar Group Limited and its consolidated subsidiaries. Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings.
The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ materially from these estimates. Results of changes in estimates are reflected in earnings in the period in which the change is made. Our principal estimates include, but are not limited to:
liability for losses and loss adjustment expenses ("LAE");
liability for policy benefits for life and annuity contracts;
reinsurance balances recoverable;
gross and net premiums written and net premiums earned;
impairment charges, including other-than-temporary impairments on investment securities classified as available-for-sale or held-to-maturity, and impairments on goodwill, intangible assets and deferred charges;
fair value measurements of investments;
fair value estimates associated with accounting for acquisitions; and
redeemable noncontrolling interests.
New Accounting Standards Adopted in 2016
Accounting Standards Update ("ASU") 2015-16, Business Combinations, Simplifying the Accounting for Measurement-Period Adjustment
In September 2015, the Financial Accounting Standards Board ("FASB") issued ASU 2015-16, which eliminates the requirement for an acquirer to retrospectively adjust the financial statements for measurement-period adjustments that occur in periods after a business combination is consummated. Under the new guidance, an acquirer must recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The adoption of this guidance did not have a material impact on our consolidated financial statements and disclosures.

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Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

ASU 2015-07, Disclosures for Investments in Certain Entities that Calculate Net Asset Value or its Equivalent
In May 2015, the FASB issued ASU No. 2015-07, which eliminates the requirement to categorize investments in the fair value hierarchy if their fair value is measured at the net asset value ("NAV") per share (or its equivalent) using the practical expedient in the FASB’s fair value measurement guidance. Instead, an entity is required to include those investments as a reconciling line item so that the total fair value amount of investments in the disclosure is consistent with the amount on the balance sheet. In addition, the scope of current disclosure requirements for investments eligible to be measured at NAV is limited to investments for which the practical expedient is applied. While the adoption of this guidance impacted our disclosures, it did not have an impact on our consolidated financial statements.
ASU 2015-02, Amendments to the Consolidation Analysis
In February 2015, the FASB issued ASU 2015-02, which requires entities to evaluate whether they should consolidate certain legal entities. The new consolidation guidance changes the way entities evaluate whether (1) they should consolidate limited partnerships and similar entities; (2) fees paid to a decision maker or service provider are variable interests in a variable interest entity ("VIE"), and (3) variable interests in a VIE held by related parties of a registrant require the registrant to consolidate the VIE. The new guidance also eliminates the VIE consolidation model based on majority exposure to variability that applied to certain investment companies and similar entities. The ASU also significantly changes how to evaluate voting rights for entities that are not similar to limited partnerships when determining whether the entity is a VIE, which may affect entities for which decision making rights are conveyed through a contractual arrangement. The adoption of this guidance did not have a material impact on our consolidated financial statements and disclosures.
Recently Issued Accounting Pronouncements Not Yet Adopted
ASU 2016-13, Financial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU 2016-13, which amends the guidance on impairment of financial instruments and significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The ASU will replace the existing “incurred loss” approach, with an “expected loss” model for instruments measured at amortized cost and require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount under the existing other-than-temporary-impairment model. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. The ASU is effective for interim and annual reporting periods beginning after December 15, 2019. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.
ASU 2016-09, Improvements to Employee Share-Based Payment Accounting
In March 2016, the FASB issued ASU 2016-09, which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The ASU is effective for interim and annual reporting periods beginning after December 15, 2016. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.
ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
In March 2016, the FASB issued ASU 2016-08, which amends the principal-versus agent implementation guidance and illustrations in its new revenue standard (ASU 2014-09). The ASU clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. Similar to ASU 2014-09, this guidance is effective for interim and reporting periods beginning after December 15, 2017, as amended by the one-year deferral and the early adoption provisions in ASU 2015-14. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.
ASU 2016-07, Simplifying the Transition to the Equity Method of Accounting
In March 2016, the FASB issued ASU 2016-07, which simplifies the equity method of accounting by eliminating the requirement to retrospectively apply the equity method to an investment that subsequently qualifies for such accounting as a result of an increase in the level of ownership interest or degree of influence. Entities are therefore required to apply the guidance prospectively to increases in the level of ownership interest or degree of influence occurring after the ASU’s effective date. The ASU further requires that unrealized holding gains or losses in accumulated

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

other comprehensive income related to an available-for-sale security that becomes eligible for the equity method be recognized in earnings as of the date on which the investment qualifies for the equity method. The ASU is effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.
ASU 2016-02, Leases
In February 2016, the FASB issued ASU 2016-02, which amends the guidance on the classification, measurement and disclosure of leases for both lessors and lessees. The ASU requires lessees to recognize a right-of-use asset and a lease liability on the balance sheet and to disclose qualitative and quantitative information about leasing arrangements. The ASU is effective for interim and annual reporting periods beginning after December 15, 2018. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.
ASU 2016-01, Recognition and Measurement of Financial Instruments
In January 2016, the FASB issued ASU 2016-01, which amends the guidance on the classification and measurement of financial instruments. Although the ASU retains many of the current requirements, it significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities, and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments. The ASU is effective for interim and annual reporting periods beginning after December 15, 2017. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.
2. SIGNIFICANT NEW BUSINESS
2016
Coca-Cola
On August 5, 2016, we entered into a reinsurance transaction with The Coca-Cola Company and its subsidiaries (“Coca-Cola”) pursuant to which we reinsured certain of Coca-Cola’s retention and deductible risks under its subsidiaries’ U.S. workers’ compensation, auto liability, general liability, and product liability insurance coverage. We assumed total gross reserves of $109.1 million, received total assets of $102.7 million and recorded a deferred charge of $6.4 million, included in other assets. We have transferred approximately $109.1 million into trust to support our obligations under the reinsurance agreements. We provided a limited parental guarantee, subject to an overall maximum of approximately $27.0 million.
Allianz
On March 31, 2016, we completed our previously announced transaction with Allianz SE ("Allianz") to reinsure portfolios of Allianz's run-off business. Pursuant to the reinsurance agreement effective January 1, 2016, our subsidiary reinsured 50% of certain portfolios of workers' compensation, construction defect, and asbestos, pollution, and toxic tort business originally held by Fireman's Fund Insurance Company, and assumed net reinsurance reserves of approximately $1.1 billion. Affiliates of Allianz retained approximately $1.1 billion of reinsurance premium as funds withheld collateral for the obligations of our subsidiary under the reinsurance agreement, and we transferred approximately $110.0 million to a reinsurance trust to further support our subsidiary's obligations. Interest on the funds withheld is earned by us based upon an initial fixed interest rate. We have also provided a limited parental guarantee, which is subject to a maximum cap.  The combined monetary total of the support offered by us through the trust and parental guarantee is calculated in accordance with contractually defined terms and is capped at $270.0 million.
In addition to the reinsurance transaction described above, we have entered into a claims consulting agreement with San Francisco Reinsurance Company, an affiliate of Allianz, with respect to the entire $2.2 billion portfolio, including the 50% share retained by affiliates of Allianz.

9

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

3. INVESTMENTS
We hold: (i) trading portfolios of fixed maturity investments, short-term investments and equities, carried at fair value; (ii) a held-to-maturity portfolio of fixed maturity investments carried at amortized cost; (iii) available-for-sale portfolios of short-term and fixed maturity investments carried at fair value; and (iv) other investments carried at either fair value or cost.
Trading
The fair values of our fixed maturity investments, short-term investments and equities classified as trading were as follows:
 
June 30,
2016
 
December 31,
2015
U.S. government and agency
$
771,489

 
$
750,957

Non-U.S. government
309,794

 
359,002

Corporate
2,612,211

 
2,631,682

Municipal
8,691

 
22,247

Residential mortgage-backed
474,820

 
391,247

Commercial mortgage-backed
281,052

 
284,575

Asset-backed
651,304

 
638,434

Total fixed maturity and short-term investments
5,109,361

 
5,078,144

Equities — U.S.
109,903

 
108,793

Equities — International
7,390

 
7,148

 
$
5,226,654

 
$
5,194,085

Included within residential and commercial mortgage-backed securities as at June 30, 2016 were securities issued by U.S. governmental agencies with a fair value of $447.0 million (as at December 31, 2015: $359.4 million). Included within corporate securities as at June 30, 2016 were senior secured loans of $89.9 million (as at December 31, 2015: $94.4 million).
The contractual maturities of our fixed maturity and short-term investments classified as trading are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
As at June 30, 2016
 
Amortized
Cost
 
Fair Value
 
% of Total
Fair
Value
One year or less
 
$
732,723

 
$
723,589

 
14.2
%
More than one year through two years
 
927,837

 
928,798

 
18.2
%
More than two years through five years
 
1,266,491

 
1,279,337

 
25.0
%
More than five years through ten years
 
551,552

 
563,660

 
11.0
%
More than ten years
 
197,290

 
206,801

 
4.0
%
Residential mortgage-backed
 
473,782

 
474,820

 
9.3
%
Commercial mortgage-backed
 
280,949

 
281,052

 
5.5
%
Asset-backed
 
669,975

 
651,304

 
12.8
%
 
 
$
5,100,599

 
$
5,109,361

 
100.0
%

10

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

Held-to-maturity
We hold a portfolio of held-to-maturity securities to support our annuity business. The amortized cost and fair values of our fixed maturity investments classified as held-to-maturity were as follows: 
As at June 30, 2016
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
Non-OTTI
 
Fair
Value
U.S. government and agency
 
$
19,886

 
$
1,068

 
$
(62
)
 
$
20,892

Non-U.S. government
 
33,233

 
1,193

 

 
34,426

Corporate
 
717,536

 
36,782

 
(1,457
)
 
752,861

 
 
$
770,655

 
$
39,043

 
$
(1,519
)
 
$
808,179

As at December 31, 2015
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
Non-OTTI
 
Fair Value
U.S. government and agency
 
$
19,771

 
$
8

 
$
(458
)
 
$
19,321

Non-U.S. government
 
40,503

 
48

 
(1,493
)
 
39,058

Corporate
 
730,592

 
3,398

 
(23,298
)
 
710,692

 
 
$
790,866

 
$
3,454

 
$
(25,249
)
 
$
769,071

The contractual maturities of our fixed maturity investments classified as held-to-maturity are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. 
As at June 30, 2016
 
Amortized
Cost
 
Fair
Value
 
% of Total
Fair
Value
One year or less
 
$
17,293

 
$
17,318

 
2.1
%
More than one year through two years
 
23,600

 
23,784

 
3.0
%
More than two years through five years
 
66,940

 
68,813

 
8.5
%
More than five years through ten years
 
107,660

 
110,845

 
13.7
%
More than ten years
 
555,162

 
587,419

 
72.7
%
 
 
$
770,655

 
$
808,179

 
100.0
%

11

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

Available-for-sale
The amortized cost and fair values of our short-term and fixed maturity investments classified as available-for-sale were as follows:
As at June 30, 2016
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
Non-OTTI
 
Fair
Value
U.S. government and agency
 
$
13,364

 
$
164

 
$

 
$
13,528

Non-U.S. government
 
89,836

 
2,530

 
(2,159
)
 
90,207

Corporate
 
184,886

 
3,820

 
(1,945
)
 
186,761

Municipal
 
6,500

 
102

 

 
6,602

Residential mortgage-backed
 
569

 
55

 

 
624

Asset-backed
 
4,578

 
30

 

 
4,608

 
 
$
299,733

 
$
6,701

 
$
(4,104
)
 
$
302,330

As at December 31, 2015
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
Non-OTTI
 
Fair
Value
U.S. government and agency
 
$
25,102

 
$
80

 
$
(341
)
 
$
24,841

Non-U.S. government
 
89,631

 
42

 
(3,889
)
 
$
85,784

Corporate
 
182,773

 
1,040

 
(3,429
)
 
$
180,384

Municipal
 
5,959

 
4

 
(36
)
 
$
5,927

Residential mortgage-backed
 
665

 
51

 
(1
)
 
$
715

Asset-backed
 
4,660

 

 
(10
)
 
$
4,650

 
 
$
308,790

 
$
1,217

 
$
(7,706
)
 
$
302,301

 The contractual maturities of our short-term and fixed maturity investments classified as available-for-sale are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
As at June 30, 2016
 
Amortized
Cost
 
Fair
Value
 
% of Total
Fair
Value
One year or less
 
$
51,327

 
$
50,119

 
16.6
%
More than one year through two years
 
68,189

 
67,500

 
22.3
%
More than two years through five years
 
87,040

 
86,492

 
28.6
%
More than five years through ten years
 
41,192

 
42,841

 
14.2
%
More than ten years
 
46,838

 
50,146

 
16.6
%
Residential mortgage-backed
 
569

 
624

 
0.2
%
Asset-backed
 
4,578

 
4,608

 
1.5
%
 
 
$
299,733

 
$
302,330

 
100.0
%

12

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Gross Unrealized Losses
The following tables summarize our fixed maturity and short-term investments in a gross unrealized loss position:
 
 
12 Months or Greater
 
Less Than 12 Months
 
Total
As at June 30, 2016
 
Fair
Value
 
Gross Unrealized
Losses
 
Fair
Value
 
Gross Unrealized
Losses
 
Fair
Value
 
Gross Unrealized
Losses
Fixed maturity and short-term investments, at fair value
 
 
 
 
 
 
 
 
 
 
 
 
Non-U.S. government
 
$

 
$

 
$
20,177

 
$
(2,159
)
 
$
20,177

 
$
(2,159
)
Corporate
 
3,089

 
(137
)
 
32,647

 
(1,808
)
 
35,736

 
(1,945
)
Total
 
$
3,089

 
$
(137
)
 
$
52,824

 
$
(3,967
)
 
$
55,913

 
$
(4,104
)
Fixed maturity investments, at amortized cost
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
 
$
447

 
$
(62
)
 
$

 
$

 
$
447

 
$
(62
)
Corporate
 
18,469

 
(643
)
 
37,889

 
(814
)
 
56,358

 
(1,457
)
Total
 
18,916

 
(705
)
 
37,889

 
(814
)
 
56,805

 
(1,519
)
Total fixed maturity and short-term investments
 
$
22,005

 
$
(842
)
 
$
90,713

 
$
(4,781
)
 
$
112,718

 
$
(5,623
)
  
 
 
12 Months or Greater
 
Less Than 12 Months
 
Total
As at December 31, 2015
 
Fair
Value
 
Gross Unrealized
Losses
 
Fair
Value
 
Gross Unrealized
Losses
 
Fair
Value
 
Gross Unrealized
Losses
Fixed maturity and short-term investments, at fair value
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
 
$
523

 
$
(2
)
 
$
21,694

 
$
(339
)
 
$
22,217

 
$
(341
)
Non-U.S. government
 
18,995

 
(2,633
)
 
50,080

 
(1,256
)
 
69,075

 
(3,889
)
Corporate
 
54,295

 
(2,394
)
 
81,047

 
(1,035
)
 
135,342

 
(3,429
)
Municipal
 

 

 
4,609

 
(36
)
 
4,609

 
(36
)
Residential mortgage-backed
 
71

 
(1
)
 

 

 
71

 
(1
)
Asset-backed
 
4,649

 
(10
)
 

 

 
4,649

 
(10
)
Total
 
$
78,533

 
$
(5,040
)
 
$
157,430

 
$
(2,666
)
 
$
235,963

 
$
(7,706
)
Fixed maturity investments, at amortized cost
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
 
$
7,221

 
$
(48
)
 
$
12,024

 
$
(410
)
 
$
19,245

 
$
(458
)
Non-U.S. government
 
24,424

 
(1,255
)
 
8,885

 
(238
)
 
33,309

 
(1,493
)
Corporate
 
209,000

 
(9,038
)
 
330,833

 
(14,260
)
 
539,833

 
(23,298
)
Total
 
240,645

 
(10,341
)
 
351,742

 
(14,908
)
 
592,387

 
(25,249
)
Total fixed maturity and short-term investments
 
$
319,178

 
$
(15,381
)
 
$
509,172

 
$
(17,574
)
 
$
828,350

 
$
(32,955
)
As at June 30, 2016 and December 31, 2015, the number of securities classified as available-for-sale in an unrealized loss position was 120 and 332, respectively. Of these securities, the number of securities that had been in an unrealized loss position for twelve months or longer was 13 and 124, respectively.
As at June 30, 2016 and December 31, 2015, the number of securities classified as held-to-maturity in an unrealized loss position was 14 and 109, respectively. Of these securities, the number of securities that had been in an unrealized loss position for twelve months or longer was 6 and 53, respectively.

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

Other-Than-Temporary Impairment
For the six months ended June 30, 2016 and 2015, we did not recognize any other-than-temporary impairment losses on either our available-for-sale or held-to-maturity securities. We determined that no credit losses existed as at June 30, 2016. A description of our other-than-temporary impairment process is included in Note 2 to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2015. There were no changes to our process during the six months ended June 30, 2016.
Credit Ratings
The following table sets forth the credit ratings of our fixed maturity and short-term investments as of June 30, 2016:
 
 
Amortized
Cost
 
Fair Value
 
% of Total
Investments
 
AAA Rated
 
AA Rated
 
A Rated
 
BBB
Rated
 
Non-
Investment
Grade
 
Not Rated
Fixed maturity and short-term investments, at fair value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
 
$
771,905

 
$
785,017

 
12.6
%
 
$
778,456

 
$
6,561

 
$

 
$

 
$

 
$

Non-U.S. government
 
405,688

 
400,001

 
6.4
%
 
129,956

 
185,750

 
52,705

 
20,284

 
11,306

 

Corporate
 
2,777,899

 
2,798,972

 
45.1
%
 
164,171

 
451,121

 
1,312,900

 
721,700

 
143,010

 
6,070

Municipal
 
14,987

 
15,293

 
0.2
%
 
5,395

 
7,710

 
2,188

 

 

 

Residential mortgage-backed
 
474,351

 
475,444

 
7.6
%
 
465,622

 
452

 
6,029

 
2,302

 
1,036

 
3

Commercial mortgage-backed
 
280,949

 
281,052

 
4.5
%
 
114,235

 
34,730

 
73,995

 
15,538

 
2,674

 
39,880

Asset-backed
 
674,553

 
655,912

 
10.6
%
 
232,047

 
128,948

 
182,307

 
43,362

 
69,051

 
197

Total
 
5,400,332

 
5,411,691

 
87.0
%
 
1,889,882

 
815,272

 
1,630,124

 
803,186

 
227,077

 
46,150

% of total fair value
 
 
 
 
 
 
 
34.9
%
 
15.1
%
 
30.0
%
 
14.9
%
 
4.2
%
 
0.9
%
Fixed maturity investments, at amortized cost
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
 
19,886

 
20,892

 
0.3
%
 
19,491

 
1,378

 

 

 

 
23

Non-U.S. government
 
33,233

 
34,426

 
0.6
%
 

 
9,446

 
24,980

 

 

 

Corporate
 
717,536

 
752,861

 
12.1
%
 
41,800

 
114,014
 
488,429
 
108,522

 

 
96

Total
 
770,655

 
808,179

 
13.0
%
 
61,291

 
124,838

 
513,409

 
108,522

 

 
119

% of total fair value
 
 
 
 
 
 
 
8.3
%
 
15.4
%
 
64.7
%
 
11.5
%
 
%
 
0.1
%
Total fixed maturity and short-term investments
 
$
6,170,987

 
$
6,219,870

 
100.0
%
 
$
1,951,173

 
$
940,110

 
$
2,143,533

 
$
911,708

 
$
227,077

 
$
46,269

% of total fair value
 
 
 
 
 
 
 
31.4
%
 
15.1
%
 
34.4
%
 
14.7
%
 
3.7
%
 
0.7
%








14

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other Investments, at fair value
The following table summarizes our other investments carried at fair value:
 
 
June 30,
2016
 
December 31,
2015
Private equities and private equity funds
 
$
229,756

 
$
254,883

Fixed income funds
 
248,815

 
291,736

Fixed income hedge funds
 
111,543

 
109,400

Equity funds
 
163,050

 
147,390

Multi-strategy hedge fund
 
98,416

 
99,020

Real estate debt fund
 

 
54,829

CLO equities
 
65,156

 
61,702

CLO equity funds
 
13,513

 
13,928

Call options on equities
 
4,850

 

Other
 
1,059

 
1,144

 
 
$
936,158

 
$
1,034,032

The valuation of our other investments is described in Note 4 - "Fair Value Measurements." Due to a lag in the valuations of certain funds reported by the managers, we may record changes in valuation with up to a three-month lag. We regularly review and discuss fund performance with the fund managers to corroborate the reasonableness of the reported net asset values and to assess whether any events have occurred within the lag period that would affect the valuation of the investments. The following is a description of the nature of each of these investment categories:
Private equities and private equity funds invest primarily in the financial services industry. All of our investments in private equities and private equity funds are subject to restrictions on redemptions and sales that are determined by the governing documents and limit our ability to liquidate those investments. These restrictions have been in place since the dates of our initial investments.
Fixed income funds comprise a number of positions in diversified fixed income funds that are managed by third-party managers. Underlying investments vary from high-grade corporate bonds to non-investment grade senior secured loans and bonds, but are generally invested in liquid fixed income markets. These funds have regularly published prices. The funds have liquidity terms that vary from daily up to quarterly.
Fixed income hedge funds invest in a diversified portfolio of debt securities. The hedge funds have imposed lock-up periods of up to three years from the time of initial investment. Once eligible, redemptions are permitted quarterly with 60 days’ notice.
Equity funds invest in a diversified portfolio of international publicly traded equity securities. The funds are eligible for bi-monthly redemption.
Multi-strategy hedge fund comprises an investment in a hedge fund that invests in a variety of asset classes including funds, fixed income, equity securities and other investments. The fund is eligible for quarterly redemption after September 1, 2016. Once eligible, redemptions will be permitted quarterly with 60 days’ notice.
Real estate debt fund invests primarily in U.S. commercial real estate loans and securities. A redemption request for this fund can be made 10 days after the date of any monthly valuation. The fund was fully redeemed as at March 31, 2016.
CLO equities comprise investments in the equity tranches of term-financed securitizations of diversified pools of corporate bank loans. CLO equities denote direct investments by us in these securities.
CLO equity funds comprise two funds that invest primarily in the equity tranches of term-financed securitizations of diversified pools of corporate bank loans. One of the funds has a fair value of $3.6 million, part of a self-liquidating structure that is expected to pay out over two to six years. The other fund has a fair value of $9.9 million and is eligible for redemption in 2018.

15

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Call options on equities comprise directly held options to purchase the common equity of publicly traded corporations.
Other primarily comprises a fund that provides loans to educational institutions throughout the United States and its territories.
Investments of $0.8 million in fixed income hedge funds were subject to gates or side-pockets, where redemptions are subject to the sale of underlying investments. A gate is the ability to deny or delay a redemption request, whereas a side-pocket is a designated account for which the investor loses its redemption rights.
As at June 30, 2016, we had unfunded commitments to private equity funds of $138.4 million.
Other Investments, at cost
Our other investments carried at cost of $129.6 million as of June 30, 2016 consist of life settlement contracts acquired during 2015. During the six months ended June 30, 2016 and 2015, net investment income included $10.0 million and $2.0 million, respectively, related to investments in life settlements. There were impairment charges of $2.9 million and nil recognized during the six month periods ended June 30, 2016 and 2015, respectively. The following table presents further information regarding our investments in life settlements as of June 30, 2016 and December 31, 2015.
 
 
June 30, 2016
 
December 31, 2015

 
Number of Contracts
 
Carrying
Value
 
Face Value (Death Benefits)
 
Number of Contracts
 
Carrying
Value
 
Face Value (Death Benefits)
Remaining Life Expectancy of Insureds:
 
 
 
 
 
 
 
 
 
 
 
 
0 – 1 year
 
2

 
$
436

 
$
700

 
2

 
$
417

 
$
700

1 – 2 years
 
3

 
2,725

 
4,500

 
4

 
3,032

 
5,000

2 – 3 years
 
18

 
25,556

 
53,900

 
19

 
24,072

 
39,123

3 – 4 years
 
16

 
14,855

 
30,328

 
14

 
9,695

 
20,932

4 – 5 years
 
21

 
9,882

 
22,759

 
16

 
9,025

 
22,457

Thereafter
 
187

 
76,182

 
432,601

 
221

 
86,830

 
491,499

Total
 
247

 
$
129,636

 
$
544,788

 
276

 
$
133,071

 
$
579,711

Remaining life expectancy for year 0-1 in the table above references policies whose current life expectancy is less than 12 months as of the reporting date. Remaining life expectancy is not an indication of expected maturity. Actual maturity in any category above may vary significantly (either earlier or later) from the remaining life expectancies reported.
At June 30, 2016, our best estimate of the life insurance premiums required to keep the policies in force, payable in the 12 months ending June 30, 2017 and the four succeeding years ending June 30, 2021 is $17.5 million, $17.4 million, $17.5 million, $17.2 million and $15.7 million, respectively.

16

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Net Realized and Unrealized Gains (Losses)
Components of net realized and unrealized gains (losses) for the three and six months ended June 30, 2016 and 2015 are summarized as follows:
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2016

2015
 
2016
 
2015
Net realized gains on sale:
 
 
 
 
 
 
 
 
Gross realized gains on fixed maturity securities, available-for-sale
 
$
114

 
$
39

 
$
379

 
$
153

Gross realized (losses) on fixed maturity securities, available-for-sale
 
(1
)
 
(1
)
 
(244
)
 
(9
)
Net realized investment gains (losses) on fixed maturity securities, trading
 
1,535

 
1,886

 
(377
)
 
3,752

Net realized investment gains on equity securities, trading
 
555

 
5,169

 
1,028

 
15,886

Total net realized gains on sale
 
$
2,203

 
$
7,093

 
$
786

 
$
19,782

Net unrealized gains (losses):
 


 
 
 
 
 
 
Fixed maturity securities, trading
 
$
40,472

 
$
(22,953
)
 
$
82,212

 
$
(9,065
)
Equity securities, trading
 
617

 
(6,445
)
 
2,223

 
(13,564
)
Other investments
 
(5,305
)
 
11,056

 
(9,270
)
 
34,618

Total net unrealized gains (losses)
 
35,784

 
(18,342
)
 
75,165

 
11,989

Net realized and unrealized gains (losses)
 
$
37,987

 
$
(11,249
)
 
$
75,951

 
$
31,771

The gross realized gains and losses on available-for-sale securities included in the table above resulted from sales of $18.2 million and $33.6 million for the three and six months ended June 30, 2016, respectively, and $16.5 million and $59.8 million for the three and six months ended June 30, 2015, respectively.
Net Investment Income
Major categories of net investment income for the three and six months ended June 30, 2016 and 2015 are summarized as follows:
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2016
 
2015
 
2016
 
2015
Fixed maturity investments
 
$
40,531

 
$
28,551

 
$
77,109

 
$
54,800

Short-term investments and cash and cash equivalents
 
870

 
1,387

 
2,049

 
4,106

Equity securities
 
1,387

 
1,315

 
2,509

 
2,996

Other investments
 
5,693

 
3,558

 
11,727

 
4,440

Funds held
 
7,633

 
(184
)
 
15,237

 
(10
)
Life settlements and other
 
1,335

 
2,788

 
10,161

 
3,095

Gross investment income
 
57,449

 
37,415

 
118,792

 
69,427

Investment expenses
 
(3,226
)
 
(2,760
)
 
(4,506
)
 
(4,355
)
Net investment income
 
$
54,223

 
$
34,655

 
$
114,286

 
$
65,072


17

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Restricted Assets
We are required to maintain investments and cash and cash equivalents on deposit to support our insurance and reinsurance operations. The investments and cash and cash equivalents on deposit are available to settle insurance and reinsurance liabilities. We also utilize trust accounts to collateralize business with our insurance and reinsurance counterparties. These trust accounts generally take the place of letter of credit requirements. The assets in trusts as collateral are primarily highly rated fixed maturity securities. The carrying value of our restricted assets, including restricted cash of $446.3 million and $511.3 million, as of June 30, 2016 and December 31, 2015, respectively, was as follows: 
 
 
June 30,
2016
 
December 31,
2015
Collateral in trust for third party agreements
 
$
2,863,608

 
$
3,053,692

Assets on deposit with regulatory authorities
 
955,123

 
915,346

Collateral for secured letter of credit facilities
 
195,277

 
212,544

Funds at Lloyd's (1)
 
350,146

 
382,624

 
 
$
4,364,154

 
$
4,564,206

(1) Our underwriting businesses include three Lloyd's syndicates. Lloyd's determines the required capital principally through the annual business plan of each syndicate. This capital is referred to as "Funds at Lloyd's" and will be drawn upon in the event that a syndicate has a loss that cannot be funded from other sources. As at June 30, 2016, our combined Funds at Lloyd's were comprised of cash and investments of $312.2 million and letters of credit supported by collateral of $37.9 million.
4. FAIR VALUE MEASUREMENTS
Fair Value Hierarchy
Fair value is defined as the price at which to sell an asset or transfer a liability (i.e. the "exit price") in an orderly transaction between market participants. We use a fair value hierarchy that gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. The hierarchy is broken down into three levels as follows:
Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments.
Level 2 - Valuations based on quoted prices in active markets for similar assets or liabilities, quoted prices for identical assets or liabilities in inactive markets, or for which significant inputs are observable (e.g. interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.
Level 3 - Valuations based on unobservable inputs where there is little or no market activity. Unadjusted third party pricing sources or management's assumptions and internal valuation models may be used to determine the fair values.

18

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

We have categorized our investments that are recorded at fair value on a recurring basis among levels based on the observability of inputs as follows:  
 
 
June 30, 2016
 
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total Fair
Value
U.S. government and agency
 
$

 
$
785,017

 
$

 
$
785,017

Non-U.S. government
 

 
400,001

 

 
400,001

Corporate
 

 
2,771,188

 
27,784

 
2,798,972

Municipal
 

 
15,293

 

 
15,293

Residential mortgage-backed
 

 
472,663

 
2,781

 
475,444

Commercial mortgage-backed
 

 
226,217

 
54,835

 
281,052

Asset-backed
 

 
579,208

 
76,704

 
655,912

Equities — U.S.
 
102,734

 
7,169

 

 
109,903

Equities — International
 
2,850

 
4,540

 

 
7,390

Other investments
 

 
310,266

 
80,470

 
390,736

Total investments
 
$
105,584

 
$
5,571,562

 
$
242,574

 
$
5,919,720

 
 
 
December 31, 2015
 
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)