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esgr-20200930
Enstar Group 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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 September 30, 2020
Commission File Number 001-33289
https://cdn.kscope.io/a9be64e10b806a02205ab440ff7f88f1-esgr-20200930_g1.jpg
ENSTAR GROUP LIMITED
(Exact name of Registrant as specified in its charter)
BERMUDAN/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
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Ordinary shares, par value $1.00 per shareESGRThe NASDAQ Stock MarketLLC
Depositary Shares, Each Representing a 1/1,000th Interest in a 7.00% ESGRPThe NASDAQ Stock MarketLLC
Fixed-to-Floating Rate Perpetual Non-Cumulative Preferred Share, Series D, Par Value $1.00 Per Share
Depositary Shares, Each Representing a 1/1,000th Interest in a 7.00%ESGROThe NASDAQ Stock MarketLLC
Perpetual Non-Cumulative Preferred Share, Series E, Par Value $1.00 Per Share
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 every Interactive Data File required to be submitted 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 such files).    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerþAccelerated filer¨Non-accelerated filer¨Smaller reporting company☐Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  þ
As at November 4, 2020, the registrant had outstanding 18,564,268 voting ordinary shares and 3,509,682 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 September 30, 2020

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

Table of Contents

PART I — FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTSPage

1
Table of Contents

ENSTAR GROUP LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
As of September 30, 2020 (unaudited) and December 31, 2019
September 30, 2020December 31, 2019
(expressed in thousands of U.S. dollars, except share data)
ASSETS
Short-term investments, trading, at fair value$7,133 $51,490 
Short-term investments, available-for-sale, at fair value (amortized cost: 2020 — $278,221; 2019 — $128,311; net of allowance: 2020 — $nil)
278,175 128,335 
Fixed maturities, trading, at fair value4,999,642 6,143,335 
Fixed maturities, available-for-sale, at fair value (amortized cost: 2020 — $2,837,359; 2019 — $1,537,815; net of allowance: 2020 — $912)
2,883,472 1,538,052 
Funds held - directly managed1,066,639 1,187,552 
Equities, at fair value 653,159 726,721 
Other investments, at fair value 3,704,870 2,518,031 
Equity method investments516,795 326,277 
Total investments (Note 5 and Note 11)
14,109,885 12,619,793 
Cash and cash equivalents640,601 624,472 
Restricted cash and cash equivalents556,721 346,877 
Premiums receivable450,977 491,511 
Deferred tax assets (Note 19)
157,827 155,793 
Reinsurance balances recoverable on paid and unpaid losses (net of allowance: 2020 — $135,117) (Note 7)
1,338,495 1,485,616 
Reinsurance balances recoverable on paid and unpaid losses, at fair value (Note 7 and Note 11)
543,161 695,518 
Insurance balances recoverable (net of allowance: 2020 — $5,907) (Note 10)
365,288 448,855 
Funds held by reinsured companies657,490 475,732 
Deferred acquisition costs52,899 116,513 
Goodwill and intangible assets (Note 13)
62,959 191,568 
Other assets 677,797 699,081 
Assets held-for-sale (Note 4)
2,156,488 1,474,770 
TOTAL ASSETS$21,770,588 $19,826,099 
LIABILITIES
Losses and loss adjustment expenses (Note 9)
$7,878,206 $7,247,282 
Losses and loss adjustment expenses, at fair value (Note 9 and Note 11)
2,422,678 2,621,122 
Defendant asbestos and environmental liabilities (Note 10)
754,037 847,685 
Unearned premiums335,336 533,692 
Insurance and reinsurance balances payable581,615 420,546 
Deferred tax liabilities (Note 19)
6,493 16,074 
Debt obligations (Note 14)
1,447,908 1,191,207 
Other liabilities478,888 444,818 
Liabilities held-for-sale (Note 4)
1,653,343 1,208,531 
TOTAL LIABILITIES15,558,504 14,530,957 
COMMITMENTS AND CONTINGENCIES (Note 21)
REDEEMABLE NONCONTROLLING INTEREST (Note 15)
376,731 438,791 
SHAREHOLDERS’ EQUITY (Note 16)
Ordinary shares (par value $1 each, issued and outstanding 2020: 22,069,444; 2019: 21,511,505):
Voting Ordinary shares (issued and outstanding 2020: 18,559,762; 2019: 18,001,823)
18,560 18,002 
Non-voting convertible ordinary Series C Shares (issued and outstanding 2020 and 2019: 2,599,672)
2,600 2,600 
Non-voting convertible ordinary Series E Shares (issued and outstanding 2020 and 2019: 910,010)
910 910 
Preferred Shares:
Series C Preferred Shares (issued and held in treasury 2020 and 2019: 388,571)
389 389 
Series D Preferred Shares (issued and outstanding 2020 and 2019: 16,000)
400,000 400,000 
Series E Preferred Shares (issued and outstanding 2020 and 2019: 4,400)
110,000 110,000 
Treasury shares, at cost (Series C Preferred shares 2020 and 2019: 388,571)
(421,559)(421,559)
Joint Share Ownership Plan (voting ordinary shares, held in trust 2020: 565,630)
(566)— 
Additional paid-in capital1,832,130 1,836,778 
Accumulated other comprehensive income61,873 7,171 
Retained earnings3,816,548 2,887,892 
Total Enstar Shareholders’ Equity5,820,885 4,842,183 
Noncontrolling interest (Note 15)
14,468 14,168 
TOTAL SHAREHOLDERS’ EQUITY5,835,353 4,856,351 
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY$21,770,588 $19,826,099 
See accompanying notes to the unaudited condensed consolidated financial statements
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ENSTAR GROUP LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
For the Three and Nine Months Ended September 30, 2020 and 2019
Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
(expressed in thousands of U.S. dollars, except share and per share data)
INCOME
Net premiums earned$161,724 $175,802 $463,946 $618,711 
Fees and commission income10,787 6,437 28,325 18,931 
Net investment income72,130 81,502 241,287 231,424 
Net realized and unrealized gains500,005 145,060 838,552 858,489 
Other income48,404 822 67,761 15,368 
793,050 409,623 1,639,871 1,742,923 
EXPENSES
Net incurred losses and loss adjustment expenses109,686 163,258 339,678 566,111 
Acquisition costs37,708 33,310 132,818 162,192 
General and administrative expenses115,828 97,365 359,086 296,304 
Interest expense15,003 14,950 42,436 39,022 
Net foreign exchange (gains) losses8,156 (13,665)1,375 (20,097)
286,381 295,218 875,393 1,043,532 
EARNINGS BEFORE INCOME TAXES506,669 114,405 764,478 699,391 
Income tax expense(13,915)(13,465)(25,295)(25,265)
Earnings from equity method investments149,065 17,703 152,725 44,188 
NET EARNINGS FROM CONTINUING OPERATIONS641,819 118,643 891,908 718,314 
NET EARNINGS FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES4,031 7,916 810 12,041 
NET EARNINGS645,850 126,559 892,718 730,355 
Net (earnings) loss attributable to noncontrolling interest(21,912)109 30,802 4,970 
NET EARNINGS ATTRIBUTABLE TO ENSTAR623,938 126,668 923,520 735,325 
Dividends on preferred shares(8,925)(8,925)(26,775)(26,989)
NET EARNINGS ATTRIBUTABLE TO ENSTAR ORDINARY SHAREHOLDERS$615,013 $117,743 $896,745 $708,336 
Earnings per ordinary share attributable to Enstar:
Basic:
Net earnings from continuing operations$28.39 $5.26 $41.56 $32.65 
Net earnings from discontinued operations0.11 0.22 0.02 0.33 
Net earnings per ordinary share$28.50 $5.48 $41.58 $32.98 
Diluted:
Net earnings from continuing operations$28.13 $5.21 $41.12 $32.25 
Net earnings from discontinued operations0.11 0.21 0.02 0.33 
Net earnings per ordinary share$28.24 $5.42 $41.14 $32.58 
Weighted average ordinary shares outstanding:
Basic21,578,106 21,488,216 21,564,447 21,476,586 
Diluted21,778,729 21,720,497 21,799,627 21,741,499 

See accompanying notes to the unaudited condensed consolidated financial statements
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ENSTAR GROUP LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
For the Three and Nine Months Ended September 30, 2020 and 2019
 
Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
 (expressed in thousands of U.S. dollars)
NET EARNINGS$645,850 $126,559 $892,718 $730,355 
Other comprehensive income (loss), net of income taxes:
Unrealized gains (losses) on fixed income available-for-sale investments arising during the period21,198 (267)74,969 4,640 
Reclassification adjustment for change in allowance for credit losses recognized in net earnings(2,379)— 71 — 
Reclassification adjustment for net realized losses included in net earnings(9,488)(34)(13,498)(4,191)
Unrealized gains (losses) arising during the period, net of reclassification adjustments9,331 (301)61,542 449 
Cumulative currency translation adjustment1,891 (2,551)— (4,390)
Increase in defined benefit pension liability— (952)— (952)
Total other comprehensive income (loss)11,222 (3,804)61,542 (4,893)
Comprehensive income657,072 122,755 954,260 725,462 
Comprehensive (income) loss attributable to noncontrolling interest(22,546)206 23,962 4,912 
COMPREHENSIVE INCOME ATTRIBUTABLE TO ENSTAR$634,526 $122,961 $978,222 $730,374 

See accompanying notes to the unaudited condensed consolidated financial statements

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ENSTAR GROUP LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
For the Three and Nine Months Ended September 30, 2020 and 2019
Three Months Ended
September 30,		Nine Months Ended
September 30,
2020201920202019
 (expressed in thousands of U.S. dollars)
Share Capital — Voting Ordinary Shares
Balance, beginning of period$18,635 $17,975 $18,002 $17,950 
Issue of shares6 6 732 31 
Shares repurchased(81)— (174)— 
Balance, end of period$18,560 $17,981 $18,560 $17,981 
Share Capital — Non-Voting Convertible Ordinary Series C Shares
Balance, beginning and end of period$2,600 $2,600 $2,600 $2,600 
Share Capital — Non-Voting Convertible Ordinary Series E Shares
Balance, beginning and end of period$910 $910 $910 $910 
Share Capital — Series C Convertible Participating Non-Voting Preferred Shares
Balance, beginning and end of period$389 $389 $389 $389 
Share Capital — Series D Preferred Shares
Balance, beginning and end of period$400,000 $400,000 $400,000 $400,000 
Share Capital — Series E Preferred Shares
Balance, beginning and end of period$110,000 $110,000 $110,000 $110,000 
Treasury Shares (Series C Preferred Shares)
Balance, beginning and end of period$(421,559)$(421,559)$(421,559)$(421,559)
Joint Share Ownership Plan — Voting Ordinary Shares, Held in Trust
Balance, beginning of period$(566)$— $— $— 
Issue of shares— — (566)— 
Balance, end of period$(566)$— $(566)$— 
Additional Paid-in Capital
Balance, beginning of period$1,835,115 $1,822,202 $1,836,778 $1,804,664 
Issue of voting ordinary shares503 576 (857)1,497 
Shares repurchased(12,782)— (25,215)— 
Amortization of share-based compensation9,294 7,729 21,424 24,346 
Balance, end of period$1,832,130 $1,830,507 $1,832,130 $1,830,507 
Accumulated Other Comprehensive Income (Loss)
Balance, beginning of period$51,285 $9,196 $7,171 $10,440 
Currency translation adjustment
Balance, beginning of period6,824 9,147 8,548 10,986 
Change in currency translation adjustment2,477 (2,560)753 (4,399)
Balance, end of period9,301 6,587 9,301 6,587 
Defined benefit pension liability
Balance, beginning of period(945)(987)(945)(987)
Change in defined benefit pension liability— (951)— (951)
Balance, beginning and end of period(945)(1,938)(945)(1,938)
Unrealized gains (losses) on available-for-sale investments
Balance, beginning of period45,406 1,036 (432)441 
Change in unrealized gains (losses) on available-for-sale investments8,111 (195)53,949 400 
Balance, end of period53,517 841 53,517 841 
Balance, end of period$61,873 $5,490 $61,873 $5,490 
Retained Earnings
Balance, beginning of period$3,190,104 $2,573,117 $2,887,892 $1,976,539 
Net earnings645,850 126,559 892,718 730,355 
Net (earnings) loss attributable to noncontrolling interest(21,912)109 30,802 4,970 
Dividends on preferred shares(8,925)(8,925)(26,775)(26,989)
Change in redemption value of redeemable noncontrolling interests11,431 622 38,059 6,607 
Cumulative effect of change in accounting principle— — (6,148)— 
Balance, end of period$3,816,548 $2,691,482 $3,816,548 $2,691,482 
Noncontrolling Interest (excludes Redeemable Noncontrolling Interest)
Balance, beginning of period$13,553 $12,609 $14,168 $12,056 
Purchase of noncontrolling shareholders' interest in subsidiaries— — — (47)
Net earnings (loss) attributable to noncontrolling interest915 81 300 681 
Balance, end of period$14,468 $12,690 $14,468 $12,690 
Total Shareholders' Equity$5,835,353 $4,650,490 $5,835,353 $4,650,490 
See accompanying notes to the unaudited condensed consolidated financial statements
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ENSTAR GROUP LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended September 30, 2020 and 2019
Nine Months Ended September 30,
20202019
 (expressed in thousands of U.S. dollars)
OPERATING ACTIVITIES:
Net earnings$892,718 $730,355 
Net earnings from discontinued operations, net of income taxes(810)(12,041)
Adjustments to reconcile net earnings to cash flows provided by operating activities:
Realized gains on sale of investments(114,894)(49,243)
Unrealized gains on investments(723,658)(809,246)
Depreciation and other amortization42,210 23,652 
Earnings from equity method investments(152,725)(44,188)
Sales and maturities of trading securities2,778,993 4,133,200 
Purchases of trading securities(1,531,190)(3,876,661)
Other non-cash items20,847 26,098 
Changes in:
Reinsurance balances recoverable on paid and unpaid losses266,289 (207,579)
Funds held by reinsured companies(211,850)(48,814)
Losses and loss adjustment expenses697,516 474,707 
Defendant asbestos and environmental liabilities(93,648)(22,957)
Insurance and reinsurance balances payable172,358 38,382 
Unearned premiums(106,748)(21,999)
Premiums receivable(18,950)195,751 
Other operating assets and liabilities187,572 (99,849)
Net cash flows provided by operating activities2,104,030 429,568 
INVESTING ACTIVITIES:
Sales and maturities of available-for-sale securities1,673,800 100,154 
Purchase of available-for-sale securities(3,125,184)(363,221)
Purchase of other investments(812,586)(731,588)
Proceeds from other investments282,330 460,554 
Purchase of equity method investments(33,000)(38,403)
Other investing activities3,606 (1,204)
Net cash flows used in investing activities(2,011,034)(573,708)
FINANCING ACTIVITIES:
Dividends on preferred shares(26,775)(26,989)
Dividends paid to redeemable noncontrolling interest— (11,556)
Purchase of noncontrolling shareholders' interest in subsidiaries— (47)
Repurchase of shares(25,390)— 
Receipt of loans858,788 1,070,808 
Repayment of loans(604,000)(722,574)
Net cash flows provided by financing activities202,623 309,642 
DISCONTINUED OPERATIONS CASH FLOWS:
Net cash flows provided by operating activities114,024 210,666 
Net cash flows used in investing activities (134,759)(5,332)
Net cash flows from discontinued operations(20,735)205,334 
EFFECT OF EXCHANGE RATE CHANGES ON FOREIGN CURRENCY CASH AND CASH EQUIVALENTS1,727 (12,507)
NET INCREASE IN CASH AND CASH EQUIVALENTS276,611 358,329 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD971,349 901,996 
NET CHANGE IN CASH OF BUSINESSES HELD FOR SALE(50,638)(205,333)
CASH AND CASH EQUIVALENTS, END OF PERIOD$1,197,322 $1,054,992 
Supplemental Cash Flow Information:
Income taxes paid, net of refunds$15,870 $(271)
Interest paid$37,275 $33,742 
Reconciliation to Consolidated Balance Sheets:
Cash and cash equivalents 640,601 557,677 
Restricted cash and cash equivalents556,721 497,315 
Cash, cash equivalents and restricted cash$1,197,322 $1,054,992 
See accompanying notes to the unaudited condensed consolidated financial statements
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular information expressed in thousands of U.S. dollars except share and per share data)

1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation
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 for the full year. These 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, 2019. All significant inter-company transactions and balances have been eliminated. In these notes, the terms "we," "us," "our," "Enstar," 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 as described in further detail in Note 4 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations." These reclassifications had no impact on net earnings.
Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP 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. Our 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. Accounting policies that we believe are most dependent on assumptions and estimates are considered to be our critical accounting policies and are related to the determination of:
•liability for losses and loss adjustment expenses ("LAE");
•reinsurance balances recoverable on paid and unpaid losses;
•defendant asbestos and environmental liabilities and related insurance balances recoverable;
•valuation allowances on reinsurance balances recoverable and deferred tax assets;
•impairment charges, including credit allowances on investment securities classified as available-for-sale ("AFS"), and impairments on goodwill, intangible assets and deferred charge assets;
•gross and net premiums written and net premiums earned;
•fair value measurements of investments;
•fair value estimates associated with accounting for acquisitions;
•fair value estimates associated with loss portfolio transfer reinsurance agreements for which we have elected the fair value option; and
•redeemable noncontrolling interests.

Updated Accounting Policies
The following accounting policies have been updated to reflect our adoption of Accounting Standards Update ("ASU") 2016-13 - Financial Instruments - Credit losses - Measurement of Credit Losses on Financial Instruments, effective January 1, 2020 as described in detail below under "New Accounting Standards Adopted in 2020."
Short-term investments and fixed maturity investments
We perform a detailed analysis every reporting period to identify any credit losses on our investment portfolios not measured at fair value through net earnings.
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Some of the factors that we consider when assessing whether an allowance for credit losses is required on our debt securities include: (1) the extent to which the fair value has been less than the amortized cost; (2) the financial condition, near-term and long-term prospects of the issuer, including the relevant industry conditions and trends, and implications of rating agency actions and offering prices; (3) the likelihood of the recoverability of principal and interest; and (4) whether it is more likely than not that we will be required to sell the security prior to an anticipated recovery in value.
With effect from January 1, 2020, credit losses on our AFS debt securities are recognized through an allowance account which is deducted from the amortized cost basis of the security, with the net carrying value of the security presented on the consolidated balance sheet at the amount expected to be collected. To calculate the amount of the credit loss, we compare the present value of the expected future cash flows with the amortized cost basis of the AFS debt security, with the amount of the credit loss recognized being limited to the excess of the amortized cost basis over the fair value of the AFS debt security, effectively creating a “fair value floor”. See "New Accounting Standards Adopted in 2020" below for the discussion on our adoption of the credit losses standard.
For our AFS debt securities that we do not intend to sell or for which it is more likely than not that we will not be required to sell before an anticipated recovery in value, we separate the credit loss component of any unrealized losses from the amount related to all other factors and report the credit loss component in net realized investment gains (losses) in our consolidated statements of earnings. The unrealized losses related to non-credit factors is reported in other comprehensive income. The allowance for credit losses account is adjusted for any additional credit losses, write-offs and subsequent recoveries.
For our AFS debt securities where we record a credit loss, a determination is made as to the cause of the credit loss and whether we expect a recovery in the fair value of the security. For our AFS debt securities where we expect a recovery in fair value, the constant effective yield method is utilized, and the investment is amortized to par.
For our AFS debt securities that we intend to sell or for which it is more likely than not that we will be required to sell before an anticipated recovery in fair value, the full amount of the unrealized loss is included in net realized investment gains (losses). The new cost basis of the investment is the previous amortized cost basis less the credit loss recognized in net realized investment gains (losses). The new cost basis is not adjusted for any subsequent recoveries in fair value.
We report the investment income accrued on our AFS debt securities within other assets and therefore separately from the underlying AFS debt securities. In addition, due to the short-term period during which accrued investment income remains unpaid, which is typically six months, since the coupon on our AFS debt securities is paid semi-annually, we have elected not to establish an allowance for credit losses on our accrued investment income balances. Accrued investment income is written off through net realized investment gains (losses) at the time the issuer of the debt security defaults or is expected to default on payments.
Uncollectible debt securities are written off when we determine that no additional payments of principal or interest will be received.
Reinsurance Balances Recoverable on Paid and Unpaid Losses
Amounts recoverable from reinsurers are estimated in a manner consistent with the underlying liability for losses and loss adjustment expenses. We report our reinsurance balances recoverable on paid and unpaid losses net of an allowance for estimated uncollectible amounts. The allowance is based upon our ongoing review of the outstanding balances and reflects factors such as the duration of the collection period, credit quality, changes in reinsurer credit standing, default rates specific to the individual reinsurer, the geographical location of the reinsurer, contractual disputes with reinsurers over individual contentious claims, contract language or coverage issues, industry analyst reports and consensus economic forecasts.
A probability-of-default methodology that reflects current and forecasted economic conditions is used to estimate the allowance for uncollectible reinsurance due to credit-related factors. See "New Accounting Standards Adopted in 2020" below for the discussion on our adoption of the credit losses standard.
The allowance also includes estimated uncollectible amounts related to dispute risk with reinsurers. Amounts deemed to be uncollectible, including amounts due from known insolvent reinsurers, are written off against the allowance.
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Changes in the allowance, as well as any subsequent collections of amounts previously written off, are reported as part of the net incurred losses and loss adjustment expenses in our consolidated statements of earnings.
On an ongoing basis, we also evaluate and monitor the financial condition of our reinsurers under voluntary schemes of arrangement to minimize our exposure to significant losses from potential insolvencies.
Premiums Receivable and Unearned Premium Reserves
Premiums are recognized as revenues on a pro-rata basis over the coverage period. Unearned premium reserves represent the unexpired portion of policy premiums. For retrospectively rated contracts as well as those whose written premium amounts are recorded based on premium estimates at inception, accrued premiums arising from changes to these estimates are included in premium balances receivable where appropriate. Premium balances receivable are reported net of an allowance for expected credit losses as appropriate. The allowance is based upon our ongoing review of amounts outstanding, historical loss data, including delinquencies and write-offs, current and forecasted economic conditions and other relevant factors. However, the credit risk on our premiums receivable balances is substantially reduced where we have the ability to cancel the underlying policy if the policyholder does not pay the related premium.

New Accounting Standards Adopted in 2020
ASU 2020-04 – Reference Rate Reform
In March 2020, the Financial Accounting Standards Board ("FASB") issued ASU 2020-04 – Reference Rate Reform – Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which is codified in Accounting Standards Codification ("ASC") 848 and which provides entities with temporary optional expedients and exceptions to the existing US GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Inter-bank Offered Rate ("LIBOR") and other inter-bank offered rates to alternative reference rates, such as the Secured Overnight Financing Rate ("SOFR").
Under the provisions of this guidance, entities can elect not to apply certain modification accounting requirements to contracts affected by reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Entities can also elect various optional expedients for hedging relationships affected by reference rate reform, if certain criteria are met. In addition, entities can make a one-time election to sell, transfer or both sell and transfer debt securities classified as held-to-maturity (“HTM”) that refer to a rate affected by reference rate reform, to AFS or to trading. However, such debt securities must have been classified as HTM before January 1, 2020. Once elected, the amendments in this guidance must be applied prospectively for all eligible contract modifications.
The ASU was effective upon issuance and can be applied through to December 31, 2022. We adopted the ASU upon its issuance and as we transition from LIBOR to alternative reference rates, we will elect the temporary optional expedients and exceptions to the existing US GAAP guidance on contract modifications and hedge accounting permitted by the ASU, as appropriate. The adoption of this standard did not have any impact on our consolidated financial statements and disclosures.
ASU 2020-03 – Codification Improvements to Financial Instruments
In March 2020, the FASB issued ASU 2020-03, which makes narrow-scope improvements to various topics within the codification relating to financial instruments, including the new credit losses standard. The amendments related to certain specific issues covered by the ASU were effective immediately upon the issuance of the ASU, while certain specific issues covered by the ASU and affecting the credit losses standard in ASU 2016-13 are effective in 2020 for those entities that have already adopted ASU 2016-13. We adopted the amendments in this ASU upon its issuance and that adoption did not have a material impact on our consolidated financial statements and the related disclosures.
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ASUs 2016-13, 2018-19, 2019-04, 2019-05, 2019-10 and 2019-11, Financial Instruments – Credit Losses – Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU 2016-13, which is codified in ASC 326 - Financial Instruments - Credit Losses, amending the guidance on the impairment of financial instruments and significantly changing how entities measure credit losses for most financial assets and certain other financial instruments, including reinsurance balances recoverable on paid and unpaid losses that are not measured at fair value through net earnings. The ASU replaced the “incurred loss” approach that was previously applied to determine credit losses with an “expected loss” model for financial instruments measured at amortized cost. Under the "expected loss" model, the estimate of expected credit losses should consider historical information, current information, as well as reasonable and supportable forecasts, including estimates of prepayments. The expected credit losses and subsequent adjustments to such losses are recorded through an allowance account that is deducted from the amortized cost basis of the financial asset, with the net carrying value of the financial asset presented on the consolidated balance sheet at the amount expected to be collected.
ASU 2016-13 also amends the other-than-temporary impairment ("OTTI") model that was previously applicable to AFS debt securities, with the new approach now requiring the recognition of impairments relating to credit losses through an allowance account and limiting the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. This revised approach records the full effect of reversals of any credit losses in current period earnings, compared to previous guidance where this reversal was amortized over the lifetime of the security. Under this revised approach, the length of time a security has been in an unrealized loss position will no longer be considered in determining whether to record a credit loss. In addition, the historical and implied volatility of the fair value of a security and recoveries or declines in fair value after the balance sheet date will no longer be considered when making a determination of whether a credit loss exists.
We adopted ASU 2016-13 and all the related amendments on January 1, 2020 using the modified retrospective approach for our financial instruments carried at amortized cost, and prospectively for our AFS debt securities as required by the standard, resulting in an overall reduction in retained earnings of $6.1 million as summarized below:
•A cumulative effect adjustment of $3.0 million relating to our financial instruments carried at amortized cost, which primarily relates to our insurance balances recoverable on paid and unpaid losses. We already carried significant specific allowances for credit losses of $147.6 million on our reinsurance balances recoverable on paid and unpaid losses, relating primarily to our Non-life Run-off segment and therefore the adoption of this standard did not have a material impact on our balance sheet; and
•$3.1 million related to our AFS debt securities whose fair values were less than their amortized cost basis.

Recently Issued Accounting Pronouncements Not Yet Adopted
Note 2 - "Significant Accounting Policies" to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019 describes accounting pronouncements that were not adopted as of December 31, 2019. Those pronouncements have not yet been adopted unless discussed above in "New Accounting Standards Adopted in 2020." In addition, we are yet to adopt the following accounting pronouncements that the FASB issued during and subsequent to the nine months ended September 30, 2020.
ASU 2020-09 – Amendments to SEC Paragraphs Pursuant to SEC Release No. 33-10762
In October 2020, the FASB issued ASU 2020-09, which amends and supersedes various SEC paragraphs in ASC 270, ASC 460, ASC 470 and ASC 505 pursuant to the issuance of the SEC's Release No. 33-10762. Through Release No. 33-10762, the SEC made amendments to the financial disclosure requirements in Regulation S-X for guarantors and issuers of guaranteed securities registered or being registered, and issuers’ affiliates whose securities collateralize securities registered or being registered, to improve those requirements for both investors and registrants. The changes made by the SEC are intended to provide investors with material information given the specific facts and circumstances, make the disclosures easier to understand, and reduce the costs and burdens to registrants. In addition, by reducing the costs and burdens of compliance, issuers may be encouraged to offer guaranteed or collateralized securities on a registered basis, thereby affording investors protection they may not be provided in offerings conducted on an unregistered basis. Finally, by making it less burdensome and less costly for issuers to include guarantees or pledges of affiliate securities as collateral when they structure debt offerings, the revisions may increase the number of registered offerings that include these credit enhancements, which could result in a lower cost of capital and an increased level of investor protection.
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The amended rules in Release No. 33-10762 are effective on January 4, 2021 although early compliance is permitted, hence we elected early compliance with the new rules. Because the amendments made by the FASB in this ASU are to ensure alignment of the relevant SEC paragraphs in ASC 270, ASC 460, ASC 470 and ASC 505 with the amended rules in Release No. 33-10762, the amendments made by the FASB to these SEC paragraphs will not have a material impact on our disclosures, since we already elected early compliance with the amended rules in Release No. 33-10762.
ASU 2020-08 – Codification Improvements to Subtopic 310-20 - Receivables - Nonrefundable Fees and Other Costs
In October 2020, the FASB issued ASU 2020-08 to clarify that an entity should re-evaluate whether a callable debt security is within the scope of ASC 310-20-35-33 during each reporting period. All entities are required to apply the amendments in this ASU on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities.
The amendments in this ASU are effective for interim and annual reporting periods beginning after December 15, 2020, and early adoption is not permitted. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements and the related disclosures.
ASU 2020-06 – Accounting for Convertible Instruments and Contracts in an Entity's Own Equity
In August 2020, the FASB issued ASU 2020-06, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity's own equity. For convertible instruments, the ASU eliminates two of the three accounting models in ASC 470-20 that require separate accounting for embedded conversion features. The ASU also simplifies an issuer's application of the derivatives scope exception in ASC 815-40 for contracts in its own equity and removes some of the conditions that preclude a freestanding contract from being classified in equity, thereby allowing more of such contracts to qualify for equity classification.
The amendments in this ASU are effective for interim and annual reporting periods beginning after December 15, 2021 and, although early adoption is permitted, the amendments may not be adopted earlier than during interim and annual reporting periods beginning after December 15, 2020. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements and the related disclosures.

2. ACQUISITIONS
Morse TEC
On October 30, 2019, we completed the acquisition of Morse TEC LLC ("Morse TEC"). For further details, refer to Note 3 - "Acquisitions" to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019.

3. SIGNIFICANT NEW BUSINESS

Hannover Re
On August 6, 2020, we completed a novation agreement with Hannover Reück SE and an affiliate (“Hannover Re”), pursuant to which we assumed certain legacy asbestos, environmental and workers' compensation exposures. In the transaction, we assumed loss reserves of $209.7 million in exchange for net novation consideration of $182.5 million. We elected the fair value option for this novation agreement and recorded an initial fair value adjustment of $27.2 million on the assumed loss reserves. Refer to Note 11 - "Fair Value Measurements" for a description of the fair value process and the assumptions made.

Munich Re
On July 1, 2020, we completed a business transfer transaction with Great Lakes Insurance SE and HSB Engineering Insurance Limited, both subsidiaries of Munich Reinsurance Company ("Munich Re"), pursuant to which we assumed certain portfolios from their Australian branches. In the transaction, we assumed net loss reserves of AUD$142.2 million ($98.0 million), which primarily relate to public and products liability, property and engineering exposures, in exchange for net consideration of an equal amount.

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
AXA Group
On June 1, 2020, we completed a loss portfolio transfer reinsurance agreement with AXA XL, a division of AXA SA, to reinsure specified legacy construction general liability multi-year policies. We assumed gross loss reserves of $179.7 million, which was equal to the net reinsurance premium consideration received in the transaction. In addition, we provided additional collateral of $24.5 million to support our obligations to AXA XL per the terms of the reinsurance agreement. Effective October 1, 2020, we have ceded 10% of this transaction to Enhanzed Reinsurance Ltd. ("Enhanzed Re"), in which we have an investment, on the same terms and conditions as those received by Enstar.

Aspen
On June 1, 2020, we completed an adverse development cover reinsurance transaction with Aspen Insurance Holdings Limited. In the transaction, we assumed $781.6 million of gross reserves for losses incurred on or prior to December 31, 2019 on a diversified mix of property, liability and specialty lines of business across the U.S., U.K. and Europe, in exchange for reinsurance premium consideration of $770.0 million and recorded a deferred charge asset of $11.7 million. Pursuant to the agreement, we provide $770.0 million of cover in excess of a $3.8 billion retention, and an additional $250.0 million of cover in excess of a $4.8 billion retention.

Lyft
On March 31, 2020, we entered into a novation agreement with affiliates of Lyft, Inc. (“Lyft”) and certain underwriting companies of Zurich North America (“Zurich”). In the transaction, in exchange for premium consideration of $465.0 million, we reinsured legacy automobile business underwritten by Zurich between October 1, 2015 and September 30, 2018 and which previously had been reinsured by Lyft’s wholly owned subsidiary, Pacific Valley Insurance Company ("PVIC"). Under a separate but related agreement, PVIC provides retrocession reinsurance coverage to us on the Lyft business reinsured in excess of an $816.0 million limit. The transaction was effective on March 31, 2020.

4. DIVESTITURES, HELD-FOR-SALE BUSINESSES AND DISCONTINUED OPERATIONS

Atrium Exchange Transaction
On August 13, 2020, we announced an exchange transaction with Trident V, L.P., Trident V Parallel Fund, L.P. and Trident V Professionals Fund, L.P. (collectively, the "Trident V Funds") managed by Stone Point Capital LLC ("Stone Point"). As part of the exchange, we entered into a recapitalization agreement with the Trident V Funds, Dowling Capital Partners I, L.P. and Capital City Partners LLC (collectively, the "Dowling Funds"), North Bay Holdings Limited ("North Bay"), and StarStone Specialty Holdings Limited ("SSHL").
Enstar currently owns an indirect 59.0% interest in North Bay and the Trident V Funds and the Dowling Funds currently own 39.3% and 1.7%, respectively. North Bay owns 100.0% of SSHL, the holding company for the StarStone group, which includes StarStone's U.S. operations, including StarStone U.S. Holdings, Inc. and its subsidiaries ("StarStone U.S.") and its non-U.S. operations ("StarStone International"). North Bay also owns approximately 92.1% of Northshore Holdings Limited ("Northshore"), the holding company that owns Atrium Underwriting Group Limited and its subsidiaries (collectively, "Atrium") and Arden Reinsurance Company Ltd. ("Arden"). The remaining share ownership of Northshore is held on behalf of certain Atrium employees.
Pursuant to the terms of the recapitalization agreement, we agreed to exchange a portion of our indirect interest in Northshore for all of the Trident V Funds’ indirect interest in StarStone U.S. (the “Exchange Transaction”). The Exchange Transaction is conditioned on the closing of the sale of StarStone U.S. to Core Specialty Insurance Holdings, Inc. ("Core Specialty"), as described further below, and is subject to regulatory approval and other closing conditions. The exchange transaction is expected to close in the first quarter of 2021.
Upon completion of the sale of StarStone U.S. to Core Specialty and the Exchange Transaction with the Trident V Funds, we expect to own indirectly approximately 26.1% of Core Specialty, which will then own StarStone U.S., and approximately 11.0% of Northshore, which will continue to own Atrium and Arden. Our ultimate ownership in Northshore at the closing of the Exchange Transaction may vary based on, among other things, the final valuation of StarStone U.S. in its sale to Core Specialty and if, and to the extent, certain employees of Atrium elect to defer the payout of certain long-term equity awards. Upon the closing of the Exchange Transaction, the Trident V Funds
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
will not own any interest in Core Specialty and are expected to own approximately 80.0% of Northshore, and the Dowling Funds will own approximately 0.5% of Core Specialty and retain their approximately 1.6% interest in Northshore. The Exchange Transaction will have no impact on the ultimate ownership of SSHL, which will own StarStone International, with us, the Trident V Funds and the Dowling Funds retaining our and their current ownership interests in SSHL of 59.0%, 39.3% and 1.7%, respectively.
Upon completion of the Exchange Transaction, our investment in Northshore will be accounted for as a privately held equity investment and will be carried at fair value.
We have classified the assets and liabilities of Northshore as held-for-sale as of September 30, 2020. The impending disposal of Enstar's majority equity interest in Northshore does not represent a strategic shift that will have a major effect on our operations and financial results, and therefore the disposal is not reported as a discontinued operation during the current or prior periods. The following table summarizes the components of Northshore's assets and liabilities held-for-sale on our consolidated balance sheets as of September 30, 2020:
September 30, 2020
ASSETS
Short-term investments, available-for-sale, at fair value$1,852 
Fixed maturities, trading, at fair value154,325 
Fixed maturities, available-for-sale, at fair value 9,252 
Equities, at fair value18,120 
Other investments, at fair value87,795 
Total investments271,344 
Cash and cash equivalents61,221 
Restricted cash and cash equivalents10,152 
Premiums receivable59,484 
Deferred tax assets97 
Reinsurance balances recoverable on paid and unpaid losses30,673 
Funds held by reinsured companies30,092 
Deferred acquisition costs24,522 
Goodwill and intangible assets115,085 
Other assets48,308 
TOTAL ASSETS HELD-FOR-SALE$650,978 
LIABILITIES
Losses and loss adjustment expenses$248,532 
Unearned premiums91,608 
Insurance and reinsurance balances payable10,916 
Deferred tax liabilities14,010 
Other liabilities66,020 
TOTAL LIABILITIES HELD-FOR-SALE$431,086 
NET ASSETS HELD-FOR-SALE$219,892 
As of September 30, 2020, included in the table above were restricted investments of $117.6 million.
The unrealized gains (losses) on AFS investments in accumulated other comprehensive income (loss) ("AOCI"), a component of shareholders' equity, included ($0.3) million as at September 30, 2020 related to Northshore. Upon completion of the Exchange Transaction, the balance at closing will be included in earnings as a component of the gain on sale.
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Recapitalization of StarStone U.S.
On June 10, 2020, we announced an agreement to recapitalize StarStone U.S. and appoint a new management team and Board. As part of the recapitalization, we entered into a definitive agreement to sell StarStone U.S. to Core Specialty, a newly formed entity with equity backing from funds managed by SkyKnight Capital, L.P., Dragoneer Investment Group and Aquiline Capital Partners LLC. We currently have a 59.0% interest in StarStone U.S. The purchase price will be based on a $30.0 million premium to the GAAP tangible book value of StarStone U.S. to be determined on the month end prior to the closing date and will consist of $235.0 million of common shares of Core Specialty and cash. The $235.0 million of common shares of Core Specialty is expected to represent an estimated 26.1% interest in Core Specialty after certain co-investments and management equity awards. Our investment in Core Specialty will be accounted for as an equity method investment. Given the proposed transaction, we have classified the StarStone U.S. results as discontinued operations for the periods presented.
In connection with the sale, one of our Non-life Run-off subsidiaries will enter into a loss portfolio transfer reinsurance agreement with StarStone U.S. pursuant to which we will reinsure all of the net loss reserves of StarStone U.S. in respect of premium earned prior to the calendar month end prior to the closing date. We will receive a reinsurance premium equal to the assumed reserves, plus approximately $16.0 million. The reinsurance agreement will contain an aggregate limit on our liability equal to $130.0 million in excess of the assumed reserves, and our subsidiary's obligations under the reinsurance agreement will be guaranteed by Enstar.
The closing of the transaction is subject to regulatory approvals and other closing conditions and is expected to occur in the fourth quarter of 2020.
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
StarStone U.S. comprises a substantial portion of the StarStone segment. We have classified the assets and liabilities of StarStone U.S. as held-for-sale as of September 30, 2020. The following table summarizes the components of StarStone U.S.'s assets and liabilities held-for-sale on our consolidated balance sheets as of September 30, 2020 and December 31, 2019:
September 30, 2020
December 31, 2019 (1)
ASSETS
Fixed maturities, trading, at fair value$140,124 $202,994 
Fixed maturities, available-for-sale, at fair value 525,842 375,337 
Equities, at fair value5,494 3,000 
Other investments, at fair value6,864 6,389 
Total investments678,324 587,720 
Cash and cash equivalents54,303 78,613 
Restricted cash and cash equivalents9,390 5,815 
Premiums receivable105,339 99,367 
Deferred tax assets14,890 15,191 
Reinsurance balances recoverable on paid and unpaid losses477,739 530,604 
Funds held by reinsured companies29,678 35,861 
Deferred acquisition costs32,071 36,992 
Goodwill and intangible assets24,900 24,900 
Other assets78,876 59,707 
TOTAL ASSETS HELD-FOR-SALE$1,505,510 $1,474,770 
LIABILITIES
Losses and loss adjustment expenses$830,456 $836,761 
Unearned premiums217,375 218,166 
Insurance and reinsurance balances payable49,822 22,453 
Other liabilities124,604 131,151 
TOTAL LIABILITIES HELD-FOR-SALE$1,222,257 $1,208,531 
NET ASSETS HELD-FOR-SALE$283,253 $266,239 
(1) In accordance with U.S. GAAP, the assets and liabilities of StarStone U.S. as of December 31, 2019 have been reclassified to held-for-sale as a result of the business qualifying as a discontinued operation.
As of September 30, 2020 and December 31, 2019, included in the table above were restricted investments of $146.5 million and $131.0 million, respectively.

The unrealized gains (losses) on AFS investments balance in accumulated other comprehensive income (loss) ("AOCI"), a component of shareholders' equity, included $16.1 million and $(1.0) million as at September 30, 2020 and December 31, 2019, respectively, related to StarStone U.S. Upon completion of the sale, the balance at closing will be included in earnings as a component of the gain on sale.
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The StarStone U.S. business qualifies as a discontinued operation. The following table summarizes the components of net earnings (loss) from discontinued operations, net of income taxes, related to StarStone U.S., on the consolidated statements of earnings for the three and nine months ended September 30, 2020 and 2019:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
INCOME
Net premiums earned$75,414 $94,523 $241,363 $263,464 
Fees and commission income— 150 — 515 
Net investment income3,649 3,970 11,063 11,831 
Net realized and unrealized gains1,910 3,125 2,757 20,198 
Other income55 4 80 10 
81,028 101,772 255,263 296,018 
EXPENSES
Net incurred losses and loss adjustment expenses44,939 59,159 157,648 185,048 
Acquisition costs14,776 16,972 47,570 48,733 
General and administrative expenses16,675 16,558 47,404 47,213 
Interest expense535 — 1,715 1,355 
Net foreign exchange (gains) losses(3)34 (5)29 
76,922 92,723 254,332 282,378 
EARNINGS (LOSS) BEFORE INCOME TAXES4,106 9,049 931 13,640 
Income tax benefit (expense)(75)(1,133)(121)(1,599)
NET EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES$4,031 $7,916 $810 $12,041 
Net loss (earnings) from discontinued operations attributable to noncontrolling interest(1,654)(3,247)(332)(4,939)
NET EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS ATTRIBUTABLE TO ENSTAR ORDINARY SHAREHOLDERS$2,377 $4,669 $478 $7,102 

The following table presents the cash flows of StarStone U.S. for the nine months ended September 30, 2020 and 2019:
Nine Months Ended September 30,
20202019
Operating activities$114,024 $210,666 
Investing activities(134,759)(5,332)
Change in cash and restricted cash of business held-for-sale$(20,735)$205,334 

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Intercompany transactions between StarStone U.S. (Discontinued Operations) and Continuing Operations
The table below presents a summary of the total income and expenses recognized in continuing operations for the three and nine months ended September 30, 2020 and 2019, relating to intercompany transactions, primarily intragroup reinsurances, between StarStone U.S. and our other subsidiaries:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Total income$1,709 $3,373 $9,072 $8,082 
Total expenses (income)(1,783)(4,582)(16,682)41,884 
Net earnings (loss)$3,492 $7,955 $25,754 $(33,802)

Run-off of StarStone International (non-U.S.)
On June 10, 2020, we also announced that we placed StarStone International into an orderly run-off (the "StarStone International Run-Off"). The liabilities associated with the StarStone International Run-Off vary in duration, and the run-off is expected to occur over a number of years. Steps to reduce the size of StarStone International's operations have begun and will involve several phases to occur over time. As a result, we cannot anticipate with certainty the expected completion date of the StarStone International Run-Off.
We continue to evaluate additional strategic options for StarStone International's operations and business. Consequently, such options could have the effect of mitigating costs associated with placing the business into run-off. The remaining StarStone International operations will continue to serve the needs of policyholders and ensure that the companies continue to meet all regulatory requirements. The results of StarStone International are included within continuing operations in the StarStone segment.
Recent developments relating to StarStone International include:
•On October 14, 2020, we completed the sale of Vander Haeghen & Co. SA ("VdH"), a Belgium-based insurance agency majority owned by two StarStone International entities, for a purchase price of €3.8 million ($4.5 million). We expect to recognize a gain on the sale of $3.6 million in the fourth quarter of 2020.
•On October 2, 2020, StarStone International sold the renewal rights for its financial lines portfolio for consideration of approximately $0.5 million.

Reconciliation to the Consolidated Balance Sheet
The following table provides a reconciliation of the assets and liabilities of Northshore and StarStone U.S. held-for-sale on our consolidated balance sheet:
September 30, 2020
Assets held-for-sale:
Northshore (Atrium and Arden Re)$650,978 
StarStone U.S.1,505,510 
Total$2,156,488 
Liabilities held-for-sale:
Northshore (Atrium and Arden Re)$431,086 
StarStone U.S.1,222,257 
Total$1,653,343 

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
5. INVESTMENTS
We hold: (i) trading portfolios of short-term and fixed maturity investments and equities, carried at fair value; (ii) AFS portfolios of short-term and fixed maturity investments, carried at fair value; (iii) other investments, carried at fair value; (iv) equity method investments; and (v) funds held - directly managed.

Short-Term and Fixed Maturity Investments

Asset Types
The fair values of the underlying asset categories comprising our short-term and fixed maturity investments classified as trading and AFS and the fixed maturity investments included within our funds held - directly managed balance were as follows:
September 30, 2020
Short-term investments, tradingShort-term investments, AFSFixed maturities, tradingFixed maturities, AFSFixed maturities, funds held - directly managedTotal
U.S. government and agency$3,399 $252,449 $148,378 $298,140 $87,264 $789,630 
U.K. government— — 71,803 42,974 — 114,777 
Other government2,872 — 327,406 136,130 24,039 490,447 
Corporate862 25,726 3,474,857 1,653,722 524,742 5,679,909 
Municipal— — 79,296 30,806 51,737 161,839 
Residential mortgage-backed— — 157,773 293,811 77,655 529,239 
Commercial mortgage-backed— — 382,735 228,207 232,177 843,119 
Asset-backed— — 357,394 199,682 56,587 613,663 
Total fixed maturity and short-term investments$7,133 $278,175 $4,999,642 $2,883,472 $1,054,201 $9,222,623 
December 31, 2019
Short-term investments, tradingShort-term investments, AFSFixed maturities, tradingFixed maturities, AFSFixed maturities, funds held - directly managedTotal
U.S. government and agency$— $111,583 $208,296 $269,661 $106,537 $696,077 
U.K. government24,411 1,069 122,012 14,280 — 161,772 
Other government21,958 387 575,017 84,760 20,734 702,856 
Corporate5,121 13,915 3,959,288 866,557 603,389 5,448,270 
Municipal— 1,381 87,451 2,399 49,456 140,687 
Residential mortgage-backed— — 215,521 99,188 86,205 400,914 
Commercial mortgage-backed— — 534,357 49,046 230,343 813,746 
Asset-backed— — 441,393 152,161 76,681 670,235 
Total fixed maturity and short-term investments$51,490 $128,335 $6,143,335 $1,538,052 $1,173,345 $9,034,557 

Included within residential and commercial mortgage-backed securities as of September 30, 2020 were securities issued by U.S. governmental agencies with a fair value of $458.8 million (December 31, 2019: $333.3 million). Included within corporate securities as of September 30, 2020 were senior secured loans of $nil (December 31, 2019: $31.4 million).

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Contractual Maturities
The contractual maturities of our short-term and fixed maturity investments, classified as trading and AFS and the fixed maturity investments included within our funds held - directly managed balance 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 of September 30, 2020Amortized
Cost		Fair Value% of Total
Fair
Value
One year or less$556,125 $559,086 6.1 %
More than one year through two years589,231 598,559 6.5 %
More than two years through five years2,080,715 2,163,967 23.5 %
More than five years through ten years2,010,769 2,149,170 23.3 %
More than ten years1,595,695 1,765,820 19.1 %
Residential mortgage-backed521,383 529,239 5.7 %
Commercial mortgage-backed821,995 843,119 9.1 %
Asset-backed631,133 613,663 6.7 %
$8,807,046 $9,222,623 100.0 %

Credit Ratings
The following table sets forth the credit ratings of our short-term and fixed maturity investments classified as trading and AFS and the fixed maturity investments included within our funds held - directly managed balance as of September 30, 2020:
Amortized
Cost		Fair Value% of TotalAAA
Rated		AA RatedA RatedBBB
Rated		Non-
Investment
Grade		Not Rated
U.S. government and agency$769,544 $789,630 8.6 %$789,630 $— $— $— $— $— 
U.K. government111,169 114,777 1.2 %— 102,624 8,739 — — 3,414 
Other government466,575 490,447 5.3 %242,097 150,005 43,003 45,884 9,458 — 
Corporate5,339,160 5,679,909 61.6 %206,345 583,595 2,704,861 1,912,857 267,765 4,486 
Municipal146,087 161,839 1.8 %7,137 83,519 51,538 19,645 — — 
Residential mortgage-backed521,383 529,239 5.7 %517,915 — 2,154 1,612 5,251 2,307 
Commercial mortgage-backed821,995 843,119 9.1 %576,643 111,720 77,391 64,898 5,308 7,159 
Asset-backed631,133 613,663 6.7 %249,237 99,942 145,494 96,960 21,780 250 
Total$8,807,046 $9,222,623 100.0 %$2,589,004 $1,131,405 $3,033,180 $2,141,856 $309,562 $17,616 
% of total fair value28.1 %12.3 %32.9 %23.2 %3.3 %0.2 %

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Unrealized Gains and Losses on AFS Short-term and Fixed Maturity Investments
The amortized cost, unrealized gains and losses, allowance for credit losses and fair values of our short-term and fixed maturity investments classified as AFS as of September 30, 2020 were as follows:
Gross Unrealized Losses
As of September 30, 2020Amortized CostGross Unrealized GainsNon-Credit Related Losses
Allowance for Credit Losses(1)
Fair Value
U.S. government and agency$546,799 $4,071 $(281)$— $550,589 
U.K. government42,025 995 (46)— 42,974 
Other government131,861 4,279 (10)— 136,130 
Corporate1,646,014 40,601 (6,383)(784)1,679,448 
Municipal29,810 1,012 (16)— 30,806 
Residential mortgage-backed292,153 2,211 (551)(2)293,811 
Commercial mortgage-backed226,292 4,347 (2,351)(81)228,207 
Asset-backed200,626 642 (1,541)(45)199,682 
$3,115,580 $58,158 $(11,179)$(912)$3,161,647 
(1) The Company adopted ASU 2016-13 and the related amendments on January 1, 2020. Refer to Note 1 - "Significant Accounting Policies" for further details.
The amortized cost, unrealized gains and losses and fair values of our short-term and fixed maturity investments classified as AFS as of December 31, 2019 were as follows:
As of December 31, 2019Amortized CostGross Unrealized GainsGross Unrealized Losses
(Non-OTTI)		Fair Value
U.S. government and agency$381,488 $78 $(322)$381,244 
U.K. government15,067 282 — 15,349 
Other government84,116 1,119 (88)85,147 
Corporate880,667 3,739 (3,934)880,472 
Municipal3,770 12 (2)3,780 
Residential mortgage-backed99,646 221 (679)99,188 
Commercial mortgage-backed49,219 30 (203)49,046 
Asset-backed152,153 127 (119)152,161 
$1,666,126 $5,608 $(5,347)$1,666,387 

Gross Unrealized Losses on AFS Short-term and Fixed Maturity Investments
The following table summarizes our short-term and fixed maturity investments classified as AFS that were in a gross unrealized loss position, for which an allowance for credit losses has not been recorded, as of September 30,
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2020, aggregated by major security type and length of time in continuous unrealized loss position:
 12 Months or GreaterLess Than 12 MonthsTotal
As of September 30, 2020Fair
Value		Gross Unrealized
Losses		Fair
Value		Gross Unrealized
Losses		Fair
Value		Gross Unrealized
Losses
U.S. government and agency$— $— $170,590 $(281)$170,590 $(281)
U.K. government— — 2,911 (46)2,911 (46)
Other government— — 7,392 (10)7,392 (10)
Corporate— — 498,974 (5,585)498,974 (5,585)
Municipal— — 3,551 (16)3,551 (16)
Residential mortgage-backed— — 136,602 (383)136,602 (383)
Commercial mortgage-backed— — 69,226 (1,652)69,226 (1,652)
Asset-backed— — 135,857 (1,386)135,857 (1,386)
Total fixed maturity and short-term investments$— $— $1,025,103 $(9,359)$1,025,103 $(9,359)
  
The following table summarizes our short-term and fixed maturity investments classified as AFS that are in a gross unrealized loss position as of December 31, 2019, aggregated by major security type and length of time in continuous unrealized loss position:
 12 Months or GreaterLess Than 12 MonthsTotal
As of December 31, 2019Fair
Value		Gross Unrealized
Losses		Fair
Value		Gross Unrealized
Losses		Fair
Value		Gross Unrealized
Losses
U.S. government and agency$— $— $193,574 $(322)$193,574 $(322)
Other government1,080 (23)37,796 (65)38,876 (88)
Corporate2,754 (306)338,965 (3,628)341,719 (3,934)
Municipal128 — 761 (2)889 (2)
Residential mortgage-backed— — 52,005 (679)52,005 (679)
Commercial mortgage-backed— — 35,777 (203)35,777 (203)
Asset-backed— — 101,591 (119)101,591 (119)
Total fixed maturity and short-term investments$3,962 $(329)$760,469 $(5,018)$764,431 $(5,347)
As of September 30, 2020 and December 31, 2019, the number of securities classified as AFS in an unrealized loss position for which an allowance for credit loss is not recorded was 721 and 479, respectively. Of these securities, the number of securities that had been in an unrealized loss position for twelve months or longer was 0 and 12, respectively.
The contractual terms of a majority of these investments do not permit the issuers to settle the securities at a price less than the amortized cost basis of the security. While credit spreads have increased, and in certain cases credit ratings were downgraded, we currently do not expect the issuers of these fixed income securities to settle them at a price less than their amortized cost basis and therefore it is expected that we will recover the entire amortized cost basis of each security. Furthermore, we do not intend to sell the securities that are currently in an unrealized loss position, and it is also not more likely than not that we will be required to sell the securities before the recovery of their amortized cost bases.

Allowance for Credit Losses on AFS Fixed Maturity Investments
We adopted ASU 2016-13 and the related amendments on January 1, 2020 prospectively, and recognized an allowance for credit losses of $3.1 million on initial adoption of the guidance. Our allowance for credit losses is derived based on various data sources, multiple key inputs and forecast scenarios. These include default rates specific to the individual security, vintage of the security, geography of the issuer of the security, industry analyst reports, credit ratings and consensus economic forecasts.
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To determine the credit losses on our AFS securities, we use the probability of default ("PD") and loss given default ("LGD") methodology through a third-party proprietary tool which calculates the expected credit losses based on a discounted cash flow method. The tool uses effective interest rates to discount the expected cash flows associated with each AFS security to determine its fair value, which is then compared with its amortized cost basis to derive the credit loss on the security.
The methodology and inputs used to determine the credit loss by security type are as follows:
•Corporate and Government: Expected cashflows are derived that are specific to each security. The PD is based on a quantitative model that converts agency ratings to term structures that vary by country, industry and the state of the credit cycle. This is used along with macroeconomic forecasts to produce scenario conditioned PDs. The LGD is based on default studies provided by a third party which we use along with macroeconomic forecasts to produce scenario conditioned LGDs.
•Municipals: Expected cash flows are derived that are specific to each security. The PD model produces scenario conditioned PD output over the lifetime of the municipal security. These PDs are based on key macroeconomic and instrument specific risk factors. The LGD is derived based on a model which uses assumptions specific to the municipal securities.
For corporates, government and municipal securities, we use an explicit reversion and a three year forecast period, which we consider to be a reasonable duration during which an economic forecast could continue to be reliable.
•Asset backed, Commercial and Residential mortgaged-backed: Expected cash flows are derived that are specific to each security. The PD and LGD for each security is based on a quantitative model that generates scenario conditioned PD and LGD term structures based on the underlying collateral type, waterfall and other trustee information. This model also considers prepayments. For these security types, there is no explicit reversion and the forecasts are deemed reasonable and supportable over the life of the portfolio.
Due to the short-term period during which accrued investment income remains unpaid, which is typically six months since the coupon on our debt securities is paid semi-annually, we elected not to establish an allowance for credit losses on our accrued investment income balances. Accrued investment income is written off through net realized investment gains (losses) at the time the issuer of the debt security defaults or is expected to default on payments.
The following tables provide a reconciliation of the beginning and ending allowance for credit losses on our AFS debt securities:
Three Months Ended September 30, 2020
Other
government		CorporateResidential mortgage-backedCommercial
mortgage
backed		Asset-backedTotal
Allowance for credit losses, beginning of period$— $(3,090)$— $(494)$(89)$(3,673)
Cumulative effect of change in accounting principle— — — — — — 
Allowances for credit losses on securities for which credit losses were not previously recorded— (39)(2)(78)(45)(164)
Additions to the allowance for credit losses arising from purchases of securities accounted for as PCD assets— — — — — — 
Reductions for securities sold during the period— 341 — — — 341 
Reductions in the allowance for credit losses on securities we either intend to sell or more likely than not, we will be required to sell before the recovery of their amortized cost basis— — — — — — 
(Increase) decrease to the allowance for credit losses on securities that had an allowance recorded in the previous period— 2,004 — 491 89 2,584 
Allowance for credit losses, end of period$— $(784)$(2)$(81)$(45)$(912)
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Nine Months Ended September 30, 2020
Other
government		CorporateResidential mortgage-backedCommercial
mortgage
backed		Asset-backedTotal
Allowance for credit losses, beginning of period$— $— $— $— $— $— 
Cumulative effect of change in accounting principle(22)(2,987)— (50)— (3,059)
Allowances for credit losses on securities for which credit losses were not previously recorded— (10,359)(2)(572)(134)(11,067)
Additions to the allowance for credit losses arising from purchases of securities accounted for as PCD assets— — — — — — 
Reductions for securities sold during the period22 2,108 — — — 2,130 
Reductions in the allowance for credit losses on securities we either intend to sell or more likely than not, we will be required to sell before the recovery of their amortized cost basis— — — — — — 
(Increase) decrease to the allowance for credit losses on securities that had an allowance recorded in the previous period— 10,454 — 541 89 11,084 
Allowance for credit losses, end of period$— $(784)$(2)$(81)$(45)$(912)
During the three and nine months ended September 30, 2020 we did not have any write-offs charged against the allowance for credit losses or any recoveries of amounts previously written-off.
Our allowance for credit losses decreased during the three months ended September 30, 2020 primarily due to improved market conditions. Our modeling process for determining credit losses remained the same as the prior quarter and took into account the adverse impact that the COVID-19 pandemic still has on capital markets and the global economy in general.

Other-Than-Temporary Impairment on AFS Fixed Maturity Investments
For the three and nine months ended September 30, 2019, we did not recognize any other-than-temporary impairment losses on our AFS securities. We determined that no other-than-temporary credit losses existed as of December 31, 2019. A description of our other-than-temporary impairment process is included in Note 2 - "Significant Accounting Policies" to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019.
As discussed in detail in Note 1 - "Significant Accounting Policies" above, we adopted ASU 2016-13 and the related amendments on January 1, 2020 with this new guidance replacing the OTTI model that was previously applicable to our AFS debt securities. The new approach now requires the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value.

Equity Investments
The following table summarizes our equity investments classified as trading:
September 30, 2020December 31, 2019
Publicly traded equity investments in common and preferred stocks$303,932 $327,875 
Exchange-traded funds78,182 133,047 
Privately held equity investments in common and preferred stocks271,045 265,799 
$653,159 $726,721 
Equity investments include publicly traded common and preferred stocks, exchange-traded funds and privately held common and preferred stocks. Our publicly traded equity investments in common and preferred stocks predominantly trade on major exchanges and are managed by our external advisors. Our investments in exchange-traded funds also trade on major exchanges.
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Our privately held equity investments in common and preferred stocks are direct investments in companies that we believe offer attractive risk adjusted returns and/or offer other strategic advantages. Each investment may have its own unique terms and conditions and there may be restrictions on disposals. There is no active market for these investments. Included within the above balance as of September 30, 2020 and December 31, 2019 is an investment in the parent company of AmTrust Financial Services, Inc. ("AmTrust"), with a fair value of $245.4 million and $240.1 million, respectively. Refer to Note 20 - "Related Party Transactions" for further information.

Other Investments, at fair value
The following table summarizes our other investments carried at fair value:
September 30, 2020December 31, 2019
Hedge funds$2,087,091 $1,121,904 
Fixed income funds684,031 481,039 
Equity funds290,129 410,149 
Private equity funds320,455 323,496 
CLO equities84,532 87,555 
CLO equity funds140,458 87,509 
Private credit funds90,476 — 
Other7,698 6,379 
$3,704,870 $2,518,031 

The valuation of our other investments is described in Note 11 - "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:
•Hedge funds may invest in a wide range of instruments, including debt and equity securities, and utilize various sophisticated strategies, including derivatives, to achieve their objectives. We invest in a mixture of fixed income, equity and multi-strategy hedge funds.
•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, in both liquid and illiquid markets. The liquid fixed income funds have regularly published prices.
•Equity funds invest in a diversified portfolio of U.S. and international publicly-traded equity securities.
•Private equity funds invest primarily in the financial services industry.
•CLO equities comprise investments in the equity tranches of term-financed securitizations of diversified pools of corporate bank loans.
•CLO equity funds invest primarily in the equity tranches of term-financed securitizations of diversified pools of corporate bank loans.
•Private credit funds invest in direct senior or collateralized loans.
•Others comprise various investments including real estate debt funds that invest primarily in European commercial real estate equity and a fund that provides loans to educational institutions throughout the U.S. and its territories.
The increase in our other investments carried at fair value between September 30, 2020 and December 31, 2019 was primarily attributable to unrealized gains of $670.7 million and net additional subscriptions of $530.3 million to hedge funds, fixed income funds, private credit funds, CLO equities and CLO equity funds.
As of September 30, 2020, we had unfunded commitments of $792.2 million to other investments.
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Certain of our other investments are subject to restrictions on redemptions and sales that are determined by the governing documents, which limits our ability to liquidate those investments. These restrictions may include lock-ups, redemption gates, restricted share classes or side pockets, restrictions on the frequency of redemption and notice periods. 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. Certain other investments may not have any restrictions governing their sale, but there is no active market and no guarantee that we will be able to execute a sale in a timely manner. In addition, even if certain other investments are not eligible for redemption or sales are restricted, we may still receive income distributions from those other investments. The table below details the estimated date by which proceeds would be received if we had provided notice of our intent to redeem or initiated a sales process as of September 30, 2020:
Less than 1 Year1-2 years2-3 yearsNot Eligible/ RestrictedTotalRedemption Frequency
Hedge funds$793,268 $1,131,505 $102,600 $59,718 $2,087,091 Monthly to Bi-annually
Fixed income funds671,333 — — 12,698 684,031 Daily to Quarterly
Equity funds290,129 — — — 290,129 Daily to Quarterly
Private equity funds— — — 320,455 320,455 N/A
CLO equities84,532 — — — 84,532 N/A
CLO equity funds101,597 29,113 9,748 — 140,458 Quarterly to Bi-annually
Private credit funds— 10,000 80,476 90,476 N/A
Other7,698 7,698 N/A
$1,940,859 $1,170,618 $112,348 $481,045 $3,704,870 

Refer to Note 20 - "Related Party Transactions" for further information regarding certain of our other investments.
Equity Method Investments
The following table summarizes our equity method investments:
September 30, 2020December 31, 2019
InvestmentOwnership %Carrying ValueInvestmentOwnership %Carrying Value
Enhanzed Re$154,050 47.4 %$271,678 $154,050 47.4 %$182,856 
Citco50,000 31.9 %51,946 50,000 31.9 %51,742 
Monument Re (1)
59,600 20.0 %161,994 26,600 20.0 %60,598 
Clear Spring11,210 20.0 %10,944 11,210 20.0 %10,645 
Other24,963 
~30%
20,233 24,963 
~30%
20,436 
$299,823 $516,795 $266,823 $326,277 
(1) We own 20.0% of the common shares in Monument Re as well as different classes of preferred shares which have fixed dividend yields.
Refer to Note 20 - "Related Party Transactions" for further information regarding our investments in Enhanzed Re, Citco, Monument Re and Clear Spring.
As of September 30, 2020, we had unfunded commitments of $68.7 million related to equity method investments.

Funds Held
Under funds held arrangements, the reinsured company has retained funds that would otherwise have been remitted to our reinsurance subsidiaries. We either have (i) funds held by reinsured companies, which are carried at amortized cost and on which we receive a fixed crediting rate, or (ii) funds held - directly managed, which are carried at fair value and on which we receive the underlying return on the portfolio. The investment returns on both categories of funds held are recognized in net investment income and net realized and unrealized gains (losses). The funds held balance is credited with investment income and losses payable are deducted.
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Funds Held - Directly Managed
Funds held - directly managed, where we receive the underlying return on the investment portfolio, are carried at fair value, either because we elected the fair value option at the inception of the reinsurance contract, or because it represents the aggregate of funds held at amortized cost and the fair value of an embedded derivative. The embedded derivative relates to our contractual right to receive the return on the underlying investment portfolio supporting the reinsurance contract. We include the estimated fair value of these embedded derivatives in the consolidated balance sheets with the host contract in order to reflect the expected settlement of these features with the host contract. The change in the fair value of the embedded derivative is included in net unrealized gains (losses). The following table summarizes the components of the funds held - directly managed:
September 30, 2020December 31, 2019
Fixed maturity investments, trading$1,054,201 $1,173,345 
Cash and cash equivalents6,432 10,296 
Other assets6,006 3,911 
$1,066,639 $1,187,552 

The following table summarizes the fixed maturity investment components of funds held - directly managed:
September 30, 2020December 31, 2019
Funds held - Directly Managed - Fair Value OptionFunds held - Directly Managed - Variable ReturnTotalFunds held - Directly Managed - Fair Value OptionFunds held - Directly Managed - Variable ReturnTotal
Fixed maturity investments, at amortized cost$106,768 $861,511 $968,279 $185,859 $940,194 $1,126,053 
Net unrealized gains (losses):
Change in fair value - fair value option accounting9,077 — 9,077 5,438 — 5,438 
Change in fair value - embedded derivative accounting— 76,845 76,845 — 41,854 41,854 
Fixed maturity investments within funds held - directly managed, at fair value$115,845 $938,356 $1,054,201 $191,297 $982,048 $1,173,345 
Refer to the sections above for details of the fixed maturity investments within our funds held - directly managed portfolios.
Funds Held by Reinsured Companies
Funds held by reinsured companies, where we received a fixed crediting rate, are carried at cost on our consolidated balance sheets. As of September 30, 2020 and December 31, 2019, we had funds held by reinsured companies of $657.5 million and $475.7 million, respectively. The increase related to $204.2 million of additional funds held balances related to the AXA Group transaction.
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net Investment Income
Major categories of net investment income are summarized as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Fixed maturity investments$47,275 $54,085 $153,554 $163,246 
Short-term investments and cash and cash equivalents826 3,526 4,203 11,430 
Funds held 8,346 10,091 32,715 18,901 
Funds held - directly managed7,703 9,381 27,204 28,742 
Investment income from fixed maturities and cash and cash equivalents64,150 77,083 217,676 222,319 
Equity investments4,771 4,416 14,496 11,218 
Other investments6,000 2,642 19,384 7,259 
Investment income from equities and other investments10,771 7,058 33,880 18,477 
Gross investment income74,921 84,141 251,556 240,796 
Investment expenses(2,791)(2,639)(10,269)(9,372)
Net investment income$72,130 $81,502 $241,287 $231,424 

Net Realized and Unrealized Gains
Components of net realized and unrealized gains were as follows:
Three Months EndedNine Months Ended
September 30,September 30,
2020201920202019
Net realized gains (losses) on sale:
Gross realized gains on fixed maturity securities, AFS$9,871 $44 $19,995 $4,493 
Gross realized losses on fixed maturity securities, AFS (786)(10)(7,379)(302)
Credit recoveries (losses) on fixed maturity securities, AFS2,248 — (389)— 
Net realized gains on fixed maturity securities, trading30,531 25,245 87,911 45,636 
Net realized gains on funds held - directly managed3,292 1,991 5,545 629 
Net realized gains (losses) on equity investments8,286 (3,881)9,165 (1,213)
Net realized investment gains (losses) on derivatives46 — 46— 
Total net realized gains on sale$53,488 $23,389 $114,894 $49,243 
Net unrealized gains (losses):
Fixed maturity securities, trading$14,324 $86,840 $58,795 $413,175 
Fixed maturity securities in funds held - directly managed portfolios7,814 20,895 42,619 95,124 
Equity investments4,210 10,057 (48,409)31,266 
Other Investments420,169 3,879 670,653 269,681 
Total net unrealized gains446,517 121,671 723,658 809,246 
Net realized and unrealized gains$500,005 $145,060 $838,552 $858,489 

The gross realized gains and losses on AFS investments included in the table above resulted from sales of $409.6 million and $7.6 million for the three months ended September 30, 2020 and 2019, respectively, and $1,455.9 million and $91.2 million for the nine months ended September 30, 2020 and 2019, respectively.

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Reconciliation to the Consolidated Statements of Comprehensive Income
The following table provides a reconciliation of the gross realized gains and losses and credit recoveries (losses) on our AFS fixed maturity debt securities that arose during the three and nine months ended September 30, 2020 within our continuing and discontinued operations and the offsetting reclassification adjustments included within our consolidated statements of comprehensive income:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Included within continuing operations:
Gross realized gains on fixed maturity securities, AFS$9,871 $44 $19,995 $4,493 
Gross realized losses on fixed maturity securities, AFS(786)(10)(7,379)(302)
Included within discontinued operations:
Gross realized gains on fixed maturity securities, AFS489 12 1,025 12 
Gross realized losses on fixed maturity securities, AFS(86)(12)(143)(12)
Total reclassification adjustment$9,488 $34 $13,498 $4,191 
Included within continuing operations:
Credit recoveries (losses) on fixed maturity securities, AFS$2,248 $— $(389)$— 
Included within discontinued operations:
Credit recoveries (losses) on fixed maturity securities, AFS131 — 318 — 
Total reclassification adjustment$2,379 $— $(71)$— 

Restricted Assets
We utilize trust accounts to collateralize business with our insurance and reinsurance counterparties. We are also required to maintain investments and cash and cash equivalents on deposit with regulatory authorities and Lloyd's to support our insurance and reinsurance operations. The investments and cash and cash equivalents on deposit are available to settle insurance and reinsurance liabilities. Collateral generally takes the form of assets held in trust, letters of credit or funds held. The assets used as collateral are primarily highly rated fixed maturity securities. The carrying value of our restricted assets, including restricted cash of $556.7 million and $346.9 million, as of September 30, 2020 and December 31, 2019, respectively, was as follows: 
September 30, 2020December 31, 2019
Collateral in trust for third party agreements$5,189,537 $4,103,847 
Assets on deposit with regulatory authorities276,941 309,659 
Collateral for secured letter of credit facilities121,700 132,670 
Funds at Lloyd's (1)
546,996 639,316 
$6,135,174 $5,185,492 
(1) Our 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. We also utilize unsecured letters of credit for Funds at Lloyd's, as described in Note 14 - "Debt Obligations and Credit Facilities."
The increase in restricted assets during the nine months ended September 30, 2020 primarily related to new business as described in Note 3 - "Significant New Business," partially offset by reductions due to paid losses and other releases of collateral.
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
6. DERIVATIVES AND HEDGING INSTRUMENTS

Foreign Currency Hedging of Net Investments in Foreign Operations
We use foreign currency forward exchange rate contracts in qualifying hedging relationships to hedge the foreign currency exchange rate risk associated with certain of our net investments in foreign operations. As of September 30, 2020 and December 31, 2019, we had forward currency contracts in place, which we had designated as hedges of our net investments in foreign operations.
The following table presents the gross notional amounts and estimated fair values recorded within other assets and other liabilities related to our qualifying foreign currency forward exchange rate contracts:
September 30, 2020December 31, 2019
Fair ValueFair Value
Gross Notional Amount AssetsLiabilities Gross Notional Amount AssetsLiabilities
Foreign currency forward - AUD $68,847 $282 $— $64,620 $52 $2,033 
Foreign currency forward - EUR140,663 839 — 112,284 246 1,635 
Foreign currency forward - GBP329,245 5,664 — 318,387 344 7,784 
Total qualifying hedges$538,755 $6,785 $— $495,291 $642 $11,452 

The following table presents the net gains and losses deferred in the cumulative translation adjustment ("CTA") account, which is a component of AOCI, in shareholders' equity, relating to our foreign currency forward exchange rate contracts:
Amount of Gains (Losses) Deferred in AOCI
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Foreign currency forward - AUD $(2,813)$1,673 $(1,777)$1,819 
Foreign currency forward - EUR(5,525)4,780 (6,001)5,076 
Foreign currency forward - GBP(11,315)8,260 10,002 6,669 
Net gains (losses) on qualifying derivative hedges$(19,653)$14,713 $2,224 $13,564 

Derivatives Not Designated or Not Qualifying as Net Investments Hedging Instruments
From time to time, we may also utilize foreign currency forward contracts as part of our overall foreign currency risk management strategy or to obtain exposure to a particular financial market, as well as for yield enhancement in non-qualifying hedging relationships. We may also utilize equity call option instruments either to obtain exposure to a particular equity instrument or for yield enhancement in non-qualifying hedging relationships.

Foreign Currency Forward Contracts
The following table presents the gross notional amounts and estimated fair values recorded within other assets and other liabilities related to our non-qualifying foreign currency forward exchange rate hedging relationships:
September 30, 2020December 31, 2019
Fair ValueFair Value
Gross Notional Amount AssetsLiabilities Gross Notional Amount AssetsLiabilities
Foreign currency forward - AUD$19,076 $145 $81 $913 $839 $892 
Foreign currency forward - CAD52,212 525 89 66,266 10 1,482 
Foreign currency forward - EUR22,272 — 132 74,444 507 1,440 
Foreign currency forward - GBP43,254 744 — 11,940 13 292 
Total non-qualifying hedges$136,814 $1,414 $302 $153,563 $1,369 $4,106 
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The following table presents the net gains (losses) included in earnings related to our non-qualifying foreign currency forward contracts:
 Gains (Losses) on non-qualifying-hedges included in net earnings
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Foreign currency forward - AUD$13 $1,148 $(432)$1,710 
Foreign currency forward - CAD(1,171)1,582 1,600 (910)
Foreign currency forward - EUR(817)2,473 135 3,344 
Foreign currency forward - GBP(2,219)10,659 (719)$12,970 
Net gains (losses) on non-qualifying hedges$(4,194)$15,862 $584 $17,114 

Investments in Call Options on Equities
During the three and nine months ended September 30, 2020, we recorded unrealized losses of $nil and less than $0.1 million, respectively, in net earnings on the call options on equities that we had purchased in 2018 at a cost of $10.0 million. During the three and nine months ended September 30, 2019, we had recorded unrealized gains of less than $0.1 million and $1.3 million, respectively, in net earnings on these call options on equities. These call options on equities had a fair value of less than $0.1 million as at December 31, 2019 and expired without being exercised during the nine months ended September 30, 2020.

Forward Interest Rate Swaps
In October 2019, we entered into a forward interest rate swap, with a notional amount of AUD$120.0 million, to partially mitigate the risk associated with declining interest rates until the completion of the Munich Re transaction which closed on July 1, 2020, as described in Note 3 - "Significant New Business."
During the three and nine months ended September 30, 2020, we recorded unrealized gains included within net earnings of $nil and $0.8 million, respectively, on the forward interest rate swap. This forward interest rate swap was terminated on April 7, 2020, for an inception-to-date net realized gain of $0.5 million. The carrying value of the forward interest rate swap, recorded in other liabilities as of December 31, 2019, was $0.3 million.

Credit Default Swaps, Futures and Currency Forward Contracts
From time to time we may also utilize (i) credit default swaps to both hedge and replicate credit exposure, (ii) government bond futures contracts for interest rate management, and (iii) foreign currency forward contracts for currency hedging, to collectively manage credit and duration risk, as well as for yield enhancement on some of our fixed income portfolios.
The following table presents the gross notional amounts and estimated fair values recorded within other assets and other liabilities related to our credit default swaps, government bond futures contracts and currency forward contracts:
September 30, 2020
Fair Value
Gross Notional AmountAssetsLiabilities
Credit default swaps$7,865 $— $169 
Futures contracts - long positions48,051 100 — 
Futures contracts - short positions(33,318)— 85 
Currency forward contracts - long positions1,508 12 — 
Currency forward contracts - short positions(1,819)— 29 
Total$22,287 $112 $283 
We initially entered into these credit default swaps, government bond futures contracts and currency forward contracts during the nine month period ended September 30, 2020 and therefore we did not have any of these contracts in place as of December 31, 2019.
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The following table presents the amounts of the net gains included in earnings related to our credit default swaps, government bond futures contracts and currency forward contracts:
Three Months Ended September 30, 2020
Nine Months Ended September 30, 2020
Credit default swaps
$106 $106 
Futures contracts
(6)(43)
Currency forward contracts
(43)123 
Total net gains
$57 $186 
We initially entered into these credit default swaps, government bond futures contracts and currency forward contracts during the nine month period ended September 30, 2020 and therefore we did not have any of these contracts in place during the three and nine months ended September 30, 2019.

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
7. REINSURANCE BALANCES RECOVERABLE ON PAID AND UNPAID LOSSES

The following tables provide the total reinsurance balances recoverable on paid and unpaid losses:
 September 30, 2020
 Non-life
Run-off		StarStoneTotal
Recoverable from reinsurers on unpaid:
Outstanding losses$858,988 $258,215 $1,117,203 
IBNR439,594 143,073 582,667 
ULAE7,674 — 7,674 
Fair value adjustments - acquired companies(11,986)(1,378)(13,364)
Fair value adjustments - fair value option(27,029)— (27,029)
Total reinsurance reserves recoverable1,267,241 399,910 1,667,151 
Paid losses recoverable136,548 77,957 214,505 
Total$1,403,789 $477,867 $1,881,656 
Reconciliation to Consolidated Balance Sheet:
Reinsurance balances recoverable on paid and unpaid losses$860,628 $477,867 $1,338,495 
Reinsurance balances recoverable on paid and unpaid losses - fair value option543,161 — 543,161 
Total $1,403,789 $477,867 $1,881,656 
 December 31, 2019
 Non-life
Run-off		AtriumStarStoneTotal
Recoverable from reinsurers on unpaid:
Outstanding losses$972,293 $9,011 $264,131 $1,245,435 
IBNR673,059 19,286 93,185 785,530 
Fair value adjustments - acquired companies(13,652)519 (2,122)(15,255)
Fair value adjustments - fair value option(88,086)— — (88,086)
Total reinsurance reserves recoverable1,543,614 28,816 355,194 1,927,624 
Paid losses recoverable181,375 1,541 70,594 253,510 
Total$1,724,989 $30,357 $425,788 $2,181,134 
Reconciliation to Consolidated Balance Sheet:
Reinsurance balances recoverable on paid and unpaid losses$1,029,471 $30,357 $425,788 $1,485,616 
Reinsurance balances recoverable on paid and unpaid losses - fair value option695,518 — — 695,518 
Total $1,724,989 $30,357 $425,788 $2,181,134 

Our insurance and reinsurance run-off subsidiaries and assumed portfolios, prior to acquisition, used retrocessional agreements to reduce their exposure to the risk of insurance and reinsurance assumed. On an annual basis, StarStone purchases a tailored outwards reinsurance program designed to manage its risk profile. The majority of StarStone's third-party reinsurance cover is with highly rated reinsurers or is collateralized by pledged assets or letters of credit.
The fair value adjustments, determined on acquisition of insurance and reinsurance subsidiaries, are based on the estimated timing of loss and LAE recoveries and an assumed interest rate equivalent to a risk free rate for securities with similar duration to the acquired reinsurance balances recoverable on paid and unpaid losses plus a spread for credit risk, and are amortized over the estimated recovery period, as adjusted for accelerations in timing of payments as a result of commutation settlements. The determination of the fair value adjustments on the retroactive reinsurance contracts for which we have elected the fair value option is described in Note 11 - "Fair Value Measurements."
As of September 30, 2020 and December 31, 2019, we had reinsurance balances recoverable on paid and unpaid losses of $1.9 billion and $2.2 billion, respectively. The decrease of $299.5 million in reinsurance balances
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
recoverable on paid and unpaid losses was primarily due to the Hannover Re transaction, cash collections in the first nine months of 2020 and the classification of Atrium as held-for-sale at September 30, 2020; partially offset by reserve increases on StarStone International, which includes estimated recoverables on losses related to the COVID-19 pandemic.

Top Ten Reinsurers
 September 30, 2020
 Non-life
Run-off		StarStoneTotal % of
Total
Top 10 reinsurers$828,479 $344,444 $1,172,923 62.3 %
Other reinsurers > $1 million556,623 132,049 688,672 36.6 %
Other reinsurers < $1 million18,687 1,374 20,061 1.1 %
Total$1,403,789 $477,867 $1,881,656 100.0 %
December 31, 2019
Non-life
Run-off		AtriumStarStoneTotal % of
Total
Top 10 reinsurers$1,154,110 $22,051 $295,443 $1,471,604 67.4 %
Other reinsurers > $1 million551,636 7,761 129,335 688,732 31.6 %
Other reinsurers < $1 million19,243 545 1,010 20,798 1.0 %
Total$1,724,989 $30,357 $425,788 $2,181,134 100.0 %
September 30, 2020December 31, 2019
Information regarding top ten reinsurers:
Number of top 10 reinsurers rated A- or better8 8 
Number of top 10 non-rated reinsurers (1)
2 2 
Reinsurers rated A- or better in top 10$910,751 $1,199,479 
Non-rated reinsurers in top 10 (1)
262,172 272,125 
Total top 10 reinsurance recoverables$1,172,923 $1,471,604 
Single reinsurers that represent 10% or more of total reinsurance balance recoverables as of September 30, 2020:
Hannover Ruck SE (2)
$— $259,077 
Lloyd's Syndicates (3)
$346,601 $396,246 
(1) The reinsurance balances recoverable from the two non-rated top 10 reinsurers was comprised of:
•$183.4 million and $190.8 million as of September 30, 2020 and December 31, 2019 respectively, due from a US state backed reinsurer that is supported by assessments on active auto writers operating within the state; and
•$78.8 million and $81.4 million as of September 30, 2020 and December 31, 2019 respectively, due from a reinsurer who has provided us with security in the form of pledged assets in trust for the full amount of the recoverable balance.
(2) Hannover Ruck SE is rated AA- by Standard & Poor’s and A+ by A.M. Best. The transaction described in Note 3 - "Significant New Business" had the effect of moving this reinsurer to be less than 10%.
(3) Lloyd's Syndicates are rated A+ by Standard & Poor's and A by A.M. Best.

 Allowance for Estimated Uncollectible Reinsurance Balances Recoverable on Paid and Unpaid Losses
We evaluate and monitor the credit risk related to our reinsurers, and an allowance for estimated uncollectible reinsurance balances recoverable on paid and unpaid losses ("allowance for estimated uncollectible reinsurance") is established for amounts considered potentially uncollectible.
With respect to our process for determining the allowances for estimated uncollectible reinsurance, we adopted ASU 2016-13 and the related amendments on January 1, 2020 and recorded a cumulative effect adjustment of $0.2 million to increase the opening retained earnings on the initial adoption of the guidance. Our allowance for estimated uncollectible reinsurance is derived based on various data sources, multiple key inputs and
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
forecast scenarios. These include the duration of the collection period, credit quality, changes in reinsurer credit standing, default rates specific to the individual reinsurer, the geographical location of the reinsurer, contractual disputes with reinsurers over individual contentious claims, contract language or coverage issues, industry analyst reports and consensus economic forecasts.
To determine the allowance for estimated uncollectible reinsurance, we use the PD and LGD methodology whereby each reinsurer is allocated an appropriate PD percentage based on the expected payout duration by portfolio. This PD percentage is then multiplied by an appropriate LGD percentage to arrive at an overall credit allowance percentage which is then applied to the reinsurance balance recoverable for each reinsurer, net of any specific bad debt provisions, collateral or other contract related offsets, to arrive at the overall allowance for estimated uncollectible reinsurance by reinsurer.
The following tables show our gross and net balances recoverable from our reinsurers as well as the related allowance for estimated uncollectible reinsurance broken down by the credit ratings of our reinsurers. The majority of the allowance for estimated uncollectible reinsurance relates to the Non-life Run-off segment.
September 30, 2020
GrossAllowance for estimated uncollectible reinsuranceNetProvisions as a
% of Gross
Reinsurers rated A- or above$1,429,984 $57,465 $1,372,519 4.0 %
Reinsurers rated below A-, secured 419,431 — 419,431 — %
Reinsurers rated below A-, unsecured167,358 77,652 89,706 46.4 %
Total$2,016,773 $135,117 $1,881,656 6.7 %
December 31, 2019
GrossAllowance for estimated uncollectible reinsuranceNetProvisions as a
% of Gross
Reinsurers rated A- or above$1,731,270 $43,427 $1,687,843 2.5 %
Reinsurers rated below A-, secured 463,840 — 463,840 — %
Reinsurers rated below A-, unsecured133,663 104,212 29,451 78.0 %
Total$2,328,773 $147,639 $2,181,134 6.3 %

The table below provides a reconciliation of the beginning and ending allowance for estimated uncollectible reinsurance balances for the three and nine months ended September 30, 2020:
Three Months EndedNine Months Ended
September 30, 2020September 30, 2020
Allowance for estimated uncollectible reinsurance, beginning of period$143,653 $147,639 
Cumulative effect of change in accounting principle— (195)
Effect of exchange rate movement745 (701)
Current period change in the allowance815 (718)
Write-offs charged against the allowance(9,625)(10,225)
Recoveries collected(471)(683)
Allowance for estimated uncollectible reinsurance, end of period$135,117 $135,117 

Past-Due Status:
We consider a reinsurance recoverable asset to be past due when it is 90 days past due and record a credit allowance when there is reasonable uncertainty about the collectability of a disputed amount during the reporting period. We did not have significant past due balances older than one year for any of the periods presented.
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8. DEFERRED CHARGE ASSETS
Deferred charge assets relate to retroactive reinsurance policies providing indemnification of losses and LAE with respect to past loss events in the Non-life Run-off segment. For insurance and reinsurance contracts for which we do not elect the fair value option, a deferred charge asset is recorded for the excess, if any, of the estimated ultimate losses payable over the premiums received at the initial measurement. The premium consideration that we charge the ceding companies may be lower than the undiscounted estimated ultimate losses payable due to the time value of money. After receiving the premium consideration in full from our cedents at the inception of the contract, we invest the premium received over an extended period of time thereby generating investment income. We expect to generate profits from these retroactive reinsurance policies when taking into account the premium received and expected investment income, less contractual obligations and expenses.
Deferred charge assets are included in other assets on our consolidated balance sheets. The following table presents a reconciliation of the deferred charge assets:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Beginning carrying value$258,516 $99,094 $272,462 $86,585 
Recorded during the period— 85,183 11,746 108,689 
Amortization(10,316)(17,009)(36,008)(28,006)
Ending carrying value$248,200 $167,268 $248,200 $167,268 

Deferred charge assets are amortized over the estimated claim payment period of the related contract with the periodic amortization reflected in earnings as a component of losses and LAE. Deferred charge assets amortization is adjusted at each reporting period to reflect new estimates of the amount and timing of remaining loss payments. Changes in the estimated amount and the timing of payments of unpaid losses may have an effect on the unamortized deferred charge assets and the amount of periodic amortization. Deferred charge assets are assessed at each reporting period for impairment. If the asset is determined to be impaired, it is written down in the period in which the determination is made. For the nine months ended September 30, 2020, we completed our assessment for impairment of deferred charge assets and concluded that there had been no impairment of our carried deferred charge assets amount.
Further information on deferred charge assets recorded during the three and nine months ended September 30, 2020 is included in Note 3 - "Significant New Business."

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
9. LOSSES AND LOSS ADJUSTMENT EXPENSES
The liability for losses and loss adjustment expenses ("LAE"), also referred to as loss reserves, represents our gross estimates before reinsurance for unpaid reported losses and includes losses that have been incurred but not reported ("IBNR") for our Non-life Run-off, Atrium and StarStone segments using a variety of actuarial methods. We recognize an asset for the portion of the liability that we expect to recover from reinsurers. LAE reserves include allocated loss adjustment expenses ("ALAE"), and unallocated loss adjustment expenses ("ULAE"). ALAE are linked to the settlement of an individual claim or loss, whereas ULAE are based on our estimates of future costs to administer the claims. IBNR represents reserves for loss and LAE that have been incurred but not yet reported to us. This includes amounts for unreported claims, development on known claims and reopened claims.
Our loss reserves cover multiple lines of business, which include asbestos, environmental, general casualty, workers' compensation/personal accident, marine, aviation and transit, construction defect, professional indemnity/directors and officers, motor, property and other non-life lines of business. Refer to Note 10 - "Losses and Loss Adjustment Expenses" to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019 for more information on establishing the liability for losses and LAE.

The following tables summarize the liability for losses and LAE by segment and for our other activities:
 September 30, 2020
 Non-life
Run-off		StarStoneOtherTotal
Outstanding losses$4,461,854 $698,118 $10,479 $5,170,451 
IBNR4,360,063 611,986 15,817 4,987,866 
Fair value adjustments - acquired companies(147,500)(339)— (147,839)
Fair value adjustments - fair value option(81,299)— — (81,299)
ULAE330,472 41,233 — 371,705 
Total$8,923,590 $1,350,998 $26,296 $10,300,884 
Reconciliation to Consolidated Balance Sheet:
Loss and loss adjustment expenses$6,500,912 $1,350,998 $26,296 $7,878,206 
Loss and loss adjustment expenses, at fair value2,422,678 — — 2,422,678 
Total$8,923,590 $1,350,998 $26,296 $10,300,884 
 December 31, 2019
 Non-life
Run-off		AtriumStarStoneOtherTotal
Outstanding losses$4,407,082 $89,141 $743,829 $9,512 $5,249,564 
IBNR3,945,407 136,543 556,135 13,565 4,651,650 
Fair value adjustments - acquired companies(170,689)3,700 (522)— (167,511)
Fair value adjustments - fair value option(217,933)— — — (217,933)
ULAE331,494 2,288 18,852 — 352,634 
Total$8,295,361 $231,672 $1,318,294 $23,077 $9,868,404 
Reconciliation to Consolidated Balance Sheet:
Loss and loss adjustment expenses$5,674,239 $231,672 $1,318,294 $23,077 $7,247,282 
Loss and loss adjustment expenses, at fair value2,621,122 — — — 2,621,122 
Total$8,295,361 $231,672 $1,318,294 $23,077 $9,868,404 

The overall increase in the liability for losses and LAE between December 31, 2019 and September 30, 2020 was primarily attributable to the AXA Group, Aspen and Lyft reinsurance transactions, as described in Note 3 - "Significant New Business" and net incurred losses and LAE in the period, partially offset by losses paid and foreign exchange gains in the period.
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The table below provides a consolidated reconciliation of the beginning and ending liability for losses and LAE:
Three Months EndedNine Months Ended
September 30,September 30,
2020201920202019
Balance as of beginning of period$10,593,436 $9,354,891 $9,868,404 $9,048,796 
Less: reinsurance reserves recoverable1,858,161 1,873,7661,927,624 1,708,272 
Less: deferred charge assets on retroactive reinsurance258,516 99,094 272,462 86,585 
Less: cumulative effect of change in accounting principle on the determination of the allowance for estimated uncollectible reinsurance balances (1)
— — 643 — 
Net balance as of beginning of period8,476,759 7,382,0317,667,675 7,253,939 
Net incurred losses and LAE:
  Current period78,965 156,344314,083 457,720 
  Prior periods30,721 6,91425,595 108,391 
  Total net incurred losses and LAE109,686 163,258339,678 566,111 
Net paid losses:
  Current period(17,194)(36,733)(32,304)(107,679)
  Prior periods(344,060)(397,514)(1,070,063)(1,255,903)
  Total net paid losses(361,254)(434,247)(1,102,367)(1,363,582)
Effect of exchange rate movement99,129 (83,277)(6,139)(95,270)
Acquired on purchase of subsidiaries— — — 686 
Assumed business280,497 445,000 1,705,970 1,110,881 
Reclassification to assets and liabilities held-for-sale(219,284)— (219,284)— 
Net balance as of September 308,385,533 7,472,765 8,385,533 7,472,765 
Plus: reinsurance reserves recoverable (2)
1,667,151 1,876,613 1,667,151 1,876,613 
Plus: deferred charge assets on retroactive reinsurance248,200 167,268 248,200 167,268 
Balance as of September 30$10,300,884 $9,516,646 $10,300,884 $9,516,646 
(1) The Company adopted ASU 2016-13 and the related amendments on January 1, 2020. Refer to Note 1 - "Significant Accounting Policies" for further details. This amount excludes $0.4 million related to the adoption impact of ASU 2016-13 on StarStone U.S., which has been classified as a discontinued operation with the related assets and liabilities disclosed as held-for-sale on our consolidated balance sheets.
(2) Net of allowance for estimated uncollectible reinsurance.

The tables below provide the components of net incurred losses and LAE by segment and for our other activities:
Three Months Ended September 30, 2020
 Non-life Run-offAtriumStarStoneOtherTotal
Net losses paid$283,882 $17,189 $56,727 $3,456 $361,254 
Net change in case and LAE reserves(49,887)2,701 5,456 103 (41,627)
Net change in IBNR reserves(221,800)2,386 (8,579)1,484 (226,509)
Increase in estimates of net ultimate losses12,195 22,276 53,604 5,043 93,118 
Reduction in provisions for unallocated LAE(14,605)(29)(5,020)— (19,654)
Amortization of deferred charge assets10,316 — — — 10,316 
Amortization of fair value adjustments5,310 (252)(194)— 4,864 
Changes in fair value - fair value option21,042 — — — 21,042 
Net incurred losses and LAE$34,258 $21,995 $48,390 $5,043 $109,686 
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Three Months Ended September 30, 2019
 Non-life
Run-off		AtriumStarStoneOtherTotal
Net losses paid$288,445 $20,005 $122,848 $2,949 $434,247 
Net change in case and LAE reserves(173,104)(91)(17,860)944 (190,111)
Net change in IBNR reserves(148,521)8,702 (4,713)(246)(144,778)
Increase (reduction) in estimates of net ultimate losses(33,180)28,616 100,275 3,647 99,358 
Reduction in provisions for unallocated LAE(12,158)— (188)— (12,346)
Amortization of deferred charge assets17,009 — — — 17,009 
Amortization of fair value adjustments17,538 (216)541 — 17,863 
Changes in fair value - fair value option41,374 — — — 41,374 
Net incurred losses and LAE$30,583 $28,400 $100,628 $3,647 $163,258 

Nine Months Ended September 30, 2020
 Non-life Run-offAtriumStarStoneOtherTotal
Net losses paid$826,250 $48,416 $218,200 $9,501 $1,102,367 
Net change in case and LAE reserves(300,573)3,635 (60,887)965 (356,860)
Net change in IBNR reserves(581,979)14,227 17,032 2,252 (548,468)
Increase (reduction) in estimates of net ultimate losses(56,302)66,278 174,345 12,718 197,039 
Increase (reduction) in provisions for unallocated LAE(34,509)(29)23,475 — (11,063)
Amortization of deferred charge assets36,008 — — — 36,008 
Amortization of fair value adjustments21,653 (246)(561)— 20,846 
Changes in fair value - fair value option96,848 — — — 96,848 
Net incurred losses and LAE$63,698 $66,003 $197,259 $12,718 $339,678 

Nine Months Ended September 30, 2019
 Non-life
Run-off		AtriumStarStoneOtherTotal
Net losses paid$966,617 $60,095 $329,265 $7,605 $1,363,582 
Net change in case and LAE reserves(370,639)(245)13,508 2,298 (355,078)
Net change in IBNR reserves(619,648)(1,916)15,042 3,165 (603,357)
Increase (reduction) in estimates of net ultimate losses(23,670)57,934 357,815 13,068 405,147 
Increase (reduction) in provisions for unallocated LAE(38,229)— 739 — (37,490)
Amortization of deferred charge assets28,006— — — 28,006 
Amortization of fair value adjustments34,033 728 310 — 35,071 
Changes in fair value - fair value option135,377 — — — 135,377 
Net incurred losses and LAE$135,517 $58,662 $358,864 $13,068 $566,111 
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Non-life Run-off Segment
The table below provides a reconciliation of the beginning and ending liability for losses and LAE for the Non-life Run-off segment:
Three Months EndedNine Months Ended
September 30,September 30,
2020201920202019
Balance as of beginning of period$8,979,234 $7,803,663 $8,295,361 $7,540,662 
Less: reinsurance reserves recoverable1,429,489 1,534,427 1,543,614 1,366,123 
Less: deferred charge assets on retroactive insurance258,516 99,094 272,462 86,585 
Plus: cumulative effect of change in accounting principal on allowance for estimated uncollectible reinsurance (1)
— — 703 — 
Net balance as of beginning of period7,291,229 6,170,142 6,479,988 6,087,954 
Net incurred losses and LAE:
  Current period8,218 23,845 24,153 107,291 
  Prior periods26,040 6,738 39,545 28,226 
  Total net incurred losses and LAE34,258 30,583 63,698 135,517 
Net paid losses:
  Current period(739)(14,374)(1,777)(53,265)
  Prior periods(283,143)(274,071)(824,473)(913,352)
  Total net paid losses(283,882)(288,445)(826,250)(966,617)
Effect of exchange rate movement86,047 (73,231)(15,257)(84,372)
Acquired on purchase of subsidiaries— — — 686 
Assumed business280,497 445,000 1,705,970 1,110,881 
Reclassification to assets and liabilities held-for-sale— — — — 
Net balance as of September 307,408,149 6,284,049 7,408,149 6,284,049 
Plus: reinsurance reserves recoverable (2)
1,267,241 1,488,374 1,267,241 1,488,374 
Plus: deferred charge assets on retroactive reinsurance248,200 167,268 248,200 167,268 
Balance as of September 30$8,923,590 $7,939,691 $8,923,590 $7,939,691 
(1) The Company adopted ASU 2016-13 and the related amendments on January 1, 2020. Refer to Note 1 - "Significant Accounting Policies" for further details.
(2) Net of allowance for estimated uncollectible reinsurance.

Net incurred losses and LAE in the Non-life Run-off segment were as follows:
Three Months Ended September 30,
 20202019
 Prior
Period		Current
Period		TotalPrior
Period		Current
Period		Total
Net losses paid$283,143 $739 $283,882 $274,071 $14,374 $288,445 
Net change in case and LAE reserves(49,854)(33)(49,887)(175,830)2,726 (173,104)
Net change in IBNR reserves(229,312)7,512 (221,800)(155,315)6,794 (148,521)
Increase (reduction) in estimates of net ultimate losses3,977 8,218 12,195 (57,074)23,894 (33,180)
Reduction in provisions for unallocated LAE(14,605)— (14,605)(12,109)(49)(12,158)
Amortization of deferred charge assets10,316 — 10,316 17,009 — 17,009 
Amortization of fair value adjustments5,310 — 5,310 17,538 — 17,538 
Changes in fair value - fair value option21,042 — 21,042 41,374 — 41,374 
Net incurred losses and LAE$26,040 $8,218 $34,258 $6,738 $23,845 $30,583 


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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net change in case and LAE reserves comprises the movement during the period 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 IBNR represents the gross change in our actuarial estimates of IBNR, less amounts recoverable.
Three Months Ended September 30, 2020
The increase in net incurred losses and LAE for the three months ended September 30, 2020 of $34.3 million included net incurred losses and LAE of $8.2 million related to current period net earned premium, primarily in respect of the run-off business acquired with the AmTrust RITC transactions. Excluding current period net incurred losses and LAE of $8.2 million, the increase in net incurred losses and LAE relating to prior periods was $26.0 million, which was primarily attributable to an increase in the fair value of liabilities of $21.0 million related to our assumed retroactive reinsurance agreements for which we have elected the fair value option primarily due to narrowing credit spreads on corporate bond yields in the period, amortization of the deferred charge assets of $10.3 million, amortization of fair value adjustments over the estimated payout period relating to companies acquired of $5.3 million, and an increase in estimates of net ultimate losses of $4.0 million, partially offset by a reduction in provisions for unallocated LAE of $14.6 million relating to 2020 run-off activity. Net ultimate losses relating to prior periods were relatively unchanged with an increase in estimates of net ultimate losses of $4.0 million for the three months ended September 30, 2020 and included net losses paid of $283.1 million, partially offset by a net reduction in case and IBNR reserves of $279.2 million. Unfavorable development of approximately $128.4 million within our motor line of business, was offset by favorable development across workers compensation and other lines of business.
Three Months Ended September 30, 2019
Net incurred losses and LAE for the three months ended September 30, 2019 of $30.6 million included net incurred losses and LAE of $23.8 million related to current period net earned premium, primarily for the run-off business acquired with the AmTrust RITC transactions and the acquisition of Maiden Reinsurance North America, Inc. ("Maiden Re North America"). Excluding current period net incurred losses and LAE of $23.8 million, the increase in net incurred losses and LAE relating to prior periods was $6.7 million, which was attributable to an increase in the fair value of liabilities of $41.4 million related to our assumed retroactive reinsurance agreements for which we have elected the fair value option primarily as a result of a decrease in corporate bond yields, amortization of fair value adjustments over the estimated payout period relating to companies acquired of $17.5 million and amortization of the deferred charge assets of $17.0 million, partially offset by a reduction in estimates of net ultimate losses of $57.1 million and a reduction in provisions for unallocated LAE of $12.1 million relating to 2019 run-off activity. The reduction in estimates of net ultimate losses relating to prior periods of $57.1 million for the three months ended September 30, 2019 included a net reduction in case and IBNR reserves of $331.1 million, partially offset by net losses paid of $274.1 million.

Nine Months Ended September 30,
 20202019
 Prior
Period		Current
Period		TotalPrior
Period		Current
Period		Total
Net losses paid$824,473 $1,777 $826,250 $913,352 $53,265 $966,617 
Net change in case and LAE reserves(301,382)809 (300,573)(394,780)24,141 (370,639)
Net change in IBNR reserves(603,546)21,567 (581,979)(649,053)29,405 (619,648)
Increase (reduction) in estimates of net ultimate losses(80,455)24,153 (56,302)(130,481)106,811 (23,670)
Increase (reduction) in provisions for unallocated LAE(34,509)— (34,509)(38,709)480 (38,229)
Amortization of deferred charge assets36,008 — 36,008 28,006 — 28,006 
Amortization of fair value adjustments21,653 — 21,653 34,033 — 34,033 
Changes in fair value - fair value option96,848 — 96,848 135,377 — 135,377 
Net incurred losses and LAE$39,545 $24,153 $63,698 $28,226 $107,291 $135,517 

Nine Months Ended September 30, 2020
The increase in net incurred losses and LAE for the nine months ended September 30, 2020 of $63.7 million included net incurred losses and LAE of $24.2 million related to current period net earned premium, primarily for the
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
run-off business acquired with the AmTrust RITC transactions. Excluding current period net incurred losses and LAE of $24.2 million, the increase in net incurred losses and LAE liabilities relating to prior periods was $39.5 million, which was attributable to an increase in the fair value of liabilities of $96.8 million related to our assumed retroactive reinsurance agreements for which we have elected the fair value option primarily due to declining interest rates on corporate bond yields in the period, amortization of the deferred charge assets of $36.0 million and amortization of fair value adjustments over the estimated payout period relating to companies acquired of $21.7 million, partially offset by a reduction in estimates of net ultimate losses of $80.5 million and a reduction in provisions for unallocated LAE of $34.5 million relating to 2020 run-off activity. For the nine months ended September 30, 2020, the change in net ultimate losses relating to prior periods was favorable with a reduction of $80.5 million, which included a net change in case and IBNR reserves of $904.9 million, partially offset by net losses paid of $824.5 million. The favorable development was largely attributed to workers compensation as well as other lines of business, partially offset by unfavorable development of $122.4 million within our motor line of business.
Nine Months Ended September 30, 2019
The increase in net incurred losses and LAE for the nine months ended September 30, 2019 of $135.5 million included net incurred losses and LAE of $107.3 million related to current period net earned premium, primarily for the run-off business acquired with the AmTrust RITC transactions and the acquisition of Maiden Re North America. Excluding current period net incurred losses and LAE of $107.3 million, the increase in net incurred losses and LAE liabilities relating to prior periods was $28.2 million, which was attributable to an increase in the fair value of liabilities of $135.4 million related to our assumed retroactive reinsurance agreements for which we have elected the fair value option primarily as a result of a decrease in corporate bond yields, amortization of fair value adjustments over the estimated payout period relating to companies acquired of $34.0 million and amortization of the deferred charge assets of $28.0 million, partially offset by a reduction in estimates of net ultimate losses of $130.5 million and a reduction in provisions for unallocated LAE of $38.7 million relating to 2019 run-off activity. The reduction in estimates of net ultimate losses of $130.5 million for the nine months ended September 30, 2019 included a net change in case and IBNR reserves of $1,043.8 million, partially offset by net losses paid of $913.4 million.

Atrium
The table below provides a reconciliation of the beginning and ending liability for losses and LAE for the Atrium segment:
Three Months EndedNine Months Ended
September 30,September 30,
2020201920202019
Balance as of beginning of period $239,731 $222,576 $231,672 $241,284 
Less: reinsurance reserves recoverable27,250 29,606 28,816 38,768 
Less: cumulative effect of change in accounting principal on allowance for estimated uncollectible reinsurance (1)
— — 851 — 
Net balance as of beginning of period212,481 192,970 202,005 202,516 
Net incurred losses and LAE:
  Current period23,129 27,093 70,075 63,189 
  Prior periods(1,134)1,307 (4,072)(4,527)
  Total net incurred losses and LAE21,995 28,400 66,003 58,662 
Net paid losses:
  Current period(7,717)(9,387)(17,004)(24,531)
  Prior periods(9,472)(10,618)(31,412)(35,564)
  Total net paid losses(17,189)(20,005)(48,416)(60,095)
Effect of exchange rate movement1,997 (1,405)(308)(1,123)
Reclassification to assets and liabilities held-for-sale(219,284)— (219,284)— 
Net balance as of September 30— 199,960 — 199,960 
Plus: reinsurance reserves recoverable (2)
— 31,719 — 31,719 
Balance as of September 30$— $231,679 $— $231,679 
(1) The Company adopted ASU 2016-13 and the related amendments on January 1, 2020. Refer to Note 1 - "Significant Accounting Policies" for further details.
(2) Net of allowance for estimated uncollectible reinsurance.
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net incurred losses and LAE in the Atrium segment were as follows:
Three Months Ended September 30,
 20202019
 Prior
Period		Current
Period		TotalPrior
Period		Current
Period		Total
Net losses paid$9,472 $7,717 $17,189 $10,618 $9,387 $20,005 
Net change in case and LAE reserves(2,292)4,993 2,701 (2,860)2,769 (91)
Net change in IBNR reserves(8,110)10,496 2,386 (6,235)14,937 8,702 
Increase (reduction) in estimates of net ultimate losses(930)23,206 22,276 1,523 27,093 28,616 
Increase (reduction) in provisions for unallocated LAE48 (77)(29)— — — 
Amortization of fair value adjustments(252)— (252)(216)— (216)
Net incurred losses and LAE$(1,134)$23,129 $21,995 $1,307 $27,093 $28,400 

Net change in case and LAE reserves comprises the movement during the period 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 IBNR represents the gross change in our actuarial estimates of IBNR, less amounts recoverable.
Three Months Ended September 30, 2020 and 2019
Net incurred losses and LAE for the three months ended September 30, 2020 and 2019 were $22.0 million and $28.4 million, respectively. Net favorable prior period loss development was $1.1 million for the three months ended September 30, 2020 compared to net unfavorable prior period loss development of $1.3 million for the three months ended September 30, 2019. Excluding prior period loss development, net incurred losses and LAE for the three months ended September 30, 2020 were $23.1 million and included $1.5 million of losses related to the COVID-19 pandemic. Excluding prior period loss development, net incurred losses and LAE for the three months ended September 30, 2019 were $27.1 million.

Nine Months Ended September 30,
 20202019
 Prior PeriodCurrent PeriodTotalPrior PeriodCurrent PeriodTotal
Net losses paid$31,412 $17,004 $48,416 $35,564 $24,531 $60,095 
Net change in case and LAE reserves(9,517)13,152 3,635 (13,032)12,787 (245)
Net change in IBNR reserves(25,769)39,996 14,227 (27,787)25,871 (1,916)
Increase (reduction) in estimates of net ultimate losses(3,874)70,152 66,278 (5,255)63,189 57,934 
Increase (reduction) in provisions for unallocated LAE48 (77)(29)— — — 
Amortization of fair value adjustments(246)— (246)728 — 728 
Net incurred losses and LAE$(4,072)$70,075 $66,003 $(4,527)$63,189 $58,662 

Nine Months Ended September 30, 2020 and 2019
Net incurred losses and LAE for the nine months ended September 30, 2020 and 2019 were $66.0 million and $58.7 million, respectively. Net favorable prior year loss development was $4.1 million and $4.5 million for the nine months ended September 30, 2020 and 2019, respectively. The current period net favorable prior period loss development was driven by favorable development across several lines of business. Excluding prior period loss development, net incurred losses and LAE for the nine months ended September 30, 2020 were $70.1 million and included $14.3 million of losses related to the COVID-19 pandemic. Excluding prior period loss development, net incurred losses and LAE for the nine months ended September 30, 2019 were $63.2 million.
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
StarStone
The table below provides a reconciliation of the beginning and ending liability for losses and LAE for our StarStone segment:
Three Months EndedNine Months Ended
September 30,September 30,
2020201920202019
Balance as of beginning of period$1,349,763 $1,305,026 $1,318,294 $1,247,989 
Less: reinsurance reserves recoverable401,422 309,733 355,194 303,381 
Less: cumulative effect of change in accounting principal on allowance for estimated uncollectible reinsurance (1)
— — 495 — 
Net balance as of beginning of period948,341 995,293 962,605 944,608 
Net incurred losses and LAE:
  Current period44,734 101,808 208,414 274,070 
  Prior periods3,656 (1,180)(11,155)84,794 
  Total net incurred losses and LAE48,390 100,628 197,259 358,864 
Net paid losses:
  Current period(7,755)(11,653)(12,142)(27,624)
  Prior periods(48,972)(111,195)(206,058)(301,641)
  Total net paid losses(56,727)(122,848)(218,200)(329,265)
Effect of exchange rate movement11,084 (8,641)9,424 (9,775)
Net balance as of September 30951,088 964,432 951,088 964,432 
Plus: reinsurance reserves recoverable (2)
399,910 356,520 399,910 356,520 
Balance as of September 30$1,350,998 $1,320,952 $1,350,998 $1,320,952 
(1) The Company adopted ASU 2016-13 and the related amendments on January 1, 2020. Refer to Note 1 - "Significant Accounting Policies" for further details. This amount excludes $0.4 million related to the adoption impact of ASU 2016-13 on StarStone U.S., which has been classified as a discontinued operation with the related assets and liabilities disclosed as held-for-sale on our consolidated balance sheets.
(2) Net of allowance for estimated uncollectible reinsurance.

Net incurred losses and LAE in the StarStone segment were as follows:
Three Months Ended September 30,
 20202019
 Prior PeriodCurrent PeriodTotalPrior PeriodCurrent PeriodTotal
Net losses paid$48,972 $7,755 $56,727 $111,195 $11,653 $122,848 
Net change in case and LAE reserves(20,068)25,524 5,456 (8,866)(8,994)(17,860)
Net change in IBNR reserves(24,755)16,176 (8,579)(101,938)97,225 (4,713)
Increase in estimates of net ultimate losses4,149 49,455 53,604 391 99,884 100,275 
Increase (reduction) in provisions for unallocated LAE(299)(4,721)(5,020)(2,112)1,924 (188)
Amortization of fair value adjustments(194)— (194)541 — 541 
Net incurred losses and LAE$3,656 $44,734 $48,390 $(1,180)$101,808 $100,628 

Net change in case and LAE reserves comprises the movement during the period 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 IBNR represents the gross change in our actuarial estimates of IBNR, less amounts recoverable.
Three Months Ended September 30, 2020 and 2019
Net incurred losses and LAE for the three months ended September 30, 2020 and 2019 were $48.4 million and $100.6 million, respectively. Net unfavorable prior period loss development was $3.7 million for the three months ended September 30, 2020 compared to net favorable prior period loss development of $1.2 million for the three months ended September 30, 2019. Net unfavorable prior period loss development for the three months
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ended September 30, 2020 was driven by adverse development in the casualty and property lines of business. Net favorable prior period loss development for the three months ended September 30, 2019 was primarily related to development on lines of business that we had either exited or had been subject to remediation as part of our underwriting repositioning initiatives before our decision to place StarStone International into run-off. Excluding prior period net loss development, net incurred losses and LAE for the three months ended September 30, 2020 were $44.7 million and included a $4.4 million reduction in exit costs associated with the StarStone International Run-Off, partially offset by $1.4 million in net incurred losses and LAE related to the COVID-19 pandemic. Excluding prior period net loss development, net incurred losses and LAE for the three months ended September 30, 2019 were $101.8 million.

Nine Months Ended September 30,
 20202019
 Prior PeriodCurrent PeriodTotalPrior PeriodCurrent PeriodTotal
Net losses paid$206,058 $12,142 $218,200 $301,641 $27,624 $329,265 
Net change in case and LAE reserves(85,798)24,911 (60,887)(22,538)36,046 13,508 
Net change in IBNR reserves(130,738)147,770 17,032 (192,034)207,076 15,042 
Increase (reduction) in estimates of net ultimate losses(10,478)184,823 174,345 87,069 270,746 357,815 
Increase (reduction) in provisions for unallocated LAE(116)23,591 23,475 (2,585)3,324 739 
Amortization of fair value adjustments(561)— (561)310 — 310 
Net incurred losses and LAE$(11,155)$208,414 $197,259 $84,794 $274,070 $358,864 

Nine Months Ended September 30, 2020 and 2019
Net incurred losses and LAE for the nine months ended September 30, 2020 and 2019 were $197.3 million and $358.9 million, respectively. Net favorable prior period loss development was $11.2 million for the nine months ended September 30, 2020 compared to net unfavorable prior period loss development of $84.8 million for the nine months ended September 30, 2019. Net favorable prior period loss development for the nine months ended September 30, 2020 was driven by favorable development in the workers compensation and casualty lines of business. Net unfavorable prior period loss development for the nine months ended September 30, 2019 was primarily related to development on lines of business that we had either exited or had been subject to remediation as part of our underwriting repositioning initiatives before our decision to place StarStone International into run-off.
Excluding prior period loss development, net incurred losses and LAE for the nine months ended September 30, 2020 were $208.4 million and included $22.8 million of COVID-19 related losses and $23.7 million of exit costs associated with the StarStone International Run-Off. Excluding prior period loss development, net incurred losses and LAE for the nine months ended September 30, 2019 were $274.1 million.

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
10. DEFENDANT ASBESTOS AND ENVIRONMENTAL LIABILITIES
We acquired DCo LLC ("DCo") on December 30, 2016, and Morse TEC on October 30, 2019, as described in Note 3 - "Acquisitions" to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019. DCo and Morse TEC hold liabilities associated with personal injury asbestos claims and environmental claims arising from their legacy manufacturing operations. These companies continue to process asbestos personal injury claims in the normal course of business. Defendant asbestos liabilities on our consolidated balance sheets include amounts for loss payments and defense costs for pending and future asbestos-related claims, determined using standard actuarial techniques for asbestos exposures. Defendant environmental liabilities include estimated clean-up costs associated with the acquired companies' former operations based on engineering reports. For further details on the methodologies used for determining liabilities, refer to Note 11 - "Defendant Asbestos and Environmental Liabilities" to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019.
Insurance balances recoverable on our consolidated balance sheets include estimated insurance recoveries relating to these liabilities. The recorded asset represents our assessment of the capacity of the insurance agreements to indemnify our subsidiaries for the anticipated defense and loss payments for pending claims and projected future claims. The recognition of these recoveries is based on an assessment of the right to recover under the respective contracts and on the financial strength of the insurers. The recorded asset does not represent the limits of our insurance coverage, but rather the amount we would expect to recover if the accrued and projected loss and defense costs were paid in full.

Included within insurance balances recoverable and defendant asbestos and environmental liabilities are the fair value adjustments that were initially recognized upon acquisition. These fair value adjustments are amortized in proportion to the actual payout of claims and recoveries. The carrying value of the asbestos and environmental liabilities, insurance recoveries, future estimated expenses and the fair value adjustments related to DCo and Morse TEC as of September 30, 2020 and December 31, 2019 were as follows:
September 30, 2020December 31, 2019
Defendant asbestos and environmental liabilities:
Defendant asbestos liabilities$980,678 $1,100,593 
Defendant environmental liabilities8,214 10,279 
Estimated future expenses45,509 51,637 
Fair value adjustments(280,364)(314,824)
Defendant asbestos and environmental liabilities$754,037 $847,685 
Insurance balances recoverable:
Insurance recoveries related to defendant asbestos and environmental liabilities (net of allowance: 2020 - $5,907)
447,800 549,593 
Fair value adjustments(82,512)(100,738)
Insurance balances recoverable$365,288 $448,855 
Net liabilities relating to defendant asbestos and environmental exposures$388,749 $398,830 

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The table below provides a consolidated reconciliation of the beginning and ending liability for defendant asbestos and environmental exposures for the three and nine months ended September 30, 2020 and 2019:
Three Months EndedNine Months Ended
September 30,September 30,
2020201920202019
Balance as of beginning of period$808,062 $184,264 $847,685 $203,320 
Less: Insurance balances recoverable428,277 122,236 448,855 135,808 
Plus: Cumulative effect of change in accounting principle on the determination of the allowance for estimated uncollectible insurance balances (1)
— — 3,167 — 
Net balance as of beginning of period379,785 62,028 401,997 67,512 
Total net paid claims52,891 (2,204)51,977 (1,326)
Amounts recorded in other (income) expense:
Reduction in estimates of ultimate net liabilities(48,439)— (75,332)(4,259)
Reduction in estimated future expenses(3,124)(800)(6,127)(3,104)
Amortization of fair value adjustments7,636 102 16,234 303 
Total other (income) expense(43,927)(698)(65,225)(7,060)
Net balance as at September 30
388,749 59,126 388,749 59,126 
Plus: Insurance balances recoverable (2)
365,288 121,237 365,288 121,237 
Balance as at September 30
$754,037 $180,363 $754,037 $180,363 
(1) The Company adopted ASU 2016-13 and the related amendments on January 1, 2020. Refer to Note 1 - "Significant Accounting Policies" for further details.
(2) Net of allowance for estimated uncollectible insurance balances.

Allowance for Estimated Uncollectible Insurance Balances Recoverable on Defendant Asbestos Liabilities
We evaluate and monitor the credit risk related to our insurers and an allowance for estimated uncollectible insurance balances recoverable on our defendant asbestos liabilities ("allowance for estimated uncollectible insurance") is established for amounts considered potentially uncollectible. Our allowance for estimated uncollectible insurance is derived based on various data sources, multiple key inputs and forecast scenarios. These include the duration of the collection period, credit quality, changes in insurer credit standing, default rates specific to the individual insurer, the geographical location of the insurer, contractual disputes with insurers over individual contentious claims, contract language or coverage issues, industry analyst reports and consensus economic forecasts. To determine the allowance for estimated uncollectible insurance, we use the PD and LGD methodology as described in Note 7 - "Reinsurance Balances Recoverable on Paid and Unpaid Losses" above.
The table below provides a reconciliation of the beginning and ending allowance for estimated uncollectible insurance balances related to our defendant asbestos liabilities, for the three and nine months ended September 30, 2020:
Three Months EndedNine Months Ended
September 30, 2020September 30, 2020
Allowance for estimated uncollectible insurance balances, beginning of period$8,346 $3,818 
Cumulative effect of change in accounting principle— 3,167 
Current period change in the allowance(2,439)(1,078)
Allowance for estimated uncollectible insurance balances, end of period$5,907 $5,907 

During the three and nine months ended September 30, 2020, we did not have any write-offs charged against the allowance for estimated uncollectible insurance or any recoveries of amounts previously written off.
We did not have significant past due balances receivable from our insurers related to our defendant asbestos liabilities, that were older than one year for any of the periods presented.
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
11. 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.
In addition, certain of our other investments are measured at fair value using net asset value ("NAV") per share (or its equivalent) as a practical expedient and have not been classified within the fair value hierarchy above. We have categorized our assets and liabilities that are recorded at fair value on a recurring basis among levels based on the observability of inputs, or at fair value using NAV per share (or its equivalent) as follows:
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 September 30, 2020
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		Significant
Other Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Fair Value Based on NAV as Practical ExpedientTotal Fair
Value
Investments:
Short-term and fixed maturity investments:
U.S. government and agency$— $789,630 $— $— $789,630 
U.K. government— 114,777 — — 114,777 
Other government— 490,447 — — 490,447 
Corporate— 5,679,909 — — 5,679,909 
Municipal— 161,839 — — 161,839 
Residential mortgage-backed— 529,239 — — 529,239 
Commercial mortgage-backed— 843,119 — — 843,119 
Asset-backed— 613,663 — — 613,663 
$— $9,222,623 $— $— $9,222,623 
Other assets included within funds held - directly managed— 12,438 — — 12,438 
Equities:
Publicly traded equity investments$282,904 $21,028 $— $— $303,932 
Exchange-traded funds78,182 — — — 78,182 
Privately held equity investments— — 271,045 — 271,045 
$361,086 $21,028 $271,045 $— $653,159 
Other investments:
Hedge funds$— $— $— $2,087,091 $2,087,091 
Fixed income funds— 428,645 — 255,386 684,031 
Equity funds— 4,558 — 285,571 290,129 
Private equity funds— — — 320,455 320,455 
CLO equities— 84,532 — — 84,532 
CLO equity funds— — — 140,458 140,458 
Private credit funds— — 10,000 80,476 90,476 
Other— — 314 7,384 7,698 
$— $517,735 $10,314 $3,176,821 $3,704,870 
Total Investments$361,086 $9,773,824 $281,359 $3,176,821 $13,593,090 
Cash and cash equivalents$270,267 $139,140 $— $— $409,407 
Reinsurance balances recoverable on paid and unpaid losses:$— $— $543,161 $— $543,161 
Other Assets:
Derivatives qualifying as hedges$— $6,785 $— $— $6,785 
Derivatives not qualifying as hedges— 1,526 — — 1,526 
Derivative instruments $— $8,311 $— $— $8,311 
Losses and LAE:$— $— $2,422,678 $— $2,422,678 
Other Liabilities:
Derivatives qualifying as hedges$— $— $— $— $— 
Derivatives not qualifying as hedges— 585 — — 585 
Derivative instruments $— $585 $— $— $585 
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 December 31, 2019
 Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		Significant
Other Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)		Fair Value Based on NAV as Practical ExpedientTotal Fair
Value
Investments:
Short-term and fixed maturity investments:
U.S. government and agency$— $696,077 $— $— $696,077 
U.K government— 161,772 — — 161,772 
Other government— 702,856 — — 702,856 
Corporate— 5,448,270 — — 5,448,270 
Municipal— 140,687 — — 140,687 
Residential mortgage-backed— 400,914 — — 400,914 
Commercial mortgage-backed— 813,746 — — 813,746 
Asset-backed— 670,235 — — 670,235 
$— $9,034,557 $— $— $9,034,557 
Other assets included within funds held - directly managed$— $14,207 $— $— $14,207 
Equities:
Publicly traded equity investments$297,310 $30,565 $— $— $327,875 
Exchange-traded funds133,047 — — — 133,047 
Privately held equity investments— — 265,799 — 265,799 
$430,357 $30,565 $265,799 $— $726,721 
Other investments:
Hedge funds$— $— $— $1,121,904 $1,121,904 
Fixed income funds— 398,143 — 82,896 481,039 
Equity funds— 111,040 — 299,109 410,149 
Private equity funds— — — 323,496 323,496 
CLO equities— — 87,555 — 87,555 
CLO equity funds— — — 87,509 87,509 
Other— 34 314 6,031 6,379 
$— $509,217 $87,869 $1,920,945 $2,518,031 
Total Investments$430,357 $9,588,546 $353,668 $1,920,945 $12,293,516 
Cash and cash equivalents$144,984 $222,191 $— $— $367,175 
Reinsurance balances recoverable on paid and unpaid losses:$— $— $695,518 $— $695,518 
Other Assets:
Derivatives qualifying as hedges$— $642 $— $— $642 
Derivatives not qualifying as hedges— 1,369 — — 1,369 
Derivative instruments $— $2,011 $— $— $2,011 
Losses and LAE:$— $— $2,621,122 $— $2,621,122 
Other Liabilities:
Derivatives qualifying as hedges$— $11,452 $— $— $11,452 
Derivatives not qualifying as hedges— 4,106 — — 4,106 
Derivative instruments $— $15,558 $— $— $15,558 
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Valuation Methodologies of Financial Instruments Measured at Fair Value

Short-term and Fixed Maturity Investments
The fair values for all securities in the short-term and fixed maturity investments and funds held - directly managed portfolios are independently provided by the investment accounting service providers, investment managers and investment custodians, each of which utilize internationally recognized independent pricing services. We record the unadjusted price provided by the investment accounting service providers, investment managers or investment custodians and validate this price through a process that includes, but is not limited to: (i) comparison of prices against alternative pricing sources; (ii) quantitative analysis (e.g. comparing the quarterly return for each managed portfolio to its target benchmark); (iii) evaluation of methodologies used by external parties to estimate fair value, including a review of the inputs used for pricing; and (iv) comparing the price to our knowledge of the current investment market. Our internal price validation procedures and review of fair value methodology documentation provided by independent pricing services have not historically resulted in adjustment in the prices obtained from the pricing service.
The independent pricing services used by the investment accounting service providers, investment managers and investment custodians obtain actual transaction prices for securities that have quoted prices in active markets. Where we utilize single unadjusted broker-dealer quotes, they are generally provided by market makers or broker-dealers who are recognized as market participants in the markets for which they are providing the quotes. For determining the fair value of securities that are not actively traded, in general, pricing services use "matrix pricing" in which the independent pricing service uses observable market inputs including, but not limited to, reported trades, benchmark yields, broker-dealer quotes, interest rates, prepayment speeds, default rates and other such inputs as are available from market sources to determine a reasonable fair value.
The following describes the techniques generally used to determine the fair value of our short-term and fixed maturity investments by asset class, including the investments underlying the funds held - directly managed.
•U.S. government and agency securities consist of securities issued by the U.S. Treasury and mortgage pass-through agencies such as the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and other agencies. Non-U.S. government securities consist of bonds issued by non-U.S. governments and agencies along with supranational organizations. The significant inputs used to determine the fair value of these securities include the spread above the risk-free yield curve, reported trades and broker-dealer quotes. These are considered to be observable market inputs and, therefore, the fair values of these securities are classified as Level 2.
•Corporate securities consist primarily of investment-grade debt of a wide variety of corporate issuers and industries. The fair values of these securities are determined using the spread above the risk-free yield curve, reported trades, broker-dealer quotes, benchmark yields, and industry and market indicators. These are considered observable market inputs and, therefore, the fair values of these securities are classified as Level 2. Where pricing is unavailable from pricing services, such as in periods of low trading activity or when transactions are not orderly, we obtain non-binding quotes from broker-dealers. Where significant inputs are unable to be corroborated with market observable information, we classify the securities as Level 3.
•Municipal securities consist primarily of bonds issued by U.S.-domiciled state and municipal entities. The fair values of these securities are determined using the spread above the risk-free yield curve, reported trades, broker-dealer quotes and benchmark yields. These are considered observable market inputs and, therefore, the fair values of these securities are classified as Level 2.
•Asset-backed securities consist primarily of investment-grade bonds backed by pools of loans with a variety of underlying collateral. Residential and commercial mortgage-backed securities include both agency and non-agency originated securities. Where pricing is unavailable from pricing services, we obtain non-binding quotes from broker-dealers. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. The significant inputs used to determine the fair value of these securities include the spread above the risk-free yield curve, reported trades, benchmark yields, prepayment speeds and default rates. The fair values of these securities are classified as Level 2 if the significant inputs are market observable. Where significant inputs are unable to be corroborated with market observable information, we classify the securities as Level 3.
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Equities
Our investments in equities consist of a combination of publicly and privately traded investments. Our publicly traded equity investments in common and preferred stocks predominantly trade on major exchanges and are managed by our external advisors. Our exchange-traded funds also trade on major exchanges. Our publicly traded equities are widely diversified and there is no significant concentration in any specific industry. We use an internationally recognized pricing service to estimate the fair value of our publicly traded equities and exchange-traded funds. We have categorized the majority of our publicly traded equity investments, other than preferred stock, and our exchange-traded funds as Level 1 investments because the fair values of these investments are based on unadjusted quoted prices in active markets for identical assets. One equity security is trading in an inactive market and, as a result has been classified as Level 2. The fair value estimates of our investments in publicly traded preferred stock are based on observable market data and, as a result, have been categorized as Level 2.
Our privately held equity investments in common and preferred stocks are direct investments in companies that we believe offer attractive risk adjusted returns and/or offer other strategic advantages. Each investment may have its own unique terms and conditions and there may be restrictions on disposals. The market for these investments is illiquid and there is no active market. We use a combination of cost, internal models, reported values from co-investors/managers and observable inputs, such as capital raises and capital transactions between new and existing shareholders to calculate the fair value of the privately held equity investments. The fair value estimates of our investments in privately held equities are based on unobservable market data and, as a result, have been categorized as Level 3.

Other investments, at fair value
We have ongoing due diligence processes with respect to the other investments carried at fair value in which we invest and their managers. These processes are designed to assist us in assessing the quality of information provided by, or on behalf of, each fund and in determining whether such information continues to be reliable or whether further review is warranted. Certain funds do not provide full transparency of their underlying holdings; however, we obtain the audited financial statements for funds annually, and regularly review and discuss the fund performance with the fund managers to corroborate the reasonableness of the reported net asset values ("NAV").
The use of NAV as an estimate of the fair value for investments in certain entities that calculate NAV is a permitted practical expedient. Due to the time lag in the NAV reported by certain fund managers we adjust the valuation for capital calls and distributions. Other investments measured at fair value using NAV as a practical expedient have not been classified in the fair value hierarchy. Other investments for which we do not use NAV as a practical expedient have been valued using prices from independent pricing services, investment managers and broker-dealers.
The following describes the techniques generally used to determine the fair value of our other investments.
•For our investments in hedge funds, we measure fair value by obtaining the most recently available NAV as advised by the external fund manager or third-party administrator. The fair values of these investments are measured using the NAV as a practical expedient and therefore have not been categorized within the fair value hierarchy.
•Our investments in fixed income funds and equity funds are valued based on a combination of prices from independent pricing services, external fund managers or third-party administrators. For the publicly available prices we have classified the investments as Level 2. For the non-publicly available prices we are using NAV as a practical expedient and therefore these have not been categorized within the fair value hierarchy.
•For our investments in private equity funds, we measure fair value by obtaining the most recently available NAV from the external fund manager or third-party administrator. The fair values of these investments are measured using the NAV as a practical expedient and therefore have not been categorized within the fair value hierarchy.
•We measure the fair value of our direct investment in CLO equities based on valuations provided by independent pricing services, our external CLO equity manager, and valuations provided by the broker or lead underwriter of the investment (the "broker"). The fair values measured using prices provided by independent pricing services have been classified as Level 2 and fair values using prices from brokers have been classified as Level 3 due to the use of unobservable inputs in the valuation and the limited number of
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relevant trades in secondary markets.
•For our investments in the CLO equity funds, we measure fair value by obtaining the most recently available NAV as advised by the external fund manager or third party administrator. The fair value of these investments is measured using the NAV as a practical expedient and therefore have not been categorized within the fair value hierarchy.
•For our investments in private credit funds, we measure fair value by obtaining the most recently available NAV from the external fund manager or third-party administrator. The fair values of these investments are measured using the NAV as a practical expedient and therefore have not been categorized within the fair value hierarchy.
•Included within other is an investment in a real estate debt fund, for which we measure fair value by obtaining the most recently available NAV from the external fund manager or third-party administrator. The fair value of this investment is measured using the NAV as a practical expedient and therefore has not been categorized within the fair value hierarchy.

Cash and Cash Equivalents
Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and are so near their maturity that they present insignificant risk of changes in value due to changes in interest rates. Included within cash and cash equivalents are money market funds, fixed interest deposits and highly liquid fixed maturity investments purchased with an original maturity of three months or less.
The majority of our cash and cash equivalents included within the fair value hierarchy are comprised of money market and liquid reserve funds which have been categorized as Level 1. Fixed interest deposits and highly liquid fixed maturity investments with an original maturity of three months or less have been categorized as Level 2. Operating cash balances are not subject to the recurring fair value measurement guidance and are therefore excluded from the fair value hierarchy.

Insurance Contracts - Fair Value Option
The Company uses an internal model to calculate the fair value of the liability for losses and loss adjustment expenses and reinsurance balances recoverable on paid and unpaid losses for certain retroactive reinsurance contracts where we have elected the fair value option in our Non-life Run-off segment. The fair value was calculated as the aggregate of discounted cash flows plus a risk margin. The discounted cash flow approach uses (i) estimated nominal cash flows based upon an appropriate payment pattern developed in accordance with standard actuarial techniques and (ii) a discount rate based upon a high quality rated corporate bond plus a credit spread for non-performance risk. The model uses corporate bond rates across the yield curve depending on the estimated timing of the future cash flows and specific to the currency of the risk. The risk margin was calculated using the present value of the cost of capital. The cost of capital approach uses (i) projected capital requirements, (ii) multiplied by the risk cost of capital representing the return required for non-hedgeable risk based upon the weighted average cost of capital less investment income and (iii) discounted using the weighted average cost of capital.

Derivative Instruments
The fair values of our derivative instruments, as described in Note 6 - "Derivatives and Hedging Instruments" are classified as Level 2. The fair values are based upon prices in active markets for identical contracts.

Level 3 Measurements and Changes in Leveling
Transfers into or out of levels are recorded at their fair values as of the end of the reporting period, consistent with the date of determination of fair value.

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Investments
The following tables present a reconciliation of the beginning and ending balances for all investments measured at fair value on a recurring basis using Level 3 inputs:
Three Months Ended September 30, 2020
Privately-held EquitiesOther InvestmentsTotal
Beginning fair value$271,000 $314 $271,314 
Purchases— 10,000 10,000 
Sales— — — 
Total realized and unrealized gains45 — 45 
Transfer out of Level 3 into Level 2— — — 
Ending fair value$271,045 $10,314 $281,359 
Three Months Ended September 30, 2019
Fixed maturity investmentsPrivately-held EquitiesOther InvestmentsTotal
CorporateResidential mortgage-backedCommercial mortgage-backedAsset-backed
Beginning fair value$5,006 $102 $1,370 $25,839 $229,394 $50,452 $312,163 
Purchases82 — — — 3,691 22,619 26,392 
Sales(116)— (176)(295)(2,016)(361)(2,964)
Total realized and unrealized gains (losses)(103)(1)148 (743)(2,378)(5,287)(8,364)
Transfer into Level 3 from Level 2277 — — — — — 277 
Transfer out of Level 3 into Level 2(2,865)(101)(1,340)(5,978)— — (10,284)
Ending fair value$2,281 $— $2 $18,823 $228,691 $67,423 $317,220 

Nine Months Ended September 30, 2020
Privately-held EquitiesOther InvestmentsTotal
Beginning fair value$265,799 $87,869 $353,668 
Purchases1,392 47,092 48,484 
Sales— (539)(539)
Total realized and unrealized gains (losses)3,854 (40,368)(36,514)
Transfer into Level 3 from Level 2— — — 
Transfer out of Level 3 into Level 2— (83,740)(83,740)
Ending fair value$271,045 $10,314 $281,359 
Nine Months Ended September 30, 2019
Fixed maturity investmentsPrivately-held EquitiesOther InvestmentsTotal
CorporateResidential mortgage-backedCommercial mortgage-backedAsset-backed
Beginning fair value$37,386 $— $7,389 $9,121 $228,710 $39,367 $321,973 
Purchases172 — — — 3,691 34,614 38,477 
Sales(3,157)— (784)(625)(2,016)(361)(6,943)
Total realized and unrealized gains (losses)114 (1)65 (4)(1,694)(6,197)(7,717)
Transfer into Level 3 from Level 23,535 102 1,515 22,771 — — 27,923 
Transfer out of Level 3 into Level 2(35,769)(101)(8,183)(12,440)— — (56,493)
Ending fair value$2,281 $— $2 $18,823 $228,691 $67,423 $317,220 

Net realized and unrealized gains related to Level 3 assets in the tables above are included in net realized and unrealized gains (losses) in our unaudited condensed consolidated statements of earnings.
The securities transferred from Level 2 to Level 3 were transferred due to insufficient market observable inputs for the valuation of the specific assets. The transfers from Level 3 to Level 2 were based upon obtaining market observable information regarding the valuations of the specific assets.
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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Valuations Techniques and Inputs
The table below presents the quantitative information related to the fair value measurements for our privately held equity investments measured at fair value on a recurring basis using Level 3 inputs:
Quantitative Information about Level 3 Fair Value Measurements
Fair Value as of September 30, 2020Valuation TechniquesUnobservable Input
Range (Average) (1)
(in millions of U.S. dollars)
$245.4 Transactional valueImplied price per share at recent purchase transaction
13.50 - 13.85
$25.6 Cost as approximation of fair valueCost as approximation of fair value
$271.0 
(1) The average represents the arithmetic average of the inputs and is not weighted by the relative fair value.

Insurance Contracts - Fair Value Option

The following table presents a reconciliation of the beginning and ending balances for all insurance contracts measured at fair value on a recurring basis using Level 3 inputs:
Three Months Ended September 30,
20202019
Liability for losses and LAEReinsurance balances recoverableNetLiability for losses and LAEReinsurance balances recoverableNet
Beginning fair value$2,454,539 $671,384 $1,783,155 $2,772,501 $743,304 $2,029,197 
Assumed business1,526 (180,972)182,498 — — — 
Incurred losses and LAE:
Reduction in estimates of ultimate losses(25,595)56,702 (82,297)(7,386)2,354 (9,740)
Reduction in unallocated LAE(4,641)— (4,641)(6,724)— (6,724)
Change in fair value19,092 (1,950)21,042 57,743 16,369 41,374 
Total incurred losses and LAE(11,144)54,752 (65,896)43,633 18,723 24,910 
Paid losses(86,745)(11,192)(75,553)(100,654)(21,816)(78,838)
Effect of exchange rate movements64,502 9,189 55,313 (56,836)(8,307)(48,529)
Ending fair value$2,422,678 $543,161 $1,879,517 $2,658,644 $731,904 $1,926,740 

The net assumed business of $182.5 million in the current period relates to the Hannover Re novation transaction disclosed in Note 3 - "Significant New Business." Changes in fair value in the table above are included in net incurred losses and LAE in our consolidated statements of earnings.
The following table presents the components of the net change in fair value:
Three Months Ended
September 30,
20202019
Changes in fair value due to changes in:
Duration$11,767 $3,850 
Corporate bond yield9,275 37,524 
Change in fair value$21,042 $41,374 

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Nine Months Ended
September 30,
20202019
Liability for losses and LAEReinsurance balances recoverable on paid and unpaid lossesNetLiability for losses and LAEReinsurance balances recoverable on paid and unpaid lossesNet
Beginning fair value$2,621,122 $695,518 $1,925,604 $2,874,055 $739,591 $2,134,464 
Assumed business1,526 (180,972)182,498 — — — 
Incurred losses and LAE:
Reduction in estimates of ultimate losses(61,109)48,580 (109,689)(20,342)4,059 (24,401)
Reduction in unallocated LAE(14,353)— (14,353)(15,076)— (15,076)
Change in fair value130,075 33,227 96,848 189,422 54,045 135,377 
Total incurred losses and LAE54,613 81,807 (27,194)154,004 58,104 95,900 
Paid losses(230,187)(49,627)(180,560)(308,267)(58,139)(250,128)
Effect of exchange rate movements(24,396)(3,565)(20,831)(61,148)(7,652)(53,496)
Ending fair value$2,422,678 $543,161 $1,879,517 $2,658,644 $731,904 $1,926,740 

Changes in fair value in the table above are included in net incurred losses and LAE in our consolidated statements of earnings. The following table presents the components of the net change in fair value:
Nine Months Ended
September 30,
20202019
Changes in fair value due to changes in:
Duration$19,617 $18,736 
Corporate bond yield75,524 116,641 
Weighted cost of capital(5,048)— 
Risk cost of capital6,755 — 
Change in fair value$96,848 $135,377 

Below is a summary of the quantitative information regarding the significant observable and unobservable inputs used in the internal model to determine fair value on a recurring basis:
September 30, 2020December 31, 2019
Valuation TechniqueUnobservable (U) and Observable (O) InputsWeighted AverageWeighted Average
Internal modelCorporate bond yield (O)A ratedA rated
Internal modelCredit spread for non-performance risk (U)0.2%0.2%
Internal modelRisk cost of capital (U)5.1%5.1%
Internal modelWeighted average cost of capital (U)8.25%8.5%
Internal modelDuration - liability (U)7.92 years7.82 years
Internal modelDuration - reinsurance balances recoverable (U)7.71 years8.68 years

The fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses may increase or decrease due to changes in the corporate bond rate, the credit spread for non-performance risk, the risk cost of capital, the weighted average cost of capital and the estimated payment pattern as described below:
•An increase in the corporate bond rate or credit spread for non-performance risk would result in a decrease in the fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses. Conversely, a decrease in the corporate bond rate or credit spread for non-performance risk would result in an increase in the fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses.
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•An increase in the weighted average cost of capital would result in an increase in the fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses. Conversely, a decrease in the weighted average cost of capital would result in a decrease in the fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses.
•An increase in the risk cost of capital would result in an increase in the fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses. Conversely, a decrease in the risk cost of capital would result in a decrease in the fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses.
•The duration of the liability and recoverable is adjusted every period to reflect actual net payments during the period and expected future payments. An acceleration of the estimated payment pattern, a decrease in duration, would result in an increase in the fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses. Conversely, a deceleration of the estimated payment pattern, an increase in duration, would result in a decrease in the fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses.
In addition, the estimate of the capital required to support the liabilities is based upon current industry standards for capital adequacy. If the required capital per unit of risk increases, then the fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses would increase. Conversely, a decrease in required capital would result in a decrease in the fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses.

Disclosure of Fair Values for Financial Instruments Carried at Cost
Senior Notes
As of September 30, 2020, our 4.50% Senior Notes due 2022 (the "2022 Senior Notes") and our 4.95% Senior Notes due 2029 (the "2029 Senior Notes" and, together with the 2022 Senior Notes, the "Senior Notes") were carried at amortized cost of $349.2 million and $493.9 million, respectively, while the fair value based on observable market pricing from a third party pricing service was $363.2 million and $556.8 million, respectively. The Senior Notes are classified as Level 2.
Junior Subordinated Notes
As of September 30, 2020, our 5.75% Fixed-Rate Reset Junior Subordinated Notes due 2040 (the “Junior Subordinated Notes”) were carried at amortized cost of $344.8 million, while the fair value based on observable market pricing from a third party pricing service was $357.7 million. The Junior Subordinated Notes are classified as Level 2.
Insurance Contracts
Disclosure of fair value of amounts relating to insurance contracts is not required, except those for which we elected the fair value option, as described above.
Remaining Assets and Liabilities
Our remaining assets and liabilities were generally carried at cost or amortized cost, which due to their short-term nature approximates fair value as of September 30, 2020 and December 31, 2019.
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12. PREMIUMS WRITTEN AND EARNED
The following table provides a summary of premiums written and earned by segment and for our other activities:
Three Months Ended September 30,Nine Months Ended September 30,
 2020201920202019
 Premiums
Written		Premiums
Earned		Premiums
Written		Premiums
Earned		Premiums
Written		Premiums
Earned		Premiums
Written		Premiums
Earned
Non-life Run-off
Gross$3,535 $20,426 $301 $27,190 $1,707 $52,899 $(24,785)$166,707 
Ceded(111)(2,950)(4,109)(10,353)690 (8,876)(1,610)(24,726)
Net$3,424 $17,476 $(3,808)$16,837 $2,397 $44,023 $(26,395)$141,981 
Atrium
Gross$49,083 $48,690 $48,746 $48,340 $155,551 $144,675 $146,519 $133,610 
Ceded(2,580)(6,264)(4,961)(5,427)(19,458)(16,492)(19,273)(13,745)
Net$46,503 $42,426 $43,785 $42,913 $136,093 $128,183 $127,246 $119,865 
StarStone
Gross$58,566 $123,813 $110,586 $151,895 $300,135 $362,638 $363,352 $409,135 
Ceded(15,228)(27,697)(34,566)(40,146)(73,069)(86,072)(72,269)(69,142)
Net$43,338 $96,116 $76,020 $111,749 $227,066 $276,566 $291,083 $339,993 
Other
Gross$293 $5,705 $(2,498)$4,338 $3,237 $15,173 $(1,174)$17,024 
Ceded1 1 (5)(35)1 1 (23)(152)
Net$294 $5,706 $(2,503)$4,303 $3,238 $15,174 $(1,197)$16,872 
Total
Gross$111,477 $198,634 $157,135 $231,763 $460,630 $575,385 $483,912 $726,476 
Ceded(17,918)(36,910)(43,641)(55,961)(91,836)(111,439)(93,175)(107,765)
Total$93,559 $161,724 $113,494 $175,802 $368,794 $463,946 $390,737 $618,711 

Gross premiums written for the three months ended September 30, 2020 and 2019 were $111.5 million and $157.1 million, respectively, a decrease of $45.7 million. The decrease was primarily due to a decrease in gross premiums written in our StarStone segment of $52.0 million, partially offset by an increase Non-life Run-off segment of $3.2 million. The decrease in the StarStone segment was due to StarStone International being placed into an orderly run-off.
Gross premiums written for the nine months ended September 30, 2020 and 2019 were $460.6 million and $483.9 million, respectively, a decrease of $23.3 million. The decrease was primarily due to a decrease in gross premiums written in our StarStone segment of $63.2 million, partially offset by a reduction in negative gross premiums written in our Non-life Run-off segment of $26.5 million and an increase in the Atrium segment of $9.0 million. The decrease in the StarStone segment was primarily due to StarStone International being placed into an orderly run-off. The negative gross premium written in the Non-life Run-off segment for the nine months ended September 30, 2019 was due to premium adjustments on the acquired unearned premium primarily related to the run-off business assumed as a result of the AmTrust RITC transactions and the acquisition of Maiden Re North America. The increase in the Atrium segment was driven by increases in the binding authorities, marine, aviation and transit and non-marine direct and facultative lines of business. The binding authorities line of business benefited from new opportunities to write new business, while the marine, aviation and non-marine direct and facultative lines of business continued to benefit from an increase in rates and new opportunities in the U.S.

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13. GOODWILL AND INTANGIBLE ASSETS
The following table presents a reconciliation of the beginning and ending goodwill and intangible assets for the nine months ended September 30, 2020:
Intangible assets
GoodwillIntangible
assets with
a definite life		Intangible 
assets 
with an indefinite life		TotalTotal
Balance as of December 31, 2019$109,807 $14,630 $67,131 $81,761 $191,568 
Impairment losses (StarStone International)(8,000)— (4,000)(4,000)(12,000)
Amortization— (1,524)— (1,524)(1,524)
Reclassification to assets held-for-sale (Atrium)(38,848)(13,106)(63,131)(76,237)(115,085)
Balance as of September 30, 2020
$62,959 $— $— $— $62,959 
Goodwill
The changes in the goodwill by segment were as follows for the nine months ended September 30, 2020:
Non-life
Run-Off		AtriumStarStoneTotal
Balance as of December 31, 2019:
$62,959 $38,848 $8,000 $109,807 
Impairment losses (StarStone International)— — (8,000)(8,000)
Reclassification to assets held-for-sale (Atrium)— (38,848)— (38,848)
Balance as of September 30, 2020:
Goodwill62,959 — 8,000 70,959 
Accumulated impairment losses— — (8,000)(8,000)
$62,959 $— $— $62,959 
On August 13, 2020, we announced the Atrium Exchange Transaction, which resulted in the assets and liabilities of the Atrium segment being classified as held-for-sale as of September 30, 2020.
On June 10, 2020, we announced the StarStone International Run-Off. During the three and nine months ended September 30, 2020, we recognized impairment losses of $nil and $8.0 million respectively, related to the goodwill allocated to StarStone International.

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Intangible Assets
The gross carrying value, accumulated amortization and net carrying value of intangible assets by segment and by type as of September 30, 2020 and December 31, 2019 was as follows:
 September 30, 2020December 31, 2019
 Gross
carrying
value		Accumulated amortization Net
carrying
value		Gross
carrying
value		Accumulated amortization Net
carrying
value
Atrium segment:
Intangible assets with a definite life:
Distribution channel$— $— $— $20,000 $(8,111)$11,889 
Brand— — — 7,000 (4,259)2,741 
Intangible assets with an indefinite life:
Lloyd’s syndicate capacity— — — 33,031 — 33,031 
Management contract— — — 30,100 — 30,100 
Total Atrium segment intangible assets$— $— $— $90,131 $(12,370)$77,761 
StarStone segment:
Intangible assets with an indefinite life:
Lloyd’s syndicate capacity4,000 (4,000)— 4,000 — 4,000 
Total intangible assets$4,000 $(4,000)$— $94,131 $(12,370)$81,761 

Atrium
As described above, the assets and liabilities related to the Atrium segment have been classified as held-for-sale as of September 30, 2020. The following table presents the amortization recorded on the intangible assets prior to the reclassification to held-for-sale:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Intangible asset amortization
$508 $546 $1,524 $1,676 

StarStone
During the three and nine months ended September 30, 2020, we recognized impairment losses of $nil and $4.0 million respectively, on StarStone's Lloyd's syndicate capacity following our decision to place StarStone International into run-off.

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843014. DEBT OBLIGATIONS AND CREDIT FACILITIES
We utilize debt financing and credit facilities primarily for funding acquisitions and significant new business, investment activities and, from time to time, for general corporate purposes. Our debt obligations were as follows:
FacilityOrigination DateTermSeptember 30, 2020December 31, 2019
4.50% Senior Notes due 2022
March 10, 20175 years$349,155 $348,616 
4.95% Senior Notes due 2029
May 28, 201910 years493,940 493,600 
Total Senior Notes843,095 842,216 
5.75% Junior Subordinated Notes due 2040
August 26, 202020 years344,813 — 
EGL Revolving Credit FacilityAugust 16, 20185 years260,000 — 
2018 EGL Term Loan Facility December 27, 20183 years— 348,991 
Total debt obligations$1,447,908 $1,191,207 
During the nine months ended September 30, 2020, the EGL Revolving Credit Facility was utilized for funding (i) significant new business as described in Note 3 - "Significant New Business," (ii) investment opportunities and (iii) to provide additional liquidity in the first half of the year during the financial disruption associated with the COVID-19 pandemic. In addition, we issued the Junior Subordinated Notes and used the proceeds to repay the 2018 EGL Term Loan Facility.
The table below provides a summary of the total interest expense:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Interest expense on debt obligations$14,652 $14,623 $41,522 $38,157 
Amortization of debt issuance costs351 311 914 539 
Funds withheld balances and other— 16 — 326 
Total interest expense$15,003 $14,950 $42,436 $39,022 
Senior Notes
4.50% Senior Notes due 2022
On March 10, 2017, we issued the 2022 Senior Notes for an aggregate principal amount of $350.0 million. The 2022 Senior Notes pay 4.50% interest semi-annually and mature on March 10, 2022. We incurred costs of $2.9 million in issuing the 2022 Senior Notes. The unamortized costs as of September 30, 2020 and December 31, 2019 were $0.8 million and $1.4 million, respectively.
Refer to Note 15 - "Debt Obligations and Credit Facilities" in our 10-K for the year ended December 31, 2019 for further information regarding the 2022 Senior Notes.
4.95% Senior Notes due 2029
On May 28, 2019, we issued the 2029 Senior Notes for an aggregate principal amount of $500.0 million. The 2029 Senior Notes pay 4.95% interest semi-annually and mature on June 1, 2029. We incurred costs of $6.8 million in issuing the 2029 Senior Notes. The unamortized costs as of September 30, 2020 and December 31, 2019 were $6.1 million and $6.4 million, respectively.
Refer to Note 15 - "Debt Obligations and Credit Facilities" in our 10-K for the year ended December 31, 2019 for further information regarding the 2029 Senior Notes.

Junior Subordinated Notes
5.75% Junior Subordinated Notes due 2040
On August 26, 2020, our wholly-owned subsidiary, Enstar Finance LLC ("Enstar Finance") issued the Junior Subordinated Notes for an aggregate principal amount of $350.0 million. The Junior Subordinated Notes pay interest (i) from the date of original issue to August 30, 2025 at the fixed rate of 5.75% per annum and (ii) from September 1, 2025, during each five-year period thereafter, at a rate per annum equal to the five-year treasury rate as of two business days prior to the beginning of such five-year period plus 5.468%, as reset at the beginning of
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each such five-year period. Absent certain conditions, interest on the Junior Subordinated Notes is payable semi-annually, commencing on March 1, 2021, and the Junior Subordinated Notes are scheduled to mature on September 1, 2040.
The Junior Subordinated Notes are rated BB+ and are unsecured junior subordinated obligations of Enstar Finance. The Junior Subordinated Notes are fully and unconditionally guaranteed by us on an unsecured and junior subordinated basis. These debt securities of Enstar Finance are effectively subordinate to the obligations of our other subsidiaries.
We incurred costs of $5.2 million in issuing the Junior Subordinated Notes. These costs included underwriters’ fees, legal and accounting fees, and other fees, and are capitalized and presented as a direct deduction from the principal amount of debt obligations in the consolidated balance sheets. These costs are amortized over the term of the Junior Subordinated Notes and are included in interest expense in our consolidated statements of earnings. The unamortized costs as of September 30, 2020 were $5.2 million.
The net proceeds of $344.8 million, plus cash on hand, were used to repay $350.0 million of borrowings under our 2018 EGL Term Loan Facility, discussed further below.

EGL Revolving Credit Facility
As of September 30, 2020, we were permitted to borrow up to an aggregate of $600.0 million under the revolving credit facility. As of September 30, 2020, there was $340.0 million of available unutilized capacity under the facility. Subsequent to September 30, 2020, we have neither borrowed nor repaid any additional amounts under the facility, as such the unutilized capacity remains at $340.0 million. We have the option to increase the commitments under the facility by up to an aggregate amount of $400.0 million from the existing lenders, or through the addition of new lenders, subject to the terms of the agreement.
Borrowings under the facility bear interest at a rate based on the Company's long term senior unsecured debt ratings. Interest is payable at least every month at either the alternate base rate ("ABR") or LIBOR plus a margin as set forth in the revolving credit agreement.
Refer to Note 15 - "Debt Obligations and Credit Facilities" in our 10-K for the year ended December 31, 2019 for further information regarding the revolving credit facility.

2018 EGL Term Loan Facility
On December 27, 2018, we entered into and fully utilized a three-year $500.0 million unsecured term loan (the "2018 EGL Term Loan Facility"). During 2019, we repaid principal of $150.0 million, and during the three months ended September 30, 2020, we repaid the remaining $350.0 million of principal on the facility. As of September 30, 2020, there was no amount outstanding on the 2018 EGL Term Loan Facility.
We incurred costs of $1.5 million associated with closing the 2018 EGL Term Loan Facility. These costs were amortized over the term of the facility and are included in general and administrative expenses in our consolidated statements of earnings. The unamortized costs as of September 30, 2020 and December 31, 2019 were $nil and $1.0 million, respectively.

Letters of Credit
We utilize unsecured and secured letters of credit to support certain of our insurance and reinsurance performance obligations.
Funds at Lloyd's
We had an unsecured letter of credit agreement for Funds at Lloyd's ("FAL Facility") as of September 30, 2020, to issue up to $375.0 million of letters of credit, with provision to increase the facility by an additional $25.0 million up to an aggregate amount of $400.0 million, subject to lenders approval. On November 5, 2020, we amended and restated the FAL Facility to reduce its capacity to $275.0 million (with provision to increase the facility by an additional $75.0 million) and extend its term by two years. The FAL Facility is available to satisfy our Funds at Lloyd's requirements and expires in 2025. As of September 30, 2020 and December 31, 2019, our combined Funds at Lloyd's were comprised of cash and investments of $547.0 million and $639.3 million, respectively, and unsecured letters of credit of $252.0 million as of both dates.
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$120.0 million Letter of Credit Facility
We use this facility to support certain reinsurance collateral obligations of our subsidiaries. Pursuant to the facility agreement, we have the option to increase commitments under the facility by an additional $60.0 million. As of September 30, 2020 and December 31, 2019, we had issued an aggregate amount of letters of credit under this facility of $120.0 million and $115.3 million, respectively.
$800.0 million Syndicated Letter of Credit Facility
During 2019, we entered into an unsecured $760.0 million letter of credit facility agreement, most recently amended on June 3, 2020. On August 4, 2020, we exercised our option to increase the commitments available under the facility by an aggregate amount of $40.0 million, bringing the total size of the facility to $800.0 million. The facility is used to collateralize certain reinsurance obligations, including $456.8 million relating to the reinsurance transaction with Maiden Reinsurance Ltd. As of September 30, 2020 and December 31, 2019, we had issued an aggregate amount of letters of credit under this facility of $619.8 million and $608.0 million, respectively.
$65.0 million Letter of Credit Facility
On August 4, 2020, we entered into a $65.0 million secured letter of credit facility agreement pursuant to which we issued a letter of credit to collateralize a portion of our reinsurance performance obligations relating to our novation transaction with Hannover Re, which we completed on August 6, 2020, as discussed in Note 3 - "Significant New Business". As of September 30, 2020, we had issued an aggregate amount of letters of credit under this facility of $61.0 million.
Refer to Note 15 - "Debt Obligations and Credit Facilities" to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019 for further information on the terms of the above letter of credit facilities.

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15. NONCONTROLLING INTERESTS
We have both redeemable noncontrolling interest ("RNCI") and noncontrolling interest ("NCI") on our consolidated balance sheets. RNCI with redemption features that are not solely within our control are classified within temporary equity in the consolidated balance sheets and carried at redemption value, which is fair value. The change in fair value is recognized through retained earnings as if the balance sheet date were also the redemption date. In addition, we also have NCI, which does not have redemption features and is classified within equity in the consolidated balance sheets.

Redeemable Noncontrolling Interest
RNCI as of September 30, 2020 and December 31, 2019 comprised the ownership interests held by the Trident V Funds ("Trident") (39.3%) and funds advised by Dowling Capital Partners, L.P. ("Dowling") (1.7%) in our subsidiary North Bay Holdings Limited ("North Bay"). North Bay owns our investments in Atrium and StarStone.
The following is a reconciliation of the beginning and ending carrying amount of the equity attributable to the RNCI: 
Three Months EndedNine Months Ended
September 30,September 30,
2020201920202019
Balance at beginning of period$366,533 $435,696 $438,791 $458,543 
Dividends paid— — — (11,556)
Net earnings (losses) attributable to RNCI20,997 (190)(31,102)(5,651)
Accumulated other comprehensive earnings attributable to RNCI1,220 (97)7,593 58 
Foreign currency translation adjustments(588)— (753)— 
Change in redemption value of RNCI(11,431)(622)(38,059)(6,607)
Cumulative effect of change in accounting principle attributable to RNCI (1)
— — 261 — 
Balance at end of period$376,731 $434,787 $376,731 $434,787 
(1) The Company adopted ASU 2016-13 and the related amendments on January 1, 2020. Refer to Note 1 - "Significant Accounting Policies" for further details.
We carried the RNCI at its estimated redemption value, which is fair value, as of September 30, 2020 and December 31, 2019.
The increase in the three months ended September 30, 2020 was attributable to $21.0 million of net earnings primarily related to StarStone due to higher underwriting income in the period; partially offset by, an $11.4 million reduction in redemption value. The redemption value decreased as a result of the agreement to sell Northshore.
The decrease in the nine months ended September 30, 2020 was attributable to $31.1 million of net losses related to StarStone resulting from exit costs associated with the decision to place StarStone International into run-off; and $38.1 million due to change in redemption value. The redemption value decreased as a result of the StarStone International Run-Off decision and the agreement to sell both StarStone U.S and Northshore.
Refer to Note 21 - "Commitments and Contingencies" for additional information regarding RNCI.

Noncontrolling Interest
As of September 30, 2020 and December 31, 2019, we had $14.5 million and $14.2 million, respectively, of NCI related to external interests in three of our subsidiaries. A reconciliation of the beginning and ending carrying amount of the equity attributable to NCI is included in the unaudited condensed consolidated statement of changes in shareholders equity.

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16. SHARE CAPITAL
Refer to Note 17 - "Share Capital" to our consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019 for additional information on our share capital.
Dividends Declared and Paid
The following table details the dividends that have been declared and paid on our Series D and E Preferred Shares for the period from January 1, 2020 to November 6, 2020:
Dividend per:
Preferred Share SeriesDate DeclaredRecord DateDate Paid or PayablePreferred ShareDepositary ShareTotal dividends paid in the nine months ended September 30, 2020
(in U.S. dollars)(in thousands of U.S. dollars)
Series DFebruary 4, 2020February 15, 2020March 2, 2020$437.50 $0.43750 $7,000 
Series EFebruary 4, 2020February 15, 2020March 2, 2020$437.50 $0.43750 1,925 
Series DMay 5, 2020May 15, 2020June 1, 2020$437.50 $0.43750 7,000 
Series EMay 5, 2020May 15, 2020June 1, 2020$437.50 $0.43750 1,925 
Series DAugust 5, 2020August 15, 2020September 1, 2020$437.50 $0.43750 7,000 
Series EAugust 5, 2020August 15, 2020September 1, 2020$437.50 $0.43750 1,925 
Series DNovember 5, 2020November 15, 2020December 1, 2020$437.50 $0.43750 — 
Series ENovember 5, 2020November 15, 2020December 1, 2020$437.50 $0.43750 — 
$26,775 
Share Repurchases
On March 9, 2020, our Board of Directors adopted a stock trading plan for the purpose of repurchasing a limited number of our Company’s ordinary shares, not to exceed $150.0 million in aggregate (the "Repurchase Program"). On March 23, 2020, we suspended our Repurchase Program due to uncertainty in the global financial markets resulting from the COVID-19 pandemic. The Repurchase Program resumed on September 21, 2020 and expires on March 1, 2021.
From inception to September 30, 2020, we repurchased 174,464 ordinary shares at an average price of $145.53, for an aggregate price of $25.4 million under the Repurchase Program. As of September 30, 2020, the remaining capacity under the Repurchase Program was $124.6 million. Subsequent to September 30, 2020, we repurchased 3,816 ordinary shares for an aggregate price of $0.6 million under the Repurchase program.
Joint Share Ownership Plan
On January 21, 2020, 565,630 Voting Ordinary Shares were issued to the trustee of the Enstar Group Limited Employee Benefit Trust (the "EB Trust"). Voting rights in respect of shares held in the EB Trust have been contractually waived. We have consolidated the EB Trust, and shares held in the EB Trust are classified like treasury shares as contra-equity in our consolidated balance sheet.
The EB Trust supports awards made under our Joint Share Ownership Plan, a sub-plan to our Amended and Restated 2016 Equity Incentive Plan (the "JSOP"). An award of 565,630 shares was made to our Chief Executive Officer on January 21, 2020, which cliff-vests after 3 years from grant. The accounting for stock-settled JSOP awards is similar to options, whereby the grant date fair value of $13.6 million is expensed over the life of the award. To determine the grant date fair value of $24.13 per share, we utilized a Monte-Carlo valuation model with the following assumptions: (i) volatility of 18.66%; (ii) dividend yield of 0.00%; and (iii) risk-free interest rate of 1.55%. For further information on the EB Trust and JSOP award, including the vesting conditions, refer to Note 17 - "Share Capital" and Note 19 - "Share-Based Compensation and Pensions" to our consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019.
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17. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net earnings per ordinary share:
Three Months EndedNine Months Ended
September 30,September 30,
2020201920202019
Numerator:
Earnings (losses) attributable to Enstar ordinary shareholders:
Net earnings from continuing operations (1)
$612,636 $113,074 $896,267 $701,234 
Net earnings from discontinued operations (2)
2,377 4,669 478 7,102 
Net earnings attributable to Enstar ordinary shareholders:$615,013 $117,743 $896,745 $708,336 
Denominator:
Weighted-average ordinary shares outstanding — basic (3)
21,578,106 21,488,216 21,564,447 21,476,586 
Effect of dilutive securities:
Share-based compensation plans (4)
143,581 169,162180,437 204,288
Warrants57,042 63,11954,74360,625
Weighted-average ordinary shares outstanding — diluted21,778,729 21,720,497 21,799,627 21,741,499 
Earnings (loss) per ordinary share attributable to Enstar:
Basic:
Net earnings from continuing operations$28.39 $5.26 $41.56 $32.65 
Net earnings from discontinued operations0.11 0.22 0.02 0.33 
Net earnings per ordinary share$28.50 $5.48 $41.58 $32.98 
Diluted:
Net earnings from continuing operations$28.13 $5.21 $41.12 $32.25 
Net earnings from discontinued operations0.11 0.21 0.02 0.33 
Net earnings per ordinary share$28.24 $5.42 $41.14 $32.58 

(1) Net earnings (loss) from continuing operations attributable to Enstar ordinary shareholders equals net earnings (loss) from continuing operations, plus net loss (earnings) from continuing operations attributable to noncontrolling interest, less dividends on preferred shares.
(2) Net earnings (loss) from discontinued operations attributable to Enstar ordinary shareholders equals net earnings (loss) from discontinued operations, net of income taxes, plus net loss (earnings) from discontinued operations attributable to noncontrolling interest; refer to Note 4 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations" for a breakdown by period.
(3) Weighted-average ordinary shares for basic earnings per share includes ordinary shares (voting and non-voting) but excludes ordinary shares held in the EB Trust in respect of JSOP awards.
(4) Share-based dilutive securities include restricted shares, restricted share units, and performance share units. Certain share-based compensation awards, including the ordinary shares held in the EB Trust in respect of JSOP awards, were excluded from the calculation for the three and nine months ended September 30, 2020 because they were anti-dilutive.
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18. SHARE-BASED COMPENSATION
We provide various employee benefits including share-based compensation, an employee share purchase plan and an annual incentive compensation program. These are described in Note 19 - "Share-Based Compensation and Pensions" to our consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019.
The table below provides a summary of the compensation costs for all of our share-based compensation plans:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Share-based compensation plans:
Restricted shares and restricted share units$2,251 $1,778 $6,180 $4,910 
Performance share units5,698 5,678 10,886 18,133 
Cash-settled stock appreciation rights3,705 102 230 (109)
Joint share ownership plan expense1,146 — 3,151 — 
Other share-based compensation plans:
Northshore incentive plan209 1,029 656 3,061 
StarStone incentive plan— — (223)— 
Deferred compensation and ordinary share plan for non-employee directors139 116 1,098 992 
Employee share purchase plan110 102 318 309 
Total share-based compensation$13,258 $8,805 $22,296 $27,296 

19. INCOME TAXATION

Interim Tax Calculation Method
We use the estimated annual effective tax rate method for computing our interim tax provision. This method applies our best estimate of the effective tax rate expected for the full year to our year-to-date earnings before income taxes. We provide for income tax expense or benefit based upon our pre-tax earnings and the provisions of currently enacted tax laws. Certain items deemed to be unusual, infrequent or not reliably estimated are excluded from the estimated annual effective tax rate. In the event such items are identified, the actual tax expense or benefit is reported in the same period as the related item. Certain other items are not included in the estimated annual effective tax rate, such as changes in the assessment of valuation allowance on deferred tax assets and uncertain tax positions, if any.

Interim Tax Expense
The effective tax rates on income for the three months ended September 30, 2020 and 2019 were 2.1% and 10.2%, respectively. The effective tax rates on income for the nine months ended September 30, 2020 and 2019 were 2.8% and 3.4%, respectively. The effective tax rate on income differs from the statutory rate of 0% due to tax on foreign operations, primarily the U.S. and the U.K.
We have foreign operating subsidiaries and branch operations principally located in the U.S., U.K., Continental Europe and Australia that are subject to federal, foreign, state and local taxes in those jurisdictions. Deferred tax liabilities have not been accrued with respect to the undistributed earnings of our foreign subsidiaries. If the earnings were to be distributed, as dividends or other distributions, withholding taxes may be imposed by the jurisdiction of the paying subsidiary. For our U.S. subsidiaries, we have not currently accrued any withholding taxes with respect to unremitted earnings as management has indefinitely reinvested these earnings. For our U.K. subsidiaries, there are no withholding taxes imposed. For our other foreign subsidiaries, it would not be practicable to compute such amounts due to a variety of factors, including the amount, timing, and manner of any repatriation. Because we operate in many jurisdictions, our net earnings are subject to risk due to changing tax laws and tax
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rates around the world. The current, rapidly changing economic environment may increase the likelihood of substantial changes to tax laws in the jurisdictions in which we operate.

Assessment of Valuation Allowance on Deferred Tax Assets
We have estimated the future taxable income of our foreign subsidiaries and have provided a valuation allowance in respect of loss carryforwards where we do not expect to realize a benefit. We have considered all available evidence using a "more likely than not" standard in determining the amount of the valuation allowance. During the three and nine months ended September 30, 2020, we have maintained a valuation allowance for deferred tax assets which management does not believe meet the "more likely than not" criteria.

Unrecognized Tax Benefits
There were no unrecognized tax benefits as of September 30, 2020 and December 31, 2019.

Tax Examinations
Our operating subsidiaries may be subject to audit by various tax authorities and may have different statutes of limitations expiration dates. With limited exceptions, our major subsidiaries that operate in the U.S., U.K. and Australia are no longer subject to tax examinations for years before 2015.

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20. RELATED PARTY TRANSACTIONS

Stone Point Capital LLC

Through several private transactions occurring from May 2012 to July 2012 and an additional private transaction that closed in May 2018, investment funds managed by Stone Point Capital LLC ("Stone Point") have acquired an aggregate of 1,635,986 of our Voting Ordinary Shares (which constitutes approximately 8.8% of our outstanding Voting Ordinary Shares). On November 6, 2013, we appointed James D. Carey to our Board of Directors. Mr. Carey is the sole member of an entity that is one of four general partners of the entities serving as general partners for Trident, is a member of the investment committees of such general partners, and is a member and senior principal of Stone Point, the manager of the Trident funds.
Our interests in StarStone and Atrium are held through North Bay, which is a joint venture between us and the Trident V Funds that are advised by Stone Point. We currently own an indirect 59.0% interest in North Bay and the Trident V Funds and the Dowling Funds currently own 39.3% and 1.7%, respectively. North Bay owns 100% of SSHL, the holding company for the StarStone group, which includes StarStone U.S. and StarStone International. North Bay also owns approximately 92% of Northshore, the holding company that owns Atrium and Arden. North Bay also owns the preferred equity of three segregated cells of Fitzwilliam Insurance Limited (the “Fitzwilliam Cells”) that have provided reinsurance to StarStone and are considered part of StarStone International.
On June 10, 2020, North Bay and one of its subsidiaries entered into an agreement to sell StarStone U.S. to Core Specialty in a recapitalization transaction described in Note 4 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations".
Pursuant to the terms of a Recapitalization Agreement entered into on August 13, 2020 among us, the Trident V Funds and the Dowling Funds (the "Recapitalization Agreement"), we agreed to exchange a portion of our indirect interest in Northshore for all of the Trident V Funds’ indirect interest in StarStone U.S. (the “Exchange Transaction”), which is described in Note 4 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations".
In addition to the terms described in Note 4 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations", the Recapitalization Agreement also provides for a preferred return to us of any cash received upon the sale of StarStone U.S. to reimburse us for certain funding provided to one of the Fitzwilliam Cells. To the extent the cash received upon the sale of StarStone U.S. exceeds the amount needed to reimburse us for the funding provided to the Fitzwilliam Cell, the portion of such cash that would otherwise be allocated to the Trident V Funds will be paid to us instead, and we would receive fewer shares in Northshore in the Exchange Transaction.
In connection with the closing of the Exchange Transaction, we will enter into amended and restated shareholders’ agreements with the Trident V Funds and the Dowling Funds with respect to our investment in SSHL and Northshore. With respect to SSHL, we will have the right to designate three of five members of the SSHL board of directors and the Trident V Funds will have the right to designate the other two members. The Trident V Funds will also have certain customary rights as a minority shareholder to approve certain material matters and transactions. Each shareholder of SSHL will provide us and the Trident V Funds with a right of first offer to acquire its shares in SSHL if such shareholder wishes to sell them. Each shareholder will also have certain rights to participate in sales of SSHL shares by the other shareholders, and we will have certain rights to cause the Trident V Funds and the Dowling Funds to sell their SSHL shares if we wish to sell control of SSHL or the StarStone International business.
Also pursuant to the terms of the proposed shareholders’ agreement for SSHL, at any time after December 31, 2022, the Trident V Funds will have the right to cause us to purchase their shares in SSHL at their fair market value, and the Dowling Funds will have the right to participate in any such sale transaction initiated by the Trident V Funds. We will be entitled to pay the purchase price for such SSHL shares in cash or in unrestricted ordinary shares of Enstar that are then listed or admitted to trading on a national securities exchange. At any time after March 31, 2023, we will have the right to cause the Trident V Funds and the Dowling Funds to sell their shares in SSHL to us at their fair market value. We would be obligated to pay the purchase price for such SSHL shares in cash.
Pursuant to the terms of the proposed shareholders’ agreement for Northshore, for so long as we own 50% or more of the Northshore shares we acquire upon the closing of the Exchange Transaction, we will have the right to designate one member to the board of directors of Northshore and each of its material subsidiaries. Our shares in Northshore will be subject to an 18-month restriction on transfer following the closing of the Exchange Transaction, after which the Trident V Funds will have a right of first offer to acquire our shares in Northshore if we wish to sell
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them. We will have certain rights to participate in sales of Northshore shares by the Trident V Funds, and the Trident V Funds will have certain rights to cause us to sell our Northshore shares if the Trident V Funds wish to sell control of Northshore or the Atrium business.
Pursuant to the terms of the existing shareholders’ agreements related to StarStone and Atrium, Mr. Carey serves as a representative of the Trident V Funds on the boards of the holding companies, including North Bay, established in connection with the Atrium/Arden and StarStone co-investment transactions. Trident also has a second representative on these boards who is a Stone Point employee.
We, in partnership with StarStone's other shareholders, have previously completed two transactions to provide capital support to StarStone in the form of:
(i) a contribution to its contributed surplus account and a loss portfolio transfer, effective October 1, 2018. To fund the transaction, the North Bay shareholders contributed an aggregate amount of $135.0 million to North Bay in proportion to their ownership interests. Trident’s proportionate contribution of $53.1 million was temporarily funded by North Bay and was reimbursed in the first quarter of 2019; and
(ii) a loss portfolio transfer, effective April 1, 2019, for which shareholders agreed to contribute an aggregate amount of $48.0 million.
In addition, Enstar has separately entered into a loss portfolio transfer and adverse development cover with StarStone effective October 1, 2019, whereby StarStone transferred $189.4 million in loss reserves and unearned premium to a wholly-owned Enstar subsidiary in exchange for premium of $189.4 million. Enstar also provided an additional $59.0 million adverse development cover in excess of the $189.4 million.
The RNCI on our balance sheet relating to these Trident co-investment transactions was as follows:
September 30, 2020December 31, 2019
Redeemable Noncontrolling Interest$361,026 $420,499 

As of September 30, 2020, we had the following additional relationships with Stone Point and its affiliates:
•Investments in funds (carried within other investments) managed by Stone Point, with respect to which we recognized net unrealized gains (losses);
•Investments in registered investment companies affiliated with entities owned by Trident or otherwise affiliated with Stone Point, with respect to which we recognized net unrealized gains (losses) and interest income;
•Separate accounts managed by Eagle Point Credit Management, PRIMA Capital Advisors and SKY Harbor Capital Management, which are affiliates of entities owned by Trident, with respect to which we incurred management fees;
•Investments in funds (carried within other investments) managed by Sound Point Capital, an entity in which Mr. Carey has an indirect minority ownership interest and serves as a director, with respect to which we recognized net unrealized gains (losses);
•Sound Point Capital has acted as collateral manager for certain of our direct investments in CLO debt and equity securities, with respect to which we recognized net unrealized gains (losses) and interest income;
•Marble Point Capital, which is an affiliate of an entity owned by Trident, has acted as collateral manager for certain of our direct investments in CLO debt and equity securities, with respect to which we recognized net unrealized gains (losses) and interest income;
•A separate account managed by Sound Point Capital, with respect to which we incurred management fees in prior periods;
•In the fourth quarter of 2018, we invested $25.0 million in Mitchell TopCo Holdings, the parent company of Mitchell International and Genex Services, as a co-investor alongside certain Trident funds; and
•In the second quarter of 2020, we invested $10.0 million in a 2 year senior secured unrated floating rate term loan facility with an extension option which was arranged and managed by Sound Point Capital. The facility's borrower, Amplify U.S. Inc., is a subsidiary of Evergreen (as defined below) and has used the proceeds to purchase AmTrust's preferred stock. The facility ranks senior to all other claims of the borrower, the purchased preferred stock and cash flows therefrom serve as collateral, and AmTrust has provided an unsecured guarantee for the facility. For further information on our relationships with Evergreen and AmTrust, refer to the AmTrust section below.
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The following table presents the amounts included in our consolidated balance sheet related to our related party transactions with Stone Point and its affiliated entities:
September 30, 2020December 31, 2019
Short-term investments, AFS, at fair value$— $1,431 
Fixed maturities, trading, at fair value219,435 269,131 
Fixed maturities, AFS, at fair value93,779 160,303 
Equities, at fair value94,353 121,794 
Other investments, at fair value:
Hedge funds18,510 18,993 
Fixed income funds335,033 381,449 
Private equity funds32,050 34,858 
CLO equities33,358 32,560 
CLO equity funds140,458 87,509 
Private Debt27,079 16,312 
Real estate fund24,475 18,106 
Total investments1,018,530 1,142,446 
Cash and cash equivalents 21,293 54,080 
Other assets6,327 10 
Other liabilities162 4,710 
Net investment$1,045,988 $1,191,826 

The following table presents the amounts included in net earnings related to our related party transactions with Stone Point and its affiliated entities:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Net investment income$2,312 $2,257 $11,189 $5,009 
Net realized and unrealized (losses) gains35,925 (3,442)(36,862)26,305 
Total net (losses) earnings$38,237 $(1,185)$(25,673)$31,314 

Hillhouse Capital

Investment funds managed by Hillhouse Capital (defined below) collectively own approximately 9.4% of Enstar’s voting ordinary shares. These funds also own non-voting ordinary shares and warrants to purchase additional non-voting ordinary shares, which together with their voting ordinary shares, represent an approximate 16.6% economic interest in Enstar. In February 2017, Jie Liu, a Partner of AnglePoint (defined below), was appointed to our Board.

We have made direct investments in funds (the “Hillhouse Funds”) managed by Hillhouse Capital Management, Ltd. and Hillhouse Capital Advisors, Ltd. (together, “Hillhouse Capital”) and AnglePoint Asset Management Ltd. ("AnglePoint"). As of September 30, 2020, our carrying value of our direct investment the InRe Fund, L.P. (the "InRe Fund"), which is managed by AnglePoint, was $1.8 billion with the InRe Fund's assets being invested in approximately (1)% in net short fixed income securities, 22% in North American equities, 49% in international equities and 30% in financing, derivatives and other items.
As of September 30, 2020 and December 31, 2019 our equity method investee, Enhanzed Reinsurance Ltd. ("Enhanzed Re"), had investments in a fund managed by AnglePoint, as set forth in the table below.
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Our consolidated balance sheet included the following balances related to transactions with Hillhouse Capital and AnglePoint (as applicable):
September 30, 2020December 31, 2019
Investments in funds managed by AnglePoint, held by Enhanzed Re$653,040 $327,799 
Our ownership of equity method investments47.4 %47.4 %
Our share of Investments in funds managed by AnglePoint held by Enhanzed Re (through our ownership of equity method investments)$309,541 $155,377 
Investment in other funds managed by Hillhouse Capital and AnglePoint:
InRe Fund$1,843,532 $918,633 
Other funds306,214 232,968 
$2,149,746 $1,151,601 

The increase in the investment in the Hillhouse Funds was primarily due to additional subscriptions of $300.0 million and unrealized gains for the nine months ended September 30, 2020. We incurred management and performance fees of approximately $263.3 million, included within the Hillhouse Funds' reported NAV, for the nine months ended September 30, 2020 in relation to the investment in funds managed by Hillhouse Capital and AnglePoint as described above.

Monument Re

Monument Insurance Group Limited ("Monument Re") was established in October 2016 and Enstar has invested a total of $59.6 million in the common and preferred shares of Monument Re as at September 30, 2020 (December 31, 2019: $26.6 million). We own 20% of the common shares of Monument Re, as well as different classes of preferred shares which have fixed dividend yields, and which collectively represented a total economic interest of 23.0% as at September 30, 2020 (December 31, 2019: 23.5%). In connection with our investment in Monument Re, we entered into a Shareholders Agreement with the other shareholders and have accounted for our equity interest in Monument Re as an equity method investment since we have significant influence over its operating and financial policies.
On May 31, 2019, we completed the transfer of our remaining life assurance policies written by our wholly-owned subsidiary Alpha Insurance SA to a subsidiary of Monument Re. In this transaction, we transferred policy benefits for life and annuity contracts with a carrying value of €88.8 million (or $99.1 million) and total assets with a fair value of €91.1 million (or $101.6 million) to a subsidiary of Monument Re.

Our investment in the common and preferred shares of Monument Re, which is included in equity method investments on our consolidated balance sheet, was as follows:
September 30, 2020December 31, 2019
Investment in Monument Re$161,994 $60,598 
During the three and nine months ended September 30, 2020 we received director fees from Monument Re of less than $0.1 million and $0.1 million, respectively, in connection with one of our representatives serving on Monument Re's board of directors.

Clear Spring (formerly SeaBright)
Effective January 1, 2017, we sold SeaBright Insurance Company (“SeaBright Insurance”) to Clear Spring PC Acquisition Corp., a subsidiary of Delaware Life Insurance Company ("Delaware Life"). Following the sale, SeaBright Insurance was capitalized with $56.0 million of equity, with Enstar retaining a 20% indirect equity interest in SeaBright Insurance. Subsequently, SeaBright Insurance was renamed Clear Spring Property and Casualty Company ("Clear Spring").
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We have accounted for our equity interest in Clear Spring as an equity method investment as we have significant influence over its operating and financial policies.
Our investment in the common shares of Clear Spring which is included in equity method investments on our consolidated balance sheet, was as follows:
September 30, 2020December 31, 2019
Investment in Clear Spring$10,944 $10,645 

Effective January 1, 2017, StarStone National Insurance Company (“StarStone National”) entered into a ceding quota share treaty with Clear Spring pursuant to which Clear Spring reinsures 33.3% of core workers' compensation business written by StarStone National. This agreement was terminated as of December 31, 2018.
Effective January 1, 2017, we also entered into an assuming quota share treaty with Clear Spring pursuant to which an Enstar subsidiary reinsures 25% of all workers' compensation business written by Clear Spring. This is recorded as other activities.

Our consolidated balance sheet included the following balances between us and Clear Spring:
September 30, 2020December 31, 2019
Balances under StarStone ceding quota share included, in assets or liabilities held-for-sale:
Reinsurance balances recoverable$20,998 $22,812 
Prepaid insurance premiums— 51 
Ceded payable3,551 3,616 
Ceded acquisition costs— 21 
Balances under assuming quota share:
Losses and LAE3,995 6,135 
Unearned reinsurance premiums— 13 
Funds held7,468 8,611 
Our consolidated statement of earnings included the following amounts between us and Clear Spring:
Three Months EndedNine Months Ended
September 30,September 30,
2020201920202019
Transactions under StarStone ceding quota share, included in net earnings (loss) from discontinued operations:
Ceded premium earned$60 $(3,548)$61 $(13,304)
Ceded incurred losses and LAE(525)1,063 (1,814)8,051 
Ceded acquisition costs(17)243 (44)305 
Transactions under assuming quota share:
Premium earned(15)887 (15)3,326 
Net incurred losses and LAE132 (576)1,014 (2,013)
Acquisition costs4 (88)11 (79)
Total net earnings (loss)$(361)$(2,019)$(787)$(3,714)

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AmTrust
In November 2018, pursuant to a Subscription Agreement with Evergreen Parent L.P. ("Evergreen"), K-Z Evergreen, LLC and Trident Pine Acquisition LP ("Trident Pine"), we purchased equity in Evergreen in the aggregate amount of $200.0 million. Evergreen is an entity formed by private equity funds managed by Stone Point and the Karfunkel-Zyskind family that acquired the approximately 45% of the issued and outstanding shares of common stock of AmTrust that the Karfunkel-Zyskind Family and certain of its affiliates and related parties did not already own or control. The equity interest was in the form of three separate classes of equity securities issued at the same price and in the same proportion as the equity interest purchased by Trident Pine. In a second transaction in December 2019, Enstar acquired an additional $25.9 million of Evergreen securities from another investor.
Following the closing of the second transaction, Enstar owns approximately 8.5% of the equity interest in Evergreen and Trident Pine owns approximately 21.8%. Evergreen owns all of the equity interest in AmTrust. In addition, upon the successful closing of the transaction we received a fee of $3.3 million, half of which was payable upon closing and the other on the first anniversary of the closing. The fee was recorded in full in other income within our consolidated statements of earnings for the year ended December 31, 2018.

Our indirect investment in the shares of AmTrust, carried in equities on our consolidated balance sheet was as follows:
September 30, 2020December 31, 2019
Investment in AmTrust$245,361 $240,115 

The following table presents the amounts included in net earnings related to our related party transactions with AmTrust:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Net investment income$— $1,900 $4,367 $5,550 
Net realized and unrealized gains45 — 3,854 — 
Total net earnings$45 $1,900 $8,221 $5,550 

Citco

In June 2018, we made a $50.0 million indirect investment in the shares of Citco III Limited ("Citco"), a fund administrator with global operations. Pursuant to an investment agreement and in consideration for participation therein, a related party of Hillhouse Capital provided us with investment support. In a private transaction that preceded our co-investment opportunity, certain Citco shareholders, including Trident, agreed to sell all or a portion of their interests in Citco. As of September 30, 2020, Trident owned an approximate 3.4% interest in Citco. Mr. Carey currently serves as an observer to the board of directors of Citco in connection with Trident's investment therein.
Our indirect investment in the shares of Citco, which is included in equity method investments on our consolidated balance sheet, was as follows:
September 30, 2020December 31, 2019
Investment in Citco$51,946 $51,742 

Enhanzed Re

Enhanzed Re is a joint venture between Enstar, Allianz SE ("Allianz") and Hillhouse Capital that was capitalized in December 2018. Enhanzed Re is a Bermuda-based Class 4 and Class E reinsurer and will reinsure life, non-life run-off, and property and casualty insurance business, initially sourced from Allianz and Enstar. Enstar, Allianz and Hillhouse Capital affiliates have made equity investment commitments in aggregate of $470.0 million to
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Enhanzed Re. Enstar owns 47.4% of the entity, Allianz owns 24.9% and an affiliate of Hillhouse Capital owns 27.7%. As of September 30, 2020, Enstar contributed $154.1 million of its total capital commitment to Enhanzed Re and had an uncalled amount of $68.7 million. We have accounted for our equity interest in Enhanzed Re as an equity method investment as we have significant influence over its operating and financial policies.
Enstar acts as the (re)insurance manager for Enhanzed Re, for which it receives fee income recorded within other income, AnglePoint acts as the primary investment manager, and an affiliate of Allianz provides investment management services. Enhanzed Re writes business from affiliates of its operating sponsors, Allianz SE and Enstar. It also underwrites other business to maximize diversification by risk and geography.
Our investment in the common shares of Enhanzed Re, which is included in equity method investments on our consolidated balance sheet, was as follows:
September 30, 2020December 31, 2019
Investment in Enhanzed Re$271,678 $182,856 

We have ceded 10% of the Zurich transaction, as discussed in Note 4 - "Significant New Business" to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019, to Enhanzed Re on the same terms and conditions as those received by Enstar.
Effective October 1, 2020, we have ceded 10% of the AXA Group transaction, as described in Note 3 - "Significant New Business," to Enhanzed Re on the same terms and conditions as those received by Enstar.

Our consolidated balance sheet included the following balances between us and Enhanzed Re:
September 30, 2020December 31, 2019
Balances under ceding quota share:
Insurance balances payables$1,759 $1,443 
Reinsurance balances recoverable53,762 59,601 
Funds held47,808 50,089 
Other assets498 1,033 

Our consolidated statement of earnings included the following amounts between us and Enhanzed Re:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Amounts under ceding quota share:
Net incurred losses and LAE$(1)$— $(14)$— 
Acquisition costs(46)— (23)— 
Net investment income(819)— (819)— 
Net realized and unrealized gains(679)— (679)— 
Other income3,113 — — — 
Fees and commission income161 150 393 402 
Total Net earnings1,729 150 (1,142)402 
Change in realized gain (losses) on available-for-sale investments(2,239)— (2,239)— 

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21. COMMITMENTS AND CONTINGENCIES

Concentration of Credit Risk
We believe that there are no significant concentrations of credit risk associated with our cash and cash equivalents, fixed maturity investments, or other investments. Our cash and investments are managed pursuant to guidelines that follow prudent standards of diversification and liquidity, and limit the allowable holdings of a single issue and issuers. We are also subject to custodial credit risk on our investments, which we manage by diversifying our holdings amongst large financial institutions that are highly regulated.
We have exposure to credit risk on certain of our assets pledged to ceding companies under insurance contracts. In addition, we are potentially exposed should any insurance intermediaries be unable to fulfill their contractual obligations with respect to payments of balances owed to and by us.
Credit risk exists in relation to insurance and reinsurance balances recoverable on paid and unpaid losses. We remain liable to the extent that counterparties do not meet their contractual obligations and, therefore, we evaluate and monitor concentration of credit risk among our insurers and reinsurers.
We are also subject to credit risk in relation to funds held by reinsured companies. Under funds held arrangements, the reinsured company has retained funds that would otherwise have been remitted to our reinsurance subsidiaries. The funds may be placed into trust or subject to other security arrangements. However, we generally have the contractual ability to offset any shortfall in the payment of the funds held balances with amounts owed by us. As of September 30, 2020, we had a significant funds held concentration of $948.3 million to one reinsured company which has financial strength credit ratings of A+ from A.M. Best and AA from S&P.
We limit the amount of credit exposure to any one counterparty, and none of our counterparty credit exposures, excluding U.S. government instruments and the counterparty noted above, exceeded 10% of shareholders’ equity as of September 30, 2020. Our credit exposure to the U.S. government was $1.2 billion as of September 30, 2020.

Legal Proceedings
We are, from time to time, involved in various legal proceedings in the ordinary course of business, including litigation and arbitration regarding claims. Estimated losses relating to claims arising in the ordinary course of business, including the anticipated outcome of any pending arbitration or litigation, are included in the liability for losses and LAE in our consolidated balance sheets. In addition to claims litigation, we may be subject to other lawsuits and regulatory actions in the normal course of business, which may involve, among other things, allegations of underwriting errors or omissions, employment claims or regulatory activity. We do not believe that the resolution of any currently pending legal proceedings, either individually or taken as a whole, will have a material effect on our business, results of operations or financial condition. We anticipate that, similar to the rest of the insurance and reinsurance industry, we will continue to be subject to litigation and arbitration proceedings in the ordinary course of business, including litigation generally related to the scope of coverage with respect to asbestos and environmental and other claims.

Unfunded Investment Commitments
As of September 30, 2020, we had unfunded commitments of $792.2 million to other investments, $68.7 million to equity method investments and $15.0 million to fixed maturity investments.

Guarantees
As of September 30, 2020 and December 31, 2019, parental guarantees and capital instruments supporting subsidiaries' insurance obligations were $1.4 billion and $1.0 billion, respectively. We also guarantee the Junior Subordinated Notes and the FAL facility, which are described in Note 14 - "Debt Obligations and Credit Facilities."
In connection with the sale of StarStone U.S., the net loss reserves of StarStone U.S. will be reinsured to an Enstar Non-life Run-off entity upon completion of the sale which is expected to occur in the fourth quarter of 2020. The obligations under the loss portfolio transfer reinsurance agreement will be guaranteed by Enstar. Refer to Note 4 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations" for further details.

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Redeemable Noncontrolling Interest
We have the right to purchase the RNCI interests from the RNCI holders at certain times in the future (each such right, a "call right") and the RNCI holders have the right to sell their RNCI interests to us at certain times in the future (each such right, a "put right"). Pursuant to the Exchange Transaction described in Note 20 - "Related Party Transactions" we have agreed to exchange a portion of our indirect interest in Northshore for all of the Trident V Funds' indirect interest in StarStone U.S. Following the closing of the Exchange Transaction, we will maintain a call right over the portion of SSHL owned by the Trident V Funds and the Dowling Funds, and they will maintain put rights to transfer those interests to us.

Leases
Our leases are all currently classified as operating leases whereby the related lease expense is recognized within general and administrative expenses in our consolidated statements of earnings on a straight-line basis over the term of the lease. We also recognize a right-of-use asset and an offsetting lease liability within other assets and other liabilities, respectively, in our consolidated balance sheets, for each operating lease that we enter into.
Our leases are primarily related to office space and facilities used to conduct business operations and have remaining lease terms of one year to 37 years; some of which include options to extend the lease term for up to five years, and some of which include options to terminate the lease within one year. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Since a majority of our leases do not provide an implicit discount rate, we use our collateralized incremental borrowing rate based on the information available at the commencement date of the lease in determining the present value of lease payments. For more information on our leasing arrangements and the related accounting, refer to Note 23 - "Commitments and Contingencies" to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019.
The table below provides the lease cost and other information relating to our operating leases:
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Lease cost:
Operating lease cost$3,036 $4,010 $9,560 $10,696 
Short-term lease cost(1)
63 — 182 — 
Total lease cost3,099 4,010 9,742 10,696 
Sub-lease income(2)
(139)(183)(415)(451)
Total net lease cost$2,960 $3,827 $9,327 $10,245 
Other information:
Operating cash paid for amounts included in the measurement of lease liabilities$2,856 $2,945 $10,184 $9,138 
Non-cash activity: right-of-use assets relating to leases(179)1,353 84 53,581 
Weighted-average remaining lease term6.1 years6.4 years
Weighted-average discount rate6.4 %6.2 %
(1) Leases with an initial lease term of twelve months or less are not recognized within our consolidated balance sheets.
(2) Sub-lease income consists of rental income received from third parties to whom we have sub-leased some of our leased office spaces and is included within other income in our consolidated statements of earnings.
The table below provides a summary of the operating leases recorded on our consolidated balance sheets:
Balance sheet classificationSeptember 30, 2020December 31, 2019
Right-of-use assets (1) (2)
Other assets$33,224 $46,747 
Current lease liabilities (2)
Other liabilities7,955 11,403 
Non-current lease liabilities (2)
Other liabilities28,126 34,785 
(1) Following our decision to put the StarStone International operations into orderly run-off effective June 10, 2020, we recorded total impairment charges of $3.5 million on the right-of-use assets relating to certain StarStone International operating leases as of September 30, 2020.
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(2) The right-of-use assets and the total lease liability balances exclude balances of $1.5 million and $1.0 million respectively, related to Atrium which have been reclassified to held-for-sale balances on our consolidated balance sheet as of September 30, 2020.
The table below provides a summary of the contractual maturities of our operating lease liabilities:
September 30, 2020
2020$2,938 
20219,347 
20227,829 
20237,032 
20245,328 
2025 and beyond12,579 
Total lease payments (1)
45,053 
Less: Imputed interest(8,972)
Present value of lease liabilities$36,081 
(1) Amount excludes short-term leases.

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
22. SEGMENT INFORMATION
We have three reportable segments of business that are each managed, operated and separately reported: (i) Non-life Run-off; (ii) Atrium; and (iii) StarStone. Our other activities, which do not qualify as a reportable segment, include our corporate expenses, debt servicing costs, holding company income and expenses, foreign exchange and other miscellaneous items. These segments are described in Note 1 - "Description of Business" to our consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019.
The following tables set forth selected and unaudited condensed consolidated statement of earnings results by segment and for our other activities:
Three Months Ended September 30, 2020
Non-life
Run-off		AtriumStarStoneOtherTotal
Gross premiums written$3,535 $49,083 $58,566 $293 $111,477 
Net premiums written$3,424 $46,503 $43,338 $294 $93,559 
Net premiums earned$17,476 $42,426 $96,116 $5,706 $161,724 
Net incurred losses and LAE(34,258)(21,995)(48,390)(5,043)(109,686)
Acquisition costs(2,730)(14,242)(20,608)(128)(37,708)
Operating expenses(50,345)(3,008)(20,440)— (73,793)
Underwriting income (loss)(69,857)3,181 6,678 535 (59,463)
Net investment income (loss)66,918 1,778 6,298 (2,864)72,130 
Net realized and unrealized gains 486,671 1,533 11,801 — 500,005 
Fees and commission income 3,637 7,150 — — 10,787 
Other income48,023 72 99 210 48,404 
Corporate expenses(22,494)(6,084)(3,137)(10,320)(42,035)
Interest income (expense)(16,705)— (510)2,212 (15,003)
Net foreign exchange gains (losses)(9,663)2,275 (761)(7)(8,156)
EARNINGS (LOSS) BEFORE INCOME TAXES486,530 9,905 20,468 (10,234)506,669 
Income tax expense(9,271)(2,520)(733)(1,391)(13,915)
Earnings from equity method investments149,065 — — — 149,065 
NET EARNINGS (LOSS) FROM CONTINUING OPERATIONS626,324 7,385 19,735 (11,625)641,819 
NET EARNINGS FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES— — 4,031 — 4,031 
NET EARNINGS (LOSS)626,324 7,385 23,766 (11,625)645,850 
Net earnings attributable to noncontrolling interest(2,519)(2,996)(16,397)— (21,912)
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR623,805 4,389 7,369 (11,625)623,938 
Dividends on preferred shares— — — (8,925)(8,925)
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR ORDINARY SHAREHOLDERS$623,805 $4,389 $7,369 $(20,550)$615,013 
Underwriting ratios:
Loss ratio
51.8 %50.3 %
Acquisition expense ratio33.6 %21.4 %
Operating expense ratio7.1 %21.4 %
Combined ratio92.5 %93.1 %
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Three Months Ended September 30, 2019
Non-life
Run-off		AtriumStarStoneOtherTotal
Gross premiums written$301 $48,746 $110,586 $(2,498)$157,135 
Net premiums written$(3,808)$43,785 $76,020 $(2,503)$113,494 
Net premiums earned$16,837 $42,913 $111,749 $4,303 $175,802 
Net incurred losses and LAE(30,583)(28,400)(100,628)(3,647)(163,258)
Acquisition costs4,634 (14,466)(23,301)(177)(33,310)
Operating expenses(51,395)(3,742)(14,525)— (69,662)
Underwriting income (loss)(60,507)(3,695)(26,705)479 (90,428)
Net investment income (loss)73,752 1,736 8,161 (2,147)81,502 
Net realized and unrealized gains 138,174 582 6,034 270 145,060 
Fees and commission income (expense)4,196 2,391 (150)— 6,437 
Other income (expense)(285)35 72 1,000 822 
Corporate expenses(11,983)(2,896)— (12,824)(27,703)
Interest income (expense)(17,964)— — 3,014 (14,950)
Net foreign exchange gains (losses)13,056 (924)1,509 24 13,665 
EARNINGS (LOSS) BEFORE INCOME TAXES138,439 (2,771)(11,079)(10,184)114,405 
Income tax benefit (expense)(13,382)(222)139 — (13,465)
Earnings from equity method investments17,703 — — — 17,703 
NET EARNINGS (LOSS) FROM CONTINUING OPERATIONS142,760 (2,993)(10,940)(10,184)118,643 
NET EARNINGS FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES— — 7,916 — 7,916 
NET EARNINGS (LOSS)142,760 (2,993)(3,024)(10,184)126,559 
Net (earnings) loss attributable to noncontrolling interest(1,439)1,228 320 — 109 
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR141,321 (1,765)(2,704)(10,184)126,668 
Dividend on preferred shares— — — (8,925)(8,925)
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR ORDINARY SHAREHOLDERS$141,321 $(1,765)$(2,704)$(19,109)$117,743 
Underwriting ratios:
Loss ratio66.2 %90.0 %
Acquisition expense ratio33.7 %20.9 %
Operating expense ratio8.7 %13.0 %
Combined ratio108.6 %123.9 %
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Nine Months Ended September 30, 2020
Non-Life
Run-Off		AtriumStarStoneOtherTotal
Gross premiums written$1,707 $155,551 $300,135 $3,237 $460,630 
Net premiums written$2,397 $136,093 $227,066 $3,238 $368,794 
Net premiums earned$44,023 $128,183 $276,566 $15,174 $463,946 
Net incurred losses and LAE(63,698)(66,003)(197,259)(12,718)(339,678)
Acquisition costs(13,226)(43,235)(76,026)(331)(132,818)
Operating expenses(147,117)(8,757)(66,385)— (222,259)
Underwriting income (loss)(180,018)10,188 (63,104)2,125 (230,809)
Net investment income (loss)223,425 4,382 21,625 (8,145)241,287 
Net realized and unrealized gains (losses)838,483 3,392 (3,323)— 838,552 
Fees and commission income 12,588 15,737 — — 28,325 
Other income (expense)68,087 105 216 (647)67,761 
Corporate expenses(48,014)(14,494)(39,153)(35,166)(136,827)
Interest income (expense)(48,785)— (1,611)7,960 (42,436)
Net foreign exchange gains (losses)385 1,115 (5,509)2,634 (1,375)
EARNINGS (LOSS) BEFORE INCOME TAXES866,151 20,425 (90,859)(31,239)764,478 
Income tax expense(18,276)(3,303)(2,325)(1,391)(25,295)
Earnings from equity method investments152,725 — — — 152,725 
NET EARNINGS (LOSS) FROM CONTINUING OPERATIONS1,000,600 17,122 (93,184)(32,630)891,908 
NET EARNINGS FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES— — 810 — 810 
NET EARNINGS (LOSS)1,000,600 17,122 (92,374)(32,630)892,718 
Net (earnings) loss attributable to noncontrolling interest504 (7,024)37,322 — 30,802 
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR1,001,104 10,098 (55,052)(32,630)923,520 
Dividends on preferred shares— — — (26,775)(26,775)
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR ORDINARY SHAREHOLDERS$1,001,104 $10,098 $(55,052)$(59,405)$896,745 
Underwriting ratios:
Loss ratio 51.5 %71.3 %
Acquisition expense ratio33.7 %27.5 %
Operating expense ratio6.9 %24.0 %
Combined ratio92.1 %122.8 %
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Nine Months Ended September 30, 2019
Non-Life
Run-Off		AtriumStarStoneOtherTotal
Gross premiums written$(24,785)$146,519 $363,352 $(1,174)$483,912 
Net premiums written$(26,395)$127,246 $291,083 $(1,197)$390,737 
Net premiums earned$141,981 $119,865 $339,993 $16,872 $618,711 
Net incurred losses and LAE(135,517)(58,662)(358,864)(13,068)(566,111)
Acquisition costs(40,033)(41,023)(80,582)(554)(162,192)
Operating expenses(139,595)(9,968)(53,217)— (202,780)
Underwriting income (loss)(173,164)10,212 (152,670)3,250 (312,372)
Net investment income (loss)206,337 5,500 25,865 (6,278)231,424 
Net realized and unrealized gains 815,902 5,464 31,274 5,849 858,489 
Fees and commission income (expense)13,673 5,773 (515)— 18,931 
Other income (expense)15,136 106 445 (319)15,368 
Corporate expenses(47,287)(10,186)— (36,051)(93,524)
Interest income (expense)(45,699)— (475)7,152 (39,022)
Net foreign exchange gains (losses)20,426 (1)(326)(2)20,097 
EARNINGS (LOSS) BEFORE INCOME TAXES805,324 16,868 (96,402)(26,399)699,391 
Income tax benefit (expense)(23,501)(1,930)251 (85)(25,265)
Earnings (loss) from equity method investments44,406 — (218)— 44,188 
NET EARNINGS (LOSS) FROM CONTINUING OPERATIONS826,229 14,938 (96,369)(26,484)718,314 
NET EARNINGS FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES— — 12,041 — 12,041 
NET EARNINGS (LOSS)826,229 14,938 (84,328)(26,484)730,355 
Net (earnings) loss attributable to noncontrolling interest(6,351)(6,127)17,448 — 4,970 
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR819,878 8,811 (66,880)(26,484)735,325 
Dividends on preferred shares— — — (26,989)(26,989)
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR ORDINARY SHAREHOLDERS$819,878 $8,811 $(66,880)$(53,473)$708,336 
Underwriting ratios:
Loss ratio48.9 %105.6 %
Acquisition expense ratio34.2 %23.7 %
Operating expense ratio8.4 %15.6 %
Combined ratio91.5 %144.9 %
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Assets by Segment
Invested assets are managed on a subsidiary basis, and investment income and realized and unrealized gains (losses) on investments are recognized in each segment as earned. Our total assets by segment and for our other activities were as follows:
September 30, 2020December 31, 2019
Assets by Segment:
Non-life Run-off (1)
$17,961,439 $15,775,407 
Atrium (2)
638,529 580,405 
StarStone (3)
4,021,240 3,985,138 
Other(850,620)(514,851)
Total assets$21,770,588 $19,826,099 
(1) The total assets within the Non-life Run-off segment include assets of $12.4 million related to Arden's operations that have been included within Northshore's held-for-sale assets in Note 4 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations."
(2) The total assets within the Atrium segment are all included within Northshore's held-for-sale assets in Note 4 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations."
(3) The total assets within the StarStone segment include assets of $1.5 billion related to StarStone U.S. which are disclosed as held-for-sale assets in Note 4 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations."
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ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition as of September 30, 2020 and our results of operations for the three and nine months ended September 30, 2020 and 2019 should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this quarterly report and the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2019. Some of the information contained in this discussion and analysis or included elsewhere in this quarterly report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and the timing of events could differ materially from those anticipated by these forward-looking statements as a result of many factors, including those discussed under "Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors" included in this Quarterly Report on Form 10-Q and in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019.
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Business Overview
We are a multi-faceted insurance group that offers innovative capital release solutions and specialty underwriting capabilities through our network of group companies in Bermuda, the United States, the United Kingdom, Continental Europe, Australia, and other international locations. Our core focus is acquiring and managing insurance and reinsurance companies and portfolios of insurance and reinsurance business in run-off. Since the formation of our Bermuda-based holding company in 2001, we have completed or announced over 100 acquisitions or portfolio transfers. The substantial majority of our acquisitions have been in the Non-life Run-off business, which generally includes property and casualty, workers’ compensation, asbestos and environmental, construction defect, marine, aviation and transit, and other closed business.
We manage our investment portfolio with the goal of achieving superior risk-adjusted returns, while growing profitability and generating long-term growth in shareholder value.
While our core focus remains acquiring and managing Non-life Run-off business, we own 59.0% interests in the Atrium and StarStone groups of companies, with Trident V, L.P., Trident V Parallel Fund, L.P. and Trident V Professionals Fund, L.P. (collectively, the "Trident V Funds") owning 39.3% interests, and Dowling Capital Partners I, L.P. and Capital City Partners LLC (collectively, the "Dowling Funds") owning 1.7% interests.
On August 13, 2020, we announced an exchange transaction with the Trident V Funds. As part of the exchange, we entered into a recapitalization agreement with the Trident V Funds and the Dowling Funds pursuant to which, we agreed to exchange a portion of our indirect interest in Northshore Holdings Limited ("Northshore"), the holding company that owns Atrium Underwriting Group Limited and its subsidiaries (collectively, "Atrium") and Arden Reinsurance Company Ltd. ("Arden"), for all of the Trident V Fund's indirect interest in StarStone US Holdings, Inc. and its subsidiaries ("StarStone U.S."). Upon completion of the exchange transaction, we expect to indirectly own
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approximately 11.0% of Northshore, which will continue to own Atrium and Arden, and our investment will be accounted for as a privately held equity investment and carried at fair value.
On June 10, 2020, we announced an agreement to sell StarStone U.S. to a newly formed company, Core Specialty Insurance Holdings, Inc. ("Core Specialty"), which we expect will close during the fourth quarter of 2020, pending regulatory approvals. We will retain a minority interest of approximately 26.1% in Core Specialty following completion of the exchange transaction with the Trident V Funds. In connection with the sale, a new management team and Board will be appointed for StarStone U.S. and the net loss reserves of StarStone U.S. will be reinsured to an Enstar Non-life Run-off entity upon completion of the sale. On June 10, 2020, we also announced that we are placing the StarStone non-U.S. operations ("StarStone International") into an orderly run-off (the "StarStone International Run-Off").
For further information on these transactions, refer to Note 4 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations" to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q and the "Atrium Segment" and "StarStone Segment" sections below.
Our business strategies are discussed in "Item 1. Business - Company Overview", "- Business Strategy", "-Strategic Growth" and "- Recent Acquisitions and Significant New Business" in our Annual Report on Form 10-K for the year ended December 31, 2019.

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Key Performance Indicator
Our primary corporate objective is growing our book value per share, and we believe that long-term growth in fully diluted book value per share is the most appropriate measure of our financial performance. We create growth in our book value through the execution of the strategies discussed in "Item 1. Business - Business Strategy" in our Annual Report on Form 10-K for the year ended December 31, 2019.
During the nine months ended September 30, 2020, our fully diluted book value per ordinary share increased by 22.4% to $242.36. The increase was primarily due to the net earnings for the nine months ended September 30, 2020, which was primarily the result of net unrealized investment gains, partially offset by COVID-19 related losses and exit costs associated with the StarStone International Run-Off, as discussed more fully below.
The table below summarizes the calculation of our fully diluted book value per ordinary share:
September 30, 2020December 31, 2019Change
(expressed in thousands of U.S. dollars, except share and per share data)
Numerator:
Total Enstar shareholder's equity$5,820,885 $4,842,183 $978,702 
Less: Series D and E preferred shares510,000 510,000 — 
Total Enstar ordinary shareholders' equity (A)5,310,885 4,332,183 978,702 
Proceeds from assumed conversion of warrants(1)
20,229 20,229 — 
Numerator for fully diluted book value per ordinary share calculations (B)$5,331,114 $4,352,412 $978,702 
Denominator:
Ordinary shares outstanding (C) (2)
21,503,814 21,511,505 (7,691)
Effect of dilutive securities:
Share-based compensation plans (3)
317,073302,56514,508 
Warrants(1)
175,901175,901— 
Fully diluted ordinary shares outstanding (D)21,996,788 21,989,971 6,817 
Book value per ordinary share:
Basic book value per ordinary share = (A) / (C)$246.97 $201.39 $45.58 
Fully diluted book value per ordinary share = (B) / (D)$242.36 $197.93 $44.43 
(1) There are warrants outstanding to acquire 175,901 Series C Non-Voting Ordinary Shares for an exercise price of $115.00 per share, subject to certain adjustments (the "Warrants"). The Warrants were issued in April 2011 and expire in April 2021. The Warrant holder may, at its election, satisfy the exercise price of the Warrants on a cashless basis by surrender of shares otherwise issuable upon exercise of the Warrants in accordance with a formula set forth in the Warrants.
(2) Ordinary shares outstanding includes voting and non-voting shares but excludes ordinary shares held in the Enstar Group Limited Employee Benefit Trust (the "EB Trust") in respect of awards made under our Joint Share Ownership Plan, a sub-plan to our Amended and Restated 2016 Equity Incentive Plan (the "JSOP").
(3) Share-based dilutive securities include restricted shares, restricted share units, and performance share units ("PSUs"). The amounts for PSUs and ordinary shares held in the EB trust in respect of the JSOP are adjusted at the end of each period end to reflect the latest estimated performance multipliers for the respective awards. The JSOP shares did not have a dilutive effect as at September 30, 2020.

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Non-GAAP Financial Measure
In addition to presenting net earnings (loss) attributable to Enstar ordinary shareholders and diluted earnings (loss) per ordinary share determined in accordance with U.S. GAAP, we believe that presenting non-GAAP operating income (loss) attributable to Enstar ordinary shareholders and non-GAAP diluted operating income (loss) per ordinary share provides investors with valuable measures of our performance.
Non-GAAP operating income (loss) attributable to Enstar ordinary shareholders is calculated by the addition or subtraction of certain items from within our consolidated statements of earnings to or from net earnings (loss) attributable to Enstar ordinary shareholders, the most directly comparable GAAP financial measure, as illustrated in the table below:
Three Months EndedNine Months Ended
September 30,September 30,
2020201920202019
(expressed in thousands of U.S. dollars, except share and per share data)
Net earnings attributable to Enstar ordinary shareholders$615,013 $117,743 $896,745 $708,336 
Adjustments:
Net realized and unrealized (gains) on fixed maturity investments and funds held - directly managed (1)
(67,294)(135,005)(207,097)(558,755)
Change in fair value of insurance contracts for which we have elected the fair value option21,042 41,374 96,848 135,377 
Net (earnings) from discontinued operations(4,031)(7,916)(810)(12,041)
Tax effects of adjustments (2)
5,771 12,042 19,070 50,841 
Adjustments attributable to noncontrolling interest (3)
3,881 4,500 (536)17,397 
Non-GAAP operating income attributable to Enstar ordinary shareholders (4)
$574,382 $32,738 $804,220 $341,155 
Diluted net earnings per ordinary share$28.24 $5.42 $41.14 $32.58 
Adjustments:
Net realized and unrealized (gains) on fixed maturity investments and funds held - directly managed (1)
(3.09)(6.21)(9.50)(25.71)
Change in fair value of insurance contracts for which we have elected the fair value option0.97 1.90 4.44 6.23 
Net (earnings) from discontinued operations(0.19)(0.36)(0.04)(0.55)
Tax effects of adjustments (2)
0.26 0.55 0.87 2.34 
Adjustments attributable to noncontrolling interest (3)
0.18 0.21 (0.02)0.80 
Diluted non-GAAP operating income per ordinary share (4)
$26.37 $1.51 $36.89 $15.69 
Weighted average ordinary shares outstanding:
Basic21,578,106 21,488,216 21,564,447 21,476,586 
Diluted21,778,729 21,720,497 21,799,627 21,741,499 
(1) Represents the net realized and unrealized gains and losses related to fixed maturity securities included in net earnings (loss). Our fixed maturity securities are held directly on our balance sheet and also within the "Funds held - directly managed" balance. Refer to Note 5 - "Investments" to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q for further details on our net realized and unrealized gains and losses.
(2) Represents an aggregation of the tax expense or benefit associated with the specific country to which the pre-tax adjustment relates, calculated at the applicable jurisdictional tax rate.
(3) Represents the impact of the adjustments on the net earnings (loss) attributable to noncontrolling interest associated with the specific subsidiaries to which the adjustments relate.
(4) Non-GAAP financial measure.

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Basis of Non-GAAP Operating Income (Loss) Financial Measure
Our non-GAAP measure shown above, as defined in Item 10(e) of Regulation S-K, enables readers of the consolidated financial statements to analyze our results in a way that is more aligned with the manner in which our management measures our underlying performance. We believe that presenting this non-GAAP financial measure, which may be defined and calculated differently by other companies, improves the understanding of our consolidated results of operations. This measure should not be viewed as a substitute for those calculated in accordance with U.S. GAAP.
Non-GAAP operating income (loss) is net earnings attributable to Enstar ordinary shareholders excluding: (i) net realized and unrealized (gains) losses on fixed maturity investments and funds held - directly managed included in net earnings (loss); (ii) change in fair value of insurance contracts for which we have elected the fair value option; (iii) gain (loss) on sale of subsidiaries, if any; (iv) net earnings (loss) from discontinued operations, if any; (v) tax effect of these adjustments, where applicable; and (vi) attribution of share of adjustments to noncontrolling interest, where applicable. We eliminate the impact of net realized and unrealized (gains) losses on fixed maturity investments and funds held - directly managed and change in fair value of insurance contracts for which we have elected the fair value option because these items are subject to significant fluctuations in fair value from period to period, driven primarily by market conditions and general economic conditions, and therefore their impact on our earnings is not reflective of the performance of our core operations. When applicable, we eliminate the impact of gain (loss) on sale of subsidiaries and net earnings (loss) on discontinued operations because these are not reflective of the performance of our core operations. Diluted Non-GAAP operating income (loss) per ordinary share is diluted net earnings per ordinary share excluding the per diluted share amounts of each of the adjustments used to calculate non-GAAP operating income.

Underwriting Ratios
In presenting our results for the Atrium and StarStone segments, we discuss the loss ratio, acquisition cost ratio, operating expense ratio, and the combined ratio of our active underwriting operations within these segments. Management believes that these ratios provide the most meaningful measure for understanding our underwriting profitability. These measures are calculated using GAAP amounts presented on the statements of earnings for both Atrium and StarStone.
The loss ratio is calculated by dividing net incurred losses and LAE by net premiums earned. The acquisition cost ratio is calculated by dividing acquisition costs by net premiums earned. The operating expense ratio is calculated by dividing operating expenses by net premiums earned. The combined ratio is the sum of the loss ratio, the acquisition cost ratio and the operating expense ratio.
The Atrium segment also includes corporate expenses that are not directly attributable to the underwriting results in the segment. The corporate expenses include general and administrative expenses related to amortization of the definite-lived intangible assets in the holding company, and expenses relating to Atrium Underwriters Limited ("AUL") employee salaries, benefits, bonuses and current year share grant costs. The AUL general and administrative expenses are incurred in managing the syndicate. These are principally funded by the profit commission fees earned from Syndicate 609, which is a revenue item not included in the insurance ratios.
The StarStone segment also includes corporate expenses that are not directly attributable to the underwriting results in the segment and are not included in the insurance ratios. The corporate expenses include non-recurring expenses, reorganization expenses and holding company expenses.

Current Outlook
The evolving COVID-19 pandemic has caused significant disruption in global financial markets and economies worldwide. Although the overall financial and operational impact to us has been minimal to-date, with virtually all of our employees working remotely, the scope, duration and magnitude of the direct and indirect effects of the COVID-19 pandemic are changing rapidly and are difficult to anticipate. As with others in our industry, we are subject to economic factors such as interest rates, inflationary pressures, market volatility, foreign exchange rates, underwriting events, regulation, tax policy changes, political risks and other market risks that can impact our strategy and operations. For additional information on the risks posed by the COVID-19 pandemic, refer to "Risk Factors" included in this Quarterly Report on Form 10-Q.
The value of our investment portfolio has been impacted by the ongoing uncertainty and volatility in financial markets caused by the COVID-19 pandemic. For our fixed income portfolio, the COVID-19 pandemic has resulted in interest rates dropping to historically low levels which, in conjunction with credit spreads widening in the first quarter
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of 2020 and recovering in both the second and third quarters of 2020, has generated net unrealized gains in our fixed income portfolio for the nine month period. As of September 30, 2020, our fixed income portfolio remained well-positioned with an A+ average credit rating. The COVID-19 pandemic has increased the risk of defaults and downgrades across many industries, and we continue to monitor credit risk during this time of volatility. We expect interest rates and credit spreads will remain volatile in the near-term.
Our other investments, including equities, hedge funds, investments accounted for under equity method accounting and other non-fixed income investments, carry higher expected returns, have a longer investment time horizon, and provide diversification from our fixed income portfolio. Given their higher risk and return profile, we expect their returns to be more volatile over the short term relative to our fixed income investments. Heightened volatility in equity markets was introduced during the COVID-19 pandemic, though equity prices have generally recovered from the sharp declines experienced in the first quarter of 2020. This recovery has resulted in unrealized gains in our equity and other investments year-to-date. We anticipate continued volatility in the global investment markets as a result of the economic conditions caused by the COVID-19 pandemic. Our results for the three and nine months ended September 30, 2020 included the impact of unrealized investment gains of $446.5 million and $723.7 million, respectively. Investments that are accounted for under equity method typically report their financial statement information to the Company three months following the end of the reporting period. Accordingly, the potential effects of volatility across the global financial markets, including the impact of COVID-19 during 2020, on our equity method investments is generally reflected in our financial statements on a quarter lag basis. We continue to remain focused on actively managing our well diversified investment strategy and generating strong investment returns across our investment portfolio.
During the three and nine months ended September 30, 2020, our Non-life Run-off segment had no underwriting losses related to the COVID-19 pandemic. However, our Atrium and StarStone segments have incurred COVID-19 related net underwriting losses as follows:
COVID-19 net incurred losses and LAE for the Atrium segment primarily included losses in the accident and health lines of business, whereas losses in the StarStone segment included losses primarily in the casualty and property lines of business. We expect gross premiums written in certain business lines, primarily commercial lines, may be impacted due to the severely reduced business activity following government restrictions that have temporarily prevented many businesses from operating in their usual manner, which may be partially offset by improving pricing conditions and new business opportunities. The amounts of Non-life Run-off, Atrium and StarStone losses referenced herein represent our estimate of underwriting losses related to the COVID-19 pandemic incurred through September 30, 2020. Given the uncertainties associated with the COVID-19 pandemic and its impact, and the limited information upon which our current estimates have been made, our preliminary reserves and the estimated liability for losses and LAE arising from the COVID-19 pandemic may materially change.
We expect to see continued opportunities in the NLRO market with companies looking for alternative and optimized capital solutions and greater certainty around incurred losses on books of business that are in run-off. Our strategy is to administer the run-off of claims profitably through closing claims in an efficient and effective manner. However, there may be increased competition in the NLRO market and increased volatility in run-off portfolios that have come to market. We believe we have a competitive advantage in the run-off market and will continue to apply our disciplined approach to underwriting and pricing transactions.
Strategic Development with Atrium
On August 13, 2020, we announced an exchange transaction with the Trident V Funds. As part of the exchange transaction, we entered into a recapitalization agreement with the Trident V Funds and the Dowling Funds pursuant to which we agreed to exchange a portion of our indirect interest in Northshore, the holding company that owns Atrium and Arden, for all of the Trident V Fund's indirect interest in StarStone U.S. Upon completion of the exchange transaction, our indirect investment in Northshore, which will continue to own Atrium and Arden, will be accounted for as a privately held equity investment and carried at fair value.
For additional information about this strategic development, refer to Note 4 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations" to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q and the "Atrium Segment" section below.
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Strategic Developments with StarStone
Recapitalization of StarStone U.S.
On June 10, 2020, we announced an agreement to sell StarStone U.S. to Core Specialty, a newly formed company in which we will retain a minority interest. In connection with the sale, a new management team and Board will be appointed for StarStone U.S. and the net loss reserves of StarStone U.S. will be reinsured to one of our Non-life Run-off subsidiaries.
StarStone U.S. is a specialty property and casualty insurance group principally focused on the excess and surplus lines ("E&S") market in the U.S., marketing these insurance products in all 50 states, primarily through a network of independent insurance brokers. StarStone U.S. is organized into four separately managed business units: excess casualty, management professional liability, healthcare liability and workers’ compensation. StarStone U.S. believes that significant growth opportunities exist in the E&S segment of the P&C market due to dislocation in the overall property and casualty market.
Run-off of StarStone International (non-U.S.)
On June 10, 2020, we also announced that we are placing StarStone International into an orderly run-off. The liabilities associated with the StarStone International Run-Off vary in duration, and the run-off is expected to occur over a number of years. Steps to reduce the size of StarStone International's operations have begun and will involve several phases to occur over time. As a result, we cannot anticipate with certainty the expected completion date of the StarStone International Run-Off. We continue to evaluate additional strategic options for StarStone International's operations and business, which could have the effect of mitigating costs associated with placing the business into run-off. The remaining StarStone International operations will continue to serve the needs of policyholders and ensure that the companies continue to meet all regulatory requirements.
Recent developments relating to StarStone International include:
•On October 14, 2020, we completed the sale of Vander Haeghen & Co. SA ("VdH"), a Belgium-based insurance agency majority owned by two StarStone International entities, for a purchase price of €3.8 million ($4.5 million). We expect to recognize a gain on the sale of $3.6 million in the fourth quarter of 2020.
•On October 2, 2020, StarStone International sold the renewal rights for its financial lines portfolio for consideration of approximately $0.5 million.
•Atrium's Syndicate 609, for which Atrium provides 25% of the underwriting capacity and capital, expects to write new business of approximately $21.3 million in 2021 that was previously underwritten by StarStone International, primarily in the marine and energy liability, upstream energy and terrorism classes of business.
For additional information about these strategic developments, refer to Note 4 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations" to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q and the "StarStone Segment" section below.
Non-life Run-off Business Opportunities
On October 15, 2020, we announced that we had completed an insurance business transfer (“IBT”) in the U.S., having received judicial approval from the Oklahoma County District Court. The transaction occurred between two of our subsidiaries and, although common in many parts of the world, it was the first of its kind to occur in the U.S. The IBT mechanism provides another option as to how we might structure U.S. transactions in the future.
During 2020, our acquisition activity in the Non-life Run-off segment proceeded in the ordinary course, and we completed transactions with Hannover Re, Munich Re, AXA Group, Aspen and Lyft. Collectively, these transactions represent approximately $1.7 billion of assets and liabilities. Refer to Note 3 - "Significant New Business" to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q for further details on these transactions.
Strategic Investment in Watford
As of November 2, 2020, we held approximately 9.1% of the common shares of Watford Holdings Ltd. (“Watford”). Following a series of communications with the board of directors of Watford relating to its strategic options, including non-binding indications of interest to acquire the company, we entered into a Voting and Support Agreement with Watford and Arch Capital Group Ltd. ("Arch"), pursuant to which we have agreed, among other things, to support the recently announced acquisition of Watford by Arch for $35.00 per common share through a merger transaction. Upon completion of the merger transaction, which is subject to customary closing conditions including regulatory approval, we expect to record a net gain on our investment in Watford of approximately $18.6 million.
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Consolidated Results of Operations - For the Three and Nine Months Ended September 30, 2020 and 2019
The following table sets forth our unaudited condensed consolidated statements of earnings for each of the periods indicated. For a discussion of the critical accounting policies that affect the results of operations, see "Critical Accounting Policies" in our Annual Report on Form 10-K for the year ended December 31, 2019, and within this Quarterly Report on Form 10-Q.
 Three Months EndedNine Months Ended
September 30,September 30,
 20202019Change20202019Change
 (in thousands of U.S. dollars)
INCOME
Net premiums earned$161,724 $175,802 $(14,078)$463,946 $618,711 $(154,765)
Fees and commission income10,787 6,437 4,350 28,325 18,931 9,394 
Net investment income72,130 81,502 (9,372)241,287 231,424 9,863 
Net realized and unrealized gains (1)
500,005 145,060 354,945 838,552 858,489 (19,937)
Other income48,404 822 47,582 67,761 15,368 52,393 
793,050 409,623 383,427 1,639,871 1,742,923 (103,052)
EXPENSES
Net incurred losses and LAE109,686 163,258 (53,572)339,678 566,111 (226,433)
Acquisition costs37,708 33,310 4,398 132,818 162,192 (29,374)
General and administrative expenses115,828 97,365 18,463 359,086 296,304 62,782 
Interest expense15,003 14,950 53 42,436 39,022 3,414 
Net foreign exchange (gains) losses8,156 (13,665)21,821 1,375 (20,097)21,472 
286,381 295,218 (8,837)875,393 1,043,532 (168,139)
EARNINGS BEFORE INCOME TAXES506,669 114,405 392,264 764,478 699,391 65,087 
Income tax expense(13,915)(13,465)(450)(25,295)(25,265)(30)
Earnings from equity method investments149,065 17,703 131,362 152,725 44,188 108,537 
NET EARNINGS FROM CONTINUING OPERATIONS641,819 118,643 523,176 891,908 718,314 173,594 
NET EARNINGS FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES4,031 7,916 (3,885)810 12,041 (11,231)
NET EARNINGS645,850 126,559 519,291 892,718 730,355 162,363 
Net loss (earnings) attributable to noncontrolling interest(21,912)109 (22,021)30,802 4,970 25,832 
NET EARNINGS ATTRIBUTABLE TO ENSTAR623,938 126,668 497,270 923,520 735,325 188,195 
Dividends on preferred shares(8,925)(8,925)— (26,775)(26,989)214 
NET EARNINGS ATTRIBUTABLE TO ENSTAR ORDINARY SHAREHOLDERS$615,013 $117,743 $497,270 $896,745 $708,336 $188,409 
(1) This includes amounts relating to both fixed income securities and other investments. We have historically utilized trading accounting for fixed income securities, where unrealized amounts are reflected in earnings. However, from October 1, 2019 we have elected to use AFS accounting and, as trading fixed income securities mature, the proceeds are reinvested into AFS securities for the Non-life Run-off and StarStone segments. For a breakdown between realized and unrealized gains and losses, refer to Note 5 - "Investments" to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q.

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Highlights

Consolidated Results of Operations for the Three Months Ended September 30, 2020:
•Consolidated net earnings attributable to Enstar ordinary shareholders of $615.0 million and basic and diluted net earnings per ordinary share of $28.50 and $28.24, respectively.
•Non-GAAP operating income attributable to Enstar ordinary shareholders of $574.4 million and diluted non-GAAP operating income per ordinary share of $26.37. For a reconciliation of non-GAAP operating income attributable to Enstar ordinary shareholders to net earnings attributable to Enstar ordinary shareholders calculated in accordance with GAAP, and diluted non-GAAP operating income per ordinary share to diluted net earnings per ordinary share calculated in accordance with GAAP, see "Non-GAAP Financial Measure" above.
•Net earnings from our Non-life Run-off segment of $623.8 million, which included the impact of net realized and unrealized gains of $486.7 million, comprising $51.0 million of net realized gains and $435.6 million of net unrealized gains, driven primarily by increases in the valuation of our other investments due to narrowing credit spreads and favorable movements in equity markets. Also contributing to net earnings was $149.1 million of earnings from equity method investments, driven primarily by our investments in Enhanzed Re and Monument Re, and other income of $48.0 million, driven primarily by the reduction in the estimate of ultimate net defendant asbestos and environmental liabilities.
•Combined ratio of 92.5% for our Atrium segment, with net premiums earned of $42.4 million. Excluding the estimated underwriting losses related to the COVID-19 pandemic, the combined ratio for the Atrium segment was 89.0% for the three months ended September 30, 2020.
•Combined ratio of 93.1% for our StarStone segment, with net premiums earned of $96.1 million. Excluding the reduction in estimated underwriting losses related to the COVID-19 pandemic, driven by a reduction in the premium deficiency provision, the combined ratio for the StarStone segment was 94.0% for the three months ended September 30, 2020.

Consolidated Results of Operations for the Nine Months Ended September 30, 2020:
•Consolidated net earnings attributable to Enstar ordinary shareholders of $896.7 million and basic and diluted net earnings per ordinary share of $41.58 and $41.14, respectively.
•Non-GAAP operating income attributable to Enstar ordinary shareholders of $804.2 million and diluted non-GAAP operating income per ordinary share of $36.89. For a reconciliation of non-GAAP operating income attributable to Enstar ordinary shareholders to net earnings attributable to Enstar ordinary shareholders calculated in accordance with GAAP, and diluted non-GAAP operating income per ordinary share to diluted net earnings per ordinary share calculated in accordance with GAAP, see "Non-GAAP Financial Measure" above.
•Net earnings from Non-life Run-off segment of $1.0 billion, including net realized and unrealized gains of $838.5 million, comprised of $110.2 million of net realized gains and $728.3 million of net unrealized gains, driven primarily by increases in the valuation of our other investments due to declining interest rates and improving equity valuations. Also contributing to net earnings was $152.7 million of earnings from equity method investments, driven primarily by our investments in Enhanzed Re and Monument Re, and other income of $68.1 million, driven primarily by the reduction in the estimate of ultimate net defendant asbestos and environmental liabilities.
•Combined ratio of 92.1% for our Atrium segment, with net premiums earned of $128.2 million. Excluding the estimated underwriting losses related to the COVID-19 pandemic, the combined ratio for the Atrium segment was 80.9% for the nine months ended September 30, 2020.
•Combined ratio of 122.8% for our StarStone segment, with net premiums earned of $276.6 million. Excluding the estimated underwriting losses related to the COVID-19 pandemic, the combined ratio for the StarStone segment was 108.7% for the nine months ended September 30, 2020.

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Consolidated Financial Condition as of September 30, 2020:
•Total investable assets of $16.0 billion.
•Total reinsurance balances recoverable on paid and unpaid losses of $1.9 billion.
•Total assets of $21.8 billion.
•Total gross and net reserves for losses and LAE of $10.3 billion and $8.4 billion, respectively. During the nine months ended September 30, 2020, our Non-life Run-off segment assumed net reserves of $1.7 billion.
•Total capital under management of $7.7 billion, including common equity of $5.3 billion, preferred equity of $510.0 million, noncontrolling interests of $391.2 million and debt of $1.4 billion.
•Fully diluted book value per ordinary share of $242.36, an increase of 22.4% since December 31, 2019, which was primarily the result of net unrealized investment gains, partially offset by COVID-19 related losses and exit costs associated with the StarStone International Run-Off, as discussed further below.

Consolidated Overview
In addition to the exit costs associated with the StarStone International Run-Off and the impact of the COVID-19 pandemic in 2020, the comparability of our results across different periods was impacted by the acquisitions and reinsurance transactions we completed during the nine months ended September 30, 2020 with Hannover Re, Munich Re, AXA Group, Aspen and Lyft and in 2019 with Morse TEC, Zurich, Maiden Re, Amerisure and AmTrust. Refer to Note 3 - "Significant New Business" to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q for further details on the 2020 transactions and "Item 1. Business - Recent Acquisitions and Significant New Business" in our Annual Report on Form 10-K for the year ended December 31, 2019 for further details on the 2019 transactions.
Consolidated Overview - For the Three Months Ended September 30, 2020 and 2019
We reported consolidated earnings attributable to Enstar ordinary shareholders of $615.0 million for the three months ended September 30, 2020, an increase of $497.3 million from net earnings of $117.7 million for the three months ended September 30, 2019. The most significant drivers of our consolidated financial performance during the three months ended September 30, 2020 as compared to the three months ended September 30, 2019 included:
•Non-life Run-off - Net earnings attributable to the Non-life Run-off segment were $623.8 million for the three months ended September 30, 2020 compared to $141.3 million for the three months ended September 30, 2019. The increase in net earnings of $482.5 million was primarily due to net realized and unrealized gains of $486.7 million on our investment portfolio in the current period compared to $138.2 million in the comparative period. Current period net realized and unrealized gains were driven primarily by an increase in the valuation of our other investments, primarily due to narrowing credit spreads and favorable movement in equity markets. The current period investment gains were partially offset by net incurred losses and LAE of $34.3 million, including $21.0 million relating to fair value accounting on certain liabilities for which we had elected the fair value option, primarily due to narrowing credit spreads on corporate bond yields in the period. Also contributing to net earnings in the current period was $149.1 million of earnings from equity method investments, driven primarily by our investments in Enhanzed Re and Monument Re, and other income of $48.0 million, which was largely driven by the reduction in the estimate of ultimate net defendant asbestos and environmental liabilities.
•Atrium - Net earnings attributable to the Atrium segment were $4.4 million for the three months ended September 30, 2020 compared to net losses of $1.8 million for the three months ended September 30, 2019. The increase in net earnings was primarily due to an increase in underwriting income and higher fees and commission income in the current period.
•StarStone - Net earnings attributable to the StarStone segment were $7.4 million for the three months ended September 30, 2020 compared to net losses of $2.7 million for the three months ended September 30, 2019. The change was primarily due to higher underwriting income in the current period.

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•Non-GAAP Operating Income - Our non-GAAP operating income attributable to Enstar ordinary shareholders, which excludes the impact of net realized and unrealized gains and losses on fixed maturity investments and other items, was $574.4 million for the three months ended September 30, 2020, an increase of $541.6 million from non-GAAP operating income attributable to Enstar ordinary shareholders of $32.7 million for the three months ended September 30, 2019. The increase was primarily attributable to net realized and unrealized gains on our other investments of $420.2 million during the three months ended September 30, 2020. Also contributing to the increase in non-GAAP operating income in the current period was $149.1 million of earnings from equity method investments and other income of $48.0 million, as discussed above. For a reconciliation of non-GAAP operating income attributable to Enstar ordinary shareholders to net earnings attributable to Enstar ordinary shareholders calculated in accordance with GAAP, see "Non-GAAP Financial Measure" above.

Consolidated Overview - For the Nine Months Ended September 30, 2020 and 2019
We reported consolidated net earnings attributable to Enstar ordinary shareholders of $896.7 million for the nine months ended September 30, 2020, an increase of $188.4 million from net earnings of $708.3 million for the nine months ended September 30, 2019. The most significant drivers of our consolidated financial performance during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 included:
•Non-life Run-off - Net earnings attributable to the Non-life Run-off segment were $1.0 billion and $819.9 million for the nine months ended September 30, 2020 and 2019, respectively. The increase in net earnings of $181.2 million was primarily due to higher earnings from equity method investments in the current period, driven primarily by our investments in Enhanzed Re and Monument Re, and other income of $68.1 million in the current period, which was largely driven by the reduction in the estimate of ultimate net defendant asbestos and environmental liabilities. Net realized and unrealized gains were $838.5 million in the current period and were driven by increases in the valuation of our other investments and fixed maturity securities, primarily due to favorable movements in equity valuations and declining interest rates.
•Atrium - Net earnings for the nine months ended September 30, 2020 and 2019 were $10.1 million and $8.8 million, respectively. The increase was primarily due to higher fees and commission income, partially offset by higher corporate expenses and a lower investment return in the current period.
•StarStone - Net losses were $55.1 million and $66.9 million for the nine months ended September 30, 2020 and 2019, respectively. The decrease in net losses was primarily driven by a lower combined ratio, partially offset by exit costs associated with the StarStone International Run-Off and a lower investment return in the current period.
•Non-GAAP operating income - Our Non-GAAP operating income, which excludes the impact of net realized and unrealized gains and losses on fixed maturity securities and other items, was $804.2 million for the nine months ended September 30, 2020, an increase of $463.1 million from non-GAAP operating income of $341.2 million for the nine months ended September 30, 2019. The increase was primarily attributable to net realized and unrealized gains on our other investments of $670.7 million during the nine months ended September 30, 2020. Also contributing to the increase in net earnings for the current period was $152.7 million of earnings from equity method investments and other income of $67.8 million, as discussed above. For a reconciliation of non-GAAP operating income attributable to Enstar ordinary shareholders to net earnings attributable to Enstar ordinary shareholders calculated in accordance with GAAP, see "Non-GAAP Financial Measure" above.

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Results of Operations by Segment - For the Three and Nine Months Ended September 30, 2020 and 2019
We have three reportable segments of business that are each managed, operated and reported upon separately: (i) Non-life Run-off; (ii) Atrium; and (iii) StarStone. Our other activities, which do not qualify as a reportable segment, include our corporate expenses, debt servicing costs, holding company income and expenses, foreign exchange and other miscellaneous items. These segments are described in Note 1 - "Description of Business" to our consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019.
The below table provides a split by operating segment and our other activities of the net earnings (loss) attributable to Enstar ordinary shareholders:
Three Months EndedNine Months Ended
 September 30,September 30,
 20202019Change20202019Change
 (in thousands of U.S. dollars)
Segment split of net earnings attributable to Enstar ordinary shareholders:
Non-life Run-off$623,805 $141,321 $482,484 $1,001,104 $819,878 $181,226 
Atrium4,389 (1,765)6,154 10,098 8,811 1,287 
StarStone7,369 (2,704)10,073 (55,052)(66,880)11,828 
Other(20,550)(19,109)(1,441)(59,405)(53,473)(5,932)
Net earnings attributable to Enstar ordinary shareholders$615,013 $117,743 $497,270 $896,745 $708,336 $188,409 

The following is a discussion of our results of operations by segment.

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Non-life Run-off Segment
The following is a discussion and analysis of the results of operations for our Non-life Run-off segment.
Three Months EndedNine Months Ended
September 30,September 30,
20202019Change20202019Change
(in thousands of U.S. dollars)
Gross premiums written$3,535 $301 $3,234 $1,707 $(24,785)$26,492 
Net premiums written$3,424 $(3,808)$7,232 $2,397 $(26,395)$28,792 
Net premiums earned$17,476 $16,837 $639 $44,023 $141,981 $(97,958)
Net incurred losses and LAE (1)
(34,258)(30,583)(3,675)(63,698)(135,517)71,819 
Acquisition costs(2,730)4,634 (7,364)(13,226)(40,033)26,807 
Operating expenses(50,345)(51,395)1,050 (147,117)(139,595)(7,522)
Underwriting income (loss) (1)
(69,857)(60,507)(9,350)(180,018)(173,164)(6,854)
Net investment income66,918 73,752 (6,834)223,425 206,337 17,088 
Net realized and unrealized gains (losses) (2)
486,671 138,174 348,497 838,483 815,902 22,581 
Fees and commission income3,637 4,196 (559)12,588 13,673 (1,085)
Other income (expense)48,023 (285)48,308 68,087 15,136 52,951 
Corporate expenses(22,494)(11,983)(10,511)(48,014)(47,287)(727)
Interest expense(16,705)(17,964)1,259 (48,785)(45,699)(3,086)
Net foreign exchange gains (losses)(9,663)13,056 (22,719)385 20,426 (20,041)
EARNINGS BEFORE INCOME TAXES486,530 138,439 348,091 866,151 805,324 60,827 
Income tax expense(9,271)(13,382)4,111 (18,276)(23,501)5,225 
Earnings from equity method investments149,065 17,703 131,362 152,725 44,406 108,319 
NET EARNINGS626,324 142,760 483,564 1,000,600 826,229 174,371 
Net loss (earnings) attributable to noncontrolling interest(2,519)(1,439)(1,080)504 (6,351)6,855 
NET EARNINGS ATTRIBUTABLE TO ENSTAR ORDINARY SHAREHOLDERS$623,805 $141,321 $482,484 $1,001,104 $819,878 $181,226 
(1) Comparability between periods is impacted by the current period net incurred losses and LAE as acquired unearned premium is earned, and by changes in fair value due to the election of the fair value option on certain business. Refer to Net Incurred Losses and LAE table for further details.
(2) This includes amounts relating to both fixed income securities and other investments. We have historically utilized trading accounting for fixed income securities, where unrealized amounts are reflected in earnings. However, from October 1, 2019, we have elected to use AFS accounting and, as trading fixed income securities mature, the proceeds are reinvested into AFS securities for the Non-life Run-off segment.

Overall Results
Three Months Ended September 30: Net earnings were $623.8 million for the three months ended September 30, 2020 compared to $141.3 million for the three months ended September 30, 2019, an increase of $482.5 million. This increase was primarily due to net realized and unrealized gains of $486.7 million on our investment portfolio in the current period compared to $138.2 million in the comparative period, a change of $348.5 million. Current period net realized and unrealized gains were driven by increases in the valuation of our other investments primarily due to more favorable movement in equity markets and tightening credit spreads. Also contributing to net earnings in the current period was $149.1 million of earnings from equity method investments, driven primarily by our investments in Enhanzed Re and Monument Re, and other income of $48.0 million, which was largely driven by the reduction in the estimate of ultimate net defendant asbestos and environmental liabilities.
During the three months ended September 30, 2020, our net ultimate losses related to prior periods were relatively unchanged with an increase in estimates of net ultimate losses of $4.0 million. Unfavorable development within our motor line of business was largely offset by favorable development across workers' compensation and other lines of business. Additionally, we had favorable changes in our estimates of ultimate net defendant asbestos and environmental liabilities of $48.4 million, which is a component of other income. In the aggregate, our estimates of net ultimate losses for prior periods and our estimate of ultimate net defendant asbestos and environmental liabilities experienced favorable reductions of $44.5 million during the three months ended September 30, 2020.


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Nine Months Ended September 30: Net earnings were $1.0 billion and $819.9 million for the nine months ended September 30, 2020 and 2019, respectively, an increase of $181.2 million. The increase was primarily due to earnings from equity method investments of $152.7 million in the current period, driven primarily by our investments in Enhanzed Re and Monument Re; other income of $68.1 million in the current period, which was largely driven by the reduction in the estimate of ultimate net defendant asbestos and environmental liabilities; and a higher investment return in the current period.
During the nine months ended September 30, 2020, the change in net ultimate losses related to prior periods was favorable with a reduction in net ultimate losses of $80.5 million. The favorable development was largely attributed to strong reserve savings across workers' compensation and other lines of business, partially offset by unfavorable development within our motor line of business. Additionally, we had favorable changes in our estimates of ultimate net defendant asbestos and environmental liabilities of $75.3 million, which is a component of other income. In the aggregate, our estimates of net ultimate losses for prior periods and our estimate of ultimate net defendant asbestos and environmental liabilities experienced favorable reductions of $155.8 million during the nine months ended September 30, 2020.
An analysis of the components of the segment's net earnings is shown below. Investment results are separately discussed below in "Investments Results - Consolidated."

Net Premiums Earned:
The following table shows the gross and net premiums written and earned for the Non-life Run-off segment:
 Three Months EndedNine Months Ended
September 30,September 30,
 20202019Change20202019Change
 (in thousands of U.S. dollars)
Gross premiums written$3,535 $301 $3,234 $1,707 $(24,785)$26,492 
Ceded reinsurance premiums written(111)(4,109)3,998 690 (1,610)2,300 
Net premiums written$3,424 $(3,808)$7,232 $2,397 $(26,395)$28,792 
Gross premiums earned$20,426 $27,190 $(6,764)$52,899 $166,707 $(113,808)
Ceded reinsurance premiums earned(2,950)(10,353)7,403 (8,876)(24,726)15,850 
Net premiums earned$17,476 $16,837 $639 $44,023 $141,981 $(97,958)

As business in this segment is in run-off, our general expectation is for premiums associated with legacy business to decline in future periods. However, the actual amount in any particular period will be impacted by new transactions during the period and the run-off of premiums from transactions completed in recent years. Premiums earned in this segment are generally offset by net incurred losses and LAE related to the premiums. Premiums earned may be higher than premiums written as we may assume unearned premium without writing the premium ourselves.

Three and Nine Months Ended September 30: Net premiums written in the three and nine months ended September 30, 2020 were $3.4 million and $2.4 million, respectively. Net premiums earned in the three and nine months ended September 30, 2020 of $17.5 million and $44.0 million, respectively, were primarily related to the AmTrust RITC transactions assumed in 2019. Premiums written and earned in the three and nine months ended September 30, 2019 were primarily related to the run-off business assumed as a result of the AmTrust RITC transactions and the acquisition of Maiden Reinsurance North America, Inc. ("Maiden Re North America").


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Net Incurred Losses and LAE:
The following table shows the components of net incurred losses and LAE for the Non-life Run-off segment:
Three Months Ended September 30,
 20202019
 Prior
Periods		Current
Period		TotalPrior
Periods		Current
Period		Total
 (in thousands of U.S. dollars)
Net losses paid$283,143 $739 $283,882 $274,071 $14,374 $288,445 
Net change in case and LAE reserves (1)
(49,854)(33)(49,887)(175,830)2,726 (173,104)
Net change in IBNR reserves (2)
(229,312)7,512 (221,800)(155,315)6,794 (148,521)
Increase (reduction) in estimates of net ultimate losses3,977 8,218 12,195 (57,074)23,894 (33,180)
Reduction in provisions for unallocated LAE(14,605)— (14,605)(12,109)(49)(12,158)
Amortization of deferred charge assets10,316 — 10,316 17,009 — 17,009 
Amortization of fair value adjustments5,310 — 5,310 17,538 — 17,538 
Changes in fair value - fair value option21,042 — 21,042 41,374 — 41,374 
Net incurred losses and LAE$26,040 $8,218 $34,258 $6,738 $23,845 $30,583 
(1) Net change in case and LAE reserves comprises the movement during the period 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.
(2) Net change in IBNR reserves represents the gross change in our actuarial estimates of IBNR reserves, less amounts recoverable.
Three Months Ended September 30: The increase in net incurred losses and LAE for the three months ended September 30, 2020 of $34.3 million included net incurred losses and LAE of $8.2 million related to current period net earned premium, primarily in respect of the run-off business acquired with the AmTrust RITC transactions. Excluding current period net incurred losses and LAE of $8.2 million, the increase in net incurred losses and LAE relating to prior periods was $26.0 million, which was primarily attributable to an increase in the fair value of liabilities of $21.0 million related to our assumed retroactive reinsurance agreements for which we have elected the fair value option primarily due to narrowing credit spreads on corporate bond yields in the period, amortization of the deferred charge assets of $10.3 million, amortization of fair value adjustments over the estimated payout period relating to companies acquired of $5.3 million, and an increase in estimates of net ultimate losses of $4.0 million, partially offset by a reduction in provisions for unallocated LAE of $14.6 million relating to 2020 run-off activity. Net ultimate losses relating to prior periods were relatively unchanged with an increase in estimates of net ultimate losses of $4.0 million for the three months ended September 30, 2020 and included net losses paid of $283.1 million, partially offset by a net reduction in case and IBNR reserves of $279.2 million. Unfavorable development of approximately $128.4 million within our motor line of business, was offset by favorable development across workers compensation and other lines of business. Additionally, we had favorable changes in our estimates of ultimate net defendant asbestos and environmental liabilities of $48.4 million which is a component of other income. In the aggregate, our estimates of net ultimate losses for prior periods and our estimate of ultimate net defendant asbestos and environmental liabilities experienced favorable reductions of $44.5 million during the three months ended September 30, 2020.
Net incurred losses and LAE for the three months ended September 30, 2019 of $30.6 million included net incurred losses and LAE of $23.8 million related to current period net earned premium, primarily for the run-off business acquired with the AmTrust RITC transactions and the acquisition of Maiden Reinsurance North America, Inc. ("Maiden Re North America"). Excluding current period net incurred losses and LAE of $23.8 million, the increase in net incurred losses and LAE relating to prior periods was $6.7 million, which was attributable to an increase in the fair value of liabilities of $41.4 million related to our assumed retroactive reinsurance agreements for which we have elected the fair value option primarily as a result of a decrease in corporate bond yields, amortization of fair value adjustments over the estimated payout period relating to companies acquired of $17.5 million and amortization of the deferred charge assets of $17.0 million, partially offset by a reduction in estimates of net ultimate losses of $57.1 million and a reduction in provisions for unallocated LAE of $12.1 million relating to 2019 run-off activity. The reduction in estimates of net ultimate losses relating to prior periods of $57.1 million for the three months ended September 30, 2019 included a net reduction in case and IBNR reserves of $331.1 million, partially offset by net losses paid of $274.1 million.
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The following table shows the components of net incurred losses and LAE for the Non-life Run-off segment for the nine months ended September 30, 2020 and 2019:
Nine Months Ended September 30,
 20202019
 Prior
Periods		Current
Period		TotalPrior
Periods		Current
Period		Total
 (in thousands of U.S. dollars)
Net losses paid$824,473 $1,777 $826,250 $913,352 $53,265 $966,617 
Net change in case and LAE reserves (1)
(301,382)809 (300,573)(394,780)24,141 (370,639)
Net change in IBNR reserves (2)
(603,546)21,567 (581,979)(649,053)29,405 (619,648)
Increase (reduction) in estimates of net ultimate losses(80,455)24,153 (56,302)(130,481)106,811 (23,670)
Increase (reduction) in provisions for unallocated LAE(34,509)— (34,509)(38,709)480 (38,229)
Amortization of deferred charge assets36,008 — 36,008 28,006 — 28,006 
Amortization of fair value adjustments21,653 — 21,653 34,033 — 34,033 
Changes in fair value - fair value option96,848 — 96,848 135,377 — 135,377 
Net incurred losses and LAE$39,545 $24,153 $63,698 $28,226 $107,291 $135,517 
(1) Net change in case and LAE reserves comprises the movement during the period 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.
(2) Net change in IBNR reserves represents the gross change in our actuarial estimates of IBNR reserves, less amounts recoverable.
Nine Months Ended September 30: The increase in net incurred losses and LAE for the nine months ended September 30, 2020 of $63.7 million included net incurred losses and LAE of $24.2 million related to current period net earned premium, primarily for the run-off business acquired with the AmTrust RITC transactions. Excluding current period net incurred losses and LAE of $24.2 million, the increase in net incurred losses and LAE liabilities relating to prior periods was $39.5 million, which was attributable to an increase in the fair value of liabilities of $96.8 million related to our assumed retroactive reinsurance agreements for which we have elected the fair value option primarily due to declining interest rates on corporate bond yields in the period, amortization of the deferred charge assets of $36.0 million and amortization of fair value adjustments over the estimated payout period relating to companies acquired of $21.7 million, partially offset by a reduction in estimates of net ultimate losses of $80.5 million and a reduction in provisions for unallocated LAE of $34.5 million relating to 2020 run-off activity. For the nine months ended September 30, 2020, the change in net ultimate losses relating to prior periods was favorable with a reduction of $80.5 million, which included a net change in case and IBNR reserves of $904.9 million, partially offset by net losses paid of $824.5 million. The favorable development was largely attributed to workers compensation as well as other lines of business, partially offset by unfavorable development of $122.4 million within our motor line of business. Additionally, we had favorable changes in our estimates of ultimate net defendant asbestos and environmental liabilities of $75.3 million which is a component of other income. In the aggregate, our estimates of net ultimate losses for prior periods and our estimate of ultimate net defendant asbestos and environmental liabilities experienced favorable reductions of $155.8 million during the nine months ended September 30, 2020.
The increase in net incurred losses and LAE for the nine months ended September 30, 2019 of $135.5 million included net incurred losses and LAE of $107.3 million related to current period net earned premium, primarily for the run-off business acquired with the AmTrust RITC transactions and the acquisition of Maiden Re North America. Excluding current period net incurred losses and LAE of $107.3 million, the increase in net incurred losses and LAE liabilities relating to prior periods was $28.2 million, which was attributable to an increase in the fair value of liabilities of $135.4 million related to our assumed retroactive reinsurance agreements for which we have elected the fair value option primarily as a result of a decrease in corporate bond yields, amortization of fair value adjustments over the estimated payout period relating to companies acquired of $34.0 million and amortization of the deferred charge assets of $28.0 million, partially offset by a reduction in estimates of net ultimate losses of $130.5 million and a reduction in provisions for unallocated LAE of $38.7 million relating to 2019 run-off activity. The reduction in estimates of net ultimate losses of $130.5 million for the nine months ended September 30, 2019 included a net change in case and IBNR reserves of $1,043.8 million, partially offset by net losses paid of $913.4 million.

Acquisition Costs:
Three and Nine Months Ended September 30: Acquisition costs were $2.7 million and $(4.6) million for the three months ended September 30, 2020 and 2019, respectively, and $13.2 million and $40.0 million for the nine
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months ended September 30, 2020 and 2019, respectively. The reduction in acquisition costs compared to the prior nine month period was due to a lower level of net premiums earned and lower associated acquisition costs in respect of the run-off business assumed through the AmTrust RITC transactions and the acquisition of Maiden Re North America.

Fees and Commission Income:
Three and Nine Months Ended September 30: Our management companies in the Non-life Run-off segment earned fees and commission income of $3.6 million and $4.2 million for the three months ended September 30, 2020 and 2019, respectively, and $12.6 million and $13.7 million for the nine months ended September 30, 2020 and 2019, respectively.

Other Income (Expense):
Three Months Ended September 30: For the three months ended September 30, 2020, we recorded other income of $48.0 million compared to other expense of $0.3 million for the three months ended September 30, 2019, a change of $48.3 million, primarily driven by the reduction in the estimate of ultimate net defendant asbestos and environmental liabilities in the current period.
Nine Months Ended September 30: Other income was $68.1 million for the nine months ended September 30, 2020 compared to $15.1 million for the nine months ended September 30, 2019, an increase of $53.0 million, primarily driven by the reduction in the estimate of ultimate net defendant asbestos and environmental liabilities in the current period.

General and Administrative Expenses:
General and administrative expenses consist of operating expenses and corporate expenses.
Three Months Ended September 30,Nine Months Ended September 30,
20202019Change20202019Change
(in thousands of U.S. dollars)
Operating expenses$50,345 $51,395 $(1,050)$147,117 $139,595 $7,522 
Corporate expenses22,494 11,983 10,511 48,014 47,287 727 
General and administrative expenses$72,839 $63,378 $9,461 $195,131 $186,882 $8,249 

Three and Nine Months Ended September 30: General and administrative expenses were $72.8 million and $63.4 million for the three months ended September 30, 2020 and 2019, respectively, an increase of $9.5 million. This increase was primarily attributable to higher performance-based compensation costs as a result of higher earnings in the current period.
For the nine months ended September 30, 2020 and 2019, general and administrative expenses were $195.1 million and $186.9 million, respectively, an increase of $8.2 million. This increase was primarily attributable to higher performance-based compensation costs as a result of higher earnings in the current period.

Interest Expense:
Three and Nine Months Ended September 30: Interest expense was $16.7 million and $18.0 million for the three months ended September 30, 2020 and 2019, and $48.8 million and $45.7 million for the nine months ended September 30, 2020 and 2019, respectively, an increase of $3.1 million for the nine month period. The increase reflects higher debt balances in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. During the nine months ended September 30, 2020, the EGL Revolving Credit Facility was utilized for funding (i) significant new business as described in Note 3 - "Significant New Business" to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q, (ii) investment opportunities and (iii) to provide liquidity in the first half of the year during the financial disruption associated with the COVID-19 pandemic.

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Net Foreign Exchange Gains (Losses):
Three and Nine Months Ended September 30: Net foreign exchange losses were $9.7 million compared to net foreign exchange gains of $13.1 million for the three months ended September 30, 2020 and 2019, respectively. Net foreign exchange gains were $0.4 million and $20.4 million for the nine months ended September 30, 2020 and 2019, respectively. The net foreign exchange losses for the three months ended September 30, 2020 and the net foreign exchange gains for the nine months ended September 30, 2020 were primarily due to increased volatility in foreign exchange markets associated with the COVID-19 pandemic and the resulting impact on non-U.S. dollar denominated investments and technical balances.

Income Taxes:
Three and Nine Months Ended September 30: For the three months ended September 30, 2020, income tax expense was $9.3 million compared to $13.4 million for the three months ended September 30, 2019, a decrease of $4.1 million. For the nine months ended September 30, 2020 and 2019, income tax expenses were $18.3 million and $23.5 million, respectively, a decrease of $5.2 million. The income tax benefit (expense) is generally driven by the geographical distribution of pre-tax earnings (loss) between taxable and non-taxable jurisdictions.

Earnings (Losses) from Equity Method Investments:
Three Months Ended September 30: For the three months ended September 30, 2020 and 2019, earnings from equity method investments were $149.1 million and $17.7 million, respectively, an increase of $131.4 million. The earnings in the current period were primarily driven by our investments in Enhanzed Re and Monument Re.
Nine Months Ended September 30: For the nine months ended September 30, 2020 and 2019, earnings from equity method investments were $152.7 million and $44.4 million, respectively, an increase of $108.3 million. The earnings in the current period were primarily driven by our investments in Enhanzed Re and Monument Re.

Noncontrolling Interest:
Three and Nine Months Ended September 30: The net (earnings) loss attributable to the noncontrolling interest of our Non-life Run-off segment were $(2.5) million and $(1.4) million for the three months ended September 30, 2020 and 2019, respectively, and $0.5 million and $(6.4) million for the nine months ended September 30, 2020 and 2019, respectively. The increase in net earnings attributable to the noncontrolling interest of $1.1 million for the three months ended September 30, 2020 was due to higher earnings for those companies where there is a noncontrolling interest; whereas the decrease in net earnings attributable to the noncontrolling interest of $6.9 million for the nine months ended September 30, 2020 was due to lower earnings for those companies where there is a noncontrolling interest.


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Atrium Segment
The Atrium segment includes Atrium 5 Ltd. ("Atrium 5"), Atrium Underwriters Limited ("AUL") and Northshore Holdings Limited. Atrium 5 results represent its proportionate share of the results of Syndicate 609 for which it provides 25% of the underwriting capacity and capital. AUL results largely represent fees charged to Syndicate 609 and a 20% profit commission on the results of the syndicate less salaries and general and administrative expenses incurred in managing the syndicate. AUL also includes other Atrium Group non-syndicate fee income and associated expenses. Northshore Holdings Limited results include the amortization of intangible assets that were fair valued upon acquisition.
On August 13, 2020, we announced an exchange transaction with the Trident V Funds. As part of the exchange transaction, we entered into a recapitalization agreement with the Trident V Funds and the Dowling Funds pursuant to which we agreed to exchange a portion of our indirect interest in Northshore, the holding company that owns Atrium and Arden, for all of the Trident V Fund's indirect interest in StarStone U.S. Upon completion of the exchange transaction, we expect to own approximately 11.0% of Northshore, which will continue to own Atrium and Arden, and our investment will be accounted for as a privately held equity investment and carried at fair value.
For further information, refer to Note 4 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations" to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q.
The following is a discussion and analysis of the results of operations for our Atrium segment.
Three Months EndedNine Months Ended
September 30,September 30,
20202019Change20202019Change
(in thousands of U.S. dollars)
Gross premiums written$49,083 $48,746 $337 $155,551 $146,519 $9,032 
Net premiums written$46,503 $43,785 $2,718 $136,093 $127,246 $8,847 
Net premiums earned$42,426 $42,913 $(487)$128,183 $119,865 $8,318 
Net incurred losses and LAE(21,995)(28,400)6,405 (66,003)(58,662)(7,341)
Acquisition costs(14,242)(14,466)224 (43,235)(41,023)(2,212)
Operating expenses(3,008)(3,742)734 (8,757)(9,968)1,211 
Underwriting income3,181 (3,695)6,876 10,188 10,212 (24)
Net investment income1,778 1,736 42 4,382 5,500 (1,118)
Net realized and unrealized gains (1)
1,533 582 951 3,392 5,464 (2,072)
Fees and commission income7,150 2,391 4,759 15,737 5,773 9,964 
Other income72 35 37 105 106 (1)
Corporate expenses(6,084)(2,896)(3,188)(14,494)(10,186)(4,308)
Net foreign exchange gains (losses)2,275 (924)3,199 1,115 (1)1,116 
EARNINGS (LOSS) BEFORE INCOME TAXES9,905 (2,771)12,676 20,425 16,868 3,557 
Income tax expense(2,520)(222)(2,298)(3,303)(1,930)(1,373)
NET EARNINGS (LOSS)7,385 (2,993)10,378 17,122 14,938 2,184 
Net loss (earnings) attributable to noncontrolling interest(2,996)1,228 (4,224)(7,024)(6,127)(897)
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR ORDINARY SHAREHOLDERS$4,389 $(1,765)$6,154 $10,098 $8,811 $1,287 
Underwriting ratios(2):
Loss ratio51.8 %66.2 %(14.4)%51.5 %48.9 %2.6 %
Acquisition cost ratio33.6 %33.7 %(0.1)%33.7 %34.2 %(0.5)%
Operating expense ratio7.1 %8.7 %(1.6)%6.9 %8.4 %(1.5)%
Combined ratio92.5 %108.6 %(16.1)%92.1 %91.5 %0.6 %
(1) For the Atrium segment, we utilize trading accounting, where unrealized amounts are reflected in earnings.
(2) Refer to "Underwriting Ratios" for a description of how these ratios are calculated.
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Overall Results
Three Months Ended September 30: Net earnings were $4.4 million for the three months ended September 30, 2020 compared to a net loss of $1.8 million for the three months ended September 30, 2019, an increase of $6.2 million. The increase in net earnings was primarily due to an increase in underwriting income and higher fees and commission income in the current period. The combined ratio for the three months ended September 30, 2020 was 92.5%, compared to 108.6% for the prior period. Excluding the impact of losses related to the COVID-19 pandemic of $1.5 million, the combined ratio for the three months ended September 30, 2020 was 89.0%.

Nine Months Ended September 30: Net earnings were $10.1 million for the nine months ended September 30, 2020 compared to $8.8 million for the nine months ended September 30, 2019, an increase of $1.3 million. The increase was primarily due to higher fees and commission income, partially offset by higher corporate expenses and a lower investment return in the current period. The combined ratio for the nine months ended September 30, 2020 was 92.1% compared to 91.5% for the prior period. Excluding the impact of losses related to the COVID-19 pandemic of $14.3 million, the combined ratio for the nine months ended September 30, 2020 was 80.9%.
An analysis of the components of the segment's net earnings before the attribution of net earnings to noncontrolling interest is shown below. Investment results are separately discussed below in "Investments Results - Consolidated."

Gross Premiums Written:
The following table provides gross premiums written by line of business for the Atrium segment:
Three Months EndedNine Months Ended
September 30,September 30,
20202019Change20202019Change
 (in thousands of U.S. dollars)
Marine, Aviation and Transit$12,290 $11,691 $599 $41,678 $35,361 $6,317 
Binding Authorities22,679 21,915 764 65,080 57,563 7,517 
Reinsurance3,618 4,389 (771)14,659 16,293 (1,634)
Accident and Health2,120 4,633 (2,513)11,758 18,382 (6,624)
Non-Marine Direct and Facultative8,376 6,118 2,258 22,376 18,920 3,456 
Total$49,083 $48,746 $337 $155,551 $146,519 $9,032 

Three and Nine Months Ended September 30: Gross premiums written for the Atrium segment were $49.1 million and $48.7 million for the three months ended September 30, 2020 and 2019, respectively. Gross premiums written for the Atrium segment were $155.6 million and $146.5 million for the nine months ended September 30, 2020 and 2019, respectively. The increase in gross premiums written for the nine months ended September 30, 2020 was seen predominantly across the binding authorities, marine, aviation and transit and non-marine direct and facultative lines of business. The binding authorities line of business benefited from new opportunities to write new business, while the marine, aviation and transit and non-marine direct and facultative lines of business continue to benefit from an increase in rates and new opportunities in the US. The reduction in the accident and health line of business was largely driven by the impact of the COVID-19 pandemic as well as underwriting actions to not renew certain contracts in the current period.
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Net Premiums Earned:
The following table provides net premiums earned by line of business for the Atrium segment:
Three Months EndedNine Months Ended
September 30,September 30,
20202019Change20202019Change
 (in thousands of U.S. dollars)
Marine, Aviation and Transit$10,476 $9,524 $952 $31,452 $25,302 $6,150 
Binding Authorities20,436 19,771 665 58,850 55,191 3,659 
Reinsurance3,550 4,591 (1,041)9,942 11,253 (1,311)
Accident and Health2,212 4,036 (1,824)10,587 13,960 (3,373)
Non-Marine Direct and Facultative5,752 4,991 761 17,352 14,159 3,193 
Total$42,426 $42,913 $(487)$128,183 $119,865 $8,318 

Three and Nine Months Ended September 30: Net premiums earned for the Atrium segment were $42.4 million and $42.9 million for the three months ended September 30, 2020 and 2019, respectively. Net premiums earned for the Atrium segment were $128.2 million and $119.9 million for the nine months ended September 30, 2020 and 2019, respectively. The increase in net premiums earned for the nine months ended September 30, 2020 was primarily due to ongoing growth in the binding authorities, marine, aviation and transit and non-marine direct and facultative lines of business.

Net Incurred Losses and LAE:
The following table shows the components of net incurred losses and LAE for the Atrium segment:
Three Months Ended September 30,
 20202019
 Prior
Periods		Current
Period		TotalPrior
Periods		Current
Period		Total
 (in thousands of U.S. dollars)
Net losses paid$9,472 $7,717 $17,189 $10,618 $9,387 $20,005 
Net change in case and LAE reserves (1)
(2,292)4,993 2,701 (2,860)2,769 (91)
Net change in IBNR reserves (2)
(8,110)10,496 2,386 (6,235)14,937 8,702 
Increase (reduction) in estimates of net ultimate losses(930)23,206 22,276 1,523 27,093 28,616 
Increase (reduction) in provisions for unallocated LAE48 (77)(29)— — — 
Amortization of fair value adjustments(252)— (252)(216)— (216)
Net incurred losses and LAE$(1,134)$23,129 $21,995 $1,307 $27,093 $28,400 
(1) Net change in case and LAE reserves comprises the movement during the period 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.
(2) Net change in IBNR reserves represents the gross change in our actuarial estimates of IBNR reserves, less amounts recoverable.

Three Months Ended September 30: Net incurred losses and LAE for the three months ended September 30, 2020 and 2019 were $22.0 million and $28.4 million, respectively. Net favorable prior period loss development was $1.1 million for the three months ended September 30, 2020 compared to net unfavorable prior period loss development of $1.3 million for the three months ended September 30, 2019. Excluding prior period loss development, net incurred losses and LAE for the three months ended September 30, 2020 were $23.1 million and included $1.5 million of losses related to the COVID-19 pandemic. Excluding prior period loss development, net incurred losses and LAE for the three months ended September 30, 2019 were $27.1 million. The loss ratios were 51.8% and 66.2% for the three months ended September 30, 2020 and 2019, respectively. Excluding the impact of losses related to the COVID-19 pandemic, the loss ratio for the three months ended September 30, 2020 was 48.4%.
For the three months ended September 30, 2020, net incurred losses and LAE for the Atrium segment included $1.5 million of losses related to the COVID-19 pandemic, with Enstar's share totaling $0.9 million, primarily relating to accident and health business.
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The following table shows the components of net incurred losses and LAE for the Atrium segment for the nine months ended September 30, 2020 and 2019:
Nine Months Ended September 30,
 20202019
 Prior
Periods		Current
Period		TotalPrior
Periods		Current
Period		Total
 (in thousands of U.S. dollars)
Net losses paid$31,412 $17,004 $48,416 $35,564 $24,531 $60,095 
Net change in case and LAE reserves (1)
(9,517)13,152 3,635 (13,032)12,787 (245)
Net change in IBNR reserves (2)
(25,769)39,996 14,227 (27,787)25,871 (1,916)
Increase (reduction) in estimates of net ultimate losses(3,874)70,152 66,278 (5,255)63,189 57,934 
Increase (reduction) in provisions for unallocated LAE48 (77)(29)— — — 
Amortization of fair value adjustments(246)— (246)728 — 728 
Net incurred losses and LAE$(4,072)$70,075 $66,003 $(4,527)$63,189 $58,662 
(1) Net change in case and LAE reserves comprises the movement during the period 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.
(2) Net change in IBNR reserves represents the gross change in our actuarial estimates of IBNR reserves, less amounts recoverable.
Nine Months Ended September 30: Net incurred losses and LAE for the nine months ended September 30, 2020 and 2019 were $66.0 million and $58.7 million, respectively. Net favorable prior year loss development was $4.1 million and $4.5 million for the nine months ended September 30, 2020 and 2019, respectively. The current period net favorable prior period loss development was driven by favorable development across several lines of business. Excluding prior period loss development, net incurred losses and LAE for the nine months ended September 30, 2020 were $70.1 million and included $14.3 million of losses related to the COVID-19 pandemic. Excluding prior period loss development, net incurred losses and LAE for the nine months ended September 30, 2019 were $63.2 million. The loss ratios were 51.5% and 48.9% for the nine months ended September 30, 2020 and 2019, respectively. Excluding the impact of losses related to the COVID-19 pandemic, the loss ratio for the nine months ended September 30, 2020 was 40.3%.
For the nine months ended September 30, 2020, net incurred losses and LAE for the Atrium segment included $14.3 million of losses related to the COVID-19 pandemic, with Enstar's share totaling $8.4 million, primarily relating to accident and health business.

Acquisition Costs:
Three and Nine Months Ended September 30: Acquisition costs were $14.2 million and $14.5 million for the three months ended September 30, 2020 and 2019, respectively, and $43.2 million and $41.0 million for the nine months ended September 30, 2020 and 2019, respectively. The acquisition cost ratios were 33.6% and 33.7% for the three months ended September 30, 2020 and 2019, respectively, and 33.7% and 34.2% for the nine months ended September 30, 2020 and 2019, respectively. The reduction in the acquisition cost ratio for the nine months ended September 30, 2020 was primarily due to agreed reductions in brokerage rates for certain accounts.

Operating Expenses:
Three and Nine Months Ended September 30: Operating expenses for the Atrium segment were $3.0 million and $3.7 million for the three months ended September 30, 2020 and 2019, respectively, and $8.8 million and $10.0 million for the nine months ended September 30, 2020 and 2019, respectively. The operating expense ratios were 7.1% and 8.7% for the three months ended September 30, 2020 and 2019, respectively, and 6.9% and 8.4% for the nine months ended September 30, 2020 and 2019, respectively. The reduction in the operating expense ratio for the three months ended September 30, 2020 was driven primarily by a decrease in operating expenses whereas the reduction for the nine months ended September 30, 2020 was primarily driven by an increase in net premiums earned in the current period.

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Fees and Commission Income:
Three and Nine Months Ended September 30: Fees and commission income was $7.2 million and $2.4 million for the three months ended September 30, 2020 and 2019, respectively, and $15.7 million and $5.8 million for the nine months ended September 30, 2020 and 2019, respectively. The fees represent profit commission fees earned in relation to AUL’s management of Syndicate 609 and other underwriting consortiums. The increase was primarily due to higher profit commissions from Syndicate 609 and the space consortium in the current periods.

Corporate Expenses:
Three and Nine Months Ended September 30: Corporate expenses for the Atrium segment were $6.1 million and $2.9 million for the three months ended September 30, 2020 and 2019, respectively, and $14.5 million and $10.2 million for the nine months ended September 30, 2020 and 2019, respectively. The increase in corporate expenses was primarily due to higher variable compensation costs in the three and nine months ended September 30, 2020 due to improved performance in the Atrium segment in the current periods.

Noncontrolling Interest:
Three and Nine Months Ended September 30: The net earnings attributable to the noncontrolling interest in the Atrium segment were $3.0 million for the three months ended September 30, 2020, compared to net losses attributable to the noncontrolling interest of $1.2 million for the three months ended September 30, 2019. The net earnings attributable to the noncontrolling interest in the Atrium segment were $7.0 million and $6.1 million for the nine months ended September 30, 2020 and 2019, respectively. The increase in the net earnings attributable to the noncontrolling interest for the three and nine months ended September 30, 2020 was primarily due to higher earnings, as discussed above.
As of September 30, 2020 and December 31, 2019, the Trident V Funds and the Dowling Funds had a combined 41.0% noncontrolling interest in the Atrium segment.

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StarStone Segment
The results of the StarStone segment include the results of StarStone Specialty Holdings Limited and subsidiaries ("StarStone Group") and intra-group reinsurance cessions, which are eliminated upon consolidation. In partnership with StarStone's other shareholders, we have previously completed a number of transactions to provide strategic and capital support to StarStone in the form of capital contributions and reinsurance. Refer to Note 3 - "Acquisitions" and Note 21 - "Related Party Transactions" to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019 for further information.
Recent Strategic Developments
During the second quarter of 2020, we completed a strategic review of the StarStone segment. Following this review, we have taken various actions to position ourselves for improved profitability going forward, as further described below.
StarStone U.S.
On June 10, 2020, we announced an agreement to recapitalize StarStone U.S. and appoint a new management team and Board. As part of the recapitalization, we entered into a definitive agreement to sell StarStone U.S. to Core Specialty, a newly formed entity with equity backing from funds managed by SkyKnight Capital, L.P., Dragoneer Investment Group and Aquiline Capital Partners LLC. We currently have a 59.0% interest in StarStone U.S. The purchase price will be based on a $30.0 million premium to the GAAP tangible book value of StarStone U.S. to be determined on the month end prior to the closing date and will consist of $235.0 million of common shares of Core Specialty and cash. The $235.0 million of common shares of Core Specialty is expected to represent an estimated 26.1% interest in Core Specialty after certain co-investments and management equity awards. Our investment in Core Specialty will be accounted for as an equity method investment.
In connection with the sale, one of our U.S. Non-life Run-off subsidiaries will enter into a loss portfolio transfer reinsurance agreement with StarStone U.S. pursuant to which we will reinsure all of the net loss reserves of StarStone U.S. in respect of premium earned prior to the calendar month end prior to the closing date. We will receive a reinsurance premium equal to the assumed reserves, plus approximately $16.0 million. The reinsurance agreement will contain an aggregate limit on our liability equal to $130.0 million in excess of the assumed reserves, and our subsidiary's obligations under the reinsurance agreement will be guaranteed by Enstar.
The closing of the transaction is subject to regulatory approvals and other closing conditions and is expected to occur in the fourth quarter of 2020.
StarStone International (non-U.S.)
On June 10, 2020, we also announced that we are placing StarStone International into an orderly run-off. The liabilities associated with the StarStone International Run-Off vary in duration, and the run-off is expected to occur over a number of years. For further information on the expected liability payout pattern, refer to the contractual obligations table in the liquidity and capital resources section included within Item 2 of this Quarterly Report on Form 10-Q. Steps to reduce the size of StarStone International's operations have begun and will involve several phases to occur over time. As a result, we cannot anticipate with certainty the expected completion date of the StarStone International Run-Off. We have taken actions described below and continue to evaluate additional strategic options for the remainder of StarStone International's operations and business, including the European platform. Consequently, such options could have the effect of mitigating costs associated with placing the business into run-off. The remaining StarStone International operations will continue to serve the needs of policyholders and ensure that the companies continue to meet all regulatory requirements.
Recent developments relating to StarStone International include:
•On October 14, 2020, we completed the sale of Vander Haeghen & Co. SA ("VdH"), a Belgium-based insurance agency majority owned by two StarStone International entities, for a purchase price of €3.8 million ($4.5 million). We expect to recognize a gain on the sale of $3.6 million in the fourth quarter of 2020.
•On October 2, 2020, StarStone International sold the renewal rights for its financial lines portfolio for consideration of $0.5 million.
•Atrium's Syndicate 609, for which it provides 25% of the underwriting capacity and capital, expects to write new business of approximately $21.3 million in 2021 which was previously underwritten by StarStone International, primarily in the marine and energy liability, upstream energy and terrorism classes of business.
For further information, refer to Note 4 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations" to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q.
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Discussion of Results of Operations
The following is a discussion and analysis of the results of operations for our StarStone segment. Given the impact of the strategic developments in the segment, we have updated the layout of the following tables. In previous reports, we had distinguished the results of sub-components of the segment between StarStone Group and Intra-group reinsurances, and between core and exited lines of business, which is no longer considered to be as meaningful. Under U.S. GAAP, StarStone U.S. qualified as discontinued operations whereas StarStone International (non-U.S.) qualified as continuing operations. Current and prior period results are not indicative of future results.
Three Months EndedNine Months Ended
September 30,September 30,
20202019Change20202019Change
Gross premiums written$58,566 $110,586 $(52,020)$300,135 $363,352 $(63,217)
Net premiums written$43,338 $76,020 $(32,682)$227,066 $291,083 $(64,017)
Net premiums earned$96,116 $111,749 $(15,633)$276,566 $339,993 $(63,427)
Net incurred losses and LAE(48,390)(100,628)52,238 (197,259)(358,864)161,605 
Acquisition costs(20,608)(23,301)2,693 (76,026)(80,582)4,556 
Operating expenses(20,440)(14,525)(5,915)(66,385)(53,217)(13,168)
Underwriting income (loss)6,678 (26,705)33,383 (63,104)(152,670)89,566 
Net investment income6,298 8,161 (1,863)21,625 25,865 (4,240)
Net realized and unrealized gains (losses) (1)
11,801 6,034 5,767 (3,323)31,274 (34,597)
Fees and commission expense— (150)150 — (515)515 
Other income99 72 27 216 445 (229)
Corporate expenses(3,137)— (3,137)(39,153)— (39,153)
Interest expense(510)— (510)(1,611)(475)(1,136)
Net foreign exchange losses (gains)(761)1,509 (2,270)(5,509)(326)(5,183)
EARNINGS (LOSS) BEFORE INCOME TAXES20,468 (11,079)31,547 (90,859)(96,402)5,543 
Income tax benefit (expense)(733)139 (872)(2,325)251 (2,576)
Loss from equity method investments— — — — (218)218 
NET EARNINGS (LOSS) FROM CONTINUING OPERATIONS19,735 (10,940)30,675 (93,184)(96,369)3,185 
NET EARNINGS FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES4,031 7,916 (3,885)810 12,041 (11,231)
NET EARNINGS (LOSS)23,766 (3,024)26,790 (92,374)(84,328)(8,046)
Net loss (earnings) attributable to noncontrolling interest(16,397)320 (16,717)37,322 17,448 19,874 
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR ORDINARY SHAREHOLDERS$7,369 $(2,704)$10,073 $(55,052)$(66,880)$11,828 
Underwriting ratios(2):
Loss ratio
50.3 %90.0 %(39.7)%71.3 %105.6 %(34.3)%
Acquisition cost ratio21.4 %20.9 %0.5 %27.5 %23.7 %3.8 %
Operating expense ratio21.4 %13.0 %8.4 %24.0 %15.6 %8.4 %
Combined ratio93.1 %123.9 %(30.8)%122.8 %144.9 %(22.1)%
(1) This includes amounts relating to both fixed income securities and other investments. We have historically utilized trading accounting for fixed income securities, where unrealized amounts are reflected in earnings. However, from October 1, 2019, we have elected to use AFS accounting and, as trading fixed income securities mature, the proceeds are reinvested into AFS securities for the StarStone segment.
(2) Refer to "Underwriting Ratios" for a description of how these ratios are calculated.

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Overall Results
Three Months Ended September 30: Net earnings for the StarStone segment were $7.4 million for the three months ended September 30, 2020 compared to net losses of $2.7 million for the three months ended September 30, 2019, an increase in net earnings of $10.1 million. The increase was primarily due to higher underwriting income in the current period.
Net underwriting income for the StarStone segment was $6.7 million for the three months ended September 30, 2020. The StarStone segment combined ratio was 93.1% for the three months ended September 30, 2020 as compared to 123.9% for the three months ended September 30, 2019.

Nine Months Ended September 30: Net losses for the StarStone segment were $55.1 million for the nine months ended September 30, 2020 compared to $66.9 million for the nine months ended September 30, 2019, a decrease in net losses of $11.8 million. The decrease in net losses was driven by a reduction in underwriting losses, partially offset by exit costs associated with the StarStone International Run-Off of $41.4 million and net realized and unrealized investment losses of $3.3 million in 2020 compared to gains of $31.3 million in 2019.
Net underwriting losses for the StarStone segment were $63.1 million for the nine months ended September 30, 2020 and included exit costs associated with the StarStone International Run-Off of $27.9 million. The StarStone segment combined ratio was 122.8% for the nine months ended September 30, 2020 as compared to 144.9% for the nine months ended September 30, 2019. Excluding the impact of exit costs discussed later, the combined ratio for the nine months ended was 112.5% and included net underwriting losses related to the COVID-19 pandemic of $38.9 million.
An analysis of the components of the segment's net earnings before the attribution of net earnings to noncontrolling interest is shown below. Investment results are separately discussed below in "Investments Results - Consolidated."
Exit Costs
The following table summarizes the financial impact of the exit costs associated with the StarStone International Run-Off for the three and nine months ended September 30, 2020:
Three Months EndedNine Months Ended
September 30, 2020September 30, 2020
Description:Results of Operations Line Item:(in millions of U.S. dollars)
Provision for unallocated LAE (run-off basis)Net incurred losses and LAE$4.4 $(23.7)
Provision for employee severance-related costsCorporate expenses(2.6)(10.6)
Goodwill impairmentCorporate expenses— (8.0)
Capitalized software write-downCorporate expenses— (7.6)
Earnings acceleration of prepaid reinsurance premiumsNet premiums earned— (4.1)
Intangible asset impairmentCorporate expenses— (4.0)
Operating leases right-of-use asset write-downCorporate expenses— (3.5)
Other asset write-downsCorporate expenses— (2.9)
Valuation allowance on deferred tax assetsIncome tax expense— (2.3)
Sub-totalNet (loss) earnings1.8 (66.7)
Redeemable non-controlling interestNet loss (earnings) attributable to noncontrolling interest(0.7)25.3 
Total (increase) reduction in StarStone net earnings attributable to the StarStone International Run-Off Net (loss) earnings attributable to Enstar ordinary shareholders$1.1 $(41.4)
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Underwriting Impact of COVID-19
For the three and nine months ended September 30, 2020, the StarStone segment included net underwriting losses related to the COVID-19 pandemic as follows:
Three Months Ended September 30, 2020Nine Months Ended September 30, 2020
StarStone Segment Noncontrolling Interests' ShareEnstar's share of StarStone SegmentStarStone SegmentNoncontrolling Interests' ShareEnstar's share of StarStone Segment
(in thousands of U.S. dollars)
StarStone International (1)
$(891)$80 $(811)$38,933 $(12,274)$26,659 
StarStone U.S. (Discontinued Operations)2,500 (1,025)1,475 10,000 (4,100)5,900 
Total StarStone Segment COVID-19 net underwriting losses$1,609 $(945)$664 $48,933 $(16,374)$32,559 
(1) Includes the impact of outwards reinstatement premiums of $0.7 million and a reduction in the premium deficiency provision of $3.0 million for the three months ended September 30, 2020; and outwards reinstatement premiums of $2.8 million and the premium deficiency provision of $13.3 million for the nine months ended September 30, 2020.

Underwriting Impact of Exit Costs
The underwriting impact of the exit costs relating to net premiums earned and net incurred losses and LAE as shown in the table above, are summarized in the following table:
Three Months EndedNine Months Ended
September 30,September 30,
20202020
Subtotal Before Exit CostsExit CostsTotalSubtotal Before Exit CostsExit CostsTotal
ABC=A+BDEF=D+E
(in thousands of U.S. dollars)
Net premiums earned$96,116 $— $96,116 $280,712 $(4,146)$276,566 
Net incurred losses and LAE(52,800)4,410 (48,390)(173,556)(23,703)(197,259)
Acquisition costs(20,608)— (20,608)(76,026)— (76,026)
Operating expenses(20,440)— (20,440)(66,285)(100)(66,385)
Underwriting income (loss)2,268 4,410 6,678 (35,155)(27,949)(63,104)
Underwriting ratios(1):
Loss ratio54.9 %50.3 %61.8 %71.3 %
Acquisition cost ratio21.4 %21.4 %27.1 %27.5 %
Operating expense ratio21.3 %21.4 %23.6 %24.0 %
Combined ratio97.6 %93.1 %112.5 %122.8 %
(1) Refer to "Underwriting Ratios" for a description of how these ratios are calculated.
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Gross Premiums Written:
The following table provides gross premiums written by line of business for the StarStone segment:
Three Months EndedNine Months Ended
September 30,September 30,
 20202019Change20202019Change
 (in thousands of U.S. dollars)
Casualty$12,576 $25,002 $(12,426)$68,418 $77,645 $(9,227)
Marine24,363 40,699 (16,336)132,721 168,657 (35,936)
Property5,611 29,757 (24,146)64,970 80,671 (15,701)
Aerospace15,598 12,397 3,201 32,105 33,648 (1,543)
Workers' Compensation418 2,731 (2,313)1,921 2,731 (810)
Total$58,566 $110,586 $(52,020)$300,135 $363,352 $(63,217)

Three Months Ended September 30: Gross premiums written for the StarStone segment were $58.6 million and $110.6 million for the three months ended September 30, 2020 and 2019, respectively, a decrease of $52.0 million. Excluding aerospace, the decreases across all other lines were due to StarStone International being placed into an orderly run-off. The increase in the aerospace lines was driven by binding authority business underwritten through our European platform before we implemented the StarStone International Run-Off.

Nine Months Ended September 30: Gross premiums written were $300.1 million and $363.4 million for the nine months ended September 30, 2020 and 2019, respectively, a decrease of $63.2 million. The decreases across all lines were primarily due to StarStone International being placed into an orderly run-off.
In light of the decision to implement the StarStone International Run-off, gross premiums written will decline materially in future periods.

Net Premiums Earned:
    The following table provides net premiums earned by line of business for the StarStone segment:    
Three Months EndedNine Months Ended
September 30,September 30,
 20202019Change20202019Change
 (in thousands of U.S. dollars)
Casualty$20,471 $22,314 $(1,843)$66,419 $66,733 $(314)
Marine39,424 46,747 (7,323)113,016 147,542 (34,526)
Property28,800 32,710 (3,910)73,370 92,186 (18,816)
Aerospace6,886 8,280 (1,394)21,365 32,944 (11,579)
Workers' Compensation535 1,698 (1,163)2,396 588 1,808 
Total$96,116 $111,749 $(15,633)$276,566 $339,993 $(63,427)

Three Months Ended September 30: Net premiums earned for the StarStone segment were $96.1 million and $111.7 million for the three months ended September 30, 2020 and 2019, respectively, a decrease of $15.6 million. The decrease in net premiums earned was mainly due to StarStone International being placed into an orderly run-off.

Nine Months Ended September 30: Net premiums earned for the StarStone segment were $276.6 million and $340.0 million for the nine months ended September 30, 2020 and 2019, respectively, a decrease of $63.4 million. The decrease in net premiums earned was mainly due to StarStone International being placed into an orderly run-off.
As noted above with respect to gross premiums written, in light of the decision to implement the StarStone International Run-off, net premiums earned will decline materially in future periods.
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Net Incurred Losses and LAE:
The following table shows the components of net incurred losses and LAE for the StarStone segment:
Three Months Ended September 30,
 20202019
 Prior
Periods		Current
Period		TotalPrior
Periods		Current
Period		Total
 (in thousands of U.S. dollars)
Net losses paid$48,972 $7,755 $56,727 $111,195 $11,653 $122,848 
Net change in case and LAE reserves (1)
(20,068)25,524 5,456 (8,866)(8,994)(17,860)
Net change in IBNR reserves (2)
(24,755)16,176 (8,579)(101,938)97,225 (4,713)
Increase in estimates of net ultimate losses4,149 49,455 53,604 391 99,884 100,275 
Increase (reduction) in provisions for unallocated LAE(299)(4,721)(5,020)(2,112)1,924 (188)
Amortization of fair value adjustments(194)— (194)541 — 541 
Net incurred losses and LAE$3,656 $44,734 $48,390 $(1,180)$101,808 $100,628 
(1) Net change in case and LAE reserves comprises the movement during the period 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.
(2) Net change in IBNR reserves represents the gross change in our actuarial estimates of IBNR reserves, less amounts recoverable.
Three Months Ended September 30: Net incurred losses and LAE for the three months ended September 30, 2020 and 2019 were $48.4 million and $100.6 million, respectively. Net unfavorable prior period loss development was $3.7 million for the three months ended September 30, 2020 compared to net favorable prior period loss development of $1.2 million for the three months ended September 30, 2019. Net unfavorable prior period loss development for the three months ended September 30, 2020 was driven by adverse development in the casualty and property lines of business. Net favorable prior period loss development for the three months ended September 30, 2019 was primarily related to development on lines of business that we had either exited or had been subject to remediation as part of our underwriting repositioning initiatives before our decision to place StarStone International into run-off. Excluding prior period net loss development, net incurred losses and LAE for the three months ended September 30, 2020 were $44.7 million and included a $4.4 million reduction in exit costs associated with the StarStone International Run-Off, partially offset by $1.4 million in net incurred losses and LAE related to the COVID-19 pandemic. Excluding prior period net loss development, net incurred losses and LAE for the three months ended September 30, 2019 were $101.8 million. The loss ratios for the StarStone segment were 50.3% and 90.0% for the three months ended September 30, 2020 and 2019, respectively. Excluding the impact of the reduction in exit costs associated with the StarStone International Run-Off, the loss ratio for the three months ended September 30, 2020 was 54.9%.
For the three months ended September 30, 2020, the StarStone segment included net incurred losses and LAE related to the COVID-19 pandemic of $1.4 million, with Enstar's share totaling $0.8 million, primarily related to casualty business.

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The following table shows the components of net incurred losses and LAE for the StarStone segment for the nine months ended September 30, 2020 and 2019:
Nine Months Ended September 30,
 20202019
 Prior
Periods		Current
Period		TotalPrior
Periods		Current
Period		Total
 (in thousands of U.S. dollars)
Net losses paid$206,058 $12,142 $218,200 $301,641 $27,624 $329,265 
Net change in case and LAE reserves (1)
(85,798)24,911 (60,887)(22,538)36,046 13,508 
Net change in IBNR reserves (2)
(130,738)147,770 17,032 (192,034)207,076 15,042 
Increase (reduction) in estimates of net ultimate losses(10,478)184,823 174,345 87,069 270,746 357,815 
Increase (reduction) in provisions for unallocated LAE(116)23,591 23,475 (2,585)3,324 739 
Amortization of fair value adjustments(561)— (561)310 — 310 
Net incurred losses and LAE$(11,155)$208,414 $197,259 $84,794 $274,070 $358,864 
(1) Net change in case and LAE reserves comprises the movement during the period 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.
(2) Net change in IBNR reserves represents the gross change in our actuarial estimates of IBNR reserves, less amounts recoverable.
Nine Months Ended September 30: Net incurred losses and LAE for the nine months ended September 30, 2020 and 2019 were $197.3 million and $358.9 million, respectively. Net favorable prior period loss development was $11.2 million for the nine months ended September 30, 2020 compared to net unfavorable prior period loss development of $84.8 million for the nine months ended September 30, 2019. Net favorable prior period loss development for the nine months ended September 30, 2020 was driven by favorable development in the workers compensation and casualty lines of business. Net unfavorable prior period loss development for the nine months ended September 30, 2019 was primarily related to development on lines of business that we had either exited or had been subject to remediation as part of our underwriting repositioning initiatives before our decision to place StarStone International into run-off.
Excluding prior period loss development, net incurred losses and LAE for the nine months ended September 30, 2020 were $208.4 million and included $22.8 million of COVID-19 related losses and $23.7 million of exit costs associated with the StarStone International Run-Off. Excluding prior period loss development, net incurred losses and LAE for the nine months ended September 30, 2019 were $274.1 million. The loss ratios for the StarStone segment were 71.3% and 105.6% for the nine months ended September 30, 2020 and 2019, respectively. Excluding the impact of exit costs associated with the StarStone International Run-Off, the loss ratio for the nine months ended September 30, 2020 was 61.8% and included COVID-19 related losses of $22.8 million.
For the nine months ended September 30, 2020, StarStone segment net incurred losses and LAE included $22.8 million of losses related to the COVID-19 pandemic, with Enstar's share totaling $17.0 million, primarily related to casualty and property business.

Acquisition Costs:
Three and Nine Months Ended September 30: Acquisition costs for the StarStone segment were $20.6 million and $23.3 million for the three months ended September 30, 2020 and 2019, respectively, a decrease of $2.7 million. Acquisition costs for the StarStone segment were $76.0 million and $80.6 million for the nine months ended September 30, 2020 and 2019, respectively, a decrease of $4.6 million. The acquisition cost ratios for the nine months ended September 30, 2020 and 2019 were 27.5% and 23.7%, respectively. The acquisition cost ratios for the three months ended September 30, 2020 and 2019 were 21.4% and 20.9%, respectively. The increases in the acquisition cost ratios were driven by the reduction in net premiums earned in the current periods and the impact of COVID-19-related premium deficiency of $13.3 million for the nine months ended September 30, 2020.

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Operating Expenses:
Three and Nine Months Ended September 30: Operating expenses for the StarStone segment for the three months ended September 30, 2020 and 2019 were $20.4 million and $14.5 million, respectively. The operating expense ratios for the three months ended September 30, 2020 and 2019 were 21.4% and 13.0%. Operating expenses for the StarStone segment for the nine months ended September 30, 2020 and 2019 were $66.4 million and $53.2 million, respectively. The operating expense ratios for the three months ended September 30, 2020 and 2019 were 24.0% and 15.6%, respectively. The increases were due to restructuring costs and the reduction in net premiums earned in the current periods.

Corporate Expenses:
Three and Nine Months Ended September 30: Corporate expenses for the StarStone segment were $3.1 million and $nil for the three months ended September 30, 2020 and 2019, respectively, and $39.2 million and $nil for the nine months ended September 30, 2020 and 2019, respectively. Corporate expenses for the three and nine months ended September 30, 2020 included exit costs associated with the StarStone International Run-Off of $2.6 million and $36.4 million, respectively, and are summarized above.

Discontinued Operations (StarStone U.S.):
Three Months Ended September 30: The net earnings from discontinued operations, net of income taxes for the StarStone segment for the three months ended September 30, 2020 was $4.0 million compared to $7.9 million for the three months ended September 30, 2019. For the three months ended September 30, 2020, the net earnings from discontinued operations, net of income taxes, included $2.5 million in net incurred losses and LAE related to the COVID-19 pandemic, with Enstar's share totaling $1.5 million, primarily related to casualty business.
Nine Months Ended September 30: The net earnings from discontinued operations, net of income taxes for the nine months ended September 30, 2020 was $0.8 million compared to $12.0 million for the nine months ended September 30, 2019. For the nine months ended September 30, 2020, the net earnings from discontinued operations, net of income taxes, included $10.0 million net incurred losses and LAE related to the COVID-19 pandemic, with Enstar's share totaling $5.9 million, primarily related to casualty business.
The StarStone U.S. business included in discontinued operations includes the results of intra-group reinsurance cessions which were non-renewed as of January 1, 2018. The effect of these intra-group reinsurance cessions on net earnings, net of income taxes for the StarStone U.S. business was as follows:
Three Months EndedNine Months Ended
September 30,September 30,
 2020201920202019
 (in thousands of U.S. dollars)
StarStone U.S. Group net earnings (loss) before Intra-Group Cessions$6,192 $15,146 $24,386 $(24,510)
Intra-Group Cessions(2,161)(7,230)(23,576)36,551 
StarStone U.S. net earnings, net of income taxes$4,031 $7,916 $810 $12,041 

Noncontrolling Interest:
Three and Nine Months Ended September 30: As of September 30, 2020 and December 31, 2019, the Trident V Funds and Dowling Funds had a combined 41.0% noncontrolling interest in the StarStone Group. The net earnings (loss) attributable to them is based on their proportionate share of earnings (loss).
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Other
Our other activities, which do not qualify as a reportable segment, include our corporate expenses, debt servicing costs, preferred share dividends, holding company income and expenses, foreign exchange and other miscellaneous items. On May 31, 2019, we completed the transfer of our remaining life assurance policies written by our wholly-owned subsidiary Alpha Insurance SA to a subsidiary of Monument Re.
The following is a discussion and analysis of our results of operations for our other activities, which are summarized below:
Three Months EndedNine Months Ended
September 30,September 30,
20202019Change20202019Change
(in thousands of U.S. dollars)
Net premiums earned$5,706 $4,303 $1,403 $15,174 $16,872 $(1,698)
Net incurred losses and LAE(5,043)(3,647)(1,396)(12,718)(13,068)350 
Acquisition costs(128)(177)49 (331)(554)223 
Underwriting income535 479 56 2,125 3,250 (1,125)
Net investment losses(2,864)(2,147)(717)(8,145)(6,278)(1,867)
Net realized and unrealized gains— 270 (270)— 5,849 (5,849)
Other income (expense)210 1,000 (790)(647)(319)(328)
Corporate expenses(10,320)(12,824)2,504 (35,166)(36,051)885 
Interest Income2,212 3,014 (802)7,960 7,152 808 
Net foreign exchange gains (losses)(7)24 (31)2,634 (2)2,636 
LOSS BEFORE INCOME TAXES(10,234)(10,184)(50)(31,239)(26,399)(4,840)
Income tax expense(1,391)— (1,391)(1,391)(85)(1,306)
NET LOSS ATTRIBUTABLE TO ENSTAR(11,625)(10,184)(1,441)(32,630)(26,484)(6,146)
Dividends on preferred shares(8,925)(8,925)— (26,775)(26,989)214 
NET LOSS ATTRIBUTABLE TO ENSTAR ORDINARY SHAREHOLDERS$(20,550)$(19,109)$(1,441)$(59,405)$(53,473)$(5,932)
Overall Results:
Net losses were $20.6 million for the three months ended September 30, 2020, compared to net losses of $19.1 million for the three months ended September 30, 2019, an increase in net losses of $1.4 million. Net losses were $59.4 million for the nine months ended September 30, 2020, compared to net losses of $53.5 million for the nine months ended September 30, 2019, an increase in net losses of $5.9 million, which was primarily driven by a lower investment return in the current period and partially offset by net foreign exchange gains in the current period. Investment results are separately discussed below in "Investable Assets."

Corporate expenses were $10.3 million and $12.8 million for the three months ended September 30, 2020 and 2019, respectively, a decrease of $2.5 million. Corporate expenses were $35.2 million and $36.1 million for the nine months ended September 30, 2020 and 2019, respectively. The decreases for the three and nine months ended September 30, 2020 primarily related to lower fixed compensation in the current periods.

The dividends on preferred shares were $8.9 million for the three months ended September 30, 2020 and 2019, and $26.8 million and $27.0 million for the nine months ended September 30, 2020 and 2019, respectively.

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Investable Assets
We define investable assets as the sum of total investments, cash and cash equivalents, restricted cash and cash equivalents and funds held. Investments consist primarily of investment grade, liquid, fixed maturity securities of short-to-medium duration, equities and other investments. Cash and cash equivalents and restricted cash and cash equivalents are comprised mainly of cash, high-grade fixed deposits, and other highly liquid instruments such as commercial paper with maturities of less than three months at the time of acquisition and money market funds. Funds held primarily consist of investment grade, liquid, fixed maturity securities of short-to-medium duration.
Investable assets were $16.0 billion as of September 30, 2020 as compared to $14.1 billion as of December 31, 2019, an increase of 13.5%. The increase was primarily due to assets acquired in relation to the Hannover Re, Munich Re, Lyft, Aspen and AXA Group transactions and unrealized gains on investments.
A description of our investment strategies is included in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Investments" in our Annual Report on Form 10-K for the year ended December 31, 2019.

Composition of Investable Assets By Segment
    Across all of our segments, we strive to structure our investments in a manner that recognizes our liquidity needs and in order to meet our obligation to pay losses. We consider the duration characteristics of our liabilities in determining the extent to which we correlate with assets of comparable duration depending on our other investment strategies and to the extent practicable. If our liquidity needs or general liability profile change unexpectedly, we may adjust the structure of our investment portfolio to meet our revised expectations. The following tables summarize the composition of total investable assets by segment, and for our other activities:
September 30, 2020
Non-life
Run-off		StarStoneOtherTotal
(in thousands of U.S. dollars)
Short-term investments, trading, at fair value$7,133 $— $— $7,133 
Short-term investments, AFS, at fair value276,005 2,170 — 278,175 
Fixed maturities, trading, at fair value4,494,177 505,465 — 4,999,642 
Fixed maturities, AFS, at fair value2,661,649 221,823 — 2,883,472 
Funds held - directly managed1,066,639 — — 1,066,639 
Equities, at fair value581,136 72,023 — 653,159 
Other investments, at fair value3,610,498 94,372 — 3,704,870 
Equity method investments516,795 — — 516,795 
Total investments13,214,032 895,853 — 14,109,885 
Cash and cash equivalents (including restricted cash)941,051 234,966 21,305 1,197,322 
Funds held by reinsured companies560,772 88,888 7,830 657,490 
Total investable assets$14,715,855 $1,219,707 $29,135 $15,964,697 
Duration (in years) (1)
5.272.17—4.97
Average credit rating (2)
A+AA-AAAA+
(1) The duration calculation includes cash and cash equivalents, short-term investments, fixed maturities and the fixed maturities within our funds held - directly managed portfolios at September 30, 2020 and December 31, 2019.
(2) The average credit ratings calculation includes cash and cash equivalents, short-term investments, fixed maturities and the fixed maturities within our funds held - directly managed portfolios at September 30, 2020 and December 31, 2019.
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December 31, 2019
Non-life
Run-off		AtriumStarStoneOtherTotal
(in thousands of U.S. dollars)
Short-term investments, trading, at fair value$50,268 $1,222 $— $— $51,490 
Short-term investments, AFS, at fair value121,780 — 6,555 — 128,335 
Fixed maturities, trading, at fair value5,378,533 155,510 609,292 — 6,143,335 
Fixed maturities, AFS, at fair value1,446,912 15,310 75,830 — 1,538,052 
Funds held - directly managed1,187,552 — — — 1,187,552 
Equities, at fair value576,893 22,079 127,749 — 726,721 
Other investments, at fair value2,386,776 7,417 123,838 — 2,518,031 
Equity method investments326,277 — — — 326,277 
Total investments11,474,991 201,538 943,264 — 12,619,793 
Cash and cash equivalents (including restricted cash)666,705 58,369 241,708 4,567 971,349 
Funds held by reinsured companies336,470 27,451 103,191 8,620 475,732 
Total investable assets$12,478,166 $287,358 $1,288,163 $13,187 $14,066,874 
Duration (in years) (1)
5.241.862.07—4.86
Average credit rating (2)
A+AA-A+AAAA+
(1) The duration calculation includes cash and cash equivalents, short-term investments, fixed maturities and the fixed maturities within our funds held - directly managed portfolios at September 30, 2020 and December 31, 2019.
(2) The average credit ratings calculation includes cash and cash equivalents, short-term investments, fixed maturities and the fixed maturities within our funds held - directly managed portfolios at September 30, 2020 and December 31, 2019.

As of both September 30, 2020 and December 31, 2019, our investment portfolio, including funds held - directly managed, had an average credit quality rating of A+. As of September 30, 2020 and December 31, 2019, our fixed maturity investments (classified as trading and AFS and our fixed maturity investments included within funds held - directly managed) that were non-investment grade (i.e. rated lower than BBB- and non-rated securities) comprised 3.5% and 4.5% of our total fixed maturity investment portfolio, respectively. A detailed schedule of average credit ratings by asset class as of September 30, 2020 is included in Note 5 - "Investments" to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q.
Schedules of maturities by asset class are included in Note 5 - "Investments" to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q.

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Composition of Investment Portfolio By Asset Class
The following tables summarize the composition of our investment portfolio by asset class:
September 30, 2020
AAA RatedAA RatedA RatedBBB RatedNon-investment GradeNot RatedTotal%
(in thousands of U.S. dollars, except percentages)
Short-term and fixed maturity investments, trading and AFS and funds held - directly managed
U.S. government & agency$789,630 $— $— $— $— $— $789,630 5.6 %
U.K. government— 102,624 8,739 — — 3,414 114,777 0.8 %
Other government242,097 150,005 43,003 45,884 9,458 — 490,447 3.5 %
Corporate206,345 583,595 2,704,861 1,912,857 267,765 4,486 5,679,909 40.2 %
Municipal7,137 83,519 51,538 19,645 — — 161,839 1.1 %
Residential mortgage-backed517,915 — 2,154 1,612 5,251 2,307 529,239 3.7 %
Commercial mortgage-backed576,643 111,720 77,391 64,898 5,308 7,159 843,119 6.0 %
Asset-backed249,237 99,942 145,494 96,960 21,780 250 613,663 4.3 %
Total2,589,004 1,131,405 3,033,180 2,141,856 309,562 17,616 9,222,623 65.2 %
Other assets included within funds held - directly managed12,438 0.1 %
Equities
Publicly traded equities303,932 2.2 %
Exchange-traded funds78,182 0.6 %
Privately held equities271,045 1.9 %
Total653,159 4.7 %
Other investments
Hedge funds2,087,091 14.8 %
Fixed income funds684,031 4.8 %
Equity funds290,129 2.1 %
Private equity funds320,455 2.3 %
CLO equities84,532 0.6 %
CLO equity funds140,458 1.0 %
Private credit funds90,476 0.6 %
Other7,698 0.1 %
Total3,704,870 26.3 %
Equity method investments516,795 3.7 %
Total investments$2,589,004 $1,131,405 $3,033,180 $2,141,856 $309,562 $17,616 $14,109,885 100.0 %
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December 31, 2019
AAA RatedAA RatedA RatedBBB RatedNon-investment GradeNot RatedTotal%
(in thousands of U.S. dollars, except percentages)
Fixed maturity and short-term investments, trading and AFS and funds held - directly managed
U.S. government & agency$696,077 $— $— $— $— $— $696,077 5.5 %
U.K. government— 161,772 — — — — 161,772 1.3 %
Other government316,150 154,072 63,270 144,557 24,807 — 702,856 5.6 %
Corporate140,889 600,081 2,759,671 1,634,572 311,167 1,890 5,448,270 43.2 %
Municipal10,088 56,389 50,938 23,272 — — 140,687 1.1 %
Residential mortgage-backed310,595 47,474 2,295 1,882 34,055 4,613 400,914 3.2 %
Commercial mortgage-backed567,453 80,517 87,081 63,565 5,556 9,574 813,746 6.4 %
Asset-backed304,542 79,930 159,087 110,201 15,694 781 670,235 5.3 %
Total2,345,794 1,180,235 3,122,342 1,978,049 391,279 16,858 9,034,557 71.6 %
Other assets included within funds held - directly managed14,207 0.1 %
Equities
Publicly traded equities327,875 2.6 %
Exchange-traded funds133,047 1.1 %
Privately held equities265,799 2.1 %
Total726,721 5.8 %
Other investments
Hedge funds1,121,904 8.9 %
Fixed income funds481,039 3.8 %
Equity funds410,149 3.3 %
Private equity funds323,496 2.5 %
CLO equities87,555 0.7 %
CLO equity funds87,509 0.7 %
Private credit funds— — %
Other6,379 — %
Total2,518,031 19.9 %
Equity method investments326,277 2.6 %
Total investments$2,345,794 $1,180,235 $3,122,342 $1,978,049 $391,279 $16,858 $12,619,793 100.0 %

A description of our investment valuation processes is included in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" of our Annual Report on Form 10-K for the year ended December 31, 2019 and Note 11 - "Fair Value Measurements" to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q.

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The amortized cost, unrealized gains and losses, allowance for credit losses and fair values of our short-term and fixed maturity investments as of September 30, 2020 were as follows:
Gross Unrealized Losses
As of September 30, 2020Amortized CostGross Unrealized GainsNon-Credit Related Losses
Allowance for Credit Losses(1)
Fair Value
U.S. government and agency$769,544 $20,612 $(526)$— $789,630 
U.K. government111,169 3,882 (274)— 114,777 
Other government466,575 24,927 (1,055)— 490,447 
Corporate5,339,160 357,069 (15,536)(784)5,679,909 
Municipal146,087 16,023 (271)— 161,839 
Residential mortgage-backed521,383 9,223 (1,365)(2)529,239 
Commercial mortgage-backed821,995 36,811 (15,606)(81)843,119 
Asset-backed631,133 2,962 (20,387)(45)613,663 
$8,807,046 $471,509 $(55,020)$(912)$9,222,623 
(1) The Company adopted ASU 2016-13 and the related amendments on January 1, 2020. Refer to Note 1 - "Significant Accounting Policies" to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q for further details.

The amortized cost, unrealized gains and losses and fair values of our short-term and fixed maturity investments as of December 31, 2019 were as follows:
As of December 31, 2019Amortized CostGross Unrealized GainsGross Unrealized Losses
(Non-OTTI)		Fair Value
U.S. government and agency$690,343 $6,663 $(929)$696,077 
U.K. government155,261 6,628 (117)161,772 
Other government684,116 24,994 (6,254)702,856 
Corporate5,231,512 235,406 (18,648)5,448,270 
Municipal131,130 9,595 (38)140,687 
Residential mortgage-backed396,331 5,981 (1,398)400,914 
Commercial mortgage-backed796,730 20,673 (3,657)813,746 
Asset-backed674,250 1,806 (5,821)670,235 
$8,759,673 $311,746 $(36,862)$9,034,557 

We have historically accounted for our fixed income securities as "trading," where unrealized amounts are reflected in earnings. However, from October 1, 2019, we have elected to use AFS accounting and, as trading fixed income securities mature, the proceeds are reinvested into AFS securities for the Non-life Run-off and StarStone segments. The difference is that unrealized changes on investments classified as trading are recorded through earnings, whereas unrealized changes on investments classified as AFS are recorded directly to shareholders' equity. We may experience unrealized losses on our fixed maturity investments, depending on investment conditions and general economic conditions. Unrealized amounts would only become realized in the event of a sale of the specific securities prior to maturity or a credit default. For further information on the sensitivity of our portfolio to changes in interest rates, refer to the Interest Rate Risk section within "Item 3. Quantitative and Qualitative Disclosures About Market Risk", included within this Quarterly Report on Form 10-Q.

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The following table summarizes the composition of our top ten corporate issuers included within our short-term and fixed maturity investments, classified as trading and AFS and the fixed maturity investments included within our funds held - directly managed balance as of September 30, 2020:
Fair ValueAverage Credit Rating
(in thousands of U.S. dollars)
Bank of America Corp$107,601 A
Citigroup Inc103,749 A-
Morgan Stanley100,296 A-
JPMorgan Chase & Co93,385 A
Wells Fargo & Co86,810 A
Comcast Corp85,102 A-
Apple Inc79,948 AA+
AT&T Inc59,322 BBB
HSBC Holdings PLC54,328 A-
Walmart Inc50,813 AA
$821,354 

Investment Results - Consolidated
In addition to the impact of the COVID-19 pandemic in 2020, the comparability of our investment results across different periods was impacted by the acquisitions and reinsurance transactions we completed during 2020 with Hannover Re, Munich Re, AXA Group, Aspen and Lyft and in 2019 with Morse TEC, Zurich, Maiden Re, Amerisure and AmTrust. Refer to Note 3 - "Significant New Business" to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q for further details on the 2020 transactions and "Item 1. Business - Recent Acquisitions and Significant New Business" in our Annual Report on Form 10-K for the year ended December 31, 2019 for further details on the 2019 transactions.
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The following tables summarize our investment results by major investment category and by segment as well as our other activities. Additional information is included in Note 5 - "Investments" to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q.
Three Months Ended September 30, 2020
Non-Life Run-offAtriumStarStoneOtherTotal
Net investment income:
Fixed income securities (1)
$56,646 $1,151 $5,675 $— $63,472 
Cash and restricted cash88 535 53 2 678 
Other investments, including equities12,028 102 1,507 (2,866)10,771 
Less: Investment expenses(1,844)(10)(937)— (2,791)
Total net investment income (expense)$66,918 $1,778 $6,298 $(2,864)$72,130 
Net realized gains (losses):
Fixed income securities (1)
$42,761 $31 $2,364 $— $45,156 
Other investments, including equities8,287 4 41 — 8,332 
Total net realized gains$51,048 $35 $2,405 $— $53,488 
Net unrealized gains:
Fixed income securities, trading (1)
$18,900 $242 $2,996 $— $22,138 
Other investments, including equities416,723 1,256 6,400 — 424,379 
Total net unrealized gains$435,623 $1,498 $9,396 $— $446,517 
Total investment return included in earnings (A)$553,589 $3,311 $18,099 $(2,864)$572,135 
Other comprehensive income:
Unrealized gains (losses), on fixed income securities, AFS, net of reclassification adjustments excluding foreign exchange (B) (1)
$127 $(35)$499 $— $591 
Total investment return = (A) + (B)$553,716 $3,276 $18,598 $(2,864)$572,726 
Annualized income from fixed income assets (2)
$226,936 $6,744 $22,912 $8 $256,600 
Average aggregate fixed income assets, at cost (2)(3)
9,655,624 261,074 1,046,616 21,478 10,984,792 
Annualized investment book yield2.35 %2.58 %2.19 %0.04 %2.34 %
Average aggregate invested assets, at fair value (3)
$13,988,360 $303,793 $1,215,379 $21,478 $15,529,010 
Investment return included in net earnings3.96 %1.09 %1.49 %(13.33)%3.68 %
Total investment return3.96 %1.08 %1.53 %(13.33)%3.69 %
(1) Fixed income securities Includes both trading and AFS short-term and fixed maturity investments as well as funds held - directly managed whereas, fixed income securities, trading excludes AFS investments and fixed income, AFS excludes trading investments.
(2) Fixed income assets includes fixed income securities and cash and restricted cash.
(3) These amounts are an average of the amounts disclosed in our quarterly U.S. GAAP consolidated financial statements.
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Three Months Ended September 30, 2019
Non-Life Run-offAtriumStarStoneOtherTotal
Net investment income:
Fixed income securities (1)
$63,565 $956 $2,918 $(394)$67,045 
Cash and restricted cash5,484 696 3,476 382 10,038 
Other investments, including equities7,113 154 1,960 (2,169)7,058 
Less: Investment expenses(2,410)(70)(193)34 (2,639)
Total net investment income (expense)$73,752 $1,736 $8,161 $(2,147)$81,502 
Net realized gains (losses):
Fixed income securities (1)
$26,143 $(42)$1,168 $1 $27,270 
Other investments, including equities(3,960)37 42 — (3,881)
Total net realized gains (losses)$22,183 $(5)$1,210 $1 $23,389 
Net unrealized gains (losses):
Fixed income securities, trading (1)
$103,948 $606 $3,181 $— $107,735 
Other investments, including equities12,043 (19)1,643 269 13,936 
Total net unrealized gains$115,991 $587 $4,824 $269 $121,671 
Total investment return included in earnings (A)$211,926 $2,318 $14,195 $(1,877)$226,562 
Other comprehensive income:
Unrealized gains (losses), on fixed income securities, AFS, net of reclassification adjustments excluding foreign exchange (B) (1)
$21 $18 $(26)$— $13 
Total investment return = (A) + (B)$211,947 $2,336 $14,169 $(1,877)$226,575 
Annualized income from fixed income assets (2)
$276,196 $6,608 $25,576 $(48)$308,332 
Average aggregate fixed income assets, at cost (2)(3)
8,632,415 251,305 1,210,051 15,279 10,109,050 
Annualized investment book yield3.20 %2.63 %2.11 %(0.31)%3.05 %
Average aggregate invested assets, at fair value (3)
$11,662,416 $264,029 $1,419,869 $18,293 $13,364,607 
Investment return included in net earnings1.82 %0.88 %1.00 %(10.26)%1.70 %
Total investment return1.82 %0.88 %1.00 %(10.26)%1.70 %
(1) Fixed income securities Includes both trading and AFS short-term and fixed maturity investments as well as funds held - directly managed whereas, fixed income securities, trading excludes AFS investments and fixed income, AFS excludes trading investments.
(2) Fixed income assets includes fixed income securities and cash and restricted cash.
(3) These amounts are an average of the amounts disclosed in our quarterly U.S. GAAP consolidated financial statements.
Net Investment Income:
Net investment income decreased by $9.4 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, primarily due to a $3.6 million and $9.4 million decrease in net investment income from fixed maturities and cash and cash equivalents, respectively. There was an increase of $875.7 million in our average aggregate fixed maturities and cash and cash equivalents. The increase in our average aggregate fixed maturities and cash and cash equivalents was primarily due to the Lyft, Aspen, AXA Group, Munich Re and Hannover Re transactions in 2020, and the Morse TEC, Zurich, Maiden Re and Amerisure transactions in 2019. Our annualized book yield decreased 71 basis points for the three months ended September 30, 2020 compared to the three months ended September 30, 2019, primarily due to lower rates.
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Net Realized and Unrealized Gains (Losses):
Net realized and unrealized gains were $500.0 million for the three months ended September 30, 2020 compared to $145.1 million for the three months ended September 30, 2019, an increase of $354.9 million. Included in net realized and unrealized gains (losses) are the following items:
•Net realized and unrealized gains on fixed income securities, including fixed income securities within our funds held portfolios, of $67.3 million for the three months ended September 30, 2020, compared to gains of $135.0 million for the three months ended September 30, 2019, a decrease of $67.7 million. Gains in the current period were primarily attributable to an increase in the valuation of our fixed maturity investments due to tighter credit spreads. Gains in the comparative period were due to a significant decline in rates, partially offset by a moderate widening in spreads.
•Net realized and unrealized gains on other investments, including equities of $432.7 million for the three months ended September 30, 2020 compared to $10.1 million for the three months ended September 30, 2019, an increase of $422.7 million. The unrealized gains for the three months ended September 30, 2020 primarily comprised unrealized gains in our hedge funds, fixed income funds, equities, equity funds, private equity funds, CLO equities and CLO equity funds. The gains were principally driven by tightening credit spreads and more favorable movement in equity markets in the current period as risk assets continued to recover from the unrealized losses associated with COVID-19 pandemic during the first quarter of 2020. The unrealized gains for the three months ended September 30, 2019 primarily comprised unrealized gains in fixed income funds, principally driven by declining interest rates, equity and private equity funds, partially offset by unrealized losses on our hedge funds, equity funds and CLO equities.
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The following tables summarize our investment results for the nine months ended September 30, 2020 and 2019:
Nine Months Ended September 30, 2020
Non-Life Run-offAtriumStarStoneOtherTotal
Net investment income:
Fixed income securities (1)
$192,998 $3,792 $17,340 $— $214,130 
Cash and restricted cash2,229 322 892 103 3,546 
Other investments, including equities36,455 420 5,253 (8,248)33,880 
Less: Investment expenses(8,257)(152)(1,860)— (10,269)
Total net investment income (expense)$223,425 $4,382 $21,625 $(8,145)$241,287 
Net realized gains (losses):
Fixed income securities (1)
$102,588 $(338)$3,433 $— $105,683 
Other investments, including equities7,579 135 1,497 — 9,211 
Total net realized gains (losses)$110,167 $(203)$4,930 $— $114,894 
Net unrealized gains (losses):
Fixed income securities, trading (1)
$105,787 $3,658 $(8,031)$— $101,414 
Other investments, including equities622,529 (63)(222)— 622,244 
Total net unrealized gains (losses)$728,316 $3,595 $(8,253)$— $723,658 
Total investment return included in earnings (A)$1,061,908 $7,774 $18,302 $(8,145)$1,079,839 
Other comprehensive income:
Unrealized gains (losses), on fixed income securities, AFS, net of reclassification adjustments excluding foreign exchange (B) (1)
$41,683 $9 $2,037 $— $43,729 
Total investment return = (A) + (B)$1,103,591 $7,783 $20,339 $(8,145)$1,123,568 
Annualized income from fixed income assets (2)
$260,303 $5,485 $24,309 $137 $290,235 
Average aggregate fixed income assets, at cost (2)(3)
9,421,717 259,825 1,036,768 17,168 10,735,478 
Annualized investment book yield2.76 %2.11 %2.34 %0.80 %2.70 %
Average aggregate invested assets, at fair value (3)
$13,055,657 $294,798 $1,223,575 $17,168 $14,591,198 
Investment return included in net earnings8.13 %2.64 %1.50 %(47.44)%7.40 %
Total investment return8.45 %2.64 %1.66 %(47.44)%7.70 %
(1) Fixed income securities Includes both trading and AFS short-term and fixed maturity investments as well as funds held - directly managed whereas, fixed income securities, trading excludes AFS investments and fixed income, AFS excludes trading investments.
(2) Fixed income assets includes fixed income securities and cash and restricted cash.
(3) These amounts are an average of the amounts disclosed in our quarterly U.S. GAAP consolidated financial statements.
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Nine Months Ended September 30, 2019
Non-Life Run-offAtriumStarStoneOtherTotal
Net investment income:
Fixed income securities (1)
$187,471 $4,146 $18,094 $567 $210,278 
Cash and restricted cash7,383 708 3,568 382 12,041 
Other investments, including equities19,542 891 5,401 (7,357)18,477 
Less: Investment expenses(8,059)(245)(1,198)130 (9,372)
Total net investment income (expense)$206,337 $5,500 $25,865 $(6,278)$231,424 
Net realized gains (losses):
Fixed income securities (1)
$44,764 $41 $1,500 $4,151 $50,456 
Other investments, including equities(1,600)140 247 — (1,213)
Total net realized gains $43,164 $181 $1,747 $4,151 $49,243 
Net unrealized gains:
Fixed income securities, trading (1)
$477,098 $4,297 $26,904 $— $508,299 
Other investments, including equities295,640 986 2,623 1,698 300,947 
Total net unrealized gains$772,738 $5,283 $29,527 $1,698 $809,246 
Total investment return included in earnings (A)$1,022,239 $10,964 $57,139 $(429)$1,089,913 
Other comprehensive income:
Unrealized gains (losses), on fixed income securities, AFS, net of reclassification adjustments excluding foreign exchange (B) (1)
$1,522 $307 $(26)$(1,072)$731 
Total investment return = (A) + (B)$1,023,761 $11,271 $57,113 $(1,501)$1,090,644 
Annualized income from fixed income assets (2)
$259,805 $6,472 $28,883 $1,265 $296,425 
Average aggregate fixed income assets, at cost (2)(3)
8,621,207 255,591 1,180,412 87,240 10,144,450 
Annualized investment book yield3.01 %2.53 %2.45 %1.45 %2.92 %
Average aggregate invested assets, at fair value (3)
$11,314,815 $266,108 $1,345,180 $97,396 $13,023,499 
Investment return included in net earnings9.03 %4.12 %4.25 %(0.44)%8.37 %
Total investment return9.05 %4.24 %4.25 %(1.54)%8.37 %
(1) Fixed income securities Includes both trading and AFS short-term and fixed maturity investments as well as funds held - directly managed whereas, fixed income securities, trading excludes AFS investments and fixed income, AFS excludes trading investments.
(2) Fixed income assets includes fixed income securities and cash and restricted cash.
(3) These amounts are an average of the amounts disclosed in our quarterly U.S. GAAP consolidated financial statements.
Net Investment Income:
Net investment income increased by $9.9 million for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. There was an increase of $3.9 million in net investment income from fixed maturities and a $15.4 million increase in other investment income and equities, partly offset by a decrease of $8.5 million in net investment income from cash and cash equivalents. There was an increase of $591.0 million in our average aggregate fixed maturities and cash and cash equivalents. The increase in our average aggregate fixed maturities and cash and cash equivalents was primarily due to the Hannover Re, Munich Re, Lyft, Aspen and AXA Group transactions in 2020 and the AmTrust RITC, Amerisure, Zurich and Maiden Re transactions in 2019. The book yield decreased by 22 basis points, primarily due to lower rates.
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Net Realized and Unrealized Gains (Losses):
Net realized and unrealized gains were $838.6 million for the nine months ended September 30, 2020 compared to net realized and unrealized gains of $858.5 million for the nine months ended September 30, 2019, a decrease of $19.9 million. Included in net realized and unrealized gains (losses) are the following items:
•Net realized and unrealized gains on fixed income securities, including fixed income securities within our funds held portfolios, of $207.1 million for the nine months ended September 30, 2020, compared to net realized and unrealized gains of $558.8 million for the nine months ended September 30, 2019, a decrease of $351.7 million. The gains in the current period were primarily driven by a decline in interest rates, partially offset by a widening of credit spreads. The gains in 2019 were due to a combination of lower interest rates and tightening credit spreads;
•Net realized and unrealized gains on other investments, including equities of $631.5 million for the nine months ended September 30, 2020 compared to $299.7 million for the nine months ended September 30, 2019, an increase of $331.7 million. The unrealized gains for the nine months ended September 30, 2020 primarily comprised unrealized gains in our hedge funds, private equity funds, fixed income funds and private debt funds principally driven by declining interest rates and improving equity valuations, partially offset by unrealized losses in our equity, equity funds and CLO equities, due to recent disruption in global financial markets associated with the COVID-19 pandemic. The unrealized gains for the nine months ended September 30, 2019 primarily comprised of unrealized gains in in our hedge funds, equities, equity funds, fixed income funds, and private equity funds, principally driven by declining interest rates, tightening credit spreads, and a favorable movement in equity markets in 2019.
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Liquidity and Capital Resources

Overview
We aim to generate cash flows from our insurance operations and investments, preserve sufficient capital for future acquisitions, and develop relationships with lenders who provide borrowing capacity at competitive rates.
Our capital resources as of September 30, 2020 included ordinary shareholders' equity of $5.3 billion, preferred equity of $510.0 million, redeemable noncontrolling interest of $376.7 million classified as temporary equity, and debt obligations of $1.4 billion. Based on our current loss reserves position, our portfolios of in-force insurance and reinsurance business, and our investment positions, we believe we are well capitalized.
The following table details our capital position:
September 30, 2020December 31, 2019Change
(in thousands of U.S. dollars)
Ordinary shareholders' equity$5,310,885 $4,332,183 $978,702 
Series D and E Preferred Shares 510,000 510,000 — 
Total Enstar Shareholders' Equity (A)5,820,885 4,842,183 978,702 
Noncontrolling interest14,468 14,168 300 
Total Shareholders' Equity (B)5,835,353 4,856,351 979,002 
Senior Notes843,095 842,216 879 
Junior Subordinated Notes344,813 — 344,813 
Revolving credit facility260,000 — 260,000 
Term loan facility— 348,991 (348,991)
Total debt (C)1,447,908 1,191,207 256,701 
Redeemable noncontrolling interest (D)376,731 438,791 (62,060)
Total capitalization = (B) + (C) + (D)$7,659,992 $6,486,349 $1,173,643 
Total capitalization attributable to Enstar = (A) + (C)$7,268,793 $6,033,390 $1,235,403 
Debt to total capitalization18.9 %18.4 %0.5 %
Debt and Series D and E Preferred Shares to total capitalization25.6 %26.2 %(0.6)%
Debt to total capitalization attributable to Enstar19.9 %19.7 %0.2 %
Debt and Series D and E Preferred Shares to total capitalization available to Enstar26.9 %28.2 %(1.3)%
As of September 30, 2020, we had $640.6 million of cash and cash equivalents, excluding restricted cash that supports insurance operations, and included in this amount was $349.2 million held by foreign subsidiaries outside of Bermuda. Based on our group's current corporate structure with a Bermuda domiciled parent company and the jurisdictions in which we operate, if the cash and cash equivalents held by our foreign subsidiaries were to be distributed to us, as dividends or otherwise, such amounts would not be subject to incremental income taxes, however in certain circumstances withholding taxes may be imposed by some jurisdictions, including the United States. Based on existing tax laws, regulations and our current intentions, there was no accrual as of September 30, 2020 for any material withholding taxes on dividends or other distributions, as described in Note 19 - "Income Taxation" to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q.

Dividends
Historically, Enstar has not declared a dividend on its ordinary shares. The strategy has been to retain earnings and invest distributions from operating subsidiaries into our business. We may reevaluate this strategy from time to time based on overall market conditions and other factors.
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On June 28, 2018, we issued 16,000 Series D Preferred Shares with an aggregate liquidation value of $400.0 million. On November 21, 2018, we issued 4,400 Series E Preferred Shares with an aggregate liquidation value of $110.0 million. The dividends on the Series D and E Preferred Shares are non-cumulative and may be paid quarterly in arrears on the first day of March, June, September and December of each year, only when and if declared.
The following table details the dividends that have been declared and paid on our Series D and E Preferred Shares from January 1, 2020 to November 6, 2020:
Dividend per:
Preferred Share SeriesDate DeclaredRecord DateDate Paid or PayablePreferred ShareDepositary ShareTotal dividends paid in the nine months ended September 30, 2020
(in U.S. dollars)(in thousands of U.S. dollars)
Series DFebruary 4,
2020		February 15,
2020		March 2,
2020		$437.50 $0.43750 $7,000 
Series EFebruary 4,
2020		February 15,
2020		March 2,
2020		$437.50 $0.43750 1,925 
Series DMay 5,
2020		May 15,
2020		June 1,
2020		$437.50 $0.43750 7,000 
Series EMay 5,
2020		May 15,
2020		June 1,
2020		$437.50 $0.43750 1,925 
Series DAugust 5,
2020		August 15,
2020		September 1,
2020		$437.50 $0.43750 7,000 
Series EAugust 5,
2020		August 15,
2020		September 1,
2020		$437.50 $0.43750 1,925 
Series DNovember 5,
2020		November 15,
2020		December 1,
2020		$437.50 $0.43750 — 
Series ENovember 5,
2020		November 15,
2020		December 1,
2020		$437.50 $0.43750 — 
$26,775 

Any payment of common or preferred dividends must be approved by our Board of Directors. Our ability to pay common and preferred dividends is subject to certain restrictions, as described in Note 22 - "Dividend Restrictions and Statutory Financial Information" to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019.

Sources and Uses of Cash

Holding Company Liquidity
The potential sources of cash flows to Enstar as a holding company consist of cash flows from our subsidiaries including dividends, advances and loans, and interest income on loans to our subsidiaries. We also borrow under our credit and loan facilities, and we have issued senior notes and preferred shares, and guaranteed junior subordinated notes issued by one of our subsidiaries.
We use cash to fund new acquisitions of companies and significant new business. We also utilize cash for our operating expenses associated with being a public company and to pay dividends on our preference shares and interest and principal on loans from subsidiaries and debt obligations, including loans under our credit facilities, our 4.50% senior notes due 2022 (the “2022 Senior Notes”), our 4.95% senior notes due 2029 (the "2029 Senior Notes” and, together with the 2022 Senior Notes, the "Senior Notes") and our 5.75% Junior Subordinated Notes due 2040 (the “Junior Subordinated Notes”). The Senior Notes and the Junior Subordinated Notes qualify as Tier 3 and Tier 2 capital, respectively, under the eligible capital rules of the Bermuda Monetary Authority.
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We may, from time to time, raise capital from the issuance of equity, debt or other securities as we continuously evaluate our strategic opportunities. We filed an automatic shelf registration statement on August 17, 2020 with the U.S. Securities and Exchange Commission ("SEC") to allow us to conduct future offerings of certain securities, if desired, including debt, equity and other securities.
As we are a holding company and have no substantial operations of our own, our assets consist primarily of investments in subsidiaries and our loans and advances to subsidiaries. Dividends from our insurance subsidiaries are restricted by insurance regulation, as described below.

U.S. Finance Company Liquidity
Enstar Finance LLC ("Enstar Finance") is a wholly-owned finance subsidiary and is dependent upon funds from other subsidiaries to pay any amounts due under the Junior Subordinated Notes. In addition, we are a holding company that conducts substantially all of our operations through our subsidiaries. Our only significant assets are the capital stock of our subsidiaries. Because substantially all of our operations are conducted through our insurance subsidiaries, substantially all of our consolidated assets are held by our subsidiaries and most of our cash flow, and, consequently, our ability to pay any amounts due on the guaranty of the Junior Subordinated Notes, is dependent upon the earnings of our subsidiaries and the transfer of funds by those subsidiaries to us in the form of distributions or loans.
In addition, the ability of our insurance and reinsurance subsidiaries to make distributions or other transfers to Enstar Finance or us is limited by applicable insurance laws and regulations. These laws and regulations and the determinations by the regulators implementing them may significantly restrict such distributions and transfers, and, as a result, adversely affect the overall liquidity of Enstar Finance or us. The ability of all of our subsidiaries to make distributions and transfers to Enstar Finance and us may also be restricted by, among other things, other applicable laws and regulations and the terms of our bank loans and our subsidiaries’ bank loans and other issued debt instruments.

Operating Company Liquidity
The ability of our insurance and reinsurance subsidiaries to pay dividends and make other distributions is limited by the applicable laws and regulations of the jurisdictions in which our insurance and reinsurance subsidiaries operate, including Bermuda, the United Kingdom, the United States, Australia and Continental Europe, which subject these subsidiaries to significant regulatory restrictions. These laws and regulations require, among other things, certain of our insurance and reinsurance subsidiaries to maintain minimum capital requirements and limit the amount of dividends and other payments that these subsidiaries can pay to us, which in turn may limit our ability to pay dividends and make other payments. For more information on these laws and regulations, see "Item 1. Business - Regulation" in our Annual Report on Form 10-K for the year ended December 31, 2019. As of September 30, 2020, all of our insurance and reinsurance subsidiaries’ capital resources levels were in excess of the minimum levels required. The ability of our subsidiaries to pay dividends is subject to certain restrictions, as described in Note 22 - "Dividend Restrictions and Statutory Financial Information" to our consolidated financial statements included within Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2019. Our subsidiaries' ability to pay dividends and make other forms of distributions may also be limited by our repayment obligations under certain of our outstanding loan facility agreements. Variability in ultimate loss payments and valuations of investments held in collateral accounts may also result in increased liquidity requirements for our subsidiaries.
In the Non-life Run-off segment, sources of funds primarily consist of cash and investment portfolios acquired on the completion of acquisitions and loss portfolio transfer reinsurance agreements. Cash balances acquired upon our purchase of insurance or reinsurance companies are classified as cash provided by investing activities. Cash acquired from loss portfolio transfer reinsurance agreements is classified as cash provided by operating activities. We expect to use funds acquired from cash and investment portfolios, collected premiums, collections from reinsurance debtors, fees and commission income, investment income and proceeds from sales and redemptions of investments to meet expected claims payments and operational expenses, with the remainder used for acquisitions and additional investments. In the Non-life Run-off segment, we generally expect negative operating cash flows to be met by positive investing cash flows; however, cash provided by operating activities was positive for the nine months ended September 30, 2020 and 2019 as the proceeds from sales and maturities of trading securities exceeded cash used in the purchase of trading securities, with the net proceeds being used in the purchase of available-for-sale securities included within investing cash flows.
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In the Atrium segment, we expect a net provision of cash from operations as investment income earned and collected premiums should generally be in excess of total net claim payments, losses incurred on earned premiums and operating expenses. As a result of the announcement to sell StarStone U.S. and place StarStone International into run-off, we expect net neutral cash flows from operations as net claim payments, losses incurred on earned premiums and operating expenses are met by cash inflows from investment income, collection of premium receivable and proceeds from sales and maturities of investments.
Overall, we expect our cash flows, together with our existing capital base and cash and investments acquired on the acquisition of insurance and reinsurance subsidiaries, to be sufficient to meet cash requirements and to operate our business.

Cash Flows
The following table summarizes our consolidated cash flows provided by (used in) operating, investing and financing activities:
 Nine Months Ended September 30,
20202019Change
(in thousands of U.S. dollars)
Cash provided by (used in):
Operating activities$2,104,030 $429,568 $1,674,462 
Investing activities(2,011,034)(573,708)(1,437,326)
Financing activities202,623 309,642 (107,019)
Discontinued operations cash flows:
Net cash flows provided by operating activities114,024 210,666 (96,642)
Net cash flows used in investing activities(134,759)(5,332)(129,427)
Net cash flows from discontinued operations(20,735)205,334 (226,069)
Effect of exchange rate changes on cash1,727 (12,507)14,234 
Net increase in cash and cash equivalents276,611 358,329 (81,718)
Cash and cash equivalents, beginning of period971,349 901,996 69,353 
Net change in cash of businesses held-for-sale(50,638)(205,333)154,695 
Cash and cash equivalents, end of period$1,197,322 $1,054,992 $142,330 

Details of our consolidated cash flows are included in "Item 1. Financial Statements - Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019."
Nine Months Ended September 30: Cash and cash equivalents increased by $276.6 million during the nine months ended September 30, 2020 compared to $358.3 million during the nine months ended September 30, 2019.
For the nine months ended September 30, 2020, cash and cash equivalents increased by $276.6 million, as cash provided by operating and financing activities of $2.1 billion and $202.6 million, respectively, was partially offset by cash used in investing activities of $2.0 billion. Cash provided by operations was largely the result of the proceeds from net sales and maturities of trading securities and cash and restricted cash acquired in Non-life Run-off reinsurance transactions partly offset by the timing of paid losses. Cash provided by financing activities for the nine months ended September 30, 2020 was primarily attributable to the net debt obligations drawdown of $254.8 million which is discussed in the "Debt Obligations" section below and which was used to fund significant new business. During the nine months ended September 30, 2020, we repurchased 174,464 shares for $25.4 million, and paid $26.8 million of dividends on preferred shares, which are cash outflows within cash provided by financing activities. Cash used in investing activities for the nine months ended September 30, 2020 primarily related to net purchases of AFS securities of $1.5 billion and net subscriptions of other investments of $530.3 million. Change in cash of business held-for-sale is due to the classification of the assets and liabilities of Northshore as held-for-sale as of September 30, 2020.
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For the nine months ended September 30, 2019, cash and cash equivalents increased by $358.3 million, as cash provided by operating and financing activities of $429.6 million and $309.6 million, respectively, was partially offset by cash used in investing activities of $573.7 million. Cash provided by operations was largely a result of paid losses and net sales and maturities of trading securities. Cash provided by financing activities for the nine months ended September 30, 2019 was primarily attributable to an increase in debt obligations of $348.2 million due to the issuance of the 2029 Senior Notes, partially offset by a $150.0 million repayment of the 2018 EGL Term Loan Facility. Cash used in investing activities for the nine months ended September 30, 2019 was primarily related to net subscriptions of other investments of $271.0 million and net purchases of AFS securities of $263.1 million.

Investable Assets
We define investable assets as the sum of total investments, cash and cash equivalents, restricted cash and cash equivalents and funds held. Investable assets were $16.0 billion as of September 30, 2020 as compared to $14.1 billion as of December 31, 2019, an increase of 13.5%. The increase was primarily due to assets acquired in relation to the Hannover Re, Munich Re, Lyft, Aspen and AXA Group transactions and unrealized gains on investments. For information regarding our investments strategy, portfolio and results, refer to "Investable Assets" above.

Reinsurance Balances Recoverable
As of September 30, 2020 and December 31, 2019, we had reinsurance balances recoverable on paid and unpaid losses of $1.9 billion and $2.2 billion, respectively.
Our insurance and reinsurance run-off subsidiaries and portfolios, prior to acquisition, used retrocessional agreements to reduce their exposure to the risk of insurance and reinsurance assumed. On an annual basis, StarStone purchases a tailored outwards reinsurance program designed to manage their risk profiles. The majority of StarStone's third-party reinsurance cover is with highly rated reinsurers or is collateralized by letters of credit.
We remain liable to the extent that retrocessionaires do not meet their obligations under these agreements, and therefore, we evaluate and monitor concentration of credit risk among our reinsurers. Provisions are made for amounts considered potentially uncollectible.
For further information regarding our unaudited condensed reinsurance balances recoverable, refer to Note 7 - "Reinsurance Balances Recoverable on Paid and Unpaid Losses" in the notes to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q.

Debt Obligations
We utilize debt financing and credit facilities primarily for funding acquisitions and significant new business, investment activities and, from time to time, for general corporate purposes. Our debt obligations were as follows:
FacilityOrigination DateTermSeptember 30, 2020December 31, 2019
4.50% Senior Notes due 2022March 10, 20175 years$349,155 $348,616 
4.95% Senior Notes due 2029May 28, 201910 years493,940 493,600 
Total Senior Notes843,095 842,216 
5.75% Junior Subordinated Notes due 2040August 26, 202020 years344,813 — 
EGL Revolving Credit FacilityAugust 16, 20185 years260,000 — 
2018 EGL Term Loan Facility December 27, 20183 years— 348,991 
Total debt obligations$1,447,908 $1,191,207 
During the nine months ended September 30, 2020, the EGL Revolving Credit Facility was utilized for funding (i) significant new business as described in Note 3 - "Significant New Business," (ii) investment opportunities and (iii) to provide additional liquidity in the first half of the year during the financial disruption associated with the COVID-19 pandemic. In addition, we issued the Junior Subordinated Notes and used the proceeds to repay the 2018 EGL Term Loan Facility.
Senior Notes
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For information regarding our Senior Notes, refer to Note 14 - "Debt Obligations and Credit Facilities" in the notes to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q.
Junior Subordinated Notes
On August 26, 2020, our wholly-owned subsidiary, Enstar Finance issued the Junior Subordinated Notes for an aggregate principal amount of $350.0 million. The Junior Subordinated Notes are fully and unconditionally guaranteed by us on an unsecured and junior subordinated basis.
The Junior Subordinated Notes are exclusively the obligations of Enstar Finance and us, to the extent of the guarantee, and are not guaranteed by any of our other subsidiaries, which are separate and distinct legal entities and, except for Enstar Finance, have no obligation, contingent or otherwise, to pay holders any amounts due on the Junior Subordinated Notes or to make any funds available for payment on the Junior Subordinated Notes, whether by dividends, loans or other payments.
Generally, if an event of default occurs, the trustee or the holders of at least 25% in aggregate principal amount of the then outstanding Junior Subordinated Notes may declare the principal and accrued and unpaid interest on all of the Junior Subordinated Notes to be due and payable immediately.
For further information regarding the Junior Subordinated Notes, refer to Note 14 - "Debt Obligations and Credit Facilities" in the notes to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q.
Credit Facilities
As of September 30, 2020, we were permitted to borrow up to an aggregate of $600.0 million under our revolving credit facility. As of September 30, 2020, there was $340.0 million of available unutilized capacity under the facility. We are in compliance with the covenants of the facility. Subsequent to September 30, 2020, we have neither borrowed nor repaid any additional amounts under the facility, as such the unutilized capacity remains at $340.0 million. We have the option to increase the commitments under the facility by up to an aggregate amount of $400.0 million from the existing lenders, or through the addition of new lenders subject to the terms of the agreement.
On December 27, 2018, we entered into and fully utilized a three-year $500.0 million unsecured term loan (the "2018 EGL Term Loan Facility"). During 2019, we repaid principal of $150.0 million, and during the three months ended September 30, 2020, we repaid the remaining $350.0 million of principal on the facility. As of September 30, 2020, there was no amount outstanding on the 2018 EGL Term Loan Facility.
For further information regarding our credit facilities, refer to Note 14 - "Debt Obligations and Credit Facilities" in the notes to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q.

Letters of Credit
We utilize unsecured and secured letters of credit to support certain of our insurance and reinsurance performance obligations.
Funds at Lloyd's
We had an unsecured letter of credit agreement for Funds at Lloyd's (the "FAL Facility") as at September 30, 2020, to issue up to $375.0 million of letters of credit, with provision to increase the facility by an additional $25.0 million up to an aggregate amount of $400.0 million, subject to lenders approval. On November 5, 2020, we amended and restated the FAL Facility to reduce its capacity to $275.0 million (with provision to increase the facility by an additional $75.0 million) and extend its term by two years. The FAL Facility is available to satisfy our Funds at Lloyd's requirements and expires in 2025. As of September 30, 2020 and December 31, 2019, our combined Funds at Lloyd's were comprised of cash and investments of $547.0 million and $639.3 million, respectively, and unsecured letters of credit of $252.0 million as of both dates.
$120.0 million Letter of Credit Facility
We use this facility to support certain reinsurance collateral obligations of our subsidiaries. Pursuant to the facility agreement, we have the option to increase commitments under the facility by an additional $60.0 million. As of both September 30, 2020 and December 31, 2019, we had issued an aggregate amount of letters of credit under this facility of $120.0 million.
$800.0 million Syndicated Letter of Credit Facility
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During 2019, we entered into an unsecured $760.0 million letter of credit facility agreement, most recently amended on June 3, 2020. On August 4, 2020, we exercised our option to increase the commitments available under the facility by an aggregate amount of $40.0 million, bringing the total size of the facility to $800.0 million. The facility is used to collateralize certain reinsurance obligations, including $456.8 million relating to the reinsurance transaction with Maiden Reinsurance Ltd. As of September 30, 2020 and December 31, 2019, we had issued an aggregate amount of letters of credit under this facility of $619.8 million and $608.0 million, respectively.
$65.0 million Letter of Credit Facility
On August 4, 2020, we entered into a $65.0 million secured letter of credit facility agreement pursuant to which we issued a letter of credit in the amount of approximately $61.0 million to collateralize a portion of our reinsurance performance obligations relating to our novation transaction with Hannover Re, which we completed on August 6, 2020, as discussed in Note 3 - "Significant New Business" to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q.
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Contractual Obligations
The following table summarizes, as of September 30, 2020, our future payments under contractual obligations and estimated payments for losses and LAE and policy benefits by expected payment date and updates the table on page 89 of our Annual Report on Form 10-K for the year ended December 31, 2019. The table excludes short-term liabilities and includes only obligations that are expected to be settled in cash.  
  TotalLess than or equal to 1 yearMore than 1 year - less than or equal to 3 yearsMore than 3 years - less than or equal to 5 yearsMore than 5 years - less than or equal to 10 yearsMore than
10 years
 (in millions of U.S. dollars)
Operating Activities
Estimated gross reserves for losses and LAE (1)
Asbestos$1,779.2 $153.8 $266.0 $219.6 $350.5 $789.3 
Environmental318.6 35.7 61.3 49.0 69.7 102.9 
General Casualty1,710.4 207.5 289.5 305.2 682.4 225.8 
Workers' compensation/personal accident2,014.2 164.1 265.9 326.4 457.8 800.0 
Marine, aviation and transit348.3 105.2 108.4 50.7 44.7 39.3 
Construction defect123.1 34.7 45.0 21.8 12.9 8.7 
Professional indemnity/ Directors & Officers979.8 200.5 257.4 154.1 237.9 129.9 
Motor1,009.3 366.6 303.6 112.6 88.8 137.7 
Property145.1 59.2 46.4 18.6 12.2 8.7 
Other393.9 107.5 85.6 53.2 63.1 84.5 
Total Non-Life Run-off8,821.9 1,434.8 1,729.1 1,311.2 2,020.0 2,326.8 
StarStone International (Non-U.S.)1,310.1 448.4 466.9 207.3 152.1 35.4 
Other26.3 6.4 8.5 3.4 8.0 — 
ULAE371.7 67.5 83.4 53.9 70.1 96.8 
Estimated gross reserves for losses and LAE (1)
10,530.0 1,957.1 2,287.9 1,575.8 2,250.2 2,459.0 
Held-for-sale liabilities: StarStone U.S. gross reserves for losses and LAE(2)
830.5 246.2 289.4 152.3 107.0 35.6 
Held-for-sale liabilities : Atrium gross reserves for losses and LAE (3)
245.1 96.4 89.0 35.9 19.9 3.9 
Operating lease obligations(4)
45.5 10.2 15.8 10.2 7.3 2.0 
Atrium operating lease obligations (5)
1.0 0.6 0.4 — — — 
Investing Activities
Investment commitments to other investments792.2 418.8 182.0 111.8 79.6 — 
Investment commitments to fixed maturities15.0 15.0 — — — — 
Investment commitments to equity method investments68.7 68.7 — — — — 
Financing Activities
Loan repayments (including estimated interest payments)2,126.9 67.4 718.9 89.8 699.6 551.2 
Total$14,654.9 $2,880.4 $3,583.4 $1,975.8 $3,163.6 $3,051.7 
(1)The reserves for losses and LAE represent management’s estimate of the ultimate cost of settling losses. The estimation of losses is based on various complex and subjective judgments. Actual losses paid may differ, perhaps significantly, from the reserve estimates reflected in our financial statements. Similarly, the timing of payment of our estimated losses is not fixed and there may be significant changes in actual payment activity. The assumptions used in estimating the likely payments due by period are based on our historical claims payment experience and industry payment patterns, but due to the inherent uncertainty in the process of estimating the timing of such payments, there is a risk that the amounts paid in any such period can be significantly different from the amounts disclosed above. The amounts in the above table represent our estimates of known liabilities as of September 30, 2020 and do not take into account corresponding reinsurance balance recoverable amounts that would be due to us. Furthermore, certain of the reserves included in the unaudited condensed consolidated financial statements as of September 30, 2020 were acquired by us and initially recorded at fair value with subsequent amortization, whereas the expected payments by period in the table above are the estimated payments at a future time and do not reflect the fair value adjustment in the amount payable.
(2) In connection with the sale of StarStone U.S. disclosed within Note 4 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations," these liabilities are classified as held-for-sale as of September 30, 2020. Our Non-life Run-off segment will be assuming these liabilities, together with the associated reinsurance asset, via a loss portfolio transfer reinsurance agreement which is expected to occur contemporaneously with the sale of StarStone U.S. in the second half of 2020, subject to regulatory and other closing conditions.
(3) In connection with the Atrium Exchange Transaction disclosed within Note 4 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations," these liabilities are classified as held-for-sale as of September 30, 2020.
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(4) The variance of $0.4 million between our operating lease obligations disclosure of $45.5 million included within our contractual obligations table above and our undiscounted total lease payments of $45.1 million disclosed within Note 21 - "Commitments and Contingencies", is attributable to lease liabilities related to our short-term leases which are not included in our lease disclosures in Note 21 and offsetting lease liabilities on premises we have sub-leased to third-parties and which are excluded from the operating lease obligations disclosure on the table above.
(5) Pursuant to the Atrium Exchange Transaction discussed within Note 4 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations," the operating lease obligations related to Atrium are disclosed separately from the rest of the Company's lease obligations as of September 30, 2020.
In addition to the contractual obligations in the table on the previous page, we also have the right to purchase the RNCI related to Atrium and StarStone from the Trident V Funds and the Dowling Funds after a certain time in the future (a "call right") and the RNCI holders have the right to sell their RNCI to us after a certain time in the future (a "put right"). Pursuant to the Exchange Transaction described in Note 20 - "Related Party Transactions" to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q, we have agreed to exchange a portion of our indirect interest in the holding company for Atrium for all of the Trident V Funds' indirect interest in StarStone U.S. Following the closing of the Exchange Transaction, we will maintain a call right over a portion of StarStone International owned by the Trident V Funds and the Dowling Funds, and they will maintain put rights to transfer those interests to us.
For additional information relating to our commitments and contingencies, see Note 21 - "Commitments and Contingencies" to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q.

Off-Balance Sheet Arrangements
At September 30, 2020, we did not have any off-balance sheet arrangements, as defined by Item 303(a)(4) of Regulation S-K.

Critical Accounting Policies
Our critical accounting policies are discussed in Management's Discussion and Analysis of Results of Operations and Financial Condition contained in our Annual Report on Form 10-K for the year ended December 31, 2019. Except as discussed above, in the updates included in "Note 1 - Significant Accounting Policies" to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q, our critical accounting policies have not materially changed.

Cautionary Statement Regarding Forward-Looking Statements
This quarterly report and the documents incorporated by reference herein contain statements that constitute "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, with respect to our financial condition, results of operations, business strategies, operating efficiencies, competitive positions, growth opportunities, plans and objectives of our management, as well as the markets for our securities and the insurance and reinsurance sectors in general. Statements that include words such as "estimate," "project," "plan," "intend," "expect," "anticipate," "believe," "would," "should," "could," "seek," "may" and similar statements of a future or forward-looking nature identify forward-looking statements for purposes of the federal securities laws or otherwise. All forward-looking statements are necessarily estimates or expectations, and not statements of historical fact, reflecting the best judgment of our management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. These forward looking statements should, therefore, be considered in light of various important factors, including those set forth in this quarterly report and in our Annual Report on Form 10-K for the year ended December 31, 2019. These factors include:
•risks associated with implementing our business strategies and initiatives;
•the adequacy of our loss reserves and the need to adjust such reserves as claims develop over time;
•risks relating to our acquisitions, including our ability to evaluate opportunities, successfully price acquisitions, address operational challenges, support our planned growth and assimilate acquired companies into our internal control system in order to maintain effective internal controls, provide reliable financial reports and prevent fraud;
•risks relating to our active underwriting businesses, including unpredictability and severity of catastrophic and other major loss events, failure of risk management and loss limitation methods, the risk of a ratings downgrade or withdrawal, and cyclicality of demand and pricing in the insurance and reinsurance markets;
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•risks relating to the performance of our investment portfolio and our ability to structure our investments in a manner that recognizes our liquidity needs;
•changes and uncertainty in economic conditions, including interest rates, inflation, currency exchange rates, equity markets and credit conditions, which could affect our investment portfolio, our ability to finance future acquisitions and our profitability;
•risks relating to the evolving COVID-19 global pandemic and the significant disruption and economic and financial turmoil that has taken place as a result of government measures to protect public health;
•the risk that ongoing or future industry regulatory developments will disrupt our business, affect the ability of our subsidiaries to operate in the ordinary course or to make distributions to us, or mandate changes in industry practices in ways that increase our costs, decrease our revenues or require us to alter aspects of the way we do business;
•risks relating to the variability of statutory capital requirements and the risk that we may require additional capital in the future, which may not be available or may be available only on unfavorable terms;
•risks relating to the availability and collectability of our reinsurance;
•losses due to foreign currency exchange rate fluctuations;
•increased competitive pressures, including the consolidation and increased globalization of reinsurance providers;
•emerging claim and coverage issues;
•lengthy and unpredictable litigation affecting the assessment of losses and/or coverage issues;
•loss of key personnel;
•the ability of our subsidiaries to distribute funds to us and the resulting impact on our liquidity;
•our ability to comply with covenants in our debt agreements;
•changes in our plans, strategies, objectives, expectations or intentions, which may happen at any time at management’s discretion;
•operational risks, including system, data security or human failures and external hazards;
•risks relating to our ability to obtain regulatory approvals, including the timing, terms and conditions of any such approvals, and to satisfy other closing conditions in connection with our acquisition agreements, which could affect our ability to complete acquisitions;
•risks relating to our subsidiaries with liabilities arising from legacy manufacturing operations;
•tax, regulatory or legal restrictions or limitations applicable to us or the insurance and reinsurance business generally;
•changes in tax laws or regulations applicable to us or our subsidiaries, or the risk that we or one of our non-U.S. subsidiaries become subject to significant, or significantly increased, income taxes in the United States or elsewhere;
•changes in Bermuda law or regulation or the political stability of Bermuda; and
•changes in accounting policies or practices.
The factors listed above should be not construed as exhaustive and should be read in conjunction with the Risk Factors that are included in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2019. We undertake no obligation to publicly update or review any forward looking statement, whether to reflect any change in our expectations with regard thereto, or as a result of new information, future developments or otherwise, except as required by law.
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ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following risk management discussion and the estimated amounts generated from sensitivity analysis presented are forward-looking statements of market risk assuming certain market conditions occur. Future results may differ materially from these estimated results due to, among other things, actual developments in the global financial markets, changes in the composition of our investment portfolio, or changes in our business strategies. The results of analysis we use to assess and mitigate risk are not projections of future events or losses. See "Cautionary Statement Regarding Forward-Looking Statements" for additional information regarding our forward-looking statements.
We are principally exposed to four types of market risk: interest rate risk, credit risk, equity price risk and foreign currency risk. Our policies to address these risks in 2020 are not materially different than those used in 2019 and, based on our current knowledge and expectations, we do not currently anticipate significant changes in our market risk exposures or in how we will manage those exposures in future reporting periods. However, due to the ongoing uncertainty and volatility in financial markets as a result of the economic conditions caused by the COVID-19 pandemic, we expect interest rates, credit spreads and global equity markets to remain volatile in the near-term. Furthermore, the pandemic has increased the risk of defaults across many industries. As a result, we continue to closely monitor market risk during this time.

Interest Rate and Credit Spread Risk
Interest rate risk is the price sensitivity of a security to changes in interest rates. Credit spread risk is the price sensitivity of a security to changes in credit spreads. Our investment portfolio and funds held - directly managed includes fixed maturity and short-term investments, whose fair values will fluctuate with changes in interest rates and credit spreads. We attempt to maintain adequate liquidity in our fixed maturity investments portfolio with a strategy designed to emphasize the preservation of our invested assets and provide sufficient liquidity for the prompt payment of claims and contract liabilities, as well as for settlement of commutation payments. We also monitor the duration and structure of our investment portfolio.
The following table summarizes the aggregate hypothetical change in fair value from an immediate parallel shift in the treasury yield curve, assuming credit spreads remain constant, in our fixed maturity and short-term investments portfolio classified as trading and AFS, our funds held directly managed portfolio, our fixed income funds and our fixed income exchange-traded funds, and excludes investments classified as held-for-sale:
 Interest Rate Shift in Basis Points
As of September 30, 2020-100-50—+50+100
 (in millions of U.S. dollars)
Total Market Value$10,551 $10,266 $9,985 $9,712 $9,453 
Market Value Change from Base5.7 %2.8 %— %(2.7)%(5.3)%
Change in Unrealized Value$566 $281 $— $(273)$(532)
As of December 31, 2019-100-50—+50+100
Total Market Value$10,141 $9,893 $9,648 $9,415 $9,193 
Market Value Change from Base5.1 %2.5 %— %(2.4)%(4.7)%
Change in Unrealized Value$493 $245 $— $(233)$(455)

Actual shifts in interest rates may not change by the same magnitude across the maturity spectrum or on an individual security and, as a result, the impact on the fair value of our fixed maturity securities, short-term investments, funds held - directly managed and fixed income exchange-traded fund may be materially different from the resulting change in value indicated in the tables above.
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The following table summarizes the aggregate hypothetical change in fair value from an immediate parallel shift in credit spreads assuming interest rates remain fixed, in our fixed maturity and short-term investments portfolio classified as trading and AFS, our funds held directly managed portfolio, our fixed income funds and our fixed income exchange-traded funds, and excludes investments classified as held-for-sale:
 Credit Spread Shift in Basis Points
As at September 30, 2020—+50+100
 (in millions of U.S. dollars)
Total Market Value$9,985 $9,718 $9,466 
Market Value Change from Base(2.7)%(5.2)%
Change in Unrealized Value$(267)$(519)
As at December 31, 2019—+50+100
Total Market Value$9,648 $9,429 $9,218 
Market Value Change from Base(2.3)%(4.5)%
Change in Unrealized Value$(219)$(430)

Credit Risk
Credit risk relates to the uncertainty of a counterparty’s ability to make timely payments in accordance with contractual terms of the instrument or contract. We are exposed to direct credit risk primarily within our portfolios of fixed maturity and short-term investments, and through customers, brokers and reinsurers in the form of premiums receivable, reinsurance balances recoverable on paid and unpaid losses, respectively, as discussed below.

Fixed Maturity and Short-Term Investments
As a holder of $9.2 billion of fixed maturity and short-term investments, we also have exposure to credit risk as a result of investment ratings downgrades or issuer defaults. In an effort to mitigate this risk, our investment portfolio consists primarily of investment grade-rated, liquid, fixed maturity investments of short-to-medium duration and mutual funds. A table of credit ratings for our fixed maturity and short-term investments is in Note 5 - "Investments" in the notes to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q. As of September 30, 2020, 40.4% of our fixed maturity and short-term investment portfolio was rated AA or higher by a major rating agency (December 31, 2019: 39.1%) with 3.3% rated lower than BBB- (December 31, 2019: 4.3%). The portfolio as a whole, including cash, restricted cash, fixed maturity and short term investments and funds held - directly managed, had an average credit quality rating of A+ as of September 30, 2020 (December 31, 2019: A+).
In addition, we manage our portfolio pursuant to guidelines that follow what we believe are prudent standards of diversification. The guidelines limit the allowable holdings of a single issue and issuers and, as a result, we believe we do not have significant concentrations of credit risk.
A summary of our fixed maturity and short-term investments by credit rating is as follows:
Credit ratingSeptember 30, 2020December 31, 2019Change
AAA28.1 %26.0 %2.1 %
AA12.3 %13.1 %(0.8)%
A32.9 %34.5 %(1.6)%
BBB23.2 %21.9 %1.3 %
Non-investment grade3.3 %4.3 %(1.0)%
Not rated0.2 %0.2 %— %
Total100.0 %100.0 %
Average credit ratingA+A+
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Reinsurance Balances Recoverable
We have exposure to credit risk as it relates to our reinsurance balances recoverable on paid and unpaid losses. Our insurance subsidiaries remain liable to the extent that retrocessionaires do not meet their contractual obligations and, therefore, we evaluate and monitor concentration of credit risk among our reinsurers. A discussion of our reinsurance balances recoverable is in Note 7 - "Reinsurance Balances Recoverable on Paid and Unpaid Losses" in the notes to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q.

Funds Held
Under funds held arrangements, the reinsured company has retained funds that would otherwise have been remitted to our reinsurance subsidiaries. The funds balance is credited with investment income and losses payable are deducted. We are subject to credit risk if the reinsured company is unable to honor the value of the funds held balances, such as in the event of insolvency. However, we generally have the contractual ability to offset any shortfall in the payment of the funds held balances with amounts owed by us to the reinsured for losses payable and other amounts contractually due. Our funds held are shown under two categories on the consolidated balance sheets, where funds held upon which we receive the underlying portfolio economics are shown as "Funds held - directly managed", and funds held where we receive a fixed crediting rate are shown as "Funds held by reinsured companies." Both types of funds held are subject to credit risk. We routinely monitor the creditworthiness of reinsured companies with whom we have funds held arrangements. As of September 30, 2020, we had a significant concentration of $948.3 million with one reinsured company which has financial strength credit ratings of A+ from A.M. Best and AA from Standard & Poor's.

Equity Price Risk
Our portfolio of equity investments, excluding our fixed income exchange-traded funds but including the equity funds and call options on equities included in other investments (collectively, "equities at risk"), has exposure to equity price risk, which is the risk of potential loss in fair value resulting from adverse changes in stock prices. Our fixed income exchange-traded funds are excluded from the below analysis and have been included within the interest rate and credit spread risk analysis, as the exchange-traded funds are part of our fixed income investment strategy. Our global equity portfolio is correlated with a blend of the S&P 500 and MSCI World indices, and changes in this blend of indices would approximate the impact on our portfolio. The following table summarizes the aggregate hypothetical change in fair value from a 10% decline in the overall market prices of our equities at risk:
September 30, 2020December 31, 2019Change
(in millions of U.S. dollars)
Publicly traded equity investments in common and preferred stocks$303.9 $327.9 $(24.0)
Privately held equity investments in common and preferred stocks271.0 265.8 5.2 
Private equity funds320.5 323.5 (3.0)
Equity funds290.1 410.1 (120.0)
Call options on equity— 0.1 (0.1)
Fair value of equities at risk$1,185.5 $1,327.4 $(141.9)
Impact of 10% decline in fair value$118.6 $132.7 $(14.1)

In addition to the above, as of September 30, 2020, we had investments of $2.1 billion (December 31, 2019: $1.1 billion) in hedge funds, included within our other investments, at fair value, that have exposure, among other items, to equity price risk.
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Foreign Currency Risk
The table below summarizes our net exposures to foreign currencies:
AUDCADEURGBPOtherTotal
As of September 30, 2020(in millions of U.S. dollars)
Total net foreign currency exposure$0.7 $9.5 $72.0 $(26.4)$0.5 $56.3 
Pre-tax impact of a 10% movement of the U.S. dollar(1)
$0.1 $1.0 $7.2 $(2.6)$0.1 $5.6 
As of December 31, 2019
Total net foreign currency exposure$20.2 $(10.6)$12.9 $(11.9)$0.6 $11.2 
Pre-tax impact of a 10% movement of the U.S. dollar(1)
$2.0 $(1.1)$1.3 $(1.2)$0.1 $1.1 
(1)Assumes 10% change in the U.S. dollar relative to other currencies.

Through our subsidiaries located in various jurisdictions, we conduct our insurance and reinsurance operations in a variety of non-U.S. currencies. We have the following exposures to foreign currency risk:
•Transaction Risk: The functional currency for the majority of our subsidiaries is the U.S. dollar. Within these entities, any fluctuations in foreign currency exchange rates relative to the U.S. dollar has a direct impact on the valuation of our assets and liabilities denominated in other currencies. All changes in foreign exchange rates, with the exception of non-U.S. dollar AFS investments, are recognized in our consolidated statements of earnings. Changes in foreign exchange rates relating to non-U.S. dollar AFS investments are recorded in accumulated other comprehensive income (loss) in shareholders’ equity. Our subsidiaries with non-U.S. dollar functional currencies are also exposed to fluctuations in foreign currency exchange rates relative to their own functional currency.
•Translation Risk: Our net investments in certain European, British, and Australian subsidiaries have functional currencies of the Euro, British pound and Australian dollar, respectively. The foreign exchange gain or loss resulting from the translation of their financial statements from their respective functional currency into U.S. dollars is recorded in the cumulative translation adjustment account, which is a component of accumulated other comprehensive income (loss) in shareholders’ equity.
Our foreign currency policy is to broadly manage, where possible, our foreign currency risk by:
•Seeking to match our liabilities under insurance and reinsurance policies that are payable in foreign currencies with assets that are denominated in such currencies, subject to regulatory constraints.
•Selectively utilizing foreign currency forward contracts to mitigate foreign currency risk.
•Borrowing to hedge the foreign currency exposure on our net investment in certain of our subsidiaries whose functional currency is denominated in non-U.S. dollars, which is referred to as a non-derivative hedge.
The instruments we use to manage foreign currency risk are discussed in Note 6 - "Derivatives and Hedging Instruments" in the notes to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q. To the extent our foreign currency exposure is not matched or hedged, we may experience foreign exchange losses or gains, which would be reflected in our consolidated results of operations and financial condition.

Effects of Inflation
Inflation may have a material effect on our consolidated results of operations by its effect on our assets and our liabilities. Inflation could lead to higher interest rates, resulting in a decrease in the market value of our fixed maturity portfolio. We may choose to hold our fixed maturity investments to maturity, which would result in the unrealized gains or losses accreting back over time. Inflation may also affect the value of certain of our liabilities, primarily our estimate for losses and LAE, such as our cost of claims which includes medical treatments, litigation costs and judicial awards. Although our estimate for losses and LAE is established to reflect the likely payments in the future, we would be subject to the risk that inflation could cause these amounts to be greater than the current estimate for losses and LAE. We seek to take this into account when setting reserves and pricing new business. However, the actual effects of inflation on our consolidated results of operations cannot be accurately known until claims are ultimately settled.
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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of September 30, 2020. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that we maintained effective disclosure controls and procedures to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and timely reported as specified in the rules and forms of the U.S. Securities and Exchange Commission and is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the nine months ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a discussion of legal proceedings, see Note 21 - "Commitments and Contingencies" in the notes to our unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

ITEM 1A. RISK FACTORS
Our results of operations and financial condition are subject to numerous risks and uncertainties described in “Risk Factors” included in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2019. The risk factors identified therein have not materially changed, except as set forth below:
The impact of COVID-19 and related risks has adversely affected our business, results of operations, financial condition, and liquidity and capital resources, and any future impact on our business is difficult to predict at this time.
The ongoing COVID-19 pandemic has caused significant disruption to the economy and financial markets globally, and the full extent of the potential impacts of COVID-19 are not yet known. Our results of operations, financial condition, and liquidity and capital resources have been adversely impacted by the COVID-19 pandemic, and the future impact of the pandemic is difficult to predict. In particular, we believe we are subject to the following risks related to the COVID-19 pandemic:
•Investments. Due in large part to the uncertainty caused by the COVID-19 pandemic in global financial markets, our investment portfolio has experienced significant volatility. In the first quarter of 2020, we experienced significant unrealized losses (largely due to widening credit spreads on fixed income investments and changes in the fair value of our equity investments), heightened credit risk, and declines in yields on our fixed income investments. Although these unrealized losses reversed since the first quarter, our investment portfolios may continue to experience significant volatility and could be adversely impacted by unfavorable market conditions caused by the COVID-19 pandemic, which could cause continued volatility in our results of operations and negatively impact our financial condition.
•Debt and Equity Financing. As a result of the economic conditions caused by the COVID-19 pandemic, capital and credit markets continue to experience volatility that could negatively impact our ability to raise additional capital through the debt or equity markets or through bank or other debt financing. If we are unable obtain adequate capital on suitably attractive terms, or at all, we may be unable to implement our future growth or operating plans and our business, financial condition, and results of operations could be materially adversely affected.
•Liquidity. Due to the change in fair value of our investments caused by the COVID-19 pandemic, we and our insurance and reinsurance subsidiaries may need additional capital to maintain compliance with regulatory capital requirements and/or be required to post additional collateral under existing reinsurance arrangements, which could reduce our liquidity. Due to current market conditions, we may not be able to secure letters of credit to satisfy certain of our existing collateral obligations, including through the extension or renewal of existing facilities, or such letters of credit may only be available on unfavorable terms. In addition, we may experience a reduction in the amount of available distribution or dividend capacity from our regulated insurance and reinsurance subsidiaries, which would also reduce liquidity.
•Acquisitions and New Business. Our ability to complete acquisitions of companies and portfolios of insurance and reinsurance business in our Non-life Run-off segment may be adversely impacted by circumstances created by the COVID-19 pandemic, including as a result of the limited availability of external financing or funding to acquire new business, the willingness of counterparties to engage in transactions in light of uncertain economic conditions or financial stress, and the additional scrutiny of regulators whose approval is required to complete transactions due to the uncertain economic conditions, as well as other factors that we are unable to predict.
•Active Underwriting Segments. We have experienced underwriting losses relating to the COVID-19 pandemic in our Atrium and StarStone segments across various lines of business. Although we have established reserves against these losses as of September 30, 2020, given the uncertainty surrounding the COVID-19 pandemic and its impact on the insurance industry, our preliminary estimates of losses and loss adjustment expenses and estimates of reinsurance recoverable arising from the COVID-19 pandemic may materially change. Unanticipated issues relating to claims and coverage may emerge, which could adversely affect our business by increasing the scope of coverage beyond our intent and/or increasing the frequency and severity of claims.
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•Operational Disruptions. We rely on the continued productivity of our senior executive team, our employees, and our agents, brokers, third party administrators, suppliers and outsourcing providers to carry out our operations. If any of these people are unable to continue to work productively, or at all, due to illness, government restrictions, remote working conditions, or other disruptions related to the COVID-19 pandemic, our ability to conduct our operations may be adversely affected. In addition, like many other companies, the vast majority of our employees are working remotely, and we are therefore more dependent on our information technology systems and the continued access by our employees and service providers to reliable internet and telecommunications systems. We will be adversely affected if these systems do not function effectively or are disrupted due to heightened demand, cybersecurity attacks and data security incidents, or for any other related reason. These types of operational disruptions that impact our people and/or systems and others we may not foresee, would negatively impact our ability to settle claims efficiently, complete acquisitions, integrate our acquired businesses, manage our investments, or otherwise conduct our business.
Circumstances caused by the COVID-19 pandemic are complex, uncertain and rapidly evolving. We therefore may not be able to accurately predict the longer-term effects that the COVID-19 pandemic may have on our financial condition or results of operations. To the extent the COVID-19 pandemic adversely affects our financial condition or results of operations, it may also have the effect of heightening additional risks described in Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2019.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Issuer Purchases of Equity Securities
The following table provides information about ordinary shares acquired by the Company during the three months ended September 30, 2020.
PeriodTotal Number of Shares PurchasedAverage Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)
Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Program (2)
Beginning dollar amount available to be repurchased$137,474 
July 1, 2020 - July 31, 2020 (1)
103$151.66 —— 
August 1, 2020 - August 31, 2020—$— —— 
September 1, 2020 - September 30, 202081,954$156.96 81,954(12,864)
82,057 81,954 $124,610 
(1) Consists of shares withheld from employees in order to facilitate the payment of withholding taxes on restricted shares granted pursuant to our equity incentive plan. The price for the shares is their fair market value, as determined by reference to the closing price of our ordinary shares on the vesting date.
(2) Ordinary shares repurchased pursuant to the Company's Board-approved ordinary share repurchase program announced on March 9, 2020, which authorized the repurchase of up to $150.0 million of ordinary shares. The share repurchase plan was suspended on March 23, 2020 due to uncertainty in the global financial markets resulting from the COVID-19 pandemic. The repurchase program resumed on September 21, 2020 and expires on March 1, 2021. From inception to September 30, 2020, we repurchased 174,464 ordinary shares for an aggregate price of $25.4 million under the Repurchase Program. As of September 30, 2020, the remaining capacity under the Repurchase Program was $124.6 million.





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Table of Contents

ITEM 6. EXHIBITS
Exhibit No.Description
Memorandum of Association of Enstar Group Limited (incorporated by reference to Exhibit 3.1 of the Company’s Form 10-K/A filed on May 2, 2011).
Fifth Amended and Restated Bye-Laws of Enstar Group Limited (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on June 13, 2019).
Certificate of Designations of Series C Participating Non-Voting Perpetual Preferred Stock (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on June 17, 2016).
Certificate of Designations of 7.00% fixed-to-floating rate perpetual non-cumulative preference shares, Series D (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K filed on June 27, 2018).
Certificate of Designations of 7.00% perpetual non-cumulative preference shares, Series E (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K filed on November 21, 2018).
Junior Subordinated Indenture dated as of August 26, 2020, among Enstar Finance LLC, Enstar Group Limited and The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K filed on August 26, 2020).
First Supplemental Indenture dated as of August 26, 2020, among Enstar Finance LLC, Enstar Group Limited and The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.2 of the Company’s Form 8-K filed on August 26, 2020).
Amendment No. 1 to North Bay Voting and Shareholders Agreement, dated as of July 14, 2020, among Kenmare Holdings Ltd., Trident V, L.P., Trident V Parallel Fund, L.P. and Trident V Professionals Fund, L.P.
Transition Agreement, dated July 17, 2020, by and between Enstar Group Limited and Guy Bowker (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on July 17, 2020).
Recapitalization Agreement, dated as of August 13, 2020, among North Bay Holdings Limited, Enstar Group Limited, Kenmare Holdings Ltd., Trident V, L.P., Trident V Parallel Fund, L.P., Trident V Professionals Fund, L.P., Dowling Capital Partners I, L.P., Capital City Partners LLC and StarStone Specialty Holdings Limited (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on August 17, 2020).
Subsidiary Guarantors and Issuers of Guaranteed Securities.
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted under Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted under Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHXBRL Taxonomy Extension Schema
101.CALXBRL Taxonomy Extension Calculation Linkbase
101.LABXBRL Taxonomy Extension Label Linkbase
101.DEFXBRL Taxonomy Extension Definition Linkbase
101.PREXBRL Taxonomy Extension Presentation Linkbase
104Cover page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101)
________________________________
*     filed herewith
** furnished herewith
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Table of Contents

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on November 6, 2020.
ENSTAR GROUP LIMITED
By:
/S/ GUY BOWKER
Guy Bowker
Chief Financial Officer, Authorized Signatory, Principal Financial Officer and Principal Accounting Officer

145
Document

AMENDMENT NO. 1 TO
VOTING AND SHAREHOLDERS’ AGREEMENT

July 14, 2020

This Amendment No. 1 to Voting and Shareholders’ Agreement (this “Amendment”) is entered into as of the date first set forth above by and among Kenmare Holdings Ltd. (the “Enstar shareholder”), Trident V, L.P., Trident V Parallel Fund, L.P. and Trident V Professionals Fund, L.P. (each, a “Trident Shareholder” and, collectively, the “Trident Shareholders” and, together with the Enstar Shareholder, the “Initial Shareholders”). Capitalized terms used but not defined herein have the meanings given to such terms in the Shareholders’ Agreement (as defined below).

W I T N E S S E T H:

WHEREAS, the Initial Shareholders are parties to that certain Voting and Shareholders’ Agreement, dated as of December 23, 2015, by and among North Bay Holdings Limited, the Initial Shareholders and the other signatories thereto (the “Shareholders’ Agreement”);

WHEREAS, pursuant to that certain letter agreement, dated as of June 5, 2020, regarding a consent and waiver with respect to certain transactions involving StarStone US Holdings, Inc., StarStone Specialty Insurance Company, StarStone National Insurance Company and StarStone US Intermediaries, Inc., the Initial Shareholders agreed to amend the Shareholders’ Agreement in accordance with their prior discussions; and

WHEREAS, pursuant to Section 8.10 of the Shareholders’ Agreement, the Initial Shareholders may amend the Agreement as contemplated herein.

NOW THEREFORE, for good and valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, the parties hereto, intending to be legally bound, agree as follows:

1. Amendments to Shareholders’ Agreement. The Shareholders’ Agreement is hereby amended as follows:

(a) Definitions. The following definitions shall be added to Article 1 of the Shareholders’ Agreement in the appropriate alphabetical order:

“‘Amendment’ has the meaning set forth in Section 3.02(g).”

“‘Core Specialty’ means Core Specialty Insurance Holdings, Inc. and any successor thereto.”

“‘Residual StarStone US Investment Shares’ means all shares of capital stock of Core Specialty to be acquired by StarStone Finance Limited in the Sale Transactions.”

“‘Sale Transactions’ means the transactions contemplated by that certain Stock Purchase Agreement, dated as of June 10, 2020, by and among StarStone Finance Limited, Core Specialty and the Company, as may be amended or restated from time to time.”

“‘StarStone Run-Off Business’ means the business of the Company and its Subsidiaries, other than Northshore Holdings Limited and its Subsidiaries, and excluding the Residual StarStone US Investment Shares and the business of StarStone US Holdings, Inc. and its Subsidiaries to be acquired by Core Specialty in the Sale Transactions.”

1

“‘StarStone Run-Off Business Shares’ means (a) all shares of capital stock or other equity interests of the Subsidiaries of StarStone Specialty Holdings Limited, other than StarStone Finance Limited, and (b) all interests in Segregated Accounts 31, 41 and 42 of Fitzwilliam Insurance Limited owned by the Company or any of its Subsidiaries.”

“‘Swap Transactions’ means the transactions contemplated by that certain exhibit labeled “‘Project Swap’” associated with that certain letter agreement, dated as of June 5, 2020, regarding a consent and waiver with respect to the Sale Transactions, to be documented in definitive agreements following the date of the Amendment.”

(b) Call/Put Rights. Section 3.05 of the Bayshore Shareholders’ Agreement shall be replaced in its entirety with the text set forth in Exhibit A attached hereto.

(c) Related Party Transactions. Section 2.02(c) of the Shareholders’ Agreement shall be replaced in its entirety with the following:

“(c)(1) enter into, amend in any material respect, waive or terminate any Related Party Agreement other than (i) the entry into a Related Party Agreement (other than any reinsurance or other risk transfer arrangement with any Affiliate of the Enstar Shareholder) that is on an arm’s length basis and on terms no less favorable to the Company or the applicable Material Subsidiary than those that could be obtained from an unaffiliated third party, and (ii) any of the transactions, arrangements or agreements set forth in this Agreement or (2) enter into, amend in any material respect, waive or terminate any Related Party Agreement in respect of services provided by or to the Enstar Shareholder (or its Affiliates, other than the Company and its Subsidiaries) to or by the Company (or any of its Subsidiaries); provided that (A) the consent of the Trident Shareholders with respect to the actions set forth in the foregoing clause (2) shall not be unreasonably withheld, delayed or conditioned and (B) any of the actions set forth in the foregoing clause (2) shall not require the consent of the Trident Shareholders to the extent any such action has been previously approved with specificity (and not as part of any general line-item or category) by the Trident Shareholders in connection with the approval of the applicable budget for run-off management services in accordance with Section 2.05;”

(d) Run-off Management Services Budget. A new Section 2.05 of the Shareholders’ Agreement shall be added as follows:

“Section 2.05 Run-Off Management Services Budget. Beginning with the budget for calendar year 2021 and for each year thereafter, the Enstar Shareholder shall prepare a budget in respect of the run-off management services to be provided by Enstar or its Affiliates to the StarStone Run-Off Business. The Enstar Shareholder shall provide the Trident Shareholders with a copy of such budget at least forty-five (45) days prior to the beginning of the applicable calendar year. The Trident Shareholders shall have the right to approve such budget and the Enstar Shareholder shall provide the Trident Shareholders with such information that they reasonably request in connection with their review of such budget. If the Trident Shareholders do not disapprove such budget within fifteen (15) days following their receipt thereof, such budget shall be deemed approved. If the Trident Shareholders disapprove such budget during such fifteen (15)-day period, the Trident Shareholders shall provide the Enstar Shareholder with written notice of its disapproval indicating the line items with which they disagree along with any
2

supporting documentation. The Enstar Shareholder and the Trident Shareholders shall then negotiate in good faith to resolve any disagreements with respect to such budget for fifteen (15) days following the Enstar Shareholder’s receipt of such notice of disapproval. If the Enstar Shareholder and the Trident Shareholders are unable to resolve all disagreements with respect to such budget during such fifteen (15)-day period, the line items subject to disagreement shall be set equal to the corresponding line items from the prior year’s budget or, if such budget is the budget for calendar year 2021, the line items subject to disagreement shall be set consistently with the applicable historic costs of the StarStone Run-Off Business.”

(e) StarStone Run-Off Business Information Rights. A new Section 5.03 of the Shareholders’ Agreement shall be added as follows:

“Section 5.03 StarStone Run-Off Business Information Rights. In addition to, and without limiting any rights that the Trident Shareholders may have with respect to, their right to inspect the books and records of the Company under Applicable Laws or their other information rights set forth in this Article 5, the Company shall furnish, and shall cause Bayshore to furnish, to the Trident Shareholders:

(a) such information as the Trident Shareholders shall reasonably request in connection with any expenses borne by or obligated to be borne by the StarStone Run-Off Business, including (without limitation) quarterly reports regarding expenses (including labor and consultancy expenses); and

(b) within forty-five (45) days after the end of each quarterly accounting period, on a quarterly basis, a report detailing the performance of the StarStone Run-Off Business as measured by certain key performance indicators to be mutually agreed by the Enstar Shareholder and the Trident Shareholders no later than September 30, 2020 (subject to changes as may be agreed from time to time), including as compared to the then current run-off plan and budget (including with respect to any shared service arrangements with Enstar and its Affiliates as approved in accordance with Section 2.02(c)).”

(f) Preservation of Existing Rights. A new Section 3.02(g) of the Shareholders’ Agreement shall be added as follows:

“(g) Notwithstanding anything to the contrary contained herein, the parties agree that Section 3.05 of the Bayshore Shareholders’ Agreement, as amended pursuant to that certain Amendment No. 1 to this Agreement, dated as of July 14, 2020 (the “Amendment”), preserves the rights and obligations of Bayshore, the Shareholders and Enstar under the Bayshore Shareholders’ Agreement with respect to the Enstar Shareholder’s call right in the Bayshore Shareholders’ Agreement and the Trident Shareholders’ put right in the Bayshore Shareholders’ Agreement. Accordingly, in the event of any conflict between this Section 3.02 (to the extent related to the Enstar Shareholder’s call right in the Bayshore Shareholders’ Agreement and the Trident Shareholders’ put right in the Bayshore Shareholders’ Agreement, including Sections 3.02(d)(v)-(vi)) and Section 3.05 of the Bayshore Shareholders’ Agreement, Section 3.05 of the Bayshore Shareholders’ Agreement (as amended by the Amendment) shall control.”

2. No Other Amendments. Except as amended hereby, the Shareholders’ Agreement remains unmodified and in full force and effect.

3

3. Miscellaneous.

(a) Successors and Assigns. This Amendment shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns.

(b) Counterparts. This Amendment may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Amendment delivered by facsimile, email or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Amendment.
(c) Governing Law; Submission to Jurisdiction; Waiver of Jury Trial. Sections 8.11 (Governing Law) and 8.12 (Submission to Jurisdiction; Waiver of Jury Trial) of the Shareholders’ Agreement shall apply to this Amendment, mutatis mutandis.

(d) Entire Agreement. This Amendment, together with the Shareholders’ Agreement, constitutes the entire agreement between the parties hereto and supersedes any prior understandings, agreements, or representations by or between the parties, written or oral, to the extent they relate in any way to the subject matter hereof.
(Signature page to follow.)


4

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written.

KENMARE HOLDINGS, LTD.


By: /s/ Paul O’Shea
Name: Paul O’Shea
Title: Authorised Signatory


TRIDENT V, L.P.

By: Stone Point Capital LLC, its manager


By: /s/ Stephen Levey
Name: Stephen Levey
Title: Principal and Counsel


TRIDENT V PARALLEL FUND, L.P.

By: Stone Point Capital LLC, its manager


By: /s/ Stephen Levey
Name: Stephen Levey
Title: Principal and Counsel


TRIDENT V PROFESSIONALS FUND, L.P.

By: Stone Point Capital LLC, its manager


By: /s/ Stephen Levey
Name: Stephen Levey
Title: Principal and Counsel





5

Exhibit A

Amended and Restated Section 3.05 of the Bayshore Shareholders’ Agreement

(a) Subject to the immediately following sentence and the other terms of this Section 3.05 generally, at any time following March 31, 2023 (the “Call Right Date”), the Enstar Shareholder shall have the right (a “Call Right”) by written notice to the other Shareholders to purchase all, but not less than all, of (i) the Common Shares owned by the other Shareholders and their Permitted Transferees and (ii) following the consummation of the Sale Transactions, each of (A) the Residual StarStone US Investment Shares indirectly owned by the other Shareholders and their Permitted Transferees and (B) the StarStone Run-Off Business Shares indirectly owned by the other Shareholders and their Permitted Transferees; provided, however, that if neither the Sale Transactions nor the Swap Transactions are consummated by April 1, 2021, the “Call Right Date” shall be deemed to be April 1, 2021 and clause (ii) above shall no longer apply. If the Sale Transactions are consummated but the Swap Transactions are not consummated by April 1, 2021, then, at any time following April 1, 2021, the Enstar Shareholder shall have the right to purchase all, but not less than all, of the Residual StarStone US Investment Shares indirectly owned by the Trident Shareholders and their Permitted Transferees.

(b) Subject to the immediately following sentence and the other terms of this Section 3.05 generally, at any time after December 31, 2022 (the “Put Right Date”), the Trident Shareholders, acting collectively, shall have the right (the “Put Right”) to require the Enstar Shareholder to purchase all, but not less than all, of (i) the Common Shares held by the Trident Shareholders and their Permitted Transferees collectively and (ii) following the consummation of the Sale Transactions, each of (A) the Residual StarStone US Investment Shares indirectly owned by the Trident Shareholders and their Permitted Transferees collectively and (B) the StarStone Run-Off Business Shares indirectly owned by the Trident Shareholders and their Permitted Transferees collectively; provided, however, that if neither the Sale Transactions nor the Swap Transactions are consummated by April 1, 2021, the “Put Right Date” shall be deemed to be April 1, 2021 and clause (ii) shall not apply. If the Sale Transactions are consummated but the Swap Transactions are not consummated by December 31, 2020, then, at any time following December 31, 2020, the Trident Shareholders, acting collectively, shall have the right to require the Enstar Shareholder to purchase all, but not less than all, of the Residual StarStone US Investment Shares indirectly owned by the Trident Shareholders and their Permitted Transferees. In the event that the Trident Shareholders elect to exercise their rights under this Section 3.05(b), then the Trident Shareholders shall give written notice (a “Put Notice”) to the Company, the Enstar Shareholder and the other Shareholders stating their bona fide intention to exercise their Put Right over their Common Shares, the Residual StarStone US Investment Shares indirectly owned by them and/or the StarStone Run-Off Business Shares indirectly owned by them (the type of shares set forth in such notice, the “Applicable Shares”). Upon receipt of the Put Notice, each other Shareholder (other than the Enstar Shareholder or the Trident Shareholders) receiving such notice shall have 20 Business Days (the “Put Notice Period”) to elect to participate in such exercise of the Put Right by the Trident Shareholders by delivering a written notice (a “Participation Notice”) to the Company, the Enstar Shareholder and the Trident Shareholders requiring the Enstar Shareholder to purchase all, but not less than all, of the Applicable Shares held, directly or indirectly, by such Shareholder and its Permitted Transferees. Any Participation Notice shall be binding upon delivery and irrevocable by the applicable Shareholder. Each Shareholder that does not deliver a Participation Notice during the Put Notice Period shall be deemed to have waived all of such Shareholder’s rights to participate in the exercise of the Put Right. By delivering a Participation Notice, the relevant Shareholder represents and warrants to the Company and to the Enstar Shareholder that: (i) it has full right, title and interest in and to the Common Shares held by such Shareholder, regardless of whether the Applicable Shares are Common Shares or not; (ii) it has all the necessary power and authority and has taken all necessary action to effect the transactions contemplated by this Section 3.05(b); and (iii) the Common Shares held by such Shareholder are free and clear of any and all Liens other than those arising as a result of or under the terms of this Agreement.

(c) The purchase price payable by the Enstar Shareholder upon the exercise of the Call Right or the Put Right, as the case may be, shall be equal to fair market value of the Applicable Shares held, directly or indirectly, by the relevant Shareholder(s) and their Permitted Transferees which are the subject
6

of the Call Right or the Put Right as exercised pursuant to this Section 3.05 (the “Relevant Shareholder(s)”) calculated based on the overall fair market value of the Company determined on a going concern basis (except with respect to the StarStone Run-Off Business Shares, the fair market value of which shall not be measured on a going concern basis but instead shall be determined based upon the economic book value of such shares or the applicable entities to which such shares relate or, to the extent such agreement is reached, such other valuation methodology as agreed upon by the Enstar Shareholder and the Trident Shareholders as appropriate for entities in run-off) as between a willing buyer and willing seller with no discount for illiquidity or a minority interest, as such value may be mutually agreed upon by the Enstar Shareholder and the Trident Shareholders or, if no such agreement is reached, determined in accordance with the procedures set forth below (the “Fair Market Value”):

(i) Promptly after determining that the Enstar Shareholder and the Trident Shareholders are unable to agree upon a Fair Market Value but, in any event, no later than 30 Business Days after the exercise of the Call Right or the Put Right, as the case may be, the Enstar Shareholder and the Trident Shareholders shall appoint a mutually acceptable independent appraiser (the “Independent Appraiser”) to determine the Fair Market Value (determined on a going concern basis (except with respect to the StarStone Run-Off Business Shares, the fair market value of which shall not be measured on a going concern basis but instead shall be determined based upon the economic book value of such shares or the applicable entities to which such shares relate or, to the extent such agreement is reached, such other valuation methodology as agreed upon by the Enstar Shareholder and the Trident Shareholders as appropriate for entities in run-off) as between a willing buyer and a willing seller with no discount for illiquidity or a minority interest) of the Applicable Shares held, directly or indirectly, by the Relevant Shareholder(s) and their Permitted Transferees. Each of the Enstar Shareholder and the Trident Shareholders (acting together) shall provide the Independent Appraiser with its respective determination of Fair Market Value, together with the supporting calculations and analyses prepared by such Initial Shareholder with respect thereto. The Enstar Shareholder and the Trident Shareholders shall instruct the Independent Appraiser to determine, in writing within 30 days of such Independent Appraiser’s appointment, which of the Enstar Shareholder’s and the Trident Shareholders’ determination of Fair Market Value is the more reasonable, and such determination shall be final for all purposes of this Section 3.05. The costs and expenses of the Independent Appraiser shall be borne equally by the Enstar Shareholder and the Trident Shareholders.

(ii) To enable the Independent Appraiser to conduct the valuation, the Enstar Shareholder, the Relevant Shareholder(s) and the Company shall furnish to the Independent Appraiser such information as the Independent Appraiser may request, including information regarding the business of the Company and its Subsidiaries and the assets, properties, financial condition, earnings and prospects of the Company and/or any of its Subsidiaries.

(d) Within 90 days after the date of the final determination of the Fair Market Value pursuant to this Section 3.05 (which period shall be extended solely to the extent needed to obtain any required Government Approvals, provided, that the Shareholders shall, and shall cause their Permitted Transferees to, have used their reasonable best efforts to obtain such approvals in a timely manner, and provided, further, that in no event shall the Enstar Shareholder be obligated to pay the purchase price for a sale and purchase pursuant to the Put Right in cash due to any failure to obtain any Government Approvals that are required to permit the Relevant Shareholders to acquire or hold any unrestricted ordinary shares of Enstar):

(i) if the Applicable Shares are Common Shares, the Relevant Shareholders shall, and shall cause their Permitted Transferees to, sell to the Enstar Shareholder, free and clear of all Liens, all of the Common Shares held by them; or

(ii) if the Applicable Shares are not Common Shares, the Enstar Shareholder and the Relevant Shareholders shall effect a transaction with the same economic effect (to the extent reasonably practicable) of the Relevant Shareholders, and their Permitted Transferees, selling to the Enstar Shareholder, free and clear of all Liens, all of the Applicable Shares indirectly held by them (the structure of such transaction to be as the Enstar Shareholder and the Trident Shareholders reasonably agree).
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(e) Each Shareholder shall take all actions as may be reasonably necessary to consummate the transaction contemplated by this Section 3.05, including entering into agreements and delivering certificates and instruments and consents as may be deemed necessary or appropriate.

(f) At the closing of any sale and purchase pursuant to this Section 3.05, the Relevant Shareholders shall, and shall cause their Permitted Transferees to, deliver to the Enstar Shareholder, in the case of a sale and purchase of Common Shares, the certificate or certificates representing their Common Shares (if any), accompanied by stock powers and all necessary stock transfer taxes paid and stamps affixed, if necessary, or, in the case of a sale and purchase of Applicable Shares other than Common Shares, such agreements and documents as the Enstar Shareholder and the Trident Shareholders, acting reasonably, shall agree upon in connection with the consummation of the applicable transaction, in each case, against receipt of the purchase price therefor from the Enstar Shareholder by, (i) in the case of a sale and purchase pursuant to the Call Right, wire transfer of immediately available funds, or (ii) in the case of a sale and purchase pursuant to the Put Right, at the option of the Enstar Shareholder, either (A) wire transfer of immediately available funds, (B) unrestricted ordinary shares of Enstar (provided that such ordinary shares are then listed or admitted to trading on the NASDAQ Stock Market, the New York Stock Exchange or another national securities exchange), or (C) a combination of (A) and (B). If the purchase price at the closing of any sale and purchase pursuant to this Section 3.05 consists of unrestricted ordinary shares of Enstar, the value of such ordinary shares will be deemed to equal the average of the last reported sale price of the ordinary shares over the 10 trading day period ending on, and including, the trading day immediately preceding the effective date of any such closing.

(g) Enstar hereby absolutely, unconditionally and irrevocably guarantees to each of the Shareholders (other than the Enstar Shareholder) and their Permitted Transferees, on the terms and conditions set forth herein, the due and punctual payment, observance, performance and discharge of the Enstar Shareholder’s obligations under this Section 3.05. Each of the Shareholders hereby agrees that in no event shall Enstar be required to pay any amount to the Shareholders or their Permitted Transferees under, in respect of, or in connection with this Agreement other than as expressly set forth herein.
8
Document

Exhibit 22.1

Enstar Group Limited
Subsidiary Guarantors and Issuers of Guaranteed Securities

$350 million of 5.750% Fixed-Rate Reset Junior Subordinated Notes due 2040 IssuerGuarantor
Enstar Finance LLCx
Enstar Group Limitedx

Document

Exhibit 31.1
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a),
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, Dominic F. Silvester, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Enstar Group Limited;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Dated: November 6, 2020
 
/S/ DOMINIC F. SILVESTER
Dominic F. Silvester
Chief Executive Officer

Document

Exhibit 31.2
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a),
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, Guy Bowker, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Enstar Group Limited;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: November 6, 2020
 
/S/ GUY BOWKER
Guy Bowker
Chief Financial Officer

Document

Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

    In connection with the Quarterly Report of Enstar Group Limited (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dominic F. Silvester, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Dated: November 6, 2020
/S/ DOMINIC F. SILVESTER
Dominic F. Silvester
Chief Executive Officer
 


Document

Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002

    In connection with the Quarterly Report of Enstar Group Limited (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Guy Bowker, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Dated: November 6, 2020
 
/S/ GUY BOWKER
Guy Bowker
Chief Financial Officer