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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

 
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the Quarterly Period Ended March 31, 2014
OR
 
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
For the Transition Period From              to             
001-33289
Commission File Number

ENSTAR GROUP LIMITED
(Exact name of registrant as specified in its charter)

 
 	 	 	
Bermuda	 	N/A	
(State or other jurisdiction
of incorporation or organization)	 	(I.R.S. Employer
Identification No.)	
P.O. Box HM 2267
Windsor Place, 3rd Floor
22 Queen Street
Hamilton HM JX
Bermuda
(Address of principal executive office, including zip code)
(441) 292-3645
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   þ     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   þ     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	 	þ	  	Accelerated filer	 	¨	
 	 	 	 	
Non-accelerated filer	 	¨       (Do not check if a smaller reporting company)	  	Smaller reporting company	 	¨	
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   þ
As of May 6, 2014, the registrant had outstanding 15,802,243 voting ordinary shares and 2,725,637 non-voting convertible ordinary shares, each par value $1.00 per share.

 

Table of Contents
Table of Contents

 	 	 	 	Page	
 	 	PART I — FINANCIAL INFORMATION	 	 	
Item 1.	 	Financial Statements:	 	 	
 	 	Condensed Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013 (Unaudited)	 	2	
 	 	Condensed Consolidated Statements of Earnings for the Three Month Periods Ended March 31, 2014 and 2013 (Unaudited)	 	3	
 	 	Condensed Consolidated Statements of Comprehensive Income for the Three Month Periods Ended March 31, 2014 and 2013 (Unaudited)	 	4	
 	 	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three Month Periods Ended March 31, 2014 and 2013 (Unaudited)	 	5	
 	 	Condensed Consolidated Statements of Cash Flows for the Three Month Periods Ended March 31, 2014 and 2013 (Unaudited)	 	6	
 	 	Notes to the Condensed Consolidated Financial Statements (Unaudited)	 	7	
 	 	Report of Independent Registered Public Accounting Firm	 	49	
Item 2.	 	Management’s Discussion and Analysis of Financial Condition and Results of Operations	 	50	
Item 3.	 	Quantitative and Qualitative Disclosures about Market Risk	 	86	
Item 4.	 	Controls and Procedures	 	86	
 	 	 	
 	 	PART II — OTHER INFORMATION	 	 	
Item 1.	 	Legal Proceedings	 	88	
Item 1A.	 	Risk Factors	 	88	
Item 6.	 	Exhibits	 	88	
Signature	 	 	 	89	
 
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PART I—FINANCIAL INFORMATION
 
Item 1.	FINANCIAL STATEMENTS	
ENSTAR GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
As of March 31, 2014 and December 31, 2013

 	  	March 31,
2014	 	 	December 31,
2013	 	
 	  	(expressed in thousands of
U.S. dollars, except share data)	 	
ASSETS	  	 	 	 	 	 	 	 	
Short-term investments, trading, at fair value	  	$	186,167	  	 	$	281,002	  	
Short-term investments, available-for-sale, at fair value (amortized cost: 2014—$13,022; 2013—$32,477)	  	 	12,923	  	 	 	32,504	  	
Fixed maturity investments, trading, at fair value	  	 	3,433,007	  	 	 	3,381,719	  	
Fixed maturity investments, held-to-maturity, at amortized cost	  	 	856,218	  	 	 	859,387	  	
Fixed maturity investments, available-for-sale, at fair value (amortized cost: 2014 — $225,595; 2013—$210,825)	  	 	228,386	  	 	 	213,860	  	
Equities, trading, at fair value	  	 	158,674	  	 	 	182,033	  	
Other investments, at fair value	  	 	646,765	  	 	 	569,293	  	
 	  	 	 	 	 	 	 	 	
Total investments	  	 	5,522,140	  	 	 	5,519,798	  	
Cash and cash equivalents	  	 	645,823	  	 	 	643,841	  	
Restricted cash and cash equivalents	  	 	607,159	  	 	 	397,657	  	
Accrued interest receivable	  	 	37,801	  	 	 	38,864	  	
Accounts receivable	  	 	64,690	  	 	 	75,351	  	
Premiums receivable	  	 	136,865	  	 	 	111,748	  	
Income taxes recoverable	  	 	5,531	  	 	 	5,481	  	
Deferred tax assets	  	 	32,089	  	 	 	34,295	  	
Reinsurance balances recoverable	  	 	1,256,230	  	 	 	1,363,819	  	
Funds held by reinsured companies	  	 	201,622	  	 	 	237,789	  	
Goodwill and intangible assets	  	 	149,394	  	 	 	150,071	  	
Other assets	  	 	49,963	  	 	 	41,441	  	
 	  	 	 	 	 	 	 	 	
TOTAL ASSETS	  	$	8,709,307	  	 	$	8,620,155	  	
 	  	 	 	 	 	 	 	 	
LIABILITIES	  	 	 	 	 	 	 	 	
Losses and loss adjustment expenses	  	$	4,042,130	  	 	$	4,219,905	  	
Policy benefits for life and annuity contracts	  	 	1,255,264	  	 	 	1,273,100	  	
Unearned premium	  	 	75,848	  	 	 	70,698	  	
Insurance and reinsurance balances payable	  	 	223,860	  	 	 	281,028	  	
Accounts payable and accrued liabilities	  	 	113,888	  	 	 	97,103	  	
Income taxes payable	  	 	21,377	  	 	 	23,721	  	
Deferred tax liabilities	  	 	48,142	  	 	 	53,328	  	
Loans payable	  	 	485,239	  	 	 	452,446	  	
Other liabilities	  	 	68,348	  	 	 	70,444	  	
 	  	 	 	 	 	 	 	 	
TOTAL LIABILITIES	  	 	6,334,096	  	 	 	6,541,773	  	
 	  	 	 	 	 	 	 	 	
COMMITMENTS AND CONTINGENCIES
REDEEMABLE NONCONTROLLING INTEREST	  	 	361,333	  	 	 	100,859	  	
 	  	 	 	 	 	 	 	 	
SHAREHOLDERS’ EQUITY	  	 	 	 	 	 	 	 	
Share capital	  	 	 	 	 	 	 	 	
Authorized, issued and fully paid, par value $1 each (authorized 2014: 156,000,000; 2013: 156,000,000)
Ordinary shares (issued and outstanding 2014: 13,846,728; 2013: 13,802,706)	  	 	13,847	  	 	 	13,803	  	
Non-voting convertible ordinary shares:	  	 	 	 	 	 	 	 	
Series A (issued 2014: 2,972,892; 2013: 2,972,892)	  	 	2,973	  	 	 	2,973	  	
Series C (issued and outstanding 2014: 2,725,637; 2013: 2,725,637)	  	 	2,726	  	 	 	2,726	  	
Treasury shares at cost (Series A non-voting convertible ordinary shares 2014: 2,972,892; 2013: 2,972,892)	  	 	(421,559	) 	 	 	(421,559	) 	
Additional paid-in capital	  	 	962,989	  	 	 	962,145	  	
Accumulated other comprehensive income	  	 	14,538	  	 	 	13,978	  	
Retained earnings	  	 	1,211,044	  	 	 	1,181,457	  	
 	  	 	 	 	 	 	 	 	
Total Enstar Group Limited Shareholders’ Equity	  	 	1,786,558	  	 	 	1,755,523	  	
Noncontrolling interest	  	 	227,320	  	 	 	222,000	  	
 	  	 	 	 	 	 	 	 	
TOTAL SHAREHOLDERS’ EQUITY	  	 	2,013,078	  	 	 	1,977,523	  	
 	  	 	 	 	 	 	 	 	
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	  	$	8,709,307	  	 	$	8,620,155	  	
 	  	 	 	 	 	 	 	 	
See accompanying notes to the unaudited condensed consolidated financial statements
 
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ENSTAR GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Three Month Periods Ended March 31, 2014 and 2013

 	 	Three Months Ended March 31,	 	
 	 	2014	 	 	2013	 	
 	 	(expressed in thousands of
U.S. dollars, except share and
per share data)	 	
INCOME	 	 	 	 	 	 	 	 	
Net premiums earned—non-life run-off	 	$	2,527	  	 	$	30,920	  	
Net premiums earned—active underwriting	 	 	32,639	  	 	 	—  	  	
Net premiums earned—life and annuities	 	 	26,492	  	 	 	741	  	
Fees and commission income	 	 	6,998	  	 	 	2,447	  	
Net investment income	 	 	24,348	  	 	 	17,963	  	
Net realized and unrealized gains	 	 	34,573	  	 	 	30,120	  	
 	 	 	 	 	 	 	 	 	
 	 	 	127,577	  	 	 	82,191	  	
 	 	 	 	 	 	 	 	 	
EXPENSES	 	 	 	 	 	 	 	 	
Net (reduction) increase in ultimate losses and loss adjustment expense liabilities:	 	 	 	 	 	 	 	 	
Non-life run-off	 	 	(29,182	) 	 	 	9,161	  	
Active underwriting	 	 	17,131	  	 	 	—  	  	
 	 	 	 	 	 	 	 	 	
 	 	 	(12,051	) 	 	 	9,161	  	
Acquisition costs	 	 	13,161	  	 	 	2,387	  	
Life and annuity policy benefits	 	 	26,809	  	 	 	741	  	
Salaries and benefits	 	 	31,390	  	 	 	23,610	  	
General and administrative expenses	 	 	22,250	  	 	 	17,946	  	
Interest expense	 	 	3,734	  	 	 	2,435	  	
Net foreign exchange losses	 	 	1,596	  	 	 	5,082	  	
 	 	 	 	 	 	 	 	 	
 	 	 	86,889	  	 	 	61,362	  	
 	 	 	 	 	 	 	 	 	
EARNINGS BEFORE INCOME TAXES	 	 	40,688	  	 	 	20,829	  	
INCOME TAXES	 	 	(7,276	) 	 	 	(7,844	) 	
 	 	 	 	 	 	 	 	 	
NET EARNINGS	 	 	33,412	  	 	 	12,985	  	
Less: Net earnings attributable to noncontrolling interest	 	 	(3,825	) 	 	 	(1,026	) 	
 	 	 	 	 	 	 	 	 	
NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED	 	$	29,587	  	 	$	11,959	  	
 	 	 	 	 	 	 	 	 	
EARNINGS PER SHARE—BASIC	 	 	 	 	 	 	 	 	
Net earnings per ordinary share attributable to Enstar Group Limited shareholders	 	$	1.79	  	 	$	0.72	  	
 	 	 	 	 	 	 	 	 	
EARNINGS PER SHARE—DILUTED	 	 	 	 	 	 	 	 	
Net earnings per ordinary share attributable to Enstar Group Limited shareholders	 	$	1.77	  	 	$	0.72	  	
 	 	 	 	 	 	 	 	 	
Weighted average ordinary shares outstanding—basic	 	 	16,564,083	  	 	 	16,514,193	  	
Weighted average ordinary shares outstanding—diluted	 	 	16,705,324	  	 	 	16,676,056	  	
See accompanying notes to the unaudited condensed consolidated financial statements
 
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ENSTAR GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Month Periods Ended March 31, 2014 and 2013

 	  	Three Months Ended March 31,	 	
 	  	        2014        	 	 	        2013        	 	
 	  	(expressed in thousands of
U.S. dollars)	 	
NET EARNINGS	  	$	33,412	  	 	$	12,985	  	
 	  	 	 	 	 	 	 	 	
Other comprehensive income, net of tax:	  	 	 	 	 	 	 	 	
Unrealized holding gains on investments arising during the period	  	 	34,245	  	 	 	28,381	  	
Reclassification adjustment for net realized and unrealized gains included in net earnings	  	 	(34,573	) 	 	 	(30,120	) 	
 	  	 	 	 	 	 	 	 	
Unrealized losses arising during the period, net of reclassification adjustment	  	 	(328	) 	 	 	(1,739	) 	
Currency translation adjustment	  	 	2,058	  	 	 	(1,223	) 	
 	  	 	 	 	 	 	 	 	
Total other comprehensive income (loss)	  	 	1,730	  	 	 	(2,962	) 	
 	  	 	 	 	 	 	 	 	
Comprehensive income	  	 	35,142	  	 	 	10,023	  	
Less comprehensive income attributable to noncontrolling interest	  	 	(4,994	) 	 	 	(825	) 	
 	  	 	 	 	 	 	 	 	
COMPREHENSIVE INCOME ATTRIBUTABLE TO ENSTAR GROUP LIMITED	  	$	30,148	  	 	$	9,198	  	
 	  	 	 	 	 	 	 	 	
See accompanying notes to the unaudited condensed consolidated financial statements
 
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ENSTAR GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Three Month Periods Ended March 31, 2014 and 2013

 	  	Three Months Ended March 31,	 	
 	  	        2014        	 	 	        2013        	 	
 	  	(expressed in thousands of
U.S. dollars)	 	
Share Capital—Ordinary Shares	  	 	 	 	 	 	 	 	
Balance, beginning of period	  	$	13,803	  	 	$	13,752	  	
Issue of shares	  	 	2	  	 	 	1	  	
Share awards granted/vested	  	 	42	  	 	 	46	  	
 	  	 	 	 	 	 	 	 	
Balance, end of period	  	$	13,847	  	 	$	13,799	  	
 	  	 	 	 	 	 	 	 	
Share Capital—Series A Non-Voting Convertible Ordinary Shares	  	 	 	 	 	 	 	 	
Balance, beginning and end of period	  	$	2,973	  	 	$	2,973	  	
 	  	 	 	 	 	 	 	 	
Share Capital—Series C Non-Voting Convertible Ordinary Shares	  	 	 	 	 	 	 	 	
Balance, beginning and end of period	  	$	2,726	  	 	$	2,726	  	
 	  	 	 	 	 	 	 	 	
Treasury Shares	  	 	 	 	 	 	 	 	
Balance, beginning and end of period	  	$	(421,559	) 	 	$	(421,559	) 	
 	  	 	 	 	 	 	 	 	
Additional Paid-in Capital	  	 	 	 	 	 	 	 	
Balance, beginning of period	  	$	962,145	  	 	$	958,571	  	
Issue of shares and warrants, net	  	 	155	  	 	 	161	  	
Amortization of equity incentive plan	  	 	689	  	 	 	771	  	
 	  	 	 	 	 	 	 	 	
Balance, end of period	  	$	962,989	  	 	$	959,503	  	
 	  	 	 	 	 	 	 	 	
Accumulated Other Comprehensive Income Attributable to Enstar Group Limited	  	 	 	 	 	 	 	 	
Balance, beginning of period	  	$	13,978	  	 	$	24,439	  	
Foreign currency translation adjustments	  	 	748	  	 	 	(1,405	) 	
Net movement in unrealized holding losses on investments	  	 	(188	) 	 	 	(1,356	) 	
 	  	 	 	 	 	 	 	 	
Balance, end of period	  	$	14,538	  	 	$	21,678	  	
 	  	 	 	 	 	 	 	 	
Retained Earnings	  	 	 	 	 	 	 	 	
Balance, beginning of period	  	$	1,181,457	  	 	$	972,853	  	
Net earnings attributable to Enstar Group Limited	  	 	29,587	  	 	 	11,959	  	
 	  	 	 	 	 	 	 	 	
Balance, end of period	  	$	1,211,044	  	 	$	984,812	  	
 	  	 	 	 	 	 	 	 	
Noncontrolling Interest	  	 	 	 	 	 	 	 	
Balance, beginning of period	  	$	222,000	  	 	$	221,478	  	
Dividends paid	  	 	—  	  	 	 	(1,740	) 	
Reallocation to redeemable noncontrolling interest	  	 	1,028	  	 	 	—  	  	
Net earnings attributable to noncontrolling interest*	  	 	3,017	  	 	 	1,026	  	
Foreign currency translation adjustments	  	 	1,309	  	 	 	182	  	
Net movement in unrealized holding losses on investments	  	 	(34	) 	 	 	(383	) 	
 	  	 	 	 	 	 	 	 	
Balance, end of period	  	$	227,320	  	 	$	220,563	  	

*	Excludes earnings attributable to redeemable noncontrolling interest.	
See accompanying notes to the unaudited condensed consolidated financial statements
 
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ENSTAR GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Month Periods Ended March 31, 2014 and 2013

 	  	Three Months Ended March 31,	 	
 	  	      2014      	 	 	      2013      	 	
 	  	(expressed in thousands of
U.S. dollars)	 	
OPERATING ACTIVITIES:	  	 	 	 	 	 	 	 	
Net earnings	  	$	33,412	  	 	$	12,985	  	
Adjustments to reconcile net earnings to cash flows provided by operating activities:	  	 	 	 	 	 	 	 	
Net realized and unrealized investment gains	  	 	(17,576	) 	 	 	(11,189	) 	
Net realized and unrealized gains from other investments	  	 	(16,997	) 	 	 	(18,931	) 	
Other items	  	 	(1,318	) 	 	 	1,473	  	
Depreciation and amortization	  	 	211	  	 	 	254	  	
Net amortization of premiums and discounts	  	 	12,462	  	 	 	8,513	  	
Net movement of trading securities held on behalf of policyholders	  	 	(164	) 	 	 	1,646	  	
Sales and maturities of trading securities	  	 	636,516	  	 	 	793,980	  	
Purchases of trading securities	  	 	(558,633	) 	 	 	(791,239	) 	
Changes in assets and liabilities:	  	 	 	 	 	 	 	 	
Reinsurance balances recoverable	  	 	107,994	  	 	 	49,885	  	
Funds held by reinsured companies	  	 	36,167	  	 	 	—  	  	
Other assets	  	 	(18,970	) 	 	 	83,091	  	
Losses and loss adjustment expenses	  	 	(180,986	) 	 	 	(99,970	) 	
Policy benefits for life and annuity contracts	  	 	(17,836	) 	 	 	—  	  	
Insurance and reinsurance balances payable	  	 	(57,421	) 	 	 	(2,073	) 	
Accounts payable and accrued liabilities	  	 	16,710	  	 	 	(29,353	) 	
Other liabilities	  	 	(4,643	) 	 	 	11,520	  	
 	  	 	 	 	 	 	 	 	
Net cash flows (used in) provided by operating activities	  	 	(31,072	) 	 	 	10,592	  	
 	  	 	 	 	 	 	 	 	
INVESTING ACTIVITIES:	  	 	 	 	 	 	 	 	
Acquisitions, net of cash acquired	  	$	—  	  	 	$	(283,960	) 	
Sales and maturities of available-for-sale securities	  	 	59,238	  	 	 	59,631	  	
Purchase of available-for-sale securities	  	 	(53,307	) 	 	 	—  	  	
Maturities of held-to-maturity securities	  	 	261	  	 	 	—  	  	
Movement in restricted cash and cash equivalents	  	 	(209,502	) 	 	 	(46,754	) 	
Funding of other investments	  	 	(63,217	) 	 	 	288	  	
Redemption of other investments	  	 	2,983	  	 	 	—  	  	
Other investing activities	  	 	(235	) 	 	 	120	  	
 	  	 	 	 	 	 	 	 	
Net cash flows used in investing activities	  	 	(263,779	) 	 	 	(270,675	) 	
 	  	 	 	 	 	 	 	 	
FINANCING ACTIVITIES:	  	 	 	 	 	 	 	 	
Contribution by redeemable noncontrolling interest	  	$	260,800	  	 	$	—  	  	
Dividends paid to noncontrolling interest	  	 	—  	  	 	 	(1,740	) 	
Receipt of loans	  	 	70,000	  	 	 	227,000	  	
Repayment of loans	  	 	(35,000	) 	 	 	—  	  	
 	  	 	 	 	 	 	 	 	
Net cash flows provided by financing activities	  	 	295,800	  	 	 	225,260	  	
 	  	 	 	 	 	 	 	 	
EFFECT OF EXCHANGE RATE CHANGES ON FOREIGN CURRENCY CASH AND CASH EQUIVALENTS	  	 	1,033	  	 	 	20,289	  	
 	  	 	 	 	 	 	 	 	
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	  	 	1,982	  	 	 	(14,534	) 	
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	  	 	643,841	  	 	 	654,890	  	
 	  	 	 	 	 	 	 	 	
CASH AND CASH EQUIVALENTS, END OF PERIOD	  	$	645,823	  	 	$	640,356	  	
 	  	 	 	 	 	 	 	 	
Supplemental Cash Flow Information	  	 	 	 	 	 	 	 	
Net income taxes paid	  	$	13,725	  	 	$	3,291	  	
Interest paid	  	$	5,929	  	 	$	1,608	  	
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
March 31, 2014 and December 31, 2013
(Tabular information expressed in thousands of U.S. dollars except share and per share data)
(unaudited)
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation and Consolidation
The Company’s condensed consolidated financial statements have not been audited. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, these financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company’s financial position and results of operations as at the end of and for the periods presented. Results of operations for subsidiaries acquired are included from the dates of their acquisition by the Company. The results of operations for any interim period are not necessarily indicative of the results for a full year. Inter-company accounts and transactions have been eliminated. In these notes, the terms “we,” “us,” “our,” or “the Company” refer to Enstar Group Limited and its direct and indirect subsidiaries.
The preparation of these unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. While management believes that the amounts included in the unaudited condensed consolidated financial statements reflect its best estimates and assumptions, actual results could differ from those estimates. The Company’s principal estimates include, but are not limited to:
 
 	•	 	reserves for losses and loss adjustment expenses;	
 
 	•	 	policy benefits for life and annuity contracts;	
 
 	•	 	reinsurance balances recoverable, including the provisions for uncollectible amounts;	
 
 	•	 	other-than-temporary impairments in the carrying value of available-for-sale investment securities;	
 
 	•	 	valuation of certain other investments that are measured using significant unobservable inputs;	
 
 	•	 	valuation of goodwill and intangible assets; and	
 
 	•	 	fair value estimates associated with accounting for acquisitions.	
The following information should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. Certain reclassifications have been made to the prior period reported amounts of net premiums earned – life and annuities, net increase in ultimate losses and loss adjustment expense liabilities, acquisition costs and life and annuity policy benefits to conform to the current period presentation. All of these reclassifications are associated with Laguna Life Limited (“Laguna”), which now forms part of the Company’s life and annuities segment that was established following the acquisition of the Pavonia companies. These reclassifications had no impact on net earnings previously reported.
 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
1. SIGNIFICANT ACCOUNTING POLICIES—(Continued)
 
New Accounting Standards Adopted in 2014
ASU 2013-11 Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists
In July 2013, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists (“ASU 2013-11”). The objective of ASU 2013-11 is to improve the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. ASU 2013-11 seeks to reduce the diversity in practice by providing guidance on the presentation of unrecognized tax benefits to better reflect the manner in which an entity would settle at the reporting date any additional income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses, or tax credit carryforwards exist. ASU 2013-11 is effective for annual and interim reporting periods beginning after December 15, 2013, with both early adoption and retrospective application permitted. The adoption of the guidance did not have a material impact on the Company’s consolidated statements of operations and financial position.
2. ACQUISITIONS
Torus Insurance Holdings Limited
On April 1, 2014, Kenmare Holdings Ltd. (“Kenmare”), a wholly-owned subsidiary of the Company, together with Trident V, L.P., Trident V Parallel Fund, L.P. and Trident V Professionals Fund, L.P., which are managed by Stone Point Capital LLC (collectively, “Trident”), completed the previously announced acquisition of Torus Insurance Holdings Limited (“Torus”). Torus is an A- rated global specialty insurer with six wholly-owned insurance vehicles, including Lloyd’s Syndicate 1301. At closing, Torus became directly owned by Bayshore Holdings Ltd. (“Bayshore”), which was 60% owned by Kenmare and 40% owned by Trident.
The purchase price for Torus was established in the amended and restated amalgamation agreement as $646.0 million, to be paid partly in cash and partly in the Company’s stock. The number of Company shares to be issued was fixed at the signing of the amalgamation agreement on July 8, 2013 and was determined by reference to an agreed-upon value per share of $132.448, which was the average closing price of the Company’s voting ordinary shares, par value $1.00 per share (the “Voting Ordinary Shares”), over the 20 trading days prior to such signing date. On the day before closing of the amalgamation, the Voting Ordinary Shares had a closing price of $136.31 per share. At closing, the Company contributed cash of $41.6 million towards the purchase price and $3.6 million towards related transaction expenses, as well as 1,898,326 Voting Ordinary Shares and 714,015 shares of Series B Convertible Participating Non-Voting Perpetual Preferred Stock of the Company (the “Non-Voting Preferred Shares”). Based on a price of $136.31 per share, the Company’s contribution of cash and shares to the purchase price totaled $397.7 million in the aggregate. Trident contributed cash of $258.4 million towards the purchase price and $2.4 million towards related transaction expenses. FR XI Offshore AIV, L.P., First Reserve Fund XII, L.P., FR XII A Parallel Vehicle L.P. and FR Torus Co-Investment, L.P. (collectively, “First Reserve”) received 1,501,211 Voting Ordinary Shares, 714,015 Non-Voting Preferred Shares and cash consideration in the transaction. Corsair Specialty Investors, L.P. (“Corsair”) received 397,115 Voting Ordinary Shares and cash consideration in the transaction.
 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
2. ACQUISITIONS—(Continued)
 
The remaining Torus shareholders received all cash. As a result of the amalgamation, First Reserve now owns approximately 9.5% and 11.5%, respectively, of the Company’s Voting Ordinary Shares and outstanding share capital.
Upon the closing of the Torus acquisition, Bayshore, Kenmare and Trident entered into a Shareholders’ Agreement (the “Bayshore Shareholders’ Agreement”), which was subsequently amended, as described in “Dowling Co-investments in Bayshore and Northshore” below.
Changes in Ownership Interests relating to Holding Companies for our Active Underwriting Businesses
Atrium Employee Equity Awards
On April 17, 2014, Northshore Holdings Ltd. (“Northshore”), the parent company of Atrium Underwriting Group Limited (“Atrium”) and Arden Reinsurance Company Ltd. (“Arden”), implemented long-term incentive plans that awarded time-based restricted shares of Northshore to certain Atrium employees. These equity awards will have the effect of modestly reducing Kenmare’s 60% equity interest in Northshore (as well as Trident’s 40% equity interest) over the course of the vesting periods as Atrium employees acquire shares. Shares generally vest over two to three years, and certain awards begin vesting in 2014. On a fully diluted basis, and assuming full vesting of all of these equity awards, the impact of the share awards are that Kenmare, Trident and certain Atrium employees own 57.1%, 38.1%, and 4.8% of Northshore, respectively.
Dowling Co-investments in Bayshore and Northshore
On May 8, 2014, Dowling Capital Partners I, L.P. (“Dowling”) purchased common shares of both Bayshore and Northshore from Kenmare and Trident (on a pro rata basis in accordance with their respective interests) for an aggregate amount of $15.4 million.
Prior to the sale of shares to Dowling, Kenmare and Trident owned 60% and 40% of Bayshore, respectively, and 57.7% and 38.1% of Northshore on a fully diluted basis, respectively (assuming full vesting of Atrium employees’ restricted shares totaling 4.8%). Following the sale of Bayshore shares to Dowling, Kenmare, Trident and Dowling own 59%, 39.3% and 1.7% of Bayshore, respectively. Following the sale of Northshore shares to Dowling, Kenmare, Trident, certain Atrium employees and Dowling own 56.1%, 37.4%, 4.8% and 1.7% of Northshore, respectively, on a fully diluted basis.
In connection with the sale of Bayshore shares, the Bayshore Shareholders’ Agreement was amended and restated. The Amended and Restated Bayshore Shareholders’ Agreement, among other things, provides that Kenmare has the right to appoint three members to the Bayshore board of directors and Trident has the right to appoint two members. The Amended and Restated Bayshore Shareholders’ Agreement includes a five-year period (the “Restricted Period”) during which no shareholder can transfer its ownership interest in Bayshore to a third party unless approved by a super-majority of the shareholders. Following the Restricted Period: (i) each shareholder must offer Kenmare and Trident the right to buy its shares before the shares are offered to a third party; (ii) Kenmare can require each other shareholder to participate in a sale of Bayshore to a third party as long as Kenmare owns 55% of the aggregate number of outstanding shares of Bayshore held by Kenmare and Trident; (iii) each shareholder has the right to be included on a pro rata basis in any sales made by another shareholder; and (iv) each of Kenmare, Trident and Dowling has the right to buy its pro rata share of any new securities issued by Bayshore.
 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
2. ACQUISITIONS—(Continued)
 
The Amended and Restated Bayshore Shareholders’ Agreement also provides that during the 90-day period following the fifth anniversary of the Torus closing, and at any time following the seventh anniversary of such closing, Kenmare would have the right to purchase the Bayshore shares owned by all other shareholders of Bayshore at their then fair market value, which would be payable in cash. Following the seventh anniversary of the Torus closing, Trident would have the right to require Kenmare to purchase all of Trident’s shares in Bayshore for their then current fair market value and Dowling would have the right to participate in such transaction by requiring Kenmare to purchase all of its shares in Bayshore on the same terms. Kenmare would have the option to pay for such shares either in cash or by delivering the Company’s Voting Ordinary Shares.
In connection with the sale of Northshore shares, the Northshore Shareholders’ Agreement was amended and restated. The Amended and Restated Northshore Shareholders’ Agreement provides for substantially the same rights and obligations as the Amended and Restated Bayshore Shareholders’ Agreement, except that the fifth and seventh anniversaries refer to the Arden closing.
3. SIGNIFICANT NEW BUSINESS
2014
Reciprocal of America
On July 6, 2012, our wholly-owned subsidiary, Providence Washington Insurance Company, entered into a definitive loss portfolio transfer reinsurance agreement with Reciprocal of America (in Receivership) and its Deputy Receiver relating to a portfolio of workers’ compensation business. The estimated total liabilities to be assumed are approximately $169.0 million, with an equivalent amount of assets to be received as consideration. Completion of the transaction is conditioned upon, among other things, regulatory approvals and satisfaction of customary closing conditions. The transaction is expected to close in the second quarter of 2014.
Shelbourne RITC Transactions
Effective January 1, 2014, Lloyd’s Syndicate 2008 (“S2008”), which is managed by the Company’s wholly-owned subsidiary and Lloyd’s managing agent, Shelbourne Syndicate Services Limited, entered into a reinsurance to close contract of the 2011 and prior underwriting years of account of another Lloyd’s syndicate, under which S2008 assumed total net insurance reserves of approximately £17.0 million (approximately $28.1 million) for cash consideration of an equal amount.
Effective December 31, 2012, S2008 entered into a 100% quota share reinsurance agreement with another Lloyd’s syndicate in respect of its 2009 and prior years of account (the “2009 Liabilities”), under which S2008 assumed total gross insurance reserves of approximately £193.0 million (approximately $313.3 million) for consideration of an equal amount. Effective January 1, 2014, the 2012 Lloyd’s underwriting year of account of S2008 entered into a partial RITC transaction with respect to the 2009 liabilities.
 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
11
4. INVESTMENTS
Trading
The estimated fair values of the Company’s investments in fixed maturity investments, short-term investments and equities classified as trading securities were as follows:

 	  	March 31,	 	  	December 31,	 	
 	  	2014	 	  	2013	 	
U.S. government and agency	  	$	401,584	  	  	$	439,946	  	
Non-U.S. government	  	 	444,279	  	  	 	476,224	  	
Corporate	  	 	2,109,014	  	  	 	2,123,675	  	
Municipal	  	 	34,545	  	  	 	41,034	  	
Residential mortgage-backed	  	 	233,348	  	  	 	218,457	  	
Commercial mortgage-backed	  	 	127,664	  	  	 	114,637	  	
Asset-backed	  	 	268,740	  	  	 	248,748	  	
 	  	 	 	 	  	 	 	 	
Total fixed maturity and short-term investments	  	 	3,619,174	  	  	 	3,662,721	  	
Equities - U.S.	  	 	107,341	  	  	 	115,285	  	
Equities - International	  	 	51,333	  	  	 	66,748	  	
 	  	 	 	 	  	 	 	 	
 	  	$	3,777,848	  	  	$	3,844,754	  	
 	  	 	 	 	  	 	 	 	
Included within residential and commercial mortgage-backed securities as at March 31, 2014 were securities issued by U.S. governmental agencies with a fair value of $188.3 million (as at December 31, 2013: $177.9 million).
The following tables set forth certain information regarding the credit ratings (provided by major rating agencies) of the Company’s fixed maturity and short-term investments classified as trading:

As at March 31, 2014	  	Fair
Value	 	  	% of Total
Fair Value	 	
AAA	  	$	517,665	  	  	 	14.3	% 	
AA	  	 	1,417,658	  	  	 	39.1	% 	
A	  	 	1,156,852	  	  	 	32.0	% 	
BBB or lower	  	 	505,664	  	  	 	14.0	% 	
Not Rated	  	 	21,335	  	  	 	0.6	% 	
 	  	 	 	 	  	 	 	 	
 	  	$	3,619,174	  	  	 	100.0	% 	

 	 	 	 	 	 	 	 	 	
As at December 31, 2013	  	Fair
Value	 	  	% of Total
Fair Value	 	
AAA	  	$	502,057	  	  	 	13.7	% 	
AA	  	 	1,430,107	  	  	 	39.1	% 	
A	  	 	1,191,142	  	  	 	32.5	% 	
BBB or lower	  	 	461,614	  	  	 	12.6	% 	
Not Rated	  	 	77,801	  	  	 	2.1	% 	
 	  	 	 	 	  	 	 	 	
 	  	$	3,662,721	  	  	 	100.0	% 	

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
4. INVESTMENTS—(Continued)
 
Held-to-maturity
The Company holds a portfolio of held-to-maturity securities to support the Pavonia annuity business. The amortized cost and estimated fair values of the Company’s fixed maturity securities classified as held-to-maturity were as follows:

 	  	 	 	  	 	 	  	Gross	 	 	 	 	
 	  	 	 	  	Gross	 	  	Unrealized	 	 	 	 	
 	  	 	 	  	Unrealized	 	  	Holding	 	 	 	 	
 	  	Amortized	 	  	Holding	 	  	Losses	 	 	Fair	 	
 	  	Cost	 	  	Gains	 	  	Non-OTTI	 	 	Value	 	
As at March 31, 2014	  	 	 	  	 	 	  	 	 	 	 	 	
U.S. government and agency	  	$	19,841	  	  	$	8	  	  	$	(1,227	) 	 	$	18,622	  	
Non-U.S. government	  	 	32,253	  	  	 	40	  	  	 	(1,074	) 	 	 	31,219	  	
Corporate	  	 	804,124	  	  	 	1,050	  	  	 	(27,624	) 	 	 	777,550	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
 	  	$	856,218	  	  	$	1,098	  	  	$	(29,925	) 	 	$	827,391	  	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	 	  	 	 	  	Gross	 	 	 	 	
 	  	 	 	  	Gross	 	  	Unrealized	 	 	 	 	
 	  	 	 	  	Unrealized	 	  	Holding	 	 	 	 	
 	  	Amortized	 	  	Holding	 	  	Losses	 	 	Fair	 	
 	  	Cost	 	  	Gains	 	  	Non-OTTI	 	 	Value	 	
As at December 31, 2013	  	 	 	  	 	 	  	 	 	 	 	 	
U.S. government and agency	  	$	19,992	  	  	$	6	  	  	$	(1,866	) 	 	$	18,132	  	
Non-U.S. government	  	 	23,592	  	  	 	19	  	  	 	(1,284	) 	 	 	22,327	  	
Corporate	  	 	815,803	  	  	 	105	  	  	 	(56,808	) 	 	 	759,100	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
 	  	$	859,387	  	  	$	130	  	  	$	(59,958	) 	 	$	799,559	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
As at March 31, 2014 and December 31, 2013, none of these securities were considered to be other than temporarily impaired.
The contractual maturities of the Company’s fixed maturity securities classified as held-to-maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

As at March 31, 2014	  	Amortized
Cost	 	  	Fair
Value	 	  	% of Total
Fair Value	 	
Due in one year or less	  	$	22,554	  	  	$	22,591	  	  	 	2.7	% 	
Due after one year through five years	  	 	82,988	  	  	 	82,574	  	  	 	10.0	% 	
Due after five years through ten years	  	 	131,317	  	  	 	127,759	  	  	 	15.4	% 	
Due after ten years	  	 	619,359	  	  	 	594,467	  	  	 	71.9	% 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	856,218	  	  	$	827,391	  	  	 	100.0	% 	

 	 	 	 	 	 	 	 	 	 	 	 	 	
As at December 31, 2013	  	Amortized
Cost	 	  	Fair
Value	 	  	% of Total
Fair Value	 	
Due in one year or less	  	$	17,541	  	  	$	17,579	  	  	 	2.2	% 	
Due after one year through five years	  	 	87,698	  	  	 	86,611	  	  	 	10.8	% 	
Due after five years through ten years	  	 	133,102	  	  	 	126,541	  	  	 	15.8	% 	
Due after ten years	  	 	621,046	  	  	 	568,828	  	  	 	71.2	% 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	859,387	  	  	$	799,559	  	  	 	100.0	% 	

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
4. INVESTMENTS—(Continued)
 
The following tables set forth certain information regarding the credit ratings (provided by major rating agencies) of the Company’s fixed maturity investments classified as held-to-maturity:

As at March 31, 2014	  	Amortized
Cost	 	  	Fair Value	 	  	% of Total
Fair Value	 	
AAA	  	$	66,044	  	  	$	63,038	  	  	 	7.6	% 	
AA	  	 	191,778	  	  	 	183,635	  	  	 	22.2	% 	
A	  	 	502,994	  	  	 	486,935	  	  	 	58.8	% 	
BBB or lower	  	 	94,975	  	  	 	93,355	  	  	 	11.3	% 	
Not Rated	  	 	427	  	  	 	428	  	  	 	0.1	% 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	856,218	  	  	$	827,391	  	  	 	100.0	% 	

 	 	 	 	 	 	 	 	 	 	 	 	 	
As at December 31, 2013	  	Amortized
Cost	 	  	Fair Value	 	  	% of Total
Fair Value	 	
AAA	  	$	47,949	  	  	$	44,552	  	  	 	5.6	% 	
AA	  	 	259,163	  	  	 	239,188	  	  	 	29.9	% 	
A	  	 	496,986	  	  	 	463,001	  	  	 	57.9	% 	
BBB or lower	  	 	54,759	  	  	 	52,282	  	  	 	6.5	% 	
Not Rated	  	 	530	  	  	 	536	  	  	 	0.1	% 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	859,387	  	  	$	799,559	  	  	 	100.0	% 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Available-for-sale
The amortized cost and estimated fair values of the Company’s fixed maturity and short-term investments classified as available-for-sale were as follows:

 	  	 	 	  	 	 	  	Gross	 	 	 	 	
 	  	 	 	  	Gross	 	  	Unrealized	 	 	 	 	
 	  	 	 	  	Unrealized	 	  	Holding	 	 	 	 	
 	  	Amortized	 	  	Holding	 	  	Losses	 	 	Fair	 	
As at March 31, 2014	  	Cost	 	  	Gains	 	  	Non-OTTI	 	 	Value	 	
U.S. government and agency	  	$	13,993	  	  	$	266	  	  	$	(32	) 	 	$	14,227	  	
Non-U.S. government	  	 	81,906	  	  	 	1,608	  	  	 	(616	) 	 	 	82,898	  	
Corporate	  	 	86,697	  	  	 	1,490	  	  	 	(115	) 	 	 	88,072	  	
Residential mortgage-backed	  	 	4,454	  	  	 	97	  	  	 	(3	) 	 	 	4,548	  	
Asset-backed	  	 	51,567	  	  	 	27	  	  	 	(30	) 	 	 	51,564	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
 	  	$	238,617	  	  	$	3,488	  	  	$	(796	) 	 	$	241,309	  	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	 	  	 	 	  	Gross	 	 	 	 	
 	  	 	 	  	Gross	 	  	Unrealized	 	 	 	 	
 	  	 	 	  	Unrealized	 	  	Holding	 	 	 	 	
 	  	Amortized	 	  	Holding	 	  	Losses	 	 	Fair	 	
As at December 31, 2013	  	Cost	 	  	Gains	 	  	Non-OTTI	 	 	Value	 	
U.S. government and agency	  	$	28,050	  	  	$	303	  	  	$	(10	) 	 	$	28,343	  	
Non-U.S. government	  	 	84,443	  	  	 	1,871	  	  	 	(22	) 	 	 	86,292	  	
Corporate	  	 	76,942	  	  	 	1,221	  	  	 	(259	) 	 	 	77,904	  	
Residential mortgage-backed	  	 	17,523	  	  	 	102	  	  	 	(118	) 	 	 	17,507	  	
Asset-backed	  	 	36,344	  	  	 	4	  	  	 	(30	) 	 	 	36,318	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
 	  	$	243,302	  	  	$	3,501	  	  	$	(439	) 	 	$	246,364	  	

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
4. INVESTMENTS—(Continued)
 
Included within residential mortgage-backed securities as at March 31, 2014 were securities issued by U.S. governmental agencies with a fair value of $1.1 million (as at December 31, 2013: $12.5 million).
The following tables summarize the Company’s fixed maturity and short-term investments classified as available-for-sale in an unrealized loss position as well as the aggregate fair value and gross unrealized loss by length of time the securities have continuously been in an unrealized loss position:

 	  	12 Months or Greater	 	  	Less Than 12 Months	 	 	Total	 	
 	  	Fair	 	  	Unrealized	 	  	Fair	 	  	Unrealized	 	 	Fair	 	  	Unrealized	 	
As at March 31, 2014	  	Value	 	  	Losses	 	  	Value	 	  	Losses	 	 	Value	 	  	Losses	 	
U.S. government and agency	  	$	—  	  	  	$	—  	  	  	$	7,234	  	  	$	(32	) 	 	$	7,234	  	  	$	(32	) 	
Non-U.S. government	  	 	—  	  	  	 	—  	  	  	 	21,758	  	  	 	(616	) 	 	 	21,758	  	  	 	(616	) 	
Corporate	  	 	—  	  	  	 	—  	  	  	 	35,416	  	  	 	(115	) 	 	 	35,416	  	  	 	(115	) 	
Residential mortgage-backed	  	 	—  	  	  	 	—  	  	  	 	1,516	  	  	 	(3	) 	 	 	1,516	  	  	 	(3	) 	
Asset-backed	  	 	—  	  	  	 	—  	  	  	 	23,609	  	  	 	(30	) 	 	 	23,609	  	  	 	(30	) 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
 	  	$	—  	  	  	$	—  	  	  	$	89,533	  	  	$	(796	) 	 	$	89,533	  	  	$	(796	) 	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	12 Months or Greater	 	  	Less Than 12 Months	 	 	Total	 	
 	  	Fair	 	  	Unrealized	 	  	Fair	 	  	Unrealized	 	 	Fair	 	  	Unrealized	 	
As at December 31, 2013	  	Value	 	  	Losses	 	  	Value	 	  	Losses	 	 	Value	 	  	Losses	 	
U.S. government and agency	  	$	—  	  	  	$	—  	  	  	$	11,416	  	  	$	(10	) 	 	$	11,416	  	  	$	(10	) 	
Non-U.S. government	  	 	—  	  	  	 	—  	  	  	 	20,406	  	  	 	(22	) 	 	 	20,406	  	  	 	(22	) 	
Corporate	  	 	—  	  	  	 	—  	  	  	 	51,478	  	  	 	(259	) 	 	 	51,478	  	  	 	(259	) 	
Residential mortgage-backed	  	 	—  	  	  	 	—  	  	  	 	13,632	  	  	 	(118	) 	 	 	13,632	  	  	 	(118	) 	
Asset-backed	  	 	—  	  	  	 	—  	  	  	 	24,898	  	  	 	(30	) 	 	 	24,898	  	  	 	(30	) 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
 	  	$	—  	  	  	$	—  	  	  	$	121,830	  	  	$	(439	) 	 	$	121,830	  	  	$	(439	) 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
As at March 31, 2014 and December 31, 2013, the number of securities classified as available-for-sale in an unrealized loss position was 97 and 135, respectively, with a fair value of $89.5 million and $121.8 million, respectively. Of these securities, the number of securities that had been in an unrealized loss position for twelve months or longer was nil. As of March 31, 2014, none of these securities were considered to be other than temporarily impaired.
 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
4. INVESTMENTS—(Continued)
 
The contractual maturities of the Company’s fixed maturity and short-term investments classified as available-for-sale are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

As at March 31, 2014	  	Amortized
Cost	 	  	Fair
Value	 	  	% of Total
Fair Value	 	
Due in one year or less	  	$	29,022	  	  	$	29,325	  	  	 	12.1	% 	
Due after one year through five years	  	 	147,873	  	  	 	149,441	  	  	 	61.9	% 	
Due after five years through ten years	  	 	2,935	  	  	 	2,912	  	  	 	1.2	% 	
Due after ten years	  	 	2,766	  	  	 	3,519	  	  	 	1.5	% 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	 	182,596	  	  	 	185,197	  	  	 	76.7	% 	
Residential mortgage-backed	  	 	4,454	  	  	 	4,548	  	  	 	1.9	% 	
Asset-backed	  	 	51,567	  	  	 	51,564	  	  	 	21.4	% 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	238,617	  	  	$	241,309	  	  	 	100.0	% 	

 	 	 	 	 	 	 	 	 	 	 	 	 	
As at December 31, 2013	  	Amortized
Cost	 	  	Fair
Value	 	  	% of Total
Fair Value	 	
Due in one year or less	  	$	45,295	  	  	$	45,596	  	  	 	18.5	% 	
Due after one year through five years	  	 	141,400	  	  	 	143,445	  	  	 	58.2	% 	
Due after five years through ten years	  	 	69	  	  	 	70	  	  	 	0.1	% 	
Due after ten years	  	 	2,671	  	  	 	3,428	  	  	 	1.4	% 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	 	189,435	  	  	 	192,539	  	  	 	78.2	% 	
Residential mortgage-backed	  	 	17,523	  	  	 	17,507	  	  	 	7.1	% 	
Asset-backed	  	 	36,344	  	  	 	36,318	  	  	 	14.7	% 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	243,302	  	  	$	246,364	  	  	 	100.0	% 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
The following tables set forth certain information regarding the credit ratings (provided by major rating agencies) of the Company’s fixed maturity and short-term investments classified as available-for-sale:

As at March 31, 2014	  	Amortized
Cost	 	  	Fair
Value	 	  	% of Total
Fair Value	 	
AAA	  	$	138,462	  	  	$	139,369	  	  	 	57.8	% 	
AA	  	 	53,404	  	  	 	53,980	  	  	 	22.4	% 	
A	  	 	36,834	  	  	 	37,683	  	  	 	15.6	% 	
BBB or lower	  	 	9,917	  	  	 	10,277	  	  	 	4.2	% 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	238,617	  	  	$	241,309	  	  	 	100.0	% 	

 	 	 	 	 	 	 	 	 	 	 	 	 	
As at December 31, 2013	  	Amortized
Cost	 	  	Fair
Value	 	  	% of Total
Fair Value	 	
AAA	  	$	125,729	  	  	$	127,433	  	  	 	51.7	% 	
AA	  	 	74,692	  	  	 	75,181	  	  	 	30.5	% 	
A	  	 	33,834	  	  	 	34,607	  	  	 	14.1	% 	
BBB or lower	  	 	8,957	  	  	 	8,963	  	  	 	3.6	% 	
Not Rated	  	 	90	  	  	 	180	  	  	 	0.1	% 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	243,302	  	  	$	246,364	  	  	 	100.0	% 	

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
4. INVESTMENTS—(Continued)
 
Other-Than-Temporary Impairment Process
The Company assesses whether declines in the fair value of its fixed maturity investments classified as available-for-sale and held-to-maturity represent impairment losses that are other-than-temporary and whether a credit loss exists in accordance with its accounting policies. In assessing whether it is more likely than not that the Company will be required to sell a fixed maturity investment before its anticipated recovery, the Company considers various factors including its future cash flow requirements, legal and regulatory requirements, the level of its cash, cash equivalents, short-term investments and fixed maturity investments available-for-sale in an unrealized gain position, and other relevant factors. For the three months ended March 31, 2014, the Company did not recognize any other-than-temporary impairment losses due to required sales. The Company determined that, as at March 31, 2014, no credit losses existed.
Other Investments
The estimated fair values of the Company’s other investments were as follows:

 	  	March 31,	 	  	December 31,	 	
 	  	2014	 	  	2013	 	
Private equity funds	  	$	191,452	  	  	$	161,229	  	
Fixed income funds	  	 	222,004	  	  	 	194,375	  	
Fixed income hedge funds	  	 	69,547	  	  	 	68,157	  	
Equity funds	  	 	128,110	  	  	 	109,355	  	
Real estate debt fund	  	 	32,469	  	  	 	32,113	  	
Other	  	 	3,183	  	  	 	4,064	  	
 	  	 	 	 	  	 	 	 	
 	  	$	646,765	  	  	$	569,293	  	
 	  	 	 	 	  	 	 	 	
Private equity funds
This class comprises several private equity funds that invest primarily in the financial services industry. All of the Company’s investments in private equity funds are subject to restrictions on redemptions and sales that are determined by the governing documents and limit the Company’s ability to liquidate those investments. These restrictions have been in place since the dates the initial investments were made by the Company.
As of March 31, 2014 and December 31, 2013, the Company had $191.5 million and $161.2 million, respectively, of other investments recorded in private equity funds, which represented 2.8% and 2.5% of total investments, cash and cash equivalents and restricted cash and cash equivalents at March 31, 2014 and December 31, 2013, respectively. Due to a lag in the valuations reported by the managers, the Company records changes in the investment value with up to a three-month lag. Management regularly reviews and discusses fund performance with their 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.
Fixed income funds
This class comprises a number of positions in diversified fixed income funds that are managed by third party managers. Underlying investments vary from high grade corporate bonds to non-investment
 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
4. INVESTMENTS—(Continued)
 
grade senior secured loans and bonds, but are generally invested in liquid fixed income markets. These funds have regularly published prices. The funds have liquidity terms that vary from daily to monthly.
Fixed income hedge funds
This class comprises hedge funds that invest in a diversified portfolio of debt securities. The hedge funds have imposed lock-up periods of three years from the time of the Company’s initial investment. Once eligible, redemptions will be permitted quarterly with 90 days’ notice. Some of the funds were eligible for redemption in March 2014.
Equity funds
This class comprises equity funds that invest in a diversified portfolio of international publicly-traded equity securities.
Real estate debt fund
This class comprises a real estate debt fund that invests primarily in U.S. commercial real estate loans and securities. A redemption request for this fund can be made 10 days after the date of any monthly valuation; the fund states that it will make commercially reasonable efforts to redeem the investment within the next monthly period.
Other
This class primarily comprises a fund that provides loans to educational institutions throughout the U.S. and its territories. Through these investments, the Company participates in the performance of the underlying loan pools. This investment matures when the loans are paid down and cannot be redeemed before maturity.
Redemption restrictions on other investments
Certain funds included in other investments are subject to a lock-up period. A lock-up period refers to the initial amount of time an investor is contractually required to invest before having the ability to redeem the investment. Funds that do provide for periodic redemptions may, depending on the funds’ governing documents, have the ability to deny or delay a redemption request, which is called a “gate.” The fund may restrict redemptions because the aggregate amount of redemption requests as of a particular date exceeds a specified level. The gate is a method for executing an orderly redemption process that allows for redemption requests to be executed in a timely manner to reduce the possibility of adversely affecting the remaining investors in the fund. Typically, the imposition of a gate delays a portion of the requested redemption, with the remaining portion to be settled in cash sometime after the redemption date.
Certain funds included in other investments may be allowed to invest a portion of their assets in illiquid securities, such as private equity or convertible debt. In such cases, a common mechanism used is a “side-pocket,” whereby the illiquid security is assigned to a separate memorandum capital
 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
4. INVESTMENTS—(Continued)
 
account or designated account. Typically, the investor loses its redemption rights in the designated account. Only when the illiquid security is sold, or is otherwise deemed liquid by the fund, may investors redeem their interest in the side-pocket.
At March 31, 2014, the Company had $2.6 million of investments subject to side-pockets ($3.2 million as of December 31, 2013). Management has not made any adjustments to the fair value estimate reported by the fund managers for the side-pocketed investments.
The following tables present the fair value, unfunded commitments and redemption frequency for all other investments. These investments are all valued at net asset value as at March 31, 2014 and December 31, 2013:

March 31, 2014	  	Total Fair
Value	 	  	Gated/Side
Pocket
Investments	 	  	Investments
without Gates
or Side Pockets	 	  	Unfunded
Commitments	 	  	Redemption
Frequency	
Private equity funds	  	$	191,452	  	  	$	—  	  	  	$	191,452	  	  	$	131,295	  	  	Not eligible	
Fixed income funds	  	 	222,004	  	  	 	—  	  	  	 	222,004	  	  	 	—  	  	  	Daily to monthly	
Fixed income hedge funds	  	 	69,547	  	  	 	2,649	  	  	 	66,898	  	  	 	—  	  	  	Quarterly after lock-up periods expire	
Equity funds	  	 	128,110	  	  	 	—  	  	  	 	128,110	  	  	 	—  	  	  	Bi-monthly	
Real estate debt fund	  	 	32,469	  	  	 	—  	  	  	 	32,469	  	  	 	—  	  	  	Monthly	
Other	  	 	3,183	  	  	 	—  	  	  	 	3,183	  	  	 	655	  	  	Not eligible	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	
 	  	$	646,765	  	  	$	2,649	  	  	$	644,116	  	  	$	131,950	  	  	 	

December 31, 2013	  	Total Fair
Value	 	  	Gated/Side
Pocket
Investments	 	  	Investments
without Gates
or Side Pockets	 	  	Unfunded
Commitments	 	  	Redemption
Frequency	
Private equity funds	  	$	161,229	  	  	$	—  	  	  	$	161,229	  	  	$	113,585	  	  	Not eligible	
Fixed income funds	  	 	194,375	  	  	 	—  	  	  	 	194,375	  	  	 	—  	  	  	Daily to monthly	
Fixed income hedge funds	  	 	68,157	  	  	 	3,150	  	  	 	65,007	  	  	 	—  	  	  	Quarterly after lock-up periods expire	
Equity funds	  	 	109,355	  	  	 	—  	  	  	 	109,355	  	  	 	—  	  	  	Bi-monthly	
Real estate debt fund	  	 	32,113	  	  	 	—  	  	  	 	32,113	  	  	 	—  	  	  	Monthly	
Other	  	 	4,064	  	  	 	—  	  	  	 	4,064	  	  	 	655	  	  	Not eligible	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	
 	  	$	569,293	  	  	$	3,150	  	  	$	566,143	  	  	$	114,240	  	  	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	
Fair Value of Financial Instruments
Fair value is defined as the price at which to sell an asset or transfer a liability (i.e. the “exit price”) in an orderly transaction between market participants. The Company uses a fair value hierarchy that gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. The hierarchy is broken down into three levels as follows:
 
 	•	 	Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments.	
 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
4. INVESTMENTS—(Continued)
 
 	•	 	Level 2—Valuations based on quoted prices in active markets for similar assets or liabilities, quoted prices for identical assets or liabilities in inactive markets, or for which significant inputs are observable (e.g. interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.	
 
 	•	 	Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The unobservable inputs reflect the Company’s own judgment about assumptions that market participants might use.	
The following is a summary of valuation techniques or models the Company uses to measure fair value by asset and liability classes.
Fixed Maturity Investments
The Company’s fixed maturity investment portfolios are managed by the Company’s Chief Investment Officer and outside investment advisors with oversight from the Company’s Investment Committee. Fair values for all securities in the fixed maturity investment portfolios are independently provided by the investment custodians, investment accounting service providers and investment managers, each of which utilize internationally recognized independent pricing services. Interactive Data Corporation is, however, the main pricing service utilized to estimate the fair value measurements for the Company’s fixed maturity investments. The Company records the unadjusted price provided by the investment custodians, investment accounting service providers or the investment managers and validates this price through a process that includes, but is not limited to: (i) comparison of prices against alternative pricing sources; (ii) quantitative analysis (e.g. comparing the quarterly return for each managed portfolio to its target benchmark); (iii) evaluation of methodologies used by external parties to estimate fair value, including a review of the inputs used for pricing; and (iv) comparing the price to the Company’s knowledge of the current investment market. The Company’s internal price validation procedures and review of fair value methodology documentation provided by independent pricing services have not historically resulted in adjustment in the prices obtained from the pricing service.
The independent pricing services used by the investment custodians, investment accounting service providers and investment managers obtain actual transaction prices for securities that have quoted prices in active markets. For determining the fair value of securities that are not actively traded, in general, pricing services use “matrix pricing” in which the independent pricing service uses observable market inputs including, but not limited to, reported trades, benchmark yields, broker-dealer quotes, interest rates, prepayment speeds, default rates and such other inputs as are available from market sources to determine a reasonable fair value. In addition, pricing services use valuation models, using observable data, such as an Option Adjusted Spread model, to develop prepayment and interest rate scenarios. The Option Adjusted Spread model is commonly used to estimate fair value for securities such as mortgage-backed and asset-backed securities.
The following describes the techniques generally used to determine the fair value of the Company’s fixed maturity investments by asset class.
 
 	•	 	U.S. government and agency securities consist of securities issued by the U.S. Treasury and mortgage pass-through agencies such as the Federal National Mortgage Association, the	
 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
4. INVESTMENTS—(Continued)
 
 	Federal Home Loan Mortgage Corporation and other agencies. The significant inputs used to determine the fair value of these securities include the spread above the risk-free yield curve, reported trades and broker-dealer quotes. These are considered to be observable market inputs and, therefore, the fair values of these securities are classified within Level 2.	
 
 	•	 	Non-U.S. government securities consist of bonds issued by non-U.S. governments and agencies along with supranational organizations. The significant inputs used to determine the fair value of these securities include the spread above the risk-free yield curve, reported trades and broker-dealer quotes. These are considered to be observable market inputs and, therefore, the fair values of these securities are classified within Level 2.	
 
 	•	 	Corporate securities consist primarily of investment-grade debt of a wide variety of corporate issuers and industries. The fair values of these securities are determined using the spread above the risk-free yield curve, reported trades, broker-dealer quotes, benchmark yields, and industry and market indicators. These are considered observable market inputs and, therefore, the fair values of these securities are classified within Level 2. Where pricing is unavailable from pricing services, the Company obtains non-binding quotes from broker-dealers. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. In this event, securities are classified within Level 3. As at March 31, 2014, the Company had one corporate security classified as Level 3.	
 
 	•	 	Municipal securities consist primarily of bonds issued by U.S.-domiciled state and municipal entities. The fair values of these securities are determined using the spread above the risk-free yield curve, reported trades, broker-dealer quotes and benchmark yields. These are considered observable market inputs and, therefore, the fair values of these securities are classified within Level 2.	
 
 	•	 	Asset-backed securities consist primarily of investment-grade bonds backed by pools of loans with a variety of underlying collateral. The significant inputs used to determine the fair value of these securities include the spread above the risk-free yield curve, reported trades, benchmark yields, broker-dealer quotes, prepayment speeds and default rates. These are considered observable market inputs and, therefore, the fair values of these securities are classified within Level 2.	
 
 	•	 	Residential and commercial mortgage-backed securities include both agency and non-agency originated securities. The significant inputs used to determine the fair value of these securities include the spread above the risk-free yield curve, reported trades, benchmark yields, broker-dealer quotes, prepayment speeds and default rates. These are considered observable market inputs and, therefore, the fair values of these securities are classified within Level 2. Where pricing is unavailable from pricing services, the Company obtains non-binding quotes from broker-dealers. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. In this event, securities are classified within Level 3. As at March 31, 2014, the Company had no residential or commercial mortgage-backed securities classified as Level 3.	
 
20

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
4. INVESTMENTS—(Continued)
 
Equities
The Company’s equities are predominantly traded on the major exchanges and are primarily managed by two external advisors. The Company uses Interactive Data Corporation, an internationally recognized pricing service, to estimate the fair value for all of its equities. The Company’s equities are widely diversified and there is no significant concentration in any specific industry.
The Company has categorized all of its investments in equities as Level 1 investments because the fair values of these investments are based on quoted prices in active markets for identical assets or liabilities. Because their fair value estimates are based on observable market data, the Company has categorized its investments in preferred stock as Level 2, with the exception of one investment in preferred stock that has been categorized as Level 3.
Other investments
The Company has ongoing due diligence processes with respect to funds in which it invests and their managers. These processes are designed to assist the Company in assessing the quality of information provided by, or on behalf of, each 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, the Company obtains the audited financial statements for funds annually, and regularly reviews and discusses the fund performance with the fund managers to corroborate the reasonableness of the reported net asset values. The use of net asset value as an estimate of the fair value for investments in certain entities that calculate net asset value is a permitted practical expedient. While reported net asset value is the primary input to the review, when the net asset value is deemed not to be indicative of fair value, the Company may incorporate adjustments to the reported net asset value (and not use the permitted practical expedient) on an investment by investment basis. These adjustments may involve significant management judgment. As at March 31, 2014, there were no significant adjustments made to the reported net asset value.
For its investments in private equity funds, the Company measures fair value by obtaining the most recently provided capital statement from the external fund manager or third-party administrator. The funds calculate net asset value on a fair value basis.
For all publicly-traded companies within these funds, the Company adjusts the reported net asset value based on the latest share price as of the Company’s reporting date. The Company has classified its investments in private equity funds as Level 3.
The fixed income funds and equity funds in which the Company invests have been classified as Level 2 investments because their fair value is estimated using the published net asset value and because the fixed income funds and equity funds are highly liquid.
For its investments in fixed income hedge funds, the Company measures fair value by obtaining the most recently published net asset value as advised by the external fund manager or third-party administrator. The investments in the funds are classified as Level 3.
The real estate debt fund in which the Company invests has been valued based on the most recent published net asset value. This investment has been classified as Level 3.
 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
4. INVESTMENTS—(Continued)
 
The Company’s remaining other investments are valued based on the latest available capital statements and have been classified as Level 3.
Fair Value Measurements
In accordance with the provisions of the Fair Value Measurement and Disclosure topic of the FASB Accounting Standards Codification (“ASC”) 820, the Company has categorized its investments that are recorded at fair value among levels as follows:

 	  	March 31, 2014	 	
 	  	Quoted Prices
in
Active Markets
for Identical
Assets
(Level 1)	 	  	Significant
Other
Observable
Inputs
(Level 2)	 	  	Significant
Unobservable
Inputs
(Level 3)	 	  	Total Fair
Value	 	
U.S. government and agency	  	$	—  	  	  	$	415,811	  	  	$	—  	  	  	$	415,811	  	
Non-U.S. government	  	 	—  	  	  	 	527,177	  	  	 	—  	  	  	 	527,177	  	
Corporate	  	 	—  	  	  	 	2,196,479	  	  	 	607	  	  	 	2,197,086	  	
Municipal	  	 	—  	  	  	 	34,545	  	  	 	—  	  	  	 	34,545	  	
Residential mortgage-backed	  	 	—  	  	  	 	237,896	  	  	 	—  	  	  	 	237,896	  	
Commercial mortgage-backed	  	 	—  	  	  	 	127,664	  	  	 	—  	  	  	 	127,664	  	
Asset-backed	  	 	—  	  	  	 	320,304	  	  	 	—  	  	  	 	320,304	  	
Equities—U.S.	  	 	97,335	  	  	 	5,256	  	  	 	4,750	  	  	 	107,341	  	
Equities—International	  	 	24,851	  	  	 	26,482	  	  	 	—  	  	  	 	51,333	  	
Other investments	  	 	—  	  	  	 	350,114	  	  	 	296,651	  	  	 	646,765	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total investments	  	$	122,186	  	  	$	4,241,728	  	  	$	302,008	  	  	$	4,665,922	  	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	December 31, 2013	 	
 	  	Quoted Prices
in
Active Markets
for Identical
Assets
(Level 1)	 	  	Significant
Other
Observable
Inputs
(Level 2)	 	  	Significant
Unobservable
Inputs
(Level 3)	 	  	Total Fair
Value	 	
U.S. government and agency	  	$	—  	  	  	$	468,289	  	  	$	—  	  	  	$	468,289	  	
Non-U.S. government	  	 	—  	  	  	 	562,516	  	  	 	—  	  	  	 	562,516	  	
Corporate	  	 	—  	  	  	 	2,200,970	  	  	 	609	  	  	 	2,201,579	  	
Municipal	  	 	—  	  	  	 	41,034	  	  	 	—  	  	  	 	41,034	  	
Residential mortgage-backed	  	 	—  	  	  	 	235,964	  	  	 	—  	  	  	 	235,964	  	
Commercial mortgage-backed	  	 	—  	  	  	 	114,637	  	  	 	—  	  	  	 	114,637	  	
Asset-backed	  	 	—  	  	  	 	285,066	  	  	 	—  	  	  	 	285,066	  	
Equities—U.S.	  	 	97,470	  	  	 	13,090	  	  	 	4,725	  	  	 	115,285	  	
Equities—International	  	 	35,677	  	  	 	31,071	  	  	 	—  	  	  	 	66,748	  	
Other investments	  	 	—  	  	  	 	303,724	  	  	 	265,569	  	  	 	569,293	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total investments	  	$	133,147	  	  	$	4,256,361	  	  	$	270,903	  	  	$	4,660,411	  	

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
4. INVESTMENTS—(Continued)
 
The following tables present the Company’s fair value hierarchy for those assets classified as held-to-maturity in the consolidated balance sheet but for which disclosure of the fair value is required as of March 31, 2014 and December 31, 2013:

 	  	March 31, 2014	 	
 	  	Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)	 	  	Significant
Other
Observable
Inputs
(Level 2)	 	  	Significant
Unobservable
Inputs
(Level 3)	 	  	Total Fair
Value	 	
U.S. government and agency	  	$	—  	  	  	$	18,622	  	  	$	—  	  	  	$	18,622	  	
Non-U.S. government	  	 	—  	  	  	 	31,219	  	  	 	—  	  	  	 	31,219	  	
Corporate	  	 	—  	  	  	 	777,550	  	  	 	—  	  	  	 	777,550	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total investments	  	$	—  	  	  	$	827,391	  	  	$	—  	  	  	$	827,391	  	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	December 31, 2013	 	
 	  	Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)	 	  	Significant
Other
Observable
Inputs
(Level 2)	 	  	Significant
Unobservable
Inputs
(Level 3)	 	  	Total Fair
Value	 	
U.S. government and agency	  	$	—  	  	  	$	18,132	  	  	$	—  	  	  	$	18,132	  	
Non-U.S. government	  	 	—  	  	  	 	22,327	  	  	 	—  	  	  	 	22,327	  	
Corporate	  	 	—  	  	  	 	759,100	  	  	 	—  	  	  	 	759,100	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total investments	  	$	—  	  	  	$	799,559	  	  	$	—  	  	  	$	799,559	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
During 2014 and 2013, the Company had no transfers between Levels 1 and 2.
The following table presents a reconciliation of the beginning and ending balances for all investments measured at fair value on a recurring basis using Level 3 inputs during the three months ended March 31, 2014:

 	  	Fixed
Maturity
Investments	 	 	Other
Investments	 	 	Equity
Securities	 	  	Total	 	
Level 3 investments as of January 1, 2014	  	$	609	  	 	$	265,569	  	 	$	4,725	  	  	$	270,903	  	
Purchases	  	 	—  	  	 	 	23,292	  	 	 	—  	  	  	 	23,292	  	
Sales	  	 	—  	  	 	 	(2,983	) 	 	 	—  	  	  	 	(2,983	) 	
Total realized and unrealized (losses) gains through earnings	  	 	(2	) 	 	 	10,773	  	 	 	25	  	  	 	10,796	  	
Net transfers into and/or (out of) Level 3	  	 	—  	  	 	 	—  	  	 	 	—  	  	  	 	—  	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Level 3 investments as of March 31, 2014	  	$	607	  	 	$	296,651	  	 	$	4,750	  	  	$	302,008	  	

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
4. INVESTMENTS—(Continued)
 
The amount of net gains (losses) for the three months ended March 31, 2014 included in earnings attributable to the fair value of changes in assets still held at March 31, 2014 was $10.8 million. All of this amount was included in net realized and unrealized gains.
The following table presents a reconciliation of the beginning and ending balances for all investments measured at fair value on a recurring basis using Level 3 inputs during the three months ended March 31, 2013.

 	  	Fixed
Maturity
Investments	 	  	Other
Investments	 	 	Equity
Securities	 	  	Total	 	
Level 3 investments as of January 1, 2013	  	$	540	  	  	$	202,730	  	 	$	3,401	  	  	$	206,671	  	
Purchases	  	 	—  	  	  	 	8,991	  	 	 	—  	  	  	 	8,991	  	
Sales	  	 	—  	  	  	 	(9,284	) 	 	 	—  	  	  	 	(9,284	) 	
Total realized and unrealized gains through earnings	  	 	15	  	  	 	12,250	  	 	 	599	  	  	 	12,864	  	
Net transfers into and/or (out of) Level 3	  	 	—  	  	  	 	—  	  	 	 	—  	  	  	 	—  	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
Level 3 investments as of March 31, 2013	  	$	555	  	  	$	214,687	  	 	$	4,000	  	  	$	219,242	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
The amount of net gains (losses) for the three months ended March 31, 2013 included in earnings attributable to the fair value of changes in assets still held at March 31, 2013 was $12.9 million. All of this amount was included in net realized and unrealized gains.
Net Realized and Unrealized Gains
Components of net realized and unrealized gains (losses) for the three months ended March 31, 2014 and 2013 are as follows:

 	  	Three Months Ended March 31,	 	
 	  	      2014      	 	 	      2013      	 	
Gross realized gains on available-for-sale securities	  	$	26	  	 	$	65	  	
Gross realized losses on available-for-sale securities	  	 	(145	) 	 	 	(17	) 	
Net realized gains on trading securities	  	 	5,917	  	 	 	6,009	  	
Net unrealized gains on trading securities	  	 	11,778	  	 	 	5,132	  	
Net realized and unrealized gains on other investments	  	 	16,997	  	 	 	18,931	  	
 	  	 	 	 	 	 	 	 	
Net realized and unrealized gains	  	$	34,573	  	 	$	30,120	  	
 	  	 	 	 	 	 	 	 	
Proceeds from sales and maturities of available-for-sale securities	  	$	59,238	  	 	$	59,631	  	

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
4. INVESTMENTS—(Continued)
 
Net Investment Income
Major categories of net investment income for the three months ended March 31, 2014 and 2013 are summarized as follows:

 	  	Three Months Ended March 31,	 	
 	  	      2014      	 	 	      2013      	 	
Interest from fixed maturity investments	  	$	34,206	  	 	$	20,625	  	
Interest from cash and cash equivalents and short-term investments	  	 	1,625	  	 	 	3,081	  	
Net amortization of bond premiums and discounts	  	 	(12,462	) 	 	 	(8,513	) 	
Dividends from equities	  	 	1,404	  	 	 	1,091	  	
Other investments	  	 	92	  	 	 	61	  	
Interest on other receivables	  	 	226	  	 	 	618	  	
Other income	  	 	22	  	 	 	1,397	  	
Interest on deposits held with clients	  	 	730	  	 	 	1,194	  	
Policy loan interest	  	 	311	  	 	 	0	  	
Investment expenses	  	 	(1,806	) 	 	 	(1,591	) 	
 	  	 	 	 	 	 	 	 	
 	  	$	24,348	  	 	$	17,963	  	
 	  	 	 	 	 	 	 	 	
Restricted Assets
The Company is required to maintain investments and cash and cash equivalents on deposit with various regulatory authorities to support its insurance and reinsurance operations. The investments and cash and cash equivalents on deposit are available to settle insurance and reinsurance liabilities. The Company also utilizes trust accounts to collateralize business with its insurance and reinsurance counterparties. These trust accounts generally take the place of letter of credit requirements. The assets in trusts as collateral are primarily highly rated fixed maturity securities. The carrying value of the Company’s restricted assets, including restricted cash of $607.2 and $397.7 million, as of March 31, 2014 and December 31, 2013 was as follows:

 	  	March 31,	 	  	December 31,	 	
 	  	2014	 	  	2013	 	
Collateral in trust for third party agreements	  	$	2,230,318	  	  	$	2,002,374	  	
Assets on deposit with regulatory authorities	  	 	598,698	  	  	 	608,940	  	
Collateral for secured letter of credit facility	  	 	302,622	  	  	 	310,938	  	
 	  	 	 	 	  	 	 	 	
 	  	$	3,131,638	  	  	$	2,922,252	  	
 	  	 	 	 	  	 	 	 	
5. DERIVATIVE INSTRUMENTS
The Company uses foreign currency forward contracts as part of its overall foreign currency risk management strategy or to obtain exposure to a particular financial market, as well as for yield enhancement. These derivatives were not designated as hedging investments.
 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
5. DERIVATIVE INSTRUMENTS—(Continued)
 
The following table sets forth the estimated fair value of derivative instruments recorded within other assets on the unaudited condensed consolidated balance sheet as at March 31, 2014 and December 31, 2013, respectively:

Foreign
Exchange
Forward
Contract	 	Contract Date	 	Settlement
Date	 	Contract
Amount	 	 	Settlement
Amount	 	 	Fair Value as at	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	March 31, 2014	 	 	December 31, 2013	 	 	 	 	 	 	 	 	 	
Australian dollar	 	November 26, 2013	 	January 3, 2014	 	 	AU$45,000	  	 	 	$41,036	  	 	$	—  	  	 	$	779	  	 	 	 	 	 	 	 	 	
U.S Dollar	 	July 1, 2013	 	January 3, 2014	 	 	$40,887	  	 	 	AU$45,000	  	 	 	—  	  	 	 	(630	) 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	—  	  	 	$	149	  	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
The following table sets forth the changes in realized gains (losses) on derivative instruments recorded in net earnings for the periods ended March 31, 2014 and 2013, respectively:

Foreign
Exchange
Forward
Contract	 	Contract Date	 	Settlement Date	 	Contract
Amount	 	 	Settlement
Amount	 	 	Net Foreign Exchange Gains (Losses)	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	March 31, 2014	 	 	March 31, 2013	 	 	 	 	 	 	 	 	 	
Australian dollar	 	November 26, 2013	 	January 3, 2014	 	 	AU$45,000	  	 	 	$41,036	  	 	$	(130	) 	 	$	—  	  	 	 	 	 	 	 	 	 	
U.S Dollar	 	July 1, 2013	 	January 3, 2014	 	 	$40,887	  	 	 	AU$45,000	  	 	 	130	  	 	 	—  	  	 	 	 	 	 	 	 	 	
Australian dollar	 	February 8, 2012	 	May 10, 2013	 	 	AU$35,000	  	 	 	$36,099	  	 	 	—  	  	 	 	(150	) 	 	 	 	 	 	 	 	 	
British pound	 	March 6, 2012	 	March 6, 2013	 	 	UKP17,000	  	 	 	$26,611	  	 	 	—  	  	 	 	1,023	  	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	—  	  	 	$	873	  	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
6. REINSURANCE BALANCES RECOVERABLE

 	 	March 31, 2014	 	 	December 31, 2013	 	
 	 	Non-life
Run-off	 	 	Active
Underwriting	 	 	Life and
Annuities	 	 	Total	 	 	Non-life
Run-off	 	 	Active
Underwriting	 	 	Life and
Annuities	 	 	Total	 	
Recoverable from reinsurers on:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Outstanding losses	 	 	$741,055	  	 	 	$9,436	  	 	 	$28,172	  	 	 	$778,663	  	 	 	$788,705	  	 	 	$10,777	  	 	 	$28,556	  	 	 	$828,038	  	
Losses incurred but not reported	 	 	346,518	  	 	 	11,799	  	 	 	751	  	 	 	359,068	  	 	 	402,675	  	 	 	9,887	  	 	 	782	  	 	 	413,344	  	
Fair value adjustments	 	 	(59,411	) 	 	 	4,391	  	 	 	—  	  	 	 	(55,020	) 	 	 	(69,847	) 	 	 	4,391	  	 	 	—  	  	 	 	(65,456	) 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total reinsurance reserves recoverable	 	 	1,028,162	  	 	 	25,626	  	 	 	28,923	  	 	 	1,082,711	  	 	 	1,121,533	  	 	 	25,055	  	 	 	29,338	  	 	 	1,175,926	  	
Paid losses recoverable	 	 	168,756	  	 	 	1,129	  	 	 	3,634	  	 	 	173,519	  	 	 	177,459	  	 	 	7,845	  	 	 	2,589	  	 	 	187,893	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	$1,196,918	  	 	 	$26,755	  	 	 	$32,557	  	 	 	$1,256,230	  	 	 	$1,298,992	  	 	 	$32,900	  	 	 	$31,927	  	 	 	$1,363,819	  	

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
6. REINSURANCE BALANCES RECOVERABLE—(Continued)
 
The Company’s acquired insurance and reinsurance run-off subsidiaries, prior to acquisition, used retrocessional agreements to reduce their exposure to the risk of insurance and reinsurance assumed. The Company’s insurance and reinsurance subsidiaries remain liable to the extent that retrocessionaires do not meet their obligations under these agreements, and therefore, the Company evaluates and monitors concentration of credit risk among its reinsurers. Provisions are made for amounts considered potentially uncollectible.
On an annual basis, Atrium purchases a tailored outwards reinsurance program designed to manage the risk profile of Lloyd’s Syndicate 609. The majority of Atrium’s total third party reinsurance cover is with Lloyd’s Syndicates or other highly rated reinsurers.
The fair value adjustments, determined on acquisition of insurance and reinsurance subsidiaries, are based on the estimated timing of loss and loss adjustment expense recoveries and an assumed interest rate equivalent to a risk free rate for securities with similar duration to the reinsurance recoverables acquired plus a spread to reflect credit risk, and are amortized over the estimated recovery period, as adjusted for accelerations in timing of payments as a result of commutation settlements.
As of March 31, 2014 and December 31, 2013, the Company had, excluding reinsurance recoverables related to its life and annuities segment, reinsurance balances recoverable of $1.22 billion and $1.33 billion, respectively. The decrease of $108.2 million in reinsurance balances recoverable was primarily a result of commutations and cash collections made, partially offset by balances acquired during the period ended March 31, 2014.
At March 31, 2014 and December 31, 2013, the provision for uncollectible reinsurance recoverable relating to reinsurance balances recoverable was $339.8 million and $338.6 million, respectively. To estimate the provision for uncollectible reinsurance recoverable, the balances are first allocated to applicable reinsurers which involve management judgment. As part of this process, ceded incurred but not reported (“IBNR”) reserves are allocated by reinsurer. The ratio of the provision for uncollectible reinsurance recoverable to total non-life run-off reinsurance balances recoverable (excluding provision for uncollectible reinsurance recoverable) as of March 31, 2014 increased to 21.3% as compared to 19.9% as of December 31, 2013, primarily as a result of commutations and cash collections from reinsurers with minimal bad debt provisions in the three months ended March 31, 2014 slightly offset by reinsurance balances recoverable of new business acquired requiring minimal provisions for uncollectible reinsurance recoverable.
Life and annuities
As at March 31, 2014, the reinsurance balances recoverable associated with the Company’s life and annuities business consisted of term life business ceded by Pavonia to reinsurers under various quota share arrangements. All of the reinsurers are rated A- and above by a major rating agency.
Top Ten Reinsurers
At both March 31, 2014 and December 31, 2013, the top ten reinsurers of the Company’s business accounted for 68.6% of total reinsurance balances recoverable (which includes loss reserves recoverable and recoverables on paid losses) and included $253.4 million and $290.1 million,
 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
6. REINSURANCE BALANCES RECOVERABLE—(Continued)
 
respectively, of IBNR reserves recoverable. With the exception of one BBB+ rated reinsurer and one non-rated reinsurer from which $32.4 million and $229.3 million, respectively, was recoverable (December 31, 2012: $41.4 million and $256.2 million, respectively), the other top ten reinsurers, as at March 31, 2014 and December 31, 2013, were all rated A- or better. Reinsurance balances recoverable by reinsurer were as follows:

 	  	March 31, 2014	 	 	December 31, 2013	 	
 	  	Reinsurance
Recoverables	 	  	% of
Total	 	 	Reinsurance
Recoverables	 	  	% of
Total	 	
Top 10 reinsurers	  	$	862,124	  	  	 	68.6	% 	 	$	930,943	  	  	 	68.3	% 	
Other reinsurers’ balances > $1 million	  	 	386,362	  	  	 	30.8	% 	 	 	423,013	  	  	 	31.0	% 	
Other reinsurers’ balances < $1 million	  	 	7,744	  	  	 	0.6	% 	 	 	9,863	  	  	 	0.7	% 	
 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
Total	  	$	1,256,230	  	  	 	100.0	% 	 	$	1,363,819	  	  	 	100.0	% 	
 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
As at March 31, 2014 and December 31, 2013, reinsurance balances recoverable with a carrying value of $229.3 million and $256.2 million, respectively, were associated with one reinsurer, which represented 10% or more of total non-life run-off reinsurance balances recoverable and were secured by trust funds held for the benefit of the Company’s insurance and reinsurance subsidiaries.
7. LOSSES AND LOSS ADJUSTMENT EXPENSES

 	  	March 31, 2014	 	 	December 31, 2013	 	
 	  	Non-life
Run-off	 	 	Active
Underwriting	 	  	Total	 	 	Non-life
Run-off	 	 	Active
Underwriting	 	  	Total	 	
Outstanding	  	$	2,445,619	  	 	$	78,755	  	  	$	2,524,374	  	 	$	2,541,934	  	 	$	79,826	  	  	$	2,621,760	  	
Incurred but not reported	  	 	1,625,177	  	 	 	104,514	  	  	 	1,729,691	  	 	 	1,717,870	  	 	 	98,583	  	  	 	1,816,453	  	
Fair value adjustment	  	 	(248,918	) 	 	 	36,983	  	  	 	(211,935	) 	 	 	(255,291	) 	 	 	36,983	  	  	 	(218,308	) 	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
 	  	$	3,821,878	  	 	$	220,252	  	  	$	4,042,130	  	 	$	4,004,513	  	 	$	215,392	  	  	$	4,219,905	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Refer to Note 8 to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 for more information on establishing reserves.
 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
7. LOSSES AND LOSS ADJUSTMENT EXPENSES—(Continued)
 
The total net (reduction) increase in ultimate losses and loss adjustment expense liabilities by the Company’s non-life run-off and active underwriting segments for the three months ended March 31, 2014 and 2013 was as follows:

 	 	Three Months Ended March 31,	 	
 	 	2014	 	 	2013	 	
 	 	Non-life
Run-off	 	 	Active
Underwriting	 	 	Total	 	 	Non-life
Run-off	 	 	Active
Underwriting	 	 	Total	 	
Net losses paid	 	$	87,687	  	 	$	12,835	  	 	$	100,522	  	 	$	83,674	  	 	$	—  	  	 	$	83,674	  	
Net change in case and LAE reserves	 	 	(62,398	) 	 	 	775	  	 	 	(61,623	) 	 	 	(57,500	) 	 	 	—  	  	 	 	(57,500	) 	
Net change in IBNR reserves	 	 	(37,348	) 	 	 	3,469	  	 	 	(33,879	) 	 	 	(2,702	) 	 	 	—  	  	 	 	(2,702	) 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
(Reduction) increase in estimates of net ultimate losses	 	 	(12,059	) 	 	 	17,079	  	 	 	(5,020	) 	 	 	23,472	  	 	 	—  	  	 	 	23,472	  	
Reduction in provisions for unallocated loss adjustment expense liabilities	 	 	(13,359	) 	 	 	52	  	 	 	(13,307	) 	 	 	(16,404	) 	 	 	—  	  	 	 	(16,404	) 	
Amortization of fair value adjustments	 	 	(3,764	) 	 	 	—  	  	 	 	(3,764	)  	 	 	2,093	  	 	 	—  	  	 	 	2,093	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net (reduction) increase in ultimate losses and loss adjustment expense liabilities	 	$	(29,182	) 	 	$	17,131	  	 	$	(12,051	) 	 	$	9,161	  	 	$	—  	  	 	$	9,161	  	

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
7. LOSSES AND LOSS ADJUSTMENT EXPENSES—(Continued)
 
Non-Life Run-off Segment
The table below provides a reconciliation of the beginning and ending reserves for losses and loss adjustment expenses for the three months ended March 31, 2014 and 2013 of the non-life run-off segment (losses incurred and paid are reflected net of reinsurance recoverables):

 	  	Non-Life Run-off	 	
 	  	Three Months Ended
March 31,	 	
 	  	2014	 	 	2013	 	
Balance as at January 1(1)	  	$	4,004,513	  	 	$	3,650,127	  	
Less: total reinsurance reserves recoverable	  	 	1,121,533	  	 	 	876,220	  	
 	  	 	 	 	 	 	 	 	
 	  	 	2,882,980	  	 	 	2,773,907	  	
Net (reduction) increase in ultimate losses and loss adjustment expense liabilities:	  	 	 	 	 	 	 	 	
Current period	  	 	1,432	  	 	 	28,533	  	
Prior periods	  	 	(30,614	) 	 	 	(19,372	) 	
 	  	 	 	 	 	 	 	 	
Total net (reduction) increase in ultimate losses and loss adjustment expense liabilities	  	 	(29,182	) 	 	 	9,161	  	
 	  	 	 	 	 	 	 	 	
Net losses paid:	  	 	 	 	 	 	 	 	
Current period	  	 	(532	) 	 	 	(2,540	) 	
Prior periods	  	 	(87,155	) 	 	 	(81,134	) 	
 	  	 	 	 	 	 	 	 	
Total net losses paid	  	 	(87,687	) 	 	 	(83,674	) 	
 	  	 	 	 	 	 	 	 	
Effect of exchange rate movement	  	 	(1,025	) 	 	 	(25,952	) 	
Acquired on purchase of subsidiaries	  	 	—  	  	 	 	479,982	  	
Assumed business	  	 	28,630	  	 	 	42,624	  	
 	  	 	 	 	 	 	 	 	
Net balance as at March 31	  	 	2,793,716	  	 	 	3,196,048	  	
Plus: total reinsurance reserves recoverable	  	 	1,028,162	  	 	 	947,750	  	
 	  	 	 	 	 	 	 	 	
Balance as at March 31	  	$	3,821,878	  	 	$	4,143,798	  	

(1)	The Company has reclassified outstanding losses and loss adjustment expenses of $11.0 million to policy benefits for life and annuity contracts as at January 1, 2013 to conform to the current period presentation. This amount is associated with Laguna, which now forms part of the Company’s life and annuities segment that was established following the acquisition of the Pavonia companies.	
 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
7. LOSSES AND LOSS ADJUSTMENT EXPENSES—(Continued)
 
The net (reduction) increase in ultimate losses and loss adjustment expense liabilities in the non-life run-off segment for the three months ended March 31, 2014 and 2013 was as follows:

 	  	Non-Life Run-off	 	
 	  	Three Months Ended March 31,	 	
 	  	2014	 	 	2013	 	
 	  	Prior Period	 	 	Current
Period	 	  	Total	 	 	Prior Period	 	 	Current
Period	 	  	Total	 	
Net losses paid	  	$	87,155	  	 	$	532	  	  	$	87,687	  	 	$	81,134	  	 	$	2,540	  	  	$	83,674	  	
Net change in case and LAE reserves	  	 	(63,249	) 	 	 	851	  	  	 	(62,398	) 	 	 	(62,745	) 	 	 	5,245	  	  	 	(57,500	) 	
Net change in IBNR reserves	  	 	(37,397	) 	 	 	49	  	  	 	(37,348	) 	 	 	(23,450	) 	 	 	20,748	  	  	 	(2,702	) 	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
(Reduction) increase in estimates of net ultimate losses	  	 	(13,491	) 	 	 	1,432	  	  	 	(12,059	) 	 	 	(5,061	) 	 	 	28,533	  	  	 	23,472	  	
Reduction in provisions for unallocated loss adjustment expense liabilities	  	 	(13,359	) 	 	 	—  	  	  	 	(13,359	) 	 	 	(16,404	) 	 	 	—  	  	  	 	(16,404	) 	
Amortization of fair value adjustments	  	 	(3,764	) 	 	 	—  	  	  	 	(3,764	) 	 	 	2,093	  	 	 	—  	  	  	 	2,093	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Net (reduction) increase in ultimate losses and loss adjustment expense liabilities	  	$	(30,614	) 	 	$	1,432	  	  	$	(29,182	) 	 	$	(19,372	) 	 	$	28,533	  	  	$	9,161	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Net (reduction) increase in case and loss adjustment expense reserves (“LAE reserves”) comprises the movement during the period in specific case reserve liabilities as a result of claims settlements or changes advised to the Company by its policyholders and attorneys, less changes in case reserves recoverable advised by the Company to its reinsurers as a result of the settlement or movement of assumed claims. Net change in IBNR represents the change in the Company’s actuarial estimates of losses incurred but not reported.
Three Months Ended March 31, 2014
The net reduction in ultimate losses and loss adjustment expense liabilities for the three months ended March 31, 2014 of $29.2 million included losses incurred related to current period premium of $1.4 million related to SeaBright Holdings, Inc. (“SeaBright”). Excluding SeaBright’s current period incurred losses of $1.4 million, ultimate losses and loss adjustment expenses relating to prior periods were reduced by $30.6 million, which was attributable to a reduction in estimates of net ultimate losses of $13.5 million and a reduction in provisions for unallocated loss adjustment expense liabilities of $13.3 million, relating to 2014 run-off activity, and amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $3.8 million.
 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
7. LOSSES AND LOSS ADJUSTMENT EXPENSES—(Continued)
 
Excluding the impact of current period losses incurred of $1.4 million relating to SeaBright, the reduction in estimates of net ultimate losses was $13.5 million, which was primarily related to:
 
 	(i)	the Company’s quarterly review of historic case reserves for which no updated advices had been received for a number of years. This review identified the redundancy of a number of advised case reserves with an estimated aggregate value of approximately $6.8 million; and	
 
 	(ii)	favorable claims settlements during the three months ended March 31, 2014 resulting in a reduction in estimates of net ultimate losses of approximately $6.7 million.	
Three Months Ended March 31, 2013
The net increase in ultimate losses and loss adjustment expense liabilities for the three months ended March 31, 2013 of $9.2 million included losses incurred of $28.5 million related to SeaBright. Excluding SeaBright’s incurred losses related to current period premium of $28.5 million, ultimate losses and loss adjustment expenses relating to prior periods were reduced by $19.4 million, which was attributable to a reduction in estimates of net ultimate losses of $5.1 million and a reduction in provisions for unallocated loss adjustment expense liabilities of $16.4 million, relating to 2013 run-off activity, partially offset by amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $2.1 million.
Excluding the impact of current period losses incurred of $28.5 million relating to SeaBright, the reduction in estimates of net ultimate losses was $5.1 million, and was primarily related to:
 
 	(i)	the Company’s quarterly review of historic case reserves for which no updated advices had been received for a number of years. This review identified the redundancy of a number of advised case reserves with an estimate aggregate value of approximately $8.3 million; partially offset by	
 
 	(ii)	net incurred loss development of $26.7 million (excluding redundant case reserve reductions of $8.3 million), largely offset by reductions in IBNR reserves of $23.5 million.	
Active Underwriting
The Company did not have an active underwriting segment for the three months ended March 31, 2013, as the Company began reporting this segment in the fourth quarter of 2013 following the acquisition of Atrium.
 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
7. LOSSES AND LOSS ADJUSTMENT EXPENSES—(Continued)
 
The table below provides a reconciliation of the beginning and ending reserves for losses and loss adjustment expenses of the active underwriting segment for the three months ended March 31, 2014 (losses incurred and paid are reflected net of reinsurance recoverables):

 	  	Active Underwriting	 	
 	  	Three Months Ended
March 31, 2014	 	
Balance as at January 1	  	$	215,392	  	
Less: total reinsurance reserves recoverable	  	 	25,055	  	
 	  	 	 	 	
 	  	 	190,337	  	
Net increase (reduction) in ultimate losses and loss adjustment expense liabilities:	  	 	 	 	
Current period	  	 	21,314	  	
Prior periods	  	 	(4,183	) 	
 	  	 	 	 	
Total net increase in ultimate losses and loss adjustment expense liabilities	  	 	17,131	  	
 	  	 	 	 	
Net losses paid:	  	 	 	 	
Current period	  	 	(4,684	) 	
Prior periods	  	 	(8,151	) 	
 	  	 	 	 	
Total net losses paid	  	 	(12,835	) 	
 	  	 	 	 	
Effect of Exchange rate movement	  	 	(7	) 	
 	  	 	 	 	
Net balance as at March 31	  	 	194,626	  	
Plus: total reinsurance reserves recoverable	  	 	25,626	  	
 	  	 	 	 	
Balance as at March 31	  	$	220,252	  	
 	  	 	 	 	
The net (reduction) increase in ultimate losses and loss adjustment expense liabilities in the active underwriting segment for the three months ended March 31, 2014 was as follows:

 	  	Active Underwriting	 	
 	  	Three Months Ended March 31, 2014	 	
 	  	Prior Period	 	 	Current Period	 	  	Total	 	
Net losses paid	  	$	8,151	  	 	$	4,684	  	  	$	12,835	  	
Net change in case and LAE reserves	  	 	(3,985	) 	 	 	4,760	  	  	 	775	  	
Net change in IBNR reserves	  	 	(8,401	) 	 	 	11,870	  	  	 	3,469	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	
(Reduction) increase in estimates of net ultimate losses	  	 	(4,235	) 	 	 	21,314	  	  	 	17,079	  	
Reduction in provisions for unallocated loss adjustment expense liabilities	  	 	52	  	 	 	—  	  	  	 	52	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	
Net (reduction) increase in ultimate losses and loss adjustment expense liabilities	  	$	(4,183	) 	 	$	21,314	  	  	$	17,131	  	

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
34
8. POLICY BENEFITS FOR LIFE AND ANNUITY CONTRACTS
Policy benefits for life and annuity contracts as at March 31, 2014 and December 31, 2013 were as follows:

 	  	March 31,
2014	 	 	December 31,
2013	 	
Life	  	$	367,551	  	 	$	380,874	  	
Annuities	  	 	956,088	  	 	 	963,323	  	
 	  	 	 	 	 	 	 	 	
 	  	 	1,323,639	  	 	 	1,344,197	  	
Fair value adjustments	  	 	(68,375	) 	 	 	(71,097	) 	
 	  	 	 	 	 	 	 	 	
 	  	$	1,255,264	  	 	$	1,273,100	  	
 	  	 	 	 	 	 	 	 	
Refer to Note 9 to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 for more information on establishing policy benefit reserves.
9. PREMIUMS WRITTEN AND EARNED
The following table provides a summary of net premiums written and earned in our non-life run-off, active underwriting and life and annuities segments for the three months ended March 31, 2014 and 2013:

 	  	Three Months Ended March 31,	 	
 	  	2014	 	 	2013	 	
 	  	Premiums
Written	 	 	Premiums
Earned	 	 	Premiums
Written	 	 	Premiums
Earned	 	
Non-life run-off	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Direct	  	$	1,279	  	 	$	2,734	  	 	$	11,856	  	 	$	33,581	  	
Assumed	  	 	40	  	 	 	34	  	 	 	242	  	 	 	555	  	
Ceded	  	 	(276	) 	 	 	(241	) 	 	 	(2,390	) 	 	 	(3,216	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net	  	$	1,043	  	 	$	2,527	  	 	$	9,708	  	 	$	30,920	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Active underwriting	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Direct	  	$	26,916	  	 	$	24,369	  	 	$	—  	  	 	$	—  	  	
Assumed	  	 	(1,599	) 	 	 	13,788	  	 	 	—  	  	 	 	—  	  	
Ceded	  	 	(5,852	) 	 	 	(5,518	) 	 	 	—  	  	 	 	—  	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net	  	$	19,465	  	 	$	32,639	  	 	$	—  	  	 	$	—  	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Life and annuities	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Life	  	$	25,996	  	 	$	26,492	  	 	$	741	  	 	$	741	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-life run-off
Net premiums written and earned by the Company’s non-life run-off segment totaled $1.0 million and $2.5 million for the three months ended March 31, 2014 as compared to $9.7 million and $30.9 million from the date of acquisition of SeaBright to March 31, 2013. The significant decrease between the three months ended March 31, 2014 and the same period in 2013 was attributable to SeaBright

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
9. PREMIUMS WRITTEN AND EARNED—(Continued)
 
exiting from the mandatory renewal process, which resulted in it no longer generating premiums written other than for small adjustments related to premium audits and reinstatement premiums on previously written policies.
Active underwriting
Net premiums written and earned by the Company’s active underwriting segment totaled $19.5 million and $32.6 million for the three months ended March 31, 2014. The net premiums written and earned relate to Atrium and Arden’s reinsurance of Atrium. The Company did not have an active underwriting segment for the three months ended March 31, 2013.
Life and annuities
Life and annuity premiums written by the Company’s life and annuities segment totaled $26.0 million and $26.5 million for the three months ended March 31, 2014 as compared to $0.7 million and $0.7 million for the three months ended March 31, 2013, respectively. The Company’s life companies continue to collect premiums in relation to the unexpired policies assumed on acquisition.
10. RETROSPECTIVELY RATED CONTRACTS
On October 1, 2003, SeaBright began selling workers’ compensation insurance policies for which the premiums varied based on loss experience. Accrued retrospective premiums are determined based upon the loss experience of business subject to such experience rating adjustment, and are determined by and allocated to individual policyholder accounts. Accrued retrospective premiums are recorded as additions to written or earned premium, and return retrospective premiums are recorded as reductions from written or earned premium. During the period from February 7, 2013, the date of acquisition, to March 31, 2014, none of the Company’s direct premiums written related to retrospectively rated contracts. The Company accrued $8.9 million (December 31, 2013: $8.8 million) for retrospective premiums receivable and $28.2 million (December 31, 2013: $27.5 million) for return retrospective premiums as at March 31, 2014.
11. GOODWILL AND INTANGIBLE ASSETS
The following table shows the Company’s goodwill and intangible assets as at March 31, 2014 and December 31, 2013:

 	  	Goodwill	 	  	Intangible assets
with a definite life -
Other	 	 	Intangible assets
with an indefinite
life	 	  	Total	 	 	Intangible assets
with a definite life
- FVA	 	
Balance as at January 1, 2013	  	$	60,071	  	  	$	27,000	  	 	$	63,000	  	  	$	150,071	  	 	$	223,947	  	
Acquired during the period	  	 	—  	  	  	 	—  	  	 	 	—  	  	  	 	—  	  	 	 	—  	  	
Intangible assets amortization	  	 	—  	  	  	 	(677	) 	 	 	—  	  	  	 	(677	) 	 	 	1,343	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	
Balance as at March 31, 2014	  	$	60,071	  	  	$	26,323	  	 	$	63,000	  	  	$	149,394	  	 	$	225,290	  	

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
11. GOODWILL AND INTANGIBLE ASSETS—(Continued)
 
Intangible assets with a definite life include:
 
 	(i)	Fair value adjustments (“FVA”) relate to outstanding losses and loss adjustment expenses, policy benefits for life and annuity contracts and reinsurance recoverables and are included as a component of each balance sheet item. FVA are amortized in proportion to future premiums for policy benefits for life and annuity contracts and over the estimated payout or recovery period for outstanding losses and loss adjustment expenses and reinsurance recoverables; and	
 
 	(ii)	Other intangible assets relate to the values associated with the distribution channel and brand related to the Company’s acquisition of Atrium. These assets will be amortized on a straight-line basis over a period of ten to fifteen years.	
Intangible asset amortization for the three months ended March 31, 2014 and 2013 was $1.5 million and $2.1 million, respectively.
Intangible assets with an indefinite life include the values associated with the Lloyd’s syndicate capacity and Atrium’s management contract with Syndicate 609 in relation to underwriting, actuarial and support services it provides.
 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
11. GOODWILL AND INTANGIBLE ASSETS—(Continued)
 
The gross carrying value, accumulated amortization and net carrying value of intangible assets by type at March 31, 2014 and December 31, 2013 were as follows:

 	 	March 31, 2014	 	 	December 31, 2013	 	
 	 	Gross Carrying
Value	 	 	Accumulated
Amortization	 	 	Net Carrying
Value	 	 	Gross Carrying
Value	 	 	Accumulated
Amortization	 	 	Net Carrying
Value	 	
Intangible assets with a definite life:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fair value adjustments:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Losses and loss adjustment expense	 	$	500,485	  	 	$	(288,550	) 	 	$	211,935	  	 	$	500,485	  	 	$	(282,178	) 	 	$	218,307	  	
Reinsurance balances recoverable	 	 	(179,116	) 	 	 	124,096	  	 	 	(55,020	) 	 	 	(179,116	) 	 	 	113,659	  	 	 	(65,457	) 	
Policy benefits for life and annuity contracts	 	 	86,332	  	 	 	(17,957	) 	 	 	68,375	  	 	 	86,332	  	 	 	(15,235	) 	 	 	71,097	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	407,701	  	 	 	(182,411	) 	 	 	225,290	  	 	 	407,701	  	 	 	(183,754	) 	 	 	223,947	  	
Other:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Distribution channel	 	 	20,000	  	 	 	(444	) 	 	 	19,556	  	 	 	20,000	  	 	 	—  	  	 	 	20,000	  	
Brand	 	 	7,000	  	 	 	(233	) 	 	 	6,767	  	 	 	7,000	  	 	 	—  	  	 	 	7,000	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	 	27,000	  	 	 	(677	) 	 	 	26,323	  	 	 	27,000	  	 	 	—  	  	 	 	27,000	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total intangible assets with a definite life	 	 	434,701	  	 	 	(183,088	) 	 	 	251,613	  	 	 	434,701	  	 	 	(183,754	) 	 	 	250,947	  	
 	 	 	 	 	 	 	
Intangible assets with an indefinite life:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Lloyd’s syndicate capacity	 	 	32,900	  	 	 	—  	  	 	 	32,900	  	 	 	32,900	  	 	 	—  	  	 	 	32,900	  	
Management contract	 	 	30,100	  	 	 	—  	  	 	 	30,100	  	 	 	30,100	  	 	 	—  	  	 	 	30,100	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total intangible assets	 	$	497,701	  	 	$	(183,088	) 	 	$	314,613	  	 	$	497,701	  	 	$	(183,754	) 	 	$	313,947	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
As at March 31, 2014 and December 31, 2013, the allocation of the goodwill to the Company’s non-life run-off and active underwriting segments was $21.2 million and $38.9 million, respectively.
12. LOANS PAYABLE
The Company’s long-term debt consists of loan facilities used to partially finance certain of the Company’s acquisitions or significant new business transactions and its Revolving Credit Facility (the “EGL Revolving Credit Facility”), which can be used for permitted acquisitions and for general corporate purposes. The Company’s three outstanding credit facilities (its term facility related to the
 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
12. LOANS PAYABLE—(Continued)
 
Company’s 2011 acquisition of Clarendon National Insurance Company (the “Clarendon Facility”), its term facility related to the acquisition of SeaBright (the “SeaBright Facility”), and the EGL Revolving Credit Facility) are described in Note 13 to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.
As of March 31, 2014, all of the covenants relating to the three credit facilities were met.
Total amounts of loans payable outstanding, including accrued interest, as of March 31, 2014 and December 31, 2013, totaled $485.2 million and 452.4 million respectively, and were comprised as follows:

Facility	  	Date of Facility	 	  	Facility Term	 	  	March 31
2014	 	  	December 31,
2013	 	
EGL Revolving Credit Facility	  	 	July 8, 2013	  	  	 	5 Years	  	  	$	328,800	  	  	$	258,800	  	
SeaBright Facility	  	 	December 21, 2012	  	  	 	3 Years	  	  	 	89,000	  	  	 	111,000	  	
Clarendon Facility	  	 	July 12, 2011	  	  	 	4 Years	  	  	 	65,995	  	  	 	78,995	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total long-term bank debt	  	 	 	 	  	 	 	 	  	 	483,795	  	  	 	448,795	  	
Accrued interest	  	 	 	 	  	 	 	 	  	 	1,444	  	  	 	3,651	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total loans payable	  	 	 	 	  	 	 	 	  	$	485,239	  	  	$	452,446	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
EGL Revolving Credit Facility
On March 26, 2014, the Company borrowed $70.0 million under the EGL Revolving Credit Facility. As of March 31, 2014, the unused portion of the EGL Revolving Credit Facility was $46.2 million.
Clarendon Facility
On March 17, 2014, the Company repaid $13.0 million of the outstanding principal on its Clarendon Facility reducing the outstanding principal as of March 31, 2014 to $66.0 million.
SeaBright Facility
On March 31, 2014, the Company repaid $22.0 million of the outstanding principal on its SeaBright Facility reducing the outstanding principal as of March 31, 2014 to $89.0 million.
13. REDEEMABLE NONCONTROLLING INTEREST
As of March 31, 2014, the redeemable noncontrolling interest comprised the 40% ownership interest held by Trident in both Bayshore and Northshore. Northshore owns 100% of Atrium and Arden and, upon the acquisition of Torus on April 1, 2014, Bayshore now owns 100% of Torus. The redeemable noncontrolling interest is classified outside of permanent shareholders’ equity on the Company’s consolidated balance sheets due to the redemption rights held by Trident, which are described in Note 3 to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 and Note 2 above. The Company recognizes changes in the redemption value of the Trident interest in Bayshore’s and Northshore’s earnings as if the balance sheet date was also the redemption date. As at March 31, 2014 and December 31, 2013, there were no adjustments recorded through retained earnings as the redemption value of Trident’s interests approximated their carrying values.
 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
13. REDEEMABLE NONCONTROLLING INTEREST—(Continued)
 
On March 30, 2014, Trident contributed $260.8 million to Bayshore in relation to its 40% share of the purchase price of Torus and the transaction costs related to the acquisition.
A reconciliation of the beginning and ending carrying amount of the equity attributable to the redeemable noncontrolling interest is as follows:

 	  	Redeemable
noncontrolling
interest	 	
Balance as at December 31, 2013	  	$	100,859	  	
Redeemable noncontrolling interest, initial contributions	  	 	260,800	  	
Accumulated other comprehensive income attributable to redeemable noncontrolling interest	  	 	(106	) 	
Reclassification from noncontrolling interest	  	 	(1,028	) 	
Net earnings attributable to redeemable noncontrolling interest	  	 	808	  	
 	  	 	 	 	
Balance as at March 31, 2014	  	$	361,333	  	
 	  	 	 	 	
14. EARNINGS PER SHARE
The following table sets forth the comparison of basic and diluted earnings per share for the three months ended March 31, 2014 and 2013:

 	  	Three Months Ended March 31,	 	
 	  	2014	 	  	2013	 	
Basic earnings per ordinary share:	  	 	 	 	  	 	 	 	
Net earnings attributable to Enstar Group Limited	  	$	29,587	  	  	$	11,959	  	
Weighted average ordinary shares outstanding — basic	  	 	16,564,083	  	  	 	16,514,193	  	
 	  	 	 	 	  	 	 	 	
Net earnings per ordinary share attributable to Enstar Group Limited — basic	  	$	1.79	  	  	$	0.72	  	
 	  	 	 	 	  	 	 	 	
Diluted earnings per ordinary share:	  	 	 	 	  	 	 	 	
Net earnings attributable to Enstar Group Limited	  	$	29,587	  	  	$	11,959	  	
Weighted average ordinary shares outstanding — basic	  	 	16,564,083	  	  	 	16,514,193	  	
Share equivalents:	  	 	 	 	  	 	 	 	
Unvested shares	  	 	79,967	  	  	 	124,695	  	
Restricted share units	  	 	20,475	  	  	 	16,514	  	
Warrants	  	 	40,799	  	  	 	20,654	  	
 	  	 	 	 	  	 	 	 	
Weighted average ordinary shares outstanding — diluted	  	 	16,705,324	  	  	 	16,676,056	  	
 	  	 	 	 	  	 	 	 	
Net earnings per ordinary share attributable to Enstar Group Limited — diluted	  	$	1.77	  	  	$	0.72	  	

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
40
15. EMPLOYEE BENEFITS
The Company’s share-based compensation plans provide for the grant of various awards to its employees and to members of the Board of Directors. These are described in Note 17 to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. The information below includes both the employee and director components of the Company’s share based compensation.
Employee share plans
Employee share awards for the three months ended March 31, 2014 and 2013 are summarized as follows:

 	  	Three Months Ended March 31,	 	
 	  	2014	 	 	2013	 	
 	  	Number of
Shares	 	 	Weighted
Average
Fair Value
of
the Award	 	 	Number
of
Shares	 	 	Weighted
Average
Fair Value
of
the Award	 	
Nonvested — January 1	  	 	115,159	  	 	$	14,313	  	 	 	160,644	  	 	$	15,902	  	
Granted	  	 	1,559	  	 	 	170	  	 	 	1,308	  	 	 	138	  	
Vested	  	 	(44,112	) 	 	 	(5,920	) 	 	 	(46,793	) 	 	 	(5,436	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Nonvested — March 31	  	 	72,606	  	 	$	9,897	  	 	 	115,159	  	 	$	14,313	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
2006 Equity Incentive Plan / 2011-2015 Annual Incentive Compensation Program
For both the three months ended March 31, 2014 and 2013 no shares were awarded to employees under the 2006 Equity Incentive Plan (the “Equity Plan”).
The total unrecognized compensation cost related to the Company’s non-vested share awards under the Equity Plan as at March 31, 2014 and 2013 was $4.0 million and $6.8 million, respectively. This cost is expected to be recognized evenly over the next 1.6 years. Compensation costs of $0.7 million and $0.8 million relating to these share awards were recognized in the Company’s statement of earnings for the three months ended March 31, 2014 and 2013, respectively.
The accrued expense relating to the Enstar Group Limited 2011-2015 Annual Incentive Compensation Program for the three months ended March 31, 2014 and 2013 was $5.2 million and $2.1 million, respectively.
Enstar Group Limited Employee Share Purchase Plan
For the three months ended March 31, 2014 and 2013, respectively, compensation costs of less than $0.1 million relating to the shares issued under the Amended and Restated Enstar Group Limited Employee Share Purchase Plan (“Share Plan”) were recognized in the Company’s statement of earnings. For the three months ended March 31, 2014 and 2013, 1,559 and 1,308 shares have been issued to employees under the Share Plan.

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
15. EMPLOYEE BENEFITS—(Continued)
 
Deferred Compensation and Ordinary Share Plan for Non-Employee Directors
For the three months ended March 31, 2014 and 2013, 1,029 and 632 restricted share units, respectively, were credited to the accounts of non-employee directors under the Enstar Group Limited Deferred Compensation and Ordinary Share Plan for Non-Employee Directors. The Company recorded expenses related to the restricted share units for each of the three month periods ended March 31, 2014 and 2013 of $0.1 million.
Pension Plan
The Company provides pension benefits to eligible employees through various plans sponsored by the Company. All pension plans, except for the noncontributory defined benefit pension plan acquired in the 2010 PW Acquisition Company transaction (the “PWAC Plan”), are structured as defined contribution plans. Pension expense for the three months ended March 31, 2014 and 2013 was $2.1 million and $1.1 million, respectively. The increase for the three months ended March 31, 2014 over the same period in 2013 was attributable to the increase in employee headcount attributable to the 2013 acquisitions of SeaBright, Pavonia and Atrium.
The Company recorded pension expense relating to the PWAC Plan of $0.1 million and $0.2 million for each of the three month periods ended March 31, 2014 and 2013, respectively. The PWAC Plan is described in Note 17 to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.
16. TAXATION
Effective January 1, 2014, the Company accounts for income taxes using the estimated annual effective tax rate. The Company makes the best estimate of the annual effective tax rate expected to be applicable for the full fiscal year and applies the rate to the year-to-date income. Discrete tax adjustments are recorded in the quarter in which the event occurs.
Earnings before income taxes includes the following components:

 	  	Three Months Ended March 31,	 	
 	  	    2014    	 	  	    2013    	 	
Domestic (Bermuda)	  	$	7,010	  	  	$	9,934	  	
Foreign	  	 	33,678	  	  	 	10,895	  	
 	  	 	 	 	  	 	 	 	
Total	  	$	40,688	  	  	$	20,829	  	

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
16. TAXATION—(Continued)
 
Tax expense (benefit) for income taxes is comprised of:

 	  	Three Months Ended March 31,	 	
 	  	    2014    	 	 	    2013    	 	
Current:	  	 	 	 	 	 	 	 	
Domestic (Bermuda)	  	$	—  	  	 	$	—  	  	
Foreign	  	 	10,267	  	 	 	14,279	  	
 	  	 	 	 	 	 	 	 	
 	  	 	10,267	  	 	 	14,279	  	
 	  	 	 	 	 	 	 	 	
Deferred:	  	 	 	 	 	 	 	 	
Domestic (Bermuda)	  	 	—  	  	 	 	—  	  	
Foreign	  	 	(2,991	) 	 	 	(6,435	) 	
 	  	 	 	 	 	 	 	 	
 	  	 	(2,991	) 	 	 	(6,435	) 	
 	  	 	 	 	 	 	 	 	
Total tax expense	  	$	7,276	  	 	$	7,844	  	
 	  	 	 	 	 	 	 	 	
Under current Bermuda law, the Company and its Bermuda subsidiaries are exempted from paying any taxes in Bermuda on their income or capital gains until March 2035.
The Company has operating subsidiaries and branch operations in the United Kingdom, Australia, the United States and Europe and is subject to federal, foreign, state and local taxes in those jurisdictions. In addition, certain distributions from some foreign sources may be subject to withholding taxes.
The expected income tax provision for the foreign operations computed on pre-tax income at the weighted-average tax rate has been calculated as the sum of the pre-tax income in each jurisdiction multiplied by that jurisdiction’s applicable statutory tax rate.
The actual income tax rate differed from the amount computed by applying the effective rate of 0% under Bermuda law to earnings before income taxes as shown in the following reconciliation:

 	  	2014	 	 	2013	 	
Earnings before income tax	  	$	40,688	  	 	$	20,829	  	
 	  	 	 	 	 	 	 	 	
Expected tax rate	  	 	0.0	% 	 	 	0.0	% 	
Foreign taxes at local expected rates	  	 	17.3	% 	 	 	33.5	% 	
Change in uncertain tax positions	  	 	(5.5	)% 	 	 	(11.4	)% 	
Change in valuation allowance	  	 	5.7	% 	 	 	15.3	% 	
Other	  	 	0.4	% 	 	 	0.3	% 	
 	  	 	 	 	 	 	 	 	
Effective tax rate	  	 	17.9	% 	 	 	37.7	% 	
 	  	 	 	 	 	 	 	 	
The Company has estimated future taxable income of its foreign subsidiaries and has provided a valuation allowance in respect of those loss carryforwards where it does not expect to realize a benefit. The Company has considered all available evidence using a “more likely than not” standard in determining the amount of the valuation allowance.
 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
16. TAXATION—(Continued)
 
The Company had unrecognized tax benefits of $nil million and $2.2 million relating to uncertain tax positions as of March 31, 2014 and December 31, 2013, respectively. During the three months ended March 31, 2014, there were certain reductions to unrecognized tax benefits of $2.2 million due to the expiration of statutes of limitation.
The Company’s operating subsidiaries in specific countries may be subject to audit by various tax authorities and may have different statutes of limitations expiration dates. With limited exceptions, the Company’s major subsidiaries that operate in the United States, United Kingdom and Australia are no longer subject to tax examinations for years before 2010, 2010 and 2007, respectively.
Because the Company operates in many jurisdictions, its net earnings are subject to risk due to changing tax laws and tax rates around the world. The current, rapidly changing economic environment may increase the likelihood of substantial changes to tax laws in the jurisdictions in which it operates. The Company cannot predict what, if any, legislation, will actually be proposed or enacted, or what the effect of any such legislation might be on the Company’s financial condition and results of operations.
17. RELATED PARTY TRANSACTIONS
Stone Point Capital LLC
Following several private transactions occurring from May 2012 to July 2012, Trident acquired 1,350,000 of the Company’s voting ordinary shares (which now constitutes approximately 8.5% of the Company’s outstanding voting ordinary shares). On November 6, 2013, the Company appointed James D. Carey to its Board of Directors. Mr. Carey is the sole member of an entity that is one of four general partners of the entities serving as general partners for Trident, is a member of the investment committees of such general partners, and is a member and senior principal of Stone Point Capital LLC, the manager of the Trident funds.
In addition, the Company has entered into certain agreements with Trident with respect to Trident’s co-investments in the Atrium Underwriting Group Limited (“Atrium”), Arden Reinsurance Company Ltd. (“Arden”), and Torus acquisitions. These include investors’ agreements and shareholders’ agreements, which provide for, among other things: (i) the Company’s right to redeem Trident’s equity interest in the Atrium/Arden and Torus transactions in cash at fair market value within the 90 days following the fifth anniversary of the Arden and Torus closings, respectively, and at any time following the seventh anniversary of the Arden and Torus closings, respectively; and (ii) Trident’s right to have its equity interests in the Atrium/Arden and Torus transactions redeemed by the Company at fair market value (which the Company may satisfy in either cash or its ordinary shares) following the seventh anniversaries of the Arden closing and Torus closing, respectively. As of March 31, 2014, the Company has included $361.1 million as part of redeemable noncontrolling interest on its balance sheet relating to these Trident co-investment transactions. Pursuant to the terms of the shareholders’ agreements, Mr. Carey serves as a Trident representative on the boards of Torus and the holding companies established in connection with the Atrium/Arden and Torus co-investment transactions.
The Company has investments in two funds (carried within other investments) affiliated with entities owned by Trident. As of March 31, 2014 and December 31, 2013, the fair value of the investments in the two funds was $108.9 million and $87.7 million, respectively. During the three months ended March 31, 2014, the Company made a commitment to invest up to $20.0 million in a fund managed by Stone Point Capital LLC, but has not yet funded any part of this investment.
 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
17. RELATED PARTY TRANSACTIONS—(Continued)
 
The Company has also invested in a fund managed by Sound Point Capital, an entity in which Mr. Carey has an approximately 4% indirect ownership interest and serves as director. As of March 31, 2014 and December 31, 2013, the fair value of this investment was $21.9 million and $21.6 million, respectively. For the three months ended March 31, 2014 and 2013, the Company has recognized $0.4 million and $0.3 million, respectively, in net realized and unrealized gains in respect of this investment.
Goldman Sachs & Co.
Affiliates of Goldman Sachs & Co. (“Goldman Sachs”) own approximately 4.2% of the Company’s voting ordinary shares and 100% of the Company’s outstanding non-voting convertible ordinary shares. Sumit Rajpal, a managing director of Goldman Sachs, was appointed to the Board of Directors in connection with Goldman Sachs’ investment in the Company. As of March 31, 2014, the Company had investments in one fund (carried within other investments) affiliated with entities owned by Goldman Sachs, which had a fair value of $3.1 million. During the three months ended March 31, 2014, the Company invested £12.5 million (approximately $20.8 million) in indirect non-voting interests of two companies affiliated with Hastings Insurance Group Limited. The Company’s interests are held in accounts managed by affiliates of Goldman Sachs. Goldman Sachs affiliates have an approximately 50% interest in the Hastings companies, and Mr. Rajpal serves as a director of the entities the Company has invested in.
Affiliates of Goldman Sachs own approximately 22% of Global Atlantic Financial Group (“GAFG”), which owns entities that provide reinsurance to Arden. As at March 31, 2014 and December 31, 2013, the Company’s total reinsurance recoverable from GAFG entities amounted to $302.0 million and $340.8 million, respectively. As at March 31, 2014 and December 31, 2013, reinsurance balances recoverable from a particular non-rated GAFG entity with a carrying value of $229.3 million and $256.1 million, respectively, represented 10% or more of the Company’s total non-life run-off reinsurance balances recoverable. The $229.3 million and $256.1 million recoverable from that GAFG entity at March 31, 2014 and December 31, 2013, respectively, was secured by a trust fund. The balance of $72.7 million and $84.7 million as at March 31, 2014 and December 31, 2013, respectively, was recoverable from GAFG entities rated A- and higher.
18. COMMITMENTS AND CONTINGENCIES
Concentration of Credit Risk
The Company’s portfolio of cash and fixed maturity investments are managed pursuant to guidelines that follow what it believes are prudent standards of diversification. The guidelines limit the allowable holdings of a single issue and issuers, and as a result the Company does not believe that there are any significant concentrations of credit risk associated with its portfolio of cash and fixed maturity investments.
The Company’s portfolio of other investments is managed pursuant to guidelines that emphasize diversification and liquidity. Pursuant to these guidelines, the Company manages and monitors risk across a variety of investment funds and vehicles, markets and counterparties. The Company believes that there are no significant concentrations of credit risk associated with its other investments.
As of March 31, 2014, the Company’s investments are held by 36 different custodians. These custodians are all large financial institutions that are highly regulated. These institutions have controls
 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
18. COMMITMENTS AND CONTINGENCIES—(Continued)
 
over their investment processes that are certified annually. The largest concentration of fixed maturity investments, by fair value, at a single custodian was $2.3 billion and $2.8 billion as of March 31, 2014 and December 31, 2013, respectively.
Investments
The following table provides a summary of the Company’s outstanding unfunded investment commitments as of March 31, 2014 and December 31, 2013:

March 31, 2014	 	  	December 31, 2013	 	
Original	  	Commitments	 	  	Original	 	  	Commitments	 	
Commitments	  	Funded	 	  	Unfunded	 	  	Commitments	 	  	Funded	 	  	Unfunded	 	
$311,000	  	$	179,050	  	  	$	131,950	  	  	$	291,000	  	  	$	176,760	  	  	$	114,240	  	
Guarantees
As at March 31, 2014 and December 31, 2013 the Company had, in total, parental guarantees supporting a subsidiary’s insurance obligations in the amount of $235.8 million and $228.5 million, respectively.
Acquisitions and Significant New Business
The Company has entered into a definitive agreement with respect to the Reciprocal of America loss portfolio transfer, which is expected to close in the second quarter of 2014. This agreement is described in Note 3 — “Significant New Business.”
Legal Proceedings
The Company is, from time to time, involved in various legal proceedings in the ordinary course of business, including litigation regarding claims. The Company does not believe that the resolution of any currently pending legal proceedings, either individually or taken as a whole, will have a material effect on its business, results of operations or financial condition. The Company anticipates that, similar to the rest of the insurance and reinsurance industry, it 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 claims.
 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
46
19. SEGMENT INFORMATION
The Company measures the results of its operations in three segments: (i) non-life run-off; (ii) active underwriting; and (iii) life and annuities.
The Company’s non-life run-off segment comprises the operations and financial results of those subsidiaries acquired for the purpose of running off their property and casualty business.
The Company’s active underwriting segment comprises the operations and financial results of Atrium and its subsidiaries and Arden. Results related to Arden’s reinsurance to Atrium are included within the Company’s active underwriting segment, while results related to Arden’s run-off business are included within the Company’s non-life run-off segment. With effect from April 1, 2014, the active underwriting segment will also include substantially all of the activities of Torus Insurance Holdings Limited and its subsidiaries (some of Torus’ lines of business are in run-off and will accordingly be accounted for within the Company’s non-life run-off segment).
The Company’s life and annuities segment comprises the operations and financial results of those subsidiaries, primarily the Pavonia companies, operating in the closed-block of life and annuity business.
Invested assets are managed on a subsidiary by subsidiary basis, and investment income and realized and unrealized gains on investments are recognized in each segment as earned.
The elimination items includes the elimination of intersegment revenues and expenses.
The Company’s total assets by segment were:

 	  	March 31. 2014	 	  	December 31, 2013	 	
Total assets—non-life run-off	  	$	6,432,340	  	  	$	6,619,992	  	
Total assets—active underwriting	  	 	899,476	  	  	 	585,176	  	
Total assets—life and annuities	  	 	1,377,491	  	  	 	1,414,987	  	
 	  	 	 	 	  	 	 	 	
 	  	$	8,709,307	  	  	$	8,620,155	  	

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
19. SEGMENT INFORMATION—(Continued)
 
The following tables set forth selected and unaudited condensed consolidated statement of earnings results by segment for the three months ended March 31, 2014 and 2013:

 	  	Three Months Ended March 31, 2014	 	
 	  	Non-life
run-off	 	 	Active
underwriting	 	 	Life and
annuities	 	 	Eliminations	 	 	Consolidated	 	
Net premiums earned	  	$	2,527	  	 	$	32,639	  	 	$	26,492	  	 	$	—  	  	 	$	61,658	  	
Fees and commission income	  	 	2,955	  	 	 	4,821	  	 	 	21	  	 	 	(799	) 	 	 	6,998	  	
Net investment income	  	 	14,333	  	 	 	480	  	 	 	9,989	  	 	 	(454	) 	 	 	24,348	  	
Net realized and unrealized gains (losses)	  	 	29,629	  	 	 	(107	) 	 	 	5,051	  	 	 	—  	  	 	 	34,573	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	49,444	  	 	 	37,833	  	 	 	41,553	  	 	 	(1,253	) 	 	 	127,577	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EXPENSES	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net (reduction) increase in ultimate losses and loss adjustment expense liabilities:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Non-life run-off	  	 	(29,182	) 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	(29,182	) 	
Active underwriting	  	 	—  	  	 	 	17,131	  	 	 	—  	  	 	 	—  	  	 	 	17,131	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	(29,182	) 	 	 	17,131	  	 	 	—  	  	 	 	—  	  	 	 	(12,051	) 	
Acquisition costs	  	 	—  	  	 	 	9,561	  	 	 	3,600	  	 	 	—  	  	 	 	13,161	  	
Life and annuity policy benefits	  	 	—  	  	 	 	—  	  	 	 	26,809	  	 	 	—  	  	 	 	26,809	  	
Salaries and benefits	  	 	25,846	  	 	 	3,533	  	 	 	2,011	  	 	 	—  	  	 	 	31,390	  	
General and administrative expenses	  	 	15,763	  	 	 	4,934	  	 	 	2,352	  	 	 	(799	) 	 	 	22,250	  	
Interest expense	  	 	2,561	  	 	 	1,173	  	 	 	454	  	 	 	(454	) 	 	 	3,734	  	
Net foreign exchange losses (gains)	  	 	2,130	  	 	 	(545	) 	 	 	11	  	 	 	—  	  	 	 	1,596	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	17,118	  	 	 	35,787	  	 	 	35,237	  	 	 	(1,253	) 	 	 	86,889	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EARNINGS BEFORE INCOME TAXES	  	 	32,326	  	 	 	2,046	  	 	 	6,316	  	 	 	—  	  	 	 	40,688	  	
INCOME TAXES	  	 	(3,651	) 	 	 	(1,339	) 	 	 	(2,286	) 	 	 	—  	  	 	 	(7,276	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NET EARNINGS	  	 	28,675	  	 	 	707	  	 	 	4,030	  	 	 	—  	  	 	 	33,412	  	
Less: Net earnings attributable to noncontrolling interest	  	 	(3,075	) 	 	 	(750	) 	 	 	—  	  	 	 	—  	  	 	 	(3,825	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR GROUP LIMITED	  	$	25,600	  	 	$	(43	) 	 	$	4,030	  	 	$	—  	  	 	$	29,587	  	

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
 
19. SEGMENT INFORMATION—(Continued)

 	  	Three Months Ended March 31, 2013	 	
 	  	Non-life
run-off	 	 	Life and
annuities	 	 	Eliminations	 	 	Consolidated	 	
Net premiums earned	  	$	30,920	  	 	$	741	  	 	 	—  	  	 	$	31,661	  	
Fees and commission income	  	 	2,628	  	 	 	—  	  	 	 	(181	) 	 	 	2,447	  	
Net investment income	  	 	17,691	  	 	 	272	  	 	 	—  	  	 	 	17,963	  	
Net realized and unrealized gains (losses)	  	 	30,278	  	 	 	(158	) 	 	 	—  	  	 	 	30,120	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	81,517	  	 	 	855	  	 	 	(181	) 	 	 	82,191	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EXPENSES	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net increase in ultimate losses and loss adjustment expense liabilities	  	 	9,161	  	 	 	—  	  	 	 	—  	  	 	 	9,161	  	
Acquisition costs	  	 	2,387	  	 	 	—  	  	 	 	—  	  	 	 	2,387	  	
Life and annuity policy benefits	  	 	—  	  	 	 	741	  	 	 	—  	  	 	 	741	  	
Salaries and benefits	  	 	23,464	  	 	 	146	  	 	 	—  	  	 	 	23,610	  	
General and administrative expenses	  	 	16,415	  	 	 	1,712	  	 	 	(181	) 	 	 	17,946	  	
Interest expense	  	 	2,420	  	 	 	15	  	 	 	—  	  	 	 	2,435	  	
Net foreign exchange losses	  	 	4,936	  	 	 	146	  	 	 	—  	  	 	 	5,082	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	58,783	  	 	 	2,760	  	 	 	(181	) 	 	 	61,362	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EARNINGS (LOSS) BEFORE INCOME TAXES	  	 	22,734	  	 	 	(1,905	) 	 	 	—  	  	 	 	20,829	  	
INCOME TAXES	  	 	(7,823	) 	 	 	(21	) 	 	 	—  	  	 	 	(7,844	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NET EARNINGS (LOSS)	  	 	14,911	  	 	 	(1,926	) 	 	 	—  	  	 	 	12,985	  	
Less: Net earnings attributable to noncontrolling interest	  	 	(1,026	) 	 	 	—  	  	 	 	—  	  	 	 	(1,026	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR GROUP LIMITED	  	$	13,885	  	 	$	(1,926	) 	 	$	—  	  	 	$	11,959	  	

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Enstar Group Limited:
We have reviewed the condensed consolidated balance sheet of Enstar Group Limited and subsidiaries as of March 31, 2014, and the related condensed consolidated statements of earnings and comprehensive income, changes in shareholders’ equity and cash flows for the three-month periods ended March 31, 2014 and 2013. These condensed consolidated financial statements are the responsibility of the Company’s management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Enstar Group Limited and subsidiaries as of December 31, 2013, and the related consolidated statements of earnings, comprehensive income, changes in shareholders’ equity and cash flows for the year then ended; and in our report dated March 3, 2014, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2013, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ KPMG Audit Limited
Hamilton, Bermuda
May 9, 2014
 
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Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	
Table of Contents:

Section	  	Page	 	
Business Overview	  	 	50	  	
Acquisitions	  	 	51	  	
Significant New Business	  	 	53	  	
Consolidated Results of Operations—for the Three Months Ended March 31, 2014 and 2013	  	 	54	  	
Segment Reporting	  	 	56	  	
Results of Operations by Segment—for the Three Months Ended March 31, 2014 and 2013	  	 	57	  	
Non-life Run-off Segment	  	 	57	  	
Active Underwriting Segment	  	 	63	  	
Life and Annuities Segment	  	 	69	  	
Liquidity and Capital Resources	  	 	72	  	
Reinsurance Balances Recoverable	  	 	72	  	
Cash Flows	  	 	73	  	
Investments	  	 	74	  	
Loans Payable	  	 	82	  	
Aggregate Contractual Obligations	  	 	83	  	
Commitments and Contingencies	  	 	84	  	
Critical Accounting Policies	  	 	84	  	
Off-Balance Sheet and Special Purpose Entity Arrangements	  	 	84	  	
Non-GAAP Financial Measures	  	 	84	  	
The following discussion and analysis of our financial condition and results of operations for the three months ended March 31, 2014 and 2013 should be read in conjunction with the attached unaudited condensed consolidated financial statements and notes thereto and the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.
Business Overview
Enstar Group Limited, or Enstar, is a Bermuda-based holding company that was formed in 2001 and became publicly traded in 2007. We are listed on the NASDAQ Global Select Market under the ticker symbol “ESGR.” Our primary operating subsidiaries are located in Bermuda, the United Kingdom, the United States, Australia, and western Europe.
Our primary corporate objective is growing our net book value per share. We believe this is driven primarily by growth in our net earnings, which is in turn driven in large part by successfully completing new acquisitions, effectively managing companies and portfolios of business that we have acquired, and executing on our active underwriting strategies.
Our core focus is acquiring and managing insurance and reinsurance companies in run-off and portfolios of insurance and reinsurance business in run-off, and providing management, consulting and other services to the insurance and reinsurance industry. Since our formation, we have completed the acquisition of over 60 insurance and reinsurance companies and portfolios of insurance and reinsurance business and are now administering those businesses. This includes 13 Reinsurance to Close, or “RITC” transactions, with Lloyd’s of London insurance and reinsurance syndicates in run-off, whereby the portfolio of run-off liabilities is transferred from one Lloyd’s syndicate to another. Until 2013, all but one of our acquisitions had been in the non-life run-off business, which for us generally includes property and casualty, workers’ compensation, asbestos and environmental, construction defect, marine, aviation and transit, and other closed business.
 
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While our core focus remains the acquisition and management of non-life run-off business, we diversified our business profile in two distinct ways during 2013: first, by significantly increasing our closed life and annuities business through our March 31, 2013 acquisition of the closed U.S. life and annuities operations of HSBC Holdings plc (which we now refer to as Pavonia), and second, by entering into the active underwriting business through our acquisitions of 60% interests in Atrium Underwriting Group Limited (or Atrium) on November 25, 2013, Arden Reinsurance Company Ltd (or Arden) on September 9, 2013, and Torus Insurance Holdings Limited (or Torus) on April 1, 2014.
Atrium’s wholly-owned subsidiary, Atrium Underwriters Ltd, manages and underwrites specialist insurance and reinsurance business for Lloyd’s Syndicate 609. Atrium’s wholly-owned subsidiary, Atrium 5 Ltd, provides approximately 25% of the underwriting capacity and capital to Syndicate 609, with the balance provided by traditional Lloyd’s Names. Arden provides reinsurance to Atrium 5 Ltd. through an approximate 65% quota share reinsurance arrangement, and is currently in the process of running off certain other portfolios of run-off business. Torus is an A- rated global specialty insurer with six wholly-owned insurance vehicles, including Lloyd’s Syndicate 1301.
Following these acquisitions, we now have the following three segments of business that are each managed, operated and reported on differently: (i) non-life run-off; (ii) active underwriting; and (iii) life and annuities.
Key Performance Indicator
Our primary corporate objective is growing our net book value per share. We believe this is driven primarily by growth in our net earnings, which is in turn driven in large part by successfully completing new acquisitions, effectively managing companies and portfolios of business that we have acquired, and executing on our active underwriting strategies.
During the period, we increased our book value per share on a fully diluted basis by $1.74 from $105.20 per share, as at December 31, 2013, to $106.94, as at March 31, 2014
On April 1, 2014, we issued 1,898,326 voting ordinary shares and 714,015 Series B Convertible Participating Non-Voting Perpetual Preferred Stock (or collectively, the Torus shares) to Torus’ shareholders upon completion of the Torus acquisition. The table below provides pro forma Enstar Group Limited shareholders’ equity, fully diluted ordinary shares outstanding and fully diluted book value per share as of March 31, 2014 as if the Torus shares had been issued on that date.

 	  	March 31,
2014	 	  	Issuance of
Shares to
Torus
Shareholders	 	  	March 31,
2014 -
Pro Forma	 	
 	  	(expressed in thousands of U.S. dollars, except
share data	 	
 	 	 	 	
Total Enstar Group Limited Shareholders’ Equity	  	$	1,786,557	  	  	$	356,088	  	  	$	2,142,645	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Fully diluted ordinary shares outstanding	  	 	16,706,336	  	  	 	2,612,346	  	  	 	19,318,682	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Fully diluted book value per share	  	$	106.94	  	  	$	136.31	  	  	$	110.91	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Acquisitions
Torus Insurance Holdings Limited
On April 1, 2014, Kenmare Holdings Ltd. (or Kenmare), our wholly-owned subsidiary, together with Trident V, L.P., Trident V Parallel Fund, L.P. and Trident V Professionals Fund, L.P., which are
 
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managed by Stone Point Capital LLC (or collectively, Trident), completed the acquisition of Torus. At closing, Torus became directly owned by Bayshore Holdings Ltd. (or Bayshore), which was 60% owned by Kenmare and 40% owned by Trident.
The purchase price for Torus was established in the amended and restated amalgamation agreement as $646.0 million, to be paid partly in cash and partly in Enstar’s stock. The number of Enstar shares to be issued was fixed at the signing of the amalgamation agreement on July 8, 2013 and was determined by reference to an agreed-upon value per share of $132.448, which was the average closing price of our voting ordinary shares, par value $1.00 per share (or the Voting Ordinary Shares), over the 20 trading days prior to such signing date. On the day before closing of the amalgamation, the Voting Ordinary Shares had a closing price of $136.31 per share. At closing, we contributed cash of $41.6 million towards the purchase price and $3.6 million towards related transaction expenses, as well as 1,898,326 Voting Ordinary Shares and 714,015 shares of Series B Convertible Participating Non-Voting Perpetual Preferred Stock (or the Non-Voting Preferred Shares). Based on a price of $136.31 per share, our contribution of cash and shares to the purchase price totaled $397.7 million in the aggregate. Trident contributed cash of $258.4 million towards the purchase price and $2.4 million towards related transaction expenses. FR XI Offshore AIV, L.P., First Reserve Fund XII, L.P., FR XII A Parallel Vehicle L.P. and FR Torus Co-Investment, L.P. (or collectively, First Reserve) received 1,501,211 Voting Ordinary Shares, 714,015 Non-Voting Preferred Shares and cash consideration in the transaction. Corsair Specialty Investors, L.P. (or Corsair) received 397,115 Voting Ordinary Shares and cash consideration in the transaction. The remaining Torus shareholders received all cash. As a result of the amalgamation, First Reserve now owns approximately 9.5% and 11.5%, respectively, of our Voting Ordinary Shares and outstanding share capital.
Upon the closing of the Torus acquisition, Bayshore, Kenmare and Trident entered into a Shareholders’ Agreement, which was subsequently amended, as described in “Dowling Co-investments in Bayshore and Northshore” below.
In satisfaction of certain of our obligations under the Registration Rights Agreement we entered into with First Reserve and Corsair at the closing of the Amalgamation, we filed a resale shelf registration statement with the SEC on April 29, 2014 with respect to the Voting Ordinary Shares (including the Voting Ordinary Shares into which the Non-Voting Preferred Shares may convert) that we issued pursuant to the amalgamation.
Certain Changes relating to Ownership of our Active Underwriting Businesses
Atrium Employee Equity Awards
On April 17, 2014, Northshore Holdings Ltd., or Northshore, the parent company of Atrium and Arden, implemented long-term incentive plans that awarded time-based restricted shares of Northshore to certain Atrium employees. These equity awards will have the effect of modestly reducing Kenmare’s 60% equity interest in Northshore (as well as Trident’s 40% equity interest) over the course of the vesting periods as Atrium employees acquire shares. Shares generally vest over two to three years, and certain awards begin vesting in 2014. The impact of the share awards on a fully diluted basis is that Kenmare, Trident and Atrium employees own 57.1%, 38.1%, and 4.8% of Northshore, respectively.
Dowling Co-investments in Bayshore and Northshore
On May 8, 2014, Dowling Capital Partners I, L.P., or Dowling, purchased common shares of both Bayshore and Northshore from Kenmare and Trident (on a pro rata basis in accordance with their respective interests) for an aggregate amount of $15.4 million.
Prior to the sale of shares to Dowling, Kenmare and Trident owned 60% and 40% of Bayshore, respectively, and 57.7% and 38.1% of Northshore on a fully diluted basis, respectively (assuming full
 
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vesting of Atrium employees’ restricted shares totaling 4.8%). Following the sale of Bayshore shares to Dowling, Kenmare, Trident and Dowling own 59%, 39.3% and 1.7% of Bayshore, respectively. Following the sale of Northshore shares to Dowling, Kenmare, Trident, certain Atrium employees and Dowling own 56.1%, 37.4%, 4.8% and 1.7% of Northshore, respectively, on a fully diluted basis.
In connection with the sale of Bayshore shares, the Bayshore Shareholders’ Agreement was amended and restated. The Amended and Restated Bayshore Shareholders’ Agreement, among other things, provides that Kenmare has the right to appoint three members to the Bayshore board of directors and Trident has the right to appoint two members. The Amended and Restated Bayshore Shareholders’ Agreement includes a five-year period, or the “Restricted Period,” during which no shareholder can transfer its ownership interest in Bayshore to a third party unless approved by a super-majority of the shareholders. Following the Restricted Period: (i) each shareholder must offer Kenmare and Trident the right to buy its shares before the shares are offered to a third party; (ii) Kenmare can require each other shareholder to participate in a sale of Bayshore to a third party as long as Kenmare owns 55% of the aggregate number of outstanding shares of Bayshore held by Kenmare and Trident; (iii) each shareholder has the right to be included on a pro rata basis in any sales made by another shareholder; and (iv) each of Kenmare, Trident and Dowling has the right to buy its pro rata share of any new securities issued by Bayshore.
The Amended and Restated Bayshore Shareholders’ Agreement also provides that during the 90-day period following the fifth anniversary of the Torus closing, and at any time following the seventh anniversary of such closing, Kenmare would have the right to purchase the Bayshore shares owned by all other shareholders of Bayshore at their then fair market value, which would be payable in cash. Following the seventh anniversary of the Torus closing, Trident would have the right to require Kenmare to purchase all of Trident’s shares in Bayshore for their then current fair market value and Dowling would have the right to participate in such transaction by requiring Kenmare to purchase all of its shares in Bayshore on the same terms. Kenmare would have the option to pay for such shares either in cash or by delivering our Voting Ordinary Shares.
In connection with the sale of Northshore shares, the Northshore Shareholders’ Agreement was amended and restated. The Amended and Restated Northshore Shareholders’ Agreement provides for substantially the same rights and obligations as the Amended and Restated Bayshore Shareholders’ Agreement, except that the fifth and seventh anniversaries refer to the Arden closing.
Significant New Business
Reciprocal of America
On July 6, 2012, our wholly-owned subsidiary, Providence Washington Insurance Company, entered into a definitive loss portfolio transfer reinsurance agreement with Reciprocal of America (in Receivership) and its Deputy Receiver relating to a portfolio of workers’ compensation business. The estimated total liabilities to be assumed are approximately $169.0 million, with an equivalent amount of assets to be received as consideration. Completion of the transaction is conditioned upon, among other things, regulatory approvals and satisfaction of customary closing conditions. The transaction is expected to close in the second quarter of 2014.
Shelbourne RITC Transactions
Effective January 1, 2014, Lloyd’s Syndicate 2008, or S2008, which is managed by our wholly-owned subsidiary and Lloyd’s managing agent, Shelbourne Syndicate Services Limited, entered into a reinsurance to close contract of the 2011 and prior underwriting years of account of another Lloyd’s syndicate, under which S2008 assumed total gross insurance reserves of approximately £17.0 million (approximately $28.1 million) for consideration of an equal amount.
 
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Effective December 31, 2012, S2008 entered into a 100% quota share reinsurance agreement with another Lloyd’s syndicate in respect of its 2009 and prior years of account, or the 2009 Liabilities, under which S2008 assumed total gross insurance reserves of approximately £193.0 million (approximately $313.3 million) for consideration of an equal amount. Effective January 1, 2014, the 2012 Lloyd’s underwriting year of account of S2008 entered into a partial reinsurance to close, or RITC, transaction with respect to the 2009 liabilities.
Consolidated Results of Operations – For the Three Months Ended March 31, 2014 and 2013
The following table sets forth our selected unaudited condensed consolidated statement of earnings data for each of the periods indicated.

 	  	Three Months Ended March 31,	 	
 	  	      2014      	 	 	      2013      	 	
 	  	(expressed in thousands of U.S.
dollars)	 	
INCOME	  	 	 	 	 	 	 	 	
Net premiums earned—non-life run-off	  	$	2,527	  	 	$	30,920	  	
Net premiums earned—active underwriting	  	 	32,639	  	 	 	—  	  	
Net premiums earned—life and annuities	  	 	26,492	  	 	 	741	  	
Fees and commission income	  	 	6,998	  	 	 	2,447	  	
Net investment income	  	 	24,348	  	 	 	17,963	  	
Net realized and unrealized gains	  	 	34,573	  	 	 	30,120	  	
 	  	 	 	 	 	 	 	 	
 	  	 	127,577	  	 	 	82,191	  	
 	  	 	 	 	 	 	 	 	
EXPENSES	  	 	 	 	 	 	 	 	
Net (reduction) increase in ultimate losses and loss adjustment expense liabilities:	  	 	 	 	 	 	 	 	
Non-life run-off	  	 	(29,182	) 	 	 	9,161	  	
Active underwriting	  	 	17,131	  	 	 	—  	  	
 	  	 	 	 	 	 	 	 	
 	  	 	(12,051	) 	 	 	9,161	  	
Acquisition costs	  	 	13,161	  	 	 	2,387	  	
Life and annuity policy benefits	  	 	26,809	  	 	 	741	  	
Salaries and benefits	  	 	31,390	  	 	 	23,610	  	
General and administrative expenses	  	 	22,250	  	 	 	17,946	  	
Interest expense	  	 	3,734	  	 	 	2,435	  	
Net foreign exchange losses	  	 	1,596	  	 	 	5,082	  	
 	  	 	 	 	 	 	 	 	
 	  	 	86,889	  	 	 	61,362	  	
 	  	 	 	 	 	 	 	 	
EARNINGS BEFORE INCOME TAXES	  	 	40,688	  	 	 	20,829	  	
INCOME TAXES	  	 	(7,276	) 	 	 	(7,844	) 	
 	  	 	 	 	 	 	 	 	
NET EARNINGS	  	 	33,412	  	 	 	12,985	  	
Less: Net earnings attributable to noncontrolling interest	  	 	(3,825	) 	 	 	(1,026	) 	
 	  	 	 	 	 	 	 	 	
NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED	  	$	29,587	  	 	$	11,959	  	

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The below table provides a split by operating segment of the net earnings attributable to Enstar Group Limited:

 	  	Three Months Ended March 31,	 	
 	  	      2014      	 	 	      2013      	 	
 	  	(in thousands of U.S. dollars)	 	
Segment split of net earnings (losses) attributable to Enstar Group Limited:	  	 	 	 	 	 	 	 	
Non-life run-off	  	$	25,600	  	 	$	13,885	  	
Active underwriting	  	 	(43	) 	 	 	—  	  	
Life and annuities	  	 	4,030	  	 	 	(1,926	) 	
 	  	 	 	 	 	 	 	 	
Net earnings attributable to Enstar Group Limited	  	$	29,587	  	 	$	11,959	  	
 	  	 	 	 	 	 	 	 	
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this quarterly report. Some of the information contained in this discussion and analysis 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 in “Risk Factors” included in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013.
We reported consolidated net earnings, before net earnings attributable to noncontrolling interest, of approximately $33.4 million and $13.0 million for the three months ended March 31, 2014 and 2013, respectively. Our comparative results were impacted by a number of factors, including those relating to companies we acquired during or after the three months ended March 31, 2013. During 2013, we completed the acquisitions of SeaBright (on February 7, 2013), the Pavonia companies (on March 31, 2013), Arden (on September 9, 2013) and Atrium (on November 25, 2013).
The increase in consolidated net earnings before net earnings attributable to noncontrolling interest for the three months ended March 31, 2014 was attributable primarily to the following:
Net premiums earned – Combined net premiums earned for our three operating segments were $61.7 million and $31.7 million for the three months ended March 31, 2014 and 2013, respectively. The significant increase in 2014 was due primarily to the acquisitions of Pavonia, Arden and Atrium, partially offset by the reduction in SeaBright’s earned premium, as described in greater detail in the segment discussion below. With the run-off process now fully implemented at SeaBright, its share of net earned premium is expected to continue to be substantially lower in 2014 than 2013. However, we expect our active underwriting business to more than offset this difference and for net earned premiums to significantly exceed 2013 levels.
Net investment income – Net investment income was $24.3 million and $18.0 million for the three months ended March 31, 2014 and 2013, respectively. The increase in 2014 was primarily attributable to the net investment income earned on a larger base of cash and fixed maturity investments as a result of a full quarter of owning SeaBright and Pavonia, as well as the Arden and Atrium acquisitions, although this was partially offset by lower reinvestment yields on new purchases of fixed maturity investments.
Net realized and unrealized gains on investments – Net realized and unrealized gains were $34.6 million and $30.1 million for the three months ended March 31, 2014 and 2013, respectively. The increase in net realized and unrealized gains between 2014 and 2013 was primarily attributable to net realized and unrealized gains in 2014 of $12.8 million on our fixed maturity investments, largely due to
 
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movements in treasury yields when applied to a larger base of fixed maturity investments (as compared to net realized and unrealized gains of $1.7 million on our fixed maturity investments in the same period in 2013). This was partially offset by decreases in our net realized and unrealized gains on our equities and other investments.
Net (reduction) increase in ultimate losses and loss adjustment expense liabilities – Net reduction in ultimate losses and loss adjustment expense liabilities was $12.1 million for the three months ended March 31, 2014, compared to a $9.2 million net increase in ultimate losses and loss adjustment expense liabilities for the same period in 2013. The 2014 reduction was comprised of $(29.2) million and $17.1 million in net reduction in ultimate losses and loss adjustment expense liabilities related to our non-life run-off and active underwriting segments, respectively, as discussed further in the related segment discussions below.
Acquisition costs – Acquisition costs were $13.2 million and $2.3 million for the three months ended March 31, 2014 and 2013, respectively. The 2014 acquisition costs related to Atrium ($9.6 million) and Pavonia ($3.6 million). For 2013, the acquisition costs of $2.3 million related to SeaBright.
Life and annuity policy benefits – Life and annuity policy benefits were $26.8 million and $0.7 million for the three months ended March 31, 2014 and 2013, respectively. The significant increase in 2014 is due to primarily to the acquisition of the Pavonia companies, as described in the life and annuities segment discussion below.
Salaries and benefits – Salaries and benefits were $31.4 million and $23.6 million for the three months ended March 31, 2014 and 2013, respectively. The increase of $7.8 million was primarily due to the salaries and benefits costs associated with the Pavonia and Atrium acquisitions (we did not acquire any employees in the Arden acquisition), along with an increase in our bonus accrual amount for 2014 due to higher net earnings.
General and administrative expenses – General and administrative expenses were $22.3 million and $17.9 million for the three months ended March 31, 2014 and 2013, respectively. The increase of $4.4 million was principally due to general and administrative expenses incurred as a result of our 2013 acquisitions of Pavonia, Arden and Atrium (all of which were acquired subsequent to March 31, 2013) and general and administrative expenses associated with the Torus transaction.
Interest expense – Interest expense was $3.7 million and $2.4 million for the three months ended March 31, 2014 and 2013, respectively. The increase of $1.3 million was largely due to additional borrowings under the revolving credit facility for acquisitions and general corporate purposes.
Net foreign exchange losses – Net foreign exchange losses were $1.6 million and $5.1 million for the three months ended March 31, 2014 and 2013, respectively.
Income tax expense – Income tax expenses were $7.3 million and $7.8 million for the three months ended March 31, 2014 and 2013, respectively. Income tax expense is generated through our foreign operations outside of Bermuda, principally in the United States, United Kingdom and Australia. Our income tax expense may fluctuate significantly from period to period depending on the geographic distribution of pre-tax earnings or loss in any given period between different jurisdictions with different tax rates.
Noncontrolling interest in earnings increased by $2.8 million to $3.8 million for the three months ended March 31, 2014 as a result of higher earnings in those companies in which there are noncontrolling interests. Net earnings attributable to Enstar Group Limited increased by $17.6 million from $12.0 million, for the three months ended March 31, 2013, to $29.6 million for the three months ended March 31, 2014.
 
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Segment Reporting
We measure our results of operations in three segments: (i) non-life run-off; (ii) active underwriting; and (iii) life and annuities. Our segments are described in our Annual Report on Form 10-K for the year ended December 31, 2013 beginning on page 83 in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Segment Reporting.”
Results of Operations by Segment — For the Three Months Ended March 31, 2014 and 2013
Non-life Run-off Segment
The following is a discussion and analysis of our results of operations for our non-life run-off segment for the three months ended March 31, 2014 and 2013, which are summarized below:

 	  	Three Months Ended March 31,	 	
 	  	      2014      	 	 	      2013      	 	
 	  	(in thousands of U.S. dollars)	 	
INCOME	  	 	 	 	 	 	 	 	
Net premiums earned	  	$	2,527	  	 	$	30,920	  	
Fees and commission income	  	 	2,955	  	 	 	2,628	  	
Net investment income	  	 	14,333	  	 	 	17,691	  	
Net realized and unrealized gains	  	 	29,629	  	 	 	30,278	  	
 	  	 	 	 	 	 	 	 	
 	  	 	49,444	  	 	 	81,517	  	
 	  	 	 	 	 	 	 	 	
EXPENSES	  	 	 	 	 	 	 	 	
Net (reduction) increase in ultimate losses and loss adjustment expense liabilities:	  	 	 	 	 	 	 	 	
Losses incurred on current period premiums earned	  	 	1,432	  	 	 	28,533	  	
Reduction in estimates of net ultimate losses	  	 	(13,491	) 	 	 	(5,062	) 	
Reduction in provisions for unallocated loss adjustment expense liabilities	  	 	(13,359	) 	 	 	(16,403	) 	
Amortization of fair value adjustments	  	 	(3,764	) 	 	 	2,093	  	
 	  	 	 	 	 	 	 	 	
 	  	 	(29,182	) 	 	 	9,161	  	
Acquisition costs	  	 	—  	  	 	 	2,387	  	
Salaries and benefits	  	 	25,846	  	 	 	23,464	  	
General and administrative expenses	  	 	15,763	  	 	 	16,415	  	
Interest expense	  	 	2,561	  	 	 	2,420	  	
Net foreign exchange losses	  	 	2,130	  	 	 	4,936	  	
 	  	 	 	 	 	 	 	 	
 	  	 	17,118	  	 	 	58,783	  	
 	  	 	 	 	 	 	 	 	
EARNINGS BEFORE INCOME TAXES	  	 	33,326	  	 	 	22,734	  	
INCOME TAXES	  	 	(3,651	) 	 	 	(7,823	) 	
 	  	 	 	 	 	 	 	 	
NET EARNINGS	  	 	28,675	  	 	 	14,911	  	
Less: Net earnings attributable to noncontrolling interest	  	 	(3,075	) 	 	 	(1,026	) 	
 	  	 	 	 	 	 	 	 	
NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED	  	$	25,600	  	 	$	13,885	  	
 	  	 	 	 	 	 	 	 	
Summary Comparison of the Three Months Ended March 31, 2014 and 2013
In our non-life run-off segment, we reported consolidated net earnings, before net earnings attributable to noncontrolling interest, of approximately $28.7 million and $14.9 million for the three months ended March 31, 2014 and 2013, respectively. The increase in earnings of approximately $13.8 million was attributable primarily to the following:
 
 	(i)	an increase of $8.4 million in reduction in estimates of net ultimate losses;	
 
 	(ii)	a decrease in income tax expense of $4.1 million; and	
 
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 	(iii)	a net foreign exchange loss of $2.1 million for the three months ended March 31, 2014, which was a $2.8 million decrease from the net foreign exchange loss for the same period in 2013; partially offset by	
 
 	(iv)	a decrease in net investment income of $3.4 million; and	
 
 	(v)	an increase in salaries and benefits of $2.4 million.	
Noncontrolling interest in earnings increased by $2.1 million to $3.1 million for the three months ended March 31, 2014 as a result of higher earnings in those companies in which there are noncontrolling interests. Net earnings attributable to Enstar Group Limited increased by $11.7 million, or 84.2%, from $13.9 million for the three months ended March 31, 2013 to $25.6 million for the three months ended March 31, 2014.
Net Premiums Earned:

 	  	Three Months Ended March 31,	 	
 	  	2014	 	 	Variance	 	 	2013	 	
 	  	(in thousands of U.S. dollars)	 	
Gross premiums written	  	$	1,319	  	 	 	 	 	 	$	12,098	  	
Ceded reinsurance premiums written	  	 	(276	) 	 	 	 	 	 	 	(2,390	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Net premiums written	  	 	1,043	  	 	$	(8,665	) 	 	 	9,708	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Gross premiums earned	  	 	2,768	  	 	 	 	 	 	 	34,136	  	
Ceded reinsurance premiums earned	  	 	(241	) 	 	 	 	 	 	 	(3,216	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Net premiums earned	  	$	2,527	  	 	$	(28,393	) 	 	$	30,920	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Premiums Written
Gross premiums written consist of direct premiums written and premiums assumed by SeaBright. Upon acquisition, SeaBright was placed into run-off and, as a result, stopped writing new insurance policies. SeaBright was renewing expiring insurance policies when it was obligated to do so by regulators, but during 2013 it received approvals from all states relieving it of this obligation.
Gross and net non-life run-off premiums written for the three months ended March 31, 2014 totaled $1.3 million and $1.0 million, respectively, as compared to $12.1 million and $9.7 million for the same period in 2013. The gross and net non-life run-off premiums written relate primarily to premium audits and reinstatement premiums on previously written policies.
Premiums Earned
Gross non-life run-off premiums earned for the three months ended March 31, 2014 and 2013 totaled $2.8 million and $34.1 million, respectively. Ceded reinsurance premiums earned for the three months ended March 31, 2014 and 2013 totaled $0.2 million and $3.2 million, respectively. Accordingly, net premiums earned for the three months ended March 31, 2014 and 2013 totaled $2.6 million and $30.9 million, respectively. With SeaBright no longer generating written premiums, we expect that the current unearned premiums associated with SeaBright will be fully earned by the second quarter of 2014.
 
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Net Investment Income and Net Realized and Unrealized Gains:

 	  	Three Months Ended March 31,	 	
 	  	Net Investment Income	 	  	Net Realized and Unrealized
Gains	 	
 	  	2014	 	  	Variance	 	 	2013	 	  	2014	 	  	Variance	 	 	2013	 	
 	  	(in thousands of U.S. dollars)	 	
Total	  	$	 14,333	  	  	$	(3,358	) 	 	$	17,691	  	  	$	29,629	  	  	$	(649	) 	 	$	30,278	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
Net investment income for the three months ended March 31, 2014 decreased by $3.4 million to $14.3 million, as compared to $17.7 million for the three months ended March 31, 2013. The decrease was primarily a result of lower yields obtained on our cash and fixed maturity investment portfolios, as securities with higher yields matured and were reinvested at lower yields, partially offset by the increase in net investment income from having the SeaBright investment portfolio for a full quarter in 2014.
Net realized and unrealized gains for the three months ended March 31, 2014 and 2013 were $29.6 million and $30.3 million, respectively. The decrease of $0.7 million was primarily attributable to the combination of the following items:
 
 	(i)	a decrease of $2.2 million in net unrealized and realized gains on our private equity and other investment holdings; and	
 
 	(ii)	a decrease of $4.9 million in net unrealized and realized gains on our equity portfolios due to lower returns from equity markets in the three months ended March 31, 2014 as compared to the same period in 2013; partially offset by	
 
 	(iii)	an increase of $6.4 million in net unrealized and realized gains related to fixed maturity investments, largely due to a decrease in treasury yields.	
Annualized Returns
The below table presents the annualized investment returns (inclusive of net investment income and net realized and unrealized gains) that we have earned on our investments for the three months ended March 31, 2014 and 2013:

 	  	 	 	 	 	 	 	Average Cash and	 	
 	  	Annualized Returns	 	 	Investment Balances	 	
 	  	2014	 	 	2013	 	 	2014	 	  	2013	 	
 	  	 	 	 	 	 	 	(in thousands of U.S. dollars)	 	
Cash and fixed maturity investments	  	 	2.14	% 	 	 	1.67	% 	 	$	4,025,517	  	  	$	3,888,028	  	
Other investments and equities	  	 	11.81	% 	 	 	21.74	% 	 	 	764,879	  	  	 	546,431	  	
Combined overall	  	 	3.67	% 	 	 	4.33	% 	 	 	4,790,396	  	  	 	4,434,460	  	
The average credit ratings by fair value of our fixed maturity investments as at March 31, 2014 and December 31, 2013 were A+.
 
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Net Reduction in Ultimate Losses and Loss Adjustment Expense Liabilities:
The following table shows the components of the movement in the net reduction in ultimate losses and loss adjustment expense liabilities for the three months ended March 31, 2014 and 2013:

 	  	Three Months Ended March 31,	 	
 	  	2014	 	 	 	 	 	2013	 	
 	  	Prior
Periods	 	 	Current
Period	 	  	Total	 	 	Variance	 	 	Prior
Periods	 	 	Current
Period	 	  	Total	 	
 	  	(in thousands of U.S. dollars)	 	
Net losses paid	  	$	 87,155	  	 	$	532	  	  	$	87,687	  	 	 	 	 	 	$	81,134	  	 	$	2,540	  	  	$	83,674	  	
Net change in case and LAE reserves	  	 	(63,249	) 	 	 	851	  	  	 	(62,398	) 	 	 	 	 	 	 	(62,745	) 	 	 	5,245	  	  	 	(57,500	) 	
Net change in IBNR reserves	  	 	(37,397	) 	 	 	49	  	  	 	(37,348	) 	 	 	 	 	 	 	(23,450	) 	 	 	20,748	  	  	 	(2,702	) 	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
(Reduction) increase in estimates of net ultimate losses	  	 	(13,491	) 	 	 	1,432	  	  	 	(12,059	) 	 	 	(35,531	) 	 	 	(5,061	) 	 	 	28,533	  	  	 	23,472	  	
Reduction in provisions for unallocated loss adjustment expense liabilities	  	 	(13,359	) 	 	 	—  	  	  	 	(13,359	) 	 	 	 	 	 	 	(16,404	) 	 	 	—  	  	  	 	(16,404	) 	
Amortization of fair value adjustments	  	 	(3,764	) 	 	 	—  	  	  	 	(3,764	) 	 	 	 	 	 	 	2,093	  	 	 	—  	  	  	 	2,093	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Net (reduction) increase in ultimate losses and loss adjustment expense liabilities	  	$	(30,614	) 	 	$	1,432	  	  	$	(29,182	) 	 	 	(38,343	) 	 	$	(19,372	) 	 	$	28,533	  	  	$	9,161	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
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 reserves represents the change in our actuarial estimates of losses incurred but not reported, less amounts recoverable.
Three Months Ended March 31, 2014
The net reduction in ultimate losses and loss adjustment expense liabilities for the three months ended March 31, 2014 of $29.2 million included losses incurred related to current period premium of $1.4 million related to SeaBright. Excluding SeaBright’s current period incurred losses of $1.4 million, ultimate losses and loss adjustment expense liabilities relating to prior periods were reduced by $30.6 million, which was attributable to a reduction in estimates of net ultimate losses of $13.5 million and a reduction in provisions for unallocated loss adjustment expense liabilities of $13.3 million, relating to 2014 run-off activity, and amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $3.8 million.
Excluding the impact of current period losses incurred of $1.4 million relating to SeaBright, the reduction in estimates of net ultimate losses was $13.5 million, which was primarily related to:
 
 	(i)	our quarterly review of historic case reserves for which no updated advices had been received for a number of years. This review identified the redundancy of a number of advised case reserves with an estimate aggregate value of approximately $6.8 million; and	
 
 	(ii)	favorable claim settlements for the three months ended March 31, 2014 resulting in a reduction in estimates of net ultimate losses of approximately $6.7 million.	
 
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Three Months Ended March 31, 2013
The net increase in ultimate losses and loss adjustment expense liabilities for the three months ended March 31, 2013 of $9.2 million included losses incurred of $28.5 million related to SeaBright. Excluding SeaBright’s incurred losses related to current period premium of $28.5 million, ultimate losses and loss adjustment expenses relating to prior periods were reduced by $19.4 million, which was attributable to a reduction in estimates of net ultimate losses of $5.1 million and a reduction in provisions for unallocated loss adjustment expense liabilities of $16.4 million, relating to 2013 run-off activity, partially offset by amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $2.1 million.
Excluding the impact of current period losses incurred of $28.5 million relating to SeaBright, the reduction in estimates of net ultimate losses was $5.1 million, and was primarily related to:
 
 	(i)	our quarterly review of historic case reserves for which no updated advices had been received for a number of years. This review identified the redundancy of a number of advised case reserves with an estimate aggregate value of approximately $8.3 million; partially offset by	
 
 	(ii)	net incurred loss development of $26.7 million (excluding redundant case reserve reductions of $8.3 million), largely offset by reductions in IBNR reserves of $23.5 million.	
Beginning and Ending Reserves
The table below provides a reconciliation of the beginning and ending reserves for losses and loss adjustment expense liabilities for the three months ended March 31, 2014 and 2013. Losses incurred and paid are reflected net of reinsurance recoverables.

 	  	Three Months Ended March 31,	 	
 	  	2014	 	 	2013	 	
 	  	(in thousands of
U.S. dollars)	 	
Balance as at January 1(1)	  	$	4,004,513	  	 	$	3,650,127	  	
Less: total reinsurance reserves recoverable	  	 	1,121,533	  	 	 	876,220	  	
 	  	 	 	 	 	 	 	 	
 	  	 	2,882,980	  	 	 	2,773,907	  	
Net (reduction) increase in ultimate loss and loss adjustment expense liabilities related to:	  	 	 	 	 	 	 	 	
Current period	  	 	1,432	  	 	 	28,533	  	
Prior periods	  	 	(30,614	) 	 	 	(19,372	) 	
 	  	 	 	 	 	 	 	 	
Total net (reduction) increase in ultimate losses and loss adjustment expense liabilities	  	 	(29,182	) 	 	 	9,161	  	
 	  	 	 	 	 	 	 	 	
Net losses paid related to:	  	 	 	 	 	 	 	 	
Current period	  	 	(532	) 	 	 	(2,540	) 	
Prior periods	  	 	(87,155	) 	 	 	(81,134	) 	
 	  	 	 	 	 	 	 	 	
Total net losses paid	  	 	(87,687	) 	 	 	(83,674	) 	
 	  	 	 	 	 	 	 	 	
Effect of exchange rate movement	  	 	(1,025	) 	 	 	(25,952	) 	
Acquired on purchase of subsidiaries	  	 	—  	  	 	 	479,982	  	
Assumed business	  	 	28,630	  	 	 	42,624	  	
 	  	 	 	 	 	 	 	 	
Net balance as at March 31	  	 	2,793,716	  	 	 	3,196,048	  	
Plus: total reinsurance reserves recoverable	  	 	1,028,162	  	 	 	947,750	  	
 	  	 	 	 	 	 	 	 	
Balance as at March 31	  	$	3,821,878	  	 	$	4,143,798	  	

(1)	We have reclassified outstanding losses and loss adjustment expense liabilities of $11.0 million to policy benefits for life and annuity contracts as at January 1, 2013 to conform to the current period presentation. This amount is associated with Laguna which now forms part of our life and annuities segment that was established following the acquisition of the Pavonia companies.	
 
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Salaries and Benefits:

 	  	Three Months Ended March 31,	 	
 	  	2014	 	  	Variance	 	 	2013	 	
 	  	(in thousands of U.S. dollars)	 	
Total	  	$	 25,846	  	  	$	(2,382	) 	 	$	23,464	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	
Salaries and benefits, which include expenses relating to our discretionary bonus and employee share plans, were $25.8 million and $23.5 million for the three months ended March 31, 2014 and 2013, respectively. The $2.4 million increase in salaries and benefits expenses was primarily related to an increase in the discretionary bonus provision due to higher net earnings for the three months ended March 31, 2014 as compared to 2013. Expenses relating to our discretionary bonus plan will be variable and are dependent on our overall profitability.
General and Administrative Expenses:

 	  	Three Months Ended March 31,	 	
 	  	2014	 	  	Variance	 	  	2013	 	
 	  	(in thousands of U.S. dollars)	 	
Total	  	$	 15,763	  	  	$	652	  	  	$	16,415	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
General and administrative expenses decreased by $0.6 million from $16.4 million to $15.8 million during the three months ended March 31, 2014, as compared to the three months ended March 31, 2013. The decrease in expenses was primarily attributable to a reduction in professional fees and other general and administrative expenses of $0.3 million and $0.9 million, respectively, partially offset by an increase in information technology costs of $0.7 million.
Net Foreign Exchange Losses:

 	  	Three Months Ended March 31,	 	
 	  	2014	 	  	Variance	 	  	2013	 	
 	  	(in thousands of U.S. dollars)	 	
Total	  	$	 2,130	  	  	$	2,806	  	  	$	4,936	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
We recorded net foreign exchange losses of $2.1 million and $4.9 million for the three months ended March 31, 2014 and 2013, respectively. The net foreign exchange losses for the three months ended March 31, 2014 arose primarily as a result of the holding of surplus U.S. dollar assets by our Australian subsidiary at a time when the Australian dollar was appreciating against the U.S. dollar. The net foreign exchange losses for the three months ended March 31, 2013 arose primarily as a result of the holding of surplus British pound and Euro assets at a time when the U.S. dollar was appreciating against these currencies.
In addition to the net foreign exchange losses recorded in our consolidated statement of earnings for the three months ended March 31, 2014, we recorded in our condensed consolidated statement of comprehensive income currency translation adjustment gains, net of noncontrolling interest, of $3.2 million as compared to losses, net of noncontrolling interest, of $0.4 million for the same period in 2013. For the three months ended March 31, 2014, the currency translation adjustments related primarily to our Austarlian-based subsidiaries. As the functional currencies of these subsidiaries are Australian dollars, we record any U.S. dollar gains or losses on the translation of their net Australian dollar assets through accumulated other comprehensive income.
 
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Income Tax Expense:

 	  	Three Months Ended March 31,	 	
 	  	2014	 	  	Variance	 	  	2013	 	
 	  	(in thousands of U.S. dollars)	 	
Total	  	$	 3,651	  	  	$	4,172	  	  	$	7,823	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
We recorded income tax expense of $3.7 million and $7.8 million for the three months ended March 31, 2014 and 2013, respectively.
Income tax expense is primarily generated through our foreign operations outside of Bermuda, principally in the United States, Europe and Australia. The effective tax rate, which is calculated as income tax expense or benefit divided by income before tax, is primarily driven by the geographic distribution of pre-tax net income between jurisdictions with comparatively higher tax rates and those with comparatively lower income tax rates and as a result may fluctuate significantly from period to period.
The decrease in income taxes of $4.2 million was due principally to decreased pre-tax net income recorded in our U.S. and U.K. based subsidiaries.
The effective tax rate was 17.9% for the three months ended March 31, 2014 as compared with 37.7% for the same period in 2013. In 2014, we had proportionately lower net income in our tax paying subsidiaries than in the prior period.
Noncontrolling Interest:

 	  	Three Months Ended March 31,	 	
 	  	2014	 	  	Variance	 	 	2013	 	
 	  	(in thousands of U.S. dollars)	 	
Total	  	$	3,075	  	  	$	(2,049	) 	 	$	1,026	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	
We recorded a noncontrolling interest in earnings of $3.1 million and $1.0 million for the three months ended March 31, 2014 and 2013, respectively. The increase for the three months ended March 31, 2014 was due primarily to the increase in earnings for those companies where there exists a noncontrolling interest.
Active Underwriting
Our active underwriting segment is comprised of the operations and financial results of Atrium and its subsidiaries (acquired November 25, 2013) and Arden (acquired September 9, 2013). Results related to Arden’s reinsurance of Atrium are included within our active underwriting segment, while results related to Arden’s run-off business are included within our non-life run-off segment. Atrium’s subsidiary, Atrium Underwriters Ltd., or AUL, is the managing agent for Lloyd’s Syndicate 609. AUL earns fees and profit commissions on business underwritten for the Syndicate. Atrium’s subsidiary, Atrium 5 Ltd, impacts our active underwriting results with respect to the 25% underwriting capacity and capital it provides to Syndicate 609 (of which we own 15% and Trident owns 10%). In future periods the active underwriting segment will also include substantially all of Torus Insurance Holdings Limited and its subsidiaries, although some of Torus’ lines of business are in run-off and will accordingly be accounted for within our non-life run-off segment.
 
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The following is a discussion and analysis of our results of operations for our active underwriting segment for the three months ended March 31, 2014, which is summarized below. We did not have an active underwriting business for the three months ended March 31, 2013.

 	  	Three Months Ended March 31, 2014	 	
 	  	Atrium/
Arden	 	 	Holding
Companies	 	 	Enstar Specific
Expenses	 	 	Total	 	
 	  	(in thousands of U.S. dollars)	 	
INCOME	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net premiums earned	  	$	32,639	  	 	$	—  	  	 	$	—  	  	 	$	32,639	  	
Fees and commission income	  	 	4,821	  	 	 	—  	  	 	 	—  	  	 	 	4,821	  	
Net investment income	  	 	480	  	 	 	—  	  	 	 	—  	  	 	 	480	  	
Net realized and unrealized losses	  	 	(107	) 	 	 	—  	  	 	 	—  	  	 	 	(107	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	37,833	  	 	 	—  	  	 	 	—  	  	 	 	37,833	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EXPENSES	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net increase in ultimate losses and loss adjustment expense liabilities	  	 	17,131	  	 	 	—  	  	 	 	—  	  	 	 	17,131	  	
Acquisition costs	  	 	9,561	  	 	 	—  	  	 	 	—  	  	 	 	9,561	  	
Salaries and benefits	  	 	3,533	  	 	 	—  	  	 	 	—  	  	 	 	3,533	  	
General and administrative expenses	  	 	2,871	  	 	 	2,063	  	 	 	—  	  	 	 	4,934	  	
Interest expense	  	 	6	  	 	 	—  	  	 	 	1,167	  	 	 	1,173	  	
Net foreign exchange (gains) losses	  	 	(551	) 	 	 	6	  	 	 	—  	  	 	 	(545	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	32,551	  	 	 	2,069	  	 	 	1,167	  	 	 	35,787	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EARNINGS (LOSS) BEFORE INCOME TAXES	  	 	5,282	  	 	 	(2,069	) 	 	 	(1,167	) 	 	 	2,046	  	
INCOME TAXES	  	 	(1,339	) 	 	 	—  	  	 	 	—  	  	 	 	(1,339	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NET EARNINGS (LOSS)	  	 	3,943	  	 	 	(2,069	) 	 	 	(1,167	) 	 	 	707	  	
Less: Net earnings (loss) attributable to noncontrolling interest	  	 	(1,578	) 	 	 	828	  	 	 	—  	  	 	 	(750	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NET EARNING (LOSS) ATTRIBUTABLE TO ENSTAR GROUP LIMITED	  	$	2,365	  	 	$	(1,241	) 	 	$	(1,167	) 	 	$	(43	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Loss ratio (1)	  	 	52.5	% 	 	 	 	 	 	 	 	 	 	 	 	 	
Acquisition cost ratio (2)	  	 	29.3	% 	 	 	 	 	 	 	 	 	 	 	 	 	
Other operating expense ratio (3)	  	 	19.6	% 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Combined ratio (4)	  	 	101.4	% 	 	 	 	 	 	 	 	 	 	 	 	 	

(1)	Loss ratio is obtained by dividing net increase in ultimate losses and loss adjustment expense liabilities by net premiums earned.	
(2)	Acquisition cost ratio is obtained by dividing acquisition costs by net premiums earned.	
(3)	Other operating expense ratio is obtained by dividing the sum of general and administrative expenses and salaries and benefits attributable to Atrium/Arden by net premiums earned. Other operating expense ratio is a non-GAAP financial measure because it excludes the general and administrative expenses of the active underwriting holding companies. The most directly comparable GAAP financial measure would be to include these holding company expenses, which would result in a ratio of 25.9%. See “Non-GAAP Financial Measures” for more information on this ratio.	
(4)	Our combined ratio is the sum of: (i) our loss ratio, (ii) our acquisition cost ratio and (iii) our other operating expense ratio (which is a non-GAAP financial measure, as described in footnote 3). Our historical combined ratio may not be indicative of future underwriting performance.	
For our active underwriting segment, we reported net earnings, before net earnings attributable to noncontrolling interest, of approximately $0.7 million for the three months ended March 31, 2014.
 
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The results were primarily driven by:
 
 	(i)	the combination of net premiums earned of $32.6 million less $17.1 million in net increase in ultimate losses and loss adjustment expense liabilities and $9.6 million of acquisition costs;	
 
 	(ii)	fees and commission income of $4.8 million; and	
 
 	(iii)	net investment income and net realized and unrealized losses of $0.4 million; partially offset by	
 
 	(iv)	salaries and benefits and general and administrative expenses of $8.5 million (including $0.9 million relating to Torus transaction costs);	
 
 	(v)	interest expense of $1.2 million; and	
 
 	(vi)	income taxes of $1.3 million.	
Noncontrolling interest in earnings of $0.7 million related to Trident’s 40% interest in the earnings of Bayshore and Northshore, resulting in net earnings from active underwriting attributable to Enstar Group Limited of approximately $(0.1) million for the three months ended March 31, 2014. Trident’s share of earnings is greater than its calculated 40% share of the segment’s net earnings primarily due to interest expense in respect of borrowings under our revolving credit facility that are recorded within the segment and 100% attributable to us.
For 2014, we expect the income and expenses associated with the active underwriting segment to increase as a result of us having our interest in Atrium and Arden for a full year, as well as having our interest in Torus for three quarters during 2014. Earnings attributable to noncontrolling interest in 2014 will be dependent on the level of combined earnings for Atrium, Arden and Torus. We also expect interest expense to increase in 2014 from 2013, largely due to increased borrowings under our revolving credit facility related to draw downs on our revolving credit facility to partially finance acquisition activity in this segment.
Gross Premiums Written:
The following table provides gross premiums written by line of business for the three months ended March 31, 2014:

 	  	Gross Premiums Written	 	
 	  	Three Months
Ended March 31,
2014	 	  	% of Total Gross
Premiums
Written	 	
 	  	(in thousands of U.S. dollars)	 	
Marine Property	  	$	8,032	  	  	 	16.9	% 	
Property and Casualty Binding Authorities	  	 	7,243	  	  	 	15.2	% 	
Upstream Energy	  	 	6,232	  	  	 	13.1	% 	
Reinsurance	  	 	5,811	  	  	 	12.2	% 	
Accident and Health	  	 	5,716	  	  	 	12.0	% 	
Professional Liability	  	 	4,135	  	  	 	8.7	% 	
Non-Marine Property	  	 	3,904	  	  	 	8.2	% 	
Aviation	  	 	3,895	  	  	 	8.2	% 	
War and Terrorism	  	 	2,609	  	  	 	5.5	% 	
 	  	 	 	 	  	 	 	 	
Total	  	$	47,577	  	  	 	100.0	% 	

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Gross premiums written were $47.6 million for the three months ended March 31, 2014. The gross premiums written relate entirely to Atrium.
Net Premiums Earned:
The following table provides net premiums earned by line of business for the three months ended March 31, 2014:

 	  	Net Premiums Earned	 	
 	  	Three Months
Ended March 31,
2014	 	  	% of Total Net
Premiums Earned	 	
 	  	(in thousands of U.S. dollars)	 	
Property and Casualty Binding Authorities	  	$	5,508	  	  	 	16.9	% 	
Marine Property	  	 	5,265	  	  	 	16.1	% 	
Upstream Energy	  	 	5,015	  	  	 	15.4	% 	
Accident and Health	  	 	3,942	  	  	 	12.1	% 	
Non-Marine Property	  	 	3,656	  	  	 	11.2	% 	
Reinsurance	  	 	3,009	  	  	 	9.2	% 	
Professional Liability	  	 	3,001	  	  	 	9.2	% 	
Aviation	  	 	1,766	  	  	 	5.4	% 	
War and Terrorism	  	 	1,477	  	  	 	4.5	% 	
 	  	 	 	 	  	 	 	 	
Total	  	$	32,639	  	  	 	100.0	% 	
 	  	 	 	 	  	 	 	 	
Net premiums earned were $32.6 million for the three months ended March 31, 2014 and related to Atrium and Arden’s reinsurance of Atrium.
Fees and Commission Income:

 	  	For the Three Months Ended March 31,	 	
 	  	2014	 	    	Variance	 	    	2013	 	
 	  	(in thousands of U.S. dollars)	 	
Total	  	$	 4,821	  	    	$	4,821	  	    	$	—	  	
 	  	 	 	 	    	 	 	 	    	 	 	 	
We earned fees and commission income of approximately $4.8 million for the three months ended March 31, 2014. The fees represent management and profit commission fees earned by us in relation to Atrium’s management of Syndicate 609.
 
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Net Increase in Ultimate Losses and Loss Adjustment Expenses:
The table below provides a reconciliation of the beginning and ending reserves for losses and loss adjustment expense liabilities for the three months ended March 31, 2014 of our active underwriting segment (losses incurred and paid are reflected net of reinsurance recoverables):

 	  	Three Months Ended
March 31, 2014	 	
 	  	(in thousands of
U.S. dollars)	 	
Balance as at January 1	  	$	215,392	  	
Less: total reinsurance reserves recoverable	  	 	25,055	  	
 	  	 	 	 	
 	  	 	190,337	  	
Net increase (reduction) in ultimate losses and loss adjustment expense liabilities:	  	 	 	 	
Current period	  	 	21,314	  	
Prior periods	  	 	(4,183	) 	
 	  	 	 	 	
Total net increase in ultimate losses and loss adjustment expense liabilities	  	 	17,131	  	
 	  	 	 	 	
Net losses paid:	  	 	 	 	
Current period	  	 	(4,684	) 	
Prior periods	  	 	(8,151	) 	
 	  	 	 	 	
Total net losses paid	  	 	(12,835	) 	
 	  	 	 	 	
Effect of exchange rate movement	  	 	(7	) 	
 	  	 	 	 	
Net balance as at March 31	  	 	194,626	  	
Plus: total reinsurance reserves recoverable	  	 	25,626	  	
 	  	 	 	 	
Balance as at March 31	  	$	220,252	  	
 	  	 	 	 	
For the three months ended March 31, 2014 we recorded reserve increases of $4.3 million, net of $12.8 million of paid losses. There was a net favorable prior year reserve development of $4.2 million due to claims improvement and reserve releases related to our Upstream Energy, Marine Property and Accident and Health lines of business. Losses incurred for the current period of $21.3 million has been recorded as expected loss ratios on current period earned premium.
There is no assurance that conditions or trends that have affected the development of our reserves in the past will continue, and prior year development may not be indicative of development in future years.
Salaries and Benefits:

 	  	Three Months Ended March 31,	 	
 	  	2014	 	  	Variance	 	 	2013	 	
 	  	(in thousands of U.S. dollars)	 	
Total	  	$	 3,533	  	  	$	(3,533	) 	 	$	—	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	
Salaries and benefits related to our active underwriting segment were $3.5 million for the three months ended March 31, 2014. These expenses, all relating to Atrium, include salaries and benefits of $1.9 million and discretionary bonus costs of approximately $1.6 million. Expenses relating to Atrium’s discretionary bonus plan will be variable and dependent on Atrium’s overall profitability.
 
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General and Administrative Expenses:

 	  	Three Months Ended March 31,	 	
 	  	2014	 	  	Variance	 	 	2013	 	
 	  	(in thousands of U.S. dollars)	 	
Total	  	$	 4,934	  	  	$	(4,934	) 	 	$	—	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	
General and administrative expenses were $4.9 million for the three months ended March 31, 2014 and were comprised of $2.9 million related to Atrium and Arden and $2.0 million related to the active underwriting segment holding companies. General and administrative expenses associated with the active underwriting segment holding companies was comprised primarily of non-recurring transaction costs and other expenses associated with Bayshore and Northshore of $1.3 million, and $0.7 million related to the amortization of our definite-lived intangible assets in connection with our acquisition of Atrium.
Interest Expense:

 	  	Three Months Ended March 31,	 	
 	  	2014	 	  	Variance	 	 	2013	 	
 	  	(in thousands of U.S. dollars)	 	
Total	  	$	 1,173	  	  	$	(1,173	) 	 	$	—	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	
Interest expense of $1.2 million was recorded for the three months ended March 31, 2014. The interest expense recorded was in respect of borrowings under our revolving credit facility that are recorded in the segment that are 100% attributable to us.
Noncontrolling Interest:

 	  	Three Months Ended March 31,	 	
 	  	2014	 	  	Variance	 	 	2013	 	
 	  	(in thousands of U.S. dollars)	 	
Total	  	$	 750	  	  	$	(750	) 	 	$	—	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	
We recorded noncontrolling interest in earnings of $0.7 million for the three months ended March 31, 2014. As of March 31, 2014, Trident had a 40% noncontrolling interest in Atrium, Arden and the active underwriting segment holding companies (which includes both Northshore and Bayshore).
 
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Life and Annuities Segment
The following is a discussion and analysis of our results of operations for our life and annuities segment for the three months ended March 31, 2014 and 2013, which are summarized below:

 	  	Three Months Ended March 31,	 	
 	  	    2014    	 	  	    2013    	 	
 	  	(in thousands of U.S. dollars)	 	
INCOME	  	 	 	 	  	 	 	 	
Net premiums earned	  	$	26,492	  	  	$	741	  	
Fees and commission income	  	 	21	  	  	 	—  	  	
Net investment income	  	 	9,989	  	  	 	272	  	
Net realized and unrealized gains (losses)	  	 	5,051	  	  	 	(158	) 	
 	  	 	 	 	  	 	 	 	
 	  	 	41,553	  	  	 	855	  	
 	  	 	 	 	  	 	 	 	
EXPENSES	  	 	 	 	  	 	 	 	
Life and annuity policy benefits	  	 	26,809	  	  	 	741	  	
Acquisition costs	  	 	3,600	  	  	 	—  	  	
Salaries and benefits	  	 	2,011	  	  	 	146	  	
General and administrative expenses	  	 	2,352	  	  	 	1,712	  	
Interest expense	  	 	454	  	  	 	15	  	
Net foreign exchange losses	  	 	11	  	  	 	146	  	
 	  	 	 	 	  	 	 	 	
 	  	 	35,237	  	  	 	2,760	  	
 	  	 	 	 	  	 	 	 	
EARNINGS (LOSS) BEFORE INCOME TAXES	  	 	6,316	  	  	 	(1,905	) 	
INCOME TAXES	  	 	(2,286	) 	  	 	(21	) 	
 	  	 	 	 	  	 	 	 	
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR GROUP LIMITED	  	$	4,030	  	  	$	(1,926	) 	
 	  	 	 	 	  	 	 	 	
Net Premiums Earned:

 	  	Three Months Ended March 31,	 	
 	  	2014	 	  	Variance	 	  	2013	 	
 	  	(in thousands of U.S. dollars)	 	
Term life insurance	  	$	7,683	  	  	$	6,942	  	  	$	741	  	
Assumed life reinsurance	  	 	4,268	  	  	 	4,268	  	  	 	—  	  	
Credit life and disability	  	 	14,542	  	  	 	14,542	  	  	 	—  	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	26,493	  	  	 	 	 	  	$	741	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Net premiums earned were $26.5 million and $0.7 million for the three months ended March 31, 2014 and 2013, respectively. Term life premiums consist primarily of monthly premium collections coupled with annual premiums earned as collected. The term life business consists of 10, 15, 20 and 30 year direct term business with approximately 90% of premiums to be earned over the next 20 years. The assumed life reinsurance premiums will continue to be earned until the year 2052; however, approximately 70% are expected to be earned within the next ten years. Credit life and disability premiums are fixed monthly premiums received on credit products that mostly consist of sub-prime mortgages in the U.S. and Canada; approximately 90% of these premiums are expected to be earned before the year 2023. Substantially all net premiums earned in 2014 relate to the acquisition of the Pavonia companies. We recorded acquisition costs for the three months ended March 31, 2014 of approximately $3.6 million associated with the premiums earned by Pavonia. The premiums are expected to reduce by approximately 15-20% per annum as the blocks of business continue to run-off and policies lapse.
 
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For our life and annuities business, although we no longer write new business, our strategy differs from our non-life run-off and active underwriting businesses, in particular because we are unable to shorten the duration of the liabilities in this business through either commutations or policy buy backs. Instead, we will hold the policies associated with the life and annuities business to their natural maturity in order to pay claims as they fall due.
Net premiums earned in 2013 relate to the Laguna term life business.
Net Investment Income and Net Realized and Unrealized Gains (Losses):

 	  	Three Months Ended March 31,	 	
 	  	Net Investment Income	 	  	Net Realized and Unrealized Gains
(Losses)	 	
 	  	2014	 	  	Variance	 	  	2013	 	  	  2014  	 	  	  Variance  	 	  	  2013  	 	
 	  	(in thousands of U.S. dollars)	 	
Total	  	$	9,989	  	  	$	9,717	  	  	$	272	  	  	$	5,051	  	  	$	5,209	  	  	$	(158	) 	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Net investment income for the three months ended March 31, 2014 and 2013 was $10.0 million and $0.3 million, respectively. The increase was due to the inclusion of the cash and fixed maturity investments associated with the acquisition of the Pavonia companies on March 31, 2013.
Net realized and unrealized gains (losses) for the three months ended March 31, 2014 and 2013 were $5.1 million and ($0.2) million, respectively. The increase in net realized and unrealized gains of $5.2 million was due to unrealized gains on fixed maturity investments acquired with the Pavonia companies, largely due to movement in treasury yields during the three months ended March 31, 2014.
The current operations of one of the Pavonia companies relates solely to periodic payment annuities, or PPA. We have a long duration held-to-maturity investment portfolio to manage the cash flow obligations of these annuities. This held-to-maturity portfolio is carried at amortized cost and as such we would not anticipate unrealized gains or losses on the portfolio. The carrying value of the held-to-maturity portfolio comprises approximately 70% of the Pavonia investments. The remaining 30% of our Pavonia investments are composed of trading portfolios of fixed maturity investments which secure our non-PPA business.
Annualized Returns
The table below presents the annualized investment returns (inclusive of net investment income and net realized and unrealized gains (losses)) that we have earned on our average cash and investments for the three months ended March 31, 2014 and 2013:

 	  	Annualized Return	 	 	Average Cash and
Investment Balances	 	
 	  	2014	 	 	2013	 	 	      2014      	 	  	      2013      	 	
 	  	 	 	 	 	 	 	(in thousands of U.S. dollars)	 	
Cash and fixed maturity investments	  	 	4.25	% 	 	 	0.89	% 	 	$	1,344,924	  	  	$	51,063	  	
Other investments and equities	  	 	21.61	% 	 	 	—  	% 	 	 	11,928	  	  	 	—  	  	
Combined overall	  	 	4.43	% 	 	 	0.89	% 	 	 	1,356,852	  	  	 	51,063	  	
The average credit ratings of our fixed maturity investments as at March 31, 2014 and 2013 were A+ and A+, respectively.
 
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Life and Annuity Policy Benefits:

 	  	Three Months Ended March 31,	 	
 	  	2014	 	 	Variance	 	 	2013	 	
 	  	(in thousands of U.S. dollars)	 	
Periodic payment annuity benefits paid	  	$	13,390	  	 	$	(13,390	) 	 	$	—  	  	
Reductions in periodic payment annuity benefit reserves	  	 	(7,235	) 	 	 	7,235	  	 	 	—  	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Net change in periodic payment annuity benefit reserves	  	 	6,155	  	 	 	 	 	 	 	—  	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Net life claims benefits paid	  	 	22,436	  	 	 	(22,436	) 	 	 	—  	  	
Net change in life claims benefit reserves	  	 	(5,580	) 	 	 	6,321	  	 	 	741	  	
Amortization of fair value adjustments	  	 	3,798	  	 	 	(3,798	) 	 	 	—  	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Net ultimate change in life benefit reserves	  	 	20,654	  	 	 	 	 	 	 	741	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
 	  	$	26,809	  	 	 	 	 	 	$	741	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	
Life and annuity policy benefits were $26.8 million and $0.7 million for the three months ended March 31, 2014 and 2013, respectively. PPA benefits paid during the three months ended March 31, 2014 were $13.4 million, which was an average of approximately $4.5 million per month, offset by a reduction in PPA benefit reserves of $7.2 million. Net ultimate change in life benefit reserves of $20.7 million was comprised of net life claims benefits paid of $22.4 million and amortization of fair value adjustments of $3.8 million, partially offset by net change in life claims benefit reserves of $5.6 million.
Life and annuity policy benefits for 2013 relate to the Laguna term life business.
Salaries and Benefits:

 	  	Three Months Ended March 31,	 	
 	  	2014	 	  	Variance	 	  	2013	 	
 	  	(in thousands of U.S. dollars)	 	
Total	  	$	 2,011	  	  	$	(1,865)	  	  	$	146	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Salaries and benefit costs related to our life and annuities segment were $2.0 million for the three months ended March 31, 2014 as compared to $0.1 million for the three months ended March 31, 2013. The increase of $1.9 million was attributable to an increase in salaries and benefits of $1.2 million associated with Pavonia and $0.7 million of expense associated with our discretionary bonus plan relating to our life and annuities segment.
General and Administrative Expenses:

 	  	Three Months Ended March 31,	 	
 	  	2014	 	  	Variance	 	 	2013	 	
 	  	(in thousands of U.S. dollars)	 	
Total	  	$	2,352	  	  	$	(640	) 	 	$	1,712	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	
The increase in general and administrative expenses of $0.7 million, from $1.7 million for the three months ended March 31, 2013 to $2.4 million for the three months ended March 31, 2014, was primarily attributable to the increase of approximately $1.2 million in general and administrative expenses associated with Pavonia. This increase was partially offset by a reduction in information technology costs of $0.6 million related to higher costs for the three months ended March 31, 2013 associated with the transition of the Pavonia business.
 
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Liquidity and Capital Resources
Our capital management strategy is to preserve sufficient capital to enable us to make future acquisitions while maintaining a conservative investment strategy. As we are a holding company and have no substantial operations of our own, our assets consist primarily of investments in subsidiaries. The potential sources of the cash flows to Enstar as a holding company consist of dividends, advances and loans from our subsidiary companies. Most of those subsidiaries are regulated entities, and restrictions on their ability to pay dividends and make other distributions may apply.
At March 31, 2014, we had total cash and cash equivalents, restricted cash and cash equivalents and investments of $6.78 billion, compared to $6.56 billion at December 31, 2013. Our cash and cash equivalent portfolio is comprised mainly of cash, high-grade fixed deposits, commercial paper with maturities of less than three months and money market funds.
Reinsurance Balances Recoverable
In our non-life run-off segment, our acquired insurance and reinsurance subsidiaries, prior to acquisition, used retrocessional agreements to reduce their exposure to the risk of insurance and reinsurance assumed. Our insurance and reinsurance subsidiaries remain liable to the extent that retrocessionaires do not meet their obligations under these agreements, and therefore, we evaluate and monitor concentration of credit risk among our reinsurers. Provisions are made for amounts considered potentially uncollectible.
On an annual basis, Atrium purchases a tailored outwards reinsurance program designed to manage the risk profile of Lloyd’s Syndicate 609. The majority of Atrium’s total third party reinsurance cover is with Lloyd’s Syndicates or other reinsurers rated A- or better.
As of March 31, 2014 and December 31, 2013, we had, excluding reinsurance recoverables related to our life and annuities segment, reinsurance balances recoverable of $1.22 billion and $1.33 billion, respectively. The decrease of $108.2 million in reinsurance balances recoverable was primarily a result of commutations and cash collections made, partially offset by balances acquired during the period ended March 31, 2014.
At March 31, 2014 and December 31, 2013, the provision for uncollectible reinsurance recoverable relating to reinsurance balances recoverable was $339.8 million and $338.6 million, respectively. To estimate the provision for uncollectible reinsurance recoverable, the balances are first allocated to applicable reinsurers which involve management judgment. As part of this process, ceded incurred but not reported, or IBNR, reserves are allocated by reinsurer. The ratio of the provision for uncollectible reinsurance recoverable to total non-life run-off reinsurance balances recoverable (excluding provision for uncollectible reinsurance recoverable) as of March 31, 2014 increased to 21.3% as compared to 19.9% as of December 31, 2013, primarily as a result of commutations and cash collections from reinsurers with minimal bad debt provisions in the three months ended March 31, 2014, which was slightly offset by reinsurance balances recoverable of new business acquired requiring minimal provisions for uncollectible reinsurance recoverable.
 
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Cash Flows
The following table summarizes our consolidated cash flows from operating, investing and financing activities for the three months ended March 31, 2014 and 2013:

 	  	Three Months Ended March 31,	 	
Total cash (used in) provided by:	  	    2014    	 	 	    2013    	 	
 	  	(in thousands of U.S.
dollars)	 	
Operating activities	  	$	(31,072	) 	 	$	10,592	  	
Investing activities	  	 	(263,779	) 	 	 	(270,675	) 	
Financing activities	  	 	295,800	  	 	 	225,260	  	
Effect of exchange rate changes on cash	  	 	1,033	  	 	 	20,289	  	
 	  	 	 	 	 	 	 	 	
Net increase (decrease) in cash and cash equivalents	  	 	1,982	  	 	 	(14,534	) 	
Cash and cash equivalents, beginning of period	  	 	643,841	  	 	 	654,890	  	
 	  	 	 	 	 	 	 	 	
Cash and cash equivalents, end of period	  	$	645,823	  	 	$	640,356	  	
 	  	 	 	 	 	 	 	 	
See “Item 1. Financial Statements — Unaudited Condensed Consolidated Statements of Cash Flows for the Three Month Periods Ended March 31, 2014 and 2013” for further information.
Operating
Net cash used in our operating activities for the three months ended March 31, 2014 was $31.1 million compared to net cash provided of $10.6 million for the three months ended March 31, 2013. This $41.7 million increase in net cash used in operating activities was due primarily to the following:
 
 	(i)	a decrease of $157.5 million in sales and maturities of trading securities between 2014 and 2013; and	
 
 	(ii)	a decrease of $132.1 million in the net changes in assets and liabilities between 2014 and 2013; partially offset by	
 
 	(iii)	a decrease of $232.6 million in purchases of trading securities between 2014 and 2013.	
Investing
Investing cash flows consist primarily of net cash acquired on acquisitions along with net proceeds on the sale and purchase of available-for-sale and other investments. Net cash used in investing activities was $263.8 million during the three months ended March 31, 2014, compared to $270.7 million during the three months ended March 31, 2013. The decrease of $6.9 million in cash used in investing activities between 2014 and 2013 was due primarily to the following:
 
 	(i)	a decrease of $284.0 million in net cash used for acquisitions between 2014 and 2013, due primarily to the acquisitions of SeaBright and Pavonia during 2013; partially offset by	
 
 	(ii)	an increase of $209.5 million in restricted cash and cash equivalents during 2014, compared to an increase of $46.8 million in 2013 (this increase in 2014 was related primarily to our payment into an escrow account of $300.0 million, which was the cash portion of the purchase price for our interest in Torus, that we and Trident funded in advance of closing pursuant to the terms of the amended and restated amalgamation agreement);	
 
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 	(iii)	an increase of $63.5 million in the funding of other investments between 2014 and 2013 due to the increased allocation to other investments during 2014; and	
 
 	(iv)	an increase of $53.3 million in the purchase of available-for-sale securities between 2014 and 2013.	
Financing
Net cash provided by financing activities was $295.8 million during the three months ended March 31, 2014 compared to $225.3 million during the three months ended March 31, 2013. The increase of $70.5 million in cash provided by financing activities was primarily attributable to the following:
 
 	(i)	an increase in contribution to surplus of subsidiary by redeemable noncontrolling interest of $260.8 million in 2014 compared to $nil in 2013, which was with respect to Trident’s contribution to Bayshore and was funded in advance of closing the Torus acquisition; partially offset by	
 
 	(ii)	a decrease of $157.0 million in cash received attributable to bank loans between 2014 and 2013, and an increase of $35.0 million in the repayment of bank loans between 2014 and 2013.	
Investments
Aggregate invested assets, comprising cash and cash equivalents, restricted cash and cash equivalents, fixed maturity investments, equities and other investments, were $6.78 billion as of March 31, 2014 compared to $6.56 billion as of December 31, 2013, an increase of approximately $213.8 million. This increase was primarily attributable to Trident’s contribution to Bayshore of $260.8 million partly offset by a decrease of $47.0 million associated with net cash outflows incurred by us in the period.
We hold: (i) trading portfolios of fixed maturity investments, short-term investments and equities; (ii) available-for-sale portfolios of fixed maturity and short-term investments; and (iii) a held-to-maturity portfolio of fixed maturity investments. Our available-for-sale and trading portfolios are recorded at fair value.
Our held-to-maturity portfolio relates to our PPA business within our life and annuities segment. In an effort to match the expected cash flow requirements of the long-term liabilities associated with the business, we invest a portion of our fixed maturity investments in longer duration securities that we intend to hold to maturity. We classify these securities as held-to-maturity in our unaudited condensed consolidated balance sheet. This held-to-maturity portfolio is recorded at amortized cost. As a result, we do not record changes in the fair value of this portfolio, which should reduce the impact on shareholders’ equity of fluctuations in fair value of those investments.
 
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The table below shows the aggregate amounts of our investments carried at fair value as of March 31, 2014 and December 31, 2013:

 	  	March 31, 2014	 	 	December 31, 2013	 	
 	  	Fair Value	 	  	% of Total Fair
Value	 	 	Fair Value	 	  	% of Total Fair
Value	 	
 	  	(in thousands of U.S. dollars)	 	
U.S. government and agency	  	$	415,811	  	  	 	8.9	% 	 	$	468,289	  	  	 	10.0	% 	
Non-U.S. government	  	 	527,177	  	  	 	11.3	% 	 	 	562,516	  	  	 	12.1	% 	
Corporate	  	 	2,197,086	  	  	 	47.1	% 	 	 	2,201,579	  	  	 	47.2	% 	
Municipal	  	 	34,545	  	  	 	0.7	% 	 	 	41,034	  	  	 	0.9	% 	
Residential mortgaged-backed	  	 	237,896	  	  	 	5.1	% 	 	 	235,964	  	  	 	5.1	% 	
Commercial mortgage-backed	  	 	127,664	  	  	 	2.7	% 	 	 	114,637	  	  	 	2.5	% 	
Asset-backed	  	 	320,304	  	  	 	6.9	% 	 	 	285,066	  	  	 	6.1	% 	
 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
Fixed maturity investments	  	 	3,860,483	  	  	 	82.7	% 	 	 	3,909,085	  	  	 	83.9	% 	
Other investments	  	 	646,765	  	  	 	13.9	% 	 	 	569,293	  	  	 	12.2	% 	
Equities—U.S.	  	 	107,341	  	  	 	2.3	% 	 	 	115,285	  	  	 	2.5	% 	
Equities—International	  	 	51,333	  	  	 	1.1	% 	 	 	66,748	  	  	 	1.4	% 	
 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
Total investments	  	$	4,665,922	  	  	 	100.0	% 	 	$	4,660,411	  	  	 	100.0	% 	
 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
The table below shows the aggregate fair values of our investments classified as held-to-maturity as of March 31, 2014 and December 31, 2013:

 	  	March 31, 2014	 	 	December 31, 2013	 	
 	  	 Fair Value 	 	  	 % of Total Fair 
Value	 	 	  Fair Value  	 	  	  % of Total Fair  
Value	 	
 	  	(in thousands of U.S. dollars)	 	
U.S. government and agency	  	$	18,622	  	  	 	2.2	% 	 	$	18,132	  	  	 	2.3	% 	
Non-U.S. government	  	 	31,219	  	  	 	3.8	% 	 	 	22,327	  	  	 	2.8	% 	
Corporate	  	 	777,550	  	  	 	94.0	% 	 	 	759,100	  	  	 	94.9	% 	
 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
Total investments	  	$	827,391	  	  	 	100.0	% 	 	 	799,559	  	  	 	100.0	% 	
 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
As at both March 31, 2014 and December 31, 2013, we held investments on our balance sheet totaling $5.52 billion, with net unrealized appreciation included in accumulated comprehensive income of $2.7 million at March 31, 2014 compared to $3.1 million at December 31, 2013. As at March 31, 2014, we had approximately $3.1 billion of restricted assets compared to approximately $2.9 billion at December 31, 2013.
Across all our segments, we strive to structure our investments in a manner that recognizes our liquidity needs for future liabilities. In that regard, we attempt to correlate the maturity and duration of our investment portfolio to our general liability profile. If our liquidity needs or general liability profile unexpectedly change, we may adjust the structure of our investment portfolio to meet new business needs.
For our non-life run-off segment, our strategy of commuting our liabilities has the potential to accelerate the natural payout of losses. Therefore, we maintain a relatively short-duration investment portfolio in order to provide liquidity for commutation opportunities and avoid having to liquidate longer dated investments. Accordingly, the majority of our investment portfolio consists of highly rated fixed maturity investments, including U.S. government and agency investments, highly rated sovereign and supranational investments, high-grade corporate investments, and mortgage-backed and asset-backed
 
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investments. We allocate a portion of our investment portfolio to other investments, including private equity funds, fixed income funds, fixed income hedge funds, equity funds and a real estate debt fund. At March 31, 2014, these other investments totaled $646.8 million, or 11.7%, of our total balance sheet investments (December 31, 2013: $569.3 million or 10.3%).
For our life and annuities segment, we do not commute our policy benefits for life and annuity contracts liabilities and, as a result, we maintain a longer duration investment portfolio that attempts to match the cash flows and duration of our liability profile. Accordingly, the majority of this portfolio consists of highly rated fixed maturity investments, primarily corporate bonds.
Our fixed maturity investments associated with our PPA business are primarily highly rated corporate bonds with which we attempt to match duration and cash flows to the liability profile for this business. As these fixed maturity investments are classified as held-to-maturity, we invest surplus cash flows from maturities into longer dated fixed maturity investments. As at March 31, 2014, the duration of our fixed maturity investment portfolio associated with our PPA business was shorter than the liabilities, as a significant amount of the liabilities extend beyond 30 years and it is difficult, due to limited investment options, to match duration and cash flows beyond that period.
Our fixed maturity investments associated with our non-PPA life business are primarily highly rated corporate bonds with which we attempt to match duration and cash flows to the liability profile for this business (the non-PPA life business has a short-duration liability profile). These fixed maturity investments are classified as trading, and therefore we may sell existing securities to buy higher yielding securities and funds in the future. As at March 31, 2014, the duration of our fixed maturity investment portfolio associated with our non-PPA life business was shorter than the liabilities, however, we have the discretion to change this in the future.
Fixed Maturity and Short-term Investments
The maturity distribution for our fixed maturity and short-term investments held as of March 31, 2014 and December 31, 2013 was as follows:

 	  	March 31, 2014	 	 	December 31, 2013	 	
 	  	Fair Value	 	  	% of
Total	 	 	Fair Value	 	  	% of
Total	 	
 	  	(in thousands of U.S. dollars)	 	
Due in one year or less	  	$	901,462	  	  	 	19.2	% 	 	$	871,881	  	  	 	18.5	% 	
Due after one year through five years	  	 	2,000,009	  	  	 	42.7	% 	 	 	2,114,772	  	  	 	44.9	% 	
Due after five years through ten years	  	 	467,170	  	  	 	10.0	% 	 	 	478,033	  	  	 	10.2	% 	
Due after ten years	  	 	633,369	  	  	 	13.5	% 	 	 	608,291	  	  	 	12.9	% 	
 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
 	  	 	4,002,010	  	  	 	85.4	% 	 	 	4,072,977	  	  	 	86.5	% 	
Residential mortgage-backed	  	 	237,896	  	  	 	5.1	% 	 	 	235,964	  	  	 	5.0	% 	
Commercial mortgage-backed	  	 	127,664	  	  	 	2.7	% 	 	 	114,637	  	  	 	2.4	% 	
Asset-backed	  	 	320,304	  	  	 	6.8	% 	 	 	285,066	  	  	 	6.1	% 	
 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
Total	  	$	4,687,874	  	  	 	100.0	% 	 	$	4,708,644	  	  	 	100.0	% 	
 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
As at March 31, 2014 and December 31, 2013, our fixed maturity and short-term investment portfolios had an average credit quality rating of A+ and A+, respectively. At March 31, 2014 and December 31, 2013, our fixed maturity investments rated BBB or lower comprised 11.03% and 9.5% of our total investment portfolio, respectively.
At March 31, 2014, we had $199.1 million of short-term investments (December 31, 2013: $313.5 million). Short-term investments are managed as part of our investment portfolio and have a maturity of one year or less when purchased. Short-term investments are carried at fair value.
 
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The following tables summarize the composition of the amortized cost and fair value of our fixed maturity investments, short-term investments, equities and other investments carried at fair value at the date indicated by ratings as assigned by major rating agencies.

At March 31, 2014	 	Amortized
Cost	 	 	Fair
Value	 	 	% of Total
Investments	 	 	AAA
Rated	 	 	AA Rated	 	 	A Rated	 	 	BBB Rated	 	 	Non-
Investment
Grade	 	 	Not Rated	 	
 	 	(in thousands of U.S. dollars)	 	
Fixed maturity and short-term investments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. government & agency	 	$	414,459	  	 	$	415,811	  	 	 	8.9	% 	 	$	5,920	  	 	$	391,692	  	 	$	18,199	  	 	$	—  	  	 	$	—  	  	 	$	—  	  	
Non-U.S. government	 	 	512,093	  	 	 	527,177	  	 	 	11.3	% 	 	 	186,068	  	 	 	204,750	  	 	 	93,403	  	 	 	30,460	  	 	 	12,496	  	 	 	—  	  	
Corporate	 	 	2,105,605	  	 	 	2,197,086	  	 	 	47.1	% 	 	 	146,929	  	 	 	566,576	  	 	 	1,033,146	  	 	 	377,929	  	 	 	51,186	  	 	 	21,320	  	
Municipal	 	 	34,286	  	 	 	34,545	  	 	 	0.7	% 	 	 	5,879	  	 	 	25,488	  	 	 	3,178	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	
Residential mortgage-backed	 	 	226,300	  	 	 	237,896	  	 	 	5.1	% 	 	 	26,041	  	 	 	199,907	  	 	 	4,754	  	 	 	5,889	  	 	 	1,290	  	 	 	15	  	
Commercial mortgage-backed	 	 	127,936	  	 	 	127,664	  	 	 	2.7	% 	 	 	48,898	  	 	 	21,579	  	 	 	29,673	  	 	 	20,125	  	 	 	7,389	  	 	 	—  	  	
Asset-backed	 	 	309,223	  	 	 	320,304	  	 	 	6.9	% 	 	 	237,299	  	 	 	61,646	  	 	 	12,182	  	 	 	2,286	  	 	 	6,891	  	 	 	—  	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total fixed maturity and short-term investments	 	$	3,729,902	  	 	 	3,860,483	  	 	 	82.7	% 	 	 	657,034	  	 	 	1,471,638	  	 	 	1,194,535	  	 	 	436,689	  	 	 	79,252	  	 	 	21,335	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	17.0	% 	 	 	38.1	% 	 	 	30.9	% 	 	 	11.3	% 	 	 	2.1	% 	 	 	0.6	% 	
Equities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S.	 	 	 	 	 	 	107,341	  	 	 	2.3	% 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	107,341	  	
International	 	 	 	 	 	 	51,333	  	 	 	1.1	% 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	51,333	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total equities	 	 	 	 	 	 	158,674	  	 	 	3.4	% 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	158,674	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	0.0	% 	 	 	0.0	% 	 	 	0.0	% 	 	 	0.0	% 	 	 	0.0	% 	 	 	100.0	% 	
Other investments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Private equity funds	 	 	 	 	 	 	191,452	  	 	 	4.1	% 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	191,452	  	
Fixed income funds	 	 	 	 	 	 	222,004	  	 	 	4.8	% 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	222,004	  	
Fixed income hedge funds	 	 	 	 	 	 	69,547	  	 	 	1.5	% 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	69,547	  	
Equity funds	 	 	 	 	 	 	128,110	  	 	 	2.7	% 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	128,110	  	
Real estate debt fund	 	 	 	 	 	 	32,469	  	 	 	0.7	% 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	32,469	  	
Other	 	 	 	 	 	 	3,183	  	 	 	0.1	% 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	3,183	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other investments	 	 	 	 	 	 	646,765	  	 	 	13.9	% 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	646,765	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	0.0	% 	 	 	0.0	% 	 	 	0.0	% 	 	 	0.0	% 	 	 	0.0	% 	 	 	100.0	% 	
Total investments	 	 	 	 	 	$	4,665,922	  	 	 	100.0	% 	 	$	657,034	  	 	$	1,471,638	  	 	$	1,194,535	  	 	$	436,689	  	 	$	79,252	  	 	$	826,774	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	14.1	% 	 	 	31.5	% 	 	 	25.6	% 	 	 	9.4	% 	 	 	1.7	% 	 	 	17.7	% 	
 
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At December 31, 2013	 	Amortized
Cost	 	 	Fair
Value	 	 	% of Total
Investments	 	 	AAA
Rated	 	 	AA Rated	 	 	A Rated	 	 	BBB Rated	 	 	Non-
Investment
Grade	 	 	Not Rated	 	
 	 	(in thousands of U.S. dollars)	 	
Fixed maturity and short-term investments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. government & agency	 	$	468,198	  	 	$	468,289	  	 	 	10.0	% 	 	$	4,391	  	 	$	458,477	  	 	$	434	  	 	$	—  	  	 	$	—  	  	 	$	4,987	  	
Non-U.S. government	 	 	553,724	  	 	 	562,516	  	 	 	12.1	% 	 	 	215,224	  	 	 	208,322	  	 	 	115,423	  	 	 	11,095	  	 	 	12,452	  	 	 	—  	  	
Corporate	 	 	2,197,955	  	 	 	2,201,579	  	 	 	47.2	% 	 	 	143,552	  	 	 	542,216	  	 	 	1,052,315	  	 	 	388,815	  	 	 	26,507	  	 	 	48,174	  	
Municipal	 	 	40,889	  	 	 	41,034	  	 	 	0.9	% 	 	 	8,500	  	 	 	25,355	  	 	 	7,179	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	
Residential mortgage-backed	 	 	236,984	  	 	 	235,964	  	 	 	5.1	% 	 	 	12,596	  	 	 	204,217	  	 	 	7,507	  	 	 	3,960	  	 	 	809	  	 	 	6,875	  	
Commercial mortgage-backed	 	 	115,351	  	 	 	114,637	  	 	 	2.5	% 	 	 	38,081	  	 	 	31,893	  	 	 	29,631	  	 	 	8,826	  	 	 	6,206	  	 	 	—  	  	
Asset-backed	 	 	283,940	  	 	 	285,066	  	 	 	6.1	% 	 	 	207,146	  	 	 	34,808	  	 	 	13,260	  	 	 	4,733	  	 	 	7,174	  	 	 	17,945	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total fixed maturity and short-term investments	 	$	3,897,041	  	 	 	3,909,085	  	 	 	83.9	% 	 	 	629,490	  	 	 	1,505,288	  	 	 	1,225,749	  	 	 	417,429	  	 	 	53,148	  	 	 	77,981	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	16.1	% 	 	 	38.5	% 	 	 	31.3	% 	 	 	10.7	% 	 	 	1.4	% 	 	 	2.0	% 	
Equities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S.	 	 	 	 	 	 	115,285	  	 	 	2.5	% 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	115,285	  	
International	 	 	 	 	 	 	66,748	  	 	 	1.4	% 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	66,748	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total equities	 	 	 	 	 	 	182,033	  	 	 	3.9	% 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	182,033	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	0.0	% 	 	 	0.0	% 	 	 	0.0	% 	 	 	0.0	% 	 	 	0.0	% 	 	 	100.0	% 	
Other investments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Private equity funds	 	 	 	 	 	 	161,229	  	 	 	3.5	% 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	161,229	  	
Fixed income funds	 	 	 	 	 	 	194,375	  	 	 	4.2	% 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	194,375	  	
Fixed income hedge funds	 	 	 	 	 	 	68,157	  	 	 	1.4	% 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	68,157	  	
Equity funds	 	 	 	 	 	 	109,355	  	 	 	2.3	% 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	109,355	  	
Real estate debt fund	 	 	 	 	 	 	32,113	  	 	 	0.7	% 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	32,113	  	
Other	 	 	 	 	 	 	4,064	  	 	 	0.1	% 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	4,064	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total other investments	 	 	 	 	 	 	569,293	  	 	 	12.2	% 	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	569,293	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	0.0	% 	 	 	0.0	% 	 	 	0.0	% 	 	 	0.0	% 	 	 	0.0	% 	 	 	100.0	% 	
Total investments	 	 	 	 	 	$	4,660,411	  	 	 	100.0	% 	 	$	629,490	  	 	$	1,505,288	  	 	$	1,225,749	  	 	$	417,429	  	 	$	53,148	  	 	$	829,307	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	13.5	% 	 	 	32.3	% 	 	 	26.3	% 	 	 	9.0	% 	 	 	1.1	% 	 	 	17.8	% 	
 
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The following tables summarize the composition of the amortized cost and fair value of our held-to-maturity fixed maturity investments as at March 31, 2014 and December 31, 2013 by ratings as assigned by major rating agencies.

At March 31, 2014	 	Amortized
Cost	 	 	Fair
Value	 	 	% of Total
Investments	 	 	AAA
Rated	 	 	AA
Rated	 	 	A
Rated	 	 	BBB
Rated	 	 	Non-
Investment
Grade	 	 	Not Rated	 	
 	 	(in thousands of U.S. dollars)	 	
Fixed maturity investments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. government & agency	 	$	19,841	  	 	$	18,622	  	 	 	2.2	% 	 	$	17,076	  	 	$	1,546	  	 	$	—  	  	 	$	—  	  	 	$	—  	  	 	$	 —  	  	
Non-U.S. government	 	 	32,253	  	 	 	31,219	  	 	 	3.8	% 	 	 	—  	  	 	$	23,718	  	 	$	7,501	  	 	$	—  	  	 	$	—  	  	 	$	 —  	  	
Corporate	 	 	804,124	  	 	 	777,550	  	 	 	94.0	% 	 	 	45,962	  	 	$	158,371	  	 	$	479,434	  	 	$	82,931	  	 	$	10,424	  	 	$	428	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total fixed maturity investments	 	$	856,218	  	 	$	827,391	  	 	 	100.0	% 	 	$	63,038	  	 	$	183,635	  	 	$	486,935	  	 	$	82,931	  	 	$	10,424	  	 	$	428	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	7.6	% 	 	 	22.2	% 	 	 	58.8	% 	 	 	10.0	% 	 	 	1.3	% 	 	 	0.1	% 	
 	 	 	 	 	 	 	 	 	 	
At December 31, 2013	 	Amortized
Cost	 	 	Fair
Value	 	 	% of Total
Investments	 	 	AAA
Rated	 	 	AA
Rated	 	 	A
Rated	 	 	BBB
Rated	 	 	Non-
Investment
Grade	 	 	Not Rated	 	
 	 	(in thousands of U.S. dollars)	 	
Fixed maturity investments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. government & agency	 	$	19,992	  	 	$	18,132	  	 	 	2.2	% 	 	$	—  	  	 	$	18,058	  	 	$	—  	  	 	$	—  	  	 	$	—  	  	 	$	74	  	
Non-U.S. government	 	 	23,592	  	 	 	22,327	  	 	 	2.8	% 	 	 	—  	  	 	 	22,327	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	—  	  	
Corporate	 	 	815,803	  	 	 	759,100	  	 	 	95.0	% 	 	 	44,552	  	 	 	198,803	  	 	 	463,000	  	 	 	47,157	  	 	 	5,125	  	 	 	462	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total fixed maturity investments	 	$	859,387	  	 	$	799,559	  	 	 	100.0	% 	 	$	44,552	  	 	$	239,188	  	 	$	463,000	  	 	$	47,157	  	 	$	5,125	  	 	$	536	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	5.6	% 	 	 	29.9	% 	 	 	57.9	% 	 	 	5.9	% 	 	 	0.6	% 	 	 	0.1	% 	
 
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Eurozone Exposure
At March 31, 2014, we did not own any investments in fixed maturity investments (which includes bonds that are classified as cash and cash equivalents) or fixed income funds issued by the sovereign governments of Portugal, Italy, Ireland, Greece or Spain. Our fixed maturity investments and fixed income funds exposures to Eurozone Governments (which includes regional and municipal governments including guaranteed agencies) by rating are highlighted in the following table:

 	  	Ratings	 	  	 	 	
 	  	AAA	 	  	AA	 	  	A	 	  	Not Rated	 	  	Total	 	
 	  	(in thousands of U.S. dollars)	 	
Germany	  	$	36,720	  	  	$	23,256	  	  	$	—  	  	  	$	—  	  	  	$	59,976	  	
Supranational	  	 	6,465	  	  	 	2,472	  	  	 	—  	  	  	 	—  	  	  	 	8,937	  	
Netherlands	  	 	9,003	  	  	 	12,255	  	  	 	—  	  	  	 	—  	  	  	 	21,258	  	
France	  	 	—  	  	  	 	50,513	  	  	 	1,992	  	  	 	—  	  	  	 	52,505	  	
Finland	  	 	2,521	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	2,521	  	
Belgium	  	 	—  	  	  	 	2,955	  	  	 	—  	  	  	 	—  	  	  	 	2,955	  	
Austria	  	 	953	  	  	 	850	  	  	 	—  	  	  	 	—  	  	  	 	1,803	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	 	55,662	  	  	 	92,301	  	  	 	1,992	  	  	 	—  	  	  	 	149,955	  	
Euro Region Government Funds	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	13,233	  	  	 	13,233	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	55,662	  	  	$	92,301	  	  	$	1,992	  	  	$	13,233	  	  	$	163,188	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Our fixed maturity investments exposure to Eurozone Governments (which include regional and municipal governments including guaranteed agencies) by maturity date are highlighted in the following table. Our fixed income fund holdings have daily liquidity and are not included in the maturity table below.

 	  	By Maturity Date	 	  	 	 	
 	  	3 months
or less	 	  	3 to 6
months	 	  	6 months to 1
year	 	  	1 to 2
years	 	  	more than
2 years	 	  	Total	 	
 	  	(in thousands of U.S. dollars)	 	
Germany	  	$	837	  	  	$	1,386	  	  	$	3,569	  	  	$	18,707	  	  	$	35,477	  	  	$	59,976	  	
Supranational	  	 	—  	  	  	 	—  	  	  	 	2,498	  	  	 	1,147	  	  	 	5,292	  	  	 	8,937	  	
Netherlands	  	 	—  	  	  	 	1,531	  	  	 	2,744	  	  	 	2,830	  	  	 	14,153	  	  	 	21,258	  	
France	  	 	7,023	  	  	 	2,703	  	  	 	—  	  	  	 	8,193	  	  	 	34,586	  	  	 	52,505	  	
Finland	  	 	—  	  	  	 	—  	  	  	 	503	  	  	 	—  	  	  	 	2,018	  	  	 	2,521	  	
Belgium	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	2,955	  	  	 	2,955	  	
Austria	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	659	  	  	 	1,144	  	  	 	1,803	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	7,860	  	  	$	5,620	  	  	$	9,314	  	  	$	31,536	  	  	$	95,625	  	  	$	149,955	  	

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At March 31, 2014, we owned investments in corporate securities (which includes bonds that are classified as cash and cash equivalents) of issuers where the ultimate parent company was located within the Eurozone. This includes securities that were issued by subsidiaries whose location was outside of the Eurozone. Our exposures by country and listed by rating, sector and maturity date are highlighted in the following tables:

 	  	Ratings	 	  	 	 	
 	  	AAA	 	  	AA	 	  	A	 	  	BBB	 	  	BB and
below	 	  	Total	 	
 	  	(in thousands of U.S. dollars)	 	
Germany	  	$	9,333	  	  	$	1,414	  	  	$	54,040	  	  	$	3,378	  	  	$	—  	  	  	$	68,165	  	
Belgium	  	 	2,831	  	  	 	—  	  	  	 	35,875	  	  	 	—  	  	  	 	—  	  	  	 	38,706	  	
Netherlands	  	 	9,051	  	  	 	42,420	  	  	 	32,312	  	  	 	36,968	  	  	 	—  	  	  	 	120,751	  	
France	  	 	16,978	  	  	 	22,946	  	  	 	16,004	  	  	 	7,967	  	  	 	10,500	  	  	 	74,395	  	
Ireland	  	 	536	  	  	 	1,913	  	  	 	—  	  	  	 	1,990	  	  	 	—  	  	  	 	4,439	  	
Spain	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	14,011	  	  	 	—  	  	  	 	14,011	  	
Italy	  	 	—  	  	  	 	—  	  	  	 	8,329	  	  	 	10,838	  	  	 	12,120	  	  	 	31,287	  	
Austria	  	 	415	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	415	  	
Finland	  	 	458	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	458	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	39,602	  	  	$	68,693	  	  	$	146,560	  	  	$	75,152	  	  	$	22,620	  	  	$	352,627	  	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	Sector	 	  	 	 	
 	  	Financial	 	  	Energy	 	  	Industrial	 	  	Telecom	 	  	Utility	 	  	Other	 	  	Total	 	
 	  	(in thousands of U.S. dollars)	 	
Germany	  	$	12,962	  	  	$	1,420	  	  	$	44,057	  	  	$	3,378	  	  	$	—  	  	  	$	6,348	  	  	$	68,165	  	
Belgium	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	38,706	  	  	 	38,706	  	
Netherlands	  	 	75,753	  	  	 	11,666	  	  	 	20,461	  	  	 	—  	  	  	 	4,619	  	  	 	8,252	  	  	 	120,751	  	
France	  	 	36,213	  	  	 	—  	  	  	 	28,845	  	  	 	422	  	  	 	4,976	  	  	 	3,939	  	  	 	74,395	  	
Ireland	  	 	1,990	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	2,449	  	  	 	4,439	  	
Spain	  	 	2,116	  	  	 	—  	  	  	 	—  	  	  	 	8,778	  	  	 	3,117	  	  	 	—  	  	  	 	14,011	  	
Italy	  	 	546	  	  	 	8,329	  	  	 	10,292	  	  	 	12,120	  	  	 	—  	  	  	 	—  	  	  	 	31,287	  	
Austria	  	 	415	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	415	  	
Finland	  	 	458	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	458	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	130,453	  	  	$	21,415	  	  	$	103,655	  	  	$	24,698	  	  	$	12,712	  	  	$	59,694	  	  	$	352,627	  	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	By Maturity Date	 	  	 	 	
 	  	3 months or
less	 	  	3 to 6 months	 	  	6 months to 1
year	 	  	1 to 2 years	 	  	more than 2
years	 	  	Total	 	
 	  	(in thousands of U.S. dollars)	 	
Germany	  	$	4,608	  	  	$	7,118	  	  	$	4,597	  	  	$	24,172	  	  	$	27,670	  	  	$	68,165	  	
Belgium	  	 	—  	  	  	 	—  	  	  	 	1,554	  	  	 	519	  	  	 	36,633	  	  	 	38,706	  	
Netherlands	  	 	—  	  	  	 	2,296	  	  	 	28,173	  	  	 	11,242	  	  	 	79,040	  	  	 	120,751	  	
France	  	 	11,000	  	  	 	7,110	  	  	 	863	  	  	 	24,087	  	  	 	31,335	  	  	 	74,395	  	
Ireland	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	4,439	  	  	 	4,439	  	
Spain	  	 	—  	  	  	 	4,509	  	  	 	3,330	  	  	 	5,967	  	  	 	205	  	  	 	14,011	  	
Italy	  	 	12,120	  	  	 	—  	  	  	 	—  	  	  	 	546	  	  	 	18,621	  	  	 	31,287	  	
Austria	  	 	415	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	415	  	
Finland	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	458	  	  	 	458	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	28,143	  	  	$	21,033	  	  	$	38,517	  	  	$	66,533	  	  	$	198,401	  	  	$	352,627	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Fixed maturity investments issued by companies located in the United Kingdom and Switzerland are not included in the tables.
 
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None of the fixed maturity investments we owned at March 31, 2014 were considered impaired and we do not expect to incur any significant losses on these investments.
Loans Payable
Our long-term debt consists of loan facilities used to partially finance certain of our acquisitions and significant new business transactions and our revolving credit facility, or the EGL Revolving Credit Facility, which can be used for permitted acquisitions and for general corporate purposes. We draw down on the loan facilities at the time of an acquisition or significant new business transactions although in some circumstances we have made additional draw-downs to refinance existing debt of the acquired company.
We made the following repayments and borrowings under our loan facilities during the three months ended March 31, 2014:
 
 	(i)	we repaid $13.0 million of the outstanding principal on the term facility related to our 2011 acquisition of Clarendon National Insurance Company, or the Clarendon Facility, on March 17, 2014, reducing the outstanding principal as of March 31, 2014 to $66.0 million;	
 
 	(ii)	we borrowed $70.0 million under the EGL Revolving Credit Facility on March 26, 2014 (the unused portion of this facility was $46.2 million as of March 31, 2013); and	
 
 	(iii)	we repaid $22.0 million of the outstanding principal on the term facility related to our 2013 acquisition of SeaBright, or the SeaBright Facility, reducing the outstanding principal as of March 31, 2014 to $89.0 million.	
Total amounts of loans payable outstanding, including accrued interest, as of March 31, 2014 and December 31, 2013, totaled $485.2 million and $452.4 million, respectively.
As of March 31, 2014, all of the covenants relating to our three outstanding credit facilities (the SeaBright Facility, the Clarendon Facility, and the EGL Revolving Credit Facility) were met.
Refer to Item 7 included in our Annual Report on Form 10-K for the year ended December 31, 2013 for a description of these credit facilities.
 
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Aggregate Contractual Obligations
The following table shows our aggregate contractual obligations and commitments by time period remaining to due date as at March 31, 2014 and updates the table on page 114 of our Annual Report on Form 10-K for the year ended December 31, 2013:

 	  	Payments Due by Period	 	
 	  	Total	 	  	Less than
1 year	 	  	1 - 3
years	 	  	3 -5 years	 	  	More than
5 years	 	
 	  	(in thousands of U.S. dollars)	 	
Operating Activities	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Estimated gross reserves for losses and loss adjustment expenses  (1)	  	$	4,254.1	  	  	$	867.6	  	  	$	1,462.7	  	  	$	693.1	  	  	$	1,230.7	  	
Policy benefits for life and annuity
contracts (2)	  	 	2,549.3	  	  	 	82.3	  	  	 	143.3	  	  	 	136.3	  	  	 	2,187.4	  	
Operating lease obligations	  	 	12.6	  	  	 	5.4	  	  	 	6.6	  	  	 	0.6	  	  	 	—  	  	
Investing Activities	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Investment commitments	  	 	131.9	  	  	 	55.1	  	  	 	69.3	  	  	 	7.5	  	  	 	—  	  	
Financing Activities	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Acquisition funding (3)	  	 	300.0	  	  	 	300.0	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	
Loan repayments (including estimated interest payments)	  	 	491.7	  	  	 	420.6	  	  	 	71.1	  	  	 	—  	  	  	 	—  	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total	  	$	7,739.6	  	  	$	1,731.0	  	  	$	1,753.0	  	  	$	837.5	  	  	$	3,418.1	  	

 
(1)	The reserves for losses and loss adjustment expenses 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 March 31, 2014 and do not take into account corresponding reinsurance recoverable amounts that would be due to us. Furthermore, reserves for losses and loss adjustment expenses recorded in the unaudited condensed consolidated financial statements as of March 31, 2014 are computed on a fair value basis, 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)	Policy benefits for life and annuity contracts recorded in our unaudited condensed consolidated balance sheet as at March 31, 2014 of $1,255.3 million are computed on a discounted basis, whereas the expected payments by period in the table above are the estimated payments at a future time and do not reflect a discount of the amount payable.	
 
(3)	The acquisition funding does not include the amount associated with the issuance by us on April 1, 2014 of 1,898,326 voting ordinary shares and 714,015 Series B convertible participating non-voting perpetual preference shares in relation to the acquisition of Torus. The amount shown in the table as at March 31, 2014 represents the cash portion of the purchase price for Torus, which was paid from escrow to Torus’ shareholders on April 1, 2014.	
 
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Commitments and Contingencies
Investments
The following table provides a summary of the Company’s outstanding unfunded investment commitments as at March 31, 2014 and December 31, 2013:

March 31, 2014	  	December 31, 2013	
Original	 	Commitments	  	Original	 	Commitments	
Commitments	 	Funded	 	Unfunded	  	Commitments	 	Funded	 	Unfunded	
$            311,000	 	$            179,050	 	$            131,950	  	$            291,000	 	$            176,760	 	$            114,240	
Guarantees
As at March 31, 2014 and December 31, 2013, the Company had, in total, parental guarantees supporting the obligations of our subsidiary, Fitzwilliam Insurance Limited, in the amount of $235.8 million and $228.5 million, respectively.
Acquisitions and Significant New Business
We have entered into a definitive agreement with respect to the Reciprocal of America loss portfolio transfer, which is expected to close in the second quarter of 2014 and which is described above in “—Significant New Business.”
Legal Proceedings
Refer to “Item 1. Legal Proceedings” of Part II of this Quarterly Report on Form 10-Q for a description of litigation matters.
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, 2013.
Off-Balance Sheet and Special Purpose Entity Arrangements
At March 31, 2014, we did not have any off-balance sheet arrangements, as defined by Item 303(a)(4) of Regulation S-K.
Non-GAAP Financial Measures
In “Segment Reporting—Active Underwriting” above, we provide loss ratio, acquisition cost ratio, other operating expense ratio, and the combined ratio in our discussions of the results for the active underwriting segment in order to provide more complete information regarding our active underwriting results. The ratios are calculated by dividing the related expense by net earned premiums, and the combined ratio is the sum of these ratios. Our other operating expense ratio is considered to be a “non-GAAP” financial measure, which may be defined or calculated differently by other companies. We calculate this ratio by dividing the sum of general and administrative expenses and salaries and benefits attributable to Atrium and Arden by net premiums earned. Other operating expense ratio excludes expenses not attributable to Atrium and Arden, which we believe is the most useful presentation because the excluded expenses are not incremental and/or directly attributable to our individual underwriting operations. The most directly comparable GAAP financial measure would be calculated by dividing the sum of all general and administrative expenses and salaries and benefits in the active underwriting segment by net premiums earned.
 
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Cautionary Statement Regarding Forward-Looking Statements
This quarterly report contains 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 ordinary shares 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.
Factors that could cause actual results to differ materially from those suggested by the forward looking statements include:
 
 	•	 	risks associated with implementing our business strategies and initiatives;	
 
 	•	 	risks that we may require additional capital in the future, which may not be available or may be available only on unfavorable terms;	
 
 	•	 	the adequacy of our loss reserves and the need to adjust such reserves as claims develop over time;	
 
 	•	 	risks relating to the availability and collectability of our reinsurance;	
 
 	•	 	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;	
 
 	•	 	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 assessment of losses and/or coverage issues;	
 
 	•	 	continued availability of exit and finality opportunities provided by solvent schemes of arrangement;	
 
 	•	 	loss of key personnel;	
 
 	•	 	the ability of our subsidiaries to distribute funds to us and the resulting impact on our liquidity;	
 
 	•	 	changes in our plans, strategies, objectives, expectations or intentions, which may happen at any time at management’s discretion;	
 
 	•	 	operational risks, including system or human failures and external hazards;	
 
 	•	 	the risk that ongoing or future industry regulatory developments will disrupt our business, 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 our acquisitions, including our ability to successfully price acquisitions, evaluate opportunities, address operational challenges and support our planned growth;	
 
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 	•	 	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 life and annuities business, including mortality and morbidity rates, lapse rates, the performance of assets to support the insured liabilities, and the risk of catastrophic events;	
 
 	•	 	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, cyclicality of demand and pricing in the insurance and reinsurance markets;	
 
 	•	 	our ability to implement our strategies relating to the active underwriting market;	
 
 	•	 	risks relating to our ability to structure our investments in a manner that recognizes our liquidity needs;	
 
 	•	 	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 other cautionary statements and Risk Factors that are included in our Annual Report on Form 10-K for the year ended December 31, 2013, as well as in the other materials filed and to be filed with the U.S. Securities and Exchange Commission. 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.
 
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	
There have been no material changes in our market risk exposures since December 31, 2013. For more information refer to “Quantitative and Qualitative Disclosures about Market Risk” included in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2013.
 
Item 4.	CONTROLS AND PROCEDURES	
Evaluation of Disclosure Controls and Procedures
Our management has performed an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of 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 March 31, 2014. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission and is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
 
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Changes in Internal Controls
Our management has performed an evaluation, with the participation of our Chief Executive Officer and our Chief Financial Officer, of changes in our internal control over financial reporting that occurred during the three months ended March 31, 2014. Based upon that evaluation, there were no changes in our internal control over financial reporting that occurred during the three months ended March 31, 2014 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	
We are, from time to time, involved in various legal proceedings in the ordinary course of business, including litigation regarding claims. We do not believe that the resolution of any currently pending legal proceedings, either individually or taken as a whole, will have a material adverse effect on our business, results of operations or financial condition. Nevertheless, we cannot assure you that lawsuits, arbitrations or other litigation will not have a material adverse effect on our business, financial condition or results of operations. 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 claims. There can be no assurance that any such future litigation will not have a material adverse effect on our business, financial condition or results of operations.
 
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, 2013. The risk factors identified therein have not materially changed.
 
Item 6.	EXHIBITS	
The information required by this item is set forth on the exhibit index that follows the signature page of this report.
 
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SIGNATURE
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 May 9, 2014.

ENSTAR GROUP LIMITED	
 	 	
By:	 	/s/ Richard J. Harris	
 	 	Richard J. Harris	
 	 	Chief Financial Officer, Authorized Signatory and	
 	 	Principal Accounting and Financial Officer	
 
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Exhibit Index

Exhibit
No.	 	Description	
 	 	
 2.1¿	 	Amended and Restated Agreement and Plan of Amalgamation, dated March 11, 2014, by and among Enstar Group Limited, Veranda Holdings Ltd., Hudson Securityholders Representative LLC, and Torus Insurance Holdings Limited (incorporated by reference to Exhibit 2.1 to the Company’s Form S-3ASR filed on April 29, 2014).	
 	 	
 3.1  	 	Memorandum of Association of Enstar Group Limited (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-K/A filed on May 5, 2011).	
 	 	
 3.2  	 	Third Amended and Restated Bye-Laws of Enstar Group Limited (incorporated by reference to Exhibit 3.1(b) of the Company’s Form 10-Q filed on August 5, 2011).	
 	 	
 3.3  	 	Certificate of Designations for the Series A Convertible Participating Non-Voting Perpetual Preferred Stock (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on April 21, 2011).	
 	 	
 3.4  	 	Certificate of Designations for the Series B Convertible Participating Non-Voting Perpetual Preferred Stock (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on July 9, 2013).	
 	 	
10.1  	 	Registration Rights Agreement, dated April 1, 2014, among Enstar Group Limited, FR XI Offshore AIV, L.P., First Reserve Fund XII, L.P., FR XII A Parallel Vehicle L.P., FR Torus Co-Investment, L.P. and Corsair Specialty Investors, L.P. (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on April 4, 2014).	
 	 	
10.2  	 	Shareholder Rights Agreement, dated April 1, 2014, among Enstar Group Limited, FR XI Offshore AIV, L.P., First Reserve Fund XII, L.P., FR XII A Parallel Vehicle L.P., FR Torus Co-Investment, L.P. and Corsair Specialty Investors, L.P. (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on April 4, 2014).	
 	 	
10.3  	 	Bayshore Shareholders’ Agreement, dated April 1, 2014, among Bayshore Holdings Limited, Kenmare Holdings Ltd., Trident V, L.P., Trident V Parallel Fund, L.P. and Trident V Professionals Fund, L.P. (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed on April 4, 2014).	
 	 	
15.1* 	 	KPMG Audit Limited Letter Regarding Unaudited Interim Financial Information.	
 	 	
31.1* 	 	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.	
 	 	
31.2* 	 	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.	
 	 	
32.1**	 	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.	
 	 	
32.2**	 	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*	 	Interactive Data Files.	
 
*	filed herewith	
**	furnished herewith	
¿	certain of the schedules and similar attachments are not filed but Enstar Group Limited undertakes to furnish a copy of the schedules or similar attachments to the SEC upon request	
 
94

Exhibit 15.1
May 9, 2014
Enstar Group Limited
3rd Floor, Windsor Place
22 Queen Street
Hamilton HM 11
Bermuda
With respect to registration statements No. 333-149551, 333-148863, 333-148862 and 333-141793 on Form S-8 and registration statement No. 333-195562 on Form S-3, we acknowledge our awareness of the use therein of our report dated May 9, 2014 related to our review of interim financial information.
Pursuant to Rule 436 under the Securities Act of 1933 (the Act), such report is not considered part of a registration statement prepared or certified by an independent registered public accounting firm, or a report prepared or certified by an independent registered public accounting firm within the meaning of Sections 7 and 11 of the Act.
/s/ KPMG Audit Limited
Hamilton, Bermuda

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: May 9, 2014

/s/ DOMINIC F. SILVESTER	
Dominic F. Silvester	
Chief Executive Officer	

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, Richard J. Harris, 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: May 9, 2014

/s/ RICHARD J. HARRIS	 	 	
Richard J. Harris	 	 	
Chief Financial Officer	 	 	

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 March 31, 2014, 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: May 9, 2014

/s/ DOMINIC F. SILVESTER	
Dominic F. Silvester	
Chief Executive Officer	

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 March 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard J. Harris, 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: May 9, 2014

/s/ RICHARD J. HARRIS	
Richard J. Harris	
Chief Financial Officer