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

FORM 8-K/A

CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): November 25, 2013

Enstar Group Limited
(Exact name of registrant as specified in its charter)

 
 	 	 	 	 	
Bermuda	 	001-33289	 	N/A	
(State or other jurisdiction
of incorporation)	 	(Commission
File Number)	 	(IRS Employer
Identification No.)	

P.O. Box HM 2267, Windsor Place, 3rd Floor
22 Queen Street, Hamilton HM JX Bermuda	 	N/A	
(Address of principal executive offices)	 	(Zip Code)	
Registrant’s telephone number, including area code: (441) 292-3645

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)	
 
¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)	
 
¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))	
 
¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))	

 

We are amending the Current Report on Form 8-K that we filed on November 25, 2013 to include the Financial Statements of Business Acquired in connection with the acquisition of Atrium Underwriting Group Ltd. (“Atrium”) from Arden Holdings Ltd., and to include the Pro Forma Financial Information set forth below under Item 9.01 Financial Statements and Exhibits.
 
Item 9.01	Financial Statements and Exhibits.	
 
(a)	Financial Statements of Business Acquired.	
 
  	The required consolidated financial statements of Atrium are attached hereto as Exhibits 99.1 and 99.2 and are incorporated in their entirety herein by reference.	
 
(b)	Pro Forma Combined Financial Information.	
 
  	The required pro forma financial information is attached hereto as Exhibit 99.3 and is incorporated in its entirety herein by reference.	
 
(d)	Exhibits	

Exhibit
Number	  	Description	
 	 	
23.1	  	Consent of Ernst & Young LLP.	
 	 	
99.1	  	Audited financial statements of Atrium Underwriting Group Ltd. as of and for the year ended December 31, 2012.	
 	 	
99.2	  	Unaudited interim financial statements of Atrium Underwriting Group Ltd. as of September 30, 2013 and for the nine months ended September 30, 2013 and 2012.	
 	 	
99.3	  	Preliminary unaudited pro forma condensed combined financial information as of and for the nine months ended September 30, 2013 and for the year ended December 31, 2012.	

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 	 	 	 	ENSTAR GROUP LIMITED	
 	 	 	 	
Date: February 11, 2014	 	 	 	By:	 	/s/ Richard J. Harris	
 	 	 	 	Richard J. Harris	
 	 	 	 	Chief Financial Officer	

EXHIBIT INDEX

Exhibit
Number	  	Description	
 	 	
23.1	  	Consent of Ernst & Young LLP.	
 	 	
99.1	  	Audited financial statements of Atrium Underwriting Group Ltd. as of and for the year ended December 31, 2012.	
 	 	
99.2	  	Unaudited interim financial statements of Atrium Underwriting Group Ltd. as of September 30, 2013 and for the nine months ended September 30, 2013 and 2012.	
 	 	
99.3	  	Preliminary unaudited pro forma condensed combined financial information as of and for the nine months ended September 30, 2013 and for the year ended December 31, 2012.	
 
3

Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements (S-8 No. 333-149551, 333-148863, 333-148862, 333-141793) pertaining to the Employee Share Purchase Plan of Enstar Group Limited, the Enstar Group Limited Deferred Compensation and Ordinary Share Plan for Non-Employee Directors, The Enstar Group, Inc. 1997 Omnibus Incentive Plan and The Enstar Group, Inc. 2001 Outside Directors Stock Option Plan, and the Enstar Group Limited 2006 Equity Incentive Plan, of our report dated February 11, 2014 with respect to the consolidated financial statements of Atrium Underwriting Group Limited included in the Current Report on Form 8-K/A of Enstar Group Limited dated February 11, 2014 filed with the Securities and Exchange Commission.

/s/ Ernst & Young LLP	
London, England	
February 11, 2014	

Exhibit 99.1
ATRIUM UNDERWRITING GROUP LIMITED
31 DECEMBER 2012

ATRIUM UNDERWRITING GROUP LIMITED
 
INDEPENDENT AUDITOR’S REPORT
The Board of Directors and Shareholders
Atrium Underwriting Group Limited:
We have audited the accompanying consolidated balance sheet of Atrium Underwriting Group Limited and subsidiaries (“the Company”) as of December 31, 2012, and the related consolidated profit & loss account for the year then ended. These consolidated financial statements are the responsibility of the Company’s management and the Board of Directors. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
UK Generally Accepted Accounting Practice (‘UK GAAP’) requires that financial statements be presented with comparative financial information. These consolidated financial statements have been prepared solely for the purpose of meeting the requirements of Rule 3-05 of Regulation S-X. Accordingly no comparative financial information is presented.
In our opinion, except for the omission of comparative financial information as discussed in the preceding paragraph, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Atrium Underwriting Group Limited and subsidiaries as of December 31, 2012, and the consolidated results of their operations for the year then ended in conformity with UK GAAP.
Accounting policies generally accepted in the UK vary in certain significant respects from U.S. generally accepted accounting principles. Information relating to the nature and effect of such differences is presented in note 24 to the consolidated financial statements.
Ernst & Young LLP
London, England
February 11, 2014
 
2

ATRIUM UNDERWRITING GROUP LIMITED
 
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 31 December 2012
TECHNICAL ACCOUNT – GENERAL BUSINESS

 	  	Note	 	  	2012	 	
 	  	 	 	  	$ 000	 	
Gross premiums written	  	 	2	  	  	 	155,197	  	
Outward reinsurance premiums	  	 	2	  	  	 	(104,139	) 	
 	  	 	 	 	  	 	 	 	
Net premiums written	  	 	 	 	  	 	51,058	  	
Change in the gross provision for unearned premiums	  	 	2	  	  	 	(1,854	) 	
Change in the provision for unearned premiums, reinsurers’ share	  	 	2	  	  	 	(511	) 	
 	  	 	 	 	  	 	 	 	
Change in the net provision for unearned premiums	  	 	 	 	  	 	(2,365	) 	
 	  	 	 	 	  	 	 	 	
Earned premiums, net of reinsurance	  	 	 	 	  	 	48,693	  	
 	  	 	 	 	  	 	 	 	
Allocated investment return transferred from the non-technical account	  	 	4	  	  	 	4,968	  	
Other technical income	  	 	3	  	  	 	28,392	  	
Claims paid	  	 	 	 	  	 	 	 	
Gross amount	  	 	2	  	  	 	(65,852	) 	
Reinsurers’ share	  	 	2	  	  	 	22,004	  	
 	  	 	 	 	  	 	 	 	
Net claims paid	  	 	 	 	  	 	(43,848	) 	
Change in the provision for claims	  	 	 	 	  	 	 	 	
Gross amount	  	 	2	  	  	 	13,277	  	
Reinsurers’ share	  	 	2	  	  	 	43,090	  	
 	  	 	 	 	  	 	 	 	
Net change in provision for claims	  	 	 	 	  	 	56,367	  	
 	  	 	 	 	  	 	 	 	
Claims incurred, net of reinsurance	  	 	 	 	  	 	12,519	  	
Net operating expenses	  	 	5	  	  	 	(39,327	) 	
 	  	 	 	 	  	 	 	 	
Balance on the technical account for general business	  	 	 	 	  	 	55,245	  	

3

ATRIUM UNDERWRITING GROUP LIMITED
 
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 31 December 2012
NON-TECHNICAL ACCOUNT

 	  	Note	 	  	2012	 	
 	  	 	 	  	$ 000	 	
Balance on the general business technical account	  	 	 	 	  	 	55,245	  	
Investment income	  	 	4	  	  	 	4,648	  	
Unrealised gain on investments	  	 	4	  	  	 	2,053	  	
Investment expenses and charges	  	 	4	  	  	 	(691	) 	
Unrealised losses on investments	  	 	4	  	  	 	(884	) 	
Allocated investment return transferred to the general business technical account	  	 	4	  	  	 	(4,968	) 	
Other charges, including amortisation	  	 	 	 	  	 	(23,488	) 	
 	  	 	 	 	  	 	 	 	
Profit on ordinary activities before tax	  	 	 	 	  	 	31,915	  	
Tax on profit on ordinary activities	  	 	10	  	  	 	(3,483	) 	
 	  	 	 	 	  	 	 	 	
Profit on ordinary activities after tax	  	 	 	 	  	 	28,432	  	
 	  	 	 	 	  	 	 	 	
The profit and loss account relates entirely to continuing activities.
There are no recognised gains and losses other than the profit or loss for the period, therefore, no statement of total recognised gains or losses has been presented.
 
4

ATRIUM UNDERWRITING GROUP LIMITED
CONSOLIDATED BALANCE SHEET
at 31 December 2012

 	  	Note	 	  	2012	 	
 	  	 	 	  	$ 000	 	
Assets	  	 	 	 	  	 	 	 	
 	 	 	
Intangible assets	  	 	 	 	  	 	 	 	
Goodwill	  	 	 	 	  	 	7,264	  	
Purchased syndicate capacity	  	 	 	 	  	 	4,562	  	
 	  	 	 	 	  	 	 	 	
 	  	 	12	  	  	 	11,826	  	
 	 	 	
Investments	  	 	 	 	  	 	 	 	
Tangible assets	  	 	13	  	  	 	279	  	
Financial investments	  	 	14	  	  	 	278,603	  	
Deposits with ceding undertakings	  	 	14	  	  	 	353	  	
 	  	 	 	 	  	 	 	 	
 	  	 	 	 	  	 	279,235	  	
 	  	 	 	 	  	 	 	 	
Reinsurers’ share of technical provisions	  	 	 	 	  	 	 	 	
Provision for unearned premiums	  	 	2	  	  	 	3,524	  	
Claims outstanding	  	 	2	  	  	 	90,238	  	
 	  	 	 	 	  	 	 	 	
 	  	 	17	  	  	 	93,762	  	
 	  	 	 	 	  	 	 	 	
Debtors	  	 	 	 	  	 	 	 	
Arising out of direct insurance operations - owed by intermediaries	  	 	 	 	  	 	54,991	  	
Arising out of reinsurance operations	  	 	 	 	  	 	70,152	  	
Other debtors	  	 	 	 	  	 	11,154	  	
 	  	 	 	 	  	 	 	 	
 	  	 	15	  	  	 	136,297	  	

Other assets	  	 	 	 	  	 	 	 	
Cash at bank	  	 	 	 	  	 	44,256	  	
 	  	 	 	 	  	 	 	 	
 	  	 	 	 	  	 	44,256	  	
 	  	 	 	 	  	 	 	 	
Prepayments and accrued income	  	 	 	 	  	 	 	 	
Deferred acquisition costs	  	 	16	  	  	 	18,072	  	
Other prepayments and accrued income	  	 	 	 	  	 	24,562	  	
 	  	 	 	 	  	 	 	 	
 	  	 	 	 	  	 	42,634	  	
 	  	 	 	 	  	 	 	 	
Total assets	  	 	 	 	  	 	608,010	  	

5

ATRIUM UNDERWRITING GROUP LIMITED
CONSOLIDATED BALANCE SHEET
at 31 December 2012

 	  	Note	 	  	2012	 	
 	  	 	 	  	$ 000	 	
Liabilities	  	 	 	 	  	 	 	 	
 	 	 	
Capital and reserves	  	 	 	 	  	 	 	 	
Called up share capital	  	 	18	  	  	 	24,702	  	
Profit and loss account	  	 	19	  	  	 	35,280	  	
Share premium account	  	 	 	 	  	 	2,160	  	
Merger reserve	  	 	19	  	  	 	—  	  	
 	  	 	 	 	  	 	 	 	
Total shareholders funds	  	 	19	  	  	 	62,142	  	
 	  	 	 	 	  	 	 	 	
Technical provisions	  	 	 	 	  	 	 	 	
Provision for unearned premiums	  	 	2	  	  	 	62,546	  	
Claims outstanding	  	 	2	  	  	 	250,319	  	
 	  	 	 	 	  	 	 	 	
 	  	 	17	  	  	 	312,865	  	
 	  	 	 	 	  	 	 	 	
Provisions for other risk and charges	  	 	10	  	  	 	33,633	  	
 	 	 	
Deposits received from reinsurers	  	 	 	 	  	 	165	  	
 	 	 	
Creditors	  	 	 	 	  	 	 	 	
Arising out of direct insurance operations	  	 	 	 	  	 	23,446	  	
Arising out of reinsurance operations	  	 	 	 	  	 	145,417	  	
Other creditors including taxation and social security	  	 	 	 	  	 	14,764	  	
 	  	 	 	 	  	 	 	 	
 	  	 	20	  	  	 	183,627	  	
 	  	 	 	 	  	 	 	 	
Accruals and deferred income	  	 	 	 	  	 	15,578	  	
 	  	 	 	 	  	 	 	 	
Total liabilities	  	 	 	 	  	 	608,010	  	

6

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2012
 
1.	ACCOUNTING POLICIES	
(a) Basis of preparation
These financial statements have been prepared solely for the purpose of meeting the requirements of Rule 3-05 of Regulation S-X. The financial statements have been prepared in accordance with UK Generally Accepted Accounting Policies (‘UK GAAP’) and the Statement of Recommended Practice on Accounting for Insurance Business issued by the Association of British Insurers in December 2005, as amended in December 2006, (the ABI SORP).
The syndicates in which the Atrium Group participates are managed and controlled by their respective managing agents. The accounting information in respect of these participations has been provided by the managing agents and has been audited by their respective syndicate auditors. Information in respect of the Atrium Group’s participations on the managed syndicates is available direct from the syndicate accounting records. UK GAAP requires that financial statements be presented with comparative financial information. As these financial statements have been prepared solely for the purpose of meeting the requirements of Rule 3-05 of Regulation S-X, no comparative financial information is presented. See note 24 for reconciliation between UK GAAP and US GAAP.
As a wholly owned subsidiary of Arden Holdings Limited (‘AHL’) throughout the year, the Company has applied the exemption available in FRS 1 from the requirement to prepare a cash flow statement and also applied the exemption available in FRS 8 from the requirement to disclose transactions with related parties.
The Atrium Group’s functional and presentational currency is US Dollars.
(b) Basis of consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. Subsidiaries are those entities in which the Atrium Group directly or indirectly has the power to govern the operating and financial policies in order to gain economic benefits. The financial statements of subsidiaries are prepared for the same reporting year as the parent company. Subsidiaries are consolidated from the date control is gained and cease to be consolidated from the date control is transferred out.
For each syndicate in which the Atrium Group participates, the Atrium Group’s proportion of the syndicate income and expenses has been reflected in its consolidated income statement and the Atrium Group’s proportion of the syndicate’s assets and liabilities has been reflected in its Consolidated Balance Sheet. Syndicate assets are held subject to trust deeds for the benefit of the syndicate’s insurance creditors.
All inter-company balances, profits and transactions are eliminated.
(c) Premiums
Written premiums comprise the total premiums receivable for the whole period of cover under contracts incepting during the financial year, together with adjustments arising in the financial year to premiums receivable in respect of business written in previous financial years.
All premiums are shown gross of commission payable to intermediaries and are exclusive of taxes and duties levied thereon.
Outwards reinsurance premiums are allocated by the managing agent of each syndicate to reflect the protection purchased by each year of account.
 
7

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2012
 
(d) Unearned premiums
Written premiums are recognised as earned income over the period of the policy on a time apportionment basis, having regard, where appropriate, to the incidence of the risk. The specific basis adopted by each individual syndicate is determined by the relevant managing agency.
(e) Claims
Claims incurred comprise the estimated cost of all claims occurring during the period, whether reported or not, including related direct and indirect claims handling costs and adjustments to claims outstanding from previous periods.
The provision for claims outstanding is made on an individual case by case basis and is based on the estimated ultimate cost of all claims notified but not settled by the balance sheet date, together with the provision for related claims handling costs. The provision also includes the estimated cost of claims incurred but not reported at the balance sheet date based on statistical methods. The estimation process will vary from managing agent to managing agent but is likely to include the use of statistical projections based on previous claims history, case by case reviews of notified losses, and the use of security ratings to help assess the financial ability of reinsurers to pay reinsurance recoveries anticipated of them.
The provision for claims outstanding is based on information available at the balance sheet date. Significant delays are experienced in notification and settlement of certain claims and accordingly the ultimate cost of such claims cannot be known with certainty at the balance sheet date. Subsequent information and events may result in the ultimate liability being less than, or greater than, the amount provided. Any differences between provisions and subsequent settlements are dealt with in the technical account – general business of later periods.
The payment of a reinsurance to close premium does not eliminate the liability of the closed year for outstanding claims. If the reinsuring syndicate were to be unable to meet its obligations and other elements of the Lloyd’s chain of security were to fail, then the members of the closed underwriting year would have to settle outstanding claims. The Directors consider that the likelihood of such failure of the reinsurance to close is extremely remote and, therefore, the reinsurance to close has been deemed to settle liabilities outstanding at the closure of the underwriting account and no further provision is made for any potential variation in the ultimate liability of that year of account.
(f) Deferred acquisition costs
Acquisition costs, comprising commission and other costs related to the acquisition of insurance contracts are deferred to the extent that they are attributable to premiums unearned at the balance sheet date.
(g) Unexpired risks
Provision is made where the cost of claims and expenses arising after the end of the financial period from contracts concluded before that date is expected to exceed the provision for unearned premiums, net of deferred acquisition costs, and premiums receivable. The assessment of whether a provision is necessary is made on a syndicate by syndicate basis, using information supplied by the respective managing agents.
 
8

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2012
 
(h) Share based incentive schemes
During the financial year, Arden Holdings Limited (‘AHL’) operated a number of executive and employee share based incentive schemes for the staff and directors of the Atrium Group. The cost of equity-settled transactions with employees is measured by reference to the fair value of the equity instrument at the date at which it was granted. The expense which is recharged from AHL is recognised in the profit and loss account over the performance period of the share based incentive scheme.
The fair value of the equity-settled transactions granted was set by the Board of Directors of AHL.
(i) Leases
Rentals payable under operating leases are charged to the profit and loss account on a straight-line basis over the lease term.
(j) Pensions
The Atrium Group incurs pension costs from a defined contribution scheme, which is operated by Atrium Group Services Limited. Certain Directors and staff have personal pension arrangements to which the Atrium Group contributes. Contributions are charged to the profit and loss account as they become payable in accordance with rules of the schemes.
(k) Investment income and expenses
Interest income and investment expenses are recognised on an accruals basis.
Realised investment gains and losses are calculated as the difference between net proceeds on disposal and their purchase price.
Unrealised investment gains and losses are calculated as the difference between the valuation at the balance sheet date and their valuation at the last balance sheet date or purchase price, if acquired during the year. Unrealised investment gains and losses include adjustments in respect of unrealised gains and losses recorded in prior years that have been realised during the year and are reported as realised gains and losses in the current profit and loss account.
Investment return, comprising investment income, realised and unrealised gains and losses, and investment expenses, is included initially within the non-technical account. Investment return on the Atrium Group’s share of syndicate investments is allocated from the non-technical account to the technical account - general business so as to reflect that the Atrium Group’s investments are supporting its underwriting activities.
(l) Other technical income
Other technical income consists of net retained agency fees receivable and profit commissions. Profit commissions are earned in line with the annual accounting results of the managed syndicates.
Under annual accounting, underwriting results relating to a particular year of account are recognised during the three years in which that year of account is normally open, in line with the earnings pattern of the insurance business attaching to the year.
 
9

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2012
 
(m) Income tax
The tax expense represents the sum of the current tax and deferred tax.
Current income tax: the current tax charge is based on the taxable profit for the year. Taxable profit differs from profit as reported in the profit and loss account because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates enacted or substantively enacted at the balance sheet date.
Deferred income tax: deferred income tax is generally provided in full, on timing differences arising between the tax bases of assets and liabilities and their carrying value in the financial statements. Deferred income tax is determined using tax rates enacted or substantively enacted at the balance sheet date and which are expected to apply when the related tax is payable or receivable.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the timing differences can be used. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all of part or the asset to be recovered.
(n) Investments
Investments are stated at their current values at the end of the year. Listed investments are included in the balance sheet at market value. Unlisted investments are stated at an estimate of market value determined by the managing agents of the relevant syndicates. Deposits with credit institutions are included at cost.
(o) Intangible assets
Syndicate participations
Managed syndicate capacity purchased at auction is capitalised at cost and amortised on a straight-line basis over its estimated useful life of 20 years less any accumulated impairment losses. Third party syndicate capacity purchased at auction is capitalised at cost and amortised on a straight-line basis over its estimated useful life of three years. Amortisation is charged from the beginning of the first accounting period following acquisition, when the asset becomes available for use.
Managed syndicate capacity is reviewed annually for impairment or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The amount of any impairment is charged to the income statement in the year in which the impairment arises.
Goodwill
Positive goodwill arising on acquisitions is capitalised, classified as an asset on the balance sheet and amortised on a straight-line basis over its useful economic life up to a presumed maximum of 20 years. It is reviewed for impairment at the end of the first full financial year following the acquisition and in other periods if events or changes in circumstances indicate that the carrying value may not be recoverable. In the case of goodwill arising on the acquisition of a Lloyd’s managing agency or corporate member amortisation is charged from the first accounting period following acquisition.
 
10

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2012
 
(p) Tangible fixed assets
Tangible fixed assets are stated at cost less accumulated depreciation and impairment losses.
Depreciation is calculated to write off the cost of all tangible fixed assets, in equal annual installments over their estimated useful lives at the following rates:

Fixtures, fittings and equipment	  	20% per annum	
Computer equipment	  	331/3% per annum	
The carrying values of tangible fixed assets are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.
(q) Foreign currencies
Items in the profit and loss account have been translated into the local currency of US Dollars at the average rate for the quarter in which the transaction takes place, whilst the Balance Sheet has been translated at the exchange rate on the balance sheet date as per the following table, with translation differences being recognised through the ‘non-technical’ account:

 	  	Balance sheet rate
at 31 December
2012	 	  	Average rate
for Quarter 1
2012	 	  	Average rate
for Quarter 2
2012	 	  	Average rate
for Quarter 3
2012	 	  	Average rate
for Quarter 4
2012	 	
Sterling	  	 	1.6168	  	  	 	1.5710	  	  	 	1.5836	  	  	 	1.5799	  	  	 	1.6060	  	
 	 	 	 	 	 	
Euro	  	 	1.3218	  	  	 	1.3110	  	  	 	1.2851	  	  	 	1.2514	  	  	 	1.2971	  	
 	 	 	 	 	 	
Canadian dollars	  	 	1.0034	  	  	 	0.9982	  	  	 	0.9906	  	  	 	1.0045	  	  	 	1.0090	  	
Singapore dollars	  	 	0.8173	  	  	 	0.7911	  	  	 	0.7916	  	  	 	0.8019	  	  	 	0.8179	  	
All other exchange differences are included in the technical account.
 
2.	SEGMENTAL ANALYSIS	

2012	  	Gross
Premiums
Written
$ 000	 	  	Gross
Premiums
Earned
$ 000	 	  	Gross
Claims
Incurred
$ 000	 	 	Gross
Operating
Expenses
$ 000	 	 	Reinsurance
Balance
$ 000	 	 	Net
Technical
Result
$ 000	 	 	Net
Technical
Provisions
$ 000	 	
 	 	 	 	 	 	 	 	
Direct business	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Accident and health	  	 	14,412	  	  	 	13,672	  	  	 	(5,762	) 	 	 	(5,958	) 	 	 	914	  	 	 	2,866	  	 	 	9,847	  	
Motor	  	 	1,924	  	  	 	1,973	  	  	 	(1,287	) 	 	 	(859	) 	 	 	614	  	 	 	441	  	 	 	1,702	  	
Marine, aviation and transport	  	 	58,168	  	  	 	59,050	  	  	 	(10,617	) 	 	 	(20,154	) 	 	 	(5,803	) 	 	 	22,476	  	 	 	57,511	  	
Fire and other damage to property	  	 	36,530	  	  	 	35,146	  	  	 	(13,814	) 	 	 	(12,993	) 	 	 	(19,873	) 	 	 	(11,534	) 	 	 	45,911	  	
Third party liability	  	 	27,959	  	  	 	27,196	  	  	 	(13,458	) 	 	 	(10,091	) 	 	 	(5,859	) 	 	 	(2,212	) 	 	 	73,295	  	
Other	  	 	2,241	  	  	 	1,938	  	  	 	(681	) 	 	 	(621	) 	 	 	1,196	  	 	 	1,832	  	 	 	3,420	  	
 	 	 	 	 	 	 	 	
Total direct	  	 	141,234	  	  	 	138,975	  	  	 	(45,619	) 	 	 	(50,676	) 	 	 	(28,811	) 	 	 	13,869	  	 	 	191,686	  	
 	 	 	 	 	 	 	 	
Reinsurance Business	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Reinsurance acceptances	  	 	13,963	  	  	 	14,368	  	  	 	(6,956	) 	 	 	(2,035	) 	 	 	(7,218	) 	 	 	(1,841	) 	 	 	27,417	  	
 	 	 	 	 	 	 	 	
 	  	 	155,197	  	  	 	153,343	  	  	 	(52,575	) 	 	 	(52,711	) 	 	 	(36,029	) 	 	 	12,028	  	 	 	219,103	  	
 	 	 	 	 	 	 	 	
                                 Other technical income	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	28,392	  	 	 	 	 	
                                 Expenses eliminated on consolidation	  	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	9,857	  	 	 	 	 	
                                 Allocated investment return	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	4,968	  	 	 	 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
                                 Balance on technical account	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	55,245	  	 	 	 	 	

11

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2012
 
All premiums were concluded in the UK.
The geographic analysis of premiums by destination is as follows:

 	  	2012	 	
 	  	%	 	
UK	  	 	3	  	
Other EU countries	  	 	7	  	
US	  	 	25	  	
Other	  	 	65	  	
 	  	 	 	 	
 	  	 	100	  	

3.	OTHER TECHNICAL INCOME	

 	  	2012	 	
 	  	$ 000	 	
 	 	
Fee income	  	 	8,064	  	
Commission income	  	 	20,206	  	
Other Income	  	 	122	  	
 	  	 	 	 	
 	  	 	28,392	  	

4.	INVESTMENT RETURN	

 	  	2012	 	
 	  	$ 000	 	
 	 	
Investment income	  	 	 	 	
Income from investments	  	 	4,534	  	
Net gains on the realisation of investments	  	 	—  	  	
Other interest	  	 	114	  	
 	  	 	 	 	
 	  	 	4,648	  	
 	  	 	 	 	
Investment expenses and charges	  	 	 	 	
Investment management expenses	  	 	(295	) 	
Net losses on the realisation of investments	  	 	(396	) 	
 	  	 	 	 	
 	  	 	(691	) 	
 	  	 	 	 	
Net unrealised gains on investments	  	 	 	 	
Unrealised gains on investments	  	 	2,053	  	
Unrealised losses on investments	  	 	(884	) 	
 	  	 	 	 	
 	  	 	1,169	  	
 	  	 	 	 	
Total investment return	  	 	5,126	  	

12

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2012
 
5.	NET OPERATING EXPENSES	

 	  	2012	 	
 	  	$ 000	 	
 	 	
Brokerage and other business acquisition expenses	  	 	35,861	  	
Change in deferred acquisition costs	  	 	(1,218	) 	
Foreign exchange (gain)/loss	  	 	(950	) 	
Syndicate operating expenses	  	 	5,348	  	
Direct operating expenses	  	 	1,549	  	
 	  	 	 	 	
 	  	 	40,590	  	
Reinsurance commissions receivable	  	 	(1,263	) 	
 	  	 	 	 	
 	  	 	39,327	  	

6.	STAFF COSTS	

 	  	2012	 	
 	  	$ 000	 	
 	 	
Wages and salaries	  	 	20,278	  	
Profit related remuneration	  	 	8,573	  	
Share based payments recharge	  	 	6,920	  	
Social security costs	  	 	3,111	  	
Defined pension contribution costs	  	 	2,888	  	
 	  	 	 	 	
 	  	 	41,770	  	
Recharged to external names	  	 	(16,669	) 	
 	  	 	 	 	
 	  	 	25,101	  	
 	  	 	 	 	
As at the balance sheet date, there were pension contributions outstanding of $nil.
The average monthly number of persons including Executive Directors employed by the Atrium Group during the year was 142.
 
7.	DIRECTORS EMOLUMENTS	
The disclosure below relates to Directors within the Atrium Group.

 	  	2012	 	
 	  	$	 	
 	 	
Directors’ emoluments	  	 	 	 	
Executive services	  	 	8,345,159	  	
Pension contributions	  	 	737,460	  	
 	  	 	 	 	
 	  	 	9,082,619	  	

13

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2012
 
During 2012 11 Directors within the Atrium Group benefitted from the vesting of long term incentive plan awards. During 2012, certain Atrium Group Directors received share awards under the Arden Long Term Incentive Plan and received matching shares under the Arden Matching Share Plan.

 	  	2012	 	
 	 	
Number of Atrium Group Directors who received share awards under the Arden Long Term Incentive Plan	  	 	11	  	
Number of Atrium Group Directors who received share awards under the Arden Matching Share Plan	  	 	11	  	
Number of Atrium Group Directors to whom retirement benefits are accruing under a defined contribution pension scheme	  	 	12	  	
In respect of the highest paid group Director, the following emoluments were paid:	  	 	 	 	
Executive services	  	$	1,160,302	  	
Pension contribution	  	 	95,100	  	
 	  	 	 	 	
 	  	$	1,255,402	  	
 	  	 	 	 	
The highest paid Atrium Group Director received an award of restricted stock units under the Arden Long Term Incentive Plan and an award of shares under the Arden Matching Share Plan during the period.
 
8.	SHARE BASED INCENTIVE SCHEMES	
FRS 20 ‘Share-based payments’ requires all share-based payments that were granted after 7 November 2002, but that had not yet vested at 1 January 2005, to be expensed based on their fair value at the date of grant. The expense is recognised in the profit and loss account over the vesting period of the share-based payment.
AHL, the ultimate parent company, operates two share based incentive schemes for the employees of the Atrium Group, as set out below. Fair value was initially established with reference to a valuation study completed by an independent valuation firm, Duff & Phelps. For awards granted and vesting in 2011, AHL determined that fair value would be based on fully diluted book value per AHL share. The Directors are of the opinion that the recharge is not materially different from amounts that would be calculated under FRS 20.
Following acquisition of the Atrium Group by AHL, a new Long Term Incentive Plan (“LTIP”) share award scheme was established in 2008 and awards comprising conditional awards of shares in AHL were made in 2009, 2010 and 2011.
On 4 February 2010 AHL declared a dividend of $40 per share and on 19 January 2011 AHL declared a dividend of $33 per share. Under the terms of the AHL LTIP scheme, additional awards were made, attaching to the relevant unvested original award to reflect the values of those dividends.
On 3 June 2011 and on 29 February 2012 the 2008 and 2009 LTIP Awards respectively vested in full on satisfaction of performance conditions. In March 2011 further awards were made under the AHL LTIP scheme.
Awards made in 2009, 2010 and 2011 under the AHL LTIP scheme comprised a conditional award of shares in AHL. The grantee would only actually receive the shares if over a three year period they remained an employee of the Atrium Group and the performance conditions were satisfied, over the three years ending.
December 2011, 2012 and 2013 respectively, at which points, on evaluation of the performance criteria, the grantee would be given fully paid ordinary shares in AHL.
 
14

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2012
 
In July 2012 grantees of awards under the 2010 and 2011 AHL LTIP scheme were given a one-off opportunity to fix the value of their outstanding LTIP awards by reference to their market value, determined by the Board of AHL as being the diluted book value of $118.97 per share, and on vesting, subject to satisfaction of the performance conditions (see below), receive an entitlement to a deferred cash payment. The majority of grantees took the option to fix the value of their respective awards in deferred cash but a minority retained their original share-based award.
In July 2012 further awards were made under the AHL LTIP scheme. Under the terms of the scheme grantees received an award of an entitlement to a deferred fixed cash payment that they will receive if over a three year period they remain an employee of the Atrium Group and the performance conditions (see below) are met over the three years ending 31 December 2014.
The performance conditions are based on the Atrium Group’s return on capital and therefore ensure that any rewards received are commensurate with the Atrium Group’s performance over the performance period.
These are conditional Awards over 18,627 AHL shares in respect of the 2010 and 2011 LTIP Awards and entitlements to deferred cash payments of $12,275,368 under the 2010, 2011 and 2012 awards. Of the 136,128 outstanding share awards in the table below are 103,180 relating to these deferred cash payments.
Matching Share Plan (MSP)
The MSP was introduced in 2008 as a replacement for previous Atrium Group all employee share incentive plans which were in place prior to the acquisition of the Atrium Group by AHL. The MSP was made available to all permanent employees of the Atrium Group in 2008, 2009, 2010, 2011 and again in 2012. The MSP allows permanent employees to purchase annually the US$ equivalent value of up to £8,000 of AHL shares at unrestricted market value. The shares purchased are registered in an Atrium Group employee benefit trust with EES Trustees International Limited, with participating employees having full beneficial ownership of the shares.
For each AHL share purchased, AHL grant participating employees a matching award over further AHL shares on a one for one basis. Participating employees are only entitled to receive the matching award shares three years after grant if they remain an Atrium Group employee for the three year period.
AHL declared a dividend of $40 per share on 4 February 2010 and a further dividend of $33 per share on 19 January 2011. Under the terms of the MSP scheme, additional matching awards over further AHL shares were granted to reflect the value of those dividends in respect of the 2008, 2009 and 2010 MSP Matching Awards.
The 2008 and 2009 MSP Matching Awards vested in August 2011 and August 2012 respectively. Participants could either exercise their MSP Matching Awards, thereby acquiring the beneficial ownership of the relevant shares or alternatively, not exercise their option, thereby retaining their Matching Award as a Nil Cost Option.
There are conditional matching awards under the 2010, 2011 and 2012 MSP scheme over 22,286 AHL shares. 14,149 AHL shares are held in trust on behalf of participants and their spouses.
The Atrium Group has been recharged $6,920k during 2012 in respect of the above awards and is included within Staff costs (see Note 5).
Share Repurchase
In May 2012 the Board of AHL resolved to effect a mandatory repurchase of 63.76% of its issued and outstanding shares at a value of $112 per share.
 
15

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2012
 
In December 2012 the Board of AHL resolved to effect a mandatory repurchase of 26.34% of its issued and outstanding shares at a value of $140 per share.
The numbers of AHL shares noted above as held on trust on behalf of participants in the AHL LTIP and MSP schemes are stated after the share repurchase transactions.
These were the following movements in the number of share awards held by employees:

 	  	Year ended 31
December 2012
Number	 	 	Weighted
average
fair value
US$	 	
Outstanding at 1 January	  	 	149,676	  	 	 	93.63	  	
Granted	  	 	43,490	  	 	 	134.07	  	
Dividend Adjustment	  	 	—  	  	 	 	—  	  	
Vested	  	 	(46,530	) 	 	 	77.09	  	
Forfeited	  	 	(10,505	) 	 	 	105.15	  	
 	  	 	 	 	 	 	 	 	
Outstanding at 31 December	  	 	136,131	  	 	 	112.63	  	

9.	AUDITORS REMUNERATION	

 	  	2012
$ 000	 	
Audit of the financial statements	  	 	496	  	
Non audit work	  	 	20	  	
 	  	 	 	 	
 	  	 	516	  	

10.	TAX	
 
(a)	Tax on profit on ordinary activities	

 	  	2012
$ 000	 	
The tax charge is made up as follows:	  	 	 	 	
Current tax:	  	 	12,783	  	
UK corporation tax	  	 	 	 	
Tax underprovided (over) in previous years	  	 	(1,554	) 	
 	  	 	 	 	
 	  	 	11,229	  	
Foreign tax	  	 	523	  	
 	  	 	 	 	
Total current tax (note 10 (b))	  	 	11,752	  	
 	  	 	 	 	
Deferred tax:	  	 	 	 	
Origination and reversal of timing differences	  	 	(4,935	) 	
Deferred tax underprovided/(over) in previous years	  	 	(309	) 	
Effect of decreased tax rate	  	 	(3,025	) 	
 	  	 	 	 	
Total deferred tax (note 10 (c))	  	 	(8,269	) 	
 	  	 	 	 	
Tax on profit on ordinary activities	  	 	3,483	  	

16

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2012
 
(b)	Factors affecting the current tax charge	

 	  	$ 000	 	
The tax assessed on the profit on ordinary activities for the year is lower than the standard rate of corporation tax in the UK of 24.5% . The differences are reconciled below:	  	 	 	 	
Profit on ordinary activities before tax	  	 	31,915	  	
 	  	 	 	 	
Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 24.5%	  	 	7,819	  	
 	 	
Effects of:	  	 	 	 	
Timing of underwriting profits	  	 	4,558	  	
Other timing differences	  	 	(12	) 	
Utilisation of tax losses brought forward	  	 	—  	  	
Tax overprovided in previous years	  	 	(1,554	) 	
Foreign tax	  	 	523	  	
Permanent differences	  	 	418	  	
 	  	 	 	 	
Current tax charge for period (note 10(a))	  	 	11,752	  	

(c)	Deferred tax	

 	  	$ 000	 	
Balance at 1 January	  	 	(41,902	) 	
Deferred tax credit (charge) in profit and loss account (note 10(a))	  	 	8,269	  	
 	  	 	 	 	
At 31 December	  	 	(33,633	) 	
 	  	 	 	 	
Analysis of deferred tax liability at 31 December:	  	 	 	 	
 	 	
Provision for underwriting results	  	 	(36,341	) 	
Other	  	 	2,708	  	
 	  	 	 	 	
 	  	 	(33,633	) 	
 	  	 	 	 	
The deferred tax liability in respect of underwriting results relates to the underwriting results that have arisen on the 2010, 2011 and 2012 years of account. These results will be assessed to tax in 2013, 2014 and 2015 respectively.
 
(d)	Factors affecting future tax charges	
The Atrium Group profits are taxable in the UK under the standard rate of corporation tax being 24.5% for 2012.
On 21 March 2012, the UK government announced as part of the Budget that the rate of corporation tax would be reduced by an additional 1% at 1 April 2012, from the 25% rate enacted as part of Finance Act 2011. The 24% rate was substantively enacted on 26 March 2012, and enacted on 17 July 2012 when Finance Bill 2012 received Royal Assent. It was also announced that a rate of corporation tax of 23% would apply from 1 April 2013, which was substantively enacted and enacted on 3 July 2012 and 17 July 2012 respectively. The closing deferred tax liability has taken into account the substantively enacted rate of corporation tax as at the balance sheet date.
 
17

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2012
 
Furthermore, the Government announced in the Autumn Statement on 5 December 2012 that it intends to reduce the rate of corporation tax by a further 2% to 21% to apply from 1 April 2014. A further reduction of 1% to apply from 1 April 2015 was announced in the budget on 20 March 2013. The reduction to 20% has not been reflected in the closing deferred tax liability as it has not been substantively enacted at the balance sheet date. It is anticipated that the impact of this future change on the closing deferred tax position would be $1,335,000.
 
11.	DIVIDENDS	

Declared and paid during the year on ordinary shares	  	2012
$ 000	 	
 	 	
Equity dividends paid:	  	 	 	 	
Interim dividend	  	 	29,400	  	

12.	INTANGIBLE ASSETS	

 	  	Goodwill
$ 000	 	  	Purchased
syndicate
capacity
$ 000	 	  	Total
$ 000	 	
Cost	  	 	 	 	  	 	 	 	  	 	 	 	
At 1 January 2012	  	 	20,756	  	  	 	10,105	  	  	 	30,861	  	
Disposals	  	 	—  	  	  	 	—  	  	  	 	—  	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
At 31 December 2012	  	 	20,756	  	  	 	10,105	  	  	 	30,861	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Amortisation	  	 	 	 	  	 	 	 	  	 	 	 	
At 1 January 2012	  	 	12,454	  	  	 	5,038	  	  	 	17,492	  	
Amortisation on disposals	  	 	—  	  	  	 	—  	  	  	 	—  	  	
Provided during the year	  	 	1,038	  	  	 	505	  	  	 	1,543	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
At 31 December 2012	  	 	13,492	  	  	 	5,543	  	  	 	19,035	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Net book value	  	 	 	 	  	 	 	 	  	 	 	 	
At 31 December 2012	  	 	7,264	  	  	 	4,562	  	  	 	11,826	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
At 1 January 2012	  	 	8,302	  	  	 	5,067	  	  	 	13,369	  	

13.	FIXED ASSETS	

 	  	Computer
equipment
$ 000	 	 	Office
refurbishment
$ 000	 	 	Fixtures,
fittings &
equipment
$ 000	 	  	Total
$ 000	 	
Cost	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
At 1 January 2012	  	 	7,614	  	 	 	413	  	 	 	210	  	  	 	8,237	  	
Purchases	  	 	42	  	 	 	126	  	 	 	—  	  	  	 	168	  	
Disposals	  	 	(2	) 	 	 	(46	) 	 	 	—  	  	  	 	(48	) 	
 	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
At 31 December 2012	  	 	7,654	  	 	 	493	  	 	 	210	  	  	 	8,357	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Depreciation	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
At 1 January 2012	  	 	7,360	  	 	 	299	  	 	 	197	  	  	 	7,856	  	
Depreciation on disposals	  	 	—  	  	 	 	—  	  	 	 	—  	  	  	 	—  	  	
Provided during the year	  	 	172	  	 	 	38	  	 	 	12	  	  	 	222	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
At 31 December 2012	  	 	7,532	  	 	 	337	  	 	 	209	  	  	 	8,078	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
Net book value	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
At 1 January 2012	  	 	254	  	 	 	114	  	 	 	13	  	  	 	381	  	
 	  	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	
At 31 December 2012	  	 	122	  	 	 	156	  	 	 	1	  	  	 	279	  	

18

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2012
 
14.	FINANCIAL INVESTMENTS	

 	 	 	  	2012
Historic
Cost
$ 000	 	  	2012
Market
Value
$ 000	 	
Debt securities and other fixed income securities	  	 	248,844	  	  	 	249,856	  	
Loans and deposits with credit institutions	  	 	10,600	  	  	 	10,667	  	
Other investments	  	 	1,959	  	  	 	1,959	  	
Money market balances	  	 	16,121	  	  	 	16,121	  	
 	 	 	  	 	 	 	  	 	 	 	
 	 	 	  	 	277,524	  	  	 	278,603	  	

 	 	Analysis of market value	  	 	 	  	2012
$ 000	 	
 	 	Listed investments	  	  	 	249,856	  	
 	 	Unlisted investments	  	  	 	12,626	  	
 	 	Money market balances	  	  	 	16,121	  	
 	 	 	  	 	 	 	  	 	 	 	
 	 	 	  	 	 	 	  	 	278,603	  	
 	 	 	  	 	 	 	  	 	 	 	
Disclosure of Fair Values in accordance with the fair value hierarchy
In accordance with the Amendments to FRS 29 Financial Instruments: Disclosures, the fair value of financial instruments based on a three-level fair value hierarchy that reflects the significance of the inputs used in measuring the fair value is provided below.
The levels of the fair value hierarchy are defined by the standard as follows:
Level 1 - fair values measured using quoted prices (unadjusted) in active markets for identical instruments,
Level 2 - fair values measured using directly or indirectly observable inputs or other similar valuation techniques for which all significant inputs are based on observable market data,
Level 3 - fair values measured using valuation techniques for which significant inputs are not based on market observable data.
The fair value of the Atrium Group’s financial assets are based on prices provided by investment managers who obtain market data from numerous independent pricing services. The pricing services used by the investment manager obtain actual transaction prices for securities that have quoted prices in active markets. For those securities which are not actively traded, the pricing services use common market valuation pricing models. Observable inputs used in common market valuation pricing models include, but are not limited to, broker quotes, credit ratings, interest rates and yield curves, prepayment speeds, default rates and other such inputs which are available from market sources.
 
19

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2012
 
Included within Level 1 of the hierarchy are the Atrium Group’s share of Government bonds and Treasury bills which are measured based on quoted prices over which the Atrium Group has control.
Level 2 of the hierarchy contains the Atrium Group’s share of U.S Government Agencies, Corporate Securities, Asset Backed Securities, Mortgage Backed Securities over which the Atrium Group has control. The fair value of these assets are based on prices obtained from both investment managers and investment custodians as discussed above. This level also include a disclosure of the Atrium Group’s share of investments held by non managed syndicates. The directors have classified these holdings as Level 2 following discussions with the relevant managing agency.
The Atrium Group records the unadjusted price provided and validates the price through a number of methods, including a comparison of the prices provided by the investment managers with the investment custodians and the valuation used by external parties to derive fair value. Quoted prices for US Government Agencies and Corporate Securities are based on a limited number of transactions for those securities and as such the Atrium Group considers these instruments to have similar characteristics of those instruments classified as Level 2.
Having reviewed the Atrium Group’s investments using the above criteria as valuation and pricing, the Directors are satisfied that there are no Level 3 investments.
In certain cases, the inputs used to measure the fair value of a financial instrument may fall into more than one level within the fair value hierarchy. In this instance, the fair value of the instrument in its entirety is classified based on the lowest level of input that is significant to the fair value measurement.
During the year, there were no transfers made between Level 1 and Level 2 of the fair value hierarchy.

 	  	Level 1
$ 000	 	  	Level 2
$ 000	 	  	Level 3
$ 000	 	  	Total
fair
value
$ 000	 	
Financial assets:	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Government securities	  	 	112,109	  	  	 	49,455	  	  	 	—  	  	  	 	161,564	  	
Corporate	  	 	—  	  	  	 	66,870	  	  	 	—  	  	  	 	66,870	  	
Asset backed securities	  	 	—  	  	  	 	14,531	  	  	 	—  	  	  	 	14,531	  	
Mortgage backed securities	  	 	—  	  	  	 	10,667	  	  	 	—  	  	  	 	10,667	  	
Deposits with ceding undertakings	  	 	—  	  	  	 	353	  	  	 	—  	  	  	 	353	  	
Money market balances	  	 	16,121	  	  	 	—  	  	  	 	—  	  	  	 	16,121	  	
Group Share of Non managed syndicate investments	  	 	—  	  	  	 	8,850	  	  	 	—  	  	  	 	8,850	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	 	128,230	  	  	 	150,726	  	  	 	—  	  	  	 	278,956	  	

15.	DEBTORS	

 	  	2012	 	
 	  	$ 000	 	
Amounts falling due within one year	  	 	 	 	
Arising out of direct insurance operations	  	 	 	 	
- owed by intermediaries	  	 	54,934	  	
Arising out of reinsurance operations	  	 	70,066	  	
Other debtors	  	 	8,148	  	
 	  	 	 	 	
 	  	 	133,148	  	
Amounts falling due after one year	  	 	 	 	
Arising out of direct insurance operations	  	 	 	 	
- owed by intermediaries	  	 	57	  	
Arising out of reinsurance operations	  	 	86	  	
Other debtors	  	 	3,006	  	
 	  	 	 	 	
 	  	 	3,149	  	
 	  	 	 	 	
 	  	 	136,297	  	

20

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2012
 
16.	DEFERRED ACQUISITION COSTS	

 	  	2012	 	
 	  	$ 000	 	
At 1 January	  	 	16,854	  	
Change in deferred acquisition costs	  	 	1,218	  	
 	  	 	 	 	
At 31 December	  	 	18,072	  	

17.	TECHNICAL PROVISIONS	

 	  	Gross
$ 000	 	  	Reinsurers’
share
$ 000	 	 	Net
$ 000	 	
Notified outstanding claims	  	 	99,232	  	  	 	(72,876	) 	 	 	26,356	  	
Provision for Claims incurred but not reported	  	 	148,595	  	  	 	(17,362	) 	 	 	131,233	  	
Claims handling expenses	  	 	2,492	  	  	 	—  	  	 	 	2,492	  	
Unearned premiums	  	 	62,546	  	  	 	(3,524	) 	 	 	59,022	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	
 	  	 	312,865	  	  	 	(93,762	) 	 	 	219,103	  	

18.	SHARE CAPITAL	

 	  	31 December 2012	 	
 	  	Number	 	  	$ 000	 	
Allotted, called up and fully paid ordinary shares	  	 	17,060,405	  	  	 	24,702	  	
 
19.	RECONCILIATION OF MOVEMENT IN SHAREHOLDERS’ FUNDS	

2012	  	Share
Capital
$ 000	 	  	Share
Premium
$ 000	 	  	Merger
Reserve
$ 000	 	 	Profit and
loss
account
$ 000	 	 	Total
$ 000	 	
At 1 January 2012	  	 	24,702	  	  	 	2,160	  	  	 	6,281	  	 	 	29,967	  	 	 	63,110	  	
Profit for the financial year	  	 	—  	  	  	 	—  	  	  	 	—  	  	 	 	28,432	  	 	 	28,432	  	
Reserve transfer (see below)	  	 	—  	  	  	 	—  	  	  	 	(6,281	) 	 	 	6,281	  	 	 	—  	  	
Dividend	  	 	—  	  	  	 	—  	  	  	 	—  	  	 	 	(29,400	) 	 	 	(29,400	) 	
 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
At 31 December 2012	  	 	24,702	  	  	 	2,160	  	  	 	—  	  	 	 	35,280	  	 	 	62,142	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
In 1998 in accordance with Section 131 of Companies Act 1985, and subsequently Section 612 of the Companies Act 2006, the $7.8 million premium on ordinary shares issued as part of the purchase of Atrium Cockell Group Limited (“ACGL”) was recorded within the merger reserve. Following the dissolution of ACGL on 4 September 2012 this profit has been fully realised and transferred to the retained earnings.
 
21

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2012
 
20.	CREDITORS	

 	  	2012	 	
 	  	$ 000	 	
Amounts falling due within one year	  	 	 	 	
Arising out of direct insurance operations	  	 	23,446	  	
Arising out of reinsurance operations	  	 	144,848	  	
Other creditors including taxation and social security	  	 	14,491	  	
 	  	 	 	 	
 	  	 	182,785	  	
Amounts falling due after one year	  	 	 	 	
Arising out of direct insurance operations	  	 	—  	  	
Arising out of reinsurance operations	  	 	569	  	
Other creditors including taxation and social security	  	 	273	  	
 	  	 	 	 	
 	  	 	842	  	
 	  	 	 	 	
 	  	 	183,627	  	

21.	LEASES	

 	  	2012
$ 000	 	
At 31 December, the Atrium Group had annual commitments under non-cancellable operating leases as set out below:	  	 	 	 	
Leases expiring within one year	  	 	—  	  	
Leases expiring between two and five years	  	 	337	  	
Leases expiring more than five years	  	 	1,081	  	
Of the commitments due under operating leases for the period to 31 December 2012, as at 31 December 2012, $866,000 will be reimbursed by the syndicates managed by the Atrium Group.
 
22.	CONTINGENT LIABILITIES	
Charge over assets
At 1 January 2013, the Atrium Group’s participation in underwriting at Lloyd’s is £106.8m, ($172.7m at year end exchange rates,) through ownership of its underwriting subsidiary Atrium 5 Limited (the continuing corporate member). The other underwriting subsidiaries (the ceasing corporate members) have not participated in underwriting at Lloyd’s after the 2007 year of account.
On 28 November 2007, the ceasing corporate members and the continuing corporate member, entered into an interavailable Lloyd’s Security and Trust Deed securing all monies due and to become due from each company to the Society of Lloyd’s. On the same day the Company created a floating charge over all its assets to secure all monies due and to become due from the Company to Lloyd’s under the terms of the Deed of Indemnity provided by the Company to Lloyd’s in connection with the foregoing.
 
22

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2012
 
Under the terms of the interavailable Lloyd’s Security and Trust Deed, the ceasing corporate members and the continuing corporate member gave undertakings to the Society of Lloyd’s, supported by a commitment from the Company, that if one of them failed to meet any of its obligations to Lloyd’s the others would assign to Lloyd’s on demand their rights to current and future profits held in their Premium Trust Funds or contribute profits received out of their Trust Funds to the Central Fund of Lloyd’s in each case until the amounts owed by the defaulting subsidiary were paid in full.
On 23 March 2010 the underwriting subsidiaries signed Deeds of Transition and new Trust Deeds to facilitate the implementation by the Society of Lloyd’s of a new Trust Deed architecture. The changes made to the documentation related to streamlining and simplifying the administration of Funds at Lloyd’s and do not have any financial impact on the Group.
On 26 May 2010, following closure of the 2007 year of account at which point the ceasing corporate members had no further participations on any syndicates at Lloyd’s, they each entered into a Deed of Total Determination Release and Substitution whereby the interavailable Letter of Credit provided as a Lloyd’s Deposit under the aforementioned Security and Trust Deed was replaced by a non-interavailable Letter of Credit provided by the continuing member. On the same date, in order to secure the release of the ceased members funds at Lloyd’s, the ceasing corporate members entered into a Deed of Indemnity agreement with the Company by which the Company has given an undertaking to the Society of Lloyd’s that if the ceasing corporate members failed to meet any of their obligations to Lloyd’s in respect of US Federal Income and US Federal Excise tax liabilities as well as any tax liabilities in those jurisdictions where the ceased member underwrote insurance business, then the Company would meet those obligations in full.
 
23.	SUBSEQUENT EVENT	
Ultimate Holding Company
On 5 June 2013, AHL entered into a definitive agreement with two subsidiaries of Enstar Group Limited (“Enstar”) under which Enstar agreed to acquire the entire issued share capital of the Atrium Group. As at 30 September 2013, completion of the transaction remained conditioned on, among other things, governmental and regulatory approvals and satisfaction of various customary closing conditions. Enstar subsequently announced that Trident V, L.P., Trident V Parallel Fund, L.P. and Trident V Professionals Fund, L.P. (collectively, “Trident”) had acquired a 40% interest in the holding company for the acquisition subsidiary on 3 July 2013 and had agreed to provide 40% of the purchase price and related expenses for the acquisition of the Atrium Group.
The parties to the definitive purchase agreement for the acquisition entered into a deed of variation on 21 November 2013, which provided, among other things, for the payment of a $25.0 million pre-completion dividend from Atrium to AHL and a corresponding $25.0 million reduction in the purchase price (bringing the total purchase price from $183.0 million to $158.0 million). The transaction was completed on 25 November 2013.
In addition, on 5 June 2013, AHL entered into a definitive agreement with two subsidiaries of Enstar under which Enstar agreed to acquire the entire issued share capital of Arden Reinsurance Company Limited “Arden Re”), which is also a subsidiary of AHL. Arden Re is a Bermuda-based reinsurance company that provides reinsurance to Atrium’s corporate name. The two transactions are governed by separate purchase agreements and Enstar’s acquisition of the Atrium Group was not conditioned on its acquisition of Arden Re. On 9 September 2013, Arden Holdings completed its sale of Arden Re’s entire issued share capital to Enstar’s wholly-owned subsidiary and Trident.
 
23

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2012
 
24.	SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES IN THE UNITED KINGDOM (“UK GAAP”) AND ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (“US GAAP”)	
The Atrium Underwriting Group Limited financial statements have been prepared in accordance with UK GAAP as applied in note 1. UK GAAP differs to the requirements of US GAAP in certain respects. The effects of the application of US GAAP to the profit for the period after taxation, as determined under UK GAAP, are set out in the tables below:
 
a)	Profit for the 12 months ending 31 December	
Income Statement

 	  	 	  	 	 	 	2012	 	
 	  	 	  	 	 	 	$ 000	 	
 	  	UK GAAP profit for the period after taxation	  	 	 	 	 	 	28,432	  	
 	 	 	 	
 	  	US GAAP adjustments:	  	 	 	 	 	 	 	 	
 	  	i) Amortisation of goodwill and purchased capacity	  	 	1,543	  	 	 	 	 	
 	  	ii) DAC adjustment	  	 	(323	) 	 	 	 	 	
 	  	iii) Taxation	  	 	282	  	 	 	 	 	
 	  	 	  	 	 	 	 	 	 	 	
 	  	Total US GAAP Adjustments	  	 	 	 	 	 	1,502	  	
 	 	 	 	
 	  	Amount treated as OCI	  	 	 	 	 	 	 	 	
 	  	iv) Unrealised (gains)/losses	  	 	 	 	 	 	132	  	
 	  	 	  	 	 	 	 	 	 	 	
 	  	Net income under US GAAP	  	 	 	 	 	 	30,066	  	

Comprehensive Income	  	 	 	 	 	 	
 	 	 	 	
 	  	 	  	 	 	 	2012	 	
 	  	 	  	 	 	 	$ 000	 	
 	  	Profit in accordance with US GAAP	  	 	 	 	 	 	30,066	  	
 	 	 	 	
 	  	Amount transferred from Income Statement	  	 	 	 	 	 	 	 	
 	  	iv) Unrealised (gains)/losses	  	 	 	 	 	 	(132	) 	
 	  	 	  	 	 	 	 	 	 	 	
 	  	Comprehensive income in accordance with US GAAP	  	 	 	 	 	 	29,934	  	
 	  	 	  	 	 	 	 	 	 	 	
i) Amortisation of goodwill and purchased capacity
Under UK GAAP goodwill arising on acquisitions and purchased syndicate capacity is capitalised, classified as an asset on the balance sheet and amortised on a straight line basis over its useful economic life up to a presumed maximum of 20 years. Under US GAAP goodwill and purchased capacity is not automatically amortised but reviewed, annual or more frequently if impairment indicators exist, for impairment instead. We have carried out an impairment review and no write down is required.
 
24

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2012
 
ii) DAC adjustment
Under UK GAAP the ABI SORP allows deferral of direct and indirect costs arising in the acquisition of insurance contracts. Under US GAAP insurance entities are required to capitalise certain acquisition costs directly related to successful insurance contracts. Indirect costs are required to be expensed as incurred.
iii) Taxation
This adjustment reflects the differences between the calculation of current and deferred taxation as set out in the table below:

 	  	2012	 	
 	  	$ 000	 	
US GAAP Taxation adjustments	  	 	 	 	
Current taxation	  	 	328	  	
Deferred taxation	  	 	(610	) 	
 	  	 	 	 	
 	  	 	(282	) 	
 	  	 	 	 	
UK entities are taxed locally level with reference to their UK GAAP taxable profits. Adjustments made to present the consolidated results of the group under US GAAP are both presentational and numerical. To the extent that a temporary difference exists due to adjustments made, deferred tax has been recognised under US GAAP principles. The tax impact in the year is either in the profit and loss account or Other Comprehensive Income for US GAAP purposes, following where the underlying item to which the tax relates is accounted for. This is with the exception of the impact of tax rate changes, which are provided in the profit and loss account
iv) Amortisation adjustment and unrealised (gains)/losses re investments
Under UK GAAP investments are stated at their current values at the end of the period. Unrealised gains and losses are calculated as the difference between the valuation at the balance sheet date and their valuation at the last balance sheet date or purchase price, if acquired during the period. Unrealised gains and losses are included within investment return in the Profit and Loss Account.
Under US GAAP these investments are classified as available-for-sale and are carried at fair value, with unrealized gains and losses excluded from net earnings and reported as a separate component of accumulated Other Comprehensive Income. Amortization of premium or discount is recognized using the effective yield method and included in net investment income.
 
b)	Balance Sheet as at 31 December 2012	

 	  	2012	 	
 	  	$ 000	 	
UK GAAP shareholders’ equity interest	  	 	62,142	  	
 	 	
US GAAP adjustments:	  	 	 	 	
Amortisation of goodwill and purchased capacity	  	 	19,035	  	
DAC adjustment	  	 	(2,243	) 	
v) Taxation	  	 	34	  	
 	  	 	 	 	
Total US GAAP Adjustments	  	 	16,826	  	
 	  	 	 	 	
Net shareholders equity interest under US GAAP	  	 	78,968	  	

25

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2012
 
v) Taxation
This adjustment reflects the differences between the calculation of current and deferred taxation as set out in the table below:

 	  	2012	 	
 	  	$ 000	 	
US GAAP Taxation adjustments	  	 	 	 	
Current taxation	  	 	0	  	
Deferred taxation	  	 	(34	) 	
 	  	 	 	 	
 	  	 	(34	) 	
 	  	 	 	 	
The position presented in the table above represents the cumulative impact of GAAP differences as at each balance sheet date, being due to temporary differences arising on differences between UK GAAP and US GAAP for DAC, purchased syndicate capacity amortisation, and amortisation adjustments regarding investments.
 
c)	Cashflow Statement For the 12 months to 31 December 2012	
As a wholly owned subsidiary the Company applied the exemption available in FRS 1 from the requirement to prepare a cash flow statement for UK GAAP reporting purposes. Attached is the US GAAP cashflow statement.

Cash flows provided by operating activities:	  	 	 	 	
 	 	
Net income	  	 	29,934	  	
Adjustments to reconcile net income to net cash provided by operating activities:	  	 	 	 	
Net realized investment (gains) losses	  	 	(110	) 	
Net unrealised investment (gains) losses	  	 	0	  	
Net realized investment gains on foreign exchange	  	 	(950	) 	
Net amortization on fixed maturity and short-term investments	  	 	1,299	  	
Depreciation	  	 	222	  	
Change in:	  	 	 	 	
Deposits with ceding companies	  	 	52	  	
Premiums receivable - third party	  	 	(1,393	) 	
Premiums receivable - intercompany	  	 	(3,344	) 	
Accrued investment income	  	 	(102	) 	
Deferred acquisition costs - third party	  	 	(705	) 	
Prepaid reinsurance - third party	  	 	297	  	
Prepaid reinsurance - intercompany	  	 	232	  	
Paid losses recoverable - third party	  	 	924	  	
Paid losses recoverable - intercompany	  	 	(12,805	) 	
Loss reserve recoverable - third party	  	 	7,397	  	
Loss reserve recoverable - intercompany	  	 	(15,027	) 	
Other assets	  	 	(10,053	) 	
Reserve for losses and loss adj exp - third pary	  	 	(48,475	) 	
Unearned premiums - third party	  	 	1,471	  	
Reinsurance premiums payable - third party	  	 	(4,313	) 	
Reinsurance premiums payable - intercompany	  	 	28,778	  	
 
26

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE FINANCIAL STATEMENTS
at 31 December 2012

Losses payable - third party	  	 	(1,770	) 	
Intercompany receivable/payable	  	 	3,134	  	
Deferred tax asset	  	 	(728	) 	
Deferred tax liability	  	 	(8,142	) 	
Current taxes recoverable	  	 	(8,256	) 	
Current taxes payable	  	 	11,327	  	
Other liabilites	  	 	(4,342	) 	
Accounts payable and accrued expenses	  	 	5,728	  	
 	  	 	 	 	
Net cash provided by operating activities	  	 	(29,717	) 	

Cash flows used in investing activities:	  	 	 	 	
Purchases of fixed maturity investments	  	 	(158,280	) 	
Sales and maturities of fixed maturity investments	  	 	94,498	  	
Net purchases of short-term investments	  	 	(1,647	) 	
Net sale of other investments	  	 	55,607	  	
Net purchase of fixed assets	  	 	(120	) 	
 	  	 	 	 	
Net cash used in investing activities	  	 	(9,942	) 	

Cash flows provided by financing activities:	  	 	 	 	
Dividends to parent	  	 	(29,400	) 	
 	  	 	 	 	
Net cash provided by financing activities	  	 	(29,400	) 	
 	  	 	 	 	
Effect of exchange rate changes on cash and cash equivalents	  	 	(2,136	) 	
 	  	 	 	 	
Net decrease in cash and cash equivalents	  	 	(71,195	) 	
 	  	 	 	 	
Cash and cash equivalents - beginning of year	  	 	134,015	  	
 	  	 	 	 	
Cash and cash equivalents - end of year	  	 	62,821	  	
 	  	 	 	 	
Cash and cash equivalent is made up of cash of $44,256k, money market balances of $16,121k and investments of $2,444k maturing within 90 days of the balance sheet date.
 
27

Exhibit 99.2
ATRIUM UNDERWRITING GROUP LIMITED
FINANCIAL STATEMENTS
NINE MONTHS to 30 SEPTEMBER 2013

ATRIUM UNDERWRITING GROUP LIMITED
 
UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the nine months ending 30 September 2013 and 2012
TECHNICAL ACCOUNT – GENERAL BUSINESS

 	  	Note	  	2013	 	 	2012	 	
 	  	 	  	$ 000	 	 	$ 000	 	
Gross premiums written	  	2	  	 	119,813	  	 	 	121,283	  	
Outward reinsurance premiums	  	2	  	 	(57,070	) 	 	 	(85,160	) 	
 	  	 	  	 	 	 	 	 	 	 	
Net premiums written	  	 	  	 	62,743	  	 	 	36,123	  	
 	 	 	 	
Change in the gross provision for unearned premiums	  	2	  	 	(7,034	) 	 	 	(7,927	) 	
Change in the provision for unearned premiums, reinsurers’ share	  	2	  	 	251	  	 	 	(326	) 	
 	  	 	  	 	 	 	 	 	 	 	
Change in the net provision for unearned premiums	  	 	  	 	(6,783	) 	 	 	(8,253	) 	
 	  	 	  	 	 	 	 	 	 	 	
Earned premiums, net of reinsurance	  	 	  	 	55,960	  	 	 	27,870	  	
 	  	 	  	 	 	 	 	 	 	 	
Allocated investment return transferred from the non-technical account	  	4	  	 	(268	) 	 	 	4,609	  	
Other technical income	  	3	  	 	20,196	  	 	 	20,711	  	
 	 	 	 	
Claims paid	  	 	  	 	 	 	 	 	 	 	
Gross amount	  	2	  	 	(54,580	) 	 	 	(50,365	) 	
Reinsurers’ share	  	2	  	 	37,402	  	 	 	10,783	  	
 	  	 	  	 	 	 	 	 	 	 	
Net claims paid	  	 	  	 	(17,178	) 	 	 	(39,582	) 	
 	 	 	 	
Change in the provision for claims	  	 	  	 	 	 	 	 	 	 	
Gross amount	  	2	  	 	10,693	  	 	 	12,816	  	
Reinsurers’ share	  	2	  	 	(1,248	) 	 	 	44,557	  	
 	  	 	  	 	 	 	 	 	 	 	
Net change in provision for claims	  	 	  	 	9,445	  	 	 	57,373	  	
 	  	 	  	 	 	 	 	 	 	 	
Claims incurred, net of reinsurance	  	 	  	 	(7,733	) 	 	 	17,791	  	
 	 	 	 	
Net operating expenses	  	5	  	 	(32,577	) 	 	 	(28,845	) 	
 	  	 	  	 	 	 	 	 	 	 	
Balance on the technical account for general business	  	 	  	 	35,578	  	 	 	42,136	  	

2

ATRIUM UNDERWRITING GROUP LIMITED
 
UNAUDITED CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the nine months ending 30 September 2013 and 2012
NON-TECHNICAL ACCOUNT

 	  	Note	  	2013	 	 	2012	 	
 	  	 	  	$ 000	 	 	$ 000	 	
Balance on the general business technical account	  	 	  	 	35,578	  	 	 	42,136	  	
Investment income	  	4	  	 	3,369	  	 	 	3,413	  	
Unrealised gain on investments	  	4	  	 	136	  	 	 	2,749	  	
Investment expenses and charges	  	4	  	 	(719	) 	 	 	(483	) 	
Unrealised losses on investments	  	4	  	 	(2,953	) 	 	 	(843	) 	
Allocated investment return transferred to the general business technical account	  	4	  	 	268	  	 	 	(4,609	) 	
Other charges, including amortisation	  	 	  	 	(16,141	) 	 	 	(16,399	) 	
 	  	 	  	 	 	 	 	 	 	 	
Profit on ordinary activities before tax	  	 	  	 	19,538	  	 	 	25,964	  	
Tax on profit on ordinary activities	  	7	  	 	(3,319	) 	 	 	(7,281	) 	
 	  	 	  	 	 	 	 	 	 	 	
Profit on ordinary activities after tax	  	 	  	 	16,219	  	 	 	18,683	  	
 	  	 	  	 	 	 	 	 	 	 	
The profit and loss account relates entirely to continuing activities.
There are no recognised gains and losses other than the profit or loss for the period, therefore, no statement of total recognised gains or losses has been presented.
 
3

ATRIUM UNDERWRITING GROUP LIMITED
 
UNAUDITED CONSOLIDATED BALANCE SHEET
at 30 September 2013 (comparatives 31 December 2012)

 	  	Note	  	2013	 	  	2012	 	
 	  	 	  	$ 000	 	  	$ 000	 	
Assets	  	 	  	 	 	 	  	 	 	 	
 	 	 	 	
Intangible assets	  	 	  	 	 	 	  	 	 	 	
Goodwill	  	 	  	 	6,486	  	  	 	7,264	  	
Purchased syndicate capacity	  	 	  	 	4,183	  	  	 	4,562	  	
 	  	 	  	 	 	 	  	 	 	 	
 	  	8	  	 	10,669	  	  	 	11,826	  	
 	 	 	 	
Investments	  	 	  	 	 	 	  	 	 	 	
Tangible assets	  	 	  	 	1,019	  	  	 	279	  	
Financial investments	  	9	  	 	253,587	  	  	 	278,603	  	
Deposits with ceding undertakings	  	9	  	 	573	  	  	 	353	  	
 	  	 	  	 	 	 	  	 	 	 	
 	  	 	  	 	255,179	  	  	 	279,235	  	
 	  	 	  	 	 	 	  	 	 	 	
Reinsurers’ share of technical provisions	  	 	  	 	 	 	  	 	 	 	
Provision for unearned premiums	  	2	  	 	3,776	  	  	 	3,524	  	
Claims outstanding	  	2	  	 	82,689	  	  	 	90,238	  	
 	  	 	  	 	 	 	  	 	 	 	
 	  	12	  	 	86,465	  	  	 	93,762	  	
 	  	 	  	 	 	 	  	 	 	 	
Debtors	  	 	  	 	 	 	  	 	 	 	
Arising out of direct insurance operations - owed by intermediaries	  	 	  	 	42,060	  	  	 	54,991	  	
Arising out of reinsurance operations	  	 	  	 	105,450	  	  	 	70,152	  	
Other debtors	  	 	  	 	5,211	  	  	 	11,154	  	
 	  	 	  	 	 	 	  	 	 	 	
 	  	10	  	 	152,721	  	  	 	136,297	  	
 	  	 	  	 	 	 	  	 	 	 	
Other assets	  	 	  	 	 	 	  	 	 	 	
Cash at bank	  	 	  	 	78,236	  	  	 	44,256	  	
 	  	 	  	 	 	 	  	 	 	 	
 	  	 	  	 	78,236	  	  	 	44,256	  	
 	  	 	  	 	 	 	  	 	 	 	
Prepayments and accrued income	  	 	  	 	 	 	  	 	 	 	
Deferred acquisition costs	  	11	  	 	20,160	  	  	 	18,072	  	
Other prepayments and accrued income	  	 	  	 	20,318	  	  	 	24,562	  	
 	  	 	  	 	 	 	  	 	 	 	
 	  	 	  	 	40,478	  	  	 	42,634	  	
 	  	 	  	 	 	 	  	 	 	 	
Total assets	  	 	  	 	623,748	  	  	 	608,010	  	

4

ATRIUM UNDERWRITING GROUP LIMITED
 
UNAUDITED CONSOLIDATED BALANCE SHEET
at 30 September 2013 (comparatives 31 December 2012)

 	  	Note	  	2013	 	  	2012	 	
 	  	 	  	$ 000	 	  	$ 000	 	
Liabilities	  	 	  	 	 	 	  	 	 	 	
 	 	 	 	
Capital and reserves	  	 	  	 	 	 	  	 	 	 	
Called up share capital	  	 	  	 	24,702	  	  	 	24,702	  	
Profit and loss account	  	 	  	 	51,504	  	  	 	35,280	  	
Share premium account	  	 	  	 	2,161	  	  	 	2,160	  	
Merger reserve	  	 	  	 	 	 	  	 	—  	  	
 	  	 	  	 	 	 	  	 	 	 	
Total shareholders funds	  	 	  	 	78,367	  	  	 	62,142	  	
 	  	 	  	 	 	 	  	 	 	 	
Technical provisions	  	 	  	 	 	 	  	 	 	 	
Provision for unearned premiums	  	2	  	 	69,580	  	  	 	62,546	  	
Claims outstanding	  	2	  	 	233,036	  	  	 	250,319	  	
 	  	 	  	 	 	 	  	 	 	 	
 	  	12	  	 	302,616	  	  	 	312,865	  	
 	  	 	  	 	 	 	  	 	 	 	
Provisions for other risk and charges	  	7	  	 	21,940	  	  	 	33,633	  	
 	 	 	 	
Deposits received from reinsurers	  	 	  	 	172	  	  	 	165	  	
 	 	 	 	
Creditors	  	 	  	 	 	 	  	 	 	 	
Arising out of direct insurance operations	  	 	  	 	11,375	  	  	 	23,446	  	
Arising out of reinsurance operations	  	 	  	 	180,412	  	  	 	145,417	  	
Other creditors including taxation and social security	  	 	  	 	19,125	  	  	 	14,764	  	
 	  	 	  	 	 	 	  	 	 	 	
 	  	13	  	 	210,912	  	  	 	183,627	  	
 	  	 	  	 	 	 	  	 	 	 	
Accruals and deferred income	  	 	  	 	9,741	  	  	 	15,578	  	
 	  	 	  	 	 	 	  	 	 	 	
Total liabilities	  	 	  	 	623,748	  	  	 	608,010	  	

 
5

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
For the nine months ending 30 September 2013 and 2012
 
1.	ACCOUNTING POLICIES	
(a) Basis of preparation
These financial statements have been prepared solely for the purpose of meeting the requirements of Rule 3-05 of Regulation S-X. The financial statements have been prepared in accordance with UK Generally Accepted Accounting Policies (‘UK GAAP’) and the Statement of Recommended Practice on Accounting for Insurance Business issued by the Association of British Insurers in December 2005, as amended in December 2006, (the ABI SORP). See note 16 for reconciliation between UK GAAP and US GAAP.
The syndicates in which the Atrium Group participates are managed and controlled by their respective managing agents. The accounting information in respect of these participations has been provided by the managing agents and has been audited by their respective syndicate auditors. Information in respect of the Atrium Group’s participations on the managed syndicates is available direct from the syndicate accounting records.
As a wholly owned subsidiary of Arden Holdings Limited (AHL), the Company has applied the exemption available in FRS 1 from the requirement to prepare a cash flow statement.
As a wholly owned subsidiary of AHL, the Company has applied the exemption available in FRS 8 from the requirement to disclose transactions with related parties.
The Atrium Group’s functional and presentational currency is US Dollars.
(b) Basis of consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. Subsidiaries are those entities in which the Atrium Group directly or indirectly has the power to govern the operating and financial policies in order to gain economic benefits. The financial statements of subsidiaries are prepared for the same reporting year as the parent company. Subsidiaries are consolidated from the date control is gained and cease to be consolidated from the date control is transferred out.
For each syndicate in which the Atrium Group participates, the Atrium Group’s proportion of the syndicate income and expenses has been reflected in its consolidated income statement and the Atrium Group’s proportion of the syndicate’s assets and liabilities has been reflected in its Consolidated Balance Sheet. Syndicate assets are held subject to trust deeds for the benefit of the syndicate’s insurance creditors.
All inter-company balances, profits and transactions are eliminated.
 
6

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
For the nine months ending 30 September 2013 and 2012
 
2.	SEGMENTAL ANALYSIS	

2013	  	Gross
Premiums
Written
$ 000	 	  	Gross
Premiums
Earned
$ 000	 	  	Gross
Claims
Incurred
$ 000	 	 	Gross
Operating
Expenses
$ 000	 	 	Reinsurance
Balance
$ 000	 	 	Net
Technical
Result
$ 000	 	 	Net
Technical
Provisions
$ 000	 	
Direct business	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Accident and health	  	 	11,126	  	  	 	10,055	  	  	 	(4,844	) 	 	 	(3,635	) 	 	 	535	  	 	 	2,111	  	 	 	9,714	  	
Motor	  	 	1,485	  	  	 	1,451	  	  	 	(1,083	) 	 	 	(524	) 	 	 	359	  	 	 	204	  	 	 	1,679	  	
Marine, aviation and transport	  	 	44,906	  	  	 	43,429	  	  	 	(8,926	) 	 	 	(12,295	) 	 	 	(3,396	) 	 	 	18,812	  	 	 	56,736	  	
Fire and other damage to property	  	 	28,201	  	  	 	25,849	  	  	 	(11,614	) 	 	 	(7,927	) 	 	 	(11,630	) 	 	 	(5,322	) 	 	 	45,292	  	
Third party liability	  	 	21,584	  	  	 	20,002	  	  	 	(11,314	) 	 	 	(6,156	) 	 	 	(3,429	) 	 	 	(897	) 	 	 	72,307	  	
Other	  	 	1,731	  	  	 	1,425	  	  	 	(573	) 	 	 	(379	) 	 	 	700	  	 	 	1,173	  	 	 	3,374	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total direct	  	 	109,033	  	  	 	102,211	  	  	 	(38,354	) 	 	 	(30,916	) 	 	 	(16,861	) 	 	 	16,080	  	 	 	189,102	  	
 	 	 	 	 	 	 	 	
Reinsurance Business	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Reinsurance acceptances	  	 	10,780	  	  	 	10,568	  	  	 	(5,533	) 	 	 	(1,241	) 	 	 	(4,224	) 	 	 	(430	) 	 	 	27,048	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	119,813	  	  	 	112,779	  	  	 	(43,887	) 	 	 	(32,157	) 	 	 	(21,085	) 	 	 	15,650	  	 	 	216,150	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other technical income	  	  	 	 	 	 	 	 	 	 	 	 	 	 	 	20,196	  	 	 	 	 	
Allocated investment return	  	  	 	 	 	 	 	 	 	 	 	 	 	 	 	(268	) 	 	 	 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance on technical account	  	  	 	 	 	 	 	 	 	 	 	 	 	 	 	35,578	  	 	 	 	 	

2012	  	Gross
Premiums
Written
$ 000	 	  	Gross
Premiums
Earned
$ 000	 	  	Gross
Claims
Incurred
$ 000	 	 	Gross
Operating
Expenses
$ 000	 	 	Reinsurance
Balance
$ 000	 	 	Net
Technical
Result
$ 000	 	 	Net
Technical
Provisions
$ 000	 	
Direct business	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Accident and health	  	 	11,263	  	  	 	10,107	  	  	 	(4,144	) 	 	 	(3,350	) 	 	 	745	  	 	 	3,357	  	 	 	10,160	  	
Motor	  	 	1,504	  	  	 	1,458	  	  	 	(926	) 	 	 	(483	) 	 	 	500	  	 	 	549	  	 	 	1,756	  	
Marine, aviation and Transport	  	 	45,456	  	  	 	43,651	  	  	 	(7,637	) 	 	 	(11,332	) 	 	 	(4,728	) 	 	 	19,954	  	 	 	59,339	  	
Fire and other damage to property	  	 	28,547	  	  	 	25,981	  	  	 	(9,937	) 	 	 	(7,306	) 	 	 	(16,190	) 	 	 	(7,452	) 	 	 	47,370	  	
Third party liability	  	 	21,849	  	  	 	20,104	  	  	 	(9,680	) 	 	 	(5,674	) 	 	 	(4,773	) 	 	 	(24	) 	 	 	75,624	  	
Other	  	 	1,752	  	  	 	1,433	  	  	 	(491	) 	 	 	(349	) 	 	 	974	  	 	 	1,567	  	 	 	3,529	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total direct	  	 	110,371	  	  	 	102,734	  	  	 	(32,815	) 	 	 	(28,494	) 	 	 	(23,472	) 	 	 	17,951	  	 	 	197,778	  	
 	 	 	 	 	 	 	 	
Reinsurance Business	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Reinsurance acceptances	  	 	10,912	  	  	 	10,622	  	  	 	(4,734	) 	 	 	(1,145	) 	 	 	(5,880	) 	 	 	(1,135	) 	 	 	28,288	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	121,283	  	  	 	113,356	  	  	 	(37,549	) 	 	 	(29,639	) 	 	 	(29,352	) 	 	 	16,816	  	 	 	226,066	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other technical income	  	  	 	 	 	 	 	 	 	 	 	 	 	 	 	20,711	  	 	 	 	 	
Allocated investment return	  	  	 	 	 	 	 	 	 	 	 	 	 	 	 	4,609	  	 	 	 	 	
 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance on technical account	  	  	 	 	 	 	 	 	 	 	 	 	 	 	 	42,136	  	 	 	 	 	

7

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
For the nine months ending 30 September 2013 and 2012
 
2.	SEGMENTAL ANALYSIS (continued)	
 
All premiums were concluded in the UK. The geographic analysis of premiums by destination is as follows:

 	  	2013	 	  	2012	 	
 	  	%	 	  	%	 	
UK	  	 	3	  	  	 	4	  	
Other EU countries	  	 	7	  	  	 	6	  	
US	  	 	25	  	  	 	33	  	
Other	  	 	65	  	  	 	57	  	
 	  	 	 	 	  	 	 	 	
 	  	 	100	  	  	 	100	  	

3.	OTHER TECHNICAL INCOME	

 	  	2013	 	  	2012	 	
 	  	$ 000	 	  	$ 000	 	
Fee income	  	 	6,305	  	  	 	5,841	  	
Commission income	  	 	13,671	  	  	 	14,767	  	
Other Income	  	 	220	  	  	 	103	  	
 	  	 	 	 	  	 	 	 	
 	  	 	20,196	  	  	 	20,711	  	

4.	INVESTMENT RETURN	

 	  	2013	 	 	2012	 	
 	  	$ 000	 	 	$ 000	 	
Investment income	  	 	 	 	 	 	 	 	
Income from investments	  	 	3,334	  	 	 	3,308	  	
Net gains on the realisation of investments	  	 	—  	  	 	 	—  	  	
Other interest	  	 	35	  	 	 	105	  	
 	  	 	 	 	 	 	 	 	
 	  	 	3,369	  	 	 	3,413	  	
 	  	 	 	 	 	 	 	 	
Investment expenses and charges	  	 	 	 	 	 	 	 	
Investment management expenses	  	 	(211	) 	 	 	(246	) 	
Net losses on the realisation of investments	  	 	(508	) 	 	 	(237	) 	
 	  	 	 	 	 	 	 	 	
 	  	 	(719	) 	 	 	(483	) 	
 	  	 	 	 	 	 	 	 	
Net unrealised gains on investments	  	 	 	 	 	 	 	 	
Unrealised gains on investments	  	 	136	  	 	 	2,749	  	
Unrealised losses on investments	  	 	(2,953	) 	 	 	(843	) 	
 	  	 	 	 	 	 	 	 	
 	  	 	(2,817	) 	 	 	1,906	  	
 	  	 	 	 	 	 	 	 	
Total investment return	  	 	(167	) 	 	 	4,836	  	

8

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
For the nine months ending 30 September 2013 and 2012
 
5.	NET OPERATING EXPENSES	

 	  	2013	 	 	2012	 	
 	  	$ 000	 	 	$ 000	 	
Brokerage and other business acquisition expenses	  	 	29,217	  	 	 	26,848	  	
Change in deferred acquisition costs	  	 	(2,088	) 	 	 	(2,658	) 	
Foreign exchange (gain)/loss	  	 	(354	) 	 	 	(637	) 	
Syndicate operating expenses	  	 	3,966	  	 	 	4,341	  	
Direct operating expenses	  	 	1,416	  	 	 	1,745	  	
 	  	 	 	 	 	 	 	 	
 	  	 	32,157	  	 	 	29,639	  	
Reinsurance commissions receivable	  	 	420	  	 	 	(794	) 	
 	  	 	 	 	 	 	 	 	
 	  	 	32,577	  	 	 	28,845	  	

6.	SHARE BASED INCENTIVE SCHEMES	
There were the following movements in the number of share awards held by employees:

 	  	Period ended 30
September 2013
Number	 	  	Weighted
average
fair value
US$	 	  	Period ended 30
September 2012
Number	 	 	Weighted
average
fair value
US$	 	
Outstanding at 1 January	  	 	136,131	  	  	 	112.63	  	  	 	149,676	  	 	 	93.63	  	
Granted	  	 	—  	  	  	 	—  	  	  	 	30,323	  	 	 	118.97	  	
Dividend Adjustment	  	 	—  	  	  	 	—  	  	  	 	—  	  	 	 	—  	  	
Vested	  	 	—  	  	  	 	—  	  	  	 	—  	  	 	 	—  	  	
Forfeited	  	 	—  	  	  	 	—  	  	  	 	(5,413	) 	 	 	101.69	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
Outstanding at 30 September	  	 	136,131	  	  	 	112.63	  	  	 	174,586	  	 	 	105.33	  	

7.	TAX	
(a) Tax on profit on ordinary activities

 	  	2013	 	 	2012	 	
 	  	$ 000	 	 	$ 000	 	
The tax charge is made up as follows:	  	 	 	 	 	 	 	 	
Current tax:	  	 	 	 	 	 	 	 	
UK corporation tax	  	 	14,955	  	 	 	10,155	  	
Tax under provided (over) in previous years	  	 	(34	) 	 	 	2,827	  	
 	  	 	 	 	 	 	 	 	
 	  	 	14,921	  	 	 	12,982	  	
Foreign tax	  	 	107	  	 	 	690	  	
 	  	 	 	 	 	 	 	 	
Total current tax	  	 	15,028	  	 	 	13,672	  	
 	  	 	 	 	 	 	 	 	
Deferred tax:	  	 	 	 	 	 	 	 	
Origination and reversal of timing differences	  	 	(9,889	) 	 	 	(3,196	) 	
Deferred tax under provided/(over) in previous years	  	 	—  	  	 	 	—  	  	
Effect of decreased tax rate	  	 	(1,820	) 	 	 	(3,195	) 	
 	  	 	 	 	 	 	 	 	
Total deferred tax (note 8 (b))	  	 	(11,709	) 	 	 	(6,391	) 	
 	  	 	 	 	 	 	 	 	
Tax on profit on ordinary activities	  	 	3,319	  	 	 	7,281	  	

9

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
For the nine months ending 30 September 2013 and 2012
 
(b)	Deferred tax	

 	  	2013	 	 	2012	 	
 	  	$ 000	 	 	$ 000	 	
 	  	 	 	 	 	 	
Balance at 1 January	  	 	(33,649	) 	 	 	(41,902	) 	
Deferred tax credit (charge) in profit and loss account (note 8(a))	  	 	11,709	  	 	 	8,269	  	
 	  	 	 	 	 	 	 	 	
At 30 September	  	 	(21,940	) 	 	 	(33,633	) 	
 	  	 	 	 	 	 	 	 	
Analysis of deferred tax liability at 30 September:	  	 	 	 	 	 	 	 	
 	 	 	
Provision for underwriting results	  	 	(24,325	) 	 	 	(36,341	) 	
Other	  	 	2,385	  	 	 	2,708	  	
 	  	 	 	 	 	 	 	 	
 	  	 	(21,940	) 	 	 	(33,633	) 	
 	  	 	 	 	 	 	 	 	
The deferred tax liability in respect of underwriting results relates to the underwriting results that have arisen on the 2011, 2012 and 2013 years of account. These results will be assessed to tax in 2014, 2015 and 2016 respectively.
 
8.	INTANGIBLE ASSETS	

 	  	Goodwill	 	  	Purchased
syndicate
capacity	 	  	Total	 	
 	  	$ 000	 	  	$ 000	 	  	$ 000	 	
Cost	  	 	 	 	  	 	 	 	  	 	 	 	
At 1 January 2013	  	 	20,756	  	  	 	10,105	  	  	 	30,861	  	
Disposals	  	 	—  	  	  	 	—  	  	  	 	—  	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
At 30 September 2013	  	 	20,756	  	  	 	10,105	  	  	 	30,861	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Amortisation	  	 	 	 	  	 	 	 	  	 	 	 	
At 1 January 2013	  	 	13,492	  	  	 	5,543	  	  	 	19,035	  	
Amortisation on disposals	  	 	—  	  	  	 	—  	  	  	 	—  	  	
Provided during the year	  	 	778	  	  	 	379	  	  	 	1,157	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
At 30 September 2013	  	 	14,270	  	  	 	5,922	  	  	 	20,192	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Net book value	  	 	 	 	  	 	 	 	  	 	 	 	
At 30 September 2013	  	 	6,486	  	  	 	4,183	  	  	 	10,669	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
At 1 January 2013	  	 	7,264	  	  	 	4,562	  	  	 	11,826	  	

10

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
For the nine months ending 30 September 2013 and 2012
 
9.	FINANCIAL INVESTMENTS	

 	  	2013	 	  	2013	 	  	2012	 	  	2012	 	
 	  	Historic	 	  	Market	 	  	Historic	 	  	Market	 	
 	  	Cost	 	  	Value	 	  	Cost	 	  	Value	 	
 	  	$ 000	 	  	$ 000	 	  	$ 000	 	  	$ 000	 	
Debt securities and other fixed income securities	  	 	252,713	  	  	 	220,334	  	  	 	248,844	  	  	 	249,856	  	
Loans and deposits with credit institutions	  	 	6,626	  	  	 	6,590	  	  	 	10,600	  	  	 	10,667	  	
Other investments	  	 	—  	  	  	 	—  	  	  	 	1,959	  	  	 	1,959	  	
Money market balances	  	 	26,663	  	  	 	26,663	  	  	 	16,121	  	  	 	16,121	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	 	286,002	  	  	 	253,587	  	  	 	277,524	  	  	 	278,603	  	

 	 	 	 	 	 	 	 	 	 	
Analysis of market value	  	2013	 	  	2012	 	 	
 	  	$ 000	 	  	$ 000	 	 	
Listed investments	  	 	220,334	  	  	 	249,856	  	 	
Unlisted investments	  	 	6,590	  	  	 	12,626	  	 	
Money market balances	  	 	26,663	  	  	 	16,121	  	 	
 	  	 	 	 	  	 	 	 	 	
 	  	 	253,587	  	  	 	278,603	  	 	
 	  	 	 	 	  	 	 	 	 	
Disclosure of Fair Values in accordance with the fair value hierarchy
In accordance with the Amendments to FRS 29 Financial Instruments: Disclosures, the fair value of financial instruments based on a three-level fair value hierarchy that reflects the significance of the inputs used in measuring the fair value is provided below.
The levels of the fair value hierarchy are defined by the standard as follows:
Level 1 - fair values measured using quoted prices (unadjusted) in active markets for identical instruments,
Level 2 - fair values measured using directly or indirectly observable inputs or other similar valuation techniques for which all significant inputs are based on observable market data,
Level 3 - fair values measured using valuation techniques for which significant inputs are not based on market observable data.
The fair value of the Atrium Group’s financial assets are based on prices provided by investment managers who obtain market data from numerous independent pricing services. The pricing services used by the investment manager obtain actual transaction prices for securities that have quoted prices in active markets. For those securities which are not actively traded, the pricing services use common market valuation pricing models. Observable inputs used in common market valuation pricing models include, but are not limited to, broker quotes, credit ratings, interest rates and yield curves, prepayment speeds, default rates and other such inputs which are available from market sources.
Included within Level 1 of the hierarchy are the Atrium Group’s share of Government bonds and Treasury bills which are measured based on quoted prices over which the Atrium Group has control.
 
11

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
For the nine months ending 30 September 2013 and 2012
 
Level 2 of the hierarchy contains the Atrium Group’s share of U.S Government Agencies, Corporate Securities, Asset Backed Securities, Mortgage Backed Securities over which the Atrium Group has control. The fair value of these assets are based on prices obtained from both investment managers and investment custodians as discussed above. This level also include a disclosure of the Atrium Group’s share of investments held by non managed syndicates. The directors have classified these holdings as Level 2 following discussions with the relevant managing agency.
The Atrium Group records the unadjusted price provided and validates the price through a number of methods, including a comparison of the prices provided by the investment managers with the investment custodians and the valuation used by external parties to derive fair value. Quoted prices for US Government Agencies and Corporate Securities are based on a limited number of transactions for those securities and as such the Atrium Group considers these instruments to have similar characteristics of those instruments classified as Level 2.
Having reviewed the Atrium Group’s investments using the above criteria as valuation and pricing the Directors are satisfied that there are no Level 3 investments. In certain cases, the inputs used to measure the fair value of a financial instrument may fall into more than one level within the fair value hierarchy. In this instance, the fair value of the instrument in its entirety is classified based on the lowest level of input that is significant to the fair value measurement.
During the year, there were no transfers made between Level 1 and Level 2 of the fair value hierarchy.

30 September 2013	  	Level 1
$ 000	 	  	Level 2
$ 000	 	  	Level 3
$ 000	 	  	Total
fair
value
$ 000	 	
Financial assets :	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Government securities	  	 	73,929	  	  	 	50,004	  	  	 	—  	  	  	 	123,933	  	
Corporate	  	 	—  	  	  	 	74,024	  	  	 	—  	  	  	 	74,024	  	
Asset backed securities	  	 	—  	  	  	 	22,592	  	  	 	—  	  	  	 	22,592	  	
Mortgage backed securities	  	 	—  	  	  	 	6,375	  	  	 	—  	  	  	 	6,375	  	
Deposits with ceding undertakings	  	 	—  	  	  	 	573	  	  	 	—  	  	  	 	573	  	
Money market balances	  	 	26,663	  	  	 	—  	  	  	 	—  	  	  	 	26,663	  	
Group Share of Non managed syndicate investments	  	 	—  	  	  	 	—  	  	  	 	—  	  	  	 	—  	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	 	100,592	  	  	 	153,568	  	  	 	—  	  	  	 	254,160	  	

31 December 2012	  	Level 1
$ 000	 	  	Level 2
$ 000	 	  	Level 3
$ 000	 	  	Total
fair
value
$ 000	 	
Financial assets	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Government securities	  	 	112,109	  	  	 	49,455	  	  	 	—  	  	  	 	161,564	  	
Corporate	  	 	—  	  	  	 	66,870	  	  	 	—  	  	  	 	66,870	  	
Asset backed securities	  	 	—  	  	  	 	14,531	  	  	 	—  	  	  	 	14,531	  	
Mortgage backed securities	  	 	—  	  	  	 	10,667	  	  	 	—  	  	  	 	10,667	  	
Deposits with ceding undertakings	  	 	—  	  	  	 	353	  	  	 	—  	  	  	 	353	  	
Money market balances	  	 	16,121	  	  	 	—  	  	  	 	—  	  	  	 	16,121	  	
Group Share of Non managed syndicate investments	  	 	—  	  	  	 	8,850	  	  	 	—  	  	  	 	8,850	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	 	128,230	  	  	 	150,726	  	  	 	—  	  	  	 	278,956	  	

12

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
For the nine months ending 30 September 2013 and 2012
 
10.	DEBTORS	

 	  	2013	 	  	2012	 	
 	  	$ 000	 	  	$ 000	 	
Amounts falling due within one year	  	 	 	 	  	 	 	 	
Arising out of direct insurance operations	  	 	 	 	  	 	 	 	
- owed by intermediaries	  	 	42,007	  	  	 	54,934	  	
Arising out of reinsurance operations	  	 	105,395	  	  	 	70,066	  	
Other debtors	  	 	2,252	  	  	 	8,148	  	
 	  	 	 	 	  	 	 	 	
 	  	 	149,654	  	  	 	133,148	  	
Amounts falling due after one year	  	 	 	 	  	 	 	 	
Arising out of direct insurance operations	  	 	 	 	  	 	 	 	
- owed by intermediaries	  	 	53	  	  	 	57	  	
Arising out of reinsurance operations	  	 	55	  	  	 	86	  	
Other debtors	  	 	2,959	  	  	 	3,006	  	
 	  	 	 	 	  	 	 	 	
 	  	 	3,067	  	  	 	3,149	  	
 	  	 	 	 	  	 	 	 	
 	  	 	152,721	  	  	 	136,297	  	

11.	DEFERRED ACQUISITION COSTS	

 	  	2013	 	  	2012	 	
 	  	$ 000	 	  	$ 000	 	
At 1 January	  	 	18,072	  	  	 	16,854	  	
Change in deferred acquisition costs	  	 	2,088	  	  	 	1,218	  	
 	  	 	 	 	  	 	 	 	
At 30 September	  	 	20,160	  	  	 	18,072	  	

12.	TECHNICAL PROVISIONS	

2013	  	Gross
$ 000	 	  	Reinsurers’
share
$ 000	 	 	Net
$ 000	 	
Notified outstanding claims	  	 	87,085	  	  	 	(66,610	) 	 	 	20,475	  	
Provision for Claims incurred but not reported	  	 	143,646	  	  	 	(16,080	) 	 	 	127,566	  	
Claims handling expenses	  	 	2,305	  	  	 	—  	  	 	 	2,305	  	
Unearned premiums	  	 	69,580	  	  	 	(3,775	) 	 	 	65,805	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	
 	  	 	302,616	  	  	 	(86,465	) 	 	 	216,151	  	

2012	  	Gross
$ 000	 	  	Reinsurers’
share
$ 000	 	 	Net
$ 000	 	
Notified outstanding claims	  	 	99,232	  	  	 	(72,876	) 	 	 	26,356	  	
Provision for Claims incurred but not reported	  	 	148,595	  	  	 	(17,362	) 	 	 	131,233	  	
Claims handling expenses	  	 	2,492	  	  	 	—  	  	 	 	2,492	  	
Unearned premiums	  	 	62,546	  	  	 	(3,524	) 	 	 	59,022	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	
 	  	 	312,865	  	  	 	(93,762	) 	 	 	219,103	  	

13

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
For the nine months ending 30 September 2013 and 2012
 
13.	CREDITORS	

 	  	2013	 	  	2012	 	
 	  	$ 000	 	  	$ 000	 	
Amounts falling due within one year	  	 	 	 	  	 	 	 	
Arising out of direct insurance operations	  	 	11,375	  	  	 	23,446	  	
Arising out of reinsurance operations	  	 	180,412	  	  	 	144,848	  	
Other creditors including taxation and social security	  	 	19,059	  	  	 	14,491	  	
 	  	 	 	 	  	 	 	 	
 	  	 	210,846	  	  	 	182,785	  	
 	 	 	
Amounts falling due after one year	  	 	 	 	  	 	 	 	
Arising out of direct insurance operations	  	 	—  	  	  	 	—  	  	
Arising out of reinsurance operations	  	 	—  	  	  	 	569	  	
Other creditors including taxation and social security	  	 	66	  	  	 	273	  	
 	  	 	 	 	  	 	 	 	
 	  	 	66	  	  	 	842	  	
 	  	 	 	 	  	 	 	 	
 	  	 	210,912	  	  	 	183,627	  	

14.	CONTINGENT LIABILITIES	
Charge over assets
At 1 January 2013, the Atrium Group’s participation in underwriting at Lloyd’s is £106.8 million (1 January 2012: £106.8 million), $172.4 million (2012: $172.7 million) at quarter end exchange rates, through ownership of its underwriting subsidiary Atrium 5 Limited, the group’s corporate member.
 
15.	SUBSEQUENT EVENTS	
 
a)	Dividend	
The company declared and paid a dividend of $25 million on 20 November, 2013 to ordinary shareholders.
 
b)	Ultimate Holding Company	
On 5 June 2013, AHL entered into a definitive agreement with two subsidiaries of Enstar Group Limited (“Enstar”) under which Enstar agreed to acquire the entire issued share capital of the Atrium Group. As at 30 September 2013, completion of the transaction remained conditioned on, among other things, governmental and regulatory approvals and satisfaction of various customary closing conditions. Enstar subsequently announced that Trident V, L.P., Trident V Parallel Fund, L.P. and Trident V Professionals Fund, L.P. (collectively, “Trident”) had acquired a 40% interest in the holding company for the acquisition subsidiary on 3 July 2013 and had agreed to provide 40% of the purchase price and related expenses for the acquisition of the Atrium Group.
The parties to the definitive purchase agreement for the acquisition entered into a deed of variation on 21 November 2013, which provided, among other things, for the payment of a $25.0 million pre-completion dividend from Atrium to AHL and a corresponding $25.0 million reduction in the purchase price (bringing the total purchase price from $183.0 million to $158.0 million). The transaction was completed on 25 November 2013.
In addition, on 5 June 2013, AHL entered into a definitive agreement with two subsidiaries of Enstar under which Enstar agreed to acquire the entire issued share capital of Arden Reinsurance Company Limited (“Arden Re”), which is also a subsidiary of AHL. Arden Re
 
14

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
For the nine months ending 30 September 2013 and 2012
 
is a Bermuda-based reinsurance company that provides reinsurance to Atrium’s corporate name. The two transactions are governed by separate purchase agreements and Enstar’s acquisition of the Atrium Group was not conditioned on its acquisition of Arden Re. On 9 September 2013, Arden Holdings completed its sale of Arden Re’s entire issued share capital to Enstar’s wholly-owned subsidiary and Trident.
 
16.	SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES IN THE UNITED KINGDOM (“UK GAAP”) AND ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA (“US GAAP”)	
The Atrium Underwriting Group Limited financial statements have been prepared in accordance with UK GAAP as applied in note 1. UK GAAP differs to the requirements of US GAAP in certain respects. The effects of the application of US GAAP to the profit for the period after taxation, as determined under UK GAAP, are set out in the tables below:
 
a)	Profit for the 9 months ending 30 September	
Income Statement

 	  	 	  	 	 	 	2013	 	 	 	 	 	2012	 	
 	  	 	  	 	 	 	$ 000	 	 	 	 	 	$ 000	 	
 	  	UK GAAP profit for the period after taxation	  	 	 	 	 	 	16,218	  	 	 	 	 	 	 	18,683	  	
 	 	 	 	 	 	
 	  	US GAAP adjustments:	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	i) Amortisation of goodwill and purchased capacity	  	 	1,157	  	 	 	 	 	 	 	1149	  	 	 	 	 	
 	  	ii) DAC adjustment	  	 	(243	) 	 	 	 	 	 	 	(504	) 	 	 	 	 	
 	  	iii) Taxation	  	 	636	  	 	 	 	 	 	 	218	  	 	 	 	 	
 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	Total US GAAP Adjustments	  	 	 	 	 	 	1,550	  	 	 	 	 	 	 	863	  	
 	 	 	 	 	 	
 	  	Amount treated as OCI	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	iv) Unrealised (gains)/losses	  	 	 	 	 	 	3,972	  	 	 	 	 	 	 	(1,194	) 	
 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	Net income under US GAAP	  	 	 	 	 	 	21,740	  	 	 	 	 	 	 	18,352	  	

Comprehensive Income	  	 	 	 	 	 	 	 	 	 	 	 	
 	  	 	  	 	 	 	2013	 	 	 	 	 	2012	 	
 	  	 	  	 	 	 	$ 000	 	 	 	 	 	$ 000	 	
 	  	Profit in accordance with US GAAP	  	 	 	 	 	 	21,740	  	 	 	 	 	 	 	18,352	  	
 	 	 	 	 	 	
 	  	Amount transferred from Income Statement	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	iv) Unrealised (gains)/losses	  	 	 	 	 	 	(3,972	) 	 	 	 	 	 	 	1,194	  	
 	  	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	Comprehensive income in accordance with US GAAP	  	 	 	 	 	 	17,768	  	 	 	 	 	 	 	19,546	  	

15

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
For the nine months ending 30 September 2013 and 2012
 
i) Amortisation of goodwill and purchased capacity
Under UK GAAP goodwill arising on acquisitions and purchased syndicate capacity is capitalised, classified as an asset on the balance sheet and amortised on a straight line basis over its useful economic life up to a presumed maximum of 20 years. Under US GAAP goodwill and purchased capacity is not automatically amortised but reviewed, annual or more frequently if impairment indicators exist, for impairment instead. We have carried out an impairment review and no write down is required.
ii) DAC adjustment
Under UK GAAP the ABI SORP allows deferral of direct and indirect costs arising in the acquisition of insurance contracts. Under US GAAP insurance entities are required to capitalise certain acquisition costs directly related to successful insurance contracts. Indirect costs are required to be expensed as incurred.
iii) Taxation
This adjustment reflects the differences between the calculation of current and deferred taxation as set out in the table below:

US GAAP Taxation adjustments	  	2013
$ 000	 	 	2012
$ 000	 	
Current taxation	  	 	(162	) 	 	 	246	  	
Deferred taxation	  	 	798	  	 	 	(28	) 	
 	  	 	 	 	 	 	 	 	
 	  	 	636	  	 	 	218	  	
 	  	 	 	 	 	 	 	 	
UK entities are taxed locally level with reference to their UK GAAP taxable profits. Adjustments made to present the consolidated results of the group under US GAAP are both presentational and numerical. To the extent that a temporary difference exists due to adjustments made, deferred tax has been recognised under US GAAP principles. The tax impact in the year is either in the profit and loss account or Other Comprehensive Income for US GAAP purposes, following where the underlying item to which the tax relates is accounted for. This is with the exception of the impact of tax rate changes, which are provided in the profit and loss account
iv) Amortisation adjustment and unrealised (gains)/losses re investments
Under UK GAAP investments are stated at their current values at the end of the period. Unrealised gains and losses are calculated as the difference between the valuation at the balance sheet date and their valuation at the last balance sheet date or purchase price, if acquired during the period. Unrealised gains and losses are included within investment return in the Profit and Loss Account.
Under US GAAP these investments are classified as available-for-sale and are carried at fair value, with unrealized gains and losses excluded from net earnings and reported as a separate component of accumulated Other Comprehensive Income.Amortization of premium or discount is recognized using the effective yield method and included in net investment income.
 
16

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
For the nine months ending 30 September 2013 and 2012
 
b)	Balance Sheet as at 30 September 2013 and 31 December 2012	

 	  	2013	 	 	2012	 	
 	  	$ 000	 	 	$ 000	 	
UK GAAP shareholders’ equity interest	  	 	78,367	  	 	 	62,142	  	
US GAAP adjustments:	  	 	 	 	 	 	 	 	
(i) Amortisation of goodwill and purchased capacity	  	 	20,192	  	 	 	19,035	  	
(ii) DAC adjustment	  	 	(2,348	) 	 	 	(2,243	) 	
(iii) Taxation	  	 	(528	) 	 	 	34	  	
 	  	 	 	 	 	 	 	 	
Total US GAAP Adjustments	  	 	17,316	  	 	 	16,826	  	
 	  	 	 	 	 	 	 	 	
Shareholders Funds under US GAAP	  	 	95,682	  	 	 	78,968	  	
 	  	 	 	 	 	 	 	 	
v) Taxation
This adjustment reflects the differences between the calculation of current and deferred taxation as set out in the table below:

 	  	2013	 	  	2012	 	
 	  	$ 000	 	  	$ 000	 	
US GAAP Taxation adjustments	  	 	 	 	  	 	 	 	
Current taxation	  	 	0	  	  	 	0	  	
Deferred taxation	  	 	528	  	  	 	(34	) 	
 	  	 	 	 	  	 	 	 	
 	  	 	528	  	  	 	(34	) 	
 	  	 	 	 	  	 	 	 	
The position presented in the table above represents the cumulative impact of GAAP differences as at each balance sheet date, being due to temporary differences arising on differences between UK GAAP and US GAAP for DAC, purchased syndicate capacity amortisation, and amortisation adjustments regarding investments
 
c)	Cash Flow Statement For the 9 months to 30 September 2013 and 2012	
As a wholly owned subsidiary the Company applied the exemption available in FRS 1 from the requirement to prepare a cash flow statement for UK GAAP reporting purposes. Cash flow statements prepared on a US GAAP basis for the 9 months to 30 September 2013 and 2012 are set forth below.

 	 	$,000	 	 	$,000	 	
 	 	2013	 	 	2012	 	
Cash flows provided by operating activities:	 	 	 	 	 	 	 	 	
Net income	 	 	17,768	  	 	 	19,546	  	
Adjustments to reconcile net income to net cash provided by operating activities:	 	 	 	 	 	 	 	 	
Net realized investment gains	 	 	(249	) 	 	 	(64	) 	
Net unrealised investment (gains) losses	 	 	0	  	 	 	0	  	
Net realized investment gains on foreign exchange	 	 	(166	) 	 	 	(316	) 	
Net amortization on fixed maturity and short-term investments	 	 	1,149	  	 	 	941	  	
Depreciation	 	 	380	  	 	 	184	  	
Change in:	 	 	 	 	 	 	 	 	
Deposits with ceding companies	 	 	(221	) 	 	 	(188	) 	
Premiums receivable - third party	 	 	10,793	  	 	 	(4,909	) 	
 
17

ATRIUM UNDERWRITING GROUP LIMITED
NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
For the nine months ending 30 September 2013 and 2012

Premiums receivable – intercompany	  	 	(1,563	) 	 	 	(2,234	) 	
Accrued investment income	  	 	(76	) 	 	 	(145	) 	
Deferred acquisition costs - third party	  	 	(1,836	) 	 	 	(2,073	) 	
Prepaid reinsurance - third party	  	 	(251	) 	 	 	94	  	
Paid losses recoverable - third party	  	 	304	  	 	 	1,651	  	
Paid losses recoverable - intercompany	  	 	(31,901	) 	 	 	(3,023	) 	
Loss reserve recoverable - third party	  	 	891	  	 	 	5,400	  	
Loss reserve recoverable - intercompany	  	 	6,657	  	 	 	(17,144	) 	
Other assets	  	 	8,095	  	 	 	(2,041	) 	
Reserve for losses and loss adjustment expenses - third party	  	 	(17,283	) 	 	 	(43,651	) 	
Unearned premiums - third party	  	 	7,034	  	 	 	7,926	  	
Reinsurance premiums payable - third party	  	 	322	  	 	 	(4,822	) 	
Reinsurance premiums payable - intercompany	  	 	34,739	  	 	 	16,298	  	
Losses payable - third party	  	 	(12,136	) 	 	 	(2,168	) 	
Intercompany receivable/payable	  	 	(1,329	) 	 	 	551	  	
Deferred tax asset	  	 	359	  	 	 	(110	) 	
Deferred tax liability	  	 	(12,085	) 	 	 	(6,135	) 	
Current taxes recoverable	  	 	(7,753	) 	 	 	(7,130	) 	
Current taxes payable	  	 	14,175	  	 	 	15,500	  	
Other liabilities	  	 	(604	) 	 	 	(5,192	) 	
Accounts payable and accrued expenses	  	 	(5,836	) 	 	 	3,602	  	
 	  	 	 	 	 	 	 	 	
Net cash provided by operating activities	  	 	8,656	  	 	 	(29,420	) 	

 	  	$ 000	 	 	$ 000	 	
 	  	2013	 	 	2012	 	
Cash flows used in investing activities:	  	 	 	 	 	 	 	 	
Purchases of fixed maturity investments	  	 	(35,940	) 	 	 	(125,539	) 	
Sales and maturities of fixed maturity investments	  	 	61,281	  	 	 	71,400	  	
Net purchases of short-term investments	  	 	(4,350	) 	 	 	(229	) 	
Net sale of other investments	  	 	8,849	  	 	 	0	  	
Purchase of fixed assets	  	 	939	  	 	 	(40	) 	
 	  	 	 	 	 	 	 	 	
Net cash used in investing activities	  	 	30,778	  	 	 	(2,160	) 	
 	  	 	 	 	 	 	 	 	
Cash flows provided by financing activities:	  	 	 	 	 	 	 	 	
Dividends to parent	  	 	—  	  	 	 	(29,400	) 	
 	  	 	 	 	 	 	 	 	
Net cash provided by financing activities	  	 	—  	  	 	 	(29,400	) 	
 	  	 	 	 	 	 	 	 	
Effect of exchange rate changes on cash and cash equivalents	  	 	2,657	  	 	 	(2,310	) 	
 	  	 	 	 	 	 	 	 	
Net increase (decrease) in cash and cash equivalents	  	 	42,091	  	 	 	(63,290	) 	
 	  	 	 	 	 	 	 	 	
Cash and cash equivalents - beginning of year	  	 	62,821	  	 	 	134,015	  	
 	  	 	 	 	 	 	 	 	
Cash and cash equivalents - end of period	  	 	104,912	  	 	 	70,725	  	

18

Exhibit 99.3
ENSTAR GROUP LIMITED
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
FINANCIAL STATEMENTS
The following preliminary unaudited pro forma condensed combined consolidated balance sheet as of September 30, 2013 is based on the historical financial statements of Enstar Group Limited (“Enstar”) and the consolidated results of Atrium Underwriting Group Ltd. (“Atrium”). It is presented as if Enstar had completed the acquisition of Atrium as of September 30, 2013.
The following preliminary unaudited pro forma statements of earnings are based on the historical financial statements of Enstar, the consolidated results of Atrium, and the consolidated results of the following significant acquisitions that Enstar completed during 2013: (i) HSBC Insurance Company of Delaware and Household Life Insurance Company of Delaware and their subsidiaries: Household Life Insurance Company, Household Life Insurance Company of Arizona, and First Central National Life Insurance Company of New York (the acquired companies collectively, the “Pavonia companies”) and (ii) Arden Reinsurance Company Ltd. (“Arden”).
On November 25, 2013, Kenmare Holdings Ltd. (“Kenmare”), a wholly-owned subsidiary of Enstar, together with Trident V, L.P., Trident V Parallel Fund, L.P. and Trident V Professionals Fund, L.P. (collectively, “Trident”), completed the acquisition of Atrium from Arden Holdings Ltd. The purchaser of Atrium, Alopuc Limited, is 100% owned by Northshore Holdings Limited (“Northshore”), which is 60% owned by Kenmare and 40% owned by Trident.
On March 31, 2013, a wholly-owned subsidiary of Enstar completed the acquisition of the Pavonia companies. On September 9, 2013, Kenmare and Trident, through Northshore, completed the acquisition of Arden from Arden Holdings Ltd. Pavonia and Arden are not separately included in the preliminary unaudited pro forma condensed combined consolidated balance sheet as of September 30, 2013 because the acquisitions were reflected in Enstar’s actual balance sheet as of September 30, 2013, which was included within Enstar’s Quarterly Report on Form 10-Q filed with the U.S Securities and Exchange Commission (“SEC”) on November 7, 2013.
The preliminary unaudited pro forma condensed combined consolidated statement of earnings for the nine months ended September 30, 2013 is presented as if Enstar had completed the acquisitions of Pavonia, Arden, and Atrium as of January 1, 2013. The preliminary unaudited pro forma condensed combined consolidated statement of earnings for the year ended December 31, 2012 is presented as if Enstar had completed the acquisitions of Pavonia, Arden, and Atrium as of January 1, 2012.
The preliminary unaudited condensed combined consolidated pro forma financial information reflects the purchase of Atrium under the purchase method of accounting for business combinations and represents a current estimate of the financial information based on information available as of the date of this Current Report on Form 8-K/A. The preliminary unaudited pro forma information includes adjustments to record the assets and liabilities of Atrium at their estimated fair values under the purchase method of accounting for business combinations. The excess of the acquisition consideration over the fair value of the assets acquired and liabilities assumed, if any, is allocated to goodwill. A final determination of the acquisition consideration and fair values of Atrium’s assets and liabilities will be based on the actual net tangible and intangible assets of Atrium that existed on November 25, 2013, the date the transaction was completed. To the extent there are significant changes to Atrium’s business, the assumptions and estimates herein could change significantly.
The preliminary unaudited pro forma financial information is presented for informational purposes only under one set of assumptions and does not reflect the financial results of the combined companies had consideration been given to other assumptions or to the impact of possible operating efficiencies, asset dispositions, and other factors. Further, the pro forma financial information does not necessarily reflect the historical results of the combined companies that actually would have occurred had the transaction been in effect during the periods indicated or that may be obtained in the future.
The preliminary unaudited pro forma condensed combined consolidated financial information should be read in conjunction with:
 
 	•	 	Enstar’s “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and historical financial statements, including the related notes, with respect to the year ended December 31, 2012 included in Enstar’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, which was filed with the SEC on February 28, 2013;	
 
 	•	 	Enstar’s subsequent Quarterly Reports on Form 10-Q filed with the SEC;	
 
 	•	 	the historical financial statements of Atrium included in Exhibits 99.1 and 99.2 to this Current Report on Form 8-K/A;	
 
 	•	 	the historical financial statements of the Pavonia companies included in Exhibit 99.1 to the Current Report on Form 8-K/A, which was filed with the SEC on June 14, 2013; and	
 
 	•	 	the historical financial statements of Arden included in Exhibits 99.1 through 99.3 to the Current Report on Form 8-K/A, which was filed with the SEC on November 25, 2013.	
 
1

Enstar Group Limited
Preliminary Unaudited Pro Forma Condensed Combined Consolidated Balance Sheet
As of September 30, 2013
(Expressed in thousands of U.S. dollars)

 	  	Enstar	 	 	Atrium	 	  	Atrium Pro Forma
Adjustments	 	 	 	 	 	Combined	 	
ASSETS	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Total investments	  	$	 5,457,099	  	 	$	209,449	  	  	$	—  	  	 	 	 	 	 	$	5,666,548	  	
Cash and cash equivalents	  	 	520,560	  	 	 	104,912	  	  	 	(24,800	) 	 	 	(a	) 	 	 	600,672	  	
Restricted cash and cash equivalents	  	 	386,605	  	 	 	—  	  	  	 	—  	  	 	 	 	 	 	 	386,605	  	
Accrued interest receivable	  	 	42,215	  	 	 	—  	  	  	 	—  	  	 	 	 	 	 	 	42,215	  	
Accounts receivable	  	 	59,745	  	 	 	5,211	  	  	 	—  	  	 	 	 	 	 	 	64,956	  	
Premiums receivable	  	 	153,623	  	 	 	56,038	  	  	 	—  	  	 	 	 	 	 	 	209,661	  	
Income taxes recoverable	  	 	11,718	  	 	 	—  	  	  	 	—  	  	 	 	 	 	 	 	11,718	  	
Deferred tax asset	  	 	41,478	  	 	 	—  	  	  	 	—  	  	 	 	 	 	 	 	41,478	  	
Reinsurance balances recoverable	  	 	1,395,345	  	 	 	177,937	  	  	 	(382	) 	 	 	(b	) 	 	 	1,572,900	  	
Funds held by reinsured companies	  	 	235,156	  	 	 	19,054	  	  	 	—  	  	 	 	 	 	 	 	254,210	  	
Goodwill	  	 	21,222	  	 	 	20,756	  	  	 	13,800	  	 	 	(c	) 	 	 	55,778	  	
Intangible assets	  	 	—  	  	 	 	10,105	  	  	 	92,195	  	 	 	(d	) 	 	 	102,300	  	
Other assets	  	 	17,503	  	 	 	20,318	  	  	 	177	  	 	 	(e	) 	 	 	37,998	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
TOTAL ASSETS	  	 	8,342,269	  	 	 	623,780	  	  	 	80,990	  	 	 	 	 	 	 	9,047,039	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
LIABILITIES	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Losses and loss adjustment expenses	  	 	4,400,418	  	 	 	233,036	  	  	 	(3,301	) 	 	 	(f	) 	 	 	4,630,153	  	
Policy benefits for life and annuity contracts	  	 	1,288,148	  	 	 	—  	  	  	 	—  	  	 	 	 	 	 	 	1,288,148	  	
Unearned premium	  	 	34,136	  	 	 	51,768	  	  	 	—  	  	 	 	 	 	 	 	85,904	  	
Insurance and reinsurance balances payable	  	 	213,033	  	 	 	191,787	  	  	 	—  	  	 	 	 	 	 	 	404,820	  	
Accounts payable and accrued liabilities	  	 	74,587	  	 	 	9,741	  	  	 	—  	  	 	 	 	 	 	 	84,328	  	
Income taxes payable	  	 	19,635	  	 	 	—  	  	  	 	—  	  	 	 	 	 	 	 	19,635	  	
Deferred tax liabilities	  	 	7,260	  	 	 	22,468	  	  	 	21,774	  	 	 	(g	) 	 	 	51,502	  	
Loans payable	  	 	355,663	  	 	 	—  	  	  	 	95,000	  	 	 	(h	) 	 	 	450,663	  	
Other liabilities	  	 	73,478	  	 	 	19,297	  	  	 	 	 	 	 	 	 	 	 	92,775	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
TOTAL LIABILITIES	  	 	6,466,358	  	 	 	528,097	  	  	 	113,473	  	 	 	 	 	 	 	7,107,928	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
COMMITMENTS AND CONTINGENCIES	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
REDEEMABLE NONCONTROLLING INTEREST	  	 	32,507	  	 	 	—  	  	  	 	63,200	  	 	 	(i	) 	 	 	95,707	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
SHAREHOLDERS’ EQUITY	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Share capital	  	 	—  	  	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Ordinary shares	  	 	13,801	  	 	 	24,702	  	  	 	(24,702	) 	 	 	(j	) 	 	 	13,801	  	
Non-voting convertible ordinary shares	  	 	5,699	  	 	 	—  	  	  	 	—  	  	 	 	 	 	 	 	5,699	  	
Treasury stock	  	 	(421,559	) 	 	 	—  	  	  	 	—  	  	 	 	 	 	 	 	(421,559	) 	
Additional paid-in capital	  	 	961,270	  	 	 	2,161	  	  	 	(2,161	) 	 	 	(k	) 	 	 	961,270	  	
Accumulated other comprehensive income	  	 	14,676	  	 	 	15,953	  	  	 	(15,953	) 	 	 	(l	) 	 	 	14,676	  	
Retained earnings	  	 	1,043,996	  	 	 	52,867	  	  	 	(52,867	) 	 	 	(m	) 	 	 	1,043,996	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
Total Enstar Shareholders’ Equity	  	 	1,617,883	  	 	 	95,683	  	  	 	(95,683	) 	 	 	 	 	 	 	1,617,883	  	
Noncontrolling interests	  	 	225,521	  	 	 	—  	  	  	 	—  	  	 	 	 	 	 	 	225,521	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
TOTAL SHAREHOLDERS’ EQUITY	  	 	1,843,404	  	 	 	95,683	  	  	 	(95,683	) 	 	 	 	 	 	 	1,843,404	  	
 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY	  	$	8,342,269	  	 	$	623,780	  	  	$	80,990	  	 	 	 	 	 	$	9,047,039	  	

2

Enstar Group Limited
Preliminary Unaudited Pro Forma Condensed Combined Consolidated Statement of Earnings
For the Nine Months Ended September 30, 2013
(Expressed in thousands of U.S. dollars)

 	 	Enstar	 	 	Pavonia	 	 	Pavonia
Pro forma
Adjustments	 	 	 	 	 	Arden	 	 	Arden
Pro forma
Adjustments	 	 	 	 	 	Sub-total
Pro forma
Combined	 	 	Atrium	 	 	Atrium
Pro forma
Adjustments	 	 	 	 	 	Pro forma
Combined	 	
INCOME	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net premiums earned	 	$	165,931	  	 	$	 34,061	  	 	$	—  	  	 	 	 	 	 	$	 15,314	  	 	$	—  	  	 	 	 	 	 	$	215,306	  	 	$	 55,960	  	 	$	—  	  	 	 	 	 	 	$	271,266	  	
Consulting fees	 	 	7,805	  	 	 	—  	  	 	 	—  	  	 	 	 	 	 	 	—  	  	 	 	—  	  	 	 	 	 	 	 	7,805	  	 	 	6,305	  	 	 	—  	  	 	 	 	 	 	 	14,110	  	
Commission income	 	 	—  	  	 	 	826	  	 	 	—  	  	 	 	 	 	 	 	40	  	 	 	—  	  	 	 	 	 	 	 	866	  	 	 	13,251	  	 	 	—  	  	 	 	 	 	 	 	14,117	  	
Net investment income	 	 	70,224	  	 	 	13,307	  	 	 	—  	  	 	 	 	 	 	 	371	  	 	 	—  	  	 	 	 	 	 	 	83,902	  	 	 	3,377	  	 	 	—  	  	 	 	 	 	 	 	87,279	  	
Net realized and unrealized gains (losses)	 	 	39,211	  	 	 	82	  	 	 	—  	  	 	 	 	 	 	 	154	  	 	 	—  	  	 	 	 	 	 	 	39,447	  	 	 	647	  	 	 	—  	  	 	 	 	 	 	 	40,094	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	283,171	  	 	 	48,275	  	 	 	—  	  	 	 	 	 	 	 	15,879	  	 	 	—  	  	 	 	 	 	 	 	347,326	  	 	 	79,540	  	 	 	—  	  	 	 	 	 	 	 	426,866	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EXPENSES	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net reduction in ultimate loss and loss adjustment expense liabilities	 	 	(26,638	) 	 	 	—  	  	 	 	—  	  	 	 	 	 	 	 	16,954	  	 	 	218	  	 	 	(r	) 	 	 	(9,460	) 	 	 	7,976	  	 	 	—  	  	 	 	 	 	 	 	(1,490	) 	
Life and annuity policy benefits	 	 	63,555	  	 	 	36,318	  	 	 	4,991	  	 	 	(n	), (o) 	 	 	—  	  	 	 	—  	  	 	 	 	 	 	 	104,864	  	 	 	—  	  	 	 	—  	  	 	 	 	 	 	 	104,864	  	
Acquisition costs	 	 	—  	  	 	 	6,529	  	 	 
	—  
	  
	 	 	 	 	 	 	1,720	  	 	 	—  	  	 	 	 	 	 	 	8,248	  	 	 	27,129	  	 	 	—  	  	 	 	 	 	 	 	35,377	  	
Salaries and benefits	 	 	79,013	  	 	 	—  	  	 	 	—  	  	 	 	 	 	 	 	—  	  	 	 	—  	  	 	 	 	 	 	 	79,013	  	 	 	—  	  	 	 	19,468	  	 	 	(w	) 	 	 	98,481	  	
General and administrative expenses	 	 	67,074	  	 	 	5,149	  	 	 	—  	  	 	 	 	 	 	 	105	  	 	 	—  	  	 	 	 	 	 	 	72,328	  	 	 	20,366	  	 	 	(18,278	) 	 	 	(x	),(y) 	 	 	74,416	  	
Interest expense	 	 	8,796	  	 	 	—  	  	 	 	442	  	 	 	(p	) 	 	 	—  	  	 	 	1,111	  	 	 	(u	) 	 	 	10,349	  	 	 	—  	  	 	 	2,449	  	 	 	(z	) 	 	 	12,798	  	
Net foreign exchange gains	 	 	(3,994	) 	 	 	—  	  	 	 	—  	  	 	 	 	 	 	 	(174	) 	 	 	—  	  	 	 	 	 	 	 	(4,168	) 	 	 	(354	) 	 	 	—  	  	 	 	 	 	 	 	(4,522	) 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	187,806	  	 	 	47,996	  	 	 	5,433	  	 	 	 	 	 	 	18,605	  	 	 	1,329	  	 	 	 	 	 	 	261,169	  	 	 	55,117	  	 	 	3,639	  	 	 	 	 	 	 	319,924	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EARNINGS BEFORE INCOME TAXES	 	 	95,365	  	 	 	280	  	 	 	(5,433	) 	 	 	 	 	 	 	(2,726	) 	 	 	(1,329	) 	 	 	 	 	 	 	86,157	  	 	 	24,423	  	 	 	(3,639	) 	 	 	 	 	 	 	106,942	  	
INCOME TAXES	 	 	(13,726	) 	 	 	(98	) 	 	 	1,902	  	 	 	(q	) 	 	 	(40	) 	 	 	—  	  	 	 	 	 	 	 	(11,962	) 	 	 	(2,683	) 	 	 	—  	  	 	 	 	 	 	 	(14,645	) 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NET EARNINGS	 	 	81,639	  	 	 	182	  	 	 	(3,531	) 	 	 	 	 	 	 	(2,766	) 	 	 	(1,329	) 	 	 	 	 	 	 	74,195	  	 	 	21,740	  	 	 	(3,639	) 	 	 	 	 	 	 	92,296	  	
Less: Net earnings attributable to noncontrolling interest	 	 	(10,496	) 	 	 	—  	  	 	 	—  	  	 	 	 	 	 	 	—  	  	 	 	1,236	  	 	 	(v	) 	 	 	(9,260	) 	 	 	—  	  	 	 	(8,220	) 	 	 	(aa	) 	 	 	(17,480	) 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED	 	$	71,143	  	 	$	182	  	 	$	(3,531	) 	 	 	 	 	 	$	(2,766	) 	 	$	(93	) 	 	 	 	 	 	$	64,935	  	 	$	21,740	  	 	$	(11,859	) 	 	 	 	 	 	$	74,816	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earning per share — basic	 	$	4.31	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	3.93	  	 	 	 	 	 	 	 	 	 	 	 	 	 	$	4.53	  	
Earning per share — diluted	 	$	4.26	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	3.89	  	 	 	 	 	 	 	 	 	 	 	 	 	 	$	4.48	  	
Weighted average shares outstanding - basic	 	 	16,521,865	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	16,521,865	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	16,521,865	  	
Weighted average shares outstanding - diluted	 	 	16,698,640	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	16,698,640	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	16,698,640	  	
 
3

Enstar Group Limited
Preliminary Unaudited Pro Forma Condensed Combined Consolidated Statement of Earnings
For the Year Ended December 31, 2012
(Expressed in thousands of U.S. dollars)

 	 	Enstar	 	 	Pavonia	 	 	Pavonia
Pro forma
Adjustments	 	 	 	  	Arden	 	 	Arden
Pro forma
Adjustments	 	 	 	 	Sub-total
Pro forma
Combined	 	 	Atrium	 	 	Atrium
Pro forma
Adjustments	 	 	 	 	Pro forma
Combined	 	
INCOME	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net premiums earned	 	$	—  	  	 	$	189,937	  	 	$	—  	  	 	 	  	$	171,016	  	 	$	—  	  	 	 	 	$	360,953	  	 	$	48,693	  	 	$	—  	  	 	 	 	$	409,646	  	
Consulting fees	 	 	8,570	  	 	 	—  	  	 	 	—  	  	 	 	  	 	—  	  	 	 	—  	  	 	 	 	 	8,570	  	 	 	8,064	  	 	 	—  	  	 	 	 	 	16,634	  	
Other income	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	  	 	55,011	  	 	 	—  	  	 	 	 	 	55,011	  	 	 	 	 	 	 	—  	  	 	 	 	 	55,011	  	
Commission income	 	 	—  	  	 	 	3,955	  	 	 	—  	  	 	 	  	 	—  	  	 	 	—  	  	 	 	 	 	3,955	  	 	 	21,469	  	 	 	—  	  	 	 	 	 	25,424	  	
Net investment income	 	 	77,760	  	 	 	64,340	  	 	 	—  	  	 	 	  	 	8,147	  	 	 	—  	  	 	 	 	 	150,247	  	 	 	4,211	  	 	 	—  	  	 	 	 	 	154,458	  	
Net realized and unrealized gains (losses)	 	 	73,612	  	 	 	21,995	  	 	 	—  	  	 	 	  	 	20,751	  	 	 	—  	  	 	 	 	 	1,16,358	  	 	 	1,169	  	 	 	—  	  	 	 	 	 	1,17,527	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	159,942	  	 	 	280,227	  	 	 	—  	  	 	 	  	 	254,925	  	 	 	—  	  	 	 	 	 	695,094	  	 	 	83,606	  	 	 	—  	  	 	 	 	 	778,700	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EXPENSES	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net reduction in ultimate loss and loss adjustment expense liabilities	 	 	(241,764	) 	 	 
	2,977
	  
	 	 	—  	  	 	 	  	 	70,047	  	 	 	327	  	 	(r)	 	 	(168,413	) 	 	 	(12,196	) 	 	 	—  	  	 	 	 	 	(180,609	) 	
Life and annuity policy benefits	 	 	—  	  	 	 	149,719	  	 	 	19,964	  	 	(n),(o)	  	 	—  	  	 	 	—  	  	 	 	 	 	169,863	  	 	 	—  	  	 	 	—  	  	 	 	 	 	169,863	  	
Acquisition costs	 	 	—  	  	 	 	—  	  	 	 	—  	  	 	 	  	 	14,520	  	 	 	—  	  	 	 	 	 	14,520	  	 	 	34,643	  	 	 	—  	  	 	 	 	 	49,163	  	
Salaries and benefits	 	 	100,473	  	 	 	17,566	  	 	 	—  	  	 	 	  	 	—  	  	 	 	6,791	  	 	(s)	 	 	124,830	  	 	 	—  	  	 	 	25,101	  	 	(w)	 	 	149,931	  	
General and administrative expenses	 	 	56,592	  	 	 	79,601	  	 	 	—  	  	 	 	  	 	22,388	  	 	 	(6,791	) 	 	(t)	 	 	151,790	  	 	 	28,842	  	 	 	(23,514	) 	 	(x),(y)	 	 	157,118	  	
Interest expense	 	 	8,426	  	 	 	—  	  	 	 	2,250	  	 	(p)	  	 	—  	  	 	 	1,855	  	 	(u)	 	 	12,531	  	 	 	—  	  	 	 	3,685	  	 	(z)	 	 	16,216	  	
Net foreign exchange losses (gains)	 	 	406	  	 	 	—  	  	 	 	—  	  	 	 	  	 	1,071	  	 	 	—  	  	 	 	 	 	1,477	  	 	 	(950	) 	 	 	—  	  	 	 	 	 	527	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	(75,867	) 	 	 	249,863	  	 	 	22,214	  	 	 	  	 	108,026	  	 	 	2,181	  	 	 	 	 	306,418	  	 	 	50,339	  	 	 	5,271	  	 	 	 	 	362,028	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EARNINGS BEFORE INCOME TAXES	 	 	235,809	  	 	 	30,364	  	 	 	(22,214	) 	 	 	  	 	146,899	  	 	 	(2,181	) 	 	 	 	 	388,676	  	 	 	33,267	  	 	 	(5,271	) 	 	 	 	 	416,672	  	
INCOME TAXES	 	 	(44,290	) 	 	 	(18,120	) 	 	 	7,775	  	 	(q)	  	 	(159	) 	 	 	—  	  	 	 	 	 	(54,794	) 	 	 	(3,201	) 	 	 	—  	  	 	 	 	 	(57,995	) 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NET EARNINGS	 	 	191,519	  	 	 	12,244	  	 	 	(14,439	) 	 	 	  	 	146,740	  	 	 	(2,181	) 	 	 	 	 	333,882	  	 	 	30,066	  	 	 	(5,271	) 	 	 	 	 	358,677	  	
Less: Net earnings attributable to noncontrolling interest	 	 	(23,502	) 	 	 	—  	  	 	 	—  	  	 	 	  	 	—  	  	 	 	(58,565	) 	 	(v)	 	 	(82,067	) 	 	 	—  	  	 	 	(11,392	) 	 	(aa)	 	 	(93,459	) 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED	 	$	168,017	  	 	$	12,244	  	 	$	(14,439	) 	 	 	  	$	146,740	  	 	$	(60,746	) 	 	 	 	$	251,815	  	 	$	30,066	  	 	$	(16,663	) 	 	 	 	$	265,218	  	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earning per share — basic	 	$	10.22	  	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	$	15.32	  	 	 	 	 	 	 	 	 	 	 	 	$	16.13	  	
Earning per share — diluted	 	$	10.10	  	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	$	15.13	  	 	 	 	 	 	 	 	 	 	 	 	$	15.94	  	
Weighted average shares outstanding - basic	 	 	16,441,461	  	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	16,441,461	  	 	 	 	 	 	 	 	 	 	 	 	 	16,441,461	  	
Weighted average shares outstanding - diluted	 	 	16,638,021	  	 	 	 	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	 	 	 	 	16,638,021	  	 	 	 	 	 	 	 	 	 	 	 	 	16,638,021	  	
 
4

1. Acquisition Consideration Allocation
Under the acquisition method of accounting, the total acquisition consideration is allocated to the acquired tangible and identifiable intangible assets and assumed liabilities of Atrium based on their estimated fair values as of the closing of the transaction. The excess of the acquisition consideration over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill.
The preliminary unaudited pro forma adjustments included herein are subject to update as additional information becomes available and as additional analysis is performed. The final allocation of the purchase price will be determined after completion of a thorough analysis to determine the fair values of Atrium’s tangible and identifiable intangible assets and liabilities. Accordingly, the final amounts allocated to assets acquired and liabilities assumed could differ significantly from the amounts presented in the preliminary unaudited pro forma consolidated financial statements.
The total acquisition consideration is allocated to Atrium’s tangible and identifiable intangible assets and liabilities as of September 30, 2013 based on their preliminary fair values as follows:

 	  	September 30, 2013	 	
 	  	(in thousands of U.S.	 	
 	  	dollars)	 	
ASSETS	  	 	 	 	
Investments	  	$	184,449	  	
Cash and cash equivalents	  	 	104,912	  	
Accounts receivable	  	 	5,211	  	
Premiums receivable	  	 	56,038	  	
Reinsurance balances recoverable	  	 	177,555	  	
Funds held by reinsured companies	  	 	19,054	  	
Other assets	  	 	20,495	  	
 	  	 	 	 	
TOTAL ASSETS	  	 	567,714	  	
 	  	 	 	 	
LIABILITIES	  	 	 	 	
Losses and loss adjustment expenses	  	 	229,735	  	
Insurance and reinsurance balances payable	  	 	191,787	  	
Unearned premium	  	 	51,768	  	
Deferred taxes	  	 	44,242	  	
Other liabilities	  	 	29,038	  	
 	  	 	 	 	
TOTAL LIABILITIES	  	 	546,570	  	
 	  	 	 	 	
NET ASSETS ACQUIRED AT FAIR VALUE	  	 	21,144	  	
Goodwill	  	 	34,556	  	
Intangibles	  	 	102,300	  	
 	  	 	 	 	
ACQUISITION DATE FAIR VALUE	  	$	158,000	  	
 	  	 	 	 	
Approximately $102.3 million has been preliminarily allocated to amortizable intangible assets acquired. The amortization related to the preliminary fair value of amortizable intangible assets is reflected as a pro forma adjustment to the unaudited pro forma consolidated financial statements.
 
5

Identifiable intangible assets. The preliminary fair values of intangible assets were determined based on the provisions of Accounting Standards Codification (ASC) 805,  Business Combinations , which defines fair value in accordance with ASC 820, Fair Value Measurements and Disclosures . ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Intangible assets were identified that met either the separability criterion or the contractual-legal criterion described in ASC 805. The preliminary allocation to intangible assets is as follows:

 	  	September 30, 2013	 	  	Estimated Useful Life	
 	  	(in thousands of
U.S. dollars)	 	  	 	
Syndicate capacity	  	 	45,300	 	  	Indefinite	
Management contract	  	 	33,200	 	  	Indefinite	
Distribution channel	  	 	17,000	 	  	15 Years	
Brand	  	 	6,800	 	  	10 years	
 	  	 	 	 	  	 	
Total identified intangible assets	  	$	102,300	  	  	 	
 	  	 	 	 	  	 	
Goodwill. Goodwill represents the excess of the acquisition consideration over the preliminary fair value of the underlying net tangible and intangible assets. Among the factors that contributed to a purchase price in excess of the fair value of the identifiable net tangible and intangible assets are the skill sets, operations and synergies that can be leveraged to enable the combined company to build a stronger enterprise. According to ASC 805, an assembled workforce does not represent the intellectual capital of this workforce, it only represents an existing collection of employees. As such, it is not an identifiable asset and is therefore recognized as part of goodwill.
In accordance with ASC 350, Intangibles-Goodwill and Other, goodwill will not be amortized, but instead will be tested for impairment at least annually and whenever events or circumstances have occurred that may indicate a possible impairment. If management determines that the value of goodwill has become impaired, Enstar will incur a charge to earnings for the amount of the impairment during the period in which the determination is made.
 
6

2. Unaudited Pro Forma and Acquisition Accounting Adjustments
The unaudited pro forma financial information is not necessarily indicative of what the financial position and results from operations actually would have been had the transactions been completed at the dates indicated and includes adjustments which are preliminary and may be revised. Such revisions may result in material changes. The financial position shown herein is not necessarily indicative of what the past financial position of the combined companies would have been, nor necessarily indicative of the financial position of the post-transaction periods.
The following unaudited pro forma adjustments result from accounting for the transactions, including the determination of fair value of the assets, liabilities, and commitments which Enstar, as the acquirer for accounting purposes, will acquire and assume from the acquired companies. The descriptions related to these preliminary adjustments are as follows:
Balance Sheet:

 	  	Increase (decrease) as of
September 30, 2013	 	
 	  	(dollars in thousands)	 	
(a)	  	Adjustments to cash and cash equivalents:	  	 	 	 	
 	  	To reflect cash received by Enstar from drawdown on its revolving credit facility (“RCF”)	  	 	95,000	  	
 	  	To reflect cash received from redeemable noncontrolling interest for their 40% share of the acquisition consideration	  	 	63,200	  	
 	  	To reflect cash paid to Atrium’s shareholders	  	 	(158,000	) 	
 	  	To reflect pre-acquisition dividend paid to Atrium’s shareholders	  	 	(25,000	) 	
(b)	  	Adjustment to reflect reinsurance balances recoverable at fair value	  	 	(382	) 	
(c)	  	Adjustment to reflect the elimination of Atrium’s carried goodwill	  	 	(20,756	) 	
 	  	Adjustment to reflect the goodwill recorded by Enstar on the completion of acquisition of Atrium	  	 	34,556	  	
(d)	  	Adjustment to reflect the intangible assets recorded by Enstar on the completion of the acquisition of Atrium	  	 
	102,300

 	  	Adjustment to reflect elimination of Atrium’s carried intangible assets	  	 	(10,105	) 	
(e)	  	Adjustment to reflect other assets at fair value	  	 	177	  	
(f)	  	Adjustment to reflect unpaid losses and loss adjustment expenses at fair value	  	 	(3,301	) 	
(g)	  	Adjustment to reflect deferred tax liability on the goodwill and intangible assets recorded by Enstar on the completion of acquisition of Atrium	  	 	(21,774	) 	
(h)	  	Adjustment to reflect the drawdown by Enstar of its RCF	  	 	95,000	  	
(i)	  	Adjustment to reflect the fair value of the redeemable noncontrolling interests’ capital contribution	  	 	63,200	  	
(j)	  	Adjustment to reflect the elimination of Atrium’s common stock	  	 	(24,702	) 	
(k)	  	Adjustment to reflect the elimination of Atrium’s additional paid-in capital	  	 	(2,161	) 	
(l)	  	Adjustment to reflect the elimination of Atrium’s accumulated other comprehensive income	  	 	(15,953	) 	
(m)	  	Adjustment to reflect the elimination of Atrium’s retained earnings	  	 	(52,867	) 	
Income Statement:

 	  	Increase (decrease) for the
Nine Months Ended
September 30, 2013	 	 	Increase (decrease) for
Year Ended
December 31, 2012	 	
 	  	 	  	(dollars in thousands)	 	
 	  	Pavonia Pro Forma Adjustments	  	 	 	 	 	 	 	 	
(n)	  	Adjustment to amortize the fair value adjustment of intangible assets with a definitive life	  	 	(2,825	) 	 	 	(11,300	) 	
(o)	  	Net adjustment related to the unlocking and reassessment of the actuarial estimates of the business acquired	  	 	(2,166	) 	 	 	(8,664	) 	
 
7

 	 	 	 	 	 	 	 	 	 	 	
(p)	  	Adjustment to reflect the interest expense on the drawdown of the RCF	  	 	(442	) 	 	 	(2,250	) 	
(q)	  	Adjustment to reflect income tax impact of pro forma adjustments based on an assumed tax rate of 35%	  	 	1,902	  	 	 	7,775	  	
 	 	 	 	
 	  	Arden Pro Forma Adjustments	  	 	 	 	 	 	 	 	
(r)	  	Adjustment to amortize the fair value adjustment of intangible assets	  	 	(218	) 	 	 	(327	) 	
(s)	  	Adjustment to reclassify salaries and benefits to conform presentation	  	 	—  	  	 	 	(6,791	) 	
(t)	  	Adjustment to remove salary and benefits from general and administrative expenses to conform presentation	  	 	—  	  	 	 	6,791	  	
(u)	  	Adjustment to reflect the interest expense on the drawdown of the RCF	  	 	(1,111	) 	 	 	(1,855	) 	
(v)	  	Adjustment to reflect the redeemable noncontrolling interest’s 40% share of Arden’s pro forma loss (earnings) and cumulative adjustment entries	  	 	1,236	  	 	 	(58,565	) 	
 	 	 	 	
 	  	Atrium Pro Forma Adjustments	  	 	 	 	 	 	 	 	
(w)	  	Adjustment to reclassify salaries and benefits to conform presentation	  	 	(19,468	) 	 	 	(25,101	) 	
(x)	  	Adjustment to remove salary and benefits from general and administrative expenses to conform presentation	  	 	19,468	  	 	 	25,101	  	
(y)	  	Adjustment to amortize the fair value adjustment of intangible assets	  	 	(1,190	) 	 	 	(1,587	) 	
(z)	  	Adjustment to reflect the interest expense on the drawdown of the RCF	  	 	(2,449	) 	 	 	(3,685	) 	
(aa)	  	Adjustment to reflect the redeemable noncontrolling interest’s share of Atrium’s pro forma earnings and adjustments	  	 	(8,220	) 	 	 	(11,392	) 	
 
8