e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Quarterly Period Ended
March 31, 2009
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the Transition Period From
to
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001-33289
Commission File Number
ENSTAR GROUP LIMITED
(Exact name of registrant as
specified in its charter)
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Bermuda
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N/A
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(State or other jurisdiction
of incorporation or organization)
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(I.R.S. Employer
Identification No.)
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P.O. Box HM
2267
Windsor Place,
3rd
Floor
18 Queen Street
Hamilton HM JX
Bermuda
(Address
of principal executive office, including zip
code)
(441) 292-3645
(Registrants telephone
number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was
required to submit and post such files). Yes
o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of May 6, 2009, the registrant had
outstanding 13,450,634 ordinary shares, par value $1.00 per
share.
TABLE OF
CONTENTS
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Page
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PART I FINANCIAL INFORMATION
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1
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Condensed Consolidated Balance Sheets as of
March 31, 2009 and December 31, 2008 (Unaudited)
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1
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Condensed Consolidated Statements of Earnings for
the
Three-Month
Periods Ended March 31, 2009 and 2008 (Unaudited)
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2
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Condensed Consolidated Statements of Comprehensive
Income for the
Three-Month
Periods Ended March 31, 2009 and 2008 (Unaudited)
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3
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Condensed Consolidated Statements of Changes in
Shareholders Equity for the
Three-Month
Periods Ended March 31, 2009 and 2008
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4
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Condensed Consolidated Statements of Cash Flows for
the Three-Month Periods Ended March 31, 2009 and 2008
(Unaudited)
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5
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Notes to the Condensed Consolidated Financial
Statements (Unaudited)
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6
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Report of Independent Registered Public Accounting
Firm
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20
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21
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29
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29
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30
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30
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31
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32
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Exhibit 10.1
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Exhibit 15.1
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Exhibit 31.1
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Exhibit 31.2
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Exhibit 32.1
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Exhibit 32.1
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Item 1.
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FINANCIAL
STATEMENTS
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ENSTAR
GROUP LIMITED
UNAUDITED
CONDENSED CONSOLIDATED BALANCE SHEETS
As of
March 31, 2009 and December 31, 2008
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March 31,
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December 31,
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2009
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2008
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(expressed in thousands of U.S. dollars, except share
data)
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ASSETS
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Short-term investments,
available-for-sale,
at fair value (amortized cost: 2009 $504,374;
2008 $406,712)
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$
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504,214
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$
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406,712
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Fixed maturities,
available-for-sale,
at fair value (amortized cost: 2009 $118,320;
2008 $103,452)
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116,147
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104,797
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Fixed maturities,
held-to-maturity,
at amortized cost (fair value: 2009 $673,067;
2008 $598,686)
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664,978
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586,716
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Fixed maturities, trading, at fair value (amortized cost:
2009 $108,646; 2008 $110,453)
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112,500
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115,846
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Equities, trading, at fair value (cost: 2009
$13,736; 2008 $5,087)
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9,568
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3,747
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Other investments, at fair value (cost: 2009
$158,557; 2008 $147,652)
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69,566
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60,237
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Total investments
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1,476,973
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1,278,055
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Cash and cash equivalents
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1,564,053
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1,866,546
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Restricted cash and cash equivalents
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415,812
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343,327
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Accrued interest receivable
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19,217
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21,277
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Accounts receivable, net
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16,225
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15,992
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Income taxes recoverable
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711
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Reinsurance balances receivable
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726,257
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672,696
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Investment in partly owned company
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21,119
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20,850
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Goodwill
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21,222
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21,222
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Other assets
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109,420
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118,186
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TOTAL ASSETS
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$
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4,371,009
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$
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4,358,151
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LIABILITIES
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Losses and loss adjustment expenses
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$
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2,797,827
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$
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2,798,287
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Reinsurance balances payable
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208,563
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179,917
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Accounts payable and accrued liabilities
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27,132
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39,340
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Income taxes payable
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14,456
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19,034
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Loans payable
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392,684
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391,534
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Other liabilities
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69,766
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58,808
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TOTAL LIABILITIES
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3,510,428
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3,486,920
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SHAREHOLDERS EQUITY
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Share capital
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Authorized issued and fully paid, par value $1 each (authorized
2009:
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156,000,000; 2008: 156,000,000)
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Ordinary shares (issued and outstanding 2009: 13,450,901; 2008:
13,334,353)
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13,451
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13,334
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Non-voting convertible ordinary shares (issued 2009: 2,972,892;
2008: 2,972,892)
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2,973
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2,973
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Treasury shares at cost (non-voting convertible ordinary shares
2009: 2,972,892; 2008: 2,972,892)
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(421,559
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)
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(421,559
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)
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Additional paid-in capital
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713,459
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709,485
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Accumulated other comprehensive loss
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(39,375
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)
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(30,871
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)
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Retained earnings
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353,378
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341,847
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Total Enstar Group Limited Shareholders Equity
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622,327
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615,209
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Noncontrolling interest
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238,254
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256,022
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TOTAL SHAREHOLDERS EQUITY
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860,581
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871,231
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TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
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$
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4,371,009
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$
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4,358,151
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See accompanying notes to the unaudited condensed consolidated
financial statements
1
ENSTAR
GROUP LIMITED
For the
Three-Month Periods Ended March 31, 2009 and 2008
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Three Months Ended
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March 31,
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2009
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2008
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(expressed in thousands of U.S. dollars, except share
and
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per share data)
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INCOME
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Consulting fees
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$
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3,336
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$
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6,055
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Net investment income
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17,309
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590
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Net realized losses
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(6,010
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)
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(1,084
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)
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14,635
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5,561
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EXPENSES
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Net (decrease) increase in loss and loss adjustment expense
liabilities
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(26,679
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)
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685
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Salaries and benefits
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12,417
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11,357
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General and administrative expenses
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12,382
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11,911
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Interest expense
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4,965
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3,315
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Net foreign exchange loss (gain)
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1,598
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(1,335
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)
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4,683
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25,933
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EARNINGS (LOSS) BEFORE INCOME TAXES AND SHARE OF NET EARNINGS OF
PARTLY OWNED COMPANY
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9,952
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(20,372
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)
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INCOME TAXES
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618
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239
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SHARE OF NET EARNINGS OF PARTLY OWNED COMPANY
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269
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EARNINGS (LOSS) BEFORE EXTRAORDINARY GAIN
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10,839
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(20,133
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)
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Extraordinary gain Negative goodwill
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50,280
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NET EARNINGS
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10,839
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30,147
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Less: Net loss (earnings) attributable to noncontrolling
interests (including share of extraordinary gain of $nil and
$15,084, respectively)
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692
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(18,460
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)
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NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED
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$
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11,531
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$
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11,687
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EARNINGS PER SHARE BASIC:
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Earnings (loss) before extraordinary gain attributable to Enstar
Group Limited ordinary shareholders
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$
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0.86
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$
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(1.97
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)
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Extraordinary gain attributable to Enstar Group Limited ordinary
shareholders
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2.95
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Net earnings attributable to Enstar Group Limited ordinary
shareholders
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$
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0.86
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$
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0.98
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EARNINGS PER SHARE DILUTED:
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Earnings (loss) before extraordinary gain attributable to Enstar
Group Limited ordinary shareholders
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$
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0.84
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$
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(1.97
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)
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Extraordinary gain attributable to Enstar Group Limited ordinary
shareholders
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2.95
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Net earnings attributable to Enstar Group Limited ordinary
shareholders
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$
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0.84
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$
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0.98
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Weighted average shares outstanding basic
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13,363,507
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11,927,542
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Weighted average shares outstanding diluted
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13,699,419
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11,927,542
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AMOUNTS ATTRIBUTABLE TO ENSTAR GROUP LIMITED ORDINARY
SHAREHOLDERS:
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Earnings (loss) before extraordinary gain
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$
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11,531
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$
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(23,509
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)
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Extraordinary gain
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35,196
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Net earnings
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$
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11,531
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$
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11,687
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See accompanying notes to the unaudited condensed consolidated
financial statements
2
ENSTAR
GROUP LIMITED
For the
Three-Month Periods Ended March 31, 2009 and 2008
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Three Months Ended
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March 31,
|
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2009
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2008
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(expressed in thousands of U.S. dollars)
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NET EARNINGS
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$
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10,839
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$
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30,147
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Other comprehensive loss:
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Unrealized holding (losses) gains on investments arising during
the period
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(7,849
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)
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568
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Reclassification adjustment for net realized losses included in
net earnings
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6,010
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1,084
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Currency translation adjustment
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(3,982
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)
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(1,902
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)
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Total other comprehensive loss
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(5,821
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)
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(250
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)
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Comprehensive income
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5,018
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29,897
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Less comprehensive income attributable to noncontrolling
interests
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(1,994
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)
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(18,460
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)
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|
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|
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COMPREHENSIVE INCOME ATTRIBUTABLE TO ENSTAR GROUP LIMITED
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$
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3,024
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$
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11,437
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See accompanying notes to the unaudited condensed consolidated
financial statements
3
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Three Months Ended
|
|
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March 31,
|
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2009
|
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2008
|
|
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(expressed in thousands of U.S. dollars)
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Share Capital Ordinary Shares
|
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Balance, beginning of period
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$
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13,334
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$
|
11,920
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Shares issued
|
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|
117
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28
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Balance, end of period
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$
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13,451
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$
|
11,948
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|
|
|
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|
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Share Capital Non-Voting Convertible Ordinary
Shares
|
|
|
|
|
|
|
|
|
Balance, beginning and end of period
|
|
$
|
2,973
|
|
|
$
|
2,973
|
|
|
|
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|
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Treasury Shares
|
|
|
|
|
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Balance, beginning and end of period
|
|
$
|
(421,559
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)
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$
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(421,559
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)
|
|
|
|
|
|
|
|
|
|
Additional Paid-in Capital
|
|
|
|
|
|
|
|
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Balance, beginning of period
|
|
$
|
709,485
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|
|
$
|
590,934
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|
Shares issued
|
|
|
3,974
|
|
|
|
2,562
|
|
Amortization of share awards
|
|
|
|
|
|
|
216
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
713,459
|
|
|
$
|
593,712
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive (Loss) Income
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
(30,871
|
)
|
|
$
|
6,035
|
|
Other comprehensive (loss)
|
|
|
(8,504
|
)
|
|
|
(250
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
(39,375
|
)
|
|
$
|
5,785
|
|
|
|
|
|
|
|
|
|
|
Retained Earnings
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
341,847
|
|
|
$
|
260,296
|
|
Net earnings
|
|
|
11,531
|
|
|
|
11,687
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
353,378
|
|
|
$
|
271,983
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling Interest
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
256,022
|
|
|
$
|
63,437
|
|
(Return) contribution of capital
|
|
|
(18,783
|
)
|
|
|
86,209
|
|
Dividends paid
|
|
|
(979
|
)
|
|
|
|
|
Net earnings (loss)
|
|
|
(692
|
)
|
|
|
18,460
|
|
Other comprehensive income
|
|
|
2,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
238,254
|
|
|
$
|
168,106
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the unaudited condensed consolidated
financial statements
4
ENSTAR
GROUP LIMITED
For the
Three-Month Periods Ended March 31, 2009 and
2008
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(expressed in thousands of U.S. dollars)
|
|
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
10,839
|
|
|
$
|
30,147
|
|
Adjustments to reconcile net earnings to cash flows provided by
operating activities:
|
|
|
|
|
|
|
|
|
Negative goodwill
|
|
|
|
|
|
|
(50,280
|
)
|
Share of undistributed net (earnings) of partly owned company
|
|
|
(269
|
)
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
216
|
|
Net realized and unrealized investment loss
|
|
|
6,010
|
|
|
|
1,084
|
|
Share of net loss from other investments
|
|
|
2,100
|
|
|
|
26,510
|
|
Other items
|
|
|
5,550
|
|
|
|
1,723
|
|
Depreciation and amortization
|
|
|
210
|
|
|
|
191
|
|
Amortization of bond premiums and discounts
|
|
|
2,513
|
|
|
|
(148
|
)
|
Net movement of trading securities
|
|
|
3,302
|
|
|
|
(4,202
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Reinsurance balances receivable
|
|
|
(50,686
|
)
|
|
|
(160,775
|
)
|
Other assets
|
|
|
8,685
|
|
|
|
(33,814
|
)
|
Losses and loss adjustment expenses
|
|
|
(7,876
|
)
|
|
|
520,829
|
|
Reinsurance balances payable
|
|
|
28,967
|
|
|
|
14,419
|
|
Accounts payable and accrued liabilities
|
|
|
(8,532
|
)
|
|
|
(4,198
|
)
|
Other liabilities
|
|
|
2,273
|
|
|
|
32,686
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by operating activities
|
|
|
3,086
|
|
|
|
374,388
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired
|
|
|
8,504
|
|
|
|
7,067
|
|
Purchase of available-for-sale securities
|
|
|
(218,353
|
)
|
|
|
(163,267
|
)
|
Sales and maturities of available-for-sale securities
|
|
|
96,757
|
|
|
|
21,089
|
|
Purchase of held-to-maturity securities
|
|
|
(118,897
|
)
|
|
|
|
|
Maturity of held-to-maturity securities
|
|
|
36,581
|
|
|
|
61,682
|
|
Movement in restricted cash and cash equivalents
|
|
|
(72,485
|
)
|
|
|
(149,595
|
)
|
Funding of other investments
|
|
|
(14,728
|
)
|
|
|
(20,090
|
)
|
Other investing activities
|
|
|
(477
|
)
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
Net cash flows used in investing activities
|
|
|
(283,098
|
)
|
|
|
(243,151
|
)
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
650
|
|
|
|
|
|
Distribution of capital to noncontrolling interest
|
|
|
(19,759
|
)
|
|
|
|
|
Contribution to surplus of subsidiary by noncontrolling interest
|
|
|
|
|
|
|
86,209
|
|
Receipt of loans
|
|
|
|
|
|
|
307,813
|
|
Repayment of loans
|
|
|
|
|
|
|
(39,800
|
)
|
|
|
|
|
|
|
|
|
|
Net cash flows (used in) provided by financing activities
|
|
|
(19,109
|
)
|
|
|
354,222
|
|
|
|
|
|
|
|
|
|
|
TRANSLATION ADJUSTMENT
|
|
|
(3,372
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(302,493
|
)
|
|
|
485,458
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
1,866,546
|
|
|
|
995,237
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
1,564,053
|
|
|
$
|
1,480,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplement Cash Flow Information
|
|
|
|
|
|
|
|
|
Net income taxes (paid)
|
|
$
|
(5,322
|
)
|
|
$
|
(1,037
|
)
|
Interest paid
|
|
$
|
(3,235
|
)
|
|
$
|
(1,609
|
)
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the unaudited condensed consolidated
financial statements
5
|
|
1.
|
BASIS OF
PREPARATION AND CONSOLIDATION
|
Our condensed consolidated financial statements have not been
audited. These statements have been prepared in accordance with
U.S. Generally Accepted Accounting Principles
(U.S. GAAP) for interim financial information
and with the instructions to
Form 10-Q
and Article 10 of
Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by U.S. GAAP for complete financial
statements. In the opinion of management, these financial
statements reflect all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
of our financial position and results of operations as at the
end of and for the periods presented. Results of operations for
subsidiaries acquired are included from the dates of their
acquisition by the Company. Intercompany transactions are
eliminated on consolidation. The results of operations for any
interim period are not necessarily indicative of the results for
a full year. All significant inter-company accounts and
transactions have been eliminated. In these notes, the terms
we, us, our, or the
Company refer to Enstar Group Limited and its direct and
indirect subsidiaries. The following information is unaudited
and should be read in conjunction with our Annual Report on
Form 10-K
for the year ended December 31, 2008.
Adoption
of New Accounting Standards
The term FAS used in these notes refers to
Statements of Financial Accounting Standards issued by the
United States Financial Accounting Standards Board
(FASB).
The Company adopted FAS No. 141(R), Business
Combinations (FAS 141(R)), effective
January 1, 2009. FAS 141(R) replaces FAS No. 141
Business Combinations (FAS 141) but
retains the fundamental requirements in FAS No. 141
that the acquisition method of accounting be used for all
business combinations and for an acquirer to be identified for
each business combination. FAS 141(R) requires an acquirer
to recognize the assets acquired, the liabilities assumed, and
any noncontrolling interest in the acquiree at the acquisition
date, measured at their fair values as of that date.
FAS 141(R) also requires the Company to recognize
acquisition-related costs separately from the acquisition,
recognize assets acquired and liabilities assumed arising from
contractual contingencies at their acquisition-date fair values
and recognize goodwill as the excess of the consideration
transferred plus the fair value of any noncontrolling interest
in the acquiree at the acquisition date over the fair values of
the identifiable net assets acquired. The adoption of
FAS 141(R) did not have a material impact on the
consolidated financial statements.
The Company adopted FAS No. 160, Noncontrolling
Interests in Consolidated Financial Statements an
amendment of ARB No. 51 (FAS 160),
effective January 1, 2009. FAS 160 amends ARB
No. 51 to establish accounting and reporting standards for
the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary. FAS 160 clarifies that a
noncontrolling interest in a subsidiary is an ownership interest
that should be reported as equity in the consolidated financial
statements. FAS 160 requires consolidated net income to be
reported at the amounts that include the amounts attributable to
both the parent and the noncontrolling interest. This statement
also establishes a method of accounting for changes in a
parents ownership interest in a subsidiary that results in
deconsolidation. The presentation and disclosure of FAS 160
have been applied retrospectively for all periods presented. The
adoption of FAS 160 resulted in reclassification of
noncontrolling interest in the amounts of $238.3 million
and $256.0 million to shareholders equity as at
March 31, 2009 and December 31, 2008, respectively.
The Company adopted FAS No. 161, Disclosures
about Derivative Instruments and Hedging Activities
an amendment of FASB Statement No. 133
(FAS 161), effective January 1, 2009.
FAS 161 expands the disclosure requirements of FAS 133
and requires the reporting entity to provide enhanced
disclosures about the objectives and strategies for using
derivative instruments, quantitative disclosures about fair
values and amounts of gains and losses on derivative contracts,
and credit-risk related contingent features in derivative
agreements. The adoption of FAS 161 did not have a material
impact on the consolidated financial statements.
6
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
1.
|
BASIS OF
PREPARATION AND CONSOLIDATION
(contd)
|
Recently
Issued Accounting Standards Not Yet Adopted
On April 9, 2009, the FASB issued the following three Staff
Positions (FSPs):
|
|
|
|
|
FSP
FAS 157-4,
Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That are Not Orderly
(FSP
FAS 157-4).
This FSP supercedes FSP
FAS 157-3,
Determining the Fair Value of a Financial Asset When the
Market for That Asset is Not Active. FSP FAS
157-4
provides additional guidance on: 1) estimating fair value
when the volume and level of activity for an asset or liability
have significantly decreased in relation to the normal market
activity for the asset or liability, and 2) identifying
transactions that are not orderly. FSP
FAS 157-4
must be applied prospectively and retrospective application is
not permitted. FSP
FAS 157-4
is effective for interim and annual periods ending after
June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009 subject to also early adoption
of FSP
FAS 115-2
and
FAS 124-2
(as defined below).
|
|
|
|
FSP
FAS 115-2
and
FAS 124-2,
Recognition and Presentation of Other-Than-Temporary
Impairments(FSP
FAS 115-2
and
FAS 124-2).
This FSP provides new guidance on the recognition and
presentation of
other-than-temporary
impairments (OTTI) for available-for-sale and
held-to-maturity fixed maturities (equities are excluded). An
impaired security is not recognized as an impairment if
management does not intend to sell the impaired security and it
is more likely than not it will not be required to sell the
security before the recovery of its amortized cost basis. If
management concludes a security is other-than-temporarily
impaired, the FSP requires that the difference between the fair
value and the amortized cost of the security be presented as an
OTTI charge in the Consolidated Statements of Operations, with
an offset for any noncredit-related loss component of the OTTI
charge to be recognized in other comprehensive income.
Accordingly, only the credit loss component of the OTTI amount
will have an impact on the Companys results of operations.
The FSP also requires extensive new interim and annual
disclosure for both fixed maturities and equities to provide
further disaggregated information as well as information about
how the credit loss component of the OTTI charge was determined
and requires a roll forward of such amount for each reporting
period. FSP
FAS 115-2
and
FAS 124-2
is effective for interim and annual periods ending after
June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009 subject to also early adoption
of FSP
FAS 157-4.
|
|
|
|
FSP
FAS 107-1
and APB
28-1,
Interim Disclosures about Fair Value of Financial
Instruments (FSP
FAS 107-1
and APB
28-1).
This FSP extends the disclosure requirements under FAS 107,
Disclosures about Fair Value of Financial
Instruments, to interim financial statements and amends
APB Opinion 28, Interim Financial Reporting, to
require those disclosures in summarized financial information at
interim reporting periods. This FSP is effective for interim and
annual periods ending after June 15, 2009, with early
adoption permitted for periods ending after March 15, 2009
also subject to early adoption of FSP
FAS 157-4
and FSP
FAS 115-2
and
FAS 124-2.
|
The Company is presently evaluating the impact of the adoption
of these FSPs on its results of operations and financial
position.
On April 1, 2009, the FASB issued FSP FAS 141(R)-1,
Accounting for Assets and Liabilities Assumed in a
Business Combination That Arise from Contingencies
(FSP FAS 141(R)-1). This FSP amends the
guidance in FAS 141(R) by requiring that assets acquired or
liabilities assumed in a business combination that arise from
contingencies be recognized at fair value only if fair value can
be reasonably estimated; otherwise the asset or liability should
generally be recognized in accordance with FAS 5,
Accounting for Contingencies, and FASB
Interpretation 14, Reasonable Estimation of the Amount of
Loss. This FSP removes the requirement to disclose an
estimate of the range of outcomes of recognized contingencies at
the acquisition date. FSP FAS 141(R)-1 is effective for
assets and liabilities arising from contingencies in business
combinations for which the acquisition date is on or after
December 15, 2008. The
7
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
1.
|
BASIS OF
PREPARATION AND CONSOLIDATION
(contd)
|
Company does not anticipate this adoption will have a material
impact to its results of operations, financial condition and
liquidity.
Constellation
Reinsurance
On January 31, 2009, the Company, through its indirect
subsidiary, Sun Gulf Holdings Inc., completed the acquisition of
all of the outstanding capital stock of Constellation
Reinsurance Company Limited (Constellation) for a
total purchase price of approximately $2.5 million.
Constellation is a New York domiciled reinsurer that is in
run-off. The acquisition was funded from available cash on hand.
The purchase price and fair value of the assets acquired in the
Constellation acquisition were as follows:
|
|
|
|
|
Total purchase price
|
|
$
|
2,500
|
|
|
|
|
|
|
Net assets acquired at fair value
|
|
$
|
2,500
|
|
|
|
|
|
|
The following summarizes the estimated fair values of the assets
acquired and the liabilities assumed at the date of the
acquisition:
|
|
|
|
|
Cash, restricted cash and investments
|
|
$
|
11,254
|
|
Reinsurance balances receivable
|
|
|
3,374
|
|
Losses and loss adjustment expenses
|
|
|
(12,128
|
)
|
|
|
|
|
|
Net assets acquired at fair value
|
|
$
|
2,500
|
|
|
|
|
|
|
8
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
2.
|
ACQUISITIONS (contd)
|
Pro
Formas, for the Three Months Ended March 31,
2008
The following pro forma condensed combined income statement for
the three months ended March 31, 2008 combines the
historical consolidated statements of earnings of the Company
with those of AMP Limiteds Australian-based closed
reinsurance and insurance operations (Gordian) and
Unionamerica Holdings Limited (UAH), which were
acquired in the first and fourth quarters of 2008, respectively,
giving effect to the business combinations and related
transactions as if they had occurred on January 1, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enstar
|
|
|
|
Enstar
|
|
|
|
|
|
|
|
|
|
|
|
Group
|
|
|
|
Group
|
|
|
|
|
|
|
|
|
Pro forma
|
|
|
Limited
|
|
Three Months Ended March 31, 2008
|
|
Limited
|
|
|
Gordian
|
|
|
UAH
|
|
|
Adjustments
|
|
|
Pro forma
|
|
|
Total income
|
|
$
|
(1,748
|
)
|
|
$
|
14,082
|
|
|
$
|
6,952
|
|
|
$
|
(5,194
|
)(a)
|
|
$
|
14,092
|
|
Total expenses
|
|
|
(22,886
|
)
|
|
|
15,860
|
|
|
|
(44,381
|
)
|
|
|
(17,109
|
)(b)
|
|
|
(68,516
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) earnings before extraordinary gain
|
|
|
(24,634
|
)
|
|
|
29,942
|
|
|
|
(37,429
|
)
|
|
|
(22,303
|
)
|
|
|
(54,424
|
)
|
Extraordinary gain
|
|
|
50,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before extraordinary gain
|
|
|
25,646
|
|
|
|
29,942
|
|
|
|
(37,429
|
)
|
|
|
(22,303
|
)
|
|
|
(4,144
|
)
|
Noncontrolling interest (including share of extraordinary gain
of $15,084)
|
|
|
(17,110
|
)
|
|
|
(8,982
|
)
|
|
|
11,229
|
|
|
|
6,691
|
(c)
|
|
|
(8,172
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Enstar Group Limited
|
|
$
|
8,536
|
|
|
$
|
20,960
|
|
|
$
|
(26,200
|
)
|
|
$
|
(15,612
|
)
|
|
$
|
(12,316
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per ordinary share attributable to Enstar Group Limited
before extraordinary gain basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3.98
|
)
|
Extraordinary gain attributable to Enstar Group
Limited basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per ordinary share attributable to Enstar Group
Limited basic and diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes to
the Pro Forma Condensed Combined Income Statements for the Three
Months Ended March 31, 2008:
|
|
|
|
|
Income:
|
|
|
|
|
(a) Adjustment to conform the accounting policy for investments
to that of the Company
|
|
$
|
(5,194
|
)
|
Expenses:
|
|
|
|
|
(b)(i) Adjustment to interest expense to reflect the financing
costs of the acquisitions for the period
|
|
|
(7,834
|
)
|
(ii) Adjustment to recognize amortization of fair value
adjustments recorded at dates of acquisition
|
|
|
(11,994
|
)
|
(iii) Adjustment to income taxes for pro forma adjustments
|
|
|
2,719
|
|
|
|
|
|
|
|
|
|
(17,109
|
)
|
(c) Reflects noncontrolling interests share of net pro
forma income statement adjustments
|
|
|
6,691
|
|
|
|
3.
|
SIGNIFICANT
NEW BUSINESS
|
The Company owns 50.1% of Shelbourne Group Limited
(Shelbourne), which in turn owns 100% of Shelbourne
Syndicate Services Limited, the Managing Agency for Lloyds
Syndicate 2008, a syndicate approved by Lloyds of London
on December 16, 2007 to undertake Reinsurance to Close
(RITC) transactions with Lloyds
9
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
3.
|
SIGNIFICANT
NEW BUSINESS (contd)
|
syndicates in run-off. In February 2009, Lloyds Syndicate
2008 entered into a RITC agreement with a Lloyds syndicate
with total gross insurance reserves of approximately
$67.0 million.
JCF FPK I L.P. (JCF FPK), a joint investment program
between J.C. Flowers II L.P. (the Flowers Fund) and
Fox-Pitt Kelton Cochran Caronia Waller (USA) LLC
(FPK), owns 49.9% of Shelbourne. The Flowers Fund is
a private investment fund advised by J.C Flowers & Co. LLC.
J. Christopher Flowers, a member of the Companys board of
directors and one of its largest shareholders, is the founder
and Managing Member of J.C. Flowers & Co. LLC. John J.
Oros, the Companys Executive Chairman and a member of its
board of directors, is a Managing Director of J.C. Flowers
& Co. LLC. An affiliate of the Flowers Fund controls
approximately 41% of FPK. In addition, in July 2008, FPK
acted as lead managing underwriter in the Companys public
share offering.
|
|
4.
|
RESTRICTED
CASH AND CASH EQUIVALENTS
|
Restricted cash and cash equivalents were $415.8 million
and $343.3 million as of March 31, 2009 and
December 31, 2008, respectively. The restricted cash and
cash equivalents are used as collateral against letters of
credit and as guarantee under trust agreements. Letters of
credit are issued to ceding insurers as security for the
obligations of insurance subsidiaries under reinsurance
agreements with those ceding insurers.
Available-for-sale
The amortized cost and estimated fair value of investments in
debt securities classified as available-for-sale are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
Amortized
|
|
|
Holding
|
|
|
Holding
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
As at March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and Agency securities
|
|
$
|
45,858
|
|
|
$
|
1,559
|
|
|
$
|
|
|
|
$
|
47,417
|
|
Non-U.S.
Government securities
|
|
|
1,894
|
|
|
|
33
|
|
|
|
|
|
|
|
1,927
|
|
Corporate debt securities
|
|
|
64,440
|
|
|
|
616
|
|
|
|
(4,381
|
)
|
|
|
60,675
|
|
Other debt securities
|
|
|
6,128
|
|
|
|
|
|
|
|
|
|
|
|
6,128
|
|
Short term investments
|
|
|
504,374
|
|
|
|
479
|
|
|
|
(639
|
)
|
|
|
504,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
622,694
|
|
|
$
|
2,687
|
|
|
$
|
(5,020
|
)
|
|
$
|
620,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and Agency securities
|
|
$
|
25,089
|
|
|
$
|
2,197
|
|
|
$
|
|
|
|
$
|
27,286
|
|
Non-U.S.
Government securities
|
|
|
917
|
|
|
|
32
|
|
|
|
|
|
|
|
949
|
|
Corporate debt securities
|
|
|
71,024
|
|
|
|
955
|
|
|
|
(1,839
|
)
|
|
|
70,140
|
|
Other debt securities
|
|
|
6,422
|
|
|
|
|
|
|
|
|
|
|
|
6,422
|
|
Short term investments
|
|
|
406,712
|
|
|
|
|
|
|
|
|
|
|
|
406,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
510,164
|
|
|
$
|
3,184
|
|
|
$
|
(1,839
|
)
|
|
$
|
511,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
5.
|
INVESTMENTS (contd)
|
The gross unrealized losses on available-for-sale debt
securities were split as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Due within one year
|
|
$
|
(2,133
|
)
|
|
$
|
(16
|
)
|
After 1 through 5 years
|
|
|
(1,520
|
)
|
|
|
(1,401
|
)
|
After 5 through 10 years
|
|
|
(1,036
|
)
|
|
|
(55
|
)
|
After 10 years
|
|
|
(331
|
)
|
|
|
(367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(5,020
|
)
|
|
$
|
(1,839
|
)
|
|
|
|
|
|
|
|
|
|
As at March 31, 2009 and December 31, 2008, the number of
securities classified as available-for-sale in an unrealized
loss position was 107 and 30, respectively, with a fair value of
$256.4 million and $21.7 million. Of these securities,
as at March 31, 2009, the number of securities that had
been in an unrealized loss position for 12 months or longer
was 17 with a fair value of $13.2 million.
Held-to-maturity
The amortized cost and estimated fair value of investments in
debt securities classified as held-to-maturity are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
Amortized
|
|
|
Holding
|
|
|
Holding
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
As at March 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and Agency securities
|
|
$
|
97,778
|
|
|
$
|
2,764
|
|
|
$
|
(231
|
)
|
|
$
|
100,311
|
|
Non-U.S.
Government securities
|
|
|
165,223
|
|
|
|
7,967
|
|
|
|
(162
|
)
|
|
|
173,028
|
|
Corporate debt securities
|
|
|
401,977
|
|
|
|
3,800
|
|
|
|
(6,049
|
)
|
|
|
399,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
664,978
|
|
|
$
|
14,531
|
|
|
$
|
(6,442
|
)
|
|
$
|
673,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and Agency securities
|
|
$
|
119,981
|
|
|
$
|
3,200
|
|
|
$
|
(192
|
)
|
|
$
|
122,989
|
|
Non-U.S.
Government securities
|
|
|
156,620
|
|
|
|
9,465
|
|
|
|
|
|
|
|
166,085
|
|
Corporate debt securities
|
|
|
310,115
|
|
|
|
2,750
|
|
|
|
(3,253
|
)
|
|
|
309,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
586,716
|
|
|
$
|
15,415
|
|
|
$
|
(3,445
|
)
|
|
$
|
598,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gross unrealized losses on held-to-maturity debt securities
were split as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Due within one year
|
|
$
|
(332
|
)
|
|
$
|
(77
|
)
|
After 1 through 5 years
|
|
|
(3,601
|
)
|
|
|
(1,171
|
)
|
After 5 through 10 years
|
|
|
(1,697
|
)
|
|
|
(1,444
|
)
|
After 10 years
|
|
|
(812
|
)
|
|
|
(753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(6,442
|
)
|
|
$
|
(3,445
|
)
|
|
|
|
|
|
|
|
|
|
11
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
5.
|
INVESTMENTS (contd)
|
As at March 31, 2009 and December 31, 2008, the number
of securities classified as held-to-maturity in an unrealized
loss position was 101 and 38, respectively, with a fair value of
$214.6 million and $53.8 million. Of these securities,
as at March 31, 2009, the number of securities that have
been in an unrealized loss position for 12 months or longer
was 9 with a fair value of $8.2 million. As of
March 31, 2009, none of these securities were considered to
be other than temporarily impaired. The Company has the intent
and ability to hold these securities until their maturities. The
unrealized losses from these securities were not a result of
credit, collateral or structural issues.
The amortized cost and estimated fair values as at
March 31, 2009 of debt securities classified as
held-to-maturity by contractual maturity are shown below.
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Due within one year
|
|
$
|
107,159
|
|
|
$
|
107,568
|
|
After 1 through 5 years
|
|
|
487,572
|
|
|
|
494,090
|
|
After 5 through 10 years
|
|
|
54,710
|
|
|
|
56,259
|
|
After 10 years
|
|
|
15,537
|
|
|
|
15,150
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
664,978
|
|
|
$
|
673,067
|
|
|
|
|
|
|
|
|
|
|
Actual maturities could differ from contractual maturities
because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Trading
The estimated fair value of investments in debt securities and
short-term investments classified as trading securities were as
follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
U.S. Treasury and Agency securities
|
|
$
|
71,354
|
|
|
$
|
84,351
|
|
Corporate debt securities
|
|
|
41,146
|
|
|
|
31,495
|
|
Equities
|
|
|
9,568
|
|
|
|
3,747
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
122,068
|
|
|
$
|
119,593
|
|
|
|
|
|
|
|
|
|
|
Other
Investments
At March 31, 2009 and December 31, 2008, the Company
had $69.6 million and $60.2 million, respectively, of
other investments recorded in limited partnerships, limited
liability companies and equity funds. These other investments
represented 2% and 1.7% of total investments and cash and cash
equivalents at March 31, 2009 and December 31, 2008,
respectively. All of the Companys investments in limited
partnerships and limited liability companies that are
categorized as other investments are subject to restrictions on
redemptions and sales which are determined by the governing
documents and limit the Companys ability to liquidate
these investments in the short term. Due to a lag in the
valuations reported by the managers, the Company records changes
in the investment value with up to a three-month lag. These
investments are accounted for under the equity method. As at
March 31, 2009 and December 31, 2008, the Company had
unfunded capital commitments relating to its other investments
of $102.1 million and $108.0 million, respectively. As
at March 31, 2009 and December 31, 2008, the Company
had 94.7% and 90.6%, respectively, of other investments with a
related party.
12
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
5.
|
INVESTMENTS (contd)
|
Fair
Value of Financial Instruments
In accordance with FAS No. 157, Fair Value
Measurements (FAS 157), the Company has
categorized its investments between levels as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
for Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
Total Fair
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Value
|
|
|
Fixed maturities available-for-sale
|
|
$
|
|
|
|
$
|
620,361
|
|
|
$
|
|
|
|
$
|
620,361
|
|
Fixed maturities trading
|
|
|
|
|
|
|
112,216
|
|
|
|
284
|
|
|
|
112,500
|
|
Equity securities
|
|
|
3,506
|
|
|
|
3,971
|
|
|
|
2,091
|
|
|
|
9,568
|
|
Other investments
|
|
|
|
|
|
|
|
|
|
|
69,566
|
|
|
|
69,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
3,506
|
|
|
$
|
736,548
|
|
|
$
|
71,941
|
|
|
$
|
811,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Value
|
|
|
Fixed maturities available-for-sale
|
|
$
|
|
|
|
$
|
511,509
|
|
|
$
|
|
|
|
$
|
511,509
|
|
Fixed maturities trading
|
|
|
|
|
|
|
115,494
|
|
|
|
352
|
|
|
|
115,846
|
|
Equity securities
|
|
|
3,747
|
|
|
|
|
|
|
|
|
|
|
|
3,747
|
|
Other investments
|
|
|
|
|
|
|
|
|
|
|
60,237
|
|
|
|
60,237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
3,747
|
|
|
$
|
627,003
|
|
|
$
|
60,589
|
|
|
$
|
691,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents a reconciliation of the beginning
and ending balances for all investments measured at fair value
on a recurring basis using Level 3 inputs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009
|
|
|
|
Fixed
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
|
Other
|
|
|
Equity
|
|
|
|
|
|
|
Investments
|
|
|
Investments
|
|
|
Securities
|
|
|
Total
|
|
|
Level 3 investments as of January 1, 2009
|
|
$
|
352
|
|
|
$
|
60,237
|
|
|
$
|
|
|
|
$
|
60,589
|
|
Net purchases (sales and distributions)
|
|
|
|
|
|
|
12,628
|
|
|
|
2,006
|
|
|
|
14,634
|
|
Total realized and unrealized losses
|
|
|
(68
|
)
|
|
|
(3,299
|
)
|
|
|
85
|
|
|
|
(3,282
|
)
|
Net transfers in and/or (out) of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 investments as of March 31, 2009
|
|
$
|
284
|
|
|
$
|
69,566
|
|
|
$
|
2,091
|
|
|
$
|
71,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
5.
|
INVESTMENTS (contd)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2008
|
|
|
|
Fixed
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
|
|
|
Other
|
|
|
Equity
|
|
|
|
|
|
|
Investments
|
|
|
Investments
|
|
|
Securities
|
|
|
Total
|
|
|
Level 3 investments as of January 1, 2008
|
|
$
|
1,051
|
|
|
$
|
75,300
|
|
|
$
|
|
|
|
$
|
76,351
|
|
Net purchases (sales and distributions)
|
|
|
|
|
|
|
55,461
|
|
|
|
|
|
|
|
55,461
|
|
Total realized and unrealized losses
|
|
|
|
|
|
|
(25,370
|
)
|
|
|
|
|
|
|
(25,370
|
)
|
Net transfers in and/or (out) of Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 investments as of March 31, 2008
|
|
$
|
1,051
|
|
|
$
|
105,391
|
|
|
$
|
|
|
|
$
|
106,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of total losses for the period included in earnings
attributable to the fair value of changes in assets still held
at March 31, 2009 and 2008 was $1.9 million and $26.5
million, respectively.
Restricted
Investments
The Company is required to maintain investments on deposit with
various regulatory authorities to support its insurance and
reinsurance operations. The investments on deposit are available
to settle insurance and reinsurance liabilities. The Company
also utilizes trust accounts to collateralize business with its
insurance and reinsurance counterparties. These trust accounts
generally take the place of letter of credit requirements. The
investments in trust as collateral are primarily highly rated
fixed maturity securities. The carrying value of our restricted
investments was as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Assets used for collateral in trust for third-party agreements
|
|
$
|
244,669
|
|
|
$
|
297,491
|
|
Deposits with U.S. regulatory authorities
|
|
|
11,743
|
|
|
|
11,751
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
256,412
|
|
|
$
|
309,242
|
|
|
|
|
|
|
|
|
|
|
On April 4, 2009, the Company repaid AU$80.7 million
(approximately $56.7 million) of the outstanding principal
of the Facility A commitment pursuant to the term facility
agreement of the Companys wholly-owned subsidiary,
Cumberland Holdings Limited.
Our share-based compensation plans provide for the grant of
various awards to our employees and to members of the board of
directors. These are described in Note 12 to the
Consolidated Financial Statements contained in our Annual Report
on
Form 10-K
for the year ended December 31, 2008. The information below
includes both the employee and director components of our
share-based compensation.
14
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
7.
|
EMPLOYEE
BENEFITS (contd)
|
Employee stock awards for the three months ended March 31,
2009 are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average Fair
|
|
|
|
Number of
|
|
|
Value of
|
|
|
|
Shares
|
|
|
the Award
|
|
|
Nonvested January 1, 2009
|
|
|
13,749
|
|
|
$
|
813
|
|
Granted
|
|
|
66,091
|
|
|
|
3,384
|
|
Vested
|
|
|
(66,091
|
)
|
|
|
(3,384
|
)
|
|
|
|
|
|
|
|
|
|
Nonvested March 31, 2009
|
|
|
13,749
|
|
|
$
|
774
|
|
|
|
|
|
|
|
|
|
|
On May 23, 2006, the Company entered into an agreement and
plan of merger (the Merger Agreement) with The
Enstar Group, Inc. (EGI) and a recapitalization
agreement. These agreements provided for the cancellation of the
then current annual incentive compensation plan and replaced it
with a new annual incentive compensation plan.
|
|
i)
|
2004-2005 Employee
Share Plan
|
As a result of the execution of these agreements, the accounting
treatment for share-based awards under the Companys
employee share plan changed from book value to fair value. The
determination of the share-award expenses was based on the
fair-market value per share of EGI common stock as of the grant
date and is recognized over the vesting period.
Compensation costs of $nil and $0.2 million relating to the
issuance of share-awards to employees of the Company in 2004 and
2005 have been recognized in the Companys statement of
earnings for the three months ended March 31, 2009 and
2008, respectively.
|
|
ii)
|
2006-2010
Annual Incentive Plan and 2006 Equity Incentive Plan
|
For the three months ended March 31, 2009 and 2008, 64,572
and 27,140 shares were awarded to officers and employees
under the 2006 Equity Incentive Plan. The total value of the
award for the three months ended March 31, 2009 and 2008
was $3.3 million and $2.6 million, respectively, and
was charged against the
2006-2010
Annual Incentive Plan accrual established for the years ended
December 31, 2008 and 2007, respectively.
The accrued expense relating to the
2006-2010
Annual Incentive Plan for the three months ended March 31,
2009 and 2008 was $2.0 million and $2.1 million,
respectively.
iii) Enstar
Group Limited Employee Share Purchase Plan
Compensation costs of less than $0.1 million and $Nil
relating to the shares issued under the Employee Share Purchase
Plan (the Plan) have been recognized in the
Companys statement of earnings for the three months ended
March 31, 2009 and 2008, respectively. As at March 31,
2009, 4,214 shares have been issued to employees under the
Plan.
15
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
7.
|
EMPLOYEE
BENEFITS (contd)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Value of
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Outstanding January 1, 2009
|
|
|
490,371
|
|
|
$
|
25.40
|
|
|
$
|
16,545
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(50,000
|
)
|
|
|
13.00
|
|
|
|
(1,538
|
)
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding March 31, 2009
|
|
|
440,371
|
|
|
$
|
26.81
|
|
|
$
|
12,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding and exercisable as of March 31,
2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Ranges of
|
|
|
|
|
|
|
|
Weighted Average
|
|
Exercise
|
|
Number of
|
|
|
Weighted Average
|
|
|
Remaining
|
|
Prices
|
|
Options
|
|
|
Exercise Price
|
|
|
Contractual Life
|
|
|
$10 - $20
|
|
|
273,645
|
|
|
$
|
17.97
|
|
|
|
2.0 years
|
|
$40 - $60
|
|
|
166,726
|
|
|
|
41.32
|
|
|
|
4.4 years
|
|
|
|
(c)
|
Deferred
Compensation and Stock Plan for Non-Employee
Directors
|
For the three months ended March 31, 2009 and 2008, 1,651
and 994 restricted share units, respectively, were credited to
the accounts of Non-Employee Directors under the Enstar Group
Limited Deferred Compensation and Ordinary Share Plan for
Non-Employee Directors.
16
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
The following table sets forth the comparison of basic and
diluted earnings per share of amounts attributable to the
Companys ordinary shareholders for the three-month periods
ended March 31, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Basic earnings per share
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Enstar Group Limited before
extraordinary gain
|
|
$
|
11,531
|
|
|
$
|
(23,509
|
)
|
Weighted average shares outstanding basic
|
|
|
13,363,507
|
|
|
|
11,927,542
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share attributable to Enstar Group Limited
before extraordinary gain basic
|
|
$
|
0.86
|
|
|
$
|
(1.97
|
)
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Enstar Group Limited before
extraordinary gain
|
|
$
|
11,531
|
|
|
$
|
(23,509
|
)
|
Weighted average shares outstanding basic
|
|
|
13,363,507
|
|
|
|
11,927,542
|
|
Share equivalents:
|
|
|
|
|
|
|
|
|
Unvested shares
|
|
|
13,749
|
|
|
|
|
|
Options
|
|
|
314,734
|
|
|
|
|
|
Restricted share units
|
|
|
7,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
13,699,419
|
|
|
|
11,927,542
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share attributable to Enstar Group Limited
before extraordinary gain diluted
|
|
$
|
0.84
|
|
|
$
|
(1.97
|
)
|
|
|
|
|
|
|
|
|
|
The following securities have not been included in the
computation of diluted earnings per share for the three-month
period ended March 31, 2008 because to do so would have
been anti-dilutive.
|
|
|
|
|
Share equivalents:
|
|
2008
|
|
|
Unvested shares
|
|
|
25,862
|
|
Options
|
|
|
262,440
|
|
Restricted share units
|
|
|
2,141
|
|
|
|
|
|
|
Total
|
|
|
290,443
|
|
|
|
|
|
|
|
|
9.
|
RELATED
PARTY TRANSACTIONS
|
The Company has entered into certain transactions with companies
and partnerships that are affiliated with J. Christopher
Flowers and John J. Oros. Mr. Flowers is a member of the
Companys board of directors and is one of the
Companys largest shareholders. Mr. Oros is the
Companys Executive Chairman and a member of the board of
directors.
|
|
|
|
|
During the quarter, the Company funded an additional
$5.9 million of its outstanding capital commitment to
entities affiliated with Messrs. Flowers and Oros. The
Company had, as of March 31, 2009 and December 31,
2008, investments in entities affiliated with
Messrs. Flowers and Oros with a total value of
$65.9 million and $54.5 million, respectively, and
outstanding commitments to entities managed by
Messrs. Flowers and Oros,
|
17
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
9.
|
RELATED
PARTY TRANSACTIONS (contd)
|
for the same periods, of $98 million and
$104.0 million, respectively. The Companys
outstanding commitments may be drawn down over approximately the
next five years.
|
|
|
|
|
On January 16, 2009, the Company committed to invest
approximately $8.7 million in JCF III Co-invest I L.P., an
entity affiliated with Messrs. Flowers and Oros, in
connection with its investment in certain of the operations,
assets and liabilities of IndyMac Bank, F.S.B.
|
As at March 31, 2009, the related party investments associated
with Messrs. Flowers and Oros accounted for 96% of the
total unfunded capital commitments of the Company, 94.7% of the
total amount of investments classified as Other Investments by
the Company, and 100% of the total write-downs in the quarter by
the Company.
The determination of reportable segments is based on how senior
management monitors the Companys operations. The Company
measures the results of its operations under two major business
categories: reinsurance and consulting.
Consulting fees for the reinsurance segment are intercompany
fees paid to the consulting segment. Salary and benefits for the
reinsurance segment relate to the discretionary bonus expense on
the net income after taxes of the reinsurance segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2009
|
|
|
|
Reinsurance
|
|
|
Consulting
|
|
|
Total
|
|
|
Consulting fees
|
|
$
|
(7,996
|
)
|
|
$
|
11,332
|
|
|
$
|
3,336
|
|
Net investment income
|
|
|
17,097
|
|
|
|
212
|
|
|
|
17,309
|
|
Net realized losses
|
|
|
(6,010
|
)
|
|
|
|
|
|
|
(6,010
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,091
|
|
|
|
11,544
|
|
|
|
14,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in loss and loss adjustment expense liabilities
|
|
|
(26,679
|
)
|
|
|
|
|
|
|
(26,679
|
)
|
Salaries and benefits
|
|
|
3,466
|
|
|
|
8,951
|
|
|
|
12,417
|
|
General and administrative expenses
|
|
|
8,057
|
|
|
|
4,325
|
|
|
|
12,382
|
|
Interest expense
|
|
|
4,965
|
|
|
|
|
|
|
|
4,965
|
|
Net foreign exchange loss
|
|
|
1,309
|
|
|
|
289
|
|
|
|
1,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,882
|
)
|
|
|
13,565
|
|
|
|
4,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes and share of net earnings of
partly owned company
|
|
|
11,973
|
|
|
|
(2,021
|
)
|
|
|
9,952
|
|
Income taxes
|
|
|
125
|
|
|
|
493
|
|
|
|
618
|
|
Share of net earnings of partly owned company
|
|
|
269
|
|
|
|
|
|
|
|
269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
12,367
|
|
|
|
(1,528
|
)
|
|
|
10,839
|
|
Less: Net earnings attributable to noncontrolling interest
|
|
|
692
|
|
|
|
|
|
|
|
692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Enstar Group Limited
|
|
$
|
13,059
|
|
|
$
|
(1,528
|
)
|
|
$
|
11,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
ENSTAR
GROUP LIMITED
NOTES TO
THE UNAUDITED CONDENSED
CONSOLIDATED
FINANCIAL STATEMENTS (Continued)
|
|
10.
|
SEGMENT
INFORMATION (contd)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2008
|
|
|
|
Reinsurance
|
|
|
Consulting
|
|
|
Total
|
|
|
Consulting fees
|
|
$
|
(7,248
|
)
|
|
$
|
13,303
|
|
|
$
|
6,055
|
|
Net investment income (loss)
|
|
|
5,498
|
|
|
|
(4,908
|
)
|
|
|
590
|
|
Net realized loss
|
|
|
(1,084
|
)
|
|
|
|
|
|
|
(1,084
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,834
|
)
|
|
|
8,395
|
|
|
|
5,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in loss and loss adjustment expense liabilities
|
|
|
685
|
|
|
|
|
|
|
|
685
|
|
Salaries and benefits
|
|
|
2,062
|
|
|
|
9,295
|
|
|
|
11,357
|
|
General and administrative expenses
|
|
|
8,289
|
|
|
|
3,622
|
|
|
|
11,911
|
|
Interest expense
|
|
|
3,315
|
|
|
|
|
|
|
|
3,315
|
|
Net foreign exchange gain
|
|
|
(963
|
)
|
|
|
(372
|
)
|
|
|
(1,335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,388
|
|
|
|
12,545
|
|
|
|
25,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(16,222
|
)
|
|
|
(4,150
|
)
|
|
|
(20,372
|
)
|
Income taxes
|
|
|
(1,561
|
)
|
|
|
1,800
|
|
|
|
239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before extraordinary gain
|
|
|
(17,783
|
)
|
|
|
(2,350
|
)
|
|
|
(20,133
|
)
|
Extraordinary gain
|
|
|
50,280
|
|
|
|
|
|
|
|
50,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
|
32,497
|
|
|
|
(2,350
|
)
|
|
|
30,147
|
|
Less: Net earnings attributable to noncontrolling interest
|
|
|
(18,460
|
)
|
|
|
|
|
|
|
(18,460
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) attributable to Enstar Group Limited
|
|
$
|
14,037
|
|
|
$
|
(2,350
|
)
|
|
$
|
11,687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
of Enstar Group Limited
We have reviewed the accompanying condensed consolidated balance
sheet of Enstar Group Limited and subsidiaries (the
Company) as of March 31, 2009, and the related
condensed consolidated statements of earnings and comprehensive
income, changes in shareholders equity and cash flows for
the three-month periods ended March 31, 2009 and 2008.
These interim financial statements are the responsibility of the
Companys management.
We conducted our review in accordance with the standards of the
Public Company Accounting Oversight Board (United States). A
review of interim financial information consists principally of
applying analytical procedures and making inquiries of persons
responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in
accordance with the standards of the Public Company Accounting
Oversight Board (United States), the objective of which is the
expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to such condensed consolidated
interim financial statements for them to be in conformity with
accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with the standards of
the Public Company Accounting Oversight Board (United States),
the consolidated balance sheet of Enstar Group Limited and
subsidiaries as of December 31, 2008, and the related
consolidated statements of earnings, comprehensive income,
changes in shareholders equity, and cash flows for the
year then ended prior to retrospective adjustment for the
adoption of FAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, (not presented herein);
and in our report dated March 4, 2009, we expressed an
unqualified opinion on those consolidated financial statements.
We have also audited the adjustments that were applied to
retrospectively adjust the December 31, 2008 consolidated
financial statements of Enstar Group Limited and subsidiaries
(not presented herein). In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet
as of December 31, 2008 is fairly stated, in all material
respects, in relation to the consolidated balance sheet from
which it has been derived.
Hamilton,
Bermuda
May 8, 2009
20
|
|
Item 2.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The following is a discussion and analysis of our results of
operations for the three months ended March 31, 2009 and
2008. This discussion and analysis should be read in conjunction
with the attached unaudited condensed consolidated financial
statements and notes thereto and the audited consolidated
financial statements and notes thereto contained in our Annual
Report on
Form 10-K
for the fiscal year ended December 31, 2008.
Business
Overview
Enstar Group Limited, or Enstar, was formed in August 2001 under
the laws of Bermuda to acquire and manage insurance and
reinsurance companies in run-off, and to provide management,
consulting and other services to the insurance and reinsurance
industry.
Since our formation we have acquired a number of insurance and
reinsurance companies and are now administering those businesses
in run-off. We derive our net earnings from the ownership and
management of these companies primarily by settling insurance
and reinsurance claims below the recorded loss reserves and from
returns on the portfolio of investments retained to pay future
claims. In addition, we have formed other businesses that
provide management and consultancy services, claims inspection
services and reinsurance collection services to our affiliates
and third-party clients for both fixed and success-based fees.
Recent
Transactions
On January 31, 2009, we, through our indirect subsidiary,
Sun Gulf Holdings Inc., completed the acquisition of all of the
outstanding capital stock of Constellation Reinsurance Company
Limited, or Constellation, for a total purchase price of
approximately $2.5 million. Constellation is a New York
domiciled reinsurer that is in run-off. The acquisition was
funded from available cash on hand.
We own 50.1% of Shelbourne Group Limited, which in turn owns
100% of Shelbourne Syndicate Services Limited, the Managing
Agency for Lloyds Syndicate 2008, a syndicate approved by
Lloyds of London on December 16, 2007 to undertake
Reinsurance to Close or RITC transactions (the
transferring of liabilities from one Lloyds Syndicate to
another) with Lloyds syndicates in run-off. In February
2009, Lloyds Syndicate 2008 entered into a RITC agreement
with a Lloyds syndicate with total gross insurance
reserves of approximately $67.0 million. JCF FPK I L.P., or
JCF FPK, a joint investment program between
J.C. Flowers II L.P., or the Flowers Fund, and
Fox-Pitt
Kelton Cochran Caronia Waller (USA) LLC, or FPK, owns 49.9% of
Shelbourne Group Limited.
The Flowers Fund is a private investment fund advised by J.C.
Flowers & Co. LLC. J. Christopher Flowers, a member of our
board of directors and one of our largest shareholders, is the
founder and Managing Member of J.C. Flowers & Co. LLC.
John J. Oros, our Executive Chairman and a member of our board
of directors, is a Managing Director of J.C. Flowers & Co.
LLC. In July 2008, FPK acted as lead managing underwriter in our
public share offering. An affiliate of the Flowers Fund controls
approximately 41% of FPK.
21
Results
of Operations
The following table sets forth our selected consolidated
statement of operations data for each of the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
INCOME
|
|
|
|
|
|
|
|
|
Consulting fees
|
|
$
|
3,336
|
|
|
$
|
6,055
|
|
Net investment income
|
|
|
17,309
|
|
|
|
590
|
|
Net realized losses
|
|
|
(6,010
|
)
|
|
|
(1,084
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
14,635
|
|
|
|
5,561
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
Net (decrease) increase in loss and loss adjustment expense
liabilities
|
|
|
(26,679
|
)
|
|
|
685
|
|
Salaries and benefits
|
|
|
12,417
|
|
|
|
11,357
|
|
General and administrative expenses
|
|
|
12,382
|
|
|
|
11,911
|
|
Interest expense
|
|
|
4,965
|
|
|
|
3,315
|
|
Net foreign exchange loss (gain)
|
|
|
1,598
|
|
|
|
(1,335
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
4,683
|
|
|
|
25,933
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) before income taxes and share of net earnings of
partly owned company
|
|
|
9,952
|
|
|
|
(20,372
|
)
|
Income taxes
|
|
|
618
|
|
|
|
239
|
|
Share of net earnings of partly owned company
|
|
|
269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) before extraordinary gain
|
|
|
10,839
|
|
|
|
(20,133
|
)
|
Extraordinary gain negative goodwill
|
|
|
|
|
|
|
50,280
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
|
|
|
10,839
|
|
|
|
30,147
|
|
Less: Net loss (earnings) attributable to noncontrolling interest
|
|
|
692
|
|
|
|
(18,460
|
)
|
|
|
|
|
|
|
|
|
|
NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED
|
|
$
|
11,531
|
|
|
$
|
11,687
|
|
|
|
|
|
|
|
|
|
|
Comparison
of the Three Months Ended March 31, 2009 and
2008
We reported consolidated net earnings attributable to Enstar
Group Limited of approximately $11.5 million for the three
months ended March 31, 2009 as compared to approximately
$11.7 million for the same period in 2008. Included as part
of net earnings for 2008 are extraordinary gains related to
negative goodwill of $50.3 million (inclusive of the
noncontrolling interests share of extraordinary gain of
$15.1 million). The increase in earnings, before
extraordinary item and net earnings attributable to
noncontrolling interest, of approximately $31.0 million was
primarily a result of the following:
(i) an increase in investment income (net of realized
losses) of $11.8 million, primarily due to an overall
increase in cash and investments as a result of acquisitions
that we completed during 2008; and
(ii) an increase in the net decrease in loss and loss
adjustment expense liabilities of $27.4 million; partially
offset by
(iii) net increase in foreign exchange loss of
$2.9 million;
(iv) increased interest expense of $1.7 million due to
increased bank borrowings; and
(v) decreased consulting fee income of $2.7 million.
22
Consulting
Fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Variance
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
Consulting
|
|
$
|
11,332
|
|
|
$
|
13,303
|
|
|
$
|
(1,971
|
)
|
Reinsurance
|
|
|
(7,996
|
)
|
|
|
(7,248
|
)
|
|
|
(748
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,336
|
|
|
$
|
6,055
|
|
|
$
|
(2,719
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We earned consulting fees of approximately $3.3 million and
$6.1 million for the three months ended March 31, 2009
and 2008, respectively. The decrease in consulting fees
primarily relates to decreased incentive fees earned from third
party agreements.
Internal management fees of $8.0 million and
$7.2 million were paid in the three months ended
March 31, 2009 and 2008, respectively, by our reinsurance
companies to our consulting companies. The increase in internal
fees paid to the consulting segment was due primarily to fees
paid by reinsurance companies that we acquired subsequent to
March 31, 2008.
Net
Investment Income and Net Realized Gains/(Losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
Net Investment Income
|
|
|
|
|
|
Net Realized Gains/(Losses)
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Variance
|
|
|
2009
|
|
|
2008
|
|
|
Variance
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
Consulting
|
|
$
|
212
|
|
|
$
|
(4,908
|
)
|
|
$
|
5,120
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Reinsurance
|
|
|
17,097
|
|
|
|
5,498
|
|
|
|
11,599
|
|
|
|
(6,010
|
)
|
|
|
(1,084
|
)
|
|
|
(4,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17,309
|
|
|
$
|
590
|
|
|
$
|
16,719
|
|
|
$
|
(6,010
|
)
|
|
$
|
(1,084
|
)
|
|
$
|
(4,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income for the three months ended March 31,
2009 increased by $16.7 million to $17.3 million, as
compared to $0.6 million for the same period in 2008. The
increase was primarily attributable to the combination of the
following items:
|
|
|
|
(i)
|
decrease from $26.2 million to $2.0 million in
writedowns in the fair value of our investments in New NIB
Partners L.P., the Flowers Fund, Affirmative Investment LLC and
GSC European Mezzanine Fund II, LP for the quarters ended
March 31, 2008 and 2009, respectively; partially offset by
|
|
|
(ii)
|
lower investment income from fixed maturities and cash and cash
equivalents, reflecting the impact of lower global short-term
and intermediate interest rates the average
U.S. Federal Funds Rate has decreased from 3.24% for the
three months ended March 31, 2008 to 0.25% for the three
months ended March 31, 2009.
|
The average return on the cash and fixed maturities investments
for the three months ended March 31, 2009 was 1.72%, as
compared to the average return of 3.24% for the three months
ended March 31, 2008. In respect of our fixed income
investments, 76.4% and 91.0% had a Standard & Poors
credit rating of AA or higher for the three months ended
March 31, 2009 and 2008, respectively.
Net realized losses for the three months ended March 31,
2009 and 2008 were $6.0 million and $1.1 million,
respectively. The net realized loss for the three months ended
March 31, 2009 primarily arose as a result of us
transferring approximately $10.0 million of investments
that were classified as available-for-sale fixed maturities and
approximately $2.0 million of other investments that were
classified as other to equities and we wrote down the value of
those securities by approximately $5.4 million to reflect
their current market values.
23
Fair
Value Measurements
The following table summarizes all of our financial assets and
liabilities measured at fair value by FAS No. 157,
Fair Value Measurements, or FAS 157, heirarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Other Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Total Fair
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Value
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity investments
|
|
$
|
|
|
|
$
|
732,577
|
|
|
$
|
284
|
|
|
$
|
732,861
|
|
Equity securities
|
|
|
3,506
|
|
|
|
3,971
|
|
|
|
2,091
|
|
|
|
9,568
|
|
Other investments
|
|
|
|
|
|
|
|
|
|
|
69,566
|
|
|
|
69,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,506
|
|
|
$
|
736,548
|
|
|
$
|
71,941
|
|
|
$
|
811,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of total assets ($4.4 billion, as at
March 31, 2009)
|
|
|
0.1
|
%
|
|
|
16.9
|
%
|
|
|
1.6
|
%
|
|
|
18.6
|
%
|
Net
(Decrease) Increase in Loss and Loss Adjustment Expense
Liabilities:
The net (decrease) increase in loss and loss adjustment expense
liabilities for the three months ended March 31, 2009 and
2008 was $(26.7) million and $0.7 million,
respectively. The net decrease in loss and loss adjustment
expense liabilities for the three months ended March 31,
2009 of $26.7 million was attributable to a reduction in
estimates of net ultimate losses of $29.9 million, a
reduction in aggregate provisions for bad debts of
$9.7 million and a reduction in estimates of loss
adjustment expense liabilities of $10.1 million, relating
to 2009 run-off activity, partially offset by the amortization,
over the estimated payout period, of fair value adjustments
relating to companies acquired amounting to $23.0 million.
The reduction in estimates of net ultimate losses of
$29.9 million primarily related to a reduction in Incurred
But Not Reported (IBNR) loss reserves. Subsequent to the period
end, claims liabilities of certain policyholders within a number
of our insurance subsidiaries were agreed at levels that
required a reassessment of IBNR loss reserves for those
subsidiaries. The reduction in aggregate provisions for bad
debts of $9.7 million resulted from the collection of
certain reinsurance balances receivable against which bad debt
provisions had been provided.
For the three months ended March 31, 2008, the net increase
in loss and loss adjustment expense liabilities of $0.7 million
was attributable to an increase in bad debt provisions of
$1.3 million, the amortization, over the estimated payout
period, of fair value adjustments relating to companies acquired
amounting to $6.5 million, partially offset by the
reduction in estimates of loss adjustment expense liabilities of
$7.1 million, to reflect 2008 run-off activity.
The following table shows the components of the movement in the
net increase in loss and loss adjustment expense liabilities for
the three months ended March 31, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
Net Losses Paid
|
|
$
|
12,372
|
|
|
$
|
(3,375
|
)
|
Net Change in Case and LAE Reserves
|
|
|
(15,306
|
)
|
|
|
4,542
|
|
Net Change in IBNR
|
|
|
(23,745
|
)
|
|
|
(482
|
)
|
|
|
|
|
|
|
|
|
|
Net (Decrease) Increase in Loss and Loss Adjustment
|
|
|
|
|
|
|
|
|
Expense Liabilities
|
|
$
|
(26,679
|
)
|
|
$
|
685
|
|
|
|
|
|
|
|
|
|
|
24
The table below provides a reconciliation of the beginning and
ending reserves for loss and loss adjustment expenses for the
three months ended March 31, 2009 and March 31, 2008.
Losses incurred and paid are reflected net of reinsurance
recoverables.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
Balance as of January 1,
|
|
$
|
2,798,287
|
|
|
$
|
1,591,449
|
|
Less: Reinsurance recoverables
|
|
|
394,575
|
|
|
|
427,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,403,712
|
|
|
|
1,163,485
|
|
Incurred Related to Prior Years
|
|
|
(26,679
|
)
|
|
|
685
|
|
Paids Related to Prior Years
|
|
|
(12,372
|
)
|
|
|
3,375
|
|
Effect of Exchange Rate Movement
|
|
|
(6,650
|
)
|
|
|
9,413
|
|
Retroactive Reinsurance Contracts Assumed
|
|
|
48,818
|
|
|
|
394,913
|
|
Acquired on Acquisition of Subsidiaries
|
|
|
11,383
|
|
|
|
465,887
|
|
|
|
|
|
|
|
|
|
|
Net balance as at March 31
|
|
$
|
2,418,212
|
|
|
$
|
2,037,758
|
|
Plus: Reinsurance recoverables
|
|
|
379,615
|
|
|
|
662,929
|
|
|
|
|
|
|
|
|
|
|
Balance as at March 31,
|
|
$
|
2,797,827
|
|
|
$
|
2,700,687
|
|
|
|
|
|
|
|
|
|
|
Salaries
and Benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Variance
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
Consulting
|
|
$
|
8,951
|
|
|
$
|
9,295
|
|
|
$
|
344
|
|
Reinsurance
|
|
|
3,466
|
|
|
|
2,062
|
|
|
|
(1,404
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,417
|
|
|
$
|
11,357
|
|
|
$
|
(1,060
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and benefits, which include expenses relating to our
discretionary bonus and employee share plans, were
$12.4 million and $11.4 million for the three months
ended March 31, 2009 and 2008, respectively. The increase
in salaries and benefits is primarily attributable to increased
staff costs due to an increase in staff numbers from 253 as at
March 31, 2008 to 284 as at March 31, 2009.
Expenses relating to our discretionary bonus plan will be
variable and dependent on our overall profitability.
General
and Administrative Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Variance
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
Consulting
|
|
$
|
4,325
|
|
|
$
|
3,622
|
|
|
$
|
(703
|
)
|
Reinsurance
|
|
|
8,057
|
|
|
|
8,289
|
|
|
|
232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,382
|
|
|
$
|
11,911
|
|
|
$
|
(471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses attributable to the
consulting segment increased by $0.7 million during the
three months ended March 31, 2009, as compared to the three
months ended March 31, 2008.
General and administrative expenses attributable to the
reinsurance segment decreased by $0.2 million during the
three months ended March 31, 2009, as compared to the three
months ended March 31, 2008. For the quarter ended
March 31, 2008, we incurred approximately $4.5 million
of bank loan structure fees incurred in respect of acquisitions
we completed during the quarter for the three months
ended March 31, 2009 we did not incur any similar fees. The
reduced expenses were partially offset by increased costs
associated with new companies acquired subsequent to
March 31, 2008.
25
Interest
Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Variance
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
Consulting
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Reinsurance
|
|
|
4,965
|
|
|
|
3,315
|
|
|
|
(1,650
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,965
|
|
|
$
|
3,315
|
|
|
$
|
(1,650
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense of $5.0 million and $3.3 million was
recorded for the three months ended March 31, 2009 and
2008, respectively. The increase in interest expense is
attributable to the increase in bank borrowings used in the
funding of acquisitions during 2008, primarily in relation to
Goshawk Insurance Holdings Plc, or Goshawk, AMP Limiteds
Australian-based closed reinsurance and insurance operations, or
Gordian, and Unionamerica Holdings Limited or Unionamerica.
Negative
Goodwill:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
|
|
2009
|
|
|
2008
|
|
|
Variance
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
Consulting
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Reinsurance
|
|
|
|
|
|
|
50,280
|
|
|
|
(50,280
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
50,280
|
|
|
$
|
(50,280
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Negative goodwill of $nil and $50.3 million, was recorded
for the three months ended March 31, 2009 and 2008,
respectively. For the three months ended March 31, 2008 the
negative goodwill of $50.3 million was earned in connection
with our acquisition of Gordian and represents the excess of the
cumulative fair value of net assets acquired of
$455.7 million over the cost of $405.4 million. This
excess was, in accordance with FAS No. 141
Business Combinations, recognized as an
extraordinary gain in 2008. The negative goodwill arose
primarily as a result of the income earned by Gordian between
the date of the balance sheet on which the agreed purchase price
was based, June 30, 2007, and the date the acquisition
closed, March 5, 2008, and the desire of the vendors to
achieve a substantial reduction in regulatory capital
requirements and therefore to dispose of Gordian at a discount
to fair value.
Noncontrolling
Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31
|
|
|
|
2009
|
|
|
2008
|
|
|
Variance
|
|
|
|
(in thousands of U.S. dollars)
|
|
|
Consulting
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Reinsurance
|
|
|
692
|
|
|
|
(18,460
|
)
|
|
|
19,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
692
|
|
|
$
|
(18,460
|
)
|
|
$
|
19,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We recorded a noncontrolling interest in earnings of
$0.7 million and $(18.5) million for the three months
ended March 31, 2009 and 2008, respectively. The decrease
for the quarter ended March 31, 2009 in noncontrolling
interest was primarily due to the noncontrolling interests
share of the negative goodwill relating to the Gordian
acquisition in the first quarter of 2008.
Liquidity
and Capital Resources
On April 4, 2009, we repaid AU$80.7 million
(approximately $56.7 million) of the outstanding principal
of the Facility A commitment pursuant to the term facility
agreement of our wholly-owned subsidiary, Cumberland Holdings
Limited. Other than this repayment, which occurred subsequent to
the three month period ended March 31, 2009, there have
been no material changes in our liquidity position or capital
resource requirements
26
since December 31, 2008. For more information refer to
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources included in Item 7 of our Annual
Report on
Form 10-K
for the year ended December 31, 2008, filed with the SEC on
March 5, 2009.
With respect to the three month periods ended March 31,
2009 and 2008, net cash provided by our operating activities was
$3.1 million and $374.4 million, respectively. The
decrease in cash flows was primarily attributable to net assets
assumed on retro-active reinsurance contracts during the three
months ended March 31, 2008, which did not recur in 2009.
Net cash used in investing activities for the three months ended
March 31, 2009 was $(283.1) million compared to
$(243.2) million for the three months ended March 31,
2008. The decrease in the cash flows was primarily due to an
increase in net purchases of investments, offset partially by an
increase in cash provided by the sales and maturities of
available-for-sale
securities.
Net cash (used in) provided by financing activities for the
three months ended March 31, 2009 and 2008 was
$(19.1) million and $354.2 million, respectively. The
decrease in cash flows was primarily attributable to the receipt
of bank loans and capital contributions by noncontrolling
interest shareholders, relating to the purchase of Guildhall
Insurance Company Limited, Gordian, and the financing of
Shelbourne Group Limited, during the three months ended
March 31, 2008, which did not recur in 2009.
Commitments
and Contingencies
There have been no other material changes in our commitments or
contingencies since December 31, 2008. For more information
refer to Managements Discussion and Analysis of
Financial Condition and Results of Operations
Commitments and Contingencies included in Item 7 of
our Annual Report on
Form 10-K
for the year ended December 31, 2008, filed with the SEC on
March 5, 2009.
Critical
Accounting Estimates
Our critical accounting estimates are discussed in
Managements Discussion and Analysis of Results of
Operations and Financial Condition Critical
Accounting Policies included in Item 7 of our Annual
Report on
Form 10-K
for the year ended December 31, 2008, filed with the SEC on
March 5, 2009.
Off-Balance
Sheet and Special Purpose Entity Arrangements
At March 31, 2009, we have not entered into any off-balance
sheet arrangements, as defined by Item 303(a)(4) of
Regulation S-K.
27
Cautionary
Statement Regarding Forward-Looking Statements
This quarterly report contains statements that constitute
forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as
amended, or the Exchange Act, with respect to our financial
condition, results of operations, business strategies, operating
efficiencies, competitive positions, growth opportunities, plans
and objectives of our management, as well as the markets for our
ordinary shares and the insurance and reinsurance sectors in
general. Statements that include words such as
estimate, project, plan,
intend, expect, anticipate,
believe, would, should,
could, seek, and similar statements of a
future or forward-looking nature identify forward-looking
statements for purposes of the federal securities laws or
otherwise. All forward-looking statements are necessarily
estimates or expectations, and not statements of historical
fact, reflecting the best judgment of our management and involve
a number of risks and uncertainties that could cause actual
results to differ materially from those suggested by the
forward-looking statements. These forward-looking statements
should, therefore, be considered in light of various important
factors, including those set forth in and incorporated by
reference in this quarterly report.
Factors that could cause actual results to differ materially
from those suggested by the forward-looking statements include:
|
|
|
|
|
risks associated with implementing our business strategies and
initiatives;
|
|
|
|
the adequacy of our loss reserves and the need to adjust such
reserves as claims develop over time;
|
|
|
|
risks relating to the availability and collectability of our
reinsurance;
|
|
|
|
changes in economic conditions, including interest rates,
inflation, currency exchange rates, equity markets and credit
conditions including current market conditions and the
instability in the global credit markets, which could affect our
investment portfolio, our ability to finance future acquisitions
and our profitability;
|
|
|
|
losses due to foreign currency exchange rate fluctuations;
|
|
|
|
tax, regulatory or legal restrictions or limitations applicable
to us or the insurance and reinsurance business generally;
|
|
|
|
increased competitive pressures, including the consolidation and
increased globalization of reinsurance providers;
|
|
|
|
emerging claim and coverage issues;
|
|
|
|
lengthy and unpredictable litigation affecting assessment of
losses
and/or
coverage issues;
|
|
|
|
loss of key personnel;
|
|
|
|
changes in our plans, strategies, objectives, expectations or
intentions, which may happen at any time at managements
discretion;
|
|
|
|
operational risks, including system or human failures;
|
|
|
|
risks that we may require additional capital in the future which
may not be available or may be available only on unfavorable
terms;
|
|
|
|
the risk that ongoing or future industry regulatory developments
will disrupt our business, or mandate changes in industry
practices in ways that increase our costs, decrease our revenues
or require us to alter aspects of the way we do business;
|
|
|
|
changes in Bermuda law or regulation or the political stability
of Bermuda;
|
|
|
|
changes in tax laws or regulations applicable to us or our
subsidiaries, or the risk that we or one of our
non-U.S. subsidiaries
become subject to significant, or significantly increased,
income taxes in the United States or elsewhere; and
|
|
|
|
changes in accounting policies or practices.
|
28
The factors listed above should be not construed as
exhaustive and should be read in conjunction with the other
cautionary statements and Risk Factors that are included in our
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, filed with the
Securities and Exchange Commission, or SEC, on March 5,
2009, as well as in the materials filed and to be filed with the
SEC. We undertake no obligation to publicly update or review any
forward looking statement, whether as a result of new
information, future developments or otherwise.
|
|
Item 3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
There have been no material changes in our market risk exposures
since December 31, 2008. For more information refer to
Quantitative and Qualitative Disclosures about Market
Risk included in Item 7A of our Annual Report on
Form 10-K
for the year ended December 31, 2008 filed with the SEC on
March 5, 2009.
|
|
Item 4.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
Our management performed an evaluation, with the participation
of our Chief Executive Officer and Chief Financial Officer, of
the effectiveness of our disclosure controls and procedures (as
defined in
Rules 13a-15(e)
and
15d-15(e) of
the Exchange Act) as of March 31, 2009. Based upon that
evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures
are effective to ensure that information that we are required to
disclose in reports that we file or submit under the Exchange
Act is recorded, processed, summarized and reported within the
time periods specified in the rules and forms of the SEC and is
accumulated and communicated to management, including our
principal executive and principal financial officers, as
appropriate to allow timely decisions regarding required
disclosure.
Changes
in Internal Controls
Our management has performed an evaluation, with the
participation of our Chief Executive Officer and our Chief
Financial Officer, of changes in our internal control over
financial reporting that occurred during the three months ended
March 31, 2009. Based upon that evaluation there were no
changes in our internal control over financial reporting that
occurred during the three months ended March 31, 2009 that
have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
29
PART II
OTHER INFORMATION
|
|
Item 1.
|
LEGAL
PROCEEDINGS
|
We are, from time to time, involved in various legal proceedings
in the ordinary course of business, including litigation
regarding claims. We do not believe that the resolution of any
currently pending legal proceedings, either individually or
taken as a whole, will have a material adverse effect on our
business, results of operations or financial condition.
Nevertheless, we cannot assure you that lawsuits, arbitrations
or other litigation will not have a material adverse effect on
our business, financial condition or results of operations. We
anticipate that, similar to the rest of the insurance and
reinsurance industry, we will continue to be subject to
litigation and arbitration proceedings in the ordinary course of
business, including litigation generally related to the scope of
coverage with respect to asbestos and environmental claims.
There can be no assurance that any such future litigation will
not have a material adverse effect on our business, financial
condition or results of operations.
In April 2008, we, Enstar US, Inc., or Enstar US, Dukes Place
Limited and certain affiliates of Dukes Place, or, collectively,
Dukes Place, were named as defendants in a lawsuit filed in the
United States District Court for the Southern District of New
York by National Indemnity Company, or NICO, an indirect
subsidiary of Berkshire Hathaway. The complaint alleges, among
other things, that Dukes Place, we and Enstar US:
(i) interfered with the rights of NICO as reinsurer under
reinsurance agreements entered into between NICO and each of
Stonewall and Seaton, two Rhode Island domiciled insurers that
are indirect subsidiaries of Dukes Place, and (ii) breached
certain duties owed to NICO under management agreements between
Enstar US and each of Stonewall and Seaton. The suit was filed
shortly after Virginia Holdings Ltd., our indirect subsidiary,
or Virginia, completed a hearing before the Rhode Island
Department of Business Regulation as part of Virginias
application to buy a 44.4% interest in the insurers from Dukes
Place. Virginia completed that acquisition on June 13,
2008. The suit does not seek a stated amount of damages. Our
management and our U.S. legal counsel believe the claims in
the suit are without merit and will not have a material impact
on us or our subsidiaries. On July 23, 2008, we and Enstar
US filed a motion to dismiss Count I (relating to breach of
fiduciary duty), Count III (relating to breach of contract)
and Count V (relating to inducing breach of contract), in each
case for failure to state a claim upon which relief can be
granted. Subsequently, the parties entered into a Stipulation
and Order filed with the Court on October 7, 2008, by which
(i) NICO agreed to dismiss Count V of its Complaint with
prejudice, (ii) the defendants agreed to withdraw their
motion to dismiss Counts I and III without prejudice,
reserving all of their rights and defenses to challenge these
claims on the merits, and (iii) NICO agreed to extend the
defendants time to file an answer and counterclaim. On
November 5, 2008, we, Enstar US and Dukes Place filed an
answer to NICOs complaint and Dukes Place asserted certain
counterclaims against NICO. On January 12, 2009, NICO filed
a motion to dismiss certain of the counterclaims, along with a
motion for summary judgment addressed to the counterclaims. We,
Enstar US and Dukes Place filed papers in opposition to
NICOs motion on February 23, 2009, and NICO filed
reply briefs in support of its motion on March 23, 2009.
The Court has advised that it will decide these motions on
submission without hearing any oral arguments. Our management
intends to vigorously defend both us and Enstar US against the
claims.
Our results of operations and financial condition are subject to
numerous risks and uncertainties described in Risk
Factors included in Item 1A of our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008, filed with the
SEC on March 5, 2009. The risk factors identified therein
have not materially changed.
30
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.1*
|
|
The Enstar Group, Inc. Deferred Compensation and Stock Plan for
Non-Employee Directors, as amended.
|
|
15
|
.1*
|
|
Deloitte & Touche Letter Regarding Unaudited Interim
Financial Information.
|
|
31
|
.1*
|
|
Certification pursuant to
Rule 13a-14(a)/15d-14(a)
of the Securities Exchange Act of 1934, as amended, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2*
|
|
Certification pursuant to
Rule 13a-14(a)/15d-14(a)
of the Securities Exchange Act of 1934, as amended, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.1**
|
|
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
|
32
|
.2**
|
|
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
|
|
|
* |
|
Filed herewith |
|
** |
|
Furnished herewith |
|
|
|
Denotes management contract or compensatory arrangement |
31
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on
May 8, 2009.
ENSTAR GROUP LIMITED
|
|
|
|
By:
|
/s/ Richard
J. Harris
|
Richard J. Harris,
Chief Financial Officer, Authorized Signatory and
Principal Accounting and Financial Officer
32
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.1*
|
|
The Enstar Group, Inc. Deferred Compensation and Stock Plan for
Non-Employee Directors, as amended.
|
|
15
|
.1*
|
|
Deloitte & Touche Letter Regarding Unaudited Interim
Financial Information.
|
|
31
|
.1*
|
|
Certification pursuant to
Rule 13a-14(a)/15d-14(a)
of the Securities Exchange Act of 1934, as amended, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2*
|
|
Certification pursuant to
Rule 13a-14(a)/15d-14(a)
of the Securities Exchange Act of 1934, as amended, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.1**
|
|
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
|
32
|
.2**
|
|
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
|
|
|
* |
|
Filed herewith |
|
** |
|
Furnished herewith |
|
|
|
Denotes management contract or compensatory arrangement |
33