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ESGR Enstar Group Limited

Filed: 7 May 21, 7:19am
0001363829us-gaap:DerivativeFinancialInstrumentsLiabilitiesMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:NondesignatedMember2020-12-31

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
Commission File Number 001-33289
esgr-20210331_g1.jpg
ENSTAR GROUP LIMITED
(Exact name of Registrant as specified in its charter)
BERMUDAN/A
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
Windsor Place, 3rd Floor, 22 Queen Street, Hamilton HM JX, Bermuda
(Address of principal executive offices, including zip code)
Registrant’s telephone number, including area code: (441) 292-3645
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Ordinary shares, par value $1.00 per shareESGRThe NASDAQ Stock MarketLLC
Depositary Shares, Each Representing a 1/1,000th Interest in a 7.00%ESGRPThe NASDAQ Stock MarketLLC
Fixed-to-Floating Rate Perpetual Non-Cumulative Preferred Share, Series D, Par Value $1.00 Per Share
Depositary Shares, Each Representing a 1/1,000th Interest in a 7.00%ESGROThe NASDAQ Stock MarketLLC
Perpetual Non-Cumulative Preferred Share, Series E, Par Value $1.00 Per Share
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒   No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer¨Non-accelerated filer¨Smaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
As at May 5, 2021, the registrant had outstanding 18,597,598 voting ordinary shares and 3,599,272 non-voting convertible ordinary shares, each par value $1.00 per share.



Enstar Group Limited
Quarterly Report on Form 10-Q
For the Period Ended March 31, 2021

Table of Contents
 


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

1

ENSTAR GROUP LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
As of March 31, 2021 (unaudited) and December 31, 2020
March 31, 2021December 31, 2020
(expressed in thousands of U.S. dollars, except share data)
ASSETS
Short-term investments, trading, at fair value$11,944 $5,129 
Short-term investments, available-for-sale, at fair value (amortized cost: 2021 — $89,585; 2020 — $263,750; net of allowance: 2021 — $0; 2020 — $0)89,637 263,795 
Fixed maturities, trading, at fair value4,310,958 4,594,892 
Fixed maturities, available-for-sale, at fair value (amortized cost: 2021 — $4,604,273; 2020 — $3,312,891; net of allowance: 2021 — $12,538; 2020 — $322)4,567,490 3,395,100 
Funds held - directly managed1,016,531 1,074,890 
Equities, at fair value1,098,568 846,795 
Other investments, at fair value4,519,046 4,244,034 
Equity method investments938,618 832,295 
Total investments (Note 4 and Note 10)
16,552,792 15,256,930 
Cash and cash equivalents562,328 901,152 
Restricted cash and cash equivalents433,365 471,964 
Premiums receivable420,944 405,793 
Reinsurance balances recoverable on paid and unpaid losses (net of allowance: 2021 — $138,765; 2020 — $137,122) (Note 6)
1,559,481 1,568,333 
Reinsurance balances recoverable on paid and unpaid losses, at fair value (Note 6 and Note 10)
490,814 520,830 
Insurance balances recoverable (net of allowance: 2021 — $5,272; 2020 — $4,824) (Note 9)
248,010 249,652 
Funds held by reinsured companies662,645 635,819 
Other assets1,129,413 925,533 
Assets held-for-sale (Note 3)
711,278 
TOTAL ASSETS$22,059,792 $21,647,284 
LIABILITIES
Losses and loss adjustment expenses (Note 8)
$9,150,038 $8,140,362 
Losses and loss adjustment expenses, at fair value (Note 8 and Note 10)
2,277,382 2,452,920 
Defendant asbestos and environmental liabilities (Note 9)
691,557 706,329 
Insurance and reinsurance balances payable610,323 494,412 
Debt obligations (Note 13)
1,363,515 1,373,259 
Other liabilities1,018,743 942,905 
Liabilities held-for-sale (Note 3)
483,657 
TOTAL LIABILITIES15,111,558 14,593,844 
COMMITMENTS AND CONTINGENCIES (Note 20)
00
REDEEMABLE NONCONTROLLING INTEREST (Note 14)
174,803 365,436 
SHAREHOLDERS’ EQUITY (Note 15)
Ordinary shares (par value $1 each, issued and outstanding 2021: 22,195,159; 2020: 22,085,232):
Voting Ordinary shares (issued and outstanding 2021: 18,595,887; 2020: 18,575,550)18,596 18,576 
Non-voting convertible ordinary Series C Shares (issued and outstanding 2021: 2,689,262; 2020: 2,599,672)2,690 2,600 
Non-voting convertible ordinary Series E Shares (issued and outstanding 2021 and 2020: 910,010)910 910 
Preferred Shares:
Series C Preferred Shares (issued and held in treasury 2021 and 2020: 388,571)389 389 
Series D Preferred Shares (issued and outstanding 2021 and 2020: 16,000)400,000 400,000 
Series E Preferred Shares (issued and outstanding 2021 and 2020: 4,400)110,000 110,000 
Treasury shares, at cost (Series C Preferred shares 2021 and 2010: 388,571)(421,559)(421,559)
Joint Share Ownership Plan (voting ordinary shares, held in trust 2021 and 2020: 565,630)(566)(566)
Additional paid-in capital1,836,792 1,836,074 
Accumulated other comprehensive income (loss)(17,715)80,659 
Retained earnings4,831,239 4,647,312 
Total Enstar Shareholders’ Equity6,760,776 6,674,395 
Noncontrolling interest (Note 14)
12,655 13,609 
TOTAL SHAREHOLDERS’ EQUITY6,773,431 6,688,004 
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY$22,059,792 $21,647,284 
See accompanying notes to the unaudited condensed consolidated financial statements
2

ENSTAR GROUP LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
For the Three Months Ended March 31, 2021 and 2020
Three Months Ended
March 31,
20212020
(expressed in thousands of U.S. dollars, except share and per share data)
INCOME
Net premiums earned$92,876 $159,351 
Fees and commission income9,598 7,528 
Net investment income62,089 74,714 
Net realized and unrealized losses(20,788)(629,061)
Other income551 20,444 
Net gain on sale of subsidiaries14,894 
159,220 (367,024)
EXPENSES
Net incurred losses and loss adjustment expenses(55,507)43,300 
Acquisition costs34,014 46,043 
General and administrative expenses83,000 98,428 
Interest expense16,179 13,415 
Net foreign exchange (gains) losses2,634 (11,939)
80,320 189,247 
EARNINGS (LOSS) BEFORE INCOME TAXES78,900 (556,271)
Income tax benefit5,982 5,272 
Earnings from equity method investments118,031 12,450 
NET EARNINGS (LOSS) FROM CONTINUING OPERATIONS202,913 (538,549)
Net loss from discontinued operations, net of income taxes(2,069)
NET EARNINGS (LOSS)202,913 (540,618)
Net (earnings) loss attributable to noncontrolling interest(10,791)32,722 
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR192,122 (507,896)
Dividends on preferred shares(8,925)(8,925)
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR ORDINARY SHAREHOLDERS$183,197 $(516,821)
Earnings (loss) per ordinary share attributable to Enstar:
Basic:
Net earnings (loss) from continuing operations$8.50 $(23.93)
Net loss from discontinued operations(0.05)
Net earnings (loss) per ordinary share$8.50 $(23.98)
Diluted:
Net earnings (loss) from continuing operations$8.38 $(23.93)
Net loss from discontinued operations(0.05)
Net earnings (loss) per ordinary share$8.38 $(23.98)
Weighted average ordinary shares outstanding:
Basic21,562,341 21,549,844 
Diluted21,852,324 21,779,906 

See accompanying notes to the unaudited condensed consolidated financial statements
3

ENSTAR GROUP LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
For the Three Months Ended March 31, 2021 and 2020
 
Three Months Ended
March 31,
20212020
 (expressed in thousands of U.S. dollars)
NET EARNINGS (LOSS)$202,913 $(540,618)
Other comprehensive income (loss), net of income taxes:
Unrealized losses on fixed income available-for-sale investments arising during the period(111,274)(58,735)
Reclassification adjustment for change in allowance for credit losses recognized in net earnings12,025 13,212 
Reclassification adjustment for net realized (gains) losses included in net earnings(594)212 
Reclassification to earnings on disposal of subsidiary475 
Unrealized losses arising during the period, net of reclassification adjustments(99,368)(45,311)
Cumulative currency translation adjustment1,418 (686)
Total other comprehensive loss(97,950)(45,997)
Comprehensive income (loss)104,963 (586,615)
Comprehensive (income) loss attributable to noncontrolling interest(11,216)36,892 
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO ENSTAR$93,747 $(549,723)

See accompanying notes to the unaudited condensed consolidated financial statements

4

ENSTAR GROUP LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
For the Three Months Ended March 31, 2021 and 2020
Three Months Ended
March 31,
20212020
 (expressed in thousands of U.S. dollars)
Share Capital — Voting Ordinary Shares
Balance, beginning of period$18,576 $18,002 
Issue of shares38 701 
Shares repurchased(18)(93)
Balance, end of period$18,596 $18,610 
Share Capital — Non-Voting Convertible Ordinary Series C Shares
Balance, beginning of period$2,600 $2,600 
Exercise of warrants90 
Balance, end of period$2,690 $2,600 
Share Capital — Non-Voting Convertible Ordinary Series E Shares
Balance, beginning and end of period$910 $910 
Share Capital — Series C Convertible Participating Non-Voting Preferred Shares
Balance, beginning and end of period$389 $389 
Share Capital — Series D Preferred Shares
Balance, beginning and end of period$400,000 $400,000 
Share Capital — Series E Preferred Shares
Balance, beginning and end of period$110,000 $110,000 
Treasury Shares (Series C Preferred Shares)
Balance, beginning and end of period$(421,559)$(421,559)
Joint Share Ownership Plan — Voting Ordinary Shares, Held in Trust
Balance, beginning of period$(566)$
Issue of shares(566)
Balance, end of period$(566)$(566)
Additional Paid-in Capital
Balance, beginning of period$1,836,074 $1,836,778 
Repurchase of voting ordinary shares(2,252)(1,251)
Exercise of warrants(90)
Shares repurchased(4,207)(12,433)
Amortization of share-based compensation7,267 2,704 
Balance, end of period$1,836,792 $1,825,798 
Accumulated Other Comprehensive Income (Loss)
Balance, beginning of period$80,659 $7,171 
Cumulative currency translation adjustment
Balance, beginning of period7,876 8,548 
Change in currency translation adjustment743 (686)
Balance, end of period8,619 7,862 
Defined benefit pension liability
Balance, beginning and end of period207 (945)
Unrealized gains (losses) on available-for-sale investments
Balance, beginning of period72,576 (432)
Change in unrealized gains (losses) on available-for-sale investments(99,117)(41,141)
Balance, end of period(26,541)(41,573)
Balance, end of period$(17,715)$(34,656)
Retained Earnings
Balance, beginning of period$4,647,312 $2,887,892 
Net earnings (loss)202,913 (540,618)
Net (earnings) loss attributable to noncontrolling interest(10,791)32,722 
Dividends on preferred shares(8,925)(8,925)
Change in redemption value of redeemable noncontrolling interests730 10,150 
Cumulative effect of change in accounting principle(6,148)
Balance, end of period$4,831,239 $2,375,073 
Noncontrolling Interest (excludes Redeemable Noncontrolling Interest)
Balance, beginning of period$13,609 $14,168 
Net loss attributable to noncontrolling interest(954)(763)
Balance, end of period$12,655 $13,405 
Total Shareholders' Equity$6,773,431 $4,290,004 
See accompanying notes to the unaudited condensed consolidated financial statements
5

ENSTAR GROUP LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months Ended March 31, 2021 and 2020
Three Months Ended March 31,
20212020
 (expressed in thousands of U.S. dollars)
OPERATING ACTIVITIES:
Net earnings (loss)$202,913 $(540,618)
Net loss from discontinued operations, net of income taxes2,069 
Adjustments to reconcile net earnings to cash flows provided by operating activities:
Realized gains on sale of investments(6,139)(3,211)
Unrealized losses on investments26,927 632,272 
Depreciation and other amortization17,778 10,643 
Earnings from equity method investments(118,031)(12,450)
Sales and maturities of trading securities615,466 773,664 
Purchases of trading securities(634,492)(284,858)
Net gain on sale of subsidiaries(14,894)
Other non-cash items1,863 2,760 
Changes in:
Reinsurance balances recoverable on paid and unpaid losses38,392 57,116 
Funds held by reinsured companies(26,826)(417,732)
Losses and loss adjustment expenses836,782 (15,539)
Defendant asbestos and environmental liabilities(14,772)(24,969)
Insurance and reinsurance balances payable120,513 66,159 
Premiums receivable(17,487)(40,388)
Other operating assets and liabilities(219,133)(98,858)
Net cash flows provided by operating activities808,860 106,060 
INVESTING ACTIVITIES:
Sale of subsidiaries, net of cash sold(232,269)
Sales and maturities of available-for-sale securities834,672 438,214 
Purchase of available-for-sale securities(1,875,753)(690,950)
Purchase of other investments(176,021)(159,909)
Proceeds from other investments62,025 85,566 
Net cash flows used in investing activities(1,387,346)(327,079)
FINANCING ACTIVITIES:
Dividends on preferred shares(8,925)(8,925)
Repurchase of shares(4,225)(12,526)
Receipt of loans20,000 364,000 
Repayment of loans(30,000)(14,000)
Net cash flows provided by (used in) financing activities(23,150)328,549 
DISCONTINUED OPERATIONS CASH FLOWS:
Net cash flows provided by operating activities50,710 
Net cash flows used in investing activities(59,758)
Net cash flows from discontinued operations(9,048)
EFFECT OF EXCHANGE RATE CHANGES ON FOREIGN CURRENCY CASH AND CASH EQUIVALENTS1,013 6,717 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS(600,623)105,199 
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD1,373,116 971,349 
NET CHANGE IN CASH OF BUSINESSES HELD FOR SALE223,200 9,048 
CASH AND CASH EQUIVALENTS, END OF PERIOD$995,693 $1,085,596 
Supplemental Cash Flow Information:
Income taxes paid, net of refunds$1,564 $10,660 
Interest paid$19,097 $9,747 
Reconciliation to Consolidated Balance Sheets:
Cash and cash equivalents562,328 747,304 
Restricted cash and cash equivalents433,365 338,292 
Cash, cash equivalents and restricted cash$995,693 $1,085,596 
In addition to the cash flows presented above, for the period ended March 31, 2021 our noncash financing activities included distributions to redeemable noncontrolling interest ("RNCI") totaling $202.1 million and the issuance of 89,590 shares following the exercise of 175,901 warrants on a noncash basis. For the period ended March 31, 2021 our noncash investing activities included: the receipt of other investments as consideration totaling $51.7 million; unsettled purchases and sales of AFS and other investments of $103.1 million and $9.4 million, respectively; and contributions of $481.3 million to other investments, fully funded through the redemption of other investments totaling $381.3 million and a $100.0 million reduction in investment fees. Refer to Note 3 – “Divestitures, Held-for-Sale Businesses, and Discontinued Operations”, Note 14 - "Noncontrolling Interest", and Note 19 - "Related Party Transactions".
See accompanying notes to the unaudited condensed consolidated financial statements
6

ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tabular information expressed in thousands of U.S. dollars except share and per share data)
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation
These unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, these financial statements reflect all adjustments consisting of normal recurring items considered necessary for a fair presentation under U.S. GAAP. The results of operations for any interim period are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2020. All significant inter-company transactions and balances have been eliminated. In these notes, the terms "we," "us," "our," "Enstar," or "the Company" refer to Enstar Group Limited and its consolidated subsidiaries. Certain prior period amounts have been reclassified to conform to the current period presentation as described in further detail in Note 3 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations." These reclassifications had no impact on net earnings.
During the first quarter of 2021, we revised our segment structure and as a result restated the prior period comparatives to conform with the current period presentation. Refer to Note 21 - "Segment Information" for further information.
Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our actual results may differ materially from these estimates. Results of changes in estimates are reflected in earnings in the period in which the change is made. Accounting policies that we believe are most dependent on assumptions and estimates are considered to be our critical accounting policies and are related to the determination of:
liability for losses and loss adjustment expenses ("LAE");
reinsurance balances recoverable on paid and unpaid losses;
defendant asbestos and environmental liabilities and related insurance balances recoverable;
valuation allowances on reinsurance balances recoverable and deferred tax assets;
impairment charges, including credit allowances on investment securities classified as available-for-sale ("AFS"), and impairments on deferred charge assets;
gross and net premiums written and net premiums earned;
fair value measurements of investments;
fair value estimates associated with accounting for acquisitions;
fair value estimates associated with loss portfolio transfer reinsurance agreements for which we have elected the fair value option; and
redeemable noncontrolling interests.
New Accounting Standards Adopted in 2021
Accounting Standards Update ("ASU") 2020-08 – Codification Improvements to Subtopic 310-20 - Receivables - Nonrefundable Fees and Other Costs
In October 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-08 to clarify that an entity should re-evaluate whether a callable debt security is within the scope of Accounting Standards Codification ("ASC") 310-20-35-33 during each reporting period. All entities are required to apply the amendments in this ASU on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities.
7

ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The adoption of ASU 2020-08 did not have a material impact on our consolidated financial statements and the related disclosures.
ASU 2020-06 – Accounting for Convertible Instruments and Contracts in an Entity's Own Equity
In August 2020, the FASB issued ASU 2020-06, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity's own equity. For convertible instruments, the ASU eliminates two of the three accounting models in ASC 470-20 that require separate accounting for embedded conversion features. The ASU also simplifies an issuer's application of the derivatives scope exception in ASC 815-40 for contracts in its own equity and removes some of the conditions that preclude a freestanding contract from being classified in equity, thereby allowing more of such contracts to qualify for equity classification.
We early adopted the amendments in ASU 2020-06 as of January 1, 2021 and that adoption did not have an impact on our consolidated financial statements and the related disclosures.
ASU 2020-01 - Clarifying the Interactions between ASC 321, ASC 323 and ASC 815
In January 2020, the FASB issued ASU 2020-01 to clarify the interaction of the accounting for equity securities under ASC 321 and investments accounted for under the equity method of accounting in ASC 323 and the accounting for certain forward contracts and purchased options accounted for under ASC 815. With respect to the interactions between ASC 321 and ASC 323, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting when applying the measurement alternative in ASC 321, immediately before applying or upon discontinuing the equity method of accounting. With respect to forward contracts or purchased options to purchase securities, the amendments clarify that when applying the guidance in ASC 815-10-15-141(a), an entity should not consider whether upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in ASC 323 or the fair value option in accordance with ASC 825.
The adoption of ASU 2020-01 did not have an impact on our consolidated financial statements and disclosures.
ASU 2019-12 - Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued ASU 2019-12 which removes certain exceptions for (1) recognizing deferred taxes for investments, (2) performing intraperiod tax allocation, and (3) calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating income taxes to a legal entity that is not subject to income taxes. The adoption of ASU 2019-12 did not have any impact on our consolidated financial statements and disclosures.
Recently Issued Accounting Pronouncements Not Yet Adopted
Note 2 - "Significant Accounting Policies" to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2020 describes accounting pronouncements that were not adopted as of December 31, 2020. Those pronouncements have not yet been adopted unless discussed above in "New Accounting Standards Adopted in 2021."
2. SIGNIFICANT NEW BUSINESS
We define significant new business as material transactions other than business acquisitions. Generally, our significant new business takes the form of loss portfolio transfer ("LPT") or adverse development cover ("ADC") reinsurance transactions or direct business transfers.
8

ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The table below sets forth a summary of significant new business that we have completed between January 1, 2020 and March 31, 2021:
TransactionDate CompletedTotal Assets Assumed
Deferred Charge Asset (1)
Total Liabilities Assumed
Net Fair Value Adjustment (2)
Type of Transaction and Primary Nature of Business
CNAFebruary 5, 2021$651,736 $105,479$757,215 N/ALPT of U.S. excess workers' compensation liabilities
Liberty MutualJanuary 8, 2021$363,159 $25,402$388,561 N/ALPT of U.S. energy liability, construction liability and homebuilders liability
Hannover ReAugust 6, 2020$182,498 N/A$209,713 $(27,215)Novation of U.S. asbestos, environmental and workers' compensation liabilities
Munich ReJuly 1, 2020$100,956 N/A$100,956 N/ABusiness Transfer of Australian public liability, professional liability and builders' warranty liabilities
AXA Group (3)
June 1, 2020$179,681 N/A$179,681 N/ALPT of U.S. construction general liability
AspenJune 1, 2020$770,000 $11,746 $781,746 N/AADC on a diversified mix of property, liability and specialty lines of business across the U.S., U.K. and Europe
LyftMarch 31, 2020$465,000 N/A$465,000 N/ALPT of U.S. motor liabilities

The table below sets forth a summary of significant new business that we have signed or completed between April 1, 2021 and May 7, 2021:
TransactionDate Transaction Announced or CompletedInitial Estimate of Liabilities AssumedType of Transaction and Primary Nature of Business
AXA Group(4)
Completed on May 3, 2021$1,395,000 LPT and ADC of a diversified mix of global casualty and professional lines
ProSight (4)
Announced on January 15, 2021$500,000 LPT of U.S. discontinued workers' compensation and excess workers' compensation lines of business and ADC on a diversified mix of general liability classes of business
(1) Where the estimated ultimate losses payable exceed the premium consideration received at the inception of the agreement, a deferred charge asset is recorded.
(2) When the fair value option is elected for any retroactive reinsurance agreement, an initial net fair value adjustment is recorded at the inception of the agreement.
(3) Effective October 1, 2020, we ceded 10% of the AXA Group transaction to Enhanzed Reinsurance Ltd. ("Enhanzed Re"), in which we have an investment, on the same terms and conditions as those received by us.
(4) As of March 31, 2021, the retroactive reinsurance agreements with AXA Group and ProSight had not closed; therefore, the related balances were not included in our unaudited condensed consolidated financial statements as of March 31, 2021.
9

ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
3. DIVESTITURES, HELD-FOR-SALE BUSINESSES AND DISCONTINUED OPERATIONS
Atrium Exchange Transaction
On August 13, 2020, we announced an exchange transaction with Trident V, L.P., Trident V Parallel Fund, L.P. and Trident V Professionals Fund, L.P. (collectively, the "Trident V Funds") managed by Stone Point Capital LLC ("Stone Point"). As part of the exchange, we entered into a recapitalization agreement with the Trident V Funds, Dowling Capital Partners I, L.P. and Capital City Partners LLC (collectively, the "Dowling Funds"), North Bay Holdings Limited ("North Bay"), and StarStone Specialty Holdings Limited ("SSHL"). On January 1, 2021, this transaction was completed.
As of December 31, 2020, Enstar owned an indirect 59.0% interest in North Bay and the Trident V Funds and the Dowling Funds owned 39.3% and 1.7%, respectively. North Bay owns 100.0% of SSHL, the holding company for the StarStone group, which previously included StarStone's U.S. operations, including StarStone U.S. Holdings, Inc. and its subsidiaries (“StarStone U.S.”) and StarStone International. North Bay also owned 92.1% of Northshore Holdings Limited ("Northshore"), the holding company that owns Atrium Underwriting Group Limited and its subsidiaries (collectively, "Atrium") and Arden Reinsurance Company Ltd. ("Arden"). The remaining share ownership of Northshore is held on behalf of certain Atrium employees.
Pursuant to the terms of the recapitalization agreement, we exchanged a portion of our indirect interest in Northshore for all of the Trident V Funds’ indirect interest in StarStone U.S., which was owned through an interest in Core Specialty Insurance Holdings, Inc. (“Core Specialty”) (the “Exchange Transaction”). Subsequent to the Exchange Transaction, the Trident V Funds no longer hold any interest in Core Specialty, and the common shares of Core Specialty received as part consideration for the sale of StarStone U.S. were distributed to Enstar and the Dowling Funds. Effective January 1, 2021, we own 25.2% (24.8% on a fully diluted basis) of Core Specialty, which in turn owns StarStone U.S., and 13.8% of Northshore, which continues to own Atrium and Arden. The Trident V Funds own 76.3% of Northshore, while the Dowling Funds own 0.4% of Core Specialty and 1.6% of Northshore. The Exchange Transaction had no impact on the ultimate ownership of SSHL, which continues to own StarStone International, with us, the Trident V Funds and the Dowling Funds retaining our and their current ownership interests in SSHL of 59.0%, 39.3% and 1.7%, respectively.
Effective January 1, 2021, Northshore was deconsolidated and our remaining investment with a carrying value of $34.0 million as of March 31, 2021 is accounted for as a privately held equity investment and carried at its fair value. During the first quarter of 2021, we recognized a loss of $7.8 million on completion of the Exchange Transaction.
Through our wholly owned subsidiary, SGL No.1 (a Lloyd’s corporate member) we provided 25% of the underwriting capacity on the 2017 to 2020 underwriting years of Atrium's Syndicate 609 at Lloyd’s. Effective January 1, 2021, and in conjunction with the completion of the Exchange Transaction, SGL No.1 ceased its provision of underwriting capacity on Syndicate 609. Accordingly, the 2020 underwriting year was the last underwriting year that SGL No. 1 participated in with respect to the Atrium business. We will continue to report SGL No. 1's 25% gross share of the 2020 and prior underwriting years of Syndicate 609 until the 2020 underwriting year completes an RITC into a successor year, which will be no earlier than December 31, 2022. There is no net retention for Enstar on Atrium's 2020 and prior underwriting years as the business was contractually transferred to the Atrium entities that were divested in the Exchange Transaction. This business is reflected within our Legacy Underwriting segment. Effective January 1, 2021, balances that SGL No. 1 has with Atrium and Arden are no longer eliminated in our consolidated financial statements.
10

ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of December 31, 2020, we classified the assets and liabilities of Northshore as held-for-sale, but Northshore did not qualify as a discontinued operation since the pending disposal did not represent a strategic shift that would have a major effect on our operations and financial results. The following table summarizes the components of Northshore's assets and liabilities held-for-sale on our consolidated balance sheet:
December 31, 2020
ASSETS
Short-term investments, AFS, at fair value$1,720 
Fixed maturities, trading, at fair value154,026 
Fixed maturities, AFS, at fair value7,483 
Other investments, at fair value9,897 
Total investments173,126 
Cash and cash equivalents71,156 
Restricted cash and cash equivalents152,044 
Premiums receivable62,392 
Reinsurance balances recoverable on paid and unpaid losses37,341 
Funds held by reinsured companies32,226 
Other assets182,993 
TOTAL ASSETS HELD-FOR-SALE$711,278 
LIABILITIES
Losses and loss adjustment expenses$254,149 
Insurance and reinsurance balances payable12,393 
Debt obligations39,850 
Other liabilities177,265 
TOTAL LIABILITIES HELD-FOR-SALE$483,657 
NET ASSETS HELD-FOR-SALE$227,621 
As of December 31, 2020, included in the table above were restricted investments of $94.4 million.
Recapitalization of StarStone U.S. and Discontinued Operations
On November 30, 2020, we completed the sale and recapitalization of StarStone U.S. through the sale of StarStone U.S. to Core Specialty, a newly formed entity with equity backing from funds managed by SkyKnight Capital, L.P., Dragoneer Investment Group and Aquiline Capital Partners LLC. We received consideration of $282.0 million inclusive of $235.0 million of common shares of Core Specialty and cash of $47.0 million. At the closing date, the $235.0 million of common shares of Core Specialty represented a 25.2% interest in Core Specialty on a fully diluted basis. Our investment in Core Specialty is accounted for as an equity method investment, and we record our proportionate share of the net earnings on a quarter lag.
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The StarStone U.S. business qualified as a discontinued operation. The following table summarizes the components of net loss from discontinued operations, net of income taxes, related to StarStone U.S., on the consolidated statements of earnings:
Three Months Ended March 31,
2020
INCOME
Net premiums earned$100,546 
Net investment income3,715 
Net realized and unrealized losses(5,415)
Other income
98,847 
EXPENSES
Net incurred losses and loss adjustment expenses64,594 
Acquisition costs20,543 
General and administrative expenses15,084 
Interest expense589 
Net foreign exchange losses
100,819 
LOSS BEFORE INCOME TAXES(1,972)
Income tax expense(97)
NET LOSS FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES(2,069)
Net loss from discontinued operations attributable to noncontrolling interest848 
NET LOSS FROM DISCONTINUED OPERATIONS ATTRIBUTABLE TO ENSTAR ORDINARY SHAREHOLDERS$(1,221)
Continuing Involvement Disclosures
Following the completion of the sale of StarStone U.S. to Core Specialty on November 30, 2020, our continuing involvement with StarStone U.S. comprised of the following transactions:
LPT and ADC reinsurance agreement
In connection with the sale of StarStone U.S. to Core Specialty, one of our insurance subsidiaries entered into a loss portfolio transfer (“LPT”) and adverse development cover (“ADC”) reinsurance agreement with StarStone U.S. pursuant to which we reinsured all of the net loss reserves of StarStone U.S. in respect of premium earned prior to October 31, 2020. Under the terms of the LPT and ADC reinsurance agreement, we assumed total net loss reserves of $462.4 million from StarStone U.S. in exchange for a total reinsurance premium consideration of $478.2 million, subject to an aggregate limit of $130.0 million above the assumed total net loss reserves. Our Run-off subsidiary's obligations to StarStone U.S. under the LPT and ADC reinsurance agreement are guaranteed by us. The LPT and ADC reinsurance agreement between us and StarStone U.S. shall continue in force until such time as our liability with respect to the assumed total net loss reserves terminates.
Concurrent with the closing of the LPT and ADC reinsurance agreement, one of our wholly-owned subsidiaries entered into an Administrative Services Agreement ("ASA") with StarStone U.S., through which it was appointed as an independent contractor to provide certain administrative services covering the business we assumed from StarStone U.S. through the LPT and ADC reinsurance agreement. This ASA became effective on November 30, 2020 and shall continue in force (subject to certain limited exceptions) until such time as the LPT and ADC reinsurance agreement between us and StarStone U.S. terminates.
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In addition, concurrent with the sale of StarStone U.S. to Core Specialty, which was completed on November 30, 2020, one of our wholly-owned subsidiaries entered into a Transition Services Agreement ("TSA") with Core Specialty through which our subsidiary and Core Specialty agreed to provide certain transitional services to each other relating to the StarStone U.S. businesses, for a specified period of time. This TSA became effective on November 30, 2020 and unless otherwise agreed to in writing by both Core Specialty and us, shall terminate on the earliest to occur of (a) the 2-year anniversary of the agreement, (b) the date on which all the covered transitional services have been terminated, and (c) the termination of the agreement.
Reinsurance transactions previously eliminated on consolidation
The table below presents a summary of the total income and expenses which have been recognized within our continuing operations relating to transactions, primarily reinsurances, between StarStone U.S. and our subsidiaries:
Three Months Ended
March 31,
20212020
Total income$1,572 $3,712 
Total expenses (income)(1)
(2,400)(7,660)
Net earnings$3,972 $11,372 
(1) For the three months ended March 31, 2021 and 2020, negative total expenses were driven by favorable loss development on the losses and LAE reserves ceded by StarStone U.S. to our subsidiaries.
Cash flows
The cash inflows (outflows) between our subsidiaries and StarStone U.S. for the three months ended March 31, 2021 and 2020 were $21.7 million and $(6.2) million, respectively.
Equity method investment
We have applied the equity method of accounting to the common shares we acquired in Core Specialty as part-consideration for the sale of StarStone U.S. and which made up 25.2% of the total outstanding common shares in Core Specialty on a fully diluted basis as of November 30, 2020 when we completed the sale and recapitalization of StarStone U.S. Our investment in the common shares of Core Specialty, which is included in equity method investments on our consolidated balance sheet, was $228.0 million as of March 31, 2021 (December 31, 2020: $235.0 million). Following the completion of the Exchange Transaction on January 1, 2021 as described above, common shares in Core Specialty with a carrying value of $4.0 million were distributed to redeemable noncontrolling interests as discussed in Note 14 - "Noncontrolling Interests." During the three months ended March 31, 2021 our share of net loss on our investment in Core Specialty, which is included within earnings from equity method investments in our condensed consolidated statement of earnings, was $3.0 million.
Run-off of StarStone International (non-U.S.)
On June 10, 2020, we announced that we placed StarStone International into an orderly run-off (the "StarStone International Run-Off"). The liabilities associated with the StarStone International Run-Off vary in duration, and the run-off is expected to occur over a number of years. Steps to reduce the size of StarStone International's operations have begun and will involve several phases that will occur over time. As a result, we cannot anticipate with certainty the expected completion date of the StarStone International Run-Off.
We continue to evaluate additional strategic options for StarStone International's operations and business. Consequently, such options could have the effect of mitigating costs associated with placing the business into run-off. The remaining StarStone International operations will continue to serve the needs of policyholders and ensure that the companies continue to meet all regulatory requirements. The results of StarStone International are included within continuing operations in the Run-off segment. Recent developments relating to StarStone International include:
On March 15, 2021, we sold StarStone Underwriting Limited ("SUL"), the Lloyd's managing agency, together with the right to operate Lloyd's Syndicate 1301, to Inigo Limited ("Inigo"). As of December 31, 2020, we had a 59.0% interest in SUL and the Trident V Funds and the Dowling Funds owned 39.3% and 1.7%, respectively. Upon closing, Enstar, the Trident V Funds and the Dowling Funds received consideration of $30.0 million in the form of Inigo shares and $0.6 million in cash. Following the completion
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
of the sale of SUL to Inigo on March 15, 2021, we recognized a gain on the sale of $23.1 million in the first quarter of 2021. In addition, Enstar and the Trident V Funds have committed to invest up to $27.0 million and $18.0 million, respectively, into Inigo. As of March 31, 2021, Enstar had funded $16.9 million of its capital commitment to Inigo, with $10.1 million yet to be called by Inigo. As of March 31, 2021, our investment in Inigo was $34.6 million (December 31, 2020: $16.9 million) representing 6.5% of the total outstanding ordinary shares of Inigo and was accounted for as a privately held equity investment and carried at fair value. In conjunction with the transaction, Enstar, the Trident V Funds and the Dowling Funds will retain the economics of Syndicate 1301’s 2020 and prior years’ underwriting portfolios as this business runs off.
On February 11, 2021, we sold Arena N.V., a Belgium-based specialist accident and health managing general agent for consideration of $1.0 million. We recognized a loss on the sale of $0.3 million during the first quarter of 2021.
The following table provides a summary of the gain (loss) on sale of subsidiaries included in the condensed consolidated statement of earnings:
Three Months Ended
March 31,
2021
Atrium(7,844)
SUL23,067 
Arena(329)
Net gain on sale of subsidiaries14,894 
4. INVESTMENTS
We hold: (i) trading portfolios of short-term and fixed maturity investments and equities, carried at fair value; (ii) AFS portfolios of short-term and fixed maturity investments, carried at fair value; (iii) other investments, carried at fair value; (iv) equity method investments; and (v) funds held - directly managed.
Short-term and Fixed Maturity Investments
Asset Types
The fair values of the underlying asset categories comprising our short-term and fixed maturity investments classified as trading and AFS and the fixed maturity investments included within our funds held - directly managed balance were as follows:
March 31, 2021
Short-term investments, tradingShort-term investments, AFSFixed maturities, tradingFixed maturities, AFSFixed maturities, funds held - directly managedTotal
U.S. government and agency$7,833 $70,399 $119,217 $473,169 $113,927 $784,545 
U.K. government30,661 12,136 42,797 
Other government3,335 2,426 357,618 152,950 20,118 536,447 
Corporate776 16,812 2,975,577 2,551,659 498,306 6,043,130 
Municipal88,144 68,797 49,730 206,671 
Residential mortgage-backed154,949 416,038 49,582 620,569 
Commercial mortgage-backed333,861 426,532 218,349 978,742 
Asset-backed250,931 466,209 60,512 777,652 
Total fixed maturity and short-term investments$11,944 $89,637 $4,310,958 $4,567,490 $1,010,524 $9,990,553 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
December 31, 2020
Short-term investments, tradingShort-term investments, AFSFixed maturities, tradingFixed maturities, AFSFixed maturities, funds held - directly managedTotal
U.S. government and agency$$243,556 $123,874 $474,442 $109,176 $951,048 
U.K. government37,508 13,574 51,082 
Other government3,424 3,213 327,437 146,914 21,165 502,153 
Corporate1,705 17,026 3,227,726 1,920,323 519,952 5,686,732 
Municipal79,959 30,032 52,678 162,669 
Residential mortgage-backed154,471 328,871 70,603 553,945 
Commercial mortgage-backed347,225 276,488 230,377 854,090 
Asset-backed296,692 204,456 56,312 557,460 
Total fixed maturity and short-term investments$5,129 $263,795 $4,594,892 $3,395,100 $1,060,263 $9,319,179 
Included within residential and commercial mortgage-backed securities as of March 31, 2021 were securities issued by U.S. governmental agencies with a fair value of $516.5 million (December 31, 2020: $458.1 million). There were no senior secured loans included within corporate securities as of March 31, 2021 and December 31, 2020.
Contractual Maturities
The contractual maturities of our short-term and fixed maturity investments, classified as trading and AFS and the fixed maturity investments included within our funds held - directly managed balance are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
As of March 31, 2021Amortized
Cost
Fair Value% of Total Fair Value
One year or less$457,301 $462,613 4.6 %
More than one year through two years755,334 773,827 7.7 %
More than two years through five years2,175,758 2,254,424 22.6 %
More than five years through ten years2,350,547 2,416,030 24.2 %
More than ten years1,657,983 1,706,696 17.1 %
Residential mortgage-backed617,633 620,569 6.2 %
Commercial mortgage-backed965,020 978,742 9.8 %
Asset-backed782,527 777,652 7.8 %
$9,762,103 $9,990,553 100.0 %
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Credit Ratings
The following table sets forth the credit ratings of our short-term and fixed maturity investments classified as trading and AFS and the fixed maturity investments included within our funds held - directly managed balance as of March 31, 2021:
Amortized
Cost
Fair Value% of TotalAAA
Rated
AA RatedA RatedBBB
Rated
Non-
Investment
Grade
Not Rated
U.S. government and agency$784,636 $784,545 7.8 %$784,545 $$$$$
U.K. government40,668 42,797 0.4 %35,567 7,230 
Other government516,283 536,447 5.4 %260,548 173,669 46,179 51,088 4,963 
Corporate5,858,328 6,043,130 60.5 %166,957 606,856 2,841,483 2,129,144 286,072 12,618 
Municipal197,008 206,671 2.1 %9,643 109,188 67,308 20,438 94 
Residential mortgage-backed617,633 620,569 6.2 %605,835 6,212 2,194 1,991 2,438 1,899 
Commercial mortgage-backed965,020 978,742 9.8 %698,161 132,766 74,577 65,143 3,627 4,468 
Asset-backed782,527 777,652 7.8 %336,571 168,969 136,848 84,113 25,080 26,071 
Total$9,762,103 $9,990,553 100.0 %$2,862,260 $1,233,227 $3,175,819 $2,351,917 $322,180 $45,150 
% of total fair value28.7 %12.3 %31.8 %23.5 %3.2 %0.5 %
Unrealized Gains and Losses on AFS Short-term and Fixed Maturity Investments
The amortized cost, unrealized gains and losses, allowance for credit losses and fair values of our short-term and fixed maturity investments classified as AFS were as follows:
Gross Unrealized Losses
As of March 31, 2021Amortized CostGross Unrealized GainsNon-Credit Related LossesAllowance for Credit LossesFair Value
U.S. government and agency$546,628 $1,504 $(4,564)$$543,568 
U.K. government11,194 944 (2)12,136 
Other government150,709 5,716 (981)(68)155,376 
Corporate2,603,003 25,621 (47,947)(12,206)2,568,471 
Municipal69,670 612 (1,485)68,797 
Residential mortgage-backed417,742 2,146 (3,850)416,038 
Commercial mortgage-backed429,861 3,769 (6,834)(264)426,532 
Asset-backed465,051 1,443 (285)466,209 
$4,693,858 $41,755 $(65,948)$(12,538)$4,657,127 
Gross Unrealized Losses
As of December 31, 2020Amortized CostGross Unrealized GainsNon-Credit Related LossesAllowance for Credit LossesFair Value
U.S. government and agency$715,527 $3,305 $(834)$$717,998 
U.K. government12,494 1,080 13,574 
Other government142,459 7,721 (53)150,127 
Corporate1,873,184 65,913 (1,567)(181)1,937,349 
Municipal28,881 1,155 (4)30,032 
Residential mortgage-backed326,268 3,292 (689)328,871 
Commercial mortgage-backed273,516 5,202 (2,097)(133)276,488 
Asset-backed204,312 846 (694)(8)204,456 
$3,576,641 $88,514 $(5,938)$(322)$3,658,895 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Gross Unrealized Losses on AFS Short-term and Fixed Maturity Investments
The following tables summarizes our short-term and fixed maturity investments classified as AFS that were in a gross unrealized loss position, for which an allowance for credit losses has not been recorded:
 12 Months or GreaterLess Than 12 MonthsTotal
As of March 31, 2021Fair
Value
Gross Unrealized
Losses
Fair
Value
Gross Unrealized
Losses
Fair
Value
Gross Unrealized
Losses
U.S. government and agency$$$403,412 $(4,564)$403,412 $(4,564)
U.K. government365 (2)365 (2)
Other government26,567 (146)26,567 (146)
Corporate2,910 (32)1,022,161 (20,044)1,025,071 (20,076)
Municipal47,913 (1,485)47,913 (1,485)
Residential mortgage-backed6,291 (137)268,408 (3,712)274,699 (3,849)
Commercial mortgage-backed6,044 (282)262,973 (6,435)269,017 (6,717)
Asset-backed232,971 (284)232,971 (284)
Total short-term and fixed maturity investments$15,245 $(451)$2,264,770 $(36,672)$2,280,015 $(37,123)
  
 12 Months or GreaterLess Than 12 MonthsTotal
As of December 31, 2020Fair
Value
Gross Unrealized
Losses
Fair
Value
Gross Unrealized
Losses
Fair
Value
Gross Unrealized
Losses
U.S. government and agency$$$55,839 $(834)$55,839 $(834)
Other government7,971 (53)7,971 (53)
Corporate199,048 (1,224)199,048 (1,224)
Municipal1,690 (4)1,690 (4)
Residential mortgage-backed4,626 (125)79,149 (564)83,775 (689)
Commercial mortgage-backed38 (38)67,094 (1,562)67,132 (1,600)
Asset-backed116,827 (564)116,827 (564)
Total short-term and fixed maturity investments$4,664 $(163)$527,618 $(4,805)$532,282 $(4,968)
As of March 31, 2021 and December 31, 2020, the number of securities classified as AFS in an unrealized loss position for which an allowance for credit loss is not recorded was 1,566 and 407, respectively. Of these securities, the number of securities that had been in an unrealized loss position for twelve months or longer was 23 and 2, respectively.
The contractual terms of a majority of these investments do not permit the issuers to settle the securities at a price less than the amortized cost basis of the security. While interest rates have increased, and in certain cases credit ratings were downgraded, we currently do not expect the issuers of these fixed income securities to settle them at a price less than their amortized cost basis and therefore it is expected that we will recover the entire amortized cost basis of each security. Furthermore, we do not intend to sell the securities that are currently in an unrealized loss position, and it is also not more likely than not that we will be required to sell the securities before the recovery of their amortized cost bases.
Allowance for Credit Losses on AFS Fixed Maturity Investments
We adopted ASU 2016-13 and the related amendments on January 1, 2020 prospectively, and recognized an allowance for credit losses of $3.1 million on initial adoption of the guidance. Refer to Note 2 - "Significant Accounting Policies" to our consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2020 for further details. Our allowance for credit losses is derived based on various data sources, multiple key inputs and forecast scenarios. These include default rates specific to the individual security, vintage of the security, geography of the issuer of the security, industry analyst reports, credit ratings and consensus economic forecasts.
17

ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
To determine the credit losses on our AFS securities, we use the probability of default ("PD") and loss given default ("LGD") methodology through a third-party proprietary tool which calculates the expected credit losses based on a discounted cash flow method. The tool uses effective interest rates to discount the expected cash flows associated with each AFS security to determine its fair value, which is then compared with its amortized cost basis to derive the credit loss on the security.
The methodology and inputs used to determine the credit loss by security type are as follows:
Corporate and Government: Expected cashflows are derived that are specific to each security. The PD is based on a quantitative model that converts agency ratings to term structures that vary by country, industry and the state of the credit cycle. This is used along with macroeconomic forecasts to produce scenario conditioned PDs. The LGD is based on default studies provided by a third party which we use along with macroeconomic forecasts to produce scenario conditioned LGDs.
Municipals: Expected cash flows are derived that are specific to each security. The PD model produces scenario conditioned PD output over the lifetime of the municipal security. These PDs are based on key macroeconomic and instrument specific risk factors. The LGD is derived based on a model which uses assumptions specific to the municipal securities.
For corporate, government and municipal securities, we use an explicit reversion and a three year forecast period, which we consider to be a reasonable duration during which an economic forecast could continue to be reliable.
Asset backed, Commercial and Residential mortgaged-backed: Expected cash flows are derived that are specific to each security. The PD and LGD for each security is based on a quantitative model that generates scenario conditioned PD and LGD term structures based on the underlying collateral type, waterfall and other trustee information. This model also considers prepayments. For these security types, there is no explicit reversion and the forecasts are deemed reasonable and supportable over the life of the portfolio.
Due to the short-term period during which accrued investment income remains unpaid, which is typically six months or less since the coupon on our debt securities is paid semi-annually or more frequently, we elected not to establish an allowance for credit losses on our accrued investment income balances. Accrued investment income is written off through net realized investment gains (losses) at the time the issuer of the debt security defaults or is expected to default on payments.
The following tables provide a reconciliation of the beginning and ending allowance for credit losses on our AFS debt securities:
Three Months Ended March 31, 2021
Other
government
CorporateCommercial
mortgage
backed
Asset-backedTotal
Allowance for credit losses, beginning of period$$(181)$(133)$(8)$(322)
Cumulative effect of change in accounting principle
Allowances for credit losses on securities for which credit losses were not previously recorded(68)(12,122)(232)(12,422)
Additions to the allowance for credit losses arising from purchases of securities accounted for as PCD assets
Reductions for securities sold during the period11 11 
Reductions in the allowance for credit losses on securities we either intend to sell or more likely than not, we will be required to sell before the recovery of their amortized cost basis
Decrease to the allowance for credit losses on securities that had an allowance recorded in the previous period86 101 195 
Allowance for credit losses, end of period$(68)$(12,206)$(264)$$(12,538)
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Three Months Ended March 31, 2020
Other
government
CorporateCommercial
mortgage
backed
Asset-backedTotal
Allowance for credit losses, beginning of period$$$$$
Cumulative effect of change in accounting principle(22)(2,987)(50)(3,059)
Allowances for credit losses on securities for which credit losses were not previously recorded(11,739)(11,739)
Additions to the allowance for credit losses arising from purchases of securities accounted for as PCD assets
Reductions for securities sold during the period374 374 
Reductions in the allowance for credit losses on securities we either intend to sell or more likely than not, we will be required to sell before the recovery of their amortized cost basis22 29 49 100 
(Increase) decrease to the allowance for credit losses on securities that had an allowance recorded in the previous period
Allowance for credit losses, end of period$$(14,323)$(1)$$(14,324)
During the three months ended March 31, 2021 and 2020 we did not have any write-offs charged against the allowance for credit losses or any recoveries of amounts previously written-off.
Equity Investments
The following table summarizes our equity investments classified as trading:
March 31, 2021December 31, 2020
Publicly traded equity investments in common and preferred stocks$263,122 $260,767 
Exchange-traded funds505,042 311,287 
Privately held equity investments in common and preferred stocks330,404 274,741 
$1,098,568 $846,795 
Equity investments include publicly traded common and preferred stocks, exchange-traded funds and privately held common and preferred stocks. Our publicly traded equity investments in common and preferred stocks predominantly trade on major exchanges. Our investments in exchange-traded funds also trade on major exchanges.
Our privately held equity investments in common and preferred stocks are direct investments in companies that we believe offer attractive risk adjusted returns and/or offer other strategic advantages. Each investment may have its own unique terms and conditions and there may be restrictions on disposals. There is no active market for these investments. Included within the above balance as of March 31, 2021 and December 31, 2020 is an investment in the parent company of AmTrust Financial Services, Inc. ("AmTrust"), with a fair value of $228.8 million and $230.3 million, respectively. Refer to Note 19 - "Related Party Transactions" for further information.
Other Investments, at fair value
The following table summarizes our other investments carried at fair value:
March 31, 2021December 31, 2020
Hedge funds$2,915,114 $2,638,339 
Fixed income funds581,696 552,541 
Equity funds5,305 190,767 
Private equity funds442,602 363,103 
CLO equities134,984 128,083 
CLO equity funds178,150 166,523 
Private credit funds240,202 192,319 
Others20,993 12,359 
$4,519,046 $4,244,034 

19

ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The valuation of our other investments is described in Note 10 - "Fair Value Measurements." Due to a lag in the valuations of certain funds reported by the managers, we may record changes in valuation with up to a three-month lag. We regularly review and discuss fund performance with the fund managers to corroborate the reasonableness of the reported net asset values and to assess whether any events have occurred within the lag period that would affect the valuation of the investments. The following is a description of the nature of each of these investment categories:
Hedge funds may invest in a wide range of instruments, including debt and equity securities, and utilize various sophisticated strategies, including derivatives, to achieve their objectives. We invest in fixed income, equity and multi-strategy hedge funds.
Fixed income funds comprise a number of positions in diversified fixed income funds that are managed by third-party managers. Underlying investments vary from high-grade corporate bonds to non-investment grade senior secured loans and bonds, in both liquid and illiquid markets. The liquid fixed income funds have regularly published prices.
Equity funds invest in a diversified portfolio of U.S. and international publicly-traded equity securities.
Private equity funds invest primarily in the financial services industry.
CLO equities comprise investments in the equity tranches of term-financed securitizations of diversified pools of corporate bank loans.
CLO equity funds invest primarily in the equity tranches of term-financed securitizations of diversified pools of corporate bank loans.
Private credit funds invest in direct senior or collateralized loans.
Others primarily comprise of a real estate fund that invests primarily in European commercial real estate equity.
As of March 31, 2021, we had unfunded commitments of $931.8 million to other investments.
Certain of our other investments are subject to restrictions on redemptions and sales that are determined by the governing documents, which limits our ability to liquidate those investments. These restrictions may include lock-ups, redemption gates, restricted share classes or side pockets, restrictions on the frequency of redemption and notice periods. A gate is the ability to deny or delay a redemption request, whereas a side-pocket is a designated account for which the investor loses its redemption rights. Certain other investments may not have any restrictions governing their sale, but there is no active market and no guarantee that we will be able to execute a sale in a timely manner. In addition, even if certain other investments are not eligible for redemption or sales are restricted, we may still receive income distributions from those other investments.
20

ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The table below details the estimated date by which proceeds would be received if we had provided notice of our intent to redeem or initiated a sales process as of March 31, 2021:
Less than 1 Year1-2 years2-3 yearsMore than 3 yearsNot Eligible/ RestrictedTotalRedemption Frequency
Hedge funds$2,849,299 $$$$65,815 $2,915,114 Monthly to Bi-annually
Fixed income funds564,982 16,714 581,696 Daily to Quarterly
Equity funds5,305 5,305 Daily
Private equity funds50,000 392,602 442,602 Quarterly
CLO equities134,984 134,984 Daily to Quarterly
CLO equity funds116,916 50,023 11,211 178,150 Quarterly to Bi-annually
Private credit funds9,250 230,952 240,202 N/A
Other20,993 20,993 N/A
$3,671,486 $109,273 $11,211 $$727,076 $4,519,046 
As of March 31, 2021 and December 31, 2020, we had $65.8 million and $48.2 million, respectively, of hedge funds subject to gates or side-pockets.
Equity Method Investments
The table below shows our equity method investments:
March 31, 2021December 31, 2020
Ownership %Carrying ValueOwnership %Carrying Value
Enhanzed Re47.4 %$435,891 47.4 %$330,289 
Citco(1)
31.9 %53,691 31.9 %53,022 
Monument Re (2)
20.0 %200,786 20.0 %193,716 
Core Specialty25.2 %228,014 25.2 %235,000 
Other~27%20,236 ~27%20,268 
$938,618 $832,295 
(1) We own 31.9% of the common shares in HH CTCO Holdings Limited, which owns 15.4% of the convertible preferred shares of Citco III Limited ("Citco"), amounting to a 6.2% interest in the total equity of Citco.
(2) We own 20.0% of the common shares in Monument Re as well as different classes of preferred shares which have fixed dividend yields and whose balances are included in the Investment amount.
Refer to Note 19 - "Related Party Transactions" for further information regarding the investments above. As of March 31, 2021, we had unfunded commitments of $68.7 million related to equity method investments.
Funds Held
Under funds held arrangements, the reinsured company has retained funds that would otherwise have been remitted to our reinsurance subsidiaries. We either have (i) funds held by reinsured companies, which are carried at amortized cost and on which we receive a fixed crediting rate, or (ii) funds held - directly managed, which are carried at fair value and on which we receive the underlying return on the portfolio. The investment returns on funds held by reinsurance companies are recognized in net investment income and the investment returns on funds held -directly managed are recognized in net investment income and net realized and unrealized gains (losses). The funds held balance is credited with investment income and losses payable are deducted.
Funds Held - Directly Managed
Funds held - directly managed, where we receive the underlying return on the investment portfolio, are carried at fair value, either because we elected the fair value option at the inception of the reinsurance contract, or because it represents the aggregate of funds held at amortized cost and the fair value of an embedded derivative. The embedded derivative relates to our contractual right to receive the return on the underlying investment portfolio supporting the reinsurance contract. We include the estimated fair value of these embedded derivatives in the
21

ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
consolidated balance sheets with the host contract in order to reflect the expected settlement of these features with the host contract. The change in the fair value of the embedded derivative is included in net unrealized gains (losses). The following table summarizes the components of the funds held - directly managed:
March 31, 2021December 31, 2020
Fixed maturity investments, trading$1,010,524 $1,060,263 
Cash and cash equivalents3,899 9,067 
Other assets2,108 5,560 
$1,016,531 $1,074,890 
The following table summarizes the fixed maturity investment components of funds held - directly managed:
March 31, 2021December 31, 2020
Funds held - Directly Managed - Fair Value OptionFunds held - Directly Managed - Variable ReturnTotalFunds held - Directly Managed - Fair Value OptionFunds held - Directly Managed - Variable ReturnTotal
Short-term and fixed maturity investments, at amortized cost$110,224 $850,692 $960,916 $106,938 $859,403 $966,341 
Net unrealized gains:
Change in fair value - fair value option accounting5,995 5,995 9,693 9,693 
Change in fair value - embedded derivative accounting43,613 43,613 84,229 84,229 
Short-term fixed maturity investments within funds held - directly managed, at fair value$116,219 $894,305 $1,010,524 $116,631 $943,632 $1,060,263 
Refer to the sections above for details of the short-term and fixed maturity investments within our funds held - directly managed portfolios.
Funds Held by Reinsured Companies
Funds held by reinsured companies, where we received a fixed crediting rate, are carried at cost on our consolidated balance sheets. As of March 31, 2021 and December 31, 2020, we had funds held by reinsured companies of $662.6 million and $635.8 million, respectively.
Net Investment Income
Major categories of net investment income are summarized as follows:
Three Months Ended
March 31,
20212020
Fixed maturity investments$45,481 $53,442 
Short-term investments and cash and cash equivalents2,625 
Funds held(412)270 
Funds held - directly managed7,037 8,816 
Investment income from fixed maturities and cash and cash equivalents52,112 65,153 
Equity investments4,298 5,963 
Other investments9,294 8,093 
Investment income from equities and other investments13,592 14,056 
Gross investment income65,704 79,209 
Investment expenses(3,615)(4,495)
Net investment income$62,089 $74,714 
22

ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net Realized and Unrealized Gains (Losses)
Components of net realized and unrealized gains (losses) were as follows:
Three Months Ended
March 31,
20212020
Net realized gains (losses) on sale:
Gross realized gains on fixed maturity securities, AFS$4,771 $1,547 
Gross realized losses on fixed maturity securities, AFS(3,902)(2,026)
Increase in allowance for expected credit losses on fixed maturity securities, AFS(12,227)(11,639)
Net realized gains on fixed maturity securities, trading17,764 15,824 
Net realized gains on funds held - directly managed524 512 
Net realized losses on equity investments(970)(1,007)
Net realized investment gains on investment derivatives179
Total net realized gains on sale$6,139 $3,211 
Net unrealized gains (losses):
Fixed maturity securities, trading$(168,923)$(256,477)
Fixed maturity securities in funds held - directly managed(44,190)(25,302)
Equity investments29,961 (91,952)
Other Investments156,090 (258,541)
Investment derivatives135 
Total net unrealized losses(26,927)(632,272)
Net realized and unrealized losses$(20,788)$(629,061)
The gross realized gains and losses on AFS investments included in the table above resulted from sales of $716.8 million and $367.8 million for the three months ended March 31, 2021 and 2020, respectively.
Reconciliation to the Consolidated Statements of Comprehensive Income
The following table provides a reconciliation of the gross realized gains and losses and credit recoveries (losses) on our AFS fixed maturity debt securities that arose during the three months ended March 31, 2021 within our continuing and discontinued operations and the offsetting reclassification adjustments included within our consolidated statements of comprehensive income:
Three Months Ended March 31,
20212020
Included within continuing operations:
Gross realized gains on fixed maturity securities, AFS$4,771 $1,547 
Gross realized losses on fixed maturity securities, AFS(3,902)(2,026)
Tax effect(275)
Included within discontinued operations:
Gross realized gains on fixed maturity securities, AFS267 
Total reclassification adjustment$594 $(212)
Included within continuing operations:
Credit losses on fixed maturity securities, AFS$(12,227)$(11,639)
Tax effect202 
Included within discontinued operations:
Credit losses on fixed maturity securities, AFS(1,573)
Total reclassification adjustment$(12,025)$(13,212)
23

ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Restricted Assets
We utilize trust accounts to collateralize business with our (re)insurance counterparties. We are also required to maintain investments and cash and cash equivalents on deposit with regulatory authorities and Lloyd's to support our (re)insurance operations. The investments and cash and cash equivalents on deposit are available to settle (re)insurance liabilities. Collateral generally takes the form of assets held in trust, letters of credit or funds held. The assets used as collateral are primarily highly rated fixed maturity securities. The carrying value of our restricted assets, including restricted cash of $433.4 million and $472.0 million, as of March 31, 2021 and December 31, 2020, respectively, was as follows: 
March 31, 2021December 31, 2020
Collateral in trust for third party agreements$5,793,748 $4,924,866 
Assets on deposit with regulatory authorities127,358 131,283 
Collateral for secured letter of credit facilities104,597 104,627 
Funds at Lloyd's (1)
263,091 260,914 
$6,288,794 $5,421,690 
(1) Our businesses include 3 Lloyd's syndicates. Lloyd's determines the required capital principally through the annual business plan of each syndicate. This capital is referred to as "Funds at Lloyd's" and will be drawn upon in the event that a syndicate has a loss that cannot be funded from other sources. We also utilize unsecured letters of credit for a significant portion of our Funds at Lloyd's, as described in Note 13 - "Debt Obligations and Credit Facilities."
5. DERIVATIVES AND HEDGING INSTRUMENTS
Foreign Currency Hedging of Net Investments in Foreign Operations
We use foreign currency forward exchange rate contracts in qualifying hedging relationships to hedge the foreign currency exchange rate risk associated with certain of our net investments in foreign operations. As of March 31, 2021 and December 31, 2020, we had foreign currency forward exchange rate contracts in place which we had designated as hedges of our net investments in foreign operations.
The following table presents the gross notional amounts and estimated fair values recorded within other assets and liabilities related to our qualifying foreign currency forward exchange rate contracts:
March 31, 2021December 31, 2020
Gross Notional AmountFair ValueGross Notional AmountFair Value
AssetsLiabilitiesAssetsLiabilities
Foreign currency forward - AUD$67,789 $2,488 $$73,852 $13 $5,060 
Foreign currency forward - EUR234,520 7,800 217,168 205 8,889 
Foreign currency forward - GBP324,272 5,314 312,671 951 14,998 
Total qualifying hedges$626,581 $15,602 $$603,691 $1,169 $28,947 
The following table presents the net gains and losses deferred in the cumulative translation adjustment ("CTA") account, which is a component of AOCI, in shareholders' equity, relating to our foreign currency forward exchange rate contracts:
Amount of Gains (Losses) Deferred in AOCI
Three Months Ended
March 31,
20212020
Foreign currency forward - AUD$536 $8,471 
Foreign currency forward - EUR9,334 2,635 
Foreign currency forward - GBP(3,188)20,812 
Net gains on qualifying derivative hedges$6,682 $31,918 
24

ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Derivatives Not Designated or Not Qualifying as Net Investments in Hedging Instruments
From time to time, we may also utilize foreign currency forward contracts as part of our overall foreign currency risk management strategy or to obtain exposure to a particular financial market, as well as for yield enhancement in non-qualifying hedging relationships. We may also utilize equity call option instruments or other derivatives either to obtain exposure to a particular equity instrument or for yield enhancement in non-qualifying hedging relationships.
Foreign Currency Forward Contracts
The following table presents the gross notional amounts and estimated fair values recorded within other assets and other liabilities related to our non-qualifying foreign currency forward exchange rate hedging relationships:
March 31, 2021December 31, 2020
Gross Notional AmountFair ValueGross Notional AmountFair Value
AssetsLiabilitiesAssetsLiabilities
Foreign currency forward - AUD$48,366 $2,185 $445 $28,848 $882 $2,847 
Foreign currency forward - CAD46,926 163 333 64,224 10 1,764 
Foreign currency forward - EUR62,625 1,918 43,531 1,782 41 
Foreign currency forward - GBP21,112 470 17 2,731 161 404 
Total non-qualifying hedges$179,029 $2,818 $2,713 $139,334 $2,835 $5,056 
The following table presents the amounts of the net gains and losses included in earnings related to our non-qualifying foreign currency forward exchange rate contracts:
 Gains (losses) on non-qualifying-hedges charged to net earnings
Three Months Ended March 31,
20212020
Foreign currency forward - AUD$839 $2,533 
Foreign currency forward - CAD(809)4,996 
Foreign currency forward - EUR(2,325)1,176 
Foreign currency forward - GBP380 $576 
Net gains (losses) on non-qualifying hedges$(1,915)$9,281 
Investments in Call Options on Equities
During the three months ended March 31, 2020, we recorded unrealized losses of less than $0.1 million in net earnings, on call options on equities which we purchased in 2018 at a cost of $10.0 million and which expired without being exercised during the three months ended March 31, 2020.
Forward Interest Rate Swaps
In 2019, we entered into a forward interest rate swap, with a notional amount of AUD$120.0 million, to partially mitigate the risk associated with declining interest rates prior to the completion of our business transfer transaction with Munich Reinsurance Company which closed on July 1, 2020. We recorded unrealized gains in net earnings of $0.8 million on the instrument for the three months ended March 31, 2020. This forward interest rate swap was terminated on April 7, 2020, for an inception-to-date net realized gain of $0.5 million.
Credit Default Swaps, Futures and Currency Forward Contracts
From time to time we may also utilize (i) credit default swaps to both hedge and replicate credit exposure, (ii) government bond futures contracts for interest rate management, and (iii) foreign currency forward contracts for currency hedging, to collectively manage credit and duration risk, as well as for yield enhancement on some of our fixed income portfolios.
25

ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following tables present the gross notional amounts and estimated fair values recorded within other assets and other liabilities related to our credit default swaps, government bond futures contracts and currency forward contracts:
March 31, 2021
Gross Notional AmountFair Value
AssetsLiabilities
Futures contracts - long positions$11,672 $$17 
Futures contracts - short positions(7,281)62 
Currency forward contracts - long positions - USD2,999 41 
Currency forward contracts - short positions - USD(4,251)62 
Currency forward contracts - long positions - GBP6,661 26 
Currency forward contracts - short positions - GBP(12,086)324 
Total$(2,286)$193 $341 
December 31, 2020
Gross Notional AmountFair Value
AssetsLiabilities
Futures contracts - long positions$34,502 $32 $
Futures contracts - short positions(32,316)121 
Currency forward contracts - long positions - USD1,428 13 
Currency forward contracts - short positions - USD(3,233)60 
Currency forward contracts - long positions - GBP1,278 19 
Currency forward contracts - short positions - GBP(4,418)12 
Total$(2,759)$129 $139 
The following table presents the amounts of the net gains (losses) included in earnings related to our credit default swaps, government bond futures contracts and currency forward contracts:
Three Months Ended March 31,
2021
Futures contracts313 
Currency forward contracts(720)
Total net losses$(407)
We did not utilize any credit default swaps, government bond futures contracts and currency forward contracts during the three months ended March 31, 2020.
26

ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
6. REINSURANCE BALANCES RECOVERABLE ON PAID AND UNPAID LOSSES
The following tables provide the total reinsurance balances recoverable on paid and unpaid losses:
 March 31, 2021
 
Run-off (1)
Legacy Underwriting (1)
Corporate & OtherTotal
Recoverable from reinsurers on unpaid:
Outstanding losses$1,198,802 $30,851 $$1,229,653 
IBNR620,576 56,375 676,951 
ULAE16,418 1,731 018,149 
Fair value adjustments - acquired companies(15,162)(15,162)
Fair value adjustments - fair value option(40,056)(40,056)
Total reinsurance reserves recoverable1,835,796 88,957 (55,218)1,869,535 
Paid losses recoverable179,240 1,520 180,760 
Total$2,015,036 $90,477 $(55,218)$2,050,295 
Reconciliation to Consolidated Balance Sheet:
Reinsurance balances recoverable on paid and unpaid losses$1,484,166 $90,477 $(15,162)$1,559,481 
Reinsurance balances recoverable on paid and unpaid losses - fair value option530,870 (40,056)490,814 
Total$2,015,036 $90,477 $(55,218)$2,050,295 
(1) Effective January 1, 2021, the net loss reserves of StarStone International were transferred from the Legacy Underwriting segment to the Run-off segment. Refer to Note 21 - "Segment Information" for further details.
 December 31, 2020
 Run-offLegacy UnderwritingCorporate & OtherTotal
Recoverable from reinsurers on unpaid:
Outstanding losses$938,231 $263,638 $$1,201,869 
IBNR508,082 139,761 647,843 
ULAE16,688 16,688 
Fair value adjustments - acquired companies(15,353)(15,353)
Fair value adjustments - fair value option(21,427)(21,427)
Total reinsurance reserves recoverable1,463,001 403,399 (36,780)1,829,620 
Paid losses recoverable172,309 87,234 259,543 
Total$1,635,310 $490,633 $(36,780)$2,089,163 
Reconciliation to Consolidated Balance Sheet:
Reinsurance balances recoverable on paid and unpaid losses$1,093,053 $490,633 $(15,353)$1,568,333 
Reinsurance balances recoverable on paid and unpaid losses - fair value option542,257 (21,427)520,830 
Total$1,635,310 $490,633 $(36,780)$2,089,163 
Our (re)insurance run-off subsidiaries and assumed portfolios, prior to acquisition, used retrocessional agreements to reduce their exposure to the risk of (re)insurance assumed. On an annual basis, StarStone International, included within the Run-off segment from January 1, 2021, purchased a tailored outwards reinsurance program designed to manage its risk profile. The majority of StarStone International's third-party reinsurance is with highly rated reinsurers or is collateralized by pledged assets or letters of credit.
27

ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fair value adjustments, determined on acquisition of (re)insurance subsidiaries, are based on the estimated timing of loss and LAE recoveries included in the Run-off segment and an assumed interest rate equivalent to a risk free rate for securities with similar duration to the acquired reinsurance balances recoverable on paid and unpaid losses plus a spread for credit risk, and are amortized over the estimated recovery period, as adjusted for accelerations in timing of payments as a result of commutation settlements. The determination of the fair value adjustments on the retroactive reinsurance contracts for which we have elected the fair value option is described in Note 10 - "Fair Value Measurements."
As of each of March 31, 2021 and December 31, 2020, we had reinsurance balances recoverable on paid and unpaid losses of $2,050.3 million and $2,089.2 million, respectively. The decrease of $38.9 million was primarily due to cash collections, partially offset by assumed ceded assets relating to CNA and Syndicate 609 as discussed in Note 2 - "Significant New Business" and Note 3 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations."
Top Ten Reinsurers
 March 31, 2021
 Run-offLegacy UnderwritingCorporate & OtherTotal% of
Total
Top 10 reinsurers$1,317,932 $21,087 $$1,339,019 65.3 %
Other reinsurers > $1 million672,336 69,192 (55,218)686,310 33.5 %
Other reinsurers < $1 million$24,768 $198 $$24,966 1.2 %
Total$2,015,036 $90,477 $(55,218)$2,050,295 100.0 %
December 31, 2020
Run-offLegacy UnderwritingCorporate & OtherTotal% of
Total
Top 10 reinsurers$1,036,676 $327,917 $$1,364,593 65.3 %
Other reinsurers > $1 million574,869 159,513 (36,780)697,602 33.4 %
Other reinsurers < $1 million23,765 3,203 26,968 1.3 %
Total$1,635,310 $490,633 $(36,780)$2,089,163 100.0 %

March 31, 2021December 31, 2020
Information regarding top ten reinsurers:
Number of top 10 reinsurers rated A- or better
Number of top 10 non-rated reinsurers (1)
Reinsurers rated A- or better in top 10$833,882 $863,819 
Non-rated reinsurers in top 10 (1)
505,137 500,774 
Total top 10 reinsurance recoverables$1,339,019 $1,364,593 
Single reinsurers that represent 10% or more of total reinsurance balance recoverables as of March 31, 2021 and 2020:
Lloyd's Syndicates (2)
$340,281 $331,118 
Michigan Catastrophic Claims Association(3)
$228,784 $229,374 
(1) The reinsurance balances recoverable from the 3 non-rated top 10 reinsurers was comprised of:
$228.8 million and $229.4 million as of March 31, 2021 and December 31, 2020 respectively, due from Michigan Catastrophic Claims Association;
$72.2 million and $73.8 million as of March 31, 2021 and December 31, 2020 respectively, due from a reinsurer who has provided us with security in the form of pledged assets in trust for the full amount of the recoverable balance; and
$204.2 million and $208.4 million as of March 31, 2021 and December 31, 2020 respectively, due from Enhanzed Re, an equity method investee to whom some of our subsidiaries have retroceded their exposures through quota share reinsurance agreements as discussed in Note 19 - "Related Party Transactions". These quota share reinsurance agreements are written on a funds withheld basis
28

ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
with our subsidiaries retaining the retrocession premium consideration, to secure the full amount of the recoverable balances due from Enhanzed Re.
(2) Lloyd's Syndicates are rated A+ by Standard & Poor's and A by A.M. Best.
(3) U.S. state backed reinsurer that is supported by assessments on active auto writers operating within the state.

 Allowance for Estimated Uncollectible Reinsurance Balances Recoverable on Paid and Unpaid Losses
We evaluate and monitor the credit risk related to our reinsurers, and an allowance for estimated uncollectible reinsurance balances recoverable on paid and unpaid losses ("allowance for estimated uncollectible reinsurance") is established for amounts considered potentially uncollectible. For further information on how the allowance for estimated uncollectible reinsurance is derived, refer to Note 8 - "Reinsurance Balances Recoverable on Paid and Unpaid Losses" to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2020.
The following tables show our gross and net balances recoverable from our reinsurers as well as the related allowance for estimated uncollectible reinsurance broken down by the credit ratings of our reinsurers. The majority of the allowance for estimated uncollectible reinsurance relates to the Run-off segment.
March 31, 2021
GrossAllowance for estimated uncollectible reinsuranceNetProvisions as a
% of Gross
Reinsurers rated A- or above$1,447,044 $60,342 $1,386,702 4.2 %
Reinsurers rated below A-, secured585,538 585,538 %
Reinsurers rated below A-, unsecured156,478 78,423 78,055 50.1 %
Total$2,189,060 $138,765 $2,050,295 6.3 %
December 31, 2020
GrossAllowance for estimated uncollectible reinsuranceNetProvisions as a
% of Gross
Reinsurers rated A- or above$1,464,529 $60,801 $1,403,728 4.2 %
Reinsurers rated below A-, secured608,999 608,999 %
Reinsurers rated below A-, unsecured152,757 76,321 76,436 50.0 %
Total$2,226,285 $137,122 $2,089,163 6.2 %
The table below provides a reconciliation of the beginning and ending allowance for estimated uncollectible reinsurance balances for the three months ended March 31, 2021 and 2020:
Three Months Ended
March 31, 2021March 31, 2020
Allowance for estimated uncollectible reinsurance, beginning of period$137,122 $147,639 
Cumulative effect of change in accounting principle on allowance for estimated uncollectible reinsurance (1)
(195)
Effect of exchange rate movement158 
Current period change in the allowance2,017 (4,117)
Recoveries collected(532)
Allowance for estimated uncollectible reinsurance, end of period$138,765 $143,327 
(1) The Company adopted ASU 2016-13 and the related amendments on January 1, 2020. Refer to Note 2 - "Significant Accounting Policies" to our consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2020 for further details.
We consider a reinsurance recoverable asset to be past due when it is 90 days past due and record a credit allowance when there is reasonable uncertainty about the collectability of a disputed amount during the reporting period. We did not have significant past due balances older than one year for any of the periods presented.
29

ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
7. DEFERRED CHARGE ASSETS AND DEFERRED GAIN LIABILITIES
Deferred charge assets and deferred gain liabilities relate to retroactive reinsurance policies providing indemnification of losses and LAE with respect to past loss events and are included within corporate and other activities. For (re)insurance contracts for which we do not elect the fair value option, a deferred charge asset is recorded for the excess, if any, of the estimated ultimate losses payable over the premiums received at the initial measurement period; whereas, a deferred gain liability is recorded for the excess, if any, of the premiums received over the estimated ultimate losses payable at the initial measurement period. In addition, for retrocessions of losses and LAE reserves that we have assumed through retroactive reinsurance contracts where the retroceded liabilities exceed the retrocession premiums paid, we record the excess as a deferred gain liability which is amortized to earnings over the estimated period during which the losses paid on the assumed retroceded liabilities are recovered from the retrocessionaire. For further information refer to Note 2 - "Significant Accounting Policies" to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2020.
Deferred Charge Assets
Deferred charge assets are included in other assets on our consolidated balance sheets. The following table presents a reconciliation of the deferred charge assets:
Three Months Ended March 31,
20212020
Beginning carrying value$238,602 $272,462 
Recorded during the period130,881 
Amortization(8,698)(14,630)
Ending carrying value$360,785 $257,832 
Deferred charge assets are assessed at each reporting period for impairment. If the asset is determined to be impaired, it is written down in the period of determination. For the three months ended March 31, 2021, we completed our assessment for impairment of deferred charge assets and concluded that there had been 0 impairment of our carried deferred charge assets amount.
Further information on deferred charge assets recorded during the three months ended March 31, 2021 is included in Note 2 - "Significant New Business."
Deferred Gain Liabilities
Deferred gain liabilities are included in other liabilities on our consolidated balance sheets. The following table presents a reconciliation of the deferred gain liabilities:
Three Months Ended March 31,
20212020
Beginning carrying value$19,880 $12,875 
Amortization(629)(297)
Ending carrying value$19,251 $12,578 

30

ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
8. LOSSES AND LOSS ADJUSTMENT EXPENSES
The liability for losses and loss adjustment expenses ("LAE"), also referred to as loss reserves, represents our gross estimates before reinsurance for unpaid reported losses and includes losses that have been incurred but not reported ("IBNR") using a variety of actuarial methods. We recognize an asset for the portion of the liability that we expect to recover from reinsurers. LAE reserves include allocated loss adjustment expenses ("ALAE"), and unallocated loss adjustment expenses ("ULAE"). ALAE are linked to the settlement of an individual claim or loss, whereas ULAE are based on our estimates of future costs to administer the claims. IBNR represents reserves for loss and LAE that have been incurred but not yet reported to us. This includes amounts for unreported claims, development on known claims and reopened claims.
Our loss reserves cover multiple lines of business, which include asbestos, environmental, general casualty, workers' compensation/personal accident, marine, aviation and transit, construction defect, professional indemnity/directors and officers, motor, property and other non-life lines of business. Refer to Note 10 - "Losses and Loss Adjustment Expenses" to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2020 for more information on establishing the liability for losses and LAE.
The following tables summarize the liability for losses and LAE by segment and for our corporate and other activities:
 March 31, 2021
 Run-offLegacy UnderwritingCorporate & OtherTotal
Outstanding losses$5,545,947 $97,928 $$5,643,875 
IBNR5,508,249 148,716 5,656,965 
ULAE413,171 2,452 415,623 
Fair value adjustments - acquired companies(140,148)(140,148)
Fair value adjustments - fair value option(148,895)(148,895)
Total$11,467,367 $249,096 $(289,043)$11,427,420 
Reconciliation to Consolidated Balance Sheet:
Loss and loss adjustment expenses$9,041,090 $249,096 $(140,148)$9,150,038 
Loss and loss adjustment expenses, at fair value2,426,277 (148,895)2,277,382 
Total$11,467,367 $249,096 $(289,043)$11,427,420 
 December 31, 2020
 Run-offLegacy UnderwritingCorporate & OtherTotal
Outstanding losses$4,440,425 $687,424 $$5,127,849 
IBNR4,641,500 636,003 5,277,503 
ULAE350,600 35,102 385,702 
Fair value adjustments - acquired companies(143,183)(143,183)
Fair value adjustments - fair value option(54,589)(54,589)
Total$9,432,525 $1,358,529 $(197,772)$10,593,282 
Reconciliation to Consolidated Balance Sheet:
Loss and loss adjustment expenses$6,925,016 $1,358,529 $(143,183)$8,140,362 
Loss and loss adjustment expenses, at fair value2,507,509 (54,589)2,452,920 
Total$9,432,525 $1,358,529 $(197,772)$10,593,282 

The overall increase in the liability for losses and LAE from December 31, 2020 to March 31, 2021 was primarily attributable to the CNA and Liberty Mutual reinsurance transactions, as described in Note 2 - "Significant New Business" and net incurred losses and LAE in the period, partially offset by losses paid.
31

ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The table below provides a consolidated reconciliation of the beginning and ending liability for losses and LAE:
Three Months Ended
March 31,
20212020
Balance as of beginning of period$10,593,282 $9,868,404 
Less: reinsurance reserves recoverable (1)
1,829,620 1,927,624 
Less: net deferred charge assets and deferred gain liabilities on retroactive reinsurance218,722 259,587 
Less: cumulative effect of change in accounting principle on the determination of the allowance for estimated uncollectible reinsurance balances (2)
643 
Net balance as of beginning of period8,544,940 7,680,550 
Net incurred losses and LAE:
  Current period54,060 115,505 
  Prior periods(109,567)(72,205)
  Total net incurred losses and LAE(55,507)43,300 
Net paid losses:
  Current period(6,502)(3,807)
  Prior periods(336,030)(356,019)
  Total net paid losses(342,532)(359,826)
Effect of exchange rate movement(8,771)(146,380)
Assumed business (3)
1,078,221 471,150 
Net balance as of March 319,216,351 7,688,794 
Plus: reinsurance reserves recoverable (1)
1,869,535 1,902,749 
Plus: net deferred charge assets and deferred gain liabilities on retroactive reinsurance (4)
341,534 245,254 
Balance as of March 31$11,427,420 $9,836,797 
(1) Net of allowance for estimated uncollectible reinsurance.
(2) The Company adopted ASU 2016-13 and the related amendments on January 1, 2020. Refer to Note 2 - "Significant Accounting Policies" to our consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2020 for further details.
(3) Refer to Note 2 - "Significant New Business" for further information.
(4) Refer to Note 7 - "Deferred Charge Assets and Deferred Gain Liabilities" for further information.
The tables below provide the components of net incurred losses and LAE by segment and for our corporate and other activities:
Three Months Ended
March 31, 2021
 Run-offLegacy UnderwritingCorporate & OtherTotal
Net losses paid$330,629 $11,903 $$342,532 
Net change in case and LAE reserves (1)
(119,363)(7,771)(127,134)
Net change in IBNR reserves (2)
(193,943)789 (193,154)
Increase in estimates of net ultimate losses17,323 4,921 22,244 
Reduction in provisions for unallocated LAE (3)
(12,698)(443)(13,141)
Amortization of deferred charge assets and deferred gain liabilities (4)
8,069 8,069 
Amortization of fair value adjustments (5)
2,793 2,793 
Changes in fair value - fair value option (6)
(75,472)(75,472)
Net incurred losses and LAE$4,625 $4,478 $(64,610)$(55,507)
32

ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Three Months Ended
March 31, 2020
 Run-offLegacy UnderwritingCorporate & OtherTotal
Net losses paid$258,966 $100,860 $$359,826 
Net change in case and LAE reserves (1)
(174,580)(35,188)(209,768)
Net change in IBNR reserves (2)
(104,100)39,249 (64,851)
Increase (reduction) in estimates of net ultimate losses(19,714)104,921 85,207 
Increase (reduction) in provisions for unallocated LAE (3)
(7,479)610 (6,869)
Amortization of deferred charge assets and deferred gain liabilities (4)
14,333 14,333 
Amortization of fair value adjustments (5)
8,866 8,866 
Changes in fair value - fair value option (6)
(58,237)(58,237)
Net incurred losses and LAE$(27,193)$105,531 $(35,038)$43,300 
(1)Comprises the movement during the year in specific case reserve liabilities as a result of claims settlements or changes advised to us by our policyholders and attorneys, less changes in case reserves recoverable advised by us to our reinsurers as a result of the settlement or movement of assumed claims.
(2)Represents the gross change in our actuarial estimates of IBNR, less amounts recoverable.
(3) Represents the change in the estimate of the total future costs to administer the claims.
(4) Relates to the amortization of deferred charge assets and deferred gain liabilities on retroactive reinsurance contracts.
(5) Relates to the amortization of fair value adjustments associated with the acquisition of companies.
(6) Represents the changes in the fair value of liabilities related to our assumed retroactive reinsurance contracts for which we have elected the fair value option.
The table below provides a reconciliation of the amortization of deferred charge assets and deferred gain liabilities included in the calculation of net incurred losses and LAE above:
Three Months Ended
March 31,
20212020
Amortization of deferred charge assets$8,698 $14,630 
Amortization of deferred gain liabilities(629)(297)
Total amortization of deferred charge assets and deferred gain liabilities$8,069 $14,333 
33

ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Run-off Segment
The table below provides a reconciliation of the beginning and ending liability for losses and LAE for the Run-off segment:
Three Months Ended
March 31,
20212020
Balance as of beginning of period$9,432,525 $8,683,983 
Less: reinsurance reserves recoverable (1)
1,463,001 1,645,352 
Plus: cumulative effect of change in accounting principal on allowance for estimated uncollectible reinsurance (2)
703 
Net balance as of beginning of period7,969,524 7,039,334 
Net incurred losses and LAE:
  Current period44,161 7,849 
  Prior periods(39,536)(35,042)
  Total net incurred losses and LAE4,625 (27,193)
Net paid losses:
  Current period(3,275)(1,240)
  Prior periods(327,354)(257,726)
  Total net paid losses(330,629)(258,966)
Effect of exchange rate movement(12,412)(140,089)
Assumed business (3)
1,045,333 471,150 
Transfer from the Legacy Underwriting segment (4)
955,130 
Net balance as of March 319,631,571 7,084,236 
Plus: reinsurance reserves recoverable (1)
1,835,796 1,568,296 
Balance as of March 31$11,467,367 $8,652,532 
(1) Net of allowance for estimated uncollectible reinsurance.
(2) The Company adopted ASU 2016-13 and the related amendments on January 1, 2020. Refer to Note 2 - "Significant Accounting Policies" to our consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2020 for further details.
(3) Refer to Note 2 - "Significant New Business" for further information.
(4) Effective January 1, 2021, the net loss reserves of StarStone International were transferred from the Legacy Underwriting segment to the Run-off segment. Refer to Note 21 - "Segment Information" for further details.
Net incurred losses and LAE in the Run-off segment were as follows:
Three Months Ended March 31,
 20212020
 Prior
Period
Current
Period
TotalPrior
Period
Current
Period
Total
Net losses paid$327,354 $3,275 $330,629 $257,726 $1,240 $258,966 
Net change in case and LAE reserves (1)
(117,156)(2,207)(119,363)(176,252)1,672 (174,580)
Net change in IBNR reserves (2)
(235,565)41,622 (193,943)(109,037)4,937 (104,100)
Increase (reduction) in estimates of net ultimate losses(25,367)42,690 17,323 (27,563)7,849 (19,714)
Increase (reduction) in provisions for unallocated LAE (3)
(14,169)1,471 (12,698)(7,479)(7,479)
Net incurred losses and LAE$(39,536)$44,161 $4,625 $(35,042)$7,849 $(27,193)
(1)Comprises the movement during the year in specific case reserve liabilities as a result of claims settlements or changes advised to us by our policyholders and attorneys, less changes in case reserves recoverable advised by us to our reinsurers as a result of the settlement or movement of assumed claims.
(2)Represents the gross change in our actuarial estimates of IBNR, less amounts recoverable.
(3) Represents the change in the estimate of the total future costs to administer the claims.
34

ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Three Months Ended March 31, 2021
Current period net incurred losses and LAE of $44.2 million related to current period net earned premium, primarily in respect of the run-off of StarStone International business which was transferred from the Legacy Underwriting segment on January 1, 2021. The reduction in estimates of net ultimate losses relating to prior periods of $25.4 million was driven primarily by continued favorable loss emergence relative to expectations in our Workers Compensation and General Liability lines of business as well as detailed claims reviews across a number of portfolios, including our Lloyd's syndicate. The combination of loss emergence experience and claims management has led to a favorable actual versus expected on those books of business.
Three Months Ended March 31, 2020
Current period net incurred losses and LAE of $7.8 million related to current period net earned premium, primarily in respect of the run-off of the AmTrust RITC transactions. The reduction in estimates of net ultimate losses of $27.6 million primarily related to favorable development in Professional Indemnity/Directors & Officers lines of businesses and favorable actual versus expected development in the Workers Compensation and Motor Liability lines of business.
Legacy Underwriting Segment
The table below provides a reconciliation of the beginning and ending liability for losses and LAE for our Legacy Underwriting segment:
Three Months Ended
March 31,
20212020
Balance as of beginning of period$1,358,529 $1,569,865 
Less: reinsurance reserves recoverable (1)
403,399 385,613 
Less: cumulative effect of change in accounting principal on allowance for estimated uncollectible reinsurance (2)
1,346 
Net balance as of beginning of period955,130 1,182,906 
Net incurred losses and LAE:
  Current period9,899 107,656 
  Prior periods(5,421)(2,125)
  Total net incurred losses and LAE4,478 105,531 
Net paid losses:
  Current period(3,227)(2,567)
  Prior periods(8,676)(98,293)
  Total net paid losses(11,903)(100,860)
Effect of exchange rate movement3,795 (13,955)
Assumed business (3)
163,769 
Transfer to Run-off segment (4)
(955,130)
Net balance as of March 31160,139 1,173,622 
Plus: reinsurance reserves recoverable (1)
88,957 442,905 
Balance as of March 31$249,096 $1,616,527 
(1) Net of allowance for estimated uncollectible reinsurance.
(2) The Company adopted ASU 2016-13 and the related amendments on January 1, 2020. Refer to Note 2 - "Significant Accounting Policies" to our consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2020 for further details.
(3) This balance represents the gross up for our participation in Atrium's Syndicate 609 relating to the 2020 and prior underwriting years which is no longer eliminated on our consolidated financial statements following the completion of the Exchange Transaction on January 1, 2021. Refer to Note 3 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations" for further details.
(4) Effective January 1, 2021, the net loss reserves of StarStone International were transferred from the Legacy Underwriting segment to the Run-off segment. Refer to Note 21 - "Segment Information" for further details.
35

ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Net incurred losses and LAE in the Legacy Underwriting segment were as follows:
Three Months Ended March 31,
 20212020
 Prior PeriodCurrent PeriodTotalPrior PeriodCurrent PeriodTotal
Net losses paid$8,676 $3,227 $11,903 $98,293 $2,567 $100,860 
Net change in case and LAE reserves (1)
(12,530)4,759 (7,771)(43,538)8,350 (35,188)
Net change in IBNR reserves (2)
(1,350)2,139 789 (56,789)96,038 39,249 
Increase (reduction) in estimates of net ultimate losses(5,204)10,125 4,921 (2,034)106,955 104,921 
Increase (reduction) in provisions for unallocated LAE (3)
(217)(226)(443)(91)701 610 
Net incurred losses and LAE$(5,421)$9,899 $4,478 $(2,125)$107,656 $105,531 
(1)Comprises the movement during the year in specific case reserve liabilities as a result of claims settlements or changes advised to us by our policyholders and attorneys, less changes in case reserves recoverable advised by us to our reinsurers as a result of the settlement or movement of assumed claims.
(2)Represents the gross change in our actuarial estimates of IBNR, less amounts recoverable.
(3) Represents the change in the estimate of the total future costs to administer the claims.
Three Months Ended March 31, 2021
Current period net incurred losses and LAE of $9.9 million related to current period net earned premium. The reduction in net incurred losses and LAE liabilities relating to prior periods was $5.4 million and was attributable to a reduction in estimates of net ultimate losses of $5.2 million.
Three Months Ended March 31, 2020
Current period net incurred losses and LAE of $107.7 million related to current period net earned premium and included losses related to the COVID-19 pandemic of $33.2 million.
36

ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
9. DEFENDANT ASBESTOS AND ENVIRONMENTAL LIABILITIES
We acquired DCo LLC ("DCo") on December 30, 2016, and Morse TEC on October 30, 2019. These companies hold liabilities associated with personal injury asbestos claims and environmental claims arising from their legacy manufacturing operations. Defendant asbestos liabilities on our consolidated balance sheets include amounts for loss payments and defense costs for pending and future asbestos-related claims, determined using standard actuarial techniques for asbestos exposures. Defendant environmental liabilities include estimated clean-up costs associated with the acquired companies' former operations based on engineering reports. For further details on the methodologies used for determining liabilities, refer to Note 11 - "Defendant Asbestos and Environmental Liabilities" to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2020.
Insurance balances recoverable on our consolidated balance sheets include estimated insurance recoveries relating to these liabilities. The recorded asset represents our assessment of the capacity of the insurance agreements to indemnify our subsidiaries for the anticipated defense and loss payments for pending claims and projected future claims. The recognition of these recoveries is based on an assessment of the right to recover under the respective contracts and on the financial strength of the insurers. The recorded asset does not represent the limits of our insurance coverage, but rather the amount we would expect to recover if the accrued and projected loss and defense costs were paid in full.
Included within insurance balances recoverable and defendant asbestos and environmental liabilities are the fair value adjustments that were initially recognized upon acquisition. These fair value adjustments are amortized in proportion to the actual payout of claims and recoveries. The carrying value of the asbestos and environmental liabilities, insurance recoveries, future estimated expenses and the fair value adjustments related to DCo and Morse TEC were as follows:
March 31, 2021December 31, 2020
Defendant asbestos and environmental liabilities:
Defendant asbestos liabilities$895,523 $913,276 
Defendant environmental liabilities12,386 12,572 
Estimated future expenses39,747 42,510 
Fair value adjustments(256,099)(262,029)
Defendant asbestos and environmental liabilities691,557 706,329 
Insurance balances recoverable:
Insurance recoveries related to defendant asbestos liabilities (net of allowance: 2021 - $5,272; 2020 - $4,824)308,523 310,602 
Fair value adjustments(60,513)(60,950)
Insurance balances recoverable248,010 249,652 
Net liabilities relating to defendant asbestos and environmental exposures$443,547 $456,677 

37

ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The table below provides a consolidated reconciliation of the beginning and ending liability for defendant asbestos and environmental exposures:
Three Months Ended
March 31,
20212020
Balance as of beginning of period$706,329 $847,685 
Less: Insurance balances recoverable249,652 448,855 
Plus: Cumulative effect of change in accounting principle on the determination of the allowance for estimated uncollectible insurance balances (1)
3,167 
Net balance as of beginning of period456,677 401,997 
Total net (paid claims) recoveries(6,308)6,581 
Amounts recorded in other income:
Reduction in estimates of ultimate net liabilities(9,552)(24,915)
Reduction in estimated future expenses(2,763)(2,028)
Amortization of fair value adjustments5,493 5,468 
Total other income(6,822)(21,475)
Net balance as at March 31443,547 387,103 
Plus: Insurance balances recoverable (2)
248,010 435,613 
Balance as at March 31$691,557 $822,716 
(1) The Company adopted ASU 2016-13 and the related amendments on January 1, 2020. Refer to Note 2 - "Significant Accounting Policies" to our consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2020 for further details.
(2) Net of allowance for estimated uncollectible insurance balances.
Allowance for Estimated Uncollectible Insurance Balances Recoverable on Defendant Asbestos Liabilities
We evaluate and monitor the credit risk related to our insurers and an allowance for estimated uncollectible insurance balances recoverable on our defendant asbestos liabilities ("allowance for estimated uncollectible insurance") is established for amounts considered potentially uncollectible. To determine the allowance for estimated uncollectible insurance, we use the inputs and methodologies as described in Note 8 - "Reinsurance Balances Recoverable on Paid and Unpaid Losses" to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2020.
The table below provides a reconciliation of the beginning and ending allowance for estimated uncollectible insurance balances related to our defendant asbestos liabilities.
Three Months Ended
March 31,
20212020
Allowance for estimated uncollectible insurance balances, beginning of period$4,824 $3,818 
Cumulative effect of change in accounting principle3,167 
Current period change in the allowance448 
Allowance for estimated uncollectible insurance balances, end of period$5,272 $6,985 
During the three months ended March 31, 2021 and 2020, we did not have any write-offs charged against the allowance for estimated uncollectible insurance or any recoveries of amounts previously written off.
We did not have significant non-disputed past due balances receivable from our insurers related to our defendant asbestos liabilities, that were older than one year for any of the periods presented. Any balances that are part of ongoing legal activity are estimated to be recovered at the level of our recorded asset, which is consistent with our legal advice and past collection experience.
38

ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
10. FAIR VALUE MEASUREMENTS
Fair Value Hierarchy
Fair value is defined as the price at which to sell an asset or transfer a liability (i.e. the "exit price") in an orderly transaction between market participants. We use a fair value hierarchy that gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. The hierarchy is broken down into three levels as follows:
Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments.
Level 2 - Valuations based on quoted prices in active markets for similar assets or liabilities, quoted prices for identical assets or liabilities in inactive markets, or for which significant inputs are observable (e.g. interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.
Level 3 - Valuations based on unobservable inputs where there is little or no market activity. Unadjusted third party pricing sources or management's assumptions and internal valuation models may be used to determine the fair values.
In addition, certain of our other investments are measured at fair value using net asset value ("NAV") per share (or its equivalent) as a practical expedient and have not been classified within the fair value hierarchy above. We have categorized our assets and liabilities that are recorded at fair value on a recurring basis among levels based on the observability of inputs, or at fair value using NAV per share (or its equivalent) as follows:
39

ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 March 31, 2021
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Other Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value Based on NAV as Practical ExpedientTotal Fair
Value
Investments:
Short-term and fixed maturity investments:
U.S. government and agency$$784,545 $$— $784,545 
U.K. government42,797 — 42,797 
Other government536,447 — 536,447 
Corporate6,043,130 — 6,043,130 
Municipal206,671 — 206,671 
Residential mortgage-backed620,569 — 620,569 
Commercial mortgage-backed978,742 — 978,742 
Asset-backed777,652 — 777,652 
$$9,990,553 $$— $9,990,553 
Other assets included within funds held - directly managed6,007 — 6,007 
Equities:
Publicly traded equity investments$235,923 $27,199 $$— $263,122 
Exchange-traded funds505,042 — 505,042 
Privately held equity investments330,404 — 330,404 
$740,965 $27,199 $330,404 $— $1,098,568 
Other investments:
Hedge funds$$$$2,915,114 $2,915,114 
Fixed income funds268,724 312,972 581,696 
Equity funds5,305 5,305 
Private equity funds442,602 442,602 
CLO equities134,984 134,984 
CLO equity funds178,150 178,150 
Private credit funds9,250 230,952 240,202 
Other314 20,679 20,993 
$$409,013 $9,564 $4,100,469 $4,519,046 
Total Investments$740,965 $10,432,772 $339,968 $4,100,469 $15,614,174 
Cash and cash equivalents$244,979 $27,726 $$$272,705 
Reinsurance balances recoverable on paid and unpaid losses:$$$490,814 $— $490,814 
Other Assets:
Derivatives qualifying as hedging$$15,602 $$— $15,602 
Derivatives not qualifying as hedging3,011 — 3,011 
Derivative instruments$$18,613 $$— $18,613 
Losses and LAE:$$$2,277,382 $— $2,277,382 
Other Liabilities:
Derivatives qualifying as hedging$$$$— $
Derivatives not qualifying as hedging3,054 — 3,054 
Derivative instruments$$3,054 $$— $3,054 
40

ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 December 31, 2020
 Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant
Other Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value Based on NAV as Practical ExpedientTotal Fair
Value
Investments:
Short-term and fixed maturity investments:
U.S. government and agency$$951,048 $$— $951,048 
U.K government51,082 — 51,082 
Other government502,153 — 502,153 
Corporate5,686,732 — 5,686,732 
Municipal162,669 — 162,669 
Residential mortgage-backed553,945 — 553,945 
Commercial mortgage-backed854,090 — 854,090 
Asset-backed557,460 — 557,460 
$$9,319,179 $$— $9,319,179 
Other assets included within funds held - directly managed$$14,627 $$— $14,627 
Equities:
Publicly traded equity investments$229,167 $31,600 $$— $260,767 
Exchange-traded funds311,287 — 311,287 
Privately held equity investments274,741 — 274,741 
$540,454 $31,600 $274,741 $— $846,795 
Other investments:
Hedge funds$$$$2,638,339 $2,638,339 
Fixed income funds285,837 266,704 552,541 
Equity funds5,073 185,694 190,767 
Private equity funds363,103 363,103 
CLO equities128,083 128,083 
CLO equity funds166,523 166,523 
Private credit funds9,250 183,069 192,319 
Other314 12,045 12,359 
$$418,993 $9,564 $3,815,477 $4,244,034 
Total Investments$540,454 $9,784,399 $284,305 $3,815,477 $14,424,635 
Cash and cash equivalents$385,790 $208,272 $$$594,062 
Reinsurance balances recoverable on paid and unpaid losses:$$$520,830 $— $520,830 
Other Assets:
Derivatives qualifying as hedging$$1,169 $$— $1,169 
Derivatives not qualifying as hedging2,964 — 2,964 
Derivative instruments$$4,133 $$— $4,133 
Losses and LAE:$$$2,452,920 $— $2,452,920 
Other Liabilities:
Derivatives qualifying as hedging$$28,947 $$— $28,947 
Derivatives not qualifying as hedging5,195 — 5,195 
Derivative instruments$$34,142 $$— $34,142 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Valuation Methodologies of Financial Instruments Measured at Fair Value
Short-term and Fixed Maturity Investments
The fair values for all securities in the short-term and fixed maturity investments and funds held - directly managed portfolios are independently provided by the investment accounting service providers, investment managers and investment custodians, each of which utilize internationally recognized independent pricing services. We record the unadjusted price provided by the investment accounting service providers, investment managers or investment custodians and validate this price through a process that includes, but is not limited to: (i) comparison of prices against alternative pricing sources; (ii) quantitative analysis (e.g. comparing the quarterly return for each managed portfolio to its target benchmark); (iii) evaluation of methodologies used by external parties to estimate fair value, including a review of the inputs used for pricing; and (iv) comparing the price to our knowledge of the current investment market. Our internal price validation procedures and review of fair value methodology documentation provided by independent pricing services have not historically resulted in adjustment in the prices obtained from the pricing service.
The independent pricing services used by the investment accounting service providers, investment managers and investment custodians obtain actual transaction prices for securities that have quoted prices in active markets. Where we utilize single unadjusted broker-dealer quotes, they are generally provided by market makers or broker-dealers who are recognized as market participants in the markets for which they are providing the quotes. For determining the fair value of securities that are not actively traded, in general, pricing services use "matrix pricing" in which the independent pricing service uses observable market inputs including, but not limited to, reported trades, benchmark yields, broker-dealer quotes, interest rates, prepayment speeds, default rates and other such inputs as are available from market sources to determine a reasonable fair value.
The following describes the techniques generally used to determine the fair value of our short-term and fixed maturity investments by asset class, including the investments underlying the funds held - directly managed.
U.S. government and agency securities consist of securities issued by the U.S. Treasury and mortgage pass-through agencies such as the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and other agencies. Non-U.S. government securities consist of bonds issued by non-U.S. governments and agencies along with supranational organizations. The significant inputs used to determine the fair value of these securities include the spread above the risk-free yield curve, reported trades and broker-dealer quotes. These are considered to be observable market inputs and, therefore, the fair values of these securities are classified as Level 2.
Corporate securities consist primarily of investment-grade debt of a wide variety of corporate issuers and industries. The fair values of these securities are determined using the spread above the risk-free yield curve, reported trades, broker-dealer quotes, benchmark yields, and industry and market indicators. These are considered observable market inputs and, therefore, the fair values of these securities are classified as Level 2. Where pricing is unavailable from pricing services, such as in periods of low trading activity or when transactions are not orderly, we obtain non-binding quotes from broker-dealers. Where significant inputs are unable to be corroborated with market observable information, we classify the securities as Level 3.
Municipal securities consist primarily of bonds issued by U.S.-domiciled state and municipal entities. The fair values of these securities are determined using the spread above the risk-free yield curve, reported trades, broker-dealer quotes and benchmark yields. These are considered observable market inputs and, therefore, the fair values of these securities are classified as Level 2.
Asset-backed securities consist primarily of investment-grade bonds backed by pools of loans with a variety of underlying collateral. Residential and commercial mortgage-backed securities include both agency and non-agency originated securities. Where pricing is unavailable from pricing services, we obtain non-binding quotes from broker-dealers. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. The significant inputs used to determine the fair value of these securities include the spread above the risk-free yield curve, reported trades, benchmark yields, prepayment speeds and default rates. The fair values of these securities are classified as Level 2 if the significant inputs are market observable. Where significant inputs are unable to be corroborated with market observable information, we classify the securities as Level 3.
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Equities
Our investments in equities consist of a combination of publicly and privately traded investments. Our publicly traded equity investments in common and preferred stocks predominantly trade on major exchanges and are managed by our external advisors. Our exchange-traded funds also trade on major exchanges. Our publicly traded equities are widely diversified and there is no significant concentration in any specific industry. We use an internationally recognized pricing service to estimate the fair value of our publicly traded equities and exchange-traded funds. We have categorized the majority of our publicly traded equity investments, other than preferred stock, and our exchange-traded funds as Level 1 investments because the fair values of these investments are based on unadjusted quoted prices in active markets for identical assets. We have two equity securities trading in an inactive market and, as a result have been classified as Level 2. The fair value estimates of our investments in publicly traded preferred stock are based on observable market data and, as a result, have been categorized as Level 2.
Our privately held equity investments in common and preferred stocks are direct investments in companies that we believe offer attractive risk adjusted returns and/or offer other strategic advantages. Each investment may have its own unique terms and conditions and there may be restrictions on disposals. The market for these investments is illiquid and there is no active market. We use a combination of cost, internal models, reported values from co-investors/managers and observable inputs, such as capital raises and capital transactions between new and existing shareholders to calculate the fair value of the privately held equity investments. The fair value estimates of our investments in privately held equities are based on unobservable market data and, as a result, have been categorized as Level 3.
Other investments, at fair value
We have ongoing due diligence processes with respect to the other investments carried at fair value in which we invest, including active discussions with managers of the investments. These processes are designed to assist us in assessing the quality of information provided by, or on behalf of, each fund and in determining whether such information continues to be reliable or whether further review is warranted. Certain funds do not provide full transparency of their underlying holdings; however, we obtain the audited financial statements for funds annually and review the audited results relative to the net asset values provided by the managers, and regularly review and discuss the fund performance with the fund managers to corroborate the reasonableness of the reported net asset values ("NAV").
The use of NAV as an estimate of the fair value for investments in certain entities that calculate NAV is a permitted practical expedient. Due to the time lag in the NAV reported by certain fund managers we adjust the valuation for capital calls and distributions. Other investments measured at fair value using NAV as a practical expedient have not been classified in the fair value hierarchy. Other investments for which we do not use NAV as a practical expedient have been valued using prices from independent pricing services, investment managers and broker-dealers.
The following describes the techniques generally used to determine the fair value of our other investments.
For our investments in hedge funds, we measure fair value by obtaining the most recently available NAV as advised by the external fund manager or third-party administrator. The fair values of these investments are measured using the NAV as a practical expedient and therefore have not been categorized within the fair value hierarchy.
Our investments in fixed income funds and equity funds are valued based on a combination of prices from independent pricing services, external fund managers or third-party administrators. For the publicly available prices we have classified the investments as Level 2. For the non-publicly available prices we are using NAV as a practical expedient and therefore these have not been categorized within the fair value hierarchy.
For our investments in private equity funds, we measure fair value by obtaining the most recently available NAV from the external fund manager or third-party administrator. The fair values of these investments are measured using the NAV as a practical expedient and therefore have not been categorized within the fair value hierarchy.
We measure the fair value of our direct investment in CLO equities based on valuations provided by independent pricing services, our external CLO equity manager, and valuations provided by the broker or lead underwriter of the investment (the "broker"). The fair values measured using prices provided by independent pricing services have been classified as Level 2 and fair values using prices from brokers have
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
been classified as Level 3 due to the use of unobservable inputs in the valuation and the limited number of relevant trades in secondary markets.
For our investments in the CLO equity funds, we measure fair value by obtaining the most recently available NAV as advised by the external fund manager or third party administrator. The fair value of these investments is measured using the NAV as a practical expedient and therefore have not been categorized within the fair value hierarchy.
Our investments in private credit funds are primarily valued by obtaining the most recently available NAV from the external fund manager or third-party administrator. The fair values of these investments are measured using the NAV as a practical expedient and therefore have not been categorized within the fair value hierarchy. Included within private credit funds is a loan which is valued at cost less distributions received to date.
Included within other is an investment in a real estate debt fund, for which we measure fair value by obtaining the most recently available NAV from the external fund manager or third-party administrator. The fair value of this investment is measured using the NAV as a practical expedient and therefore has not been categorized within the fair value hierarchy.
Cash and Cash Equivalents
Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and are very close to maturity. As such, they present insignificant risk of changes in value due to changes in interest rates. Included within cash and cash equivalents are money market funds, fixed interest deposits and highly liquid fixed maturity investments purchased with an original maturity of three months or less.
The majority of our cash and cash equivalents included within the fair value hierarchy are comprised of money market and liquid reserve funds which have been categorized as Level 1. Fixed interest deposits and highly liquid fixed maturity investments with an original maturity of three months or less have been categorized as Level 2. Operating cash balances are not subject to the recurring fair value measurement guidance and are therefore excluded from the fair value hierarchy.
Insurance Contracts - Fair Value Option
The Company uses an internal model to calculate the fair value of the liability for losses and loss adjustment expenses and reinsurance balances recoverable on paid and unpaid losses for certain retroactive reinsurance contracts where we have elected the fair value option. The fair value is calculated as the aggregate of discounted cash flows plus a risk margin. The discounted cash flow approach uses (i) estimated nominal cash flows based upon an appropriate payment pattern developed in accordance with standard actuarial techniques and (ii) a discount rate based upon a high quality rated corporate bond yield plus a credit spread for non-performance risk. The model uses corporate bond rates across the yield curve depending on the estimated timing of the future cash flows and specific to the currency of the risk. The risk margin is calculated using the present value of the cost of capital. The cost of capital approach uses (i) projected capital requirements, (ii) multiplied by the risk cost of capital representing the return required for non-hedgeable risk based upon the weighted average cost of capital less investment income and (iii) discounted using the weighted average cost of capital.
Derivative Instruments
The fair values of our derivative instruments, as described in Note 5 - "Derivatives and Hedging Instruments" are classified as Level 2. The fair values are based upon prices in active markets for identical contracts.
Level 3 Measurements and Changes in Leveling
Transfers into or out of levels are recorded at their fair values as of the end of the reporting period, consistent with the date of determination of fair value.

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Investments
The following tables present a reconciliation of the beginning and ending balances for all investments measured at fair value on a recurring basis using Level 3 inputs:
Three Months Ended March 31, 2021Three months ended March 31, 2020
Privately-held EquitiesOther InvestmentsTotalPrivately-held EquitiesOther InvestmentsTotal
Beginning fair value$274,741 $9,564 $284,305 $265,799 $87,869 $353,668 
Purchases57,192 57,192 1,358 37,092 38,450 
Sales(539)(539)
Total realized and unrealized losses(1,529)(1,529)(145)(40,368)(40,513)
Transfer out of Level 3 into Level 2(83,740)(83,740)
Ending fair value$330,404 $9,564 $339,968 $267,012 $314 $267,326 

Net realized and unrealized gains related to Level 3 assets in the tables above are included in net realized and unrealized gains (losses) in our consolidated statements of earnings.
The securities transferred from Level 3 to Level 2 were based upon obtaining market observable information regarding the valuations of the specific assets.
Valuations Techniques and Inputs
The table below presents the qualitative information related to the fair value measurements for our privately held equity investments measured at fair value on a recurring basis using Level 3 inputs:
Qualitative Information about Level 3 Fair Value Measurements
Fair Value as of March 31, 2021Valuation TechniquesUnobservable Input
Range (Average) (1)
(in millions of U.S. dollars)
$228.8 Guideline company methodologyDistribution waterfall12.89
$104.0 Cost as approximation of fair valueCost as approximation of fair value
$7.2 
Net Asset Value (2)
NAV at recent transaction19.49
$340.0 
(1) The average represents the arithmetic average of the inputs and is not weighted by the relative fair value.
(2) This relates to our direct investment in the equity of a privately held business development company ("BDC") which follows the Investment Company accounting guidance in ASC 946 and therefore values its underlying investments using NAV as a practical expedient as permitted by ASC 946. Our valuation of our equity interest in this BDC is therefore based on the NAV provided by the BDC, subject to our own independent validation procedures.

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Insurance Contracts - Fair Value Option
The following table presents a reconciliation of the beginning and ending balances for all insurance contracts measured at fair value on a recurring basis using Level 3 inputs:
Three Months Ended March 31,
20212020
Liability for losses and LAEReinsurance balances recoverableNetLiability for losses and LAEReinsurance balances recoverableNet
Beginning fair value$2,452,920 $520,830 $1,932,090 $2,621,122 $695,518 $1,925,604 
Assumed business4,975 4,975 
Incurred losses and LAE:
Increase (reduction) in estimates of ultimate losses(8,223)709 (8,932)(14,439)(3,171)(11,268)
Reduction in unallocated LAE(4,395)(4,395)(6,413)(6,413)
Change in fair value(94,083)(18,611)(75,472)(64,804)(6,567)(58,237)
Total incurred losses and LAE(106,701)(17,902)(88,799)(85,656)(9,738)(75,918)
Paid losses(73,950)(11,983)(61,967)(81,163)(16,114)(65,049)
Effect of exchange rate movements5,113 (131)5,244 (113,735)(16,270)(97,465)
Ending fair value$2,277,382 $490,814 $1,786,568 $2,345,543 $653,396 $1,692,147 

The following table presents the components of the net change in fair value:
Three Months Ended
March 31,
20212020
Changes in fair value due to changes in:
Duration$1,566 $4,148 
Corporate bond yield(77,038)(64,092)
Weighted cost of capital(5,048)
Risk cost of capital6,755 
Change in fair value$(75,472)$(58,237)
Below is a summary of the quantitative information regarding the significant observable and unobservable inputs used in the internal model to determine fair value on a recurring basis:
March 31, 2021December 31, 2020
Valuation TechniqueUnobservable (U) and Observable (O) InputsWeighted AverageWeighted Average
Internal modelCorporate bond yield (O)A ratedA rated
Internal modelCredit spread for non-performance risk (U)0.2%0.2%
Internal modelRisk cost of capital (U)5.1%5.1%
Internal modelWeighted average cost of capital (U)8.25%8.25%
Internal modelDuration - liability (U)8.21 years8.17 years
Internal modelDuration - reinsurance balances recoverable on paid and unpaid losses (U)7.95 years8.23 years
The fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses may increase or decrease due to changes in the corporate bond rate, the credit spread for non-performance risk, the risk cost of capital, the weighted average cost of capital and the estimated payment pattern as described below:
An increase in the corporate bond rate or credit spread for non-performance risk would result in a decrease in the fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses. Conversely, a decrease in the corporate bond rate or credit spread for non-performance risk would
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
result in an increase in the fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses.
An increase in the weighted average cost of capital would result in an increase in the fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses. Conversely, a decrease in the weighted average cost of capital would result in a decrease in the fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses.
An increase in the risk cost of capital would result in an increase in the fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses. Conversely, a decrease in the risk cost of capital would result in a decrease in the fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses.
The duration of the liability and recoverable is adjusted every period to reflect actual net payments during the period and expected future payments. An acceleration of the estimated payment pattern, a decrease in duration, would result in an increase in the fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses. Conversely, a deceleration of the estimated payment pattern, an increase in duration, would result in a decrease in the fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses.
In addition, the estimate of the capital required to support the liabilities is based upon current industry standards for capital adequacy. If the required capital per unit of risk increases, then the fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses would increase. Conversely, a decrease in required capital would result in a decrease in the fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses.
Disclosure of Fair Values for Financial Instruments Carried at Cost
Senior Notes
As of March 31, 2021, our 4.50% Senior Notes due 2022 (the "2022 Senior Notes") and our 4.95% Senior Notes due 2029 (the "2029 Senior Notes" and, together with the 2022 Senior Notes, the "Senior Notes") were carried at amortized cost of $349.4 million and $494.2 million, respectively, while the fair value based on observable market pricing from a third party pricing service was $360.7 million and $561.1 million, respectively. The Senior Notes are classified as Level 2.
Junior Subordinated Notes
As of March 31, 2021, our 5.75% Fixed-Rate Reset Junior Subordinated Notes due 2040 (the “Junior Subordinated Notes”) were carried at amortized cost of $344.9 million, while the fair value based on observable market pricing from a third party pricing service was $365.7 million. The Junior Subordinated Notes are classified as Level 2.
Insurance Contracts
Disclosure of fair value of amounts relating to insurance contracts is not required, except those for which we elected the fair value option, as described above.
Remaining Assets and Liabilities
Our remaining assets and liabilities were generally carried at cost or amortized cost, which due to their short-term nature approximates fair value as of March 31, 2021 and December 31, 2020.
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
11. PREMIUMS WRITTEN AND EARNED
The following table provides a summary of premiums written and earned by segment:
Three Months Ended March 31,
 20212020
 Premiums WrittenPremiums EarnedPremiums WrittenPremiums Earned
Run-off
Gross$22,183 $94,206 $327 $18,078 
Ceded(17,685)(21,370)1,849 (2,048)
Net$4,498 $72,836 $2,176 $16,030 
Legacy Underwriting
Gross$27,574 $48,059 $209,434 $177,043 
Ceded(16,107)(28,019)(57,151)(33,722)
Net$11,467 $20,040 $152,283 $143,321 
Total
Gross$49,757 $142,265 $209,761 $195,121 
Ceded(33,792)(49,389)(55,302)(35,770)
Total$15,965 $92,876 $154,459 $159,351 
Gross premiums written for the three months ended March 31, 2021 decreased by $160.0 million primarily due to StarStone International being placed into an orderly run-off in the second quarter of 2020 and the sale of Atrium. Refer to Note 3 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations" for further information.
12. GOODWILL AND INTANGIBLE ASSETS
As of each of March 31, 2021 and December 31, 2020, goodwill, included within other assets in the condensed consolidated balance sheets, was $63.0 million and related to the Run-off segment. Goodwill relating to the Legacy Underwriting segment of $8.0 million was impaired in the second quarter of 2020 following the decision to place StarStone International into run-off.
The amortization recorded on the intangible assets of the Legacy Underwriting segment, prior to the reclassification of Atrium to held-for-sale, for three months ended March 31, 2020 was $0.5 million.

13. DEBT OBLIGATIONS AND CREDIT FACILITIES
We utilize debt financing and credit facilities primarily for funding acquisitions and significant new business, investment activities and, from time to time, for general corporate purposes. Our debt obligations were as follows:
FacilityOrigination DateTermMarch 31, 2021December 31, 2020
4.50% Senior Notes due 2022March 10, 20175 years$349,393 $349,253 
4.95% Senior Notes due 2029May 28, 201910 years494,244 494,194 
Total Senior Notes843,637 843,447 
5.75% Junior Subordinated Notes due 2040August 26, 202020 years344,878 344,812 
EGL Revolving Credit FacilityAugust 16, 20185 years175,000 185,000 
Total debt obligations$1,363,515 $1,373,259 
The table below provides a summary of the total interest expense:
Three Months Ended March 31,
20212020
Interest expense on debt obligations$15,907 $13,195 
Amortization of debt issuance costs256 220 
Funds withheld balances and other16 
Total interest expense$16,179 $13,415 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Debt Obligations
Senior Notes
We have issued two series of Senior Notes as shown in the table above. The 2022 Senior Notes and the 2029 Senior Notes bear interest at a fixed rate per annum, equal to 4.50% and 4.95%, respectively.
We incurred costs of $2.9 million and $6.8 million in issuing the 2022 and 2029 Senior Notes, respectively. The unamortized costs as of March 31, 2021 were $0.6 million and $5.8 million, respectively (December 31, 2020: $0.7 million and $5.8 million, respectively).
Junior Subordinated Notes
Our wholly-owned subsidiary, Enstar Finance LLC ("Enstar Finance") issued the Junior Subordinated Notes as shown in the table above, which are fully and unconditionally guaranteed by us on an unsecured and junior subordinated basis. The Junior Subordinated Notes bear interest (i) during the initial five-year period ending August 30, 2025, at a fixed rate per annum of 5.75% and (ii) during each five-year reset period thereafter beginning September 1, 2025, at a fixed rate per annum equal to the five-year U.S. treasury rate calculated as of two business days prior to the beginning of such five-year period plus 5.468%.
We incurred costs of $5.2 million in issuing the Junior Subordinated Notes. The unamortized costs as of March 31, 2021 and December 31, 2020 were $5.1 million and $5.2 million, respectively.
EGL Revolving Credit Facility
As of March 31, 2021, we were permitted to borrow up to an aggregate of $600.0 million under the revolving credit facility. We may request additional commitments under the facility up to an additional $400.0 million, which the existing lenders in their discretion or new lenders may provide, in each case subject to the terms of the agreement. To date, we have not requested any additional commitments under the facility.
As of March 31, 2021, there was $425.0 million of available unutilized capacity under the facility. Subsequent to March 31, 2021, we have neither borrowed nor repaid any additional amounts under the facility, as such the unutilized capacity remains at $425.0 million.
We pay interest on loans borrowed under the facility at a per annum rate comprising a reference rate determined based on the type of loan we borrow plus a margin based on the Company's long term senior unsecured debt ratings. The applicable reference rate is adjusted base rate for base rate loans and adjusted LIBOR for LIBOR loans. The applicable margin varies based upon changes to our long term senior unsecured debt ratings assigned by S&P or Fitch. We pay interest quarterly for base rate loans and as frequently as monthly for LIBOR loans, depending on the applicable interest period. We also pay a commitment fee based on the average daily unutilized capacity under the facility.
Refer to Note 15 - "Debt Obligations and Credit Facilities" to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2020 for further information regarding our debt obligations.
Maturities
As of March 31, 2021, the amount of outstanding debt obligations that will become due in each of the next five years and thereafter was as follows: 2021, $0; 2022, $350.0 million; 2023, $175.0 million; 2024, $0; 2025 $0; and thereafter, $850.0 million.
Letters of Credit
We utilize unsecured and secured letters of credit to support certain of our (re)insurance performance obligations.
$275.0 million Funds at Lloyd's Letter of Credit Facility
We use letters of credit under this facility to satisfy a portion of our Funds at Lloyd's requirements. We may request additional commitments under the facility in an aggregate amount not to exceed $75.0 million and letters of credit issued under the facility will expire at the end of 2025. As of March 31, 2021 and December 31, 2020, our combined Funds at Lloyd's comprised cash and investments of $263.1 million and $260.9 million, respectively, and unsecured letters of credit of $210.0 million as of both dates.
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
$90.0 million Funds at Lloyd’s Deposit Facility
On May 6, 2021, we entered into a $90.0 million Funds at Lloyd's Deposit Facility. We will use this facility to satisfy a portion of our Funds at Lloyd’s requirements. Under this facility, a third-party lender deposits a requested market valuation amount of eligible securities into Lloyd’s on behalf of our Lloyd’s corporate member. We may request additional commitments under the facility in an aggregate amount not to exceed $10.0 million, and the facility is scheduled to expire on May 6, 2023. As of May 7, 2021 the facility was unutilized.
$120.0 million Letter of Credit Facility
We use this facility to provide collateral support for certain reinsurance obligations of our subsidiaries. We may request additional commitments under the facility in an aggregate amount not to exceed $60.0 million, which the existing lender in its discretion or new lenders may provide, in each case subject to the terms of the agreement. As of March 31, 2021 and December 31, 2020, the aggregate amount of letters of credit issued under the facility was $115.7 million as of both dates.
$800.0 million Syndicated Letter of Credit Facility
We use this facility to collateralize certain reinsurance obligations. As of March 31, 2021 and December 31, 2020, the aggregate amount of letters of credit issued under the facility was $593.6 million and $587.1 million, respectively. The December 31, 2020 amount has been corrected from $424.1 million that was previously disclosed in our 2020 Annual Report on Form-K. This correction has no impact on our consolidated financial statements and is not considered material to previously issued financial statements.
$65.0 million Letter of Credit Facility
We use this facility to collateralize a portion of our reinsurance obligations relating to our novation transaction with Hannover Re, which we completed on August 6, 2020, as discussed in Note 2 - "Significant Accounting Policies." As of March 31, 2021 and December 31, 2020, the aggregate amount of letters of credit issued under the facility was $61.0 million as of both dates.
Subsidiary Capital Letters of Credit
We also utilize unsecured and secured letters of credit to support the regulatory capital requirements of certain of our subsidiaries.
$100.0 million Bermuda Letter of Credit Facility
The letter of credit issued under this facility qualifies as eligible capital for one of our Bermuda regulated subsidiaries. As of March 31, 2021 and December 31, 2020, the aggregate face amount of letters of credit under the facility was $100.0 million as of both dates.
GBP £32.0 million United Kingdom Letter of Credit Facility
The letter of credit issued under this facility qualifies as Ancillary Own Funds capital for one of our U.K. regulated subsidiaries. As of March 31, 2021 and December 31, 2020, the aggregate face amount of letters of credit under the facility was $44.2 million and $43.7 million, respectively.
Refer to Note 15 - "Debt Obligations and Credit Facilities" to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2020 for further information on the terms of the above letter of credit facilities.
14. NONCONTROLLING INTERESTS
We have both redeemable noncontrolling interest ("RNCI") and noncontrolling interest ("NCI") on our consolidated balance sheets. RNCI with redemption features that are not solely within our control are classified within temporary equity in the consolidated balance sheets and carried at redemption value, which is fair value. The change in fair value is recognized through retained earnings as if the balance sheet date were also the redemption date. In addition, we also have NCI, which does not have redemption features and is classified within equity in the consolidated balance sheets.
Redeemable Noncontrolling Interest
As of December 31, 2020, the RNCI comprised the ownership interests held by the Trident V Funds (39.3%) and the Dowling Funds (1.7%) in our subsidiary North Bay. As discussed in Note 3 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations," North Bay owned our investment in Northshore, the holding company that owns Atrium and Arden and SSHL, the holding company for the StarStone group, which includes StarStone
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
International and which also owned StarStone U.S. prior to its sale to Core Specialty which was completed on November 30, 2020. Following the completion of the Exchange Transaction on January 1, 2021, there is no RNCI in respect of Northshore and the remaining RNCI as of March 31, 2021 only relates to StarStone International.
The following is a reconciliation of the beginning and ending carrying amount of the equity attributable to the RNCI: 
Three Months Ended
March 31,
20212020
Balance at beginning of period$365,436 $438,791 
Distributions paid(202,073)
Net earnings (losses) attributable to RNCI11,745 (31,959)
Change in unrealized losses on AFS investments attributable to RNCI(251)(4,170)
Change in currency translation adjustments attributable to RNCI676 
Change in redemption value of RNCI(730)(10,150)
Cumulative effect of change in accounting principle attributable to RNCI (1)
261 
Balance at end of period$174,803 $392,773 
(1) The Company adopted ASU 2016-13 and the related amendments on January 1, 2020. Refer to Note 2 - "Significant Accounting Policies" to our consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2020 for further details.
We carried the RNCI at its estimated redemption value, which is fair value, as of March 31, 2021 and December 31, 2020. The decrease in the three months ended March 31, 2021 was primarily driven by the Exchange Transaction, which was completed on January 1, 2021, whereas the decrease in the three months ended March 31, 2020 was primarily attributable to net losses related to StarStone during that period.
Refer to Note 20 - "Commitments and Contingencies" for additional information regarding RNCI.
Noncontrolling Interest
As of March 31, 2021 and December 31, 2020, we had $12.7 million and $13.6 million, respectively, of NCI primarily related to external interests in three of our subsidiaries. A reconciliation of the beginning and ending carrying amount of the equity attributable to NCI is included in the consolidated statement of changes in shareholder's equity.

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
15. SHAREHOLDERS' EQUITY
Refer to Note 17 - "Shareholders' Equity" to our consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2020 for information on our share capital.
Voting Ordinary Shares
Share Repurchases
On February 25, 2021, our Board of Directors approved an extension of the duration of our previously announced ordinary share repurchase program (the “Repurchase Program”) through March 1, 2022. The Repurchase Program was previously set to expire on March 1, 2021. Pursuant to the Repurchase Program, the Company may repurchase a limited number of its ordinary shares, not to exceed $150.0 million in aggregate, including shares repurchased prior to the extension of the Repurchase Program.
During the three months ended March 31, 2021 and 2020, we repurchased 18,003 and 92,510 ordinary shares, respectively, at an average price of $234.70 and $135.40, respectively, for an aggregate price of $4.2 million and $12.5 million, respectively, under the Repurchase Program. As of March 31, 2021, the remaining capacity under the Repurchase Program was $119.8 million.
Non-Voting Ordinary Shares
Series C
Warrants to acquire 175,901 Series C Non-Voting Ordinary Shares for an exercise price of $115.00 per share were exercised on a cashless basis during the three months ended March 31, 2021, which resulted in a total of 89,590 Series C Non-Voting Ordinary Shares being issued in the period.
Warrants
As of March 31, 2021, there were 0 warrants outstanding following the exercise described above.
Dividends on Preferred Shares
During the three months ended March 31, 2021 and 2020, we declared and paid dividends on Series D Preferred Shares of $7.0 million and Series E Preferred Shares of $1.9 million for both periods. On May 5, 2021, we declared $7.0 million and $1.9 million of dividends on the Series D and E Preferred Shares, respectively, to be paid on June 1, 2021 to shareholders of record as of May 15, 2021.
Accumulated Other Comprehensive Income
The following tables present a roll forward of accumulated other comprehensive income (loss):
Unrealized gains (losses) arising during the yearCumulative Currency Translation AdjustmentDefined Benefit Pension LiabilityTotal
Balance, December 31, 2020, net of tax$72,576 $7,876 $207 $80,659 
Unrealized losses on fixed income available-for-sale investments arising during the year(111,274)— — (111,274)
Reclassification adjustment for change in allowance for credit losses recognized in net earnings12,025 — — 12,025 
Reclassification adjustment for net realized gains included in net earnings(594)— — (594)
Reclassification to earnings on disposal of subsidiary475 — — 475 
Change in currency translation adjustment— 1,418 — 1,418 
Total other comprehensive income (loss)(99,368)1,418 (97,950)
Other comprehensive (income) loss attributable to RNCI251 (675)(424)
Balance, March 31, 2021, net of tax$(26,541)$8,619 $207 $(17,715)
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Unrealized gains (losses) arising during the yearCumulative Currency Translation AdjustmentDefined Benefit Pension LiabilityTotal
Balance, December 31, 2019, net of tax$(432)$8,548 $(945)$7,171 
Unrealized losses on fixed income available-for-sale investments arising during the year(58,735)— — (58,735)
Reclassification adjustment for change in allowance for credit losses recognized in net earnings13,212 — — 13,212 
Reclassification adjustment for net realized gains included in net earnings212 — — 212 
Change in currency translation adjustment— (686)— (686)
Total other comprehensive loss(45,311)(686)(45,997)
Other comprehensive loss attributable to RNCI4,170 4,170 
Balance, March 31, 2020, net of tax$(41,573)$7,862 $(945)$(34,656)
The following table presents details about the tax effects allocated to each component of other comprehensive income (loss):
Three Months Ended
March 31,
20212020
Before Tax AmountTax (Expense) BenefitNet of Tax AmountBefore Tax AmountTax (Expense) BenefitNet of Tax Amount
Unrealized gains (losses) on fixed income available-for-sale investments arising during the year$(116,267)$4,993 $(111,274)$(58,735)$$(58,735)
Reclassification adjustment for change in allowance for credit losses recognized in net earnings12,227 (202)12,025 13,212 13,212 
Reclassification adjustment for net realized (gains) losses included in net earnings(869)275 (594)212 212 
Reclassification to earnings on disposal of subsidiary586 (111)475 
Change in currency translation adjustment1,418 1,418 (686)(686)
Other comprehensive income (loss)$(102,905)$4,955 $(97,950)$(45,997)$$(45,997)

The following table presents details of amounts reclassified from accumulated other comprehensive income:
Details about AOCI componentsMarch 31, 2021March 31, 2020Affected Line Item in Statement where Net Earnings are presented
Unrealized losses on fixed income available-for-sale investments(11,944)(12,118)Net realized and unrealized losses
(1,306)Net loss from discontinued operations
(11,944)(13,424)Total before tax
38 Income tax benefit
Total reclassifications for the period, net of tax(11,906)(13,424)

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
16. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net earnings per ordinary share:
Three Months Ended
March 31,
20212020
Numerator:
Earnings (loss) per share attributable to Enstar ordinary shareholders:
Net earnings (loss) from continuing operations (1)
$183,197 $(515,600)
Net loss from discontinued operations (2)
(1,221)
Net earnings (loss) attributable to Enstar ordinary shareholders:$183,197 $(516,821)
Denominator:
Weighted-average ordinary shares outstanding — basic (3)
21,562,341 21,549,844 
Effect of dilutive securities:
Share-based compensation plans (4)
209,324 164,435
Warrants (5)
80,659 65,627
Weighted-average ordinary shares outstanding — diluted21,852,324 21,779,906 
Earnings (loss) per share attributable to Enstar ordinary shareholders:
Basic:
Net earnings (loss) from continuing operations$8.50 $(23.93)
Net loss from discontinued operations(0.05)
Net earnings (loss) per ordinary share$8.50 $(23.98)
Diluted (6):
Net earnings (loss) from continuing operations$8.38 $(23.93)
Net loss from discontinued operations(0.05)
Net earnings (loss) per ordinary share$8.38 $(23.98)

(1) Net earnings (loss) from continuing operations attributable to Enstar ordinary shareholders equals net earnings (loss) from continuing operations, plus net loss (earnings) from continuing operations attributable to noncontrolling interest, less dividends on preferred shares.
(2) Net loss from discontinued operations attributable to Enstar ordinary shareholders equals net loss from discontinued operations, net of income taxes, plus net loss from discontinued operations attributable to noncontrolling interest; refer to Note 3 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations" for a breakdown.
(3) Weighted-average ordinary shares for basic earnings per share includes ordinary shares (voting and non-voting) but excludes ordinary shares held in the Enstar Group Limited Employee Benefit Trust (the "EB Trust") in respect of Joint Share Ownership Plan ("JSOP") awards.
(4) Share-based dilutive securities include restricted shares, restricted share units, and performance share units. Certain share-based compensation awards, including the ordinary shares held in the EB Trust in respect of JSOP awards, were excluded from the calculation for the three months ended March 31, 2021 and 2020 because they were anti-dilutive.
(5) Warrants to acquire 175,901 Series C Non-Voting Ordinary Shares for an exercise price of $115.00 per share were exercised on a cashless basis during the three months ended March 31, 2021, which resulted in a total of 89,590 Series C Non-Voting Ordinary Shares being issued in the period. As of March 31, 2021, there were no warrants outstanding following the exercise described. The warrants presented in the table above are a weighted-average of the warrants outstanding for the period.
(6) During a period of loss, the basic weighted average ordinary shares outstanding is used in the denominator of the diluted loss per ordinary share computation as the effect of including potentially dilutive securities would be anti-dilutive.
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
17. SHARE-BASED COMPENSATION
We provide various employee benefits including share-based compensation, an employee share purchase plan and an annual incentive compensation program. These are described in Note 19 - "Share-Based Compensation and Pensions" to our consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2020.
The table below provides a summary of the compensation costs for all of our share-based compensation plans:
Three Months Ended
March 31,
20212020
Share-based compensation plans:
Restricted shares and restricted share units$1,295 $1,599 
Performance share units3,895 (667)
Cash-settled stock appreciation rights2,768 (3,159)
Joint share ownership plan expense1,121 872 
Other share-based compensation plans:
Northshore incentive plan472 
StarStone incentive plan(223)
Deferred compensation and ordinary share plan for non-employee directors871 866 
Employee share purchase plan85 104 
Total share-based compensation$10,035 $(136)
The associated tax benefit recorded to income tax benefit in the consolidated statement of earnings was $0.9 million and $1.0 million for the three months ended March 31, 2021, and 2020, respectively.

18. INCOME TAXATION
Interim Tax Calculation Method
We use the estimated annual effective tax rate method for computing our interim tax provision. This method applies our best estimate of the effective tax rate expected for the full year to our year-to-date earnings before income taxes. We provide for income tax expense or benefit based upon our pre-tax earnings and the provisions of currently enacted tax laws. Certain items deemed to be unusual, infrequent or not reliably estimated are excluded from the estimated annual effective tax rate. In the event such items are identified, the actual tax expense or benefit is reported in the same period as the related item. Certain other items are not included in the estimated annual effective tax rate, such as changes in the assessment of valuation allowance on deferred tax assets and uncertain tax positions, if any.
Interim Tax Expense
The effective tax rates on income for the three months ended March 31, 2021 and 2020 were (3.0)% and 1.0%, respectively. The effective tax rate on income differs from the statutory rate of 0% due to tax on foreign operations, primarily the U.S. and the U.K.
We have foreign operating subsidiaries and branch operations principally located in the U.S., U.K., Continental Europe and Australia that are subject to federal, foreign, state and local taxes in those jurisdictions. The undistributed earnings from our foreign subsidiaries will be indefinitely reinvested in those jurisdictions where the undistributed earnings were earned.
Deferred tax liabilities have not been accrued with respect to the undistributed earnings of our foreign subsidiaries. Generally, when earnings are distributed as dividends, withholding taxes may be imposed by the jurisdiction of the paying subsidiary. For our U.S. subsidiaries, we have not currently accrued any withholding taxes with respect to unremitted earnings because, solely for U.S. Federal income tax purposes, there are no accumulated positive earnings and profits that could be subject to U.S. dividend withholding tax. For our United Kingdom subsidiaries, there are no withholding taxes imposed as a matter of UK domestic tax law. For our other
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
foreign subsidiaries, an insignificant amount of earnings is indefinitely reinvested; however, it would not be practicable to compute the related amounts of withholding taxes due to a variety of factors, including the amount, timing and manner of any repatriation. Because we operate in many jurisdictions, our net earnings are subject to risk due to changing tax laws and tax rates around the world. The current, rapidly changing economic environment may increase the likelihood of substantial changes to tax laws in the jurisdictions in which we operate.
Assessment of Valuation Allowance on Deferred Tax Assets
We have estimated the future taxable income of our foreign subsidiaries and have provided a valuation allowance in respect of loss carryforwards where we do not expect to realize a tax benefit. We have considered all available evidence using a "more likely than not" standard in determining the amount of the valuation allowance. During the three months ended March 31, 2021, we have maintained a valuation allowance for deferred tax assets which management does not believe meet the "more likely than not" criteria.
Unrecognized Tax Benefits
There were 0 unrecognized tax benefits as of March 31, 2021 and December 31, 2020.
Tax Examinations
Our operating subsidiaries may be subject to audit by various tax authorities and may have different statutes of limitations expiration dates. With limited exceptions, our major subsidiaries that operate in the U.S., U.K. and Australia are no longer subject to tax examinations for years before 2016.
19. RELATED PARTY TRANSACTIONS
Stone Point Capital LLC
Through several private transactions occurring from May 2012 to July 2012 and an additional private transaction that closed in May 2018, investment funds managed by Stone Point Capital LLC ("Stone Point") have acquired an aggregate of 1,635,986 of our Voting Ordinary Shares (which constitutes 8.8% of our outstanding Voting Ordinary Shares). On November 6, 2013, we appointed James D. Carey to our Board of Directors. Mr. Carey is the sole member of an entity that is 1 of 4 general partners of the entities serving as general partners for Trident, is a member of the investment committees of such general partners, and is a member and senior principal of Stone Point, the manager of the Trident funds.
On November 30, 2020, we completed the sale and recapitalization of StarStone U.S. to Core Specialty in a transaction described in Note 3 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations".
Pursuant to the terms of a Recapitalization Agreement entered into on August 13, 2020 among us, the Trident V Funds, which are advised by Stone Point, and the Dowling Funds (the "Recapitalization Agreement"), we agreed to exchange a portion of our indirect interest in Northshore, the holding company that owns Atrium and Arden, for all of the Trident V Funds’ indirect interest in StarStone U.S. (the “Exchange Transaction”), which is described in Note 3 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations".
Our interests in StarStone and Atrium are held through North Bay, which is a joint venture between us, the Trident V Funds and the Dowling Funds. As of December 31, 2020, we had an indirect 59.0% interest in North Bay and the Trident V Funds and the Dowling Funds owned 39.3% and 1.7%, respectively. North Bay owned 100% of StarStone Specialty Holdings Limited ("SSHL"), the holding company for the StarStone group, which included StarStone U.S. and StarStone International. North Bay also owned 92% of Northshore. North Bay also owns the preferred equity of three segregated cells within our wholly-owned subsidiary Fitzwilliam Insurance Limited (the “Fitzwilliam Cells”) that have provided reinsurance to StarStone and are considered part of StarStone International. Following the completion of the sale and recapitalization of StarStone U.S. and the Exchange Transaction, we now own 25.2% of Core Specialty on a fully diluted basis, which owns StarStone U.S., and 13.8% of Northshore, which continues to own Atrium and Arden. The Trident V Funds own 76.3% of Northshore, and the Dowling Funds own 0.4% of Core Specialty and 1.6% of Northshore. The Exchange Transaction had no impact on the ultimate ownership of SSHL, which continues to own StarStone International, with us, the Trident V Funds and the Dowling Funds retaining our and their prior ownership interests in SSHL of 59.0%, 39.3% and 1.7%, respectively.
In connection with the closing of the Exchange Transaction, we entered into amended and restated shareholders’ agreements with the Trident V Funds and the Dowling Funds with respect to our investment in SSHL and Northshore. With respect to SSHL, we have the right to designate 3 of 5 members of the SSHL board of directors and the Trident V Funds have the right to designate the other 2 members. The Trident V Funds also have certain customary rights as a minority shareholder to approve certain material matters and transactions. Each
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
shareholder of SSHL must provide us and the Trident V Funds with a right of first offer to acquire its shares in SSHL if such shareholder wishes to sell them. Each shareholder will also have certain rights to participate in sales of SSHL shares by the other shareholders, and we have certain rights to cause the Trident V Funds and the Dowling Funds to sell their SSHL shares if we wish to sell control of SSHL or the StarStone International business.
Also pursuant to the terms of the shareholders’ agreement for SSHL, at any time after December 31, 2022, the Trident V Funds have the right to cause us to purchase their shares in SSHL at their fair market value, and the Dowling Funds have the right to participate in any such sale transaction initiated by the Trident V Funds. We would be entitled to pay the purchase price for such SSHL shares in cash or in unrestricted ordinary shares of Enstar that are then listed or admitted to trading on a national securities exchange. At any time after March 31, 2023, we will have the right to cause the Trident V Funds and the Dowling Funds to sell their shares in SSHL to us at their fair market value. We would be obligated to pay the purchase price for such SSHL shares in cash.
Pursuant to the terms of the shareholders’ agreement for Northshore, for so long as we own 50% or more of the Northshore shares we held upon the closing of the Exchange Transaction, we have the right to designate 1 member to the board of directors of Northshore and each of its material subsidiaries. Our shares in Northshore are subject to an 18-month restriction on transfer following the closing of the Exchange Transaction, after which the Trident V Funds have a right of first offer to acquire our shares in Northshore if we wish to sell them. We have certain rights to participate in sales of Northshore shares by the Trident V Funds, and the Trident V Funds have certain rights to cause us to sell our Northshore shares if the Trident V Funds wish to sell control of Northshore or the Atrium business.
We, in partnership with StarStone's other shareholders, have previously completed transactions to provide capital support to StarStone in the form of:
(i) a contribution to its contributed surplus account and a loss portfolio transfer, effective October 1, 2018. To fund the transaction, the North Bay shareholders contributed an aggregate amount of $135.0 million to North Bay in proportion to their ownership interests. Trident’s proportionate contribution of $53.1 million was temporarily funded by North Bay and was reimbursed in the first quarter of 2019; and
(ii) a loss portfolio transfer, effective April 1, 2019, for which shareholders agreed to contribute an aggregate amount of $48.0 million.
In addition, Enstar has separately entered into a loss portfolio transfer and adverse development cover with StarStone effective October 1, 2019, whereby StarStone transferred $189.4 million in loss reserves and unearned premium to a wholly-owned Enstar subsidiary in exchange for premium of $189.4 million. Enstar also provided an additional $59.0 million adverse development cover in excess of the $189.4 million.
As of March 31, 2021 and December 31, 2020, the RNCI on our balance sheet relating to these Trident co-investment transactions was $167.5 million and $350.2 million, respectively.
As of March 31, 2021, we had the following additional relationships with Stone Point and its affiliates:
Investments in funds (carried within other investments) managed by Stone Point, with respect to which we recognized net unrealized gains (losses);
Investments in registered investment companies affiliated with entities owned by Trident or otherwise affiliated with Stone Point, with respect to which we recognized net unrealized gains (losses) and interest income;
Separate accounts managed by Eagle Point Credit Management, PRIMA Capital Advisors and SKY Harbor Capital Management, which are affiliates of entities owned by Trident, with respect to which we incurred management fees;
Investments in funds (carried within other investments) managed by Sound Point Capital, an entity in which Mr. Carey has an indirect minority ownership interest and serves as a director, with respect to which we recognized net unrealized gains (losses);
Sound Point Capital has acted as collateral manager for certain of our direct investments in CLO debt and equity securities, with respect to which we recognized net unrealized gains (losses) and interest income;
Marble Point Capital, which is an affiliate of an entity owned by Trident, has acted as collateral manager for certain of our direct investments in CLO debt and equity securities, with respect to which we recognized net unrealized gains (losses) and interest income;
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In the fourth quarter of 2018, we invested $25.0 million in Mitchell TopCo Holdings, the parent company of Mitchell International and Genex Services, as a co-investor alongside certain Trident funds; and
In the second quarter of 2020, we invested $10.0 million in a 2 year senior secured unrated floating rate term loan facility with an extension option which was arranged and managed by Sound Point Capital. The facility's borrower, Amplify U.S. Inc., is a subsidiary of Evergreen (as defined below) and has used the proceeds to purchase AmTrust's preferred stock. The facility ranks senior to all other claims of the borrower, the purchased preferred stock and cash flows therefrom serve as collateral, and AmTrust has provided an unsecured guarantee for the facility. For further information on our relationships with Evergreen and AmTrust, refer to the AmTrust section below.
On March 19, 2021, we entered into a commitment letter to invest $12 million in T-VIII Celestial Co-Invest LP, an entity formed by Stone Point to participate in a private equity transaction to acquire CoreLogic, Inc. (NYSE: CLGX). The transaction closed on April 20, 2021, and we funded our capital commitment on April 29, 2021.
The following table presents the amounts included in our consolidated balance sheet related to our related party transactions with Stone Point and its affiliated entities:
March 31, 2021December 31, 2020
Short-term investments, AFS, at fair value$629 $878 
Fixed maturities, trading, at fair value177,699 196,086 
Fixed maturities, AFS, at fair value270,113 227,397 
Equities, at fair value115,634 103,914 
Other investments, at fair value:
Hedge funds20,806 19,844 
Fixed income funds213,202 210,017 
Private equity funds36,482 37,262 
CLO equities37,889 38,658 
CLO equity funds178,150 166,523 
Private Debt27,016 27,016 
Real estate fund28,445 27,278 
Total investments1,106,065 1,054,873 
Cash and cash equivalents34,952 23,933 
Other assets970 403 
Other liabilities3,077 745 
Net investment$1,138,910 $1,078,464 

The following table presents the amounts included in net earnings related to our related party transactions with Stone Point and its affiliated entities:
Three Months Ended March 31,
20212020
Net investment income$462 $4,084 
Net realized and unrealized gains (losses)24,914 (102,516)
Total net earnings (losses)$25,376 $(98,432)
Hillhouse
Investment funds managed by Hillhouse Capital (defined below) collectively own 9.4% of Enstar’s voting ordinary shares. These funds also own non-voting ordinary shares, which together with their voting ordinary shares, represent 16.9% economic interest in Enstar. During the three months ended March 31, 2021, Hillhouse Capital exercised warrants on a cashless basis to acquire 175,901 Series C Non-Voting Ordinary Shares for an exercise price of $115.00 per share, which resulted in a total of 89,590 Series C Non-Voting Ordinary Shares being issued to
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Hillhouse Capital in the period. From February 2017 to February 2021, Jie Liu, a partner of AnglePoint HK (defined below), served on our Board.
We have made significant direct investments in funds (the "Hillhouse Funds") managed by Hillhouse Capital Management, Ltd. and Hillhouse Capital Advisors, Ltd. (together, "Hillhouse Capital") and AnglePoint Asset Management Ltd., an affiliate of Hillhouse Capital ("AnglePoint Cayman"). As of March 31, 2021, the carrying value (i.e., the net asset value) of our direct investment in the InRe Fund, L.P. (the "InRe Fund"), which is managed by AnglePoint, was $2.8 billion (December 31, 2020: $2.4 billion). Hillhouse Capital and AnglePoint Cayman charge investment management and performance fees to funds they manage, which are deducted from the Hillhouse Funds’ reported net asset values. For the full year ended December 31, 2020, we incurred management and performance fees of $489.0 million. This amount has been revised from $394.0 million disclosed in our 2020 Annual Report on Form 10-K to correct management and performance fees for full year 2020. This correction has no impact on our consolidated financial statements and is not considered material to previously issued financial statements.
On February 21, 2021, we entered into a Termination and Release Agreement (the "TRA") with the InRe Fund, Hillhouse Capital, AnglePoint Cayman, AnglePoint Asset Management Limited (“AnglePoint HK”), and InRe Fund GP, Ltd. (“InRe GP”) pursuant to which we agreed to terminate certain relationships with Hillhouse and its affiliates, primarily with respect to the InRe Fund. In connection with AnglePoint Cayman ceasing to serve as investment manager of the InRe Fund, affiliates of Hillhouse Capital agreed to a deduction of $100.0 million from amounts due to them from the InRe Fund and to waive their right to receive any performance fees that could have been earned for 2021. We also redeemed our investments in the other Hillhouse Funds at their carrying value plus an implied interim return and received $381.3 million in the form of additional interest in the InRe Fund.
AnglePoint Cayman previously received sub-advisory services with respect to InRe Fund from its affiliate, AnglePoint HK, an investment advisory company licensed by the Securities and Futures Commission in Hong Kong. Pursuant to the TRA, we acquired an option to buy AnglePoint HK, which we also had the right to assign to a third-party. On April 1, 2021, we entered into a Designation Agreement with Jie Liu (the "Designation Agreement"), pursuant to which we designated Mr. Liu, an AnglePoint HK partner, as the purchaser of AnglePoint HK, and he acquired the company from an affiliate of Hillhouse Capital on the same day. AnglePoint Cayman simultaneously assigned its investment management agreement with InRe Fund to AnglePoint HK. The Designation Agreement requires us and AnglePoint HK to amend the InRe Fund investment management agreement and limited partnership agreement to incorporate a revised fee structure for AnglePoint HK and certain other agreed changes.
The InRe Fund qualifies as a variable interest entity and our maximum exposure to loss is the amount of our investment in the fund, as disclosed in the table below. As of March 31, 2021, the InRe Fund's assets were invested 7% in fixed income securities, 12% in North American equities, 32% in international equities and 49% in financing, derivatives and other items. The derivatives in the InRe Fund are used for both hedging and investment purposes. The InRe Fund utilizes prime brokerage borrowing facilities and has also securitized certain letters of credit relating to intragroup reinsurances. We do not provide any financial support to the InRe Fund. Funds that employ leverage through borrowings and derivatives can generate outsized returns but can also experience greater levels of volatility.
As of March 31, 2021, our equity method investee, Enhanzed Re, had investments in a fund managed by AnglePoint, as set forth in the table below. Our consolidated balance sheet included the following balances related to transactions with Hillhouse Capital and AnglePoint (as applicable):
March 31, 2021December 31, 2020
Investments in funds managed by AnglePoint Cayman, held by Enhanzed Re$909,021 $851,435 
Our ownership percentage of Enhanzed Re47.4 %47.4 %
Our share of Enhanzed Re's investment in funds managed by AnglePoint Cayman held by Enhanzed Re (through our equity method investment ownership)$430,876 $403,580 
Investment in other funds managed by AnglePoint Cayman and Hillhouse:
InRe Fund$2,823,144 $2,365,158 
Other funds369,508 
$2,823,144 $2,734,666 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table presents the amounts included in net earnings related to our related party transactions with Hillhouse Capital and AnglePoint Cayman (as applicable):
Three Months Ended March 31,
20212020
Net realized and unrealized gains (losses)1
$97,478 $(64,704)
(1) Includes the impact of a deduction of $100.0 million from amounts due to affiliates of Hillhouse Capital from the InRe Fund, which had the effect of increasing our NAV in the InRe Fund on February 21, 2021.
In April we redeemed $800 million of our investment in the InRe Fund for cash.
We will re-evaluate our conclusions with regard to consolidation of the InRe Fund in accordance with the accounting for variable interest entities at the June 30, 2021 balance sheet measurement date.
Northshore
Following the completion of the Exchange Transaction with the Stone Point managed Trident V Funds on January 1, 2021 as described in Note 3 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations", our equity interest in Northshore, the holding company that owns Atrium and Arden was reduced to 13.8% from 54.1% while the Trident V Funds' total equity interest in Northshore increased from 36.0% to 76.3%. We have accounted for our residual equity interest in Northshore as an investment in a privately held equity security at fair value. The carrying value of our investment in Northshore was $34.0 million as of March 31, 2021.
Concurrent with the closing of the Exchange Transaction on January 1, 2021, one of our wholly-owned subsidiaries and Northshore entered into a TSA through which our wholly-owned subsidiary agreed to provide certain transitional services to Northshore over a transition period of up to 18 months.
In addition, concurrent with the completion of the Exchange Transaction on January 1, 2021, Arden also entered into an LPT Retrocession Agreement with one of our majority owned subsidiaries, through which Arden fully reinsured its non-life run-off portfolio with total liabilities of $19.0 million to our majority owned subsidiary, in exchange for a retrocession premium consideration of an equal amount. Arden retained the premium under a funds held arrangement, to secure the payment obligations of our majority owned subsidiary.
Our consolidated balance sheet included the following balances between us and Arden:
March 31, 2021
Balances under LPT Retrocession Agreement:
Premiums Receivable$13,735 
Loss and loss adjustment expenses13,417 

Our consolidated statement of earnings included the following amounts between us and Arden:
Three Months Ended
March 31,
2021
Transactions under LPT Retrocession Agreement:
Net incurred losses and LAE318 
Total net earnings$318 
Furthermore, as described in Note 3 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations", through our wholly-owned subsidiary SGL No.1, a Lloyd’s corporate member, we provided 25% of the underwriting capacity on the 2017 to 2020 underwriting years of Atrium's Syndicate 609 at Lloyd’s. Effective January 1, 2021, and in conjunction with the completion of the Exchange Transaction, SGL No.1 ceased its provision of underwriting capacity on Syndicate 609. Accordingly, the 2020 underwriting year was the last underwriting year that SGL No. 1 participated in with respect to the Atrium business. We will continue to report SGL No. 1's 25% gross share of the 2020 and prior underwriting years of Syndicate 609 until the 2020 underwriting year completes an RITC into a successor year, which will be no earlier than December 31, 2022. There is no net retention for Enstar on Atrium's
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2020 and prior underwriting years as the business was contractually transferred to the Atrium entities that were divested in the Exchange Transaction. Effective January 1, 2021, all balances that SGL No. 1 has with Atrium and Arden are no longer eliminated in our consolidated financial statements.
Our consolidated balance sheet includes the following balances related to our participation in Atrium's Syndicate 609 through our wholly-owned subsidiary SGL 1. The balances are disclosed on a gross basis and therefore include the reinsurance balances recoverable from Arden under a quota share reinsurance agreement as well as the net results arising from our participation which is payable by SGL 1 to Atrium under a capacity lease tenancy agreement as described further below:
March 31, 2021
Short-term investments, trading, at fair value$1,665 
Fixed maturities, trading, at fair value156,956 
Fixed maturities, available-for-sale, at fair value4,431 
Other investments, at fair value9,935 
Cash and cash equivalents24,378 
Restricted cash and cash equivalents5,628 
Premiums receivable33,064 
Reinsurance balances recoverable on paid and unpaid losses90,476 
Funds held by reinsured companies33,880 
Other assets95,979 
Losses and loss adjustment expenses249,096 
Unearned premiums70,953
Insurance and reinsurance balances payable121,834 
Other liabilities14,114 

Our consolidated statement of earnings included the following amounts related to our participation in Atrium's Syndicate 609 through our wholly-owned subsidiary SGL 1. These amounts reflect the impact of cessions by SGL 1 to Arden under a quota share reinsurance agreement with the net results arising from our participation being payable by SGL 1 to Atrium under a capacity lease tenancy agreement as described further below:
Three Months Ended
March 31,
2021
Net premiums earned$20,040 
Net investment income758 
Net realized and unrealized losses(1,289)
Other expense(6,518)
Net incurred losses and loss adjustment expenses(4,478)
Acquisition costs(4,977)
General and administrative expenses(2,084)
Net foreign exchange losses(1,111)
Total net earnings$341 
As discussed above, Enstar does not retain any of the economics related to its participation in Atrium's 2020 and prior underwriting years through its wholly-owned subsidiary SGL 1 since this business is contractually transferred to the Atrium entities that were divested in the Exchange Transaction, through a quota share reinsurance agreement with Arden covering 65% of the business written by Atrium's Syndicate 609 and a capacity lease tenancy agreement covering the net results arising from the residual business written but not covered by the 65% quota share reinsurance agreement with Arden.
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Monument Re
Monument Insurance Group Limited ("Monument Re") was established in October 2016 and Enstar has invested a total of $59.6 million in the common and preferred shares of Monument Re as of March 31, 2021 (December 31, 2020: $59.6 million). We own 20% of the common shares of Monument Re, as well as different classes of preferred shares which have fixed dividend yields, and which collectively represented a total economic interest of 22.5% as at March 31, 2021 (December 31, 2020: 23.0%). In connection with our investment in Monument Re, we entered into a Shareholders Agreement with the other shareholders and have accounted for our equity interest in Monument Re as an equity method investment since we have significant influence over its operating and financial policies.
Our investment in the common and preferred shares of Monument Re, which is included in equity method investments on our consolidated balance sheet, as of March 31, 2021 and December 31, 2020 was $200.8 million and $193.7 million, respectively.
During the three months ended March 31, 2021 and 2020 our share of net earnings (loss) on our investment in Monument Re was $14.8 million and $(1.5) million, respectively. In addition, one of our representatives serves on Monument Re's board of directors. No director fees were received during the during the three months ended March 31, 2021 and 2020.
Clear Spring (formerly SeaBright)
Effective January 1, 2017, we sold SeaBright Insurance Company (“SeaBright Insurance”) to Clear Spring PC Acquisition Corp., a subsidiary of Delaware Life Insurance Company ("Delaware Life"). Following the sale, SeaBright Insurance was capitalized with $56.0 million of equity, with Enstar retaining a 20% indirect equity interest in SeaBright Insurance. Subsequently, SeaBright Insurance was renamed Clear Spring Property and Casualty Company ("Clear Spring").
Effective December 30, 2020, we sold our remaining interest in Clear Spring to Delaware Life for $12.2 million and recorded a gain on sale of $0.6 million in the fourth quarter of 2020. As a result, Clear Spring was not a related party as of December 31, 2020. Prior to the sale, we accounted for our equity interest in Clear Spring as an equity method investment as we had significant influence over its operating and financial policies.
During the three months ended March 31, 2020 our share of net earnings on our investment in Clear Spring was $0.3 million.
Effective January 1, 2017, StarStone National Insurance Company (“StarStone National”) entered into a ceding quota share treaty with Clear Spring pursuant to which Clear Spring reinsures 33.3% of core workers' compensation business written by StarStone National. This agreement was terminated as of December 31, 2018.
Effective January 1, 2017, we also entered into an assuming quota share treaty with Clear Spring pursuant to which an Enstar subsidiary reinsures 25% of all workers' compensation business written by Clear Spring.
Our consolidated statement of earnings included the following amounts between us and Clear Spring:
Three Months Ended
March 31,
2020
Transactions under StarStone ceding quota share, included in net loss from discontinued operations:
Ceded premium earned$(681)
Net incurred losses and LAE754 
Acquisition costs72 
Transactions under assuming quota share:
Premium earned170 
Net incurred losses and LAE372 
Acquisition costs(13)
Total net earnings$674 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
AmTrust
In November 2018, pursuant to a Subscription Agreement with Evergreen Parent L.P. ("Evergreen"), K-Z Evergreen, LLC and Trident Pine Acquisition LP ("Trident Pine"), we purchased equity in Evergreen in the aggregate amount of $200.0 million. Evergreen is an entity formed by private equity funds managed by Stone Point and the Karfunkel-Zyskind Family that acquired the 45% of the issued and outstanding shares of common stock of AmTrust that the Karfunkel-Zyskind Family and certain of its affiliates and related parties did not already own or control. The equity interest was in the form of equity securities issued at the same price and in the same proportion as the equity interest purchased by Trident Pine. In a second transaction in December 2019, Enstar acquired an additional $25.9 million of Evergreen securities from another investor.
Following the closing of the second transaction, Enstar owns 8.5% of the equity interest in Evergreen and Trident Pine owns 21.8%. Evergreen owns all of the equity interest in AmTrust. In addition, upon the successful closing of the transaction we received a fee of $3.3 million, half of which was received upon closing, and the other half was received on the first anniversary of the closing. The fee was recorded in full in other income within our consolidated statements of earnings for the year ended December 31, 2018.
Our indirect investment in the shares of AmTrust, carried in equities on our consolidated balance sheet, as of March 31, 2021 and December 31, 2020 was $228.8 million and $230.3 million, respectively.
The following table presents the amounts included in net earnings related to our related party transactions with AmTrust (excluding withholding taxes):
Three Months Ended March 31,
20212020
Net investment income$1,493 $2,471 
Net realized and unrealized losses(1,492)(145)
Total net earnings$$2,326 
Citco
In June 2018, we made a $50.0 million indirect investment in the shares of Citco III Limited ("Citco"), a fund administrator with global operations. As of March 31, 2021 and December 31, 2020, we owned 31.9% of the common shares in HH CTCO Holdings Limited, which in turn owns 15.4% of the convertible preferred shares, amounting to a 6.2% interest in the total equity of Citco. Pursuant to an investment agreement and in consideration for participation therein, a related party of Hillhouse Capital provided us with investment support. In a private transaction that preceded our co-investment opportunity, certain Citco shareholders, including Trident, agreed to sell all or a portion of their interests in Citco. As of March 31, 2021 and December 31, 2020, Trident owned 3.4% interest in Citco. Mr. Carey currently serves as an observer to the board of directors of Citco in connection with Trident's investment therein.
Our indirect investment in the shares of Citco, which is included in equity method investments on our consolidated balance sheet, as of March 31, 2021 and December 31, 2020 was $53.7 million and $53.0 million, respectively.
During the three months ended March 31, 2021 and 2020 our share of net earnings on our indirect investment in Citco was $0.7 million and $(0.2) million, respectively.
Enhanzed Re
Enhanzed Re is a joint venture between Enstar, Allianz SE ("Allianz") and Hillhouse Capital that was capitalized in December 2018. Enhanzed Re is a Bermuda-based Class 4 and Class E reinsurer and will reinsure life, non-life run-off, and property and casualty insurance business, initially sourced from Allianz and Enstar. Enstar, Allianz and Hillhouse Capital affiliates have made equity investment commitments in the aggregate of $470.0 million to Enhanzed Re. Enstar owns 47.4% of the entity, Allianz owns 24.9%, and an affiliate of Hillhouse Capital owns 27.7%. As of March 31, 2021, Enstar contributed $154.1 million of its total capital commitment to Enhanzed Re and had an uncalled amount of $68.7 million. We have accounted for our equity interest in Enhanzed Re as an equity method investment as we have significant influence over its operating and financial policies.
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Enstar acts as the (re)insurance manager for Enhanzed Re, for which it receives fee income recorded within fees and commission income, AnglePoint Cayman has acted as the primary investment manager, and an affiliate of Allianz provides investment management services. Enhanzed Re writes business from affiliates of its operating sponsors, Allianz SE and Enstar. It also underwrites other business to maximize diversification by risk and geography.
Our investment in the common shares of Enhanzed Re, which is included in equity method investments on our consolidated balance sheet, as of March 31, 2021 and December 31, 2020 was $435.9 million and $330.3 million, respectively.
During the three months ended March 31, 2021 and 2020 our share of net earnings on our investment in Enhanzed Re was $105.6 million and $14.2 million, respectively.
We have ceded 10% of the 2019 Zurich transaction and the 2020 AXA transaction, which is described in Note 2 - "Significant New Business," to Enhanzed Re on the same terms and conditions as those received by Enstar.
During the fourth quarter of 2020, one of our UK-based Run-off subsidiaries entered into a 50% Quota Share reinsurance agreement with Enhanzed Re. The reinsurance is on a funds held basis with fixed crediting rates.
Our consolidated balance sheet included the following balances between us and Enhanzed Re:
March 31, 2021December 31, 2020
Balances under ceding quota share:
Reinsurance balances recoverable$204,179 $208,379 
Funds held187,198 193,981 
Insurance balances payables1,386 1,276 
Other assets877 730 
Our consolidated statement of earnings included the following amounts between us and Enhanzed Re:
Three Months Ended
March 31,
20212020
Amounts under ceding quota share:
Ceded premium earned$(131)$
Net incurred losses and LAE(265)
Acquisition costs23 
Net investment expense(1,157)
Net realized and unrealized losses(17)
Other income727 291 
Fees and commission income116 
Total net earnings (loss)$(722)$314 
Change in unrealized losses on AFS investments$(623)
Core Specialty
Following the sale and recapitalization of StarStone U.S. as described in Note 3 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations," our investment in the common shares of Core Specialty, which is included in equity method investments on our consolidated balance sheet, was $228.0 million as of March 31, 2021 (December 31, 2020: $235.0 million). As a result of the completion of the Exchange Transaction on January 1, 2021, as discussed in Note 3 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations", as well as in Note 14 - "Noncontrolling Interests", our investment in Core Specialty was reduced by $4.0 million as of March 31, 2021. During the three months ended March 31, 2021 our share of net loss on our investment in Core Specialty was $3.0 million. We account for our equity method investment in Core Specialty on a one quarter lag.
In connection with the sale and recapitalization of StarStone U.S. we entered into an LPT and ADC reinsurance agreement with respect to StarStone U.S.’ legacy reserves. Concurrent with the closing of the LPT and
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
ADC reinsurance agreement, we entered into an ASA with StarStone U.S., through which one of our wholly-owned subsidiaries was appointed as an independent contractor to provide certain administrative services covering the business we assumed from StarStone U.S. through the LPT and ADC reinsurance agreement.
In addition, concurrent with the sale of StarStone U.S. to Core Specialty, one of our wholly-owned subsidiaries entered into a TSA with Core Specialty through which our subsidiary and Core Specialty agreed to provide certain transitional services to each other relating to the StarStone U.S. businesses, for a specified period of time.
On completion of the sale and recapitalization of StarStone U.S. on November 30, 2020, we received $235.0 million of Core Specialty shares and $51.5 million of cash. Subsequently, the cash component of the consideration was determined to be $47.0 million with the surplus cash received of $4.5 million being repaid to Core Specialty during the three months ended March 31, 2021.
Furthermore, there are existing reinsurance agreements whereby (i) certain of our subsidiaries provide reinsurance protection to StarStone U.S. ("the assuming reinsurances") and (ii) StarStone U.S. provides reinsurance protection to certain of our subsidiaries ("the ceding reinsurances"). These arrangements remain in place.
Our consolidated balance sheets as of March 31, 2021 and December 31, 2020 included the following balances between us and Core Specialty:
March 31, 2021December 31, 2020
Balances under assuming quota share, LPT and ADC reinsurances:
Funds held by reinsured companies$55,205 $58,086 
Other assets6,884 38,846 
Losses and loss adjustment expenses646,720 682,637 
Insurance and reinsurance balances payable32,067 24,806 
Other liabilities5,017 5,003 
Balances under ceding reinsurances:
Reinsurance balances recoverable on paid and unpaid losses1,691 1,736 
Balances under service agreements:
Other assets4,610 6,727 
Other liabilities53 328 
Balances under sale and recapitalization agreement:
Other liabilities4,512 
Our consolidated statement of earnings included the following amounts between us and Core Specialty:
Three Months Ended
March 31, 2021
Transactions under assuming quota share, LPT and ADC reinsurances:
Net premiums earned$4,245 
Net incurred losses and loss adjustment expenses7,852 
Acquisition costs1,324 
Net investment income121 
Transactions under service agreements:
Fees and commission income3,698 
Transactions under sale and recapitalization agreement:
Other Income567 
Interest expense(15)
Total net earnings$17,792 
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
20. COMMITMENTS AND CONTINGENCIES
Concentration of Credit Risk
We believe that there are no significant concentrations of credit risk associated with our cash and cash equivalents, fixed maturity investments, or other investments. Our cash and investments are managed pursuant to guidelines that follow prudent standards of diversification and liquidity, and limit the allowable holdings of a single issue and issuers. We are also subject to custodial credit risk on our investments, which we manage by diversifying our holdings amongst large financial institutions that are highly regulated.
We have exposure to credit risk on certain of our assets pledged to ceding companies under insurance contracts. In addition, we are potentially exposed should any insurance intermediaries be unable to fulfill their contractual obligations with respect to payments of balances owed to and by us.
Credit risk exists in relation to (re)insurance balances recoverable on paid and unpaid losses. We remain liable to the extent that counterparties do not meet their contractual obligations and, therefore, we evaluate and monitor concentration of credit risk among our (re)insurers.
We are also subject to credit risk in relation to funds held by reinsured companies. Under funds held arrangements, the reinsured company has retained funds that would otherwise have been remitted to our reinsurance subsidiaries. The funds may be placed into trust or subject to other security arrangements. However, we generally have the contractual ability to offset any shortfall in the payment of the funds held balances with amounts owed by us. As of March 31, 2021, we had a significant funds held concentration of $899.5 million (December 31, 2020: $955.0 million) to one reinsured company which has financial strength credit ratings of A+ from A.M. Best and AA from S&P.
We limit the amount of credit exposure to any one counterparty, and none of our counterparty credit exposures, excluding U.S. government instruments and the counterparty noted above, exceeded 10% of shareholders’ equity as of March 31, 2021. Our credit exposure to the U.S. government was $1.3 billion as of March 31, 2021 (December 31, 2020: $1.4 billion).
Legal Proceedings
We are, from time to time, involved in various legal proceedings in the ordinary course of business, including litigation and arbitration regarding claims. Estimated losses relating to claims arising in the ordinary course of business, including the anticipated outcome of any pending arbitration or litigation, are included in the liability for losses and LAE in our consolidated balance sheets. In addition to claims litigation, we may be subject to other lawsuits and regulatory actions in the normal course of business, which may involve, among other things, allegations of underwriting errors or omissions, employment claims or regulatory activity. We do not believe that the resolution of any currently pending legal proceedings, either individually or taken as a whole, will have a material effect on our business, results of operations or financial condition. We anticipate that, similar to the rest of the (re)insurance industry, we will continue to be subject to litigation and arbitration proceedings in the ordinary course of business, including litigation generally related to the scope of coverage with respect to asbestos and environmental and other claims.
Unfunded Investment Commitments
As of March 31, 2021, we had unfunded commitments of $931.8 million to other investments, $68.7 million to equity method investments, $25.0 million to fixed maturity investments and $10.1 million to equities.
Guarantees
As of March 31, 2021 and December 31, 2020, parental guarantees and capital instruments supporting subsidiaries' (re)insurance obligations were $1.5 billion as of both dates. We also guarantee the Junior Subordinated Notes and the Funds at Lloyd's facilities, which are described in Note 13 - "Debt Obligations and Credit Facilities."
On May 3, 2021, one of our (re)insurance subsidiaries completed an LPT and ADC transaction with AXA Group, as described in Note 2 - "Significant New Business," which is guaranteed by Enstar.
Redeemable Noncontrolling Interest
We have the right to purchase the RNCI interests from the RNCI holders at certain times in the future (each such right, a "call right") and the RNCI holders have the right to sell their RNCI interests to us at certain times in the future (each such right, a "put right"). Following the closing of the Exchange Transaction, we have a call right over
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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
the portion of SSHL owned by the Trident V Funds and the Dowling Funds, and they have put rights to transfer those interests to us.
Leases
We have recognized a right-of-use asset and an offsetting lease liability on our consolidated balance sheets, relating primarily to office space and facilities that we have leased to conduct our business operations. On an ongoing basis we determine whether an arrangement is a lease or contains a lease at inception and also complete an assessment to determine the classification of each lease as either a finance lease or an operating lease. Our leases are all currently classified as operating leases.
Our leases have remaining lease terms of one year to 36 years; some of which include options to extend the lease term for up to five years, and some of which include options to terminate the lease within one year. We consider these options in determining the lease term used to establish our right-of-use assets and lease liabilities. Renewal options that we believe we are likely to exercise are considered when determining lease terms. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Since a majority of our leases do not provide an implicit discount rate, we use our collateralized incremental borrowing rate in determining the present value of lease payments.
The table below provides the lease cost and other information relating to our operating leases:
Three Months Ended March 31,
20212020
Lease cost:
Operating lease cost$2,112 $3,322 
Short-term lease cost(1)
58 
Total lease cost2,116 3,380 
Sub-lease income(2)
(554)(138)
Total net lease cost$1,562 $3,242 
Other information:
Operating cash paid for amounts included in the measurement of lease liabilities$2,110 $3,183 
Non-cash activity: right-of-use assets relating to leases(365)72 
Weighted-average remaining lease term6.1 years6.2 years
Weighted-average discount rate6.7 %6.3 %
(1) Leases with an initial lease term of twelve months or less are not recognized within our consolidated balance sheets.
(2) Sub-lease income consists of rental income received from third parties to whom we have sub-leased some of our leased office spaces and is included within other income in our consolidated statements of earnings.
The table below provides a summary of the operating leases recorded on our consolidated balance sheets:
Balance sheet classificationMarch 31, 2021December 31, 2020
Right-of-use assets (1)
Other assets$24,078 $32,297 
Current lease liabilities (1)
Other liabilities6,302 7,959 
Non-current lease liabilities (1)
Other liabilities20,543 27,064 
(1) The December 31, 2020 right-of-use assets and the total lease liability balances exclude balances of $1.0 million related to Atrium which were reclassified to held-for-sale balances on our consolidated balance sheet as of December 31, 2020.
The table below provides a summary of the contractual maturities of our operating lease liabilities:
202120222023202420252026 and beyondTotal lease paymentsLess: Imputed interestPresent value of lease liabilities
Contractual maturities$6,147 6,608 5,778 4,136 3,164 8,642 34,475 (7,629)$26,846 

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
21. SEGMENT INFORMATION
During the first quarter of 2021, we revised our segment structure to align with how our chief operating decision maker who was determined to be our Chief Executive Officer, views our business, assesses performance and allocates resources to our business components. Effective January 1, 2021, our business is organized into 3 reportable segments:
(i) Run-off: consists of our acquired property and casualty and other non-life (re)insurance business and the StarStone International business (from January 1, 2021) following our decision to place it into formal run-off. This segment also includes our consulting and management business, which manages the run-off portfolios of third parties through our service companies. Management’s primary objective with respect to the Run-off segment is to generate reserve/claims savings over time by settling claims in a timely, cost efficient manner using our extensive internal claims management expertise;
(ii) Investments: consists of our investment portfolio, excluding those investable assets attributable to our Legacy Underwriting segment. Management’s primary objective of the Investments segment is to maximize total returns generated from our investment portfolio while maintaining high quality investm