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Enstar Group LTD - Quarter Report: 2016 June (Form 10-Q)


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 June 30, 2016
Commission File Number 001-33289

ENSTAR GROUP LIMITED
(Exact name of Registrant as specified in its charter)
BERMUDA
N/A
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
þ
 
Accelerated filer
¨
 
Non-accelerated filer
¨
 
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ
As of August 5, 2016, the registrant had outstanding 16,225,391 voting ordinary shares and 3,130,408 non-voting convertible ordinary shares, each par value $1.00 per share.
 


Table of Contents



Enstar Group Limited
Quarterly Report on Form 10-Q
For the Period Ended June 30, 2016

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




Table of Contents


PART I — FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS
ENSTAR GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 2016 and December 31, 2015
 
June 30,
2016
 
December 31,
2015
 
(expressed in thousands of U.S. dollars, except share data)
ASSETS
 
 
 
Short-term investments, trading, at fair value
$
122,746

 
$
87,350

Short-term investments, available-for-sale, at fair value (amortized cost: 2016 — $2,406; 2015 — $8,630)
2,401

 
8,622

Fixed maturities, trading, at fair value
4,986,615

 
4,990,794

Fixed maturities, held-to-maturity, at amortized cost
770,655

 
790,866

Fixed maturities, available-for-sale, at fair value (amortized cost: 2016 — $297,327; 2015 — $300,160)
299,929

 
293,679

Equities, trading, at fair value
117,293

 
115,941

Other investments, at fair value
936,158

 
1,034,032

Other investments, at cost
129,636

 
133,071

Total investments
7,365,433

 
7,454,355

Cash and cash equivalents
800,846

 
821,925

Restricted cash and cash equivalents
446,293

 
511,339

Premiums receivable
416,354

 
381,412

Deferred tax assets
116,047

 
121,035

Prepaid reinsurance premiums
145,184

 
121,427

Reinsurance balances recoverable
1,345,115

 
1,474,004

Funds held by reinsured companies
1,190,899

 
109,358

Deferred acquisition costs
101,227

 
89,123

Goodwill and intangible assets
187,555

 
191,304

Other assets
544,213

 
556,850

TOTAL ASSETS
$
12,659,166

 
$
11,832,132

 
 
 
 
LIABILITIES
 
 
 
Losses and loss adjustment expenses
$
6,433,845

 
$
5,720,149

Policy benefits for life and annuity contracts
1,286,276

 
1,304,697

Unearned premiums
576,970

 
542,771

Insurance and reinsurance balances payable
318,072

 
274,598

Deferred tax liabilities
94,676

 
92,588

Loans payable
614,030

 
600,250

Other liabilities
276,186

 
358,633

TOTAL LIABILITIES
9,600,055

 
8,893,686

 
 
 
 
COMMITMENTS AND CONTINGENCIES

 

 
 
 
 
REDEEMABLE NONCONTROLLING INTEREST
439,656

 
417,663

 
 
 
 
SHAREHOLDERS’ EQUITY
 
 
 
Share capital authorized, issued and fully paid, par value $1 each (authorized 2016 and 2015: 156,000,000):

 

Ordinary shares (issued and outstanding 2016: 16,166,652; 2015: 16,133,334)
16,167

 
16,133

Non-voting convertible ordinary shares:
 
 
 
Series A (issued 2016: nil; 2015: 2,972,892)

 
2,973

Series C (issued and outstanding 2016: 2,725,637; 2015: 2,725,637)
2,726

 
2,726

Series E (issued and outstanding 2016: 404,771; 2015: 404,771)
405

 
405

Series C Preferred Shares (issued and outstanding 2016: 388,571; 2015: nil)
389

 

Treasury shares at cost (Preferred shares 2016: 388,571; Series A non-voting convertible ordinary shares 2015: 2,972,892)
(421,559
)
 
(421,559
)
Additional paid-in capital
1,376,590

 
1,373,044

Accumulated other comprehensive loss
(21,527
)
 
(35,162
)
Retained earnings
1,662,623

 
1,578,312

Total Enstar Group Limited Shareholders’ Equity
2,615,814

 
2,516,872

Noncontrolling interest
3,641

 
3,911

TOTAL SHAREHOLDERS’ EQUITY
2,619,455

 
2,520,783

TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY
$
12,659,166

 
$
11,832,132

See accompanying notes to the unaudited condensed consolidated financial statements

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Table of Contents


ENSTAR GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Three and Six Months Ended June 30, 2016 and 2015
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
 
(expressed in thousands of U.S.
dollars, except share and per share data)
INCOME
 
 
 
 
 
 
 
Net premiums earned
$
226,928

 
$
212,023

 
$
436,337

 
$
410,929

Fees and commission income
7,243

 
9,131

 
12,590

 
20,611

Net investment income
54,223

 
34,655

 
114,286

 
65,072

Net realized and unrealized gains (losses)
37,987

 
(11,249
)
 
75,951

 
31,771

Other income
4,048

 
11,838

 
6,461

 
15,314

 
330,429

 
256,398

 
645,625

 
543,697

EXPENSES
 
 
 
 
 
 
 
Net incurred losses and loss adjustment expenses
96,462

 
65,900

 
179,680

 
136,036

Life and annuity policy benefits
19,778

 
28,090

 
40,758

 
50,937

Acquisition costs
46,489

 
37,094

 
93,754

 
71,644

General and administrative expenses
105,878

 
93,963

 
200,324

 
190,561

Interest expense
5,424

 
4,876

 
10,825

 
8,879

Net foreign exchange losses (gains)
(1,856
)
 
2,452

 
(84
)
 
(2,619
)
 
272,175

 
232,375

 
525,257

 
455,438

EARNINGS BEFORE INCOME TAXES
58,254

 
24,023

 
120,368

 
88,259

INCOME TAXES
(8,473
)
 
(5,816
)
 
(15,982
)
 
(16,560
)
NET EARNINGS
49,781

 
18,207

 
104,386

 
71,699

Less: Net earnings attributable to noncontrolling interest
(9,187
)
 
(3,662
)
 
(18,272
)
 
(12,307
)
NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED
$
40,594

 
$
14,545

 
$
86,114

 
$
59,392

EARNINGS PER SHARE — BASIC
 
 
 
 
 
 
 
Net earnings per ordinary share attributable to Enstar Group Limited shareholders
$
2.10

 
$
0.76

 
$
4.46

 
$
3.09

EARNINGS PER SHARE — DILUTED
 
 
 
 
 
 
 
Net earnings per ordinary share attributable to Enstar Group Limited shareholders
$
2.09

 
$
0.75

 
$
4.43

 
$
3.07

Weighted average ordinary shares outstanding — basic
19,295,280

 
19,252,359

 
19,289,119

 
19,244,951

Weighted average ordinary shares outstanding — diluted
19,430,464

 
19,383,753

 
19,420,541

 
19,364,775


See accompanying notes to the unaudited condensed consolidated financial statements


2

Table of Contents


ENSTAR GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three and Six Months Ended June 30, 2016 and 2015
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
 
(expressed in thousands of U.S. dollars)
NET EARNINGS
$
49,781

 
$
18,207

 
$
104,386

 
$
71,699

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Unrealized holding gains (losses) on fixed income investments arising during the period
2,174

 
2,162

 
9,094

 
(2,194
)
Reclassification adjustment for net realized losses (gains) included in net earnings
113

 
(38
)
 
135

 
(144
)
Unrealized gains (losses) arising during the period, net of reclassification adjustment
2,287

 
2,124

 
9,229

 
(2,338
)
Currency translation adjustment
(4,542
)
 
3,299

 
6,053

 
(12,587
)
Total other comprehensive income (loss)
(2,255
)
 
5,423

 
15,282

 
(14,925
)
Comprehensive income
47,526

 
23,630

 
119,668

 
56,774

Less comprehensive income attributable to noncontrolling interest
(9,353
)
 
(533
)
 
(19,919
)
 
(6,169
)
COMPREHENSIVE INCOME ATTRIBUTABLE TO ENSTAR GROUP LIMITED
$
38,173

 
$
23,097

 
$
99,749

 
$
50,605


See accompanying notes to the unaudited condensed consolidated financial statements


3

Table of Contents


ENSTAR GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Six Months Ended June 30, 2016 and 2015
 
Six Months Ended
June 30,
 
2016
 
2015
 
(expressed in thousands of U.S. dollars)
Share Capital — Ordinary Shares
 
 
 
Balance, beginning of period
$
16,133

 
$
15,761

Issue of shares
34

 
54

Conversion of Series E Non-Voting Convertible Ordinary Shares

 
12

Balance, end of period
$
16,167

 
$
15,827

Share Capital — Series A Non-Voting Convertible Ordinary Shares
 
 
 
Balance, beginning of period
$
2,973

 
$
2,973

Shares converted to Series C Convertible Participating Non-Voting Perpetual Preferred Stock
(2,973
)
 

Balance, end of period
$

 
$
2,973

Share Capital — Series C Non-Voting Convertible Ordinary Shares
 
 
 
Balance, beginning and end of period
$
2,726

 
$
2,726

Share Capital — Series E Non-Voting Convertible Ordinary Shares
 
 
 
Balance, beginning of period
$
405

 
$
714

Conversion to Ordinary Shares

 
(12
)
Balance, end of period
$
405

 
$
702

Share Capital — Series C Convertible Participating Non-Voting Perpetual Preferred Stock
 
 
 
Balance, beginning of period
$

 
$

Conversion of Series A Non-Voting Convertible Ordinary Stock
389

 

Balance, end of period
$
389

 
$

Treasury Shares
 
 
 
Balance, beginning and end of period
$
(421,559
)
 
$
(421,559
)
Additional Paid-in Capital
 
 
 
Balance, beginning of period
$
1,373,044

 
$
1,321,715

Issue of shares and warrants
360

 
911

Conversion of Series A Non-Voting Convertible Ordinary Stock
2,584

 

Amortization of equity incentive plan
602

 
2,821

Equity attributable to Enstar Group Limited on acquisition of noncontrolling shareholders’ interest in subsidiaries

 
39,569

Balance, end of period
$
1,376,590

 
$
1,365,016

Accumulated Other Comprehensive Income (Loss)
 
 
 
Balance, beginning of period
$
(35,162
)
 
$
(12,686
)
Currency translation adjustment
 
 
 
Balance, beginning of period
(23,790
)
 
(2,779
)
Change in currency translation adjustment
6,053

 
(10,227
)
Purchase of noncontrolling shareholder's interest in subsidiaries

 
2,937

Balance, end of period
(17,737
)
 
(10,069
)
Defined benefit pension liability
 
 
 
Balance, beginning and end of period
(7,723
)
 
(7,726
)
Unrealized gains (losses) on investments
 
 
 
Balance, beginning of period
(3,649
)
 
(2,181
)
Change in unrealized losses on investments
7,582

 
(1,809
)
Purchase of noncontrolling shareholders’ interest in subsidiaries

 
312

Balance, end of period
3,933

 
(3,678
)
Balance, end of period
$
(21,527
)
 
$
(21,473
)
Retained Earnings
 
 
 
Balance, beginning of period
$
1,578,312

 
$
1,395,206

Net earnings attributable to Enstar Group Limited
86,114

 
59,392

Accretion of redeemable noncontrolling interests to redemption value
(1,803
)
 

Balance, end of period
$
1,662,623

 
$
1,454,598

Noncontrolling Interest (excludes redeemable noncontrolling interests)
 
 
 
Balance, beginning of period
$
3,911

 
$
217,970

Sale of noncontrolling shareholders' interest in subsidiaries

 
(182,819
)
Dividends paid

 
680


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Contribution of capital

 
(323
)
Net earnings (loss) attributable to noncontrolling interest
(270
)
 
291

Foreign currency translation adjustments

 
(1,558
)
Net movement in unrealized holding losses on investments

 
(123
)
Balance, end of period
$
3,641

 
$
34,118

 
See accompanying notes to the unaudited condensed consolidated financial statements

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Table of Contents


ENSTAR GROUP LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2016 and 2015
 
Six Months Ended
June 30,
 
2016
 
2015
 
(expressed in thousands
 of U.S. dollars)
OPERATING ACTIVITIES:
 
 
 
Net earnings
$
104,386

 
$
71,699

Adjustments to reconcile net earnings to cash flows used in operating activities:
 
 
 
Realized gains on sale of investments
(786
)
 
(19,782
)
Unrealized gains on investments
(75,165
)
 
(11,989
)
Other non-cash items
3,811

 
5,553

Depreciation and other amortization
24,320

 
28,262

Net change in trading securities held on behalf of policyholders
(996
)
 
1,728

Sales and maturities of trading securities
1,666,796

 
1,669,290

Purchases of trading securities
(1,615,299
)
 
(2,299,395
)
Changes in:
 
 
 
Reinsurance balances recoverable
132,938

 
210,401

Funds held by reinsured companies
(17
)
 
20,773

Losses and loss adjustment expenses
(380,111
)
 
(188,793
)
Policy benefits for life and annuity contracts
(20,881
)
 
(14,028
)
Insurance and reinsurance balances payable
41,473

 
33,828

Unearned premiums
34,200

 
26,505

Other operating assets and liabilities
(131,001
)
 
(12,097
)
Net cash flows used in operating activities
(216,332
)
 
(478,045
)
INVESTING ACTIVITIES:
 
 
 
Acquisitions, net of cash acquired
$
9,924

 
$
56,369

Sales and maturities of available-for-sale securities
55,443

 
97,733

Purchase of available-for-sale securities
(47,798
)
 
(48,548
)
Maturities of held-to-maturity securities
15,302

 
5,246

Movement in restricted cash and cash equivalents
65,116

 
242,365

Purchase of other investments
(40,166
)
 
(133,411
)
Redemption of other investments
125,100

 
42,415

Other investing activities
(1,597
)
 
(2,016
)
Net cash flows provided by investing activities
181,324

 
260,153

FINANCING ACTIVITIES:
 
 
 
Contribution by noncontrolling interest
$

 
$
680

Contribution by redeemable noncontrolling interest

 
15,728

Dividends paid to noncontrolling interest

 
(7,433
)
Receipt of loans
154,048

 
374,700

Repayment of loans
(140,500
)
 
(46,000
)
Net cash flows provided by financing activities
13,548

 
337,675

EFFECT OF EXCHANGE RATE CHANGES ON FOREIGN CURRENCY CASH AND CASH EQUIVALENTS
381

 
(6,226
)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(21,079
)
 
113,557

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
821,925

 
963,402

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
800,846

 
$
1,076,959

 
 
 
 
Supplemental Cash Flow Information:
 
 
 
Income taxes paid, net of refunds
$
15,830

 
$
13,343

Interest paid
$
10,578

 
$
7,952


See accompanying notes to the unaudited condensed consolidated financial statements

6

Table of Contents


ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2016 and December 31, 2015

(Tabular information expressed in thousands of U.S. dollars except share and per share data)
 
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation and Consolidation
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 of the full year. These consolidated 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, 2015. Inter-company accounts and transactions have been eliminated. Results of operations for subsidiaries acquired are included from the dates on which we acquired them. In these notes, the terms "we," "us," "our," 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. These reclassifications had no impact on net earnings.
The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. 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. Our principal estimates include, but are not limited to:
liability for losses and loss adjustment expenses ("LAE");
liability for policy benefits for life and annuity contracts;
reinsurance balances recoverable;
gross and net premiums written and net premiums earned;
impairment charges, including other-than-temporary impairments on investment securities classified as available-for-sale or held-to-maturity, and impairments on goodwill, intangible assets and deferred charges;
fair value measurements of investments;
fair value estimates associated with accounting for acquisitions; and
redeemable noncontrolling interests.
New Accounting Standards Adopted in 2016
Accounting Standards Update ("ASU") 2015-16, Business Combinations, Simplifying the Accounting for Measurement-Period Adjustment
In September 2015, the Financial Accounting Standards Board ("FASB") issued ASU 2015-16, which eliminates the requirement for an acquirer to retrospectively adjust the financial statements for measurement-period adjustments that occur in periods after a business combination is consummated. Under the new guidance, an acquirer must recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The adoption of this guidance did not have a material impact on our consolidated financial statements and disclosures.

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

ASU 2015-07, Disclosures for Investments in Certain Entities that Calculate Net Asset Value or its Equivalent
In May 2015, the FASB issued ASU No. 2015-07, which eliminates the requirement to categorize investments in the fair value hierarchy if their fair value is measured at the net asset value ("NAV") per share (or its equivalent) using the practical expedient in the FASB’s fair value measurement guidance. Instead, an entity is required to include those investments as a reconciling line item so that the total fair value amount of investments in the disclosure is consistent with the amount on the balance sheet. In addition, the scope of current disclosure requirements for investments eligible to be measured at NAV is limited to investments for which the practical expedient is applied. While the adoption of this guidance impacted our disclosures, it did not have an impact on our consolidated financial statements.
ASU 2015-02, Amendments to the Consolidation Analysis
In February 2015, the FASB issued ASU 2015-02, which requires entities to evaluate whether they should consolidate certain legal entities. The new consolidation guidance changes the way entities evaluate whether (1) they should consolidate limited partnerships and similar entities; (2) fees paid to a decision maker or service provider are variable interests in a variable interest entity ("VIE"), and (3) variable interests in a VIE held by related parties of a registrant require the registrant to consolidate the VIE. The new guidance also eliminates the VIE consolidation model based on majority exposure to variability that applied to certain investment companies and similar entities. The ASU also significantly changes how to evaluate voting rights for entities that are not similar to limited partnerships when determining whether the entity is a VIE, which may affect entities for which decision making rights are conveyed through a contractual arrangement. The adoption of this guidance did not have a material impact on our consolidated financial statements and disclosures.
Recently Issued Accounting Pronouncements Not Yet Adopted
ASU 2016-13, Financial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued ASU 2016-13, which amends the guidance on impairment of financial instruments and significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The ASU will replace the existing “incurred loss” approach, with an “expected loss” model for instruments measured at amortized cost and require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount under the existing other-than-temporary-impairment model. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. The ASU is effective for interim and annual reporting periods beginning after December 15, 2019. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.
ASU 2016-09, Improvements to Employee Share-Based Payment Accounting
In March 2016, the FASB issued ASU 2016-09, which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The ASU is effective for interim and annual reporting periods beginning after December 15, 2016. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.
ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
In March 2016, the FASB issued ASU 2016-08, which amends the principal-versus agent implementation guidance and illustrations in its new revenue standard (ASU 2014-09). The ASU clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service promised in a contract with a customer. Similar to ASU 2014-09, this guidance is effective for interim and reporting periods beginning after December 15, 2017, as amended by the one-year deferral and the early adoption provisions in ASU 2015-14. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.
ASU 2016-07, Simplifying the Transition to the Equity Method of Accounting
In March 2016, the FASB issued ASU 2016-07, which simplifies the equity method of accounting by eliminating the requirement to retrospectively apply the equity method to an investment that subsequently qualifies for such accounting as a result of an increase in the level of ownership interest or degree of influence. Entities are therefore required to apply the guidance prospectively to increases in the level of ownership interest or degree of influence occurring after the ASU’s effective date. The ASU further requires that unrealized holding gains or losses in accumulated

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

other comprehensive income related to an available-for-sale security that becomes eligible for the equity method be recognized in earnings as of the date on which the investment qualifies for the equity method. The ASU is effective for interim and annual reporting periods beginning after December 15, 2016, with early adoption permitted. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.
ASU 2016-02, Leases
In February 2016, the FASB issued ASU 2016-02, which amends the guidance on the classification, measurement and disclosure of leases for both lessors and lessees. The ASU requires lessees to recognize a right-of-use asset and a lease liability on the balance sheet and to disclose qualitative and quantitative information about leasing arrangements. The ASU is effective for interim and annual reporting periods beginning after December 15, 2018. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.
ASU 2016-01, Recognition and Measurement of Financial Instruments
In January 2016, the FASB issued ASU 2016-01, which amends the guidance on the classification and measurement of financial instruments. Although the ASU retains many of the current requirements, it significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities, and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments. The ASU is effective for interim and annual reporting periods beginning after December 15, 2017. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.
2. SIGNIFICANT NEW BUSINESS
2016
Coca-Cola
On August 5, 2016, we entered into a reinsurance transaction with The Coca-Cola Company and its subsidiaries (“Coca-Cola”) pursuant to which we reinsured certain of Coca-Cola’s retention and deductible risks under its subsidiaries’ U.S. workers’ compensation, auto liability, general liability, and product liability insurance coverage. We assumed total gross reserves of $109.1 million, received total assets of $102.7 million and recorded a deferred charge of $6.4 million, included in other assets. We have transferred approximately $109.1 million into trust to support our obligations under the reinsurance agreements. We provided a limited parental guarantee, subject to an overall maximum of approximately $27.0 million.
Allianz
On March 31, 2016, we completed our previously announced transaction with Allianz SE ("Allianz") to reinsure portfolios of Allianz's run-off business. Pursuant to the reinsurance agreement effective January 1, 2016, our subsidiary reinsured 50% of certain portfolios of workers' compensation, construction defect, and asbestos, pollution, and toxic tort business originally held by Fireman's Fund Insurance Company, and assumed net reinsurance reserves of approximately $1.1 billion. Affiliates of Allianz retained approximately $1.1 billion of reinsurance premium as funds withheld collateral for the obligations of our subsidiary under the reinsurance agreement, and we transferred approximately $110.0 million to a reinsurance trust to further support our subsidiary's obligations. Interest on the funds withheld is earned by us based upon an initial fixed interest rate. We have also provided a limited parental guarantee, which is subject to a maximum cap.  The combined monetary total of the support offered by us through the trust and parental guarantee is calculated in accordance with contractually defined terms and is capped at $270.0 million.
In addition to the reinsurance transaction described above, we have entered into a claims consulting agreement with San Francisco Reinsurance Company, an affiliate of Allianz, with respect to the entire $2.2 billion portfolio, including the 50% share retained by affiliates of Allianz.

9

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3. INVESTMENTS
We hold: (i) trading portfolios of fixed maturity investments, short-term investments and equities, carried at fair value; (ii) a held-to-maturity portfolio of fixed maturity investments carried at amortized cost; (iii) available-for-sale portfolios of short-term and fixed maturity investments carried at fair value; and (iv) other investments carried at either fair value or cost.
Trading
The fair values of our fixed maturity investments, short-term investments and equities classified as trading were as follows:
 
June 30,
2016
 
December 31,
2015
U.S. government and agency
$
771,489

 
$
750,957

Non-U.S. government
309,794

 
359,002

Corporate
2,612,211

 
2,631,682

Municipal
8,691

 
22,247

Residential mortgage-backed
474,820

 
391,247

Commercial mortgage-backed
281,052

 
284,575

Asset-backed
651,304

 
638,434

Total fixed maturity and short-term investments
5,109,361

 
5,078,144

Equities — U.S.
109,903

 
108,793

Equities — International
7,390

 
7,148

 
$
5,226,654

 
$
5,194,085

Included within residential and commercial mortgage-backed securities as at June 30, 2016 were securities issued by U.S. governmental agencies with a fair value of $447.0 million (as at December 31, 2015: $359.4 million). Included within corporate securities as at June 30, 2016 were senior secured loans of $89.9 million (as at December 31, 2015: $94.4 million).
The contractual maturities of our fixed maturity and short-term investments classified as trading 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 at June 30, 2016
 
Amortized
Cost
 
Fair Value
 
% of Total
Fair
Value
One year or less
 
$
732,723

 
$
723,589

 
14.2
%
More than one year through two years
 
927,837

 
928,798

 
18.2
%
More than two years through five years
 
1,266,491

 
1,279,337

 
25.0
%
More than five years through ten years
 
551,552

 
563,660

 
11.0
%
More than ten years
 
197,290

 
206,801

 
4.0
%
Residential mortgage-backed
 
473,782

 
474,820

 
9.3
%
Commercial mortgage-backed
 
280,949

 
281,052

 
5.5
%
Asset-backed
 
669,975

 
651,304

 
12.8
%
 
 
$
5,100,599

 
$
5,109,361

 
100.0
%

10

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Held-to-maturity
We hold a portfolio of held-to-maturity securities to support our annuity business. The amortized cost and fair values of our fixed maturity investments classified as held-to-maturity were as follows: 
As at June 30, 2016
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
Non-OTTI
 
Fair
Value
U.S. government and agency
 
$
19,886

 
$
1,068

 
$
(62
)
 
$
20,892

Non-U.S. government
 
33,233

 
1,193

 

 
34,426

Corporate
 
717,536

 
36,782

 
(1,457
)
 
752,861

 
 
$
770,655

 
$
39,043

 
$
(1,519
)
 
$
808,179

As at December 31, 2015
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
Non-OTTI
 
Fair Value
U.S. government and agency
 
$
19,771

 
$
8

 
$
(458
)
 
$
19,321

Non-U.S. government
 
40,503

 
48

 
(1,493
)
 
39,058

Corporate
 
730,592

 
3,398

 
(23,298
)
 
710,692

 
 
$
790,866

 
$
3,454

 
$
(25,249
)
 
$
769,071

The contractual maturities of our fixed maturity investments classified as held-to-maturity 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 at June 30, 2016
 
Amortized
Cost
 
Fair
Value
 
% of Total
Fair
Value
One year or less
 
$
17,293

 
$
17,318

 
2.1
%
More than one year through two years
 
23,600

 
23,784

 
3.0
%
More than two years through five years
 
66,940

 
68,813

 
8.5
%
More than five years through ten years
 
107,660

 
110,845

 
13.7
%
More than ten years
 
555,162

 
587,419

 
72.7
%
 
 
$
770,655

 
$
808,179

 
100.0
%

11

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Available-for-sale
The amortized cost and fair values of our short-term and fixed maturity investments classified as available-for-sale were as follows:
As at June 30, 2016
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
Non-OTTI
 
Fair
Value
U.S. government and agency
 
$
13,364

 
$
164

 
$

 
$
13,528

Non-U.S. government
 
89,836

 
2,530

 
(2,159
)
 
90,207

Corporate
 
184,886

 
3,820

 
(1,945
)
 
186,761

Municipal
 
6,500

 
102

 

 
6,602

Residential mortgage-backed
 
569

 
55

 

 
624

Asset-backed
 
4,578

 
30

 

 
4,608

 
 
$
299,733

 
$
6,701

 
$
(4,104
)
 
$
302,330

As at December 31, 2015
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
Non-OTTI
 
Fair
Value
U.S. government and agency
 
$
25,102

 
$
80

 
$
(341
)
 
$
24,841

Non-U.S. government
 
89,631

 
42

 
(3,889
)
 
$
85,784

Corporate
 
182,773

 
1,040

 
(3,429
)
 
$
180,384

Municipal
 
5,959

 
4

 
(36
)
 
$
5,927

Residential mortgage-backed
 
665

 
51

 
(1
)
 
$
715

Asset-backed
 
4,660

 

 
(10
)
 
$
4,650

 
 
$
308,790

 
$
1,217

 
$
(7,706
)
 
$
302,301

 The contractual maturities of our short-term and fixed maturity investments classified as available-for-sale 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 at June 30, 2016
 
Amortized
Cost
 
Fair
Value
 
% of Total
Fair
Value
One year or less
 
$
51,327

 
$
50,119

 
16.6
%
More than one year through two years
 
68,189

 
67,500

 
22.3
%
More than two years through five years
 
87,040

 
86,492

 
28.6
%
More than five years through ten years
 
41,192

 
42,841

 
14.2
%
More than ten years
 
46,838

 
50,146

 
16.6
%
Residential mortgage-backed
 
569

 
624

 
0.2
%
Asset-backed
 
4,578

 
4,608

 
1.5
%
 
 
$
299,733

 
$
302,330

 
100.0
%

12

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Gross Unrealized Losses
The following tables summarize our fixed maturity and short-term investments in a gross unrealized loss position:
 
 
12 Months or Greater
 
Less Than 12 Months
 
Total
As at June 30, 2016
 
Fair
Value
 
Gross Unrealized
Losses
 
Fair
Value
 
Gross Unrealized
Losses
 
Fair
Value
 
Gross Unrealized
Losses
Fixed maturity and short-term investments, at fair value
 
 
 
 
 
 
 
 
 
 
 
 
Non-U.S. government
 
$

 
$

 
$
20,177

 
$
(2,159
)
 
$
20,177

 
$
(2,159
)
Corporate
 
3,089

 
(137
)
 
32,647

 
(1,808
)
 
35,736

 
(1,945
)
Total
 
$
3,089

 
$
(137
)
 
$
52,824

 
$
(3,967
)
 
$
55,913

 
$
(4,104
)
Fixed maturity investments, at amortized cost
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
 
$
447

 
$
(62
)
 
$

 
$

 
$
447

 
$
(62
)
Corporate
 
18,469

 
(643
)
 
37,889

 
(814
)
 
56,358

 
(1,457
)
Total
 
18,916

 
(705
)
 
37,889

 
(814
)
 
56,805

 
(1,519
)
Total fixed maturity and short-term investments
 
$
22,005

 
$
(842
)
 
$
90,713

 
$
(4,781
)
 
$
112,718

 
$
(5,623
)
  
 
 
12 Months or Greater
 
Less Than 12 Months
 
Total
As at December 31, 2015
 
Fair
Value
 
Gross Unrealized
Losses
 
Fair
Value
 
Gross Unrealized
Losses
 
Fair
Value
 
Gross Unrealized
Losses
Fixed maturity and short-term investments, at fair value
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
 
$
523

 
$
(2
)
 
$
21,694

 
$
(339
)
 
$
22,217

 
$
(341
)
Non-U.S. government
 
18,995

 
(2,633
)
 
50,080

 
(1,256
)
 
69,075

 
(3,889
)
Corporate
 
54,295

 
(2,394
)
 
81,047

 
(1,035
)
 
135,342

 
(3,429
)
Municipal
 

 

 
4,609

 
(36
)
 
4,609

 
(36
)
Residential mortgage-backed
 
71

 
(1
)
 

 

 
71

 
(1
)
Asset-backed
 
4,649

 
(10
)
 

 

 
4,649

 
(10
)
Total
 
$
78,533

 
$
(5,040
)
 
$
157,430

 
$
(2,666
)
 
$
235,963

 
$
(7,706
)
Fixed maturity investments, at amortized cost
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
 
$
7,221

 
$
(48
)
 
$
12,024

 
$
(410
)
 
$
19,245

 
$
(458
)
Non-U.S. government
 
24,424

 
(1,255
)
 
8,885

 
(238
)
 
33,309

 
(1,493
)
Corporate
 
209,000

 
(9,038
)
 
330,833

 
(14,260
)
 
539,833

 
(23,298
)
Total
 
240,645

 
(10,341
)
 
351,742

 
(14,908
)
 
592,387

 
(25,249
)
Total fixed maturity and short-term investments
 
$
319,178

 
$
(15,381
)
 
$
509,172

 
$
(17,574
)
 
$
828,350

 
$
(32,955
)
As at June 30, 2016 and December 31, 2015, the number of securities classified as available-for-sale in an unrealized loss position was 120 and 332, respectively. Of these securities, the number of securities that had been in an unrealized loss position for twelve months or longer was 13 and 124, respectively.
As at June 30, 2016 and December 31, 2015, the number of securities classified as held-to-maturity in an unrealized loss position was 14 and 109, respectively. Of these securities, the number of securities that had been in an unrealized loss position for twelve months or longer was 6 and 53, respectively.

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other-Than-Temporary Impairment
For the six months ended June 30, 2016 and 2015, we did not recognize any other-than-temporary impairment losses on either our available-for-sale or held-to-maturity securities. We determined that no credit losses existed as at June 30, 2016. A description of our other-than-temporary impairment process is included in Note 2 to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2015. There were no changes to our process during the six months ended June 30, 2016.
Credit Ratings
The following table sets forth the credit ratings of our fixed maturity and short-term investments as of June 30, 2016:
 
 
Amortized
Cost
 
Fair Value
 
% of Total
Investments
 
AAA Rated
 
AA Rated
 
A Rated
 
BBB
Rated
 
Non-
Investment
Grade
 
Not Rated
Fixed maturity and short-term investments, at fair value
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
 
$
771,905

 
$
785,017

 
12.6
%
 
$
778,456

 
$
6,561

 
$

 
$

 
$

 
$

Non-U.S. government
 
405,688

 
400,001

 
6.4
%
 
129,956

 
185,750

 
52,705

 
20,284

 
11,306

 

Corporate
 
2,777,899

 
2,798,972

 
45.1
%
 
164,171

 
451,121

 
1,312,900

 
721,700

 
143,010

 
6,070

Municipal
 
14,987

 
15,293

 
0.2
%
 
5,395

 
7,710

 
2,188

 

 

 

Residential mortgage-backed
 
474,351

 
475,444

 
7.6
%
 
465,622

 
452

 
6,029

 
2,302

 
1,036

 
3

Commercial mortgage-backed
 
280,949

 
281,052

 
4.5
%
 
114,235

 
34,730

 
73,995

 
15,538

 
2,674

 
39,880

Asset-backed
 
674,553

 
655,912

 
10.6
%
 
232,047

 
128,948

 
182,307

 
43,362

 
69,051

 
197

Total
 
5,400,332

 
5,411,691

 
87.0
%
 
1,889,882

 
815,272

 
1,630,124

 
803,186

 
227,077

 
46,150

% of total fair value
 
 
 
 
 
 
 
34.9
%
 
15.1
%
 
30.0
%
 
14.9
%
 
4.2
%
 
0.9
%
Fixed maturity investments, at amortized cost
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
 
19,886

 
20,892

 
0.3
%
 
19,491

 
1,378

 

 

 

 
23

Non-U.S. government
 
33,233

 
34,426

 
0.6
%
 

 
9,446

 
24,980

 

 

 

Corporate
 
717,536

 
752,861

 
12.1
%
 
41,800

 
114,014
 
488,429
 
108,522

 

 
96

Total
 
770,655

 
808,179

 
13.0
%
 
61,291

 
124,838

 
513,409

 
108,522

 

 
119

% of total fair value
 
 
 
 
 
 
 
8.3
%
 
15.4
%
 
64.7
%
 
11.5
%
 
%
 
0.1
%
Total fixed maturity and short-term investments
 
$
6,170,987

 
$
6,219,870

 
100.0
%
 
$
1,951,173

 
$
940,110

 
$
2,143,533

 
$
911,708

 
$
227,077

 
$
46,269

% of total fair value
 
 
 
 
 
 
 
31.4
%
 
15.1
%
 
34.4
%
 
14.7
%
 
3.7
%
 
0.7
%








14

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other Investments, at fair value
The following table summarizes our other investments carried at fair value:
 
 
June 30,
2016
 
December 31,
2015
Private equities and private equity funds
 
$
229,756

 
$
254,883

Fixed income funds
 
248,815

 
291,736

Fixed income hedge funds
 
111,543

 
109,400

Equity funds
 
163,050

 
147,390

Multi-strategy hedge fund
 
98,416

 
99,020

Real estate debt fund
 

 
54,829

CLO equities
 
65,156

 
61,702

CLO equity funds
 
13,513

 
13,928

Call options on equities
 
4,850

 

Other
 
1,059

 
1,144

 
 
$
936,158

 
$
1,034,032

The valuation of our other investments is described in Note 4 - "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:
Private equities and private equity funds invest primarily in the financial services industry. All of our investments in private equities and private equity funds are subject to restrictions on redemptions and sales that are determined by the governing documents and limit our ability to liquidate those investments. These restrictions have been in place since the dates of our initial investments.
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, but are generally invested in liquid fixed income markets. These funds have regularly published prices. The funds have liquidity terms that vary from daily up to quarterly.
Fixed income hedge funds invest in a diversified portfolio of debt securities. The hedge funds have imposed lock-up periods of up to three years from the time of initial investment. Once eligible, redemptions are permitted quarterly with 60 days’ notice.
Equity funds invest in a diversified portfolio of international publicly traded equity securities. The funds are eligible for bi-monthly redemption.
Multi-strategy hedge fund comprises an investment in a hedge fund that invests in a variety of asset classes including funds, fixed income, equity securities and other investments. The fund is eligible for quarterly redemption after September 1, 2016. Once eligible, redemptions will be permitted quarterly with 60 days’ notice.
Real estate debt fund invests primarily in U.S. commercial real estate loans and securities. A redemption request for this fund can be made 10 days after the date of any monthly valuation. The fund was fully redeemed as at March 31, 2016.
CLO equities comprise investments in the equity tranches of term-financed securitizations of diversified pools of corporate bank loans. CLO equities denote direct investments by us in these securities.
CLO equity funds comprise two funds that invest primarily in the equity tranches of term-financed securitizations of diversified pools of corporate bank loans. One of the funds has a fair value of $3.6 million, part of a self-liquidating structure that is expected to pay out over two to six years. The other fund has a fair value of $9.9 million and is eligible for redemption in 2018.

15

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Call options on equities comprise directly held options to purchase the common equity of publicly traded corporations.
Other primarily comprises a fund that provides loans to educational institutions throughout the United States and its territories.
Investments of $0.8 million in fixed income hedge funds were subject to gates or side-pockets, where redemptions are subject to the sale of underlying investments. 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.
As at June 30, 2016, we had unfunded commitments to private equity funds of $138.4 million.
Other Investments, at cost
Our other investments carried at cost of $129.6 million as of June 30, 2016 consist of life settlement contracts acquired during 2015. During the six months ended June 30, 2016 and 2015, net investment income included $10.0 million and $2.0 million, respectively, related to investments in life settlements. There were impairment charges of $2.9 million and nil recognized during the six month periods ended June 30, 2016 and 2015, respectively. The following table presents further information regarding our investments in life settlements as of June 30, 2016 and December 31, 2015.
 
 
June 30, 2016
 
December 31, 2015

 
Number of Contracts
 
Carrying
Value
 
Face Value (Death Benefits)
 
Number of Contracts
 
Carrying
Value
 
Face Value (Death Benefits)
Remaining Life Expectancy of Insureds:
 
 
 
 
 
 
 
 
 
 
 
 
0 – 1 year
 
2

 
$
436

 
$
700

 
2

 
$
417

 
$
700

1 – 2 years
 
3

 
2,725

 
4,500

 
4

 
3,032

 
5,000

2 – 3 years
 
18

 
25,556

 
53,900

 
19

 
24,072

 
39,123

3 – 4 years
 
16

 
14,855

 
30,328

 
14

 
9,695

 
20,932

4 – 5 years
 
21

 
9,882

 
22,759

 
16

 
9,025

 
22,457

Thereafter
 
187

 
76,182

 
432,601

 
221

 
86,830

 
491,499

Total
 
247

 
$
129,636

 
$
544,788

 
276

 
$
133,071

 
$
579,711

Remaining life expectancy for year 0-1 in the table above references policies whose current life expectancy is less than 12 months as of the reporting date. Remaining life expectancy is not an indication of expected maturity. Actual maturity in any category above may vary significantly (either earlier or later) from the remaining life expectancies reported.
At June 30, 2016, our best estimate of the life insurance premiums required to keep the policies in force, payable in the 12 months ending June 30, 2017 and the four succeeding years ending June 30, 2021 is $17.5 million, $17.4 million, $17.5 million, $17.2 million and $15.7 million, respectively.

16

Table of Contents
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) for the three and six months ended June 30, 2016 and 2015 are summarized as follows:
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2016

2015
 
2016
 
2015
Net realized gains on sale:
 
 
 
 
 
 
 
 
Gross realized gains on fixed maturity securities, available-for-sale
 
$
114

 
$
39

 
$
379

 
$
153

Gross realized (losses) on fixed maturity securities, available-for-sale
 
(1
)
 
(1
)
 
(244
)
 
(9
)
Net realized investment gains (losses) on fixed maturity securities, trading
 
1,535

 
1,886

 
(377
)
 
3,752

Net realized investment gains on equity securities, trading
 
555

 
5,169

 
1,028

 
15,886

Total net realized gains on sale
 
$
2,203

 
$
7,093

 
$
786

 
$
19,782

Net unrealized gains (losses):
 


 
 
 
 
 
 
Fixed maturity securities, trading
 
$
40,472

 
$
(22,953
)
 
$
82,212

 
$
(9,065
)
Equity securities, trading
 
617

 
(6,445
)
 
2,223

 
(13,564
)
Other investments
 
(5,305
)
 
11,056

 
(9,270
)
 
34,618

Total net unrealized gains (losses)
 
35,784

 
(18,342
)
 
75,165

 
11,989

Net realized and unrealized gains (losses)
 
$
37,987

 
$
(11,249
)
 
$
75,951

 
$
31,771

The gross realized gains and losses on available-for-sale securities included in the table above resulted from sales of $18.2 million and $33.6 million for the three and six months ended June 30, 2016, respectively, and $16.5 million and $59.8 million for the three and six months ended June 30, 2015, respectively.
Net Investment Income
Major categories of net investment income for the three and six months ended June 30, 2016 and 2015 are summarized as follows:
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
2016
 
2015
 
2016
 
2015
Fixed maturity investments
 
$
40,531

 
$
28,551

 
$
77,109

 
$
54,800

Short-term investments and cash and cash equivalents
 
870

 
1,387

 
2,049

 
4,106

Equity securities
 
1,387

 
1,315

 
2,509

 
2,996

Other investments
 
5,693

 
3,558

 
11,727

 
4,440

Funds held
 
7,633

 
(184
)
 
15,237

 
(10
)
Life settlements and other
 
1,335

 
2,788

 
10,161

 
3,095

Gross investment income
 
57,449

 
37,415

 
118,792

 
69,427

Investment expenses
 
(3,226
)
 
(2,760
)
 
(4,506
)
 
(4,355
)
Net investment income
 
$
54,223

 
$
34,655

 
$
114,286

 
$
65,072


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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Restricted Assets
We are required to maintain investments and cash and cash equivalents on deposit to support our insurance and reinsurance operations. The investments and cash and cash equivalents on deposit are available to settle insurance and reinsurance liabilities. We also utilize trust accounts to collateralize business with our insurance and reinsurance counterparties. These trust accounts generally take the place of letter of credit requirements. The assets in trusts as collateral are primarily highly rated fixed maturity securities. The carrying value of our restricted assets, including restricted cash of $446.3 million and $511.3 million, as of June 30, 2016 and December 31, 2015, respectively, was as follows: 
 
 
June 30,
2016
 
December 31,
2015
Collateral in trust for third party agreements
 
$
2,863,608

 
$
3,053,692

Assets on deposit with regulatory authorities
 
955,123

 
915,346

Collateral for secured letter of credit facilities
 
195,277

 
212,544

Funds at Lloyd's (1)
 
350,146

 
382,624

 
 
$
4,364,154

 
$
4,564,206

(1) Our underwriting businesses include three Lloyd's syndicates. Lloyd's determines the required capital principally through the annual business plan of each syndicate. This capital is referred to as "Funds at Lloyd's" and will be drawn upon in the event that a syndicate has a loss that cannot be funded from other sources. As at June 30, 2016, our combined Funds at Lloyd's were comprised of cash and investments of $312.2 million and letters of credit supported by collateral of $37.9 million.
4. 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.

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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

We have categorized our investments that are recorded at fair value on a recurring basis among levels based on the observability of inputs as follows:  
 
 
June 30, 2016
 
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total Fair
Value
U.S. government and agency
 
$

 
$
785,017

 
$

 
$
785,017

Non-U.S. government
 

 
400,001

 

 
400,001

Corporate
 

 
2,771,188

 
27,784

 
2,798,972

Municipal
 

 
15,293

 

 
15,293

Residential mortgage-backed
 

 
472,663

 
2,781

 
475,444

Commercial mortgage-backed
 

 
226,217

 
54,835

 
281,052

Asset-backed
 

 
579,208

 
76,704

 
655,912

Equities — U.S.
 
102,734

 
7,169

 

 
109,903

Equities — International
 
2,850

 
4,540

 

 
7,390

Other investments
 

 
310,266

 
80,470

 
390,736

Total investments
 
$
105,584

 
$
5,571,562

 
$
242,574

 
$
5,919,720

 
 
 
December 31, 2015
 
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total Fair
Value
U.S. government and agency
 
$

 
$
775,798

 
$

 
$
775,798

Non-U.S. government
 

 
444,786

 

 
444,786

Corporate
 

 
2,812,066

 

 
2,812,066

Municipal
 

 
28,174

 

 
28,174

Residential mortgage-backed
 

 
391,962

 

 
391,962

Commercial mortgage-backed
 

 
255,169

 
29,406

 
284,575

Asset-backed
 

 
458,328

 
184,756

 
643,084

Equities — U.S.
 
99,467

 
9,326

 

 
108,793

Equities — International
 
2,702

 
4,446

 

 
7,148

Other investments
 

 
321,076

 
77,016

 
398,092

Total investments
 
$
102,169

 
$
5,501,131

 
$
291,178

 
$
5,894,478

Certain of our other investments are measured at fair value using NAV per share (or its equivalent) as a practical expedient and have not been classified within the fair value hierarchy above. The following table reconciles our other investments in the tables above with the amounts presented on our consolidated balance sheets:
Other investments:
 
June 30, 2016
 
December 31, 2015
Other investments measured at fair value
 
$
390,736

 
$
398,092

Other investments measured at NAV as practical expedient
 
545,422

 
635,940

Total other investments shown on balance sheets
 
$
936,158

 
$
1,034,032



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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
Fixed Maturity Investments
The fair values for all securities in the fixed maturity investments portfolio 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. For determining the fair value of securities that are not actively traded, in general, pricing services use "matrix pricing" in which the independent pricing service uses observable market inputs including, but not limited to, reported trades, benchmark yields, broker-dealer quotes, interest rates, prepayment speeds, default rates and such other inputs as are available from market sources to determine a reasonable fair value. In addition, pricing services use valuation models, using observable data, such as an Option Adjusted Spread model, to develop prepayment and interest rate scenarios. The Option Adjusted Spread model is commonly used to estimate fair value for securities such as mortgage-backed and asset-backed securities.
The following describes the techniques generally used to determine the fair value of our fixed maturity investments by asset class.
U.S. government and agency securities consist of securities issued by the U.S. Treasury and mortgage pass-through agencies such as the Federal National Mortgage Association, the 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. The significant inputs used to determine the fair value of these securities include the spread above the risk-free yield curve, reported trades, benchmark yields, broker-dealer quotes, prepayment speeds and default rates. These are considered observable market inputs and, therefore, the fair values of these securities are classified as Level 2. 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. 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 are predominantly traded on the major exchanges and are primarily managed by our external advisors. We use an internationally recognized pricing service to estimate the fair value of our equities. Our equities are widely diversified and there is no significant concentration in any specific industry.
We have categorized all of our investments in equities other than preferred stock as Level 1 investments because the fair values of these investments are based on unadjusted quoted prices in active markets for identical assets or liabilities. The fair value estimates of our investments in preferred stock are based on observable market data and, as a result, have been categorized as Level 2.
Other investments, at fair value
We have ongoing due diligence processes with respect to the other investments carried at fair value in which we invest and their managers. These processes are designed to assist us in assessing the quality of information provided by, or on behalf of, each fund and in determining whether such information continues to be reliable or whether further review is warranted. Certain funds do not provide full transparency of their underlying holdings; however, we obtain the audited financial statements for funds annually, and regularly review and discuss the fund performance with the fund managers to corroborate the reasonableness of the reported net asset values.
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 the 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 private equities and 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.
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 fixed income and multi-strategy 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 investment in the real estate debt fund is valued based on the most recently available NAV from the external fund manager. The fair value of this investment is measured using the NAV practical expedient and therefore has not been categorized within the fair value hierarchy. As at March 31, 2016 this fund was fully redeemed.
We measure the fair value of our direct investment in CLO equities based on valuations provided by our external CLO equity manager. If the investment does not involve an external CLO equity manager, the fair value of the investment is valued based on valuations provided by the broker or lead underwriter of the investment (the "broker"). Our CLO equity investments have 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.
In providing valuations, the CLO equity manager and brokers use observable and unobservable inputs. Of the significant unobservable market inputs used, the default and loss severity rates involve the most judgment and create the most sensitivity. A significant increase (or decrease) in either of these significant inputs in isolation would result in lower (or higher) fair value estimates for direct investments in CLO equities and, in general, a change in default rate assumptions will be accompanied by a directionally similar change in loss severity rate assumptions. Collateral spreads and estimated maturity dates are less judgmental inputs because they are based on the historical average of actual spreads and the weighted average life of the current underlying

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

portfolios, respectively. A significant increase (or decrease) in either of these significant inputs in isolation would result in higher (or lower) fair value estimates for direct investments in CLO equities. In general, these inputs have no significant interrelationship with each other or with default and loss severity rates.
On a quarterly basis, we receive the valuation from the external CLO manager and brokers and then review the underlying cash flows and key assumptions used by the manager/broker. We review and update the significant unobservable inputs based on information obtained from secondary markets. These inputs are our responsibility and we assess the reasonableness of the inputs (and if necessary, update the inputs) through communicating with industry participants, monitoring of the transactions in which we participate (for example, to evaluate default and loss severity rate trends), and reviewing market conditions, historical results, and emerging trends that may impact future cash flows.
If valuations from the external CLO equity manager or brokers are not available, we use an income approach based on certain observable and unobservable inputs to value these investments. An income approach is also used to corroborate the reasonableness of the valuations provided by the external manager and brokers. Where an income approach is followed, the valuation is based on available trade information, such as expected cash flows and market assumptions on default and loss severity rates. Other inputs used in the valuation process include asset spreads, loan prepayment speeds, collateral spreads and estimated maturity dates.
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 values of these investments are measured using the NAV as a practical expedient and therefore have not been categorized within the fair value hierarchy.
For our investments in call options on publicly traded equities, we measure fair value by obtaining the latest option price as of our reporting date. These are classified as Level 2.
Changes in Leveling of Financial Instruments
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. During the six months ended June 30, 2016, we transferred $28.2 million of corporate, $24.1 million of asset-backed, $40.1 million of commercial mortgaged-backed and $2.8 million of residential mortgaged-backed securities from Level 2 to Level 3. The transfers from Level 2 to Level 3 were securities valued using single prices for which we were unable to obtain sufficient information to determine whether the inputs used were observable. 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 in which they are providing the quotes. During the six months ended June 30, 2016, we transferred $12.1 million of commercial mortgaged-backed and $126.2 million of asset-backed securities from Level 3 to Level 2. The transfers from Level 3 to Level 2 were based upon us obtaining market observable information regarding the valuations of the specific assets. There were no transfers between Levels 1 and 2.
The following table presents a reconciliation of the beginning and ending balances for all investments measured at fair value on a recurring basis using Level 3 inputs during the three months ended June 30, 2016 and 2015:
 
 
Three Months Ended June 30, 2016
 
Three Months Ended June 30, 2015
 
 
Fixed
Maturity
Investments
 
Other Investments
 
Equity Securities
 
Total
 
Fixed
Maturity
Investments
 
Other Investments
 
Equity Securities
 
Total
Beginning fair value
 
$
112,577

 
$
74,289

 
$

 
$
186,866

 
$

 
$
427,362

 
$

 
$
427,362

Purchases
 
32,616

 
664

 

 
33,280

 

 
54,407

 

 
54,407

Sales
 
(12,618
)
 

 

 
(12,618
)
 

 
(28,533
)
 

 
(28,533
)
Total realized and unrealized gains
 
1,576

 
5,517

 

 
7,093

 

 
10,669

 

 
10,669

Net transfers into (out of) Level 3
 
27,953

 

 

 
27,953

 

 

 

 

Ending fair value
 
$
162,104

 
$
80,470

 
$

 
$
242,574

 
$

 
$
463,905

 
$

 
$
463,905




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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table presents a reconciliation of the beginning and ending balances for all investments measured at fair value on a recurring basis using Level 3 inputs during the six months ended June 30, 2016 and 2015:
 
 
Six Months Ended June 30, 2016
 
Six Months Ended June 30, 2015
 
 
Fixed
Maturity
Investments
 
Other Investments
 
Equity Securities
 
Total
 
Fixed
Maturity
Investments
 
Other Investments
 
Equity Securities
 
Total
Beginning fair value
 
$
214,162

 
$
77,016

 
$

 
$
291,178

 
$
600

 
$
349,790

 
$
4,850

 
$
355,240

Purchases
 
32,616

 
6,885

 

 
39,501

 

 
136,385

 

 
136,385

Sales
 
(36,720
)
 
(4,658
)
 

 
(41,378
)
 
(600
)
 
(42,415
)
 
(5,000
)
 
(48,015
)
Total realized and unrealized gains (losses)
 
(4,851
)
 
1,227

 

 
(3,624
)
 

 
20,145

 
150

 
20,295

Net transfers into (out of) Level 3
 
(43,103
)
 

 

 
(43,103
)
 

 

 

 

Ending fair value
 
$
162,104

 
$
80,470

 
$

 
$
242,574

 
$

 
$
463,905

 
$

 
$
463,905

Net realized and unrealized gains (losses) related to Level 3 assets in the table above are included in net realized and unrealized gains (losses) in our unaudited condensed consolidated statements of earnings.

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Disclosure of Fair Values for Financial Instruments Carried at Cost
The following tables present our fair value hierarchy for those assets carried at cost or amortized cost in the unaudited condensed consolidated balance sheet but for which disclosure of the fair value is required:
 
 
June 30, 2016
 
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Fair Value
 
Carrying Value
Fixed maturity investments, held-to-maturity:
 


 


 


 


 

U.S. government and agency
 
$

 
$
20,892

 
$

 
$
20,892

 
$
19,886

Non-U.S. government
 

 
34,426

 

 
34,426

 
33,233

Corporate
 

 
752,861

 

 
752,861

 
717,536

Sub-total
 

 
808,179

 

 
808,179

 
770,655

Other investments:
 


 


 


 
 
 


Life settlements
 

 

 
126,442

 
126,442

 
129,636

Total
 
$

 
$
808,179

 
$
126,442

 
$
934,621

 
$
900,291

 
 
December 31, 2015
  
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Fair Value
 
Carrying Value
Fixed maturity investments, held-to-maturity:
 


 


 


 


 

U.S. government and agency
 
$

 
$
19,321

 
$

 
$
19,321

 
$
19,771

Non-U.S. government
 

 
39,058

 

 
39,058

 
40,503

Corporate
 

 
710,692

 

 
710,692

 
730,592

Sub-total
 

 
769,071

 

 
769,071

 
790,866

Other investments:
 
 
 
 
 
 
 
 
 
 
Life settlements
 

 

 
130,268

 
130,268

 
133,071

Total
 
$

 
$
769,071

 
$
130,268

 
$
899,339

 
$
923,937

The fair value of investments in life settlement contracts, in the table above, is determined using a discounted cash flow methodology that utilizes unobservable inputs. Due to the individual nature of each investment in life settlement contracts and the illiquidity of the existing market, significant inputs to the fair value include our estimates of premiums necessary to keep the policies in-force, and our assumptions for mortality and discount rates. Our mortality assumptions are based on a combination of medical underwriting information obtained from a third-party underwriter for each referenced life and internal proprietary mortality studies of older aged U.S. insured lives. These assumptions are used to develop an estimate of future net cash flows that, after discounting, are intended to be reflective of the asset's value in the life settlement market.
Disclosure of fair value of amounts relating to insurance contracts is not required. 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 June 30, 2016 and December 31, 2015.

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5. DERIVATIVE INSTRUMENTS
From time to time, we may utilize derivative instruments 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.
The following table sets forth the estimated fair value of derivative instruments recorded within other investments on the unaudited condensed consolidated balance sheet as at June 30, 2016 and the unrealized losses on derivative instruments recorded in net earnings for the three and six months ended June 30, 2016:
 
 
 
 
Fair Value
 
Unrealized losses in net earnings
 
 
Purchase Date
 
June 30, 2016
 
December 31, 2015
 
Three Months Ended June 30, 2016
 
Six Months Ended June 30, 2016
Call options on equities
 
March 1, 2016
 
$
4,850

 
$

 
$
(1,210
)
 
$
(650
)
The derivatives in the table above are not designated as hedging instruments. We had no derivative instruments as at June 30, 2015 and December 31, 2015 or during the three and six months ended June 30, 2015.
Subsequent to June 30, 2016, we entered into forward exchange contracts for notional amounts of AUD $63.0 million and CAD $50.0 million. These contracts are designated as hedges of the net investments in our Australian and Canadian operations.
6. REINSURANCE BALANCES RECOVERABLE
The following tables provide the total reinsurance balances recoverable as at June 30, 2016 and December 31, 2015:
 
 
June 30, 2016
 
 
Non-life
Run-off
 
Atrium
 
StarStone
 
Life and
Annuities
 
Total
Recoverable from reinsurers on unpaid:
 
 
 
 
 
 
 
 
 
 
Outstanding losses
 
$
502,667

 
$
7,142

 
$
171,289

 
$
20,940

 
$
702,038

IBNR
 
441,240

 
17,798

 
121,997

 
298

 
581,333

Fair value adjustments
 
(16,182
)
 
1,916

 
(4,085
)
 

 
(18,351
)
Total reinsurance reserves recoverable
 
927,725

 
26,856

 
289,201

 
21,238

 
1,265,020

Paid losses recoverable
 
62,454

 
762

 
15,885

 
994

 
80,095

 
 
$
990,179

 
$
27,618

 
$
305,086

 
$
22,232

 
$
1,345,115

 
 
December 31, 2015
 
 
Non-life
Run-off
 
Atrium
 
StarStone
 
Life and
Annuities
 
Total
Recoverable from reinsurers on unpaid:
 
 
 
 
 
 
 
 
 
 
Outstanding losses
 
$
587,164

 
$
6,772

 
$
182,076

 
$
22,786

 
$
798,798

IBNR
 
465,211

 
16,581

 
123,732

 
306

 
605,830

Fair value adjustments
 
(17,628
)
 
2,499

 
(6,025
)
 

 
(21,154
)
Total reinsurance reserves recoverable
 
1,034,747

 
25,852

 
299,783

 
23,092

 
1,383,474

Paid losses recoverable
 
72,213

 
430

 
16,568

 
1,319

 
90,530

 
 
$
1,106,960

 
$
26,282

 
$
316,351

 
$
24,411

 
$
1,474,004

Our insurance and reinsurance run-off subsidiaries, prior to acquisition, used retrocessional agreements to reduce their exposure to the risk of insurance and reinsurance assumed. On an annual basis, both Atrium and StarStone purchase a tailored outwards reinsurance program designed to manage their risk profiles. The majority of Atrium’s and StarStone's third-party reinsurance cover is with highly rated reinsurers or is collateralized by letters of credit.
The fair value adjustments, determined on acquisition of insurance and reinsurance subsidiaries, are based on the estimated timing of loss and LAE recoveries and an assumed interest rate equivalent to a risk free rate for securities with similar duration to the acquired reinsurance recoverables 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.

25

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of June 30, 2016 and December 31, 2015, we had reinsurance balances recoverable of approximately $1.35 billion and $1.47 billion, respectively. The decrease of $128.9 million in reinsurance balances recoverable was primarily a result of commutations in our Non-life Run-off segment and cash collections made during the six months ended June 30, 2016 in our Non-life Run-off and StarStone segments.
Top Ten Reinsurers
 
June 30, 2016
 
December 31, 2015
 
Non-life
Run-off
 
Atrium
 
StarStone
 
Life and
Annuities
 
Total
 
% of
Total
 
Non-life
Run-off
 
Atrium
 
StarStone
 
Life and
Annuities
 
Total
 
% of
Total
Top ten reinsurers
$
661,380

 
$
22,369

 
$
146,115

 
$
12,211

 
$
842,075

 
62.6
%
 
$
713,743

 
$
21,394

 
$
155,171

 
$
13,254

 
$
903,562

 
61.3
%
Other reinsurers > $1 million
317,169

 
4,508

 
156,576

 
8,298

 
486,551

 
36.2
%
 
383,898

 
4,253

 
158,417

 
8,363

 
554,931

 
37.6
%
Other reinsurers < $1 million
11,630

 
741

 
2,395

 
1,723

 
16,489

 
1.2
%
 
9,319

 
635

 
2,763

 
2,794

 
15,511

 
1.1
%
Total
$
990,179

 
$
27,618

 
$
305,086

 
$
22,232

 
$
1,345,115

 
100.0
%
 
$
1,106,960

 
$
26,282

 
$
316,351

 
$
24,411

 
$
1,474,004

 
100.0
%
Seven of the top ten external reinsurers, as at June 30, 2016 and December 31, 2015, were rated A- or better, with the remaining three being non-rated reinsurers from which $297.0 million was recoverable (December 31, 2015: $337.6 million recoverable from three reinsurers). For the three non-rated reinsurers, we hold security in the form of pledged assets in trust or letters of credit issued to us in the full amount of the recoverable. As at June 30, 2016, reinsurance balances recoverable of $158.4 million (December 31, 2015: $165.6 million) related to Lloyd’s syndicates and represented 10% or more of total reinsurance balances recoverable. Lloyd’s is rated A+ by Standard & Poor’s and A by A.M. Best.
 Provisions for Uncollectible Reinsurance Recoverables
We remain liable to the extent that retrocessionaires do not meet their obligations under these agreements, and therefore, we evaluate and monitor concentration of credit risk among our reinsurers. Provisions are made for amounts considered potentially uncollectible.
The following table shows our reinsurance balances recoverable by rating of reinsurer and our provisions for uncollectible reinsurance balances recoverable ("provisions for bad debt") as at June 30, 2016 and December 31, 2015. The provisions for bad debt all relate to the Non-life Run-off segment.
 
June 30, 2016
 
December 31, 2015
 
Gross
 
Provisions for Bad Debt
 
Net
 
Provisions as a
% of Gross
 
Gross
 
Provisions for Bad Debt
 
Net
 
Provisions as a
% of Gross
Reinsurers rated A- or above
$
983,600

 
$
39,264

 
$
944,336

 
4.0
%
 
$
1,051,927

 
$
46,969

 
$
1,004,958

 
4.5
%
Reinsurers rated below A-, secured
338,795

 

 
338,795

 
%
 
388,399

 

 
388,399

 
%
Reinsurers rated below A-, unsecured
219,445

 
157,461

 
61,984

 
71.8
%
 
244,005

 
163,358

 
80,647

 
66.9
%
Total
$
1,541,840

 
$
196,725

 
$
1,345,115

 
12.8
%
 
$
1,684,331

 
$
210,327

 
$
1,474,004

 
12.5
%

26

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

7. LOSSES AND LOSS ADJUSTMENT EXPENSES
The liability for losses and loss adjustment expenses ("LAE") includes an amount determined from reported claims and an amount based on historical loss experience and industry statistics for incurred but not reported ("IBNR") using a variety of actuarial methods. Our loss reserves cover multiple lines of business, which include workers' compensation, general casualty, asbestos and environmental, marine, aviation and transit, construction defects and other non-life lines of business. Refer to Note 9 to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2015 for more information on establishing the liability for losses and LAE.
The following table summarizes the liability for losses and LAE by segment as at June 30, 2016 and December 31, 2015:
 
June 30, 2016
 
December 31, 2015
 
Non-life
Run-off
 
Atrium
 
StarStone
 
Total
 
Non-life
Run-off
 
Atrium
 
StarStone
 
Total
Outstanding losses
$
2,991,786

 
$
69,268

 
$
476,941

 
$
3,537,995

 
$
2,757,774

 
$
68,913

 
$
457,175

 
$
3,283,862

IBNR
2,385,358

 
129,422

 
518,558

 
3,033,338

 
1,991,009

 
115,613

 
477,990

 
2,584,612

Fair value adjustments
(151,017
)
 
14,534

 
(1,005
)
 
(137,488
)
 
(163,329
)
 
16,491

 
(1,487
)
 
(148,325
)
Total
$
5,226,127

 
$
213,224

 
$
994,494

 
$
6,433,845

 
$
4,585,454

 
$
201,017

 
$
933,678

 
$
5,720,149

The overall increase in the liability for losses and LAE between December 31, 2015 and June 30, 2016 was primarily attributable to the assumed reinsurance agreement with Allianz in our Non-life Run-off segment as described in Note 2 - "Significant New Business."
The table below provides a reconciliation of the beginning and ending liability for losses and LAE for the three and six months ended June 30, 2016 and 2015:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Balance as at beginning of period
$
6,641,507

 
$
5,724,623

 
$
5,720,149

 
$
4,509,421

Less: reinsurance reserves recoverable
1,302,738

 
1,518,102

 
1,360,382

 
1,154,196

Less: deferred charges on retroactive reinsurance
254,300

 

 
255,911

 

Net balance as at beginning of period
5,084,469

 
4,206,521

 
4,103,856

 
3,355,225

Net incurred losses and LAE:
 
 
 
 
 
 


  Current period
126,634

 
121,335

 
241,936

 
234,349

  Prior periods
(30,172
)
 
(55,435)

 
(62,256
)
 
(98,313
)
  Total net incurred losses and LAE
96,462

 
65,900

 
179,680

 
136,036

Net paid losses:
 
 
 
 
 
 


  Current period
(17,022
)
 
(21,490)

 
(22,356
)
 
(32,654
)
  Prior periods
(203,010
)
 
(194,485)

 
(389,413
)
 
(312,641
)
  Total net paid losses
(220,032
)
 
(215,975)

 
(411,769
)
 
(345,295
)
Effect of exchange rate movement
(28,127
)
 
24,723

 
(23,246
)
 
(29,423
)
Acquired on purchase of subsidiaries
10,019

 

 
10,019

 
774,758

Assumed business

 
305,763

 
1,084,251

 
495,631

Net balance as at June 30
4,942,791

 
4,386,932

 
4,942,791

 
4,386,932

Plus: reinsurance reserves recoverable
1,243,782

 
1,491,113

 
1,243,782

 
1,491,113

Plus: deferred charge on retroactive reinsurance
247,272

 
265,426

 
247,272

 
265,426

Balance as at June 30
$
6,433,845

 
$
6,143,471

 
$
6,433,845

 
$
6,143,471



27

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The tables below provide the net incurred losses and LAE in the Non-life Run-off, Atrium and StarStone segments for the three and six months ended June 30, 2016 and 2015:  
 
Three Months Ended June 30, 2016
 
Three Months Ended June 30, 2015
 
Non-life Run-off
 
Atrium
 
StarStone
 
Total
 
Non-life
Run-off
 
Atrium
 
StarStone
 
Total
Net losses paid
$
143,056

 
$
12,523

 
$
64,453

 
$
220,032

 
$
164,440

 
$
12,121

 
$
39,414

 
$
215,975

Net change in case and LAE reserves
(74,560
)
 
2,035

 
21,736

 
(50,789
)
 
(104,330
)
 
136

 
46,729

 
(57,465
)
Net change in IBNR reserves
(102,836
)
 
3,538

 
17,285

 
(82,013
)
 
(75,957
)
 
5,186

 
(5,690
)
 
(76,461
)
Increase (reduction) in estimates of net ultimate losses
(34,340
)
 
18,096

 
103,474

 
87,230

 
(15,847
)
 
17,443

 
80,453

 
82,049

Reduction in provisions for bad debt
(5,184
)
 

 

 
(5,184
)
 
(625
)
 

 

 
(625
)
Increase (reduction) in provisions for unallocated LAE
(6,571
)
 
50

 
758

 
(5,763
)
 
(7,711
)
 
(8
)
 
1,055

 
(6,664
)
Amortization of fair value adjustments
21,405

 
(1,013
)
 
(213
)
 
20,179

 
(4,687
)
 
(3,678
)
 
(495
)
 
(8,860
)
Net incurred losses and LAE
$
(24,690
)
 
$
17,133

 
$
104,019

 
$
96,462

 
$
(28,870
)
 
$
13,757

 
$
81,013

 
$
65,900

 
Six Months Ended June 30, 2016
 
Six Months Ended June 30, 2015
 
Non-life Run-off
 
Atrium
 
StarStone
 
Total
 
Non-life
Run-off
 
Atrium
 
StarStone
 
Total
Net losses paid
$
275,369

 
$
20,271

 
$
116,129

 
$
411,769

 
$
229,700

 
$
24,032

 
$
91,563

 
$
345,295

Net change in case and LAE reserves
(183,345
)
 
263

 
34,391

 
(148,691
)
 
(111,330
)
 
(883
)
 
44,943

 
(67,270
)
Net change in IBNR reserves
(139,899
)
 
13,429

 
44,372

 
(82,098
)
 
(113,235
)
 
1,376

 
20,049

 
(91,810
)
Increase (reduction) in estimates of net ultimate losses
(47,875
)
 
33,963

 
194,892

 
180,980

 
5,135

 
24,525

 
156,555

 
186,215

Reduction in provisions for bad debt
(6,630
)
 

 

 
(6,630
)
 
(20,439
)
 

 

 
(20,439
)
Increase (reduction) in provisions for unallocated LAE
(14,361
)
 
134

 
1,768

 
(12,459
)
 
(21,686
)
 
(70
)
 
1,711

 
(20,045
)
Amortization of fair value adjustments
20,622

 
(1,375
)
 
(1,458
)
 
17,789

 
(4,980
)
 
(3,678
)
 
(1,037
)
 
(9,695
)
Net incurred losses and LAE
$
(48,244
)
 
$
32,722

 
$
195,202

 
$
179,680

 
$
(41,970
)
 
$
20,777

 
$
157,229

 
$
136,036




28

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Non-Life Run-off Segment
The table below provides a reconciliation of the beginning and ending reserves for losses and LAE for the three and six months ended June 30, 2016 and 2015 for the Non-life Run-off segment:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Balance as at beginning of period
$
5,459,216

 
$
4,693,262

 
$
4,585,454

 
$
3,435,010

Less: reinsurance reserves recoverable
977,096

 
1,210,933

 
1,034,747

 
800,709

Less: deferred charges on retroactive insurance
254,300

 

 
255,911

 

Net balance as at beginning of period
4,227,820

 
3,482,329

 
3,294,796

 
2,634,301

Net incurred losses and LAE:
 
 
 
 
 
 
 
  Current period
518

 
22,547

 
6,587

 
43,273

  Prior periods
(25,208)

 
(51,417
)
 
(54,831)

 
(85,243
)
  Total net incurred losses and LAE
(24,690)

 
(28,870
)
 
(48,244)

 
(41,970
)
Net paid losses:
 
 
 
 
 
 
 
  Current period
(2,058)

 
(9,434
)
 
(4,048)

 
(14,005
)
  Prior periods
(140,998)

 
(155,006
)
 
(271,321)

 
(215,695
)
  Total net paid losses
(143,056)

 
(164,440
)
 
(275,369)

 
(229,700
)
Effect of exchange rate movement
(18,963)

 
25,876

 
(14,323)

 
(12,362
)
Acquired on purchase of subsidiaries
10,019

 

 
10,019

 
774,758

Assumed business
0

 
305,763

 
1,084,251

 
495,631

Net balance as at June 30
4,051,130

 
3,620,658

 
4,051,130

 
3,620,658

Plus: reinsurance reserves recoverable
927,725

 
1,178,053

 
927,725

 
1,178,053

Plus: deferred charge on retroactive reinsurance
247,272

 
265,426

 
247,272

 
265,426

Balance as at June 30
$
5,226,127

 
$
5,064,137

 
$
5,226,127

 
$
5,064,137

Net incurred losses and LAE in the Non-life Run-off segment for the three months ended June 30, 2016 and 2015 were as follows:
 
Three Months Ended June 30,
 
2016
 
2015
 
Prior
Period
 
Current
Period
 
Total
 
Prior
Period
 
Current
Period
 
Total
Net losses paid
$
140,998

 
$
2,058

 
$
143,056

 
$
155,006

 
$
9,434

 
$
164,440

Net change in case and LAE reserves
(74,832
)
 
272

 
(74,560
)
 
(108,819
)
 
4,489

 
(104,330
)
Net change in IBNR reserves
(101,240
)
 
(1,596
)
 
(102,836
)
 
(84,581
)
 
8,624

 
(75,957
)
Increase (reduction) in estimates of net ultimate losses
(35,074
)
 
734

 
(34,340
)
 
(38,394
)
 
22,547

 
(15,847
)
Increase (reduction) in provisions for bad debt
(5,184
)
 

 
(5,184
)
 
(625
)
 

 
(625
)
Increase (reduction) in provisions for unallocated LAE
(6,355
)
 
(216
)
 
(6,571
)
 
(7,711
)
 

 
(7,711
)
Amortization of fair value adjustments
21,405

 

 
21,405

 
(4,687
)
 

 
(4,687
)
Net incurred losses and LAE
$
(25,208
)
 
$
518

 
$
(24,690
)
 
$
(51,417
)
 
$
22,547

 
$
(28,870
)
Net change in case and LAE reserves 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. Net change in IBNR represents the gross change in our actuarial estimates of IBNR, less amounts recoverable.
Three Months Ended June 30, 2016
The reduction in net incurred losses and LAE for the three months ended June 30, 2016 of $24.7 million included net incurred losses and LAE of $0.5 million related to current period net earned premium of $0.5 million, primarily for

29

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the run-off business acquired with Sussex. Excluding current period net incurred losses and LAE of $0.5 million, net incurred losses and LAE liabilities relating to prior periods were reduced by $25.2 million, which was attributable to a reduction in estimates of net ultimate losses of $35.1 million, a reduction in provisions for bad debt of $5.2 million and a reduction in provisions for unallocated LAE of $6.4 million, relating to 2016 run-off activity, partially offset by amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $21.4 million.
The reduction in provisions for bad debt of $5.2 million was a result of the collection of certain reinsurance recoverables against which provisions for bad debt had been provided in earlier periods.
Three Months Ended June 30, 2015
The reduction in net incurred losses and LAE for the three months ended June 30, 2015 of $28.9 million included net incurred losses and LAE of $22.5 million related to current period net earned premium of $17.2 million, primarily for the run-off business acquired with Sussex. Excluding current period net incurred losses and LAE of $22.5 million, net incurred losses and LAE liabilities relating to prior periods were reduced by $51.4 million, which was attributable to a reduction in estimates of net ultimate losses of $38.4 million, a reduction in provisions for bad debt of $0.6 million, a reduction in provisions for unallocated LAE of $7.7 million, relating to 2015 run-off activity, and amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $4.7 million.
Net incurred losses and LAE in the Non-life Run-off segment for the six months ended June 30, 2016 and 2015 were as follows:
 
Six Months Ended June 30,
 
2016
 
2015
 
Prior
Period
 
Current
Period
 
Total
 
Prior
Period
 
Current
Period
 
Total
Net losses paid
$
271,321

 
$
4,048

 
$
275,369

 
$
215,695

 
$
14,005

 
$
229,700

Net change in case and LAE reserves
(183,801
)
 
456

 
(183,345
)
 
(118,813
)
 
7,483

 
(111,330
)
Net change in IBNR reserves
(141,753
)
 
1,854

 
(139,899
)
 
(135,020
)
 
21,785

 
(113,235
)
Increase (reduction) in estimates of net ultimate losses
(54,233
)
 
6,358

 
(47,875
)
 
(38,138
)
 
43,273

 
5,135

Increase (reduction) in provisions for bad debt
(6,630
)
 

 
(6,630
)
 
(20,439
)
 

 
(20,439
)
Increase (reduction) in provisions for unallocated LAE
(14,590
)
 
229

 
(14,361
)
 
(21,686
)
 

 
(21,686
)
Amortization of fair value adjustments
20,622

 

 
20,622

 
(4,980
)
 

 
(4,980
)
Net incurred losses and LAE
$
(54,831
)
 
$
6,587

 
$
(48,244
)
 
$
(85,243
)
 
$
43,273

 
$
(41,970
)
Six Months Ended June 30, 2016
The reduction in net incurred losses and LAE for the six months ended June 30, 2016 of $48.2 million included net incurred losses and LAE of $6.6 million related to current period net earned premium of $5.0 million, primarily for the run-off business acquired with Sussex. Excluding current period net incurred losses and LAE of $6.6 million, net incurred losses and LAE liabilities relating to prior periods were reduced by $54.8 million, which was attributable to a reduction in estimates of net ultimate losses of $54.2 million, a reduction in provisions for bad debt of $6.6 million and a reduction in provisions for unallocated LAE of $14.6 million, relating to 2016 run-off activity, partially offset by amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $20.6 million.
The reduction in provisions for bad debt of $6.6 million was a result of the collection of certain reinsurance recoverables against which provisions for bad debt had been provided in earlier periods.
Six Months Ended June 30, 2015
The reduction in net incurred losses and LAE for the six months ended June 30, 2015 of $42.0 million included net incurred losses and LAE of $43.3 million related to current period net earned premium of $35.8 million, primarily for the run-off business acquired with Sussex. Excluding current period net incurred losses and LAE of $43.3 million, net incurred losses and LAE liabilities relating to prior periods were reduced by $85.2 million, which was attributable to a reduction in estimates of net ultimate losses of $38.1 million, reduction in provisions for bad debt of $20.4 million, a reduction in provisions for unallocated LAE liabilities of $21.7 million, relating to 2015 run-off activity, and amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $5.0 million.

30

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


Atrium
The table below provides a reconciliation of the beginning and ending liability for losses and LAE for the three and six months ended June 30, 2016 and 2015:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Balance as at beginning of period
$
209,919

 
$
202,873

 
$
201,017

 
$
212,611

Less: reinsurance reserves recoverable
26,249

 
26,629

 
25,852

 
28,278

Net balance as at beginning of period
183,670

 
176,244

 
175,165

 
184,333

Net incurred losses and LAE:

 
 
 
 
 
 
  Current period
20,568

 
17,495

 
36,631

 
32,373

  Prior periods
(3,435)

 
(3,738)

 
(3,909)

 
(11,596)

  Total net incurred losses and LAE
17,133

 
13,757

 
32,722

 
20,777

Net paid losses:

 

 
 
 
 
  Current period
(5,255)

 
(4,538)

 
(7,493)

 
(7,408)

  Prior periods
(7,268)

 
(7,583)

 
(12,778)

 
(16,624)

  Total net paid losses
(12,523)

 
(12,121)

 
(20,271)

 
(24,032)

Effect of exchange rate movement
(1,912)

 
1,608

 
(1,248)

 
(1,590)

Net balance as at June 30
186,368

 
179,488

 
186,368

 
179,488

Plus: reinsurance reserves recoverable
26,856

 
26,011

 
26,856

 
26,011

Balance as at June 30
$
213,224

 
$
205,499

 
$
213,224

 
$
205,499

Net incurred losses and LAE in the Atrium segment for the three and six months ended June 30, 2016 and 2015 were as follows:
 
Three Months Ended June 30,
 
2016
 
2015
 
Prior
Period
 
Current
Period
 
Total
 
Prior
Period
 
Current
Period
 
Total
Net losses paid
$
7,268

 
$
5,255

 
$
12,523

 
$
7,583

 
$
4,538

 
$
12,121

Net change in case and LAE reserves
(3,391
)
 
5,426

 
2,035

 
(3,946
)
 
4,082

 
136

Net change in IBNR reserves
(6,181
)
 
9,719

 
3,538

 
(3,560
)
 
8,746

 
5,186

Increase (reduction) in estimates of net ultimate losses
(2,304
)
 
20,400

 
18,096

 
77

 
17,366

 
17,443

Increase (reduction) in provisions for unallocated LAE
(118
)
 
168

 
50

 
(137
)
 
129

 
(8
)
Amortization of fair value adjustments
(1,013
)
 

 
(1,013
)
 
(3,678
)
 

 
(3,678
)
Net incurred losses and LAE
$
(3,435
)
 
$
20,568

 
$
17,133

 
$
(3,738
)
 
$
17,495

 
$
13,757

 
Six Months Ended June 30,
 
2016
 
2015
 
Prior Period
 
Current Period
 
Total
 
Prior Period
 
Current Period
 
Total
Net losses paid
$
12,778

 
$
7,493

 
$
20,271

 
$
16,624

 
$
7,408

 
$
24,032

Net change in case and LAE reserves
(7,351)

 
7,614

 
263

 
(7,657)

 
6,774

 
(883)

Net change in IBNR reserves
(7,772)

 
21,201

 
13,429

 
(16,553)

 
17,929

 
1,376

Increase (reduction) in estimates of net ultimate losses
(2,345)

 
36,308

 
33,963

 
(7,586)

 
32,111

 
24,525

Increase (reduction) in provisions for unallocated LAE
(189)

 
323

 
134

 
(332)

 
262

 
(70)

Amortization of fair value adjustments
(1,375)

 

 
(1,375)

 
(3,678)

 

 
(3,678)

Net incurred losses and LAE
$
(3,909
)
 
$
36,631

 
$
32,722

 
$
(11,596
)
 
$
32,373

 
$
20,777



31

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

StarStone
The table below provides a reconciliation of the beginning and ending liability for losses and LAE for the three and six months ended June 30, 2016 and 2015:
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2016
 
2015
 
2016
 
2015
Balance as at beginning of period
$
972,372

 
$
828,488

 
$
933,678

 
$
861,800

Less: reinsurance reserves recoverable
299,393

 
280,540

 
299,783

 
325,209

Net balance as at beginning of period
672,979

 
547,948

 
633,895

 
536,591

Net incurred losses and LAE:
 
 
 
 
 
 
 
  Current period
105,548

 
81,293

 
198,718

 
158,703

  Prior periods
(1,529)

 
(280
)
 
(3,516
)
 
(1,474
)
  Total net incurred losses and LAE
104,019

 
81,013

 
195,202

 
157,229

Net paid losses:
 
 
 
 
 
 
 
  Current period
(9,709)

 
(7,518
)
 
(10,815
)
 
(11,241
)
  Prior periods
(54,744)

 
(31,896
)
 
(105,314
)
 
(80,322
)
  Total net paid losses
(64,453)

 
(39,414
)
 
(116,129
)
 
(91,563
)
Effect of exchange rate movement
(7,252)

 
(2,761
)
 
(7,675
)
 
(15,471
)
Net balance as at June 30
705,293

 
586,786

 
705,293

 
586,786

Plus: reinsurance reserves recoverable
289,201

 
287,049

 
289,201

 
287,049

Balance as at June 30
$
994,494

 
$
873,835

 
$
994,494

 
$
873,835

Net incurred losses and LAE in the StarStone segment for the three and six months ended June 30, 2016 and 2015 were as follows:
 
Three Months Ended June 30,
 
2016
 
2015
 
Prior Period
 
Current Period
 
Total
 
Prior Period
 
Current Period
 
Total
Net losses paid
$
54,744

 
$
9,709

 
$
64,453

 
$
31,896

 
$
7,518

 
$
39,414

Net change in case and LAE reserves
(26,737
)
 
48,473

 
21,736

 
6,397

 
40,332

 
46,729

Net change in IBNR reserves
(28,321
)
 
45,606

 
17,285

 
(38,584
)
 
32,894

 
(5,690
)
Increase (reduction) in estimates of net ultimate losses
(314
)
 
103,788

 
103,474

 
(291
)
 
80,744

 
80,453

Increase (reduction) in provisions for unallocated LAE
(1,002
)
 
1,760

 
758

 
506

 
549

 
1,055

Amortization of fair value adjustments
(213
)
 

 
(213
)
 
(495
)
 

 
(495
)
Net incurred losses and LAE
$
(1,529
)
 
$
105,548

 
$
104,019

 
$
(280
)
 
$
81,293

 
$
81,013

 
Six Months Ended June 30,
 
2016
 
2015
 
Prior Period
 
Current Period
 
Total
 
Prior Period
 
Current Period
 
Total
Net losses paid
$
105,314

 
$
10,815

 
$
116,129

 
$
80,322

 
$
11,241

 
$
91,563

Net change in case and LAE reserves
(22,102
)
 
56,493

 
34,391

 
(3,934
)
 
48,877

 
44,943

Net change in IBNR reserves
(83,234
)
 
127,606

 
44,372

 
(76,262
)
 
96,311

 
20,049

Increase (reduction) in estimates of net ultimate losses
(22
)
 
194,914

 
194,892

 
126

 
156,429

 
156,555

Increase (reduction) in provisions for unallocated LAE
(2,036
)
 
3,804

 
1,768

 
(563
)
 
2,274

 
1,711

Amortization of fair value adjustments
(1,458
)
 

 
(1,458
)
 
(1,037
)
 

 
(1,037
)
Net incurred losses and LAE
$
(3,516
)
 
$
198,718

 
$
195,202

 
$
(1,474
)
 
$
158,703

 
$
157,229


32

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8. POLICY BENEFITS FOR LIFE AND ANNUITY CONTRACTS
Policy benefits for life and annuity contracts as at June 30, 2016 and December 31, 2015 were as follows:
 
June 30,
2016
 
December 31,
2015
Life
$
419,453

 
$
436,603

Annuities
916,729

 
921,654

 
1,336,182

 
1,358,257

Fair value adjustments
(49,906
)
 
(53,560
)
 
$
1,286,276

 
$
1,304,697

 Refer to Note 10 of the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2015 for more information on establishing policy benefit reserves.
9. PREMIUMS WRITTEN AND EARNED
The following table provides a summary of net premiums written and earned in our Non-life Run-off, Atrium, StarStone and Life and Annuities segments for the three and six months ended June 30, 2016 and 2015:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
Premiums
Written
 
Premiums
Earned
 
Premiums
Written
 
Premiums
Earned
 
Premiums
Written
 
Premiums
Earned
 
Premiums
Written
 
Premiums
Earned
Non-life Run-off
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross
$
7,066

 
$
9,216

 
$
14,797

 
$
53,184

 
$
13,763

 
$
17,163

 
$
24,914

 
$
78,157

Ceded
(4,290
)
 
(4,740
)
 
(39,590
)
 
(35,886
)
 
(5,716
)
 
(7,252
)
 
(39,867
)
 
(42,367
)
Net
$
2,776

 
$
4,476

 
$
(24,793
)
 
$
17,298

 
$
8,047

 
$
9,911

 
$
(14,953
)
 
$
35,790

Atrium
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross
$
37,781

 
$
35,908

 
$
35,786

 
$
37,913

 
$
79,299

 
$
71,342

 
$
84,699

 
$
76,067

Ceded
(4,619
)
 
(4,150
)
 
(3,966
)
 
(3,956
)
 
(7,957
)
 
(7,673
)
 
(8,521
)
 
(8,238
)
Net
$
33,162

 
$
31,758

 
$
31,820

 
$
33,957

 
$
71,342

 
$
63,669

 
$
76,178

 
$
67,829

StarStone
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gross
$
223,368

 
$
208,548

 
$
241,057

 
$
195,963

 
$
440,412

 
$
402,664

 
$
431,754

 
$
364,495

Ceded
(41,023
)
 
(37,513
)
 
(59,692
)
 
(58,267
)
 
(107,930
)
 
(77,547
)
 
(125,566
)
 
(103,177
)
Net
$
182,345

 
$
171,035

 
$
181,365

 
$
137,696

 
$
332,482

 
$
325,117

 
$
306,188

 
$
261,318

Life and Annuities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Life
$
20,533

 
$
19,659

 
$
22,922

 
$
23,072

 
$
38,459

 
$
37,640

 
$
45,655

 
$
45,992

Total
$
238,816

 
$
226,928

 
$
211,314

 
$
212,023

 
$
450,330

 
$
436,337

 
$
413,068

 
$
410,929

 

33

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

10. GOODWILL, INTANGIBLE ASSETS AND DEFERRED CHARGE
The following table presents a reconciliation of the beginning and ending goodwill, intangible assets and the deferred charge during the six months ended June 30, 2016:
 
Goodwill
 
Intangible
assets with
a definite life - Other
 
Intangible 
assets with
an indefinite life
 
Total
 
Intangible 
assets with
a definite life - FVA
 
Other assets - Deferred Charge
Balance as at December 31, 2015
$
73,071

 
$
31,202

 
$
87,031

 
$
191,304

 
$
180,730

 
$
255,911

Amortization

 
(3,749
)
 

 
(3,749
)
 
(11,687
)
 
(8,639
)
Balance as at June 30, 2016
$
73,071

 
$
27,453

 
$
87,031

 
$
187,555

 
$
169,043

 
$
247,272

Refer to Note 12 to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2015 for more information on goodwill, intangible assets and the deferred charge.
Intangible asset amortization for the three and six months ended June 30, 2016 and 2015 was $15.3 million and $15.4 million, respectively, compared to $(4.9) million and $(2.2) million for the comparative periods in 2015.
The gross carrying value, accumulated amortization and net carrying value of intangible assets by type and the deferred charge at June 30, 2016 and December 31, 2015 were as follows:
 
June 30, 2016
 
December 31, 2015
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net
Carrying
Value
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net
Carrying
Value
Intangible assets with a definite life:
 
 
 
 
 
 
 
 
 
 
 
Fair value adjustments:
 
 
 
 
 
 
 
 
 
 
 
Losses and LAE liabilities
$
458,202

 
$
(320,714
)
 
$
137,488

 
$
456,110

 
$
(307,785
)
 
$
148,325

Reinsurance balances recoverable
(175,924
)
 
157,573

 
(18,351
)
 
(175,774
)
 
154,619

 
(21,155
)
Policy benefits for life and annuity contracts
86,332

 
(36,426
)
 
49,906

 
86,332

 
(32,772
)
 
53,560

Total
$
368,610

 
$
(199,567
)
 
$
169,043

 
$
366,668

 
$
(185,938
)
 
$
180,730

Other:
 
 
 
 
 
 
 
 
 
 
 
Distribution channel
$
20,000

 
$
(3,445
)
 
$
16,555

 
$
20,000

 
$
(2,777
)
 
$
17,223

Technology
15,000

 
(9,294
)
 
5,706

 
15,000

 
(6,561
)
 
8,439

Brand
7,000

 
(1,808
)
 
5,192

 
7,000

 
(1,460
)
 
5,540

Total
$
42,000

 
$
(14,547
)
 
$
27,453

 
$
42,000

 
$
(10,798
)
 
$
31,202

Intangible assets with an indefinite life:
 
 
 
 
 
 
 
 
 
 
 
Lloyd’s syndicate capacity
$
37,031

 
$

 
$
37,031

 
$
37,031

 
$

 
$
37,031

Licenses
19,900

 

 
19,900

 
19,900

 

 
19,900

Management contract
30,100

 

 
30,100

 
30,100

 

 
30,100

Total
$
87,031

 
$

 
$
87,031

 
$
87,031

 
$

 
$
87,031

 
 
 
 
 
 
 
 
 
 
 
 
Deferred charge on retroactive reinsurance
$
271,176

 
$
(23,904
)
 
$
247,272

 
$271,176
 
$
(15,265
)
 
$255,911



34

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

11. LOANS PAYABLE
We utilize debt facilities primarily for acquisitions and, from time to time, for general corporate purposes. Under these facilities, loans payable and accrued interest as of June 30, 2016 and December 31, 2015 were as follows:
Facility
 
Origination Date
 
Term
 
June 30, 2016
 
December 31, 2015
EGL Revolving Credit Facility
 
September 16, 2014
 
5 years
 
$
549,798

 
$
505,750

Sussex Facility
 
December 24, 2014
 
4 years
 
63,500

 
94,000

Total long-term bank debt
 
 
 
613,298

 
599,750

Accrued interest
 
 
 
732

 
500

Total loans payable
 
 
 
$
614,030

 
$
600,250

For the three months ended June 30, 2016 and 2015, interest expense was $5.4 million and $4.8 million, respectively. For the six months ended June 30, 2016 and 2015, interest expense was $10.8 million and $8.8 million, respectively.
EGL Revolving Credit Facility
This 5-year revolving credit facility, originated on September 16, 2014, and amended on February 27, 2015, February 15, 2016, and most recently on August 5, 2016, is among Enstar Group Limited and certain of its subsidiaries, as borrowers and as guarantors, and various financial institutions. We are permitted to borrow up to an aggregate of $665.0 million, and as of August 5, 2016 we have an option to obtain additional commitments of up to $166.25 million. As of June 30, 2016, there was $115.2 million of available unutilized capacity under this facility. We are in compliance with the covenants of the EGL Revolving Credit Facility.
During the three months ended June 30, 2016 we borrowed €75.0 million. This has been designated as a non-derivative hedge of our net investment in certain subsidiaries whose functional currency is denominated in Euros. The foreign exchange effect of revaluing these Euro borrowings resulted in a gain of $2.1 million recognized in the currency translation adjustment within accumulated other comprehensive income (loss) for the three and six months ended June 30, 2016. This gain was offset against an equivalent loss recognized upon the translation of those subsidiaries' financial statements from functional currency into U.S. dollars. There were no ineffective portions of the net investment hedge during the three or six months ended June 30, 2016, which would have required reclassification from accumulated other comprehensive income (loss) into earnings.
Sussex Facility
On December 24, 2014, we entered into a 4-year term loan (the "Sussex Facility", formerly called the Companion Facility) with two financial institutions. This facility was fully utilized to initially borrow $109.0 million to fund 50% of the consideration payable for the acquisition of Sussex, which was completed on January 27, 2015. During 2015, we repaid $15.0 million and during the six months ended June 30, 2016, we repaid $30.5 million of the outstanding principal on the facility, bringing the outstanding principal to $63.5 million. We are in compliance with the covenants of the Sussex Facility.
Refer to Note 13 to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2015 for further information on the terms of the above facilities.

35

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

12. NONCONTROLLING INTERESTS
Redeemable Noncontrolling Interest
Redeemable noncontrolling interest ("RNCI") as of June 30, 2016 and December 31, 2015 comprised the ownership interests held by Trident (39.32%) and Dowling (1.71%) in our subsidiary North Bay Holdings Limited ("North Bay"). North Bay owns our investments in StarStone and Atrium as well as certain non-life run-off portfolios. The following is a reconciliation of the beginning and ending carrying amount of the equity attributable to the RNCI as of June 30, 2016 and December 31, 2015: 
 
 
Six Months Ended June 30, 2016
 
Year Ended December 31, 2015
Balance at beginning of period
 
$
417,663

 
$
374,619

Capital contributions
 

 
15,728

Dividends paid
 

 
(16,128
)
Net earnings (loss) attributable to RNCI
 
18,541

 
(8,797
)
Accumulated other comprehensive earnings (loss) attributable to RNCI
 
1,649

 
(745
)
Transfer from noncontrolling interest
 

 
15,801

Accretion of RNCI to redemption value
 
1,803

 
37,185

Balance at end of period
 
$
439,656

 
$
417,663

Refer to Note 17 - "Related Party Transactions" and Note 18 - "Commitments and Contingencies" for additional information regarding RNCI.
Noncontrolling Interest
As of June 30, 2016 and December 31, 2015, we had $3.6 million and $3.9 million, respectively, of noncontrolling interest ("NCI") primarily related to an external interest in one of our non-life run-off subsidiaries.
13. SHARE CAPITAL
In June 2016, pursuant to an internal reorganization, we issued Series C Participating Non-Voting Perpetual Preferred Stock (“Series C Preferred Shares”) to one of our wholly-owned subsidiaries to be held in treasury, in exchange for all our Series A Non-Voting Convertible Ordinary Shares (“Series A Non-Voting Shares”), which had been issued to, and held in treasury by, one of our wholly-owned subsidiaries. The Series A Non-Voting Shares were subsequently canceled. The Series C Preferred Shares have no voting rights, other than with respect to certain limited matters whereby the consent of a majority of the holders of the outstanding Series C Preferred Shares, voting as a separate class, would be required.          
Refer to Note 15 of the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2015 for additional information on our Share Capital.

36

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

14. EARNINGS PER SHARE
The following table sets forth the comparison of basic and diluted earnings per share for the three and six months ended June 30, 2016 and 2015:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
Basic earnings per ordinary share:
 
 
 
 
 
 
 
Net earnings attributable to Enstar Group Limited
$
40,594

 
$
14,545

 
$
86,114

 
$
59,392

Weighted-average ordinary shares outstanding — basic
19,295,280

 
19,252,359

 
19,289,119

 
19,244,951

Net earnings per ordinary share attributable to Enstar Group Limited — basic
$
2.10

 
$
0.76

 
$
4.46

 
$
3.09

Diluted earnings per ordinary share:
 
 
 
 
 
 
 
Net earnings attributable to Enstar Group Limited
$
40,594

 
$
14,545

 
$
86,114

 
$
59,392

Weighted-average ordinary shares outstanding — basic
19,295,280

 
19,252,359

 
19,289,119

 
19,244,951

Effect of dilutive securities:
 
 
 
 
 
 
 
Unvested shares
25,762

 
39,524

 
25,448

 
38,017

Restricted share units
17,092

 
13,620

 
16,014

 
12,031

Warrants
92,330

 
78,250

 
89,960

 
69,776

Weighted-average ordinary shares outstanding — diluted
19,430,464

 
19,383,753

 
19,420,541

 
19,364,775

Net earnings per ordinary share attributable to Enstar Group Limited — diluted
$
2.09

 
$
0.75

 
$
4.43

 
$
3.07

15. EMPLOYEE BENEFITS
 We provide various employee benefits including share-based compensation, an employee share purchase plan, an annual incentive compensation program, and pension plans. These are described in Note 17 to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2015. On June 14, 2016, our shareholders approved the 2016 Equity Incentive Plan, which governs the terms of awards granted subsequent to its adoption. The plan replaced the expiring 2006 Equity Incentive Plan. Any outstanding awards granted under the 2006 plan remain in effect pursuant to their terms.
Share-based compensation expense for the three and six months ended June 30, 2016 was $3.7 million and$11.9 million, respectively, as compared to $7.7 million and $9.1 million for the comparative periods in 2015.
Employee share purchase plan expense for the three and six months ended June 30, 2016 and 2015, was less than $0.1 million and $0.2 million, respectively.
Annual incentive compensation program expense for the three and six months ended June 30, 2016, was $4.2 million and $5.0 million, respectively, as compared to $(0.9) million and $7.0 million for the comparative periods in 2015.
Pension expense for the three and six months ended June 30, 2016 was $2.8 million and $5.9 million, respectively, as compared to $2.8 million and $5.2 million for the comparative periods in 2015.

37

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

16. 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 (Benefit)
The effective tax rates on income for the three and six months ended June 30, 2016 were 14.5% and 13.3%, respectively, as compared to 24.2% and 18.8%, respectively, for the comparative periods in 2015. The effective tax rate on income differs from the statutory rate of 0% due to tax on foreign operations (primarily the United States and United Kingdom) and an increase in the assessment of valuation allowance on deferred tax assets. We have foreign operating subsidiaries and branch operations principally located in the United States, United Kingdom, Continental Europe and Australia that are subject to federal, foreign, state and local taxes in those jurisdictions. Deferred income tax liabilities have not been accrued with respect to the undistributed earnings of our foreign subsidiaries. If the earnings were to be distributed, as dividends or other distributions, withholding taxes may be imposed by the jurisdiction of the paying subsidiary. For our U.S. subsidiaries, we have not currently accrued any withholding taxes with respect to un-remitted earnings as management has no current intention of remitting these earnings. For our United Kingdom subsidiaries, there are no withholding taxes imposed. For our other foreign subsidiaries, it would not be practicable to compute such amounts due to a variety of factors, including the amount, timing, and manner of any repatriation. Because we operate in many jurisdictions, our net earnings are subject to risk due to changing tax laws and tax rates around the world. The current, rapidly changing economic environment may increase the likelihood of substantial changes to tax laws in the jurisdictions in which we operate.
Assessment of Valuation Allowance on Deferred Tax Assets
We have estimated the future taxable income of our foreign subsidiaries and have provided a valuation allowance in respect of loss carryforwards where we do not expect to realize a benefit. We have considered all available evidence using a “more likely than not” standard in determining the amount of the valuation allowance. During the three and six months ended June 30, 2016, we recognized an increase of $1.3 million and $2.2 million, respectively, in our deferred tax asset valuation allowance.
Accounting for Uncertainty in Income Taxes
We had no unrecognized tax benefits relating to uncertain tax positions as at either June 30, 2016 or December 31, 2015.
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 United States, United Kingdom and Australia are no longer subject to tax examinations for years before 2012, 2012 and 2009, respectively.

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

17. RELATED PARTY TRANSACTIONS
Stone Point Capital LLC
Through several private transactions occurring from May 2012 to July 2012, Trident acquired 1,350,000 of our Voting Ordinary Shares (which now constitutes approximately 8.3% of our outstanding Voting Ordinary Shares). On November 6, 2013, we appointed James D. Carey to our Board of Directors. Mr. Carey is the sole member of an entity that is one of four general partners of the entities serving as general partners for Trident, is a member of the investment committees of such general partners, and is a member and senior principal of Stone Point Capital LLC ("Stone Point"), the manager of the Trident funds.
In addition, we have entered into certain agreements with Trident with respect to Trident’s co-investments in the Atrium, Arden, and StarStone acquisitions. These include investors’ agreements and shareholders’ agreements, which provide for, among other things: (i) our right to redeem Trident’s equity interest in the Atrium/Arden and StarStone transactions in cash at fair market value within the 90 days following the fifth anniversary of the Arden and StarStone closings, respectively, and at any time following the seventh anniversary of the Arden and StarStone closings, respectively; and (ii) Trident’s right to have its equity co-investment interests in the Atrium/Arden and StarStone transactions redeemed by us at fair market value (which we may satisfy in either cash or our ordinary shares) following the seventh anniversaries of the Arden closing and StarStone closing, respectively. As of June 30, 2016, we have included $439.7 million (December 31, 2015: $417.7 million) as RNCI on our balance sheet relating to these Trident co-investment transactions. Pursuant to the terms of the shareholders’ agreements, Mr. Carey serves as a Trident representative on the boards of the holding companies established in connection with the Atrium/Arden and StarStone co-investment transactions. Trident also has a second representative on these boards who is a Stone Point employee.
As at June 30, 2016, we had investments in funds (carried within other investments) and a registered investment company affiliated with entities owned by Trident or otherwise affiliated with Stone Point. The fair value of the investments in the funds was $190.1 million and $237.9 million as of June 30, 2016 and December 31, 2015, respectively. The decrease was primarily due to a sale of one of the fund investments during the three months ended June 30, 2016. The fair value of our investment in the registered investment company was $21.2 million and $21.0 million as at June 30, 2016 and December 31, 2015, respectively. For the six months ended June 30, 2016 and 2015, we recognized net realized and unrealized gains of $5.8 million and $5.5 million, respectively, in respect of the fund investments and net unrealized losses of $0.5 million and net unrealized gains of $0.2 million, respectively, in respect of the registered investment company investment. For the six months ended June 30, 2016 and 2015, we recognized interest income of $1.3 million in respect of the registered investment company.
We also have separate accounts, with a balance of $237.9 million and $157.8 million as at June 30, 2016 and December 31, 2015, respectively, managed by Eagle Point Credit Management and PRIMA Capital Advisors, which are affiliates of entities owned by Trident, with respect to which we incurred approximately $0.2 million and $0.1 million in management fees for the six months ended June 30, 2016 and 2015, respectively.
In addition, we are invested 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. The fair value of our investments in Sound Point Capital funds was $24.1 million and $34.5 million as of June 30, 2016 and December 31, 2015, respectively; the decrease was primarily due to a partial sale of a fund investment during the six months ended June 30, 2016. For the six months ended June 30, 2016 and 2015, we have recognized net unrealized gains of $0.7 million and $1.6 million, respectively, in respect of investments managed by Sound Point Capital.
Sound Point Capital has acted as collateral manager for certain of our direct investments in CLO equity securities. The fair value of these investments was $18.8 million and $18.2 million as at June 30, 2016 and December 31, 2015, respectively. For the six months ended June 30, 2016 and 2015, we recognized net unrealized gains of $0.7 million and net unrealized losses of $0.7 million, respectively. For the six months ended June 30, 2016 and 2015, we recognized interest income of $3.6 million and $0.9 million in respect of these investments
During 2015 we opened a separate account managed by Sound Point Capital, with a balance of $56.8 million and $53.5 million as at June 30, 2016 and December 31, 2015, respectively, with respect to which we incurred approximately $0.1 million in management fees for the six months ended June 30, 2016 and 2015, respectively.
Fees charged pursuant to investments affiliated with entities owned by Trident or Sound Point Capital were negotiated on an arm's-length basis.

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Goldman Sachs & Co.
Affiliates of Goldman Sachs own approximately 4.1% of our Voting Ordinary Shares and 100% of our Series C Non-Voting Ordinary Shares. Sumit Rajpal, a managing director of Goldman Sachs, was appointed to our Board of Directors in connection with Goldman Sachs’ investment in Enstar. As of both June 30, 2016 and December 31, 2015, we had investments in funds (carried within other investments) affiliated with entities owned by Goldman Sachs, which had a fair value of $13.9 million and $39.6 million, respectively. The decrease was primarily due to a sale of one of the fund investments during the three months ended June 30, 2016. As of June 30, 2016 and December 31, 2015, we had an indirect investment in non-voting interests of two companies affiliated with Hastings Insurance Group Limited, which had a fair value of $42.6 million and $44.6 million, respectively. Goldman Sachs affiliates have an approximately 38% interest in the Hastings companies, and Mr. Rajpal serves as a director of the entities in which we have invested. For the six months ended June 30, 2016 and 2015, we recognized net unrealized gains of $2.8 million and net unrealized losses of $2.4 million, respectively, in respect of the Goldman Sachs-affiliated investments. For the six months ended June 30, 2016 and 2015, we recognized interest income of $0.7 million and $nil in respect of the Goldman Sachs-affiliated investments.
During 2015, a Goldman Sachs affiliate began providing investment management services to one of our subsidiaries. Our interests are held in accounts managed by affiliates of Goldman Sachs, with a balance of $786.6 million and $758.9 million as at June 30, 2016 and December 31, 2015, respectively, with respect to which we incurred approximately $0.4 million and $0.3 million in management fees for the six months ended June 30, 2016 and 2015, respectively.
Fees charged pursuant to investments with affiliates of Goldman Sachs were negotiated on an arm's-length basis.
CPPIB
Canada Pension Plan Investment Board ("CPPIB"), together with management of Wilton Re, own 100% of the common stock of Wilton Re. Subsequent to the closing of our transaction with Wilton Re, on June 3, 2015, CPPIB purchased voting and non-voting shares in Enstar from FR XI Offshore AIV, L.P., First Reserve Fund XII, L.P., FR XII-A Parallel Vehicle L.P. and FR Torus Co-Investment, L.P. (collectively, "First Reserve", and the transaction, the "CPPIB-First Reserve Transaction"). These shares constitute a 9.3% voting interest and a 9.8% aggregate economic interest in Enstar. On September 29, 2015, CPPIB exercised its acquired right to appoint a representative to our Board of Directors. In addition, 4.6% of our voting shares are held indirectly by CPPIB through CPPIB Epsilon Ontario Limited Partnership ("CPPIB LP"). CPPIB is the sole limited partner of CPPIB LP, CPPIB Epsilon Ontario Trust ("CPPIB Trust") is the general partner, and CPPIB's director representative is the trustee of CPPIB Trust.
We also have a pre-existing reinsurance recoverable based on normal commercial terms from a company later acquired by Wilton Re, which was carried on our balance sheet at $11.2 million as of June 30, 2016.
18. COMMITMENTS AND CONTINGENCIES
Concentrations 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. Cash, cash equivalents and fixed maturity investments are managed pursuant to guidelines that follow prudent standards of diversification and limit the allowable holdings of a single issue and issuers. Other investments are managed pursuant to guidelines that emphasize diversification and liquidity. Pursuant to these guidelines, we manage and monitor risk across a variety of investment funds and vehicles, markets and counterparties. We are also subject to custodial credit risk on our fixed maturity and equity 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 reinsurance balances recoverable. We remain liable to the extent that retrocessionaires do not meet their contractual obligations and, therefore, we evaluate and monitor concentration of credit risk among our reinsurers. These amounts are discussed in Note 6 - "Reinsurance Balances Recoverable."

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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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 balance is credited with investment income and losses payable are deducted. We are subject to credit risk if the reinsured company is unable to honor the value of the funds held balances, such as in the event of insolvency. However, we generally have the contractual ability to offset any shortfall in the payment of the funds held balances with amounts owed by us to the reinsured for losses payable and other amounts contractually due. We routinely monitor the creditworthiness of reinsured companies with whom we have funds held arrangements. We have a significant concentration of $1.1 billion to one reinsured company which has financial strength credit ratings of A+ from A.M. Best and AA from Standard & Poor's.
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 funds held counterparty noted above, exceeded 10% of shareholders’ equity as of June 30, 2016.
Legal Proceedings
We are, from time to time, involved in various legal proceedings in the ordinary course of business, including litigation and arbitration regarding claims. Estimated losses relating to claims arising in the ordinary course of business, including the anticipated outcome of any pending arbitration or litigation, are included in the liability for losses and LAE in our consolidated balance sheets. In addition to claims litigation, we may be subject to other lawsuits and regulatory actions in the normal course of business, which may involve, among other things, allegations of underwriting errors or omissions, employment claims or regulatory activity. We do not believe that the resolution of any currently pending legal proceedings, either individually or taken as a whole, will have a material effect on our business, results of operations or financial condition. We anticipate that, similar to the rest of the insurance and reinsurance industry, we will continue to be subject to litigation and arbitration proceedings in the ordinary course of business, including litigation generally related to the scope of coverage with respect to asbestos and environmental and other claims.
Unfunded Investment Commitments
As at June 30, 2016, we had original commitments to investment funds of $380.0 million, of which $241.6 million has been funded, and $138.4 million remains outstanding as unfunded commitments.
Guarantees
As at June 30, 2016 and December 31, 2015, parental guarantees supporting subsidiaries' insurance obligations were $501.7 million and $334.2 million, respectively.
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"). The RNCI rights held by Trident are described in Note 17 - "Related Party Transactions." Dowling has a right to participate if Trident exercises its put right.


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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

19. SEGMENT INFORMATION
We monitor and report our results of operations in four segments: Non-life Run-off, Atrium, StarStone and Life and Annuities. These segments are described in Note 1 and Note 22 to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2015.
The following tables set forth selected and condensed consolidated statement of earnings results by segment for the three and six months ended June 30, 2016 and 2015:
 
Three Months Ended June 30, 2016
 
Non-life
Run-off
 
Atrium
 
StarStone
 
Life and
Annuities
 
Eliminations
 
Consolidated
INCOME
 
 
 
 
 
 
 
 
 
 
 
Net premiums earned
$
4,476

 
$
31,758

 
$
171,035

 
$
19,659

 
$

 
$
226,928

Fees and commission income
865

 
6,378

 

 

 

 
7,243

Net investment income
37,581

 
635

 
5,753

 
11,113

 
(859
)
 
54,223

Net realized and unrealized gains (losses)
26,161

 
68

 
8,021

 
3,737

 

 
37,987

Other income
2,036

 
65

 
1,584

 
363

 

 
4,048

 
71,119

 
38,904

 
186,393

 
34,872

 
(859
)
 
330,429

EXPENSES
 
 
 
 
 
 
 
 
 
 
 
Net incurred losses and LAE
(24,690
)
 
17,133

 
104,019

 

 

 
96,462

Life and annuity policy benefits

 

 

 
19,778

 

 
19,778

Acquisition costs
(56
)
 
11,240

 
32,518

 
2,804

 
(17
)
 
46,489

General and administrative expenses
61,449

 
6,629

 
31,311

 
6,467

 
22

 
105,878

Interest expense
6,016

 

 

 
272

 
(864
)
 
5,424

Net foreign exchange losses (gains)
(3,096
)
 
256

 
1,027

 
(43
)
 

 
(1,856
)
 
39,623

 
35,258

 
168,875

 
29,278

 
(859
)
 
272,175

EARNINGS BEFORE INCOME TAXES
31,496

 
3,646

 
17,518

 
5,594

 

 
58,254

INCOME TAXES
(3,486
)
 
(580
)
 
(3,970
)
 
(437
)
 

 
(8,473
)
NET EARNINGS
28,010

 
3,066

 
13,548

 
5,157

 

 
49,781

Less: Net losses (earnings) attributable to noncontrolling interest
(2,370
)
 
(1,258
)
 
(5,559
)
 

 

 
(9,187
)
NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED
$
25,640

 
$
1,808

 
$
7,989

 
$
5,157

 
$

 
$
40,594


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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 
Six Months Ended June 30, 2016
 
Non-life
run-off
 
Atrium
 
StarStone
 
Life and annuities
 
Eliminations
 
Consolidated
INCOME
 
 
 
 
 
 
 
 
 
 
 
Net premiums earned
$
9,911

 
$
63,669

 
$
325,117

 
$
37,640

 
$

 
$
436,337

Fees and commission income
7,431

 
10,210

 

 

 
(5,051
)
 
12,590

Net investment income
73,811

 
1,189

 
11,033

 
29,534

 
(1,281
)
 
114,286

Net realized and unrealized gains (losses)
49,551

 
108

 
22,370

 
3,922

 

 
75,951

Other income
3,836

 
99

 
1,595

 
931

 

 
6,461

 
144,540

 
75,275

 
360,115

 
72,027

 
(6,332
)
 
645,625

EXPENSES
 
 
 
 
 
 
 
 
 
 
 
Net incurred losses and LAE
(48,244
)
 
32,722

 
195,202

 

 

 
179,680

Life and annuity policy benefits

 

 

 
40,758

 

 
40,758

Acquisition costs
1,926

 
22,327

 
64,578

 
5,206

 
(283
)
 
93,754

General and administrative expenses
119,562

 
13,037

 
61,466

 
11,027

 
(4,768
)
 
200,324

Interest expense
11,496

 

 

 
610

 
(1,281
)
 
10,825

Net foreign exchange losses (gains)
(2,216
)
 
2,071

 
(272
)
 
333

 

 
(84
)
 
82,524

 
70,157

 
320,974

 
57,934

 
(6,332
)
 
525,257

EARNINGS BEFORE INCOME TAXES
62,016

 
5,118

 
39,141

 
14,093

 

 
120,368

INCOME TAXES
(8,159
)
 
(1,258
)
 
(5,988
)
 
(577
)
 

 
(15,982
)
NET EARNINGS
53,857

 
3,860

 
33,153

 
13,516

 

 
104,386

Less: Net earnings attributable to noncontrolling interest
(3,085
)
 
(1,584
)
 
(13,603
)
 

 

 
(18,272
)
NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED
$
50,772

 
$
2,276

 
$
19,550

 
$
13,516

 
$

 
$
86,114



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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 
 
Three Months Ended June 30, 2015
 
Non-life
Run-off
 
Atrium
 
StarStone
 
Life and
Annuities
 
Eliminations
 
Consolidated
INCOME
 
 
 
 
 
 
 
 
 
 
 
Net premiums earned
$
17,298

 
$
33,957

 
$
137,696

 
$
23,072

 
$

 
$
212,023

Fees and commission income
4,892

 
7,457

 

 

 
(3,218
)
 
9,131

Net investment income
18,569

 
523

 
4,058

 
11,577

 
(72
)
 
34,655

Net realized and unrealized gains
(4,308
)
 
38

 
(3,355
)
 
(3,624
)
 

 
(11,249
)
Other income
9,875

 
76

 
1,303

 
584

 

 
11,838

 
46,326

 
42,051

 
139,702

 
31,609

 
(3,290
)
 
256,398

EXPENSES
 
 
 
 
 
 
 
 
 
 
 
Net incurred losses and LAE
(28,870
)
 
13,757

 
81,013

 

 

 
65,900

Life and annuity policy benefits

 

 

 
28,090

 

 
28,090

Acquisition costs
(5,871
)
 
12,301

 
27,365

 
3,299

 

 
37,094

General and administrative expenses
53,168

 
6,670

 
32,891

 
4,452

 
(3,218
)
 
93,963

Interest expense
2,826

 
1,482

 

 
640

 
(72
)
 
4,876

Net foreign exchange losses (gains)
(4,543
)
 
2,213

 
4,200

 
582

 

 
2,452

 
16,710

 
36,423

 
145,469

 
37,063

 
(3,290
)
 
232,375

EARNINGS BEFORE INCOME TAXES
29,616

 
5,628

 
(5,767
)
 
(5,454
)
 

 
24,023

INCOME TAXES
(6,104
)
 
(2,252
)
 
694

 
1,846

 

 
(5,816
)
NET EARNINGS
23,512

 
3,376

 
(5,073
)
 
(3,608
)
 

 
18,207

Less: Net losses (earnings) attributable to noncontrolling interest
(3,761
)
 
(1,982
)
 
2,081

 

 

 
(3,662
)
NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED
$
19,751

 
$
1,394

 
$
(2,992
)
 
$
(3,608
)
 
$

 
$
14,545







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ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 
Six Months Ended June 30, 2015
 
Non-life
run-off
 
Atrium
 
StarStone
 
Life and annuities
 
Eliminations
 
Consolidated
INCOME
 
 
 
 
 
 
 
 
 
 
 
Net premiums earned
$
35,790

 
$
67,829

 
$
261,318

 
$
45,992

 
$

 
$
410,929

Fees and commission income
9,729

 
16,985

 
14

 

 
(6,117
)
 
20,611

Net investment income
37,433

 
1,030

 
6,189

 
20,652

 
(232
)
 
65,072

Net realized and unrealized gains (losses)
30,352

 
129

 
1,347

 
(57
)
 

 
31,771

Other income
12,915

 
154

 
1,366

 
879

 

 
15,314

 
126,219

 
86,127

 
270,234

 
67,466

 
(6,349
)
 
543,697

EXPENSES
 
 
 
 
 
 
 
 
 
 
 
Net incurred losses and LAE
(41,970
)
 
20,777

 
157,229

 

 

 
136,036

Life and annuity policy benefits

 

 

 
50,937

 

 
50,937

Acquisition costs
(7,576
)
 
21,707

 
51,508

 
6,005

 

 
71,644

General and administrative expenses
108,159

 
18,293

 
63,104

 
7,122

 
(6,117
)
 
190,561

Interest expense
5,346

 
2,965

 

 
800

 
(232
)
 
8,879

Net foreign exchange losses (gains)
595

 
(302
)
 
(2,180
)
 
(732
)
 

 
(2,619
)
 
64,554

 
63,440

 
269,661

 
64,132

 
(6,349
)
 
455,438

EARNINGS BEFORE INCOME TAXES
61,665

 
22,687

 
573

 
3,334

 

 
88,259

INCOME TAXES
(11,211
)
 
(4,136
)
 
12

 
(1,225
)
 

 
(16,560
)
NET EARNINGS
50,454

 
18,551

 
585

 
2,109

 

 
71,699

Less: Net earnings attributable to noncontrolling interest
(3,357
)
 
(8,710
)
 
(240
)
 

 

 
(12,307
)
NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED
$
47,097

 
$
9,841

 
$
345

 
$
2,109

 
$

 
$
59,392


Assets by Segment
Invested assets are managed on a subsidiary-by-subsidiary basis, and investment income and realized and unrealized gains (losses) on investments are recognized in each segment as earned. Our total assets as at June 30, 2016 and December 31, 2015 by segment were as follows (the elimination items include the elimination of intersegment assets):
 
2016
 
2015
Total assets:
 
 
 
Non-life Run-off
$
8,337,022

 
$
7,629,184

Atrium
577,235

 
555,621

StarStone
2,915,503

 
2,778,275

Life and annuities
1,687,902

 
1,734,945

Less:
 
 
 
Eliminations
(858,496
)
 
(865,893
)
 
$
12,659,166

 
$
11,832,132

 

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ITEM 2.     MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition as of June 30, 2016 and results of operations for the three and six months ended June 30, 2016 and 2015 should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this quarterly report and the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2015. Some of the information contained in this discussion and analysis or included elsewhere in this quarterly report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and the timing of events could differ materially from those anticipated by these forward-looking statements as a result of many factors, including those discussed under "Cautionary Statement Regarding Forward-Looking Statements", and "Risk Factors" included in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015.
Table of Contents
Section
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

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Business Overview
We are a Bermuda-based holding company with a core focus of acquiring and managing insurance and reinsurance companies in run-off and portfolios of insurance and reinsurance business in run-off, and providing management, consulting and other services to the insurance and reinsurance industry. We operate our business internationally through our insurance and reinsurance subsidiaries and our consulting subsidiaries in Bermuda, the United States, the United Kingdom, Continental Europe, Australia, and other international locations.
The majority of our acquisitions have been in the non-life run-off business, which for us generally includes property and casualty, workers’ compensation, asbestos and environmental, construction defect, marine, aviation and transit, and other closed business.
While our core focus remains acquiring and managing non-life run-off business, in recent years, we expanded our business to include active underwriting through our acquisitions of Atrium and StarStone. We partnered with the Trident V Funds ("Trident") in the Atrium and StarStone acquisitions, with Enstar owning a 59.0% interest, Trident owning a 39.3% interest, and Dowling Capital Partners, L.P. ("Dowling") owning a 1.7% interest. We also expanded our portfolio of run-off businesses to include closed life and annuities, primarily through our acquisition of Pavonia from HSBC Holdings plc in 2013.
We have four segments of business that are each managed, operated and reported upon separately: (i) Non-life Run-off; (ii) Atrium; (iii) StarStone; and (iv) Life and Annuities. For additional information relating to our segments, see "Item 1. Business - Operating Segments" in our Annual Report on Form 10-K for the year ended December 31, 2015.

Our business strategies are discussed in "Item 1. Business - Company Overview", "- Business Strategy", and "- Recent Acquisitions and Significant New Business" in our Annual Report on Form 10-K for the year ended December 31, 2015.
Key Performance Indicator
Our primary corporate objective is to grow our fully diluted book value per share. This is driven primarily by growth in our net earnings, which is in turn driven in large part by successfully completing new acquisitions, effectively managing companies and portfolios of business that we have acquired, and executing our active underwriting strategies. The drivers of our book value growth are discussed in "Item 1. Business - Business Strategy" in our Annual Report on Form 10-K for the year ended December 31, 2015.
During the six months ended June 30, 2016, we increased our book value per share on a fully diluted basis by 3.9% to $134.68 per share. The increase was primarily due to net earnings attributable to Enstar Group Limited of $86.1 million.
Current Outlook
Our business strategy includes generating growth through acquisitions and reinsurance transactions, particularly in our Non-life Run-off segment. On August 5, 2016, we entered into a transaction to assume $109.0 million of reserves from The Coca-Cola Company and its subsidiaries (“Coca-Cola”). On March 31, 2016, we completed an agreement to assume net reserves of $1.1 billion from Allianz SE ("Allianz") effective January 1, 2016. We are also providing claims consulting services to Allianz on this portfolio of business. We will continue to employ a disciplined approach when assessing, acquiring and managing portfolios of risk.
Our industry continues to experience challenging market conditions in underwriting and investing. We continue to see overcapacity in many markets for insurable risks, resulting in continued pressure on premium rates and terms and conditions. We seek to maintain a disciplined underwriting approach to underwrite for profitability in our active underwriting segments, StarStone and Atrium. For the six months ended June 30, 2016 compared to 2015, gross premiums written decreased in our Atrium segment as certain business no longer met our underwriting standards. In our StarStone segment, gross premiums written increased through selective growth in certain specialty lines, which included the addition of new underwriting teams during late 2015.
Low yields persist in the investment markets and investment returns remain volatile. We expect to maintain our investment strategy, which emphasizes the preservation of our assets, credit quality, and diversification. We will continue to seek superior risk-adjusted returns by allocating a portion of our portfolio to non-investment grade securities or alternative investments in accordance with our investment guidelines. For the six months ended June 30, 2016 compared to the six months ended June 30, 2015, net investment income increased primarily due to our higher average

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invested assets and a higher yield obtained on those assets. Net investment income for the six months ended June 30, 2016 also benefited from income on life settlements contracts and interest on funds held relating to the portfolio assumed from Allianz.
In a referendum on June 23, 2016, the United Kingdom voted to leave the European Union (commonly referred to as "Brexit"). Although there was significant volatility in the financial and foreign exchange markets during the three months ended June 30, 2016, this did not have a material impact on our financial statements. This volatility is expected to continue as the timing and nature of the United Kingdom's exit is yet to be determined. For companies based in the United Kingdom there is heightened uncertainty regarding trading relationships with countries in the European Union. Both our StarStone and Atrium operations have well-diversified sources of premium which may mitigate the potential impact of Brexit. The majority of business written in StarStone and Atrium is in United States dollars, so the impact of currency volatility on those segments has not been significant. In addition, StarStone already has established operations within the European Economic Area. Lloyd's has stated its intention is to retain passporting rights and to lobby the government to include this in its negotiations with the European Union, whilst also evaluating alternative models to access the markets. In the near-term, access to markets is unaffected until the United Kingdom triggers Article 50, and all contracts entered into up until that time are expected to remain valid into the post-Brexit period.
Recent Developments
Our transactions take the form of either acquisition of companies or loss portfolio transfer, where a reinsurance contract transfers a portfolio of loss and loss adjustment expenses ("LAE") liabilities from a (re)insurance counterparty to an Enstar-owned reinsurer.
Coca-Cola
On August 5, 2016, we entered into a reinsurance transaction with Coca-Cola pursuant to which we reinsured certain of Coca-Cola’s retention and deductible risks under its subsidiaries’ U.S. workers’ compensation, auto liability, general liability, and product liability insurance coverage. We assumed total gross reserves of $109.1 million, received total assets of $102.7 million and recorded a deferred charge of $6.4 million, included in other assets. We have transferred approximately $109.1 million into trust to support our obligations under the reinsurance agreements.  We provided a limited parental guarantee, subject to an overall maximum of approximately $27.0 million.

Allianz

On March 31, 2016, we completed our previously announced transaction with Allianz to reinsure portfolios of Allianz's run-off business. Pursuant to the reinsurance agreement effective January 1, 2016, our subsidiary reinsured 50% of certain portfolios of workers' compensation, construction defect, and asbestos, pollution, and toxic tort business originally held by Fireman's Fund Insurance Company, and assumed net reinsurance reserves of approximately $1.1 billion. Affiliates of Allianz retained approximately $1.1 billion of reinsurance premium as funds withheld collateral for the obligations of our subsidiary under the reinsurance agreement and we transferred approximately $110.0 million to a reinsurance trust to further support our subsidiary's obligations. We earn interest on the funds withheld based upon an initial fixed interest rate. We have also provided a limited parental guarantee, which is subject to a maximum cap.  The combined monetary total of the support offered by us through the trust and parental guarantee is calculated in accordance with contractually defined terms and is capped at $270.0 million.
In addition to the reinsurance transaction described above, we have entered into a claims consulting agreement with San Francisco Reinsurance Company, an affiliate of Allianz, with respect to the entire $2.2 billion portfolio, including the 50% share retained by affiliates of Allianz.
Non-GAAP Financial Measures
In presenting our results for the Atrium and StarStone segments, we discuss the loss ratio, acquisition cost ratio, other operating expense ratio, and the combined ratio of our active underwriting operations within these segments. While we consider these measures to be non-GAAP, management believes that these ratios provide the most meaningful measure for understanding our underwriting profitability. These non-GAAP measures may be defined or calculated differently by other companies. There are no comparable GAAP measures to our insurance ratios.
The loss ratio is calculated by dividing net incurred losses and LAE by net premiums earned. The acquisition cost ratio is calculated by dividing acquisition costs by net premiums earned. The other operating expense ratio is calculated by dividing other operating expenses by net earned premiums earned. The combined ratio is the sum of the loss ratio, the acquisition cost ratio and the other operating expense ratio. The ratios exclude expenses related to

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the holding companies, which we believe is the most meaningful presentation because these expenses are not incremental and/or directly related to the individual underwriting operations.
In the loss ratio, the excluded net premiums earned and net incurred losses and LAE of the holding companies relate to the amortization of our fair value adjustments associated with the liabilities for unearned premiums and losses and LAE acquired on acquisition date. Fair value purchase accounting adjustments established at the date of acquisition are recorded by the holding companies.
In Atrium’s other operating expense ratio, the excluded general and administrative expenses relate to amortization of the definite-lived intangible assets in the holding company, and expenses relating to Atrium Underwriters Limited ("AUL") including managing agency employee salaries, benefits, bonuses and current year share grant costs. The excluded AUL general and administrative expenses relate to expenses incurred in managing the syndicate, and eliminated items represent Atrium 5’s share of the fees and commissions paid to AUL. We believe it is a more meaningful presentation to exclude the costs in managing the syndicate because they are principally funded by the profit commission fees earned from Syndicate 609, which is a revenue item not included in the insurance ratios.
In StarStone’s other operating expense ratio for 2016, the excluded general and administrative expenses relate to the amortization of the definite-lived intangible assets, recorded at the holding company level. In StarStone’s other operating expense ratio for 2015, the excluded general and administrative expenses relate to management fee expenses charged by our Non-life Run-off segment primarily related to our costs incurred in managing StarStone, the amortization of the definite-lived intangible assets, and acquisition-related expenses, in each case recorded at the holding company level.

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Consolidated Results of Operations - For the Three and Six Months Ended June 30, 2016, and 2015
The following table sets forth our consolidated statements of earnings for each of the periods indicated. For a discussion of the critical accounting policies that affect the results of operations, see "Critical Accounting Policies" in our Annual Report on Form 10-K for the year ended December 31, 2015.  
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands of U.S. dollars)
INCOME
 
 
 
 
 
 
 
Net premiums earned
$
226,928

 
$
212,023

 
$
436,337

 
$
410,929

Fees and commission income
7,243

 
9,131

 
12,590

 
20,611

Net investment income
54,223

 
34,655

 
114,286

 
65,072

Net realized and unrealized gains (losses)
37,987

 
(11,249
)
 
75,951

 
31,771

Other income
4,048

 
11,838

 
6,461

 
15,314

 
330,429

 
256,398

 
645,625

 
543,697

EXPENSES
 
 
 
 
 
 
 
Net incurred losses and LAE
96,462

 
65,900

 
179,680

 
136,036

Life and annuity policy benefits
19,778

 
28,090

 
40,758

 
50,937

Acquisition costs
46,489

 
37,094

 
93,754

 
71,644

General and administrative expenses
105,878

 
93,963

 
200,324

 
190,561

Interest expense
5,424

 
4,876

 
10,825

 
8,879

Net foreign exchange losses (gains)
(1,856
)
 
2,452

 
(84
)
 
(2,619
)
 
272,175

 
232,375

 
525,257

 
455,438

EARNINGS BEFORE INCOME TAXES
58,254

 
24,023

 
120,368

 
88,259

INCOME TAXES
(8,473
)
 
(5,816
)
 
(15,982
)
 
(16,560
)
NET EARNINGS
49,781

 
18,207

 
104,386

 
71,699

Less: Net earnings attributable to noncontrolling interest
(9,187
)
 
(3,662
)
 
(18,272
)
 
(12,307
)
NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED
$
40,594

 
$
14,545

 
$
86,114

 
$
59,392

Highlights
Consolidated Results of Operations for the Three Months Ended June 30, 2016
Consolidated net earnings of $40.6 million and basic and diluted earnings per share of $2.10 and $2.09, respectively
Net earnings from Non-life Run-off and Life and Annuities segments of $25.6 million and $5.2 million, respectively
Net premiums earned of $226.9 million, including $171.0 million and $31.8 million in our StarStone and Atrium segments
Combined ratios of 98.2% and 100.1% for the active underwriting operations within our StarStone and Atrium segments, respectively (refer to "Non-GAAP Financial Measures" above)
Net investment income of $54.2 million and net realized and unrealized gains of $38.0 million
Consolidated Results of Operations for the Six Months Ended June 30, 2016
Consolidated net earnings of $86.1 million and basic and diluted earnings per share of $4.46 and $4.43, respectively
Net earnings from Non-life Run-off and Life and Annuities segments of $50.8 million and $13.5 million, respectively

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Net premiums earned of $436.3 million, including $325.1 million and $63.7 million in our StarStone and Atrium segments
Combined ratios of 99.0% and 97.3% for the active underwriting operations within our StarStone and Atrium segments, respectively (refer to "Non-GAAP Financial Measures" above)
Net investment income of $114.3 million and net realized and unrealized gains of $76.0 million
Consolidated Financial Condition as at June 30, 2016:
Total investments and cash of $8,612.6 million
Total reinsurance balances recoverable of $1,345.1 million
Total assets of $12,659.2 million
Shareholder's equity of $2,615.8 million and redeemable noncontrolling interest of $439.7 million
Total gross reserves for losses and LAE of $6,433.8 million, with $1,094.3 million of net reserves assumed in our non-life run-off operations during the six months ended June 30, 2016
Policy benefits for life and annuity contracts of $1,286.3 million
Diluted book value per common share of $134.68
Consolidated Overview - For the Three Months Ended June 30, 2016 and 2015
We reported consolidated net earnings attributable to Enstar Group Limited shareholders of $40.6 million for the three months ended June 30, 2016, an increase of $26.1 million from $14.5 million for the three months ended June 30, 2015. Our comparative results were impacted by our acquisition activity during 2015, when we acquired Sussex, Wilton Re’s life settlements business, and Alpha, and by our completed loss portfolio transfer reinsurance transactions during 2016 and 2015 with Allianz SE, Reciprocal of America, Voya and Sun Life.
The most significant drivers of our consolidated financial performance during the three months ended June 30, 2016 as compared to the three months ended June 30, 2015 included:
Non-life Run-off - Net earnings provided by the Non-life Run-off segment for the three months ended June 30, 2016 were $25.6 million compared to $19.8 million for the three months ended June 30, 2015. The increase in net earnings was primarily due to improved investment results, partially offset by a lower reduction in estimates of net ultimate incurred losses and higher general and administrative expenses;
StarStone - Net earnings attributable to the StarStone segment were $8.0 million for the three months ended June 30, 2016, compared to net losses of $3.0 million for the three months ended June 30, 2015. This was primarily due to improved investment performance during the period;
Atrium - Net earnings for the three months ended June 30, 2016 and 2015 were relatively consistent at $1.8 million and $1.4 million, respectively;
Life and Annuities - Net earnings for the three months ended June 30, 2016 were $5.2 million compared to net losses of $3.6 million for the three months ended June 30, 2015, with the 2016 earnings primarily due to improved investment performance during the period;
Net Investment Income - Total net investment income was $54.2 million and $34.7 million for the three months ended June 30, 2016 and 2015, respectively. The increase in net investment income was primarily attributable to a higher yield obtained on our invested assets. Net investment income for the three months ended June 30, 2016 also benefited from an increase of $7.6 million from the interest on funds held relating to the portfolio assumed from Allianz;
Net Realized and Unrealized Gains (Losses) - For the three months ended June 30, 2016, net realized and unrealized gains were $38.0 million compared to net realized and unrealized losses of $11.2 million in 2015. This increase was primarily attributable to higher net unrealized gains in 2016 due to the increase in valuations of our fixed maturity securities as treasury yields moved lower and credit spreads tightened during the period, which was partially offset by a decrease in net realized gains in 2016;

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Noncontrolling Interest - Noncontrolling interest in earnings is directly attributable to the results from those subsidiary companies in which there are either noncontrolling interests or redeemable noncontrolling interests. For the three months ended June 30, 2016 and 2015, the noncontrolling interest in earnings was $9.2 million and $3.7 million, respectively, primarily reflecting improved results in the StarStone segment.
Consolidated Overview - For the Six Months Ended June 30, 2016 and 2015
We reported consolidated net earnings attributable to Enstar Group Limited shareholders of $86.1 million for the six months ended June 30, 2016, an increase of $26.7 million from $59.4 million for the six months ended June 30, 2015. Our comparative results were impacted by our acquisition activity and completed loss portfolio transfer reinsurance transactions noted above.
The most significant drivers of our consolidated financial performance during the six months ended June 30, 2016 as compared to the six months ended June 30, 2015 included:
Non-life Run-off - Net earnings provided by the Non-life Run-off segment for the six months ended June 30, 2016 and 2015 were relatively consistent at $50.8 million and $47.1 million respectively, as improved investment results were partially offset by a lower reduction in estimates of net ultimate incurred losses and higher general and administrative expenses;
StarStone - Net earnings attributable to the StarStone segment were $19.6 million for the six months ended June 30, 2016, compared to $0.3 million for the six months ended June 30, 2015. This was primarily due to improved investment results during the period and some improvement in underwriting profitability;
Atrium - Net earnings for the six months ended June 30, 2016 were $2.3 million compared to $9.8 million for the six months ended June 30, 2015. The current period included lower favorable prior year loss development and some large loss activity, partially offset by a decrease in general and administrative expenses;
Life and Annuities - Net earnings for the six months ended June 30, 2016 were $13.5 million compared to $2.1 million for the six months ended June 30, 2015. The increase was primarily due to higher net investment income in the six months ended June 30, 2016, which included net earnings of $8.6 million from our life settlements business that we acquired in May 2015;
Net Investment Income - Total net investment income was $114.3 million and $65.1 million for the six months ended June 30, 2016 and 2015, respectively. Net investment income increased due to our higher average invested assets and a higher yield obtained on those assets. Net investment income for the six months ended June 30, 2016 also benefited from an increase in income from our life settlements business as well as interest on funds held of $15.2 million relating to the portfolio assumed from Allianz;
Net Realized and Unrealized Gains (Losses) - For the six months ended June 30, 2016, net realized and unrealized gains were $76.0 million compared to $31.8 million in 2015. This increase was primarily attributable to higher net unrealized gains due to the increase in valuations of our fixed maturity securities as treasury yields moved lower and credit spreads tightened during the period, which was partially offset by a decrease in net realized gains in 2016;
Noncontrolling Interest - Noncontrolling interest in earnings is directly attributable to the results from those subsidiary companies in which there are either noncontrolling interests or redeemable noncontrolling interests. For the six months ended June 30, 2016 and 2015, the noncontrolling interest in earnings was $18.3 million and $12.3 million, respectively, primarily reflecting improved results in the StarStone segment.


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Results of Operations by Segment - For the Three and Six Months Ended June 30, 2016, and 2015
We have four segments of business that are each managed, operated and reported on separately: (i) Non-life Run-off; (ii) Atrium; (iii) StarStone; and (iv) Life and Annuities. For a description of our segments, see "Item 1. Business - Operating Segments" in our Annual Report on Form 10-K for the year ended December 31, 2015.
The below table provides a split by operating segment of the net earnings attributable to Enstar Group Limited:  
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands of U.S. dollars)
Segment split of net earnings attributable to Enstar Group Limited:
 
 
 
 
 
 
 
Non-life Run-off
$
25,640

 
$
19,751

 
$
50,772

 
$
47,097

Atrium
1,808

 
1,394

 
2,276

 
9,841

StarStone
7,989

 
(2,992
)
 
19,550

 
345

Life and Annuities
5,157

 
(3,608
)
 
13,516

 
2,109

Net earnings attributable to Enstar Group Limited
$
40,594

 
$
14,545

 
$
86,114

 
$
59,392

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

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Non-life Run-off Segment
Our Non-Life Run-off segment comprises the operations of our subsidiaries that are running off their property and casualty and other non-life lines of business, including the run-off business of Arden Reinsurance Company Ltd. ("Arden") and StarStone. It also includes our smaller management business, which manages the run-off portfolios of third parties through our service companies. The following is a discussion and analysis of the results of operations for our Non-life Run-off segment for the three and six months ended June 30, 2016, and 2015, which are summarized below.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
Increase (decrease)
 
2016
 
2015
 
Increase (decrease)
 
(in thousands of U.S. dollars)
INCOME
 
 
 
 
 
 
 
 
 
 
 
Net premiums earned
$
4,476

 
$
17,298

 
$
(12,822
)
 
$
9,911

 
$
35,790

 
$
(25,879
)
Fees and commission income
865

 
4,892

 
(4,027
)
 
7,431

 
9,729

 
(2,298
)
Net investment income
37,581

 
18,569

 
19,012

 
73,811

 
37,433

 
36,378

Net realized and unrealized gains (losses)
26,161

 
(4,308
)
 
30,469

 
49,551

 
30,352

 
19,199

Other income
2,036

 
9,875

 
(7,839
)
 
3,836

 
12,915

 
(9,079
)
 
71,119

 
46,326

 
24,793

 
144,540

 
126,219

 
18,321

EXPENSES
 
 
 
 
 
 
 
 
 
 
 
Net incurred losses and LAE
(24,690
)
 
(28,870
)
 
4,180

 
(48,244
)
 
(41,970
)
 
(6,274
)
Acquisition costs
(56
)
 
(5,871
)
 
5,815

 
1,926

 
(7,576
)
 
9,502

General and administrative expenses
61,449

 
53,168

 
8,281

 
119,562

 
108,159

 
11,403

Interest expense
6,016

 
2,826

 
3,190

 
11,496

 
5,346

 
6,150

Net foreign exchange losses (gains)
(3,096
)
 
(4,543
)
 
1,447

 
(2,216
)
 
595

 
(2,811
)
 
39,623

 
16,710

 
22,913

 
82,524

 
64,554

 
17,970

EARNINGS BEFORE INCOME TAXES
31,496

 
29,616

 
1,880

 
62,016

 
61,665

 
351

INCOME TAXES
(3,486
)
 
(6,104
)
 
2,618

 
(8,159
)
 
(11,211
)
 
3,052

NET EARNINGS
28,010

 
23,512

 
4,498

 
53,857

 
50,454

 
3,403

Less: Net loss (earnings) attributable to noncontrolling interest
(2,370
)
 
(3,761
)
 
1,391

 
(3,085
)
 
(3,357
)
 
272

NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED
$
25,640

 
$
19,751

 
$
5,889

 
$
50,772

 
$
47,097

 
$
3,675

Overall Results
Three Months Ended June 30: Net earnings were $25.6 million and $19.8 million for the three months ended June 30, 2016 and 2015, respectively, an increase of $5.9 million. This was primarily due to more favorable investment results, partially offset by higher general and administrative expenses, amongst other items.
Six Months Ended June 30: Net earnings for the six months ended June 30, 2016 and 2015 were relatively consistent period over period, as favorable investment results in 2016 were partially offset by increases in general and administrative expenses, amongst other items.
The major components of earnings are discussed below, except for investment results which are separately discussed below in "Investments."


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Net Premiums Earned:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
Increase (decrease)
 
2016
 
2015
 
Increase (decrease)
 
(in thousands of U.S. dollars)
Gross premiums written
$
7,066

 
$
14,797

 
$
(7,731
)
 
$
13,763

 
$
24,914

 
$
(11,151
)
Ceded reinsurance premiums written
(4,290
)
 
(39,590
)
 
35,300

 
(5,716
)
 
(39,867
)
 
34,151

Net premiums written
2,776

 
(24,793
)
 
27,569

 
8,047

 
(14,953
)
 
23,000

Gross premiums earned
9,216

 
53,184

 
(43,968
)
 
17,163

 
78,157

 
(60,994
)
Ceded reinsurance premiums earned
(4,740
)
 
(35,886
)
 
31,146

 
(7,252
)
 
(42,367
)
 
35,115

Net premiums earned
$
4,476

 
$
17,298

 
$
(12,822
)
 
$
9,911

 
$
35,790

 
$
(25,879
)
Because business in this segment is in run-off, our general expectation is for premiums associated with legacy business to decline in future periods. However, the actual amount in any particular year will be impacted by new acquisitions during the year, and the run-off of premiums from acquisitions completed in recent years.
Three and Six Months Ended June 30: Premiums written and earned in the three and six months ended June 30, 2016 and 2015 were primarily attributable to Sussex and Alpha's run-off business for the obligatory renewal of certain policies that we are in the process of placing into run-off. The premiums earned are generally offset by net incurred losses and LAE relating to the premiums.
Fees and Commission Income:
Three and Six Months Ended June 30: Our management companies in the Non-life Run-off segment earned fees and commission income of $0.9 million and $4.9 million for the three months ended June 30, 2016 and 2015, respectively, and $7.4 million and $9.7 million for the six months ended June 30, 2016 and 2015, respectively. While our consulting subsidiaries continue to provide management and consultancy services, claims inspection services and reinsurance collection services to third-party clients in limited circumstances, the core focus of these subsidiaries is providing in-house services to companies within the Enstar group.
Net Incurred Losses and LAE:
The following table shows the components of net incurred losses and LAE for the Non-life-Run-off segment for the three and six months ended June 30, 2016 and 2015:
 
Three Months Ended June 30,
 
2016
 
2015
 
Prior
Periods
 
Current
Period
 
Total
 
Prior
Periods
 
Current
Period
 
Total
 
(in thousands of U.S. dollars)
Net losses paid
$
140,998

 
$
2,058

 
$
143,056

 
$
155,006

 
$
9,434

 
$
164,440

Net change in case and LAE reserves (1)
(74,832
)
 
272

 
(74,560
)
 
(108,819
)
 
4,489

 
(104,330
)
Net change in IBNR reserves (1)
(101,240
)
 
(1,596
)
 
(102,836
)
 
(84,581
)
 
8,624

 
(75,957
)
Increase (reduction) in estimates of net ultimate losses
(35,074
)
 
734

 
(34,340
)
 
(38,394
)
 
22,547

 
(15,847
)
Increase (reduction) in provisions for bad debt
(5,184
)
 

 
(5,184
)
 
(625
)
 

 
(625
)
Increase (reduction) in provisions for unallocated LAE
(6,355
)
 
(216
)
 
(6,571
)
 
(7,711
)
 

 
(7,711
)
Amortization of fair value adjustments
21,405

 

 
21,405

 
(4,687
)
 

 
(4,687
)
Net incurred losses and LAE
$
(25,208
)
 
$
518

 
$
(24,690
)
 
$
(51,417
)
 
$
22,547

 
$
(28,870
)
(1) Net change in case and LAE reserves comprises the movement during the period in specific case reserve liabilities as a result of claims settlements or changes advised to us by our policyholders and attorneys, less changes in case reserves recoverable advised by us to our reinsurers as a result of the settlement or movement of assumed claims. Net change in IBNR represents the gross change in our actuarial estimates of IBNR, less amounts recoverable.


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Six Months Ended June 30,
 
2016
 
2015
 
Prior
Periods
 
Current
Period
 
Total
 
Prior
Periods
 
Current
Period
 
Total
 
(in thousands of U.S. dollars)
Net losses paid
$
271,321

 
$
4,048

 
$
275,369

 
$
215,695

 
$
14,005

 
$
229,700

Net change in case and LAE reserves (1)
(183,801
)
 
456

 
(183,345
)
 
(118,813
)
 
7,483

 
$
(111,330
)
Net change in IBNR reserves (1)
(141,753
)
 
1,854

 
(139,899
)
 
(135,020
)
 
21,785

 
$
(113,235
)
Increase (reduction) in estimates of net ultimate losses
(54,233
)
 
6,358

 
(47,875
)
 
(38,138
)
 
43,273

 
5,135

Increase (reduction) in provisions for bad debt
(6,630
)
 

 
(6,630
)
 
(20,439
)
 

 
(20,439
)
Increase (reduction) in provisions for unallocated LAE
(14,590
)
 
229

 
(14,361
)
 
(21,686
)
 

 
(21,686
)
Amortization of fair value adjustments
20,622

 

 
20,622

 
(4,980
)
 

 
(4,980
)
Net incurred losses and LAE
$
(54,831
)
 
$
6,587

 
$
(48,244
)
 
$
(85,243
)
 
$
43,273

 
$
(41,970
)
(1) Net change in case and LAE reserves comprises the movement during the period in specific case reserve liabilities as a result of claims settlements or changes advised to us by our policyholders and attorneys, less changes in case reserves recoverable advised by us to our reinsurers as a result of the settlement or movement of assumed claims. Net change in IBNR represents the gross change in our actuarial estimates of IBNR, less amounts recoverable.
Three Months Ended June 30: The reduction in net incurred losses and LAE for the three months ended June 30, 2016 of $24.7 million included net incurred losses and LAE of $0.5 million related to current period net premiums earned of $0.5 million, primarily related to the run-off business acquired with Sussex. Excluding current period net incurred losses and LAE of $0.5 million, net incurred losses and LAE liabilities relating to prior periods were reduced by $25.2 million, which was attributable to a reduction in estimates of net ultimate losses of $35.1 million, a reduction in provisions for bad debt of $5.2 million and a reduction in provisions for unallocated LAE of $6.4 million, relating to 2016 run-off activity, partially offset by amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $21.4 million. The reduction in provisions for bad debt of $5.2 million was a result of the collection of certain reinsurance recoverables against which provisions for bad debt had been provided in earlier periods.
The reduction in net incurred losses and LAE for the three months ended June 30, 2015 of $28.9 million included net incurred losses and LAE of $22.5 million related to current period net premiums earned of $17.2 million, primarily related to the run-off business acquired with Sussex. Excluding current period net incurred losses and LAE of $22.5 million, net incurred losses and LAE liabilities relating to prior periods were reduced by $51.4 million, which was attributable to a reduction in estimates of net ultimate losses of $38.4 million, a reduction in provisions for bad debt of $0.6 million, a reduction in provisions for unallocated LAE of $7.7 million, relating to 2015 run-off activity, and amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $4.7 million.
Six Months Ended June 30: The reduction in net incurred losses and LAE for the six months ended June 30, 2016 of $48.2 million included net incurred losses and LAE of $6.6 million related to current period net premiums earned of $5.0 million, primarily related to the run-off business acquired with Sussex. Excluding current period net incurred losses and LAE of $6.6 million, net incurred losses and LAE liabilities relating to prior periods were reduced by $54.8 million, which was attributable to a reduction in estimates of net ultimate losses of $54.2 million, a reduction in provisions for bad debt of $6.6 million and a reduction in provisions for unallocated LAE of $14.6 million, relating to 2016 run-off activity, partially offset by amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $20.6 million. The reduction in provisions for bad debt of $6.6 million was a result of the collection of certain reinsurance recoverables against which provisions for bad debt had been provided in earlier periods.
The reduction in net incurred losses and LAE for the six months ended June 30, 2015 of $42.0 million included net incurred losses and LAE of $43.3 million related to current period net earned premium of $35.8 million, primarily related to the run-off business acquired with Sussex. Excluding current period net incurred losses and LAE of $43.3 million, net incurred losses and LAE liabilities relating to prior periods were reduced by $85.2 million, which was attributable to a reduction in estimates of net ultimate losses of $38.1 million, reduction in provisions for bad debt of $20.4 million, a reduction in provisions for unallocated LAE liabilities of $21.7 million, relating to 2015 run-off activity, and amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $5.0 million.


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Acquisition Costs:
Three and Six Months Ended June 30: Acquisition costs were $(0.1) million and $(5.9) million for the three months ended June 30, 2016 and 2015, respectively, and $1.9 million and $(7.6) million for the six months ended June 30, 2016 and 2015, respectively. Acquisition costs for the three and six months ended June 30, 2016 primarily related to net premiums earned on the Alpha Insurance business that was placed into run-off, whereas the recovery in the three and six months ended June 30, 2015 related to StarStone's legacy business that was placed into run-off.
General and Administrative Expenses:
Three and Six Months Ended June 30: General and administrative expenses were $61.4 million and $53.2 million for the three months ended June 30, 2016 and 2015, respectively, and $119.6 million and $108.2 million for the six months ended 2016 and 2015, respectively. The increase in general and administrative expenses was primarily related to our recent acquisitions resulting in both an increased employee headcount and certain non-recurring charges which were incurred in 2016.
Interest Expense:
Three and Six Months Ended June 30: Interest expense was $6.0 million and $2.8 million for the three months ended June 30, 2016 and 2015, respectively, and $11.5 million and $5.3 million for the six months ended 2016 and 2015, respectively. The increase in interest expense was primarily due to the increase in loans outstanding in 2016 as a result of drawdowns for acquisitions and significant new business during 2015.
Net Foreign Exchange Losses (Gains)
Three and Six Months Ended June 30: Net foreign exchange gains were $3.1 million and $4.5 million for the three months ended June 30, 2016 and 2015, respectively. We recorded net foreign exchange gains of $2.2 million compared with net foreign exchange losses of $0.6 million for the six months ended June 30, 2016 and 2015, respectively. Refer to Item 3. Quantitative and Qualitative Disclosures About Market Risk - Foreign Currency Risk" of this Quarterly Report for further information regarding our foreign currency exposures, how we manage them, and recent actions taken to hedge certain net exposures denominated in Euros, Canadian dollars and Australian dollars.
Noncontrolling Interest:
Three and Six Months Ended June 30: There was no significant change in noncontrolling interests. Noncontrolling interest in earnings of our Non-life Run-off segment was $2.4 million and $3.8 million for the three months ended June 30, 2016 and 2015, respectively, and $3.1 million and $3.4 million for the six months ended June 30, 2016 and 2015, respectively. During the year ended December 31, 2015, the number of subsidiaries in this segment with a noncontrolling interest decreased from 7 as at December 31, 2014 to 2 as at December 31, 2015 due primarily to the repurchases made during 2015 as described in "Item 1. Business - Other Transactions" in our Annual Report on Form 10-K for the year ended December 31, 2015.

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Atrium Segment
The Atrium segment includes Atrium 5 Ltd. ("Atrium 5"), AUL, Northshore Holdings Limited ("Holding Company"), and an allocation of financing costs up until December 31, 2015 ("Enstar Specific Expenses"). Atrium 5 results represent its proportionate share of the results of Syndicate 609 for which it provides 25% of the underwriting capacity and capital. AUL results largely represent fees charged to Syndicate 609 and a 20% profit commission on the results of the syndicate less general and administrative expenses incurred in managing the syndicate. AUL also includes other Atrium Group non-syndicate fee income and associated expenses. The Holding Company results include the amortization of intangible assets that were fair valued upon acquisition and Enstar Specific Expenses represent our acquisition financing costs.
The following is a discussion and analysis of the results of operations for our Atrium segment for the three and six months ended June 30, 2016 and 2015, which are summarized below.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
Increase (decrease)
 
2016
 
2015
 
Increase (decrease)
 
(in thousands of U.S. dollars)
INCOME
 
 
 
 
 
 
 
 
 
 
 
Net premiums earned
$
31,758

 
$
33,957

 
$
(2,199
)
 
$
63,669

 
$
67,829

 
$
(4,160
)
Fees and commission income
6,378

 
7,457

 
(1,079
)
 
10,210

 
16,985

 
(6,775
)
Net investment income
635

 
523

 
112

 
1,189

 
1,030

 
159

Net realized and unrealized gains
68

 
38

 
30

 
108

 
129

 
(21
)
Other income
65

 
76

 
(11
)
 
99

 
154

 
(55
)
 
38,904

 
42,051

 
(3,147
)
 
75,275

 
86,127

 
(10,852
)
EXPENSES
 
 
 
 
 
 
 
 
 
 
 
Net incurred losses and LAE
17,133

 
13,757

 
3,376

 
32,722

 
20,777

 
11,945

Acquisition costs
11,240

 
12,301

 
(1,061
)
 
22,327

 
21,707

 
620

General and administrative expenses
6,629

 
6,670

 
(41
)
 
13,037

 
18,293

 
(5,256
)
Interest expense

 
1,482

 
(1,482
)
 

 
2,965

 
(2,965
)
Net foreign exchange losses (gains)
256

 
2,213

 
(1,957
)
 
2,071

 
(302
)
 
2,373

 
35,258

 
36,423

 
(1,165
)
 
70,157

 
63,440

 
6,717

EARNINGS BEFORE INCOME TAXES
3,646

 
5,628

 
(1,982
)
 
5,118

 
22,687

 
(17,569
)
INCOME TAXES
(580
)
 
(2,252
)
 
1,672

 
(1,258
)
 
(4,136
)
 
2,878

NET EARNINGS
3,066

 
3,376

 
(310
)
 
3,860

 
18,551

 
(14,691
)
Less: Net earnings attributable to noncontrolling interest
(1,258
)
 
(1,982
)
 
724

 
(1,584
)
 
(8,710
)
 
7,126

NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED
$
1,808

 
$
1,394

 
$
414

 
$
2,276

 
$
9,841

 
$
(7,565
)
Overall Results
An analysis of the components of the segment's net earnings is shown below, after the attribution of net earnings to noncontrolling interest.

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Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
Increase (decrease)
 
2016
 
2015
 
Increase (decrease)
 
(in thousands of U.S. dollars)
Atrium 5
$
415

 
$
790

 
$
(375
)
 
$
742

 
$
9,580

 
$
(8,838
)
AUL
1,598

 
3,494

 
(1,896
)
 
2,129

 
5,019

 
(2,890
)
Atrium Total
2,013

 
4,284

 
(2,271
)
 
2,871

 
14,599

 
(11,728
)
Holding Company
(205
)
 
(1,408
)
 
1,203

 
(595
)
 
(1,793
)
 
1,198

Enstar Specific Expenses

 
(1,482
)
 
1,482

 

 
(2,965
)
 
2,965

NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED
$
1,808

 
$
1,394

 
$
414

 
$
2,276

 
$
9,841

 
$
(7,565
)
Net earnings shown above excludes unrealized investment gains (losses) and foreign currency translation adjustments relating to Atrium's available-for-sale investments, which are recognized in accumulated other comprehensive income. After attribution to noncontrolling interests, these amounts were a loss of $(0.2) million and a gain of $3.0 million for the three and six months ended June 30, 2016, respectively, and a gain of $2.0 million and a loss of $(0.8) million for the three and six months ended June 30, 2015, respectively.
Underwriting Performance
In evaluating the underwriting performance of the Atrium segment, we consider the insurance ratios of Atrium 5, which is the active underwriting component of the segment and excludes AUL and the Holding Company. Atrium 5's insurance ratios are shown below.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
(Favorable)
Unfavorable
 
2016
 
2015
 
(Favorable)
Unfavorable
Loss ratio (1)
53.6
%
 
35.8
%
 
17.8
 %
 
51.2
%
 
28.3
%
 
22.9
 %
Acquisition cost ratio (1)
34.4
%
 
36.2
%
 
(1.8
)%
 
34.6
%
 
32.0
%
 
2.6
 %
Other operating expense ratio (1)
12.1
%
 
17.1
%
 
(5.0
)%
 
11.5
%
 
16.0
%
 
(4.5
)%
Combined ratio (1)
100.1
%
 
89.1
%
 
11.0
 %
 
97.3
%
 
76.3
%
 
21.0
 %
(1) Refer to "Non-GAAP Financial Measures" for a description of how these ratios are calculated. The ratios are based upon the following amounts for Atrium 5, which exclude amounts for AUL and the Holding Company, for the three months ended June 30, 2016 and 2015, respectively: net premiums earned of $31,758 and $33,957, net incurred losses and LAE of $17,020 and $12,162, acquisition costs of $10,935 and $12,300, and other operating expenses of $3,830 and $5,797. The ratios are based upon the following amounts for Atrium 5, which exclude amounts for AUL and the Holding Company, for the six months ended June 30, 2016 and 2015, respectively: net premiums earned of $63,669 and $67,829, net incurred losses and LAE of $32,570 and $19,181, acquisition costs of $22,022 and $21,707, and other operating expenses of $7,295 and $10,835.
The higher combined ratio of Atrium 5 for the three and six months ended June 30, 2016 as compared to the three and six months ended June 30, 2015 was due to an increase in the net loss ratio, partially offset by a lower operating expense ratio. This was primarily attributable to lower favorable prior year loss development in the three and six months ended June 30, 2016 as compared to the three and six months ended June 30, 2015, and a series of large losses in 2016. The 2016 large losses included earthquakes in Taiwan, Ecuador and Japan; flooding in Europe; wildfires in Canada and hailstorms in the United States.

The decrease in the AUL result in the three and six months ended June 30, 2016 as compared to the three and six months ended June 30, 2015 reflects decreased profit commission earned from the results of Syndicate 609.
Holding Company Expenses and Enstar Specific Expenses are included below under "General and Administrative Expenses" and "Interest Expense", respectively.
Investment results are separately discussed below in "Investments."

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Gross Premiums Written:
The following table provides gross premiums written by line of business for the Atrium segment for the three and six months ended June 30, 2016 and 2015:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
Increase (decrease)
 
2016
 
2015
 
Increase (decrease)
 
(in thousands of U.S. dollars)
Marine
$
5,179

 
$
4,481

 
$
698

 
$
9,347

 
$
11,598

 
$
(2,251
)
Property and Casualty Binding Authorities
9,298

 
7,909

 
1,389

 
18,976

 
16,221

 
2,755

Upstream Energy
3,613

 
3,529

 
84

 
6,484

 
8,440

 
(1,956
)
Reinsurance
3,642

 
3,441

 
201

 
10,029

 
11,653

 
(1,624
)
Accident and Health
3,335

 
2,348

 
987

 
7,603

 
7,244

 
359

Non-Marine Direct and Facultative
4,653

 
4,580

 
73

 
8,566

 
8,412

 
154

Liability
4,787

 
5,092

 
(305
)
 
10,055

 
10,355

 
(300
)
Aviation
542

 
1,538

 
(996
)
 
3,221

 
4,901

 
(1,680
)
War and Terrorism
2,732

 
2,868

 
(136
)
 
5,018

 
5,875

 
(857
)
Total
$
37,781

 
$
35,786

 
$
1,995

 
$
79,299

 
$
84,699

 
$
(5,400
)
See below for a discussion of the drivers of the change in net premiums earned for the three and six months ended June 30, 2016 and 2015.
Net Premiums Earned:
The following table provides net premiums earned by line of business for the Atrium segment for the three and six months ended June 30, 2016 and 2015:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
Increase (decrease)
 
2016
 
2015
 
Increase (decrease)
 
(in thousands of U.S. dollars)
Marine
$
4,079

 
$
4,847

 
$
(768
)
 
$
7,979

 
$
10,032

 
$
(2,053
)
Property and Casualty Binding Authorities
8,296

 
7,336

 
960

 
16,807

 
14,318

 
2,489

Upstream Energy
2,573

 
3,569

 
(996
)
 
4,687

 
7,312

 
(2,625
)
Reinsurance
3,174

 
3,270

 
(96
)
 
5,953

 
6,382

 
(429
)
Accident and Health
3,313

 
2,915

 
398

 
6,468

 
6,130

 
338

Non-Marine Direct and Facultative
3,106

 
3,570

 
(464
)
 
6,674

 
7,196

 
(522
)
Liability
4,030

 
4,970

 
(940
)
 
8,948

 
9,358

 
(410
)
Aviation
1,102

 
1,494

 
(392
)
 
2,393

 
3,262

 
(869
)
War and Terrorism
2,085

 
1,986

 
99

 
3,760

 
3,839

 
(79
)
Total
$
31,758

 
$
33,957

 
$
(2,199
)
 
$
63,669

 
$
67,829

 
$
(4,160
)
Three and Six Months Ended June 30: Net premiums earned for the Atrium segment were $31.8 million and $34.0 million for the three months ended June 30, 2016 and 2015, respectively. Net premiums earned for the Atrium segment were $63.7 million and $67.8 million for the six months ended June 30, 2016 and 2015, respectively. The decrease in net premiums earned was due to our underwriting discipline to non-renew certain business that no longer met our underwriting standards, particularly in the marine and upstream energy lines. We are seeing continued pressure on premium rates and terms and conditions due to overcapacity in many markets for insurable risks. We continue to focus on risk selection and underwriting for profitability. These premium decreases were partially offset by the increase in the property and casualty binding authority line, which reflects the continued success of AU Gold, Atrium's proprietary online underwriting platform.
Fees and Commission Income:
Three and Six Months Ended June 30: Fees and commission income were $6.4 million and $7.5 million for the three months ended June 30, 2016 and 2015, respectively, and $10.2 million and $17.0 million for the six months

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ended June 30, 2016 and 2015, respectively. The fees primarily represent profit commission fees earned by us in relation to AUL’s management of Syndicate 609 and other underwriting consortiums. The decrease was due primarily to less profit commission on lower syndicate profits in the three and six months ended June 30, 2016 as compared with the three and six months ended June 30, 2015.
Net Incurred Losses and LAE:
Three Months Ended June 30: Net incurred losses and LAE for the three months ended June 30, 2016 and 2015 were $17.1 million and $13.8 million, respectively. Net favorable prior year loss development for the three months ended June 30, 2016 and 2015 was $3.5 million and $4.2 million, respectively. Net favorable prior year loss development in the three months ended June 30, 2016 was spread across most lines of business. Net favorable prior year loss development in the three months ended June 30, 2015 primarily related to the professional indemnity, hull, upstream energy and non-marine direct and facultative lines of business. Excluding prior year loss development, net incurred losses and LAE for the three months ended June 30, 2016 and 2015 were $20.5 million and $18.0 million, respectively. The increase in net incurred losses and LAE, excluding prior year loss development, was due to the large losses in 2016, as discussed above in "Underwriting Performance", compared to a lower level of losses in 2015.
Six Months Ended June 30: Net incurred losses and LAE for the six months ended June 30, 2016 and 2015 were $32.7 million and $20.8 million, respectively. Net favorable prior year loss development for the six months ended June 30, 2016 and 2015 was $4.1 million and $13.2 million, respectively. Net favorable prior year loss development in the six months ended June 30, 2016 primarily related to the non-marine direct and facultative lines of business. Net favorable prior year loss development in the six months ended June 30, 2015 primarily related to the aviation, marine, upstream energy and non-marine direct and facultative lines of business. Excluding prior year loss development, net incurred losses and LAE for the six months ended June 30, 2016 and 2015 were $36.8 million and $34.0 million, respectively. The increase in net incurred losses and LAE, excluding prior year loss development, was due to the large losses in 2016 as described above, and other notable 2016 losses in the war and terrorism and aviation lines, compared to a lower level of losses in 2015.
Acquisition Costs:
Three and Six Months Ended June 30: Acquisition costs were $11.2 million and $12.3 million for the three months ended June 30, 2016 and 2015, respectively, and $22.3 million and $21.7 million for the six months ended June 30, 2016 and 2015, respectively. The Atrium 5 acquisition cost ratios for the three months ended June 30, 2016 and 2015 were 34.4% and 36.2%, respectively, a decrease of 2.2%. The Atrium 5 acquisition cost ratios for the six months ended June 30, 2016 and 2015 were 34.6% and 32.0%, respectively, an increase of 2.6%. The increase for the six months ended June 30, 2016 was due to higher profit commissions payable on certain underlying business that performed well.
General and Administrative Expenses:
Three and Six Months Ended June 30: General and administrative expenses for the Atrium segment were relatively consistent at $6.6 million and $6.7 million for the three months ended June 30, 2016 and 2015, respectively. General and administrative expenses for the Atrium segment were $13.0 million and $18.3 million for the six months ended June 30, 2016 and 2015, respectively. The decrease of $5.3 million was primarily due to lower bonus accruals resulting from lower net earnings in the six months ended June 30, 2016 as compared to the six months ended June 30, 2015, and more compensation costs allocated to Syndicate 609.
Interest Expense:
Three and Six Months Ended June 30: For the three and six months ended June 30, 2016, interest was no longer incurred by the Atrium segment. Interest expense was $1.5 million and $3.0 million for the three and six months ended June 30, 2015, respectively. The interest expense for the three and six months ended June 30, 2015 was in respect of borrowings under the Enstar revolving credit facility, which was an Enstar Specific Expense.
Noncontrolling Interest:
Three and Six Months Ended June 30: Noncontrolling interest in earnings of the Atrium segment was $1.3 million and $2.0 million for the three months ended June 30, 2016 and 2015, respectively. Noncontrolling interest in earnings of the Atrium segment was $1.6 million and $8.7 million for the six months ended June 30, 2016 and 2015, respectively. As of June 30, 2016 and 2015, Trident and Dowling had a combined 41.03% noncontrolling interest in the Atrium segment, although their share of net earnings for the three and six months ended June 30, 2015 was higher due primarily to the interest expense recorded in the segment, which was an Enstar specific expense.

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StarStone Segment
The results of our StarStone segment include the results of StarStone Insurance Bermuda Limited and its subsidiaries ("StarStone") and StarStone Specialty Holdings Limited ("Holding Company"), which was formerly known as Bayshore Holdings Limited. StarStone results represent its active underwriting operations. The Holding Company's results include the amortization of fair value adjustments such as for intangible assets that were fair valued upon acquisition, and other expenses incurred.
The following is a discussion and analysis of the results of operations for the StarStone segment for the three and six months ended June 30, 2016 and 2015, which are summarized below.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
Increase (decrease)
 
2016
 
2015
 
Increase (decrease)
 
(in thousands of U.S. dollars)
INCOME
 
 
 
 
 
 
 
 
 
 
 
Net premiums earned
$
171,035

 
$
137,696

 
$
33,339

 
$
325,117

 
$
261,318

 
$
63,799

Fee and commission income

 

 

 

 
14

 
(14
)
Net investment income
5,753

 
4,058

 
1,695

 
11,033

 
6,189

 
4,844

Net realized and unrealized gains (losses)
8,021

 
(3,355
)
 
11,376

 
22,370

 
1,347

 
21,023

Other income
1,584

 
1,303

 
281

 
1,595

 
1,366

 
229

 
186,393

 
139,702

 
46,691

 
360,115

 
270,234

 
89,881

EXPENSES
 
 
 
 
 
 
 
 
 
 
 
Net incurred losses and LAE
104,019

 
81,013

 
23,006

 
195,202

 
157,229

 
37,973

Acquisition costs
32,518

 
27,365

 
5,153

 
64,578

 
51,508

 
13,070

General and administrative expenses
31,311

 
32,891

 
(1,580
)
 
61,466

 
63,104

 
(1,638
)
Net foreign exchange losses (gains)
1,027

 
4,200

 
(3,173
)
 
(272
)
 
(2,180
)
 
1,908

 
168,875

 
145,469

 
23,406

 
320,974

 
269,661

 
51,313

EARNINGS (LOSSES) BEFORE INCOME TAXES
17,518

 
(5,767
)
 
23,285

 
39,141

 
573

 
38,568

INCOME TAXES
(3,970
)
 
694

 
(4,664
)
 
(5,988
)
 
12

 
(6,000
)
NET EARNINGS
13,548

 
(5,073
)
 
18,621

 
33,153

 
585

 
32,568

Less: Net earnings (losses) attributable to noncontrolling interest
(5,559
)
 
2,081

 
(7,640
)
 
(13,603
)
 
(240
)
 
(13,363
)
NET EARNINGS (LOSSES) ATTRIBUTABLE TO ENSTAR GROUP LIMITED
$
7,989

 
$
(2,992
)
 
$
10,981

 
$
19,550

 
$
345

 
$
19,205

 
Overall Results
An analysis of the components of the segment's net earnings is shown below, after the attribution of net earnings to noncontrolling interest.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
Increase (decrease)
 
2016
 
2015
 
Increase (decrease)
 
(in thousands of U.S. dollars)
StarStone(1)
$
7,712

 
$
826

 
$
6,886

 
$18,975
 
$5,723
 
$13,252
Holding Company
277

 
(3,818
)
 
4,095

 
575

 
(5,378
)
 
5,953

NET EARNINGS (LOSSES) ATTRIBUTABLE TO ENSTAR GROUP LIMITED
$
7,989

 
$
(2,992
)
 
$
10,981

 
$19,550
 
$
345

 
$19,205
(1) StarStone's net earnings before noncontrolling interest were $13.1 million and $32.2 million for three and six months ended June 30, 2016, respectively, and $1.4 million and $9.7 million for the three and six months ended June 30, 2015, respectively.

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Three Months Ended June 30: Net earnings (losses) were $8.0 million and ($3.0) million for the three months ended June 30, 2016 and 2015, respectively, an increase of $11.0 million. This was primarily due to an increase of $11.4 million in net realized and unrealized gains (losses) in the three months ended June 30, 2016 as compared to the three months ended June 30, 2015. Investment results are separately discussed below in "Investments."

Six Months Ended June 30: Net earnings were $19.6 million and $0.3 million for the six months ended June 30, 2016 and 2015, respectively, an increase of $19.2 million. This was primarily due to an increase of $21.0 million in net realized and unrealized gains (losses) in the six months ended June 30, 2016 as compared to the six months ended June 30, 2015.

StarStone has not been significantly impacted by the catastrophe and weather events in the second quarter. We are maintaining our focus on disciplined underwriting, expense rationalization, improvements to operational infrastructure and delivering on our brand.

The Holding Company result comprises the amortization of definite-lived intangible assets and some general and administrative expenses.

Underwriting Performance
In evaluating the underwriting performance of the StarStone segment, we consider the insurance ratios of StarStone, which is the active underwriting component of the segment and excludes the Holding Company. StarStone's insurance ratios are shown below.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
(Favorable)
Unfavorable
 
2016
 
2015
 
(Favorable)
Unfavorable
Loss ratio (1)
60.9
%
 
59.0
%
 
1.9
 %
 
60.6
%
 
60.0
%
 
0.6
 %
Acquisition cost ratio (1)
19.0
%
 
19.8
%
 
(0.8
)%
 
19.9
%
 
19.5
%
 
0.4
 %
Other operating expense ratio (1)
18.3
%
 
19.3
%
 
(1.0
)%
 
18.5
%
 
21.0
%
 
(2.5
)%
Combined ratio (1)
98.2
%
 
98.1
%
 
0.1
 %
 
99.0
%
 
100.5
%
 
(1.5
)%
(1) 
Refer to "Non-GAAP Financial Measures" for a description of how these ratios are calculated. The ratios are based upon the following amounts for StarStone, which exclude Holding Company amounts, for the three months ended June 30, 2016 and 2015, respectively: net premiums earned of $171,172 and $138,064, net incurred losses and LAE of $104,232 and $81,507, acquisition costs of $32,518 and $27,365, and other operating expenses of $31,390 and $26,604.The ratios are based upon the following amounts for StarStone, which exclude Holding Company amounts, for the six months ended June 30, 2016 and 2015, respectively: net premiums earned of $324,669 and $263,737, net incurred losses and LAE of $196,660 and $158,265, acquisition costs of $64,578 and $51,508, and other operating expenses of $60,121 and $55,429.
Three Months Ended June 30: The combined ratio was consistent for the three months ended June 30, 2016 as compared to the three months ended June 30, 2015, reflecting an overall increase of 0.1% comprised of an increase in the loss ratio offset by lower acquisition cost and operating expense ratios. The increase in the loss ratio was primarily due to writing a higher proportion of workers’ compensation business and utilizing higher planned loss ratios across most classes of business, which reflected continued pressure on premium rates and terms and conditions.
Six Months Ended June 30: The combined ratio improved by 1.5% for the six months ended June 30, 2016 as compared to the six months ended June 30, 2015, primarily due to a reduction in the other operating expense ratio of 2.5% as a result of an increase in net premiums earned whilst we maintained a relatively consistent expense base.


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Gross Premiums Written:
The following table provides gross premiums written by line of business for the StarStone segment for the three and six months ended June 30, 2016 and 2015:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
Increase (decrease)
 
2016
 
2015
 
Increase (decrease)
 
(in thousands of U.S. dollars)
Casualty
$
66,229

 
$
61,934

 
$
4,295

 
$
133,541

 
$
121,756

 
$
11,785

Marine
42,987

 
30,319

 
12,668

 
112,364

 
87,956

 
24,408

Property
61,980

 
103,017

 
(41,037
)
 
103,978

 
139,295

 
(35,317
)
Aerospace
14,421

 
26,093

 
(11,672
)
 
25,876

 
37,210

 
(11,334
)
Workers' Compensation
37,751

 
19,694

 
18,057

 
64,652

 
45,537

 
19,115

Total
$
223,368

 
$
241,057

 
$
(17,689
)
 
$
440,411

 
$
431,754

 
$
8,657

Three Months Ended June 30: Gross premiums written were $223.4 million and $241.1 million for the three months ended June 30, 2016 and 2015, respectively, a decrease of $17.7 million. Premiums written in the property and aerospace lines decreased by $41.0 million and $11.7 million, respectively. Premiums written in the property line were higher in 2015 due to an initial assumption of in-force unearned premium of $31.0 million under quota share agreements with Sussex upon its acquisition. The decrease in aerospace was due to our decision in the third quarter of 2015 to cease writing space business. The casualty, marine and workers’ compensation lines of business continued to grow, increasing by $4.3 million, $12.7 million and $18.1 million, respectively, as we continued to selectively underwrite certain specialty products and expand our distribution in these lines of business.
Six Months Ended June 30: Gross premiums written were $440.4 million and $431.8 million for the six months ended June 30, 2016 and 2015, respectively, an increase of $8.7 million. Premiums written in the casualty, marine and workers' compensation lines increased by $11.8 million, $24.4 million and $19.1 million, respectively, as a result of selective growth in new business, partly due to new business underwritten by teams of underwriters we hired in late 2015. This was partially offset by the decreases in the property and aerospace lines of $35.3 million and $11.3 million, respectively, for the reasons noted in the three month discussion above.
Net Premiums Earned:
The following table provides net premiums earned by line of business for the StarStone segment for the three and six months ended June 30, 2016 and 2015
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
Increase (decrease)
 
2016
 
2015
 
Increase (decrease)
 
(in thousands of U.S. dollars)
Casualty
$
60,341

 
$
42,996

 
$
17,345

 
$
108,750

 
$
83,141

 
$
25,609

Marine
40,246

 
28,240

 
12,006

 
74,235

 
52,104

 
22,131

Property
32,049

 
30,066

 
1,983

 
66,140

 
53,910

 
12,230

Aerospace
16,207

 
16,314

 
(107
)
 
33,614

 
35,636

 
(2,022
)
Workers' Compensation
22,192

 
20,080

 
2,112

 
42,378

 
36,527

 
5,851

Total
$
171,035

 
$
137,696

 
$
33,339

 
$
325,117

 
$
261,318

 
$
63,799

Three Months Ended June 30: Net premiums earned for the StarStone segment for the three months ended June 30, 2016 increased from 2015 by $33.3 million to $171.0 million. The lines of business driving the increase were casualty and marine, which is consistent with the increases in premiums written for these lines. The modest growth in workers’ compensation net premiums earned in comparison to the growth in gross premiums written is due to ceded reinsurance premium as we manage the amount of risk we retain on this business.

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Six Months Ended June 30: Net premiums earned for the StarStone segment for the six months ended June 30, 2016 increased from 2015 by $63.8 million to $325.1 million. The lines of business driving the increase were primarily casualty and marine.
Net Incurred Losses and LAE:
Three Months Ended June 30: Net incurred losses and LAE for the three months ended June 30, 2016 and 2015 were $104.0 million and $81.0 million, respectively, an increase of $23.0 million. The increase was primarily attributable to the increase in net premiums earned. Net favorable prior year loss development for the three months ended June 30, 2016 and 2015 was $1.5 million and $0.3 million, respectively. The loss ratio for the three months ended June 30, 2016 increased by 1.9% to 60.9%, driven by increases in the marine, property and workers’ compensation lines of business.
Six Months Ended June 30: Net incurred losses and LAE for the six months ended June 30, 2016 and 2015 were $195.2 million and $157.2 million, respectively, an increase of $38.0 million. The increase was primarily attributable to the increase in net premiums earned. Net favorable prior year loss development for the six months ended June 30, 2016 and 2015 was $3.5 million and $1.5 million, respectively. The loss ratios for the six months ended June 30, 2016 and 2015 were relatively consistent at 60.6% and 60.0%, respectively; the increase of 0.6% was primarily in respect of the marine, property and workers’ compensation lines of business.
Acquisition Costs:
Three Months Ended June 30: Acquisition costs were $32.5 million and $27.4 million for the three months ended June 30, 2016 and 2015, respectively, an increase of $5.1 million. The increase was primarily attributable to the increase in net premiums earned. The acquisition cost ratios for the three months ended June 30, 2016 and 2015 were 19.0% and 19.8%, respectively, a decrease of 0.8% reflecting a change in the mix of business.
Six Months Ended June 30: Acquisition costs were $64.6 million and $51.5 million for the six months ended June 30, 2016 and 2015, respectively, an increase of $13.1 million. The increase was primarily attributable to the increase in net premiums earned. The acquisition cost ratios for the six months ended June 30, 2016 and 2015 were 19.9% and 19.5%, respectively, an increase of 0.4% reflecting a change in the mix of business.
General and Administrative Expenses:
Three and Six Months Ended June 30: General and administrative expenses for the three months ended June 30, 2016 and 2015 were $31.3 million and $32.9 million, respectively. General and administrative expenses for the six months ended June 30, 2016 and 2015 were $61.5 million and $63.1 million, respectively. The decrease of $1.6 million for the three and six months ended June 30, 2016 compared with 2015 was primarily related to lower professional and consulting fees, partially offset by higher accruals for long-term equity-based compensation awards due to an increase in the share price during the year.
Noncontrolling Interest:
Three Months Ended June 30: Noncontrolling interest in earnings (loss) of the StarStone segment was $5.6 million and ($2.1) million for the three months ended June 30, 2016 and 2015, respectively. The increase was due to higher net earnings before noncontrolling interest for the three months ended June 30, 2016 compared with a net loss before noncontrolling interest for the three months ended June 30, 2015.
Six Months Ended June 30: Noncontrolling interest in earnings of the StarStone segment was $13.6 million and $0.2 million for the six months ended June 30, 2016 and 2015, respectively. The increase was due to higher net earnings before noncontrolling interest for the six months ended June 30, 2016 compared with the six months ended June 30, 2015. As of June 30, 2016 and 2015, Trident and Dowling had a combined 41.03% noncontrolling interest in the StarStone segment.


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Life and Annuities Segment
For our Life and Annuities segment, our run-off strategy differs from the non-life run-off business, in particular because we have limited ability to shorten the duration of the liabilities in this business through either early claims settlement, commutations or policy buy-backs. Instead, we will hold the policies associated with the life and annuities business to their natural maturity or lapse and will pay claims as they fall due.
The following is a discussion and analysis of our results of operations for our Life and Annuities segment for the three and six months ended June 30, 2016 and 2015, which are summarized below.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
Increase (decrease)
 
2016
 
2015
 
Increase (decrease)
 
(in thousands of U.S. dollars)
INCOME
 
 
 
 
 
 
 
 
 
 
 
Net premiums earned
$
19,659

 
$
23,072

 
$
(3,413
)
 
$
37,640

 
$
45,992

 
$
(8,352
)
Net investment income
11,113

 
11,577

 
(464
)
 
29,534

 
20,652

 
8,882

Net realized and unrealized gains (losses)
3,737

 
(3,624
)
 
7,361

 
3,922

 
(57
)
 
3,979

Other income
363

 
584

 
(221
)
 
931

 
879

 
52

 
34,872

 
31,609

 
3,263

 
72,027

 
67,466

 
4,561

EXPENSES
 
 
 
 
 
 
 
 
 
 
 
Life and annuity policy benefits
19,778

 
28,090

 
(8,312
)
 
40,758

 
50,937

 
(10,179
)
Acquisition costs
2,804

 
3,299

 
(495
)
 
5,206

 
6,005

 
(799
)
General and administrative expenses
6,467

 
4,452

 
2,015

 
11,027

 
7,122

 
3,905

Interest expense
272

 
640

 
(368
)
 
610

 
800

 
(190
)
Net foreign exchange losses (gains)
(43
)
 
582

 
(625
)
 
333

 
(732
)
 
1,065

 
29,278

 
37,063

 
(7,785
)
 
57,934

 
64,132

 
(6,198
)
EARNINGS (LOSS) BEFORE INCOME TAXES
5,594

 
(5,454
)
 
11,048

 
14,093

 
3,334

 
10,759

INCOME TAXES
(437
)
 
1,846

 
(2,283
)
 
(577
)
 
(1,225
)
 
648

NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR GROUP LIMITED
$
5,157

 
$
(3,608
)
 
$
8,765

 
$
13,516

 
$
2,109

 
$
11,407

Overall Results:
Three Months Ended June 30: Net earnings (loss) were $5.2 million and ($3.6) million for the three months ended June 30, 2016 and 2015, respectively, an increase of $8.8 million. The increase was primarily due to an increase of $7.4 million in net realized and unrealized gain (losses). Investment results are separately discussed below in "Investments." The remaining $1.4 million increase was due to lower policy benefits and income taxes, offset by less premium earned and higher general and administrative expenses.

Six Months Ended June 30: Net earnings were $13.5 million and $2.1 million for the six months ended June 30, 2016 and 2015, respectively, an increase of $11.4 million. The increase was primarily due to higher net investment income in the six months ended June 30, 2016, including $8.6 million of net earnings from the life settlements business, acquired by us from Wilton Re Limited in May 2015. Life settlements income was comprised of $10.0 million from policy maturity events, offset by expenses of $1.4 million.




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Net Premiums Earned:
A summary of our net premiums earned by type of major product is below. In general, net premiums earned are expected to reduce at approximately 15% to 20% per annum as we run-off this business.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
Increase (decrease)
 
2016
 
2015
 
Increase (decrease)
 
(in thousands of U.S. dollars)
Term life insurance
$
7,426

 
$
6,491

 
$
935

 
$
15,050

 
$
13,354

 
$
1,696

Assumed life reinsurance
4,992

 
5,511

 
(519
)
 
8,863

 
9,951

 
(1,088
)
Credit life and disability
7,241

 
11,070

 
(3,829
)
 
13,727

 
22,687

 
(8,960
)
 
$
19,659

 
$
23,072

 
$
(3,413
)
 
$
37,640

 
$
45,992

 
$
(8,352
)
Three Months Ended June 30: Net premiums earned were $19.7 million and $23.1 million for the three months ended June 30, 2016 and 2015, respectively. The decrease in credit life and disability premiums of $3.9 million included a decrease of $2.3 million related to our strategic decision to utilize the cancellation option on certain credit products in the third quarter of 2015. Net premiums earned in term life insurance included $1.1 million related to Alpha Insurance for the three months ended June 30, 2016. We acquired Alpha Insurance in November 2015.
Six Months Ended June 30: Net premiums earned were $37.6 million and $46.0 million for the six months ended June 30, 2016 and 2015, respectively. The decrease in credit life and disability premiums of $9.0 million included a decrease of $5.0 million in the six months ended June 30, 2016 related to our strategic decision to utilize the cancellation option on certain credit products in the third quarter of 2015. Net premiums earned in term life insurance included $2.3 million related to Alpha Insurance for the six months ended June 30, 2016, which was offset by reduced premium in other life businesses.
Life and Annuity Policy Benefits:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
Increase (decrease)
 
2016
 
2015
 
Increase (decrease)
 
(in thousands of U.S. dollars)
Annuity benefits paid
$
10,398

 
$
10,516

 
$
(118
)
 
$
20,954

 
$
21,714

 
$
(760
)
Life and disability benefits paid
18,001

 
22,118

 
(4,117
)
 
38,460

 
42,530

 
(4,070
)
Total benefits paid
28,399

 
32,634

 
(4,235
)
 
59,414

 
64,244

 
(4,830
)
Change in annuity benefit reserves
(866
)
 
(3,333
)
 
2,467

 
(4,927
)
 
(8,162
)
 
3,235

Change in life and disability reserves
(9,679
)
 
(3,884
)
 
(5,795
)
 
(17,388
)
 
(10,360
)
 
(7,028
)
Amortization of fair value adjustments
1,924

 
2,673

 
(749
)
 
3,659

 
5,215

 
(1,556
)
Total change in reserves
(8,621
)
 
(4,544
)
 
(4,077
)
 
(18,656
)
 
(13,307
)
 
(5,349
)
Life and annuity policy benefits
$
19,778

 
$
28,090

 
$
(8,312
)
 
$
40,758

 
$
50,937

 
$
(10,179
)
Three Months Ended June 30: Life and annuity policy benefits were $19.8 million and $28.1 million for the three months ended June 30, 2016 and 2015, respectively. The decrease of $8.3 million is consistent with the run-off of policyholders in both the annuity and life business, and was primarily comprised of a decrease in life and disability policy benefits of $9.9 million, partially offset by an increase in annuity policy benefits of $2.3 million.
Annuity policy benefits increased by $2.3 million for the three months ended June 30, 2016 as compared with the three months ended June 30, 2015. Annuity policy benefits during the three months ended June 30, 2016 were $9.5 million, comprised of benefits paid of $10.4 million partially offset by a reduction in reserves of $0.9 million. Annuity policy benefits during the three months ended June 30, 2015 were $7.2 million, comprised of benefits paid of $10.5 million partially offset by a reduction in reserves of $3.3 million.
Life and disability policy benefits decreased by $9.9 million for the three months ended June 30, 2016 as compared with the three months ended June 30, 2015. Life and disability policy benefits during the three months ended June 30, 2016 were $8.3 million, comprised of benefits paid of $18.0 million, partially offset by a reduction in reserves of $9.7 million. Life and disability policy benefits during the three months ended June 30, 2015 were $18.2 million, comprised

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of benefits paid of $22.1 million, partially offset by a reduction in reserves of $3.9 million. The decrease in life and disability policy benefits from 2015 to 2016 was primarily because of a decrease in premiums earned, as well as the cancellation of certain credit products, partially offset by claims relating to Alpha Insurance, which were not included in the comparative period.
Six Months Ended June 30: Life and annuity policy benefits were $40.8 million and $50.9 million for the six months ended June 30, 2016 and 2015, respectively. The decrease of $10.2 million is consistent with the run-off of policyholders in both the annuity and life business, and was primarily comprised of a decrease in life and disability policy benefits of $11.1 million, partially offset by an increase in annuity policy benefits of $2.5 million.
Annuity policy benefits decreased by $2.5 million for the six months ended June 30, 2016 as compared with the six months ended June 30, 2015. Annuity policy benefits during the six months ended June 30, 2016 were $16.0 million, comprised of benefits paid of $20.9 million, partially offset by a reduction in reserves of $4.9 million. Annuity policy benefits during the six months ended June 30, 2015 were $13.6 million, comprised of benefits paid of $21.7 million, partially offset by a reduction in reserves of $8.2 million.
Life and disability policy benefits decreased by $11.1 million for the six months ended June 30, 2016 as compared with the six months ended June 30, 2015. Life and disability policy benefits during the six months ended June 30, 2016 were $21.1 million, comprised of benefits paid of $38.5 million, partially offset by a reduction in reserves of $17.4 million. Life and disability policy benefits during the six months ended June 30, 2015 were $32.2 million, comprised of benefits paid of $42.5 million, partially offset by a reduction in reserves of $10.4 million. The decrease in life and disability policy benefits from 2015 to 2016 was primarily as a result of a decrease in premiums earned, as well as the cancellation of certain credit products, offset by claims relating to Alpha Insurance, which were not included in the comparative period.
Acquisition Costs:
Three Months Ended June 30: Acquisition costs for the three months ended June 30, 2016 and 2015 were $2.8 million and $3.3 million, respectively. In the three months ended June 30, 2016, the commissions on credit business were lower by $0.7 million, partially offset by $0.2 million of commissions on the Alpha Insurance business.
Six Months Ended June 30: Acquisition costs for the six months ended June 30, 2016 and 2015 were $5.2 million and $6.0 million, respectively. In the six months ended June 30, 2016, the commissions on credit business were lower by $1.2 million, partially offset by $0.3 million of commissions on the Alpha Insurance business.
General and Administrative Expenses:
Three Months Ended June 30: General and administrative expenses were $6.5 million and $4.5 million for the three months ended June 30, 2016 and 2015, respectively. The increase of $2.0 million for the three months ended June 30, 2016 primarily related to expenses of acquired companies that were not included in 2015 due to the date of acquisition; namely $1.1 million relating to Alpha Insurance and $0.7 million relating to the life settlements business.
Six Months Ended June 30: General and administrative expenses were $11.0 million and $7.1 million for the six months ended June 30, 2016 and 2015, respectively. The increase for the six months ended June 30, 2016 primarily related to the timing of acquisitions occurring in 2015 after June 30, 2015; namely $2.5 million relating to Alpha Insurance. In addition, the six months ended June 30, 2015 included the release of a previously accrued acquisition date liability of $1.8 million attributable to the finalization with the seller of the purchase price for the Pavonia business.


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Investments
We define invested assets as the sum of total investments, cash and cash equivalents and restricted cash and cash equivalents. Investments consist primarily of investment grade, liquid, fixed maturity securities of short-to-medium duration, equities and other investments. Cash and cash equivalents and restricted cash and cash equivalents are comprised mainly of cash, high-grade fixed deposits, and other highly liquid instruments such as commercial paper with maturities of less than three months at the time of acquisition and money market funds.
Invested assets, including cash and cash equivalents, were $8.6 billion and $8.8 billion as at June 30, 2016 and December 31, 2015, respectively. Invested assets were maintained at a consistent level reflecting cash used in operations offset by increased valuations and improved investment performance during the quarter.
A description of our investment strategies is included in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Investments" in our Annual Report on Form 10-K for the year ended December 31, 2015.

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Composition of Investment Portfolio By Asset Class
The following table summarizes the fair value and composition of our investment portfolio by asset class as at June 30, 2016 and December 31, 2015:
 
June 30, 2016
 
December 31, 2015
 
Fair Value
 
Fair Value
 
Investment Grade (1)
Non-Investment Grade (2)
Total
%
 
Investment Grade (1)
Non-Investment Grade (2)
Total
%
 
(in thousands of U.S. dollars)
Fixed maturity and short-term investments, trading and available-for-sale
 
 
 
 
 
 
 
 
 
U.S. government & agency
$
785,017

$

$
785,017

10.6
%
 
$
775,798

$

$
775,798

10.4
%
Non-U.S. government
388,695

11,306

400,001

5.4
%
 
415,995

28,791

444,786

6.0
%
Corporate
2,649,892

149,080

2,798,972

37.8
%
 
2,673,311

138,755

2,812,066

37.8
%
Municipal
15,293


15,293

0.2
%
 
28,174


28,174

0.4
%
Residential mortgage-backed
474,405

1,039

475,444

6.4
%
 
390,809

1,153

391,962

5.3
%
Commercial mortgage-backed
238,498

42,554

281,052

3.8
%
 
241,208

43,367

284,575

3.8
%
Asset-backed
586,664

69,248

655,912

8.8
%
 
577,280

65,804

643,084

8.7
%
Total
5,138,464

273,227

5,411,691

73.0
%
 
5,102,575

277,870

5,380,445

72.4
%
 
 
 
 
 
 
 
 
 
 
Fixed maturity investments, held-to-maturity
 
 
 
 
 
 
 
 
 
U.S. government & agency
20,869

23

20,892

0.3
%
 
19,288

33

19,321

0.3
%
Non-U.S. government
34,426


34,426

0.5
%
 
39,058


39,058

0.5
%
Corporate
752,765

96

752,861

10.2
%
 
710,546

146

710,692

9.6
%
Total
808,060

119

808,179

11.0
%
 
768,892

179

769,071

10.4
%
 
 
 
 
 
 
 
 
 
 
Equities
 
 
 
 
 
 
 
 
 
U.S.
 
 
109,903

1.5
%
 
 
 
108,793

1.5
%
International
 
 
7,390

0.1
%
 
 
 
7,148

0.1
%
Total


117,293

1.6
%
 


115,941

1.6
%
 
 
 
 
 
 
 
 
 
 
Other investments
 
 
 
 
 
 
 
 
 
Private equity funds
 
 
229,756

3.1
%
 
 
 
254,883

3.4
%
Fixed income funds
 
 
248,815

3.4
%
 
 
 
291,736

3.9
%
Fixed income hedge funds
 
 
111,543

1.5
%
 
 
 
109,400

1.5
%
Equity funds
 
 
163,050

2.2
%
 
 
 
147,390

2.0
%
Multi-strategy hedge fund
 
 
98,416

1.3
%
 
 
 
99,020

1.3
%
Real estate debt fund
 
 

%
 
 
 
54,829

0.7
%
CLO equities
 
 
65,156

0.9
%
 
 
 
61,702

0.8
%
CLO equity funds
 
 
13,513

0.2
%
 
 
 
13,928

0.2
%
Call options on equities
 
 
4,850

0.1
%
 
 
 

%
Other
 
 
1,059

%
 
 
 
1,144

%
Total


936,158

12.7
%
 
 
 
1,034,032

13.8
%
 
 
 
 
 
 
 
 
 
 
Other investments
 
 
 
 
 
 
 
 
 
Life settlements
 
 
126,442

1.7
%
 
 
 
130,268

1.8
%
 
 
 
 
 
 
 
 
 
 
Total investments
$
5,946,524

$
273,346

$
7,399,763

100.0
%
 
$
5,871,467

$
278,049

$
7,429,757

100.0
%
(1) 
Investment Grade are securities with a rating of BBB- or higher.
(2) 
Non-Investment Grade included non-rated securities with a fair value of $46.3 million and $44.1 million as at June 30, 2016 and December 31, 2015, respectively.
A description of our investment valuation processes is included in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" of our Annual Report on Form 10-K for the year ended December 31, 2015 and "Note 4 - Fair Value Measurements" included within Item 1 of this Quarterly Report on Form 10-Q.

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Composition of Invested Assets By Segment
Across all of our segments, we strive to structure our investments in a manner that recognizes our liquidity needs for future liabilities. In that regard, we attempt to correlate the maturity and duration of our investment portfolio to our general liability profile. If our liquidity needs or general liability profile unexpectedly change, we may adjust the structure of our investment portfolio to meet our revised expectations. The following tables summarize the composition of total invested assets by segment as at June 30, 2016 and December 31, 2015:
 
 
Non-life
Run-off
 
Atrium
 
StarStone
 
Life and Annuities
 
Total
 
 
(in thousands of U.S. dollars)
June 30, 2016
 
 
 
 
 
 
 
 
 

Short-term investments, trading, at fair value
 
$
118,839

 
$

 
$
3,907

 
$

 
$
122,746

Short-term investments, available-for-sale, at fair value
 

 
282

 

 
2,119

 
2,401

Fixed maturities, trading, at fair value
 
3,372,711

 
37,000

 
1,233,050

 
343,854

 
4,986,615

Fixed maturities, held-to-maturity, at amortized cost
 

 

 

 
770,655

 
770,655

Fixed maturities, available-for-sale, at fair value
 
3,281

 
165,738

 

 
130,910

 
299,929

Equities, trading, at fair value
 
105,091

 

 
7,662

 
4,540

 
117,293

Other investments, at fair value
 
785,636

 

 
120,064

 
30,458

 
936,158

Other investments, at cost
 

 

 

 
129,636

 
129,636

Total investments
 
4,385,558

 
203,020

 
1,364,683

 
1,412,172

 
7,365,433

Cash and cash equivalents
 
895,779

 
73,937

 
208,354

 
69,069

 
1,247,139

Total invested assets
 
$
5,281,337

 
$
276,957

 
$
1,573,037

 
$
1,481,241

 
$
8,612,572

Duration
 
1.79

 
1.24

 
2.12

 
6.56

 
2.56

Average Credit Rating
 
A+

 
AA-

 
AA-

 
A

 
A+

 
 
Non-life
Run-off
 
Atrium
 
StarStone
 
Life and Annuities
 
Total
 
 
(in thousands of U.S. dollars)
December 31, 2015
 
 
 
 
 
 
 
 
 
 
Short-term investments, trading, at fair value
 
$
72,163

 
$

 
$
12,941

 
$
2,246

 
$
87,350

Short-term investments, available-for-sale, at fair value
 

 
1,848

 

 
6,774

 
8,622

Fixed maturities, trading, at fair value
 
3,444,752

 
37,000

 
1,204,376

 
304,666

 
4,990,794

Fixed maturities, held-to-maturity, at amortized cost
 

 

 

 
790,866

 
790,866

Fixed maturities, available-for-sale, at fair value
 
6,464

 
181,027

 

 
106,188

 
293,679

Equities, trading, at fair value
 
102,412

 

 
9,083

 
4,446

 
115,941

Other investments, at fair value
 
856,555

 

 
123,735

 
53,742

 
1,034,032

Other investments, at cost
 

 

 

 
133,071

 
133,071

Total investments
 
4,482,346

 
219,875

 
1,350,135

 
1,401,999

 
7,454,355

Cash and cash equivalents
 
1,007,889

 
52,735

 
199,597

 
73,043

 
1,333,264

Total invested assets
 
$
5,490,235

 
$
272,610

 
$
1,549,732

 
$
1,475,042

 
$
8,787,619

Duration
 
1.69

 
1.80

 
2.09

 
5.95

 
2.39

Average Credit Rating
 
A+

 
AA-

 
AA-

 
A+

 
A+

Credit Quality and Maturity Profiles
As at June 30, 2016 and December 31, 2015, our investment portfolio had an average credit quality rating of A+. At June 30, 2016 and December 31, 2015, our fixed maturity investments rated lower than BBB- comprised 3.1% and 3.1% of our total investment portfolio, respectively. A detailed schedule of average credit ratings by asset class as at June 30, 2016 is included in "Note 3 - Investments - Credit Ratings" of our unaudited condensed consolidated financial statements within Item 1 of this Quarterly Report on Form 10-Q.
Schedules of maturities for our fixed maturity securities are included in "Note 3 - Investments" of our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q.


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Eurozone Exposure
As at June 30, 2016 and December 31, 2015 we owned $17.7 million and $17.3 million, respectively, of investments in fixed maturity securities issued by the sovereign governments of Italy, Ireland and Spain. These investments are held by Alpha Insurance, which we acquired during 2015.
Investment Results - Consolidated
Note on comparability with prior period disclosures: In our consolidated statement of earnings we have added a new line captioned "other income," and for the three and six months ended June 30, 2015 we have reclassified $11.8 and $15.3 million, respectively, from net investment income to other income. These reclassifications were primarily related to income from recoveries on acquired insolvent debts and had no impact on net earnings. Comparability between periods is also impacted by our acquisitions and significant new business as described in Notes 3 and 4 of our consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2015 and "Note 2 - Significant New Business" of our unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q. In addition, we record interest on funds held, such as for the Allianz transaction, in net investment income. For the purposes of the below analysis of our annualized investment book yield and financial statement portfolio return, we have excluded interest on funds held because funds held is not included in our definition of invested assets.
The following table summarizes our investment results for the three and six months ended June 30, 2016 and 2015.
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
Increase (decrease)
 
2016
 
2015
 
Increase (decrease)
 
 
(in thousands of U.S. dollars)
 
(in thousands of U.S. dollars)
Net investment income
 
$
54,223

 
$
34,655

 
$
19,568

 
$
114,286

 
$
65,072

 
$
49,214

Interest on funds held
 
(7,633
)
 
184

 
(7,817
)
 
(15,237
)
 
10

 
(15,247
)
Net investment income (excluding funds held)
 
46,590

 
34,839

 
11,751

 
99,049

 
65,082

 
33,967

Net realized and unrealized gains (losses)
 
37,987

 
(11,249
)
 
49,236

 
75,951

 
31,771

 
44,180

 
 
 
 
 
 
 
 
 
 
 
 
 
Annualized Investment Book Yield
 
 
 
 
 
 
 
 
 
 
 
 
Annualized net investment income (excluding funds held)
 
186,360

 
139,356

 
47,004

 
198,098

 
130,164

 
67,934

Average aggregate invested assets, at cost(1)
 
8,681,398

 
8,819,707

 
(138,309
)
 
8,747,768

 
8,315,162

 
432,606

Annualized investment book yield
 
2.15
%
 
1.58
%
 
0.57
%
 
2.26
%
 
1.57
%
 
0.69
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial Statement Portfolio Return
 
 
 
 
 
 
 
 
 
 
 
 
Total financial statement return(2)
 
84,577

 
23,590

 
60,987

 
175,000

 
96,853

 
78,147

Average aggregate invested assets, at fair value(1)
 
8,697,787

 
8,798,382

 
(100,595
)
 
8,726,717

 
8,317,505

 
409,212

Financial statement portfolio return
 
0.97
%
 
0.27
%
 
0.70
%
 
2.01
%
 
1.16
%
 
0.85
%
(1) These amounts are an average of the amounts disclosed in our quarterly U.S. GAAP consolidated financial statements.
(2) This is the sum of net investment income (excluding interest on funds held) and net realized and unrealized gains (losses) from our U.S. GAAP consolidated financial statements.
Three Months Ended June 30: Net investment income, excluding the increase in interest on funds held of $7.8 million, increased by $11.8 million during the three months ended June 30, 2016 compared to the three months ended June 30, 2015 due to an increase of 57 basis points in the book yield we obtained on our assets. The increase in yield was primarily due to the changing mix in asset allocation as we executed on our investment strategies.
The increase of $49.2 million in net realized and unrealized gains (losses) was comprised of net unrealized gains of $35.8 million in 2016 compared to net unrealized losses of $18.3 million in 2015, offset by a decrease in net realized gains of $4.9 million. The increase in net unrealized gains in the three months ended June 30, 2016 was due to the increase in valuations of fixed maturity securities as treasury yields moved lower and credit spreads tightened during the three months ended June 30, 2016.

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Six Months Ended June 30: Net investment income, excluding the increase in interest on funds held of $15.2 million, increased by $34.0 million during the six months ended June 30, 2016 due to an increase of $432.6 million in our average invested assets and an increase of 69 basis points in the book yield we obtained on those assets. The increase in yield was primarily due to the changing mix in asset allocation as we executed on our investment strategies. This included an increase of $8.0 million in income on life settlements during the six months ended June 30, 2016 compared to 2015.
The increase of $44.2 million in net realized and unrealized gains (losses) was comprised of net unrealized gains of $75.2 million in 2016 compared to net unrealized gains of $12.0 million in 2015, offset by a decrease in net realized gains of $19.0 million. The increase in net unrealized gains in the six months ended June 30, 2016 was due to the increase in valuations of fixed maturity securities as treasury yields moved lower and credit spreads tightened during the six months ended June 30, 2016. The realized gains in 2015 related to sales of equity securities.
Investment Results - By Segment
The following tables summarize our investment results by segment for the three and six months ended June 30, 2016, and 2015. These tables have been prepared on a basis consistent with the consolidated table above.
Non-life Run-off
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
Increase (decrease)
 
2016
 
2015
 
Increase (decrease)
 
 
(in thousands of U.S. dollars)
Net investment income
 
$
37,581

 
$
18,569

 
$
19,012

 
$
73,811

 
$
37,433

 
$
36,378

Interest on funds held
 
(7,633
)
 
184

 
(7,817
)
 
(15,237
)
 
10

 
(15,247
)
Net investment income (excluding funds held)
 
29,948

 
18,753

 
11,195

 
58,574

 
37,443

 
21,131

Net realized and unrealized gains (losses)
 
26,161

 
(4,308
)
 
30,469

 
49,551

 
30,352

 
19,199

 
 
 
 
 
 
 
 
 
 
 
 
 
Annualized Investment Book Yield
 
 
 
 
 
 
 
 
 
 
 
 
Annualized net investment income (excluding funds held)
 
119,792

 
75,012

 
44,780

 
117,148

 
74,886

 
42,262

Average aggregate invested assets, at cost
 
5,339,460

 
5,718,040

 
(378,580
)
 
5,406,405

 
5,226,082

 
180,323

Annualized investment book yield
 
2.24
%
 
1.31
%
 
0.93
%
 
2.17
%
 
1.43
%
 
0.74
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial Statement Portfolio Return
 
 
 
 
 
 
 
 
 
 
 
 
Total financial statement return
 
56,109

 
14,445

 
41,664

 
108,125

 
67,795

 
40,330

Average aggregate invested assets, at fair value
 
5,342,906

 
5,705,579

 
(362,673
)
 
5,395,129

 
5,188,212

 
206,917

Financial statement portfolio return
 
1.05
%
 
0.25
%
 
0.80
%
 
2.00
%
 
1.31
%
 
0.69
%
Three Months Ended June 30: Net investment income, excluding the increase in interest on funds held of $7.8 million, increased by $11.2 million during the three months ended June 30, 2016 due to an increase of 93 basis points in the book yield we obtained on our assets. The increase in yield was primarily due to the changing mix in asset allocation as we executed on our investment strategies.
The increase of $30.5 million in net realized and unrealized gains (losses) was comprised of net unrealized gains of $23.8 million in 2016 compared to net unrealized losses of $12.4 million in 2015, offset by a decrease in net realized gains of $5.7 million. The increase in net unrealized gains in the three months ended June 30, 2016 was due to the increase in valuations of fixed maturity securities as treasury yields moved lower and credit spreads tightened during the three months ended June 30, 2016.
Six Months Ended June 30: Net investment income, excluding the increase in interest on funds held of $15.2 million, increased by $21.1 million during the six months ended June 30, 2016 due to an increase of $180.3 million in our average invested assets and an increase of 74 basis points in the book yield we obtained on those assets. The increase in yield was primarily due to the changing mix in asset allocation as we executed on our investment strategies.

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The increase of $19.2 million in net realized and unrealized gains (losses) was comprised of net unrealized gains of $49.0 million in 2016 compared to net unrealized gains of $11.3 million in 2015, offset by a decrease in net realized gains of $18.5 million. The increase in net unrealized gains in the six months ended June 30, 2016 was due to the increase in valuations of fixed maturity securities as treasury yields moved lower and credit spreads tightened during the six months ended June 30, 2016. The realized gains in 2015 related to sales of equity securities.
Atrium
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
Increase (decrease)
 
2016
 
2015
 
Increase (decrease)
 
 
(in thousands of U.S. dollars)
Net investment income
 
$
635

 
$
523

 
$
112

 
$
1,189

 
1,030

 
$
159

Net realized and unrealized gains (losses)
 
68

 
38

 
30

 
108

 
129

 
(21
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Annualized Investment Book Yield
 
 
 
 
 
 
 
 
 
 
 
 
Annualized net investment income
 
2,540

 
2,092

 
448

 
2,378

 
2,060

 
318

Average aggregate invested assets, at cost
 
291,811

 
309,995

 
(18,184
)
 
291,801

 
317,508

 
(25,707
)
Annualized investment book yield
 
0.87
%
 
0.67
%
 
0.20
%
 
0.81
%
 
0.65
%
 
0.16
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial Statement Portfolio Return
 
 
 
 
 
 
 
 
 
 
 
 
Total financial statement return
 
703

 
561

 
142

 
1,297

 
1,159

 
138

Average aggregate invested assets, at fair value
 
288,992

 
303,621

 
(14,629
)
 
287,906

 
297,775

 
(9,869
)
Financial statement portfolio return
 
0.24
%
 
0.18
%
 
0.06
%
 
0.45
%
 
0.39
%
 
0.06
%
Three and Six Months Ended June 30: There was no significant change to Atrium's investment results for the three and six months ended June 30, 2016 compared to the three and six months ended June 30, 2015. Despite average invested assets being lower than last year, the same investment results were achieved through improved book yield due to our asset allocation.
StarStone
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
Increase (decrease)
 
2016
 
2015
 
Increase (decrease)
 
 
(in thousands of U.S. dollars)
Net investment income
 
$
5,753

 
$
4,058

 
$
1,695

 
$
11,033

 
$
6,189

 
$
4,844

Net realized and unrealized gains (losses)
 
8,021

 
(3,355
)
 
11,376

 
22,370

 
1,347

 
21,023

 
 
 
 
 
 
 
 
 
 
 
 
 
Annualized Investment Book Yield
 
 
 
 
 
 
 
 
 
 
 
 
Annualized net investment income
 
23,012

 
16,232

 
6,780

 
22,066

 
12,378

 
9,688

Average aggregate invested assets, at cost
 
1,574,362

 
1,464,375

 
109,987

 
1,572,657

 
1,464,174

 
108,483

Annualized investment book yield
 
1.46
%
 
1.11
%
 
0.35%

 
1.40
%
 
0.85
%
 
0.55%

 
 
 
 
 
 
 
 
 
 
 
 
 
Financial Statement Portfolio Return
 
 
 
 
 
 
 
 
 
 
 
 
Total financial statement return
 
13,774

 
703

 
13,071

 
33,403

 
7,536

 
25,867

Average aggregate invested assets, at fair value
 
1,563,526

 
1,463,309

 
100,217

 
1,557,699

 
1,502,861

 
54,838

Financial statement portfolio return
 
0.88
%
 
0.05
%
 
0.83
%
 
2.14
%
 
0.50
%
 
1.64
%
Three Months Ended June 30: Net investment income increased by $1.7 million during the three months ended June 30, 2016, as compared to the three months ended June 30, 2015, primarily due to an increase of $110.0 million in our average invested assets and an increase of 35 basis points in the book yield we obtained on those assets. The increase in yield was primarily due to our asset allocation.

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Net realized and unrealized gains (losses) increased by $11.4 million during the three months ended June 30, 2016, primarily due to the increase in valuations of fixed maturity securities as treasury yields moved lower and credit spreads tightened during the three months ended June 30, 2016.
Six Months Ended June 30: Net investment income increased by $4.8 million during the six months ended June 30, 2016, as compared to the six months ended June 30, 2015, primarily due to an increase of $108.5 million in our average invested assets and an increase of 55 basis points in the book yield we obtained on those assets. The increase in yield was primarily due to our asset allocation.
Net realized and unrealized gains (losses) increased by $21.0 million during the six months ended June 30, 2016, primarily due to the increase in valuations of fixed maturity securities as treasury yields moved lower and credit spreads tightened during the six months ended June 30, 2016.
Life and Annuities
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2016
 
2015
 
Increase (decrease)
 
2016
 
2015
 
Increase (decrease)
 
 
(in thousands of U.S. dollars)
Net investment income
 
$
11,113

 
$
11,577

 
$
(464
)
 
$
29,534

 
$
20,652

 
$
8,882

Net realized and unrealized gains (losses)
 
3,737

 
(3,624
)
 
7,361

 
3,922

 
(57
)
 
3,979

 
 
 
 
 
 
 
 
 
 
 
 
 
Annualized Investment Book Yield
 
 
 
 
 
 
 
 
 
 
 
 
Annualized net investment income
 
44,452

 
46,308

 
(1,856
)
 
59,068

 
41,304

 
17,764

Average aggregate invested assets, at cost
 
1,475,765

 
1,327,297

 
148,468

 
1,476,905

 
1,307,398

 
169,507

Annualized investment book yield
 
3.01
%
 
3.49
%
 
(0.48
)%
 
4.00
%
 
3.16
%
 
0.84
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial Statement Portfolio Return
 
 
 
 
 
 
 
 
 
 
 
 
Total financial statement return
 
14,850

 
7,953

 
6,897

 
33,456

 
20,595

 
12,861

Average aggregate invested assets, at fair value
 
1,502,363

 
1,325,873

 
176,490

 
1,485,983

 
1,328,657

 
157,326

Financial statement portfolio return
 
0.99
%
 
0.60
%
 
0.39
 %
 
2.25
%
 
1.55
%
 
0.70
%
Three Months Ended June 30: Net investment income decreased by $0.5 million during the three months ended June 30, 2016, as compared to the three months ended June 30, 2015, primarily due to a decrease in income from life settlements of $0.9 million.
Net realized and unrealized gains (losses) increased by $7.4 million during the three months ended June 30, 2016, primarily due to the increase in valuations of fixed maturity securities as treasury yields moved lower and credit spreads tightened during the three months ended June 30, 2016 compared with 2015.
Six Months Ended June 30: Net investment income increased by $8.9 million during the six months ended June 30, 2016, as compared to the six months ended June 30, 2015, primarily due to an increase in income from life settlements of $8.0 million and an increase of $169.5 million in our average invested assets, partially offset by a decrease in book yield. Excluding the income from life settlements, annualized investment book yield for the six months ended June 30, 2015 was 2.65%, a decrease of 51 basis points from the comparable amount for the six months ended June 30, 2015. In addition, net realized and unrealized gains (losses) increased by $4.0 million.


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Liquidity and Capital Resources
Overview
Enstar aims to generate cash flows from our insurance operations and investments, preserve sufficient capital for future acquisitions, and develop relationships with lenders who provide borrowing capacity at competitive rates.
Our capital resources as at June 30, 2016 included shareholders' equity of $2.6 billion, redeemable noncontrolling interest of $0.4 billion classified as temporary equity, and loans payable of $0.6 billion. The redeemable noncontrolling interest may be settled in the future in cash or Enstar ordinary shares, at our option. Based on our current loss reserves position, our portfolios of in-force insurance and reinsurance business, and our investment positions, we believe we are well capitalized.
Enstar has not historically declared a dividend. We retain earnings and utilize distributions from our subsidiaries to invest in our business strategies. We do not currently expect to pay any dividends on our ordinary shares. Any payment of dividends must be approved by our Board of Directors. Our ability to pay dividends is subject to certain restrictions, as described in "Note 20 - Dividend Restrictions and Statutory Requirements" in the notes to our consolidated financial statements included within Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2015.
Cash and Cash Equivalents
As at June 30, 2016 and December 31, 2015, we had total cash and cash equivalents, and restricted cash and cash equivalents of approximately $1.2 billion and $1.3 billion, respectively. We expect our cash flows, together with our existing capital base and cash and investments acquired on the purchase of insurance and reinsurance subsidiaries, to be sufficient to meet cash requirements and to operate our business. For a description of our sources and uses of cash in our holding company and operating companies, refer to "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation - Liquidity and Capital Resources" in our Annual Report on Form 10-K for the year ended December 31, 2015. Our cash and cash equivalents are comprised mainly of cash, high graded fixed deposits, commercial paper with maturities of less than three months and money market funds.
As of June 30, 2016, we had $800.8 million million of cash and cash equivalents, excluding restricted cash that supports insurance operations, and included in this amount was $525.5 million held by foreign subsidiaries outside of Bermuda. Based on our group's current corporate structure with a Bermuda domiciled parent company and the jurisdictions in which we operate, if the cash and cash equivalents held by our foreign subsidiaries were to be distributed to us, as dividends or otherwise, such amounts would not be subject to incremental income taxes, however in certain circumstances withholding taxes may be imposed by some jurisdictions, including the United States. Based on existing tax laws, regulations and our current intentions, there was no accrual as of June 30, 2016 for any material withholding taxes on dividends or other distributions, as described in "Note 16 - Taxation" in the notes to our consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q.
The following table summarizes our consolidated cash flows provided by (used in) operating, investing and financing activities for the six months ended June 30, 2016 and 2015:
 
 
Six Months Ended June 30,
Cash provided by (used in):
 
2016
 
2015
 
Increase (decrease)
 
 
(in thousands of U.S. dollars)
Operating activities
 
$
(216,332
)
 
$
(478,045
)
 
$
261,713

Investing activities
 
181,324

 
260,153

 
(78,829
)
Financing activities
 
13,548

 
337,675

 
(324,127
)
Effect of exchange rate changes on cash
 
381

 
(6,226
)
 
6,607

Net increase (decrease) in cash and cash equivalents
 
(21,079
)
 
113,557

 
(134,636
)
Cash and cash equivalents, beginning of period
 
821,925

 
963,402

 
(141,477
)
Cash and cash equivalents, end of period
 
$
800,846

 
$
1,076,959

 
$
(276,113
)
Details of our consolidated cash flows are included in "Item 1. Financial Statements - Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015 (unaudited)."

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2016 versus 2015: Cash from operating activities included net sales (purchases) of trading securities of $51.5 million and ($630.1) million for the six months ended June 30, 2016 and 2015, respectively. Excluding the activity on trading securities, cash (used in) provided by operating activities was ($267.8) million and $152.1 million for the six months ended June 30, 2016 and 2015, respectively. Cash used in operating activities is largely a result of the timing of loss payments across all of our segments. In addition, our StarStone segment had improved results and operating cash flows in the six months ended June 30, 2016 as compared with 2015, which partially offset the decrease in cash from operating activities, excluding trading securities activity.
Cash provided by investing activities for the six months ended June 30, 2016 primarily related to the cash inflow from redemptions of other investments of $125.1 million and a change in restricted cash contributing $65.1 million. The net cash inflow from investing activities was utilized in operating activities during the period. Cash provided by investing activities for the six months ended June 30, 2015 primarily related to a change in restricted cash of $242.4 million for the transaction with Voya, described in "Note 4 - Significant New Business" in our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2015.
Cash provided by financing activities for the six months ended June 30, 2016 was not significantly changed, as net drawdowns of $44.1 million under the Enstar Group Limited ("EGL") Revolving Credit Facility were substantially offset by repayments of $30.5 million related to the Sussex term loan (the "Sussex Facility"). During the six months ended June 30, 2015, we fully drew down $109.0 million on the Sussex Facility to fund 50% of the consideration payable for the acquisition of Sussex, and repaid $5.0 million of the outstanding principal on the Sussex Facility. In the same period there were also net drawdowns under the EGL Revolving Credit Facility of $224.7 million primarily related to our acquisition of certain subsidiaries from Wilton Re Limited and to fund trusts for the Voya transaction. These transactions are described in "Note 3 - Acquisitions" and "Note 4 - Significant New Business", respectively, in the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2015.
Investments
As at June 30, 2016 and December 31, 2015, we had total investments of approximately $7.4 billion and $7.5 billion, respectively.
For information regarding our investments, refer to "Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Investments."
Reinsurance Balances Recoverable
As at June 30, 2016 and December 31, 2015, we had reinsurance balances recoverable of approximately $1.3 billion and $1.5 billion, respectively.
Our insurance and reinsurance run-off subsidiaries, prior to acquisition, used retrocessional agreements to reduce their exposure to the risk of insurance and reinsurance assumed. On an annual basis, both Atrium and StarStone purchase a tailored outwards reinsurance program designed to manage their risk profiles. The majority of Atrium’s and StarStone's third-party reinsurance cover is with highly rated reinsurers or is collateralized by letters of credit.
We remain liable to the extent that retrocessionaires do not meet their obligations under these agreements, and therefore, we evaluate and monitor concentration of credit risk among our reinsurers. Provisions are made for amounts considered potentially uncollectible.
For further information regarding our reinsurance balances recoverable, refer to "Note 6 - Reinsurance Balances Recoverable" in the notes to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q.
Funds Held by Reinsured Companies
As at June 30, 2016 and December 31, 2015, we had funds held by ceding companies of approximately $1.2 billion and $0.1 billion, respectively. The increase was due to the completion on March 31, 2016 of our transaction with Allianz to reinsure portfolios of Allianz's run-off business. In accordance with this transaction, which had an effective date of January 1, 2016, there are $1.1 billion of funds held by Allianz and we are receiving a fixed rate of investment income in accordance with the contract. For information regarding credit risk, refer to "Item 3. Quantitative and Qualitative Disclosures About Market Risk - Credit Risk - Funds Held by Reinsured Companies" of this Quarterly Report on Form 10-Q.

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Loan Facilities
We utilize loan facilities primarily for acquisitions and, from time to time, for general corporate purposes. For information regarding our loan facilities, including our loan covenants, refer to "Note 11 - Loans Payable" in the notes to our consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q. Under our facilities, loans payable as of June 30, 2016 and December 31, 2015 were $614.0 million and $600.3 million, respectively.
Our main facility is the EGL Revolving Credit Facility, originated on September 16, 2014 for a five-year term, and amended on February 27, 2015, February 15, 2016 and most recently on August 5, 2016. This facility is among the Company and certain of its subsidiaries, as borrowers and as guarantors, and various financial institutions. We are permitted to borrow up to an aggregate of $665.0 million, and as of August 5, 2016 we have an option to obtain additional commitments of up to $166.25 million. The individual outstanding loans under the facility are unsecured short-term floating rate loans with an interest rate of LIBOR plus an applicable margin. As at June 30, 2016, $115.2 million of the $665.0 million total capacity was available for use under the EGL Revolving Credit Facility. During the six months ended June 30, 2016 we borrowed Euros to hedge the foreign currency exposure on our net investment in certain of our subsidiaries whose functional currency is denominated in Euros.
We also have the Sussex Facility, a four-year term loan, that was originated on December 24, 2014 with two financial institutions. We repaid $30.5 million under this facility during the six months ended June 30, 2016. As at June 30, 2016 the outstanding principal under this facility was $63.5 million.
Contractual Obligations
The following table summarizes, as of June 30, 2016, our future payments under contractual obligations and estimated payments for losses and LAE and policy benefits by expected payment date and updates the table on page 79 of our Annual Report on Form 10-K for the year ended December 31, 2015. The table excludes short-term liabilities and includes only obligations that are expected to be settled in cash.  
  
Total
 
Less than
1 Year
 
1 - 3
years
 
3 - 5
years
 
More than
5 Years
 
(in millions of U.S. dollars)
Operating Activities
 
 
 
 
 
 
 
 
 
Estimated gross reserves for losses and LAE (1)
$
6,571.3

 
$
1,324.5

 
$
1,999.1

 
$
931.6

 
$
2,316.1

Policy benefits for life and annuity contracts (2)
2,139.0

 
74.5

 
149.8

 
142.2

 
1,772.5

Operating lease obligations
44.9

 
10.3

 
18.0

 
9.1

 
7.5

Investing Activities
 
 
 
 
 
 
 
 
 
Investment commitments
138.4

 
55.6

 
57.8

 
25.0

 

Financing Activities
 
 
 
 
 
 
 
 
 
Loan repayments (including estimated interest payments)
673.7

 
15.0

 
658.7

 

 

Total
$
9,567.3

 
$
1,479.9

 
$
2,883.4

 
$
1,107.9

 
$
4,096.1

(1) 
The reserves for losses and LAE represent management’s estimate of the ultimate cost of settling losses. The estimation of losses is based on various complex and subjective judgments. Actual losses paid may differ, perhaps significantly, from the reserve estimates reflected in our financial statements. Similarly, the timing of payment of our estimated losses is not fixed and there may be significant changes in actual payment activity. The assumptions used in estimating the likely payments due by period are based on our historical claims payment experience and industry payment patterns, but due to the inherent uncertainty in the process of estimating the timing of such payments, there is a risk that the amounts paid in any such period can be significantly different from the amounts disclosed above. The amounts in the above table represent our estimates of known liabilities as of June 30, 2016 and do not take into account corresponding reinsurance recoverable amounts that would be due to us. Furthermore, certain of the reserves included in the unaudited condensed consolidated financial statements as of June 30, 2016 were acquired by us and initially recorded at fair value with subsequent amortization, whereas the expected payments by period in the table above are the estimated payments at a future time and do not reflect the fair value adjustment in the amount payable.
(2) 
Policy benefits for life and annuity contracts recorded in our unaudited condensed consolidated balance sheet as at June 30, 2016 of $1,286.3 million are computed on a discounted basis, whereas the expected payments by period in the table above are the estimated payments at a future time and do not reflect a discount of the amount payable.

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For additional information relating to our commitments and contingencies, see "Note 18 - Commitments and Contingencies" in the notes to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements
At June 30, 2016, we did not have any off-balance sheet arrangements, as defined by Item 303(a)(4) of Regulation S-K.
Critical Accounting Policies
Our critical accounting policies are discussed in Management's Discussion and Analysis of Results of Operations and Financial Condition contained in our Annual Report on Form 10-K for the year ended December 31, 2015 and have not materially changed.

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Cautionary Statement Regarding Forward-Looking Statements
This quarterly report and the documents incorporated by reference contain statements that constitute "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, with respect to our financial condition, results of operations, business strategies, operating efficiencies, competitive positions, growth opportunities, plans and objectives of our management, as well as the markets for our ordinary shares and the insurance and reinsurance sectors in general. Statements that include words such as "estimate," "project," "plan," "intend," "expect," "anticipate," "believe," "would," "should," "could," "seek," "may" and similar statements of a future or forward-looking nature identify forward-looking statements for purposes of the federal securities laws or otherwise. All forward-looking statements are necessarily estimates or expectations, and not statements of historical fact, reflecting the best judgment of our management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. These forward looking statements should, therefore, be considered in light of various important factors, including those set forth in this quarterly report and in our Annual Report on Form 10-K for the year ended December 31, 2015. These factors include:
risks associated with implementing our business strategies and initiatives;
risks that we may require additional capital in the future, which may not be available or may be available only on unfavorable terms;
the adequacy of our loss reserves and the need to adjust such reserves as claims develop over time;
risks relating to the availability and collectability of our reinsurance;
changes and uncertainty in economic conditions, including interest rates, inflation, currency exchange rates, equity markets and credit conditions, which could affect our investment portfolio, our ability to finance future acquisitions and our profitability;
the risk that ongoing or future industry regulatory developments will disrupt our business, affect the ability of our subsidiaries to operate in the ordinary course or to make distributions to us, or mandate changes in industry practices in ways that increase our costs, decrease our revenues or require us to alter aspects of the way we do business;
losses due to foreign currency exchange rate fluctuations;
increased competitive pressures, including the consolidation and increased globalization of reinsurance providers;
emerging claim and coverage issues;
lengthy and unpredictable litigation affecting assessment of losses and/or coverage issues;
loss of key personnel;
the ability of our subsidiaries to distribute funds to us and the resulting impact on our liquidity;
our ability to comply with covenants in our debt agreements;
changes in our plans, strategies, objectives, expectations or intentions, which may happen at any time at management’s discretion;
operational risks, including system, data security or human failures and external hazards;
risks relating to our acquisitions, including our ability to continue to grow, successfully price acquisitions, evaluate opportunities, address operational challenges, support our planned growth and assimilate acquired companies into our internal control system in order to maintain effective internal controls, provide reliable financial reports and prevent fraud;
risks relating to our ability to obtain regulatory approvals, including the timing, terms and conditions of any such approvals, and to satisfy other closing conditions in connection with our acquisition agreements, which could affect our ability to complete acquisitions;

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risks relating to our active underwriting businesses, including unpredictability and severity of catastrophic and other major loss events, failure of risk management and loss limitation methods, the risk of a ratings downgrade or withdrawal, cyclicality of demand and pricing in the insurance and reinsurance markets;
our ability to implement our strategies relating to our active underwriting businesses;
risks relating to our life and annuities business, including mortality and morbidity rates, lapse rates, the performance of assets to support the insured liabilities, and the risk of catastrophic events;
risks relating to our investments in life settlements contracts, including that actual experience may differ from our assumptions regarding longevity, cost projections, and risk of non-payment from the insurance carrier;
risks relating to the performance of our investment portfolio and our ability to structure our investments in a manner that recognizes our liquidity needs;
tax, regulatory or legal restrictions or limitations applicable to us or the insurance and reinsurance business generally;
changes in tax laws or regulations applicable to us or our subsidiaries, or the risk that we or one of our non-U.S. subsidiaries become subject to significant, or significantly increased, income taxes in the United States or elsewhere;
changes in Bermuda law or regulation or the political stability of Bermuda; and
changes in accounting policies or practices.
The factors listed above should be not construed as exhaustive and should be read in conjunction with the other cautionary statements and Risk Factors that are included in this quarterly report and in our Annual Report on Form 10-K for the year ended December 31, 2015. We undertake no obligation to publicly update or review any forward looking statement, whether to reflect any change in our expectations with regard thereto, or as a result of new information, future developments or otherwise, except as required by law.

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ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following risk management discussion and the estimated amounts generated from sensitivity analysis presented are forward-looking statements of market risk assuming certain market conditions occur. Future results may differ materially from these estimated results due to, among other things, actual developments in the global financial markets, changes in the composition of our investment portfolio, or changes in our business strategies. The results of analysis we use to assess and mitigate risk are not projections of future events or losses. See "Cautionary Statement Regarding Forward-Looking Statements" for additional information regarding our forward-looking statements.
We are principally exposed to four types of market risk: interest rate risk, credit risk, equity price risk and foreign currency risk. Our policies to address these risks in 2016 were not materially different than those used in 2015, and, based on our current knowledge and expectations, we do not currently anticipate significant changes in our market risk exposures or in how we will manage those exposures in future reporting periods.
Interest Rate Risk
Interest rate risk is the price sensitivity of a security to changes in interest rates. Our investment portfolio includes fixed maturity and short-term investments, whose fair values will fluctuate with changes in interest rates. We attempt to maintain adequate liquidity in our fixed maturity investments portfolio with a strategy designed to emphasize the preservation of our invested assets and provide sufficient liquidity for the prompt payment of claims and contract liabilities, as well as for settlement of commutation payments. We also monitor the duration and structure of our investment portfolio.
The following table summarizes the aggregate hypothetical change in fair value from an immediate parallel shift in the treasury yield curve, assuming credit spreads remain constant, in our fixed maturity and short-term investments portfolio classified as trading and available-for-sale as at June 30, 2016 and December 31, 2015:
 
 
Interest Rate Shift in Basis Points
As at June 30, 2016
 
-100
 
-50
 
 
+50
 
+100
 
 
(in millions of U.S. dollars)
Total Market Value
 
$
5,584

 
$
5,521

 
$
5,412

 
$
5,364

 
$
5,295

Market Value Change from Base
 
3.2
%
 
2.0
%
 

 
(0.9
)%
 
(2.2
)%
Change in Unrealized Value
 
$
172

 
$
109

 
$

 
$
(48
)
 
$
(117
)
 
 
 
 
 
 
 
 
 
 
 
As at December 31, 2015
 
-100
 
-50
 
 
+50
 
+100
Total Market Value
 
$
5,544

 
$
5,478

 
$
5,381

 
$
5,351

 
$
5,292

Market Value Change from Base
 
3.0
%
 
1.8
%
 

 
(0.6
)%
 
(1.7
)%
Change in Unrealized Value
 
$
163

 
$
97

 
$

 
$
(30
)
 
$
(89
)
Actual shifts in interest rates may not change by the same magnitude across the maturity spectrum or on an individual security and, as a result, the impact on the fair value of our fixed maturity securities and short-term investments portfolio may be materially different from the resulting change in realized value indicated in the table above.
Credit Risk
Credit risk relates to the uncertainty of a counterparty’s ability to make timely payments in accordance with contractual terms of the instrument or contract. We are exposed to direct credit risk primarily within our portfolios of fixed maturity and short-term investments, and through customers, brokers and reinsurers in the form of premiums receivable, reinsurance recoverables, and funds held by reinsured companies, as discussed below.
Fixed Maturity and Short-Term Investments
As a holder of fixed maturity and short-term investments, we also have exposure to credit risk as a result of investment ratings downgrades or issuer defaults. In an effort to mitigate this risk, our investment portfolio consists primarily of investment grade-rated, liquid, fixed maturity investments of short-to-medium duration. A table of credit ratings for our fixed maturity and short-term investments is in "Note 3 - Investments" in the notes to our unaudited condensed consolidated financial statements included within Part I, Item 1 of this Quarterly Report on Form 10-Q. As at June 30, 2016, approximately 46.5% of our fixed maturity and short-term investment portfolio was rated AA or higher by a major rating agency (December 31, 2015: 47.0%) with 4.4% rated lower than BBB- (December 31, 2015: 3.1%). The portfolio as a whole had an average credit quality rating of A+ as at June 30, 2016 (December 31, 2015: A+). In addition, we manage our portfolio pursuant to guidelines that follow what we believe are prudent standards of

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diversification. The guidelines limit the allowable holdings of a single issue and issuers and, as a result, we do not believe we have significant concentrations of credit risk.
Reinsurance
We have exposure to credit risk as it relates to our reinsurance balances recoverable. Our insurance subsidiaries remain liable to the extent that retrocessionaires do not meet their contractual obligations and, therefore, we evaluate and monitor concentration of credit risk among our reinsurers. These amounts are discussed in "Note 6 - Reinsurance Balances Recoverable" in the notes to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report.
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 balance is credited with investment income and losses payable are deducted. We are subject to credit risk if the reinsured company is unable to honor the value of the funds held balances, such as in the event of insolvency. However, we generally have the contractual ability to offset any shortfall in the payment of the funds held balances with amounts owed by us to the reinsured for losses payable and other amounts contractually due. We routinely monitor the creditworthiness of reinsured companies with whom we have funds held arrangements. We have a significant concentration of $1.1 billion to one reinsured company which has financial strength credit ratings of A+ from A.M. Best and AA from Standard & Poor's.
Equity Price Risk
Our portfolio of equity investments, including the equity funds and call options on equities included in other investments (collectively, "equities at risk"), has exposure to equity price risk, which is the risk of potential loss in fair value resulting from adverse changes in stock prices. Our global equity portfolio is correlated with a blend of the S&P 500 and MSCI World indices, and changes in this blend of indices would approximate the impact on our portfolio. The fair value of our equities at risk at June 30, 2016 was approximately $285.2 million (December 31, 2015: $263.3 million). At June 30, 2016, the impact of a 10% decline in the overall market prices of our equities at risk would be approximately $28.5 million (December 31, 2015: $26.3 million), on a pre-tax basis.
Foreign Currency Risk
Our foreign currency policy is to broadly manage, where possible, our foreign currency risk by seeking to match our liabilities under insurance and reinsurance policies that are payable in foreign currencies with assets that are denominated in such currencies, subject to regulatory constraints. In addition, we may selectively utilize foreign currency forward contracts to mitigate foreign currency risk. To the extent our foreign currency exposure is not matched or hedged, we may experience foreign exchange losses or gains, which would be reflected in our results of operations and financial condition.
Through our subsidiaries located in various foreign countries, we conduct our insurance and reinsurance operations in a variety of non-U.S. currencies. As the functional currency for the majority of our subsidiaries is the U.S. dollar, fluctuations in foreign currency exchange rates related to these subsidiaries will have a direct impact on the valuation of our assets and liabilities denominated in local currencies. All changes in foreign exchange rates, with the exception of non-U.S. dollar denominated investments classified as available-for-sale, are recognized in foreign exchange gains (losses) in our consolidated statements of earnings. Changes in foreign exchange rates relating to non-U.S. dollar denominated investments classified as available-for-sale are recorded in unrealized gains (losses) on investments, which is a component of accumulated other comprehensive income (loss) in shareholders’ equity.
We have exposure to foreign currency risk through our ownership of European, British, Canadian, and Australian subsidiaries whose functional currencies are the Euro, British pound, Canadian dollar, and Australian dollar, respectively. The foreign exchange gain or loss resulting from the translation of their financial statements from functional currency into U.S. dollars is recorded in the currency translation adjustment account, which is a component of accumulated other comprehensive income (loss) in shareholders’ equity. During the three months ended June 30, 2016, we borrowed Euros under the EGL Revolving Credit Facility to hedge the foreign currency exposure on our net investment in certain of our subsidiaries whose functional currency is denominated in Euros. Subsequent to June 30, 2016, we entered into forward exchange contracts to hedge the foreign currency exposure on our net investment in certain of our subsidiaries whose functional currencies are denominated in Canadian and Australian dollars. The loan and the forward contracts are discussed in "Note 11 - Loans Payable" and "Note 5 - Derivative Instruments", respectively, in the notes to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly

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Report. We utilize hedge accounting to record the foreign exchange gain or loss on these instruments in the currency translation account.
Our total net foreign currency exposure as of June 30, 2016 and December 31, 2015 was $178.1 million and $291.8 million, respectively. The impact of a 10% movement in the U.S. dollar would result in a change in value of $17.8 million and $29.2 million, respectively, portions of which would be reflected in earnings, the currency translation adjustment component of shareholder’s equity or redeemable noncontrolling interest. Our net foreign currency exposure included $64.9 million and $99.4 million, respectively, related to our subsidiaries whose functional currency is U.S. dollars.
Effects of Inflation
We do not believe that inflation has had or will have a material effect on our consolidated results of operations, although inflation may affect the value of our assets, as well as our liabilities including losses and LAE (by causing the cost of claims to rise in the future). Although loss reserves are established to reflect likely loss settlements at the date payment is made, we would be subject to the risk that inflation could cause these costs to increase above established reserves.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of management, including our Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of June 30, 2016. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that we maintained effective disclosure controls and procedures to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and timely reported as specified in the rules and forms of the U.S. Securities and Exchange Commission and is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the three months ended June 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a discussion of legal proceedings, see Note 18 - "Commitments and Contingencies" in the notes to our unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
ITEM 1A. RISK FACTORS
Our results of operations and financial condition are subject to numerous risks and uncertainties described in “Risk Factors” included in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015. The risk factors identified therein have not materially changed, except as set forth below.
The United Kingdom’s referendum vote to leave the European Union could adversely affect our business.
In an advisory referendum held on June 23, 2016, the United Kingdom (U.K.) voted to leave the European Union (E.U.) (commonly referred to as “Brexit”). The timing and nature of the U.K.’s withdrawal from the E.U. is yet to be determined, and the form of the U.K.’s future relationship with the E.U. may not be clear for some time.
We have significant operations and employees in the United Kingdom, including our Lloyd’s businesses. Brexit’s impact on our U.K. businesses will depend on the U.K. and Lloyd’s abilities to retain access to the E.U. markets, and our U.K. businesses could be adversely affected if adequate access to these markets is not obtained. Brexit may also lead to legal uncertainty and differences in national laws and regulations as the U.K. determines which E.U. laws to replace or replicate, and these issues could impact our structure and operations.
The Brexit vote had an immediate adverse effect on global financial and foreign exchange markets, and instability and uncertainty in the European economy and in global financial markets may continue for some time. Any of these effects of Brexit, and others we cannot anticipate, could adversely affect our business, results of operations, and financial condition.

ITEM 6. EXHIBITS
The information required by this item is set forth on the exhibit index that follows the signature page of this report.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on August 5, 2016.
 
ENSTAR GROUP LIMITED
 
 
By:
/S/ MARK SMITH
 
Mark Smith
Chief Financial Officer, Authorized Signatory and Principal Financial Officer
 
 
By:
/S/ GUY BOWKER
 
Guy Bowker
Chief Accounting Officer and Principal Accounting Officer



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Exhibit Index
Exhibit
No.
  
Description
3.1
  
Memorandum of Association of Enstar Group Limited (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-K/A filed on May 2, 2011).
3.2
  
Fourth Amended and Restated Bye-Laws of Enstar Group Limited (incorporated by reference to Exhibit 3.2(b) of the Company’s Form 10-Q filed on August 11, 2014).
3.3
  
Certificate of Designations of Series C Participating Non-Voting Perpetual Preferred Stock (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on June 17, 2016).
10.1+*
 
Form of Restricted Stock Award Agreement under the Enstar Group Limited 2016 Equity Incentive Plan.
10.2+*
 
Form of Stock Appreciation Right Award Agreement under the Enstar Group Limited 2016 Equity Incentive Plan.
10.3+
 
Enstar Group Limited 2016 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company's Form 8-K filed on June 17, 2016).
31.1*
  
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*
  
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 as adopted under Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**
  
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**
  
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*
  
Interactive Data Files.
________________________________
*     filed herewith
** furnished herewith
+     denotes management contract or compensatory arrangement


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