Enstar Group LTD - Quarter Report: 2020 March (Form 10-Q)

---

---

---

---

---

---

---

---

•	liability for losses and loss adjustment expenses ("LAE");

•	reinsurance balances recoverable on paid and unpaid losses;

•	defendant asbestos and environmental liabilities and related insurance balances recoverable;

•	valuation allowances on reinsurance balances recoverable and deferred tax assets;

•	impairment charges, including credit allowances on investment securities classified as available-for-sale ("AFS"), and impairments on goodwill, intangible assets and deferred charge assets;

•	gross and net premiums written and net premiums earned;

•	fair value measurements of investments;

•	fair value estimates associated with accounting for acquisitions;

•	fair value estimates associated with loss portfolio transfer reinsurance agreements for which we have elected the fair value option; and

•	redeemable noncontrolling interests.

---

---

•

A cumulative effect adjustment of $3.0 million relating to our financial instruments carried at amortized cost, which primarily relates to our insurance balances recoverable on paid and unpaid losses. We already carried significant specific allowances for credit losses of $147.6 million on our reinsurance balances recoverable on paid and unpaid losses, relating primarily to our Non-life Run-off segment and therefore the adoption of this standard did not have a material impact on our balance sheet; and

•	$3.1 million related to our AFS debt securities whose fair values were less than their amortized cost basis.

---

---

---

---

---

---

---

•

Corporate and Government: Expected cashflows are derived that are specific to each security. The PD is based on a quantitative model that converts agency ratings to term structures that vary by country, industry and the state of the credit cycle. This is used along with macroeconomic forecasts to produce scenario conditioned PDs. The LGD is based on default studies provided by a third party which we use along with macroeconomic forecasts to produce scenario conditioned LGDs.

•	Municipals: Expected cash flows are derived that are specific to each security. The PD model produces scenario conditioned PD output over the lifetime of the municipal security. These PDs are based on key macroeconomic and instrument specific risk factors. The LGD is derived based on a model which uses assumptions specific to the municipal securities.

•

Asset backed, Commercial and Residential mortgaged-backed: Expected cash flows are derived that are specific to each security. The PD and LGD for each security is based on a quantitative model that generates scenario conditioned PD and LGD term structures based on the underlying collateral type, waterfall and other trustee information. This model also considers prepayments. For these security types, there is no explicit reversion and the forecasts are deemed reasonable and supportable over the life of the portfolio.

---

---

•	Hedge funds may invest in a wide range of instruments, including debt and equity securities, and utilize various sophisticated strategies to achieve their objectives. We invest in a mixture of fixed income, equity and multi-strategy hedge funds.

•	Fixed income funds comprise a number of positions in diversified fixed income funds that are managed by third-party managers. Underlying investments vary from high-grade corporate bonds to non-investment grade senior secured loans and bonds, but are generally invested in liquid fixed income markets. These funds have regularly published prices.

•	Equity funds invest in a diversified portfolio of U.S. and international publicly-traded equity securities.

•	Private equity funds invest primarily in the financial services industry.

•	CLO equities comprise investments in the equity tranches of term-financed securitizations of diversified pools of corporate bank loans.

•	CLO equity funds invest primarily in the equity tranches of term-financed securitizations of diversified pools of corporate bank loans.

•	Private credit funds invest in direct senior or collateralized loans.

•	Others comprise various investments including real estate debt funds that invest primarily in European commercial real estate equity, call options on equities and a fund that provides loans to educational institutions throughout the U.S. and its territories.

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

•	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.

---

---

---

•

U.S. government and agency securities consist of securities issued by the U.S. Treasury and mortgage pass-through agencies such as the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and other agencies. Non-U.S. government securities consist of bonds issued by non-U.S. governments and agencies along with supranational organizations. The significant inputs used to determine the fair value of these securities include the spread above the risk-free yield curve, reported trades and broker-dealer quotes. These are considered to be observable market inputs and, therefore, the fair values of these securities are classified as Level 2.

•

Corporate securities consist primarily of investment-grade debt of a wide variety of corporate issuers and industries. The fair values of these securities are determined using the spread above the risk-free yield curve, reported trades, broker-dealer quotes, benchmark yields, and industry and market indicators. These are considered observable market inputs and, therefore, the fair values of these securities are classified as Level 2. Where pricing is unavailable from pricing services, such as in periods of low trading activity or when transactions are not orderly, we obtain non-binding quotes from broker-dealers. Where significant inputs are unable to be corroborated with market observable information, we classify the securities as Level 3.

•	Municipal securities consist primarily of bonds issued by U.S.-domiciled state and municipal entities. The fair values of these securities are determined using the spread above the risk-free yield curve, reported trades, broker-dealer quotes and benchmark yields. These are considered observable market inputs and, therefore, the fair values of these securities are classified as Level 2.

•

Asset-backed securities consist primarily of investment-grade bonds backed by pools of loans with a variety of underlying collateral. Residential and commercial mortgage-backed securities include both agency and non-agency originated securities. Where pricing is unavailable from pricing services, we obtain non-binding quotes from broker-dealers. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. The significant inputs used to determine the fair value of these securities include the spread above the risk-free yield curve, reported trades, benchmark yields, prepayment speeds and default rates. The fair values of these securities are classified as Level 2 if the significant inputs are market observable. Where significant inputs are unable to be corroborated with market observable information, we classify the securities as Level 3.

---

•	For our investments in hedge funds, we measure fair value by obtaining the most recently available NAV as advised by the external fund manager or third-party administrator. The fair values of these investments are measured using the NAV as a practical expedient and therefore have not been categorized within the fair value hierarchy.

•

Our investments in fixed income funds and equity funds are valued based on a combination of prices from independent pricing services, external fund managers or third-party administrators. For the publicly available prices we have classified the investments as Level 2. For the non-publicly available prices we are using NAV as a practical expedient and therefore these have not been categorized within the fair value hierarchy.

•	For our investments in private equity funds, we measure fair value by obtaining the most recently available NAV from the external fund manager or third-party administrator. The fair values of these investments are measured using the NAV as a practical expedient and therefore have not been categorized within the fair value hierarchy.

•

We measure the fair value of our direct investment in CLO equities based on valuations provided by independent pricing services, our external CLO equity manager, and valuations provided by the broker or lead underwriter of the investment (the "broker"). The fair values measured using prices provided by independent pricing services have been classified as Level 2 and fair values using prices from brokers have been classified as Level 3 due to the use of unobservable inputs in the valuation and the limited number of relevant trades in secondary markets.

---

•	For our investments in the CLO equity funds, we measure fair value by obtaining the most recently available NAV as advised by the external fund manager or third party administrator. The fair value of these investments is measured using the NAV as a practical expedient and therefore have not been categorized within the fair value hierarchy.

•	For our investments in private credit 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.

•	Included within other is an investment in a real estate debt fund, for which we measure fair value by obtaining the most recently available NAV from the external fund manager or third-party administrator. The fair value of this investment is measured using the NAV as a practical expedient and therefore has not been categorized within the fair value hierarchy.

---

---

•	An increase in the corporate bond rate or credit spread for non-performance risk would result in a decrease

---

•

An increase in the weighted average cost of capital would result in an increase in the fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses. Conversely, a decrease in the weighted average cost of capital would result in a decrease in the fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses.

•	An increase in the risk cost of capital would result in an increase in the fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses. Conversely, a decrease in the risk cost of capital would result in a decrease in the fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses.

•

The duration of the liability and recoverable is adjusted every period to reflect actual net payments during the period and expected future payments. An acceleration of the estimated payment pattern, a decrease in duration, would result in an increase in the fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses. Conversely, a deceleration of the estimated payment pattern, an increase in duration, would result in a decrease in the fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses.

---

---

---

---

---

---

---

---

---

---

•	Investments in funds (carried within other investments) managed by Stone Point, with respect to which we recognized net unrealized gains (losses);

•	Investments in registered investment companies affiliated with entities owned by Trident or otherwise affiliated with Stone Point, with respect to which we recognized net unrealized gains (losses) and interest income;

•	Separate accounts managed by Eagle Point Credit Management, PRIMA Capital Advisors and SKY Harbor Capital Management, which are affiliates of entities owned by Trident, with respect to which we incurred management fees;

---

•	Investments in funds (carried within other investments) managed by Sound Point Capital, an entity in which Mr. Carey has an indirect minority ownership interest and serves as a director, with respect to which we recognized net unrealized gains (losses);

•	Sound Point Capital has acted as collateral manager for certain of our direct investments in CLO debt and equity securities, with respect to which we recognized net unrealized gains (losses) and interest income;

•	Marble Point Capital, which is an affiliate of an entity owned by Trident, has acted as collateral manager for certain of our direct investments in CLO debt and equity securities, with respect to which we recognized net unrealized gains (losses) and interest income;

•	A separate account managed by Sound Point Capital, with respect to which we incurred management fees in prior periods; and

•	In the fourth quarter of 2018, we invested $25.0 million in Mitchell TopCo Holdings, the parent company of Mitchell International and Genex Services, as a co-investor alongside certain Trident funds.

---

---

---

---

---

---

---

---

---

---

---

---

---

---

---

•	Consolidated net loss attributable to Enstar ordinary shareholders of $516.8 million and basic and diluted net loss per ordinary share of $23.98.

•

Non-GAAP operating loss attributable to Enstar ordinary shareholders of $336.2 million and diluted non-GAAP operating loss per ordinary share of $15.60. For a reconciliation of non-GAAP operating loss attributable to Enstar ordinary shareholders to net loss attributable to Enstar ordinary shareholders calculated in accordance with GAAP, and diluted non-GAAP operating loss per ordinary share to diluted net loss per ordinary share calculated in accordance with GAAP, see "Non-GAAP Financial Measure" above.

•

Net loss from our Non-life Run-off segment of $449.0 million, including net realized and unrealized losses of $574.7 million comprising $2.1 million of net realized gains and $576.8 million of net unrealized losses driven by the impact of the changes in the fair value of our investment portfolio attributable to the recent disruption in global financial markets associated with the COVID-19 pandemic.

---

•	Combined ratio of 107.8% for our Atrium segment, with net premiums earned of $42.4 million. Excluding the estimated underwriting losses related to the COVID-19 pandemic, the combined ratio for the Atrium segment was 87.6% for the three months ended March 31, 2020.

•	Combined ratio of 116.8% for StarStone's core business lines and 110.4% for StarStone segment, with net premiums earned of $198.2 million. Excluding the estimated underwriting losses related to the COVID-19 pandemic, the combined ratio for the StarStone segment was 94.2% for the three months ended March 31, 2020.

•	Total investments, cash and funds held of $14.4 billion.

•	Total reinsurance balances recoverable on paid and unpaid losses of $2.3 billion.

•	Total assets of $19.1 billion.

•	Total gross and net reserves for losses and LAE of $10.4 billion and $8.1 billion, respectively. During the three months ended March 31, 2020, our Non-life Run-off segment assumed gross and net reserves of $471.2 million.

•	Total capital under management of $6.2 billion, including common equity of $3.8 billion, preferred equity of $510.0 million, noncontrolling interests of $406.2 million and debt of $1.5 billion.

•	Diluted book value per ordinary share of $172.83, a decrease of 12.7% since December 31, 2019, which was driven primarily by the impact of the changes in the fair value of our investment portfolio attributable to the recent disruption in global financial markets associated with the COVID-19 pandemic.

•

Non-life Run-off - Net losses attributable to the Non-life Run-off segment were $449.0 million for the three months ended March 31, 2020 compared to net earnings of $400.7 million for the three months ended March 31, 2019. The decrease in net earnings of $849.8 million was primarily due to net realized and unrealized losses of $574.7 million on our investment portfolio in the current period compared to net gains of $436.2 million in the comparative period. Current period net realized and unrealized losses were driven primarily by the impact of the changes in the fair value of our investment portfolio attributable to the recent disruption in global financial markets associated with the COVID-19 pandemic. The current period unrealized investment results were partially offset by net favorable development on losses and LAE of $62.0 million, including $58.2 million relating to fair value accounting on certain liabilities for which we had elected the fair value option.

•

Atrium - Net losses attributable to the Atrium segment were $5.6 million for the three months ended March 31, 2020 compared to net earnings of $4.5 million for the three months ended March 31, 2019. The decrease in net earnings was primarily due to a higher loss ratio and net realized and unrealized losses on our investment portfolio in the current period, both of which were largely driven by losses related to the COVID-19 pandemic.

---

•

StarStone - Net losses attributable to the StarStone segment were $36.5 million for the three months ended March 31, 2020 compared to net losses of $31.0 million for the three months ended March 31, 2019. The increase in net losses was primarily due to net realized and unrealized losses on our investment portfolio and underwriting losses in the current period which were also driven by the impact of COVID-19. These losses were partially offset by otherwise improved underwriting results, which would have seen a return to profitability if not for the impact of the COVID-19 pandemic.

•

Net Realized and Unrealized Gains (Losses) - Consolidated net realized and unrealized losses were $634.5 million for the three months ended March 31, 2020 compared to net gains of $460.8 million for the three months ended March 31, 2019. The net realized and unrealized losses in the current period were primarily attributable to decreases in the valuation of our fixed maturity, other and equity investments, primarily due to the recent disruption in global financial markets associated with the COVID-19 pandemic. Given the unique circumstances of the COVID-19 pandemic, the Company has also recorded an unrealized loss estimate for the fair value of certain other investments that are typically reported on a lag basis. For further information on investment valuation methodologies, refer to Note 10 - "Fair Value Measurements" to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q.

•

Non-GAAP Operating Income (Loss) - Our non-GAAP operating loss attributable to Enstar ordinary shareholders, which excludes the impact of net realized and unrealized gains and losses on fixed maturity investments and other items, was $336.2 million for the three months ended March 31, 2020, a decrease of $535.9 million from non-GAAP operating income attributable to Enstar ordinary shareholders of $199.7 million for the three months ended March 31, 2019. The decrease was primarily attributable to net realized and unrealized losses on our other investments and equities of $258.1 million and $93.0 million, respectively, during the three months ended March 31, 2020. For a reconciliation of non-GAAP operating income (loss) attributable to Enstar ordinary shareholders to net earnings (loss) attributable to Enstar ordinary shareholders calculated in accordance with GAAP, see "Non-GAAP Financial Measures" above.

---

---

---

---

---

---

---

---

---

•

StarStone Group: The repositioning of the underwriting portfolio has continued into 2020 with a focus on achieving underwriting profitability. StarStone has separated its book into "core lines" and "exited lines" to monitor performance during the repositioning phase. The exited lines represent segments or lines of business where new business has ceased and includes certain aerospace, casualty and property lines.

•

Intragroup reinsurance cessions: In partnership with StarStone's other shareholders, we have completed a number of transactions to provide strategic and capital support to StarStone in the form of capital contributions and reinsurances. The intragroup reinsurance cessions also impact comparability between periods. Refer to Note 3 - "Acquisitions" and Note 21 - "Related Party Transactions" to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2019 for further information. These reinsurance transactions between StarStone Group and other group entities are reflected within StarStone Intra-Group Cessions below (the "StarStone Intra-Group Cessions") and are eliminated upon consolidation.

(1)

Many insurance companies predominantly use AFS accounting where unrealized amounts are recorded directly to shareholders’ equity and therefore do not impact earnings. Unrealized amounts would only become realizable in the event of a sale of the specific securities prior to maturity or a credit default. We have historically utilized trading accounting, where unrealized amounts are reflected in earnings. However, from October 1, 2019 we have been electing to use AFS accounting for all new acquisitions and, where permissible, as trading fixed maturity securities mature, we are reinvesting the proceeds into AFS securities for the StarStone segment.

---

---

---

---

---

---

---

---

---

---

---

---

---

•

Net realized and unrealized losses on fixed income securities, including fixed income securities within our funds held portfolios, of $283.4 million for the three months ended March 31, 2020, compared to gains of $246.2 million for the three months ended March 31, 2019, a decrease of $529.5 million. Losses in the current period were primarily attributable to a decrease in the valuation of our fixed maturity investments due to a widening in investment grade and high yield credit spreads, which was partially offset by declining interest rates due to the recent disruption in global financial markets associated with the COVID-19 pandemic. Gains in the prior period were primarily attributable to higher valuations of our fixed maturity investments due to declining interest rates and tightening credit spreads.

•

Net realized and unrealized losses on equity securities of $93.0 million for the three months ended March 31, 2020, compared to gains of $9.9 million for the three months ended March 31, 2019, a decrease of $103.0 million. Losses in the current period were primarily the result of significant volatility in global financial markets associated with the COVID-19 pandemic. Gains in the prior period were primarily driven by favorable movements in global equity markets.

•

Net realized and unrealized losses on other investments of $258.1 million for the three months ended March 31, 2020, compared to gains of $204.7 million for the three months ended March 31, 2019, representing a decrease of $462.8 million. Losses in the current period primarily comprised unrealized losses in our equity funds, hedge funds, fixed income funds, CLO equities and CLO equity funds due to the recent disruption in global financial markets associated with the COVID-19 pandemic. Given the unique circumstances of the COVID-19 pandemic, we have recorded an estimate of losses for certain other investments that are typically reported on a lag basis. For further information on investment valuation methodologies, refer to Note 10 - "Fair Value Measurements" to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q. Prior period gains primarily comprised unrealized gains in our hedge funds, equity funds, fixed income funds and private equity funds, principally driven by tightening credit spreads and favorable movement in international equity markets in 2019.

---

---

---

---

---

---

(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 March 31, 2020 and do not take into account corresponding reinsurance balance recoverable amounts that would be due to us. Furthermore, certain of the reserves included in the unaudited condensed consolidated financial statements as of March 31, 2020 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.

---

•	risks associated with implementing our business strategies and initiatives;

•	the adequacy of our loss reserves and the need to adjust such reserves as claims develop over time;

•	risks relating to our acquisitions, including our ability to evaluate opportunities, successfully price acquisitions, 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 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, and cyclicality of demand and pricing in the insurance and reinsurance markets;

•	risks relating to the performance of our investment portfolio and our ability to structure our investments in a manner that recognizes our liquidity needs;

•	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;

•	risks relating to the evolving COVID-19 global pandemic and the significant disruption and economic and financial turmoil that has taken place as a result of government measures to protect public health;

---

•	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;

•	risks relating to the variability of statutory capital requirements and the risk that we may require additional capital in the future, which may not be available or may be available only on unfavorable terms;

•	risks relating to the availability and collectability of our reinsurance;

•	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 the 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 ability to obtain regulatory approvals, including the timing, terms and conditions of any such approvals, and to satisfy other closing conditions in connection with our acquisition agreements, which could affect our ability to complete acquisitions;

•	risks relating to our subsidiaries with liabilities arising from legacy manufacturing operations;

•	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.

---

---

---

---

(1)	Assumes 10% change in the U.S. dollar relative to other currencies.

---

---

•

Investments. Due in large part to the uncertainty caused by the COVID-19 pandemic in global financial markets, our investment portfolio has experienced significant unrealized losses (largely due to widening credit spreads on fixed income investments and changes in the fair value of our equity investments), increased volatility, heightened credit risk, and declines in yields on our fixed income investments. Our investment portfolios may continue to be adversely impacted by unfavorable market conditions caused by the COVID-19 pandemic, which could cause continued volatility in our results of operations and negatively impact our financial condition.

•

Debt and Equity Financing. As a result of the economic conditions caused by the COVID-19 pandemic, capital and credit markets continue to experience volatility that could negatively impact our ability to raise additional capital through the debt or equity markets or through bank or other debt financing. If we are unable obtain adequate capital on suitably attractive terms, or at all, we may be unable to implement our future growth or operating plans and our business, financial condition, and results of operations could be materially adversely affected.

•

Liquidity. Due to the change in fair value of our investments caused by the COVID-19 pandemic, we and our insurance and reinsurance subsidiaries may need additional capital to maintain compliance with regulatory capital requirements and/or be required to post additional collateral under existing reinsurance arrangements, which could reduce our liquidity. Due to current market conditions, we may not be able to secure letters of credit to satisfy certain of our existing collateral obligations, including through the extension or renewal of existing facilities, or such letters of credit may only be available on unfavorable terms. In addition, we may experience a reduction in the amount of available distribution or dividend capacity from our regulated insurance and reinsurance subsidiaries, which would also reduce liquidity.

•

Acquisitions and New Business. Our ability to complete acquisitions of companies and portfolios of insurance and reinsurance business in our Non-life Run-off segment may be adversely impacted by circumstances created by the COVID-19 pandemic, including as a result of the limited availability of external financing or funding to acquire new business, the willingness of counterparties to engage in transactions in light of uncertain economic conditions or financial stress, and the additional scrutiny of regulators whose approval is required to complete transactions due to the uncertain economic conditions, as well as other factors that we are unable to predict.

•

Active Underwriting Segments. We have experienced underwriting losses relating to the COVID-19 pandemic in our Atrium and StarStone segments across various lines of business. Although we have established reserves against these losses as of March 31, 2020, given the uncertainty surrounding the COVID-19 pandemic and its impact on the insurance industry, our preliminary estimates of losses and loss adjustment expenses and estimates of reinsurance recoverable arising from the COVID-19 pandemic may materially change. Unanticipated issues relating to claims and coverage may emerge, which could adversely affect our business by increasing the scope of coverage beyond our intent and/or increasing the frequency and severity of claims.

---

•

Operational Disruptions. We rely on the continued productivity of our senior executive team, our employees, and our agents, brokers, third party administrators, suppliers and outsourcing providers to carry out our operations. If any of these people are unable to continue to work productively, or at all, due to illness, government restrictions, remote working conditions, or other disruptions related to the COVID-19 pandemic, our ability to conduct our operations may be adversely affected. In addition, like many other companies, the vast majority of our employees are working remotely, and we are therefore more dependent on our information technology systems and the continued access by our employees and service providers to reliable internet and telecommunications systems. We will be adversely affected if these systems do not function effectively or are disrupted due to heightened demand, cybersecurity attacks and data security incidents, or for any other related reason. These types of operational disruptions that impact our people and/or systems and others we may not foresee, would negatively impact our ability to settle claims efficiently, complete acquisitions, integrate our acquired businesses, manage our investments, or otherwise conduct our business.

(1)	Ordinary shares repurchased pursuant to the Company's Board-approved ordinary share repurchase program announced on March 9, 2020, which authorized the repurchase of up to $150.0 million of ordinary shares. The share repurchase plan was suspended on March 23, 2020 in light of the current uncertainty in the global financial markets resulting from the COVID-19 pandemic.

---

---