Enstar Group LTD - Quarter Report: 2021 September (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 September 30, 2021

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

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Ordinary shares, par value $1.00 per share	ESGR	The NASDAQ Stock Market	LLC
Depositary Shares, Each Representing a 1/1,000th Interest in a 7.00%	ESGRP	The NASDAQ Stock Market	LLC
Fixed-to-Floating Rate Perpetual Non-Cumulative Preferred Share, Series D, Par Value $1.00 Per Share
Depositary Shares, Each Representing a 1/1,000th Interest in a 7.00%	ESGRO	The NASDAQ Stock Market	LLC
Perpetual Non-Cumulative Preferred Share, Series E, Par Value $1.00 Per Share

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As at November 1, 2021, the registrant had outstanding 16,788,076 voting ordinary shares and 1,597,712 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 September 30, 2021

Table of Contents


		Page
PART I

Item 1.	Financial Statements	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	78
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	118
Item 4.	Controls and Procedures	125

PART II

Item 1.	Legal Proceedings	126
Item 1A.	Risk Factors	126
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	127
Item 6.	Exhibits	128

Table of Contents

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS


CONDENSED CONSOLIDATED FINANCIAL STATEMENTS			Page
Condensed Consolidated Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020			2
Condensed Consolidated Statements of Earnings (unaudited) for the three and nine months ended September 30, 2021 and 2020			3
Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three and nine months ended September 30, 2021 and 2020			4
Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited) for the three and n ine months ended September 30, 2021 and 2020			5
Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2021 and 2020			6
Notes to the Condensed Consolidated Financial Statements (Unaudited)			8
Note 1 - Significant Accounting Policies			8
Note 2 - Business Acquisitions			10
Note 3 - Significant New Business			13
Note 4 - Divestitures, Held-For-Sale Businesses and Discontinued Operations			14
Note 5 - Investments			18

Note 6 - Reinsurance Balances Recoverable on Paid and Unpaid Losses			29
Note 7 - Deferred Charge Assets and Deferred Gain Liabilities			31
Note 8 - Losses and Loss Adjustment Expenses			31
Note 9 - Future Policyholder Benefits			40
Note 1 0 - Defendant Asbestos and Environmental Liabilities			40
Note 1 1 - Fair Value Measurements			41
Note 1 2 - Variable Interest Entities			46
Note 1 3 - Premiums Written and Earned			55

Note 1 4 - Debt Obligations and Credit Facilities			55
Note 1 5 - Noncontrolling Interests			57
Note 1 6 - Shareholders Equity			57
Note 1 7 - Earnings Per Share			60

Note 1 8 - Income Taxation			61
Note 19 - Related Party Transactions			62
Note 2 0 - Commitments and Contingencies			70
Note 2 1 - Segment Information			72
Note 2 2 - Subsequent Events			77

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ENSTAR GROUP LIMITED

CONDENSED CONSOLIDATED BALANCE SHEETS

As of September 30, 2021 (unaudited) and December 31, 2020


	September 30, 2021			December 31, 2020
	(expressed in thousands of U.S. dollars, except share data)
ASSETS
Short-term investments, trading, at fair value		$	14,236		$	5,129
Short-term investments, available-for-sale, at fair value (amortized cost: 2021 — $81,579; 2020 — $263,750; net of allowance: 2021 — $0; 2020 — $0)		81,641			263,795
Fixed maturities, trading, at fair value		3,921,543			4,594,892

Fixed maturities, available-for-sale, at fair value (amortized cost: 2021 — $5,384,691; 2020 — $3,312,891; net of allowance: 2021 — $4,900; 2020 — $322)		5,379,096			3,395,100
Funds held - directly managed		3,056,392			1,074,890
Equities, at fair value		1,952,425			846,795
Other investments, at fair value		2,051,718			4,244,034

Equity method investments		505,488			832,295
Total investments (Note 5 and Note 11)		16,962,539			15,256,930
Cash and cash equivalents		1,587,158			901,152
Restricted cash and cash equivalents		447,533			471,964
Premiums receivable		332,052			405,793


Reinsurance balances recoverable on paid and unpaid losses (net of allowance: 2021 — $137,715; 2020 — $137,122) (Note 6)		1,205,504			1,568,333
Reinsurance balances recoverable on paid and unpaid losses, at fair value (Note 6 and Note 11)		471,103			520,830
Insurance balances recoverable (net of allowance: 2021 — $5,805; 2020 — $4,824) (Note 10)		213,419			249,652
Funds held by reinsured companies		2,410,021			635,819
Variable interest entity assets of the InRe Fund (Note 12)		1,130,274			—
Cash and restricted cash	696,505			—
Investments	396,984			—
Other assets	36,785			—



Other assets		1,293,845			925,533
Assets held-for-sale (Note 4)		—			711,278
TOTAL ASSETS		$	26,053,448		$	21,647,284

LIABILITIES
Losses and loss adjustment expenses (Note 8)		$	11,770,051		$	8,140,362
Losses and loss adjustment expenses, at fair value (Note 8 and Note 11)		2,107,734			2,452,920
Future policyholder benefits (Note 9)		1,498,210			—
Defendant asbestos and environmental liabilities (Note 10)		659,921			706,329

Insurance and reinsurance balances payable		554,837			494,412

Debt obligations (Note 14)		1,690,738			1,373,259
Variable interest entity liabilities of the InRe Fund (Note 12)		682,548			—
Other liabilities		601,055			942,905
Liabilities held-for-sale (Note 4)		—			483,657
TOTAL LIABILITIES		19,565,094			14,593,844

COMMITMENTS AND CONTINGENCIES (Note 20)

REDEEMABLE NONCONTROLLING INTEREST (Note 15)		181,417			365,436

SHAREHOLDERS’ EQUITY (Note 16)

Ordinary shares (par value $1 each, issued and outstanding 2021: 18,383,334; 2020: 22,085,232):
Voting Ordinary shares (issued and outstanding 2021: 16,785,622; 2020: 18,575,550)		16,786			18,576

Non-voting convertible ordinary Series C Shares (issued and outstanding 2021: 1,192,941; 2020: 2,599,672)		1,193			2,600
Non-voting convertible ordinary Series E Shares (issued and outstanding 2021: 404,771 and 2020: 910,010)		405			910
Preferred Shares:
Series C Preferred Shares (issued and held in treasury 2021 and 2020: 388,571)		389			389
Series D Preferred Shares (issued and outstanding 2021 and 2020: 16,000)		400,000			400,000
Series E Preferred Shares (issued and outstanding 2021 and 2020: 4,400)		110,000			110,000
Treasury shares, at cost (Series C Preferred shares 2021 and 2020: 388,571)		(421,559)			(421,559)
Joint Share Ownership Plan (voting ordinary shares, held in trust 2021 and 2020: 565,630)		(566)			(566)
Additional paid-in capital		956,094			1,836,074
Accumulated other comprehensive income		4,516			80,659
Retained earnings		5,012,607			4,647,312
Total Enstar Shareholders’ Equity		6,079,865			6,674,395
Noncontrolling interest (Note 15)		227,072			13,609
TOTAL SHAREHOLDERS’ EQUITY		6,306,937			6,688,004
TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND SHAREHOLDERS’ EQUITY		$	26,053,448		$	21,647,284

See accompanying notes to the unaudited condensed consolidated financial statements

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ENSTAR GROUP LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)

For the Three and Nine Months Ended September 30, 2021 and 2020


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(expressed in thousands of U.S. dollars, except share and per share data)
INCOME
Net premiums earned	$	51,594	$	161,724	$	204,114	$	463,946
Fees and commission income	6,653		10,787		24,525		28,325
Net investment income (1)	92,725		72,130		230,961		241,287
Net realized and unrealized gains (losses) (1)	(273,265)		500,005		111,167		838,552
Other income	5,278		48,404		2,470		67,761
Net gain on purchase and sales of subsidiaries	46,688		—		61,582		—
	(70,327)		793,050		634,819		1,639,871
EXPENSES
Net incurred losses and loss adjustment expenses	(26,711)		109,686		(42,914)		339,678

Acquisition costs	10,947		37,708		49,917		132,818
General and administrative expenses	93,499		115,828		269,216		359,086
Interest expense	18,158		15,003		50,638		42,436
Net foreign exchange (gains) losses	(2,584)		8,156		(9,089)		1,375
	93,309		286,381		317,768		875,393
EARNINGS (LOSS) BEFORE INCOME TAXES	(163,636)		506,669		317,051		764,478
Income tax expense	(9,839)		(13,915)		(13,279)		(25,295)
Earnings (loss) from equity method investments	(14,147)		149,065		100,825		152,725
NET EARNINGS (LOSS) FROM CONTINUING OPERATIONS	(187,622)		641,819		404,597		891,908
Net earnings from discontinued operations, net of income taxes	—		4,031		—		810
NET EARNINGS (LOSS)	(187,622)		645,850		404,597		892,718
Net (earnings) loss attributable to noncontrolling interest	589		(21,912)		(13,257)		30,802
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR	(187,033)		623,938		391,340		923,520
Dividends on preferred shares	(8,925)		(8,925)		(26,775)		(26,775)
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR ORDINARY SHAREHOLDERS	$	(195,958)	$	615,013	$	364,565	$	896,745

Earnings per ordinary share attributable to Enstar:
Basic:
Net earnings (loss) from continuing operations	$	(10.68)	$	28.39	$	17.78	$	41.56
Net earnings from discontinued operations	—		0.11		—		0.02
Net earnings (loss) per ordinary share	$	(10.68)	$	28.50	$	17.78	$	41.58
Diluted:
Net earnings (loss) from continuing operations	$	(10.68)	$	28.13	$	17.53	$	41.12
Net earnings from discontinued operations	—		0.11		—		0.02
Net earnings (loss) per ordinary share	$	(10.68)	$	28.24	$	17.53	$	41.14
Weighted average ordinary shares outstanding:
Basic	18,349,483		21,578,106		20,502,755		21,564,447
Diluted	18,548,368		21,778,729		20,793,640		21,799,627

(1) Includes amounts attributed to the InRe Fund, refer to Note 12 - "Variable Interest Entities" for additional information.

See accompanying notes to the unaudited condensed consolidated financial statements

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ENSTAR GROUP LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

For the Three and Nine Months Ended September 30, 2021 and 2020


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(expressed in thousands of U.S. dollars)
NET EARNINGS (LOSS)	$	(187,622)	$	645,850	$	404,597	$	892,718

Other comprehensive income (loss), net of income taxes:
Unrealized gains (losses) on fixed income available-for-sale investments arising during the period	(25,710)		21,198		(79,964)		74,969
Reclassification adjustment for change in allowance for credit losses recognized in net earnings	(2,425)		(2,379)		4,506		71
Reclassification adjustment for net realized gains included in net earnings	(2,048)		(9,488)		(3,171)		(13,498)
Reclassification to earnings on disposal of subsidiary	—		—		475		—
Unrealized gains (losses) arising during the period, net of reclassification adjustments	(30,183)		9,331		(78,154)		61,542


Cumulative currency translation adjustment	1,342		1,891		2,361		—

Total other comprehensive income (loss)	(28,841)		11,222		(75,793)		61,542

Comprehensive income (loss)	(216,463)		657,072		328,804		954,260
Comprehensive (income) loss attributable to noncontrolling interest	870		(22,546)		(13,606)		23,962
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO ENSTAR	$	(215,593)	$	634,526	$	315,198	$	978,222

See accompanying notes to the unaudited condensed consolidated financial statements

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ENSTAR GROUP LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

For the Three and Nine Months Ended September 30, 2021 and 2020


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	(expressed in thousands of U.S. dollars)
Share Capital — Voting Ordinary Shares
Balance, beginning of period	$	18,571	$	18,635	$	18,576	$	18,002
Issue of shares	9		6		52		732
Shares repurchased	(1,794)		(81)		(1,842)		(174)

Balance, end of period	$	16,786	$	18,560	$	16,786	$	18,560




Share Capital — Non-Voting Convertible Ordinary Series C Shares
Balance, beginning of period	$	2,690	$	2,600	$	2,600	$	2,600
Shares repurchased	(1,497)		—		(1,497)		—
Exercise of warrants	—		—		90		—
Balance, end of period	$	1,193	$	2,600	$	1,193	$	2,600
Share Capital — Non-Voting Convertible Ordinary Series E Shares
Balance, beginning of period	$	910	$	910	$	910	$	910

Shares repurchased	(505)		—		(505)		—
Balance, end of period	$	405	$	910	$	405	$	910
Share Capital — Series C Convertible Participating Non-Voting Preferred Shares


Balance, beginning and end of period	$	389	$	389	$	389	$	389
Share Capital — Series D Preferred Shares


Balance, beginning and end of period	$	400,000	$	400,000	$	400,000	$	400,000
Share Capital — Series E Preferred Shares


Balance, beginning and end of period	$	110,000	$	110,000	$	110,000	$	110,000
Treasury Shares (Series C Preferred Shares)
Balance, beginning and end of period	$	(421,559)	$	(421,559)	$	(421,559)	$	(421,559)
Joint Share Ownership Plan — Voting Ordinary Shares, Held in Trust
Balance, beginning of period	$	(566)	$	(566)	$	(566)	$	—
Issue of shares	—		—		—		(566)
Balance, end of period	$	(566)	$	(566)	$	(566)	$	(566)
Additional Paid-in Capital
Balance, beginning of period	$	1,835,231	$	1,835,115	$	1,836,074	$	1,836,778
Repurchase of voting ordinary shares	413		503		(2,150)		(857)

Exercise of warrants	—		—		(90)		—
Shares repurchased	(886,229)		(12,782)		(897,614)		(25,215)

Amortization of share-based compensation	6,679		9,294		19,874		21,424

Balance, end of period	$	956,094	$	1,832,130	$	956,094	$	1,832,130
Accumulated Other Comprehensive Income (Loss)
Balance, beginning of period	$	33,077	$	51,285	$	80,659	$	7,171
Cumulative currency translation adjustment
Balance, beginning of period	8,054		6,824		7,876		8,548
Change in currency translation adjustment	677		2,477		855		753

Balance, end of period	8,731		9,301		8,731		9,301
Defined benefit pension liability


Balance, beginning and end of period	207		(945)		207		(945)
Unrealized gains (losses) on available-for-sale investments
Balance, beginning of period	24,816		45,406		72,576		(432)
Change in unrealized gains (losses) on available-for-sale investments	(29,238)		8,111		(76,998)		53,949

Balance, end of period	(4,422)		53,517		(4,422)		53,517
Balance, end of period	$	4,516	$	61,873	$	4,516	$	61,873
Retained Earnings
Balance, beginning of period	$	5,208,565	$	3,190,104	$	4,647,312	$	2,887,892
Net earnings (loss)	(187,622)		645,850		404,597		892,718
Net (earnings) loss attributable to noncontrolling interest	589		(21,912)		(13,257)		30,802
Dividends on preferred shares	(8,925)		(8,925)		(26,775)		(26,775)
Change in redemption value of redeemable noncontrolling interests	—		11,431		730		38,059
Cumulative effect of change in accounting principle	—		—		—		(6,148)
Balance, end of period	$	5,012,607	$	3,816,548	$	5,012,607	$	3,816,548
Noncontrolling Interest (excludes Redeemable Noncontrolling Interest)
Balance, beginning of period	$	12,635	$	13,553	$	13,609	$	14,168
Increase due to acquisitions	219,274		—		219,274		—
Change in unrealized losses on available-for-sale investments attributable to noncontrolling interest	(455)		—		(455)		—

Dividends paid	—		—		(634)		—


Net earnings (loss) attributable to noncontrolling interest	(4,382)		915		(4,722)		300


Balance, end of period	$	227,072	$	14,468	$	227,072	$	14,468
Total Shareholders' Equity	$	6,306,937	$	5,835,353	$	6,306,937	$	5,835,353

See accompanying notes to the unaudited condensed consolidated financial statements

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ENSTAR GROUP LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For the Nine Months Ended September 30, 2021 and 2020


	Nine Months Ended September 30,
	2021		2020
	(expressed in thousands of U.S. dollars)
OPERATING ACTIVITIES:
Net earnings	$	404,597	$	892,718
Net earnings from discontinued operations, net of income taxes	—		(810)
Adjustments to reconcile net earnings to cash flows provided by operating activities:
Realized gains on sales of investments	(662,111)		(114,894)
Unrealized losses (gains) on investments	550,944		(723,658)
Net gain on purchase and sales of subsidiaries	(61,582)		—
Depreciation and other amortization	56,402		42,210

Earnings from equity method investments	(100,825)		(152,725)
Sales and maturities of trading securities	5,289,793		2,778,993
Purchases of trading securities	(2,696,856)		(1,531,190)
Payments to cover securities sold short	(1,016,418)		—
Proceeds from securities sold short	460,514		—
Net payments for derivative contracts	(66,132)		—
Other	5,566		20,847
Changes in:
Reinsurance balances recoverable on paid and unpaid losses	118,259		266,289
Funds held by reinsured companies	(1,560,551)		(211,850)
Losses and loss adjustment expenses	2,465,018		697,516

Defendant asbestos and environmental liabilities	(46,408)		(93,648)
Insurance and reinsurance balances payable	424		172,358
Premiums receivable	71,405		(18,950)
Other operating assets and liabilities	(385,765)		80,824
Variable interest entity assets and liabilities of the InRe Fund (Note 12)	1,031,629		—
Net cash flows provided by operating activities	3,857,903		2,104,030
INVESTING ACTIVITIES:
Acquisition, net of cash acquired	(205,578)		—
Sales of subsidiaries, net of cash sold	(232,269)		—
Sales and maturities of available-for-sale securities	2,523,727		1,673,800
Purchase of available-for-sale securities	(4,343,139)		(3,125,184)


Purchase of other investments	(622,039)		(812,586)
Proceeds from other investments	253,943		282,330
Purchase of equity method investments	—		(33,000)

Other investing activities	531		3,606
Consolidation of the InRe Fund opening cash and restricted cash balances (Note 12)	574,081		—
Net cash flows used in investing activities	(2,050,743)		(2,011,034)
FINANCING ACTIVITIES:

Dividends on preferred shares	(26,775)		(26,775)




Dividends paid to noncontrolling interest	(634)		—


Repurchase of shares	(890,073)		(25,390)
Receipt of loans	815,895		858,788
Repayment of loans	(574,556)		(604,000)
Net cash flows provided by (used in) financing activities	(676,143)		202,623
DISCONTINUED OPERATIONS CASH FLOWS:
Net cash flows provided by operating activities	—		114,024

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Net cash flows used in investing activities	—		(134,759)

Net cash flows from discontinued operations	—		(20,735)
EFFECT OF EXCHANGE RATE CHANGES ON FOREIGN CURRENCY CASH AND CASH EQUIVALENTS	3,863		1,727
NET INCREASE IN CASH AND CASH EQUIVALENTS	1,134,880		276,611
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	1,373,116		971,349
NET CHANGE IN CASH OF BUSINESSES HELD FOR SALE	223,200		(50,638)
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	2,731,196	$	1,197,322

Supplemental Cash Flow Information:
Income taxes paid, net of refunds	$	7,329	$	15,870
Interest paid	$	50,990	$	37,275

Reconciliation to Condensed Consolidated Balance Sheets:
Cash and cash equivalents	1,587,158		640,601
Restricted cash and cash equivalents	447,533		556,721


Cash and restricted cash and cash equivalents of the InRe Fund (Note 12)	696,505		—
Cash, cash equivalents and restricted cash	$	2,731,196	$	1,197,322

In addition to the cash flows presented above, for the nine months ended September 30, 2021 our non-cash financing activities included distributions to redeemable noncontrolling interest ("RNCI") totaling $202.1 million, an increase in noncontrolling interest of $219.3 million due to the acquisition of a subsidiary, the issuance of 89,590 shares following the exercise of 175,901 warrants on a non-cash basis, and a third-party capital withdrawal from the InRe Fund totaling $61.4 million which was funded through the transfer of a trading security. For the nine months ended September 30, 2021 our non-cash investing activities included: the removal of an equity method investment of $411.9 relating to the acquisition of a subsidiary, the receipt of other investments as consideration totaling $51.7 million; unsettled purchases and sales of AFS and other investments of $64.1 million and $10.2 million, respectively; and contributions of $481.3 million to other investments, fully funded through the redemption of other investments totaling $381.3 million and a $100.0 million reduction in investment fees. Refer to Note 4 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations,", Note 15 - "Noncontrolling Interests" and Note 19 - "Related Party Transactions."

See accompanying notes to the unaudited condensed consolidated financial statements

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ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular information expressed in thousands of U.S. dollars except share and per share data)

1. SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation

These unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, these financial statements reflect all adjustments consisting of normal recurring items considered necessary for a fair presentation under U.S. GAAP. The results of operations for any interim period are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2020. All significant inter-company transactions and balances have been eliminated. In these notes, the terms "we," "us," "our," "Enstar," or "the Company" refer to Enstar Group Limited and its consolidated subsidiaries.

During the first quarter of 2021, we revised our segment structure and as a result restated the prior period comparatives to conform with the current period presentation. Refer to Note 21 - "Segment Information" for further information.

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires us 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.

Significant Accounting Policies

The following significant accounting policies have been added or updated upon completion of the Step Acquisition of Enhanzed Reinsurance Ltd. ("Enhanzed Re") as defined and described in Note 2 - "Business Acquisitions."

(a) Life Reinsurance

We assess life reinsurance contracts to determine if they possess significant mortality or morbidity risk, and those contracts that do not possess a significant mortality or morbidity risk are considered investment contracts where we do not recognize revenue or expenses within the condensed consolidated statements of earnings and assets and liabilities are presented gross on the condensed consolidated balance sheets.

The consideration received for life reinsurance contracts is calculated as the fair value of the assets received net of commissions, brokerage, or fronting fees.

(b) Future Policyholder Benefits

Our current life reinsurance contract includes traditional single payment premium immediate annuities, life contingent deferred annuities, and whole of life policies all possessing significant mortality risk in the form of longevity risk. Future policyholder benefit provisions are established based on the present value of anticipated future cash flows and are based on estimates of future investment yields and mortality rates. Management's assumptions include provisions for adverse deviation.

Future policyholder benefits are set by utilizing management's best estimates of mortality rates, investment yields, policy expenses, and other assumptions by reference to cedant historical data, regional mortality tables, industry standards, and other available information sources as may be reasonably available. These estimates include provisions for adverse deviation. The provision for future policyholder benefits, therefore, is subject to uncertainty and ultimate future policyholder benefits may differ materially from the amounts recorded in the financial statements. These assumptions are locked in at contract inception or assumption and only modified if it is deemed that the provision for future policyholder benefits are insufficient or DAC are unrecoverable. The actual versus anticipated experience of the assumptions are reviewed periodically. The effects of changes in assumptions are recorded to the consolidated statements of earnings as unlocking adjustments in the period in which the changes are made.

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ENSTAR GROUP LIMITED

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

New Accounting Standards Adopted in 2021

Accounting Standards Update ("ASU") 2020-08 – Codification Improvements to Subtopic 310-20 - Receivables - Nonrefundable Fees and Other Costs

In October 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-08 to clarify that an entity should re-evaluate whether a callable debt security is within the scope of Accounting Standards Codification ("ASC") 310-20-35-33 during each reporting period and accelerate amortization of the premium associated with the callable debt to the earliest call date. All entities are required to apply the amendments in this ASU on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities.

The adoption of ASU 2020-08 did not have a material impact on our condensed consolidated financial statements and the related disclosures.

ASU 2020-06 – Accounting for Convertible Instruments and Contracts in an Entity's Own Equity

In August 2020, the FASB issued ASU 2020-06, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity's own equity. For convertible instruments, the ASU eliminates two of the three accounting models in ASC 470-20 that require separate accounting for embedded conversion features. The ASU also simplifies an issuer's application of the derivatives scope exception in ASC 815-40 for contracts in its own equity and removes some of the conditions that preclude a freestanding contract from being classified in equity, thereby allowing more of such contracts to qualify for equity classification.

We early adopted the amendments in ASU 2020-06 as of January 1, 2021 and that adoption did not have an impact on our condensed consolidated financial statements and the related disclosures.

ASU 2020-01 - Clarifying the Interactions between ASC 321, ASC 323 and ASC 815

In January 2020, the FASB issued ASU 2020-01 to clarify the interaction of the accounting for equity securities under ASC 321 and investments accounted for under the equity method of accounting in ASC 323 and the accounting for certain forward contracts and purchased options accounted for under ASC 815. With respect to the interactions between ASC 321 and ASC 323, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting when applying the measurement alternative in ASC 321, immediately before applying or upon discontinuing the equity method of accounting. With respect to forward contracts or purchased options to purchase securities, the amendments clarify that when applying the guidance in ASC 815-10-15-141(a), an entity should not consider whether upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in ASC 323 or the fair value option in accordance with ASC 825.

The adoption of ASU 2020-01 did not have an impact on our condensed consolidated financial statements and disclosures.

ASU 2019-12 - Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued ASU 2019-12 which removes certain exceptions for (1) recognizing deferred taxes for investments, (2) performing intraperiod tax allocation, and (3) calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for tax goodwill and allocating income taxes to a legal entity that is not subject to income taxes. The adoption of ASU 2019-12 did not have any impact on our condensed consolidated financial statements and disclosures.

Recently Issued Accounting Pronouncements Not Yet Adopted

Note 2 - "Significant Accounting Policies" to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2020 describes accounting pronouncements that were not adopted as of December 31, 2020. Those pronouncements have not yet been adopted unless discussed above in "New Accounting Standards Adopted in 2021." In addition, the following accounting pronouncements were issued by the FASB during the nine months ended September 30, 2021 or became applicable upon the acquisition of Enhanced Re and have yet to be adopted.

ASU 2018-12 - Targeted Improvement to the Accounting for Long-Duration Contracts

In August 2018, the FASB issued ASU 2018-12 and subsequently issued ASUs 2019-09 and 2020-11 serving

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ENSTAR GROUP LIMITED

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

to defer the effective date of implementation. These updates:

•Require at least annual review of assumptions used to determine the provision for future policyholder benefits with the recognition of any resulting re-measurement gains or losses, excluding those related to discount rate changes, in the condensed consolidated statement of earnings;

•Use upper-medium grade fixed-income instrument discount rates to discount future cash flows with the impact of these changes recognized in other comprehensive income;

•Require market risk benefits to be measured at fair value, and the change in fair value of the market risk benefits is to be measured in net earnings, excluding the portion attributable to changes in instrument-specific credit risk which is recognized in other comprehensive income;

•Simplify amortization of DAC by amortizing on a constant level basis in proportion to premiums, gross profits, or gross margins over the expected term of the related contract; and

•Introduce new disclosure requirements around the provisions for future policyholder benefits, policyholder account balances, market risk benefits, separate account liabilities, and DAC, which includes information about significant inputs, judgments, assumptions and methods used in measurement.

These amendments are effective for interim and annual reporting periods beginning after December 15, 2022. Early adoption is permitted and certain provisions of the update are required to be adopted on a fully retrospective basis, while others may be adopted on a modified retrospective basis.

We are currently evaluating the impact of ASU 2018-12 on our condensed consolidated financial statements and disclosures.

ASU 2021-04 - Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity - Classified Written Call Options

In May 2021, the FASB issued ASU 2021-04 which requires issuers to account for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after the modification or exchange based on the economic substance of the modification or exchange. Under the ASU, an issuer considers the facts and circumstances of a modification or exchange and accounts for the resulting change in fair value of the written call option based on whether the transaction was done to issue equity, to issue or modify debt, or for other reasons. The guidance clarifies that to the extent applicable, issuers should first reference other GAAP to account for the effect of a modification. If other GAAP is not applicable, the guidance clarifies whether to account for the modification or exchange as either (i) an adjustment to equity, or (ii) an expense.

The ASU is to be applied prospectively and is effective for annual periods beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is permitted, but entities need to apply the guidance as of the beginning of the fiscal year in which they early adopt it.

The adoption of ASU 2021-04 is not expected to have an impact on our condensed consolidated financial statements and disclosures.

2. BUSINESS ACQUISITIONS

Enhanzed Re

Overview

On September 1, 2021, we completed the purchase of the entire 27.7% equity interest in Enhanzed Re held by an affiliate of Hillhouse Group for cash consideration of $217.1 million and assumed the Hillhouse Group's affiliate's remaining outstanding capital commitment to Enhanzed Re of $40.2 million (the "Step Acquisition").

Following the completion of the Step Acquisition, our equity interest in Enhanzed Re increased from 47.4% to 75.1% with joint venture partner Allianz SE ("Allianz") continuing to own the remaining 24.9%. Effective September 1, 2021, we consolidated Enhanzed Re (previously accounted for as an equity method investment) and eliminated any intercompany transactions and balances between us and Enhanzed Re.

Refer to Note 19 - "Related Party Transactions" for additional information relating to Enhanzed Re.

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ENSTAR GROUP LIMITED

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

The following table represents the fair value of net assets acquired, inclusive of the net effect of settlement of pre-existing relationships. The fair value amounts presented below are estimates and are subject to adjustment.

The initial accounting, including certain fair value adjustments, are provisional adjustments recorded as of September 30, 2021. The provisional amounts are subject to further refinement based on new information that may be obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized as of that date. In accordance with the acquisition method of accounting, we may recognize additional measurement period adjustments to the provisional amounts in future periods, but not later than one year from the acquisition date. We do not currently anticipate any such adjustments.


	Fair Value of Net Assets Acquired, Before Settlement of Pre-existing Relationships		Net Effect of Settlement of Pre-existing Relationships		Net Effect of Step Acquisition
ASSETS

Fixed maturities, trading, at fair value	$	49,292	$	—	$	49,292
Funds held - directly managed	2,576,956		(304,250)		2,272,706
Equities, at fair value	854,615		—		854,615
Other investments, at fair value	13,867		—		13,867
Total investments	3,494,730		(304,250)		3,190,480
Cash and cash equivalents	11,508		—		11,508


Funds held by reinsured companies	213,643		—		213,643
Other assets	7,667		—		7,667
TOTAL ASSETS	$	3,727,548	$	(304,250)	$	3,423,298
LIABILITIES
Losses and loss adjustment expenses	$	1,113,386	$	(271,338)	$	842,048
Future policyholder benefits	1,539,000		—		1,539,000
Debt obligations	76,434		—		76,434
Insurance and reinsurance balances payable	101,866		(5,639)		96,227
Other liabilities	16,244		(7,588)		8,656
TOTAL LIABILITIES	2,846,930		(284,565)		2,562,365

NET ASSETS ACQUIRED AT FAIR VALUE	$	880,618	$	(19,685)	$	860,933
Less:
Cash consideration paid to Hillhouse Group affiliate					$	217,086
Fair value of previously held equity method investment					417,413
Fair value of noncontrolling interest					219,274
Adjustment for the fair value of pre-existing relationships					(19,685)
Total purchase price					834,088
Bargain purchase gain					$	26,845

During the third quarter of 2021, we recognized a total gain on the Step Acquisition of $46.7 million, which was recorded in net gain on purchase and sales of subsidiaries in our condensed consolidated statements of earnings, and consisted of a bargain purchase gain, a gain on remeasurement of our previously held equity investment to fair value and a gain on settlement of pre-existing relationships.

We recognized a bargain purchase gain of $26.8 million as the fair value of the interest in the net assets acquired exceeded the total purchase price. The bargain purchase gain was attributable to the negotiation process with Hillhouse Group and the resulting cash consideration paid was based on 90% of Enhanzed Re's total shareholders' equity as of June 30, 2021 which was less than the fair value of the net assets acquired and therefore resulted in a bargain purchase gain.

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ENSTAR GROUP LIMITED

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

In accordance with the acquisition method of accounting, we remeasured our previously held equity method investment in Enhanzed Re to fair value. The fair value of the previously held equity method investment and noncontrolling interest was calculated as the fair value of Enhanzed Re's total net assets multiplied by the respective ownership percentages. These fair value measurements are based on significant inputs not observable in the market and thus represent Level 3 measurements. We also considered guideline market transactions, and the implied multiple from those transactions corroborated the results of the fair value estimate.

At the time of the transaction, we held contractual pre-existing relationships with Enhanzed Re, consisting of quota share reinsurance contracts and an agreement to act as the insurance manager for Enhanzed Re. The pre-existing relationships were deemed to be effectively settled at fair value on the acquisition date.

We record Enhanzed Re's results on a one quarter lag; therefore, there are no Enhanzed Re operating results beyond the purchase date. Prior to that date, the results of Enhanzed Re were recorded in earnings from equity method investments.

Refer to Note 19 - "Related Party Transactions" for further information.

Supplemental Pro Forma Financial Information (Unaudited)

The following selected unaudited pro forma financial information is a summary of our combined results with Enhanzed Re, giving effect to the Step Acquisition as if it had occurred on January 1, 2020. The unaudited pro forma financial information presented below is for informational purposes only and is not necessarily indicative of the results that would have been achieved if the Step Acquisition had taken place on January 1, 2020, nor is it indicative of future results.


	Supplemental Pro Forma Financial Information (Unaudited)
	Three Months Ended September 30,		Nine Months Ended September 30,
	2021	2020	2021	2020
Total income	(85,599)	969,784	876,978	1,887,863
Net earnings	(257,594)	736,746	447,632	1,026,929
Net earnings attributable to Enstar	(245,379)	671,361	391,445	1,011,172
Net earnings attributable to Enstar ordinary shareholders	(254,304)	662,436	364,670	984,397

The unaudited pro forma financial information is presented on a fully consolidated basis. Aside from a pro forma adjustment made to recognize the gain on the Step Acquisition as of January 1, 2020, there were no further non-recurring pro forma adjustments recorded.

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ENSTAR GROUP LIMITED

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

3. SIGNIFICANT NEW BUSINESS

We define significant new business as material transactions other than business acquisitions. Generally, our significant new business takes the form of loss portfolio transfer ("LPT") or adverse development cover ("ADC") reinsurance transactions or direct business transfers.

The table below sets forth a summary of significant new business that we have completed between January 1, 2020 and September 30, 2021:


Transaction	Date Completed	Total Assets Assumed		Deferred Charge Asset (1)		Total Assets from Transactions		Total Liabilities Assumed		Net Fair Value Adjustment (2)		Total Liabilities from Transactions		Type of Transaction and Primary Nature of Business
ProSight	August 4, 2021	$	478,293	$24,013		$	502,306	$	502,306	N/A		$	502,306	LPT of U.S. discontinued workers' compensation and excess workers' compensation lines of business and ADC on a diversified mix of general liability classes of business
Hiscox	June 3, 2021	532,394		N/A		532,394		532,394		N/A		532,394		LPT of diversified legacy insurance business, including surplus lines broker business
Coca-Cola	May 24, 2021	41,928		6,143		48,071		48,071		N/A		48,071		LPT of U.S. workers' compensation liability
AXA Group	May 3, 2021	1,395,000		91,988		1,486,988		1,486,988		N/A		1,486,988		ADC of a diversified mix of global casualty and professional lines
CNA (3)	February 5, 2021	651,736		105,479		757,215		757,215		N/A		757,215		LPT of U.S. excess workers' compensation liabilities
Liberty Mutual (3)	January 8, 2021	363,159		25,402		388,561		388,561		N/A		388,561		LPT of U.S. energy liability, construction liability and homebuilders liability
Total 2021		$	3,462,510	$	253,025	$	3,715,535	$	3,715,535	$	—	$	3,715,535
Hannover Re	August 6, 2020	$	182,498	N/A		$	182,498	$	209,713	$	(27,215)	$	182,498	Novation of U.S. asbestos, environmental and workers' compensation liabilities
Munich Re	July 1, 2020	100,956		N/A		100,956		100,956		N/A		100,956		Business Transfer of Australian public liability, professional liability and builders' warranty liabilities
AXA Group (3)	June 1, 2020	179,681		N/A		179,681		179,681		N/A		179,681		LPT of U.S. construction general liability
Aspen	June 1, 2020	770,000		11,746		781,746		781,746		N/A		781,746		ADC on a diversified mix of property, liability and specialty lines of business across the U.S., U.K. and Europe
Lyft	March 31, 2020	465,000		N/A		465,000		465,000		N/A		465,000		LPT of U.S. motor liabilities
Total 2020		$	1,698,135	$	11,746	$	1,709,881	$	1,737,096	$	(27,215)	$	1,709,881
Total		$	5,160,645	$	264,771	$	5,425,416	$	5,452,631	$	(27,215)	$	5,425,416

(1) Where the estimated ultimate losses payable exceed the premium consideration received at the inception of the agreement, a deferred charge asset is recorded.

(2) When the fair value option is elected for any retroactive reinsurance agreement, an initial net fair value adjustment is recorded at the inception of the agreement.

(3) We have ceded 10% of these transactions to Enhanzed Re on the same terms and conditions as those received by us. Effective September 1, 2021 Enhanzed Re was consolidated by us (previously accounted for as an equity method investment) and all intercompany transactions and balances between Enhanzed Re and Enstar were eliminated upon consolidation.

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ENSTAR GROUP LIMITED

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

4. DIVESTITURES, HELD-FOR-SALE BUSINESSES AND DISCONTINUED OPERATIONS

Atrium Exchange Transaction

As of December 31, 2020, Enstar owned an indirect 59.0% interest in North Bay Holdings Limited ("North Bay") and Trident V, L.P., Trident V Parallel Fund, L.P. and Trident V Professionals Fund, L.P. (collectively, the "Trident V Funds") managed by Stone Point Capital LLC ("Stone Point") and Dowling Capital Partners I, L.P. and Capital City Partners LLC (collectively, the "Dowling Funds") owned 39.3% and 1.7%, respectively. North Bay owns 100.0% of StarStone Specialty Holdings Limited ("SSHL"), the holding company for the StarStone group, which previously included StarStone's U.S. operations, including StarStone U.S. Holdings, Inc. and its subsidiaries (“StarStone U.S.”) and StarStone's international operations ("Starstone International"). North Bay also owned 92.1% of Northshore Holdings Limited ("Northshore"), the holding company that owns Atrium Underwriting Group Limited and its subsidiaries (collectively, "Atrium") and Arden Reinsurance Company Ltd. ("Arden"). The remaining share ownership of Northshore is held on behalf of certain Atrium employees.

Effective January 1, 2021, we exchanged a portion of our indirect interest in Northshore for all of the Trident V Funds' indirect interest in StarStone U.S., which is now owned through an interest in Core Specialty Insurance Holdings, Inc. ("Core Specialty," and such exchange, the "Exchange Transaction"), resulting in us owning 25.2% on a fully diluted basis (24.7% as of September 30, 2021) of Core Specialty, and 13.8% of Northshore, which continues to own Atrium and Arden. The Trident V Funds own 76.3% of Northshore, while the Dowling Funds own 0.4% of Core Specialty and 1.6% of Northshore. The Exchange Transaction had no impact on the ultimate ownership of SSHL, which continues to own StarStone International, with us, the Trident V Funds and the Dowling Funds retaining our and their ownership interests in SSHL of 59.0%, 39.3% and 1.7%, respectively.

Effective January 1, 2021, Northshore was deconsolidated and our remaining investment with a carrying value of $35.0 million as of September 30, 2021 is accounted for as a privately held equity investment and carried at its fair value. During the first quarter of 2021, we recognized a loss of $7.8 million on completion of the Exchange Transaction.

Through our wholly owned subsidiary, SGL No. 1 Limited (“SGL No. 1”), a Lloyd’s corporate member, we provided 25% of the underwriting capacity on the 2017 to 2020 underwriting years of Atrium's Syndicate 609 at Lloyd’s. Effective January 1, 2021, and in conjunction with the completion of the Exchange Transaction, SGL No.1 ceased its provision of underwriting capacity on Syndicate 609 for future underwriting years.

SGL No.1 is obligated to support underwriting capacity on Syndicate 609 through the provision of FAL, and will settle its share of the 2020 and prior underwriting years for the economic benefit of Atrium via reinsurance agreements with Arden and a Syndicate 609 Capacity Lease Agreement with Atrium 5 Limited, a UK domiciled subsidiary of Atrium.

As a result of these contractual arrangements, the net loss reserve liabilities, and the cash, investments and other assets that support those liabilities, will be settled by: i) the distribution of SGL No.1’s share of the Syndicate 609 result; ii) the settlement of the net payable or receivable position on the reinsurance agreement with Arden; and iii) the required settlement, if any, of the Syndicate 609 Capacity Lease Agreement payable, each of which will occur no earlier than December 31, 2022.


	December 31, 2020
Distribution of SGL No.1 share of Syndicate 609 results	$	19,115
Due to Arden under reinsurance agreement	(7,965)
Due to Atrium 5 Limited under Capacity Lease Agreement	(11,150)
Net balances with Northshore Group	—

Until these balances are settled, as of January 1, 2021, the Company recognized gross loss reserves of $254.6 million, reinsurance recoverable of $90.8 million, and $163.8 million of net assets required to support the net insurance liabilities.

Additionally, although the value of and the change in other insurance assets and liabilities are recorded gross within our Legacy Underwriting segment, there is no retention by Enstar of the net results of Atrium's 2020 and prior underwriting years as the business was contractually transferred to the Atrium entities that were divested in the Exchange Transaction. We recorded net unearned premium of $37.4 million and deferred acquisition costs of $20.3 million, included within other assets on our consolidated balance sheet, as of January 1, 2021.

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ENSTAR GROUP LIMITED

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

Effective January 1, 2021, balances that SGL No. 1 has with Atrium and Arden are no longer eliminated in our condensed consolidated financial statements.

As of December 31, 2020, we classified the assets and liabilities of Northshore as held-for-sale, but Northshore did not qualify as a discontinued operation since the pending disposal did not represent a strategic shift that would have a major effect on our operations and financial results. The following table summarizes the components of Northshore's assets and liabilities held-for-sale on our condensed consolidated balance sheet:


	December 31, 2020
ASSETS

Short-term investments, AFS, at fair value	$	1,720
Fixed maturities, trading, at fair value	154,026

Fixed maturities, AFS, at fair value	7,483


Other investments, at fair value	9,897


Total investments	173,126
Cash and cash equivalents	71,156
Restricted cash and cash equivalents	152,044
Premiums receivable	62,392


Reinsurance balances recoverable on paid and unpaid losses	37,341


Funds held by reinsured companies	32,226


Other assets	182,993
TOTAL ASSETS HELD-FOR-SALE	$	711,278

LIABILITIES
Losses and loss adjustment expenses	$	254,149



Insurance and reinsurance balances payable	12,393

Debt obligations	39,850
Other liabilities	177,265
TOTAL LIABILITIES HELD-FOR-SALE	$	483,657

NET ASSETS HELD-FOR-SALE	$	227,621

As of December 31, 2020, included in the table above were restricted investments of $94.4 million.

Recapitalization of StarStone U.S. and Discontinued Operations

On November 30, 2020, we completed the sale and recapitalization of StarStone U.S. through the sale of StarStone U.S. to Core Specialty, a newly formed entity with equity backing from funds managed by SkyKnight Capital, L.P., Dragoneer Investment Group and Aquiline Capital Partners LLC. We received consideration of $282.0 million inclusive of $235.0 million of common shares of Core Specialty and cash of $47.0 million. At the closing date, the $235.0 million of common shares of Core Specialty represented a 25.2% equity interest in Core Specialty on a fully diluted basis (24.7% as of September 30, 2021). Our investment in Core Specialty is accounted for as an equity method investment, and we record our proportionate share of the net earnings on a quarter lag.

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ENSTAR GROUP LIMITED

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

The StarStone U.S. business qualified as a discontinued operation. The following table summarizes the components of net loss from discontinued operations, net of income taxes, related to StarStone U.S., on the consolidated statements of earnings:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2020		2020
INCOME
Net premiums earned	$	75,414	$	241,363

Net investment income	3,649		11,063
Net realized and unrealized gains	1,910		2,757
Other income	55		80
	81,028		255,263
EXPENSES
Net incurred losses and loss adjustment expenses	44,939		157,648
Acquisition costs	14,776		47,570
General and administrative expenses	16,675		47,404
Interest expense	535		1,715
Net foreign exchange gains	(3)		(5)
	76,922		254,332
EARNINGS BEFORE INCOME TAXES	4,106		931
Income tax expense	(75)		(121)











NET EARNINGS FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES	4,031		810
Net earnings from discontinued operations attributable to noncontrolling interest	(1,654)		(332)
NET EARNINGS FROM DISCONTINUED OPERATIONS ATTRIBUTABLE TO ENSTAR ORDINARY SHAREHOLDERS	$	2,377	$	478

Continuing Involvement Disclosures

Following the completion of the sale of StarStone U.S. to Core Specialty on November 30, 2020, our continuing involvement with StarStone U.S. is comprised of the following transactions:

LPT and ADC reinsurance agreement

In connection with the sale of StarStone U.S. to Core Specialty, we and one of our insurance subsidiaries entered into a loss portfolio transfer (“LPT”) and adverse development cover (“ADC”) reinsurance agreement with StarStone U.S. pursuant to which we reinsured all of the net loss reserves of StarStone U.S. in respect of premium earned prior to October 31, 2020. Under the terms of the LPT and ADC reinsurance agreement, we assumed total net loss reserves of $462.4 million from StarStone U.S. in exchange for a total reinsurance premium consideration of $478.2 million, subject to an aggregate limit of $130.0 million above the assumed total net loss reserves. Our subsidiary's obligations to StarStone U.S. under the LPT and ADC reinsurance agreement are guaranteed by us. The LPT and ADC reinsurance agreement between us and StarStone U.S. will continue in force until such time as our liability with respect to the assumed total net loss reserves terminates.

Concurrent with the closing of the LPT and ADC reinsurance agreement, one of our wholly-owned subsidiaries entered into an Administrative Services Agreement ("ASA") with StarStone U.S., through which it was appointed as an independent contractor to provide certain administrative services covering the business we assumed from StarStone U.S. through the LPT and ADC reinsurance agreement. This ASA became effective on November 30, 2020 and will continue in force (subject to certain limited exceptions) until such time as the LPT and ADC reinsurance agreement between us and StarStone U.S. terminates.

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ENSTAR GROUP LIMITED

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

In addition, concurrent with the sale of StarStone U.S. to Core Specialty, which was completed on November 30, 2020, one of our wholly-owned subsidiaries entered into a Transition Services Agreement ("TSA") with Core Specialty through which our subsidiary and Core Specialty agreed to provide certain transitional services to each other relating to the StarStone U.S. businesses, for a specified period of time. This TSA became effective on November 30, 2020 and unless otherwise agreed to in writing by both Core Specialty and us, will terminate on the earliest to occur of (a) the two-year anniversary of the TSA, (b) the date on which all the covered transitional services have been terminated, and (c) the termination of the TSA.

Reinsurance transactions previously eliminated on consolidation

The table below presents a summary of the total income and expenses which have been recognized within our continuing operations relating to transactions, primarily reinsurances, between StarStone U.S. and our subsidiaries:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020





Total income(1)	$	(19)	$	1,709	$	(406)	$	9,072






Total expenses (income)(1)	12,222		(1,783)		13,290		(16,682)



Net earnings (loss)	$	(12,241)	$	3,492	$	(13,696)	$	25,754

(1) For the three and nine months ended September 30, 2021, negative total income was driven by a premium adjustment, and for the three and nine months ended September 30, 2020, negative total expenses were driven by favorable loss development on the losses and LAE reserves ceded by StarStone U.S. to our subsidiaries.

Cash flows

The cash outflows between our subsidiaries and StarStone U.S. for the nine months ended September 30, 2021 and 2020 were $53.7 million and $11.9 million, respectively.

Equity method investment

We have applied the equity method of accounting to the common shares we acquired in Core Specialty as part-consideration for the sale of StarStone U.S. and which made up 25.2% of the total outstanding common shares in Core Specialty on a fully diluted basis as of November 30, 2020 when we completed the sale and recapitalization of StarStone U.S. (24.7% as of September 30, 2021). Our investment in the common shares of Core Specialty, which is included in equity method investments on our condensed consolidated balance sheet, was $229.2 million as of September 30, 2021 (December 31, 2020: $235.0 million). Following the completion of the Exchange Transaction on January 1, 2021 as described above, common shares in Core Specialty with a carrying value of $4.0 million were distributed to redeemable noncontrolling interests as discussed in Note 15 - "Noncontrolling Interests." During the three and nine months ended September 30, 2021 our share of net earnings (loss) on our investment in Core Specialty, which is included within earnings (loss) from equity method investments in our condensed consolidated statement of earnings, was earnings of $4.9 million and a loss of $1.8 million, respectively.

Run-off of StarStone International (non-U.S.)

On June 10, 2020, we announced that we placed StarStone International into an orderly run-off (the "StarStone International Run-Off"). The liabilities associated with the StarStone International Run-Off vary in duration, and the run-off is expected to occur over a number of years.

The results of StarStone International are included within continuing operations in the Run-off segment. Recent developments relating to StarStone International include:

•On March 15, 2021, we sold StarStone Underwriting Limited ("SUL"), the Lloyd's managing agency, together with the right to operate Lloyd's Syndicate 1301, to Inigo Limited ("Inigo"). As of December 31, 2020, we had a 59.0% interest in SUL and the Trident V Funds and the Dowling Funds owned 39.3% and 1.7%, respectively. Upon closing, Enstar, the Trident V Funds and the Dowling Funds received aggregate consideration of $30.0 million in the form of Inigo shares and $0.6 million in cash.

Following the completion of the sale of SUL to Inigo on March 15, 2021, we recognized a gain on the sale of $23.1 million in the first quarter of 2021. In addition, Enstar and the Trident V Funds have committed to invest up to $27.0 million and $18.0 million, respectively, in Inigo. As of September 30, 2021, Enstar had funded $16.9 million of its capital commitment to Inigo, with $10.1 million yet to be called by Inigo. As of September 30, 2021, our investment in Inigo was $42.1 million (December 31, 2020: $16.9 million)

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representing 6.5% of the total outstanding ordinary shares of Inigo and was accounted for as a privately held equity investment and carried at fair value. In conjunction with the transaction, Enstar, the Trident V Funds and the Dowling Funds will retain the economics of Syndicate 1301’s 2020 and prior years’ underwriting portfolios as this business runs off.

•On February 11, 2021, we sold Arena N.V., a Belgium-based specialist accident and health managing general agent, for consideration of $1.0 million. We recognized a loss on the sale of $0.3 million during the first quarter of 2021.

The following table provides a summary of the net gain on sales of subsidiaries which was recorded in net gain on purchase and sales of subsidiaries included in our condensed consolidated statement of earnings:


	Nine Months Ended
	September 30,
	2021
Atrium	$	(7,844)
SUL	23,067
Arena	(329)
Net gain on sales of subsidiaries	$	14,894

5. INVESTMENTS

We hold: (i) trading portfolios of short-term and fixed maturity investments and equities, carried at fair value; (ii) AFS portfolios of short-term and fixed maturity investments, carried at fair value; (iii) other investments, carried at fair value; (iv) equity method investments; and (v) funds held - directly managed.

Effective April 1, 2021, the InRe Fund was consolidated by us. As a result, the carrying amounts of the assets and liabilities of the InRe Fund are presented separately in “variable interest entity assets of the InRe Fund” and “variable interest entity liabilities of the InRe Fund” within the consolidated balance sheet as of September 30, 2021. Refer to Note 12 - "Variable Interest Entities" for additional information.

Short-term and Fixed Maturity Investments

Asset Types

The fair values of the following underlying asset categories are set out below:


	September 30, 2021
	Short-term investments, trading		Short-term investments, AFS		Fixed maturities, trading		Fixed maturities, AFS		Fixed maturities, funds held - directly managed		Total
U.S. government and agency	$	11,507	$	68,741	$	123,711	$	457,997	$	186,536	$	848,492
U.K. government	—		—		25,216		10,772		—		35,988
Other government	2,729		—		298,906		129,067		246,792		677,494
Corporate	—		12,900		2,795,864		3,099,495		813,409		6,721,668
Municipal	—		—		89,921		126,578		73,299		289,798
Residential mortgage-backed	—		—		117,551		366,068		118,598		602,217
Commercial mortgage-backed	—		—		268,644		544,624		267,314		1,080,582
Asset-backed	—		—		201,730		644,495		97,811		944,036
Structured products	—		—		—		—		1,033,097		1,033,097

Total fixed maturity and short-term investments	$	14,236	$	81,641	$	3,921,543	$	5,379,096	$	2,836,856	$	12,233,372

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	December 31, 2020
	Short-term investments, trading		Short-term investments, AFS		Fixed maturities, trading		Fixed maturities, AFS		Fixed maturities, funds held - directly managed		Total
U.S. government and agency	$	—	$	243,556	$	123,874	$	474,442	$	109,176	$	951,048
U.K. government	—		—		37,508		13,574		—		51,082
Other government	3,424		3,213		327,437		146,914		21,165		502,153
Corporate	1,705		17,026		3,227,726		1,920,323		519,952		5,686,732
Municipal	—		—		79,959		30,032		52,678		162,669
Residential mortgage-backed	—		—		154,471		328,871		70,603		553,945
Commercial mortgage-backed	—		—		347,225		276,488		230,377		854,090
Asset-backed	—		—		296,692		204,456		56,312		557,460


Total fixed maturity and short-term investments	$	5,129	$	263,795	$	4,594,892	$	3,395,100	$	1,060,263	$	9,319,179

Included within residential and commercial mortgage-backed securities as of September 30, 2021 were securities issued by U.S. governmental agencies with a fair value of $431.1 million (December 31, 2020: $458.1 million). There were no senior secured loans included within corporate securities as of September 30, 2021 and December 31, 2020.

Contractual Maturities

The contractual maturities of our short-term and fixed maturity investments, classified as trading and AFS and the fixed maturity investments included within our funds held - directly managed balance are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.


As of September 30, 2021	Amortized Cost		Fair Value		% of Total Fair Value
One year or less	$	476,648	$	480,196	3.9	%
More than one year through two years	786,693		799,023		6.5	%
More than two years through five years	2,398,897		2,457,642		20.1	%
More than five years through ten years	2,582,370		2,637,871		21.6	%
More than ten years	3,199,429		3,231,805		26.4	%
Residential mortgage-backed	599,415		602,217		5.0	%
Commercial mortgage-backed	1,066,391		1,080,582		8.8	%
Asset-backed	947,989		944,036		7.7	%


	$	12,057,832	$	12,233,372	100.0	%

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Credit Ratings

The following table sets forth the credit ratings of our short-term and fixed maturity investments classified as trading and AFS and the fixed maturity investments included within our funds held - directly managed balance as of September 30, 2021:


	Amortized Cost		Fair Value		% of Total		AAA Rated			AA Rated			A Rated			BBB Rated			Non- Investment Grade			Not Rated

U.S. government and agency	$	847,653	$	848,492	7.0	%	$	847,876		$	381		$	—		$	235		$	—		$	—
U.K. government	35,916		35,988		0.3	%	—			29,024			6,964			—			—			—
Other government	671,438		677,494		5.6	%	203,471			153,855			148,168			60,228			111,772			—
Corporate	6,543,670		6,721,668		54.9	%	173,599			649,917			3,124,885			2,470,801			296,685			5,781
Municipal	274,218		289,798		2.4	%	15,760			152,559			96,123			25,356			—			—
Residential mortgage-backed	599,415		602,217		4.9	%	555,694			1,453			4,477			11,032			27,508			2,053
Commercial mortgage-backed	1,066,391		1,080,582		8.8	%	794,959			126,374			85,374			65,930			3,382			4,563
Asset-backed	947,989		944,036		7.7	%	370,186			256,143			203,486			83,294			21,949			8,978
Structured products	1,071,142		1,033,097		8.4	%	—			523,036			—			510,061			—			—

Total	$	12,057,832	$	12,233,372	100.0	%	$	2,961,545		$	1,892,742		$	3,669,477		$	3,226,937		$	461,296		$	21,375
% of total fair value							24.2		%	15.5		%	30.0		%	26.4		%	3.7		%	0.2		%

Unrealized Gains and Losses on AFS Short-term and Fixed Maturity Investments

The amortized cost, unrealized gains and losses, allowance for credit losses and fair values of our short-term and fixed maturity investments classified as AFS were as follows:


					Gross Unrealized Losses
As of September 30, 2021	Amortized Cost		Gross Unrealized Gains		Non-Credit Related Losses		Allowance for Credit Losses		Fair Value
U.S. government and agency	$	529,011	$	1,293	$	(3,566)	$	—	$	526,738
U.K. government	10,927		75		(230)		—		10,772
Other government	127,629		2,588		(1,123)		(27)		129,067
Corporate	3,117,300		28,352		(28,430)		(4,827)		3,112,395
Municipal	125,995		1,440		(857)		—		126,578
Residential mortgage-backed	367,119		1,496		(2,545)		(2)		366,068
Commercial mortgage-backed	544,211		4,616		(4,161)		(42)		544,624
Asset-backed	644,078		865		(446)		(2)		644,495
	$	5,466,270	$	40,725	$	(41,358)	$	(4,900)	$	5,460,737

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					Gross Unrealized Losses
As of December 31, 2020	Amortized Cost		Gross Unrealized Gains		Non-Credit Related Losses		Allowance for Credit Losses		Fair Value
U.S. government and agency	$	715,527	$	3,305	$	(834)	$	—	$	717,998
U.K. government	12,494		1,080		—		—		13,574
Other government	142,459		7,721		(53)		—		150,127
Corporate	1,873,184		65,913		(1,567)		(181)		1,937,349
Municipal	28,881		1,155		(4)		—		30,032
Residential mortgage-backed	326,268		3,292		(689)		—		328,871
Commercial mortgage-backed	273,516		5,202		(2,097)		(133)		276,488
Asset-backed	204,312		846		(694)		(8)		204,456


	$	3,576,641	$	88,514	$	(5,938)	$	(322)	$	3,658,895

Gross Unrealized Losses on AFS Short-term and Fixed Maturity Investments

The following tables summarizes our short-term and fixed maturity investments classified as AFS that were in a gross unrealized loss position, for which an allowance for credit losses has not been recorded:


	12 Months or Greater				Less Than 12 Months				Total
As of September 30, 2021	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. government and agency	$	16,631	$	(981)	$	375,400	$	(2,585)	$	392,031	$	(3,566)
U.K. government	—		—		5,222		(230)		5,222		(230)
Other government	—		—		46,714		(707)		46,714		(707)
Corporate	8,184		(249)		1,376,723		(14,475)		1,384,907		(14,724)
Municipal	—		—		71,427		(857)		71,427		(857)
Residential mortgage-backed	4,508		(128)		225,219		(2,417)		229,727		(2,545)
Commercial mortgage-backed	12,665		(451)		307,595		(3,586)		320,260		(4,037)
Asset-backed	—		—		439,074		(446)		439,074		(446)


Total short-term and fixed maturity investments	$	41,988	$	(1,809)	$	2,847,374	$	(25,303)	$	2,889,362	$	(27,112)


	12 Months or Greater				Less Than 12 Months				Total
As of December 31, 2020	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. government and agency	$	—	$	—	$	55,839	$	(834)	$	55,839	$	(834)

Other government	—		—		7,971		(53)		7,971		(53)
Corporate	—		—		199,048		(1,224)		199,048		(1,224)
Municipal	—		—		1,690		(4)		1,690		(4)
Residential mortgage-backed	4,626		(125)		79,149		(564)		83,775		(689)
Commercial mortgage-backed	38		(38)		67,094		(1,562)		67,132		(1,600)
Asset-backed	—		—		116,827		(564)		116,827		(564)


Total short-term and fixed maturity investments	$	4,664	$	(163)	$	527,618	$	(4,805)	$	532,282	$	(4,968)

As of September 30, 2021 and December 31, 2020, the number of securities classified as AFS in an unrealized loss position for which an allowance for credit loss is not recorded was 2,074 and 407, respectively. Of these securities, the number of securities that had been in an unrealized loss position for twelve months or longer was 40 and 2, respectively.

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The contractual terms for the majority of these investments do not permit the issuers to settle the securities at a price less than the amortized cost basis of the security. While interest rates have increased, and in certain cases credit ratings were downgraded, we currently do not expect the issuers of these fixed income securities to settle at a price less than their amortized cost basis and therefore it is expected that we will recover the entire amortized cost basis of each security. Furthermore, we do not intend to sell the securities that are currently in an unrealized loss position, and it is also not more likely than not that we will be required to sell the securities before the recovery of their amortized cost basis.

Allowance for Credit Losses on AFS Fixed Maturity Investments

The following tables provide a reconciliation of the beginning and ending allowance for credit losses on our AFS debt securities:


	Three Months Ended September 30, 2021
	Other government		Corporate		Residential mortgage-backed		Commercial mortgage backed		Asset-backed		Total
Allowance for credit losses, beginning of period	$	(41)	$	(7,171)	$	(17)	$	(157)	$	—	$	(7,386)

Allowances for credit losses on securities for which credit losses were not previously recorded	—		196		(17)		(13)		(133)		33

Reductions for securities sold during the period	—		2		2		—		—		4

Decrease to the allowance for credit losses on securities that had an allowance recorded in the previous period	14		2,146		30		128		131		2,449


Allowance for credit losses, end of period	$	(27)	$	(4,827)	$	(2)	$	(42)	$	(2)	$	(4,900)


	Three Months Ended September 30, 2020
	Other government		Corporate		Residential mortgage-backed		Commercial mortgage backed		Asset-backed		Total
Allowance for credit losses, beginning of period	$	—	$	(3,090)	$	—	$	(494)	$	(89)	$	(3,673)

Allowances for credit losses on securities for which credit losses were not previously recorded	—		(39)		(2)		(78)		(45)		(164)

Reductions for securities sold during the period	—		341		—		—		—		341

Decrease to the allowance for credit losses on securities that had an allowance recorded in the previous period	—		2,004		—		491		89		2,584


Allowance for credit losses, end of period	$	—	$	(784)	$	(2)	$	(81)	$	(45)	$	(912)

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	Nine Months Ended September 30, 2021
	Other government		Corporate		Residential mortgage-backed		Commercial mortgage backed		Asset-backed		Total
Allowance for credit losses, beginning of period	$	—	$	(181)	$	—	$	(133)	$	(8)	$	(322)

Allowances for credit losses on securities for which credit losses were not previously recorded	(68)		(12,381)		(34)		(250)		(172)		(12,905)

Reductions for securities sold during the period	1		74		2		—		—		77

Decrease to the allowance for credit losses on securities that had an allowance recorded in the previous period	40		7,661		30		341		178		8,250


Allowance for credit losses, end of period	$	(27)	$	(4,827)	$	(2)	$	(42)	$	(2)	$	(4,900)


	Nine Months Ended September 30, 2020
	Other government		Corporate		Residential mortgage-backed		Commercial mortgage backed		Asset-backed		Total
Allowance for credit losses, beginning of period	$	—	$	—	$	—	$	—	$	—	$	—
Cumulative effect of change in accounting principle	(22)		(2,987)		—		(50)		—		(3,059)
Allowances for credit losses on securities for which credit losses were not previously recorded	—		(10,359)		(2)		(572)		(134)		(11,067)

Reductions for securities sold during the period	22		2,108		—		—		—		2,130

Decrease to the allowance for credit losses on securities that had an allowance recorded in the previous period	—		10,454		—		541		89		11,084


Allowance for credit losses, end of period	$	—	$	(784)	$	(2)	$	(81)	$	(45)	$	(912)

During the three and nine months ended September 30, 2021 and 2020 we did not have any write-offs charged against the allowance for credit losses or any recoveries of amounts previously written-off.

Equity Investments

The following table summarizes our equity investments classified as trading:


	September 30, 2021		December 31, 2020
Publicly traded equity investments in common and preferred stocks	$	257,470	$	260,767
Exchange-traded funds	1,335,831		311,287
Privately held equity investments in common and preferred stocks	359,124		274,741
	$	1,952,425	$	846,795

Equity investments include publicly traded common and preferred stocks, exchange-traded funds and privately held common and preferred stocks. Our publicly traded equity investments in common and preferred stocks predominantly trade on major exchanges. Our investments in exchange-traded funds also trade on major exchanges.

Our privately held equity investments in common and preferred stocks are direct investments in companies that we believe offer attractive risk adjusted returns and/or offer other strategic advantages. Each investment may have its own unique terms and conditions and there may be restrictions on disposals. There is no active market for these investments. Refer to Note 19 - "Related Party Transactions" for further information on certain privately held equity investments.

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Other Investments, at fair value

The following table summarizes our other investments carried at fair value:


	September 30, 2021		December 31, 2020
Hedge funds (1)	$	215,378	$	2,638,339
Fixed income funds	597,982		552,541
Equity funds	4,831		190,767
Private equity funds	598,901		363,103
CLO equities	153,795		128,083
CLO equity funds	199,714		166,523
Private credit funds	230,004		192,319
Real estate funds	50,666		11,883
Others	447		476
	$	2,051,718	$	4,244,034

(1) Effective April 1, 2021, the InRe Fund was consolidated by us. As a result, the carrying amounts of the assets and liabilities of the InRe Fund are presented separately in “variable interest entity assets of the InRe Fund” and “variable interest entity liabilities of the InRe Fund” within the condensed consolidated balance sheet as of September 30, 2021. Refer to Note 12 - "Variable Interest Entities" for additional information. As of December 31, 2020, our investment in the InRe Fund was $2.4 billion.

The valuation of our other investments is described in Note 11 - "Fair Value Measurements." Due to a lag in the valuations of certain funds reported by the managers, we may record changes in valuation with up to a three-month lag. We regularly review and discuss fund performance with the fund managers to corroborate the reasonableness of the reported net asset values and to assess whether any events have occurred within the lag period that would affect the valuation of the investments. The following is a description of the nature of each of these investment categories:

•Hedge funds invest in fixed income, equity and other investments. As noted above the InRe hedge fund was consolidated effective April 1, 2021.

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

•Equity funds invest primarily in public equities.

•Private equity funds include primary, secondary, and direct co-investment opportunities.

•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 primarily in direct senior or collateralized loans.

•Real Estate funds comprise of real estate funds that invest primarily in commercial real estate equity.

As of September 30, 2021, we had unfunded commitments of $1.5 billion to other investments.

Certain of our other investments are subject to restrictions on redemptions and sales that are determined by the governing documents, which limits our ability to liquidate those investments. These restrictions may include lock-ups, redemption gates, restricted share classes or side pockets, restrictions on the frequency of redemption and notice periods. A gate is the ability to deny or delay a redemption request, whereas a side-pocket is a designated account for which the investor loses its redemption rights. Certain other investments may not have any restrictions governing their sale, but there is no active market and no guarantee that we will be able to execute a sale in a timely manner. In addition, even if certain other investments are not eligible for redemption or sales are restricted, we may still receive income distributions from those other investments.

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The table below details the estimated date by which proceeds would be received if we had provided notice of our intent to redeem or initiated a sales process as of September 30, 2021:


	Less than 1 Year		1-2 years		2-3 years		More than 3 years		Not Eligible/ Restricted		Total		Redemption Frequency
Hedge funds	$	215,378	$	—	$	—	$	—	$	—	$	215,378	Monthly to Quarterly
Fixed income funds	560,932		—		—		—		37,050		597,982		Daily to Quarterly
Equity funds	4,831		—		—		—		—		4,831		Daily
Private equity funds	—		51,550		—		—		547,351		598,901		Quarterly for unrestricted amount
CLO equities	153,795		—		—		—		—		153,795		Daily
CLO equity funds	151,452		47,764		—		—		498		199,714		Quarterly to Bi-annually
Private credit funds	—		—		—		—		230,004		230,004		N/A
Real estate funds	—		—		—		—		50,666		50,666		N/A
Other	—		—		—		—		447		447		N/A
	$	1,086,388	$	99,314	$	—	$	—	$	866,016	$	2,051,718

As of September 30, 2021, none of our investments were subject to gates or side-pockets.

Equity Method Investments

The table below shows our equity method investments:


	September 30, 2021				December 31, 2020
	Ownership %		Carrying Value		Ownership %		Carrying Value
Enhanzed Re (1)	—	%	$	—	47.4	%	$	330,289
Citco (2)	31.9	%	54,401		31.9	%	53,022
Monument Re (3)	20.0	%	202,050		20.0	%	193,716
Core Specialty	24.7	%	229,158		25.2	%	235,000

Other	~27%		19,879		~27%		20,268

			$	505,488			$	832,295

(1) Effective September 1, 2021, Enhanzed Re was consolidated by us. Refer to Note 2 - "Business Acquisitions" for additional information.

(2) We own 31.9% of the common shares in HH CTCO Holdings Limited, which owns 15.4% of the convertible preferred shares of Citco III Limited ("Citco"), amounting to a 6.2% interest in the total equity of Citco.

(3) We own 20.0% of the common shares in Monument Re as well as different classes of preferred shares which have fixed dividend yields and whose balances are included in the Investment amount.

Funds Held

Under funds held arrangements, the reinsured company has retained funds that would otherwise have been remitted to our reinsurance subsidiaries. We either have (i) funds held by reinsured companies, which are carried at amortized cost and on which we receive a fixed crediting rate, or (ii) funds held - directly managed, which are carried at fair value and on which we receive the underlying return on the portfolio. The investment returns on funds held by reinsurance companies are recognized in net investment income and the investment returns on funds held -directly managed are recognized in net investment income and net realized and unrealized gains (losses). The funds held balance is credited with investment income and losses payable are deducted.

Funds Held - Directly Managed

Funds held - directly managed, where we receive the underlying return on the investment portfolio, are carried at fair value, either because we elected the fair value option at the inception of the reinsurance contract, or because it represents the aggregate of funds held at amortized cost and the fair value of an embedded derivative. The embedded derivative relates to our contractual right to receive the return on the underlying investment portfolio supporting the reinsurance contract. We include the estimated fair value of these embedded derivatives in the

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ENSTAR GROUP LIMITED

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

condensed consolidated balance sheets with the host contract in order to reflect the expected settlement of these features with the host contract. The change in the fair value of the embedded derivative is included in net unrealized gains (losses). The following table summarizes the components of the funds held - directly managed:


	September 30, 2021		December 31, 2020
Short-term and fixed maturity investments, trading	$	2,836,856	$	1,060,263
Cash and cash equivalents	211,311		9,067
Other assets	8,225		5,560
	$	3,056,392	$	1,074,890

The following table summarizes the fixed maturity investment components of funds held - directly managed:


	September 30, 2021						December 31, 2020
	Funds held - Directly Managed - Fair Value Option		Funds held - Directly Managed - Variable Return		Total		Funds held - Directly Managed - Fair Value Option		Funds held - Directly Managed - Variable Return		Total
Short-term and fixed maturity investments, at amortized cost	$	850	$	2,836,915	$	2,837,765	$	106,938	$	859,403	$	966,341
Net unrealized gains:
Change in fair value - fair value option accounting	—		—		—		9,693		—		9,693
Change in fair value - embedded derivative accounting	—		21,603		21,603		—		84,229		84,229
Change in fair value (1)	—		(22,512)		(22,512)		—		—		—
Short-term fixed maturity investments within funds held - directly managed, at fair value	$	850	$	2,836,006	$	2,836,856	$	116,631	$	943,632	$	1,060,263

(1) Is clearly and closely related to the host contract

Refer to the sections above for details of the short-term and fixed maturity investments within our funds held - directly managed portfolios.

Funds Held by Reinsured Companies

Funds held by reinsured companies, where we received a fixed crediting rate, are carried at cost on our condensed consolidated balance sheets. As of September 30, 2021 and December 31, 2020, we had funds held by reinsured companies of $2.4 billion and $635.8 million, respectively. The increase from December 31, 2020 was primarily driven by the acquisition of Enhanzed Re and transactions with AXA Group and Hiscox.

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ENSTAR GROUP LIMITED

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

Net Investment Income

Major categories of net investment income are summarized as follows:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Fixed maturity investments	$	46,775	$	47,275	$	139,252	$	153,554
Short-term investments and cash and cash equivalents	(380)		826		(562)		4,203
Funds held by reinsured companies	15,675		8,346		47,683		32,715
Funds held - directly managed	8,397		7,703		22,328		27,204
Investment income from fixed maturities and cash and cash equivalents	70,467		64,150		208,701		217,676
Equity investments	5,112		4,771		14,042		14,496
Other investments	9,290		6,000		27,415		19,384

Investment income from equities and other investments	14,402		10,771		41,457		33,880
Gross investment income	84,869		74,921		250,158		251,556
Investment expenses	(5,361)		(2,791)		(12,243)		(10,269)
Net investment expenses of the InRe Fund (1)	13,217		—		(6,954)		—
Net investment income	$	92,725	$	72,130	$	230,961	$	241,287

(1) Effective April 1, 2021, the InRe Fund was consolidated by us. Refer to Note 12 - "Variable Interest Entities" for additional information. Prior to this, all income or loss from the InRe Fund was determined by the change in net asset value (NAV) of our holdings in the fund, which was included within net realized and unrealized gains (losses) from other investments.

Net Realized and Unrealized Gains (Losses)

Components of net realized and unrealized gains (losses) were as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Net realized gains (losses) on sales:
Gross realized gains on fixed maturity securities, AFS	$	4,332	$	9,871	$	12,597	$	19,995
Gross realized losses on fixed maturity securities, AFS	(2,121)		(786)		(8,887)		(7,379)
Decrease (increase) in allowance for expected credit losses on fixed maturity securities, AFS	2,482		2,248		(4,655)		(389)
Net realized gains on fixed maturity securities, trading	13,399		30,531		42,438		87,911
Net realized gains on funds held - directly managed	760		3,292		2,012		5,545
Net realized gains on equity investments	21,277		8,286		21,340		9,165
Net realized investment gains on investment derivatives	175		46		95		46
Net realized gains of the InRe Fund (1)	275,466		—		597,171		—
Total net realized gains on sales	$	315,770	$	53,488	$	662,111	$	114,894
Net unrealized gains (losses):
Fixed maturity securities, trading	$	(45,752)	$	14,324	$	(174,664)	$	58,795
Fixed maturity securities in funds held - directly managed	(30,819)		7,814		(57,479)		42,619
Equity investments	339		4,210		82,303		(48,409)
Other Investments (1)	47,863		110,966		187,846		41,254
Investment derivatives	6		—		90		—
Net unrealized gains (losses) of the InRe Fund (1)	(560,672)		309,203		(589,040)		629,399
Total net unrealized gains (losses)	$	(589,035)	$	446,517	$	(550,944)	$	723,658
Net realized and unrealized gains (losses)	$	(273,265)	$	500,005	$	111,167	$	838,552

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ENSTAR GROUP LIMITED

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

(1) Effective April 1, 2021, the InRe Fund was consolidated by us. Prior to this, all income or loss from the InRe Fund was determined by the change in net asset value (NAV) of our holdings in the fund, which was included within net realized and unrealized gains (losses) from other investments. Prior period amounts have been reclassified to net unrealized gains (losses) of the InRe Fund to conform to current period presentation.

The gross realized gains and losses on AFS investments for the three months ended September 30, 2021 and 2020 included in the table above resulted from sales of $854.4 million and $409.6 million, respectively. The gross realized gains and losses on AFS investments for the nine months ended September 30, 2021 and 2020 included in the table above resulted from sales of $2.1 billion and $1.5 billion, respectively.

Reconciliation to the Consolidated Statements of Comprehensive Income

The following table provides a reconciliation of the gross realized gains and losses and credit recoveries (losses) on our AFS fixed maturity debt securities that arose during the three and nine months ended September 30, 2021 within our continuing and discontinued operations and the offsetting reclassification adjustments included within our consolidated statements of comprehensive income:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020






Included within continuing operations:
Gross realized gains on fixed maturity securities, AFS	$	4,332	$	9,871	$	12,597	$	19,995
Gross realized losses on fixed maturity securities, AFS	(2,121)		(786)		(8,887)		(7,379)
Tax effect	(163)		—		(539)		—
Included within discontinued operations:
Gross realized gains on fixed maturity securities, AFS	—		489		—		1,025
Gross realized losses on fixed maturity securities, AFS	—		(86)		—		(143)
Total reclassification adjustment	$	2,048	$	9,488	$	3,171	$	13,498
Included within continuing operations:
Credit losses on fixed maturity securities, AFS	$	2,482	$	2,248	$	(4,655)	$	(389)
Tax effect	(57)		—		149		—
Included within discontinued operations:
Credit losses on fixed maturity securities, AFS	—		131		—		318

Total reclassification adjustment	$	2,425	$	2,379	$	(4,506)	$	(71)

Restricted Assets

We utilize trust accounts to collateralize business with our (re)insurance counterparties. We are also required to maintain investments and cash and cash equivalents on deposit with regulatory authorities and Lloyd's to support our (re)insurance operations. The investments and cash and cash equivalents on deposit are available to settle (re)insurance liabilities. Collateral generally takes the form of assets held in trust, letters of credit or funds held. The assets used as collateral are primarily highly rated fixed maturity securities. The carrying value of our restricted assets, including restricted cash of $447.5 million and $472.0 million, as of September 30, 2021 and December 31, 2020, respectively, was as follows:


	September 30, 2021		December 31, 2020
Collateral in trust for third party agreements	$	6,160,382	$	4,924,866
Assets on deposit with regulatory authorities	206,288		131,283
Collateral for secured letter of credit facilities	96,303		104,627
Funds at Lloyd's (1)	503,716		260,914
	$	6,966,689	$	5,421,690

(1) Our businesses include two (December 31, 2020: 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. We also utilize unsecured letters of credit for a significant portion of our Funds at Lloyd's, as described in Note 14 - "Debt Obligations and Credit Facilities."

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ENSTAR GROUP LIMITED

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

6. REINSURANCE BALANCES RECOVERABLE ON PAID AND UNPAID LOSSES

The following tables provide the total reinsurance balances recoverable on paid and unpaid losses:


	September 30, 2021
	Run-off (1)		Legacy Underwriting (1)		Corporate & Other		Total
Recoverable from reinsurers on unpaid:
Outstanding losses	$	1,003,285	$	24,633	$	—	$	1,027,918
IBNR	452,153		45,010		—		497,163
ULAE	4,835		1,199		—		6,034
Fair value adjustments - acquired companies	—		—		(14,134)		(14,134)
Fair value adjustments - fair value option	—		—		(35,753)		(35,753)
Total reinsurance reserves recoverable	1,460,273		70,842		(49,887)		1,481,228
Paid losses recoverable	195,198		181		—		195,379
Total	$	1,655,471	$	71,023	$	(49,887)	$	1,676,607

Reconciliation to Condensed Consolidated Balance Sheet:
Reinsurance balances recoverable on paid and unpaid losses	$	1,148,615	$	71,023	$	(14,134)	$	1,205,504
Reinsurance balances recoverable on paid and unpaid losses - fair value option	506,856		—		(35,753)		471,103
Total	$	1,655,471	$	71,023	$	(49,887)	$	1,676,607

(1) Effective January 1, 2021, the net loss reserves of StarStone International were transferred from the Legacy Underwriting segment to the Run-off segment. Refer to Note 21 - "Segment Information" for further details.


	December 31, 2020
	Run-off		Legacy Underwriting		Corporate & Other		Total
Recoverable from reinsurers on unpaid:
Outstanding losses	$	938,231	$	263,638	$	—	$	1,201,869
IBNR	508,082		139,761		—		647,843
ULAE	16,688		—		—		16,688
Fair value adjustments - acquired companies	—		—		(15,353)		(15,353)
Fair value adjustments - fair value option	—		—		(21,427)		(21,427)
Total reinsurance reserves recoverable	1,463,001		403,399		(36,780)		1,829,620
Paid losses recoverable	172,309		87,234		—		259,543
Total	$	1,635,310	$	490,633	$	(36,780)	$	2,089,163

Reconciliation to Condensed Consolidated Balance Sheet:
Reinsurance balances recoverable on paid and unpaid losses	$	1,093,053	$	490,633	$	(15,353)	$	1,568,333
Reinsurance balances recoverable on paid and unpaid losses - fair value option	542,257		—		(21,427)		520,830
Total	$	1,635,310	$	490,633	$	(36,780)	$	2,089,163

Our (re)insurance Run-off subsidiaries and assumed portfolios, prior to acquisition, used retrocessional agreements to reduce their exposure to the risk of (re)insurance assumed. Previously on an annual basis, StarStone International, included within the Run-off segment from January 1, 2021, purchased a tailored outwards reinsurance program designed to manage its risk profile. The majority of StarStone International's third-party reinsurance is with highly rated reinsurers or is collateralized by pledged assets or letters of credit.

The fair value adjustments, determined on acquisition of (re)insurance subsidiaries, are based on the estimated timing of loss and LAE recoveries included in the Run-off segment and an assumed interest rate equivalent to a risk free rate for securities with similar duration to the acquired reinsurance balances recoverable on paid and unpaid losses plus a spread for credit risk, and are amortized over the estimated recovery period, as adjusted for accelerations in timing of payments as a result of commutation settlements. The determination of the

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ENSTAR GROUP LIMITED

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

fair value adjustments on the retroactive reinsurance contracts for which we have elected the fair value option is described in Note 11 - "Fair Value Measurements."

As of September 30, 2021 and December 31, 2020, we had reinsurance balances recoverable on paid and unpaid losses of $1.7 billion and $2.1 billion, respectively. The decrease of $412.6 million was primarily due to the elimination of intercompany cessions on consolidation of Enhanzed Re, partially offset by assumed ceded assets relating to CNA and Syndicate 609.

Top Ten Reinsurers


	September 30, 2021
	Run-off		Legacy Underwriting		Corporate & Other		Total		% of Total
Top 10 reinsurers	$	1,006,072	$	64,173	$	—	$	1,070,245	63.8	%
Other reinsurers > $1 million	627,182		6,210		(49,887)		583,505		34.8	%
Other reinsurers < $1 million	22,217		640		—		22,857		1.4	%
Total	$	1,655,471	$	71,023	$	(49,887)	$	1,676,607	100.0	%


	December 31, 2020
	Run-off		Legacy Underwriting		Corporate & Other		Total		% of Total
Top 10 reinsurers	$	1,036,676	$	327,917	$	—	$	1,364,593	65.3	%
Other reinsurers > $1 million	574,869		159,513		(36,780)		697,602		33.4	%
Other reinsurers < $1 million	23,765		3,203		—		26,968		1.3	%
Total	$	1,635,310	$	490,633	$	(36,780)	$	2,089,163	100.0	%


	September 30, 2021		December 31, 2020
Information regarding top ten reinsurers:
Number of top 10 reinsurers rated A- or better	8		7
Number of top 10 non-rated reinsurers (1)	2		3

Reinsurers rated A- or better in top 10	$	802,087	$	863,819
Non-rated reinsurers in top 10 (1)	268,158		500,774
Total top 10 reinsurance recoverables	$	1,070,245	$	1,364,593

Single reinsurers that represent 10% or more of total reinsurance balance recoverables as of September 30, 2021 and December 31, 2020:

Lloyd's Syndicates (2)	$	296,198	$	331,118
Michigan Catastrophic Claims Association(3)	$	221,005	$	229,374

(1) The reinsurance balances recoverable from the non-rated top 10 reinsurers was comprised of:

•$221.0 million and $229.4 million as of September 30, 2021 and December 31, 2020 respectively, due from Michigan Catastrophic Claims Association;

•$47.2 million as of September 30, 2021 due from Arden Re written on a funds withheld basis as discussed in Note 19 - "Related Party Transactions"

•$73.8 million as of December 31, 2020 due from a reinsurer who provided security in the form of pledged assets in trust for the full amount of the recoverable balance. The reinsurer received an A- rating by A.M. Best as of September 30, 2021 and the collateral has been subsequently released; and

•$208.4 million as of December 31, 2020 due from Enhanzed Re to whom some of our subsidiaries have retroceded their exposures through quota share reinsurance agreements as discussed in Note 19 - "Related Party Transactions." Effective September 1, 2021, Enhanzed Re was consolidated by us (previously accounted for as an equity method investment) and all intercompany transactions and balances between Enhanzed Re and Enstar were eliminated upon consolidation.

(2) Lloyd's Syndicates are rated A+ by Standard & Poor's and A by A.M. Best.

(3) U.S. state backed reinsurer that is supported by assessments on active auto writers operating within the state.

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ENSTAR GROUP LIMITED

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

7. DEFERRED CHARGE ASSETS AND DEFERRED GAIN LIABILITIES

The following tables present a reconciliation of our deferred charge assets and deferred gain liabilities:


	Deferred Charge Assets
	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Beginning carrying value	$	435,151	$	258,516	$	238,602	$	272,462
Recorded during the period	24,013		—		253,025		11,746
Amortization	(24,124)		(10,316)		(56,587)		(36,008)

Ending carrying value	$	435,040	$	248,200	$	435,040	$	248,200


	Deferred Gain Liabilities
	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Beginning carrying value	$	20,059	$	11,916	$	19,880	$	12,875
Recorded during the period	9,718		—		11,280		—
Realized on acquisition	(28,755)		—		(28,755)		—
Amortization	(103)		(434)		(1,486)		(1,393)

Ending carrying value	$	919	$	11,482	$	919	$	11,482

Deferred charge assets are assessed at each reporting period for impairment. If the asset is determined to be impaired, it is written down in the period of determination. For the nine months ended September 30, 2021, we completed our impairment assessment and concluded that there had been no impairment of our carried deferred charge assets.

8. LOSSES AND LOSS ADJUSTMENT EXPENSES

The liability for losses and loss adjustment expenses ("LAE"), also referred to as loss reserves, represents our gross estimates before reinsurance for unpaid reported losses and includes losses that have been incurred but not reported ("IBNR") using a variety of actuarial methods. We recognize an asset for the portion of the liability that we expect to recover from reinsurers. LAE reserves include allocated loss adjustment expenses ("ALAE"), and unallocated loss adjustment expenses ("ULAE"). ALAE are linked to the settlement of an individual claim or loss, whereas ULAE are based on our estimates of future costs to administer the claims. IBNR represents reserves for loss and LAE that have been incurred but not yet reported to us. This includes amounts for unreported claims, development on known claims and reopened claims.

Our loss reserves cover multiple lines of business, which include asbestos, environmental, general casualty, workers' compensation/personal accident, marine, aviation and transit, construction defect, professional indemnity/directors and officers, motor, property, property excess of loss ("catastrophe") and other non-life lines of business.

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ENSTAR GROUP LIMITED

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

The following tables summarize the liability for losses and LAE by segment and for our corporate and other activities:


	September 30, 2021
	Run-off		Enhanzed Re		Legacy Underwriting		Corporate & Other		Total
Outstanding losses	$	5,862,377	$	1,059	$	94,658	$	—	$	5,958,094
IBNR	7,425,180		176,122		136,789		—		7,738,091
ULAE	435,976		2,658		2,292		—		440,926
Fair value adjustments - acquired companies	—		—		—		(123,150)		(123,150)
Fair value adjustments - fair value option	—		—		—		(136,176)		(136,176)
Total	$	13,723,533	$	179,839	$	233,739	$	(259,326)	$	13,877,785

Reconciliation to Condensed Consolidated Balance Sheet:
Loss and loss adjustment expenses	$	11,479,623	$	179,839	$	233,739	$	(123,150)	$	11,770,051
Loss and loss adjustment expenses, at fair value	2,243,910		—		—		(136,176)		2,107,734
Total	$	13,723,533	$	179,839	$	233,739	$	(259,326)	$	13,877,785


	December 31, 2020
	Run-off		Legacy Underwriting		Corporate & Other		Total
Outstanding losses	$	4,440,425	$	687,424	$	—	$	5,127,849
IBNR	4,641,500		636,003		—		5,277,503
ULAE	350,600		35,102		—		385,702
Fair value adjustments - acquired companies	—		—		(143,183)		(143,183)
Fair value adjustments - fair value option	—		—		(54,589)		(54,589)
Total	$	9,432,525	$	1,358,529	$	(197,772)	$	10,593,282

Reconciliation to Condensed Consolidated Balance Sheet:
Loss and loss adjustment expenses	$	6,925,016	$	1,358,529	$	(143,183)	$	8,140,362
Loss and loss adjustment expenses, at fair value	2,507,509		—		(54,589)		2,452,920
Total	$	9,432,525	$	1,358,529	$	(197,772)	$	10,593,282

The increase in the liability for losses and LAE from December 31, 2020 to September 30, 2021 was primarily attributable to the 2021 transactions described in Note 3 - "Significant New Business" and the acquisition of Enhanzed Re, as well as net incurred losses and LAE in the period, partially offset by losses paid.

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ENSTAR GROUP LIMITED

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

The table below provides a consolidated reconciliation of the beginning and ending liability for losses and LAE:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Balance as of beginning of period	$	13,037,858	$	10,593,436	$	10,593,282	$	9,868,404
Add: losses and LAE relating to SGL No.1 (1)	—		—		254,561		—
	13,037,858		10,593,436		10,847,843		9,868,404
Less:
Reinsurance reserves recoverable (2)	1,787,725		1,858,161		1,829,620		1,927,624
Reinsurance reserves recoverable relating to SGL No1 (1)	—		—		90,792		—
	1,787,725		1,858,161		1,920,412		1,927,624
Less: net deferred charge assets and deferred gain liabilities on retroactive reinsurance	415,092		246,600		218,722		259,587

Less: cumulative effect of change in accounting principle on the determination of the allowance for estimated uncollectible reinsurance balances	—		—		—		643
Net balance as of beginning of period	10,835,041		8,488,675		8,708,709		7,680,550
Net incurred losses and LAE:
Current period	42,394		78,965		145,619		314,083
Prior periods	(69,105)		30,721		(188,533)		25,595
Total net incurred losses and LAE	(26,711)		109,686		(42,914)		339,678
Net paid losses:
Current period	(3,326)		(17,194)		(15,720)		(32,304)
Prior periods	(290,032)		(344,060)		(980,729)		(1,070,063)
Total net paid losses	(293,358)		(361,254)		(996,449)		(1,102,367)
Effect of exchange rate movement	(58,075)		98,695		(64,336)		(7,532)
Acquired business (3)	1,099,260		—		1,099,260		—
Assumed business (4)	469,601		280,497		3,349,612		1,705,970
Ceded business	(63,322)		—		(91,446)		—
Reclassification to assets and liabilities held-for-sale	—		(219,284)		—		(219,284)
Net balance as of September 30	11,962,436		8,397,015		11,962,436		8,397,015
Plus: reinsurance reserves recoverable (2)	1,481,228		1,667,151		1,481,228		1,667,151
Plus: net deferred charge assets and deferred gain liabilities on retroactive reinsurance (5)	434,121		236,718		434,121		236,718
Balance as of September 30	$	13,877,785	$	10,300,884	$	13,877,785	$	10,300,884

(1) This balance represents the gross up for our participation in Atrium's Syndicate 609 relating to the 2020 and prior underwriting years which is no longer eliminated on our condensed consolidated financial statements following the completion of the Exchange Transaction on January 1, 2021. Gross losses and LAE exclude $0.4 million of fair value adjustments that were a component of the losses and LAE balance included on the held-for-sale balance sheet and which were derecognized following the completion of the Exchange Transaction. Refer to Note 4 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations" for further details.

(2) Net of allowance for estimated uncollectible reinsurance.

(3) Acquired business of $1,099.3 million includes $842.0 million of third party loss reserves and $257.2 million of loss reserves which are deemed to effectively settle balances relating to pre-existing relationships, the latter comprising of $286.0 million of reinsurance recoverables, partially offset by a deferred gain liability of $28.8 million, carried by two of our reinsurance subsidiaries. These pre-existing relationships were fair valued at $271.3 million in accordance with the acquisition method of accounting. Refer to Note 2 - "Business Acquisitions" for further information.

(4) Refer to Note 3 - "Significant New Business" for further information.

(5) Refer to Note 7 - "Deferred Charge Assets and Deferred Gain Liabilities" for further information.

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ENSTAR GROUP LIMITED

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

The tables below provide the components of net incurred losses and LAE by segment and for our corporate and other activities:


	Three Months Ended
	September 30, 2021
	Run-off		Legacy Underwriting		Corporate & Other		Total
Net losses paid	$	287,323	$	6,035	$	—	$	293,358
Net change in case and LAE reserves (1)	(156,926)		1,796		—		(155,130)
Net change in IBNR reserves (2)	(167,679)		(2,000)		—		(169,679)
Increase (reduction) in estimates of net ultimate losses	(37,282)		5,831		—		(31,451)

Increase (reduction) in provisions for unallocated LAE (3)	(12,858)		(333)		—		(13,191)
Amortization of deferred charge assets and deferred gain liabilities (4)	—		—		24,021		24,021
Amortization of fair value adjustments (5)	—		—		4,787		4,787
Changes in fair value - fair value option (6)	—		—		(10,877)		(10,877)
Net incurred losses and LAE	$	(50,140)	$	5,498	$	17,931	$	(26,711)


		Three Months Ended
	September 30, 2020
		Run-off		Legacy Underwriting		Corporate & Other		Total
Net losses paid		$	283,882	$	77,372	$	—	$	361,254
Net change in case and LAE reserves (1)		(49,887)		8,260		—		(41,627)
Net change in IBNR reserves (2)		(221,366)		(4,709)		—		(226,075)
Increase (reduction) in estimates of net ultimate losses		12,629		80,923		—		93,552

Increase (reduction) in provisions for unallocated LAE (3)		(14,605)		(5,049)		—		(19,654)
Amortization of deferred charge assets and deferred gain liabilities (4)		—		—		9,882		9,882
Amortization of fair value adjustments (5)		—		—		4,864		4,864
Changes in fair value - fair value option (6)		—		—		21,042		21,042
Net incurred losses and LAE		$	(1,976)	$	75,874	$	35,788	$	109,686


		Nine Months Ended
	September 30, 2021
		Run-off		Legacy Underwriting		Corporate & Other		Total
Net losses paid		$	975,146	$	21,303	$	—	$	996,449
Net change in case and LAE reserves (1)		(399,036)		(711)		—		(399,747)
Net change in IBNR reserves (2)		(597,320)		688		—		(596,632)
Increase (reduction) in estimates of net ultimate losses		(21,210)		21,280		—		70

Increase (reduction) in provisions for unallocated LAE (3)		(41,302)		(1,023)		—		(42,325)
Amortization of deferred charge assets and deferred gain liabilities (4)		—		—		55,101		55,101
Amortization of fair value adjustments (5)		—		—		12,876		12,876
Changes in fair value - fair value option (6)		—		—		(68,636)		(68,636)
Net incurred losses and LAE		$	(62,512)	$	20,257	$	(659)	$	(42,914)

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ENSTAR GROUP LIMITED

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


		Nine Months Ended
	September 30, 2020
		Run-off		Legacy Underwriting		Corporate & Other		Total
Net losses paid		$	826,250	$	276,117	$	—	$	1,102,367
Net change in case and LAE reserves (1)		(300,573)		(56,287)		—		(356,860)
Net change in IBNR reserves (2)		(580,586)		33,511		—		(547,075)
Increase (reduction) in estimates of net ultimate losses		(54,909)		253,341		—		198,432

Increase (reduction) in provisions for unallocated LAE (3)		(34,509)		23,446		—		(11,063)
Amortization of deferred charge assets and deferred gain liabilities (4)		—		—		34,615		34,615
Amortization of fair value adjustments (5)		—		—		20,846		20,846
Changes in fair value - fair value option (6)		—		—		96,848		96,848
Net incurred losses and LAE		$	(89,418)	$	276,787	$	152,309	$	339,678

(1)Comprises the movement during the year in specific case reserve liabilities as a result of claims settlements or changes advised to us by our policyholders and attorneys, less changes in case reserves recoverable advised by us to our reinsurers as a result of the settlement or movement of assumed claims.

(2)Represents the gross change in our actuarial estimates of IBNR, less amounts recoverable.

(3) Represents the change in the estimate of the total future costs to administer the claims.

(4) Relates to the amortization of deferred charge assets and deferred gain liabilities on retroactive reinsurance contracts.

(5) Relates to the amortization of fair value adjustments associated with the acquisition of companies.

(6) Represents the changes in the fair value of liabilities related to our assumed retroactive reinsurance contracts for which we have elected the fair value option.

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ENSTAR GROUP LIMITED

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

Run-off Segment

The table below provides a reconciliation of the beginning and ending liability for losses and LAE for the Run-off segment:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Balance as of beginning of period	$	13,055,661	$	9,231,912	$	9,432,525	$	8,683,983
Less: reinsurance reserves recoverable (1)	1,759,227		1,494,652		1,463,001		1,645,352

Plus: cumulative effect of change in accounting principal on allowance for estimated uncollectible reinsurance	—		—		—		703
Net balance as of beginning of period	11,296,434		7,737,260		7,969,524		7,039,334
Net incurred losses and LAE:
Current period	35,768		8,218		121,338		24,153
Prior periods	(85,908)		(10,194)		(183,850)		(113,571)
Total net incurred losses and LAE	(50,140)		(1,976)		(62,512)		(89,418)
Net paid losses:
Current period	(3,107)		(739)		(5,863)		(1,777)
Prior periods	(284,216)		(283,143)		(969,283)		(824,473)
Total net paid losses	(287,323)		(283,882)		(975,146)		(826,250)
Effect of exchange rate movement	(58,673)		87,018		(66,035)		(22,465)
Acquired on purchase of subsidiaries (2)	942,388		—		942,388		—
Assumed business (3)	493,614		307,713		3,602,637		1,744,932
Ceded business	(73,040)		—		(102,726)		—
Transfer from the Legacy Underwriting segment (4)	—		—		955,130		—
Net balance as of September 30	12,263,260		7,846,133		12,263,260		7,846,133
Plus: reinsurance reserves recoverable (1)	1,460,273		1,306,256		1,460,273		1,306,256
Balance as of September 30	$	13,723,533	$	9,152,389	$	13,723,533	$	9,152,389

(1) Net of allowance for estimated uncollectible reinsurance.

(2) Acquired business of $942.4 million includes $656.4 million of third party loss reserves and $286.0 million of loss reserves, which are deemed to effectively settle balances relating to pre-existing relationships carried by two of our reinsurance subsidiaries.

(3) Refer to Note 3 - "Significant New Business" for further information.

(4) Effective January 1, 2021, the net loss reserves of StarStone International were transferred from the Legacy Underwriting segment to the Run-off segment. Refer to Note 21 - "Segment Information" for further details.

Net incurred losses and LAE in the Run-off segment were as follows:


	Three Months Ended September 30,
	2021						2020
	Prior Period		Current Period		Total		Prior Period		Current Period		Total
Net losses paid	$	284,216	$	3,107	$	287,323	$	283,143	$	739	$	283,882
Net change in case and LAE reserves (1)	(174,118)		17,192		(156,926)		(49,854)		(33)		(49,887)
Net change in IBNR reserves (2)	(182,400)		14,721		(167,679)		(228,878)		7,512		(221,366)
Increase (reduction) in estimates of net ultimate losses	(72,302)		35,020		(37,282)		4,411		8,218		12,629

Increase (reduction) in provisions for unallocated LAE (3)	(13,606)		748		(12,858)		(14,605)		—		(14,605)



Net incurred losses and LAE	$	(85,908)	$	35,768	$	(50,140)	$	(10,194)	$	8,218	$	(1,976)

(2)Represents the gross change in our actuarial estimates of IBNR, less amounts recoverable.

(3) Represents the change in the estimate of the total future costs to administer the claims.

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ENSTAR GROUP LIMITED

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

Three Months Ended September 30, 2021

Current period net incurred losses and LAE of $35.8 million primarily relates to the net earned premium from the run-off of StarStone International business which was transferred from the Legacy Underwriting segment on January 1, 2021. The reduction in estimates of net ultimate losses relating to prior periods of $72.3 million was primarily related to favorable development on large professional indemnity/directors and officers claims as well as continued favorable loss emergence, notably in the workers' compensation and construction defect lines.

Three Months Ended September 30, 2020

Current period net incurred losses and LAE of $8.2 million related to current period net earned premium, primarily in respect of the run-off of the AmTrust RITC transactions. Net ultimate losses relating to prior periods increased by $4.4 million. Unfavorable development of $128.4 million within our motor line of business was offset by favorable development across workers' compensation and other lines of business.


	Nine Months Ended September 30,
	2021						2020
	Prior Period		Current Period		Total		Prior Period		Current Period		Total
Net losses paid	$	969,283	$	5,863	$	975,146	$	824,473	$	1,777	$	826,250
Net change in case and LAE reserves (1)	(421,265)		22,229		(399,036)		(301,382)		809		(300,573)
Net change in IBNR reserves (2)	(687,383)		90,063		(597,320)		(602,153)		21,567		(580,586)
Increase (reduction) in estimates of net ultimate losses	(139,365)		118,155		(21,210)		(79,062)		24,153		(54,909)

Increase (reduction) in provisions for unallocated LAE (3)	(44,485)		3,183		(41,302)		(34,509)		—		(34,509)



Net incurred losses and LAE	$	(183,850)	$	121,338	$	(62,512)	$	(113,571)	$	24,153	$	(89,418)

(2)Represents the gross change in our actuarial estimates of IBNR, less amounts recoverable.

(3) Represents the change in the estimate of the total future costs to administer the claims.

Nine Months Ended September 30, 2021

Current period net incurred losses and LAE of $121.3 million related to current period net earned premium, primarily in respect of the run-off of StarStone International business which was transferred from the Legacy Underwriting segment on January 1, 2021. The reduction in estimates of net ultimate losses relating to prior periods of $139.4 million was primarily related to favorable development in our professional indemnity/directors and officers line of business across our Lloyd's portfolios arising from a change in ultimates and reductions in case reserve estimates for large claims, continued favorable loss emergence in our workers' compensation and general casualty lines of business as well as favorable development across multiple StarStone International books of business. Partially offsetting this favorable development was an increase in net incurred losses of $20.9 million due to our reevaluation of our gross and net exposure on COVID-19 pandemic related losses.

Nine Months Ended September 30, 2020

Current period net incurred losses and LAE of $24.2 million related to current period net earned premium, primarily in respect of the run-off of the AmTrust RITC transactions. The reduction in estimates of net ultimate losses relating to prior periods of $79.1 million was largely attributable to favorable development within our workers' compensation as well as other lines of business, partially offset by unfavorable development of $122.4 million within our motor line of business.

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ENSTAR GROUP LIMITED

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

Enhanzed Re Segment

The table below provides a reconciliation of the beginning and ending liability for losses and LAE for the Enhanzed Re segment:


	Three and Nine Months Ended
	September 30,
	2021
Balance as of beginning of period	$	—










Effect of exchange rate movement	(48)
Acquired on purchase of subsidiaries (1)	179,887




Balance as of September 30	$	179,839

(1) Refer to Note 2 - "Business Acquisitions" for further information.

Legacy Underwriting Segment

The table below provides a reconciliation of the beginning and ending liability for losses and LAE for our Legacy Underwriting segment:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Balance as of beginning of period	$	240,911	$	1,610,956	$	1,358,529	$	1,569,865
Add: losses and LAE relating to SGL No.1 (1)	—		—		254,561		—
	240,911		1,610,956		1,613,090		1,569,865
Less:
Reinsurance reserves recoverable (2)	76,270		429,847		403,399		385,613

Reinsurance recoverable relating to SGL No.1 (1)	—		—		90,792		—
	76,270		429,847		494,191		385,613
Less: cumulative effect of change in accounting principal on allowance for estimated uncollectible reinsurance	—		—		—		1,346
Net balance as of beginning of period	164,641		1,181,109		1,118,899		1,182,906
Net incurred losses and LAE:
Current period	6,626		70,747		24,281		289,930
Prior periods	(1,128)		5,127		(4,024)		(13,143)
Total net incurred losses and LAE	5,498		75,874		20,257		276,787
Net paid losses:
Current period	(219)		(16,455)		(9,857)		(30,527)
Prior periods	(5,816)		(60,917)		(11,446)		(245,590)
Total net paid losses	(6,035)		(77,372)		(21,303)		(276,117)
Effect of exchange rate movement	(1,207)		13,083		174		9,118



Reclassification to assets and liabilities held-for-sale	—		(216,349)		—		(216,349)
Transfer to Run-off segment (3)	—		—		(955,130)		—
Net balance as of September 30	162,897		976,345		162,897		976,345
Plus: reinsurance reserves recoverable (2)	70,842		401,288		70,842		401,288
Balance as of September 30	$	233,739	$	1,377,633	$	233,739	$	1,377,633

(2) Net of allowance for estimated uncollectible reinsurance.

(3) Effective January 1, 2021, the net loss reserves of StarStone International were transferred from the Legacy Underwriting segment to the Run-off segment. Refer to Note 21 - "Segment Information" for further details.

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ENSTAR GROUP LIMITED

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

Net incurred losses and LAE in the Legacy Underwriting segment were as follows:


	Three Months Ended September 30,
	2021						2020
	Prior Period		Current Period		Total		Prior Period		Current Period		Total
Net losses paid	$	5,816	$	219	$	6,035	$	60,917	$	16,455	$	77,372
Net change in case and LAE reserves (1)	4,122		(2,326)		1,796		(22,833)		31,093		8,260
Net change in IBNR reserves (2)	(10,518)		8,518		(2,000)		(32,706)		27,997		(4,709)
Increase (reduction) in estimates of net ultimate losses	(580)		6,411		5,831		5,378		75,545		80,923
Increase (reduction) in provisions for unallocated LAE (3)	(548)		215		(333)		(251)		(4,798)		(5,049)

Net incurred losses and LAE	$	(1,128)	$	6,626	$	5,498	$	5,127	$	70,747	$	75,874

(2)Represents the gross change in our actuarial estimates of IBNR, less amounts recoverable.

(3) Represents the change in the estimate of the total future costs to administer the claims.

Three Months Ended September 30, 2021

Current period net incurred losses and LAE of $6.6 million related to current period net earned premium. The reduction in net incurred losses and LAE liabilities relating to prior periods was $1.1 million and was attributable to an increase in estimates of net ultimate losses of $0.6 million.

Three Months Ended September 30, 2020

Current period net incurred losses and LAE of $70.7 million related to current period net earned premium and included losses related to the COVID-19 pandemic of $2.9 million. The increase in net incurred losses and LAE liabilities relating to prior periods was $5.1 million and was attributable to an increase in estimates of net ultimate losses of $5.4 million.


	Nine Months Ended September 30,
	2021						2020
	Prior Period		Current Period		Total		Prior Period		Current Period		Total
Net losses paid	$	11,446	$	9,857	$	21,303	$	245,590	$	30,527	$	276,117
Net change in case and LAE reserves(1)	(570)		(141)		(711)		(96,173)		39,886		(56,287)
Net change in IBNR reserves(2)	(13,822)		14,510		688		(162,492)		196,003		33,511
Increase (reduction) in estimates of net ultimate losses	(2,946)		24,226		21,280		(13,075)		266,416		253,341
Increase (reduction) in provisions for unallocated LAE(3)	(1,078)		55		(1,023)		(68)		23,514		23,446

Net incurred losses and LAE	$	(4,024)	$	24,281	$	20,257	$	(13,143)	$	289,930	$	276,787

(2)Represents the gross change in our actuarial estimates of IBNR, less amounts recoverable.

(3) Represents the change in the estimate of the total future costs to administer the claims.

Nine Months Ended September 30, 2021

Current period net incurred losses and LAE of $24.3 million related to current period net earned premium. The reduction in net incurred losses and LAE liabilities relating to prior periods was $4.0 million and was attributable to a reduction in estimates of net ultimate losses of $2.9 million.

Nine Months Ended September 30, 2020

Current period net incurred losses and LAE of $289.9 million related to current period net earned premium and included losses related to the COVID-19 pandemic of $37.1 million. The reduction in net incurred losses and LAE liabilities relating to prior periods was $13.1 million and was attributable to a reduction in estimates of net ultimate losses of $13.1 million.

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ENSTAR GROUP LIMITED

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

9. FUTURE POLICYHOLDER BENEFITS

The provision for future policyholder benefits includes provisions for life contingent liabilities assumed as well as other policy benefits for insureds. The future policyholder benefits are equal to the present value of the future benefits payments and related expenses less the present value of future net premiums.

The mortality assumptions are based on cedant historical data, regional mortality tables, and industry standards. The present value of the liabilities are discounted utilizing the discount rate derived from the yield on the assets supporting the liabilities and may include certain reinvestment assumptions. The future policyholder benefits related to traditional annuity products include provisions for adverse deviation.

The table below summarizes the liability for future policyholder benefits:


	September 30, 2021
Annuities	$	1,621,197
Fair value adjustments - acquired companies	(122,987)
Total	$	1,498,210

We believe that the assumptions used represent a realistic and appropriate basis for estimating the provision for future policyholder benefits as of September 30, 2021. However, these assumptions are subject to change and we regularly review and adjust our estimates and provisioning methodologies taking into account all currently known information and updated assumptions relating to unknown information.

10. DEFENDANT ASBESTOS AND ENVIRONMENTAL LIABILITIES

Included within defendant asbestos and environmental liabilities and insurance balances recoverable are the fair value adjustments that were initially recognized upon acquisition. These fair value adjustments are amortized in proportion to the actual payout of claims and recoveries.

The carrying value of the asbestos and environmental liabilities, insurance recoveries, future estimated expenses and the fair value adjustments related to DCo LLC ("DCo") and Morse TEC were as follows:


	September 30, 2021		December 31, 2020
Defendant asbestos and environmental liabilities:
Defendant asbestos liabilities	$	854,804	$	913,276
Defendant environmental liabilities	11,546		12,572
Estimated future expenses	38,004		42,510
Fair value adjustments	(244,433)		(262,029)
Defendant asbestos and environmental liabilities	659,921		706,329

Insurance balances recoverable:
Insurance recoveries related to defendant asbestos liabilities (net of allowance: 2021 - $5,805; 2020 - $4,824)	265,340		310,602
Fair value adjustments	(51,921)		(60,950)
Insurance balances recoverable	213,419		249,652

Net liabilities relating to defendant asbestos and environmental exposures	$	446,502	$	456,677

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ENSTAR GROUP LIMITED

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

The table below provides a consolidated reconciliation of the beginning and ending liability for defendant asbestos and environmental exposures:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Balance as of beginning of period	$	677,919	$	808,062	$	706,329	$	847,685
Less: Insurance balances recoverable (1)	245,979		428,277		249,652		448,855
Plus: Cumulative effect of change in accounting principle on the determination of the allowance for estimated uncollectible insurance balances	—		—		—		3,167
Net balance as of beginning of period	431,940		379,785		456,677		401,997
Total net paid claims	21,970		52,891		4,746		51,977
Amounts recorded in other income:
Reduction in estimates of ultimate net liabilities	(4,983)		(48,439)		(18,985)		(75,332)
Reduction in estimated future expenses	(997)		(3,124)		(4,505)		(6,127)
Amortization of fair value adjustments	(1,428)		7,636		8,569		16,234
Total other income	(7,408)		(43,927)		(14,921)		(65,225)

Net balance as at September 30	446,502		388,749		446,502		388,749
Plus: Insurance balances recoverable (1)	213,419		365,288		213,419		365,288
Balance as at September 30	$	659,921	$	754,037	$	659,921	$	754,037

(1) Net of allowance for estimated uncollectible insurance balances.

11. FAIR VALUE MEASUREMENTS

Fair Value Hierarchy

Fair value is defined as the price at which to sell an asset or transfer a liability (i.e. the "exit price") in an orderly transaction between market participants. We use a fair value hierarchy that gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. The hierarchy is broken down into three levels as follows:

•Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments.

•Level 2 - Valuations based on quoted prices in active markets for similar assets or liabilities, quoted prices for identical assets or liabilities in inactive markets, or for which significant inputs are observable (e.g. interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.

•Level 3 - Valuations based on unobservable inputs where there is little or no market activity. Unadjusted third party pricing sources or management's assumptions and internal valuation models may be used to determine the fair values.

In addition, certain of our other investments are measured at fair value using net asset value ("NAV") per share (or its equivalent) as a practical expedient and have not been classified within the fair value hierarchy above.

We have categorized our assets and liabilities that are recorded at fair value on a recurring basis among levels based on the observability of inputs, or at fair value using NAV per share (or its equivalent) as follows:

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ENSTAR GROUP LIMITED

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


	September 30, 2021
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value Based on NAV as Practical Expedient		Total Fair Value
Investments:
Short-term and fixed maturity investments:
U.S. government and agency	$	—	$	848,492	$	—	$	—	$	848,492
U.K. government	—		35,988		—		—		35,988
Other government	—		677,494		—		—		677,494
Corporate	—		6,721,668		—		—		6,721,668
Municipal	—		289,798		—		—		289,798
Residential mortgage-backed	—		602,217		—		—		602,217
Commercial mortgage-backed	—		1,080,582		—		—		1,080,582
Asset-backed	—		944,036		—		—		944,036
Structured products	—		1,033,097		—		—		1,033,097

	$	—	$	12,233,372	$	—	$	—	$	12,233,372

Other assets included within funds held - directly managed	$	—	$	219,536	$	—	$	—	$	219,536

Equities:
Publicly traded equity investments	$	215,345	$	42,125	$	—	$	—	$	257,470
Exchange-traded funds	1,335,831		—		—		—		1,335,831
Privately held equity investments	—		—		359,124		—		359,124
	$	1,551,176	$	42,125	$	359,124	$	—	$	1,952,425

Other investments:

Hedge funds (1)	$	—	$	—	$	—	$	215,378	$	215,378
Fixed income funds	—		259,595		—		338,387		597,982
Equity funds	—		4,831		—		—		4,831
Private equity funds	—		—		—		598,901		598,901
CLO equities	—		153,795		—		—		153,795
CLO equity funds	—		—		—		199,714		199,714
Private credit funds	—		—		—		230,004		230,004
Real estate debt fund	—		—		—		50,666		50,666

Other	—		—		447		—		447
	$	—	$	418,221	$	447	$	1,633,050	$	2,051,718
Total Investments	$	1,551,176	$	12,913,254	$	359,571	$	1,633,050	$	16,457,051

Cash and cash equivalents	$	1,326,360	$	32,469	$	—	$	—	$	1,358,829

Reinsurance balances recoverable on paid and unpaid losses:	$	—	$	—	$	471,103	$	—	$	471,103






Losses and LAE:	$	—	$	—	$	2,107,734	$	—	$	2,107,734

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ENSTAR GROUP LIMITED

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


	December 31, 2020
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value Based on NAV as Practical Expedient		Total Fair Value
Investments:
Short-term and fixed maturity investments:
U.S. government and agency	$	—	$	951,048	$	—	$	—	$	951,048
U.K government	—		51,082		—		—		51,082
Other government	—		502,153		—		—		502,153
Corporate	—		5,686,732		—		—		5,686,732
Municipal	—		162,669		—		—		162,669
Residential mortgage-backed	—		553,945		—		—		553,945
Commercial mortgage-backed	—		854,090		—		—		854,090
Asset-backed	—		557,460		—		—		557,460


	—		9,319,179		—		—		9,319,179

Other assets included within funds held - directly managed	$	—	$	14,627	$	—	$	—	$	14,627

Equities:
Publicly traded equity investments	$	229,167	$	31,600	$	—	$	—	$	260,767
Exchange-traded funds	311,287		—		—		—		311,287
Privately held equity investments	—		—		274,741		—		274,741
	$	540,454	$	31,600	$	274,741	$	—	$	846,795

Other investments:
Hedge funds (1)	$	—	$	—	$	—	$	2,638,339	$	2,638,339
Fixed income funds	—		285,837		—		266,704		552,541
Equity funds	—		5,073		—		185,694		190,767
Private equity funds	—		—		—		363,103		363,103
CLO equities	—		128,083		—		—		128,083
CLO equity funds	—		—		—		166,523		166,523
Private credit funds	—		—		9,250		183,069		192,319
Real estate debt fund	—		—		—		11,883		11,883
Other	—		—		314		162		476
	$	—	$	418,993	$	9,564	$	3,815,477	$	4,244,034
Total Investments	$	540,454	$	9,784,399	$	284,305	$	3,815,477	$	14,424,635

Cash and cash equivalents	$	385,790	$	208,272	$	—	$	—	$	594,062

Reinsurance balances recoverable on paid and unpaid losses:	$	—	$	—	$	520,830	$	—	$	520,830






Losses and LAE:	$	—	$	—	$	2,452,920	$	—	$	2,452,920

(1) Effective April 1, 2021, the InRe Fund was consolidated by us. As a result, the carrying amounts of the assets and liabilities of the InRe Fund are presented separately in “Variable interest entity assets of the InRe Fund” and “Variable interest entity liabilities of the InRe Fund” within the condensed consolidated balance sheet as of September 30, 2021. Refer to Note 12 - "Variable Interest Entities" for additional information. As of December 31, 2020, our investment in the InRe Fund was $2.4 billion.

Level 3 Measurements and Changes in Leveling

Transfers into or out of levels are recorded at their fair values as of the end of the reporting period, consistent with the date of determination of fair value.

Investments

The following tables present a reconciliation of the beginning and ending balances for all investments measured at fair value on a recurring basis using Level 3 inputs:

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ENSTAR GROUP LIMITED

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


				Three Months Ended September 30, 2021						Three Months Ended September 30, 2020
	Privately-held Equities	Other Investments	Total	Privately-held Equities		Other Investments		Total

Beginning fair value				$	348,725	$	314	$	349,039	$	271,000	$	314	$	271,314
Purchases				3,488		—		3,488		—		10,000		10,000

Total realized and unrealized gains (losses)				6,911		133		7,044		45		—		45

Transfer out of Level 3 into Level 2				—		—		—		—		—		—
Ending fair value				$	359,124	$	447	$	359,571	$	271,045	$	10,314	$	281,359


				Nine months ended September 30, 2021						Nine months ended September 30, 2020
	Privately-held Equities	Other Investments	Total	Privately-held Equities		Other Investments		Total

Beginning fair value				$	274,741	$	9,564	$	284,305	$	265,799	$	87,869	$	353,668
Purchases				80,332		—		80,332		1,392		47,092		48,484
Sales and paydowns				—		(9,250)		(9,250)		—		(539)		(539)
Total realized and unrealized gains				4,051		133		4,184		3,854		(40,368)		(36,514)

Transfer out of Level 3 into Level 2				—		—		—		—		(83,740)		(83,740)
Ending fair value				$	359,124	$	447	$	359,571	$	271,045	$	10,314	$	281,359

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

The securities transferred from Level 3 to Level 2 were based upon obtaining market observable information regarding the valuations of the specific assets.

Valuations Techniques and Inputs

The table below presents the qualitative information related to the fair value measurements for our privately held equity investments measured at fair value on a recurring basis using Level 3 inputs:

Qualitative Information about Level 3 Fair Value Measurements

Fair Value as of September 30, 2021

Valuation Techniques

Unobservable Input

Range (Average) (1)

(in millions of U.S. dollars)

225.9

Guideline company methodology

Distribution waterfall

12.72

41.1

Cost as approximation of fair value

77.1

Dividend discount model;
Guideline companies method

Discount rate
Exit multiple

12.5%

1.3x - 1.5x (1.4x)

15.5

Net Asset Value (2)

NAV at recent transaction

19.82

359.6

(1) The average represents the arithmetic average of the inputs and is not weighted by the relative fair value.

(2) This relates to our direct investment in the equity of a privately held business development company ("BDC") which follows the Investment Company accounting guidance in ASC 946 and therefore values its underlying investments using NAV as a practical expedient as permitted by ASC 946. Our valuation of our equity interest in this BDC is therefore based on the NAV provided by the BDC, subject to our own independent validation procedures.

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ENSTAR GROUP LIMITED

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

Insurance Contracts - Fair Value Option

The following table presents a reconciliation of the beginning and ending balances for all insurance contracts measured at fair value on a recurring basis using Level 3 inputs:


	Three Months Ended September 30,
	2021						2020
	Liability for losses and LAE		Reinsurance balances recoverable		Net		Liability for losses and LAE		Reinsurance balances recoverable		Net
Beginning fair value	$	2,234,105	$	492,343	$	1,741,762	$	2,454,539	$	671,384	$	1,783,155
Assumed business	—		—		—		1,526		(180,972)		182,498
Incurred losses and LAE:
Increase (reduction) in estimates of ultimate losses	4,269		(969)		5,238		(25,595)		56,702		(82,297)
Reduction in unallocated LAE	(4,088)		—		(4,088)		(4,641)		—		(4,641)
Change in fair value	(13,185)		(2,308)		(10,877)		19,092		(1,950)		21,042
Total incurred losses and LAE	(13,004)		(3,277)		(9,727)		(11,144)		54,752		(65,896)
Paid losses	(76,909)		(11,734)		(65,175)		(86,745)		(11,192)		(75,553)
Effect of exchange rate movements	(36,458)		(6,229)		(30,229)		64,502		9,189		55,313
Ending fair value	$	2,107,734	$	471,103	$	1,636,631	$	2,422,678	$	543,161	$	1,879,517


	Nine Months Ended September 30,
	2021						2020
	Liability for losses and LAE		Reinsurance balances recoverable		Net		Liability for losses and LAE		Reinsurance balances recoverable		Net
Beginning fair value	$	2,452,920	$	520,830	$	1,932,090	$	2,621,122	$	695,518	$	1,925,604
Assumed business	—		—		—		1,526		(180,972)		182,498
Incurred losses and LAE:
Reduction in estimates of ultimate losses	(8,231)		5,998		(14,229)		(61,109)		48,580		(109,689)
Reduction in unallocated LAE	(11,747)		—		(11,747)		(14,353)		—		(14,353)
Change in fair value	(83,094)		(14,458)		(68,636)		130,075		33,227		96,848
Total incurred losses and LAE	(103,072)		(8,460)		(94,612)		54,613		81,807		(27,194)
Paid losses	(211,496)		(35,023)		(176,473)		(230,187)		(49,627)		(180,560)
Effect of exchange rate movements	(30,618)		(6,244)		(24,374)		(24,396)		(3,565)		(20,831)
Ending fair value	$	2,107,734	$	471,103	$	1,636,631	$	2,422,678	$	543,161	$	1,879,517

The following table presents the components of the net change in fair value:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Changes in fair value due to changes in:
Duration	$	2,657	$	11,767	$	8,228	$	19,617
Corporate bond yield	(13,534)		9,275		(76,864)		75,524

Weighted cost of capital	—		—		—		(5,048)
Risk cost of capital	—		—		—		6,755
Change in fair value	$	(10,877)	$	21,042	$	(68,636)	$	96,848

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ENSTAR GROUP LIMITED

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

Below is a summary of the quantitative information regarding the significant observable and unobservable inputs used in the internal model to determine fair value on a recurring basis:

September 30, 2021

December 31, 2020

Valuation Technique

Unobservable (U) and Observable (O) Inputs

Weighted Average

Internal model

Corporate bond yield (O)

A rated

Internal model

Credit spread for non-performance risk (U)

0.2%

Internal model

Risk cost of capital (U)

5.1%

Internal model

Weighted average cost of capital (U)

8.25%

Internal model

Duration - liability (U)

8.25 years

8.17 years

Internal model

Duration - reinsurance balances recoverable on paid and unpaid losses (U)

7.94 years

8.23 years

The fair value of the liability for losses and LAE and reinsurance balances recoverable on paid and unpaid losses may increase or decrease due to changes in the corporate bond rate, the credit spread for non-performance risk, the risk cost of capital, the weighted average cost of capital and the estimated payment pattern. In addition, the estimate of the capital required to support the liabilities is based upon current industry standards for capital adequacy.

Disclosure of Fair Values for Financial Instruments Carried at Cost

Senior Notes

As of September 30, 2021, our 4.50% Senior Notes due 2022 (the "2022 Senior Notes"), our 4.95% Senior Notes due 2029 (the "2029 Senior Notes") and our 3.10% Senior Notes due 2031 (the "2031 Senior Notes" and, together with the 2022 Senior Notes and 2029 Senior notes, the "Senior Notes") were carried at amortized cost of $280.2 million, $494.8 million and $494.3 million, respectively, while the fair value based on observable market pricing from a third party pricing service was $284.1 million, $556.6 million and $492.5 million, respectively. The Senior Notes are classified as Level 2.

Subordinated Notes

As of September 30, 2021, our 5.75% Fixed-Rate Reset Junior Subordinated Notes due 2040 (the “Junior Subordinated Notes”) were carried at amortized cost of $345.0 million, while the fair value based on observable market pricing from a third party pricing service was $375.0 million.

As of September 30, 2021, Enhanzed Re's 5.50% Subordinated Notes due 2031 (the "2031 Subordinated Notes" together with the Junior Subordinated Notes, the "Subordinated Notes"), were carried at amortized cost of $76.4 million, while the fair value based on observable market pricing for comparable debt from a third party pricing service was $75.3 million.

The Subordinated Notes are classified as Level 2.

Insurance Contracts

Disclosure of fair value of amounts relating to insurance contracts is not required, except those for which we elected the fair value option, as described above.

Remaining Assets and Liabilities

Our remaining assets and liabilities were generally carried at cost or amortized cost, which due to their short-term nature approximates fair value as of September 30, 2021 and December 31, 2020.

12. VARIABLE INTEREST ENTITIES

We have investments in certain limited partnership funds which are deemed to be variable interest entities ("VIEs"). The activities of these VIEs are generally limited to holding investments and our involvement in these entities is passive in nature. We consolidate all VIEs in which we are considered to be the primary beneficiary.

InRe Fund

On April 1, 2021, we obtained control of the InRe Fund following redemption by the general partner, an affiliate of Hillhouse Group, of all of its outstanding ownership interests and termination of its investment management activities. As such, on that date we had full ownership of the InRe Fund and the power to direct its activities, which led to our determination to consolidate the InRe Fund. Prior to consolidation, our investment in the

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ENSTAR GROUP LIMITED

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

InRe Fund was recorded at fair value using the NAV as a practical expedient and thus, there was no gain or loss upon consolidation. The carrying amounts of the assets and liabilities of the InRe Fund are presented separately in “variable interest entity assets of the InRe Fund” and “variable interest entity liabilities of the InRe Fund” within the condensed consolidated balance sheet as of September 30, 2021. Net investment income and changes in the fair value of assets and liabilities of the InRe Fund are presented in “net investment income” and “net realized and unrealized gains,” respectively, in the consolidated statement of earnings for the three and nine months ended September 30, 2021.

Our subsidiary, which now serves as the general partner of the InRe Fund, has exposure to risk of loss that is not limited to the amount of its investment in accordance with the limited partnership agreement. We cannot predict the amount of loss, if any, which may occur as a result of this exposure; however, we believe the likelihood is remote that a material loss will occur. We have not committed to provide any financial support to the general partner of the InRe Fund. In addition, we have not committed to provide any additional financial support to the InRe Fund in excess of previously funded capital commitments.

The InRe Fund utilizes prime brokerage borrowing facilities and has also securitized certain letters of credit relating to intragroup reinsurances. Funds that employ leverage through borrowings and derivatives can generate outsized returns but can also experience greater levels of volatility.

The assets of Enstar are not available to the creditors of the InRe Fund.

Since April 1, 2021, we have redeemed an aggregate of $2.3 billion from the InRe Fund, of which $1.5 billion was redeemed in the third quarter of 2021.

The following table presents the assets and liabilities associated with the InRe Fund, as presented within the condensed consolidated balance sheet:


	September 30, 2021
ASSETS
Cash and cash equivalents	$	245
Restricted cash held at brokers (1)	696,260
Total cash, cash equivalents and restricted cash	696,505
Securities owned, at fair value	396,984
Other assets:
Derivative assets, at fair value	6,406
Due from brokers	29,786

Other assets	593
Total other assets	36,785
Total variable interest entity assets of the InRe Fund	$	1,130,274

LIABILITIES
Derivative liabilities, at fair value	$	54,373
Due to brokers	576,649
Securities sold, but not yet purchased, at fair value	34,983
Payable for investments purchased	14,390
Other liabilities	2,153
Total variable interest entity liabilities of the InRe Fund	$	682,548

(1) Includes margin posted as collateral which is considered to be restricted cash.

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ENSTAR GROUP LIMITED

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

The InRe Fund's cash flows are classified as operating cash flows in the consolidated statements of cash flows as the InRe Fund is accounted for under investment company accounting standards. The following table presents the net cash flows of the InRe Fund for the nine months ended September 30, 2021, following its consolidation on April 1, 2021 (the cash flows prior to April 1, 2021 are not presented as the InRe Fund was not consolidated):


	Nine Months Ended
	September 30, 2021
OPERATING ACTIVITIES
Net loss	$	(75,430)
Adjustments to reconcile net loss to cash flows:
Realized gains on sales of investments and derivatives	(597,171)
Unrealized losses on investments and derivatives	665,647
Sales of trading securities	3,367,676
Purchases of trading securities	(1,347,890)
Payments to cover securities sold short	(1,016,419)
Proceeds from securities sold short	460,514
Net receipt (payment) for derivative contracts	(66,132)
Changes in:
Due from brokers, excluding restricted cash	646,888
Receivable from investments sold	461,567
Due to brokers	50,254
Payable for investments purchased	(126,778)

Other	(302)
Subtotal	1,031,629
Net operating cash flows from the InRe Fund	2,422,424
INVESTING ACTIVITIES
Consolidation of the InRe Fund opening cash and restricted cash balances	574,081
Net investing cash flows from the InRe Fund	574,081
FINANCING ACTIVITIES

Enstar capital withdrawals (1)	(2,300,000)

Net cash used in financing activities (2)	(2,300,000)
NET INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH	696,505
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, BEGINNING OF PERIOD	—
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD	$	696,505

(1) Eliminated in the condensed consolidated statement of cash flows.

(2) In addition to the cash flows presented above, for the nine months ended September 30, 2021 the InRe Fund's non-cash financing activities included a third-party capital withdrawal from the InRe Fund totaling $61.4 million which was funded through the transfer of a trading security.

Fixed Maturity Investments

Asset Types

The fair value of the underlying asset categories comprising the InRe Fund's fixed maturity investments classified as trading were as follows:


	September 30, 2021

Convertible bonds	$	52,654
Corporate bonds	6,342
Total fixed maturity investments	$	58,996

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ENSTAR GROUP LIMITED

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

Credit Ratings

The following table sets forth the credit ratings of the InRe Fund's fixed maturity investments classified as trading as of September 30, 2021:


	Amortized Cost		Fair Value		% of Total		A Rated			Non-Investment Grade			Non-Rated
Convertible bonds	$	57,469	$	52,654	89.3	%	$	—		$	—		$	52,654
Corporate bonds	6,339		6,342		10.7	%	1,894			4,448			—
Total	63,808		58,996		100.0	%	$	1,894		$	4,448		$	52,654
$ of total fair value							3.2		%	7.5		%	89.3		%

Equity Investments

The following table summarizes the InRe Fund's equity investments classified as trading:


	September 30, 2021
Publicly traded equity investments in common stocks	$	335,531
Exchange-traded funds	2,457
Total equity investments	$	337,988

Equity investments include publicly traded common stocks and exchange-traded funds. The InRe Fund's publicly traded equity investments in common stocks predominantly trade on major exchanges. The InRe Fund's investments in exchange-traded funds also trade on major exchanges.

Investment Income

Major categories of net investment income (expense) for the InRe Fund are summarized as follows:


	Three Months Ended		Nine Months Ended
	September 30, 2021			September 30, 2021
Fixed maturity investments	$	972		$	1,428
Equity and other investments	2,250			4,389
Investment income	3,222			5,817
Investment expenses (1)	9,995			(12,771)
Net investment income (expense)	$	13,217		$	(6,954)

(1) Positive investment expense for the three months ended September 30, 2021 reflect the impact of a reversal of previously accrued InRe Fund expenses of $14.3 million.

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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 InRe Fund were as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Net realized gains on sale:
Fixed maturity securities	$	25,275	$	—	$	79,958	$	—
Equity investments	149,238		—		255,015		—
Other investments	(1,325)		—		(1,325)		—
Derivatives	102,278		—		263,523		—

Total net realized gains	$	275,466	$	—	$	597,171	$	—
Net unrealized gains (losses):
Fixed maturity securities	$	(54,372)	$	—	$	(74,175)	$	—
Equity investments	(265,659)		—		(199,039)		—
Other investments	(12,306)		—		(10,095)		—
Derivatives	(228,335)		—		(382,338)		—

Change in net asset value of the investment in the InRe Fund (1)	—		309,203		76,607		629,399
Total net unrealized gains (losses)	(560,672)		309,203		(589,040)		629,399
Net realized and unrealized gains (losses)	$	(285,206)	$	309,203	$	8,131	$	629,399

(1) Prior to the consolidation of the InRe Fund on April 1, 2021, all income or (loss) from the InRe Fund was determined by the change in NAV of our holdings in the fund, which was included within net unrealized gains (losses) from other investments.

Derivatives Not Designated or Not Qualifying as Net Investments in Hedging Instruments

The InRe Fund’s activities include the purchase and sale of a variety of derivative financial instruments. These derivatives are used for trading purposes and / or managing risk (including market, credit and interest rate risk) associated with the portfolio of investments within the fund.

Derivatives are instruments that derive their value from underlying asset prices, indices, reference rates and other inputs, or a combination of these factors. Derivatives may be traded on an exchange or they may be privately negotiated contracts. Derivative contracts, including options, swaps, contracts for differences, forwards and futures, may result in off-balance sheet risk as the InRe Fund’s obligations under these contracts may exceed the amounts recognized in the condensed consolidated balance sheets. All positions are reported in the condensed consolidated balance sheets at fair value and any change in fair value is reflected in the consolidated statements of earnings as a gain or loss in the period in which such change in fair value occurs.

The derivatives involve varying degrees of market, credit and interest rate risks as described below.

Market Risks

Market risks may arise from the InRe Fund's investments in equity options, contract for differences or futures (which could have unfavorable results due to changes in interest rates, foreign exchange rates, or the fair values of the instruments underlying the contracts). The InRe Fund's exposure to market risks is managed through monitoring of open positions, diversification of the portfolio and balancing the risk of movements in equity prices by entering positions designed to protect against market downturns. The InRe Fund is exposed to market risk equal to the notional value of derivative contracts purchased and is exposed to market risk in excess of the amount recognized in the consolidated balance sheets on certain derivative contracts that are sold short (which represent obligations of the InRe Fund to deliver the specified security at the contracted price at a future point in time, and thereby create a liability to repurchase the security in the market at the prevailing prices). The liability for securities sold short is marked to market based on the current fair value of the underlying security at the reporting date with changes in fair value recorded as unrealized gains or losses in the accompanying consolidated statements of earnings. These transactions may involve market risk in excess of the amount currently reflected in the accompanying condensed consolidated balance sheets.

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ENSTAR GROUP LIMITED

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

Credit Risk

Credit risk arises from the potential inability of counterparties to perform in accordance with the terms of a contract (see “Counterparty Credit Risk” section below).

Interest Rate Risk

Interest rate risk arises due to changes in various interest rates and the related impact on valuation of investments within the InRe Fund.

The InRe Fund’s investments in instruments whose values vary with the level or volatility of interest rates exposes it to interest rate risk. These instruments include, but are not limited to, corporate bonds, convertible bonds, certain trading-related assets and liabilities and derivatives.

Financial Statement Presentation

The following table presents the notional values and estimated fair value by instrument as disclosed within the condensed consolidated balance sheet, before counterparty netting, as of September 30, 2021:


	September 30, 2021
	Fair Value		Notional Value
Derivatives Not Designated as Hedging Instruments
Derivative Assets
Option contracts	$	5,440	$	96,847
Forward contracts	966		41,000
Total derivative assets of the InRe Fund	$	6,406	$	137,847
Derivative Liabilities
Option contracts	$	20,601	$	193,695
Forward contracts	33,772		245,866
Total derivative liabilities of the InRe Fund	$	54,373	$	439,561

The following table presents the loss from derivative instruments included within the consolidated statements of earnings for the three and nine months ended September 30, 2021 (following consolidation of the InRe Fund on April 1, 2021):


	Three Months Ended		Nine Months Ended
	September 30, 2021		September 30, 2021
Derivatives Not Designated as Hedging Instruments
Option contracts	$	(91,329)	$	(91,247)
Forward contracts	(34,728)		(27,568)
Total net (loss) from derivative instruments, presented as a component of net realized and unrealized gains	$	(126,057)	$	(118,815)

Counterparty Credit Risk

Credit risk is the risk of the potential inability of counterparties to perform under the terms of contracts. The InRe Fund is exposed to the credit risk relating to whether the counterparty will meet its obligations when they come due. The InRe Fund’s exposure to credit risk at any point in time is limited to amounts recorded as assets in the condensed consolidated balance sheets. The InRe Fund seeks to reduce its credit risk by dealing with reputable counterparties that are high credit quality institutions, and by seeking to negotiate master agreements with inputs that include netting provisions that incorporate the right of “set off” (assets less liabilities) across OTC contracts with such counterparties.

The following disclosure enables users of the financial statements to evaluate the effect or potential effect of netting arrangements on the InRe Fund's financial position for recognized assets and liabilities. These recognized assets and liabilities are financial instruments and derivative instruments that are either subject to an enforceable master netting arrangement or similar agreement or meet the following right of set off criteria: (1) the amounts owed by the InRe Fund to another party are determinable; (2) the InRe Fund has the right to set off the amounts owed

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ENSTAR GROUP LIMITED

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

with the amounts owed by the other party; (3) the InRe Fund intends to set off; and (4) the InRe Fund’s right of set off is enforceable at law.

As of September 30, 2021, the InRe Fund holds financial instruments and derivative instruments that are eligible for offset in the condensed consolidated balance sheet and are subject to a master netting arrangement. The master netting arrangement allows the counterparty to net applicable collateral held on behalf of the InRe Fund against applicable liabilities or payment obligations of the InRe Fund to the counterparty. These arrangements also allow the counterparty to net any of its applicable liabilities or payment obligations they have to the InRe Fund against any collateral sent to the InRe Fund.

The following table provides disclosure regarding the potential effect of offsetting of recognized assets presented in the condensed consolidated balance sheet:


As of September 30, 2021	Gross Amounts of Recognized Derivative Assets		Gross Derivative Liability Amounts Offset in the Balance Sheet		Net Amounts of Derivative Assets Presented in the Balance Sheet		Gross Amounts of Derivative Liabilities Not Offset in the Balance Sheet		Cash Collateral Received		Net Asset Amount
UBS AG	$	2,195	$	—	$	2,195	$	(2,195)	$	—	$	—
Morgan Stanley	3,160		—		3,160		(3,160)		—		—
Goldman Sachs	857		—		857		(857)		—		—
Merrill Lynch	85		—		85		(85)		—		—

Barclays Bank	109		—		109		(73)		—		36

Total	$	6,406	$	—	$	6,406	$	(6,370)	$	—	$	36

The following table provides disclosure regarding the potential effect of offsetting of recognized liabilities presented in the condensed consolidated balance sheet:


As of September 30, 2021	Gross Amounts of Recognized Derivative Liabilities		Gross Derivative Asset Amounts Offset in the Balance Sheet		Net Amounts of Derivative Liabilities Presented in the Balance Sheet		Gross Amounts of Derivative Assets Not Offset in the Balance Sheet		Cash Collateral Pledged (1)		Net Amount
UBS AG	$	(7,032)	$	—	$	(7,032)	$	2,195	$	4,837	$	—
Morgan Stanley	(20,066)		—		(20,066)		3,160		16,906		—
Goldman Sachs	(10,421)		—		(10,421)		857		9,564		—
Merrill Lynch	(14,906)		—		(14,906)		85		14,821		—
JP Morgan	(1,875)		—		(1,875)		—		—		(1,875)
Barclays Bank	(73)		—		(73)		73		—		—

Total	$	(54,373)	$	—	$	(54,373)	$	6,370	$	46,128	$	(1,875)

(1) Collateral amounts presented, if any, are limited to the derivative balances and, accordingly, do not include any excess collateral received or pledged. Total collateral pledged not presented above was $69.7 million with Barclays Bank Plc, $541.6 million with Goldman Sachs, $4.6 million with Merrill Lynch International, $33.8 million with Morgan Stanley and $0.3 million with UBS AG.

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ENSTAR GROUP LIMITED

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

Fair Value Hierarchy

We have categorized the InRe Fund's assets and liabilities that are recorded at fair value on a recurring basis among levels based on the observability of inputs as follows:


	September 30, 2021
(in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Securities owned:
Equities	$	337,988	$	—	$	—	$	337,988

Convertible bonds	—		24,161		28,493		52,654
Corporate bonds	—		6,342		—		6,342
Total securities owned	337,988		30,503		28,493		396,984

Derivatives assets:
Option contracts	—		5,440		—		5,440
Forward contracts	—		966		—		966
Total derivative assets	—		6,406		—		6,406

Securities sold, not yet purchased:
Equities	(16)		—		—		(16)
Corporate bonds	—		(34,967)		—		(34,967)
Total securities sold, but not yet purchased	(16)		(34,967)		—		(34,983)

Derivative liabilities:
Option contracts	—		(20,601)		—		(20,601)
Forward contracts	—		(33,772)		—		(33,772)
Total Derivatives liabilities	$	—	$	(54,373)	$	—	$	(54,373)

Level 3 Measurements and Changes in Leveling

Transfers into or out of levels are recorded at their fair values as of the end of the reporting period, consistent with the date of determination of fair value. There were no securities transferred to or from Level 3 by the InRe Fund during the three and nine months ended September 30, 2021.

The InRe Fund purchased a convertible bond during the three and nine months ended September 30, 2021 that is the only Level 3 investment measured at fair value on a recurring basis using unobservable inputs as of September 30, 2021. There were no other purchases, issuances, sales or settlements of Level 3 investments by the InRe Fund during the current period.

Net unrealized losses related to Level 3 assets were $1.5 million and are included in net realized and unrealized gains (losses) in the consolidated statements of earnings.

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

Valuation Techniques and Inputs

The table below presents the qualitative information related to the fair value measurements for the convertible bond investment measured at fair value on a recurring basis using Level 3 inputs:


Qualitative Information about Level 3 Fair Value Measurements
Fair Value as of September 30, 2021		Valuation Techniques	Unobservable Input	Range (Average)	Unrealized Loss
$	28,493	Broker Pricing	(1)	(1)	$	(1,507)

(1) Where quoted market prices in active markets are not available to estimate fair values for recognition and disclosure purposes, the InRe Fund uses Broker Pricing, a technique that relies on unobservable inputs for the determination of fair value and involves a level of judgement and uncertainty. Changes in the broker price that reasonably could have been different at the reporting date may result in a higher or lower determination of fair value.

Nonconsolidated VIEs

The tables below present the fair value of our investments in nonconsolidated VIEs as well as our maximum exposure to loss associated with these VIEs:


As of September 30, 2021	Fair Value		Unfunded Commitments		Maximum Exposure to Loss
Equities
Publicly traded equity investment in common stock	$	66,257	$	—	$	66,257

Other investments
Hedge funds	$	215,378	$	—	$	215,378
Fixed income funds	135,819		67,797		203,616
Private equity funds	546,138		977,333		1,523,471
CLO equity funds	199,714		—		199,714
Private credit funds	—		50,000		50,000
Real estate funds	50,666		387,504		438,170
Other	446		—		446
Total	$	1,148,161	$	1,482,634	$	2,630,795

Total investments in nonconsolidated VIEs	$	1,214,418	$	1,482,634	$	2,697,052


As of December 31, 2020	Fair Value		Unfunded Commitments		Maximum Exposure to Loss
Equities
Publicly traded equity investment in common stock	$	54,248	$	—	$	54,248

Other investments
Hedge fund	$	2,638,339	$	—	$	2,638,339
Fixed income funds	98,974		16,538		115,512
Private equity funds	361,691		761,969		1,123,660
CLO equity funds	166,524		—		166,524

Real estate funds	11,883		17,674		29,557
Other	474		—		474
Total	$	3,277,885	$	796,181	$	4,074,066

Total investments in nonconsolidated VIEs	$	3,332,133	$	796,181	$	4,128,314

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

13. PREMIUMS WRITTEN AND EARNED

The following table provides a summary of premiums written and earned by segment:


	Three Months Ended September 30,								Nine Months Ended September 30,
	2021				2020				2021				2020
	Premiums Written		Premiums Earned		Premiums Written		Premiums Earned		Premiums Written		Premiums Earned		Premiums Written		Premiums Earned
Run-off
Gross	$	(2,074)	$	42,522	$	3,535	$	20,426	$	28,110	$	198,292	$	1,707	$	52,899
Ceded	4,353		(3,642)		(111)		(2,950)		(11,172)		(44,172)		690		(8,876)
Net	$	2,279	$	38,880	$	3,424	$	17,476	$	16,938	$	154,120	$	2,397	$	44,023




Legacy Underwriting
Gross	$	7,496	$	27,923	$	107,942	$	178,208	$	48,585	$	114,042	$	458,923	$	522,486
Ceded	(3,926)		(15,209)		(17,807)		(33,960)		(26,534)		(64,048)		(92,526)		(102,563)
Net	$	3,570	$	12,714	$	90,135	$	144,248	$	22,051	$	49,994	$	366,397	$	419,923
Total
Gross	$	5,422	$	70,445	$	111,477	$	198,634	$	76,695	$	312,334	$	460,630	$	575,385
Ceded	427		(18,851)		(17,918)		(36,910)		(37,706)		(108,220)		(91,836)		(111,439)
Total	$	5,849	$	51,594	$	93,559	$	161,724	$	38,989	$	204,114	$	368,794	$	463,946

Gross premiums written for the three and nine months ended September 30, 2021 decreased by $106.1 million and $383.9 million, respectively, primarily due to StarStone International being placed into an orderly run-off in the second quarter of 2020 and the sale of Atrium in the first quarter of 2021.

14. DEBT OBLIGATIONS AND CREDIT FACILITIES

We utilize debt financing and credit facilities primarily for funding acquisitions and significant new business, investment activities and, from time to time, for general corporate purposes.

Our debt obligations were as follows:


					September 30, 2021				December 31, 2020
Facility	Origination Date	Term	Principal		(Unamortized Cost) / Fair Value Adjustments		Carrying Value		(Unamortized Cost) / Fair Value Adjustments		Carrying Value
4.50% Senior Notes due 2022 (1)	March 10, 2017	5 years	$	280,444	$	(220)	$	280,224	$	(747)	$	349,253
4.95% Senior Notes due 2029	May 28, 2019	10 years	500,000		(5,173)		494,827		(5,806)		494,194
3.10% Senior Notes due 2031	August 24, 2021	10 years	500,000		(5,682)		494,318		—		—
Total Senior Notes							1,269,369				843,447
5.75% Junior Subordinated Notes due 2040	August 26, 2020	20 years	350,000		(4,991)		345,009		(5,188)		344,812
5.50% Enhanzed Re's Subordinated Notes due 2031	December 20, 2018	12.1 years	70,000		6,360		76,360		—		—
Total Subordinated Notes							421,369				344,812
EGL Revolving Credit Facility	August 16, 2018	5 years					—				185,000
Total debt obligations							$	1,690,738			$	1,373,259

(1) Principal was $350.0 million as of December 31, 2020.

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

The table below provides a summary of the total interest expense:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Interest expense on debt obligations	$	17,882	$	14,652	$	49,685	$	41,522
Amortization of debt issuance costs	363		351		968		914
Funds withheld balances and other	(87)		—		(15)		—
Total interest expense	$	18,158	$	15,003	$	50,638	$	42,436

Debt Obligations

During the third quarter of 2021, we issued the 2031 Senior Notes. In conjunction with this offering, we completed a tender offer for a portion of our 2022 Senior Notes on August 25, 2021. The aggregate principal amount tendered was $69.6 million and we recorded a loss on the partial extinguishment of $1.7 million during the third quarter of 2021 which was included within general and administrative expenses on our condensed consolidated statements of earnings.

On September 1, 2021, we acquired the obligations under Enhanzed Re's 5.50% Subordinated Notes due 2031 which were issued in the aggregate amount of $70.0 million and have an $80.0 million ceiling, to Allianz, Enhanzed Re's minority shareholder. The 2031 Subordinated Notes were recorded at their determined fair value of $76.4 million as of the date of acquisition.

As of September 30, 2021, the amount of outstanding debt obligations that will become due in each of the next five years and thereafter was as follows: 2021, $0; 2022, $280.4 million; 2023, $0; 2024, $0; 2025, $0; and thereafter, $1.4 billion.

Credit and Deposit Facilities

We utilize unsecured and secured letters of credit ("LOCs") and a deposit facility to support certain of our (re)insurance performance obligations. We also utilize unsecured LOCs to support the regulatory capital requirements of certain of our subsidiaries.

Our credit and deposit facilities were as follows:


					Aggregate Amount Issued / Requested as Deposits / Face Amount
	Commitment		Additional Commitments Available (1)		September 30, 2021		December 31, 2020
$275.0 million Funds at Lloyd's LOC Facility (2)	$	275,000	$	75,000	$	210,000	$	210,000
$90.0 million Funds at Lloyd’s Deposit Facility (2)	90,000		10,000		90,000		—
$250.0 million LOC Facility	250,000		—		250,000		—
$100.0 million LOC Facility	100,000		—		100,000		—
$120.0 million LOC Facility	120,000		60,000		117,932		115,720
$800.0 million Syndicated LOC Facility (3)	800,000		—		565,642		587,122
$65.0 million LOC Facility	65,000		—		60,969		60,969
$100.0 million Bermuda LOC Facility (4)	100,000		—		100,000		100,000
£32.0 million United Kingdom LOC Facility (5)	£	32,000	£	—	$	43,074	$	43,692

(1) We may request additional commitments under the facility in an aggregate amount not to exceed this amount.

(2) The Funds at Lloyd's ("FAL") LOC and Deposit facilities will expire on December 31, 2022 and May 6, 2023, respectively. Under the FAL Deposit facility, a third-party lender deposits a requested market valuation amount of eligible securities into Lloyd’s on behalf of our Lloyd’s corporate member. As of September 30, 2021 and December 31, 2020, our combined FAL comprised cash and investments of $593.5 million (including $89.8 million provided under the FAL Deposit Facility) and $260.9 million, respectively, and unsecured LOCs of $210.0 million as of both dates.

(3) The December 31, 2020 aggregate amount of LOCs issued has been corrected from $424.1 million that was previously disclosed in our 2020 Annual Report on Form-K. This correction has no impact on our condensed consolidated financial statements and is not considered material to previously issued financial statements.

(4) The LOC issued under this facility qualifies as Eligible Capital for one of our Bermuda regulated subsidiaries.

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

(5) The LOC issued under this facility qualifies as Ancillary Own Funds capital for one of our U.K. regulated subsidiaries.

15. NONCONTROLLING INTERESTS

We have both redeemable noncontrolling interest ("RNCI") and noncontrolling interest ("NCI") on our condensed consolidated balance sheets. RNCI with redemption features that are not solely within our control are classified within temporary equity in the condensed consolidated balance sheets and carried at fair value. The change in fair value is recognized through retained earnings. In addition, we also have NCI, which is carried at book value, does not have redemption features and is classified within equity in the condensed consolidated balance sheets.

Redeemable Noncontrolling Interest

As of December 31, 2020, the RNCI comprised the ownership interests held by the Trident V Funds (39.3%) and the Dowling Funds (1.7%) in our subsidiary North Bay. As discussed in Note 4 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations," North Bay owned our investment in Northshore, the holding company that owns Atrium and Arden and SSHL, the holding company for the StarStone group, which includes StarStone International and which also owned StarStone U.S. prior to its sale to Core Specialty which was completed on November 30, 2020. Following the completion of the Exchange Transaction on January 1, 2021, there is no RNCI in respect of Northshore and the remaining RNCI as of September 30, 2021 relates only to StarStone International.

The following is a reconciliation of the beginning and ending carrying amount of the equity attributable to the RNCI:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Balance at beginning of period	$	177,449	$	366,533	$	365,436	$	438,791

Distributions paid	—		—		(202,073)		—
Net earnings (losses) attributable to RNCI	3,793		20,997		17,979		(31,102)
Change in unrealized losses on AFS investments attributable to RNCI	(490)		1,220		(701)		7,593
Change in currency translation adjustments attributable to RNCI	665		(588)		1,506		(753)

Change in redemption value of RNCI	—		(11,431)		(730)		(38,059)
Cumulative effect of change in accounting principle attributable to RNCI	—		—		—		261
Balance at end of period	$	181,417	$	376,731	$	181,417	$	376,731

The decrease in RNCI for the nine months ended September 30, 2021 was primarily driven by the Atrium Exchange Transaction, which was completed on January 1, 2021, whereas the decrease in the nine months ended September 30, 2020 was primarily attributable to net losses related to StarStone during that period.

Refer to Note 20 - "Commitments and Contingencies" for additional information regarding RNCI.

Noncontrolling Interest

As of September 30, 2021 and December 31, 2020, we had $227.1 million and $13.6 million, respectively, of NCI primarily related to external interests in four of our subsidiaries, including Enhanzed Re. A reconciliation of the beginning and ending carrying amount of the equity attributable to NCI is included in the consolidated statement of changes in shareholder's equity.

16. SHAREHOLDERS' EQUITY

Voting and Non-Voting Ordinary Shares

Share Repurchases

On February 25, 2021, our Board of Directors approved an extension of the duration of our previously announced ordinary share repurchase program (the “Repurchase Program”) through March 1, 2022. The Repurchase Program was previously set to expire on March 1, 2021. Pursuant to the Repurchase Program, the Company was able to repurchase a limited number of its ordinary shares, not to exceed $150.0 million in aggregate, including shares repurchased prior to the extension of the Repurchase Program.

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ENSTAR GROUP LIMITED

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

On July 15, 2021, we terminated the Repurchase Program. Prior to termination and pursuant to the Repurchase Program, during the three and nine months ended September 30, 2021, we repurchased 45,311 and 93,678 ordinary shares, at an average price of $236.46 and $236.42, respectively, and for an aggregate price of $10.7 million and $22.1 million, respectively.

On July 22, 2021, we repurchased 3,749,400 of our ordinary shares, comprising (a) 1,747,840 of our voting ordinary shares, (b) 1,496,321 of our Series C non-voting ordinary shares, and (c) 505,239 of our Series E non-voting ordinary shares, held by funds managed by Hillhouse Group, a related party, for a price of $234.52 per share, totaling $879.3 million in aggregate. The shares represented the Hillhouse funds' entire interest in Enstar, which constituted 16.9% of our total ordinary shares and 9.4% of our voting ordinary shares.

Warrants

Warrants to acquire 175,901 Series C Non-Voting Ordinary Shares for an exercise price of $115.00 per share were exercised on a non-cash basis during the nine months ended September 30, 2021, which resulted in a total of 89,590 Series C Non-Voting Ordinary Shares being issued in the period.

Dividends on Preferred Shares

During the three months ended September 30, 2021 and 2020, we declared and paid dividends on Series D Preferred Shares of $7.0 million and on Series E Preferred Shares of $1.9 million for both periods. During the nine months ended September 30, 2021 and 2020, we declared and paid dividends on Series D Preferred Shares of $21.0 million and on Series E Preferred Shares of $5.8 million for both periods.

Refer to Note 22 - "Subsequent Events" for additional information related to preferred share dividends declared subsequent to September 30, 2021.

Accumulated Other Comprehensive Income

The following table presents details about the tax effects allocated to each component of other comprehensive income (loss):


	Three Months Ended
	September 30,
	2021						2020
	Before Tax Amount		Tax (Expense) Benefit		Net of Tax Amount		Before Tax Amount		Tax (Expense) Benefit		Net of Tax Amount
Unrealized gains (losses) on fixed income available-for-sale investments arising during the year	$	(26,497)	$	787	$	(25,710)	$	21,198	$	—	$	21,198
Reclassification adjustment for change in allowance for credit losses recognized in net earnings	(2,482)		57		(2,425)		(2,379)		—		(2,379)
Reclassification adjustment for net realized (gains) losses included in net earnings	(2,211)		163		(2,048)		(9,488)		—		(9,488)

Change in currency translation adjustment	1,342		—		1,342		1,891		—		1,891


Other comprehensive income (loss)	$	(29,848)	$	1,007	$	(28,841)	$	11,222	$	—	$	11,222

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


	Nine Months Ended
	September 30,
	2021						2020
	Before Tax Amount		Tax (Expense) Benefit		Net of Tax Amount		Before Tax Amount		Tax (Expense) Benefit		Net of Tax Amount
Unrealized gains (losses) on fixed income available-for-sale investments arising during the year	$	(83,586)	$	3,622	$	(79,964)	$	74,969	$	—	$	74,969
Reclassification adjustment for change in allowance for credit losses recognized in net earnings	4,655		(149)		4,506		71		—		71
Reclassification adjustment for net realized (gains) losses included in net earnings	(3,710)		539		(3,171)		(13,498)		—		(13,498)
Reclassification to earnings on disposal of subsidiary	586		(111)		475		—		—		—
Change in currency translation adjustment	2,361		—		2,361		—		—		—


Other comprehensive income (loss)	$	(79,694)	$	3,901	$	(75,793)	$	61,542	$	—	$	61,542

The following table presents details of amounts reclassified from accumulated other comprehensive income:


	Three Months Ended
Details about AOCI components	September 30, 2021	September 30, 2020	Affected Line Item in Statement where Net Earnings are presented
Unrealized gains on fixed income available-for-sale investments	4,693	11,333	Net realized and unrealized gains
	—	534	Net loss from discontinued operations
	4,693	11,867	Total before tax
	(220)	—	Income tax benefit


Total reclassifications for the period, net of tax	4,473	11,867


	Nine Months Ended
Details about AOCI components	September 30, 2021	September 30, 2020	Affected Line Item in Statement where Net Earnings are presented
Unrealized gains (losses) on fixed income available-for-sale investments	(1,531)	12,227	Net realized and unrealized gains
	—	1,200	Net loss from discontinued operations
	(1,531)	13,427	Total before tax
	(279)	—	Income tax benefit


Total reclassifications for the period, net of tax	(1,810)	13,427

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ENSTAR GROUP LIMITED

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

17. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted net earnings per ordinary share:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Numerator:
Earnings (loss) per share attributable to Enstar ordinary shareholders:
Net earnings (loss) from continuing operations (1)	$	(195,958)	$	612,636	$	364,565	$	896,267
Net earnings from discontinued operations (2)	—		2,377		—		478
Net earnings (loss) attributable to Enstar ordinary shareholders:	$	(195,958)	$	615,013	$	364,565	$	896,745

Denominator:
Weighted-average ordinary shares outstanding — basic (3)	18,349,483		21,578,106		20,502,755		21,564,447
Effect of dilutive securities:
Share-based compensation plans (4)	198,885		143,581		210,226		180,437
Warrants (5)	—		57,042		80,659		54,743

Weighted-average ordinary shares outstanding — diluted	18,548,368		21,778,729		20,793,640		21,799,627

Earnings (loss) per share attributable to Enstar ordinary shareholders:
Basic:
Net earnings (loss) from continuing operations	$	(10.68)	$	28.39	$	17.78	$	41.56
Net earnings from discontinued operations	—		0.11		—		0.02
Net earnings (loss) per ordinary share	$	(10.68)	$	28.50	$	17.78	$	41.58
Diluted (6):
Net earnings (loss) from continuing operations	$	(10.68)	$	28.13	$	17.53	$	41.12
Net earnings from discontinued operations	—		0.11		—		0.02
Net earnings (loss) per ordinary share	$	(10.68)	$	28.24	$	17.53	$	41.14

(1) Net earnings (loss) from continuing operations attributable to Enstar ordinary shareholders equals net earnings (loss) from continuing operations, plus net loss (earnings) from continuing operations attributable to noncontrolling interest, less dividends on preferred shares.

(2) Net earnings from discontinued operations attributable to Enstar ordinary shareholders equals net earnings from discontinued operations, net of income tax benefit (expense), plus net earnings from discontinued operations attributable to noncontrolling interest; refer to Note 4 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations" for a breakdown by period.

(3) Weighted-average ordinary shares for basic earnings per share includes ordinary shares (voting and non-voting) but excludes ordinary shares held in the Enstar Group Limited Employee Benefit Trust (the "EB Trust") in respect of Joint Share Ownership Plan ("JSOP") awards.

(4) Share-based dilutive securities include restricted shares, restricted share units, and performance share units. Certain share-based compensation awards, including the ordinary shares held in the EB Trust in respect of JSOP awards, were excluded from the calculation for the three and nine months ended September 30, 2021 and 2020 because they were anti-dilutive.

(5) Warrants to acquire 175,901 Series C Non-Voting Ordinary Shares for an exercise price of $115.00 per share were exercised on a non-cash basis during the nine months ended September 30, 2021, which resulted in a total of 89,590 Series C Non-Voting Ordinary Shares being issued in the period. As of September 30, 2021, there were no warrants outstanding following the exercise described. The warrants presented in the table above are a weighted-average of the warrants outstanding for the period.

(6) During a period of loss, the basic weighted average ordinary shares outstanding is used in the denominator of the diluted loss per ordinary share computation as the effect of including potentially dilutive securities would be anti-dilutive.

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ENSTAR GROUP LIMITED

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

18. INCOME TAXATION

Interim Tax Calculation Method

We use the estimated annual effective tax rate method for computing our interim tax provision. This method applies our best estimate of the effective tax rate expected for the full year to our year-to-date earnings before income taxes. We provide for income tax expense or benefit based upon our pre-tax earnings and the provisions of currently enacted tax laws. Certain items deemed to be unusual, infrequent or not reliably estimated are excluded from the estimated annual effective tax rate. In the event such items are identified, the actual tax expense or benefit is reported in the same period as the related item. Certain other items are not included in the estimated annual effective tax rate, such as changes in the assessment of valuation allowance on deferred tax assets and uncertain tax positions, if any.

Interim Tax Expense

The effective tax rates on income for the three months ended September 30, 2021 and 2020 were (5.5)% and 2.1%, respectively, and for the nine months ended September 30, 2021 and 2020 were 3.2% and 2.8%, respectively. The effective tax rate on income differs from the statutory rate of 0% due to tax on foreign operations, primarily the U.S. and the U.K.

We have foreign operating subsidiaries and branch operations principally located in the U.S., U.K., Continental Europe and Australia that are subject to federal, foreign, state and local taxes in those jurisdictions. The undistributed earnings from our foreign subsidiaries will be indefinitely reinvested in those jurisdictions where the undistributed earnings were earned.

Deferred tax liabilities have not been accrued with respect to the undistributed earnings of our foreign subsidiaries. Generally, when earnings are distributed as dividends, withholding taxes may be imposed by the jurisdiction of the paying subsidiary. For our U.S. subsidiaries, we have not currently accrued any withholding taxes with respect to unremitted earnings because, solely for U.S. Federal income tax purposes, there are no accumulated positive earnings and profits that could be subject to U.S. dividend withholding tax. For our United Kingdom subsidiaries, there are no withholding taxes imposed as a matter of UK domestic tax law. For our other foreign subsidiaries, an insignificant amount of earnings is indefinitely reinvested; however, it would not be practicable to compute the related amounts of withholding taxes due to a variety of factors, including the amount, timing and manner of any repatriation. Because we operate in many jurisdictions, our net earnings are subject to risk due to changing tax laws and tax rates around the world. The current, rapidly changing economic environment may increase the likelihood of substantial changes to tax laws in the jurisdictions in which we operate.

Assessment of Valuation Allowance on Deferred Tax Assets

We have estimated the future taxable income of our foreign subsidiaries and have provided a valuation allowance in respect of loss carryforwards where we do not expect to realize a tax benefit. We have considered all available evidence using a "more likely than not" standard in determining the amount of the valuation allowance. During the three and nine months ended September 30, 2021, we have maintained a valuation allowance for deferred tax assets which management does not believe meet the "more likely than not" criteria.

Unrecognized Tax Benefits

There were no unrecognized tax benefits as of September 30, 2021 and December 31, 2020.

Tax Examinations

Our operating subsidiaries may be subject to audit by various tax authorities and may have different statutes of limitations expiration dates. With limited exceptions, our major subsidiaries that operate in the U.S., U.K. and Australia are no longer subject to tax examinations for years before 2016.

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ENSTAR GROUP LIMITED

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

19. RELATED PARTY TRANSACTIONS

Stone Point Capital LLC

As of September 30, 2021, investment funds managed by Stone Point Capital LLC ("Stone Point") own 1,635,986 of our Voting Ordinary Shares, which constitutes 9.7% of our outstanding Voting Ordinary Shares. James D. Carey, a managing director of Stone Point, is a member of our Board of Directors.

As of September 30, 2021, investment funds managed by Stone Point have a 39.3% interest in our subsidiary, StarStone Specialty Holdings Limited ("SSHL"). SSHL owns StarStone International. As of September 30, 2021, such investment funds own 76.3% of Northshore, the holding company that owns Atrium and Arden. Additional information relating to our remaining interest in Northshore is set forth under the heading "Northshore" below. As of September 30, 2021 and December 31, 2020, the RNCI on our balance sheet relating to these co-investment transactions was $173.9 million and $350.2 million, respectively.

On November 30, 2020, we completed the sale and recapitalization of StarStone U.S. to Core Specialty in a transaction described in Note 4 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations".

On January 1, 2021, we exchanged a portion of our indirect interest in Northshore, the holding company that owns Atrium and Arden, for all of the Trident V Funds’ indirect interest in StarStone U.S. (the “Exchange Transaction”), which is described in Note 4 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations".

We have made various investments in funds and separate accounts managed by Stone Point or affiliates of Stone Point, and we have also made direct investments in entities affiliated with Stone Point. Where we have made an investment in a fund, the manager of such fund generally charges certain fees to the fund, which are deducted from the net asset value.

We also have certain co-investments alongside Stone Point and its affiliates, including our investments in AmTrust and Northshore, which are described below, and Mitchell TopCo Holdings, the parent company of Mitchell International ("Mitchell"), and Genex Services in which we have invested $25.0 million. Mitchell provides third-party outsourcing managed care services to one of our subsidiaries in the ordinary course of its business.

The following table presents the amounts included in our condensed consolidated balance sheet related to our related party transactions with Stone Point and its affiliated entities:


	September 30, 2021		December 31, 2020

Short-term investments, AFS, at fair value	$	—	$	878
Fixed maturities, trading, at fair value	128,622		196,086
Fixed maturities, AFS, at fair value	314,971		227,397
Equities, at fair value	144,776		103,914
Other investments, at fair value:
Hedge funds	—		19,844
Fixed income funds	232,837		210,017

Private equity funds	56,393		37,262
CLO equities	35,720		38,658
CLO equity funds	199,215		166,523


Private Debt	19,401		27,016
Real estate fund	30,932		27,278
Total investments	1,162,867		1,054,873
Cash and cash equivalents	27,461		23,933
Other assets	1,590		403


Other liabilities	2,435		745
Net investment	$	1,189,483	$	1,078,464

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ENSTAR GROUP LIMITED

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

As of September 30, 2021, we had unfunded commitments of $200.7 million to other investments, $34.5 million to privately held equity and $10.5 million to fixed maturity investments managed by Stone Point or its affiliated entities.

The following table presents the amounts included in net earnings related to our transactions with Stone Point and its affiliated entities:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net investment income	$	3,823	$	2,312	$	8,701	$	11,189
Net realized and unrealized gains (losses)	22,795		35,925		70,027		(36,862)
Total net earnings (losses)	$	26,618	$	38,237	$	78,728	$	(25,673)

Hillhouse

On July 22, 2021, we repurchased 3,749,400 of our ordinary shares held by funds managed by Hillhouse Group (defined below) for a price of $234.52 per share, totaling $879.3 million in aggregate. The shares represented the Hillhouse funds' entire equity interest in Enstar, which constituted 16.9% of our total ordinary shares and 9.4% of our voting ordinary shares. As a result, the Hillhouse Group ceased to be a related party on the same date.

During the first quarter of 2021, Hillhouse Group exercised warrants on a non-cash basis to acquire 175,901 Series C Non-Voting Ordinary Shares for an exercise price of $115.00 per share, which resulted in a total of 89,590 Series C Non-Voting Ordinary Shares being issued to Hillhouse Group in the period.

We have historically made significant direct investments in funds (the "Hillhouse Funds") managed by Hillhouse Capital Management, Ltd. and Hillhouse Capital Advisors, Ltd. (together, "Hillhouse Group") and AnglePoint Asset Management Ltd., an affiliate of Hillhouse Group ("AnglePoint Cayman"). From February 2017 to February 2021, Jie Liu, a partner of AnglePoint HK (defined below), served on our Board.

On February 21, 2021, we entered into a Termination and Release Agreement (the "TRA") with the InRe Fund, Hillhouse Group, AnglePoint Cayman, AnglePoint Asset Management Limited (“AnglePoint HK”), and InRe Fund GP, Ltd. (“InRe GP”) pursuant to which we agreed to terminate certain relationships with Hillhouse and its affiliates, primarily with respect to the InRe Fund. In connection with AnglePoint Cayman ceasing to serve as investment manager of the InRe Fund, affiliates of Hillhouse Group agreed to a deduction of $100.0 million from amounts due to them from the InRe Fund and to waive their right to receive any performance fees that could have been earned for 2021. We also redeemed our investments in the other Hillhouse Funds at their carrying value plus an implied interim return and received $381.3 million in the form of additional interest in the InRe Fund.

AnglePoint Cayman previously received sub-advisory services with respect to the InRe Fund from its affiliate, AnglePoint HK, an investment advisory company licensed by the Securities and Futures Commission in Hong Kong. Pursuant to the TRA, we acquired an option to buy AnglePoint HK, which we also had the right to assign to a third-party. On April 1, 2021, we entered into a Designation Agreement with Jie Liu (the "Designation Agreement"), pursuant to which we designated Mr. Liu, an AnglePoint HK partner, as the purchaser of AnglePoint HK, and he acquired the company from an affiliate of Hillhouse Group on the same day. AnglePoint Cayman simultaneously assigned its investment management agreement with the InRe Fund to AnglePoint HK. The Designation Agreement required us and AnglePoint HK to amend the InRe Fund investment management agreement and limited partnership agreement to incorporate a revised fee structure for AnglePoint HK and certain other agreed changes.

The InRe Fund qualifies as a variable interest entity and was consolidated effective April 1, 2021.

As of December 31, 2020, the carrying value (i.e., the net asset value) of our direct investment in the InRe Fund, which was then managed by AnglePoint Cayman, was $2.4 billion. Hillhouse Group and AnglePoint Cayman charged investment management and performance fees to funds they manage, which are deducted from the Hillhouse Funds’ reported net asset values. For the full year ended December 31, 2020, we incurred management and performance fees of $489.0 million. This amount has been revised from $394.0 million disclosed in our 2020 Annual Report on Form 10-K to correct management and performance fees for full year 2020. This correction has no impact on our consolidated financial statements and is not considered material to previously issued financial statements.

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ENSTAR GROUP LIMITED

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

On September 1, 2021, we completed the purchase of the Hillhouse Group's entire 27.7% interest in Enhanzed Re for a purchase price of $217.1 million. Following the completion of the transaction, our equity interest in Enhanzed Re increased from 47.4% to 75.1%, resulting in the consolidation of Enhanzed Re, which was previously accounted for as an equity method investment. On the same date, we assumed the Hillhouse Group's remaining outstanding capital commitment to Enhanzed Re of $40.2 million.

As of December 31, 2020, Enhanzed Re was an equity method investee and had investments in a fund managed by AnglePoint Cayman, as set forth in the table below. Our condensed consolidated balance sheet included the following balances related to transactions with Hillhouse Group and its affiliates (as applicable):


	December 31, 2020
Investments in funds managed by AnglePoint Cayman, held by Enhanzed Re	$	851,435
Our ownership percentage of Enhanzed Re	47.4		%
Our share of Enhanzed Re's investment in funds managed by AnglePoint Cayman held by Enhanzed Re (through our equity method investment ownership)	$	403,580

Investment in other funds managed by Hillhouse Group and its affiliates:
InRe Fund (1)	$	2,365,158
Other funds	369,508
	$	2,734,666

(1) Effective April 1, 2021, AnglePoint HK assumed the role of manager of the InRe Fund as described above refer to AnglePoint HK disclosures below.

During the second quarter of 2021, Enhanzed Re redeemed $902.2 million of its investments in funds managed by AnglePoint Cayman.

The following table presents the amounts included in net earnings related to our related party transactions with Hillhouse Group and its affiliates:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
InRe Fund (1) (2)	$	—	$	309,203	$	76,607	$	629,399
Other Funds	—		37,860		20,871		73,244
Net realized and unrealized gains	$	—	$	347,063	$	97,478	$	702,643

(1) Effective April 1, 2021, AnglePoint HK assumed the role of manager of the InRe Fund as described above; refer to AnglePoint HK disclosures below.

(2) The nine months ended September 30, 2021 includes the impact of a deduction of $100.0 million from amounts due to affiliates of Hillhouse Group from the InRe Fund, which had the effect of increasing our NAV in the InRe Fund on February 21, 2021.

AnglePoint HK

As of September 30, 2021, the carrying value (i.e., the net asset value) of our direct investment in the InRe Fund and another fund, which is managed by AnglePoint HK (defined and discussed above), was $447.7 million and $10.2 million, respectively.

On April 1, 2021, we entered into a Designation Agreement with Jie Liu (the "Designation Agreement"), pursuant to which we designated Mr. Liu, an AnglePoint HK partner, as the purchaser of AnglePoint HK, and he acquired the company from an affiliate of Hillhouse Group on the same day. AnglePoint Cayman simultaneously assigned its investment management agreement with the InRe Fund to AnglePoint HK. Pursuant to the Designation Agreement, we entered into amendments to the investment management agreement and limited partnership agreement with AnglePoint HK that provided that AnglePoint HK's fees for managing the InRe Fund would consist of a reimbursement of AnglePoint HK's reasonable operating expenses, plus a performance fee equal to 10% of our return on investment in the InRe Fund. For calendar year 2021, there is also a minimum performance fee payable to AnglePoint HK of $10.0 million. As described in Note 22 - "Subsequent Events," we terminated the AnglePoint HK investment management agreement with the InRe Fund on October 15, 2021.

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ENSTAR GROUP LIMITED

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

The following table presents the amounts included in net earnings related to our related party transactions with AnglePoint HK (as applicable):


	Three Months Ended September 30,		Nine Months Ended September 30,
	2021			2021
InRe Fund	$	13,217		$	(6,954)
Other Fund	—			—
Net investment income (expenses) (1)	13,217			(6,954)
InRe Fund	(285,206)			(68,476)
Other Fund	240			240
Net realized and unrealized losses	(284,966)			(68,236)
	$	(271,749)		$	(75,190)

(1) The InRe Fund net investment expenses primarily include management and performance fee accruals which were previously included in the change in NAV and included within net realized and unrealized gains prior to consolidation of the fund.

Northshore

Following the completion of the Exchange Transaction with the Stone Point managed Trident V Funds on January 1, 2021 as described in Note 4 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations", our equity interest in Northshore, the holding company that owns Atrium and Arden, was reduced to 13.8% from 54.1% while the Trident V Funds' total equity interest in Northshore increased from 36.0% to 76.3%. We have accounted for our residual equity interest in Northshore as an investment in a privately held equity security at fair value. The carrying value of our investment in Northshore was $35.0 million as of September 30, 2021.

Concurrent with the closing of the Exchange Transaction on January 1, 2021, one of our wholly-owned subsidiaries and Northshore entered into a TSA through which our wholly-owned subsidiary agreed to provide certain transitional services to Northshore over a transition period of up to 18 months.

In addition, concurrent with the completion of the Exchange Transaction on January 1, 2021, Arden also entered into an LPT Retrocession Agreement with one of our majority owned subsidiaries, through which Arden fully reinsured its non-life run-off portfolio with total liabilities of $19.0 million to our majority owned subsidiary, in exchange for a retrocession premium consideration of an equal amount. Arden retained the premium under a funds held arrangement, to secure the payment obligations of our majority owned subsidiary.

Our condensed consolidated balance sheet included the following balances between us and Arden:


	September 30, 2021
Balances under LPT Retrocession Agreement:
Premiums Receivable	$	12,881
Loss and loss adjustment expenses	12,578
Other liabilities	256

Our condensed consolidated statement of earnings included the following amounts between us and Arden:


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2021		2021
Transactions under LPT Retrocession Agreement:
Net incurred losses and LAE	$	20	$	366
Interest expense	20		(63)
Total net earnings	$	40	$	303

Furthermore, as described in Note 4 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations", through our wholly-owned subsidiary SGL No.1, a Lloyd’s corporate member, we provided 25% of the underwriting capacity on the 2017 to 2020 underwriting years of Atrium's Syndicate 609 at Lloyd’s. Effective January 1, 2021,

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ENSTAR GROUP LIMITED

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

and in conjunction with the completion of the Exchange Transaction, SGL No.1 ceased its provision of underwriting capacity on Syndicate 609. Accordingly, the 2020 underwriting year was the last underwriting year that SGL No. 1 participated in with respect to the Atrium business. We will continue to report SGL No. 1's 25% gross share of the 2020 and prior underwriting years of Syndicate 609 until the 2020 underwriting year completes an RITC into a successor year, which will be no earlier than December 31, 2022.


	December 31, 2020
Distributions of SGL No.1 Share of Syndicate 609 results	$	19,115
Due to Arden under reinsurance agreement	(7,965)
Due to Atrium 5 limited under capacity lease agreement	(11,150)
Net balances with Northshore Group	$	—

There is no net retention for Enstar on Atrium's 2020 and prior underwriting years as the business was contractually transferred to the Atrium entities that were divested in the Exchange Transaction. Effective January 1, 2021, all balances that SGL No. 1 has with Atrium and Arden are no longer eliminated in our condensed consolidated financial statements.

Our condensed consolidated balance sheet includes the following balances related to our participation in Atrium's Syndicate 609 through our wholly-owned subsidiary SGL No. 1. The balances are disclosed on a gross basis and therefore include the reinsurance balances recoverable from Arden under a quota share reinsurance agreement as well as the net results arising from our participation which is payable by SGL No. 1 to Atrium under a capacity lease tenancy agreement as described further below:


	September 30, 2021
Balances under quota share agreement

Fixed maturities, trading, at fair value	$	187,102
Fixed maturities, available-for-sale, at fair value	944
Other investments, at fair value	13,919
Cash and cash equivalents	23,303
Restricted cash and cash equivalents	5,975
Premiums receivable	6,741
Reinsurance balances recoverable on paid and unpaid losses	71,023
Funds held by reinsured companies	36,912
Other assets	1,817
Losses and loss adjustment expenses	233,739

Insurance and reinsurance balances payable	74,626
Other liabilities	28,035


Balances under lease capacity agreement
Other liabilities	$	12,023

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ENSTAR GROUP LIMITED

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

Our condensed consolidated statement of earnings included the following amounts related to our participation in Atrium's Syndicate 609 through our wholly-owned subsidiary SGL No. 1. These amounts reflect the impact of cessions by SGL No. 1 to Arden under a quota share reinsurance agreement with the net results arising from our participation being payable by SGL No. 1 to Atrium under a capacity lease tenancy agreement as described further below:


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2021		2021
Transactions under quota share agreement
Net premiums earned	$	12,714	$	49,994
Net investment income	295		1,341
Net realized and unrealized losses	(527)		(1,626)
Other expense	(4,093)		(2,811)
Net incurred losses and loss adjustment expenses	(5,498)		(20,257)
Acquisition costs	(2,894)		(12,793)
General and administrative expenses	(2,061)		(5,563)


Transactions under lease capacity agreement



Other income (expense)	$	2,064	$	(8,285)




Total net earnings	$	—	$	—

As discussed above, Enstar does not retain any of the economics related to its participation in Atrium's 2020 and prior underwriting years through its wholly-owned subsidiary SGL No. 1 since this business is contractually transferred to the Atrium entities that were divested in the Exchange Transaction, through a quota share reinsurance agreement with Arden covering 65% of the business written by Atrium's Syndicate 609 and a capacity lease tenancy agreement covering the net results arising from the residual business written but not covered by the 65% quota share reinsurance agreement with Arden.

Monument Re

On July 27, 2021, we entered into a subscription agreement with Monument Insurance Group Limited ("Monument Re") with the other common shareholders to subscribe to a newly issued class of Monument Re preferred stock. As part of this agreement, our existing classes of preferred shares in Monument Re (including any accrued unpaid dividends thereon) will be exchanged for the new class of preferred shares. In connection with the transaction we will continue to own 20.0% of the common shares of Monument Re and 13.2% of the new class of preferred shares upon closing on a committed capital basis. The subscription agreement is subject to customary closing conditions including regulatory approvals and amending the existing shareholders’ agreement and bye-laws of Monument Re. A fund managed by Stone Point Capital has agreed to acquire 11.4% of the new class of preferred shares. The transaction is expected to close before the end of the first quarter of 2022.

Our investment in the common and preferred shares of Monument Re, which is included in equity method investments on our condensed consolidated balance sheet, as of September 30, 2021 and December 31, 2020 was $202.1 million and $193.7 million, respectively.

During the three months ended September 30, 2021 and 2020 our share of net earnings on our investment in Monument Re was $2.6 million and $65.2 million, respectively. During the nine months ended September 30, 2021 and 2020 our share of net earnings on our investment in Monument Re was $19.3 million and $63.7 million, respectively.

One of our representatives serves on Monument Re's board of directors. During the three and nine months ended September 30, 2021 and 2020 we received director fees from Monument of $0 and less than $0.1 million, respectively, and $0.1 million and $0.1 million, respectively.

AmTrust

We own 8.4% of the equity interest in Evergreen Parent L.P. ("Evergreen") and Trident Pine Acquisition LP ("Trident Pine") owns 21.8%. Evergreen owns all of the equity interest in AmTrust Financial Services, Inc. (“AmTrust"). Trident Pine is an entity owned by private equity funds managed by Stone Point.

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ENSTAR GROUP LIMITED

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

Our indirect investment in the shares of AmTrust, carried in equities on our condensed consolidated balance sheet, as of September 30, 2021 and December 31, 2020 was $225.9 million and $230.3 million, respectively.

The following table presents the amounts included in net earnings related to our related party transactions with AmTrust (excluding withholding taxes):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net investment income	$	1,516	$	—	$	4,502	$	4,367
Net realized and unrealized gains (losses)	(1,515)		45		(4,460)		3,854
Total net earnings	$	1	$	45	$	42	$	8,221

Citco

As of September 30, 2021 and December 31, 2020, we owned 31.9% of the common shares in HH CTCO Holdings Limited, which in turn owns 15.4% of the convertible preferred shares, amounting to a 6.2% interest in the total equity of Citco III Limited ("Citco"). Pursuant to an investment agreement and in consideration for participation therein, a related party of Hillhouse Group provided us with investment support. As of September 30, 2021 and December 31, 2020, Trident owned 3.4% interest in Citco. Mr. Carey currently serves as an observer to the board of directors of Citco in connection with Trident's investment therein.

Our indirect investment in the shares of Citco, which is included in equity method investments on our condensed consolidated balance sheet, as of September 30, 2021 and December 31, 2020 was $54.4 million and $53.0 million, respectively.

During the three months ended September 30, 2021 and 2020 our share of net earnings on our indirect investment in Citco was $0.5 million and $0.4 million, respectively. During the nine months ended September 30, 2021 and 2020 our share of net earnings on our indirect investment in Citco was $1.9 million and $0.7 million, respectively.

Enhanzed Re

Enhanzed Re was a joint venture between Enstar, Allianz SE ("Allianz") and Hillhouse Group that was capitalized in December 2018. Enhanzed Re is a Bermuda-based Class 4 and Class E reinsurer that reinsures life, non-life run-off, and property and casualty insurance business, initially sourced from Allianz and Enstar. Enstar, Allianz and Hillhouse Group have made initial equity investment commitments in the aggregate of $470.0 million to Enhanzed Re.

On September 1, 2021, we completed the purchase of the Hillhouse Group's entire 27.7% interest in Enhanzed Re for a purchase price of $217.1 million and assumed its remaining outstanding capital commitment to Enhanzed Re of $40.2 million. Following the completion of the transaction, our equity interests in Enhanzed Re increased from 47.4% to 75.1% with Allianz continuing to own the remaining 24.9%. Upon closing, we consolidated Enhanzed Re (previously accounted for as an equity method investment) and as a result, it ceased to be a related party on the same date.

Enstar acts as the (re)insurance manager for Enhanzed Re, and an affiliate of Allianz provides investment management services to Enhanzed Re.

Our investment in the common shares of Enhanzed Re, which was included in equity method investments on our condensed consolidated balance sheet, as of December 31, 2020 was $330.3 million.

During the three months ended September 30, 2021 and 2020 our share of net earnings (loss) on our investment in Enhanzed Re was $(22.1) million and $82.8 million, respectively. During the nine months ended September 30, 2021 and 2020 our share of net earnings on our investment in Enhanzed Re was $81.6 million and $88.7 million, respectively.

We have ceded 10% of the 2019 Zurich transaction, the 2020 AXA Group transaction and the 2021 Liberty Mutual, CNA transactions and AXA Group, which are described in Note 3 - "Significant New Business," to Enhanzed Re on the same terms and conditions as those received by Enstar.

During the fourth quarter of 2020, one of our UK-based run-off subsidiaries entered into a 50% Quota Share reinsurance agreement with Enhanzed Re. The reinsurance is on a funds held basis with fixed crediting rates.

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ENSTAR GROUP LIMITED

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

Our condensed consolidated balance sheet included the following balances between us and Enhanzed Re:


	December 31, 2020
Balances under ceding quota share:
Reinsurance balances recoverable	$	208,379
Funds held	193,981
Insurance balances payables	1,276

Other assets	730

Our condensed consolidated statement of earnings included the following amounts between us and Enhanzed Re:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Amounts under ceding quota share:
Ceded premium earned	$	(333)	$	—	$	(1,974)	$	—
Fees and commission income	90		393		323		393
Net investment expense	(1,565)		(819)		(4,002)		(819)
Net realized and unrealized gains (losses)	167		(679)		299		(679)
Other income	412		2,881		1,874		—
Net incurred losses and LAE	(1,090)		(1)		(36)		(14)
Acquisition costs	638		(46)		1,011		(23)
Total net earnings (loss)	$	(1,681)	$	1,729	$	(2,505)	$	(1,142)

Change in unrealized gains (losses) on AFS investments	1,913		(2,239)		625		(2,239)

Core Specialty

Following the sale and recapitalization of StarStone U.S. as described in Note 4 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations," our investment in the common shares of Core Specialty, which is included in equity method investments on our condensed consolidated balance sheet, was $229.2 million as of September 30, 2021 (December 31, 2020: $235.0 million). As a result of the completion of the Exchange Transaction on January 1, 2021, as discussed in Note 4 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations", as well as in Note 15 - "Noncontrolling Interests", our investment in Core Specialty was reduced by $4.0 million as of September 30, 2021. During the three and nine months ended September 30, 2021 our share of net earnings (loss) on our investment in Core Specialty was $4.9 million and $(1.8) million, respectively. We account for our equity method investment in Core Specialty on a one quarter lag.

In connection with the sale and recapitalization of StarStone U.S. we entered into an LPT and ADC reinsurance agreement with respect to StarStone U.S.’ legacy reserves. Concurrent with the closing of the LPT and ADC reinsurance agreement, we entered into an ASA with StarStone U.S., through which one of our wholly-owned subsidiaries was appointed as an independent contractor to provide certain administrative services covering the business we assumed from StarStone U.S. through the LPT and ADC reinsurance agreement.

In addition, concurrent with the sale of StarStone U.S. to Core Specialty, one of our wholly-owned subsidiaries entered into a TSA with Core Specialty through which our subsidiary and Core Specialty agreed to provide certain transitional services to each other relating to the StarStone U.S. businesses for a specified period of time.

On completion of the sale and recapitalization of StarStone U.S. on November 30, 2020, we received $235.0 million of Core Specialty shares and $51.5 million of cash. Subsequently, the cash component of the consideration was determined to be $47.0 million with the surplus cash received of $4.5 million being repaid to Core Specialty during the nine months ended September 30, 2021.

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ENSTAR GROUP LIMITED

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

Furthermore, there are existing reinsurance agreements whereby (i) certain of our subsidiaries provide reinsurance protection to StarStone U.S. ("the assuming reinsurances") and (ii) StarStone U.S. provides reinsurance protection to certain of our subsidiaries ("the ceding reinsurances"). These arrangements remain in place.

Our condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020 included the following balances between us and Core Specialty:


	September 30, 2021		December 31, 2020
Balances under assuming quota share, LPT and ADC reinsurances:
Funds held by reinsured companies	$	45,370	$	58,086
Other assets	8,345		38,846
Premiums receivable	51		—
Reinsurance balances recoverable on paid and unpaid losses	476		—
Losses and loss adjustment expenses	590,228		682,637
Insurance and reinsurance balances payable	11,005		24,806
Other liabilities	101		5,003

Balances under ceding reinsurances:
Reinsurance balances recoverable on paid and unpaid losses	1,691		1,736

Balances under service agreements:
Other assets	6,141		6,727
Other liabilities	53		328

Balances under sale and recapitalization agreement:
Other liabilities	—		4,512

Our consolidated statement of earnings included the following amounts between us and Core Specialty:


	Three Months Ended		Nine Months Ended
	September 30, 2021		September 30, 2021
Transactions under assuming quota share, LPT and ADC reinsurances:
Net premiums earned	$	4,595	$	7,530
Net incurred losses and loss adjustment expenses	(12,001)		(2,780)
Acquisition costs	(951)		2,266
Net investment expense	(121)		—
Other income	185		170

Transactions under service agreements:
Fees and commission income	3,016		10,515

Transactions under sale and recapitalization agreement:
Other Income	—		567
Interest expense	—		(15)

Total net earnings (loss)	$	(5,277)	$	18,253

20. COMMITMENTS AND CONTINGENCIES

Concentration of Credit Risk

We believe that there are no significant concentrations of credit risk associated with our cash and cash equivalents, fixed maturity investments, or other investments. Our cash and investments are managed pursuant to guidelines that follow prudent standards of diversification and liquidity, and limit the allowable holdings of a single

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

issue and issuers. We are also subject to custodial credit risk on our investments, which we manage by diversifying our holdings amongst large financial institutions that are highly regulated.

We have exposure to credit risk on certain of our assets pledged to ceding companies under insurance contracts. In addition, we are potentially exposed should any insurance intermediaries be unable to fulfill their contractual obligations with respect to payments of balances owed to and by us.

Credit risk exists in relation to (re)insurance balances recoverable on paid and unpaid losses. We remain liable to the extent that counterparties do not meet their contractual obligations and, therefore, we evaluate and monitor concentration of credit risk among our (re)insurers.

We are also subject to credit risk in relation to funds held by reinsured companies and funds held - directly managed. Under funds held arrangements, the reinsured company has retained funds that would otherwise have been remitted to our reinsurance subsidiaries. The funds may be placed into trust or subject to other security arrangements. However, we generally have the contractual ability to offset any shortfall in the payment of the funds held balances with amounts owed by us. As of September 30, 2021, we had a significant funds held concentration of $3.3 billion (December 31, 2020: $955.0 million) and $1.2 billion (December 31, 2020: $182.4 million) to reinsured companies with financial strength credit ratings of A+ from A.M. Best and AA from S&P, and A+ from A.M. Best and AA- from S&P, respectively.

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 counterparties noted above, exceeded 10% of shareholders’ equity as of September 30, 2021. Our credit exposure to the U.S. government was $1.3 billion as of September 30, 2021 (December 31, 2020: $1.4 billion).

For additional information relating to credit risk for the InRe Fund, refer to Note 12 - "Variable Interest Entities."

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 condensed 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 or bad faith, employment claims or regulatory activity. We do not believe that the resolution of any currently pending legal proceedings, either individually or taken as a whole, will have a material effect on our business, results of operations or financial condition. We anticipate that, similar to the rest of the (re)insurance industry, we will continue to be subject to litigation and arbitration proceedings in the ordinary course of business, including litigation generally related to the scope of coverage with respect to asbestos and environmental and other claims.

Unfunded Investment Commitments

As of September 30, 2021, we had unfunded commitments of $1.5 billion to other investments, $44.7 million to privately held equity, $10.5 million to fixed maturity investments and $108.9 million to our majority owned subsidiary Enhanzed Re.

Guarantees

As of September 30, 2021 and December 31, 2020, parental guarantees and capital instruments supporting subsidiaries' (re)insurance obligations were $2.1 billion and $1.7 billion, respectively. We also guarantee the Junior Subordinated Notes, which are described in Note 14 - "Debt Obligations and Credit Facilities."

Redeemable Noncontrolling Interest

We have the right to purchase the RNCI interests from the RNCI holders at certain times in the future (each such right, a "call right") and the RNCI holders have the right to sell their RNCI interests to us at certain times in the future (each such right, a "put right"). Following the closing of the Exchange Transaction, we have a call right over the portion of SSHL owned by the Trident V Funds and the Dowling Funds, and they have put rights to transfer those interests to us.

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ENSTAR GROUP LIMITED

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

21. SEGMENT INFORMATION

Effective January 1, 2021, we revised our segment structure to align with how our chief operating decision maker ("CODM"), who was determined to be our Chief Executive Officer, views our business, assesses performance and allocates resources to our business components. Following the acquisition of Enhanzed Re on September 1, 2021, our business is organized into four reportable segments:

(i) Run-off: consists of our acquired property and casualty and other (re)insurance business and StarStone International (from January 1, 2021) following our decision to place it into an orderly run-off. This segment also includes our consulting and management business, which manages the run-off portfolios of third parties through our service companies. Our primary objective with respect to the Run-off segment is to generate reserve/claims savings over time by settling claims in a timely, cost efficient manner using our claims management expertise, including settling claims for lower than outstanding ultimate loss estimates and implementation of reinsurance and commutation strategies;

(ii) Enhanzed Re: consists of life and catastrophe business that we have assumed via the acquisition of the controlling interest in Enhanzed Re. Our primary objective of the Enhanzed Re segment is to reinsure products that focus on longevity and investment risks. We seek to deliver returns by taking advantage of our composite capital structure and product expertise;

(iii) Investments: consists of our investment activities and the performance of our investment portfolio, excluding those investable assets attributable to our Legacy Underwriting segment. Our primary objective of the Investments segment is to obtain the highest possible risk and capital adjusted returns while maintaining prudent diversification of assets and operating within the constraints of a global regulated (re)insurance company. We additionally consider the liquidity requirements and duration of our claims, policyholder benefits and contract liabilities; and

(iv) Legacy Underwriting: consists of businesses that we have either, in the case of Atrium, exited via the sale of the majority of our interest in or, in the case of StarStone International (included in the Legacy Underwriting Segment through December 31, 2020), placed into run-off. Prior to January 1, 2021, this segment comprised SGL No. 1's 25% net share of Atrium's Syndicate 609 business at Lloyd's and StarStone International (through December 31, 2020). From January 1, 2021, this segment comprises SGL No.1's 25% gross share of the 2020 and prior underwriting years of Atrium's Syndicate 609 at Lloyd's, offset by the contractual transfer of the results of that business to the Atrium entities that were divested in the Exchange Transaction. There is no net retention for Enstar on Atrium's 2020 and prior underwriting years. For further information on the Exchange Transaction and the StarStone International Run-off, refer to Note 4 - "Divestitures, Held-for-Sale Businesses and Discontinued Operations."

In addition, our corporate and other activities, which do not qualify as an operating segment, includes income and expense items that are not directly attributable to our reportable segments. These include, (a) holding company income and expenses, (b) the amortization of deferred charge assets and deferred gain liabilities on retroactive reinsurance contracts, (c) the amortization of fair value adjustments associated with the acquisition of companies, (d) changes in the fair value of assets and liabilities related to our assumed retroactive reinsurance contracts for which we have elected the fair value option, (e) corporate expenses not allocated to our reportable segments, (f) debt servicing costs, (g) net foreign exchange (gains) losses, (h) gains (losses) arising on the purchases and sales of subsidiaries (if any), (i) income tax benefit (expense), (j) net earnings (losses) from discontinued operations, net of income tax (if any), (k) net (earnings) loss attributable to noncontrolling interest, and (l) preferred share dividends.

Items (b), (c) and (d) highlighted above are included within corporate and other activities since the CODM evaluates the performance of the Run-off and Legacy Underwriting segments without consideration of these amounts. Refer to "(p) Acquisitions, Goodwill and Intangible Assets" and "(q) Retroactive Reinsurance" within Note 2 - "Significant Accounting Policies" to our consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2020 for further information.

Our assets are reviewed on a consolidated basis by management for decision making purposes since they support business operations across all of our four reportable segments as well as our corporate & other activities. We do not allocate assets to our reportable segments with the exception of reinsurance balances recoverable on paid and unpaid losses and goodwill that are directly attributable to our reportable segments.

Expenses that are directly attributable to our four reportable segments are disclosed under those segments while non-direct expenses, as well as costs related to shared services that are not directly attributable to our

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

reportable segments, are allocated to our reportable segments as well as to our corporate and other activities, on the basis of the actual or proportion of benefit derived from the services provided.

Following the re-organization of our reportable segments during the first quarter of 2021 as detailed above, we restated the prior period comparatives to conform to the current period presentation.

The following tables set forth selected and condensed consolidated statement of earnings results by segment and for our corporate and other activities:


	Three Months Ended
	September 30, 2021
	Run-off		Enhanzed Re (1)		Investments (1)		Legacy Underwriting		Corporate & Other (2)		Total
INCOME
Net premiums earned	$	38,880	$	—	$	—	$	12,714	$	—	$	51,594
Fees and commission income	6,653		—		—		—		—		6,653
Net investment income	—		—		92,430		295		—		92,725
Net realized and unrealized losses	—		—		(272,738)		(527)		—		(273,265)
Other income (expense)	5,979		—		—		(2,029)		1,328		5,278
Net gain on purchase and sales of subsidiaries	—		—		—		—		46,688		46,688
	51,512		—		(180,308)		10,453		48,016		(70,327)
EXPENSES
Net incurred losses and loss adjustment expenses	(50,140)		—		—		5,498		17,931		(26,711)

Acquisition costs	8,053		—		—		2,894		—		10,947
General and administrative expenses	47,062		—		8,786		2,061		35,590		93,499
	4,975		—		8,786		10,453		53,521		77,735
EARNINGS (LOSS) BEFORE INTEREST EXPENSE, FOREIGN EXCHANGE AND INCOME TAXES	46,537		—		(189,094)		—		(5,505)		(148,062)
Loss from equity method investments	—		—		(14,147)		—		—		(14,147)

SEGMENT INCOME (LOSS)	$	46,537	$	—	$	(203,241)	$	—	(5,505)		(162,209)
Interest expense									(18,158)		(18,158)
Net foreign exchange gains									2,584		2,584
Income tax expense									(9,839)		(9,839)
NET LOSS											(187,622)
Net loss attributable to noncontrolling interest									589		589
NET LOSS ATTRIBUTABLE TO ENSTAR											(187,033)
Dividends on preferred shares									(8,925)		(8,925)
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR ORDINARY SHAREHOLDERS									$	(39,254)	$	(195,958)

(1) On September 1, 2021, we acquired control of Enhanzed Re through a step acquisition. Prior to that date, the results of Enhanzed Re were recorded in earnings from equity method investments within the Investments segment. As we record Enhanzed Re's results on a one quarter lag, there are no Enhanzed Re operating results to report for this quarter.

(2) Other income (expense) for corporate and other activities includes the amortization of fair value adjustments associated with the acquisition of DCo and Morse TEC. Net incurred losses and loss adjustment expenses for corporate and other activities includes the amortization of deferred charge assets and deferred gain liabilities on retroactive reinsurance contracts and fair value adjustments associated with the acquisition of companies and the changes in the fair value of liabilities related to our assumed retroactive reinsurance agreements for which we have elected the fair value option.

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ENSTAR GROUP LIMITED

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


	Three Months Ended
	September 30, 2020
	Run-off		Investments		Legacy Underwriting		Corporate & Other (1)		Total
INCOME
Net premiums earned	$	17,476	$	—	$	144,248	$	—	$	161,724
Fees and commission income	3,637		—		7,150		—		10,787
Net investment income	—		64,054		8,076		—		72,130
Net realized and unrealized gains	—		486,671		13,334		—		500,005
Other income (expense)	55,659		—		171		(7,426)		48,404
	76,772		550,725		172,979		(7,426)		793,050
EXPENSES
Net incurred losses and loss adjustment expenses	(1,976)		—		75,874		35,788		109,686

Acquisition costs	2,730		—		34,978		—		37,708
General and administrative expenses	42,173		7,549		32,669		33,437		115,828
	42,927		7,549		143,521		69,225		263,222
EARNINGS (LOSS) BEFORE INTEREST EXPENSE, FOREIGN EXCHANGE AND INCOME TAXES	33,845		543,176		29,458		(76,651)		529,828
Earnings from equity method investments	—		149,065		—		—		149,065
SEGMENT INCOME (LOSS)	$	33,845	$	692,241	$	29,458	(76,651)		678,893
Interest expense							(15,003)		(15,003)
Net foreign exchange losses							(8,156)		(8,156)
Income tax expense							(13,915)		(13,915)
NET EARNINGS FROM CONTINUING OPERATIONS									641,819
Net earnings from discontinued operations, net of income taxes							4,031		4,031
NET EARNINGS									645,850
Net earnings attributable to noncontrolling interest							(21,912)		(21,912)
NET EARNINGS ATTRIBUTABLE TO ENSTAR									623,938
Dividends on preferred shares							(8,925)		(8,925)
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR ORDINARY SHAREHOLDERS							$	(140,531)	$	615,013

(1) Other income (expense) for corporate and other activities includes the amortization of fair value adjustments associated with the acquisition of DCo and Morse TEC. Net incurred losses and loss adjustment expenses for corporate and other activities includes the amortization of deferred charge assets and deferred gain liabilities on retroactive reinsurance contracts and fair value adjustments associated with the acquisition of companies and the changes in the fair value of liabilities related to our assumed retroactive reinsurance agreements for which we have elected the fair value option.

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ENSTAR GROUP LIMITED

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


	Nine Months Ended
	September 30, 2021
	Run-off		Enhanzed Re (1)		Investments (1)		Legacy Underwriting		Corporate & Other (2)		Total
INCOME
Net premiums earned	$	154,120	$	—	$	—	$	49,994	$	—	$	204,114
Fees and commission income	24,525		—		—		—		—		24,525
Net investment income	—		—		229,620		1,341		—		230,961
Net realized and unrealized gains (losses)	—		—		112,793		(1,626)		—		111,167
Other income (expense)	23,490		—		—		(11,096)		(9,924)		2,470
Net gain on purchase and sales of subsidiaries	—		—		—		—		61,582		61,582
	202,135		—		342,413		38,613		51,658		634,819
EXPENSES
Net incurred losses and loss adjustment expenses	(62,512)		—		—		20,257		(659)		(42,914)

Acquisition costs	37,124		—		—		12,793		—		49,917
General and administrative expenses	138,791		—		24,629		5,563		100,233		269,216
	113,403		—		24,629		38,613		99,574		276,219
EARNINGS (LOSS) BEFORE INTEREST EXPENSE, FOREIGN EXCHANGE AND INCOME TAXES	88,732		—		317,784		—		(47,916)		358,600
Earnings from equity method investments	—		—		100,825		—		—		100,825
SEGMENT INCOME (LOSS)	$	88,732	$	—	$	418,609	$	—	(47,916)		459,425
Interest expense									(50,638)		(50,638)
Net foreign exchange gains									9,089		9,089
Income tax expense									(13,279)		(13,279)


NET EARNINGS											404,597
Net earnings attributable to noncontrolling interest									(13,257)		(13,257)
NET EARNINGS ATTRIBUTABLE TO ENSTAR											391,340
Dividends on preferred shares									(26,775)		(26,775)
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR ORDINARY SHAREHOLDERS									$	(142,776)	$	364,565

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ENSTAR GROUP LIMITED

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


	Nine Months Ended
	September 30, 2020
	Run-off		Investments		Legacy Underwriting		Corporate & Other (1)		Total
INCOME
Net premiums earned	$	44,023	$	—	$	419,923	$	—	$	463,946
Fees and commission income	12,588		—		15,737		—		28,325
Net investment income	—		215,280		26,007		—		241,287
Net realized and unrealized gains	—		838,483		69		—		838,552
Other income (expense)	84,321		—		321		(16,881)		67,761

	140,932		1,053,763		462,057		(16,881)		1,639,871
EXPENSES
Net incurred losses and loss adjustment expenses	(89,418)		—		276,787		152,309		339,678

Acquisition costs	13,226		—		119,592		—		132,818
General and administrative expenses	118,026		21,817		128,789		90,454		359,086
	41,834		21,817		525,168		242,763		831,582
EARNINGS (LOSS) BEFORE INTEREST EXPENSE, FOREIGN EXCHANGE AND INCOME TAXES	99,098		1,031,946		(63,111)		(259,644)		808,289
Earnings from equity method investments	—		152,725		—		—		152,725
SEGMENT INCOME (LOSS)	$	99,098	$	1,184,671	$	(63,111)	(259,644)		961,014
Interest expense							(42,436)		(42,436)
Net foreign exchange losses							(1,375)		(1,375)
Income tax expense							(25,295)		(25,295)
NET EARNINGS FROM CONTINUING OPERATIONS									891,908
Net earnings from discontinued operations, net of income taxes							810		810
NET EARNINGS									892,718
Net loss attributable to noncontrolling interest							30,802		30,802
NET EARNINGS ATTRIBUTABLE TO ENSTAR									923,520
Dividends on preferred shares							(26,775)		(26,775)
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR ORDINARY SHAREHOLDERS							$	(323,913)	$	896,745

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

22. SUBSEQUENT EVENTS

Significant New Business

The table below sets forth a summary of significant new business that was announced or completed subsequent to September 30, 2021:

Transaction

Date Transaction Announced or Completed

Initial Estimate of Liabilities Assumed

Type of Transaction and Primary Nature of Business

RSA

Completed on October 1, 2021

94,225

ADC on a diversified mix of commercial and personal insurance lines across the U.K. and Ireland

Related Party Transactions

On October 15, 2021, we delivered written notice to AnglePoint HK of our decision to terminate the investment management agreement among InRe Fund, the general partner of InRe Fund and AnglePoint HK. At the same time, InRe Fund, the general partner of InRe Fund and Neuberger Berman Investment Advisers LLC (“Neuberger Berman”) entered into an investment management agreement pursuant to which Neuberger Berman was retained as investment manager to oversee an orderly liquidation of InRe Fund.

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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 September 30, 2021 and our results of operations for the three and nine months ended September 30, 2021 and 2020 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, 2020 and the related filings with the SEC subsequent thereto. 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 this Quarterly Report on Form 10-Q and Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020.

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Section						Page
Business Overview						78
Operational and Performance Highlights						79

Consolidated Results of Operations — Three and Nine Months Ended September 30, 2021 and 2020						80
Key Performance Indicator						82
Non-GAAP Financial Measures						83
Current Outlook						85
Results of Operations by Segment — Three and Nine Months Ended September 30, 2021 and 2020						87
Run-off Segment						88
Enhanzed Re Segment						92
Investments Segment						92
Legacy Underwriting Segment						94
Corporate and Other						96
Investable Assets						98



Liquidity and Capital Resources						108









Critical Accounting Estimates						115

Business Overview

We are a leading global insurance group that offers innovative capital release solutions through our network of group companies in Bermuda, the United States, the United Kingdom, Continental Europe, Australia, and other international locations. Our core focus is acquiring and managing (re)insurance companies and portfolios of (re)insurance business in run-off.

Since the formation of our Bermuda-based holding company in 2001, we have completed or announced over 110 acquisitions or portfolio transfers. The majority of our transactions have been in our run-off business, which generally includes property and casualty, workers’ compensation, asbestos and environmental, construction defect, marine, aviation and transit, and other closed and discontinued blocks of business.

Our primary corporate objective is growing our book value per share. We strive to achieve this primarily through growth in net earnings derived from both organic and accretive sources, such as the completion of new transactions, the generation of reserve/claims savings and investment income through the effective management of companies and portfolios in run-off and returns on strategic investments.

As a result of the sale and recapitalization of StarStone U.S., the sale of the majority of our interest in Atrium and the placing of StarStone's business outside the United States into run-off, we have largely exited our previously controlled active underwriting platforms.

Following our acquisition of the controlling interest in Enhanzed Reinsurance Ltd. ("Enhanzed Re") on September 1, 2021, we consolidated Enhanzed Re and added a new reporting segment as described below.

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Operational and Performance Highlights

Our consolidated results for the nine months ended September 30, 2021 reflect our continued focus on providing capital release solutions to our clients by acquiring and managing their run-off portfolios. We continue to operate our business during heightened uncertainty and investment volatility as a result of the COVID-19 pandemic.

As part of a strategy re-alignment to reduce our exposure to hedge fund investments, we redeemed $1.5 billion from the InRe Fund during the third quarter of 2021. Following our decision to redeem, the InRe Fund’s investments were impacted by significant volatility in Chinese and other global equity markets. As a result of this volatility, we recorded $285.2 million of net realized and unrealized losses from the InRe Fund for the three months ended September 30, 2021. On October 15, 2021, we appointed a new investment manager to oversee the orderly wind down of the InRe Fund’s remaining investment portfolio, which was $447.7 million as of September 30, 2021.

During the first nine months of 2021 we:

•Experienced a reduction in Run-off segment net incurred losses and LAE of $62.5 million, which included a reduction in estimates of net ultimate losses relating to prior periods of $139.4 million. We also experienced a reduction in estimates of net ultimate defendant asbestos and environmental liabilities relating to prior periods of $19.0 million that is reported as a component of other income within the Run-off segment, resulting in non-GAAP reserve/claims savings1 of $158.4 million, which was a 2.6% increase over the comparative period as a result of our continued dynamic and disciplined approach to claims management.

•Assumed $3.7 billion of liabilities in six run-off transactions. Five of these transactions totaling $2.2 billion2 of liabilities are LPTs where we anticipate generating future reserve/claims savings that we will record as favorable prior period development. We also executed a $1.5 billion ADC where we may have favorable prior period development from our pricing of the risk. In all cases, we anticipate investment returns as we manage the $3.5 billion of investment assets we assumed. In addition, we recorded $0.3 billion of deferred charge assets, which we will amortize over the estimated claim payment period of the related contract.

•Earned $342.1 million of investment returns, representing a 68.3% decrease over the prior period. This represents a 1.73% return on our average aggregate invested assets of $19.8 billion. This includes returns from the InRe Fund where we experienced current year investment returns of $1.2 million.

•Completed the strategic exit from our active underwriting lines with our sales of:

◦Northshore to Trident V Funds through an exchange transaction, whereby we exchanged a portion of our indirect interest in Northshore, the holding company that owns Atrium and Arden, for an indirect interest in StarStone U.S., now owned through an interest in Core Specialty; and

◦StarStone Underwriting Limited, together with the right to operate Lloyd's Syndicate 1301, to Inigo for consideration of $30.0 million in the form of Inigo shares and $0.6 million in cash.

•Repurchased 3,749,400 ordinary shares held by funds managed by Hillhouse Group for a price of $234.52 per share, totaling $879.3 million in aggregate.

•Completed a $500.0 million notes offering and redeemed $69.6 million of debt expiring in 2022 through a tender offer.

•Reduced our investment in the InRe Fund by $2.3 billion and initiated the wind down of the remaining assets as part of our strategy re-alignment to reduce our exposure to hedge fund investments as described above. Our investment in the InRe Fund has delivered an inception to date total return of 247.1% (or 29.9% annualized average per year)3.

•Purchased an additional 27.7% in Enhanzed Re, a company that has reinsured life, non-life run-off and catastrophe business and was previously accounted for as an equity investment. We now own 75.1% of this company and have consolidated it as of September 1, 2021.

Overall, we grew fully diluted book value per ordinary share by 9.2% since December 31, 2020, despite the decline in diluted net earnings per share of 57.4% and diluted non-GAAP operating income1 per share of 48.1% over the same period last year.

1 Non-GAAP financial measure. Refer to "Non-GAAP Financial Measures" for further details.

2 Includes $177.6 million of liabilities from the ADC element of the ProSight LPT and ADC transaction.

3 Total return of the InRe Fund inception to date and average per year were computed using the modified Dietz method, which divides the total gain or loss in value of the portfolio, net of external flows, by the average value of the portfolio over the period of measurement.

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Consolidated Results of Operations - For the Three and Nine Months Ended September 30, 2021 and 2020

The following table sets forth our condensed consolidated statements of earnings for each of the periods indicated. For a discussion of the critical accounting estimates that affect the results of operations, see "Critical Accounting Estimates" in our Annual Report on Form 10-K for the year ended December 31, 2020, and within this Quarterly Report on Form 10-Q.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2021		2020		Change		2021		2020		Change
	(in thousands of U.S. dollars)
INCOME
Net premiums earned	$	51,594	$	161,724	$	(110,130)	$	204,114	$	463,946	$	(259,832)
Fees and commission income	6,653		10,787		(4,134)		24,525		28,325		(3,800)
Net investment income (1)	92,725		72,130		20,595		230,961		241,287		(10,326)
Net realized and unrealized gains (losses) (1)	(273,265)		500,005		(773,270)		111,167		838,552		(727,385)
Other income	5,278		48,404		(43,126)		2,470		67,761		(65,291)
Net gain on purchase and sales of subsidiaries	46,688		—		46,688		61,582		—		61,582
	(70,327)		793,050		(863,377)		634,819		1,639,871		(1,005,052)
EXPENSES
Net incurred losses and LAE	(26,711)		109,686		(136,397)		(42,914)		339,678		(382,592)

Acquisition costs	10,947		37,708		(26,761)		49,917		132,818		(82,901)
General and administrative expenses	93,499		115,828		(22,329)		269,216		359,086		(89,870)
Interest expense	18,158		15,003		3,155		50,638		42,436		8,202
Net foreign exchange (gains) losses	(2,584)		8,156		(10,740)		(9,089)		1,375		(10,464)
	93,309		286,381		(193,072)		317,768		875,393		(557,625)
EARNINGS (LOSS) BEFORE INCOME TAXES	(163,636)		506,669		(670,305)		317,051		764,478		(447,427)
Income tax expense	(9,839)		(13,915)		4,076		(13,279)		(25,295)		12,016
Earnings (loss) from equity method investments	(14,147)		149,065		(163,212)		100,825		152,725		(51,900)
NET EARNINGS (LOSS) FROM CONTINUING OPERATIONS	(187,622)		641,819		(829,441)		404,597		891,908		(487,311)
Net earnings from discontinued operations, net of income taxes	—		4,031		(4,031)		—		810		(810)
NET EARNINGS (LOSS)	(187,622)		645,850		(833,472)		404,597		892,718		(488,121)
Net (earnings) loss attributable to noncontrolling interest	589		(21,912)		22,501		(13,257)		30,802		(44,059)
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR	(187,033)		623,938		(810,971)		391,340		923,520		(532,180)
Dividends on preferred shares	(8,925)		(8,925)		—		(26,775)		(26,775)		—
NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR ORDINARY SHAREHOLDERS	$	(195,958)	$	615,013	$	(810,971)	$	364,565	$	896,745	$	(532,180)

(1) Includes amounts attributed to the InRe Fund, refer to Note 12 - "Variable Interest Entities" to our condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q for additional information.

Consolidated Results Overview - 2021

Three months ended September 30, 2021

Consolidated net loss attributable to Enstar ordinary shareholders was $196.0 million for the three months ended September 30, 2021. The most significant drivers of our financial performance included:

•Net realized and unrealized losses of $273.3 million, primarily driven by net unrealized losses in the InRe Fund, principally driven by volatility in Chinese and other global equity markets; and

•Loss from equity method investments of $14.1 million primarily driven by Enhanzed Re's losses on catastrophe business in the second quarter of 2021; partially offset by,

•Net investment income of $92.7 million, primarily a result of an increase in our average aggregate fixed maturities and cash and cash equivalents from new business;

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•A reduction in net incurred losses and LAE of $26.7 million, which included favorable development on prior periods of $69.1 million, driven primarily by favorable development on professional indemnity/directors and officers claims as well as continued favorable loss emergence, notably in the workers' compensation and construction defect lines. This was partially offset by net incurred losses and LAE of $42.4 million relating to current period net earned premium; and

•Net gain on purchase and sales of subsidiaries of $46.7 million relating to the Enhanzed Re Step Acquisition.

Non-GAAP operating loss4 attributable to Enstar ordinary shareholders was $176.0 million for the three months ended September 30, 2021, primarily driven by net realized and unrealized losses on the InRe Fund, other investments and equities of $215.5 million.

Nine months ended September 30, 2021

Consolidated net earnings attributable to Enstar ordinary shareholders was $364.6 million for the nine months ended September 30, 2021. The most significant drivers of our financial performance included:

•Net investment income of $231.0 million, primarily a result of an increase in our average aggregate fixed maturities and cash and cash equivalents from new business;

•Net realized and unrealized gains of $111.2 million, primarily driven by gains in private equity funds, fixed income funds and private debt funds, equity and equity funds and CLO equities, principally driven by a rally in risk assets and global equity markets as economies continued to re-open following the shutdowns related to the COVID-19 pandemic. The gains were partially offset by losses on fixed income securities primarily driven by an increase in interest rates, partially offset by a tightening of credit spreads;

•A reduction in net incurred losses and LAE of $42.9 million, which included favorable development on prior periods of $188.5 million, driven primarily by favorable development in our professional indemnity/directors and officers line of business across our Lloyd's portfolios, continued favorable loss emergence in our workers' compensation and general casualty lines of business as well as favorable development across multiple StarStone International books of business, partially offset by net incurred losses of $20.9 million due to our reevaluation of our gross and net exposure on COVID-19 pandemic related losses. This was further offset by net incurred losses and LAE of $145.6 million relating to current period net earned premium; and

•Earnings from equity method investments of $100.8 million driven primarily by our investments in Enhanzed Re and Monument Re.

Non-GAAP operating income4 attributable to Enstar ordinary shareholders was $398.2 million for the nine months ended September 30, 2021, primarily attributable to net realized and unrealized gains on the InRe Fund, other investments and equities of $299.8 million and earnings from equity method investments of $100.8 million.

Consolidated Results Overview - 2020

Three months ended September 30, 2020

Consolidated net earnings attributable to Enstar ordinary shareholders were $615.0 million for the three months ended September 30, 2020. The most significant drivers of our financial performance included:

•Net realized and unrealized gains of $500.0 million, primarily driven by unrealized gains in the InRe Fund, fixed income funds, equity funds, CLO equities and CLO equity funds principally driven by tightening credit spreads and a continued recovery of the global equity markets in the third quarter of 2020 as markets normalized after the COVID-related dislocation and spread widening experienced in the first quarter of 2020;

•Earnings from equity method investments of $149.1 million, primarily driven by our investments in Enhanzed Re and Monument Re; and

•Other income of $48.4 million which was primarily driven by the reduction in the estimate of ultimate net defendant asbestos and environmental liabilities; partially offset by,

•Net incurred losses and LAE of $109.7 million, which included net incurred losses and LAE of $79.0 million related to current period net earned premium and $30.7 million related to prior periods primarily driven by unfavorable changes in the fair value of liabilities for which we have elected the fair value option as a result of narrowing credit spreads on corporate bond yields in the period.

4 Non-GAAP financial measure. Refer to "Non-GAAP Financial Measures" below for further details.

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Non-GAAP operating income attributable to Enstar ordinary shareholders was $574.4 million for the three months ended September 30, 2020. This was primarily driven by net realized and unrealized gains on our other investments of $432.7 million and earnings from equity method investments of $149.1 million.

Nine months ended September 30, 2020

Consolidated net earnings attributable to Enstar ordinary shareholders was $896.7 million for the nine months ended September 30, 2020. The most significant drivers of our financial performance included:

•Net realized and unrealized gains of $838.6 million, primarily comprised of unrealized gains in the InRe Fund, private equity and private debt funds, and fixed income funds, partially offset by losses in our equity funds, CLO equities and CLO equity funds, due to the disruption in global financial markets associated with the COVID-19 pandemic;

•Net investment income of $241.3 million, primarily driven by an increase of $591.0 million in our average aggregate fixed maturities and cash and cash equivalents as a result of new business; and

•Earnings from equity method investments of $152.7 million, primarily driven by our investments in Enhanzed Re and Monument Re; partially offset by

•Net incurred losses and LAE of $339.7 million, which included net incurred losses and LAE of $314.1 million related to current period net earned premium and $25.6 million related to prior periods primarily driven by unfavorable changes in the fair value of liabilities for which we have elected the fair value option as a result of narrowing credit spreads on corporate bond yields in the period. This was partially offset by a reduction in estimates of net ultimate losses relating to prior periods.

Non-GAAP operating income attributable to Enstar ordinary shareholders was $804.2 million for the nine months ended September 30, 2020. This was primarily attributable to net realized and unrealized gains on the InRe Fund, other investments and equities of $631.5 million and earnings from equity method investments of $152.7 million.

Key Performance Indicator

Our primary corporate objective is growing our book value per share, and we believe that long-term growth in fully diluted book value per share is the most appropriate measure of our financial performance.

During the nine months ended September 30, 2021, our fully diluted book value per ordinary share increased by 9.2% to $307.09. The table below summarizes the calculation of our fully diluted book value per ordinary share:


	September 30, 2021		December 31, 2020		Change
	(In thousands of U.S. dollars, except share and per share data)
Numerator:
Total Enstar shareholder's equity	$	6,079,865	$	6,674,395	$	(594,530)
Less: Series D and E preferred shares	510,000		510,000		—
Total Enstar ordinary shareholders' equity (A)	5,569,865		6,164,395		(594,530)
Proceeds from assumed conversion of warrants(1)	—		20,229		(20,229)
Numerator for fully diluted book value per ordinary share calculations (B)	$	5,569,865	$	6,184,624	$	(614,759)

Denominator:
Ordinary shares outstanding (C) (2)	17,817,704		21,519,602		(3,701,898)
Effect of dilutive securities:
Share-based compensation plans (3)	319,855		298,095		21,760
Warrants(1)	—		175,901		(175,901)
Fully diluted ordinary shares outstanding (D)	18,137,559		21,993,598		(3,856,039)

Book value per ordinary share:
Basic book value per ordinary share = (A) / (C)	$	312.60	$	286.45	$	26.15
Fully diluted book value per ordinary share = (B) / (D)	$	307.09	$	281.20	$	25.89

(1) Warrants to acquire 175,901 Series C Non-Voting Ordinary Shares for an exercise price of $115.00 per share were exercised on a non-cash

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basis during the nine months ended September 30, 2021, which resulted in a total of 89,590 Series C Non-Voting Ordinary Shares being issued in the period.

(2) Ordinary shares outstanding includes voting and non-voting shares but excludes ordinary shares held in the Enstar Group Limited Employee Benefit Trust (the "EB Trust") in respect of awards made under our JSOP.

(3) Share-based dilutive securities include restricted shares, restricted share units, and performance share units ("PSUs"). The amounts for PSUs and ordinary shares held in the EB Trust in respect of the JSOP are adjusted at the end of each period end to reflect the latest estimated performance multipliers for the respective awards. The JSOP shares did not have a dilutive effect as of September 30, 2021.

Non-GAAP Financial Measures

Our non-GAAP measures shown below enable readers of the condensed consolidated financial statements to analyze our results in a way that is more aligned with the manner in which our management measures our underlying performance. We believe that presenting these non-GAAP financial measures, which may be defined and calculated differently by other companies, improves the understanding of our consolidated results of operations. These measures should not be viewed as a substitute for those calculated in accordance with U.S. GAAP.

Non-GAAP Operating Income

In addition to presenting net earnings (loss) attributable to Enstar ordinary shareholders and diluted earnings (loss) per ordinary share determined in accordance with U.S. GAAP, we believe that presenting non-GAAP operating income (loss) attributable to Enstar ordinary shareholders and non-GAAP diluted operating income (loss) per ordinary share provides investors with valuable measures of our performance.

Non-GAAP operating income (loss) attributable to Enstar ordinary shareholders is calculated by the addition or subtraction of certain items from within our consolidated statements of earnings to or from net earnings (loss) attributable to Enstar ordinary shareholders, the most directly comparable GAAP financial measure, as illustrated in the table below:

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	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
	(expressed in thousands of U.S. dollars, except share and per share data)
Net earnings (loss) attributable to Enstar ordinary shareholders	$	(195,958)	$	615,013	$	364,565	$	896,745
Adjustments:
Net realized and unrealized (gains) losses on fixed maturity investments and funds held - directly managed (1)	86,816		(67,294)		182,855		(207,097)
Change in fair value of insurance contracts for which we have elected the fair value option	(10,877)		21,042		(68,636)		96,848
Net gain on purchase and sales of subsidiaries	(46,688)		—		(61,582)		—
Net earnings from discontinued operations	—		(4,031)		—		(810)
Tax effects of adjustments (2)	(3,317)		5,771		(14,596)		19,070
Adjustments attributable to noncontrolling interest (3)	(6,013)		3,881		(4,372)		(536)
Non-GAAP operating income (loss) attributable to Enstar ordinary shareholders (4)	$	(176,037)	$	574,382	$	398,234	$	804,220

Diluted net earnings (loss) per ordinary share (5)	$	(10.68)	$	28.24	$	17.53	$	41.14
Adjustments:
Net realized and unrealized (gains) losses on fixed maturity investments and funds held - directly managed (1)	4.73		(3.09)		8.79		(9.50)
Change in fair value of insurance contracts for which we have elected the fair value option	(0.59)		0.97		(3.30)		4.44
Net gain on purchase and sales of subsidiaries	(2.54)		—		(2.96)		—
Net earnings from discontinued operations	—		(0.19)		—		(0.04)
Tax effects of adjustments (2)	(0.18)		0.26		(0.70)		0.87
Adjustments attributable to noncontrolling interest (3)	(0.33)		0.18		(0.21)		(0.02)
Diluted non-GAAP operating income (loss) per ordinary share (4) (5)	$	(9.59)	$	26.37	$	19.15	$	36.89

Weighted average ordinary shares outstanding:
Basic	18,349,483		21,578,106		20,502,755		21,564,447
Diluted	18,548,368		21,778,729		20,793,640		21,799,627

(1) Represents the net realized and unrealized gains and losses related to fixed maturity securities recognized in net earnings (loss). Our fixed maturity securities are held directly on our balance sheet and also within the "Funds held - directly managed" balance. Refer to Note 5 - "Investments" to our condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q for further details on our net realized and unrealized gains and losses.

(2) Represents an aggregation of the tax expense or benefit associated with the specific country to which the pre-tax adjustment relates, calculated at the applicable jurisdictional tax rate.

(3) Represents the impact of the adjustments on the net earnings (loss) attributable to noncontrolling interest associated with the specific subsidiaries to which the adjustments relate.

(4) Non-GAAP financial measure.

(5) During a period of loss, the basic weighted average ordinary shares outstanding is used in the denominator of the diluted loss per ordinary share computation as the effect of including potentially dilutive securities would be anti-dilutive.

Non-GAAP operating income (loss) is net earnings (loss) attributable to Enstar ordinary shareholders excluding:

(i) net realized and unrealized (gains) losses on fixed maturity investments and funds held - directly managed included in net earnings (loss);

(ii) change in fair value of insurance contracts for which we have elected the fair value option;

(iii) (gain) loss on purchases and sales of subsidiaries, if any;

(iv) net (earnings) loss from discontinued operations, if any;

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(v) tax effect of these adjustments, where applicable; and

(vi) attribution of share of adjustments to noncontrolling interest, where applicable.

We eliminate the impact of net realized and unrealized (gains) losses on fixed maturity investments and funds held - directly managed and change in fair value of insurance contracts for which we have elected the fair value option because these items are subject to significant fluctuations in fair value from period to period, driven primarily by market conditions and general economic conditions, and therefore their impact on our earnings is not reflective of the performance of our core operations.

We eliminate the impact of (gain) loss on purchases and sales of subsidiaries and net (earnings) loss on discontinued operations because these are not reflective of the performance of our core operations.

Diluted Non-GAAP operating income (loss) per ordinary share is diluted net earnings (loss) per ordinary share excluding the per diluted share amounts of each of the adjustments used to calculate non-GAAP operating income (loss).

Reserve/Claims Savings

Reserve/Claims Savings is a non-GAAP measure calculated using components of amounts determined in accordance with U.S. GAAP for our Run-off segment. Reserve/Claims Savings is calculated by adding:

(i) the reduction (increase) in estimates of net ultimate losses relating to prior periods, included in net incurred losses and LAE, and

(ii) the reduction (increase) in estimates of ultimate net defendant asbestos and environmental (“defendant A&E”) liabilities relating to prior periods, included in other income (expense).

Because the reduction (increase) in estimates of ultimate defendant A&E liabilities for prior periods is presented as a component of other income (expense) in our consolidated statement of earnings, there is not a U.S. GAAP measure that is directly comparable to Reserve/Claims Savings presented on a non-GAAP basis.

However, we believe Reserve/Claims Savings provides investors with a meaningful measure of claims management performance within our Run-off segment that is consistent with management’s view of the business because it combines the reduction (increase) in estimates of net ultimate losses related to our direct exposure to certain acquired asbestos and environmental liabilities with the reduction (increase) in estimates of net ultimate losses related to liabilities that we have insured.

For a reconciliation showing the calculation of Reserve/Claims Savings using the applicable components of amounts determined in accordance with U.S. GAAP for our Run-off segment, refer to "Results of Operations by Segment - Run-off Segment" below.

Current Outlook

As with others in our industry, we are subject to economic factors such as interest rates, inflationary pressures, market volatility, foreign exchange rates, underwriting events, regulation, tax policy changes, political risks and other market risks that can impact our strategy and operations. For additional information on these risks, refer to "Item 1A. Risk Factors - Risks Relating to our Run-off Business" in our Annual Report on Form 10-K for the year ended December 31, 2020.

COVID-19

The evolving COVID-19 pandemic, which began to affect the Company late in the first quarter of 2020, has caused significant disruption in global financial markets and economies worldwide.

Although the overall financial and operational impact to us has been minimal to-date, with virtually all of our employees working remotely or on an agile basis, the scope, duration and magnitude of the direct and indirect effects of the COVID-19 pandemic are highly uncertain and difficult or impossible to anticipate.

We remain focused on implementing our active investment management strategies to deliver meaningful returns across our diversified investment portfolio. We anticipate continued volatility in the global investment markets as a result of the economic conditions and uncertainty stemming from the COVID-19 pandemic, which could have a significant impact on the return profile of our investments. These uncertainties include, among others, inflationary pressures arising from the impact of monetary and fiscal policy measures adopted by governments seeking to stabilize the financial markets, and the consequential impact on interest rates. Our other investments (which include equities, the InRe Fund, investments accounted for under equity method accounting and other non-fixed income investments) carry higher expected returns, have a longer investment time horizon, and provide diversification from our core fixed income portfolio. Given the higher risk and return profile of these investments, their returns can be more volatile over the short term relative to our core fixed income investments.

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In addition, investments that are accounted for under equity method typically report their financial statement information to the Company three months following the end of the reporting period. Accordingly, the potential effects of volatility across global financial markets, including the impact of the COVID-19 pandemic, on our private equity and equity method investments is generally reflected in our financial statements on a quarter lag basis.

During the nine months ended September 30, 2021, our Run-off and Legacy Underwriting segments incurred COVID-19 related net underwriting losses of $18.5 million5 and $0.4 million, respectively. Our Run-off segment experienced an increase in net incurred losses during the year due to our reevaluation of our gross and net exposure to COVID-19 pandemic related losses.

As of September 30, 2021, our Run-off, Enhanzed Re and Legacy Underwriting segments had COVID-19 related net loss reserves of $83.7 million, $56.1 million and $4.2 million, respectively. $10.0 million of the Run-off segment's COVID-19 related net loss reserves were assumed from the loss portfolio transfer and adverse development cover reinsurance agreement with StarStone U.S.

As a result of the wide-ranging uncertainty and volatility of the COVID-19 pandemic, we are unable to predict its overall impact on our results for the remainder of 2021.

Enhanzed Re

Upon completion of the Step Acquisition of Enhanzed Re on September 1, 2021, we acquired future policyholder benefits of $1.5 billion. We may enter into further life and annuity reinsurance transactions which would increase our exposure to interest rate movements and longevity risks, as well as other risks associated with life reinsurance.

We also acquired Enhanzed Re's share of Allianz's catastrophe reinsurance business and associated net losses related to events occurring during 2021. This includes the German Floods, Hurricane Ida, the European Storms and the Texas Winter Storms, as well as net loss reserves relating to prior period loss events, which primarily relates to business interruption claims arising from COVID-19.

As a component of the acquired treaties remain in effect until the end of the year, we may be exposed to further significant catastrophe losses. Our results could also be impacted by net favorable or unfavorable current and prior period loss development.

We are currently evaluating this catastrophe business with a view to non-renew these treaties for 2022.

Transactions

We continue to evaluate transactions in our active pipeline including LPTs, ADCs, and other transaction types, including acquisitions, and seek opportunities to execute on creative and accretive transactions by offering innovative capital solutions that enable our clients to meet their capital and risk management objectives.

Investments

On October 15, 2021, we appointed a new investment manager to oversee the orderly wind down of the InRe Fund's remaining investment portfolio, which was $447.7 million as of September 30, 2021. We expect the liquidation of InRe Fund to be completed in an orderly manner as market conditions permit. As a result of the InRe Fund's exposure to global equity markets, including Chinese equities, market volatility could lead to realized losses as the InRe Fund is wound down.

5 Run-off segment COVID-19 related net underwriting losses of $18.5 million includes net incurred losses of $20.9 million, partially offset by reinstatement premiums of $2.5 million.

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Results of Operations by Segment - For the Three and Nine Months Ended September 30, 2021 and 2020

Upon completion of our strategic transactions related to both Atrium and StarStone, our segment structure was revised effective January 1, 2021.

Following the acquisition of Enhanzed Re on September 1, 2021, our business is organized into four reportable segments: (i) Run-off; (ii) Enhanzed Re; (iii) Investments; and (iv) Legacy Underwriting. In addition, our corporate and other activities, which do not qualify as an operating segment, include income and expense items that are not directly attributable to our reportable segments.

For a description of our segments and corporate and other activities, see Note 21 - "Segment Information" to our condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q.

The below table provides our results by segment and for our corporate and other activities:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2021		2020		Change		2021		2020		Change
	(in thousands of U.S. dollars)
Results by segment:
Run-off	$	46,537	$	33,845	$	12,692	$	88,732	$	99,098	$	(10,366)
Enhanzed Re (1)	—		—		—		—		—		—
Investments	(203,241)		692,241		(895,482)		418,609		1,184,671		(766,062)
Legacy Underwriting	—		29,458		(29,458)		—		(63,111)		63,111
Corporate and other	(39,254)		(140,531)		101,277		(142,776)		(323,913)		181,137
Net earnings (loss) attributable to Enstar ordinary shareholders	$	(195,958)	$	615,013	$	(810,971)	$	364,565	$	896,745	$	(532,180)

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

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Run-off Segment

The following is a discussion and analysis of the results of operations for our Run-off segment.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2021		2020		Change		2021		2020		Change
INCOME	(in thousands of U.S. dollars)
Net premiums earned	$	38,880	$	17,476	$	21,404	$	154,120	$	44,023	$	110,097
Fees and commission income	6,653		3,637		3,016		24,525		12,588		11,937
Other income	5,979		55,659		(49,680)		23,490		84,321		(60,831)
	51,512		76,772		(25,260)		202,135		140,932		61,203
EXPENSES
Net incurred losses and LAE	(50,140)		(1,976)		(48,164)		(62,512)		(89,418)		26,906
Acquisition costs	8,053		2,730		5,323		37,124		13,226		23,898
General and administrative expenses	47,062		42,173		4,889		138,791		118,026		20,765
	4,975		42,927		(37,952)		113,403		41,834		71,569
SEGMENT INCOME	$	46,537	$	33,845	$	12,692	$	88,732	$	99,098	$	(10,366)

Supplemental information:
Reconciliation of reserve/claims savings to GAAP line items in the Run-off segment:

Net incurred losses and LAE:
Reduction (increase) in estimates of net ultimate losses - prior periods (A)	$	72,302	$	(4,411)	$	76,713	$	139,365	$	79,062	$	60,303
Increase in estimates of net ultimate losses - current period	(35,020)		(8,218)		(26,802)		(118,155)		(24,153)		(94,002)
Reduction in provisions for unallocated LAE	12,858		14,605		(1,747)		41,302		34,509		6,793
Net incurred losses and LAE	50,140		1,976		48,164		62,512		89,418		(26,906)

Other income:
Reduction in estimates of net ultimate defendant A&E liabilities - prior periods (B)	4,983		48,439		(43,456)		18,985		75,332		(56,347)
Reduction in estimated future defendant A&E expenses	997		3,124		(2,127)		4,505		6,127		(1,622)
All other income	(1)		4,096		(4,097)		—		2,862		(2,862)
Other income	5,979		55,659		(49,680)		23,490		84,321		(60,831)

Reserve/claims savings: total reduction in net ultimate losses (1) = (A) + (B)	$	77,285	$	44,028	$	33,257	$	158,350	$	154,394	$	3,956

(1) Non-GAAP financial measure. Refer to "Non-GAAP Financial Measures" above for further details.

Overall Results

Three Months Ended September 30, 2021 versus 2020: Segment income from our Run-off segment increased by $12.7 million for the three months ended September 30, 2021 compared to the same period in 2020. The increase in segment income was primarily due to a reduction in estimates of prior period net ultimate losses as a result of favorable development on large professional indemnity/directors and officers claims as well as continued favorable loss emergence, notably in the workers' compensation and construction defect lines, in addition to increases in premiums earned from StarStone International business and new business transactions executed in this and recent periods. The increase in segment income was partially offset by a decrease in other income as a result of a lower reduction in the estimates of ultimate net liabilities relating to our defendant asbestos and environmental exposures in the current period versus the comparative period.

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Nine Months Ended September 30, 2021 versus 2020: Segment income from our Run-off segment decreased by $10.4 million for the nine months ended September 30, 2021 compared to the same period in 2020. The decrease in segment income was primarily due to a decrease in other income as a result of a lower reduction in the estimates of ultimate net liabilities relating to our defendant asbestos and environmental exposures in the current period versus the comparative period, and increases in current period net incurred losses and LAE, acquisition costs and general and administrative expenses relating to the run-off of StarStone International business, which was transferred from the Legacy Underwriting segment on January 1, 2021. This was partially offset by premiums earned from StarStone International business and new business transactions executed in this and recent periods and higher favorable development on our Lloyd's syndicates relative to 2020.

Net Premiums Earned

The following table shows the gross and net premiums written and earned for the Run-off segment.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2021		2020		Change		2021		2020		Change
	(in thousands of U.S. dollars)
Gross premiums written	$	(2,074)	$	3,535	$	(5,609)	$	28,110	$	1,707	$	26,403
Ceded premiums written	4,353		(111)		4,464		(11,172)		690		(11,862)
Net premiums written	2,279		3,424		(1,145)		16,938		2,397		14,541

Gross premiums earned	$	42,522	$	20,426	22,096		$	198,292	$	52,899	145,393
Ceded premiums earned	(3,642)		(2,950)		(692)		(44,172)		(8,876)		(35,296)
Net premiums earned	$	38,880	$	17,476	21,404		$	154,120	$	44,023	110,097

Since 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 transactions during the year and the run-off of unearned premiums from transactions completed in recent years. Premiums earned in this segment are generally offset by net incurred losses and LAE related to the premiums. Premiums earned may be higher than premiums written as we may acquire or assume unearned premium without the writing of gross premiums.

Three Months Ended September 30, 2021 versus 2020: Net premiums earned of $38.9 million in 2021 included $16.9 million of premiums from StarStone International whereas net premiums earned in 2020 were primarily related to the AmTrust RITC transactions assumed in 2019.

Nine Months Ended September 30, 2021 versus 2020: Net premiums earned of $154.1 million in 2021 included $89.7 million of premiums from StarStone International whereas net premiums earned in 2020 were primarily related to the AmTrust RITC transactions assumed in 2019.

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Net Incurred Losses and LAE:

The following tables show the components of net incurred losses and LAE for the Run-off segment.


	Three Months Ended September 30,
	2021						2020
	Prior Periods		Current Period		Total		Prior Periods		Current Period		Total
	(in thousands of U.S. dollars)
Net losses paid	$	284,216	$	3,107	$	287,323	$	283,143	$	739	$	283,882
Net change in case and LAE reserves (1)	(174,118)		17,192		(156,926)		(49,854)		(33)		(49,887)
Net change in IBNR reserves (2)	(182,400)		14,721		(167,679)		(228,878)		7,512		(221,366)
Increase (reduction) in estimates of net ultimate losses	(72,302)		35,020		(37,282)		4,411		8,218		12,629

Increase (reduction) in provisions for unallocated LAE(3)	(13,606)		748		(12,858)		(14,605)		—		(14,605)



Net incurred losses and LAE	$	(85,908)	$	35,768	$	(50,140)	$	(10,194)	$	8,218	$	(1,976)

(1) Comprises the movement during the year in specific case reserve liabilities as a result of claims settlements or changes advised to us by our policyholders and attorneys, less changes in case reserves recoverable advised by us to our reinsurers as a result of the settlement or movement of assumed claims.

(2) Represents the gross change in our actuarial estimates of IBNR, less amounts recoverable.

(3) Represents the change in the estimate of the total future costs to administer the claims.

Three Months Ended September 30, 2021: Current period net incurred losses and LAE of $35.8 million primarily related to the net earned premium from the run-off of StarStone International business which was transferred from the Legacy Underwriting segment on January 1, 2021. The reduction in estimates of net ultimate losses relating to prior periods of $72.3 million was primarily related to favorable development on large professional indemnity/directors and officers claims as well as continued favorable loss emergence, notably in the workers’ compensation and construction defect lines.

Three Months Ended September 30, 2020: Current period net incurred losses and LAE of $8.2 million related to current period net earned premium, primarily in respect of the run-off of the AmTrust RITC transactions. Net ultimate losses relating to prior periods increased by $4.4 million primarily due to unfavorable development of $128.4 million within our motor line of business which was largely offset by favorable development across workers' compensation and other lines of business.


	Nine Months Ended September 30,
	2021						2020
	Prior Periods		Current Period		Total		Prior Periods		Current Period		Total
	(in thousands of U.S. dollars)
Net losses paid	$	969,283	$	5,863	$	975,146	$	824,473	$	1,777	$	826,250
Net change in case and LAE reserves (1)	(421,265)		22,229		(399,036)		(301,382)		809		(300,573)
Net change in IBNR reserves (2)	(687,383)		90,063		(597,320)		(602,153)		21,567		(580,586)
Increase (reduction) in estimates of net ultimate losses	(139,365)		118,155		(21,210)		(79,062)		24,153		(54,909)

Increase (reduction) in provisions for unallocated LAE(3)	(44,485)		3,183		(41,302)		(34,509)		—		(34,509)



Net incurred losses and LAE	$	(183,850)	$	121,338	$	(62,512)	$	(113,571)	$	24,153	$	(89,418)

(1) Comprises the movement during the year in specific case reserve liabilities as a result of claims settlements or changes advised to us by our policyholders and attorneys, less changes in case reserves recoverable advised by us to our reinsurers as a result of the settlement or movement of assumed claims.

(2) Represents the gross change in our actuarial estimates of IBNR, less amounts recoverable.

(3) Represents the change in the estimate of the total future costs to administer the claims.

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Nine Months Ended September 30, 2021: Current period net incurred losses and LAE of $121.3 million related to current period net earned premium, primarily in respect of the run-off of StarStone International business which was transferred from the Legacy Underwriting segment on January 1, 2021. The reduction in estimates of net ultimate losses relating to prior periods of $139.4 million was primarily related to favorable development in our professional indemnity/directors and officers line of business across our Lloyd's portfolios arising from a change in ultimates and reductions in case reserve estimates for large claims, continued favorable loss emergence in our workers' compensation and general casualty lines of business as well as favorable development across multiple StarStone International books of business. Partially offsetting this favorable development was an increase in net incurred losses of $20.9 million due to our reevaluation of our gross and net exposure on COVID-19 pandemic related losses.

Nine Months Ended September 30, 2020: Current period net incurred losses and LAE of $24.2 million related to current period net earned premium, primarily in respect of the run-off of the AmTrust RITC transactions. The reduction in estimates of net ultimate losses relating to prior periods of $79.1 million was largely attributable to favorable development within our workers' compensation as well as other lines of business, partially offset by unfavorable development of $122.4 million within our motor line of business.

Other Items

Three Months Ended September 30, 2021 versus 2020:

•Other income decreased by $49.7 million primarily driven by a more significant reduction in the estimate of ultimate net defendant A&E liabilities in the comparative period.

•General and administrative expenses increased by $4.9 million primarily a result of the transfer of the StarStone International business into the Run-off segment, in addition to an increase in claims costs. The increase in expenses was partially offset by reductions in performance-based salaries and benefits costs.

•Acquisition costs increased by $5.3 million primarily due to the transfer of StarStone International from the Legacy Underwriting segment on January 1, 2021.

Nine Months Ended September 30, 2021 versus 2020:

•Other income decreased by $60.8 million primarily driven by a more significant reduction in the estimates of ultimate net defendant A&E liabilities in the comparative period.

•Acquisition costs increased by $23.9 million primarily due to the transfer of StarStone International from the Legacy Underwriting segment on January 1, 2021.

•General and administrative expenses increased by $20.8 million primarily due to the transfer of the StarStone International business into the Run-off segment, in addition to an increase in claims costs. The increase in expenses was partially offset by reductions in performance-based salaries and benefits costs.

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Enhanzed Re Segment

On September 1, 2021, we acquired control of Enhanzed Re through a step acquisition. Prior to that date, the results of Enhanzed Re were recorded in earnings from equity method investments within the Investments segment. As we record Enhanzed Re's results on a one quarter lag, there are no Enhanzed Re operating results for the three and nine months ended September 30, 2021.

Investments Segment

The following is a discussion and analysis of the results of operations for our Investments segment by portfolio.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2021		2020		Change		2021		2020		Change
INCOME
Net investment income (1)	$	92,430	$	64,054	$	28,376	$	229,620	$	215,280	$	14,340
Net realized and unrealized gains (losses) (1)	(272,738)		486,671		(759,409)		112,793		838,483		(725,690)
	(180,308)		550,725		(731,033)		342,413		1,053,763		(711,350)
EXPENSES
General and administrative expenses	8,786		7,549		1,237		24,629		21,817		2,812
	8,786		7,549		1,237		24,629		21,817		2,812
EARNINGS (LOSS) BEFORE INTEREST EXPENSE, FOREIGN EXCHANGE AND INCOME TAXES	(189,094)		543,176		(732,270)		317,784		1,031,946		(714,162)
Earnings (loss) from equity method investments	(14,147)		149,065		(163,212)		100,825		152,725		(51,900)
SEGMENT INCOME (LOSS)	$	(203,241)	$	692,241	$	(895,482)	$	418,609	$	1,184,671	$	(766,062)

Supplemental information:

Net investment income (1)	$	92,430	$	64,054	$	28,376	$	229,620	$	215,280	$	14,340
Net realized and unrealized gains (losses) (1)	(272,738)		486,671		(759,409)		112,793		838,483		(725,690)
Total investment return included in net earnings (loss)	(180,308)		550,725		$	(731,033)	$	342,413	$	1,053,763	$	(711,350)

(1) Includes amounts attributable to the InRe Fund, refer to Note 12 - "Variable Interest Entities" to our condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q for additional information.

Overall Results

Three Months Ended September 30, 2021 versus 2020: Segment income from our Investments segment decreased by $895.5 million primarily due to net realized and unrealized losses of $272.7 million, representing a decrease of $759.4 million from net realized and unrealized gains of $486.7 million recorded in the comparative period.

The net realized and unrealized losses for the three months ended September 30, 2021 were primarily a result of net unrealized losses in the InRe Fund, principally driven by volatility in Chinese and other global equity markets.

The net realized and unrealized gains for the three months ended September 30, 2020 primarily comprised unrealized gains in the InRe Fund, fixed income funds, equity funds, CLO equities and CLO equity funds principally driven by tightening of credit spreads and a continued recovery of the global equity markets in the third quarter of 2020 as markets normalized after the COVID-related dislocation and spread widening experienced in the first quarter of 2020.

The segment loss for the three months ended September 30, 2021 was further driven by losses from equity method investments of $14.1 million, a decrease of $163.2 million from earnings of $149.1 million in the comparative period, primarily driven by Enhanzed Re losses of $22.1 million reflective of $74.7 million of catastrophe losses from the European storms, German Floods and worsening of COVID-19 claims recognized in

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the second quarter of 2021, partially offset by higher net investment income primarily due to the impact of favorable yield curve movements on its fixed income portfolio. The Enhanzed Re losses were partially offset by earnings from Core Specialty of $4.9 million.

Earnings from equity method investments for the three months ended September 30, 2020 were driven primarily by our investments in Enhanzed Re, which reflected significant net realized and unrealized gains on investments in the second quarter of 2020, and Monument Re.

Nine Months Ended September 30, 2021 versus 2020: Segment income from our Investments segment decreased by $766.1 million primarily due to a decrease in net realized and unrealized gains of $725.7 million.

Net realized and unrealized gains for the nine months ended September 30, 2021 were primarily a result of gains in private equity funds, fixed income funds and private debt funds, equity and equity funds and CLO equities, principally driven by a rally in risk assets and global equity markets as economies continued to re-open following the shutdowns related to the COVID-19 pandemic. The gains were partially offset by losses on fixed income securities driven by an increase in interest rates, partially offset by a tightening of credit spreads.

Net realized and unrealized gains for the nine months ended September 30, 2020 were driven by unrealized gains in the InRe Fund, private equity and private debt funds, and fixed income funds, partially offset by losses in our equity funds, CLO equities and CLO equity funds, due to the disruption in global financial markets associated with the COVID-19 pandemic.

The decrease in segment income for the nine months ended September 30, 2021 was further driven by a decrease in earnings from equity method investments of $51.9 million, primarily relating to a decrease in Enhanzed Re earnings as a result of the unfavorable impact of $74.7 million of catastrophe losses from the European storms and worsening of COVID-19 claims sustained in the second quarter of 2021, partially offsetting favorable results driven by significant net realized and unrealized gains on investments in the last quarter of 2020.

Earnings from equity method investments for the nine months ended September 30, 2020 were driven primarily by our investments in Enhanzed Re, which reflected significant net realized and unrealized gains on investments in the second and third quarters of 2020, and Monument Re.

Refer to "Investments Results - Consolidated" below for further details and discussion.

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Legacy Underwriting Segment

The following is a discussion and analysis of the results of operations for our Legacy Underwriting segment.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2021		2020		Change		2021		2020		Change
INCOME	(in thousands of U.S. dollars)
Net premiums earned	$	12,714	$	144,248	$	(131,534)	$	49,994	$	419,923	$	(369,929)
Fees and commission income	—		7,150		(7,150)		—		15,737		(15,737)
Net investment income	295		8,076		(7,781)		1,341		26,007		(24,666)
Net realized and unrealized gains (losses)	(527)		13,334		(13,861)		(1,626)		69		(1,695)
Other income (expense)	(2,029)		171		(2,200)		(11,096)		321		(11,417)
	10,453		172,979		(162,526)		38,613		462,057		(423,444)
EXPENSES
Net incurred losses and LAE	5,498		75,874		(70,376)		20,257		276,787		(256,530)
Acquisition costs	2,894		34,978		(32,084)		12,793		119,592		(106,799)
General and administrative expenses	2,061		32,669		(30,608)		5,563		128,789		(123,226)
	10,453		143,521		(133,068)		38,613		525,168		(486,555)
SEGMENT INCOME	$	—	$	29,458	$	(29,458)	$	—	$	(63,111)	$	63,111

Overall Results

Three and Nine Months Ended September 30, 2021 versus 2020: The results for 2021 comprise SGL No.1's 25% gross share of the 2020 and prior underwriting years of Atrium's syndicate 609 whereas the results for 2020 comprise SGL No.1's 25% net share of Atrium's syndicate 609 and StarStone International, which was transferred to the Run-off segment effective January 1, 2021.

As of January 1, 2021, SGL No.1 settles its share of the 2020 and prior underwriting years for the economic benefit of Atrium, and there is no net retention by Enstar.

Investment results are separately discussed below in "Investments Results - Consolidated."

Net Premiums Earned:

The following table provides gross and net premiums written and earned by line of business for the Legacy Underwriting segment.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2021		2020		Change		2021		2020		Change
	(in thousands of U.S. dollars)
Gross premiums written	$	7,496	$	107,942	$	(100,446)	$	48,585	$	458,923	$	(410,338)
Ceded premiums written	(3,926)		(17,807)		13,881		(26,534)		(92,526)		65,992
Net premiums written	3,570		90,135		(86,565)		22,051		366,397		(344,346)

Gross premiums earned	$	27,923	$	178,208	$	(150,285)	$	114,042	$	522,486	$	(408,444)
Ceded premiums earned	(15,209)		(33,960)		18,751		(64,048)		(102,563)		38,515
Net premiums earned	$	12,714	$	144,248	$	(131,534)	$	49,994	$	419,923	$	(369,929)

Three and Nine Months Ended September 30, 2021 versus 2020: Gross premiums written and net premiums earned each decreased in the 2021 periods primarily due to the transfer of StarStone International to the Run-off segment in 2021.

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Net Incurred Losses and LAE:

The following table shows the components of net incurred losses and LAE for the Legacy Underwriting segment.


	Three Months Ended September 30,
	2021						2020
	Prior Period		Current Period		Total		Prior Period		Current Period		Total
	(in thousands of U.S. dollars)
Net losses paid	$	5,816	$	219	$	6,035	$	60,917	$	16,455	$	77,372
Net change in case and LAE reserves (1)	4,122		(2,326)		1,796		(22,833)		31,093		8,260
Net change in IBNR reserves (2)	(10,518)		8,518		(2,000)		(32,706)		27,997		(4,709)
Increase (reduction) in estimates of net ultimate losses	(580)		6,411		5,831		5,378		75,545		80,923
Increase (reduction) in provisions for unallocated LAE (3)	(548)		215		(333)		(251)		(4,798)		(5,049)

Net incurred losses and LAE	$	(1,128)	$	6,626	$	5,498	$	5,127	$	70,747	$	75,874


	Nine Months Ended September 30,
	2021						2020
	Prior Period		Current Period		Total		Prior Period		Current Period		Total
	(in thousands of U.S. dollars)
Net losses paid	$	11,446	$	9,857	$	21,303	$	245,590	$	30,527	$	276,117
Net change in case and LAE reserves (1)	(570)		(141)		(711)		(96,173)		39,886		(56,287)
Net change in IBNR reserves (2)	(13,822)		14,510		688		(162,492)		196,003		33,511
Increase (reduction) in estimates of net ultimate losses	(2,946)		24,226		21,280		(13,075)		266,416		253,341
Increase (reduction) in provisions for unallocated LAE (3)	(1,078)		55		(1,023)		(68)		23,514		23,446

Net incurred losses and LAE	$	(4,024)	$	24,281	$	20,257	$	(13,143)	$	289,930	$	276,787

(2)Represents the gross change in our actuarial estimates of IBNR, less amounts recoverable.

(3) Represents the change in the estimate of the total future costs to administer the claims.

Three and Nine Months Ended September 30, 2021 versus 2020: Net incurred losses and LAE decreased by $70.4 million and $256.5 million for the three and nine months ended September 30, 2021 compared to 2020, respectively, primarily due to the transfer of StarStone International to the Run-off segment in 2021. Net incurred losses for the three and nine months ended September 30, 2020 included $2.9 million and $37.1 million, respectively, of losses related to the COVID-19 pandemic.

Other Items

Three and Nine Months Ended September 30, 2021 versus 2020: The decrease in acquisition costs of $32.1 million and $106.8 million, respectively, and general and administrative expenses of $30.6 million and $123.2 million, respectively, was primarily driven by the decision to place StarStone International into run-off and the related subsequent transfer of StarStone International to the Run-off segment.

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Corporate and Other

The following is a discussion and analysis of our results of operations for our corporate and other activities.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2021		2020		Change		2021		2020		Change

INCOME	(in thousands of U.S. dollars)
Other income (expense) (1)	$	1,328	$	(7,426)	$	8,754	$	(9,924)	$	(16,881)	$	6,957
Net gain on purchase and sales of subsidiaries	46,688		—		46,688		61,582		—		61,582
	48,016		(7,426)		55,442		51,658		(16,881)		68,539
EXPENSES
Net incurred losses and LAE (2)	17,931		35,788		(17,857)		(659)		152,309		(152,968)

General and administrative expenses	35,590		33,437		2,153		100,233		90,454		9,779
	53,521		69,225		(15,704)		99,574		242,763		(143,189)
LOSS BEFORE INTEREST EXPENSE, FOREIGN EXCHANGE AND INCOME TAXES	(5,505)		(76,651)		71,146		(47,916)		(259,644)		211,728
Interest expense	(18,158)		(15,003)		(3,155)		(50,638)		(42,436)		(8,202)
Net foreign exchange gains (losses)	2,584		(8,156)		10,740		9,089		(1,375)		10,464
Income tax (expense)	(9,839)		(13,915)		4,076		(13,279)		(25,295)		12,016
Net earnings from discontinued operations, net of income taxes	—		4,031		(4,031)		—		810		(810)
Net loss (earnings) attributable to noncontrolling interest	589		(21,912)		22,501		(13,257)		30,802		(44,059)
Dividends on preferred shares	(8,925)		(8,925)		—		(26,775)		(26,775)		—
NET LOSS ATTRIBUTABLE TO ENSTAR ORDINARY SHAREHOLDERS	$	(39,254)	$	(140,531)	$	101,277	$	(142,776)	$	(323,913)	$	181,137

(1) Includes the amortization of fair value adjustments associated with the acquisition of DCo and Morse TEC.

(2) Includes the amortization of deferred charge assets and deferred gain liabilities on retroactive reinsurance contracts and fair value adjustments associated with the acquisition of companies and the changes in the fair value of liabilities related to our assumed retroactive reinsurance agreements for which we have elected the fair value option.

Overall Results

Three and Nine Months Ended September 30, 2021 versus 2020: Net loss from our corporate and other activities decreased by $101.3 million and $181.1 million for the three and nine months ended September 30, 2021 compared to 2020, respectively, primarily as a result of the net gain recognized on the purchase and sales of subsidiaries and favorable change in the value of the fair value option related to liabilities on our assumed retroactive reinsurance agreements for which we have elected the fair value option.

Net Incurred Losses and LAE

The following table shows the components of net incurred losses and LAE for corporate and other activities.


	Three Months Ended September 30,		Nine Months Ended September 30,
	2021			2020		2021		2020
	(in thousands of U.S. dollars)







Amortization of deferred charges and gains (1)	$	24,021		$	9,882	$	55,101	$	34,615
Amortization of fair value adjustments (2)	4,787			4,864		12,876		20,846
Changes in fair value - fair value option (3)	(10,877)			21,042		(68,636)		96,848
Net incurred losses and LAE	$	17,931		$	35,788	$	(659)	$	152,309

(1) Relates to the amortization of deferred charge assets and deferred gain liabilities on retroactive reinsurance contracts.

(2) Relates to the amortization of fair value adjustments associated with the acquisition of companies.

(3) Represents the changes in the fair value of liabilities related to our assumed retroactive reinsurance agreements for which we have elected the fair value option.

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Three and Nine Months Ended September 30, 2021 versus 2020: The reduction in net incurred losses and LAE of $17.9 million and $153.0 million, respectively, was primarily driven by the change in the fair value of liabilities for which we have elected the fair value option due to increases in corporate bond yields in the three and nine months ended September 30, 2021 compared to narrowing credit spreads in the three months ended September 30, 2020 and declining interest rates partially offset by widening credit spreads in the nine months ended September 30, 2020.

Other Items

Three Months Ended September 30, 2021 versus 2020:

•The net gain on purchase and sales of subsidiaries of $46.7 million represents the total gain recognized on the step acquisition of Enhanzed Re, comprised of gains recognized on bargain purchase, remeasurement of our previously held equity investment to fair value and the settlement of pre-existing relationships.

•The favorable change in net (earnings) loss attributable to noncontrolling interest of $22.5 million was due to losses in 2021, in comparison to earnings for the same period in 2020, for those companies where there is a noncontrolling interest.

•The favorable change in net foreign exchange gains (losses) of $10.7 million was primarily the result of increased volatility in foreign exchange markets associated with the COVID-19 pandemic and the resulting impact on non-U.S. dollar denominated investments and technical balances in 2020.

Nine Months Ended September 30, 2021 versus 2020:

•The net gain on purchase and sales of subsidiaries of $61.6 million has two components: i) the $46.7 million gain recognized on the step acquisition of Enhanzed Re and ii) the net gain on sales of subsidiaries of $14.9 million, primarily driven by a gain on the sale of SUL of $23.1 million, partially offset by a loss on the sale of Atrium of $7.8 million.

•The unfavorable change in net earnings (loss) attributable to noncontrolling interest of $44.1 million was due to higher earnings in 2021 for those companies where there is a noncontrolling interest.

•The favorable change in income tax expense of $12.0 million was driven by lower taxable earnings in the U.K. and tax benefits arising from a reduction to deferred tax liabilities as a result of the change in the tax status of a U.K.-based entity.

Discontinued Operations (StarStone U.S.):

Three and Nine Months Ended September 30, 2020: The sale of StarStone U.S. was completed on November 30, 2020. The StarStone U.S. business, included in discontinued operations, includes the results of intra-group reinsurance cessions which were non-renewed as of January 1, 2018. The effect of these intra-group reinsurance cessions on net earnings, net of income taxes for the StarStone U.S. business was as follows:


	Three Months Ended		Nine Months Ended
	September 30, 2020		September 30, 2020
	(in thousands of U.S. dollars)
StarStone U.S. Group net earnings before Intra-Group Cessions	$	6,192	$	24,386
Intra-Group Cessions	(2,161)		(23,576)
StarStone U.S. net earnings, net of income taxes	$	4,031	$	810

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Investable Assets

We define investable assets as the sum of total investments, cash and cash equivalents, restricted cash and cash equivalents, funds held and the net variable interest entity assets of the InRe Fund. 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. Funds held primarily consist of investment grade, liquid, fixed maturity securities of short-to-medium duration.

Investable assets were $21.9 billion as of September 30, 2021 as compared to $17.3 billion as of December 31, 2020, an increase of 26.6% primarily attributable to the step acquisition of Enhanzed Re and significant new business in 2021.

A description of our investment strategies is included in "Item 1. Business - Investments" in our Annual Report on Form 10-K for the year ended December 31, 2020.

Composition of Investable Assets

We strive to structure our investment holdings and the duration of our investments in a manner that recognizes our liquidity needs, including our obligation to pay losses and policyholder benefits.

We consider the duration characteristics of our liabilities in determining our selection of asset durations depending on our other investment strategies and to the extent practicable. If our liquidity needs or general liability profile change unexpectedly, we may adjust the structure of our investment portfolio to meet our revised expectations.

The following tables summarize the composition of total investable assets by segment and portfolio:


	September 30, 2021
	Investments						Legacy Underwriting		Total
	Run-off		Enhanzed Re		Total
	(in thousands of U.S. dollars)
Short-term investments, trading, at fair value	$	14,236	$	—	$	14,236	$	—	$	14,236
Short-term investments, AFS, at fair value	81,641		—		81,641		—		81,641
Fixed maturities, trading, at fair value	3,734,441		—		3,734,441		187,102		3,921,543

Fixed maturities, AFS, at fair value	5,378,152				5,378,152		944		5,379,096
Funds held - directly managed	1,386,753		1,669,639		3,056,392		—		3,056,392
Equities, at fair value	1,952,425		—		1,952,425		—		1,952,425
Other investments, at fair value	2,037,799		—		2,037,799		13,919		2,051,718

Equity method investments	505,488		—		505,488		—		505,488
Total investments	15,090,935		1,669,639		16,760,574		201,965		16,962,539
Cash and cash equivalents (including restricted cash)	2,004,648				2,004,648		30,043		2,034,691
Funds held by reinsured companies	2,344,010		29,099		2,373,109		36,912		2,410,021
Net variable interest entity assets of the InRe Fund (1)	447,726		—		447,726		—		447,726
Total investable assets	$	19,887,319	$	1,698,738	$	21,586,057	$	268,920	$	21,854,977

Duration (in years) (2)	4.64		16.39		5.85		2.32		5.89
Average credit rating (3)	A+		A-		A+		AA-		A+

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	December 31, 2020
	Investments		Legacy Underwriting	Total
	Run-off
	(in thousands of U.S. dollars)
Short-term investments, trading, at fair value	$	5,129			$	—	$	5,129
Short-term investments, AFS, at fair value	263,795				—		263,795
Fixed maturities, trading, at fair value	4,145,956				448,936		4,594,892

Fixed maturities, AFS, at fair value	3,194,327				200,773		3,395,100
Funds held - directly managed	1,074,890				—		1,074,890
Equities, at fair value	773,744				73,051		846,795
Other investments, at fair value	4,146,271				97,763		4,244,034

Equity method investments	597,295				235,000		832,295
Total investments	14,201,407				1,055,523		15,256,930
Cash and cash equivalents (including restricted cash)	1,112,273				260,843		1,373,116
Funds held by reinsured companies	553,973				81,846		635,819

Total investable assets	$	15,867,653			$	1,398,212	$	17,265,865

Duration (in years) (2)	5.09				1.96		4.82
Average credit rating (3)	A+				AA-		A+

(1) Effective April 1, 2021, the InRe Fund was consolidated by us. As a result, the carrying amounts of the assets and liabilities of the InRe Fund are presented separately in “variable interest entity assets of the InRe Fund” and “variable interest liabilities of the InRe Fund” within the condensed consolidated balance sheet as of September 30, 2021. Refer to Note 12 - "Variable Interest Entities" to our condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q for further information.

(2) The duration calculation includes cash and cash equivalents, short-term investments, fixed maturities and the fixed maturities within our funds held - directly managed portfolios at September 30, 2021 and December 31, 2020.

(3) The average credit ratings calculation includes cash and cash equivalents, short-term investments, fixed maturities and the fixed maturities within our funds held - directly managed portfolios at September 30, 2021 and December 31, 2020.

As of both September 30, 2021 and December 31, 2020, our fixed income investment portfolio, including funds held - directly managed, had an average credit quality rating of A+.

As of September 30, 2021 and December 31, 2020, our fixed maturity investments (classified as trading and AFS and our fixed maturity investments included within funds held - directly managed) that were non-investment grade (i.e. rated lower than BBB- and non-rated securities) comprised 3.9% and 3.7%, respectively, of our total fixed maturity investment portfolio.

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Composition of Investment Portfolio By Asset Class

The following tables summarize the composition of our investment portfolio by asset class:


							September 30, 2021				December 31, 2020

							Total		%		Total		%
							(in thousands of U.S. dollars, except percentages)
Fixed maturity and short-term investments, trading and AFS and funds held - directly managed
U.S. government & agency							$	848,492	4.9	%	$	951,048	6.2	%
U.K. government							35,988		0.2	%	51,082		0.3	%
Other government							677,494		3.9	%	502,153		3.3	%
Corporate							6,721,668		38.7	%	5,686,732		37.3	%
Municipal							289,798		1.7	%	162,669		1.1	%
Residential mortgage-backed							602,217		3.5	%	553,945		3.6	%
Commercial mortgage-backed							1,080,582		6.2	%	854,090		5.6	%
Asset-backed							944,036		5.4	%	557,460		3.7	%
Structured products							1,033,097		6.0	%	—		—	%

Total							12,233,372		70.5	%	9,319,179		61.1	%

Other assets included within funds held - directly managed	219,536	1.3	%	14,627	0.1	%

Equities
Publicly traded equities							257,470		1.5	%	260,767		1.7	%
Exchange-traded funds							1,335,831		7.7	%	311,287		2.0	%
Privately held equities							359,124		2.1	%	274,741		1.8	%
Total							1,952,425		11.3	%	846,795		5.5	%

Other investments
Hedge funds (1)							215,378		1.2	%	2,638,339		17.3	%
Fixed income funds							597,982		3.4	%	552,541		3.6	%
Equity funds							4,831		—	%	190,767		1.3	%
Private equity funds							598,901		3.4	%	363,103		2.4	%
CLO equities							153,795		0.9	%	128,083		0.8	%
CLO equity funds							199,714		1.2	%	166,523		1.1	%
Private credit funds							230,004		1.3	%	192,319		1.3	%
Real estate debt fund							50,666		0.3	%	11,883		0.1	%

Other							447		—	%	476		—	%
Total							2,051,718		11.7	%	4,244,034		27.9	%

Equity method investments							505,488		2.9	%	832,295		5.4	%

Total investments							16,962,539		97.7	%	15,256,930		100.0	%

Fixed maturity investments, trading of the InRe Fund							58,996		0.3	%	—		—	%
Equities of the InRe Fund							337,988		2.0	%	—		—	%

Total investments of the InRe Fund (2)							396,984		2.3	%	—		—	%

Total investments, plus InRe Fund investments							$	17,359,523	100.0	%	$	15,256,930	100.0	%

(1) As of December 31, 2020, includes our investment in the InRe Fund of $2.4 billion.

(2) Effective April 1, 2021, the InRe Fund was consolidated by us. As a result, the carrying amounts of the assets and liabilities of the InRe Fund are presented separately in “variable interest entity assets of the InRe Fund” and “variable interest liabilities of the InRe Fund” within the condensed consolidated balance sheet as of September 30, 2021. Refer to Note 12 - "Variable Interest Entities" to our condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q for additional information.

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The amortized cost, gross unrealized gains and losses and the fair value of our short-term investments and fixed maturity investments were as follows:


					Gross Unrealized Losses
As of September 30, 2021	Amortized Cost		Gross Unrealized Gains		Non-Credit Related Losses		Allowance for Credit Losses		Fair Value
	(in thousands of U.S. dollars)
U.S. government and agency	$	847,653	$	8,619	$	(7,780)	$	—	$	848,492
U.K. government	35,916		806		(734)		—		35,988
Other government	671,438		20,305		(14,222)		(27)		677,494
Corporate	6,543,670		242,361		(59,536)		(4,827)		6,721,668
Municipal	274,218		16,892		(1,312)		—		289,798
Residential mortgage-backed	599,415		6,097		(3,293)		(2)		602,217
Commercial mortgage-backed	1,066,391		23,903		(9,670)		(42)		1,080,582
Asset-backed	947,989		2,415		(6,366)		(2)		944,036
Structured products	1,071,142		—		(38,045)		—		1,033,097

	12,057,832		321,398		(140,958)		(4,900)		12,233,372
InRe Fund (1)	63,808		221		(5,033)		—		58,996
	$	12,121,640	$	321,619	$	(145,991)	$	(4,900)	$	12,292,368


					Gross Unrealized Losses
As of December 31, 2020	Amortized Cost		Gross Unrealized Gains		Non-Credit Related Losses		Allowance for Credit Losses		Fair Value
	(in thousands of U.S. dollars)
U.S. government and agency	$	935,014	$	17,148	$	(1,114)	$	—	$	951,048
U.K. government	46,988		4,094		—		—		51,082
Other government	463,765		38,460		(72)		—		502,153
Corporate	5,226,238		463,459		(2,784)		(181)		5,686,732
Municipal	145,469		17,210		(10)		—		162,669
Residential mortgage-backed	545,628		9,640		(1,323)		—		553,945
Commercial mortgage-backed	828,155		37,318		(11,250)		(133)		854,090
Asset-backed	567,638		3,682		(13,852)		(8)		557,460




	$	8,758,895	$	591,011	$	(30,405)	$	(322)	$	9,319,179

We have historically accounted for our fixed income securities as a trading portfolio, whereby unrealized gains or losses are reflected in earnings. However, from October 1, 2019, we have also elected to use AFS accounting. As trading fixed income securities mature or are disposed, the proceeds are generally reinvested in fixed income securities classified as AFS securities for the Run-off portfolio of the Investments segment.6

The Enhanzed Re portfolio of the Investments segment is mainly classified as funds held-directly managed, whereby the unrealized gains or losses are reflected in earnings, consistent with a trading portfolio.

The difference in the treatment of the fixed income securities is that unrealized changes on investments classified as trading are recorded through earnings, whereas unrealized changes on investments classified as AFS are recorded directly to shareholders' equity as a component of other comprehensive income.

We may experience unrealized losses on our fixed maturity investments, depending on investment conditions and general economic conditions. Unrealized amounts would only become realized in the event of a sale of the specific securities prior to maturity, allowances for credit losses or a credit default. For further information on the

6 The investment results of StarStone International were included in the Legacy Underwriting segment prior to January 1, 2021 and the Investments segment from January 1, 2021.

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sensitivity of our portfolio to changes in interest rates, refer to the Interest Rate Risk section within "Item 3. Quantitative and Qualitative Disclosures About Market Risk", included within this Quarterly Report on Form 10-Q.

The following table summarizes the composition of our top ten corporate issuers included within our short-term and fixed maturity investments, classified as trading and AFS and the fixed maturity investments included within our funds held - directly managed balance as of September 30, 2021:

Fair Value

Average Credit Rating

(in thousands of U.S. dollars)

Bank of America Corp

164,539

JPMorgan Chase & Co

138,853

Citigroup Inc

128,036

A-

Morgan Stanley

118,201

Wells Fargo & Co

100,775

A+

Comcast Corp

92,918

A-

Apple Inc

73,929

AA+

AT&T Inc

61,600

BBB

Verizon Communications Inc

56,754

BBB+

HSBC Holdings PLC

56,466

A-

992,071

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Investment Results - Consolidated

Comparability of our investment results between periods is impacted by our significant new business.

The following tables summarize our consolidated investment results.


	Three Months Ended September 30, 2021
	Investments			Legacy Underwriting			Total

Net investment income:	(in thousands of U.S. dollars)
Fixed income securities (1)	$	70,384		$	629		$	71,013
Cash and restricted cash	(214)			(332)			(546)
Other investments, including equities	14,401			1			14,402
Less: Investment expenses	(5,359)			(2)			(5,361)
Net investment income (expense) of the InRe Fund (2)	13,217			—			13,217
Total net investment income	$	92,429		$	296		$	92,725

Net realized gains:
Fixed income securities (1)	$	18,804		$	48		$	18,852
Other investments, including equities	21,452			—			21,452
Net realized gains of the InRe Fund (2)	275,466			—			275,466
Total net realized gains	$	315,722		$	48		$	315,770

Net unrealized gains (losses):
Fixed income securities, trading (1)	$	(75,887)		$	(684)		$	(76,571)
Other investments, including equities	48,099			109			48,208
Net unrealized losses of the InRe Fund (2)	(560,672)			—			(560,672)

Total net unrealized losses	$	(588,460)		$	(575)		$	(589,035)

Total investment return included in earnings (A)	$	(180,309)		$	(231)		$	(180,540)

Other comprehensive loss:
Unrealized losses, on fixed income securities, AFS, net of reclassification adjustments excluding foreign exchange (B) (1)	$	(26,271)		$	(6)		$	(26,277)

Total investment return = (A) + (B)	$	(206,580)		$	(237)		$	(206,817)

Annualized income from fixed income assets (3)	$	280,680		$	1,188		$	281,868
Average aggregate fixed income assets, at cost (3)(4)	15,851,023			230,921			16,081,944
Annualized investment book yield	1.77		%	0.51		%	1.75		%

Average aggregate invested assets, at fair value (4)	$	20,696,999		$	247,121		$	20,944,120
Investment return included in net earnings	(0.87)		%	(0.09)		%	(0.86)		%
Total investment return	(1.00)		%	(0.10)		%	(0.99)		%

(1) Fixed income securities includes both trading and AFS short-term and fixed maturity investments as well as funds held - directly managed whereas fixed income securities, trading excludes AFS investments and fixed income securities, AFS excludes trading investments.

(2) Effective April 1, 2021, the InRe Fund was consolidated by us. Prior to this, all income or loss from the InRe Fund was determined by the change in net asset value (NAV) of our holdings in the fund, which was included within net unrealized gains (losses) from other investments, including equities. Prior period amounts have been reclassified to net unrealized gains (losses) of the InRe Fund to conform to current period presentation.

(3) Fixed income assets includes fixed income securities and cash and restricted cash.

(4) These amounts are an average of the amounts disclosed in our quarterly U.S. GAAP consolidated financial statements.

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	Three Months Ended September 30, 2020
	Investments			Legacy Underwriting			Total

Net investment income:	(in thousands of U.S. dollars)
Fixed income securities (1)	$	56,646		$	6,826		$	63,472
Cash and restricted cash	90			588			678
Other investments, including equities	9,162			1,609			10,771
Less: Investment expenses	(1,844)			(947)			(2,791)

Total net investment income	$	64,054		$	8,076		$	72,130

Net realized gains:
Fixed income securities (1)	$	42,761		$	2,395		$	45,156
Other investments, including equities	8,287			45			8,332

Total net realized gains	$	51,048		$	2,440		$	53,488

Net unrealized gains:
Fixed income securities, trading (1)	$	18,900		$	3,238		$	22,138
Other investments, including equities	107,520			7,656			115,176
Net unrealized gains of the InRe Fund (2)	309,203			—			309,203

Total net unrealized gains	$	435,623		$	10,894		$	446,517

Total investment return included in earnings (A)	$	550,725		$	21,410		$	572,135

Other comprehensive income:
Unrealized gains, on fixed income securities, AFS, net of reclassification adjustments excluding foreign exchange (B) (1)	$	2,484		$	464		$	2,948

Total investment return = (A) + (B)	$	553,209		$	21,874		$	575,083

Annualized income from fixed income assets (3)	$	226,944		$	29,656		$	256,600
Average aggregate fixed income assets, at cost (3)(4)	9,677,102			1,307,690			10,984,792
Annualized investment book yield	2.35		%	2.27		%	2.34		%

Average aggregate invested assets, at fair value (4)	$	14,009,838		$	1,519,172		$	15,529,010
Investment return included in net earnings	3.93		%	1.41		%	3.68		%
Total investment return	3.95		%	1.44		%	3.70		%

(3) Fixed income assets includes fixed income securities and cash and restricted cash.

(4) These amounts are an average of the amounts disclosed in our quarterly U.S. GAAP consolidated financial statements.

Net Investment Income

Three Months Ended September 30, 2021 versus 2020: Net investment income increased by $20.6 million primarily due to an increase in our average aggregate fixed income assets due to new business, which included the Hiscox, CNA, Liberty Mutual, AXA Group, Coca-Cola and ProSight transactions in 2021 and the Hannover Re and Munich Re transactions in 2020.

Furthermore, net investment income benefited from a reversal of previously accrued InRe Fund expenses of $14.3 million, which primarily include management and performance fee accruals which were previously included in the change in NAV prior to consolidation of the fund. The increase was partially offset by a 59 basis point decline in our annualized investment book yield, primarily due to reinvestment of fixed income securities at lower yields and time required to invest new premium.

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Net Realized and Unrealized Gains (Losses):

Three Months Ended September 30, 2021 versus 2020: Net realized and unrealized losses were $273.3 million for the three months ended September 30, 2021, compared to net realized and unrealized gains of $500.0 million for the three months ended September 30, 2020, a decrease of $773.3 million. Included in net realized and unrealized gains (losses) are the following items:

•Net realized and unrealized losses on fixed income securities, including fixed income securities within our funds held portfolios of $57.7 million for the three months ended September 30, 2021, compared to net realized and unrealized gains of $67.3 million for the three months ended September 30, 2020, a decrease of $125.0 million. The losses for the three months ended September 30, 2021 were primarily driven by rising interest rates, while the gains for the three months ended September 30, 2020 were primarily driven by a tightening in credit spreads as markets normalized after the COVID-related dislocation and spread widening experienced in the first quarter of 2020.

•Net realized and unrealized losses on other investments, including equities and the InRe Fund, of $215.5 million for the three months ended September 30, 2021, compared to net realized and unrealized gains of $432.7 million for the three months ended September 30, 2020, a decrease of $648.3 million. The net realized and unrealized losses for the three months ended September 30, 2021 were driven primarily by net unrealized losses in the InRe Fund, principally driven by volatility in Chinese and other global equity markets. The realized and unrealized gains for the three months ended September 30, 2020 primarily comprised unrealized gains in the InRe Fund, fixed income funds, equity funds, CLO equities and CLO equity funds principally driven by tightening credit spreads and a continued recovery of the global equity markets in the third quarter of 2020 as markets normalized after the COVID-related dislocation and spread widening experienced in the first quarter of 2020.

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The following tables summarize our investment results for the nine months ended September 30, 2021 and 2020:


	Nine Months Ended September 30, 2021
	Investments			Legacy Underwriting			Total

Net investment income:	(in thousands of U.S. dollars)
Fixed income securities (1)	$	207,840		$	1,874		$	209,714
Cash and restricted cash	(560)			(453)			(1,013)
Other investments, including equities	41,457			—			41,457
Less: Investment expenses	(12,164)			(79)			(12,243)
Net investment expense of the InRe Fund (2)	(6,954)			—			(6,954)
Total net investment income	$	229,619		$	1,342		$	230,961

Net realized gains:
Fixed income securities (1)	$	43,444		$	61		$	43,505
Other investments, including equities	21,435			—			21,435
Net realized gains of the InRe Fund (2)	597,171			—			597,171
Total net realized gains	$	662,050		$	61		$	662,111

Net unrealized gains (losses):
Fixed income securities, trading (1)	$	(230,076)		$	(2,067)		$	(232,143)
Other investments, including equities	269,859			380			270,239
Net unrealized losses of the InRe Fund (2)	(589,040)			—			(589,040)

Total net unrealized losses	$	(549,257)		$	(1,687)		$	(550,944)

Total investment return included in earnings (A)	$	342,412		$	(284)		$	342,128

Other comprehensive loss:
Unrealized losses, on fixed income securities, AFS, net of reclassification adjustments excluding foreign exchange (B) (1)	$	(73,117)		$	(61)		$	(73,178)

Total investment return = (A) + (B)	$	269,295		$	(345)		$	268,950

Annualized income from fixed income assets (3)	$	276,373		$	1,893		$	278,266
Average aggregate fixed income assets, at cost (3)(4)	14,278,235			228,170			14,506,405
Annualized investment book yield	1.94		%	0.83		%	1.92		%

Average aggregate invested assets, at fair value (4)	$	19,578,073		$	243,711		$	19,821,784
Investment return included in net earnings	1.75		%	(0.12)		%	1.73		%
Total investment return	1.38		%	(0.14)		%	1.36		%

(3) Fixed income assets includes fixed income securities and cash and restricted cash.

(4) These amounts are an average of the amounts disclosed in our quarterly U.S. GAAP condensed consolidated financial statements.

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	Nine Months Ended September 30, 2020
	Investments			Legacy Underwriting			Total

Net investment income:	(in thousands of U.S. dollars)
Fixed income securities (1)	$	192,998		$	21,132		$	214,130
Cash and restricted cash	2,332			1,214			3,546
Other investments, including equities	28,207			5,673			33,880
Less: Investment expenses	(8,257)			(2,012)			(10,269)

Total net investment income	$	215,280		$	26,007		$	241,287

Net realized gains:
Fixed income securities (1)	$	102,588		$	3,095		$	105,683
Other investments, including equities	7,579			1,632			9,211

Total net realized gains	$	110,167		$	4,727		$	114,894

Net unrealized gains (losses):
Fixed income securities, trading (1)	$	105,787		$	(4,373)		$	101,414
Other investments, including equities	(6,870)			(285)			(7,155)
Net unrealized gains of the InRe Fund (2)	629,399			—			629,399

Total net unrealized gains (losses)	$	728,316		$	(4,658)		$	723,658

Total investment return included in earnings (A)	$	1,053,763		$	26,076		$	1,079,839

Other comprehensive income:
Unrealized gains, on fixed income securities, AFS, net of reclassification adjustments excluding foreign exchange (B) (1)	$	41,683		$	2,046		$	43,729

Total investment return = (A) + (B)	$	1,095,446		$	28,122		$	1,123,568

Annualized income from fixed income assets (3)	$	260,440		$	29,795		$	290,235
Average aggregate fixed income assets, at cost (3)(4)	9,438,885			1,296,593			10,735,478
Annualized investment book yield	2.76		%	2.30		%	2.70		%

Average aggregate invested assets, at fair value (4)	$	13,072,825		$	1,518,373		$	14,591,198
Investment return included in net earnings	8.06		%	1.72		%	7.40		%
Total investment return	8.38		%	1.85		%	7.70		%

(3) Fixed income assets includes fixed income securities and cash and restricted cash.

(4) These amounts are an average of the amounts disclosed in our quarterly U.S. GAAP condensed consolidated financial statements.

Net Investment Income:

Nine Months Ended September 30, 2021 versus 2020: Net investment income decreased by $10.3 million, primarily due to a $4.4 million decrease in net investment income from fixed income securities and $7.0 million of expenses related to the InRe Fund. The InRe Fund expenses primarily include management and performance fee accruals which were previously included in the change in NAV prior to consolidation of the fund. Our annualized investment book yield declined by 78 basis points, primarily due to reinvestment of fixed income securities at lower yields and time required to invest new premium, partially offset by an increase in our average aggregate fixed income assets due to new business, which included the Hiscox, CNA, Liberty Mutual, AXA Group, Coca-Cola and ProSight transactions in 2021 and the Hannover Re, Munich Re, Aspen, AXA Group and Lyft transactions in 2020.

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Net Realized and Unrealized Gains:

Nine Months Ended September 30, 2021 versus 2020: Net realized and unrealized gains were $111.2 million for 2021, compared to $838.6 million for 2020, a decrease of $727.4 million. Included in net realized and unrealized gains are the following items:

•Net realized and unrealized losses on fixed income securities, including fixed income securities within our funds held portfolios, of $188.6 million for the nine months ended September 30, 2021, compared to net realized and unrealized gains of $207.1 million for the nine months ended September 30, 2020, a decrease of $395.7 million. The losses in the current period were primarily driven by an increase in interest rates partially offset by tightening of credit spreads. The gains in 2020 were due to a decline in interest rates partially offset by the widening of credit spreads;

•Net realized and unrealized gains on other investments, including equities and the InRe Fund, of $299.8 million for the nine months ended September 30, 2021, compared to gains of $631.5 million for the nine months ended September 30, 2020, a decrease of $331.7 million. The net realized and unrealized gains for the nine months ended September 30, 2021 were led by gains in private equity funds, fixed income funds and private debt funds, equity and equity funds and CLO equities, principally driven by a rally in risk assets and global equity markets as economies continued to re-open following the shutdowns related to the COVID-19 pandemic. The net realized and unrealized gains for the nine months ended September 30, 2020 primarily comprised of unrealized gains in the InRe Fund, private equity and private debt funds, and fixed income funds, partially offset by losses in our equity funds, CLO equities and CLO equity funds, due to the disruption in global financial markets associated with the COVID-19 pandemic.

Liquidity and Capital Resources

Overview

We aim to generate cash flows from our (re)insurance operations and investments, preserve sufficient capital for future acquisitions and new business, and develop relationships with lenders who provide borrowing capacity at competitive rates.

Our capital resources as of September 30, 2021 included ordinary shareholders' equity of $5.6 billion, preferred equity of $510.0 million, redeemable noncontrolling interest of $181.4 million, and debt obligations of $1.7 billion. Based on our current loss reserves position, our portfolios of in-force (re)insurance business, and our investment positions, we believe we are well capitalized.

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The following table details our capital position:


	September 30, 2021			December 31, 2020			Change
	(in thousands of U.S. dollars)
Ordinary shareholders' equity	$	5,569,865		$	6,164,395		$	(594,530)
Series D and E Preferred Shares	510,000			510,000			—
Total Enstar Shareholders' Equity (A)	6,079,865			6,674,395			(594,530)
Noncontrolling interest	227,072			13,609			213,463
Total Shareholders' Equity (B)	6,306,937			6,688,004			(381,067)

Senior Notes	1,269,369			843,447			425,922
Subordinated Notes	421,369			344,812			76,557
Revolving credit facility	—			185,000			(185,000)
Total debt (C)	1,690,738			1,373,259			317,479

Redeemable noncontrolling interest (D)	181,417			365,436			(184,019)

Total capitalization = (B) + (C) + (D)	$	8,179,092		$	8,426,699		$	(247,607)

Total capitalization attributable to Enstar = (A) + (C)	$	7,770,603		$	8,047,654		$	(277,051)

Debt to total capitalization	20.7		%	16.3		%	4.4		%
Debt and Series D and E Preferred Shares to total capitalization	26.9		%	22.3		%	4.6		%

Debt to total capitalization attributable to Enstar	21.8		%	17.1		%	4.7		%
Debt and Series D and E Preferred Shares to total capitalization attributable to Enstar	28.3		%	23.4		%	4.9		%

As of September 30, 2021, we had $1.6 billion of cash and cash equivalents, excluding restricted cash that supports (re)insurance operations, and included in this amount was $286.6 million held by our 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 by the United States.

Based on existing tax laws, regulations and our current intentions, there were no accruals as of September 30, 2021 for any material withholding taxes on dividends or other distributions.

Dividends

Historically, Enstar has not declared and has no current expectation to declare a dividend on its ordinary shares. Our strategy has been to retain earnings and invest distributions from operating subsidiaries into our business. We may re-evaluate this strategy from time to time based on overall market conditions and other factors.

We have issued 16,000 Series D Preferred Shares with an aggregate liquidation value of $400.0 million and 4,400 Series E Preferred Shares with an aggregate liquidation value of $110.0 million. The dividends on both Series of Preferred Shares are non-cumulative and may be paid quarterly in arrears on the first day of March, June, September and December of each year, only when, as and if declared.

Any payment of common or preferred dividends must be approved by our Board of Directors. Our ability to pay ordinary and preferred dividends is subject to certain restrictions.

Sources and Uses of Cash

Holding Company Liquidity

The potential sources of cash flows to Enstar as a holding company consist of cash flows from our subsidiaries including dividends, advances and loans, and interest income on loans to our subsidiaries. We also utilize our credit and loan facilities, and we have issued senior notes and preferred shares and guaranteed junior subordinated notes issued by one of our subsidiaries.

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On September 1, 2021, we acquired the obligations under Enhanzed Re's 5.50% Subordinated Notes due 2031 (the "2031 Subordinated Notes") which were issued to Allianz, Enhanzed Re's minority shareholder.

We use cash to fund new acquisitions of companies and significant new business. We also utilize cash for our operating expenses associated with being a public company and to pay dividends on our preference shares and interest and principal on loans from subsidiaries and on debt obligations, including loans under our credit facilities, our Senior and Junior Subordinated Notes and Enhanzed Re's 2031 Subordinated Notes (together with the Junior Subordinated Notes, the "Subordinated Notes").

Under the eligible capital rules of the Bermuda Monetary Authority, the Senior Notes qualify as Tier 3 capital and the Preferred Shares and Subordinated Notes qualify as Tier 2 capital when considering the Bermuda Solvency Capital Requirements.

We may, from time to time, raise capital from the issuance of equity, debt or other securities as we continuously evaluate our strategic opportunities. We filed an automatic shelf registration statement on August 17, 2020 with the U.S. Securities and Exchange Commission ("SEC") to allow us to conduct future offerings of certain securities, if desired, including debt, equity and other securities.

As we are a holding company and have no substantial operations of our own, our assets consist primarily of investments in subsidiaries and our loans and advances to subsidiaries. Dividends from our (re)insurance subsidiaries are restricted by (re)insurance laws and regulations, as described below. The ability of all of our subsidiaries to make distributions and transfers to us may also be restricted by, among other things, other applicable laws and regulations and the terms of our credit facilities and our subsidiaries' bank loans and other issued debt instruments.

U.S. Finance Company Liquidity

Enstar Finance LLC ("Enstar Finance") is a wholly-owned finance subsidiary and is dependent upon funds from other subsidiaries to pay any amounts due under the Junior Subordinated Notes. In addition, as noted above, we are a holding company that conducts substantially all of our operations through our subsidiaries. Our only significant assets are the capital stock of our subsidiaries. Because substantially all of our operations are conducted through our (re)insurance subsidiaries, substantially all of our consolidated assets are held by our subsidiaries and most of our cash flow, and, consequently, our ability to pay any amounts due under the guaranty of the Junior Subordinated Notes, is dependent upon the earnings of our subsidiaries and the transfer of funds by those subsidiaries to us in the form of distributions or loans.

In addition, the ability of our (re)insurance subsidiaries to make distributions or other transfers to Enstar Finance or us is limited by applicable insurance laws and regulations, as described below. These laws and regulations and the determinations by the regulators implementing them may significantly restrict such distributions and transfers, and, as a result, adversely affect the overall liquidity of Enstar Finance or us. The ability of all of our subsidiaries to make distributions and transfers to Enstar Finance and us may also be restricted by, among other things, other applicable laws and regulations and the terms of our credit facilities and our subsidiaries’ bank loans and other issued debt instruments.

Operating Company Liquidity

The ability of our (re)insurance subsidiaries to pay dividends and make other distributions is limited by the applicable laws and regulations of the jurisdictions in which our (re)insurance subsidiaries operate, including Bermuda, the United Kingdom, the United States, Australia and Continental Europe, which subject these subsidiaries to significant regulatory restrictions.

These laws and regulations require, among other things, certain of our (re)insurance subsidiaries to maintain minimum capital requirements and limit the amount of dividends and other payments that these subsidiaries can pay to us, which in turn may limit our ability to pay dividends and make other payments.

As of September 30, 2021, all of our (re)insurance subsidiaries’ capital requirement levels were in excess of the minimum levels required. Our subsidiaries' ability to pay dividends and make other forms of distributions may also be limited by our repayment obligations under certain of our outstanding credit facility agreements and other debt instruments. Variability in ultimate loss payments may also result in increased liquidity requirements for our subsidiaries.

Sources of funds primarily consist of cash and investment portfolios acquired on the completion of acquisitions and new business, investment income earned, proceeds from sales and maturities of investments and collection of premiums receivable.

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Cash balances acquired upon the purchase of (re)insurance companies are classified as cash provided by investing activities, whereas cash from new business is classified as cash provided by operating activities.

We expect to use funds from cash and investment portfolios, collected premiums, collections from reinsurance debtors, fees and commission income, investment income and proceeds from sales and redemptions of investments to meet expected claims payments and operational expenses, with the remainder used for acquisitions and additional investments. Cash provided by operating activities was positive for the nine months ended September 30, 2021 and 2020 as the cash from new business and the sale of trading securities exceeded cash used in the purchase of trading securities, with the net proceeds being used in the purchase of AFS securities and other investments included within investing cash flows.

Overall, we expect our cash flows, together with our existing capital base and cash and investments acquired and from new business, to be sufficient to meet cash requirements and to operate our business.

Cash Flows

The following table summarizes our consolidated cash flows provided by (used in) operating, investing and financing activities:


	Nine Months Ended September 30,
	2021		2020		Change
	(in thousands of U.S. dollars)
Cash provided by (used in):
Operating activities	$	3,857,903	$	2,104,030	$	1,753,873
Investing activities	(2,050,743)		(2,011,034)		(39,709)
Financing activities	(676,143)		202,623		(878,766)



Net cash flows from discontinued operations	—		(20,735)		20,735
Effect of exchange rate changes on cash	3,863		1,727		2,136
Net increase in cash and cash equivalents	1,134,880		276,611		858,269
Cash, cash equivalents and restricted cash, beginning of period	1,373,116		971,349		401,767
Net change in cash of businesses held-for-sale	223,200		(50,638)		273,838
Total cash and cash equivalents and restricted cash, end of period	$	2,731,196	$	1,197,322	$	1,533,874

Reconciliation to Condensed Consolidated Balance Sheets:
Cash and Cash equivalents	$	1,587,158	$	640,601	$	946,557
Restricted cash and cash equivalents	447,533		556,721		(109,188)
Cash and restricted cash and cash equivalents of the InRe Fund	696,505		—		696,505


Total cash, cash equivalents and restricted cash	$	2,731,196	$	1,197,322	$	1,533,874

Nine Months Ended September 30, 2021 versus 2020: Cash and cash equivalents increased by $1.1 billion during the nine months ended September 30, 2021 compared to an increase of $276.6 million during the nine months ended September 30, 2020.

For the nine months ended September 30, 2021, cash and cash equivalents increased by $1.1 billion, as cash provided by operating activities of $3.9 billion offset cash used in investing and financing activities of $2.1 billion and $676.1 million, respectively.

Cash provided by operations for the nine months ended September 30, 2021 was predominantly driven by:

(i) cash, restricted cash and cash equivalents from new business of $1.9 billion; and

(ii) the cash inflows from net sales and maturities of trading securities of $2.6 billion, primarily driven by the InRe Fund; partially offset by,

(iii) the timing of paid losses.

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Cash used in investing activities for the nine months ended September 30, 2021 primarily related to:

(i) net purchases of AFS securities of $1.8 billion; and

(ii) the purchase and sales of subsidiaries, net of cash acquired and sold, respectively, of $437.8 million; partially offset by,

(iii) the impact of consolidating the opening cash and restricted cash balances of the InRe Fund of $574.1 million.

Cash used in financing activities for the nine months ended September 30, 2021 was attributable to share repurchases and preferred share dividends, partially offset by the net receipt of loans of $241.3 million.

The change in cash of businesses held-for-sale is due to the disposal of Northshore.

For the nine months ended September 30, 2020, cash and cash equivalents increased by $276.6 million, as cash provided by operating and financing activities of $2.1 billion and $202.6 million, respectively, was partially offset by cash used in investing activities of $2.0 billion.

Cash provided by operations for the nine months ended September 30, 2020 was largely the result of the proceeds from net sales and maturities of trading securities and cash and restricted cash from new business partially offset by the timing of paid losses.

Cash provided by financing activities for the nine months ended September 30, 2020 was primarily attributable to the net debt obligations drawdown of $254.8 million, partially offset by share repurchases and preferred share dividends.

Cash used in investing activities for the nine months ended September 30, 2020 was primarily related to net purchases of AFS securities of $1.5 billion and net subscriptions of other investments of $530.3 million.

The change in cash of businesses held-for-sale is due to the classification of the assets and liabilities of Northshore as held-for-sale as of September 30, 2020.

Investable Assets

We define investable assets as the sum of total investments, cash and cash equivalents, restricted cash and cash equivalents, funds held and the net variable interest entity assets of the InRe Fund. Investable assets were $21.9 billion as of September 30, 2021 as compared to $17.3 billion as of December 31, 2020, an increase of 26.6% primarily attributable to the step acquisition of Enhanzed Re and significant new business in 2021.

Reinsurance Balances Recoverable on Paid and Unpaid Losses

As of September 30, 2021 and December 31, 2020, we had reinsurance balances recoverable on paid and unpaid losses of $1.7 billion and $2.1 billion, respectively.

Our (re)insurance run-off subsidiaries and assumed portfolios, prior to acquisition, used retrocessional agreements to reduce their exposure to the risk of (re)insurance assumed. Previously, on an annual basis, StarStone International, included within the Run-off segment from January 1, 2021, purchased a tailored outwards reinsurance program designed to manage its risk profile. The majority of StarStone International's third-party reinsurance is with highly rated reinsurers or is collateralized by 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.

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Debt Obligations

We utilize debt financing and loan facilities primarily for funding acquisitions and significant new business, investment activities and, from time to time, for general corporate purposes.

Our debt obligations were as follows:


Facility	Origination Date	Term	September 30, 2021		December 31, 2020
			(in thousands of U.S. dollars)
4.50% Senior Notes due 2022	March 10, 2017	5 years	$	280,224	$	349,253
4.95% Senior Notes due 2029	May 28, 2019	10 years	494,827		494,194
3.10% Senior Notes due 2031	August 24, 2021	10 years	494,318		—
Total Senior Notes			1,269,369		843,447
5.75% Junior Subordinated Notes due 2040	August 26, 2020	20 years	345,009		344,812
5.50% Enhanzed Re's Subordinated Notes due 2031	December 20, 2018	12.1 years	76,360		—
Total Subordinated Notes			421,369		344,812
EGL Revolving Credit Facility	August 16, 2018	5 years	—		185,000
Total debt obligations			$	1,690,738	$	1,373,259

Our debt obligations increased by $317.5 million from December 31, 2020, primarily due to the issuance of our 2031 Senior Notes and the step acquisition of Enhanzed Re, partially offset by the repayment of our Revolving Credit Facility and our tender offer for a portion of our 2022 Senior Notes.

Credit Ratings

The following table presents our credit ratings as of November 4, 2021:

Credit ratings (1)

Standard and Poor’s

Fitch Ratings

Long-term issuer

BBB (Outlook: Positive)

2022 and 2029 Senior Notes

BBB

BBB-

2031 Senior Notes

BBB-

Junior Subordinated Notes

BB+

2031 Subordinated Notes

Not Rated

Series D and E preferred shares

BB+

(1) Credit ratings are provided by third parties, Standard and Poor’s and Fitch Ratings, and are subject to certain limitations and disclaimers. For information on these ratings, refer to the rating agencies’ websites and other publications.

Agency ratings are not a recommendation to buy, sell or hold any of our securities and may be revised or withdrawn at any time by the issuing organization. Each agency's rating should be evaluated independently of any other agency's rating. For information on risks related to our credit ratings, refer to "Item 1A. Risk Factors - Risks Relating to Liquidity and Capital Resources" and "Item 1A. Risk Factors - Risks Relating to Ownership of our Shares" in our Annual Report on Form 10-K for the year ended December 31, 2020.

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Contractual Obligations

The following table summarizes, as of September 30, 2021, our future payments under material contractual obligations and estimated payments for losses and LAE and future policyholder benefits for the Run-off and Enhanzed Re segments by expected payment date. The table includes only obligations that are expected to be settled in cash.


			Short-term		Long-term
	Total		Less than 1 Year		1 - 3 years		3 - 5 years		6 - 10 years		More than 10 Years
	(in millions of U.S. dollars)
Operating Activities
Estimated gross reserves for losses and LAE for the Run-off segment (1)
Asbestos	$	2,126.7	$	189.1	$	332.3	$	261.5	$	387.6	$	956.2
Environmental	288.4		32.4		55.6		42.3		57.6		100.5
General Casualty	3,200.2		282.4		368.4		489.2		1,688.9		371.3
Workers' compensation/personal accident	3,121.1		252.5		514.4		496.8		655.3		1,202.1
Marine, aviation and transit	319.9		70.1		84.0		49.1		60.4		56.3
Construction defect	154.5		27.5		53.8		38.1		27.4		7.7
Professional indemnity/ Directors & Officers	1,506.2		263.9		328.8		257.5		531.8		124.2
Motor	730.6		230.4		195.0		77.3		81.4		146.5
Property	153.0		55.5		46.8		21.4		17.5		11.8
Other	561.1		136.9		146.7		87.3		82.6		107.6
StarStone International (Non-U.S.)	1,125.8		375.6		396.9		184.8		135.3		33.2
Total outstanding losses and IBNR	13,287.5		1,916.3		2,522.7		2,005.3		3,725.8		3,117.4

ULAE	436.0		67.1		91.2		65.7		101.0		111.0
Estimated gross reserves for losses and LAE for the Run-off segment (1)	13,723.5		1,983.4		2,613.9		2,071.0		3,826.8		3,228.4
Estimated gross reserves for losses and LAE for the Enhanzed Re segment
Catastrophe	177.2		88.6		88.6		—		—		—
ULAE	2.7		1.3		1.4		—		—		—
Estimated gross reserves for losses and LAE for the Enhanzed Re segment (1)	179.9		89.9		90.0		—		—		—
Future policyholder benefits (2)	1,635.1		57.7		161.4		144.7		275.3		996.0
Investing Activities
Unfunded investment commitments (3)	1,703.6		510.5		638.2		356.9		198.0		—
Financing Activities
Loan repayments (including estimated interest payments)	2,483.7		354.4		130.0		128.5		1,339.7		531.1
Total	$	19,725.8	$	2,995.9	$	3,633.5	$	2,701.1	$	5,639.8	$	4,755.5

(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 condensed consolidated 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

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amounts in the above table represent our estimates of known liabilities as of September 30, 2021 and do not take into account corresponding reinsurance recoverable amounts that would be due to us. Furthermore, certain of the reserves included in the condensed consolidated financial statements as of September 30, 2021 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) Future policyholder benefits recorded in our condensed consolidated balance sheet as of September 30, 2021 of $1.5 billion 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.

(3) Refer to "Unfunded Investment Commitments" in Note 20 - "Commitments and Contingencies" for further details.

We generally attempt to match the duration of our investment portfolio to the duration of our general liability profile. We generally seek to maintain investment portfolios that are shorter or of equivalent duration to the liabilities in order to provide liquidity for the settlement of losses and, where possible, to avoid having to liquidate longer-dated investments. The settlement of liabilities also has the potential to accelerate the natural payout of losses and policyholder benefits, which may require additional liquidity.

In addition to the contractual obligations noted in the table above, as of September 30, 2021 we have the right to purchase the RNCI related to StarStone International from the Trident V Funds and the Dowling Funds after a certain time in the future (a "call right") and the RNCI holders have the right to sell their RNCI interests to us after a certain time in the future (a "put right"). Following closing of the Exchange Transaction we hold a call right over the portion of StarStone International owned by the Trident V Funds and the Dowling Funds, and they hold a put right to transfer those interests to us.

Off-Balance Sheet Arrangements

At September 30, 2021, we did not have any off-balance sheet arrangements, as defined by SEC rules and regulations.

Critical Accounting Estimates

Our critical accounting estimates 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, 2020. The following critical accounting estimate was added upon completion of the step acquisition of Enhanzed Re on September 1, 2021.

Future policyholder benefits

For further information on our future policyholder benefits, refer to Note 1 - "Significant Accounting Policies" and Note 9 - "Future Policyholder Benefits" to our unaudited condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q.

Cautionary Statement Regarding Forward-Looking Statements

This quarterly report and the documents incorporated by reference herein 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 securities 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 report and in our Annual Report on Form 10-K for the year ended December 31, 2020. These factors include:

Risks Relating to our Run-off Business

•changes in our plans, strategies, objectives, expectations or intentions, which may happen at any time at management’s discretion;

•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;

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•emerging claim and coverage issues and disputes that could impact reserve adequacy;

•lengthy and unpredictable litigation affecting the assessment of losses and/or coverage issues;

•increased competitive pressures, including increased competition in the market for run-off business that aligns with our strategic objectives;

•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;

•the impact of the COVID-19 pandemic and the resulting disruption and economic turmoil, such as increased volatility in global financial markets, could adversely impact our reserves, investment returns, financial condition, and liquidity and capital resources, and any future impact on our business is difficult to predict at this time;

Risks Relating to our Exposure to Catastrophic Events and Life Insurance Business

•risks relating to Enhanzed Re’s exposure to catastrophic events, including unpredictability and severity of catastrophic and other major loss events, failure of risk management and loss limitation methods;

•risks relating to Enhanzed Re’s life and annuity business, including mortality rates, the performance of assets to support the liabilities, and the risk of mismatch in asset/liability duration;

Risks Relating to Liquidity and Capital Resources

•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;

•the risk that our reinsurance subsidiaries may not be able to provide the required collateral to ceding companies pursuant to their reinsurance contracts, including through the use of letters of credit;

•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 availability and collectability of our reinsurance;

•the ability of our subsidiaries to distribute funds to us and the resulting impact on our liquidity;

•losses due to foreign currency exchange rate fluctuations;

•our ability to comply with covenants in our debt agreements;

Risk Relating to our Investments

•the risk that the value of our investment portfolios and the investment income that we receive from these portfolios may decline materially as a result of market fluctuations and economic conditions, including those related to interest rates, credit spreads, and the phase out of the London Interbank Offered Rate ("LIBOR");

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

•risks relating to our strategic investments in alternative asset classes, such as hedge funds and joint ventures, which are illiquid and may be volatile;

•risks relating to the liquidation of the InRe Fund, which may be volatile as a result of the InRe Fund's use of leverage, derivatives, and its exposure to Chinese equities;

Risks Relating to Laws and Regulations

•risks relating to the complex regulatory environment in which we operate, including 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 our Operations

•loss of key personnel;

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•operational risks, including cybersecurity events, external hazards, human failures or other difficulties with our information technology systems that could disrupt our business or result in the loss of critical and confidential information, increased costs;

Risks Relating to Taxation

•tax, regulatory or legal restrictions or limitations applicable to us or the (re)insurance 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;

Risks Relating to the Ownership of our Shares

•risk relating to the ownership of our shares resulting from certain provisions of our bye-laws and our status as a Bermuda company.

The factors listed above should be not construed as exhaustive and should be read in conjunction with the Risk Factors that are included in our Annual Report on Form 10-K for the year ended December 31, 2020. 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 2021 are not materially different than those used in 2020 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. However, due to the ongoing uncertainty and volatility in financial markets as a result of the economic conditions caused by the COVID-19 pandemic, we expect interest rates, credit spreads and global equity markets to remain volatile in the near-term. Furthermore, the pandemic has increased the risk of defaults across many industries. As a result, we continue to closely monitor market risk during this time.

Interest Rate and Credit Spread Risk

Interest rate risk is the price sensitivity of a security to changes in interest rates. Credit spread risk is the price sensitivity of a security to changes in credit spreads. Our investment portfolio and funds held - directly managed includes fixed maturity and short-term investments, whose fair values will fluctuate with changes in interest rates and credit spreads. 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, contract liabilities and future policyholder benefits, 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 AFS, our funds held directly managed portfolio, our fixed income funds and our fixed income exchange-traded funds, and excludes investments classified as held-for-sale:


	Interest Rate Shift in Basis Points
As of September 30, 2021	-100			-50			—			+50			+100
	(in millions of U.S. dollars)
Total Market Value (1)	$	14,623		$	14,208		$	13,818		$	13,458		$	13,120
Market Value Change from Base	5.8		%	2.8		%	—		%	(2.6)		%	(5.1)		%
Change in Unrealized Value	$	805		$	390		$	—		$	(360)		$	(698)

As of December 31, 2020	-100			-50			—			+50			+100
Total Market Value (1)	$	10,632		$	10,324		$	10,028		$	9,756		$	9,495
Market Value Change from Base	6.0		%	3.0		%	—		%	(2.7)		%	(5.3)		%
Change in Unrealized Value	$	604		$	296		$	—		$	(272)		$	(533)

(1) Excludes equity exchange-traded funds of $349.6 million and $154.9 million as of September 30, 2021 and December 31, 2020, respectively, which are included in the Equity Price Risk section below.

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, short-term investments, funds held - directly managed and fixed income exchange-traded funds may be materially different from the resulting change in value indicated in the tables above.

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The following table summarizes the aggregate hypothetical change in fair value from an immediate parallel shift in credit spreads assuming interest rates remain fixed, in our fixed maturity and short-term investments portfolio classified as trading and AFS, our funds held directly managed portfolio, our fixed income funds and our fixed income exchange-traded funds, and excludes investments classified as held-for-sale:


	Credit Spread Shift in Basis Points
As at September 30, 2021	-100			-50			—		+50			+100
	(in millions of U.S. dollars)
Total Market Value (1)	$	14,610		$	14,201		$	13,818	$	13,457		$	13,117
Market Value Change from Base	5.7		%	2.8		%			(2.6)		%	(5.1)		%
Change in Unrealized Value	$	792		$	383				$	(361)		$	(701)

As at December 31, 2020	-100			-50			—		+50			+100
Total Market Value (1)	$	10,608		$	10,308		$	10,028	$	9,765		$	9,516
Market Value Change from Base	5.8		%	2.8		%			(2.6)		%	(5.1)		%
Change in Unrealized Value	$	580		$	280				$	(263)		$	(512)

(1) Excludes equity exchange-traded funds of $349.6 million and $154.9 million for the years ended September 30, 2021 and December 31, 2020, respectively, which are included in the Equity Price Risk section below.

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 and reinsurance balances recoverable on paid and unpaid losses, respectively, as discussed below.

Fixed Maturity and Short-Term Investments

As a holder of $12.2 billion 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 securities of short-to-medium duration. A table of credit ratings for our fixed maturity and short-term investments is in Note 5 - "Investments" to our condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q. As of September 30, 2021, 39.7% of our fixed maturity and short-term investment portfolio was rated AA or higher by a major rating agency (December 31, 2020: 41.2%) with 3.9% rated lower than BBB- or non-rated (December 31, 2020: 3.7%). The portfolio as a whole, including cash, restricted cash, fixed maturity and short term investments and funds held - directly managed, had an average credit quality rating of A+ as of September 30, 2021 (December 31, 2020: A+). In addition, we manage our portfolio pursuant to guidelines that follow what we believe are prudent standards of diversification. The guidelines limit the allowable holdings of a single issue and issuers and, as a result, we believe we do not have significant concentrations of credit risk.

A summary of our fixed maturity and short-term investments by credit rating is as follows:


Credit rating	September 30, 2021		December 31, 2020		Change
AAA	24.2	%	29.5	%	(5.3)	%
AA	15.5	%	11.7	%	3.8	%
A	30.0	%	31.6	%	(1.6)	%
BBB	26.4	%	23.5	%	2.9	%
Non-investment grade	3.7	%	3.5	%	0.2	%
Not rated	0.2	%	0.2	%	—	%
Total	100.0	%	100.0	%

Average credit rating	A+		A+

Reinsurance Balances Recoverable on Paid and Unpaid Losses

We have exposure to credit risk as it relates to our reinsurance balances recoverable on paid and unpaid losses. Our (re)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. A discussion

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of our reinsurance balances recoverable on paid and unpaid losses is in Note 6 - "Reinsurance Balances Recoverable on Paid and Unpaid Losses" to our condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q.

Funds Held

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. Our funds held are shown under two categories on the condensed consolidated balance sheets, where funds held upon which we receive the underlying portfolio economics are shown as "Funds held - directly managed," and funds held where we receive a fixed crediting rate are shown as "Funds held by reinsured companies." Both types of funds held are subject to credit risk. We routinely monitor the creditworthiness of reinsured companies with whom we have funds held arrangements. As of September 30, 2021, we had a significant funds held concentration of $3.3 billion (December 31, 2020: $955.0 million) and $1.2 billion (December 31, 2020: $182.4 million) to reinsured companies with financial strength credit ratings of A+ from A.M. Best and AA from S&P, and A+ from A.M. Best and AA- from S&P, respectively.

Equity Price Risk

Our portfolio of equity investments, excluding our fixed income exchange-traded funds but including the equity funds, has exposure to equity price risk, which is the risk of potential loss in fair value resulting from adverse changes in stock prices. Our fixed income exchange-traded funds are excluded from the below analysis and have been included within the interest rate and credit spread risk analysis, as these exchange-traded funds are part of our fixed income investment strategy and are backed by fixed income instruments. The following table summarizes the aggregate hypothetical change in fair value from a 10% decline in the overall market prices of our equities at risk:


	September 30, 2021		December 31, 2020		Change
	(in millions of U.S. dollars)
Publicly traded equity investments in common and preferred stocks	$	257.5	$	260.8	$	(3.3)
Privately held equity investments in common and preferred stocks	359.1		274.7		84.4
Private equity funds	598.9		363.1		235.8
Equity funds	4.8		190.8		(186.0)
Equity exchange traded funds	349.6		154.9		194.7

Fair value of equities at risk	$	1,569.9	$	1,244.3	$	325.6

Impact of 10% decline in fair value	$	157.0	$	124.4	$	32.6

Hedge Funds

As of September 30, 2021, we had investments of $215.4 million (December 31, 2020: $2.6 billion) in hedge funds, included within our other investments, at fair value, that have exposure to interest rate, credit spread, and equity price risk given the underlying assets in those funds.

Effective April 1, 2021, the InRe Fund was consolidated by us. As a result, the carrying amounts of the assets and liabilities of the InRe Fund are presented separately in “variable interest entity assets of the InRe Fund” and “variable interest entity liabilities of the InRe Fund” within the condensed consolidated balance sheet as of September 30, 2021. Refer to "Consolidated Variable Interest Entity - InRe Fund" below for further details on market risks as at September 30, 2021. As of December 31, 2020, our investment in the InRe Fund was $2.4 billion.

As of September 30, 2021 and December 31, 2020, the impact of a 10% decline in the fair value of these investments would have been $21.5 million and $263.8 million, respectively. These hedge funds may employ investment strategies that involve the use of leverage and short sales, which would have the effect of increasing interest rate, credit spread, and equity price sensitivity such that a 10% decline in market prices could reduce the fair value of our investment in the funds by more than 10%.

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Foreign Currency Risk

The table below summarizes our net exposures to foreign currencies:


	AUD		CAD		EUR		GBP		Other		Total
As of September 30, 2021	(in millions of U.S. dollars)
Total net foreign currency exposure	$	(8.7)	$	(6.4)	$	(4.2)	$	(22.8)	$	0.3	$	(41.8)
Pre-tax impact of a 10% movement in USD(1)	$	(0.9)	$	(0.6)	$	(0.4)	$	(2.3)	$	—	$	(4.2)

As of December 31, 2020
Total net foreign currency exposure	$	7.0	$	(1.9)	$	24.4	$	38.9	$	1.5	$	69.9
Pre-tax impact of a 10% movement in USD(1)	$	0.7	$	(0.2)	$	2.4	$	3.9	$	0.2	$	7.0

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

Through our subsidiaries located in various jurisdictions, we conduct our (re)insurance operations in a variety of non-U.S. currencies. We have the following exposures to foreign currency risk:

•Transaction Risk: The functional currency for the majority of our subsidiaries is the U.S. dollar. Within these entities, any fluctuations in foreign currency exchange rates relative to the U.S. dollar has a direct impact on the valuation of our assets and liabilities denominated in other currencies. All changes in foreign exchange rates, with the exception of non-U.S. dollar AFS investments, are recognized in our consolidated statements of earnings. Changes in foreign exchange rates relating to non-U.S. dollar AFS investments are recorded in accumulated other comprehensive income (loss) in shareholders’ equity. Our subsidiaries with non-U.S. dollar functional currencies are also exposed to fluctuations in foreign currency exchange rates relative to their own functional currency.

•Translation Risk: We have net investments in certain European, British, and Australian subsidiaries whose functional currencies are the Euro, British pound and Australian dollar, respectively. The foreign exchange gain or loss resulting from the translation of their financial statements from their respective functional currency into U.S. dollars is recorded in the cumulative translation adjustment account, which is a component of accumulated other comprehensive income (loss) in shareholders’ equity.

Our foreign currency policy is to broadly manage, where possible, our foreign currency risk by:

•Seeking to match our liabilities under (re)insurance policies that are payable in foreign currencies with assets that are denominated in such currencies, subject to regulatory constraints.

•Selectively utilizing foreign currency forward contracts to mitigate foreign currency risk.

We use foreign currency forward exchange rate contracts to manage 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 consolidated results of operations and financial condition.

Effects of Inflation

Inflation may have a material effect on our consolidated results of operations by its effect on our assets and our liabilities. Inflation could lead to higher interest rates, resulting in a decrease in the market value of our fixed maturity portfolio. We may choose to hold our fixed maturity investments to maturity, which would result in the unrealized gains or losses accreting back over time. Inflation may also affect the value of certain of our liabilities, primarily our estimate for losses and LAE, such as our cost of claims which includes medical treatments, litigation costs and judicial awards, as well as our provision for future policyholder benefits. Although our estimate for losses and LAE and our provision for future policyholder benefits is established to reflect the likely payments in the future, we would be subject to the risk that inflation could cause these amounts to be greater than the current estimate. We seek to take this into account when setting reserves and pricing new business. However, the actual effects of inflation on our consolidated results of operations cannot be accurately known until claims are ultimately settled.

Consolidated Variable Interest Entity - InRe Fund

Effective April 1, 2021, the InRe Fund was consolidated by us. The InRe Fund is principally exposed to four types of market risk: interest rate risk, credit risk, equity price risk and foreign currency risk.

Interest Rate and Credit Spread Risk

The InRe Fund’s investment portfolio includes fixed maturity investments and certain securities sold, but not yet purchased whose fair values will fluctuate with changes in interest rates and credit spreads.

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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 the InRe Fund’s fixed maturity investments portfolio classified as trading and certain securities sold, but not yet purchased :


	Interest Rate Shift in Basis Points
As at September 30, 2021	-100			-50			—			+50			+100
	(in millions of U.S. dollars)
Total Market Value	$	22		$	24		$	25		$	26		$	27
Market Value Change from Base	(9.7)		%	(4.8)		%	—		%	4.8		%	9.7		%
Change in Unrealized Value	$	(2.4)		$	(1.2)		$	—		$	1.2		$	2.4

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 the InRe Fund’s fixed maturity securities may be materially different from the resulting change in value indicated in the tables above.

The following table summarizes the aggregate hypothetical change in fair value from an immediate parallel shift in credit spreads assuming interest rates remain fixed, in the InRe Fund’s fixed maturity investments portfolio classified as trading:


	Credit Spread Shift in Basis Points
As at September 30, 2021	-100			-50			—			+50			+100
	(in millions of U.S. dollars)
Total Market Value	$	18		$	20		$	22		$	24		$	26
Market Value Change from Base	(17.8)		%	(9.1)		%	—		%	9.1		%	18.2		%
Change in Unrealized Value	$	(3.9)		$	(2.0)		$	—		$	2.0		$	4.0

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. The InRe Fund is exposed to direct credit risk primarily within its portfolios of derivative financial instruments and fixed maturity investments classified as trading, respectively, as discussed below.

Derivative Counterparties

The InRe Fund is a direct counterparty to derivative instruments and is exposed to credit risk in the event of nonperformance by the counterparties in those contracts. As an investor in the InRe Fund, we bear the risk of credit loss due to counterparty default even though we are not a direct counterparty to those contracts. The risk of counterparty default associated with InRe Fund’s derivative portfolio is mitigated by collateral posting requirements that counterparties to those transactions must meet, by dealing with reputable counterparties, which are high credit quality institutions, and by seeking to negotiate master agreements with inputs that include netting provisions that incorporate the right of “set off” (assets less liabilities) across OTC contracts with such counterparties. The InRe Fund’s exposure to credit risk at any point in time is limited to amounts recorded as assets on the condensed consolidated balance sheets.

Fixed Maturity Investments

As a holder of $59.0 million in fixed maturity investments, the InRe Fund also has exposure to credit risk as a result of investment ratings downgrades or issuer defaults. A table of credit ratings for the InRe Fund’s fixed maturity investments is in Note 12 - "Variable Interest Entities" to the condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q. As of September 30, 2021, none of the InRe Fund’s fixed maturity investment portfolio was rated AA or higher by a major rating agency with the remainder either rated below AA or unrated.

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A summary of the InRe Fund’s fixed maturity investments by credit rating is as follows:


	September 30, 2021


A	3.2	%

Non-Investment grade	7.5	%
Not rated	89.3	%
Total	100.0	%

Equity Price Risk

InRe Fund’s portfolio of equity and derivative investments have exposure to equity price risk, which is the risk of potential loss in fair value resulting from adverse changes in stock prices. Derivatives are financial instruments whose values are derived from interest rates, foreign exchange rates, financial indices or the prices of securities. The InRe Fund’s derivative portfolio includes exchange-traded derivatives, derivatives contracted in the over-the-counter market, and options forward contracts.

The following table summarizes the aggregate hypothetical change in fair value from a 10% decline in the overall market prices of the InRe Fund's equities at risk:


	September 30, 2021
	(in millions of U.S. dollars)
Publicly traded equity investments in common stocks	$	338.0

Convertible bonds	53.0

Net derivative assets (1)	(47.0)
Fair value of equities at risk	$	344.0

Impact of 10% decline in fair value	$	54.0

(1) Includes equity options/swaps and index futures.

The InRe Fund may employ investment strategies that involve the use of leverage and short sales that are generally purchased to cover long positions. The InRe Fund’s exposure to losses from uncovered short sales may be unlimited, whereas losses from purchases are limited to the total amount invested. Should the value of the collateral pledged by the InRe Fund as part of its securities lending agreements with its prime brokers be insufficient to cover the InRe Fund’s obligations in connection with short sold positions, the prime broker would be expected to exit the related short sold positions and mitigate additional losses.

The InRe Fund has also entered into freestanding derivative contracts that are not designated as hedging instruments for accounting purposes. Such contracts may include contracts for differences, swaps and option contracts.

To evaluate risks within the InRe Fund’s portfolio of equity and derivative investments, the InRe Fund and Enstar focus on actual and potential volatility generated by individual positions as well as the total portfolio. Various techniques and procedures are utilized to enable the most complete understanding of these risks. Quantitative measures of market risk are evaluated regularly. These measures include stress testing to evaluate the potential impact on portfolio values of more extreme, although plausible, events or movements in a set of financial variables, such as a decline in equity prices and indices; and evaluating risks in the InRe Fund’s portfolio under the current market environment and potential future environments.

For additional information regarding market risks relevant to the InRe Fund, refer to Note 12 - "Variable Interest Entities" to our condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q.

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Foreign Currency Risk

The table below summarizes the InRe Fund’s net exposures to foreign currencies:


	CNH		HKD		Other		Total
As of September 30, 2021	(in millions of U.S. dollars)
Total net foreign currency exposure	$	39.0	$	101.0	$	(15.0)	$	125.0
Pre-tax impact of a 10% movement in USD(1)	$	(3.9)	$	(10.1)	$	1.5	$	(12.5)

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

To the extent the InRe Fund’s foreign currency exposure is not matched or hedged, the InRe Fund may experience foreign exchange losses or gains, which would be reflected in the InRe Fund’s results of operations which, in turn, would affect our consolidated results of operations and financial condition.

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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 September 30, 2021. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded, except as noted below, 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.

On September 1, 2021, we completed our acquisition of the controlling interest of Enhanzed Re. As of September 30, 2021, Enhanzed Re represented 12.9% of our total assets. As Enhanzed Re is reported on a on quarter lag, its results for the month of September 2021 did not impact our total income and net earnings as a consolidated subsidiary. We are in the process of evaluating internal control over financial reporting for Enhanzed Re and have accordingly excluded Enhanzed Re from our evaluation of internal control over financial reporting and related disclosure controls and procedures.

Changes in Internal Control Over Financial Reporting

Other than the Enhanzed Re acquisition referenced above, there were no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2021 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 20 - "Commitments and Contingencies" in the notes to our 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, 2020. Except as set forth below, there have been no material changes to the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

We have made significant direct investments in a consolidated hedge fund, which is in an orderly liquidation process. Minimizing losses during the liquidation process is dependent on market conditions, which have been volatile recently, as well as the manager’s ability to effectively sell assets in an orderly manner.

We have made significant direct investments in the InRe Fund, L.P. (the “InRe Fund”), which is in an orderly liquidation process. For more information about the InRe Fund refer to Note 12 - "Variable Interest Entities" to our condensed consolidated financial statements included within Item 1 of this Quarterly Report on Form 10-Q.

Subject to certain limitations, the investment manager of the InRe Fund has broad discretionary authority to determine the manner in which the assets in the InRe Fund are liquidated. As a result, the value we ultimately realize from the liquidation of the InRe Fund's investments is, in part, dependent on the manager’s ability to effectively sell assets in an orderly manner. The failure of the investment manager or any of its key personnel to perform adequately could result in losses during the liquidation process, which could significantly and negatively affect our investment returns and results of operations.

The InRe Fund has employed investment strategies and trading techniques that involve the use of margin, derivatives (including contracts for differences), and other forms of financial leverage or short sales. Furthermore, the InRe Fund has exposure to Asian markets, including through investments in Chinese equities, which have recently experienced high levels of volatility. As a result of the InRe Fund's exposures, unfavorable market conditions during the liquidation process could result in significant or outsized realized or unrealized losses as the portfolio is wound down, which could materially adversely impact our financial condition and results of operations.

Enhanzed Re has exposure to catastrophic events that presents inherent risks and uncertainties, which could have a material adverse effect on our business, financial condition and results of operations.

Through our interest in Enhanzed Re, we have exposure to claims arising out of unpredictable natural and man-made catastrophic events (including hurricanes, windstorms, tsunamis, severe weather, earthquakes, floods, fires, droughts, explosions, environmental contamination, acts of terrorism, cyber events and war or political unrest, changing climate patterns and ocean temperature conditions that could increase the frequency and severity of catastrophe events and natural disasters to which we have loss exposure). For example, during calendar year 2021, Enhanzed Re has experienced losses relating to the German Floods, Hurricane Ida, the European Storms and the Texas Winter Storms. In addition, Enhanzed Re has experienced underwriting losses within its catastrophe lines of business resulting from business interruption claims relating to the COVID-19 pandemic. Although reserves have been established against these losses as of September 30, 2021, there can be no assurance that the estimates of losses and loss adjustment expenses will be adequate. In addition, U.S. GAAP does not permit insurers and reinsurers to reserve for catastrophes until they occur, which means that claims from these events could cause substantial volatility in our financial results for any fiscal quarter or year and could have a material adverse effect on our financial condition and results of operations. We are also exposed to the potential failure of our risk management and loss limitation methods (described in “Business - Enterprise Risk Management" included in Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2020) to adequately manage our loss exposure or provide sufficient protection against losses arising from Enhanzed Re.

Our life and annuity business within Enhanzed Re is subject risks relating to Enhanzed Re’s life and annuity business, including mortality rates, the performance of assets to support the liabilities, and the risk of mismatch in asset/liability duration.

The profitability of Enhanzed Re’s life and annuity products depends in part on the value of the investments supporting them, including structured products, which are illiquid and can fluctuate substantially depending on market conditions. This results in an exposure to market risk associated with Enhanzed Re’s life and annuity products, which is the risk of loss from changes in interest rates and fixed income security prices. In addition,

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Enhanzed Re is exposed to the risk of mismatch in asset/liability duration, which could expose Enhanzed Re, and us in turn, to the risk of losses and liquidity stress. For example, if a greater number of policyholders than expected elect to receive lump sum payments in lieu of retaining their policies and annuity contracts, it could expose Enhanzed Re to liquidity stress and create losses. In addition, reserves for life policy benefits are based on certain assumptions, including mortality, expenses, and discount rates based on expected yields at acquisition. The adequacy of the life reserves established by Enhanzed Re is contingent on actual experience related to these key assumptions. If actual experience differs from these assumptions, or the assumptions are changed based on new information or experience, it could materially and adversely impact our financial performance.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchases of Equity Securities

The following table provides information about ordinary shares acquired by the Company during the three months ended September 30, 2021.


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Maximum Number (or Dollar Value) of Shares that May Yet be Purchased Under the Program (1)








Beginning dollar amount available to be repurchased					$	112,561
July 1, 2021 - July 31, 2021	3,794,711	$	234.54	45,311	—
August 1, 2021 - August 31, 2021	—	$	—	—	—
September 1, 2021 - September 30, 2021	—	$	—	—	—
Ending dollar amount available to be repurchased					—




	3,794,711			45,311	$	—

(1) On February 25, 2021, our Board of Directors approved an extension of the duration of our previously announced ordinary share Repurchase Program through March 1, 2022. The Repurchase Program was previously set to expire on March 1, 2021. Pursuant to the Repurchase Program, the Company was permitted to repurchase a limited number of its ordinary shares, not to exceed $150.0 million in aggregate (the “Authorized Shares”) including shares repurchased prior to the extension of the Repurchase Program. On July 15, 2021, we announced the termination of the Repurchase Program in connection with the repurchase of 3,749,400 of our ordinary shares from funds managed by Hillhouse Group for a price of $234.52 per share, totaling $879.3 million in the aggregate.

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ITEM 6. EXHIBITS


Exhibit No.						Description
3.1						Memorandum of Association of Enstar Group Limited (incorporated by reference to Exhibit 3.1 of the Company’s Form 10-K/A filed on May 2, 2011).

3.2						Sixth Amended and Restated Bye-Laws of Enstar Group Limited (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on June 15, 2021).

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).

3.4						Certificate of Designations of 7.00% fixed-to-floating rate perpetual non-cumulative preference shares, Series D (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K filed on June 27, 2018).

3.5						Certificate of Designations of 7.00% perpetual non-cumulative preference shares, Series E (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K filed on November 21, 2018).

4.1						Fourth Supplemental Indenture, dated as of August 24, 2021, between the Company and The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.2 of the Company’s Form 8-K filed on August 24, 2021).

10.1						Purchase Agreement dated as of July 15, 2021 by and among Enstar Group Limited, HHLR Fund, L.P., YHG Investment, L.P. and Hillhouse Fund III, L.P. (incorporated by reference to Exhibit 10.1 of the Company's Form 8-K filed on July 15, 2021).

1 0.2						Purchase Agreement dated as of July 15, 2021 by and among Cavello Bay Reinsurance Limited and HH ENZ Holdings, Ltd. (incorporated by reference to Exhibit 10.2 of the Company's Form 8-K filed on July 15, 2021).

10.3						Agreement and General Release, dated August 11, 2021, by and between Enstar Group Limited and Zachary Wolf (incorporated by reference to Exhibit 10.1 of the Company's Form 8-K filed on August 13, 2021).

10.4*						Fifth Amendment to Letter of Credit Facility Agreement, dated as of August 16, 2021, by and among Enstar Group Limited and certain of its subsidiaries, National Australia Bank Limited, London Branch, The Bank of Nova Scotia and each of the lenders party thereto.

10.5						Amendment No. 1 to Amended and Restated Employment Agreement, dated September 16, 2021 by and between Enstar Group Limited and Orla M. Gregory (incorporated by reference to Exhibit 10.1 of the Company's Form 8-K filed on September 21, 2021).

22.1						Subsidiary Guarantors and Issuers of Guaranteed Securities (incorporated by reference to Exhibit 22.1 of the Company’s Form 10-Q filed on November 6, 2020).

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.INS						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH						XBRL Taxonomy Extension Schema

101.CAL						XBRL Taxonomy Extension Calculation Linkbase

101.LAB						XBRL Taxonomy Extension Label Linkbase

101.DEF						XBRL Taxonomy Extension Definition Linkbase

101.PRE						XBRL Taxonomy Extension Presentation Linkbase

104						Cover page Interactive Data File (embedded within the Inline XBRL document and included in Exhibit 101)

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_______________________________

* filed herewith

** furnished herewith

+ denotes management contract or compensatory arrangement

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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 November 4, 2021.


			ENSTAR GROUP LIMITED

By:			/S/ Orla Gregory
			Orla Gregory Chief Operating Officer, Acting Chief Financial Officer, Authorized Signatory, Principal Financial Officer

By:			/s/ Michael Murphy
			Michael Murphy Deputy Chief Financial Officer, Principal Accounting Officer

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