News Column

ENSTAR GROUP LTD - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

May 9, 2014

Table of Contents: Section Page Business Overview 50 Acquisitions 51 Significant New Business 53



Consolidated Results of Operations-for the Three Months Ended March 31, 2014 and 2013

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Segment Reporting



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Results of Operations by Segment-for the Three Months Ended March 31, 2014 and 2013 57 Non-life Run-off Segment 57 Active Underwriting Segment 63 Life and Annuities Segment 69 Liquidity and Capital Resources 72 Reinsurance Balances Recoverable 72 Cash Flows 73 Investments 74 Loans Payable 82 Aggregate Contractual Obligations 83 Commitments and Contingencies 84 Critical Accounting Policies 84 Off-Balance Sheet and Special Purpose Entity Arrangements 84 Non-GAAP Financial Measures 84 The following discussion and analysis of our financial condition and results of operations for the three months ended March 31, 2014 and 2013 should be read in conjunction with the attached unaudited condensed consolidated financial statements and notes thereto and the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.



Business Overview

Enstar Group Limited, or Enstar, is a Bermuda-based holding company that was formed in 2001 and became publicly traded in 2007. We are listed on the NASDAQ Global Select Market under the ticker symbol "ESGR." Our primary operating subsidiaries are located in Bermuda, the United Kingdom, the United States, Australia, and western Europe. Our primary corporate objective is growing our net book value per share. We believe this is driven primarily by growth in our net earnings, which is in turn driven in large part by successfully completing new acquisitions, effectively managing companies and portfolios of business that we have acquired, and executing on our active underwriting strategies. Our core focus is acquiring and managing insurance and reinsurance companies in run-off and portfolios of insurance and reinsurance business in run-off, and providing management, consulting and other services to the insurance and reinsurance industry. Since our formation, we have completed the acquisition of over 60 insurance and reinsurance companies and portfolios of insurance and reinsurance business and are now administering those businesses. This includes 13 Reinsurance to Close, or "RITC" transactions, with Lloyd's of London insurance and reinsurance syndicates in run-off, whereby the portfolio of run-off liabilities is transferred from one Lloyd's syndicate to another. Until 2013, all but one of our acquisitions had been in the non-life run-off business, which for us generally includes property and casualty, workers' compensation, asbestos and environmental, construction defect, marine, aviation and transit, and other closed business. 50



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While our core focus remains the acquisition and management of non-life run-off business, we diversified our business profile in two distinct ways during 2013: first, by significantly increasing our closed life and annuities business through our March 31, 2013 acquisition of the closed U.S. life and annuities operations of HSBC Holdings plc (which we now refer to as Pavonia), and second, by entering into the active underwriting business through our acquisitions of 60% interests in Atrium Underwriting Group Limited (or Atrium) on November 25, 2013, Arden Reinsurance Company Ltd (or Arden) on September 9, 2013, and Torus Insurance Holdings Limited (or Torus) on April 1, 2014. Atrium's wholly-owned subsidiary, Atrium Underwriters Ltd, manages and underwrites specialist insurance and reinsurance business for Lloyd's Syndicate 609. Atrium's wholly-owned subsidiary, Atrium 5 Ltd, provides approximately 25% of the underwriting capacity and capital to Syndicate 609, with the balance provided by traditional Lloyd's Names. Arden provides reinsurance to Atrium 5 Ltd. through an approximate 65% quota share reinsurance arrangement, and is currently in the process of running off certain other portfolios of run-off business. Torus is an A- rated global specialty insurer with six wholly-owned insurance vehicles, including Lloyd's Syndicate 1301.



Following these acquisitions, we now have the following three segments of business that are each managed, operated and reported on differently: (i) non-life run-off; (ii) active underwriting; and (iii) life and annuities.

Key Performance Indicator

Our primary corporate objective is growing our net book value per share. We believe this is driven primarily by growth in our net earnings, which is in turn driven in large part by successfully completing new acquisitions, effectively managing companies and portfolios of business that we have acquired, and executing on our active underwriting strategies.



During the period, we increased our book value per share on a fully diluted basis by $1.74 from $105.20 per share, as at December 31, 2013, to $106.94, as at March 31, 2014

On April 1, 2014, we issued 1,898,326 voting ordinary shares and 714,015 Series B Convertible Participating Non-Voting Perpetual Preferred Stock (or collectively, the Torus shares) to Torus' shareholders upon completion of the Torus acquisition. The table below provides pro forma Enstar Group Limited shareholders' equity, fully diluted ordinary shares outstanding and fully diluted book value per share as of March 31, 2014 as if the Torus shares had been issued on that date. Issuance of Shares to March 31, March 31, Torus 2014 - 2014 Shareholders Pro Forma (expressed in thousands of U.S. dollars, except share data Total Enstar Group Limited Shareholders' Equity $ 1,786,557 $ 356,088 $ 2,142,645 Fully diluted ordinary shares outstanding 16,706,336 2,612,346 19,318,682 Fully diluted book value per share $ 106.94 $ 136.31 $ 110.91 Acquisitions



Torus Insurance Holdings Limited

On April 1, 2014, Kenmare Holdings Ltd. (or Kenmare), our wholly-owned subsidiary, together with Trident V, L.P., Trident V Parallel Fund, L.P. and Trident V Professionals Fund, L.P., which are

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managed by Stone Point Capital LLC (or collectively, Trident), completed the acquisition of Torus. At closing, Torus became directly owned by Bayshore Holdings Ltd. (or Bayshore), which was 60% owned by Kenmare and 40% owned by Trident. The purchase price for Torus was established in the amended and restated amalgamation agreement as $646.0 million, to be paid partly in cash and partly in Enstar's stock. The number of Enstar shares to be issued was fixed at the signing of the amalgamation agreement on July 8, 2013 and was determined by reference to an agreed-upon value per share of $132.448, which was the average closing price of our voting ordinary shares, par value $1.00 per share (or the Voting Ordinary Shares), over the 20 trading days prior to such signing date. On the day before closing of the amalgamation, the Voting Ordinary Shares had a closing price of $136.31 per share. At closing, we contributed cash of $41.6 million towards the purchase price and $3.6 million towards related transaction expenses, as well as 1,898,326 Voting Ordinary Shares and 714,015 shares of Series B Convertible Participating Non-Voting Perpetual Preferred Stock (or the Non-Voting Preferred Shares). Based on a price of $136.31 per share, our contribution of cash and shares to the purchase price totaled $397.7 million in the aggregate. Trident contributed cash of $258.4 million towards the purchase price and $2.4 million towards related transaction expenses. FR XI Offshore AIV, L.P., First Reserve Fund XII, L.P., FR XII A Parallel Vehicle L.P. and FR Torus Co-Investment, L.P. (or collectively, First Reserve) received 1,501,211 Voting Ordinary Shares, 714,015 Non-Voting Preferred Shares and cash consideration in the transaction. Corsair Specialty Investors, L.P. (or Corsair) received 397,115 Voting Ordinary Shares and cash consideration in the transaction. The remaining Torus shareholders received all cash. As a result of the amalgamation, First Reserve now owns approximately 9.5% and 11.5%, respectively, of our Voting Ordinary Shares and outstanding share capital. Upon the closing of the Torus acquisition, Bayshore, Kenmare and Trident entered into a Shareholders' Agreement, which was subsequently amended, as described in "Dowling Co-investments in Bayshore and Northshore" below. In satisfaction of certain of our obligations under the Registration Rights Agreement we entered into with First Reserve and Corsair at the closing of the Amalgamation, we filed a resale shelf registration statement with the SEC on April 29, 2014 with respect to the Voting Ordinary Shares (including the Voting Ordinary Shares into which the Non-Voting Preferred Shares may convert) that we issued pursuant to the amalgamation.



Certain Changes relating to Ownership of our Active Underwriting Businesses

Atrium Employee Equity Awards

On April 17, 2014, Northshore Holdings Ltd., or Northshore, the parent company of Atrium and Arden, implemented long-term incentive plans that awarded time-based restricted shares of Northshore to certain Atrium employees. These equity awards will have the effect of modestly reducing Kenmare's 60% equity interest in Northshore (as well as Trident's 40% equity interest) over the course of the vesting periods as Atrium employees acquire shares. Shares generally vest over two to three years, and certain awards begin vesting in 2014. The impact of the share awards on a fully diluted basis is that Kenmare, Trident and Atrium employees own 57.1%, 38.1%, and 4.8% of Northshore, respectively.



Dowling Co-investments in Bayshore and Northshore

On May 8, 2014, Dowling Capital Partners I, L.P., or Dowling, purchased common shares of both Bayshore and Northshore from Kenmare and Trident (on a pro rata basis in accordance with their respective interests) for an aggregate amount of $15.4 million. Prior to the sale of shares to Dowling, Kenmare and Trident owned 60% and 40% of Bayshore, respectively, and 57.7% and 38.1% of Northshore on a fully diluted basis, respectively (assuming full 52



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vesting of Atrium employees' restricted shares totaling 4.8%). Following the sale of Bayshore shares to Dowling, Kenmare, Trident and Dowling own 59%, 39.3% and 1.7% of Bayshore, respectively. Following the sale of Northshore shares to Dowling, Kenmare, Trident, certain Atrium employees and Dowling own 56.1%, 37.4%, 4.8% and 1.7% of Northshore, respectively, on a fully diluted basis. In connection with the sale of Bayshore shares, the Bayshore Shareholders' Agreement was amended and restated. The Amended and Restated Bayshore Shareholders' Agreement, among other things, provides that Kenmare has the right to appoint three members to the Bayshore board of directors and Trident has the right to appoint two members. The Amended and Restated Bayshore Shareholders' Agreement includes a five-year period, or the "Restricted Period," during which no shareholder can transfer its ownership interest in Bayshore to a third party unless approved by a super-majority of the shareholders. Following the Restricted Period: (i) each shareholder must offer Kenmare and Trident the right to buy its shares before the shares are offered to a third party; (ii) Kenmare can require each other shareholder to participate in a sale of Bayshore to a third party as long as Kenmare owns 55% of the aggregate number of outstanding shares of Bayshore held by Kenmare and Trident; (iii) each shareholder has the right to be included on a pro rata basis in any sales made by another shareholder; and (iv) each of Kenmare, Trident and Dowling has the right to buy its pro rata share of any new securities issued by Bayshore. The Amended and Restated Bayshore Shareholders' Agreement also provides that during the 90-day period following the fifth anniversary of the Torus closing, and at any time following the seventh anniversary of such closing, Kenmare would have the right to purchase the Bayshore shares owned by all other shareholders of Bayshore at their then fair market value, which would be payable in cash. Following the seventh anniversary of the Torus closing, Trident would have the right to require Kenmare to purchase all of Trident's shares in Bayshore for their then current fair market value and Dowling would have the right to participate in such transaction by requiring Kenmare to purchase all of its shares in Bayshore on the same terms. Kenmare would have the option to pay for such shares either in cash or by delivering our Voting Ordinary Shares. In connection with the sale of Northshore shares, the Northshore Shareholders' Agreement was amended and restated. The Amended and Restated Northshore Shareholders' Agreement provides for substantially the same rights and obligations as the Amended and Restated Bayshore Shareholders' Agreement, except that the fifth and seventh anniversaries refer to the Arden closing.



Significant New Business

Reciprocal of America

On July 6, 2012, our wholly-owned subsidiary, Providence Washington Insurance Company, entered into a definitive loss portfolio transfer reinsurance agreement with Reciprocal of America (in Receivership) and its Deputy Receiver relating to a portfolio of workers' compensation business. The estimated total liabilities to be assumed are approximately $169.0 million, with an equivalent amount of assets to be received as consideration. Completion of the transaction is conditioned upon, among other things, regulatory approvals and satisfaction of customary closing conditions. The transaction is expected to close in the second quarter of 2014.



Shelbourne RITC Transactions

Effective January 1, 2014, Lloyd's Syndicate 2008, or S2008, which is managed by our wholly-owned subsidiary and Lloyd's managing agent, Shelbourne Syndicate Services Limited, entered into a reinsurance to close contract of the 2011 and prior underwriting years of account of another Lloyd's syndicate, under which S2008 assumed total gross insurance reserves of approximately 17.0 million (approximately $28.1 million) for consideration of an equal amount. 53



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Effective December 31, 2012, S2008 entered into a 100% quota share reinsurance agreement with another Lloyd's syndicate in respect of its 2009 and prior years of account, or the 2009 Liabilities, under which S2008 assumed total gross insurance reserves of approximately 193.0 million (approximately $313.3 million) for consideration of an equal amount. Effective January 1, 2014, the 2012 Lloyd's underwriting year of account of S2008 entered into a partial reinsurance to close, or RITC, transaction with respect to the 2009 liabilities.



Consolidated Results of Operations - For the Three Months Ended March 31, 2014 and 2013

The following table sets forth our selected unaudited condensed consolidated statement of earnings data for each of the periods indicated.

Three Months Ended March 31, 2014 2013 (expressed in thousands of U.S. dollars) INCOME Net premiums earned-non-life run-off $ 2,527$ 30,920 Net premiums earned-active underwriting 32,639 - Net premiums earned-life and annuities 26,492 741 Fees and commission income 6,998 2,447 Net investment income 24,348 17,963 Net realized and unrealized gains 34,573 30,120 127,577 82,191 EXPENSES Net (reduction) increase in ultimate losses and loss adjustment expense liabilities: Non-life run-off (29,182 ) 9,161 Active underwriting 17,131 - (12,051 ) 9,161 Acquisition costs 13,161 2,387 Life and annuity policy benefits 26,809 741 Salaries and benefits 31,390



23,610

General and administrative expenses 22,250 17,946 Interest expense 3,734 2,435 Net foreign exchange losses 1,596 5,082 86,889 61,362 EARNINGS BEFORE INCOME TAXES 40,688 20,829 INCOME TAXES (7,276 ) (7,844 ) NET EARNINGS 33,412 12,985 Less: Net earnings attributable to noncontrolling interest (3,825 )



(1,026 )

NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED $ 29,587$ 11,959 54



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The below table provides a split by operating segment of the net earnings attributable to Enstar Group Limited:

Three Months Ended March 31, 2014 2013 (in thousands of U.S. dollars) Segment split of net earnings (losses) attributable to Enstar Group Limited: Non-life run-off $ 25,600$ 13,885 Active underwriting (43 ) - Life and annuities 4,030 (1,926 ) Net earnings attributable to Enstar Group Limited $ 29,587$ 11,959 The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this quarterly report. Some of the information contained in this discussion and analysis 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 in "Risk Factors" included in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013. We reported consolidated net earnings, before net earnings attributable to noncontrolling interest, of approximately $33.4 million and $13.0 million for the three months ended March 31, 2014 and 2013, respectively. Our comparative results were impacted by a number of factors, including those relating to companies we acquired during or after the three months ended March 31, 2013. During 2013, we completed the acquisitions of SeaBright (on February 7, 2013), the Pavonia companies (on March 31, 2013), Arden (on September 9, 2013) and Atrium (on November 25, 2013).



The increase in consolidated net earnings before net earnings attributable to noncontrolling interest for the three months ended March 31, 2014 was attributable primarily to the following:

Net premiums earned - Combined net premiums earned for our three operating segments were $61.7 million and $31.7 million for the three months ended March 31, 2014 and 2013, respectively. The significant increase in 2014 was due primarily to the acquisitions of Pavonia, Arden and Atrium, partially offset by the reduction in SeaBright's earned premium, as described in greater detail in the segment discussion below. With the run-off process now fully implemented at SeaBright, its share of net earned premium is expected to continue to be substantially lower in 2014 than 2013. However, we expect our active underwriting business to more than offset this difference and for net earned premiums to significantly exceed 2013 levels. Net investment income - Net investment income was $24.3 million and $18.0 million for the three months ended March 31, 2014 and 2013, respectively. The increase in 2014 was primarily attributable to the net investment income earned on a larger base of cash and fixed maturity investments as a result of a full quarter of owning SeaBright and Pavonia, as well as the Arden and Atrium acquisitions, although this was partially offset by lower reinvestment yields on new purchases of fixed maturity investments. Net realized and unrealized gains on investments - Net realized and unrealized gains were $34.6 million and $30.1 million for the three months ended March 31, 2014 and 2013, respectively. The increase in net realized and unrealized gains between 2014 and 2013 was primarily attributable to net realized and unrealized gains in 2014 of $12.8 million on our fixed maturity investments, largely due to 55



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movements in treasury yields when applied to a larger base of fixed maturity investments (as compared to net realized and unrealized gains of $1.7 million on our fixed maturity investments in the same period in 2013). This was partially offset by decreases in our net realized and unrealized gains on our equities and other investments. Net (reduction) increase in ultimate losses and loss adjustment expense liabilities - Net reduction in ultimate losses and loss adjustment expense liabilities was $12.1 million for the three months ended March 31, 2014, compared to a $9.2 million net increase in ultimate losses and loss adjustment expense liabilities for the same period in 2013. The 2014 reduction was comprised of $(29.2) million and $17.1 million in net reduction in ultimate losses and loss adjustment expense liabilities related to our non-life run-off and active underwriting segments, respectively, as discussed further in the related segment discussions below. Acquisition costs - Acquisition costs were $13.2 million and $2.3 million for the three months ended March 31, 2014 and 2013, respectively. The 2014 acquisition costs related to Atrium ($9.6 million) and Pavonia ($3.6 million). For 2013, the acquisition costs of $2.3 million related to SeaBright. Life and annuity policy benefits - Life and annuity policy benefits were $26.8 million and $0.7 million for the three months ended March 31, 2014 and 2013, respectively. The significant increase in 2014 is due to primarily to the acquisition of the Pavonia companies, as described in the life and annuities segment discussion below. Salaries and benefits - Salaries and benefits were $31.4 million and $23.6 million for the three months ended March 31, 2014 and 2013, respectively. The increase of $7.8 million was primarily due to the salaries and benefits costs associated with the Pavonia and Atrium acquisitions (we did not acquire any employees in the Arden acquisition), along with an increase in our bonus accrual amount for 2014 due to higher net earnings. General and administrative expenses - General and administrative expenses were $22.3 million and $17.9 million for the three months ended March 31, 2014 and 2013, respectively. The increase of $4.4 million was principally due to general and administrative expenses incurred as a result of our 2013 acquisitions of Pavonia, Arden and Atrium (all of which were acquired subsequent to March 31, 2013) and general and administrative expenses associated with the Torus transaction. Interest expense - Interest expense was $3.7 million and $2.4 million for the three months ended March 31, 2014 and 2013, respectively. The increase of $1.3 million was largely due to additional borrowings under the revolving credit facility for acquisitions and general corporate purposes.



Net foreign exchange losses - Net foreign exchange losses were $1.6 million and $5.1 million for the three months ended March 31, 2014 and 2013, respectively.

Income tax expense - Income tax expenses were $7.3 million and $7.8 million for the three months ended March 31, 2014 and 2013, respectively. Income tax expense is generated through our foreign operations outside of Bermuda, principally in the United States, United Kingdom and Australia. Our income tax expense may fluctuate significantly from period to period depending on the geographic distribution of pre-tax earnings or loss in any given period between different jurisdictions with different tax rates. Noncontrolling interest in earnings increased by $2.8 million to $3.8 million for the three months ended March 31, 2014 as a result of higher earnings in those companies in which there are noncontrolling interests. Net earnings attributable to Enstar Group Limited increased by $17.6 million from $12.0 million, for the three months ended March 31, 2013, to $29.6 million for the three months ended March 31, 2014. 56



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Segment Reporting

We measure our results of operations in three segments: (i) non-life run-off; (ii) active underwriting; and (iii) life and annuities. Our segments are described in our Annual Report on Form 10-K for the year ended December 31, 2013 beginning on page 83 in "Management's Discussion and Analysis of Financial Condition and Results of Operations-Segment Reporting."



Results of Operations by Segment - For the Three Months Ended March 31, 2014 and 2013

Non-life Run-off Segment The following is a discussion and analysis of our results of operations for our non-life run-off segment for the three months ended March 31, 2014 and 2013, which are summarized below: Three Months Ended March 31, 2014 2013 (in thousands of U.S. dollars) INCOME Net premiums earned $ 2,527$ 30,920 Fees and commission income 2,955 2,628 Net investment income 14,333 17,691 Net realized and unrealized gains 29,629 30,278 49,444 81,517 EXPENSES Net (reduction) increase in ultimate losses and loss adjustment expense liabilities: Losses incurred on current period premiums earned 1,432



28,533

Reduction in estimates of net ultimate losses (13,491 ) (5,062 ) Reduction in provisions for unallocated loss adjustment expense liabilities (13,359 ) (16,403 ) Amortization of fair value adjustments (3,764 ) 2,093 (29,182 ) 9,161 Acquisition costs - 2,387 Salaries and benefits 25,846 23,464 General and administrative expenses 15,763 16,415 Interest expense 2,561 2,420 Net foreign exchange losses 2,130 4,936 17,118 58,783 EARNINGS BEFORE INCOME TAXES 33,326 22,734 INCOME TAXES (3,651 ) (7,823 ) NET EARNINGS 28,675 14,911 Less: Net earnings attributable to noncontrolling interest (3,075 )



(1,026 )

NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED $ 25,600$ 13,885



Summary Comparison of the Three Months Ended March 31, 2014 and 2013

In our non-life run-off segment, we reported consolidated net earnings, before net earnings attributable to noncontrolling interest, of approximately $28.7 million and $14.9 million for the three months ended March 31, 2014 and 2013, respectively. The increase in earnings of approximately $13.8 million was attributable primarily to the following:



(i) an increase of $8.4 million in reduction in estimates of net ultimate

losses; (ii) a decrease in income tax expense of $4.1 million; and 57



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(iii) a net foreign exchange loss of $2.1 million for the three months ended

March 31, 2014, which was a $2.8 million decrease from the net foreign

exchange loss for the same period in 2013; partially offset by (iv) a decrease in net investment income of $3.4 million; and (v) an increase in salaries and benefits of $2.4 million. Noncontrolling interest in earnings increased by $2.1 million to $3.1 million for the three months ended March 31, 2014 as a result of higher earnings in those companies in which there are noncontrolling interests. Net earnings attributable to Enstar Group Limited increased by $11.7 million, or 84.2%, from $13.9 million for the three months ended March 31, 2013 to $25.6 million for the three months ended March 31, 2014. Net Premiums Earned: Three Months Ended March 31, 2014 Variance 2013 (in thousands of U.S. dollars) Gross premiums written $ 1,319$ 12,098

Ceded reinsurance premiums written (276 )

(2,390 ) Net premiums written 1,043 $ (8,665 ) 9,708 Gross premiums earned 2,768 34,136

Ceded reinsurance premiums earned (241 )

(3,216 ) Net premiums earned $ 2,527$ (28,393 )$ 30,920 Premiums Written Gross premiums written consist of direct premiums written and premiums assumed by SeaBright. Upon acquisition, SeaBright was placed into run-off and, as a result, stopped writing new insurance policies. SeaBright was renewing expiring insurance policies when it was obligated to do so by regulators, but during 2013 it received approvals from all states relieving it of this obligation. Gross and net non-life run-off premiums written for the three months ended March 31, 2014 totaled $1.3 million and $1.0 million, respectively, as compared to $12.1 million and $9.7 million for the same period in 2013. The gross and net non-life run-off premiums written relate primarily to premium audits and reinstatement premiums on previously written policies.



Premiums Earned

Gross non-life run-off premiums earned for the three months ended March 31, 2014 and 2013 totaled $2.8 million and $34.1 million, respectively. Ceded reinsurance premiums earned for the three months ended March 31, 2014 and 2013 totaled $0.2 million and $3.2 million, respectively. Accordingly, net premiums earned for the three months ended March 31, 2014 and 2013 totaled $2.6 million and $30.9 million, respectively. With SeaBright no longer generating written premiums, we expect that the current unearned premiums associated with SeaBright will be fully earned by the second quarter of 2014. 58



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Net Investment Income and Net Realized and Unrealized Gains:

Three Months Ended March 31, Net Realized and Unrealized Net Investment Income Gains 2014 Variance 2013 2014 Variance 2013 (in thousands of U.S. dollars) Total $ 14,333$ (3,358 )$ 17,691$ 29,629$ (649 )$ 30,278 Net investment income for the three months ended March 31, 2014 decreased by $3.4 million to $14.3 million, as compared to $17.7 million for the three months ended March 31, 2013. The decrease was primarily a result of lower yields obtained on our cash and fixed maturity investment portfolios, as securities with higher yields matured and were reinvested at lower yields, partially offset by the increase in net investment income from having the SeaBright investment portfolio for a full quarter in 2014. Net realized and unrealized gains for the three months ended March 31, 2014 and 2013 were $29.6 million and $30.3 million, respectively. The decrease of $0.7 million was primarily attributable to the combination of the following items:



(i) a decrease of $2.2 million in net unrealized and realized gains on our

private equity and other investment holdings; and (ii) a decrease of $4.9 million in net unrealized and realized gains on our equity portfolios due to lower returns from equity markets in the three months ended March 31, 2014 as compared to the same period in 2013; partially offset by



(iii) an increase of $6.4 million in net unrealized and realized gains related

to fixed maturity investments, largely due to a decrease in treasury

yields. Annualized Returns The below table presents the annualized investment returns (inclusive of net investment income and net realized and unrealized gains) that we have earned on our investments for the three months ended March 31, 2014 and 2013: Average Cash and Annualized Returns Investment Balances 2014 2013 2014 2013 (in thousands of U.S. dollars) Cash and fixed maturity investments 2.14 % 1.67 % $ 4,025,517$ 3,888,028 Other investments and equities 11.81 % 21.74 % 764,879 546,431 Combined overall 3.67 % 4.33 % 4,790,396 4,434,460



The average credit ratings by fair value of our fixed maturity investments as at March 31, 2014 and December 31, 2013 were A+.

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Net Reduction in Ultimate Losses and Loss Adjustment Expense Liabilities:

The following table shows the components of the movement in the net reduction in ultimate losses and loss adjustment expense liabilities for the three months ended March 31, 2014 and 2013: Three Months Ended March 31, 2014 2013 Prior Current Prior Current Periods Period Total Variance Periods Period Total (in thousands of U.S. dollars) Net losses paid $ 87,155$ 532$ 87,687$ 81,134$ 2,540$ 83,674 Net change in case and LAE reserves (63,249 ) 851 (62,398 ) (62,745 ) 5,245 (57,500 ) Net change in IBNR reserves (37,397 ) 49 (37,348 ) (23,450 ) 20,748 (2,702 ) (Reduction) increase in estimates of net ultimate losses (13,491 ) 1,432 (12,059 ) (35,531 ) (5,061 ) 28,533 23,472 Reduction in provisions for unallocated loss adjustment expense liabilities (13,359 ) - (13,359 ) (16,404 ) - (16,404 ) Amortization of fair value adjustments (3,764 ) - (3,764 ) 2,093 - 2,093 Net (reduction) increase in ultimate losses and loss adjustment expense liabilities $ (30,614 )$ 1,432$ (29,182 ) (38,343 ) $ (19,372 )$ 28,533$ 9,161 Net change in case and LAE reserves comprises the movement during the period in specific case reserve liabilities as a result of claims settlements or changes advised to us by our policyholders and attorneys, less changes in case reserves recoverable advised by us to our reinsurers as a result of the settlement or movement of assumed claims. Net change in IBNR reserves represents the change in our actuarial estimates of losses incurred but not reported, less amounts recoverable.



Three Months Ended March 31, 2014

The net reduction in ultimate losses and loss adjustment expense liabilities for the three months ended March 31, 2014 of $29.2 million included losses incurred related to current period premium of $1.4 million related to SeaBright. Excluding SeaBright's current period incurred losses of $1.4 million, ultimate losses and loss adjustment expense liabilities relating to prior periods were reduced by $30.6 million, which was attributable to a reduction in estimates of net ultimate losses of $13.5 million and a reduction in provisions for unallocated loss adjustment expense liabilities of $13.3 million, relating to 2014 run-off activity, and amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $3.8 million.



Excluding the impact of current period losses incurred of $1.4 million relating to SeaBright, the reduction in estimates of net ultimate losses was $13.5 million, which was primarily related to:

(i) our quarterly review of historic case reserves for which no updated

advices had been received for a number of years. This review identified

the redundancy of a number of advised case reserves with an estimate

aggregate value of approximately $6.8 million; and (ii) favorable claim settlements for the three months ended March 31, 2014 resulting in a reduction in estimates of net ultimate losses of approximately $6.7 million. 60



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Three Months Ended March 31, 2013

The net increase in ultimate losses and loss adjustment expense liabilities for the three months ended March 31, 2013 of $9.2 million included losses incurred of $28.5 million related to SeaBright. Excluding SeaBright's incurred losses related to current period premium of $28.5 million, ultimate losses and loss adjustment expenses relating to prior periods were reduced by $19.4 million, which was attributable to a reduction in estimates of net ultimate losses of $5.1 million and a reduction in provisions for unallocated loss adjustment expense liabilities of $16.4 million, relating to 2013 run-off activity, partially offset by amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $2.1 million.



Excluding the impact of current period losses incurred of $28.5 million relating to SeaBright, the reduction in estimates of net ultimate losses was $5.1 million, and was primarily related to:

(i) our quarterly review of historic case reserves for which no updated

advices had been received for a number of years. This review identified

the redundancy of a number of advised case reserves with an estimate

aggregate value of approximately $8.3 million; partially offset by



(ii) net incurred loss development of $26.7 million (excluding redundant case

reserve reductions of $8.3 million), largely offset by reductions in IBNR reserves of $23.5 million.



Beginning and Ending Reserves

The table below provides a reconciliation of the beginning and ending reserves for losses and loss adjustment expense liabilities for the three months ended March 31, 2014 and 2013. Losses incurred and paid are reflected net of reinsurance recoverables. Three Months Ended March 31, 2014 2013 (in thousands of U.S. dollars) Balance as at January 1(1) $ 4,004,513$ 3,650,127 Less: total reinsurance reserves recoverable 1,121,533



876,220

2,882,980



2,773,907

Net (reduction) increase in ultimate loss and loss adjustment expense liabilities related to: Current period 1,432 28,533 Prior periods (30,614 ) (19,372 )



Total net (reduction) increase in ultimate losses and loss adjustment expense liabilities

(29,182 ) 9,161 Net losses paid related to: Current period (532 ) (2,540 ) Prior periods (87,155 ) (81,134 ) Total net losses paid (87,687 ) (83,674 ) Effect of exchange rate movement (1,025 ) (25,952 ) Acquired on purchase of subsidiaries - 479,982 Assumed business 28,630 42,624 Net balance as at March 31 2,793,716 3,196,048 Plus: total reinsurance reserves recoverable 1,028,162 947,750 Balance as at March 31 $ 3,821,878$ 4,143,798



(1) We have reclassified outstanding losses and loss adjustment expense

liabilities of $11.0 million to policy benefits for life and annuity

contracts as at January 1, 2013 to conform to the current period

presentation. This amount is associated with Laguna which now forms part of

our life and annuities segment that was established following the acquisition of the Pavonia companies. 61



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Table of Contents Salaries and Benefits: Three Months Ended March 31, 2014 Variance 2013 (in thousands of U.S. dollars) Total $ 25,846$ (2,382 )$ 23,464 Salaries and benefits, which include expenses relating to our discretionary bonus and employee share plans, were $25.8 million and $23.5 million for the three months ended March 31, 2014 and 2013, respectively. The $2.4 million increase in salaries and benefits expenses was primarily related to an increase in the discretionary bonus provision due to higher net earnings for the three months ended March 31, 2014 as compared to 2013. Expenses relating to our discretionary bonus plan will be variable and are dependent on our overall profitability.



General and Administrative Expenses:

Three Months Ended March 31, 2014 Variance 2013 (in thousands of U.S. dollars) Total $ 15,763$ 652$ 16,415 General and administrative expenses decreased by $0.6 million from $16.4 million to $15.8 million during the three months ended March 31, 2014, as compared to the three months ended March 31, 2013. The decrease in expenses was primarily attributable to a reduction in professional fees and other general and administrative expenses of $0.3 million and $0.9 million, respectively, partially offset by an increase in information technology costs of $0.7 million.



Net Foreign Exchange Losses:

Three Months Ended March 31, 2014 Variance 2013 (in thousands of U.S. dollars) Total $ 2,130$ 2,806$ 4,936 We recorded net foreign exchange losses of $2.1 million and $4.9 million for the three months ended March 31, 2014 and 2013, respectively. The net foreign exchange losses for the three months ended March 31, 2014 arose primarily as a result of the holding of surplus U.S. dollar assets by our Australian subsidiary at a time when the Australian dollar was appreciating against the U.S. dollar. The net foreign exchange losses for the three months ended March 31, 2013 arose primarily as a result of the holding of surplus British pound and Euro assets at a time when the U.S. dollar was appreciating against these currencies. In addition to the net foreign exchange losses recorded in our consolidated statement of earnings for the three months ended March 31, 2014, we recorded in our condensed consolidated statement of comprehensive income currency translation adjustment gains, net of noncontrolling interest, of $3.2 million as compared to losses, net of noncontrolling interest, of $0.4 million for the same period in 2013. For the three months ended March 31, 2014, the currency translation adjustments related primarily to our Austarlian-based subsidiaries. As the functional currencies of these subsidiaries are Australian dollars, we record any U.S. dollar gains or losses on the translation of their net Australian dollar assets through accumulated other comprehensive income. 62



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Table of Contents Income Tax Expense: Three Months Ended March 31, 2014 Variance 2013 (in thousands of U.S. dollars) Total $ 3,651$ 4,172$ 7,823



We recorded income tax expense of $3.7 million and $7.8 million for the three months ended March 31, 2014 and 2013, respectively.

Income tax expense is primarily generated through our foreign operations outside of Bermuda, principally in the United States, Europe and Australia. The effective tax rate, which is calculated as income tax expense or benefit divided by income before tax, is primarily driven by the geographic distribution of pre-tax net income between jurisdictions with comparatively higher tax rates and those with comparatively lower income tax rates and as a result may fluctuate significantly from period to period.



The decrease in income taxes of $4.2 million was due principally to decreased pre-tax net income recorded in our U.S. and U.K. based subsidiaries.

The effective tax rate was 17.9% for the three months ended March 31, 2014 as compared with 37.7% for the same period in 2013. In 2014, we had proportionately lower net income in our tax paying subsidiaries than in the prior period. Noncontrolling Interest: Three Months Ended March 31, 2014 Variance 2013 (in thousands of U.S. dollars) Total $ 3,075$ (2,049 )$ 1,026 We recorded a noncontrolling interest in earnings of $3.1 million and $1.0 million for the three months ended March 31, 2014 and 2013, respectively. The increase for the three months ended March 31, 2014 was due primarily to the increase in earnings for those companies where there exists a noncontrolling interest. Active Underwriting Our active underwriting segment is comprised of the operations and financial results of Atrium and its subsidiaries (acquired November 25, 2013) and Arden (acquired September 9, 2013). Results related to Arden's reinsurance of Atrium are included within our active underwriting segment, while results related to Arden's run-off business are included within our non-life run-off segment. Atrium's subsidiary, Atrium Underwriters Ltd., or AUL, is the managing agent for Lloyd's Syndicate 609. AUL earns fees and profit commissions on business underwritten for the Syndicate. Atrium's subsidiary, Atrium 5 Ltd, impacts our active underwriting results with respect to the 25% underwriting capacity and capital it provides to Syndicate 609 (of which we own 15% and Trident owns 10%). In future periods the active underwriting segment will also include substantially all of Torus Insurance Holdings Limited and its subsidiaries, although some of Torus' lines of business are in run-off and will accordingly be accounted for within our non-life run-off segment. 63



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The following is a discussion and analysis of our results of operations for our active underwriting segment for the three months ended March 31, 2014, which is summarized below. We did not have an active underwriting business for the three months ended March 31, 2013. Three Months Ended March 31, 2014 Atrium/ Holding Enstar Specific Arden Companies Expenses Total (in thousands of U.S. dollars) INCOME Net premiums earned $ 32,639 $ - $ - $ 32,639 Fees and commission income 4,821 - - 4,821 Net investment income 480 - - 480 Net realized and unrealized losses (107 ) - - (107 ) 37,833 - - 37,833 EXPENSES Net increase in ultimate losses and loss adjustment expense liabilities 17,131 - - 17,131 Acquisition costs 9,561 - - 9,561 Salaries and benefits 3,533 - - 3,533 General and administrative expenses 2,871 2,063 - 4,934 Interest expense 6 - 1,167 1,173 Net foreign exchange (gains) losses (551 ) 6 - (545 ) 32,551 2,069 1,167 35,787 EARNINGS (LOSS) BEFORE INCOME TAXES 5,282 (2,069 ) (1,167 ) 2,046 INCOME TAXES (1,339 ) - - (1,339 ) NET EARNINGS (LOSS) 3,943 (2,069 ) (1,167 ) 707 Less: Net earnings (loss) attributable to noncontrolling interest (1,578 ) 828 - (750 ) NET EARNING (LOSS) ATTRIBUTABLE TO ENSTAR GROUP LIMITED $ 2,365$ (1,241 ) $



(1,167 ) $ (43 )

Loss ratio (1) 52.5 % Acquisition cost ratio (2) 29.3 % Other operating expense ratio (3) 19.6 % Combined ratio (4) 101.4 %



(1) Loss ratio is obtained by dividing net increase in ultimate losses and loss

adjustment expense liabilities by net premiums earned.

(2) Acquisition cost ratio is obtained by dividing acquisition costs by net

premiums earned.

(3) Other operating expense ratio is obtained by dividing the sum of general and

administrative expenses and salaries and benefits attributable to

Atrium/Arden by net premiums earned. Other operating expense ratio is a

non-GAAP financial measure because it excludes the general and administrative

expenses of the active underwriting holding companies. The most directly

comparable GAAP financial measure would be to include these holding company

expenses, which would result in a ratio of 25.9%. See "Non-GAAP Financial

Measures" for more information on this ratio.

(4) Our combined ratio is the sum of: (i) our loss ratio, (ii) our acquisition

cost ratio and (iii) our other operating expense ratio (which is a non-GAAP

financial measure, as described in footnote 3). Our historical combined ratio

may not be indicative of future underwriting performance.

For our active underwriting segment, we reported net earnings, before net earnings attributable to noncontrolling interest, of approximately $0.7 million for the three months ended March 31, 2014.

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The results were primarily driven by:

(i) the combination of net premiums earned of $32.6 million less

$17.1 million in net increase in ultimate losses and loss



adjustment

expense liabilities and $9.6 million of acquisition costs; (ii) fees and commission income of $4.8 million; and



(iii) net investment income and net realized and unrealized losses of $0.4

million; partially offset by (iv) salaries and benefits and general and administrative expenses of $8.5 million (including $0.9 million relating to Torus transaction costs); (v) interest expense of $1.2 million; and (vi) income taxes of $1.3 million. Noncontrolling interest in earnings of $0.7 million related to Trident's 40% interest in the earnings of Bayshore and Northshore, resulting in net earnings from active underwriting attributable to Enstar Group Limited of approximately $(0.1) million for the three months ended March 31, 2014. Trident's share of earnings is greater than its calculated 40% share of the segment's net earnings primarily due to interest expense in respect of borrowings under our revolving credit facility that are recorded within the segment and 100% attributable to us. For 2014, we expect the income and expenses associated with the active underwriting segment to increase as a result of us having our interest in Atrium and Arden for a full year, as well as having our interest in Torus for three quarters during 2014. Earnings attributable to noncontrolling interest in 2014 will be dependent on the level of combined earnings for Atrium, Arden and Torus. We also expect interest expense to increase in 2014 from 2013, largely due to increased borrowings under our revolving credit facility related to draw downs on our revolving credit facility to partially finance acquisition activity in this segment. Gross Premiums Written:



The following table provides gross premiums written by line of business for the three months ended March 31, 2014:

Gross Premiums Written Three Months % of Total Gross Ended March 31, Premiums 2014 Written (in thousands of U.S. dollars) Marine Property $ 8,032 16.9 % Property and Casualty Binding Authorities 7,243 15.2 % Upstream Energy 6,232 13.1 % Reinsurance 5,811 12.2 % Accident and Health 5,716 12.0 % Professional Liability 4,135 8.7 % Non-Marine Property 3,904 8.2 % Aviation 3,895 8.2 % War and Terrorism 2,609 5.5 % Total $ 47,577 100.0 % 65



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Gross premiums written were $47.6 million for the three months ended March 31, 2014. The gross premiums written relate entirely to Atrium.

Net Premiums Earned:

The following table provides net premiums earned by line of business for the three months ended March 31, 2014:

Net Premiums Earned Three Months Ended March 31, % of Total Net 2014 Premiums Earned (in thousands of U.S. dollars) Property and Casualty Binding Authorities $ 5,508 16.9 % Marine Property 5,265 16.1 % Upstream Energy 5,015 15.4 % Accident and Health 3,942 12.1 % Non-Marine Property 3,656 11.2 % Reinsurance 3,009 9.2 % Professional Liability 3,001 9.2 % Aviation 1,766 5.4 % War and Terrorism 1,477 4.5 % Total $ 32,639 100.0 %



Net premiums earned were $32.6 million for the three months ended March 31, 2014 and related to Atrium and Arden's reinsurance of Atrium.

Fees and Commission Income: For the Three Months Ended March 31, 2014 Variance 2013 (in thousands of U.S. dollars) Total $ 4,821$ 4,821 $ - We earned fees and commission income of approximately $4.8 million for the three months ended March 31, 2014. The fees represent management and profit commission fees earned by us in relation to Atrium's management of Syndicate 609. 66



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Net Increase in Ultimate Losses and Loss Adjustment Expenses:

The table below provides a reconciliation of the beginning and ending reserves for losses and loss adjustment expense liabilities for the three months ended March 31, 2014 of our active underwriting segment (losses incurred and paid are reflected net of reinsurance recoverables): Three Months Ended March 31, 2014 (in thousands of U.S. dollars) Balance as at January 1 $ 215,392 Less: total reinsurance reserves recoverable



25,055

190,337

Net increase (reduction) in ultimate losses and loss adjustment expense liabilities: Current period 21,314 Prior periods (4,183 ) Total net increase in ultimate losses and loss adjustment expense liabilities 17,131 Net losses paid: Current period (4,684 ) Prior periods (8,151 ) Total net losses paid (12,835 ) Effect of exchange rate movement



(7 )

Net balance as at March 31



194,626

Plus: total reinsurance reserves recoverable 25,626 Balance as at March 31 $ 220,252 For the three months ended March 31, 2014 we recorded reserve increases of $4.3 million, net of $12.8 million of paid losses. There was a net favorable prior year reserve development of $4.2 million due to claims improvement and reserve releases related to our Upstream Energy, Marine Property and Accident and Health lines of business. Losses incurred for the current period of $21.3 million has been recorded as expected loss ratios on current period earned premium.



There is no assurance that conditions or trends that have affected the development of our reserves in the past will continue, and prior year development may not be indicative of development in future years.

Salaries and Benefits: Three Months Ended March 31, 2014 Variance 2013 (in thousands of U.S. dollars) Total $ 3,533$ (3,533 ) $ - Salaries and benefits related to our active underwriting segment were $3.5 million for the three months ended March 31, 2014. These expenses, all relating to Atrium, include salaries and benefits of $1.9 million and discretionary bonus costs of approximately $1.6 million. Expenses relating to Atrium's discretionary bonus plan will be variable and dependent on Atrium's overall profitability. 67



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General and Administrative Expenses:

Three Months Ended March 31, 2014 Variance 2013 (in thousands of U.S. dollars) Total $ 4,934$ (4,934 ) $ - General and administrative expenses were $4.9 million for the three months ended March 31, 2014 and were comprised of $2.9 million related to Atrium and Arden and $2.0 million related to the active underwriting segment holding companies. General and administrative expenses associated with the active underwriting segment holding companies was comprised primarily of non-recurring transaction costs and other expenses associated with Bayshore and Northshore of $1.3 million, and $0.7 million related to the amortization of our definite-lived intangible assets in connection with our acquisition of Atrium. Interest Expense: Three Months Ended March 31, 2014 Variance 2013 (in thousands of U.S. dollars) Total $ 1,173$ (1,173 ) $ - Interest expense of $1.2 million was recorded for the three months ended March 31, 2014. The interest expense recorded was in respect of borrowings under our revolving credit facility that are recorded in the segment that are 100% attributable to us. Noncontrolling Interest: Three Months Ended March 31, 2014 Variance 2013 (in thousands of U.S. dollars) Total $ 750$ (750 ) $ - We recorded noncontrolling interest in earnings of $0.7 million for the three months ended March 31, 2014. As of March 31, 2014, Trident had a 40% noncontrolling interest in Atrium, Arden and the active underwriting segment holding companies (which includes both Northshore and Bayshore). 68



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Life and Annuities Segment

The following is a discussion and analysis of our results of operations for our life and annuities segment for the three months ended March 31, 2014 and 2013, which are summarized below: Three Months Ended March 31, 2014 2013 (in thousands of U.S. dollars) INCOME Net premiums earned $ 26,492 $ 741 Fees and commission income 21 - Net investment income 9,989 272 Net realized and unrealized gains (losses) 5,051 (158 ) 41,553 855 EXPENSES Life and annuity policy benefits 26,809 741 Acquisition costs 3,600 - Salaries and benefits 2,011 146 General and administrative expenses 2,352 1,712 Interest expense 454 15 Net foreign exchange losses 11 146 35,237 2,760 EARNINGS (LOSS) BEFORE INCOME TAXES 6,316 (1,905 ) INCOME TAXES (2,286 ) (21 ) NET EARNINGS (LOSS) ATTRIBUTABLE TO ENSTAR GROUP LIMITED $ 4,030$ (1,926 ) Net Premiums Earned: Three Months Ended March 31, 2014 Variance 2013 (in thousands of U.S. dollars) Term life insurance $ 7,683$ 6,942$ 741 Assumed life reinsurance 4,268 4,268 - Credit life and disability 14,542 14,542 - $ 26,493$ 741 Net premiums earned were $26.5 million and $0.7 million for the three months ended March 31, 2014 and 2013, respectively. Term life premiums consist primarily of monthly premium collections coupled with annual premiums earned as collected. The term life business consists of 10, 15, 20 and 30 year direct term business with approximately 90% of premiums to be earned over the next 20 years. The assumed life reinsurance premiums will continue to be earned until the year 2052; however, approximately 70% are expected to be earned within the next ten years. Credit life and disability premiums are fixed monthly premiums received on credit products that mostly consist of sub-prime mortgages in the U.S. and Canada; approximately 90% of these premiums are expected to be earned before the year 2023. Substantially all net premiums earned in 2014 relate to the acquisition of the Pavonia companies. We recorded acquisition costs for the three months ended March 31, 2014 of approximately $3.6 million associated with the premiums earned by Pavonia. The premiums are expected to reduce by approximately 15-20% per annum as the blocks of business continue to run-off and policies lapse. 69



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For our life and annuities business, although we no longer write new business, our strategy differs from our non-life run-off and active underwriting businesses, in particular because we are unable to shorten the duration of the liabilities in this business through either commutations or policy buy backs. Instead, we will hold the policies associated with the life and annuities business to their natural maturity in order to pay claims as they fall due.



Net premiums earned in 2013 relate to the Laguna term life business.

Net Investment Income and Net Realized and Unrealized Gains (Losses):

Three Months Ended March 31, Net Realized and Unrealized Gains Net Investment Income (Losses) 2014 Variance 2013 2014 Variance 2013 (in thousands of U.S. dollars)



Total $ 9,989$ 9,717$ 272$ 5,051$ 5,209$ (158 )

Net investment income for the three months ended March 31, 2014 and 2013 was $10.0 million and $0.3 million, respectively. The increase was due to the inclusion of the cash and fixed maturity investments associated with the acquisition of the Pavonia companies on March 31, 2013.

Net realized and unrealized gains (losses) for the three months ended March 31, 2014 and 2013 were $5.1 million and ($0.2) million, respectively. The increase in net realized and unrealized gains of $5.2 million was due to unrealized gains on fixed maturity investments acquired with the Pavonia companies, largely due to movement in treasury yields during the three months ended March 31, 2014. The current operations of one of the Pavonia companies relates solely to periodic payment annuities, or PPA. We have a long duration held-to-maturity investment portfolio to manage the cash flow obligations of these annuities. This held-to-maturity portfolio is carried at amortized cost and as such we would not anticipate unrealized gains or losses on the portfolio. The carrying value of the held-to-maturity portfolio comprises approximately 70% of the Pavonia investments. The remaining 30% of our Pavonia investments are composed of trading portfolios of fixed maturity investments which secure our non-PPA business. Annualized Returns The table below presents the annualized investment returns (inclusive of net investment income and net realized and unrealized gains (losses)) that we have earned on our average cash and investments for the three months ended March 31, 2014 and 2013: Average Cash and Annualized Return Investment Balances 2014 2013 2014 2013 (in thousands of U.S. dollars) Cash and fixed maturity investments 4.25 % 0.89 % $ 1,344,924$ 51,063 Other investments and equities 21.61 % - % 11,928 - Combined overall 4.43 % 0.89 % 1,356,852 51,063



The average credit ratings of our fixed maturity investments as at March 31, 2014 and 2013 were A+ and A+, respectively.

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Life and Annuity Policy Benefits:

Three Months Ended March 31, 2014 Variance 2013 (in thousands of U.S. dollars) Periodic payment annuity benefits paid $ 13,390$ (13,390 ) $ - Reductions in periodic payment annuity benefit reserves (7,235 ) 7,235 - Net change in periodic payment annuity benefit reserves 6,155 - Net life claims benefits paid 22,436 (22,436 ) - Net change in life claims benefit reserves (5,580 ) 6,321 741 Amortization of fair value adjustments 3,798



(3,798 ) -

Net ultimate change in life benefit reserves 20,654 741 $ 26,809$ 741 Life and annuity policy benefits were $26.8 million and $0.7 million for the three months ended March 31, 2014 and 2013, respectively. PPA benefits paid during the three months ended March 31, 2014 were $13.4 million, which was an average of approximately $4.5 million per month, offset by a reduction in PPA benefit reserves of $7.2 million. Net ultimate change in life benefit reserves of $20.7 million was comprised of net life claims benefits paid of $22.4 million and amortization of fair value adjustments of $3.8 million, partially offset by net change in life claims benefit reserves of $5.6 million. Life and annuity policy benefits for 2013 relate to the Laguna term life business. Salaries and Benefits: Three Months Ended March 31, 2014 Variance 2013 (in thousands of U.S. dollars) Total $ 2,011$ (1,865)$ 146 Salaries and benefit costs related to our life and annuities segment were $2.0 million for the three months ended March 31, 2014 as compared to $0.1 million for the three months ended March 31, 2013. The increase of $1.9 million was attributable to an increase in salaries and benefits of $1.2 million associated with Pavonia and $0.7 million of expense associated with our discretionary bonus plan relating to our life and annuities segment.



General and Administrative Expenses:

Three Months Ended March 31, 2014 Variance 2013 (in thousands of U.S. dollars) Total $ 2,352$ (640 )$ 1,712 The increase in general and administrative expenses of $0.7 million, from $1.7 million for the three months ended March 31, 2013 to $2.4 million for the three months ended March 31, 2014, was primarily attributable to the increase of approximately $1.2 million in general and administrative expenses associated with Pavonia. This increase was partially offset by a reduction in information technology costs of $0.6 million related to higher costs for the three months ended March 31, 2013 associated with the transition of the Pavonia business. 71



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Liquidity and Capital Resources

Our capital management strategy is to preserve sufficient capital to enable us to make future acquisitions while maintaining a conservative investment strategy. As we are a holding company and have no substantial operations of our own, our assets consist primarily of investments in subsidiaries. The potential sources of the cash flows to Enstar as a holding company consist of dividends, advances and loans from our subsidiary companies. Most of those subsidiaries are regulated entities, and restrictions on their ability to pay dividends and make other distributions may apply. At March 31, 2014, we had total cash and cash equivalents, restricted cash and cash equivalents and investments of $6.78 billion, compared to $6.56 billion at December 31, 2013. Our cash and cash equivalent portfolio is comprised mainly of cash, high-grade fixed deposits, commercial paper with maturities of less than three months and money market funds.



Reinsurance Balances Recoverable

In our non-life run-off segment, our acquired insurance and reinsurance subsidiaries, prior to acquisition, used retrocessional agreements to reduce their exposure to the risk of insurance and reinsurance assumed. Our insurance and reinsurance subsidiaries 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. On an annual basis, Atrium purchases a tailored outwards reinsurance program designed to manage the risk profile of Lloyd's Syndicate 609. The majority of Atrium's total third party reinsurance cover is with Lloyd's Syndicates or other reinsurers rated A- or better. As of March 31, 2014 and December 31, 2013, we had, excluding reinsurance recoverables related to our life and annuities segment, reinsurance balances recoverable of $1.22 billion and $1.33 billion, respectively. The decrease of $108.2 million in reinsurance balances recoverable was primarily a result of commutations and cash collections made, partially offset by balances acquired during the period ended March 31, 2014. At March 31, 2014 and December 31, 2013, the provision for uncollectible reinsurance recoverable relating to reinsurance balances recoverable was $339.8 million and $338.6 million, respectively. To estimate the provision for uncollectible reinsurance recoverable, the balances are first allocated to applicable reinsurers which involve management judgment. As part of this process, ceded incurred but not reported, or IBNR, reserves are allocated by reinsurer. The ratio of the provision for uncollectible reinsurance recoverable to total non-life run-off reinsurance balances recoverable (excluding provision for uncollectible reinsurance recoverable) as of March 31, 2014 increased to 21.3% as compared to 19.9% as of December 31, 2013, primarily as a result of commutations and cash collections from reinsurers with minimal bad debt provisions in the three months ended March 31, 2014, which was slightly offset by reinsurance balances recoverable of new business acquired requiring minimal provisions for uncollectible reinsurance recoverable. 72



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Cash Flows

The following table summarizes our consolidated cash flows from operating, investing and financing activities for the three months ended March 31, 2014 and 2013:

Three Months Ended March 31, Total cash (used in) provided by: 2014 2013 (in thousands of U.S. dollars) Operating activities $ (31,072 )$ 10,592 Investing activities (263,779 ) (270,675 ) Financing activities 295,800 225,260 Effect of exchange rate changes on cash 1,033



20,289

Net increase (decrease) in cash and cash equivalents 1,982 (14,534 ) Cash and cash equivalents, beginning of period 643,841



654,890

Cash and cash equivalents, end of period $ 645,823



$ 640,356

See "Item 1. Financial Statements - Unaudited Condensed Consolidated Statements of Cash Flows for the Three Month Periods Ended March 31, 2014 and 2013" for further information. Operating Net cash used in our operating activities for the three months ended March 31, 2014 was $31.1 million compared to net cash provided of $10.6 million for the three months ended March 31, 2013. This $41.7 million increase in net cash used in operating activities was due primarily to the following: (i) a decrease of $157.5 million in sales and maturities of trading securities between 2014 and 2013; and (ii) a decrease of $132.1 million in the net changes in assets and liabilities between 2014 and 2013; partially offset by



(iii) a decrease of $232.6 million in purchases of trading securities

between 2014 and 2013. Investing Investing cash flows consist primarily of net cash acquired on acquisitions along with net proceeds on the sale and purchase of available-for-sale and other investments. Net cash used in investing activities was $263.8 million during the three months ended March 31, 2014, compared to $270.7 million during the three months ended March 31, 2013. The decrease of $6.9 million in cash used in investing activities between 2014 and 2013 was due primarily to the following: (i) a decrease of $284.0 million in net cash used for acquisitions between 2014 and 2013, due primarily to the acquisitions of SeaBright and Pavonia during 2013; partially offset by



(ii) an increase of $209.5 million in restricted cash and cash equivalents

during 2014, compared to an increase of $46.8 million in 2013 (this increase in 2014 was related primarily to our payment into an escrow account of $300.0 million, which was the cash portion of the purchase price for our interest in Torus, that we and Trident funded in advance of closing pursuant to the terms of the amended and restated amalgamation agreement); 73



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(iii) an increase of $63.5 million in the funding of other investments

between 2014 and 2013 due to the increased allocation to other investments during 2014; and



(iv) an increase of $53.3 million in the purchase of available-for-sale

securities between 2014 and 2013. Financing Net cash provided by financing activities was $295.8 million during the three months ended March 31, 2014 compared to $225.3 million during the three months ended March 31, 2013. The increase of $70.5 million in cash provided by financing activities was primarily attributable to the following: (i) an increase in contribution to surplus of subsidiary by redeemable noncontrolling interest of $260.8 million in 2014 compared to $nil in 2013, which was with respect to Trident's contribution to



Bayshore and

was funded in advance of closing the Torus acquisition; partially offset by (ii) a decrease of $157.0 million in cash received attributable to bank loans between 2014 and 2013, and an increase of $35.0 million in the repayment of bank loans between 2014 and 2013.



Investments

Aggregate invested assets, comprising cash and cash equivalents, restricted cash and cash equivalents, fixed maturity investments, equities and other investments, were $6.78 billion as of March 31, 2014 compared to $6.56 billion as of December 31, 2013, an increase of approximately $213.8 million. This increase was primarily attributable to Trident's contribution to Bayshore of $260.8 million partly offset by a decrease of $47.0 million associated with net cash outflows incurred by us in the period. We hold: (i) trading portfolios of fixed maturity investments, short-term investments and equities; (ii) available-for-sale portfolios of fixed maturity and short-term investments; and (iii) a held-to-maturity portfolio of fixed maturity investments. Our available-for-sale and trading portfolios are recorded at fair value. Our held-to-maturity portfolio relates to our PPA business within our life and annuities segment. In an effort to match the expected cash flow requirements of the long-term liabilities associated with the business, we invest a portion of our fixed maturity investments in longer duration securities that we intend to hold to maturity. We classify these securities as held-to-maturity in our unaudited condensed consolidated balance sheet. This held-to-maturity portfolio is recorded at amortized cost. As a result, we do not record changes in the fair value of this portfolio, which should reduce the impact on shareholders' equity of fluctuations in fair value of those investments. 74



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The table below shows the aggregate amounts of our investments carried at fair value as of March 31, 2014 and December 31, 2013:

March 31, 2014 December 31, 2013 % of Total Fair % of Total Fair Fair Value Value Fair Value Value (in thousands of U.S. dollars) U.S. government and agency $ 415,811 8.9 % $ 468,289 10.0 % Non-U.S. government 527,177 11.3 % 562,516 12.1 % Corporate 2,197,086 47.1 % 2,201,579 47.2 % Municipal 34,545 0.7 % 41,034 0.9 % Residential mortgaged-backed 237,896 5.1 % 235,964 5.1 % Commercial mortgage-backed 127,664 2.7 % 114,637 2.5 % Asset-backed 320,304 6.9 % 285,066 6.1 % Fixed maturity investments 3,860,483 82.7 % 3,909,085 83.9 % Other investments 646,765 13.9 % 569,293 12.2 % Equities-U.S. 107,341 2.3 % 115,285 2.5 % Equities-International 51,333 1.1 % 66,748 1.4 % Total investments $ 4,665,922 100.0 % $ 4,660,411 100.0 %



The table below shows the aggregate fair values of our investments classified as held-to-maturity as of March 31, 2014 and December 31, 2013:

March 31, 2014 December 31, 2013 % of Total Fair % of Total Fair Fair Value Value Fair Value Value (in thousands of U.S. dollars) U.S. government and agency $ 18,622 2.2 % $ 18,132 2.3 % Non-U.S. government 31,219 3.8 % 22,327 2.8 % Corporate 777,550 94.0 % 759,100 94.9 % Total investments $ 827,391 100.0 % 799,559 100.0 % As at both March 31, 2014 and December 31, 2013, we held investments on our balance sheet totaling $5.52 billion, with net unrealized appreciation included in accumulated comprehensive income of $2.7 million at March 31, 2014 compared to $3.1 million at December 31, 2013. As at March 31, 2014, we had approximately $3.1 billion of restricted assets compared to approximately $2.9 billion at December 31, 2013. Across all our segments, we strive to structure our investments in a manner that recognizes our liquidity needs for future liabilities. In that regard, we attempt to correlate the maturity and duration of our investment portfolio to our general liability profile. If our liquidity needs or general liability profile unexpectedly change, we may adjust the structure of our investment portfolio to meet new business needs. For our non-life run-off segment, our strategy of commuting our liabilities has the potential to accelerate the natural payout of losses. Therefore, we maintain a relatively short-duration investment portfolio in order to provide liquidity for commutation opportunities and avoid having to liquidate longer dated investments. Accordingly, the majority of our investment portfolio consists of highly rated fixed maturity investments, including U.S. government and agency investments, highly rated sovereign and supranational investments, high-grade corporate investments, and mortgage-backed and asset-backed 75



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investments. We allocate a portion of our investment portfolio to other investments, including private equity funds, fixed income funds, fixed income hedge funds, equity funds and a real estate debt fund. At March 31, 2014, these other investments totaled $646.8 million, or 11.7%, of our total balance sheet investments (December 31, 2013: $569.3 million or 10.3%). For our life and annuities segment, we do not commute our policy benefits for life and annuity contracts liabilities and, as a result, we maintain a longer duration investment portfolio that attempts to match the cash flows and duration of our liability profile. Accordingly, the majority of this portfolio consists of highly rated fixed maturity investments, primarily corporate bonds. Our fixed maturity investments associated with our PPA business are primarily highly rated corporate bonds with which we attempt to match duration and cash flows to the liability profile for this business. As these fixed maturity investments are classified as held-to-maturity, we invest surplus cash flows from maturities into longer dated fixed maturity investments. As at March 31, 2014, the duration of our fixed maturity investment portfolio associated with our PPA business was shorter than the liabilities, as a significant amount of the liabilities extend beyond 30 years and it is difficult, due to limited investment options, to match duration and cash flows beyond that period. Our fixed maturity investments associated with our non-PPA life business are primarily highly rated corporate bonds with which we attempt to match duration and cash flows to the liability profile for this business (the non-PPA life business has a short-duration liability profile). These fixed maturity investments are classified as trading, and therefore we may sell existing securities to buy higher yielding securities and funds in the future. As at March 31, 2014, the duration of our fixed maturity investment portfolio associated with our non-PPA life business was shorter than the liabilities, however, we have the discretion to change this in the future.



Fixed Maturity and Short-term Investments

The maturity distribution for our fixed maturity and short-term investments held as of March 31, 2014 and December 31, 2013 was as follows:

March 31, 2014 December 31, 2013 % of % of Fair Value Total Fair Value Total (in thousands of U.S. dollars) Due in one year or less $ 901,462 19.2 % $ 871,881 18.5 % Due after one year through five years 2,000,009 42.7 % 2,114,772 44.9 % Due after five years through ten years 467,170 10.0 % 478,033 10.2 % Due after ten years 633,369 13.5 % 608,291 12.9 % 4,002,010 85.4 % 4,072,977 86.5 % Residential mortgage-backed 237,896 5.1 % 235,964 5.0 % Commercial mortgage-backed 127,664 2.7 % 114,637 2.4 % Asset-backed 320,304 6.8 % 285,066 6.1 % Total $ 4,687,874 100.0 % $ 4,708,644 100.0 % As at March 31, 2014 and December 31, 2013, our fixed maturity and short-term investment portfolios had an average credit quality rating of A+ and A+, respectively. At March 31, 2014 and December 31, 2013, our fixed maturity investments rated BBB or lower comprised 11.03% and 9.5% of our total investment portfolio, respectively. At March 31, 2014, we had $199.1 million of short-term investments (December 31, 2013: $313.5 million). Short-term investments are managed as part of our investment portfolio and have a maturity of one year or less when purchased. Short-term investments are carried at fair value. 76



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The following tables summarize the composition of the amortized cost and fair value of our fixed maturity investments, short-term investments, equities and other investments carried at fair value at the date indicated by ratings as assigned by major rating agencies. Non- Amortized Fair % of Total AAA Investment At March 31, 2014 Cost Value Investments Rated AA Rated A Rated BBB Rated Grade Not Rated (in thousands of U.S. dollars) Fixed maturity and short-term investments U.S. government & agency $ 414,459$ 415,811 8.9 % $ 5,920$ 391,692$ 18,199 $ - $ - $ - Non-U.S. government 512,093 527,177 11.3 % 186,068 204,750 93,403 30,460 12,496 - Corporate 2,105,605 2,197,086 47.1 % 146,929 566,576 1,033,146 377,929 51,186 21,320 Municipal 34,286 34,545 0.7 % 5,879 25,488 3,178 - - - Residential mortgage-backed 226,300 237,896 5.1 % 26,041 199,907 4,754 5,889 1,290 15 Commercial mortgage-backed 127,936 127,664 2.7 % 48,898 21,579 29,673 20,125 7,389 - Asset-backed 309,223 320,304 6.9 % 237,299 61,646 12,182 2,286 6,891 - Total fixed maturity and short-term investments $ 3,729,902 3,860,483 82.7 % 657,034 1,471,638 1,194,535 436,689 79,252 21,335 17.0 % 38.1 % 30.9 % 11.3 % 2.1 % 0.6 % Equities U.S. 107,341 2.3 % - - - - - 107,341 International 51,333 1.1 % - - - - - 51,333 Total equities 158,674 3.4 % - - - - - 158,674 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 100.0 % Other investments Private equity funds 191,452 4.1 % - - - - - 191,452 Fixed income funds 222,004 4.8 % - - - - - 222,004 Fixed income hedge funds 69,547 1.5 % - - - - - 69,547 Equity funds 128,110 2.7 % - - - - - 128,110 Real estate debt fund 32,469 0.7 % - - - - - 32,469 Other 3,183 0.1 % - - - - - 3,183 Total other investments 646,765 13.9 % - - - - - 646,765 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 100.0 % Total investments $ 4,665,922 100.0 % $ 657,034$ 1,471,638$ 1,194,535$ 436,689$ 79,252$ 826,774 14.1 % 31.5 % 25.6 % 9.4 % 1.7 % 17.7 % 77



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Table of Contents Non- Amortized Fair % of Total AAA Investment At December 31, 2013 Cost Value Investments Rated AA Rated A Rated BBB Rated Grade Not Rated

(in thousands of U.S. dollars) Fixed maturity and short-term investments U.S. government & agency $ 468,198$ 468,289 10.0 % $ 4,391$ 458,477$ 434 $ - $ - $ 4,987 Non-U.S. government 553,724 562,516 12.1 % 215,224 208,322 115,423 11,095 12,452 - Corporate 2,197,955 2,201,579 47.2 % 143,552 542,216 1,052,315 388,815 26,507 48,174 Municipal 40,889 41,034 0.9 % 8,500 25,355 7,179 - - - Residential mortgage-backed 236,984 235,964 5.1 % 12,596 204,217 7,507 3,960 809 6,875 Commercial mortgage-backed 115,351 114,637 2.5 % 38,081 31,893 29,631 8,826 6,206 - Asset-backed 283,940 285,066 6.1 % 207,146 34,808 13,260 4,733 7,174 17,945 Total fixed maturity and short-term investments $ 3,897,041 3,909,085 83.9 % 629,490 1,505,288 1,225,749 417,429 53,148 77,981 16.1 % 38.5 % 31.3 % 10.7 % 1.4 % 2.0 % Equities U.S. 115,285 2.5 % - - - - - 115,285 International 66,748 1.4 % - - - - - 66,748 Total equities 182,033 3.9 % - - - - - 182,033 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 100.0 % Other investments Private equity funds 161,229 3.5 % - - - - - 161,229 Fixed income funds 194,375 4.2 % - - - - - 194,375 Fixed income hedge funds 68,157 1.4 % - - - - - 68,157 Equity funds 109,355 2.3 % - - - - - 109,355 Real estate debt fund 32,113 0.7 % - - - - - 32,113 Other 4,064 0.1 % - - - - - 4,064 Total other investments 569,293 12.2 % - - - - - 569,293 0.0 % 0.0 % 0.0 % 0.0 % 0.0 % 100.0 % Total investments $ 4,660,411 100.0 % $ 629,490$ 1,505,288$ 1,225,749$ 417,429$ 53,148$ 829,307 13.5 % 32.3 % 26.3 % 9.0 % 1.1 % 17.8 % 78



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The following tables summarize the composition of the amortized cost and fair value of our held-to-maturity fixed maturity investments as at March 31, 2014 and December 31, 2013 by ratings as assigned by major rating agencies. Non- Amortized Fair % of Total AAA AA A BBB Investment At March 31, 2014 Cost Value Investments Rated Rated Rated Rated Grade Not Rated (in thousands of U.S. dollars) Fixed maturity investments U.S. government & agency $ 19,841$ 18,622 2.2 % $ 17,076$ 1,546 $ - $ - $ - $ - Non-U.S. government 32,253 31,219 3.8 % - $ 23,718$ 7,501 $ - $ - $ - Corporate 804,124 777,550 94.0 % 45,962 $ 158,371$ 479,434$ 82,931$ 10,424$ 428 Total fixed maturity investments $ 856,218$ 827,391 100.0 % $ 63,038$ 183,635$ 486,935$ 82,931$ 10,424$ 428 7.6 % 22.2 % 58.8 % 10.0 % 1.3 % 0.1 % Non- Amortized Fair % of Total AAA AA A BBB Investment At December 31, 2013 Cost Value Investments Rated Rated Rated Rated Grade Not Rated (in thousands of U.S. dollars) Fixed maturity investments U.S. government & agency $ 19,992$ 18,132 2.2 % $ - $ 18,058 $ - $ - $ - $ 74 Non-U.S. government 23,592 22,327 2.8 % - 22,327 - - - - Corporate 815,803 759,100 95.0 % 44,552 198,803 463,000 47,157 5,125 462 Total fixed maturity investments $ 859,387$ 799,559 100.0 % $ 44,552$ 239,188$ 463,000$ 47,157$ 5,125$ 536 5.6 % 29.9 % 57.9 % 5.9 % 0.6 % 0.1 % 79



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Eurozone Exposure

At March 31, 2014, we did not own any investments in fixed maturity investments (which includes bonds that are classified as cash and cash equivalents) or fixed income funds issued by the sovereign governments of Portugal, Italy, Ireland, Greece or Spain. Our fixed maturity investments and fixed income funds exposures to Eurozone Governments (which includes regional and municipal governments including guaranteed agencies) by rating are highlighted in the following table: Ratings AAA AA A Not Rated Total (in thousands of U.S. dollars) Germany $ 36,720$ 23,256 $ - $ - $ 59,976 Supranational 6,465 2,472 - - 8,937 Netherlands 9,003 12,255 - - 21,258 France - 50,513 1,992 - 52,505 Finland 2,521 - - - 2,521 Belgium - 2,955 - - 2,955 Austria 953 850 - - 1,803 55,662 92,301 1,992 - 149,955 Euro Region Government Funds - - - 13,233 13,233 $ 55,662$ 92,301$ 1,992$ 13,233$ 163,188 Our fixed maturity investments exposure to Eurozone Governments (which include regional and municipal governments including guaranteed agencies) by maturity date are highlighted in the following table. Our fixed income fund holdings have daily liquidity and are not included in the maturity table below. By Maturity Date 3 months 3 to 6 6 months to 1 1 to 2 more than or less months year years 2 years Total (in thousands of U.S. dollars) Germany $ 837$ 1,386 $ 3,569 $ 18,707$ 35,477$ 59,976 Supranational - - 2,498 1,147 5,292 8,937 Netherlands - 1,531 2,744 2,830 14,153 21,258 France 7,023 2,703 - 8,193 34,586 52,505 Finland - - 503 - 2,018 2,521 Belgium - - - - 2,955 2,955 Austria - - - 659 1,144 1,803 $ 7,860$ 5,620 $ 9,314 $ 31,536$ 95,625$ 149,955 80



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At March 31, 2014, we owned investments in corporate securities (which includes bonds that are classified as cash and cash equivalents) of issuers where the ultimate parent company was located within the Eurozone. This includes securities that were issued by subsidiaries whose location was outside of the Eurozone. Our exposures by country and listed by rating, sector and maturity date are highlighted in the following tables: Ratings BB and AAA AA A BBB below Total (in thousands of U.S. dollars) Germany $ 9,333$ 1,414$ 54,040$ 3,378 $ - $ 68,165 Belgium 2,831 - 35,875 - - 38,706 Netherlands 9,051 42,420 32,312 36,968 - 120,751 France 16,978 22,946 16,004 7,967 10,500 74,395 Ireland 536 1,913 - 1,990 - 4,439 Spain - - - 14,011 - 14,011 Italy - - 8,329 10,838 12,120 31,287 Austria 415 - - - - 415 Finland 458 - - - - 458 $ 39,602$ 68,693$ 146,560$ 75,152$ 22,620$ 352,627 Sector Financial Energy Industrial Telecom Utility Other Total (in thousands of U.S. dollars) Germany $ 12,962$ 1,420$ 44,057$ 3,378 $ - $ 6,348$ 68,165 Belgium - - - - - 38,706 38,706 Netherlands 75,753 11,666 20,461 - 4,619 8,252 120,751 France 36,213 - 28,845 422 4,976 3,939 74,395 Ireland 1,990 - - - - 2,449 4,439 Spain 2,116 - - 8,778 3,117 - 14,011 Italy 546 8,329 10,292 12,120 - - 31,287 Austria 415 - - - - - 415 Finland 458 - - - - - 458 $ 130,453$ 21,415$ 103,655$ 24,698$ 12,712$ 59,694$ 352,627 By Maturity Date 3 months or 6 months to 1 more than 2 less 3 to 6 months year 1 to 2 years years Total (in thousands of U.S. dollars) Germany $ 4,608 $ 7,118 $ 4,597 $ 24,172$ 27,670$ 68,165 Belgium - - 1,554 519 36,633 38,706 Netherlands - 2,296 28,173 11,242 79,040 120,751 France 11,000 7,110 863 24,087 31,335 74,395 Ireland - - - - 4,439 4,439 Spain - 4,509 3,330 5,967 205 14,011 Italy 12,120 - - 546 18,621 31,287 Austria 415 - - - - 415 Finland - - - - 458 458 $ 28,143$ 21,033$ 38,517$ 66,533$ 198,401$ 352,627



Fixed maturity investments issued by companies located in the United Kingdom and Switzerland are not included in the tables.

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None of the fixed maturity investments we owned at March 31, 2014 were considered impaired and we do not expect to incur any significant losses on these investments.

Loans Payable

Our long-term debt consists of loan facilities used to partially finance certain of our acquisitions and significant new business transactions and our revolving credit facility, or the EGL Revolving Credit Facility, which can be used for permitted acquisitions and for general corporate purposes. We draw down on the loan facilities at the time of an acquisition or significant new business transactions although in some circumstances we have made additional draw-downs to refinance existing debt of the acquired company.



We made the following repayments and borrowings under our loan facilities during the three months ended March 31, 2014:

(i) we repaid $13.0 million of the outstanding principal on the term facility related to our 2011 acquisition of Clarendon National Insurance Company, or the Clarendon Facility, on March 17, 2014, reducing the outstanding principal as of March 31, 2014 to $66.0 million;



(ii) we borrowed $70.0 million under the EGL Revolving Credit Facility on

March 26, 2014 (the unused portion of this facility was $46.2 million as of March 31, 2013); and (iii) we repaid $22.0 million of the outstanding principal on the term facility related to our 2013 acquisition of SeaBright, or the SeaBright Facility, reducing the outstanding principal as of March 31, 2014 to $89.0 million. Total amounts of loans payable outstanding, including accrued interest, as of March 31, 2014 and December 31, 2013, totaled $485.2 million and $452.4 million, respectively. As of March 31, 2014, all of the covenants relating to our three outstanding credit facilities (the SeaBright Facility, the Clarendon Facility, and the EGL Revolving Credit Facility) were met.



Refer to Item 7 included in our Annual Report on Form 10-K for the year ended December 31, 2013 for a description of these credit facilities.

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Aggregate Contractual Obligations

The following table shows our aggregate contractual obligations and commitments by time period remaining to due date as at March 31, 2014 and updates the table on page 114 of our Annual Report on Form 10-K for the year ended December 31, 2013: Payments Due by Period Less than 1 - 3 More than Total 1 year years 3 -5 years 5 years (in thousands of U.S. dollars) Operating Activities Estimated gross reserves for losses and loss adjustment expenses (1) $ 4,254.1$ 867.6$ 1,462.7$ 693.1$ 1,230.7 Policy benefits for life and annuity contracts (2) 2,549.3 82.3 143.3 136.3 2,187.4 Operating lease obligations 12.6 5.4 6.6 0.6 - Investing Activities Investment commitments 131.9 55.1 69.3 7.5 - Financing Activities Acquisition funding (3) 300.0 300.0 - - - Loan repayments (including estimated interest payments) 491.7 420.6 71.1 - - Total $ 7,739.6$ 1,731.0$ 1,753.0$ 837.5$ 3,418.1



(1) The reserves for losses and loss adjustment expenses represent management's

estimate of the ultimate cost of settling losses. The estimation of losses is

based on various complex and subjective judgments. Actual losses paid may

differ, perhaps significantly, from the reserve estimates reflected in our

financial statements. Similarly, the timing of payment of our estimated

losses is not fixed and there may be significant changes in actual payment

activity. The assumptions used in estimating the likely payments due by

period are based on our historical claims payment experience and industry

payment patterns, but due to the inherent uncertainty in the process of

estimating the timing of such payments, there is a risk that the amounts paid

in any such period can be significantly different from the amounts disclosed

above.



The amounts in the above table represent our estimates of known liabilities

as of March 31, 2014 and do not take into account corresponding reinsurance

recoverable amounts that would be due to us. Furthermore, reserves for losses

and loss adjustment expenses recorded in the unaudited condensed consolidated

financial statements as of March 31, 2014 are computed on a fair value basis,

whereas the expected payments by period in the table above are the estimated

payments at a future time and do not reflect the fair value adjustment in the

amount payable.



(2) Policy benefits for life and annuity contracts recorded in our unaudited

condensed consolidated balance sheet as at March 31, 2014 of $1,255.3 million

are computed on a discounted basis, whereas the expected payments by period

in the table above are the estimated payments at a future time and do not

reflect a discount of the amount payable.



(3) The acquisition funding does not include the amount associated with the

issuance by us on April 1, 2014 of 1,898,326 voting ordinary shares and

714,015 Series B convertible participating non-voting perpetual preference

shares in relation to the acquisition of Torus. The amount shown in the table

as at March 31, 2014 represents the cash portion of the purchase price for

Torus, which was paid from escrow to Torus' shareholders on April 1, 2014.

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Commitments and Contingencies

Investments

The following table provides a summary of the Company's outstanding unfunded investment commitments as at March 31, 2014 and December 31, 2013:

March 31, 2014 December 31, 2013 Original Commitments Original



Commitments

Commitments Funded Unfunded Commitments Funded Unfunded $ 311,000$ 179,050$ 131,950$ 291,000$ 176,760$ 114,240

Guarantees As at March 31, 2014 and December 31, 2013, the Company had, in total, parental guarantees supporting the obligations of our subsidiary, Fitzwilliam Insurance Limited, in the amount of $235.8 million and $228.5 million, respectively.



Acquisitions and Significant New Business

We have entered into a definitive agreement with respect to the Reciprocal of America loss portfolio transfer, which is expected to close in the second quarter of 2014 and which is described above in "-Significant New Business."

Legal Proceedings

Refer to "Item 1. Legal Proceedings" of Part II of this Quarterly Report on Form 10-Q for a description of litigation matters.

Critical Accounting Policies

Our critical accounting policies are discussed in Management's Discussion and Analysis of Results of Operations and Financial Condition contained in our Annual Report on Form 10-K for the year ended December 31, 2013.

Off-Balance Sheet and Special Purpose Entity Arrangements

At March 31, 2014, we did not have any off-balance sheet arrangements, as defined by Item 303(a)(4) of Regulation S-K.

Non-GAAP Financial Measures

In "Segment Reporting-Active Underwriting" above, we provide loss ratio, acquisition cost ratio, other operating expense ratio, and the combined ratio in our discussions of the results for the active underwriting segment in order to provide more complete information regarding our active underwriting results. The ratios are calculated by dividing the related expense by net earned premiums, and the combined ratio is the sum of these ratios. Our other operating expense ratio is considered to be a "non-GAAP" financial measure, which may be defined or calculated differently by other companies. We calculate this ratio by dividing the sum of general and administrative expenses and salaries and benefits attributable to Atrium and Arden by net premiums earned. Other operating expense ratio excludes expenses not attributable to Atrium and Arden, which we believe is the most useful presentation because the excluded expenses are not incremental and/or directly attributable to our individual underwriting operations. The most directly comparable GAAP financial measure would be calculated by dividing the sum of all general and administrative expenses and salaries and benefits in the active underwriting segment by net premiums earned. 84



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Cautionary Statement Regarding Forward-Looking Statements

This quarterly report contains statements that constitute "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, with respect to our financial condition, results of operations, business strategies, operating efficiencies, competitive positions, growth opportunities, plans and objectives of our management, as well as the markets for our ordinary shares and the insurance and reinsurance sectors in general. Statements that include words such as "estimate," "project," "plan," "intend," "expect," "anticipate," "believe," "would," "should," "could," "seek," "may" and similar statements of a future or forward-looking nature identify forward-looking statements for purposes of the federal securities laws or otherwise. All forward-looking statements are necessarily estimates or expectations, and not statements of historical fact, reflecting the best judgment of our management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. These forward looking statements should, therefore, be considered in light of various important factors, including those set forth in this quarterly report.



Factors that could cause actual results to differ materially from those suggested by the forward looking statements include:

risks associated with implementing our business strategies and initiatives;

risks that we may require additional capital in the future, which may not

be available or may be available only on unfavorable terms;



the adequacy of our loss reserves and the need to adjust such reserves as

claims develop over time;



risks relating to the availability and collectability of our reinsurance;

changes and uncertainty in economic conditions, including interest rates,

inflation, currency exchange rates, equity markets and credit conditions,

which could affect our investment portfolio, our ability to finance future

acquisitions and our profitability; losses due to foreign currency exchange rate fluctuations;



increased competitive pressures, including the consolidation and increased

globalization of reinsurance providers; emerging claim and coverage issues;



lengthy and unpredictable litigation affecting assessment of losses and/or

coverage issues;



continued availability of exit and finality opportunities provided by

solvent schemes of arrangement; loss of key personnel; the ability of our subsidiaries to distribute funds to us and the resulting impact on our liquidity;



changes in our plans, strategies, objectives, expectations or intentions,

which may happen at any time at management's discretion; operational risks, including system or human failures and external hazards; the risk that ongoing or future industry regulatory developments will disrupt our business, or mandate changes in industry practices in ways that increase our costs, decrease our revenues or require us to alter aspects of the way we do business;



risks relating to our acquisitions, including our ability to successfully

price acquisitions, evaluate opportunities, address operational challenges

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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 life and annuities business, including mortality and

morbidity rates, lapse rates, the performance of assets to support the insured liabilities, and the risk of catastrophic events; risks relating to our active underwriting businesses, including



unpredictability and severity of catastrophic and other major loss events,

failure of risk management and loss limitation methods, the risk of a

ratings downgrade, cyclicality of demand and pricing in the insurance and

reinsurance markets; our ability to implement our strategies relating to the active underwriting market;



risks relating to our ability to structure our investments in a manner

that recognizes our liquidity needs; tax, regulatory or legal restrictions or limitations applicable to us or

the insurance and reinsurance business generally;



changes in tax laws or regulations applicable to us or our subsidiaries,

or the risk that we or one of our non-U.S. subsidiaries become subject to

significant, or significantly increased, income taxes in the United States

or elsewhere; changes in Bermuda law or regulation or the political stability of Bermuda; and changes in accounting policies or practices. The factors listed above should be not construed as exhaustive and should be read in conjunction with the other cautionary statements and Risk Factors that are included in our Annual Report on Form 10-K for the year ended December 31, 2013, as well as in the other materials filed and to be filed with the U.S. Securities and Exchange Commission. 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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