The following selected historical financial information for each of the past five fiscal years has been derived from our audited historical financial statements. This information is only a summary and should be read in conjunction with “
With respect to retrospectively rated contracts (where additional premium would be due should losses exceed pre-determined, contractual thresholds), any additional premiums are based upon contractual terms and management judgment is involved in estimating the amount of losses that we expect to be ceded. Additional premiums would be recognized at the time loss thresholds specified in the contract are exceeded and are earned over the coverage period, or are earned immediately if the period of risk coverage has passed. Changes in estimates of losses recorded on contracts with additional premium features would result in changes in additional premiums recognized.
Our other investments comprise investments in various private equity, fixed income, fixed income hedge, equity and real estate debt funds, all of which are recorded at fair value.
We recorded a noncontrolling interest in earnings of $12.1 million and $23.5 million for the years ended December 31, 2013 and 2012, respectively.
On March 31, 2013, we acquired Pavonia and, as a result, reevaluated our segment reporting. As part of that reevaluation, we have included the results of Laguna within the life and annuities segment for each of the years ended December 31, 2013, 2012 and 2011. With the acquisition of Pavonia in 2013, our results for the life and annuities segment are substantially different from 2012 and 2011, when we only owned Laguna.
General and administrative expenses were $16.0 million and $1.6 million for the years ended December 31, 2013 and 2012, respectively. Included within general and administrative expenses for the years ended December 31, 2013 were $3.7 million related to legal and professional fees. The remaining $12.3 million included costs associated with information technology, rent, bank charges and other expenses, of which approximately $4.0 million related to non-recurring transaction costs associated with the acquisition and integration of the Pavonia companies.
On an annual basis, Atrium purchases a tailored outwards reinsurance program designed to manage Syndicate 609’s risk profile. The majority of Atrium’s total third party reinsurance cover is with Lloyd’s Syndicates or other reinsurers rated A- or better.
(ii) a decrease of $91.1 million in the sales and maturity of available-for-sale securities between 2012 and 2011;
The Clarendon Facility is secured by a security interest in all of the assets of Clarendon Holdings, Inc., as well as a first priority lien on the stock of both Clarendon Holdings, Inc. and Clarendon. Interest is payable at the end of each interest period chosen by Clarendon Holdings, Inc. or, at the latest, each six months. The interest rate is LIBOR plus 2.75%. The Clarendon Facility is subject to various financial and business covenants, including limitations on mergers and consolidations, restrictions as to disposition of stock and limitations on liens on the stock. As of December 31, 2013, all of the financial covenants relating to the Clarendon Facility were met.
We have entered into definitive agreements with respect to: (i) the Reciprocal of America loss portfolio transfer, which we expect to close in the second quarter of 2014; and (ii) the Amalgamation of Veranda Holdings Ltd. and Torus, which we expect to close in the first quarter of 2014. The Torus acquisition agreement is described in “Note 3 - Acquisitions” in the notes to our consolidated financial statements included within Item 8 of this Annual Report on Form 10-K. and the Reciprocal of America agreement is described in “Note 4 -Significant New Business” in the notes to our consolidated financial statements included within Item 8 of this Annual Report on Form 10-K
At December 31, 2013, we did not have any off-balance sheet arrangements, as defined by Item 303(a)(4) of Regulation S-K.
Premiums written are earned on a pro-rata basis over the period the coverage is provided. Reinsurance premiums are recorded at the inception of the policy, are based upon contractual terms and for certain business is estimated based on underlying contracts or from information provided by clients and/or brokers. Changes in reinsurance premium estimates are expected and may result in significant adjustments in future periods. These
The purchase method of accounting requires that the acquirer record the assets and liabilities acquired at their estimated fair value. The fair values of each of the reinsurance assets and liabilities acquired are derived from probability-weighted ranges of the associated projected cash flows, based on actuarially prepared information and management’s strategy. The Company’s run-off strategy, as well as that of other run-off market participants, is expected to be different from the sellers as generally sellers are not specialized in running off insurance and reinsurance liabilities whereas the Company and other market participants do specialize in such run-offs.
Results related to Arden’s reinsurance to Atrium are included within the Company’s active underwriting segment, while results related to Arden’s discontinued business are included within the Company’s non-life run-off segment.
(i) Fair value adjustments (“FVA”) relate to outstanding losses and loss adjustment expenses, policy benefits for life and annuity contracts and reinsurance recoverables and are included as a component of each balance sheet line item. FVA are amortized in proportion to future premiums for policy benefits for life and annuity contracts and over the estimated payout or recovery period for outstanding losses and loss adjustment expenses and reinsurance recoverables; and
rights held by Trident, which are described in Note 3 - Acquisitions. The Company recognizes changes in the redemption value of the Trident interest in Northshore’s earnings as if the balance sheet date was also the redemption date. As at December 31, 2013, there were no adjustments recorded through retained earnings as the redemption value of the Trident interest approximated its carrying value.
The total value of the awards for the years ended December 31, 2013 and 2012 were $nil and $1.5 million with the value of the 2012 award being charged against the Enstar Group Limited 2011-2015 Annual Incentive Compensation Program (the “Incentive Program”) accrual established for the year ended December 31, 2011.
As of December 31, 2013 and 2012, U.K. insurance subsidiaries and branch operations had tax loss carryforwards, which do not expire, and deductions available for tax purposes of approximately $357.4 million and $346.9 million, respectively. Certain of the Company’s U.K. insurance and reinsurance subsidiaries have tax loss carryforwards that arose prior to acquisition. Under U.K. tax law, these tax loss carryforwards are available to offset future taxable income generated by the acquired company without time limit.
The Company’s operating subsidiaries in specific countries may be subject to audit by various tax authorities and may have different statutes of limitations expiration dates. With limited exceptions, the Company’s major subsidiaries that operate in the United States, United Kingdom and Australia are no longer subject to tax examinations for years before 2007, 2010 and 2007, respectively.
The U.K. Regulator’s rules require the Company’s U.K. insurance subsidiaries to obtain regulatory approval for any proposed or actual payment of a dividend. The U.K. Regulator uses the ICA and the estimated capital requirement for Solvency II purposes when assessing requests to make distributions and therefore dividends approved by the U.K. Regulator will often significantly differ from any surplus capital above the entity’s minimum capital resources requirements.
In addition, this subsidiary files audited regulatory returns with the Central Bank of Ireland. The returns are prepared in accordance with the European Communities (Life Assurance) Framework Regulations, 1994. The Company has exceeded the minimum required solvency margin as at December 31, 2013 and 2012 by $11.0 million and $11.7 million, respectively. The subsidiary cannot make any distributions with the prior approval of the Central Bank of Ireland, any such payments must be paid within six months of the most recent actuarial investigation, the purpose of which is ensure that the subsidiary’s insurance policyholders are not negatively affected.