Enstar Group Limited Reports First Quarter 2023 Results

• Net Earnings of $424 million and Return on Equity of 9.5%, primarily driven by strong investment results
• Book Value per Ordinary Share grew 7.8% to $282.74 (Adjusted* $277.38) as of March 31, 2023
• Returned $341 million to shareholders through share repurchases
• Completed novation of Enhanzed Re reinsurance policies, recording $194 million gain
• Subsequent to quarter end, completed $1.9 billion Loss Portfolio Transfer with QBE

HAMILTON, Bermuda, May 04, 2023 (GLOBE NEWSWIRE) -- Enstar Group Limited (Nasdaq: ESGR) filed its quarterly report on Form 10-Q with the SEC earlier today. An audio presentation reviewing the first quarter 2023 results with expanded commentary is available on Enstar's investor relations website at investor.enstargroup.com.

First Quarter 2023 Highlights:

• Net earnings of $424 million, or $24.79 per diluted ordinary share, compared to net loss of $267 million, or $15.19 per diluted ordinary share, for the three months ended March 31, 2022.
• Return on equity ("ROE") of 9.5% and Adjusted ROE* of 6.8% for the quarter compared to (4.6)% and (1.1)%, respectively, in the first quarter of 2022. ROE performance was driven by investment returns of $355 million and a one-time net gain recognized on the completion of the novation of the Enhanzed Re reinsurance closed block of life annuity policies of $194 million. Adjusted ROE* excludes $41 million of net realized and unrealized gains on our fixed income securities.
• Run-off liability earnings ("RLE") of $10 million, driven by favorable development on our workers' compensation line of business and partially offset by increases in the value of certain portfolios that are held at fair value. In comparison, RLE of $176 million in the prior-year period benefited from reductions in the value of certain portfolios that we hold at fair value and favorable results on our inactive catastrophe programs held by Enhanzed Re.
• Annualized total investment return (“TIR”) of 9.5% and Annualized Adjusted TIR* of 6.3%, compared to (11.0)% and 0.5%, respectively, for the three months ended March 31, 2022. Recognized investment results benefited from net realized and unrealized gains on our fixed income securities and other investments, including equities, of $275 million and an increase in net investment income of $76 million.
• Entered into $1.9 billion Loss Portfolio Transfer (“LPT”) agreement with certain subsidiaries of QBE Insurance Group Limited (“QBE”) and AUD$360 million (USD $245 million) LPT with RACQ Insurance Limited (“RACQ”). Subsequent to quarter-end, completed the LPT transaction with QBE.
• Repurchased remaining $341 million of non-voting convertible ordinary shares, at a price that represented a 13% discount to year-end book value at the time the repurchase was negotiated as reported in our Annual Report on Form 10-K for the year ended December 31, 2022, simplifying Enstar’s capital structure. Following the adoption of ASU 2018-12 on a retrospective basis, the price paid in the repurchase transaction represented a 23% discount to year-end book value as reported in and further described in our Quarterly Report on Form 10-Q for the three months ended March 31, 2023.

* Non-GAAP measure; refer to "Non-GAAP Financial Measures" further below for explanatory notes and a reconciliation to the most directly comparable GAAP measure.

Dominic Silvester, Enstar CEO, said:

“We had a solid start to 2023, delivering strong net earnings largely driven by positive performance in our investment portfolio. We continued to build on our M&A successes from the prior year, entering into a $1.9 billion ground-up LPT with QBE, which we completed at the beginning of April, and a second USD $245 million transaction with RACQ, which we expect to close later this month. We are well-equipped to take advantage of the many opportunities we continue to see in an ever-growing sector of the market.

We also took the opportunity to simplify our capital structure through an accretive repurchase of all outstanding non-voting convertible ordinary shares. Looking ahead, strengthened by our scale, differentiated expertise, claims management function, and strong balance sheet, we remain well-positioned to provide long-term value to our shareholders.”

Key Financial and Operating Metrics

We use the following GAAP and Non-GAAP measures to monitor the performance of and manage the company:

pp - Percentage point(s)
bp - Basis point(s)
*Non-GAAP measure; refer to "Non-GAAP Financial Measures" further below for explanatory notes and a reconciliation to the most directly comparable GAAP measure.

Results of Operations By Segment - For the Three Months Ended March 31, 2023, and 2022

Run-off Segment

The following is a discussion and analysis of the results of operations for our Run-off segment.

Overall Results

Three Months Ended March 31, 2023 versus 2022: Net loss from our Run-off segment was $5 million compared to net earnings of $19 million in the comparative quarter, primarily due to:

• A $17 million decrease in the reduction in estimates of net ultimate losses in the current quarter, mainly driven by a $14 million decrease in favorable prior period development in comparison to the comparative quarter.
  • We recognized favorable development of $11 million on our workers’ compensation line of business in the current quarter as a result of continued favorable claims experience, most notably in the 2021 acquisition year.
  • In comparison, we recognized favorable development of $34 million on our workers’ compensation line of business in the comparative quarter as a result of favorable loss activity in the period, partially offset by adverse development of $13 million on our property line of business due to unfavorable loss emergence relating to construction risks; and
• Reductions in net premiums earned that were greater than the reductions in current period net incurred losses and LAE and acquisition costs, following our exit of our StarStone International business beginning in 2020.

Investments Segment

The following is a discussion and analysis of the results of operations for our Investments segment.

Overall Results

Three Months Ended March 31, 2023 versus 2022: Net earnings from our Investments segment was $344 million for the three months ended March 31, 2023 compared to net losses of $314 million for the three months ended March 31, 2022. The favorable movement of $658 million was primarily due to:

• net realized and unrealized gains on fixed income securities of $41 million, compared to net realized and unrealized losses of $328 million in the comparative period. The favorable variance of $369 million was primarily driven by a decline in interest rates in the current period, in comparison to an increase in interest rates across U.S., U.K. and European markets and widening credit spreads in the prior period;
• net realized and unrealized gains on other investments, including equities, of $147 million, compared to net realized and unrealized losses of $84 million in the comparative period. The favorable variance of $231 million was primarily driven by:
  • Net unrealized gains for the three months ended March 31, 2023 primarily from our public equities, CLO equity, fixed income funds, private equity funds and hedge funds, largely as a result of a rally in global equity markets;
  • Net losses for the three months ended March 31, 2022 driven by our fixed income funds, public equities, hedge funds and CLO equities, largely as a result of global equity market declines and the widening of high yield credit spreads. This was partially offset by gains on our private equity funds, private credit funds and real estate funds, which are typically recorded on a one quarter lag; and
• an increase in our net investment income of $80 million, which is primarily due to the investment of new premium and reinvestment of fixed income securities at higher yields and the impact of rising interest rates on the $3.0 billion of our fixed income securities that are subject to floating interest rates. Our floating rate investments generated increased net investment income of $27 million, which equates to an increase of 361 basis points on those investments in comparison to the prior period.

Income and (Loss) Earnings by Segment - For the Three Months Ended March 31, 2023 and 2022

For additional detail on the Assumed Life segment, the Legacy Underwriting segment and Corporate and other activities, please refer to our Quarterly Report on Form 10-Q for the three months ended March 31, 2023.

Cautionary Statement

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include statements regarding the intent, belief or current expectations of Enstar and its management team. Investors can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as ‘aim’, ‘anticipate’, ‘estimate’, ‘expect’, ‘intend’, ‘will’, ‘project’, ‘plan’, ‘believe’, ‘target’ and other words and terms of similar meaning in connection with any discussion of future events or performance. Investors are cautioned that any such forward-looking statements speak only as of the date they are made, are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. Important risk factors regarding Enstar can be found under the heading "Risk Factors" in our Form 10-K for the year ended December 31, 2022 and are incorporated herein by reference. Furthermore, Enstar undertakes no obligation to update any written or oral forward-looking statements or publicly announce any updates or revisions to any of the forward-looking statements contained herein, to reflect any change in its expectations with regard thereto or any change in events, conditions, circumstances or assumptions underlying such statements, except as required by law.

About Enstar

Enstar is a NASDAQ-listed leading global (re)insurance group that offers innovative capital release solutions through its network of group companies in Bermuda, the United States, the United Kingdom, Continental Europe and Australia. A market leader in completing legacy acquisitions, Enstar has acquired over 110 companies and portfolios since its formation. For further information about Enstar, see www.enstargroup.com.

Contacts

For Investors: Matthew Kirk ([email protected])

For Media: Jenna Kerr ([email protected])

ENSTAR GROUP LIMITED 
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS 
For the Three Months Ended March 31, 2023 and 2022

ENSTAR GROUP LIMITED 
CONDENSED CONSOLIDATED BALANCE SHEETS 
As of March 31, 2023 and December 31, 2022

Non-GAAP Financial Measures

In addition to our key financial measures presented in accordance with GAAP, we present other non-GAAP financial measures that we use to manage our business, compare our performance against prior periods and against our peers, and as performance measures in our incentive compensation program.
These non-GAAP financial measures provide an additional view of our operational performance over the long-term and provide the opportunity to analyze our results in a way that is more aligned with the manner in which our management measures our underlying performance.
The presentation of these non-GAAP financial measures, which may be defined and calculated differently by other companies, is used to enhance the understanding of certain aspects of our financial performance. It is not meant to be considered in isolation, superior to, or as a substitute for the directly comparable financial measures prepared in accordance with GAAP.

Some of the adjustments reflected in our non-GAAP measures are recurring items, such as the exclusion of adjustments to net realized and unrealized (gains)/losses on fixed maturity investments recognized in our income statement, the fair value of certain of our loss reserve liabilities for which we have elected the fair value option, and the amortization of fair value adjustments.

Management makes these adjustments in assessing our performance so that the changes in fair value due to interest rate movements, which are applied to some but not all of our assets and liabilities as a result of preexisting accounting elections, do not impair comparability across reporting periods.

It is important for the readers of our periodic filings to understand that these items will recur from period to period.

However, we exclude these items for the purpose of presenting a comparable view across reporting periods of the impact of our underlying claims management and investments without the effect of interest rate fluctuations on assets that we anticipate to hold to maturity and non-cash changes to the fair value of our reserves.

Similarly, our non-GAAP measures reflect the exclusion of certain items that we deem to be nonrecurring, unusual or infrequent when the nature of the charge or gain is such that it is not reasonably likely that such item may recur within two years, nor was there a similar charge or gain in the preceding two years. This includes adjustments related to bargain purchase gains on acquisitions of businesses, net gains or losses on sales of subsidiaries, net assets of held for sale or disposed subsidiaries classified as discontinued operations and other items that we separately disclose.

The following table presents more information on each non-GAAP measure. The results and GAAP reconciliations for these measures are set forth further below.

*Non-GAAP measure.

Reconciliation of GAAP to Non-GAAP Measures

The table below presents a reconciliation of BVPS to Adjusted BVPS*:

The table below presents a reconciliation of ROE to Adjusted ROE* and Annualized ROE to Annualized Adjusted ROE*:

*Non-GAAP measure.

The tables below present a reconciliation of RLE to Adjusted RLE* and Annualized RLE to Annualized Adjusted RLE*:

*Non-GAAP measure.

The tables below present a reconciliation of our Annualized TIR to our Annualized Adjusted TIR*:

*Non-GAAP measure.

Source: Enstar Group Limited