ENSTAR GROUP(ESGRP) - 2025 Q1 - Quarterly Report

PART I - Financial Information This section presents the company's financial statements, management's discussion and analysis, and disclosures on market risk and internal controls Financial Statements The company's Q1 2025 financial statements show decreased net income, stable assets, and increased equity, reflecting new reinsurance and a pending merger Condensed Consolidated Balance Sheet Highlights (As of March 31, 2025) | Metric | March 31, 2025 (in millions) | December 31, 2024 (in millions) | | :--- | :--- | :--- | | Total Investments | $16,458 | $16,453 | | Cash and cash equivalents | $1,170 | $1,098 | | Total Assets | $20,340 | $20,407 | | Losses and loss adjustment expenses | $10,085 | $10,407 | | Debt obligations | $1,948 | $1,833 | | Total Liabilities | $14,127 | $14,310 | | Total Enstar shareholders' equity | $6,207 | $6,091 | Condensed Consolidated Statement of Operations Highlights (For the Three Months Ended March 31) | Metric | 2025 (in millions) | 2024 (in millions) | | :--- | :--- | :--- | | Total Revenues | $204 | $253 | | Total Net Incurred Losses and LAE | $(16) | $(19) | | Total Expenses | $149 | $115 | | Net Income | $59 | $128 | | Net Income Attributable to Enstar Ordinary Shareholders | $50 | $119 | | Diluted EPS | $3.32 | $8.02 | - On July 29, 2024, Enstar entered into a Merger Agreement to be acquired by an affiliate of Sixth Street Partners for $338 in cash per ordinary share, a total consideration of approximately $5.1 billion The deal is expected to close in mid-2025, subject to regulatory approvals[29][30] - During Q1 2025, the company closed two significant reinsurance transactions, assuming total net loss reserves of $359 million for a total consideration of $355 million[46] Note 3 - Significant New Business This note details significant reinsurance transactions closed in Q1 2025, including a major Loss Portfolio Transfer agreement Reinsurance Business Closed in Q1 2025 | Line of Business | Consideration Received (in millions) | Net Loss Reserves Assumed (in millions) | Type of Transaction | | :--- | :--- | :--- | :--- | | Marine, property and general liability | $180 | $182 | LPT | | Casualty | $175 | $177 | Novation | | Total | $355 | $359 | | - A significant Loss Portfolio Transfer (LPT) agreement with AXIS Capital Holdings Limited, covering an estimated $2.29 billion in reserves, was signed in December 2024 and closed subsequent to the quarter end on April 24, 2025[47][48] Note 5 - Investments This note provides an overview of the company's investment portfolio, detailing asset allocation and changes in investment income Investment Portfolio Summary (at Fair Value) | Investment Category | March 31, 2025 (in millions) | December 31, 2024 (in millions) | | :--- | :--- | :--- | | Fixed maturity and short-term investments | $6,503 | $6,170 | | Funds held | $4,672 | $4,979 | | Equity securities | $759 | $803 | | Other investments | $4,206 | $4,188 | | Equity method investments | $318 | $313 | | Total Investments | $16,458 | $16,453 | - The fixed maturity portfolio is primarily composed of corporate bonds ($3.4 billion), asset-backed securities ($789 million), and commercial mortgage-backed securities ($742 million)[55] - Net investment income decreased to $148 million in Q1 2025 from $160 million in Q1 2024, primarily due to lower income from fixed maturity investments[72] - Fair value changes in trading securities, funds held, and other investments contributed a gain of $43 million in Q1 2025, down from an $85 million gain in Q1 2024 This was driven by a $30 million loss in equity securities, contrasting with a $37 million gain in the prior year[73] Note 8 - Losses and Loss Adjustment Expenses This note reconciles changes in losses and loss adjustment expenses, highlighting favorable prior period development Reconciliation of Losses and LAE (For the Three Months Ended March 31) | Metric | 2025 (in millions) | 2024 (in millions) | | :--- | :--- | :--- | | Net Balance at Beginning of Period | $10,776 | $11,585 | | Total Net Incurred Losses and LAE | $(16) | $(19) | | - Prior Period Development | $(19) | $(24) | | Total Net Paid Losses | $(739) | $(670) | | Assumed Business & Other | $424 | $(69) | | Net Balance at End of Period | $10,445 | $10,827 | - Prior period development was a favorable $19 million in Q1 2025, consisting of an $8 million reduction in estimates of net ultimate losses and a $21 million reduction in ULAE provisions, partially offset by amortization and fair value changes[100] - The favorable development in Q1 2025 was driven by positive claims experience in 'all other', motor, workers' compensation, and professional indemnity lines, partially offset by adverse development of $17 million in general casualty[101][102][103] Note 12 - Debt Obligations This note details the company's debt obligations, including recent issuance and repurchase activities - In Q1 2025, the company issued $350 million of 7.50% Junior Subordinated Notes due 2045 and completed a cash tender offer to repurchase $233 million of its 5.75% Junior Subordinated Notes due 2040[136] Debt Obligations Summary | Facility | March 31, 2025 (in millions) | December 31, 2024 (in millions) | | :--- | :--- | :--- | | Total Senior Notes | $993 | $993 | | Total Junior Subordinated Notes | $955 | $840 | | Total Debt Obligations | $1,948 | $1,833 | Management's Discussion and Analysis (MD&A) Management discusses the Q1 2025 financial performance, highlighting decreased net income due to lower investment returns and foreign exchange impacts, while affirming strong liquidity and progress on the Sixth Street merger Consolidated Results of Operations This section analyzes the consolidated financial performance, detailing the drivers behind changes in net income and comprehensive income - Net income attributable to ordinary shareholders fell by $69 million to $50 million in Q1 2025 compared to Q1 2024[169][170] - The decrease was primarily driven by a $41 million reduction in total investment returns recognized in income, a $25 million adverse change in foreign currency effects, and a $4 million increase in general and administrative expenses[170][173] - Comprehensive income increased to $125 million from $100 million in the prior-year quarter, boosted by $49 million in unrealized gains on available-for-sale fixed maturities[169][172] Results of Operations by Segment This section breaks down financial results by segment, focusing on the performance of the Run-off and Investments segments Segment Net Income (Loss) (For the Three Months Ended March 31) | Segment | 2025 (in millions) | 2024 (in millions) | | :--- | :--- | :--- | | Run-off | $(1) | $(11) | | Investments | $183 | $224 | - The Run-off segment's net loss narrowed to $1 million from $11 million, mainly due to a $6 million increase in favorable prior period development[214][215] - The Investments segment's net income decreased by $41 million to $183 million, primarily due to an $80 million decrease in gains from fair value changes in other investments and equities, reflecting weaker market performance[217][218] Current Outlook This section outlines management's expectations regarding future run-off transactions, market conditions, and the impact of global tax regulations - The company continues to evaluate a strong pipeline of run-off transactions (LPTs, ADCs) and expects to execute creative and accretive deals[232] - Management expects global financial markets to remain uncertain due to geopolitical tensions, interest rate volatility, and inflation trends While rising rates may cause short-term unrealized losses on fixed income assets, they present a medium-to-long-term opportunity to reinvest at higher yields[235][236][237] - Regarding the OECD's Pillar II global minimum tax, Enstar qualified for a five-year exemption from Bermuda's new 15% Corporate Income Tax (CIT) and does not anticipate any tax liability under the Bermuda CIT or UTPR until at least 2030, subject to annual qualification[248][249] Liquidity and Capital Resources This section details the company's cash position, credit facilities, capitalization, and expected cash distributions related to the pending merger - As of March 31, 2025, the company held $1.2 billion in cash and cash equivalents (excluding restricted cash) and had $800 million of unutilized capacity under its revolving credit facility[252][261] - Total capitalization attributable to Enstar was $8.2 billion as of March 31, 2025 The ratio of debt and preferred shares to total capitalization was 30.1%[256] - Significant cash distributions are expected in connection with the Merger, including a $500 million return of capital to shareholders and funds to support the repayment of a $950 million term loan facility to be incurred by the Parent entity[259] Cash Flow Summary (For the Three Months Ended March 31) | Cash Flow Activity | 2025 (in millions) | 2024 (in millions) | | :--- | :--- | :--- | | Net cash from Operating Activities | $143 | $(168) | | Net cash from Investing Activities | $(321) | $102 | | Net cash from Financing Activities | $103 | $(8) | | Net Decrease in Cash | $(73) | $(70) | Quantitative and Qualitative Disclosures about Market Risk The company states there were no material changes to its principal market risks (interest rate, credit, equity price, and foreign currency) or its policies to manage them during the first quarter of 2025, as disclosed in its 2024 Form 10-K - For the three months ended March 31, 2025, there were no material changes to the company's market risks or its management policies for these risks[295] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal controls over financial reporting during the quarter - The CEO and CFO concluded that as of March 31, 2025, the company maintained effective disclosure controls and procedures[296] - No changes in internal controls over financial reporting occurred during Q1 2025 that materially affected, or are reasonably likely to materially affect, these controls[297] PART II - Other Information This section covers other required disclosures, including legal proceedings, risk factors, and equity security sales Legal Proceedings The company is involved in various legal proceedings in the ordinary course of business, with management not expecting a material effect on its financial condition - The company is involved in routine litigation and arbitration, and management does not expect any currently pending proceedings to have a material effect on its financial condition[151][299] Risk Factors This section refers to the detailed risk factors described in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - The report directs readers to Item 1A of the 2024 Form 10-K for a full description of risk factors[300] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no acquisitions of its own ordinary shares during the three months ended March 31, 2025 - No ordinary shares were acquired by the Company during the first quarter of 2025[301]