UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-Q

 	 	 	
þ	 	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
 	 	For the Quarterly Period Ended March 31, 2008	
OR	
o	 	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
 	 	For the Transition Period From          to          	

001-33289
Commission File Number

ENSTAR GROUP LIMITED
(Exact name of registrant as specified in its charter)

 	 	 	
Bermuda	 	N/A	
 	 	 	
(State or other jurisdiction
of incorporation or organization)	 	(I.R.S. Employer
Identification No.)	

P.O. Box HM 2267
Windsor Place, 3rd Floor
18 Queen Street
Hamilton HM JX
Bermuda
(Address of principal executive office, including zip code)

(441) 292-3645
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ      No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o	
(Do not check if a smaller reporting company)
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  o      No  þ
 
As of May 9, 2008, the registrant had outstanding 11,944,289 ordinary shares, par value $1.00 per share.

 
 
TABLE OF CONTENTS

 	 	 	 	Page	
 	 	 	 	 	 	 	 	 	
PART I — FINANCIAL INFORMATION	
 	Item 1.	 	 	Financial Statements:	 	 	1	 	
 	 	 	 	  Condensed Consolidated Balance Sheets, As of March 31, 2008 and December 31, 2007 (Unaudited)	 	 	1	 	
 	 	 	 	  Condensed Consolidated Statements of Earnings, Three Months Ended March 31, 2008 and 2007 (Unaudited)	 	 	2	 	
 	 	 	 	  Condensed Consolidated Statements of Comprehensive Income, Three Months Ended March 31, 2008 and 2007 (Unaudited)	 	 	3	 	
 	 	 	 	  Condensed Consolidated Statements of Changes in Shareholders’ Equity, Three Months Ended March 31, 2008 and 2007 (Unaudited)	 	 	4	 	
 	 	 	 	  Condensed Consolidated Statements of Cash Flows, Three Months Ended March 31, 2008 and 2007 (Unaudited)	 	 	5	 	
 	 	 	 	  Notes to Condensed Consolidated Financial Statements (Unaudited)	 	 	6	 	
 	 	 	 	  Report of the Independent Registered Public Accounting Firm	 	 	21	 	
 	Item 2.	 	 	Management’s Discussion and Analysis of Financial Condition and Results of Operations	 	 	22	 	
 	Item 3.	 	 	Quantitative and Qualitative Disclosures About Market Risk	 	 	32	 	
 	Item 4.	 	 	Controls and Procedures	 	 	34	 	
 	
PART II — OTHER INFORMATION	
 	Item 1.	 	 	Legal Proceedings	 	 	35	 	
 	Item 1A.	 	 	Risk Factors	 	 	35	 	
 	Item 2.	 	 	Unregistered Sale of Equity Securities and Use of Proceeds	 	 	35	 	
 	Item 6.	 	 	Exhibits	 	 	36	 	

 
 
Item 1.  FINANCIAL STATEMENTS
 
ENSTAR GROUP LIMITED
 
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
As of March 31, 2008 and December 31, 2007

 	 	March 31,
	 	 	December 31,
	 	
 	 	2008	 	 	2007	 	
 	 	(expressed in thousands of U.S. dollars, except share data)	 	
 	 	 	 	 	 	 	 	 	
ASSETS	 	 	 	 	 	 	 	 	
Short-term investments, available for sale, at fair value (amortized cost:	 	 	 	 	 	 	 	 	
2008 — $111,058; 2007 — $15,480)	 	$	111,049	 	 	$	15,480	 	
Fixed maturities, available for sale, at fair value (amortized cost: 2008 — $514,523; 2007 — $7,006)	 	 	516,056	 	 	 	6,878	 	
Fixed maturities, held to maturity, at amortized cost (fair value: 2008 — $153,661; 2007 — $210,998)	 	 	152,785	 	 	 	211,015	 	
Fixed maturities, trading, at fair value (amortized cost: 2008 — $316,699; 2007 — $318,199)	 	 	327,799	 	 	 	323,623	 	
Equities, trading, at fair value (cost: 2008 — $4,973; 2007 — $5,087)	 	 	4,615	 	 	 	4,900	 	
Other investments, at fair value	 	 	105,391	 	 	 	75,300	 	
 	 	 	 	 	 	 	 	 	
Total investments	 	 	1,217,695	 	 	 	637,196	 	
Cash and cash equivalents	 	 	1,480,695	 	 	 	995,237	 	
Restricted cash and cash equivalents	 	 	317,691	 	 	 	168,096	 	
Accrued interest receivable	 	 	21,076	 	 	 	7,200	 	
Accounts receivable, net	 	 	35,094	 	 	 	25,379	 	
Income taxes recoverable	 	 	—	 	 	 	658	 	
Reinsurance balances receivable	 	 	758,659	 	 	 	465,277	 	
Goodwill	 	 	21,222	 	 	 	21,222	 	
Other assets	 	 	142,824	 	 	 	96,878	 	
 	 	 	 	 	 	 	 	 	
TOTAL ASSETS	 	$	3,994,956	 	 	$	2,417,143	 	

LIABILITIES	 	 	 	 	 	 	 	 	
Losses and loss adjustment expenses	 	$	2,700,687	 	 	$	1,591,449	 	
Reinsurance balances payable	 	 	226,949	 	 	 	189,870	 	
Accounts payable and accrued liabilities	 	 	25,597	 	 	 	21,383	 	
Income taxes payable	 	 	921	 	 	 	—	 	
Loans payable	 	 	329,963	 	 	 	60,227	 	
Other liabilities	 	 	77,891	 	 	 	40,178	 	
 	 	 	 	 	 	 	 	 	
TOTAL LIABILITIES	 	 	3,362,008	 	 	 	1,903,107	 	
 	 	 	 	 	 	 	 	 	
MINORITY INTEREST	 	 	168,106	 	 	 	63,437	 	
 	 	 	 	 	 	 	 	 	
SHAREHOLDERS’ EQUITY	 	 	 	 	 	 	 	 	
Share capital	 	 	 	 	 	 	 	 	
Authorized issued and fully paid, par value $1 each (authorized 2008: 156,000,000; 2007: 156,000,000)	 	 	 	 	 	 	 	 	
Ordinary shares (issued and outstanding 2008: 11,947,517; 2007: 11,920,377)	 	 	11,948	 	 	 	11,920	 	
Non-voting convertible ordinary shares (issued 2008: 2,972,892; 2007: 2,972,892)	 	 	2,973	 	 	 	2,973	 	
Treasury stock at cost (non-voting convertible ordinary shares 2008: 2,972,892; 2007: 2,972,892)	 	 	(421,559	)	 	 	(421,559	)	
Additional paid-in capital	 	 	593,712	 	 	 	590,934	 	
Accumulated other comprehensive income	 	 	5,785	 	 	 	6,035	 	
Retained earnings	 	 	271,983	 	 	 	260,296	 	
 	 	 	 	 	 	 	 	 	
TOTAL SHAREHOLDERS’ EQUITY	 	 	464,842	 	 	 	450,599	 	
 	 	 	 	 	 	 	 	 	
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	 	$	3,994,956	 	 	$	2,417,143	 	

See accompanying notes to the unaudited condensed consolidated financial statements
1

 
ENSTAR GROUP LIMITED
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Three-Month Periods Ended March 31, 2008 and 2007

 	 	Three Months Ended March 31,	 	
 	 	2008	 	 	2007	 	
 	 	(expressed in thousands of U.S. dollars, except share and per share data)	 	
 	 	 	 	 	 	 	 	 	
INCOME	 	 	 	 	 	 	 	 	
Consulting fees	 	$	6,055	 	 	$	4,661	 	
Net investment income	 	 	590	 	 	 	19,938	 	
Net realized (losses) gains	 	 	(1,084	)	 	 	571	 	
 	 	 	 	 	 	 	 	 	
 	 	 	5,561	 	 	 	25,170	 	
 	 	 	 	 	 	 	 	 	
EXPENSES	 	 	 	 	 	 	 	 	
Net increase in loss and loss adjustment expense liabilities	 	 	685	 	 	 	2,510	 	
Salaries and benefits	 	 	11,357	 	 	 	12,802	 	
General and administrative expenses	 	 	11,911	 	 	 	5,673	 	
Interest expense	 	 	3,315	 	 	 	3,176	 	
Net foreign exchange (gain) loss	 	 	(1,335	)	 	 	54	 	
 	 	 	 	 	 	 	 	 	
 	 	 	25,933	 	 	 	24,215	 	
 	 	 	 	 	 	 	 	 	
(LOSS) EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST	 	 	(20,372	)	 	 	955	 	
INCOME TAXES	 	 	239	 	 	 	(1,016	)	
MINORITY INTEREST	 	 	(3,376	)	 	 	(2,248	)	
 	 	 	 	 	 	 	 	 	
(LOSS) BEFORE EXTRAORDINARY GAIN	 	 	(23,509	)	 	 	(2,309	)	
Extraordinary gain — Negative goodwill (net of minority interest of $15,084 and $nil, respectively)	 	 	35,196	 	 	 	15,683	 	
 	 	 	 	 	 	 	 	 	
NET EARNINGS	 	$	11,687	 	 	$	13,374	 	
 	 	 	 	 	 	 	 	 	
PER SHARE DATA:	 	 	 	 	 	 	 	 	
Loss per share before extraordinary gain — basic and diluted	 	$	(1.97	)	 	$	(0.21	)	
Extraordinary gain per share — basic and diluted	 	 	2.95	 	 	 	1.41	 	
 	 	 	 	 	 	 	 	 	
Earnings per share — basic and diluted	 	$	0.98	 	 	$	1.20	 	
 	 	 	 	 	 	 	 	 	
Weighted average shares outstanding — basic and diluted	 	 	11,927,542	 	 	 	11,160,448	 	
 
See accompanying notes to the unaudited condensed consolidated financial statements
2

 
ENSTAR GROUP LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Three-Month Periods Ended March 31, 2008 and 2007

 	 	Three Months Ended
	 	
 	 	March 31,	 	
 	 	2008	 	 	2007	 	
 	 	(expressed in thousands of U.S. dollars)	 	
 	 	 	 	 	 	 	 	 	
NET EARNINGS	 	$	11,687	 	 	$	13,374	 	
 	 	 	 	 	 	 	 	 	
Other comprehensive income:	 	 	 	 	 	 	 	 	
Unrealized holding gains on investments arising during the period	 	 	568	 	 	 	571	 	
Reclassification adjustment for net realized losses (gains) included in net earnings	 	 	1,084	 	 	 	(571	)	
Currency translation adjustment	 	 	(1,902	)	 	 	640	 	
 	 	 	 	 	 	 	 	 	
Other comprehensive (loss) income	 	 	(250	)	 	 	640	 	
 	 	 	 	 	 	 	 	 	
COMPREHENSIVE INCOME	 	$	11,437	 	 	$	14,014	 	

See accompanying notes to the unaudited condensed consolidated financial statements
3

 
ENSTAR GROUP LIMITED
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS’ EQUITY
For the Three-Month Periods Ended March 31, 2008 and 2007

 	 	Three Months Ended
	 	
 	 	March 31,	 	
 	 	2008	 	 	2007	 	
 	 	(expressed in thousands of U.S. dollars)	 	
 	 	 	 	 	 	 	 	 	
Share Capital — Ordinary Shares	 	 	 	 	 	 	 	 	
Balance, beginning of period	 	$	11,920	 	 	$	19	 	
Conversion of shares	 	 	—	 	 	 	6,029	 	
Issue of shares	 	 	—	 	 	 	5,775	 	
Shares repurchased	 	 	—	 	 	 	(7	)	
Share awards granted/vested	 	 	28	 	 	 	38	 	
 	 	 	 	 	 	 	 	 	
Balance, end of period	 	$	11,948	 	 	$	11,854	 	
 	 	 	 	 	 	 	 	 	
Share Capital — Non-Voting Convertible Ordinary Shares	 	 	 	 	 	 	 	 	
Balance, beginning of period	 	$	2,973	 	 	$	—	 	
Conversion of shares	 	 	—	 	 	 	2,973	 	
 	 	 	 	 	 	 	 	 	
Balance, end of period	 	$	2,973	 	 	$	2,973	 	
 	 	 	 	 	 	 	 	 	
Treasury Stock	 	 	 	 	 	 	 	 	
Balance, beginning of period	 	$	(421,559	)	 	$	—	 	
Shares acquired, at cost	 	 	—	 	 	 	(421,559	)	
 	 	 	 	 	 	 	 	 	
Balance, end of period	 	$	(421,559	)	 	$	(421,559	)	
 	 	 	 	 	 	 	 	 	
Additional Paid-in Capital	 	 	 	 	 	 	 	 	
Balance, beginning of period	 	$	590,934	 	 	$	111,371	 	
Share awards granted/vested	 	 	2,562	 	 	 	3,750	 	
Shares repurchased	 	 	—	 	 	 	(16,755	)	
Issue of shares	 	 	—	 	 	 	490,269	 	
Amortization of share awards	 	 	216	 	 	 	1,738	 	
 	 	 	 	 	 	 	 	 	
Balance, end of period	 	$	593,712	 	 	$	590,373	 	
 	 	 	 	 	 	 	 	 	
Accumulated Other Comprehensive Income	 	 	 	 	 	 	 	 	
Balance, beginning of period	 	$	6,035	 	 	$	4,565	 	
Other comprehensive (loss)/income	 	 	(250	)	 	 	640	 	
 	 	 	 	 	 	 	 	 	
Balance, end of period	 	$	5,785	 	 	$	5,205	 	
 	 	 	 	 	 	 	 	 	
Retained Earnings	 	 	 	 	 	 	 	 	
Balance, beginning of period	 	$	260,296	 	 	$	202,655	 	
Adjustment to initially apply FIN 48	 	 	—	 	 	 	4,858	 	
 	 	 	 	 	 	 	 	 	
Adjusted balance, beginning of period	 	 	260,296	 	 	 	207,513	 	
Conversion of shares	 	 	—	 	 	 	(9,002	)	
Net earnings	 	 	11,687	 	 	 	13,374	 	
 	 	 	 	 	 	 	 	 	
Balance, end of period	 	$	271,983	 	 	$	211,885	 	

See accompanying notes to the unaudited condensed consolidated financial statements
4

 
ENSTAR GROUP LIMITED
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three-Month Periods Ended March 31, 2008 and 2007

 	 	Three Months Ended March 31,	 	
 	 	2008	 	 	2007	 	
 	 	(expressed in thousands of U.S. dollars)	 	
 	 	 	 	 	 	 	 	 	
OPERATING ACTIVITIES:	 	 	 	 	 	 	 	 	
Net earnings	 	$	11,687	 	 	$	13,374	 	
Adjustments to reconcile net earnings to cash flows provided by operating activities:	 	 	 	 	 	 	 	 	
Minority interest	 	 	3,376	 	 	 	2,248	 	
Negative goodwill	 	 	(35,196	)	 	 	(15,683	)	
Share-based compensation expense	 	 	216	 	 	 	1,738	 	
Net realized and unrealized investment loss (gain)	 	 	1,084	 	 	 	(576	)	
Share of net loss (earnings) from other investments	 	 	26,510	 	 	 	(1,459	)	
Other items	 	 	1,723	 	 	 	1,018	 	
Depreciation and amortization	 	 	191	 	 	 	156	 	
Amortization of bond premiums and discounts	 	 	(148	)	 	 	(99	)	
Net movement of trading securities	 	 	(4,202	)	 	 	117,261	 	
Changes in assets and liabilities:	 	 	 	 	 	 	 	 	
Reinsurance balances receivable	 	 	(160,775	)	 	 	29,363	 	
Other assets	 	 	(33,814	)	 	 	(692	)	
Losses and loss adjustment expenses	 	 	520,829	 	 	 	(18,346	)	
Reinsurance balances payable	 	 	14,419	 	 	 	(18,040	)	
Accounts payable and accrued liabilities	 	 	(4,198	)	 	 	(150	)	
Other liabilities	 	 	32,686	 	 	 	13,522	 	
 	 	 	 	 	 	 	 	 	
Net cash flows provided by operating activities	 	 	374,388	 	 	 	123,635	 	
 	 	 	 	 	 	 	 	 	
INVESTING ACTIVITIES:	 	 	 	 	 	 	 	 	
Acquisitions, net of cash acquired	 	 	7,067	 	 	 	22,899	 	
Purchase of available-for-sale securities	 	 	(163,267	)	 	 	(33,231	)	
Sales and maturities of available-for-sale securities	 	 	21,089	 	 	 	113,084	 	
Maturity of held-to-maturity securities	 	 	61,682	 	 	 	16,583	 	
Movement in restricted cash and cash equivalents	 	 	(149,595	)	 	 	(43,119	)	
Funding of other investments	 	 	(20,090	)	 	 	1,038	 	
Other investing activities	 	 	(37	)	 	 	(127	)	
 	 	 	 	 	 	 	 	 	
Net cash flows (used in) provided by investing activities	 	 	(243,151	)	 	 	77,127	 	
 	 	 	 	 	 	 	 	 	
FINANCING ACTIVITIES:	 	 	 	 	 	 	 	 	
Contribution to surplus of subsidiary by minority interest	 	 	86,209	 	 	 	—	 	
Receipt of loans	 	 	307,813	 	 	 	26,825	 	
Repayment of loans	 	 	(39,800	)	 	 	(462	)	
Repurchase of shares	 	 	—	 	 	 	(16,762	)	
 	 	 	 	 	 	 	 	 	
Net cash flows provided by financing activities	 	 	354,222	 	 	 	9,601	 	
 	 	 	 	 	 	 	 	 	
TRANSLATION ADJUSTMENT	 	 	(1	)	 	 	46	 	
 	 	 	 	 	 	 	 	 	
NET INCREASE IN CASH AND CASH EQUIVALENTS	 	 	485,458	 	 	 	210,409	 	
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	 	 	995,237	 	 	 	450,817	 	
 	 	 	 	 	 	 	 	 	
CASH AND CASH EQUIVALENTS, END OF PERIOD	 	$	1,480,695	 	 	$	661,226	 	

 	
 	
Supplement Cash Flow Information	 	 	 	 	 	 	 	 	
Net income taxes (paid)	 	$	(1,037	)	 	$	(1,927	)	
Interest paid	 	$	(1,609	)	 	$	(462	)	
 
See accompanying notes to the unaudited condensed consolidated financial statements
5

 
ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2008 and December 31, 2007
(Expressed in thousands of U.S. Dollars, except per share amounts)
(unaudited)
 
1.  BASIS OF PREPARATION AND CONSOLIDATION
 
Our condensed consolidated financial statements have not been audited. These statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, these financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of our financial position and results of operations as at the end of and for the periods presented. Results of operations for subsidiaries acquired are included from the dates of their acquisition by the Company. Intercompany transactions are eliminated on consolidation. The results of operations for any interim period are not necessarily indicative of the results for a full year. All significant inter-company accounts and transactions have been eliminated. In these notes, the terms “we,” “us,” “our,” or “the Company” refer to Enstar Group Limited and its direct and indirect subsidiaries. The following information is unaudited and should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2007.
 
Significant Accounting Policies
 
Retroactive reinsurance contracts — Premiums on ceded retroactive contracts are earned when written with a corresponding reinsurance recoverable established for the amount of reserves ceded. The initial gain, if applicable, is deferred and amortized into income over an actuarially determined expected payout period.
 
Adoption of New Accounting Standards
 
The terms “FAS” and “FASB” used in these notes refer to Statements of Financial Accounting Standards issued by the United States Financial Accounting Standards Board.
 
We adopted FAS 157, “Fair Value Measurements” (“FAS 157”), effective January 1, 2008. Under this standard, fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. In determining fair value, we use various valuation approaches, including market and income approaches. FAS 157 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

 	• 	Level 1 — Valuations based on quoted prices in active markets for identical assets or liabilities that we have the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.	
 
Assets and liabilities utilizing Level 1 inputs include exchange-listed equity securities that are actively traded.

 	• 	Level 2 — Valuations based on quoted prices in markets that are not active or for which significant inputs are observable (e.g., interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.	
 
Assets and liabilities utilizing Level 2 inputs include: exchange-listed equity securities that are not actively traded; U.S. government and agency securities; non-U.S. government obligations; corporate and municipal bonds; mortgage-backed securities (“MBS”) and asset-backed securities (“ABS”).
6

 
 
ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
1.  BASIS OF PREPARATION AND CONSOLIDATION — (cont’d)

 	 	 	
 	• 	Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The unobservable inputs reflect our own assumptions about assumptions that market participants might use.	
 	 	 	
 	  	Assets and liabilities utilizing Level 3 inputs include: hedge funds with partial transparency; and credit funds and short duration high yield funds that are traded in less liquid markets.	
 
The availability of observable inputs can vary from financial instrument to financial instrument and is affected by a wide variety of factors, including, for example, the type of financial instrument, whether the financial instrument is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires significantly more judgment. Accordingly, the degree of judgment exercised by management in determining fair value is greatest for instruments categorized in Level 3. We use prices and inputs that are current as of the measurement date, including during periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified between levels.
 
The adoption of FAS 157 did not result in any cumulative-effect adjustment to our beginning retained earnings at January 1, 2008, or any material impact on our results of operations, financial position or liquidity. In February 2008, the FASB issued FSP FAS 157-2, “Effective Date of FASB Statement No. 157” (“FSP FAS 157-2”), which permits a one-year deferral of the application of FAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Accordingly, we have also adopted FSP FAS 157-2 effective January 1, 2008, and FAS 157 will not be applied to our goodwill and other intangible assets measured annually for impairment testing purposes only. We will adopt FAS 157 for non-financial assets and non-financial liabilities on January 1, 2009. The Company is currently evaluating the related provisions of FAS 157 and their potential impact on future financial statements.
 
In February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“FAS 159”). This standard permits an entity to irrevocably elect fair value on a contract-by-contract basis as the initial and subsequent measurement attribute for many financial instruments and certain other items including insurance contracts. An entity electing the fair value option would be required to recognize changes in fair value in earnings and provide disclosure that will assist investors and other users of financial information to more easily understand the effect of the company’s choice to use fair value on its earnings. Further, the entity is required to display the fair value of those assets and liabilities for which the company has chosen to use fair value on the face of the balance sheet. This standard does not eliminate the disclosure requirements about fair value measurements included in FAS 157 and FAS No. 107, “Disclosures about Fair Value of Financial Instruments.” The adoption of FAS 159 did not impact retained earnings as of January 1, 2008 because the Company did not make any elections.
 
Accounting Standards Not Yet Adopted
 
In December 2007, the FASB issued FAS No. 141(R) “Business Combinations” (“FAS 141(R)”). FAS 141(R) replaces FAS No. 141 “Business Combinations” (“FAS 141”) but retains the fundamental requirements in FAS No. 141 that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. FAS 141(R) requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date. FAS 141(R) also requires acquisition-related costs to be recognized separately from the acquisition, recognize assets acquired and liabilities assumed arising from contractual contingencies at their acquisition-date fair values and recognize goodwill as the excess of the consideration transferred plus the fair value of any noncontrolling interest in the acquiree at the acquisition date over the fair values of the identifiable net assets
7

 
 
ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
1.  BASIS OF PREPARATION AND CONSOLIDATION — (cont’d)
 
acquired. FAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 (January 1, 2009 for calendar year-end companies). The Company is currently evaluating the provisions of FAS 141(R) and its potential impact on future financial statements.
 
In December 2007, the FASB issued FAS No. 160 “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” (“FAS 160”). FAS 160 amends ARB No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. FAS 160 clarifies that a noncontrolling interest in a subsidiary is an ownership interest that should be reported as equity in the consolidated financial statements. FAS 160 requires consolidated net income to be reported at the amounts that include the amounts attributable to both the parent and the noncontrolling interest. This statement also establishes a method of accounting for changes in a parent’s ownership interest in a subsidiary that does result in deconsolidation. FAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008 (January 1, 2009 for calendar year-end companies). The presentation and disclosure of FAS 160 shall be applied retrospectively for all periods presented. The Company is currently evaluating the provisions of FAS 160 and its potential impact on future financial statements.
 
In March 2008, the FASB issued FAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (“FAS 161”). This Statement expands the disclosure requirements of FAS 133 and requires the reporting entity to provide enhanced disclosures about the objectives and strategies for using derivative instruments, quantitative disclosures about fair values and amounts of gains and losses on derivative contracts, and credit-risk related contingent features in derivative agreements. FAS 161 will be effective for fiscal years beginning after November 15, 2008 (January 1, 2009 for calendar year-end companies), and interim periods within those fiscal years. The Company is currently evaluating the provisions of FAS 161 and its potential impact on future financial statements.

2.  	ACQUISITIONS	
 
On February 29, 2008, the Company completed the acquisition of Guildhall Insurance Company Limited (“Guildhall”), a reinsurance company based in the U.K., for total consideration of £33.4 million (approximately $65.9 million). The purchase price was financed by the drawdown of approximately £16.5 million (approximately $32.5 million) from a facility loan agreement with a London-based bank; approximately £5.0 million (approximately $10.0 million) from J.C. Flowers II L.P. (the “Flowers Fund”), by way of non-voting equity participation; and the balance of approximately £11.9 million (approximately $23.5 million) from available cash on hand. The Flowers Fund is a private investment fund advised by J.C. Flowers & Co. LLC. J. Christopher Flowers, a member of the Company’s board of directors and one of its largest shareholders, is the founder and Managing Member of J.C. Flowers & Co. LLC. John J. Oros, the Company’s Executive Chairman and a member of its board of directors, is a Managing Director of J.C. Flowers & Co. LLC. Mr. Oros splits his time between J.C. Flowers & Co. LLC and the Company.
 
The acquisition has been accounted for using the purchase method of accounting, which requires that the acquirer record the assets and liabilities acquired at their estimated fair value.

Purchase price	 	$	65,571	 	
Direct costs of acquisition	 	 	303	 	
 	 	 	 	 	
Total purchase price	 	$	65,874	 	
 	 	 	 	 	
Net assets acquired at fair value	 	$	65,874	 	

8

 
 
ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2.  	ACQUISITIONS — (cont’d)	
 
The following summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of acquisition:

Cash, restricted cash and investments	 	$	108,994	 	
Reinsurance balances receivable	 	 	33,298	 	
Accounts receivable	 	 	4,631	 	
Losses and loss adjustment expenses	 	 	(79,107	)	
Accounts payable	 	 	(1,942	)	
 	 	 	 	 	
Net assets acquired at fair value	 	$	65,874	 	

On March 5, 2008, the Company completed the acquisition from AMP Limited (“AMP”) of AMP’s Australian-based closed reinsurance and insurance operations (“Gordian”). The purchase price, including acquisition expenses, was approximately AU$436.9 million (approximately $405.4 million) and was financed by AU$301.0 million (approximately $276.5 million), including an arrangement fee of AU$4.5 million (approximately $4.2 million), from bank financing provided jointly by a London-based bank and a German bank; approximately AU$41.6 million (approximately $39.5 million) from the Flowers Fund, by way of non-voting equity participation; and approximately AU$98.7 million (approximately $93.6 million) from available cash on hand.
 
The acquisition has been accounted for using the purchase method of accounting, which requires that the acquirer record the assets and liabilities acquired at their estimated fair value.

Purchase price	 	$	401,086	 	
Direct costs of acquisition	 	 	4,326	 	
 	 	 	 	 	
Total purchase price	 	$	405,412	 	
 	 	 	 	 	
Net assets acquired at fair value	 	$	455,692	 	
 	 	 	 	 	
Excess of net assets over purchase price	 	$	50,280	 	
Less minority interest share of negative goodwill	 	 	(15,084	)	
 	 	 	 	 	
Negative goodwill	 	$	35,196	 	

The negative goodwill arose primarily as a result of income earned by Gordian between the date of the balance sheet on which the agreed purchase price was based, June 30, 2007, and the date the acquisition closed, March 5, 2008, and the desire of the vendors to achieve a substantial reduction in regulatory capital requirements and therefore to dispose of Gordian at a discount to fair value.
 
The following summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of the acquisition:

Cash, restricted cash and investments	 	$	872,755	 	
Reinsurance balances receivable	 	 	99,645	 	
Accounts receivable	 	 	31,253	 	
Losses and loss adjustment expenses	 	 	(509,638	)	
Insurance and reinsurance balances payable	 	 	(22,660	)	
Accounts payable	 	 	(15,663	)	
 	 	 	 	 	
Net assets acquired at fair value	 	$	455,692	 	

9

 
 
ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2.  	ACQUISITIONS — (cont’d)	
 
The fair values of 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 run-off strategy. Any amendment to the fair values resulting from changes in such information or strategy will be recognized when they occur.
 
The following proforma condensed combined income statement for the three months ended March 31, 2008 combines the historical consolidated statements of income of the Company with those of Gordian, which was acquired in the first quarter of 2008, giving effect to the business combinations and related transactions as if they had occurred on January 1, 2008.

 	 	 	 	 	 	 	 	 	 	 	Enstar
	 	
 	 	Enstar
	 	 	 	 	 	 	 	 	Group
	 	
 	 	Group
	 	 	 	 	 	Proforma
	 	 	Limited
	 	
Three Months Ended March 31, 2008:	 	Limited	 	 	Gordian	 	 	Adjustment	 	 	Proforma	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total income	 	$	(1,748	)	 	$	14,082	 	 	$	(5,194	)(a)	 	$	7,140	 	
Total expenses	 	 	(26,262	)	 	 	(8,854	)	 	 	(7,619	)(c)	 	 	(42,735	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net (loss) before extraordinary gain	 	 	(28,010	)	 	 	5,228	 	 	 	(12,813	)	 	 	(35,595	)	
Extraordinary gain	 	 	35,196	 	 	 	—	 	 	 	—	 	 	 	35,196	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings (loss)	 	$	7,186	 	 	$	5,228	 	 	$	(12,813	)	 	$	(399	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net (loss) per ordinary share before extraordinary gain — basic and diluted	 	 	 	 	 	 	 	 	 	 	 	 	 	$	(2.98	)	
Extraordinary gain — basic and diluted	 	 	 	 	 	 	 	 	 	 	 	 	 	 	2.95	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net (loss) per ordinary share — basic and diluted	 	 	 	 	 	 	 	 	 	 	 	 	 	$	(0.03	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average shares — basic and diluted	 	 	 	 	 	 	 	 	 	 	 	 	 	 	11,927,542	 	
 
The following proforma condensed combined income statement for the three months ended March 31, 2007 combines the historical consolidated statements of income of the Company with those of The Enstar Group, Inc. (“EGI”), BH Acquisition Ltd. (“BH”) and Inter-Ocean Holdings, Ltd. (“Inter-Ocean”), each of which was acquired in the first quarter of 2007, and Gordian, which was acquired in the first quarter of 2008, giving effect to the business combinations and related transactions as if they had occurred on January 1, 2007.
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Enstar
	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	Group
	 	
 	 	Enstar
	 	 	 	 	 	 	 	 	 	 	 	Proforma
	 	 	 	 	 	 	 	 	Proforma
	 	 	Limited-
	 	
Three Months Ended March 2007:	 	Group	 	 	BH	 	 	EGI	 	 	Inter-Ocean	 	 	Adjustment	 	 	Sub-total	 	 	Gordian	 	 	Adjustment	 	 	Proforma	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total income	 	$	21,797	 	 	$	1,252	 	 	$	1,058	 	 	$	6,555	 	 	$	(721	)(b)	 	$	29,941	 	 	$	18,394	 	 	$	(3,602	)(a)	 	$	44,733	 	
Total expenses	 	 	(25,128	)	 	 	(774	)	 	 	(6,913	)	 	 	(5,435	)	 	 	721	 (d)	 	 	(37,529	)	 	 	1,539	 	 	 	(8,458	)(c)	 	 	(44,448	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net (loss) earnings before extraordinary gain	 	 	(3,331	)	 	 	478	 	 	 	(5,855	)	 	 	1,120	 	 	 	—	 	 	 	(7,588	)	 	 	19,933	 	 	 	(12,060	)	 	 	285	 	
Extraordinary gain	 	 	15,683	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	15,683	 	 	 	—	 	 	 	—	 	 	 	15,683	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings (loss)	 	$	12,352	 	 	$	478	 	 	$	(5,855	)	 	$	1,120	 	 	$	—	 	 	$	8,095	 	 	$	19,933	 	 	$	(12,060	)	 	$	15,968	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings per ordinary share before extraordinary gain — basic	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	0.03	 	
Extraordinary gain — basic	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1.41	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings per ordinary share — basic	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	1.44	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings per ordinary share before extraordinary gain — diluted	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	0.02	 	
Extraordinary gain — diluted	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	1.37	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings per ordinary share — diluted	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	$	1.39	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average shares — basic	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	11,160,448	 	
Weighted average shares — diluted	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	11,425,716	 	

10

 
 
ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2.  	ACQUISITIONS — (cont’d)	
 
Notes to the Pro Forma Condensed Combined Income Statement

 	 	2008	 	 	2007	 	
 	 	 	 	 	 	 	 	 	
Income:	 	 	 	 	 	 	 	 	
(a) Adjustment to conform the accounting policy for investments to that of the Company	 	$	(5,194	)	 	$	(3,602	)	
(b) Elimination of fees earned prior to acquisition	 	 	—	 	 	 	(721	)	
Expenses:	 	 	 	 	 	 	 	 	
(c) (i) Adjustment to interest expense to reflect the financing costs of the acquisition for the period	 	 	(3,965	)	 	 	(5,015	)	
    (ii) Adjustment to recognize the amortization of increased run-off provisions	 	 	(236	)	 	 	(205	)	
    (iii) Adjustment to recognize amortization of fair value adjustments recorded at date of acquisition	 	 	(4,976	)	 	 	(4,319	)	
    (iv) To adjust income taxes for pro forma adjustments at the statutory rate of 30%	 	 	1,558	 	 	 	1,081	 	
 	 	 	 	 	 	 	 	 	
 	 	 	(7,619	)	 	 	(8,458	)	
(d) Elimination of fees paid prior to acquisition	 	 	—	 	 	 	721	 	

3.  	SIGNIFICANT NEW BUSINESS	
 
In December 2007, the Company, in conjunction with JCF FPK I L.P. (“JCF FPK”) and a newly-hired executive management team, formed U.K.-based Shelbourne Group Limited (“Shelbourne”) to invest in Reinsurance to Close or “RITC” transactions (the transferring of liabilities from one Lloyd’s Syndicate to another) with Lloyd’s of London insurance and reinsurance syndicates in run-off. JCF FPK is a joint investment program between Fox-Pitt, Kelton, Cochran, Caronia & Waller (“FPKCCW”) and the Flowers Fund. Shelbourne is a holding company of a Lloyd’s Managing Agency, Shelbourne Syndicate Services Limited. The Company owns 50.1% of Shelbourne, which in turn owns 100% of Shelbourne Syndicate Services Limited, the Managing Agency for Lloyd’s Syndicate 2008, a syndicate approved by Lloyd’s of London on December 16, 2007 to undertake RITC transactions with Lloyd’s syndicates in run-off. In February 2008, Lloyd’s Syndicate 2008 entered into RITC agreements with four Lloyd’s syndicates with total gross insurance reserves of approximately $471.2 million.
 
On February 29, 2008, the Company funded its capital commitment of approximately £36.0 million (approximately $72.0 million) by way of a letter of credit issued by a London-based bank to Lloyd’s Syndicate 2008. The letter of credit was secured by a parental guarantee from the Company in the amount of £12.0 million (approximately $24.0 million); approximately £11.0 million (approximately $22.0 million) from the Flowers Fund (acting in its own capacity and not through JCF FPK), by way of a non-voting equity participation; and approximately £13.0 million (approximately $26.0 million) from available cash on hand. JCF FPK’s capital commitment to Lloyd’s Syndicate 2008 is approximately £14.0 million (approximately $28.0 million).
 
The Flowers Fund is a private investment fund advised by J.C. Flowers & Co. LLC. J. Christopher Flowers, a member of the Company’s board of directors and one of its largest shareholders, is the founder and Managing Member of J.C. Flowers & Co. LLC. John J. Oros, the Company’s Executive Chairman and a member of its board of directors, is a Managing Director of J.C. Flowers & Co LLC. Mr. Oros splits his time between J.C. Flowers & Co. LLC and the Company. In addition, an affiliate of the Flowers Fund controls approximately 41% of FPKCCW.
11

 
 
ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4.  	INVESTMENTS	
 
Available-for-sale
 
The amortized cost and estimated fair value of investments in debt securities classified as available for sale are as follows:

 	 	 	 	 	Gross
	 	 	Gross
	 	 	 	 	
 	 	 	 	 	Unrealized
	 	 	Unrealized
	 	 	 	 	
 	 	Amortized
	 	 	Holding
	 	 	Holding
	 	 	Fair
	 	
 	 	Cost	 	 	Gains	 	 	Losses	 	 	Value	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
As at March 31, 2008	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Treasury and Agency securities	 	$	142,358	 	 	$	443	 	 	$	(6	)	 	$	142,795	 	
Non-U.S. Government securities	 	 	184,394	 	 	 	984	 	 	 	(45	)	 	 	185,333	 	
Corporate debt securities	 	 	180,853	 	 	 	660	 	 	 	(503	)	 	 	181,010	 	
Other debt securities	 	 	6,918	 	 	 	—	 	 	 	—	 	 	 	6,918	 	
Short term investments	 	 	111,058	 	 	 	36	 	 	 	(45	)	 	 	111,049	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	625,581	 	 	$	2,123	 	 	$	(599	)	 	$	627,105	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
As at December 31, 2007	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Corporate debt securities	 	$	757	 	 	$	42	 	 	$	(170	)	 	$	629	 	
Other debt securities	 	 	6,249	 	 	 	—	 	 	 	—	 	 	 	6,249	 	
Short term investments	 	 	15,480	 	 	 	—	 	 	 	—	 	 	 	15,480	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	22,486	 	 	$	42	 	 	$	(170	)	 	$	22,358	 	

The gross unrealized losses on available for sale debt securities as at March 31 were split as follows:

 	 	2008	 	 	2007	 	
 	 	 	 	 	 	 	 	 	
Due within one year	 	$	53	 	 	$	—	 	
After 1 through 5 years	 	 	243	 	 	 	—	 	
After 5 through 10 years	 	 	160	 	 	 	—	 	
After 10 years	 	 	143	 	 	 	170	 	
 	 	 	 	 	 	 	 	 	
 	 	$	599	 	 	$	170	 	

As at March 31, 2008 the number of securities classified as available-for-sale in an unrealized loss position was 50, with a fair value of $77.6 million. None of these securities has been in an unrealized loss position for 12 months or longer.
12

 
 
ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4.  	INVESTMENTS — (cont’d)	
 
Held-to-maturity
 
The amortized cost and estimated fair value of investments in debt securities classified as held-to-maturity are as follows:

 	 	 	 	 	Gross
	 	 	Gross
	 	 	 	 	
 	 	 	 	 	Unrealized
	 	 	Unrealized
	 	 	 	 	
 	 	Amortized
	 	 	Holding
	 	 	Holding
	 	 	Fair
	 	
 	 	Cost	 	 	Gains	 	 	Losses	 	 	Value	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
As at March 31, 2008	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Treasury and Agency securities	 	$	92,078	 	 	$	1,638	 	 	$	(208	)	 	$	93,508	 	
Non-U.S. Government securities	 	 	2,636	 	 	 	—	 	 	 	(9	)	 	 	2,627	 	
Corporate debt securities	 	 	58,071	 	 	 	387	 	 	 	(932	)	 	 	57,526	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	152,785	 	 	$	2,025	 	 	$	(1,149	)	 	$	153,661	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
As at December 31, 2007	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
U.S. Treasury and Agency securities	 	$	132,332	 	 	$	816	 	 	$	(314	)	 	$	132,834	 	
Non-U.S. Government securities	 	 	2,534	 	 	 	—	 	 	 	(12	)	 	 	2,522	 	
Corporate debt securities	 	 	76,149	 	 	 	159	 	 	 	(666	)	 	 	75,642	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	211,015	 	 	$	975	 	 	$	(992	)	 	$	210,998	 	

The gross unrealized losses on held-to-maturity debt securities as at March 31 were split as follows:

 	 	2008	 	 	2007	 	
 	 	 	 	 	 	 	 	 	
Due within one year	 	$	113	 	 	$	161	 	
After 1 through 5 years	 	 	380	 	 	 	217	 	
After 5 through 10 years	 	 	11	 	 	 	13	 	
After 10 years	 	 	645	 	 	 	601	 	
 	 	 	 	 	 	 	 	 	
 	 	$	1,149	 	 	$	992	 	

As at March 31, 2008, the number of securities classified as held-to-maturity in an unrealized loss position was 36 with a fair value of $33.8 million. Of these securities, the number of securities that have been in an unrealized loss position for 12 months or longer was 34 with a fair value of $18.2 million. As of March 31, 2008, none of these securities were considered to be other than temporarily impaired. The Company has the intent and ability to hold these securities until their maturities. The unrealized losses from these securities were not a result of credit, collateral or structural issues.
 
The amortized cost and estimated fair values as at March 31, 2008 of debt securities classified as held-to-maturity by contractual maturity are shown below.

 	 	Amortized
	 	 	Fair
	 	
 	 	Cost	 	 	Value	 	
 	 	 	 	 	 	 	 	 	
Due within one year	 	$	42,933	 	 	$	42,936	 	
After 1 through 5 years	 	 	100,904	 	 	 	102,245	 	
After 5 through 10 years	 	 	161	 	 	 	149	 	
After 10 years	 	 	8,787	 	 	 	8,331	 	
 	 	 	 	 	 	 	 	 	
 	 	$	152,785	 	 	$	153,661	 	

13

 
 
ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4.  	INVESTMENTS — (cont’d)	
 
Actual maturities could differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
Trading
 
The estimated fair value of investments in debt securities and short-term investments classified as trading securities as of March 31 was as follows:

 	 	2008	 	 	2007	 	
 	 	 	 	 	 	 	 	 	
U.S. Treasury and Agency securities	 	$	255,499	 	 	$	237,943	 	
Non-U.S. Government securities	 	 	3,231	 	 	 	3,244	 	
Corporate debt securities	 	 	69,069	 	 	 	82,436	 	
 	 	 	 	 	 	 	 	 	
 	 	$	327,799	 	 	$	323,623	 	

Other Investments
 
At March 31, 2008 and December 31, 2007, the Company had $105.4 million and $75.3 million, respectively, of other investments recorded in limited partnerships, limited liability companies and equity funds. These other investments represented 3.5% and 4.2% of total investments and cash and cash equivalents at March 31, 2008 and December 31, 2007, respectively. All of the Company’s other investments relating to our investments in limited partnerships and limited liability companies are subject to restrictions on redemptions and sales which are determined by the governing documents and limit the Company’s ability to liquidate these investments in the short term. Due to a lag in the valuations reported by the managers, the Company records changes in the investment value with up to a three-month lag. These investments are accounted for under the equity method. As at March 31, 2008 and December 31, 2007, the Company had unfunded capital commitments relating to its other investments of $62.3 and $74.6 million, respectively. As at March 31, 2008, 61.7% of the other investments are with a related party.
 
In accordance with FAS 157, we have categorized our investments held at March 31, 2008 between levels as follows:

 	 	March 31, 2008	 	
 	 	 	 	 	 	 	 	 	 	 	Total Fair
	 	
 	 	Level 1	 	 	Level 2	 	 	Level 3	 	 	Value	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fixed maturities - available for sale	 	$	—	 	 	$	627,105	 	 	$	—	 	 	$	627,105	 	
Fixed maturities - trading	 	 	—	 	 	 	326,748	 	 	 	1,051	 	 	 	327,799	 	
Equity securities	 	 	4,615	 	 	 	—	 	 	 	—	 	 	 	4,615	 	
Other investments	 	 	—	 	 	 	—	 	 	 	105,391	 	 	 	105,391	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total investments	 	$	4,615	 	 	$	953,853	 	 	$	106,442	 	 	$	1,064,910	 	

14

 
 
ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4.  	INVESTMENTS — (cont’d)	
 
The following table presents a reconciliation of the beginning and ending balances for all investments measured at fair value on a recurring basis using Level 3 inputs during the period ended March 31, 2008:

 	 	Three Months Ended March 31, 2008	 	
 	 	Fixed
	 	 	 	 	 	 	 	 	 	 	
 	 	Maturity
	 	 	Equity
	 	 	Other
	 	 	 	 	
 	 	Investments	 	 	Securities	 	 	Investments	 	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Level 3 investments as of January 1, 2008	 	$	1,051	 	 	$	—	 	 	$	75,300	 	 	$	76,351	 	
Net purchases (sales and distributions)	 	 	—	 	 	 	—	 	 	 	55,461	 	 	 	55,461	 	
Total realized and unrealized losses	 	 	—	 	 	 	—	 	 	 	(25,370	)	 	 	(25,370	)	
Net transfers in and/or (out) of Level 3	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Level 3 investments as of March 31, 2008	 	$	1,051	 	 	$	—	 	 	$	105,391	 	 	$	106,442	 	

The amount of total losses for the period included in earnings attributable to the fair value of changes in assets still held at the reporting date was $26.5 million.

5.  	LOANS PAYABLE	
 
On February 18, 2008, the Company fully repaid the outstanding principal and accrued interest on the loans used to partially finance the acquisitions of Cavell Holdings Limited (U.K.), Marlon Insurance Company Limited and Marlon Management Services Limited totaling $40.5 million.
 
In February 2008, a wholly-owned subsidiary of the Company, Cumberland Holdings Limited (“Cumberland”), entered into a term facility agreement jointly with a London-based bank and a German bank (the “Cumberland Facility”). On March 4, 2008, the Company drew down AU$215.0 million (approximately $197.5 million) from the Facility A Commitment (“Facility A”) and AU$86.0 million (approximately $79.0 million) from the Facility B Commitment (“Facility B”) to partially fund the Gordian acquisition.

 	• 	The interest rate on the Facility A is LIBOR plus 2%. Facility A is repayable in five years and is secured by a first charge over Cumberland’s shares in Gordian. Facility A contains various financial and business covenants, including limitations on liens on the stock of restricted subsidiaries, restrictions as to the disposition of the stock of restricted subsidiaries and limitations on mergers and consolidations. As of March 31, 2008, all of the financial covenants relating to Facility A were met.	

 	• 	The interest rate on Facility B is LIBOR plus 2.75%. Facility B is repayable in six years and is secured by a first charge over Cumberland’s shares in Gordian. Facility B contains various financial and business covenants, including limitations on liens on the stock of restricted subsidiaries, restrictions as to the disposition of the stock of restricted subsidiaries and limitations on mergers and consolidations. As of March 31, 2008, all of the financial covenants relating to Facility B were met.	
 
In February 2008, a wholly-owned subsidiary of the Company, Rombalds Limited (“Rombalds”), entered into a term facility agreement with a London-based bank (the “Rombalds Facility”). On February 28, 2008, the Company drew down $32.5 million from the Rombalds Facility to partially fund the acquisition of Guildhall. The interest rate on the Rombalds Facility is LIBOR plus 2%. The facility is repayable in five years and is secured by a first charge over Rombalds shares in Guildhall. The Rombalds Facility contains various financial and business covenants, including limitations on liens on the stock of restricted subsidiaries, restrictions as to the disposition of the stock of restricted subsidiaries and limitations on mergers and consolidations. As of March 31, 2008, all of the financial covenants relating to the Rombalds Facility were met.
15

 
 
ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
On May 6, 2008, the Company fully repaid outstanding principal and accrued interest on the loan used to partially finance the acquisition of Brampton Insurance Company Limited totaling $19.9 million.

6.  	EMPLOYEE BENEFITS	
 
Our share-based compensation plans provide for the grant of various awards to our employees and to members of the Board of Directors. These are described in Note 12 to the Consolidated Financial Statements contained in our Annual Report on Form 10-K for the year ended December 31, 2007. The information below includes both the employee and director components of our share-based compensation.

(a) 	Employee share plans	

 	 	 	 	 	Weighted
	 	
 	 	 	 	 	Average Fair
	 	
 	 	 	 	 	Value of
	 	
 	 	Number of
	 	 	the Award
	 	
 	 	Shares	 	 	per Share	 	
 	 	 	 	 	 	 	 	 	
Nonvested — January 1, 2008	 	 	25,862	 	 	$	122.42	 	
Granted	 	 	27,140	 	 	 	95.45	 	
Vested	 	 	(27,140	)	 	 	95.45	 	
 	 	 	 	 	 	 	 	 	
Nonvested — March 31, 2008	 	 	25,862	 	 	 	111.27	 	

i) 2004 - 2005 employee share plan
 
Compensation costs of $0.2 million and $1.7 million relating to the issuance of share-awards to employees of the Company in 2004 and 2005 have been recognized in the Company’s statement of earnings for the three months ended March 31, 2008 and 2007, respectively.
 
The determination of the share-award expenses was based on the fair-market value per common share of EGI as of the grant date and is recognized over the vesting period.
 
As of March 31, 2008, total unrecognized compensation costs related to the non-vested share awards amounted to $0.4 million. These costs are expected to be recognized over a weighted average period of 0.57 years.
 
ii) 2006-2010 Annual Incentive Plan and 2006 Equity Incentive Plan
 
For the three months ended March 31, 2008 and 2007, 27,140 and 38,387 shares were awarded to directors, officers and employees under the 2006 Equity Incentive Plan. The total value of the award for the three months ended March 31, 2008 was $2.6 million and was charged against the 2006-2010 Annual Incentive Plan accrual established for the year ended December 31, 2007. The total value of the award for the three months ended March 31, 2007 was $3.8 million of which $0.5 million was charged as an expense for the three months ended March 31, 2007 and $3.3 million was charged against the 2006-2010 Annual Incentive Plan accrual established for the year ended December 31, 2006.
 
The accrued expense relating to the 2006-2010 Annual Incentive Plan for the three months ended March 31, 2008 and 2007 was $2.1 million and $2.4 million, respectively.
16

 
 
ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6.  	EMPLOYEE BENEFITS — (cont’d)	

(b) 	Options	

 	 	 	 	 	Weighted
	 	 	 	 	
 	 	 	 	 	Average
	 	 	Intrinsic
	 	
 	 	Number of
	 	 	Exercise
	 	 	Value of
	 	
 	 	Shares	 	 	Price	 	 	Shares	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Outstanding — January 1, 2008	 	 	490,371	 	 	$	25.40	 	 	 	—	 	
Granted	 	 	—	 	 	 	—	 	 	 	—	 	
Exercised	 	 	—	 	 	 	—	 	 	 	—	 	
Forfeited	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Outstanding — March 31, 2008	 	 	490,371	 	 	$	25.40	 	 	$	42,108	 	

Stock options outstanding and exercisable as of March 31, 2008 were as follows:

Ranges of
	 	 	 	 	 	 	 	Weighted Average
	 	
Exercise
	 	Number of
	 	 	Weighted Average
	 	 	Remaining
	 	
Prices	 	Options	 	 	Exercise Price	 	 	Contractual Life	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
$10 - 20	 	 	323,645	 	 	$	17.20	 	 	 	2.9 years	 	
$40 - 60	 	 	166,726	 	 	 	41.32	 	 	 	5.4 years	 	

(c) 	Deferred Compensation and Stock Plan for Non-Employee Directors	
 
EGI, prior to its merger with a subsidiary of the Company (the “Merger”), had in place a Deferred Compensation and Stock Plan for Non-Employee Directors which permitted non-employee directors to receive all or a portion of their retainer and meeting fees in common stock and to defer all or a portion of their retainer and meeting fees in stock units. Upon completion of the Merger, each stock unit was converted from a right to receive a share of EGI common stock into a right to receive an Enstar Group Limited ordinary share. No additional amounts will be deferred under the plan.
 
On June 5, 2007, the Compensation Committee of the board of directors of the Company approved the Enstar Group Limited Deferred Compensation and Ordinary Share Plan for Non-Employee Directors (the “EGL Deferred Compensation Plan”)
 
The EGL Deferred Compensation Plan became effective immediately. The EGL Deferred Compensation Plan provides each member of the Company’s board of directors who is not an officer or employee of the Company or any of its subsidiaries (each, a “Non-Employee Director”) with the opportunity to elect (i) to receive all or a portion of his or her compensation for services as a director in the form of the Company’s ordinary shares instead of cash and (ii) to defer receipt of all or a portion of such compensation until retirement or termination.
 
Non-Employee Directors electing to receive compensation in the form of ordinary shares will receive whole ordinary shares (with any fractional shares payable in cash) as of the date compensation would otherwise have been payable. Non-Employee Directors electing to defer compensation will have such compensation converted into share units payable as a lump sum distribution after the director’s “separation from service” as defined under Section 409A of the Internal Revenue Code of 1986, as amended. The lump sum share unit distribution will be made in the form of ordinary shares, with fractional shares paid in cash.
 
For the three months ended March 31, 2008 and 2007, 994 and Nil shares were issued to Non-Employee Directors under the plan.
17

 
 
ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

7.  	EARNINGS PER SHARE	
 
The following table sets forth the comparison of basic and diluted earnings per share for the three-month periods ended March 31, 2008 and 2007.

 	 	2008	 	 	2007	 	
 	 	 	 	 	 	 	 	 	
Net loss before extraordinary gain	 	$	(23,509	)	 	$	(2,309	)	
Weighted average shares outstanding — basic and diluted	 	 	11,927,542	 	 	 	11,160,448	 	
 	 	 	 	 	 	 	 	 	
Loss per share before extraordinary gain — basic and diluted	 	$	(1.97	)	 	$	(0.21	)	

The following securities have not been included in the computation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented.

Share equivalents:	 	2008	 	 	2007	 	
 	 	 	 	 	 	 	 	 	
Unvested shares	 	$	25,862	 	 	$	92,293	 	
Restricted share units	 	 	2,141	 	 	 	—	 	
Options	 	 	262,440	 	 	 	172,975	 	
 	 	 	 	 	 	 	 	 	
Total	 	$	290,443	 	 	$	265,268	 	

The Company amended its earnings per share calculation for 2007 to reflect the anti-dilutive nature of unvested shares and options.
 
The weighted average ordinary shares outstanding shown for the three months ended March 31, 2007 reflect the conversion of Class A, B, C and D shares to ordinary shares on January 31, 2007, as part of the recapitalization completed in connection with the Merger, as if the conversion occurred on January 1, 2007. For the three months ended March 31, 2007, the ordinary shares issued to acquire EGI are reflected in the calculation of the weighted average ordinary shares outstanding from January 31, 2007, the date of issue.

8.  	COMMITMENTS AND CONTINGENCIES	
 
On March 28, 2008, the Company committed to subscribe for its pro-rata share of the rights offering in New NIB Partners L.P. (“New NIB”). Our total commitment was €5.0 million (approximately $7.9 million) and was paid to New NIB on April 11, 2008.
 
As at March 31, 2008, the Company has guaranteed the obligations of two of its subsidiaries in respect of letter of credit issued on their behalf by London-based banks in the amount of £19.5 million (approximately $38.7 million) in respect of capital commitments to Lloyds Syndicate 2008 and insurance contract requirements of one of the subsidiaries. The guarantees will be triggered should losses incurred by the subsidiaries exceed available cash on hand resulting in the letters of credit being drawn. As at March 31, 2008, the Company has not recorded any liabilities associated with the guarantees.
18

 
 
ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9.  	RELATED PARTY TRANSACTIONS	
 
The Company has entered into certain transactions with companies and partnerships that are affiliated with J. Christopher Flowers and John J. Oros. Messrs Flowers and Oros are members of the Company’s board of directors and Mr. Flowers is one of the largest shareholders of Enstar.

 	• 	During the quarter, the Company funded an additional $24.4 million of its outstanding capital commitment to entities affiliated with Messrs. Flowers and Oros. The Company had, as of March 31, 2008 and December 31, 2007, investments in entities affiliated with Mr. Flowers with a total value of $65.0 million and $71.6 million, respectively, and outstanding commitments to entities managed by Mr. Flowers, for the same periods, of $57.6 million and $76.3 million, respectively. The Company’s outstanding commitments may be drawn down over approximately the next six years.	
 	 	 	
 	• 	In February 2008, the Flowers Fund funded its commitment of approximately $70.9 million for its share of the economic interest in each of the Gordian, Guildhall and Shelbourne transactions.	
 	 	 	
 	• 	In February 2008, the Company entered into an AU$301.0 million (approximately $276.5 million) joint loan facility with an Australian and German bank in which each bank has 50% participation. The Flowers Fund is a significant shareholder of the German bank.	
 	 	 	
 	• 	In March 2008, the Company provided an additional capital commitment of approximately $7.9 million in respect of an entity affiliated with Mr. Flowers in which the Company currently invests. The commitment was funded by the Company on April 11, 2008.	
 
For related party investments associated with Messrs. Flowers and Oros, as at March 31 2008, these investments accounted for 92.5% of the total unfunded capital commitments of the Company, 61.7% of the total amount of investments classified as Other Investments by the Company and 99.7% of the total write-downs in the quarter by the Company.

10.  	SEGMENT INFORMATION	
 
The determination of reportable segments is based on how senior management monitors the Company’s operations. The Company measures the results of its operations under two major business categories: reinsurance and consulting.
 
Consulting fees for the reinsurance segment are intercompany fees paid to the consulting segment. Salary and benefits for the reinsurance segment relate to the discretionary bonus expense on the net income after taxes of the reinsurance segment.
 
19

 
 
ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

10.  	SEGMENT INFORMATION — (cont’d)	

 	 	Three Months Ended March 31, 2008	 	
 	 	Reinsurance	 	 	Consulting	 	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Consulting fees	 	$	(7,248	)	 	$	13,303	 	 	$	6,055	 	
Net investment income (loss)	 	 	5,498	 	 	 	(4,908	)	 	 	590	 	
Net realized loss	 	 	(1,084	)	 	 	—	 	 	 	(1,084	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	(2,834	)	 	 	8,395	 	 	 	5,561	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net increase in loss and loss adjustment expense liabilities	 	 	685	 	 	 	—	 	 	 	685	 	
Salaries and benefits	 	 	2,062	 	 	 	9,295	 	 	 	11,357	 	
General and administrative expenses	 	 	8,289	 	 	 	3,622	 	 	 	11,911	 	
Interest expense	 	 	3,315	 	 	 	—	 	 	 	3,315	 	
Net foreign exchange gain	 	 	(963	)	 	 	(372	)	 	 	(1,335	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	13,388	 	 	 	12,545	 	 	 	25,933	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Loss before income taxes and minority interest	 	 	(16,222	)	 	 	(4,150	)	 	 	(20,372	)	
Income taxes	 	 	(1,561	)	 	 	1,800	 	 	 	239	 	
Minority interest	 	 	(3,376	)	 	 	—	 	 	 	(3,376	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Loss before extraordinary gain	 	 	(21,159	)	 	 	(2,350	)	 	 	(23,509	)	
Extraordinary gain	 	 	35,196	 	 	 	—	 	 	 	35,196	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings (loss)	 	$	14,037	 	 	$	(2,350	)	 	$	11,687	 	

 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended March 31, 2007	 	
 	 	Reinsurance	 	 	Consulting	 	 	Total	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Consulting fees	 	$	(6,198	)	 	$	10,859	 	 	$	4,661	 	
Net investment income	 	 	19,245	 	 	 	693	 	 	 	19,938	 	
Net realized gains	 	 	571	 	 	 	—	 	 	 	571	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	13,618	 	 	 	11,552	 	 	 	25,170	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net increase in loss and loss adjustment expense liabilities	 	 	2,510	 	 	 	—	 	 	 	2,510	 	
Salaries and benefits	 	 	2,864	 	 	 	9,938	 	 	 	12,802	 	
General and administrative expenses	 	 	2,305	 	 	 	3,368	 	 	 	5,673	 	
Interest expense	 	 	3,176	 	 	 	—	 	 	 	3,176	 	
Net foreign exchange loss	 	 	7	 	 	 	47	 	 	 	54	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	10,862	 	 	 	13,353	 	 	 	24,215	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings (loss) before income taxes and minority interest	 	 	2,756	 	 	 	(1,801	)	 	 	955	 	
Income taxes	 	 	(108	)	 	 	(908	)	 	 	(1,016	)	
Minority interest	 	 	(2,248	)	 	 	—	 	 	 	(2,248	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings (loss) before extraordinary gain	 	 	400	 	 	 	(2,709	)	 	 	(2,309	)	
Extraordinary gain	 	 	15,683	 	 	 	—	 	 	 	15,683	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Net earnings (loss)	 	$	16,083	 	 	$	(2,709	)	 	$	13,374	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
20

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Shareholders
of Enstar Group Limited
 
We have reviewed the accompanying condensed consolidated balance sheet of Enstar Group Limited and subsidiaries (the “Company”) as of March 31, 2008, and the related condensed consolidated statements of earnings and comprehensive income, changes in shareholders’ equity and cash flows for the three-month periods ended March 31, 2008 and 2007. These interim financial statements are the responsibility of the Company’s management.
 
We conducted our review in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
 
Based on our review, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
 
We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Enstar Group Limited and subsidiaries as of December 31, 2007 and the related consolidated statements of earnings, comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended; and in our report dated February 29, 2008, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2007 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
 
/s/ Deloitte & Touche
 
Hamilton, Bermuda
May 12, 2008
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Item 2.  	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	
 
The following is a discussion and analysis of our results of operations for the three months ended March 31, 2008 and 2007. This discussion and analysis should be read in conjunction with the attached unaudited 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, 2007.
 
Business Overview
 
Enstar Group Limited, or Enstar, was formed in August 2001 under the laws of Bermuda to acquire and manage insurance and reinsurance companies in run-off, and to provide management, consulting and other services to the insurance and reinsurance industry.
 
Since our formation, we have acquired a number of insurance and reinsurance companies and are now administering those businesses in run-off. We derive our net earnings from the ownership and management of these companies primarily by settling insurance and reinsurance claims below the recorded loss reserves and from returns on the portfolio of investments retained to pay future claims. In addition, we have formed other businesses that provide management and consultancy services, claims inspection services and reinsurance collection services to our affiliates and third-party clients for both fixed and success-based fees.
 
Recent Transactions
 
In December 2007, we, in conjunction with JCF FPK I L.P., or JCF FPK, and a newly-hired executive management team formed Shelbourne Group Limited, or Shelbourne, to invest in Reinsurance to Close or “RITC” transactions (the transferring of liabilities from one Lloyd’s Syndicate to another) with Lloyd’s of London insurance and reinsurance syndicates in run-off. JCF FPK is a joint investment program between Fox-Pitt, Kelton, Cochran Caronia & Waller, or FPKCCW, and J.C. Flowers II L.P., or the Flowers Fund. Shelbourne is a holding company of a Lloyd’s Managing Agency, Shelbourne Syndicate Services Limited. The Company owns 50.1% of Shelbourne, which in turn owns 100% of Shelbourne Syndicate Services Limited, the Managing Agency for Lloyd’s Syndicate 2008, a syndicate approved by Lloyd’s of London on December 16, 2007 to undertake RITC transactions with Lloyd’s syndicates in run-off. In February 2008, Lloyd’s Syndicate 2008 entered into RITC agreements with four Lloyd’s syndicates with total gross insurance reserves of approximately $471.2 million.
 
The Flowers Fund is a private investment fund advised by J.C. Flowers & Co. LLC. J. Christopher Flowers, a member of our board of directors and one of our largest shareholders, is the founder and Managing Member of J.C. Flowers & Co. LLC. John J. Oros, our Executive Chairman and a member of our board of directors, is a Managing Director of J.C. Flowers & Co LLC. Mr. Oros splits his time between J.C. Flowers & Co. LLC and us. In addition, an affiliate of the Flowers Fund controls approximately 41% of FPKCCW.
 
On February 29, 2008, we funded our capital commitment of approximately £36.0 million (approximately $72.0 million) by way of a letter of credit issued by a London-based bank to Lloyd’s Syndicate 2008. The letter of credit was secured by a parental guarantee from us in the amount of £12.0 million (approximately $24.0 million); approximately £11.0 million (approximately $22.0 million) from the Flowers Fund (acting in its own capacity and not through JCF FPK), by way of a non-voting equity participation; and approximately £13.0 million (approximately $26.0 million) from available cash on hand. JCF FPK’s capital commitment to Lloyd’s Syndicate 2008 is approximately £14.0 million (approximately $28.0 million).
 
On March 5, 2008, we completed the previously announced acquisition of AMP Limited’s, or AMP’s, Australian-based closed reinsurance and insurance operations, or Gordian. The purchase price, including acquisition expenses, of AU$436.9 million (approximately $405.4 million) was financed by approximately AU$301 million (approximately $276.5 million), including an arrangement fee of AU$4.5 million (approximately $4.2 million), from bank financing provided jointly by a London-based bank and a German bank, in which the Flowers Fund is a significant shareholder of the German bank; approximately AU$41.6 million (approximately $39.5 million) from the Flowers Fund, by way of non-voting equity participation; and approximately AU$98.7 million (approximately $93.6 million) from available cash on hand.
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On February 29, 2008, we completed the previously announced acquisition of Guildhall Insurance Company Limited, or Guildhall, a U.K.-based insurance and reinsurance company that has been in run-off since 1986. The purchase price, including acquisition expenses, of approximately £33.4 million (approximately $65.9 million) was financed by the drawdown of approximately £16.5 million (approximately $32.5 million) from a U.S. dollar facility loan agreement with a London-based bank; approximately £5.0 million (approximately $10.0 million) from the Flowers Fund, by way of non-voting equity participation; and approximately £11.9 million (approximately $23.4 million) from available cash on hand.
 
Results of Operations
 
The following table sets forth our selected consolidated statement of operations data for each of the periods indicated.

 	 	Three Months Ended March 31,	 	
 	 	2008	 	 	2007	 	
 	 	 	 	 	 	 	 	 	
INCOME	 	 	 	 	 	 	 	 	
Consulting fee income	 	$	6,055	 	 	$	4,661	 	
Net investment income	 	 	590	 	 	 	19,938	 	
Net realized (losses)/gains	 	 	(1,084	)	 	 	571	 	
 	 	 	 	 	 	 	 	 	
TOTAL INCOME	 	 	5,561	 	 	 	25,170	 	
EXPENSES	 	 	 	 	 	 	 	 	
Net increase in loss and loss adjustment expense liabilities	 	 	685	 	 	 	2,510	 	
Salaries and benefits	 	 	11,357	 	 	 	12,802	 	
General and administrative expenses	 	 	11,911	 	 	 	5,673	 	
Interest expense	 	 	3,315	 	 	 	3,176	 	
Foreign exchange (gain) loss	 	 	(1,335	)	 	 	54	 	
 	 	 	 	 	 	 	 	 	
TOTAL EXPENSES	 	 	25,933	 	 	 	24,215	 	
 	 	 	 	 	 	 	 	 	
(Loss) earnings before income taxes and minority interest	 	 	(20,372	)	 	 	955	 	
Income tax expense	 	 	239	 	 	 	(1,016	)	
Minority interest	 	 	(3,376	)	 	 	(2,248	)	
 	 	 	 	 	 	 	 	 	
Loss before extraordinary gain	 	 	(23,509	)	 	 	(2,309	)	
Extraordinary gain — negative goodwill (net of minority interest)	 	 	35,196	 	 	 	15,683	 	
 	 	 	 	 	 	 	 	 	
NET EARNINGS	 	$	11,687	 	 	$	13,374	 	

Comparison of the Three Months Ended March 31, 2008 and 2007
 
We reported consolidated net earnings of approximately $11.7 million for the three months ended March 31, 2008 compared to approximately $13.4 million for the same period in 2007. Included as part of net earnings for 2008 and 2007 are extraordinary gains related to negative goodwill of $35.2 million (net of minority interest of $15.1 million) and $15.7 million, respectively. The increased loss, before extraordinary gain, of approximately $21.2 million was primarily a result of the following:

 	(i) 	a decrease in investment income (net of realized (losses)/gains) of $21.0 million, primarily due to write-downs of $26.2 million in respect of adjustments to the fair values of our investments classified as other investments;	
 	 	 	
 	(ii) 	a net increase in salaries and general and administrative expenses of $4.8 million, primarily as a result of bank loan structure fees;	
 	 	 	
 	(iii) 	an increase in minority interest of $1.1 million; partially offset by	
 	 	 	
 	(iv) 	a decrease in income tax expense of $1.3 million;	

23

 

 	(v) 	increased consulting fee income of $1.4 million; and	
 	 	 	
 	(vi) 	a lower increase in loss and loss adjustment expense liabilities of $1.8 million.	
 
Consulting Fees:

 	 	Three Months Ended March 31,	 	
 	 	2008	 	 	2007	 	 	Variance	 	
 	 	(in thousands of U.S. dollars)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Consulting	 	$	13,303	 	 	$	10,859	 	 	$	2,444	 	
Reinsurance	 	 	(7,248	)	 	 	(6,198	)	 	 	(1,050	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	6,055	 	 	$	4,661	 	 	$	1,394	 	

We earned consulting fees of approximately $6.1 million and $4.7 million for the three months ended March 31, 2008 and 2007, respectively. The increase in consulting fees primarily relates to new business.
 
Internal management fees of $7.2 million and $6.2 million were paid in the quarters ended March 31, 2008 and 2007, respectively, by our reinsurance companies to our consulting companies. The increase in internal fees paid to the consulting segment was due primarily to increased use of internal audit and collection services along with fees paid by reinsurance companies that were acquired subsequent to March 31, 2007.
 
Net Investment Income and Net Realized Gains/(Losses):

 	 	Three Months Ended March 31,	 	
 	 	Net Investment Income	 	 	 	 	 	Net Realized Gains/(Losses)	 	 	 	 	
 	 	2008	 	 	2007	 	 	Variance	 	 	2008	 	 	2007	 	 	Variance	 	
 	 	(in thousands of U.S. dollars)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Consulting	 	$	(4,908	)	 	$	693	 	 	$	(5,601	)	 	$	—	 	 	$	—	 	 	$	—	 	
Reinsurance	 	 	5,498	 	 	 	19,245	 	 	 	(13,747	)	 	 	(1,084	)	 	 	571	 	 	 	(1,655	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	590	 	 	$	19,938	 	 	$	(19,348	)	 	$	(1,084	)	 	$	571	 	 	$	(1,655	)	

Net investment income for the three months ended March 31, 2008 decreased by $19.3 million to $0.6 million, as compared to $19.9 million for the same period in 2007. The decrease was primarily attributable to cumulative writedowns of approximately $26.2 million in the fair value of our investments in New NIB, the Flowers Fund, Affirmative Insurance LLC and GSC Partners LP. The writedowns arose primarily due to subprime and structured credit related exposures held within various of the limited partnerships portfolio investments.
 
The average return on the cash and fixed maturities investments for the three months ended March 31, 2008 was 3.24%, as compared to the average return of 5.31% for the three months ended March 31, 2007. The decrease in yield was primarily the result of the decreasing U.S. interest rates — the U.S. Federal funds rate has decreased from 4.25% on January 1, 2008 to 2.25% on March 31, 2008 — partially offset by an increase in cash and cash equivalent amounts held by us.
 
Net realized (losses) gains for the three months ended March 31, 2008 and 2007 were $(1.1) million and $0.6 million, respectively. Based on our current investment strategy, we do not expect net realized gains and losses to be significant.
 
Fair Value Measurements
 
On January 1, 2008, we adopted FAS 157, Fair Value Measurements (“FAS 157”), which defines fair value as the price that would be received to sell an asset or paid to transfer a liability (i.e. the “exit price”) in an orderly transaction between market participants at the measurement date. Refer to Note 1 of our Consolidated Financial Statements for a further discussion of this new standard.
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The following is a summary of valuation techniques or models we use to measure fair value by asset and liability classes, which have not changed significantly since December 31, 2007.
 
Fixed Maturity Investments
 
Our fixed maturity portfolio is managed by three investment advisors. Through these third parties, we use nationally recognized pricing services, including pricing vendors, index providers and broker-dealers to estimate fair value measurements for all of our fixed maturity investments. These pricing services include Lehman Index, Reuters Pricing Service, FT Interactive Data and others.
 
The pricing service uses market quotations for securities (e.g., public common and preferred securities) that have quoted prices in active markets. When quoted market prices are unavailable, the pricing service prepares estimates of fair value measurements for these securities using its proprietary pricing applications which include available relevant market information, benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing.
 
With the exception of one security held within our trading portfolio, the fair value estimates of our fixed maturity investments are based on observable market data. We have therefore included these as Level 2 investments within the fair value hierarchy. The one security in our trading portfolio that does not have observable inputs has been included as a Level 3 investment within the fair value hierarchy.
 
To validate the techniques or models used by the pricing services, we compare the fair value estimates to our knowledge of the current market and will challenge any prices deemed not to be representative of fair value.
 
Further, on a quarterly basis, we evaluate whether the fair value of a fixed maturity security is other-than-temporarily impaired when its fair value is below amortized cost. To make this assessment we consider several factors including (i) the time period during which there has been a decline below cost, (ii) the extent of the decline below cost, (iii) our intent and ability to hold the security, (iv) the potential for the security to recover in value, (v) an analysis of the financial condition of the issuer, and (vi) an analysis of the collateral structure and credit support of the security, if applicable. If we conclude a security is other-than-temporarily impaired, we write down the amortized cost of the security to fair value, with a charge to net realized investment gains (losses) in the Consolidated Statement of Operations.
 
Equity securities
 
Our equity securities are managed by an external advisor. Through this third party, we use nationally recognized pricing services, including pricing vendors, index providers and broker-dealers to estimate fair value measurements for all of our equity securities. These pricing services include FT Interactive Data and others.
 
We have categorized all of our equity securities as Level 1 investments as they are based on quoted prices in active markets for identical assets or liabilities.
 
Other Investments
 
For our investments in limited partnerships, limited liability companies and equity funds, we measure fair value by obtaining the most recently published net asset value as advised by the external fund manager or third party administrator. The financial statements of each fund generally are audited annually, using fair value measurement for the underlying investments. For all public companies within the funds we have valued the investments based on the latest share price. Affirmative Investment LLC’s value is based on the market value of the shares of Affirmative Insurance Holdings, Inc.
 
All of our other investments relating to our investments in limited partnerships and limited liability companies are subject to restrictions on redemptions and sales which are determined by the governing documents and limit our ability to liquidate those investments in the short term. We have classified our other investments as Level 3 investments as they reflect our own assumptions about assumptions that market participants might use.
 
For the three months ended March 31, 2008, we incurred a $26.5 million loss in fair value on our other investments. This unrealized loss was included in our net investment income.
25

 
The following table summarizes all of our financial assets and liabilities measured at fair value at March 31, 2008, by FAS 157 hierarchy:

 	 	Quoted Prices in
	 	 	Significant
	 	 	Significant
	 	 	 	 	
 	 	Active Markets for
	 	 	Other Observable
	 	 	Unobservable
	 	 	 	 	
 	 	Identical Assets
	 	 	Inputs
	 	 	Inputs
	 	 	Total Fair
	 	
 	 	(Level 1)	 	 	(Level 2)	 	 	(Level 3)	 	 	Value	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Assets	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Fixed maturity investments	 	$	—	 	 	$	953,853	 	 	$	1,051	 	 	$	954,904	 	
Equity securities	 	 	4,615	 	 	 	—	 	 	 	—	 	 	 	4,615	 	
Other investments	 	 	—	 	 	 	—	 	 	 	105,391	 	 	 	105,391	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	4,615	 	 	$	953,853	 	 	$	106,442	 	 	$	1,064,910	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
As a percentage of total assets	 	 	0.1	%	 	 	23.9	%	 	 	2.7	%	 	 	26.7	%	
 
Net Increase in Loss and Loss Adjustment Expense Liabilities:
 
The net increase in loss and loss adjustment expense liabilities for the three months ended March 31, 2008 and 2007 were $0.7 million and $2.5 million, respectively. For 2008, the increase was attributable to an increase in bad debt provisions of $1.3 million, the amortization, over the estimated payout period, of fair value adjustments relating to companies acquired amounting to $6.5 million, partially offset by the reduction in estimates of loss adjustment expense liabilities of $7.1 million, to reflect 2008 run-off activity. For 2007, the increase was attributable to an increase in estimates of ultimate losses of $2.2 million, the amortization, over the estimated payout period, of fair value adjustments relating to companies acquired amounting to $5.6 million, partially offset by the reduction in estimates of loss adjustment expense liabilities of $5.3 million to reflect 2007 run-off activity. The increase in estimates of ultimate losses of $2.2 million resulted from the commutation of one of our largest reinsurance receivables.
 
The following table shows the components of the movement in the net increase in loss and loss adjustment expense liabilities for the three months ended March 31, 2008 and 2007.

 	 	Three Months Ended March 31,	 	
 	 	2008	 	 	2007	 	
 	 	(in thousands of U.S. dollars)	 	
 	 	 	 	 	 	 	 	 	
Net Losses Paid	 	$	(3,375	)	 	$	(523	)	
Net Change in Case and LAE Reserves	 	 	4,542	 	 	 	8,167	 	
Net Change in IBNR	 	 	(482	)	 	 	(5,134	)	
 	 	 	 	 	 	 	 	 	
Net Reduction in Loss and Loss Adjustment	 	 	 	 	 	 	 	 	
Expense Liabilities	 	$	685	 	 	$	2,510	 	

The table below provides a reconciliation of the beginning and ending reserves for losses and loss adjustment expenses for the three months ended March 31, 2008 and March 31, 2007. Losses incurred and paid are reflected net of reinsurance recoverables.
 
26

 
 	 	 	 	 	 	 	 	 	
 	 	Three Months Ended March 31,	 	
 	 	2008	 	 	2007	 	
 	 	(in thousands of U.S. dollars)	 	
 	 	 	 	 	 	 	 	 	
Balance as of January 1	 	$	1,591,449	 	 	$	1,214,419	 	
Less: Reinsurance recoverables	 	 	427,964	 	 	 	342,160	 	
 	 	 	 	 	 	 	 	 	
 	 	 	1,163,485	 	 	 	872,259	 	
Incurred Related to Prior Years	 	 	685	 	 	 	2,510	 	
Paids Related to Prior Years	 	 	3,375	 	 	 	523	 	
Effect of Exchange Rate Movement	 	 	9,413	 	 	 	1,361	 	
Retroactive Reinsurance Contracts Assumed	 	 	394,913	 	 	 	—	 	
Acquired on Acquisition of Subsidiaries	 	 	465,887	 	 	 	428,921	 	
 	 	 	 	 	 	 	 	 	
Net balance as at March 31	 	$	2,037,758	 	 	$	1,305,574	 	
Plus: Reinsurance recoverables	 	 	662,929	 	 	 	316,487	 	
 	 	 	 	 	 	 	 	 	
Balance as at March 31	 	$	2,700,687	 	 	$	1,622,061	 	

Salaries and Benefits:

 	 	Three Months Ended March 31,	 	
 	 	2008	 	 	2007	 	 	Variance	 	
 	 	(in thousands of U.S. dollars)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Consulting	 	$	9,295	 	 	$	9,938	 	 	$	643	 	
Reinsurance	 	 	2,062	 	 	 	2,864	 	 	 	802	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	11,357	 	 	$	12,802	 	 	$	1,445	 	

Salaries and benefits, which include expenses relating to our discretionary bonus and employee share plans, were $11.4 million and $12.8 million for the three months ended March 31, 2008 and 2007, respectively. The decrease in the salaries and benefits for the consulting segment was due primarily to the payment of a special bonus in 2007 to John J. Oros and Nimrod T. Frazer, totaling $2.0 million, in recognition of their contributions to the successful completion of the merger between us and The Enstar Group, Inc. and the reduction in stock based compensation expense from $1.7 million to $0.2 million for the three months ended March 31, 2007 compared to 2008. These expense reductions were offset by the growth in staff numbers from 200 as at March 31, 2007 to 253 as at March 31, 2008 following our expansion during 2007 and 2008.
 
We expect that staff costs will continue to increase moderately during 2008 as we continue to grow and add staff. Bonus accrual expenses will be variable and dependent on our overall profitability.
 
General and Administrative Expenses:

 	 	Three Months Ended March 31,	 	
 	 	2008	 	 	2007	 	 	Variance	 	
 	 	(in thousands of U.S. dollars)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Consulting	 	$	3,622	 	 	$	3,368	 	 	$	(254	)	
Reinsurance	 	 	8,289	 	 	 	2,305	 	 	 	(5,984	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	11,911	 	 	$	5,673	 	 	$	(6,238	)	

General and administrative expenses attributable to the consulting segment increased by $0.3 million during the three months ended March 31, 2008, as compared to the three months ended March 31, 2007.
 
General and administrative expenses attributable to the reinsurance segment increased by $6.0 million during the three months ended March 31, 2008, as compared to the three months ended March 31, 2007. The increased costs for the current period relate primarily to additional expenses of $4.5 million relating to bank loan structure
27

 
fees incurred in respect of acquisitions completed during the three months ended March 31, 2008 along with increased costs of approximately $1.1 million incurred by companies acquired subsequent to March 31, 2007.
 
Interest Expense:

 	 	Three Months Ended March 31,	 	
 	 	2008	 	 	2007	 	 	Variance	 	
 	 	(in thousands of U.S. dollars)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Consulting	 	$	—	 	 	$	—	 	 	$	—	 	
Reinsurance	 	 	3,315	 	 	 	3,176	 	 	 	(139	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	3,315	 	 	$	3,176	 	 	$	(139	)	

Interest expense of $3.3 million and $3.2 million was recorded for the three months ended March 31, 2008 and 2007, respectively. The increase in interest expense is attributable to the increase in bank borrowings used in the funding of acquisitions subsequent to March 31, 2007, primarily in relation to the Gordian and Guildhall acquisitions.
 
Minority Interest:

 	 	Three Months Ended March 31	 	
 	 	2008	 	 	2007	 	 	Variance	 	
 	 	(in thousands of U.S. dollars)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Consulting	 	$	—	 	 	$	—	 	 	$	—	 	
Reinsurance	 	 	(3,376	)	 	 	(2,248	)	 	 	(1,128	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	(3,376	)	 	$	(2,248	)	 	$	(1,128	)	

We recorded a minority interest in earnings of $3.4 million and $2.2 million for the three months ended March 31, 2008 and 2007, respectively. The total for the three months ended March 31, 2008 relates to the minority economic interest held by third parties in the earnings of Gordian, Guildhall, Shelbourne and Hillcot Holdings Ltd. For the same period in 2007, the minority interest related to Hillcot Holdings Ltd.
 
Negative Goodwill:

 	 	Three Months Ended March 31	 	
 	 	2008	 	 	2007	 	 	Variance	 	
 	 	(in thousands of U.S. dollars)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Consulting	 	$	—	 	 	$	—	 	 	$	—	 	
Reinsurance	 	 	35,196	 	 	 	15,683	 	 	 	19,513	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Total	 	$	35,196	 	 	$	15,683	 	 	$	19,513	 	

Negative goodwill of $35.2 million and $15.7 million, was recorded for the three months ended March 31, 2008 and 2007, respectively. For the three months ended March 31, 2008 the negative goodwill of $35.2 million, net of minority interest of $15.1 million, was earned in connection with our acquisition of Gordian and represents the excess of the cumulative fair value of net assets acquired of $455.7 million over the cost of $405.4 million. This excess has, in accordance with SFAS 141 “Business Combinations,” been recognized as an extraordinary gain. The 2008 negative goodwill arose primarily as a result of income earned by Gordian between the date of the balance sheet on which the agreed purchase price was based, June 30, 2007, and the date the acquisition closed, March 5, 2008, and the desire of the vendors to achieve a substantial reduction in regulatory capital requirements and therefore to dispose of Gordian at a discount to fair value.
 
For the three months ended March 31, 2007 the negative goodwill of $15.7 million was earned in connection with our acquisition of Inter-Ocean and represents the excess of the cumulative fair value of net assets acquired of $73.2 million over the cost of $57.5 million. The negative goodwill arose primarily as a result of the strategic desire
28

 
of the vendors to achieve an exit from such operations and therefore to dispose of the companies at a discount to fair value.
 
Liquidity and Capital Resources
 
As we are a holding company and have no substantial operations of our own, our assets consist primarily of our investments in subsidiaries. The potential sources of cash flows to us consist of dividends, advances and loans from our subsidiary companies.
 
Our future cash flows depend upon the availability of dividends or other statutorily permissible payments from our subsidiaries. The ability to pay dividends and make other distributions is limited by the applicable laws and regulations of the jurisdictions in which our insurance and reinsurance subsidiaries operate, including Bermuda, the United Kingdom, Australia and Europe, which subject our subsidiaries to significant regulatory restrictions. These laws and regulations require, among other things, certain of our insurance and reinsurance subsidiaries to maintain minimum solvency requirements and limit the amount of dividends and other payments that these subsidiaries can pay to us, which in turn may limit our ability to pay dividends and make other payments.
 
Our capital management strategy is to preserve sufficient capital to enable us to make future acquisitions while maintaining a conservative investment strategy. We believe that restrictions on liquidity resulting from restrictions on the payments of dividends by our subsidiary companies will not have a material impact on our ability to meet our cash obligations.
 
Our sources of funds primarily consist of the cash and investment portfolios acquired on the completion of the acquisition of an insurance or reinsurance company in run-off. These acquired cash and investment balances are classified as cash provided by investing activities. We expect to use these funds acquired, together with collections from reinsurance debtors, consulting income, investment income and proceeds from sales and redemption of investments, to pay losses and loss expenses, salaries and benefits and general and administrative expenses, with the remainder used for acquisitions, additional investments and, in the past, for dividend payments to shareholders. We expect that our reinsurance segment will have a net use of cash from operations as total net claim settlements and operating expenses will generally be in excess of investment income earned. We expect that our consulting segments operating cash flows will generally be breakeven. We expect our operating cash flows, together with our existing capital base and cash and investments acquired on the acquisition of our insurance and reinsurance subsidiaries, to be sufficient to meet cash requirements and to operate our business. We currently do not intend to pay cash dividends on our ordinary shares.
 
Operating
 
Net cash provided by our operating activities for the three months ended March 31, 2008 was $374.4 million compared to $123.6 million for the three months ended March 31, 2007. This increase in cash flows is attributable to net assets assumed on retro-active reinsurance contracts and higher consulting fee income, partially offset by the purchases of trading security investments held by us and higher general and administrative and interest expenses, for the three months ended March 31, 2008 as compared to the same period in 2007.
 
Investing
 
Investing cash flows consist primarily of cash acquired net of acquisitions along with net proceeds on the sale and purchase of investments. Net cash (used in) provided by investing activities was $(243.2) million during the three months ended March 31, 2008 compared to $77.1 million during the three months ended March 31, 2007. The decrease in the cash flows was due to the increase in restricted cash and available for sale securities acquired in relation to the acquisition during the three months ended March 31, 2008 and the decrease in cash acquired on purchase of subsidiaries during the three months ended March 31, 2008 as compared to the same period of 2007.
 
Financing
 
Net cash provided by financing activities was $354.2 million during the three months ended March 31, 2008 compared to $9.6 million during the three months ended March 31, 2007. Cash provided by financing activities in
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2008 was primarily attributable to the combination of the receipt of bank loans and capital contributions by minority interest shareholders relating to the purchase of Guildhall, Gordian and the financing of Shelbourne.
 
Long-Term Debt
 
On February 18, 2008, we fully repaid the outstanding principal and accrued interest on the loans used to partially finance the acquisitions of Cavell Holdings (U.K.), Marlon Insurance Company Limited and Marlon Management Services Limited totaling $40.5 million.
 
In February 2008, a wholly-owned subsidiary of Enstar, Cumberland Holdings Limited, or Cumberland, entered into a term facility agreement jointly with a London-based bank and a German bank, or the Cumberland Facility. On March 4, 2008, we drew down AU$215.0 million (approximately $197.5 million) from the Facility A Commitment, or Facility A, and AU$86.0 million (approximately $79.0 million) from the Facility B Commitment, or Facility B, to partially fund the Gordian acquisition.

 	• 	The interest rate on Facility A is LIBOR plus 2%. Facility A is repayable in five years and is secured by a first charge over Cumberland’s shares in Gordian. Facility A contains various financial and business covenants, including limitations on liens on the stock of restricted subsidiaries, restrictions as to the disposition of the stock of restricted subsidiaries and limitations on mergers and consolidations. As of March 31, 2008, all of the financial covenants relating to Facility A were met.	
 	 	 	
 	• 	The interest rate on Facility B is LIBOR plus 2.75%. Facility B is repayable in six years and is secured by a first charge over Cumberland’s shares in Gordian. Facility B contains various financial and business covenants, including limitations on liens on the stock of restricted subsidiaries, restrictions as to the disposition of the stock of restricted subsidiaries and limitations on mergers and consolidations. As of March 31, 2008, all of the financial covenants relating to Facility B were met.	
 
In February 2008, a wholly-owned subsidiary of Enstar, Rombalds Limited, or Rombalds, entered into a term facility agreement with a London-based bank, or the Rombalds Facility. On February 28, 2008, we drew down $32.5 million from the Rombalds Facility to partially fund the acquisition of Guildhall. The interest rate on the Rombalds Facility is LIBOR plus 2%. The facility is repayable in five years and is secured by a first charge over Rombalds’ shares in Guildhall. The Rombalds Facility contains various financial and business covenants, including limitations on liens on the stock of restricted subsidiaries, restrictions as to the disposition of the stock of restricted subsidiaries and limitations on mergers and consolidations. As of March 31, 2008, all of the financial covenants relating to the Rombalds Facility were met.
 
On May 6, 2008, we fully repaid outstanding principal and accrued interest on the loan used to partially finance the acquisition of Brampton Insurance Company Limited totaling $19.9 million.
 
Aggregate Contractual Obligations
 
The following table shows our aggregate contractual obligations by time period remaining to due date as at March 31, 2008.

 	 	 	 	 	Less Than
	 	 	1-3
	 	 	3-5
	 	 	More Than
	 	
Payments due by period:	 	Total	 	 	1 Year	 	 	Years	 	 	Years	 	 	5 Years	 	
 	 	 	 	 	(in millions of U.S. dollars)	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Contractual Obligations	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Investment commitments	 	$	62.3	 	 	$	24.6	 	 	$	35.5	 	 	$	1.8	 	 	$	0.4	 	
Operating lease obligations	 	 	7.8	 	 	 	1.3	 	 	 	3.6	 	 	 	1.8	 	 	 	1.1	 	
Loan repayments	 	 	327.2	 	 	 	19.4	 	 	 	—	 	 	 	229.3	 	 	 	78.5	 	
Gross reserves for losses and loss expenses	 	 	2,700.7	 	 	 	272.1	 	 	 	831.9	 	 	 	620.7	 	 	 	976.0	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	$	3,098.0	 	 	$	317.4	 	 	$	871.0	 	 	$	853.6	 	 	$	1,056.0	 	

The amounts included in net reserves for losses and loss adjustment expenses reflect the estimated timing of expected loss payments on known claims and anticipated future claims. Both the amount and timing of cash flows
30

 
are uncertain and do not have contractual payout terms. For a discussion of these uncertainties, see our 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, 2007.
 
We have an accrued liability of approximately $12.5 million for unrecognized tax benefits as of March 31, 2008. We are not able to make reasonably reliable estimates of the period in which any cash settlements that may arise with any of the respective tax authorities would be made. Therefore the liability for unrecognized tax benefits is not included in the table above.
 
Commitments and Contingencies
 
On March 28, 2008, we committed to subscribe for our pro-rata share of the rights offering in New NIB Partners L.P., or New NIB. Our total commitment was €5.0 million (approximately $7.9 million) and was paid to New NIB on April 11, 2008.
 
As at March 31, 2008, we guaranteed the obligations of two of our subsidiaries in respect of letters of credit issued on their behalf by London-based banks in the amount of £19.5 million (approximately $38.7 million) in respect of capital commitments to Lloyd’s Syndicate 2008 and insurance contract requirements of one of the subsidiaries. The guarantees will be triggered should losses incurred by the subsidiaries exceed available cash on hand resulting in the letters of credit being drawn. As at March 31, 2008, we have not recorded any liabilities associated with the guarantees.
 
Critical Accounting Estimates
 
Our critical accounting estimates are discussed in Management’s Discussion and Analysis of Results of Operations and Financial Condition contained in our Annual Report on Form 10-K for the year ended December 31, 2007.
 
Off-Balance Sheet and Special Purpose Entity Arrangements
 
At March 31, 2008, we have not entered into any off-balance sheet arrangements, as defined by Item 303(a)(4) of Regulation S-K.
 
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,” 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 and incorporated by reference 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;	
 	 	 	
 	• 	the adequacy of our loss reserves and the need to adjust such reserves as claims develop over time;	
 	 	 	
 	• 	risks relating to the availability and collectibility of our reinsurance;	

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 	• 	tax, regulatory or legal restrictions or limitations applicable to us or the insurance and reinsurance business generally;	
 	 	 	
 	• 	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;	
 	 	 	
 	• 	loss of key personnel;	
 	 	 	
 	• 	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;	
 	 	 	
 	• 	risks that we may require additional capital in the future which may not be available or may be available only on unfavorable terms;	
 	 	 	
 	• 	the risk that 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;	
 	 	 	
 	• 	changes in Bermuda law or regulation or the political stability of Bermuda;	
 	 	 	
 	• 	changes in regulations or tax laws 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;	
 	 	 	
 	• 	losses due to foreign currency exchange rate fluctuations;	
 	 	 	
 	• 	changes in accounting policies or practices; and	
 	 	 	
 	• 	changes in economic conditions, including interest rates, inflation, currency exchange rates, equity markets and credit conditions which could affect our investment portfolio.	
 
The factors listed above should not be 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 fiscal year ended December 31, 2007, filed with the SEC on February 29, 2008, as well as in the materials filed and to be filed with the SEC. We undertake no obligation to publicly update or review any forward looking statement, whether as a result of new information, future developments or otherwise.

Item 3.  	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	
 
Our balance sheets include a substantial amount of assets and to a lesser extent liabilities whose fair values are subject to market risks. Market risk represents the potential for an economic loss due to adverse changes in the fair value of a financial instrument. Our most significant market risks are primarily associated with changes in interest rates and foreign currency exchange rates. The following provides analysis on the potential effects that these market risk exposures could have on the future earnings.
 
Interest Rate Risk
 
We have calculated the effect that an immediate parallel shift in the U.S. interest rate yield curve would have on our investments at March 31, 2008. The modeling of this effect was performed on our investments classified as either trading or available-for-sale, as a shift in the yield curve would not have an impact on our fixed income
32

 
investments classified as held to maturity because they are carried at purchase cost adjusted for amortization of premiums and discounts. The results of this analysis are summarized in the table below.
 
Interest Rate Movement Analysis

 	 	 	 	 	Interest Rate Shift in Basis Points	 	 	 	 	
 	 	-50	 	 	-25	 	 	0	 	 	+25	 	 	+50	 	
 	 	(in thousands of U.S. dollars)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Market Value	 	$	725,690	 	 	$	677,182	 	 	$	628,673	 	 	$	580,164	 	 	$	531,656	 	
Market Value Change from Base	 	 	15.0	%	 	 	8.0	%	 	 	0.0	%	 	 	(8.0	)%	 	 	(15.0	)%	
Change in Unrealized Value	 	$	97,017	 	 	$	48,509	 	 	$	—	 	 	$	(48,509	)	 	$	(97,017	)	
 
As a holder of fixed income securities we also have exposure to credit risk. In an effort to minimize this risk, our investment guidelines have been defined to ensure that the fixed income portfolio is invested in high-quality securities. As of March 31, 2008, approximately 89.9% of our fixed income investment portfolio was rated AA- or better by Standard & Poor’s.
 
Effects of Inflation
 
We do not believe that inflation has had a material effect on our consolidated results of operations. Loss reserves are established to recognize likely loss settlements at the date payment is made. Those reserves inherently recognize the anticipated effects of inflation. The actual effects of inflation on our results cannot be accurately known, however, until claims are ultimately resolved.
 
Foreign Currency Risk
 
Through our subsidiaries, we conduct business in a variety of non-U.S. currencies, the principal exposures being in the currencies set out in the table below. Assets and liabilities denominated in foreign currencies are exposed to changes in currency exchange rates. As our functional currency is the U.S. Dollar, exchange rate fluctuations may materially impact our results of operations and financial position. We currently do not use foreign currency hedges to manage our foreign currency exchange risk. We, where possible, manage our exposure to foreign currency exchange risk by broadly matching our non-U.S. Dollar denominated assets against our non-U.S. Dollar denominated liabilities. This matching process is done quarterly in arrears and therefore any mismatches occurring in the period may give rise to foreign exchange gains and losses, which could adversely affect our operating results. We are, however, required to maintain assets in non-U.S. Dollars to meet certain local country branch requirements, which restricts our ability to manage these exposures through the matching of our assets and liabilities.
 
The table below summarizes our gross and net exposure as of March 31, 2008 to foreign currencies:

 	 	GBP	 	 	Euro	 	 	AUD	 	 	CDN	 	 	Other	 	 	Total	 	
 	 	(in millions of U.S. dollars)	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Total Assets	 	$	1,087.6	 	 	$	146.7	 	 	$	221.7	 	 	$	18.4	 	 	$	25.0	 	 	$	1,499.4	 	
Total Liabilities	 	 	900.0	 	 	 	143.7	 	 	 	89.8	 	 	 	7.3	 	 	 	24.4	 	 	 	1,165.2	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net Foreign Currency Exposure	 	$	187.6	 	 	$	3.0	 	 	$	131.9	 	 	$	11.1	 	 	$	0.6	 	 	$	334.2	 	

Excluding any tax effects, as of March 31, 2008, a 10% change in the U.S. Dollar relative to the other currencies held by us would have resulted in a $33.4 million change in the net assets held by us.
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Item 4.  	CONTROLS AND PROCEDURES	
 
Evaluation of Disclosure Controls and Procedures
 
Our management has performed an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of March 31, 2008. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information that we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and is accumulated and communicated to management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
 
Changes in Internal Controls
 
Our management has performed an evaluation, with the participation of our Chief Executive Officer and our Chief Financial Officer, of changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2008. Based upon that evaluation there were no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION

Item 1.  	LEGAL PROCEEDINGS	
 
We are, from time to time, involved in various legal proceedings in the ordinary course of business, including litigation regarding claims. We do not believe that the resolution of any currently pending legal proceedings, either individually or taken as a whole, will have a material adverse effect on our business, results of operations or financial condition. Nevertheless, we cannot assure you that lawsuits, arbitrations or other litigation will not have a material adverse effect on our business, financial condition or results of operations. We anticipate that, similar to the rest of the insurance and reinsurance industry, we will continue to be subject to litigation and arbitration proceedings in the ordinary course of business, including litigation generally related to the scope of coverage with respect to asbestos and environmental claims. There can be no assurance that any such future litigation will not have a material adverse effect on our business, financial condition or results of operations.
 
In April 2008, we, Enstar US, Inc., our indirect subsidiary, or Enstar US, Dukes Place Limited and certain affiliates of Dukes Place, or, collectively, Dukes Place, were named as defendants in a lawsuit filed in the United States District Court for the Southern District of New York by National Indemnity Company, or NICO, an indirect subsidiary of Berkshire Hathaway. The complaint alleges, among other things, that Dukes Place, we and Enstar US: (i) interfered with the rights of NICO as reinsurer under reinsurance agreements entered into between NICO and each of Stonewall Insurance Company, or Stonewall, and Seaton Insurance Company, or Seaton, two Rhode Island domiciled insurers that are indirect subsidiaries of Dukes Place, and (ii) breached certain duties owed to NICO under management agreements between Enstar US and each of Stonewall and Seaton. The suit was filed shortly after Virginia Holdings Limited, our indirect subsidiary, or Virginia Holdings, completed a hearing before the Rhode Island Department of Business Regulation as part of Virginia Holding’s application to buy a 44.4% interest in the insurers from Dukes Place. The suit does not seek a stated amount of damages. Our management and our US legal counsel believe the claims in the suit are without merit and will not have a material impact on us or our subsidiaries. Our management intends to vigorously defend both us and Enstar US against the claims.
 
Item 1A.  RISK FACTORS
 
Our results of operations and financial condition are subject to numerous risks and uncertainties described in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007, filed with the SEC on February 29, 2008. The risk factors identified therein have not materially changed.

Item 2.  	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	
 
On January 2, 2008, we credited an aggregate of 994.177 share units to the accounts of non-employee directors under the Deferred Compensation and Ordinary Share Plan for Non-Employee Directors. Under this plan, non-employee directors electing to defer receipt of all or a portion of their compensation for service as directors until retirement or termination receive such compensation in the form of share units payable as a lump sum distribution upon termination of service. The lump sum share unit distribution will be made in the form of ordinary shares, with fractional shares paid in cash. The offer and issuance of these share units are exempt from registration under Section 4(2) of the Securities Act of 1933, or the Securities Act, and the rules and regulations thereunder, as transactions by an issuer not involving any public offering. Alternatively, registration of such shares was not required because their issuance did not involve a “sale” under Section 2(3) of the Securities Act.
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Item 6.  	EXHIBITS	

 	10	.1+	 	Enstar Group Limited Amended and Restated Employee Share Purchase Plan (incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement, as filed with the Securities and Exchange Commission on April 29, 2008).	
 	15	.1*	 	Deloitte & Touche Letter Regarding Unaudited Interim Financial Information.	
 	31	.1*	 	Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
 	31	.2*	 	Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
 	32	.1**	 	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	32	.2**	 	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	

 	 	 	
*	 	Filed herewith	
 	 	 	
**	 	Furnished herewith	
 	 	 	
+	 	Denotes management contract or compensatory arrangement	

36

 
SIGNATURE
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on May 12, 2008.
 
ENSTAR GROUP LIMITED

 	By: 	/s/  Richard J. Harris	
Richard J. Harris
Chief Financial Officer, Authorized Signatory and
Principal Accounting and Financial Officer
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EXHIBIT INDEX

Exhibit
	 	 	
No.	 	Description	
 	 	 	 	 	
 	10	.1+	 	Enstar Group Limited Amended and Restated Employee Share Purchase Plan (incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement, as filed with the Securities and Exchange Commission on April 29, 2008).	
 	15	.1*	 	Deloitte & Touche Letter Regarding Unaudited Interim Financial Information.	
 	31	.1*	 	Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
 	31	.2*	 	Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.	
 	32	.1**	 	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	
 	32	.2**	 	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	

 	 	 	
*	 	Filed herewith	
 	 	 	
**	 	Furnished herewith	
 	 	 	
+	 	Denotes management contract or compensatory arrangement	

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EXHIBIT 15.1
May 12, 2008
Enstar Group Limited
3rd Floor, Windsor Place
18 Queen Street
Hamilton HM JX, Bermuda
Attention: Richard Harris, CFO
We have reviewed, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the unaudited condensed consolidated interim financial information of Enstar Group Limited and subsidiaries for the periods ended March 31, 2008, and 2007, as indicated in our report dated May 12, 2008. As indicated in our report, because we did not perform an audit, we expressed no opinion on that information.
We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended March 31, 2008 is incorporated by reference in Registration Statement Nos. 333-149551, 333-148863, 333-148862 and 333-141793 of Enstar Group Limited on Forms S-8.
We also are aware that the aforementioned reports, pursuant to Rule 436(c) under the Securities Act of 1933, are not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act.
/s/ Deloitte & Touche
Hamilton, Bermuda

EXHIBIT 31.1
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a),
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Dominic F. Silvester, certify that:
1.	 	I have reviewed this Quarterly Report on Form 10-Q of Enstar Group Limited;	
 	 	 	
2.	 	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 	 	 	
3.	 	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
 	 	 	
4.	 	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	

 	a.	 	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 	 	 	 	
 	b.	 	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 	 	 	 	
 	c.	 	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 	 	 	 	
 	d.	 	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	

5.	 	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	

 	a.	 	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 	 	 	 	
 	b.	 	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	
Dated: May 12, 2008
 	 	 	 	 	
/s/ DOMINIC F. SILVESTER  	 	 	
Dominic F. Silvester 	 	 	
Chief Executive Officer 	 	 	

EXHIBIT 31.2
CERTIFICATION PURSUANT TO
RULE 13a-14(a)/15d-14(a),
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Richard J. Harris, certify that:
1.	 	I have reviewed this Quarterly Report on Form 10-Q of Enstar Group Limited;	
 	 	 	
2.	 	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;	
 	 	 	
3.	 	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;	
 	 	 	
4.	 	The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:	

 	a.	 	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;	
 	 	 	 	
 	b.	 	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;	
 	 	 	 	
 	c.	 	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and	
 	 	 	 	
 	d.	 	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and	

5.	 	The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):	

 	a.	 	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and	
 	 	 	 	
 	b.	 	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.	
Dated: May 12, 2008
 	 	 	 	 	
/s/ RICHARD J. HARRIS  	 	 	
Richard J. Harris 	 	 	
Chief Financial Officer 	 	 	

EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
          In connection with the Quarterly Report of Enstar Group Limited (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dominic F. Silvester, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
 	(1)	 	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	
 	 	 	 	
 	(2)	 	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	
Dated: May 12, 2008
 	 	 	 	 	
/s/ DOMINIC F. SILVESTER  	 	 	
Dominic F. Silvester 	 	 	
Chief Executive Officer 	 	 	

EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
          In connection with the Quarterly Report of Enstar Group Limited (the “Company”) on Form 10-Q for the quarterly period ended March 31, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard J. Harris, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
 	(1)	 	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and	
 	 	 	 	
 	(2)	 	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.	
Dated: May 12, 2008
 	 	 	 	 	
/s/ RICHARD J. HARRIS  	 	 	
Richard J. Harris 	 	 	
Chief Financial Officer