Table of Contents

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, 2012
OR
 
 	¨	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   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   þ          No   ¨
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 ¨	  	Non-accelerated filer ¨	 	Smaller reporting company ¨	
(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  ¨        No  þ
As of May 2, 2012, the registrant had outstanding 13,855,820 voting ordinary shares and 2,725,637 non-voting convertible ordinary shares, each par value $1.00 per share.

 

Table of Contents
Table of Contents

 	 	 	  	 	 	
PART I — FINANCIAL INFORMATION	  	 	 	 	
Item 1.	 	Financial Statements:	  	 	 	 	
 	 	Condensed Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011 (Unaudited)	  	 	3	  	
 	 	Condensed Consolidated Statements of Earnings for the Three Month Periods Ended March  31, 2012 and 2011 (Unaudited)	  	 	4	  	
 	 	Condensed Consolidated Statements of Comprehensive Income for the Three Month Periods Ended March 31, 2012 and 2011 (Unaudited)	  	 	5	  	
 	 	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three Month Periods Ended March 31, 2012 and 2011 (Unaudited)	  	 	6	  	
 	 	Condensed Consolidated Statements of Cash Flows for the Three Month Periods Ended March 31, 2012 and 2011 (Unaudited)	  	 	7	  	
 	 	Notes to the Condensed Consolidated Financial Statements (Unaudited)	  	 	8	  	
 	 	Report of Independent Registered Public Accounting Firm	  	 	28	  	
Item 2.	 	Management’s Discussion and Analysis of Financial Condition and Results of Operations	  	 	29	  	
Item 3.	 	Quantitative and Qualitative Disclosures about Market Risk	  	 	42	  	
Item 4.	 	Controls and Procedures	  	 	42	  	
 	 	
PART II — OTHER INFORMATION	  	 	 	 	
Item 1.	 	Legal Proceedings	  	 	43	  	
Item 1A.	 	Risk Factors	  	 	43	  	
Item 6.	 	Exhibits	  	 	43	  	
Signature	  	 	44	  	
 
2

Table of Contents
PART I — FINANCIAL INFORMATION
 
Item 1.	FINANCIAL STATEMENTS	
ENSTAR GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
As of March 31, 2012 and December 31, 2011

 	  	March 31,
2012	 	 	December 31,
2011	 	
 	  	(expressed in thousands of U.S.
dollars, except share data)	 	
ASSETS	  	 	 	 	 	 	 	 	
Short-term investments, trading, at fair value	  	$	317,611	  	 	$	410,269	  	
Fixed maturities, available-for-sale, at fair value (amortized cost: 2012 — $506,480; 2011 — $590,588)	  	 	518,037	  	 	 	607,316	  	
Fixed maturities, trading, at fair value	  	 	2,194,250	  	 	 	2,035,369	  	
Equities, trading, at fair value	  	 	96,060	  	 	 	89,981	  	
Other investments, at fair value	  	 	237,933	  	 	 	192,264	  	
 	  	 	 	 	 	 	 	 	
Total investments	  	 	3,363,891	  	 	 	3,335,199	  	
Cash and cash equivalents	  	 	792,815	  	 	 	850,474	  	
Restricted cash and cash equivalents	  	 	446,047	  	 	 	373,191	  	
Accrued interest receivable	  	 	28,352	  	 	 	26,924	  	
Accounts receivable	  	 	21,454	  	 	 	50,258	  	
Income taxes recoverable	  	 	11,702	  	 	 	10,559	  	
Reinsurance balances receivable	  	 	1,641,308	  	 	 	1,789,582	  	
Funds held by reinsured companies	  	 	102,093	  	 	 	107,748	  	
Goodwill	  	 	21,222	  	 	 	21,222	  	
Other assets	  	 	30,899	  	 	 	40,981	  	
 	  	 	 	 	 	 	 	 	
TOTAL ASSETS	  	$	6,459,783	  	 	$	6,606,138	  	

LIABILITIES	  	 	 	 	 	 	 	 	
Losses and loss adjustment expenses	  	$	4,138,623	  	 	$	4,282,916	  	
Reinsurance balances payable	  	 	174,746	  	 	 	208,540	  	
Accounts payable and accrued liabilities	  	 	97,181	  	 	 	75,983	  	
Income taxes payable	  	 	18,638	  	 	 	16,985	  	
Loans payable	  	 	243,101	  	 	 	242,710	  	
Other liabilities	  	 	121,879	  	 	 	95,593	  	
 	  	 	 	 	 	 	 	 	
TOTAL LIABILITIES	  	 	4,794,168	  	 	 	4,922,727	  	
 	  	 	 	 	 	 	 	 	
COMMITMENTS AND CONTINGENCIES	  	 	 	 	 	 	 	 	
SHAREHOLDERS’ EQUITY	  	 	 	 	 	 	 	 	
Share capital	  	 	 	 	 	 	 	 	
Authorized, issued and fully paid, par value $1 each (authorized 2012: 156,000,000; 2011: 156,000,000)	  	 	 	 	 	 	 	 	
Ordinary shares (issued and outstanding 2012: 13,710,291; 2011: 13,665,051)	  	 	13,710	  	 	 	13,665	  	
Non-voting convertible ordinary shares:	  	 	 	 	 	 	 	 	
Series A (issued 2012: 2,972,892; 2011: 2,972,892)	  	 	2,973	  	 	 	2,973	  	
Series B, C and D (issued and outstanding 2012: 2,725,637; 2011: 2,725,637)	  	 	2,726	  	 	 	2,726	  	
Treasury shares at cost (Series A non-voting convertible ordinary shares 2012: 2,972,892; 2011: 2,972,892)	  	 	(421,559	) 	 	 	(421,559	) 	
Additional paid-in capital	  	 	957,504	  	 	 	956,329	  	
Accumulated other comprehensive income	  	 	30,875	  	 	 	27,096	  	
Retained earnings	  	 	814,510	  	 	 	804,836	  	
 	  	 	 	 	 	 	 	 	
Total Enstar Group Limited Shareholders’ Equity	  	 	1,400,739	  	 	 	1,386,066	  	
Noncontrolling interest	  	 	264,876	  	 	 	297,345	  	
 	  	 	 	 	 	 	 	 	
TOTAL SHAREHOLDERS’ EQUITY	  	 	1,665,615	  	 	 	1,683,411	  	
 	  	 	 	 	 	 	 	 	
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	  	$	6,459,783	  	 	$	6,606,138	  	
 	  	 	 	 	 	 	 	 	
See accompanying notes to the unaudited condensed consolidated financial statements
 
3

Table of Contents
ENSTAR GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Three Month Periods Ended March 31, 2012 and 2011

 	  	Three Months Ended March 31,	 	
 	  	          2012           	 	 	          2011           	 	
 	  	(expressed in thousands of U.S.
dollars, except share and per share data)	 	
INCOME	  	 	 	 	 	 	 	 	
Consulting fees	  	$	2,194	  	 	$	4,036	  	
Net investment income	  	 	22,783	  	 	 	18,542	  	
Net realized and unrealized gains	  	 	23,042	  	 	 	3,368	  	
Gain on bargain purchase	  	 	—	  	 	 	13,105	  	
 	  	 	 	 	 	 	 	 	
 	  	 	48,019	  	 	 	39,051	  	
 	  	 	 	 	 	 	 	 	
EXPENSES	  	 	 	 	 	 	 	 	
Net reduction in ultimate loss and loss adjustment expense liabilities:	  	 	 	 	 	 	 	 	
Reduction in estimates of net ultimate losses	  	 	(3,298	) 	 	 	(2,612	) 	
Reduction in provisions for bad debt	  	 	(2,255	) 	 	 	—	  	
Reduction in provisions for unallocated loss adjustment expense liabilities	  	 	(12,852	) 	 	 	(11,537	) 	
Amortization of fair value adjustments	  	 	7,587	  	 	 	10,077	  	
 	  	 	 	 	 	 	 	 	
 	  	 	(10,818	) 	 	 	(4,072	) 	
Salaries and benefits	  	 	20,451	  	 	 	10,382	  	
General and administrative expenses	  	 	14,858	  	 	 	17,750	  	
Interest expense	  	 	2,111	  	 	 	1,966	  	
Net foreign exchange losses	  	 	2,268	  	 	 	7,334	  	
 	  	 	 	 	 	 	 	 	
 	  	 	28,870	  	 	 	33,360	  	
 	  	 	 	 	 	 	 	 	
EARNINGS BEFORE INCOME TAXES	  	 	19,149	  	 	 	5,691	  	
INCOME TAXES	  	 	(3,742	) 	 	 	(617	) 	
 	  	 	 	 	 	 	 	 	
NET EARNINGS	  	 	15,407	  	 	 	5,074	  	
Less: Net earnings attributable to noncontrolling interest	  	 	(5,733	) 	 	 	(1,571	) 	
 	  	 	 	 	 	 	 	 	
NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED	  	$	9,674	  	 	$	3,503	  	
 	  	 	 	 	 	 	 	 	
EARNINGS PER SHARE — BASIC:	  	 	 	 	 	 	 	 	
Net earnings attributable to Enstar Group Limited ordinary shareholders	  	$	0.59	  	 	$	0.27	  	
 	  	 	 	 	 	 	 	 	
EARNINGS PER SHARE — DILUTED:	  	 	 	 	 	 	 	 	
Net earnings attributable to Enstar Group Limited ordinary shareholders	  	$	0.58	  	 	$	0.26	  	
 	  	 	 	 	 	 	 	 	
Weighted average ordinary shares outstanding — basic	  	 	16,427,595	  	 	 	12,945,838	  	
Weighted average ordinary shares outstanding — diluted	  	 	16,671,710	  	 	 	13,220,332	  	
See accompanying notes to the unaudited condensed consolidated financial statements
 
4

Table of Contents
ENSTAR GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Month Periods Ended March 31, 2012 and 2011

 	  	Three Months Ended March 31,	 	
 	  	  2012  	 	 	  2011  	 	
 	  	(expressed in thousands of U.S. dollars)	 	
NET EARNINGS	  	$	15,407	  	 	$	5,074	  	
 	  	 	 	 	 	 	 	 	
Other comprehensive income, net of tax:	  	 	 	 	 	 	 	 	
Unrealized holding gains on investments arising during the period	  	 	25,015	  	 	 	8,736	  	
Reclassification adjustment for net realized and unrealized gains included in net earnings	  	 	(23,042	) 	 	 	(3,368	) 	
Decrease in defined benefit pension liability	  	 	—	  	 	 	272	  	
Currency translation adjustment	  	 	2,985	  	 	 	2,206	  	
 	  	 	 	 	 	 	 	 	
Total other comprehensive income	  	 	4,958	  	 	 	7,846	  	
 	  	 	 	 	 	 	 	 	
Comprehensive income	  	 	20,365	  	 	 	12,920	  	
Less comprehensive income attributable to noncontrolling interest	  	 	(6,913	) 	 	 	(2,514	) 	
 	  	 	 	 	 	 	 	 	
COMPREHENSIVE INCOME ATTRIBUTABLE TO ENSTAR GROUP LIMITED	  	$	13,452	  	 	$	10,406	  	
 	  	 	 	 	 	 	 	 	
See accompanying notes to the unaudited condensed consolidated financial statements
 
5

Table of Contents
ENSTAR GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the Three Month Periods Ended March 31, 2012 and 2011

 	  	Three Months Ended
March 31,	 	
 	  	2012	 	 	2011	 	
 	  	(expressed in thousands
of U.S. dollars)	 	
Share Capital — Ordinary Shares	  	 	 	 	 	 	 	 	
Balance, beginning of period	  	$	13,665	  	 	$	12,940	  	
Issue of shares	  	 	2	  	 	 	2	  	
Share awards granted/vested	  	 	43	  	 	 	42	  	
 	  	 	 	 	 	 	 	 	
Balance, end of period	  	$	13,710	  	 	$	12,984	  	
 	  	 	 	 	 	 	 	 	
Share Capital — Series A Non-Voting Convertible Ordinary Shares	  	 	 	 	 	 	 	 	
Balance, beginning and end of period	  	$	2,973	  	 	$	2,973	  	
 	  	 	 	 	 	 	 	 	
Share Capital — Series B, C and D Non-Voting Convertible Ordinary Shares	  	 	 	 	 	 	 	 	
Balance, beginning and end of period	  	$	2,726	  	 	$	—	  	
 	  	 	 	 	 	 	 	 	
Treasury Shares	  	 	 	 	 	 	 	 	
Balance, beginning and end of period	  	$	(421,559	) 	 	$	(421,559	) 	
 	  	 	 	 	 	 	 	 	
Additional Paid-in Capital	  	 	 	 	 	 	 	 	
Balance, beginning of period	  	$	956,329	  	 	$	667,907	  	
Issue of shares	  	 	152	  	 	 	126	  	
Share awards granted/vested	  	 	364	  	 	 	168	  	
Amortization of share awards	  	 	659	  	 	 	550	  	
 	  	 	 	 	 	 	 	 	
Balance, end of period	  	$	957,504	  	 	$	668,751	  	
 	  	 	 	 	 	 	 	 	
Accumulated Other Comprehensive Income Attributable to Enstar Group Limited	  	 	 	 	 	 	 	 	
Balance, beginning of period	  	$	27,096	  	 	$	35,017	  	
Foreign currency translation adjustments	  	 	1,837	  	 	 	1,595	  	
Increase in defined benefit pension liability	  	 	—	  	 	 	272	  	
Net movement in unrealized holding gains on investments	  	 	1,942	  	 	 	5,036	  	
 	  	 	 	 	 	 	 	 	
Balance, end of period	  	$	30,875	  	 	$	41,920	  	
 	  	 	 	 	 	 	 	 	
Retained Earnings	  	 	 	 	 	 	 	 	
Balance, beginning of period	  	$	804,836	  	 	$	651,143	  	
Net earnings attributable to Enstar Group Limited	  	 	9,674	  	 	 	3,503	  	
 	  	 	 	 	 	 	 	 	
Balance, end of period	  	$	814,510	  	 	$	654,646	  	
 	  	 	 	 	 	 	 	 	
Noncontrolling Interest	  	 	 	 	 	 	 	 	
Balance, beginning of period	  	$	297,345	  	 	$	267,400	  	
Return of capital	  	 	(28,132	) 	 	 	(16,200	) 	
Dividends paid	  	 	(11,250	) 	 	 	—	  	
Net earnings attributable to noncontrolling interest	  	 	5,733	  	 	 	1,571	  	
Foreign currency translation adjustments	  	 	1,148	  	 	 	611	  	
Net movement in unrealized holding gains on investments	  	 	32	  	 	 	332	  	
 	  	 	 	 	 	 	 	 	
Balance, end of period	  	$	264,876	  	 	$	253,714	  	
 	  	 	 	 	 	 	 	 	
See accompanying notes to the unaudited condensed consolidated financial statements
 
6

Table of Contents
ENSTAR GROUP LIMITED
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Month Periods Ended March 31, 2012 and 2011

 	  	Three Months Ended
March 31,	 	
 	  	2012	 	 	2011	 	
 	  	(expressed in thousands of
U.S. dollars)	 	
OPERATING ACTIVITIES:	  	 	 	 	 	 	 	 	
Net earnings	  	$	15,407	  	 	$	5,074	  	
Adjustments to reconcile net earnings to cash flows provided by operating activities:	  	 	 	 	 	 	 	 	
Gain on bargain purchase	  	 	—	  	 	 	(13,105	) 	
Net realized and unrealized investment gains	  	 	(23,042	) 	 	 	(3,368	) 	
Share of net gain from other investments	  	 	(2,340	) 	 	 	(2,993	) 	
Other items	  	 	1,653	  	 	 	(1,339	) 	
Depreciation and amortization	  	 	317	  	 	 	384	  	
Amortization of bond premiums and discounts	  	 	8,915	  	 	 	4,538	  	
Net movement of trading securities held on behalf of policyholders	  	 	5,261	  	 	 	7,110	  	
Sales and maturities of trading securities	  	 	555,018	  	 	 	374,473	  	
Purchases of trading securities	  	 	(607,978	) 	 	 	(654,563	) 	
Changes in assets and liabilities:	  	 	 	 	 	 	 	 	
Reinsurance balances receivable	  	 	148,381	  	 	 	(43,567	) 	
Other assets	  	 	43,322	  	 	 	11,793	  	
Losses and loss adjustment expenses	  	 	(145,654	) 	 	 	90,505	  	
Reinsurance balances payable	  	 	(33,831	) 	 	 	(40,079	) 	
Accounts payable and accrued liabilities	  	 	(7,123	) 	 	 	(51,265	) 	
Other liabilities	  	 	27,647	  	 	 	26,048	  	
 	  	 	 	 	 	 	 	 	
Net cash flows used in operating activities	  	 	(14,047	) 	 	 	(290,354	) 	
 	  	 	 	 	 	 	 	 	
INVESTING ACTIVITIES:	  	 	 	 	 	 	 	 	
Acquisitions, net of cash acquired	  	 	—	  	 	 	(7,949	) 	
Sales and maturities of available-for-sale securities	  	 	90,276	  	 	 	101,109	  	
Movement in restricted cash and cash equivalents	  	 	(72,856	) 	 	 	85,384	  	
Funding of other investments	  	 	(42,021	) 	 	 	(4,108	) 	
Redemption of bond funds	  	 	—	  	 	 	10,136	  	
Other investing activities	  	 	(433	) 	 	 	(143	) 	
 	  	 	 	 	 	 	 	 	
Net cash flows (used in) provided by investing activities	  	 	(25,034	) 	 	 	184,429	  	
 	  	 	 	 	 	 	 	 	
FINANCING ACTIVITIES:	  	 	 	 	 	 	 	 	
Distribution of capital to noncontrolling interest	  	 	—	  	 	 	(16,200	) 	
Dividends paid to noncontrolling interest	  	 	(11,250	) 	 	 	—	  	
Repayment of loans	  	 	—	  	 	 	(40,500	) 	
 	  	 	 	 	 	 	 	 	
Net cash flows used in financing activities	  	 	(11,250	) 	 	 	(56,700	) 	
 	  	 	 	 	 	 	 	 	
TRANSLATION ADJUSTMENT	  	 	(7,328	) 	 	 	(6,143	) 	
 	  	 	 	 	 	 	 	 	
NET DECREASE IN CASH AND CASH EQUIVALENTS	  	 	(57,659	) 	 	 	(168,768	) 	
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	  	 	850,474	  	 	 	799,154	  	
 	  	 	 	 	 	 	 	 	
CASH AND CASH EQUIVALENTS, END OF PERIOD	  	$	792,815	  	 	$	630,386	  	
 	  	 	 	 	 	 	 	 	
Supplemental Cash Flow Information	  	 	 	 	 	 	 	 	
Net income taxes (recovered) paid	  	$	(159	) 	 	$	25,254	  	
Interest paid	  	$	1,717	  	 	$	2,231	  	
See accompanying notes to the unaudited condensed consolidated financial statements
 
7

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2012 and December 31, 2011
(Tabular information expressed in thousands of U.S. dollars except share and per share data)
(unaudited)
 
1.	BASIS OF PREPARATION AND CONSOLIDATION	
The Company’s condensed consolidated financial statements have not been audited. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“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 the Company’s 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. The results of operations for any interim period are not necessarily indicative of the results for a full year. 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 should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.
Adoption of New Accounting Standards
In May 2011, the U.S. Financial Accounting Standards Board (“FASB”) issued amendments to disclosure requirements for common fair value measurement. These amendments result in a common definition of fair value and common requirements for measurement of and disclosure requirements under U.S. GAAP and International Financial Reporting Standards (“IFRS”). Consequently, the amendments change some fair value measurement principles and disclosure requirements. The Company adopted this amended accounting guidance effective January 1, 2012. The adoption of the amended guidance did not have a material impact on the consolidated financial statements.
In June 2011, FASB issued amendments to disclosure requirements for presentation of comprehensive income. This guidance requires presentation of total comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The Company adopted this amended accounting guidance effective January 1, 2012. The adoption of the amended guidance had no impact on the consolidated financial statements.
Recently Issued Accounting Standards Not Yet Adopted
In December 2011, FASB issued new disclosure requirements regarding the nature of an entity’s rights of setoff and related arrangements associated with its financial instruments and derivatives. The new disclosures are designed to make financial statements that are prepared under U.S. GAAP more comparable to those prepared under IFRS. The new disclosure requirements are effective retrospectively for annual and interim reporting periods beginning on or after January 1, 2013. The Company is currently evaluating the impact of adopting these revised disclosure requirements on the consolidated financial statements.
 
2.	RESTRICTED CASH AND CASH EQUIVALENTS	
Restricted cash and cash equivalents were $446.0 million and $373.2 million as of March 31, 2012 and December 31, 2011, respectively. The restricted cash and cash equivalents are used as collateral against letters of credit and as guarantees under trust agreements. Letters of credit and guarantees are issued to ceding insurers as security for the obligations of insurance subsidiaries under reinsurance agreements with those ceding insurers.
 
8

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
3.	INVESTMENTS	
Available-for-sale
The amortized cost and estimated fair values of the Company’s fixed maturity securities and short-term investments classified as available-for-sale were as follows:

 	  	Amortized
Cost	 	  	Gross
Unrealized
Holding
Gains	 	  	Gross
Unrealized
Holding
Losses
Non-OTTI	 	 	Fair
Value	 	
As at March 31, 2012	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
U.S. government and agency	  	$	17,720	  	  	$	514	  	  	$	(560	) 	 	$	17,674	  	
Non-U.S. government	  	 	150,477	  	  	 	4,058	  	  	 	(293	) 	 	 	154,242	  	
Corporate	  	 	296,550	  	  	 	6,235	  	  	 	(691	) 	 	 	302,094	  	
Residential mortgage-backed	  	 	12,924	  	  	 	524	  	  	 	(102	) 	 	 	13,346	  	
Commercial mortgage-backed	  	 	11,493	  	  	 	2,043	  	  	 	—	  	 	 	13,536	  	
Asset-backed	  	 	17,316	  	  	 	50	  	  	 	(221	) 	 	 	17,145	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
 	  	$	506,480	  	  	$	13,424	  	  	$	(1,867	) 	 	$	518,037	  	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	Amortized
Cost	 	  	Gross
Unrealized
Holding
Gains	 	  	Gross
Unrealized
Holding
Losses
Non-OTTI	 	 	Fair
Value	 	
As at December 31, 2011	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
U.S. government and agency	  	$	17,816	  	  	$	546	  	  	$	(433	) 	 	$	17,929	  	
Non-U.S. government	  	 	160,128	  	  	 	9,227	  	  	 	(828	) 	 	 	168,527	  	
Corporate	  	 	366,954	  	  	 	7,937	  	  	 	(2,578	) 	 	 	372,313	  	
Residential mortgage-backed	  	 	13,544	  	  	 	276	  	  	 	(108	) 	 	 	13,712	  	
Commercial mortgage-backed	  	 	12,680	  	  	 	3,044	  	  	 	(7	) 	 	 	15,717	  	
Asset-backed	  	 	19,466	  	  	 	65	  	  	 	(413	) 	 	 	19,118	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
 	  	$	590,588	  	  	$	21,095	  	  	$	(4,367	) 	 	$	607,316	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	 	 	 	 	
The following tables summarize the Company’s fixed maturity securities and short-term investments classified as available-for-sale in an unrealized loss position as well as the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position:

 	  	12 Months or Greater	 	 	Less Than 12 Months	 	 	Total	 	
As at March 31, 2012	  	Fair
Value	 	  	Unrealized
Losses	 	 	Fair
Value	 	  	Unrealized
Losses	 	 	Fair
Value	 	  	Unrealized
Losses	 	
U.S. government and agency	  	$	—	  	  	$	—	  	 	$	8,832	  	  	$	(560	) 	 	$	8,832	  	  	$	(560	) 	
Non-U.S. government	  	 	7,678	  	  	 	(59	) 	 	 	8,151	  	  	 	(234	) 	 	 	15,829	  	  	 	(293	) 	
Corporate	  	 	33,410	  	  	 	(443	) 	 	 	21,788	  	  	 	(248	) 	 	 	55,198	  	  	 	(691	) 	
Residential mortgage-backed	  	 	1,184	  	  	 	(99	) 	 	 	36	  	  	 	(3	) 	 	 	1,220	  	  	 	(102	) 	
Commercial mortgage-backed	  	 	41	  	  	 	—	  	 	 	97	  	  	 	—	  	 	 	138	  	  	 	—	  	
Asset-backed	  	 	1,868	  	  	 	(50	) 	 	 	10,258	  	  	 	(171	) 	 	 	12,126	  	  	 	(221	) 	
 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
 	  	$	44,181	  	  	$	(651	) 	 	$	49,162	  	  	$	(1,216	) 	 	$	93,343	  	  	$	(1,867	) 	

9

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3.	INVESTMENTS — (cont’d)	

 	  	12 Months or Greater	 	 	Less Than 12 Months	 	 	Total	 	
As at December 31, 2011	  	Fair
Value	 	  	Unrealized
Losses	 	 	Fair
Value	 	  	Unrealized
Losses	 	 	Fair
Value	 	  	Unrealized
Losses	 	
U.S. government and agency	  	$	—	  	  	$	—	  	 	$	8,318	  	  	$	(433	) 	 	$	8,318	  	  	$	(433	) 	
Non-U.S. government	  	 	14,982	  	  	 	(466	) 	 	 	16,305	  	  	 	(362	) 	 	 	31,287	  	  	 	(828	) 	
Corporate	  	 	47,197	  	  	 	(1,367	) 	 	 	54,106	  	  	 	(1,211	) 	 	 	101,303	  	  	 	(2,578	) 	
Residential mortgage-backed	  	 	1,299	  	  	 	(105	) 	 	 	36	  	  	 	(3	) 	 	 	1,335	  	  	 	(108	) 	
Commercial mortgage-backed	  	 	—	  	  	 	—	  	 	 	215	  	  	 	(7	) 	 	 	215	  	  	 	(7	) 	
Asset-backed	  	 	7,577	  	  	 	(187	) 	 	 	6,491	  	  	 	(226	) 	 	 	14,068	  	  	 	(413	) 	
 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
 	  	$	71,055	  	  	$	(2,125	) 	 	$	85,471	  	  	$	(2,242	) 	 	$	156,526	  	  	$	(4,367	) 	
 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
As at March 31, 2012 and December 31, 2011, the number of securities classified as available-for-sale in an unrealized loss position was 77 and 107, respectively, with a fair value of $93.3 million and $156.5 million, respectively. Of these securities, the number of securities that had been in an unrealized loss position for twelve months or longer was 41 and 59, respectively. As of March 31, 2012, none of these securities were considered to be other than temporarily impaired. The Company has no intent to sell, and it is not more likely than not that the Company will be required to sell, these securities before their fair values recover above the adjusted cost. The unrealized losses from these securities were not as a result of credit, collateral or structural issues.
The contractual maturities of the Company’s fixed maturity securities and short-term investments classified as available-for-sale are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

As at March 31, 2012	  	Amortized
Cost	 	  	Fair
Value	 	  	% of Total
Fair Value	 	
Due in one year or less	  	$	217,441	  	  	$	218,654	  	  	 	42.2	% 	
Due after one year through five years	  	 	242,826	  	  	 	250,585	  	  	 	48.4	% 	
Due after five years through ten years	  	 	1,411	  	  	 	1,663	  	  	 	0.3	% 	
Due after ten years	  	 	3,069	  	  	 	3,108	  	  	 	0.6	% 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	 	464,747	  	  	 	474,010	  	  	 	91.5	% 	
Residential mortgage-backed	  	 	12,924	  	  	 	13,346	  	  	 	2.6	% 	
Commercial mortgage-backed	  	 	11,493	  	  	 	13,536	  	  	 	2.6	% 	
Asset-backed	  	 	17,316	  	  	 	17,145	  	  	 	3.3	% 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	506,480	  	  	$	518,037	  	  	 	100.0	% 	

 	 	 	 	 	 	 	 	 	 	 	 	 	
As at December 31, 2011	  	Amortized
Cost	 	  	Fair
Value	 	  	% of Total
Fair Value	 	
Due in one year or less	  	$	230,550	  	  	$	230,377	  	  	 	37.9	% 	
Due after one year through five years	  	 	308,062	  	  	 	322,131	  	  	 	53.0	% 	
Due after five years through ten years	  	 	3,296	  	  	 	3,367	  	  	 	0.6	% 	
Due after ten years	  	 	2,990	  	  	 	2,894	  	  	 	0.5	% 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	 	544,898	  	  	 	558,769	  	  	 	92.0	% 	
Residential mortgage-backed	  	 	13,544	  	  	 	13,712	  	  	 	2.3	% 	
Commercial mortgage-backed	  	 	12,680	  	  	 	15,717	  	  	 	2.6	% 	
Asset-backed	  	 	19,466	  	  	 	19,118	  	  	 	3.1	% 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	590,588	  	  	$	607,316	  	  	 	100.0	% 	

10

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3.	INVESTMENTS — (cont’d)	
 
The following tables set forth certain information regarding the credit ratings (provided by major rating agencies) of the Company’s fixed maturity securities and short-term investments classified as available-for-sale:

As at March 31, 2012	  	Amortized
Cost	 	  	Fair
Value	 	  	% of Total
Fair Value	 	
AAA	  	$	162,374	  	  	$	166,152	  	  	 	32.1	% 	
AA	  	 	143,345	  	  	 	145,348	  	  	 	28.0	% 	
A	  	 	168,300	  	  	 	173,440	  	  	 	33.5	% 	
BBB or lower	  	 	32,073	  	  	 	32,278	  	  	 	6.2	% 	
Not Rated	  	 	388	  	  	 	819	  	  	 	0.2	% 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	506,480	  	  	$	518,037	  	  	 	100.0	% 	

 	 	 	 	 	 	 	 	 	 	 	 	 	
As at December 31, 2011	  	Amortized
Cost	 	  	Fair
Value	 	  	% of Total
Fair Value	 	
AAA	  	$	204,967	  	  	$	214,873	  	  	 	35.4	% 	
AA	  	 	131,092	  	  	 	132,971	  	  	 	21.9	% 	
A	  	 	210,040	  	  	 	215,225	  	  	 	35.4	% 	
BBB or lower	  	 	44,100	  	  	 	43,526	  	  	 	7.2	% 	
Not Rated	  	 	389	  	  	 	721	  	  	 	0.1	% 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	590,588	  	  	$	607,316	  	  	 	100.0	% 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Trading
The estimated fair values of the Company’s investments in fixed maturity securities, short-term investments and equities classified as trading securities were as follows:

 	  	March 31,
2012	 	  	December 31,
2011	 	
U.S. government and agency	  	$	371,817	  	  	$	400,908	  	
Non-U.S. government	  	 	247,363	  	  	 	212,251	  	
Corporate	  	 	1,643,471	  	  	 	1,595,930	  	
Municipal	  	 	25,405	  	  	 	25,416	  	
Residential mortgage-backed	  	 	90,017	  	  	 	97,073	  	
Commercial mortgage-backed	  	 	89,025	  	  	 	70,977	  	
Asset-backed	  	 	44,763	  	  	 	43,083	  	
Equities	  	 	96,060	  	  	 	89,981	  	
 	  	 	 	 	  	 	 	 	
 	  	$	2,607,921	  	  	$	2,535,619	  	

11

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3.	INVESTMENTS — (cont’d)	
 
The following tables set forth certain information regarding the credit ratings (provided by major rating agencies) of the Company’s fixed maturity securities and short-term investments classified as trading:

As at March 31, 2012	  	Fair
Value	 	  	% of Total
Fair Value	 	
AAA	  	$	417,616	  	  	 	16.6	% 	
AA	  	 	898,303	  	  	 	35.8	% 	
A	  	 	835,494	  	  	 	33.2	% 	
BBB or lower	  	 	355,890	  	  	 	14.2	% 	
Not Rated	  	 	4,558	  	  	 	0.2	% 	
 	  	 	 	 	  	 	 	 	
 	  	$	2,511,861	  	  	 	100.0	% 	

 	 	 	 	 	 	 	 	 	
As at December 31, 2011	  	Fair
Value	 	  	% of Total
Fair Value	 	
AAA	  	$	881,951	  	  	 	36.0	% 	
AA	  	 	400,394	  	  	 	16.4	% 	
A	  	 	796,608	  	  	 	32.6	% 	
BBB or lower	  	 	341,307	  	  	 	14.0	% 	
Not Rated	  	 	25,378	  	  	 	1.0	% 	
 	  	 	 	 	  	 	 	 	
 	  	$	2,445,638	  	  	 	100.0	% 	
 	  	 	 	 	  	 	 	 	
Other Investments
The estimated fair values of the Company’s other investments were as follows:

 	  	March 31,
2012	 	  	December 31,
2011	 	
Private equities	  	$	108,890	  	  	$	107,388	  	
Bond funds	  	 	60,579	  	  	 	54,537	  	
Hedge funds	  	 	47,647	  	  	 	24,395	  	
Real estate debt fund	  	 	15,097	  	  	 	—	  	
Other	  	 	5,720	  	  	 	5,944	  	
 	  	 	 	 	  	 	 	 	
 	  	$	237,933	  	  	$	192,264	  	
 	  	 	 	 	  	 	 	 	
As of March 31, 2012 and December 31, 2011, the Company had $108.9 million and $107.4 million, respectively, of other investments recorded in private equities, which represented 2.4% of total investments, cash and cash equivalents, and restricted cash and cash equivalents, at March 31, 2012 and December 31, 2011, respectively. All of the Company’s investments in private equities are subject to restrictions on redemptions and sales that are determined by the governing documents and limit the Company’s ability to liquidate these investments in the short term. These restrictions have been in place since the initial investments. 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 at estimated fair value determined by the Company’s proportionate share of the net asset value of the investee reduced by any impairment charges. As of March 31, 2012 and December 31, 2011, the Company had unfunded capital commitments relating to its other investments of $76.4 million and $77.5 million, respectively. Information regarding other investments the Company has with related parties is described in “Note 9 — Related Party Transactions”.
 
12

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3.	INVESTMENTS — (cont’d)	
 
The Company’s bond fund holdings comprise a number of positions in diversified bond mutual funds managed by third-party managers.
Other-Than-Temporary Impairment Process
The Company assesses whether declines in the fair value of its fixed maturity investments classified as available-for-sale represent impairments that are other-than-temporary and whether a credit loss exists in accordance with its accounting policies. The Company had no planned sales of its fixed maturity investments classified as available-for-sale as at March 31, 2012. In assessing whether it is more likely than not that the Company will be required to sell a fixed maturity investment before its anticipated recovery, the Company considers various factors including its future cash flow requirements, legal and regulatory requirements, the level of its cash, cash equivalents, short-term investments and fixed maturity investments available-for-sale in an unrealized gain position, and other relevant factors. For the three months ended March 31, 2012, the Company did not recognize any other-than-temporary impairments due to required sales. The Company determined that, as at March 31, 2012, no credit losses existed.
Fair Value of Financial Instruments
Fair value is defined as the price at which to sell an asset or transfer a liability (i.e. the “exit price”) in an orderly transaction between market participants. The Company uses a fair value hierarchy that gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. The hierarchy is broken down into three levels as follows:
 
 	•	 	Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not applied to Level 1 instruments.	
 
 	•	 	Level 2 — Valuations based on quoted prices in active markets for similar assets or liabilities, quoted prices for identical assets or liabilities in inactive markets, 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.	
 
 	•	 	Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The unobservable inputs reflect the Company’s own judgment about assumptions that market participants might use.	
The following is a summary of valuation techniques or models the Company uses to measure fair value by asset and liability classes.
Fixed Maturity Investments
The Company’s fixed maturity portfolio is managed by the Company’s Chief Investment Officer and outside investment advisors with oversight from the Company’s Investment Committee. The Company uses inputs from Interactive Data, a nationally recognized pricing service, as well as pricing vendors, index providers and broker-dealers to estimate fair value measurements for all of its fixed maturity investments.
In general, the pricing services use observable market inputs including, but not limited to, investment yields, credit risks and spreads, benchmark curves, benchmarking of like securities, non-binding broker-dealer quotes, reported trades and sector groupings to determine the fair value. In addition, pricing services use valuation
 
13

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3.	INVESTMENTS — (cont’d)	
 
models, such as an Option Adjusted Spread model, to develop prepayment and interest rate scenarios. The Option Adjusted Spread model is commonly used to estimate fair value for securities such as mortgage-backed and asset-backed securities.
The following describes the techniques generally used to determine the fair value of the Company’s fixed maturities by asset class.
 
 	•	 	U.S. government and agency securities consist of securities issued by the U.S. Treasury and mortgage pass-through agencies such as the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and other agencies. The significant inputs include the spread above the risk-free yield curve, reported trades and broker-dealer quotes. These are considered to be observable market inputs and, therefore, the fair values of these securities are classified within Level 2.	
 
 	•	 	Non-U.S. government securities consist of bonds issued by non-U.S. governments and agencies along with supranational organizations. The significant inputs include the spread above the risk-free yield curve, reported trades and broker-dealer quotes. These are considered to be observable market inputs and, therefore, the fair values of these securities are classified within Level 2.	
 
 	•	 	Corporate securities consist primarily of investment-grade debt of a wide variety of corporate issuers and industries. The fair values of these securities are determined using the spread above the risk-free yield curve, reported trades, broker-dealer quotes, benchmark yields, and industry and market indicators. These are considered observable market inputs and, therefore, the fair values of these securities are classified within Level 2. Where pricing is unavailable from pricing services, the Company obtains non-binding quotes from broker-dealers. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. In this event, securities are classified within Level 3. As at March 31, 2012, the Company had one corporate security classified as Level 3.	
 
 	•	 	Municipal securities consist primarily of bonds issued by U.S.-domiciled state and municipal entities. The fair values of these securities are determined using the spread above the risk-free yield curve, reported trades, broker-dealer quotes and benchmark yields. These are considered observable market inputs and, therefore, the fair values of these securities are classified within Level 2.	
 
 	•	 	Asset-backed securities consist primarily of investment-grade bonds backed by pools of loans with a variety of underlying collateral. The significant inputs used to determine the fair value of these securities include the spread above the risk-free yield curve, reported trades, benchmark yields, broker-dealer quotes, prepayment speeds, and default rates. These are considered observable market inputs and, therefore, the fair values of these securities are classified within Level 2.	
 
 	•	 	Residential and commercial mortgage-backed securities include both agency and non-agency originated securities. The significant inputs used to determine the fair value of these securities include the spread above the risk-free yield curve, reported trades, benchmark yields, broker-dealer quotes, prepayment speeds, and default rates. These are considered observable market inputs and, therefore, the fair values of these securities are classified within Level 2. Where pricing is unavailable from pricing services, the Company obtains non-binding quotes from broker-dealers. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. In this event, securities are classified within Level 3. As at March 31, 2012, the Company had no residential or commercial mortgage-backed securities classified as Level 3.	
 
14

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3.	INVESTMENTS — (cont’d)	
 
To validate the techniques or models used by the pricing services, the Company compares the fair value estimates to its knowledge of the current market and challenges any prices deemed not to be representative of fair value. As of March 31, 2012, there were no material differences between the prices obtained from the pricing services and the fair value estimates developed by the Company.
Equity Securities
The Company’s equity securities are managed by two external advisors. The Company uses Interactive Data, a nationally recognized pricing service, to estimate the fair value measurements for all of its equity securities. The Company’s equity securities are widely diversified and there is no significant concentration in any specific industry.
The Company has categorized all of its investments in common stock as Level 1 investments because the fair values of these securities are based on quoted prices in active markets for identical assets or liabilities. The Company has categorized its investments in preferred stock as Level 2, with the exception of one preferred stock that was categorized as Level 3, because their fair value estimates are based on observable market data.
Other Investments
For its investments in private equities, the Company measures fair value by obtaining the most recently published net asset value as advised by the external fund manager or third-party administrator. The use of net asset value as an estimate of the fair value for investments in certain entities that calculate net asset value is a permitted practical expedient. The financial statements of each fund generally are audited annually under U.S. GAAP, using fair value measurement for the underlying investments. The Company has classified private equities as Level 3 investments because they reflect the Company’s own judgment about the assumptions that market participants might use.
For its investment in the hedge funds, the Company also measures fair value by obtaining the most recently published net asset value as advised by the external fund manager or third-party administrator. The investments in the funds are classified as Level 3 in the fair value hierarchy.
For its investment in the real estate debt fund, the Company measures fair value by obtaining the most recently published net asset value as advised by the external fund manager or third-party administrator. The investment in the fund is classified as Level 3 in the fair value hierarchy.
For its investment in the College and University Loan Trust, the Company measures fair value by obtaining the most recently published financial statements of the trust. The financial statements of the trust are audited annually under U.S. GAAP. The investment in the trust is classified as Level 3 in the fair value hierarchy.
 
15

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3.	INVESTMENTS — (cont’d)	
 
The following table presents the fair value, unfunded commitments, and redemption frequency for all Level 3 investments valued at net asset value as at March 31, 2012:

 	  	Total Fair
Value	 	  	Unfunded
Commitments	 	  	Redemption
Frequency	
Private equity funds(a)	  	$	108,890	  	  	$	75,657	  	  	Not eligible	
Fixed income hedge funds(b)	  	 	47,647	  	  	 	—	  	  	Quarterly after lock-up periods expire	
Real estate debt fund(c)	  	 	15,097	  	  	 	—	  	  	10 days notice after monthly valuation	
College and University Loan Trust(d)	  	 	4,153	  	  	 	—	  	  	Not eligible	
Other	  	 	580	  	  	 	784	  	  	Not eligible	
 	  	 	 	 	  	 	 	 	  	 	
 	  	$	176,367	  	  	$	76,441	  	  	 	

(a)	This class includes several private equity funds that invest primarily in the financial services industry. For all publicly-traded companies within the funds, the Company has valued those investments based on the latest share price. All of the Company’s investments in private equity funds are subject to restrictions on redemptions and sales that are determined by the governing documents and limit the Company’s ability to liquidate those investments. These restrictions have been in place since the initial investment.	
 
(b)	This class is comprised of hedge funds that invest in a diversified portfolio of debt securities. The adviser of the funds intend to seek attractive risk-adjusted total returns for the fund’s investors by acquiring, originating, and actively managing a diversified portfolio of debt securities, with a focus on various forms of asset-backed securities and loans. The funds state that they focus on investments that the adviser believes to be fundamentally undervalued with current market prices that are believed to be compelling relative to intrinsic value. The units of account that are valued by the Company are its interests in the funds and not the underlying holdings of the funds. Thus, the inputs used by the Company to value its investment in the funds may differ from the inputs used to value the underlying holdings of the funds. The hedge funds are not currently eligible for redemption due to an imposed lock-up period of three years from the time of the Company’s initial investment. Once eligible, redemptions will be permitted quarterly with 90 days’ notice.	
 
(c)	This class comprises a real estate debt fund that invests primarily in U.S. commercial real estate. A redemption request for this fund can be made 10 days after the date of any monthly valuation. The fund will make commercially reasonable efforts to redeem the investment within the next monthly period.	
 
(d)	The value of the College and University Facility Loan Trust (“Loan Trust”) is based on the latest audited financial statements of the Loan Trust. The Company holds Class B certificates of the Loan Trust and accordingly receives semi-annual distributions. The Company’s investment in the Loan Trust has no redemption rights.	
The bond funds in which the Company invests have been classified as Level 2 investments because their fair value is estimated using the net asset value reported by Bloomberg and because the bond funds provide daily liquidity.
 
16

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3.	INVESTMENTS — (cont’d)	
 
Fair Value Measurements
In accordance with the provisions of the Fair Value Measurement and Disclosure topic of the FASB Accounting Standards Codification (“ASC”) 820, the Company has categorized its investments that are recorded at fair value among levels as follows:

 	  	March 31, 2012	 	
 	  	Quoted Prices in
Active Markets
for Identical Assets
(Level 1)	 	  	Significant Other
Observable Inputs
(Level 2)	 	  	Significant
Unobservable  Inputs
(Level 3)	 	  	Total Fair
Value	 	
U.S. government and agency	  	$	—	  	  	$	389,491	  	  	$	—	  	  	$	389,491	  	
Non-U.S. government	  	 	—	  	  	 	401,605	  	  	 	—	  	  	 	401,605	  	
Corporate	  	 	—	  	  	 	1,945,025	  	  	 	540	  	  	 	1,945,565	  	
Municipal	  	 	—	  	  	 	25,405	  	  	 	—	  	  	 	25,405	  	
Residential mortgage-backed	  	 	—	  	  	 	103,363	  	  	 	—	  	  	 	103,363	  	
Commercial mortgage-backed	  	 	—	  	  	 	102,561	  	  	 	—	  	  	 	102,561	  	
Asset-backed	  	 	—	  	  	 	61,908	  	  	 	—	  	  	 	61,908	  	
Equities	  	 	87,878	  	  	 	4,832	  	  	 	3,350	  	  	 	96,060	  	
Other investments	  	 	—	  	  	 	60,579	  	  	 	177,354	  	  	 	237,933	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total investments	  	$	87,878	  	  	$	3,094,769	  	  	$	181,244	  	  	$	3,363,891	  	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	December 31, 2011	 	
 	  	Quoted Prices in
Active Markets
for Identical Assets
(Level 1)	 	  	Significant Other
Observable Inputs
(Level 2)	 	  	Significant
Unobservable  Inputs
(Level 3)	 	  	Total Fair
Value	 	
U.S. government and agency	  	$	—	  	  	$	418,837	  	  	$	—	  	  	$	418,837	  	
Non-U.S. government	  	 	—	  	  	 	380,778	  	  	 	—	  	  	 	380,778	  	
Corporate	  	 	—	  	  	 	1,967,724	  	  	 	519	  	  	 	1,968,243	  	
Municipal	  	 	—	  	  	 	25,416	  	  	 	—	  	  	 	25,416	  	
Residential mortgage-backed	  	 	—	  	  	 	110,785	  	  	 	—	  	  	 	110,785	  	
Commercial mortgage-backed	  	 	—	  	  	 	86,694	  	  	 	—	  	  	 	86,694	  	
Asset-backed	  	 	—	  	  	 	62,201	  	  	 	—	  	  	 	62,201	  	
Equities	  	 	82,381	  	  	 	4,625	  	  	 	2,975	  	  	 	89,981	  	
Other investments	  	 	—	  	  	 	54,537	  	  	 	137,727	  	  	 	192,264	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total investments	  	$	82,381	  	  	$	3,111,597	  	  	$	141,221	  	  	$	3,335,199	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
During 2012 and 2011, the Company had no transfers between Levels 1 and 2.
 
17

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3.	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 three months ended March 31, 2012:

 	  	Fixed
Maturity
Investments	 	  	Other
Investments	 	 	Equity
Securities	 	  	Total	 	
Level 3 investments as of January 1, 2012	  	$	519	  	  	$	137,727	  	 	$	2,975	  	  	$	141,221	  	
Purchases	  	 	—	  	  	 	38,163	  	 	 	—	  	  	 	38,163	  	
Sales	  	 	—	  	  	 	(1,143	) 	 	 	—	  	  	 	(1,143	) 	
Total realized and unrealized gains through earnings	  	 	21	  	  	 	2,607	  	 	 	375	  	  	 	3,003	  	
Net transfers into and/or (out of) Level 3	  	 	—	  	  	 	—	  	 	 	—	  	  	 	—	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
Level 3 investments as of March 31, 2012	  	$	540	  	  	$	177,354	  	 	$	3,350	  	  	$	181,244	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
The amount of net gains/(losses) for the year included in earnings attributable to the fair value of changes in assets still held at March 31, 2012 was $2.5 million. Of this amount, $0.4 million was included in net realized and unrealized gains and $2.1 million was included in net investment income. Of the Company’s Level 3 investments classified as other investments, 99.4% are valued on a net asset value basis.
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 three months ended March 31, 2011:

 	  	Fixed
Maturity
Investments	 	  	Other
Investments	 	 	Equity
Securities	 	  	Total	 	
Level 3 investments as of January 1, 2011	  	$	1,444	  	  	$	132,435	  	 	$	3,575	  	  	$	137,454	  	
Purchases	  	 	—	  	  	 	4,157	  	 	 	—	  	  	 	4,157	  	
Sales	  	 	—	  	  	 	(49	) 	 	 	—	  	  	 	(49	) 	
Total realized and unrealized gains through earnings	  	 	69	  	  	 	3,419	  	 	 	400	  	  	 	3,888	  	
Net transfers into and/or (out of) Level 3	  	 	—	  	  	 	—	  	 	 	—	  	  	 	—	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
Level 3 investments as of March 31, 2011	  	$	1,513	  	  	$	139,962	  	 	$	3,975	  	  	$	145,450	  	
 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
The amount of net gains/(losses) for the year included in earnings attributable to the fair value of changes in assets still held at March 31, 2011 was $2.5 million. Of this amount, $0.5 million was included in net realized and unrealized gains and $2.0 million was included in net investment income.
Components of net realized and unrealized gains/(losses) are as follows:

 	  	Three Months Ended
March 31,	 	
 	  	2012	 	 	2011	 	
Gross realized gains on available-for-sale securities	  	$	430	  	 	$	221	  	
Gross realized losses on available-for-sale securities	  	 	(423	) 	 	 	(286	) 	
Net realized gains on trading securities	  	 	4,095	  	 	 	1,364	  	
Net unrealized gains on trading securities	  	 	18,940	  	 	 	2,069	  	
 	  	 	 	 	 	 	 	 	
Net realized and unrealized gains	  	$	23,042	  	 	$	3,368	  	
 	  	 	 	 	 	 	 	 	
Proceeds from sales and maturities of available-for-sale securities	  	$	90,276	  	 	$	101,109	  	

18

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3.	INVESTMENTS — (cont’d)	
 
Major categories of net investment income are summarized as follows:

 	  	Three Months Ended
March 31,	 	
 	  	2012	 	 	2011	 	
Interest from fixed maturities	  	$	20,493	  	 	$	14,408	  	
Amortization of bond premiums and discounts	  	 	(8,706	) 	 	 	(3,672	) 	
Dividends from equities	  	 	621	  	 	 	264	  	
Other investments	  	 	2,568	  	 	 	3,069	  	
Interest from cash and cash equivalents and short-term investments	  	 	4,371	  	 	 	2,256	  	
Other receivables	  	 	1,210	  	 	 	1,731	  	
Other income	  	 	2,564	  	 	 	536	  	
Interest on deposits held with clients	  	 	297	  	 	 	258	  	
Investment expenses	  	 	(635	) 	 	 	(308	) 	
 	  	 	 	 	 	 	 	 	
 	  	$	22,783	  	 	$	18,542	  	
 	  	 	 	 	 	 	 	 	
Restricted Investments
The Company is required to maintain investments on deposit with various regulatory authorities to support its insurance and reinsurance operations. The investments on deposit are available to settle insurance and reinsurance liabilities. The Company also utilizes trust accounts to collateralize business with its insurance and reinsurance counterparties. These trust accounts generally take the place of letter of credit requirements. The investments in trust as collateral are primarily highly rated fixed maturity securities. The carrying value of the Company’s restricted investments as of March 31, 2012 and December 31, 2011 was as follows:

 	  	March 31,
2012	 	  	December 31,
2011	 	
Assets used for collateral in trust for third-party agreements	  	$	525,955	  	  	$	571,041	  	
Deposits with regulatory authorities	  	 	197,110	  	  	 	200,136	  	
Others	  	 	54,767	  	  	 	59,763	  	
 	  	 	 	 	  	 	 	 	
 	  	$	777,832	  	  	$	830,940	  	

4.	DERIVATIVE INSTRUMENTS	
The Company uses foreign currency forward exchange contracts as part of its overall foreign currency risk management strategy or to obtain exposure to a particular financial market and for yield enhancement. However, the Company may choose not to hedge certain foreign currency exchange exposures for a variety of reasons including, but not limited to, accounting considerations and the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign currency exchange rates or enhance yield.
On February 8, 2012, the Company entered into two foreign currency forward exchange contracts, pursuant to which it sold AU$25.0 million for $26.2 million and AU$35.0 million for $36.1 million. The contracts have settlement dates of December 19, 2012 and May 10, 2013, respectively.
In October 2010, the Company entered into a foreign currency forward exchange contract where it sold AU$45.0 million for $42.5 million with a contract settlement date of June 30, 2011.
 
19

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4.	DERIVATIVE INSTRUMENTS — (cont’d)	
 
The estimated fair value of derivative instruments outstanding and recorded on the balance sheet was $(0.1) million and $nil as of March 31, 2012 and December 31, 2011, respectively. The Company recognized in net earnings for the three months ended March 31, 2012 and 2011 a foreign exchange loss of $0.1 million and $0.4 million, respectively, on foreign currency forward exchange contracts.
 
5.	REINSURANCE BALANCES RECEIVABLE	

 	  	March 31,
2012	 	 	December 31,
2011	 	
Recoverable from reinsurers on:	  	 	 	 	 	 	 	 	
Outstanding losses	  	$	781,562	  	 	$	837,693	  	
Losses incurred but not reported	  	 	638,250	  	 	 	678,437	  	
Fair value adjustments	  	 	(125,206	) 	 	 	(133,127	) 	
 	  	 	 	 	 	 	 	 	
Total reinsurance reserves recoverable	  	 	1,294,606	  	 	 	1,383,003	  	
Paid losses	  	 	346,702	  	 	 	406,579	  	
 	  	 	 	 	 	 	 	 	
 	  	$	1,641,308	  	 	$	1,789,582	  	
 	  	 	 	 	 	 	 	 	
Reinsurance balances receivable decreased by $148.3 million primarily as a result of cash collections made during the three months ended March 31, 2012. At March 31, 2012 and December 31, 2011, the provision for uncollectible reinsurance recoverable relating to total reinsurance balances receivable was $349.7 million and $341.1 million, respectively. To estimate the provision for uncollectible reinsurance recoverable, the reinsurance balances receivable are first allocated to applicable reinsurers. This determination is based on a detailed process rather than an estimate, although an element of judgment is applied. As part of this process, ceded IBNR is allocated by reinsurer. The ratio of the provision for uncollectible reinsurance recoverable to total reinsurance balances receivable (excluding provision for uncollectible reinsurance recoverable) as of March 31, 2012, increased to 17.6% as compared to 16.0% as of December 31, 2011, primarily a result of the collection of reinsurance balances receivable against which there were minimal provisions for uncollectible reinsurance recoverable.
The fair value adjustment, determined on acquisition of reinsurance subsidiaries, was based on the estimated timing of loss and loss adjustment expense recoveries and an assumed interest rate equivalent to a risk free rate for securities with similar duration to the reinsurance receivables acquired plus a spread to reflect credit risk, and is amortized over the estimated recovery period, as adjusted for accelerations on commutation settlements using the constant yield method.
The Company’s acquired reinsurance subsidiaries, prior to acquisition, used retrocessional agreements to reduce their exposure to the risk of insurance and reinsurance assumed. The Company remains liable to the extent that retrocessionaires do not meet their obligations under these agreements, and therefore, the Company evaluates and monitors concentration of credit risk among its reinsurers. Provisions are made for amounts considered potentially uncollectible.
 
20

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

5.	REINSURANCE BALANCES RECEIVABLE — (cont’d)	
 
At March 31, 2012, the Company’s top 10 reinsurers accounted for 70.0% (December 31, 2011: 70.0%) of reinsurance recoverables (which includes loss reserves recoverable and recoverables on paid losses) and included $426.6 million of IBNR reserves recoverable (December 31, 2011: $451.3 million). With the exception of one BBB+ rated reinsurer from which $54.6 million was recoverable, the other top 10 reinsurers, as at March 31, 2012, were all rated A+ or better. As at December 31, 2011, with the exception of one BBB+ rated reinsurer from which $55.2 million was recoverable, the other top 10 reinsurers were all rated A+ or better. Reinsurance recoverables by reinsurer were as follows:

 	  	March 31, 2012	 	 	December 31, 2011	 	
 	  	Reinsurance
Recoverable	 	  	% of
Total	 	 	Reinsurance
Recoverable	 	  	% of
Total	 	
Top 10 reinsurers	  	$	1,148,360	  	  	 	70.0	% 	 	$	1,252,929	  	  	 	70.0	% 	
Other reinsurers’ balances > $1 million	  	 	484,945	  	  	 	29.5	% 	 	 	532,303	  	  	 	29.7	% 	
Other reinsurers’ balances < $1 million	  	 	8,003	  	  	 	0.5	% 	 	 	4,350	  	  	 	0.3	% 	
 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
Total	  	$	1,641,308	  	  	 	100.0	% 	 	$	1,789,582	  	  	 	100.0	% 	
 	  	 	 	 	  	 	 	 	 	 	 	 	  	 	 	 	
As at March 31, 2012 and December 31, 2011, reinsurance balances receivable with a carrying value of $221.6 million and $235.8 million, respectively, were associated with one reinsurer, which represented 10% or more of total reinsurance balances receivable. Of the $221.6 million receivable from the reinsurer as at March 31, 2012, $151.0 million is secured by a trust fund held for the benefit of the Company. As at March 31, 2012, the reinsurer had a credit rating of A+, as provided by a major rating agency. In the event that all or any of the reinsuring companies that have not secured their obligations are unable to meet their obligations under existing reinsurance agreements, the Company will be liable for such defaulted amounts.
 
6.	LOSSES AND LOSS ADJUSTMENT EXPENSES	

 	  	March 31,
2012	 	 	December 31,
2011	 	
Outstanding	  	$	2,438,343	  	 	$	2,549,648	  	
Incurred but not reported	  	 	2,061,419	  	 	 	2,110,299	  	
Fair value adjustment	  	 	(361,139	) 	 	 	(377,031	) 	
 	  	 	 	 	 	 	 	 	
 	  	$	4,138,623	  	 	$	4,282,916	  	
 	  	 	 	 	 	 	 	 	
Refer to Note 10 of Item 8 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 for more information on establishing reserves.
 
21

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6.	LOSSES AND LOSS ADJUSTMENT EXPENSES — (cont’d)	
 
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, 2012 and 2011. Losses incurred and paid are reflected net of reinsurance recoverables.

 	  	Three Months Ended
March 31,	 	
 	  	2012	 	 	2011	 	
Balance as at January 1	  	$	4,282,916	  	 	$	3,291,275	  	
Less: total reinsurance reserves recoverable	  	 	1,383,003	  	 	 	525,440	  	
 	  	 	 	 	 	 	 	 	
 	  	 	2,899,913	  	 	 	2,765,835	  	
Effect of exchange rate movement	  	 	14,253	  	 	 	34,372	  	
Net reduction in ultimate loss and loss adjustment expense liabilities	  	 	(10,818	) 	 	 	(4,072	) 	
Net losses paid	  	 	(61,731	) 	 	 	(88,131	) 	
Acquired on purchase of subsidiaries	  	 	—	  	 	 	10,439	  	
Retroactive reinsurance contracts assumed	  	 	2,400	  	 	 	93,067	  	
 	  	 	 	 	 	 	 	 	
Net balance as at March 31	  	 	2,844,017	  	 	 	2,811,510	  	
Plus: total reinsurance reserves recoverable	  	 	1,294,606	  	 	 	583,478	  	
 	  	 	 	 	 	 	 	 	
Balance as at March 31	  	$	4,138,623	  	 	$	3,394,988	  	
 	  	 	 	 	 	 	 	 	
The net reduction in ultimate loss and loss adjustment expense liabilities for the three months ended March 31, 2012 and 2011 was due to the following:

 	  	Three Months Ended
March 31,	 	
 	  	2012	 	 	2011	 	
Net losses paid	  	$	(61,731	) 	 	$	(88,131	) 	
Net change in case and LAE reserves	  	 	60,136	  	 	 	83,430	  	
Net change in IBNR reserves	  	 	4,893	  	 	 	7,313	  	
 	  	 	 	 	 	 	 	 	
Reduction in estimates of net ultimate losses	  	 	3,298	  	 	 	2,612	  	
Reduction in provisions for bad debt	  	 	2,255	  	 	 	—	  	
Reduction in provisions for unallocated loss adjustment expense liabilities	  	 	12,852	  	 	 	11,537	  	
Amortization of fair value adjustments	  	 	(7,587	) 	 	 	(10,077	) 	
 	  	 	 	 	 	 	 	 	
Net reduction in ultimate loss and loss adjustment expense liabilities	  	$	10,818	  	 	$	4,072	  	
 	  	 	 	 	 	 	 	 	
Net change in case and loss adjustment expense reserves (“LAE reserves”) comprises the movement during the quarter in specific case reserve liabilities as a result of claims settlements or changes advised to the Company by its policyholders and attorneys, less changes in case reserves recoverable advised by the Company to its reinsurers as a result of the settlement or movement of assumed claims. Net change in IBNR reserves represents the change in the Company’s actuarial estimates of losses incurred but not reported.
The net reduction in ultimate loss and loss adjustment expense liabilities for the three months ended March 31, 2012 of $10.8 million was attributable to a reduction in estimates of net ultimate losses of $3.3 million, a reduction in provisions for bad debt of $2.3 million and a reduction in provisions for unallocated loss adjustment expense liabilities of $12.9 million, relating to 2012 run-off activity, partially offset by the amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $7.6 million.
 
22

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6.	LOSSES AND LOSS ADJUSTMENT EXPENSES — (cont’d)	
 
The reduction in estimates of net ultimate losses of $3.3 million comprised net incurred loss development of $1.6 million and reductions in IBNR reserves of $4.9 million.
The net reduction in ultimate loss and loss adjustment expense liabilities for the three months ended March 31, 2011 of $4.1 million was attributable to a reduction in estimates of net ultimate losses of $2.6 million and a reduction in provisions for unallocated loss adjustment expense liabilities of $11.5 million, relating to 2011 run-off activity, partially offset by the amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $10.1 million.
The reduction in estimates of net ultimate losses of $2.6 million comprised net incurred loss development of $4.7 million and reductions in IBNR reserves of $7.3 million.
 
7.	EMPLOYEE BENEFITS	
The Company’s share-based compensation plans provide for the grant of various awards to its employees and to members of the Board of Directors. These are described in Note 14 to the consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. The information below includes both the employee and director components of the Company’s share-based compensation.
(a)    Employee share plans
Employee share awards for the three months ended March 31, 2012 are summarized as follows:

 	  	Number of
Shares	 	 	Weighted
Average Fair
Value of
the Award	 	
Nonvested — January 1	  	 	203,930	  	 	$	20,026	  	
Granted	  	 	1,564	  	 	 	140	  	
Vested	  	 	(44,850	) 	 	 	(4,404	) 	
 	  	 	 	 	 	 	 	 	
Nonvested — March 31	  	 	160,644	  	 	$	15,902	  	

 	(i)	2006-2010 Annual Incentive Compensation Program, 2011-2015 Annual Incentive Compensation Program and 2006 Equity Incentive Plan	
For the three months ended March 31, 2012 and 2011, 191 and 16,328 shares, respectively, 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, 2012 was less than $0.1 million and was charged against the Enstar Group Limited 2011-2015 Annual Incentive Compensation Program (“2011 Program”) accrual established for the year ended December 31, 2011. The total value of the award for the three months ended March 31, 2011 was $1.5 million and was charged against the 2006-2010 Annual Incentive Compensation Program (“2006 Program”) accrual established for the year ended December 31, 2010. The 2006 Program ended effective December 31, 2010. On February 23, 2011, the Company adopted the 2011 Program.
In addition, for the three months ended March 31, 2011, 50,000 restricted shares were awarded to certain employees under the 2006 Equity Incentive Plan. The total unrecognized compensation cost related to the Company’s nonvested share awards as at March 31, 2012 and 2011 was $9.7 million and $12.5 million, respectively. This cost is expected to be recognized evenly over the next 3.5 years. Compensation costs of $0.7 million and $0.5 million relating to these share awards were recognized in the Company’s statement of earnings for the three months ended March 31, 2012 and 2011, respectively.
 
23

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

7.	EMPLOYEE BENEFITS — (cont’d)	
 
The accrued expenses relating to the 2011 Program for the three months ended March 31, 2012 and 2011 were $1.7 million and $nil, respectively.
 
 	(ii)	Enstar Group Limited Employee Share Purchase Plan	
Compensation costs of less than $0.1 million relating to the shares issued under the Amended and Restated Enstar Group Limited Employee Share Purchase Plan have been recognized in the Company’s statement of earnings for each of the three months ended March 31, 2012 and 2011, respectively. For the three months ended March 31, 2012 and 2011, 1,373 and 1,439 shares, respectively, were issued to employees.
(b)    Options

 	  	Number of
Shares	 	  	Weighted
Average
Exercise
Price	 	  	Instrinsic
Value of
Shares	 	
Outstanding — January 1, 2012	  	 	98,075	  	  	$	40.78	  	  	$	5,631	  	
Exercised	  	 	—	  	  	 	—	  	  	 	—	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Outstanding — March 31, 2012	  	 	98,075	  	  	$	40.78	  	  	$	5,708	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Stock options outstanding and exercisable as of March 31, 2012 were as follows:

Exercise Price	  	Number of
Options	 	  	Weighted
Average
Exercise Price	 	  	Weighted Average
Remaining
Contractual Life	 	
$40.78	  	 	98,075	  	  	$	40.78	  	  	 	1.4 years	  	
(c)    Deferred Compensation and Stock Plan for Non-Employee Directors
For the three months ended March 31, 2012 and 2011, 822 and 1,283 restricted share units, respectively, were credited to the accounts of non-employee directors under the Enstar Group Limited Deferred Compensation and Ordinary Share Plan for Non-Employee Directors.
(d)    Pension plan
The Company provides pension benefits to eligible employees through various plans sponsored by the Company. All pension plans are structured as defined contribution plans, except for the PWAC Plan discussed below. Pension expense for the three months ended March 31, 2012 and 2011 was $1.9 million and $1.1 million, respectively.
The Company acquired, as part of the acquisition of PW Acquisition Company (“PWAC”), a noncontributory defined benefit pension plan (the “PWAC Plan”) that covers substantially all PWAC employees hired before April 1, 2003 and provides pension and certain death benefits. Effective April 1, 2004, PWAC froze the PWAC Plan. As at both March 31, 2012 and December 31, 2011, PWAC had an accrued liability of $10.5 million for the unfunded PWAC Plan liability.
The Company recorded pension expense relating to the PWAC Plan, for the three months ended March 31, 2012 and 2011 of $0.2 million and $0.2 million, respectively.
 
24

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
8.	EARNINGS PER SHARE	
The following table sets forth the comparison of basic and diluted earnings per ordinary share for the three months ended March 31, 2012 and 2011:

 	  	2012	 	  	2011	 	
Basic earnings per ordinary share:	  	 	 	 	  	 	 	 	
Net earnings attributable to Enstar Group Limited	  	$	9,674	  	  	$	3,503	  	
Weighted average ordinary shares outstanding — basic	  	 	16,427,595	  	  	 	12,945,838	  	
 	  	 	 	 	  	 	 	 	
Earnings per ordinary share attributable to Enstar Group Limited — basic	  	$	0.59	  	  	$	0.27	  	
 	  	 	 	 	  	 	 	 	
Diluted earnings per ordinary share:	  	 	 	 	  	 	 	 	
Net earnings attributable to Enstar Group Limited	  	$	9,674	  	  	$	3,503	  	
Weighted average ordinary shares outstanding — basic	  	 	16,427,595	  	  	 	12,945,838	  	
Share equivalents:	  	 	 	 	  	 	 	 	
Nonvested shares	  	 	167,925	  	  	 	174,486	  	
Restricted share units	  	 	13,508	  	  	 	17,489	  	
Options	  	 	62,682	  	  	 	82,519	  	
 	  	 	 	 	  	 	 	 	
Weighted average ordinary shares outstanding — diluted	  	 	16,671,710	  	  	 	13,220,332	  	
 	  	 	 	 	  	 	 	 	
Earnings per ordinary share attributable to Enstar Group Limited — diluted	  	$	0.58	  	  	$	0.26	  	

9.	RELATED PARTY TRANSACTIONS	
The Company has entered into certain transactions with companies and partnerships that are affiliated with J. Christopher Flowers. Mr. Flowers is one of the largest shareholders of the Company and until May 6, 2011 was a member of the Company’s Board of Directors.
During the three months ended March 31, 2012, the Company funded $0.2 million of its remaining outstanding capital commitment to entities affiliated with Mr. Flowers. The Company had, as of March 31, 2012 and December 31, 2011, excluding its investments in Varadero International, Ltd. and Varadero Partners, L.P., (collectively, “Varadero”) hedge funds affiliated with the Company and Mr. Flowers with respect to which the Company has funded 100% of its capital commitments), investments in entities affiliated with Mr. Flowers with a total value of $103.3 million and $102.3 million, respectively, and outstanding commitments to entities managed by Mr. Flowers, as of those same dates, of $71.3 million and $71.5 million, respectively. The Company’s outstanding commitments may be drawn down over approximately the next four years.
As at March 31, 2012, related party investments associated with Mr. Flowers, including the Company’s investments with Varadero, accounted for 93.2% of the total unfunded capital commitments of the Company and 63.4% of the total amount of investments classified as other investments by the Company.
On January 1, 2012, Lloyd’s Syndicate 2008 (“S2008”) transferred the assets and liabilities relating to its 2009 and prior underwriting years of account into its 2010 underwriting year of account by means of a reinsurance to close transaction (“RITC”) following which the existing noncontrolling interest held by JCF FPK I L.P. and J.C. Flowers Fund II ceased, resulting in the Company now providing 100% of the investment in S2008. As at March 31, 2012, $28.1 million payable by the Company in respect of noncontrolling interest related to this RITC transaction has been included in the Company’s balance sheet as part of accounts payable and accrued liabilities.
 
25

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
10.	TAXATION	
Earnings before income taxes includes the following components:

 	  	Three Months Ended
March 31,	 	
 	  	  2012  	 	 	  2011  	 	
Domestic (Bermuda)	  	$	(19,241	) 	 	$	(3,614	) 	
Foreign	  	 	32,657	  	 	 	7,734	  	
 	  	 	 	 	 	 	 	 	
Total	  	$	13,416	  	 	$	4,120	  	
 	  	 	 	 	 	 	 	 	
Tax expense (benefit) for income taxes is comprised of:

 	  	Three Months Ended
March 31,	 	
 	  	  2012  	 	  	  2011  	 	
Current:	  	 	 	 	  	 	 	 	
Domestic (Bermuda)	  	$	—	  	  	$	—	  	
Foreign	  	 	2,858	  	  	 	(2,634	) 	
 	  	 	 	 	  	 	 	 	
 	  	 	2,858	  	  	 	(2,634	) 	
 	  	 	 	 	  	 	 	 	
Deferred:	  	 	 	 	  	 	 	 	
Domestic (Bermuda)	  	 	—	  	  	 	—	  	
Foreign	  	 	884	  	  	 	3,251	  	
 	  	 	 	 	  	 	 	 	
 	  	 	884	  	  	 	3,251	  	
 	  	 	 	 	  	 	 	 	
Total tax expense	  	$	3,742	  	  	$	617	  	
 	  	 	 	 	  	 	 	 	
Under current Bermuda law, the Company and its Bermuda subsidiaries are exempted from paying any taxes in Bermuda on their income or capital gains until March 2035.
The Company has operating subsidiaries and branch operations in the United Kingdom, Australia, the United States and Europe and is subject to federal, foreign, state and local taxes in those jurisdictions. In addition, certain distributions from some foreign sources may be subject to withholding taxes.
The expected income tax provision for the foreign operations computed on pre-tax income at the weighted-average tax rate has been calculated as the sum of the pre-tax income in each jurisdiction multiplied by that jurisdiction’s applicable statutory tax rate.
The actual income tax rate differed from the amount computed by applying the effective rate of 0% under Bermuda law to earnings before income taxes as shown in the following reconciliation:

 	  	Three Months Ended
March 31,	 	
 	  	2012	 	 	2011	 	
Earnings before income tax	  	$	13,416	  	 	$	4,120	  	
 	  	 	 	 	 	 	 	 	
Expected tax rate	  	 	—	% 	 	 	—	% 	
Foreign taxes at local expected rates	  	 	38.6	% 	 	 	50.9	% 	
Benefit of loss carryovers	  	 	—	% 	 	 	(5.7	)% 	
Change in uncertain tax positions	  	 	0.4	% 	 	 	1.2	% 	
Change in valuation allowance	  	 	(12.4	)% 	 	 	4.3	% 	
Impact of Australian tax consolidation	  	 	—	% 	 	 	(44.5	)% 	
Other	  	 	1.3	% 	 	 	8.8	% 	
 	  	 	 	 	 	 	 	 	
Effective tax rate	  	 	27.9	% 	 	 	15.0	% 	

26

Table of Contents
ENSTAR GROUP LIMITED
NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

10.	TAXATION — (cont’d)	
 
The Company has estimated future taxable income of its foreign subsidiaries and has provided a valuation allowance in respect of those loss carryforwards where it does not expect to realize a benefit. The Company has considered all available evidence using a “more likely than not” standard in determining the amount of the valuation allowance.
The Company had unrecognized tax benefits of $5.7 million and $5.6 million relating to uncertain tax positions as of March 31, 2012 and December 31, 2011, respectively.
The Company’s operating subsidiaries in specific countries may be subject to audit by various tax authorities and may have different statutes of limitations expiration dates. With limited exceptions, the Company’s major subsidiaries that operate in the United States, United Kingdom and Australia are no longer subject to tax examinations for years before 2005, 2008 and 2005, respectively.
Because the Company operates in many jurisdictions, its net earnings are subject to risk due to changing tax laws and tax rates around the world. The current, rapidly changing economic environment may increase the likelihood of substantial changes to tax laws in the jurisdictions in which it operates. The Company cannot predict what, if any, legislation, will actually be proposed or enacted, or what the effect of any such legislation might be on the Company’s financial condition and results of operations.
 
12.	COMMITMENTS AND CONTINGENCIES	
During the three months ended March 31, 2012, the Company eliminated its guarantee of the obligation to one of its subsidiaries in respect of a letter of credit issued on its behalf by a London-based bank in the amount of £7.5 million (approximately $11.7 million) relating to insurance contract requirements of that subsidiary.
During the three months ended March 31, 2012, the Company funded $0.8 million of its $5.0 million commitment to Dowling Capital Partners I, L.P.
The Company is, from time to time, involved in various legal proceedings in the ordinary course of business, including litigation regarding claims. The Company does not believe that the resolution of any currently pending legal proceedings, either individually or taken as a whole, will have a material effect on its business, results of operations or financial condition. Nevertheless, there can be no assurance that such pending legal proceedings will not have a material effect on the Company’s business, financial condition or results of operations. The Company anticipates that, similar to the rest of the insurance and reinsurance industry, it 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 effect on the Company’s business, financial condition or results of operations.
 
27

Table of Contents
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, 2012, and the related condensed consolidated statements of earnings, comprehensive income, changes in shareholders’ equity and cash flows for the three-month periods ended March 31, 2012 and 2011. These interim financial statements are the responsibility of the Company’s management.
We conducted our review in accordance with the 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 the 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 the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Enstar Group Limited and subsidiaries as of December 31, 2011 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 24, 2012, 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, 2011 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ Deloitte & Touche Ltd.
Hamilton, Bermuda
May 4, 2012
 
28

Table of Contents
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, 2012 and 2011. This discussion and analysis should be read in conjunction with the attached unaudited condensed consolidated financial statements and notes thereto and the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011.
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 portfolios of insurance and reinsurance business in run-off, and to provide management, consulting and other services to the insurance and reinsurance industry.
Since our formation, we have acquired 35 insurance and reinsurance companies and 17 portfolios of insurance and reinsurance business and are now administering those businesses in run-off. Of the 17 portfolios of insurance and reinsurance business, 10 were Reinsurance to Close, or “RITC” transactions, with Lloyd’s of London insurance and reinsurance syndicates in run-off, whereby the portfolio of run-off liabilities is transferred from one Lloyd’s syndicate to another. Insurance and reinsurance companies and portfolios of insurance and reinsurance business we acquire that are in run-off no longer underwrite new policies. We derive our net earnings from the ownership and management of these companies and portfolios of business in run-off primarily by settling insurance and reinsurance claims below the acquired value of loss reserves and from returns on the portfolio of investments retained to pay future claims. In addition, we 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.
Our primary corporate objective is to grow our net book value per share. We believe growth in our net book value is driven primarily by growth in our net earnings, which is in turn driven in large part by successfully completing new acquisitions and effectively managing companies and portfolios of business that we previously acquired.
 
29

Table of Contents
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,	 	
 	  	        2012        	 	 	        2011        	 	
 	  	(in thousands of U.S. dollars)	 	
INCOME	  	 	 	 	 	 	 	 	
Consulting fees	  	$	2,194	  	 	$	4,036	  	
Net investment income	  	 	22,783	  	 	 	18,542	  	
Net realized and unrealized gains	  	 	23,042	  	 	 	3,368	  	
Gain on bargain purchase	  	 	—	  	 	 	13,105	  	
 	  	 	 	 	 	 	 	 	
 	  	 	48,019	  	 	 	39,051	  	
 	  	 	 	 	 	 	 	 	
EXPENSES	  	 	 	 	 	 	 	 	
Net reduction in ultimate loss and loss adjustment expense liabilities:	  	 	 	 	 	 	 	 	
Reduction in estimates of net ultimate losses	  	 	(3,298	) 	 	 	(2,612	) 	
Reduction in provisions for bad debt	  	 	(2,255	) 	 	 	—	  	
Reduction in provisions for unallocated loss adjustment expense liabilities	  	 	(12,852	) 	 	 	(11,537	) 	
Amortization of fair value adjustments	  	 	7,587	  	 	 	10,077	  	
 	  	 	 	 	 	 	 	 	
 	  	 	(10,818	) 	 	 	(4,072	) 	
Salaries and benefits	  	 	20,451	  	 	 	10,382	  	
General and administrative expenses	  	 	14,858	  	 	 	17,750	  	
Interest expense	  	 	2,111	  	 	 	1,966	  	
Net foreign exchange losses	  	 	2,268	  	 	 	7,334	  	
 	  	 	 	 	 	 	 	 	
 	  	 	28,870	  	 	 	33,360	  	
 	  	 	 	 	 	 	 	 	
Earnings before income taxes	  	 	19,149	  	 	 	5,691	  	
Income taxes	  	 	(3,742	) 	 	 	(617	) 	
 	  	 	 	 	 	 	 	 	
NET EARNINGS	  	 	15,407	  	 	 	5,074	  	
Less: Net earnings attributable to noncontrolling interest	  	 	(5,733	) 	 	 	(1,571	) 	
 	  	 	 	 	 	 	 	 	
NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED	  	$	9,674	  	 	$	3,503	  	
 	  	 	 	 	 	 	 	 	
Comparison of the Three Months Ended March 31, 2012 and 2011
We reported consolidated net earnings, before net earnings attributable to noncontrolling interest, of approximately $15.4 million and $5.1 million for the three months ended March 31, 2012 and 2011, respectively. The increase in earnings of approximately $10.3 million was attributable primarily to the following:
 
 	(i)	an increase in net realized and unrealized gains of $19.7 million due to mark-to-market changes in the market value of our equity securities, along with realized and unrealized gains on our fixed maturity investments classified as trading;	
 
 	(ii)	an increase in net investment income of $4.2 million primarily as a result of the increased size of our overall cash and investment portfolio in 2012, principally due to the Clarendon acquisition we completed in July 2011;	
 
 	(iii)	an increase in net reduction in ultimate loss and loss adjustment expense liabilities of $6.7 million;	
 
 	(iv)	a decrease in net foreign exchange losses of $5.1 million; and	
 
 	(v)	a decrease in general and administrative expenses of $2.9 million due primarily to an overall decrease in other professional fees; partially offset by	

30

Table of Contents
 	(vi)	a gain on bargain purchase of $13.1 million in 2011, which arose in relation to our acquisition of Laguna Life Limited, or Laguna (as compared to no gain on bargain purchase in 2012);	
 
 	(vii)	an increase in salaries and benefits costs of $10.1 million due primarily to our increased overall headcount from 339 at March 31, 2011 to 406 at March 31, 2012 combined with a decrease, in 2011, in salary costs as a result of a release back to earnings of $4.0 million, which constituted the unallocated portion of the 2010 year end bonus accrual provision;	
 
 	(viii)	an increase in income taxes of $3.1 million due in large part to an increase in net earnings within our taxable subsidiaries; and	
 
 	(ix)	a decrease in consulting fee income of $1.8 million due to lower fees earned from third-party agreements during 2012.	
We recorded noncontrolling interest in earnings of $5.7 million and $1.6 million for the three months ended March 31, 2012 and 2011, respectively. Net earnings attributable to Enstar Group Limited increased from $3.5 million for the three months ended March 31, 2011 to $9.7 million for the three months ended March 31, 2012.
Consulting Fees:

 	  	Three Months Ended March 31,	 	
 	  	  2012  	 	  	  2011  	 	  	  Variance  	 	
 	  	(in thousands of U.S. dollars)	 	
Total	  	$	2,194	  	  	$	4,036	  	  	$	(1,842	) 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Our consulting companies earned fees of approximately $2.2 million and $4.0 million for the three months ended March 31, 2012 and 2011, respectively. The decrease in consulting fees of $1.8 million related primarily to the decrease in management fees earned from third-party agreements. Consulting fee income as a percentage of net earnings has declined in recent periods, and we would expect it to remain at or around current levels in future periods, excluding the impact of any one-time incentive-based fees that we might receive. While we intend to continue to provide management and consultancy services, claims inspection services and reinsurance collection services to third-party clients in limited circumstances, our core focus continues to be acquiring and managing insurance and reinsurance companies and portfolios of business in run-off.
Net Investment Income and Net Realized and Unrealized Gains:

 	  	Three Months Ended March 31,	 	
 	  	Net Investment Income	 	  	Net Realized and  Unrealized
Gains	 	
 	  	2012	 	  	2011	 	  	Variance	 	  	2012	 	  	2011	 	  	Variance	 	
 	  	(in thousands of U.S. dollars)	 	
Total	  	$	22,783	  	  	$	18,542	  	  	$	4,241	  	  	$	23,042	  	  	$	3,368	  	  	$	19,674	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Net investment income for the three months ended March 31, 2012 increased by $4.2 million to $22.8 million, as compared to $18.5 million for the three months ended March 31, 2011. The increase was primarily attributable to the increased size of our overall cash and investment portfolio as a result of the Clarendon acquisition, which we completed in July 2011.
Net realized and unrealized gains for the three months ended March 31, 2012 and 2011 were $23.0 million and $3.4 million, respectively. The increase was due to mark-to-market realized and unrealized gains earned on our equity securities and on our fixed maturity investments classified as trading.
The average annualized return on our cash and investments (including net realized and unrealized gains but excluding any writedowns or appreciation related to our other investments) for the three months ended March 31, 2012 was 3.67% as compared to the average annualized return of 1.87% for the three months ended
 
31

Table of Contents
March 31, 2011. The average credit rating of our fixed maturity investments at March 31, 2012 was AA-. During 2011, the rating agency Standard & Poors downgraded the U.S. sovereign debt from AAA to AA+. This, combined with the assets we acquired upon the acquisition of Clarendon (which had a lower proportion of investments with AAA credit ratings), resulted in us having a lower percentage of AAA-rated investments than we had as at March 31, 2011.
Fair Value Measurements
In accordance with the provisions of the Fair Value Measurement and Disclosure topic of the FASB Accounting Standards Codification, or ASC, 820 we have categorized our investments that are recorded at fair value among levels as follows:

 	  	March 31, 2012	 	
 	  	Quoted Prices in
Active Markets
for Identical Assets
(Level 1)	 	  	Significant Other
Observable  Inputs
(Level 2)	 	  	Significant
Unobservable  Inputs
(Level 3)	 	  	Total Fair
Value	 	
 	  	(in thousands of U.S. dollars)	 	
U.S. government and agency	  	$	—	  	  	$	389,491	  	  	$	—	  	  	$	389,491	  	
Non-U.S. government	  	 	—	  	  	 	401,605	  	  	 	—	  	  	 	401,605	  	
Corporate	  	 	—	  	  	 	1,945,025	  	  	 	540	  	  	 	1,945,565	  	
Municipal	  	 	—	  	  	 	25,405	  	  	 	—	  	  	 	25,405	  	
Residential mortgage-backed	  	 	—	  	  	 	103,363	  	  	 	—	  	  	 	103,363	  	
Commercial mortgage-backed	  	 	—	  	  	 	102,561	  	  	 	—	  	  	 	102,561	  	
Asset-backed	  	 	—	  	  	 	61,908	  	  	 	—	  	  	 	61,908	  	
Equities	  	 	87,878	  	  	 	4,832	  	  	 	3,350	  	  	 	96,060	  	
Other investments	  	 	—	  	  	 	60,579	  	  	 	177,354	  	  	 	237,933	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Total investments	  	$	87,878	  	  	$	3,094,769	  	  	$	181,244	  	  	$	3,363,891	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Gain on Bargain Purchase:

 	  	Three Months Ended March 31,	 	
 	  	2012	 	  	2011	 	  	Variance	 	
 	  	(in thousands of U.S. dollars)	 	
Total	  	$	—	  	  	$	13,105	  	  	$	(13,105	) 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Gain on bargain purchase of $13.1 million was recorded for the three months ended March 31, 2011; we did not record a gain on bargain purchase for the three months ended March 31, 2012. The gain on bargain purchase was earned in connection with our acquisition of Laguna and represented the excess of the cumulative fair value of net assets acquired of $34.3 million over the cost of $21.2 million. This excess was, in accordance with the provisions of the Business Combinations topic ASC 805, recognized as income for the three months ended March 31, 2011. The gain on bargain purchase arose mainly as a result of our reassessment, upon acquisition, of the total required estimated costs to manage the business to expiry. Our assessment of costs was lower than the acquired costs recorded by the vendor in the financial statements of Laguna.
 
32

Table of Contents
Net Reduction in Ultimate Loss and Loss Adjustment Expense Liabilities:
The following table shows the components of the movement in the net reduction in ultimate loss and loss adjustment expense liabilities for the three months ended March 31, 2012 and 2011:

 	  	Three Months Ended
March 31,	 	
 	  	2012	 	 	2011	 	
 	  	(in thousands of U.S.
dollars)	 	
Net losses paid	  	$	(61,731	) 	 	$	(88,131	) 	
Net change in case and LAE reserves	  	 	60,136	  	 	 	83,430	  	
Net change in IBNR reserves	  	 	4,893	  	 	 	7,313	  	
 	  	 	 	 	 	 	 	 	
Reduction in estimates of net ultimate losses	  	 	3,298	  	 	 	2,612	  	
Reduction in provisions for bad debt	  	 	2,255	  	 	 	—	  	
Reduction in provisions for unallocated loss adjustment expense liabilities	  	 	12,852	  	 	 	11,537	  	
Amortization of fair value adjustments	  	 	(7,587	) 	 	 	(10,077	) 	
 	  	 	 	 	 	 	 	 	
Net reduction in ultimate loss and loss adjustment expense liabilities	  	$	10,818	  	 	$	4,072	  	
 	  	 	 	 	 	 	 	 	
Net change in case and loss adjustment expense reserves, or LAE reserves, comprises the movement during the quarter in specific case reserve liabilities as a result of claims settlements or changes advised to us by our policyholders and attorneys, less changes in case reserves recoverable advised by us to our reinsurers as a result of the settlement or movement of assumed claims. Net change in incurred but not reported, or IBNR, reserves represents the change in our actuarial estimates of losses incurred but not reported.
The net reduction in ultimate loss and loss adjustment expense liabilities for the three months ended March 31, 2012 of $10.8 million was attributable to a reduction in estimates of net ultimate losses of $3.3 million, a reduction in provisions for bad debt of $2.3 million and a reduction in provisions for unallocated loss adjustment expense liabilities of $12.9 million, relating to 2012 run-off activity, partially offset by the amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $7.6 million.
The reduction in estimates of net ultimate losses of $3.3 million comprised net incurred loss development of $1.6 million and reductions in IBNR reserves of $4.9 million.
The net reduction in ultimate loss and loss adjustment expense liabilities for the three months ended March 31, 2011 of $4.1 million was attributable to a reduction in estimates of net ultimate losses of $2.6 million a reduction in provisions for unallocated loss adjustment expense liabilities of $11.5 million, relating to 2011 run-off activity, partially offset by the amortization of fair value adjustments over the estimated payout period relating to companies acquired amounting to $10.1 million.
The reduction in estimates of net ultimate losses of $2.6 million comprised net incurred loss development of $4.7 million and reductions in IBNR reserves of $7.3 million.
 
33

Table of Contents
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, 2012 and 2011. Losses incurred and paid are reflected net of reinsurance recoverables.

 	  	Three Months Ended
March 31,	 	
 	  	2012	 	 	2011	 	
 	  	(in thousands of U.S. dollars)	 	
Balance as at January 1	  	$	4,282,916	  	 	$	3,291,275	  	
Less: total reinsurance reserves recoverable	  	 	1,383,003	  	 	 	525,440	  	
 	  	 	 	 	 	 	 	 	
 	  	 	2,899,913	  	 	 	2,765,835	  	
Effect of exchange rate movement	  	 	14,253	  	 	 	34,372	  	
Net reduction in ultimate loss and loss adjustment expense liabilities	  	 	(10,818	) 	 	 	(4,072	) 	
Net losses paid	  	 	(61,731	) 	 	 	(88,131	) 	
Acquired on purchase of subsidiaries	  	 	—	  	 	 	10,439	  	
Retroactive reinsurance contracts assumed	  	 	2,400	  	 	 	93,067	  	
 	  	 	 	 	 	 	 	 	
Net balance as at March 31	  	 	2,844,017	  	 	 	2,811,510	  	
Plus: total reinsurance reserves recoverable	  	 	1,294,606	  	 	 	583,478	  	
 	  	 	 	 	 	 	 	 	
Balance as at March 31	  	$	4,138,623	  	 	$	3,394,988	  	
 	  	 	 	 	 	 	 	 	
Salaries and Benefits:

 	  	Three Months Ended March 31,	 	
 	  	2012	 	  	2011	 	  	Variance	 	
 	  	(in thousands of U.S. dollars)	 	
Total	  	$	20,451	  	  	$	10,382	  	  	$	(10,069	) 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
Salaries and benefits, which include expenses relating to our discretionary bonus and employee share plans, were $20.5 million and $10.4 million for the three months ended March 31, 2012 and 2011, respectively.
The principal changes in salaries and benefits were:
 
 	(i)	increased staff costs due to an increase in average staff numbers from 339 for the three months ended March 31, 2011 to 406 for the three months ended March 31, 2012;	
 
 	(ii)	the reduction in the discretionary bonus accrual of $4.0 million due to the release back to earnings in 2011 of the unallocated portion of the 2010 year end bonus accrual provision; and	
 
 	(iii)	an increase in the bonus accrual for the three months ended March 31, 2012 as compared to 2011 of approximately $1.5 million. Expenses relating to our discretionary bonus plan will be variable and are dependent on our overall profitability.	
General and Administrative Expenses:

 	  	Three Months Ended March 31,	 	
 	  	2012	 	  	2011	 	  	Variance	 	
 	  	(in thousands of U.S. dollars)	 	
Total	  	$	14,858	  	  	$	17,750	  	  	$	2,892	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
General and administrative expenses decreased by $2.9 million during the three months ended March 31, 2012, as compared to the three months ended March 31, 2011. The decrease in expenses for 2012 related primarily to:
 
 	(i)	a decrease in legal expenses of approximately $1.7 million due primarily to the non-recurrence of legal fees incurred in 2011 in relation to certain litigation that has since been settled with no material impact on our financial position; and	
 
34

Table of Contents
 	(ii)	a decrease in other professional fees of approximately $1.8 million related predominantly to transition fees incurred in 2011 in connection with previously completed acquisitions; partially offset by	
 
 	(iii)	an increase in other general and administrative expenses of approximately $0.6 million.	
Net Foreign Exchange Loss:

 	  	Three Months Ended March 31,	 	
 	  	  2012  	 	  	  2011  	 	  	  Variance  	 	
 	  	(in thousands of U.S. dollars)	 	
Total	  	$	2,268	  	  	$	7,334	  	  	$	5,066	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	
We recorded a net foreign exchange loss of $2.3 million for the three months ended March 31, 2012 as compared to $7.3 million for the three months ended March 31, 2011. The net foreign exchange loss for the three months ended March 31, 2012 arose primarily as a result of the translation of a U.S. dollar distribution in one of our subsidiaries whose functional currency is Australian dollars. The distribution was at a rate of approximately AU$1 = $1.08, which was in excess of the U.S. dollar foreign exchange rate at December 31, 2011 of approximately AU$1 = $1.025.
Income Tax Expense:

 	  	Years Ended December 31,	 	
 	  	2012	 	  	2011	 	  	Variance	 	
 	  	(in thousands of U.S. dollars)	 	
Total	  	$	3,742	  	  	$	617	  	  	$	(3,125	) 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
We recorded income tax expense of $3.7 million and $0.6 million for the three months ended March 31, 2012 and 2011, respectively. The increase in taxes was due principally to higher overall earnings in our taxable subsidiaries.
Noncontrolling interest:

 	  	Three Months Ended March 31,	 	
 	  	2012	 	  	2011	 	  	Variance	 	
 	  	(in thousands of U.S. dollars)	 	
Total	  	$	5,733	  	  	$	1,571	  	  	$	(4,162	) 	
 	  	 	 	 	  	 	 	 	  	 	 	 	
We recorded a noncontrolling interest in earnings of $5.7 million and $1.6 million for the three months ended March 31, 2012 and 2011, respectively. The increase for the three months ended March 31, 2012 in noncontrolling interest was due to the increase in earnings for those companies where there exists a noncontrolling interest.
Liquidity and Capital Resources
Source of Funds
We primarily generate our cash from the acquisitions we complete. These acquired cash and investment balances are classified as cash provided by investing activities.
We expect the net operating cash flows for us, to expiry, to be negative as we pay out cash in claims settlements and expenses in excess of cash generated via investment income and consulting fees.
 
35

Table of Contents
The following table summarizes our consolidated cash flows from operating, investing and financing activities for the three months ended March 31, 2012 and 2011:

 	  	Three Months Ended
March 31,	 	
Total cash (used in) provided by:	  	2012	 	 	2011	 	
 	  	(in thousands of U.S. dollars)	 	
Operating activities	  	$	(14,047	) 	 	$	(290,354	) 	
Investing activities	  	 	(25,034	) 	 	 	184,429	  	
Financing activities	  	 	(11,250	) 	 	 	(56,700	) 	
Effect of exchange rate changes on cash	  	 	(7,328	) 	 	 	(6,143	) 	
 	  	 	 	 	 	 	 	 	
Decrease in cash and cash equivalents	  	$	(57,659	) 	 	$	(168,768	) 	
 	  	 	 	 	 	 	 	 	
See “Item 1. Financial Statements — Unaudited Condensed Consolidated Statements of Cash Flows for the Three Month Periods Ended March 31, 2012 and 2011” for further information.
Operating
Net cash used in our operating activities for the three months ended March 31, 2012 was $14.0 million compared to $290.4 million for the three months ended March 31, 2011. This $276.4 million decrease in cash used in operating activities was due primarily to the following:
 
 	(i)	an increase of $180.5 million in the sales and maturities of trading securities between 2012 and 2011;	
 
 	(ii)	a decrease of $46.6 million in the purchases of trading securities; and	
 
 	(iii)	an increase in the net changes in assets and liabilities of $39.3 million.	
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 investing activities was $25.0 million during the three months ended March 31, 2012 compared to net cash provided by investing activities of $184.4 million during the three months ended March 31, 2011. The decrease of $209.4 million in investing cash flows between 2012 and 2011 was due principally to the following:
 
 	(i)	a decrease of $72.9 million in restricted cash and cash equivalents during 2012, compared to an increase of $85.4 million in 2011;	
 
 	(ii)	an increase of $37.9 million in the funding of other investments between 2012 and 2011; and	
 
 	(iii)	a decrease in cash flows from bond fund redemptions from $10.1 million in 2011 to nil in 2012.	
Financing
Net cash used in financing activities was $11.3 million during the three months ended March 31, 2012 compared to $56.7 million during the three months ended March 31, 2011. The decrease of $45.4 million in cash used in financing activities was mainly attributable to the following:
 
 	(i)	a decrease of $16.2 million in distribution of capital to noncontrolling interest between 2012 and 2011; and	
 
 	(ii)	a decrease of $40.5 million in loan repayments between 2012 and 2011; partially offset by	
 
 	(iii)	an increase of $11.3 million in dividends paid to noncontrolling interest between 2012 and 2011.	
 
36

Table of Contents
Long-Term Debt
Our long-term debt consists of loan facilities used to partially finance certain of our acquisitions or significant new business transactions along with a loan outstanding in relation to the Repurchase Agreements related to our ordinary shares entered into with three of our executives and certain trusts and a corporation affiliated with the executives. We draw down on the loan facilities at the time of the acquisition or significant new business transaction, although in some circumstances we have made additional draw-downs to refinance existing debt of the acquired company. We incurred interest expense on our loan facilities and loan outstanding relating to the Repurchase Agreements of $2.1 million and $2.0 million for the three months ended March 31, 2012 and 2011, respectively.
Total amounts of loans payable outstanding, including accrued interest, as of March 31, 2012 and December 31, 2011 totaled $243.1 million and $242.7 million, respectively.
As of March 31, 2012, all of the covenants relating to the Company’s outstanding credit facilities were met. Refer to Note 11 of Item 8 included in our Annual Report on Form 10-K for the year ended December 31, 2011.
Eurozone Exposure
At March 31, 2012, we did not own any investments in fixed maturity securities (which includes bonds that are classified as cash and cash equivalents) or bond funds issued by the sovereign governments of Portugal, Italy, Ireland, Greece or Spain. Our fixed maturity securities and bond funds exposures to Eurozone Governments (which includes regional and municipal governments including guaranteed agencies) by rating and maturity date are highlighted in the following tables:

 	  	Rating	 	  	 	 	
 	  	AAA	 	  	AA	 	  	A	 	  	BBB and
below	 	  	Total	 	
 	  	(in thousands of U.S. dollars)	 	
Germany	  	$	23,698	  	  	$	—	 	  	$	—	  	  	$	—	 	  	$	23,698	  	
Supranational (1)	  	 	42,255	  	  	 	829	  	  	 	—	  	  	 	—	  	  	 	43,084	  	
Netherlands	  	 	10,373	  	  	 	2,577	  	  	 	—	  	  	 	—	  	  	 	12,950	  	
Norway	  	 	2,316	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	2,316	  	
France	  	 	2,283	  	  	 	9,537	  	  	 	—	  	  	 	—	  	  	 	11,820	  	
Sweden	  	 	19,002	  	  	 	18,012	  	  	 	—	  	  	 	—	  	  	 	37,014	  	
Austria	  	 	—	  	  	 	11,511	  	  	 	—	  	  	 	—	  	  	 	11,511	  	
Russia	  	 	—	  	  	 	—	  	  	 	—	  	  	 	712	  	  	 	712	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	 	99,927	  	  	 	42,466	  	  	 	—	  	  	 	712	  	  	 	143,105	  	
Euro Region Government Funds	  	 	—	  	  	 	12,003	  	  	 	—	  	  	 	—	  	  	 	12,003	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	99,927	  	  	$	54,469	  	  	$	—	  	  	$	712	  	  	$	155,108	  	

37

Table of Contents
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	Maturity Date (2)	 	  	 	 	
 	  	3 months
or less	 	  	3 to 6
months	 	  	6 months
to 1 year	 	  	1 to 2
years	 	  	more
than 2
years	 	  	Total	 	
 	  	(in thousands of U.S. dollars)	 	
Germany	  	$	1,002	  	  	$	5,257	  	  	$	9,924	  	  	$	798	  	  	$	6,717	  	  	$	23,698	  	
Supranational(1)	  	 	4,826	  	  	 	—	  	  	 	19,513	  	  	 	15,030	  	  	 	3,715	  	  	 	43,084	  	
Netherlands	  	 	—	  	  	 	1,006	  	  	 	—	  	  	 	7,559	  	  	 	4,385	  	  	 	12,950	  	
Norway	  	 	—	  	  	 	—	  	  	 	996	  	  	 	923	  	  	 	397	  	  	 	2,316	  	
France	  	 	—	  	  	 	—	  	  	 	—	  	  	 	8,832	  	  	 	2,988	  	  	 	11,820	  	
Sweden	  	 	—	  	  	 	—	  	  	 	9,519	  	  	 	—	  	  	 	27,495	  	  	 	37,014	  	
Austria	  	 	—	  	  	 	—	  	  	 	10,094	  	  	 	—	  	  	 	1,417	  	  	 	11,511	  	
Russia	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	712	  	  	 	712	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	5,828	  	  	$	6,263	  	  	$	50,046	  	  	$	33,142	  	  	$	47,826	  	  	$	143,105	  	

(1)	Supranationals are defined as international government or quasi-government organizations.	
 
(2)	Our bond fund holdings have daily liquidity and are not included in the maturity date table.	
At March 31, 2012, we owned investments in corporate securities (which includes securities classified as cash and cash equivalents) issued by entities whose ultimate parent companies were located within the Eurozone. This includes securities that were issued by subsidiaries whose location was outside of the Eurozone. Our exposures by country and listed by rating, sector and maturity date are highlighted in the following tables:

 	  	Rating	 	  	 	 	
 	  	AAA	 	  	AA	 	  	A	 	  	BBB	 	  	BB and
below	 	  	Total	 	
 	  	(in thousands of U.S. dollars)	 	
Germany	  	$	—	 	  	$	—	 	  	$	51,805	  	  	$	13,686	  	  	$	—	 	  	$	65,491	  	
Belgium	  	 	—	  	  	 	466	  	  	 	2,948	  	  	 	—	  	  	 	—	  	  	 	3,414	  	
Portugal	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	19,842	  	  	 	19,842	  	
Denmark	  	 	—	  	  	 	—	  	  	 	2,437	  	  	 	—	  	  	 	—	  	  	 	2,437	  	
Netherlands	  	 	808	  	  	 	19,948	  	  	 	5,995	  	  	 	—	  	  	 	—	  	  	 	26,751	  	
Sweden	  	 	23,681	  	  	 	15,025	  	  	 	44,242	  	  	 	2,748	  	  	 	6,888	  	  	 	92,584	  	
Norway	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	21,307	  	  	 	21,307	  	
France	  	 	28,129	  	  	 	3,626	  	  	 	22,403	  	  	 	1,940	  	  	 	—	  	  	 	56,098	  	
Spain	  	 	2,890	  	  	 	—	  	  	 	4,976	  	  	 	9,014	  	  	 	—	  	  	 	16,880	  	
Italy	  	 	—	  	  	 	529	  	  	 	5,000	  	  	 	11,470	  	  	 	—	  	  	 	16,999	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	55,508	  	  	$	39,594	  	  	$	139,806	  	  	$	38,858	  	  	$	48,037	  	  	$	321,803	  	

38

Table of Contents
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	Sector	 	  	 	 	
 	  	Financial	 	  	Energy	 	  	Industrial	 	  	Telecom	 	  	Utility	 	  	Total	 	
 	  	(in thousands of U.S. dollars)	 	
Germany	  	$	5,699	  	  	$	—	 	  	$	20,338	  	  	$	13,686	  	  	$	25,768	  	  	$	65,491	  	
Belgium	  	 	3,414	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	3,414	  	
Portugal	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	19,842	  	  	 	19,842	  	
Denmark	  	 	—	  	  	 	—	  	  	 	2,437	  	  	 	—	  	  	 	—	  	  	 	2,437	  	
Netherlands	  	 	26,751	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	26,751	  	
Sweden	  	 	78,006	  	  	 	—	  	  	 	9,635	  	  	 	—	  	  	 	4,943	  	  	 	92,584	  	
Norway	  	 	21,307	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	21,307	  	
France	  	 	42,584	  	  	 	3,626	  	  	 	3,653	  	  	 	642	  	  	 	5,593	  	  	 	56,098	  	
Spain	  	 	7,866	  	  	 	1,405	  	  	 	—	  	  	 	2,421	  	  	 	5,188	  	  	 	16,880	  	
Italy	  	 	529	  	  	 	—	  	  	 	—	  	  	 	6,371	  	  	 	10,099	  	  	 	16,999	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	186,156	  	  	$	5,031	  	  	$	36,063	  	  	$	23,120	  	  	$	71,433	  	  	$	321,803	  	

 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	  	Maturity Date	 	  	 	 	
 	  	3 months
or less	 	  	3 to 6
months	 	  	6 months
to 1 year	 	  	1 to 2
years	 	  	more
than 2
years	 	  	Total	 	
 	  	(in thousands of U.S. dollars)	 	
Germany	  	$	34,146	  	  	$	10,731	  	  	$	2,606	  	  	$	13,421	  	  	$	4,587	  	  	$	65,491	  	
Belgium	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	3,414	  	  	 	3,414	  	
Portugal	  	 	—	  	  	 	—	  	  	 	19,842	  	  	 	—	  	  	 	—	  	  	 	19,842	  	
Denmark	  	 	2,437	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	—	  	  	 	2,437	  	
Netherlands	  	 	6,797	  	  	 	10,091	  	  	 	—	  	  	 	—	  	  	 	9,863	  	  	 	26,751	  	
Sweden	  	 	13,495	  	  	 	14,605	  	  	 	14,355	  	  	 	6,164	  	  	 	43,965	  	  	 	92,584	  	
Norway	  	 	—	  	  	 	—	  	  	 	—	  	  	 	16,018	  	  	 	5,289	  	  	 	21,307	  	
France	  	 	21,674	  	  	 	10,914	  	  	 	7,888	  	  	 	7,646	  	  	 	7,976	  	  	 	56,098	  	
Spain	  	 	—	  	  	 	1,073	  	  	 	6,535	  	  	 	9,272	  	  	 	—	  	  	 	16,880	  	
Italy	  	 	5,000	  	  	 	—	  	  	 	5,100	  	  	 	6,899	  	  	 	—	  	  	 	16,999	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
 	  	$	83,549	  	  	$	47,414	  	  	$	56,326	  	  	$	59,420	  	  	$	75,094	  	  	$	321,803	  	
 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	  	 	 	 	
Investments we hold in the United Kingdom and Switzerland are not included in the tables above. None of the securities were considered impaired at March 31, 2012.
Commitments and Contingencies
During the three months ended March 31, 2012, we eliminated our guarantee of the obligation to one of our subsidiaries in respect of a letter of credit issued on its behalf by a London-based bank in the amount of £7.5 million (approximately $11.7 million) relating to insurance contract requirements of that subsidiary.
During the three months ended March 31, 2012, we funded $0.8 million of our $5.0 million commitment to Dowling Capital Partners I, L.P.
There have been no other material changes in our commitments or contingencies since December 31, 2011. Refer to Item 7 included in our Annual Report on Form 10-K for the year ended December 31, 2011 for more information.
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, 2011.
 
39

Table of Contents
Off-Balance Sheet and Special Purpose Entity Arrangements
At March 31, 2012, we did not have 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,” “may” and similar statements of a future or forward-looking nature identify forward-looking statements for purposes of the federal securities laws or otherwise. All forward-looking statements are necessarily estimates or expectations, and not statements of historical fact, reflecting the best judgment of our management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. These forward looking statements should, therefore, be considered in light of various important factors, including those set forth in this quarterly report.
Factors that could cause actual results to differ materially from those suggested by the forward-looking statements include:
 
 	•	 	risks associated with implementing our business strategies and initiatives;	
 
 	•	 	the adequacy of our loss reserves and the need to adjust such reserves as claims develop over time;	
 
 	•	 	risks relating to the availability and collectability of our reinsurance;	
 
 	•	 	risks that we may require additional capital in the future, which may not be available or may be available only on unfavorable terms;	
 
 	•	 	changes and uncertainty in economic conditions, including interest rates, inflation, currency exchange rates, equity markets and credit conditions, which could affect our investment portfolio, our ability to finance future acquisitions and our profitability;	
 
 	•	 	losses due to foreign currency exchange rate fluctuations;	
 
 	•	 	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;	
 
 	•	 	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;	
 
40

Table of Contents
 	•	 	changes in tax laws or regulations applicable to us or our subsidiaries, or the risk that we or one of our non-U.S. subsidiaries become subject to significant, or significantly increased, income taxes in the United States or elsewhere; and	
 
 	•	 	changes in accounting policies or practices.	
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 year ended December 31, 2011 as well as in the other materials filed and to be filed with the U.S. Securities and Exchange Commission. We undertake no obligation to publicly update or review any forward looking statement, whether as a result of new information, future developments or otherwise.
 
41

Table of Contents
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	
There have been no material changes in our market risk exposures since December 31, 2011. For more information refer to “Quantitative and Qualitative Disclosures about Market Risk” included in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2011.
 
Item 4.	CONTROLS AND PROCEDURES	
Evaluation of Disclosure Controls and Procedures
Our management 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, 2012. 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 U.S. Securities and Exchange Commission and is accumulated and communicated to management, including our 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 three months ended March 31, 2012. Based upon that evaluation there were no changes in our internal control over financial reporting that occurred during the three months ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
42

Table of Contents
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.
 
Item 1A.	RISK FACTORS	
Our results of operations and financial condition are subject to numerous risks and uncertainties described in “Risk Factors” included in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2011. The risk factors identified therein have not materially changed.
 
Item 6.	EXHIBITS	
The information required by this item is set forth on the exhibit index that follows the signature page of this report.
 
43

Table of Contents
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 4, 2012.

 	 	 	 	ENSTAR GROUP LIMITED	
 	 	 	 	
 	 	 	 	By:	 	/s/ Richard J. Harris	
 	 	 	 	 	 	Richard J. Harris	
 	 	 	 	 	 	Chief Financial Officer, Authorized Signatory and
Principal Accounting and Financial Officer	
 
44

Table of Contents
EXHIBIT INDEX

Exhibit
No.	  	Description	
    3.1	  	Memorandumof Association of Enstar Group Limited (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-K/A filed on May 5, 2011).	
    3.2	  	ThirdAmended and Restated Bye-Laws of Enstar Group Limited (incorporated by reference to
Exhibit3.1(b) of the Company’s Form 10-Q filed on August 5, 2011).	
    3.3	  	Certificate of Designations for the Series A Convertible Participating Non-Voting Perpetual Preferred Stock (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed on April 21, 2011).	
  10.1*	  	Amended and Restated Employment Agreement, effective May 1, 2007 and amended and restated June 4, 2007, by and between Enstar Group Limited and Dominic F. Silvester, as amended by Letter Agreement, effective January 1, 2011, and Letter Agreement, dated April 19, 2012.	
  10.2*	  	Employment Agreement, effective May 1, 2007, by and between the Company and Paul J. O’Shea, as amended by Letter Agreement, effective January 1, 2011, and Letter Agreement, dated April 25, 2012.	
  10.3*	  	Employment Agreement, effective May 1, 2007, by and between Enstar Group Limited and Nicholas A. Packer, as amended by Letter Agreement, effective January 1, 2011, and Letter Agreement, dated April 25, 2012.	
  10.4*	  	Employment Agreement, effective May 1, 2007, by and between Enstar Group Limited and Richard J. Harris, as amended by Letter Agreement, effective January 1, 2011, and Letter Agreement, dated April 19, 2012.	
  15.1*	  	Deloitte & Touche Ltd. 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.	
  101**	  	Interactive Data Files.	
 
  *	Filed herewith	
 
**	Furnished herewith	
 
45

Exhibit 10.1
 
Enstar Group Limited
P.O. Box 2267, Windsor Place, 3rd Floor
18 Queen Street
Hamilton, HM JX
Bermuda
April 19, 2012
Attn: Dominic F. Silvester, Chief Executive Officer
Re: Extension of Employment Agreement Term
Dear Dominic,
In recognition of your valuable service to Enstar Group Limited over the past few years, we wish to amend your Amended and Restated Employment Agreement, dated May 1, 2007, as amended, which is attached as  Exhibit A , to extend its Term (as defined in the Employment Agreement) for an additional term of five years. The modified Term shall be five years commencing on January 1, 2012, as further extended or unless sooner terminated in accordance with the other provisions of the Employment Agreement. For purposes of Section A of Exhibit A to your Employment Agreement, “the fifth anniversary of the date hereof” shall now read “December 31, 2016”.
If you agree to this extension of the Term of your Employment Agreement, please sign the letter in the space provided below and return it to me.

Sincerely,	
 	
Enstar Group Limited	
 	
/s/ Richard J. Harris	
Richard J. Harris, Chief Financial Officer	

Accepted and agreed to
this 19th day of April, 2012	
 	
/s/ Dominic F. Silvester	
Dominic F. Silvester	

Exhibit A – Existing Employment Agreement

AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (“Agreement”) is dated as of May 1, 2007, between Enstar Group Limited (formerly known as Castlewood Holdings Limited), a Bermuda corporation (“Company”), and Dominic F. Silvester (“Executive”).
BACKGROUND
Company desires to employ Executive, and Executive desires to be an employee of Company, on the terms and conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein and intending to be legally bound hereby, the parties hereto agree as follows:
TERMS
1. CAPACITY AND DUTIES
1.1 Employment; Acceptance of Employment. Company hereby employs Executive and Executive hereby agrees to continue employment by Company for the period and upon the terms and conditions hereinafter set forth. Effective on the date hereof, this Agreement amends and restates the Employment Agreement between Company and Executive, dated as of May 1, 2007 in its entirety, and the rights and obligations of each party shall be governed by this Agreement.
1.2 Capacity and Duties.
(a) Executive shall serve as Chief Executive Officer of Company. Executive shall perform such duties and shall have such authority consistent with his position as may from time to time be specified by the Board of Directors of Company. Executive shall report directly to the Board of Directors of Company and his principal place of business shall be Company’s office in Bermuda and his secondary places of business may be in continental Europe. It is recognised that extensive travel may be necessary or appropriate in connection with the performance of Executive’s duties hereunder.
(b) Executive shall devote his full working time and energy, skill and best efforts to the performance of his duties hereunder, in a manner that will comply with Company’s rules and policies and will faithfully and diligently further the business and interests of Company. Executive shall not be employed by or participate or engage in or in any manner be a part of the management or operation of any business enterprise other than Company without the prior written consent of Company, which consent may be

granted or withheld in the reasonable discretion of the Board of Directors of Company. Notwithstanding anything herein to the contrary, nothing shall preclude Executive from (i) serving on the boards of directors of a reasonable number of other corporations or the boards of a reasonable number of trade associations and/or charitable organizations, (ii) engaging in charitable, community and other business affairs, and (iii) managing his personal investments and affairs, provided that such activities do not materially interfere with the proper performance of his responsibilities and duties hereunder.
2. TERM OF EMPLOYMENT
2.1 Term. The term of Executive’s employment hereunder shall be five years commencing on the date hereof, as further extended or unless sooner terminated in accordance with the other provisions hereof (the “Term”). Except as hereinafter provided, on the fifth anniversary of the commencement date and on each subsequent anniversary thereof, the Term shall be automatically extended for one year unless either party shall have given to the other party written notice of termination of this Agreement at least 120 days prior to such anniversary. If written notice of termination is given as provided above, Executive’s employment under this Agreement shall terminate on the last day of the Term.
3. COMPENSATION
3.1 Basic Compensation. As compensation for Executive’s services during the first twelve months of the Term, Company shall pay to Executive a salary at the annual rate of $600,000 payable in periodic installments in accordance with Company’s regular payroll practices in effect from time to time. For each subsequent twelve-month period of Executive’s employment hereunder, Executive’s salary shall be in the amount of his initial annual salary with such increases, as may be established by the Board of Directors of Company in consultation with Executive provided that the increase in base salary with respect to each subsequent twelve-month period shall not be less than the product of Executive’s base salary multiplied by the annual percentage increase in the retail price index (expressed as a decimal) for the United States, as reported in the most recent report of the U.S. Department of Labor for the preceding twelve-month period. Once increased, Executive’s annual salary cannot be decreased without the written consent of Executive. Executive’s annual salary, as determined in accordance with this Section 3.1, is hereinafter referred to as his “Base Salary.”
3.2 Performance Bonus. Executive shall, following the completion of each fiscal year of Company during the Term, be eligible for a performance bonus in accordance with Company’s performance bonus plan. Executive shall also be eligible for additional equity and other incentive awards, at a level commensurate with his position and in accordance with the policies and practices of the Company.

3.3 Employee Benefits. During the Term, Executive shall be entitled to participate in such of Company’s employee benefit plans and benefit programs, as may from time to time be provided by Company. In addition, during the Term, Executive shall be entitled to the following:
(a) a housing allowance equal to $8,500 per month;
(b) a life insurance policy in the amount of five times the Executive’s Base Salary, provided that Executive assists Company in the procurement of such policy (including, without limitation, submitting to any required physical examinations and completing accurately any applicable applications and or questionnaires);
(c) fully comprehensive medical and dental coverage on a worldwide basis for the Executive, his spouse and dependents and an annual medical examination for same;
(d) long term disability coverage, including coverage for serious illness, and full compensation paid by Company during the period up to and until Executive begins receiving benefits under such long term disability plan. In the event that the generally applicable group long-term disability plan contains a limitation on benefits that would result in Executive’s being entitled to benefit payments under such plan which are less than 50% of his salary, Company shall provide Executive with an individual disability policy paying a benefit amount that, when coupled with the group policy benefit payable, would provide Executive with aggregate benefits in connection with his long-term disability equal to 50% of such salary (provided that, if an individual policy can not be obtained for such amount on commercially reasonable rates and on commercially reasonable terms, Company shall provide Executive with a policy providing for the greatest amount of individual coverage that is available on such standard terms and rates). Provision of any individual disability policy will also be contingent upon Executive being able to be insured at commercially reasonable rates and on commercially reasonable terms and upon Executive assisting Company in the procurement of such policy (including, without limitation, submitting to any required physical examinations and completing accurately any applicable applications and or questionnaires);
(e) payment from the company of an amount equal to 10% of Executive’s Base Salary each year to Executive as contribution to his pension plans; and
(f) During the Term, Executive will be reimbursed for one return trip for his family to/from Bermuda each calendar year. Executive’s wife may travel business class and his children may travel premium economy class.
3.4 Vacation. During the Term, Executive shall be entitled to a paid vacation of 30 days per year (including 30 days during 2007).
3.5 Expense Reimbursement. Company shall reimburse Executive for all reasonable out-of-pocket expenses incurred by him in connection with the performance of his duties hereunder in accordance with its regular reimbursement policies as in effect from time to time.

4. TERMINATION OF EMPLOYMENT
4.1 Death of Executive. If Executive dies during the Term, and for the year in which Executive dies, Company achieves the performance goals established in accordance with any incentive plan in which Executive participates, Company shall pay Executive’s estate an amount equal to the bonus that Executive would have received had he been employed by Company for the full year, multiplied by a fraction, the numerator of which is the number of calendar days Executive was employed in such year and the denominator of which is 365. In addition, Executive’s spouse and dependents (if any) shall be entitled for a period of 36 months, to continue to receive medical benefits coverage (as described in Section 3.3) at Company’s expense if and to the extent Company was paying for such benefits for Executive’s spouse and dependents at the time of Executive’s death.
4.2 Disability. If Executive is or has been materially unable for any reason to perform his duties hereunder for 120 days during any period of 150 consecutive days, Company shall have the right to terminate Executive’s employment upon 30 days’ prior written notice to Executive at any time during the continuation of such inability, in which event Company shall thereafter be obligated to continue to pay Executive’s Base Salary for a period of 36 months, periodically in accordance with Company’s regular payroll practices and, within 30 days of such notice, shall pay any other amounts (including salary, bonuses, expense reimbursement, etc.) that have been fully earned by, but not yet paid to, Executive under this Agreement as of the date of such termination. The amount of payments to Executive under disability insurance policies paid for by Company shall be credited against and shall reduce the Base Salary otherwise payable by Company following termination of employment. If, for the year in which Executive’s employment is terminated pursuant to this Section, Company achieves the performance goals established in accordance with any incentive plan in which Executive participates, Company shall pay Executive an amount equal to the bonus that Executive would have received had he been employed by Company for the full year, multiplied by a fraction, the numerator of which is the number of calendar days Executive was employed in such year and the denominator of which is 365. Executive shall be entitled for a period of 36 months, to continue to receive at Company’s expense medical benefits coverage (as described in Section 3.3) for Executive and Executive’s spouse and dependents (if any) if and to the extent Company was paying for such benefits to Executive and Executive’s spouse and dependents at the time of such termination.
4.3 Termination for Cause. Executive’s employment hereunder shall terminate immediately upon notice that the Board of Directors of Company is terminating Executive for Cause (as defined herein), in which event Company shall not thereafter be obligated to make any further payments hereunder other than amounts (including salary, expense reimbursement, etc.) that have been fully earned by, but not yet paid to, Executive under this Agreement as of the date of such termination. “Cause” shall mean (a) fraud or dishonesty in connection with Executive’s employment that results in a

material injury to Company, (b) conviction of any felony or crime involving fraud or misrepresentation or (c) after Executive has received written notice of the specific material and continuing failure of Executive to perform his duties hereunder (other than death or disability) and has failed to cure such failure within 30 days of receipt of the notice, or (d) material and continuing failure to follow reasonable instructions of the Board of Directors after Executive has received at least prior written notice of the specific material and continuing failure to follow instructions and has failed to cure such failure within 30 days of receipt of the notice.
4.4 Termination without Cause or for Good Reason.
(a) If (1) Executive’s employment is terminated by Company for any reason other than Cause or the death or disability of Executive, or (2) Executive’s employment is terminated by Executive for Good Reason (as defined herein):
(i) Company shall pay Executive any amounts (including salary, bonuses, expense reimbursement, etc.) that have been fully earned by, but not yet paid to, Executive under this Agreement as of the date of such termination;
(ii) Company shall pay Executive a lump sum amount equal to three times the Base Salary payable to him;
(iii) Executive shall be entitled to continue to receive medical benefits coverage (as described in Section 3.3) for Executive and Executive’s spouse and dependents (if any) at Company’s expense for a period of 36 months;
(iv) Anything to the contrary in any other agreement or document notwithstanding, each outstanding equity incentive award granted to Executive before, on or within three years after the date hereof shall become immediately vested and exercisable on the date of such termination; and
(v) In addition, if, for the year in which Executive is terminated, Company achieves the performance goals established in accordance with any incentive plan in which Executive participates, Company shall pay an amount equal to the bonus that Executive would have received had he been employed by Company for the full year.
(b) Upon making the payments described in this Section 4.4, Company shall have no further obligation to Executive under this Agreement.
(c) “Good Reason” shall mean the following:
(i) material breach of Company’s obligations hereunder, provided that Executive shall have given written notice thereof to Company, and Company shall have failed to remedy the circumstances within 30 days;
(ii) the relocation of Executive’s principal business office outside of Bermuda without the Executive’s prior agreement; or
(iii) any material reduction in Executive’s duties or authority.

4.5 Change in Control.
(a) If, during the Term, there should be a Change of Control (as defined herein), and within 1 year thereafter either (i) Executive’s employment should be terminated for any reason other than for Cause or (ii) Executive terminates his employment for Good Reason (as defined in Section 4.4):
(i) Company shall pay Executive any amounts (including salary, bonuses, expense reimbursement, etc.) that have been fully earned by, but not yet paid to, Executive under this Agreement as of the date of such termination;
(ii) Company shall pay Executive a lump sum amount equal to three times Executive’s then current Base Salary;
(iii) Executive shall be entitled to continue to receive medical benefits coverage (as described in Section 3.3) for Executive and Executive’s spouse and dependents (if any) at Company’s expense for a period of 36 months;
(iv) Anything to the contrary in any other agreement or document notwithstanding, each outstanding equity incentive award granted to Executive before, on or after the date hereof shall become immediately vested and exercisable on the date of such termination; and
(v) In addition, if, for the year in which Executive is terminated, Company achieves the performance goals established in accordance with any incentive plan in which Executive participates, Company shall pay an amount equal to the bonus that Executive would have received had he been employed by Company for the full year.
(b) Upon making the payments described in this Section 4.5, Company shall have no further obligation to Executive under this Agreement.
(c) A “Change in Control” of Company shall mean:
(i) the acquisition by any person, entity or “group” required to file a Schedule 13D or Schedule 14D-1 under the Securities Exchange Act of 1934 (the “1934 Act”) (excluding, for this purpose, Company, its subsidiaries, any employee benefit plan of Company or its subsidiaries which acquires ownership of voting securities of Company, and any group that includes Executive) of beneficial ownership (within the meaning of Rule 13d-3 under the 1934 Act) of 50% or more of either the then outstanding ordinary shares or the combined voting power of Company’s then outstanding voting securities entitled to vote generally in the election of directors;

(ii) the election or appointment to the Board of Directors of Company, or resignation of or removal from the Board, of directors with the result that the individuals who as of the date hereof constituted the Board (the “Incumbent Board”) no longer constitute at least a majority of the Board, provided that any person who becomes a director subsequent to the date hereof whose appointment, election, or nomination for election by Company’s shareholders, was approved by a vote of at least a majority of the Incumbent Board (other than an appointment, election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of Company) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or
(iii) approval by the shareholders of Company of: (i) a reorganization, merger or consolidation by reason of which persons who were the shareholders of Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50% of the combined voting power of the reorganized, merged or consolidated company’s then outstanding voting securities entitled to vote generally in the election of directors, or (ii) a liquidation or dissolution of Company or the sale, transfer, lease or other disposition of all or substantially all of the assets of Company (whether such assets are held directly or indirectly).
5. RESTRICTIVE COVENANTS
5.1 Restrictive Covenants.
(a) Executive acknowledges that he is one of a small number of key executives and that in such capacity, he will have access to confidential information of the Company and will engage in key client relationships on behalf of the Company and that it is fair and reasonable for protection of the legitimate interests of the Company and the other key executives of the Company that he should accept the restrictions described in Exhibit A hereto.
(b) Promptly following Executive’s termination of employment, Executive shall return to the Company all property of the Company, and all documents, accounts, letters and papers of every description relating to the affairs and business of the Company or any of its subsidiaries, and copies thereof in Executive’s possession or under his control.
(c) Executive acknowledges and agrees that the covenants and obligations of Executive in Exhibit A and this Section 5.1 relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company irreparable injury for which adequate remedies are not available at

law. Therefore, Executive agrees that the Company shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Executive from committing any violation of the covenants and obligations contained in Exhibit A and this Section 5.1. These injunctive remedies are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity.
(d) Executive agrees that if he applies for, or is offered employment by (or is to provide consultancy services to) any other person, firm, company, business entity or other organization whatsoever (other than an affiliate of the Company) during the restriction periods set forth in Exhibit A, he shall promptly, and before entering into any contract with any such third party, provide to such third party a full copy of Exhibit A and this Section 5.1 in order to ensure that such other party is fully aware of Executive’s obligations hereunder.
5.2 Intellectual Property Rights. Executive recognizes and agrees that Executive’s duties for the Company may include the preparation of materials, including written or graphic materials for the Company or its affiliate, and that any such materials conceived or written by Executive shall be done within the scope of his employment as a “work made for hire.” Executive agrees that because any such work is a “work made for hire,” the Company (or the relevant affiliate of the Company) will solely retain and own all rights in said materials, including rights of copyright. Executive agrees to disclose and assign to the Company his entire right, title and interest in and to all inventions and improvements related to the Company’s business or to the business of the Company’s affiliates (including, but not limited to, all financial and sales information), whether patentable or not, whether made or conceived by him individually or jointly with others at any time during his employment by the Company hereunder. Such inventions and improvements are to become and remain the property of the Company and Executive shall take such actions as are reasonably necessary to effectuate the foregoing.
6. MISCELLANEOUS
6.1 Key Employee Insurance. Company shall have the right at its expense to purchase insurance on the life of Executive, in such amounts as it shall from time to time determine, of which Company shall be the beneficiary. Executive shall submit to such physical examinations as may reasonably be required and shall otherwise cooperate with Company in obtaining such insurance.
6.2 Indemnification/Litigation. Company shall indemnify and defend Executive against all claims arising out of Executive’s activities as an officer or employee of Company or its affiliates to the fullest extent permitted by law and under Company’s organizational documents. At the request of Company, Executive shall during and after the Term render reasonable assistance to Company in connection with any litigation or other proceeding involving Company or any of its affiliates. Company shall provide reasonable compensation to Executive for such assistance rendered after the Term.

6.3 No Mitigation. In no event shall Executive be required to seek other employment or take any other action by way of mitigation of the amounts payable to Executive under this Agreement, and such amounts shall not be reduced whether or not Executive obtains other employment after termination of his employment hereunder.
6.4 Severability. The invalidity or unenforceability of any particular provision or part of any provision of this Agreement shall not affect the other provisions or parts hereof.
6.5 Assignment; Benefit. This Agreement shall not be assignable by Executive, and shall be assignable by Company only with the Executive’s consent and only to any person or entity which may become a successor in interest (by purchase of assets or stock, or by merger, or otherwise) to Company in the business or substantially all of the business presently operated by it. Any Change in Control is deemed an assignment. Subject to the foregoing, this Agreement and the rights and obligations set forth herein shall inure to the benefit of, and be binding upon, the parties hereto and each of their respective permitted successors, assigns, heirs, executors and administrators.
6.6 Notices. All notices hereunder shall be in writing and shall be sufficiently given if hand-delivered, sent by documented overnight delivery service or registered or certified mail, postage prepaid, return receipt requested or by facsimile, receipt acknowledged, addressed as set forth below or to such other person and/or at such other address as may be furnished in writing by any party hereto to the other. Any such notice shall be deemed to have been given as of the date received, in the case of personal delivery, or on the date shown on the receipt or confirmation therefor, in all other cases. Any and all service of process and any other notice in any action, suit or proceeding shall be effective against any party if given as provided in this Agreement; provided that nothing herein shall be deemed to affect the right of any party to serve process in any other manner permitted by law.
(a) If to Company:
Enstar Group Limited
P.O. Box HM 2267
Windsor Place, 3rd Floor
18 Queen Street
Hamilton HM JX
Bermuda
Attention: Paul O’Shea
Facsimile No.: 1 441 292 6603

(b) If to Executive:
Dominic F. Silvester
Seaspray 5a
Number 2 Palmetto Court
Smiths FL 07
Bermuda
6.7 Entire Agreement; Modification; Advice of Counsel.
(a) This Agreement constitutes the entire agreement between the parties hereto with respect to the matters contemplated herein and supersedes all prior agreements and understandings with respect thereto. No addendum, amendment, modification, or waiver of this Agreement shall be effective unless in writing. Neither the failure nor any delay on the part of any party to exercise any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy preclude any other or further exercise of the same or of any other right or remedy with respect to such occurrence or with respect to any other occurrence.
(b) Executive acknowledges that he has been afforded an opportunity to consult with his counsel with respect to this Agreement.
6.8 Governing Law. This Agreement is made pursuant to, and shall be construed and enforced in accordance with, the laws of Bermuda, to the extent applicable, without giving effect to otherwise applicable principles of conflicts of law.
6.9 Headings; Counterparts. The headings of paragraphs in this Agreement are for convenience only and shall not affect its interpretation. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which, when taken together, shall be deemed to constitute the same Agreement.
6.10 Further Assurances. Each of the parties hereto shall execute such further instruments and take such additional actions as the other party shall reasonably request in order to effectuate the purposes of this Agreement.
[signature page follows]

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

ENSTAR GROUP LIMITED	
 	 	
By:	 	/s/ Richard J. Harris	
 	 	Name:	 	Richard J. Harris	
 	 	Title:	 	Chief Financial Officer	
 	
/s/ Dominic Silvester	
Dominic Silvester	

Exhibit A
Restrictive Covenants
 
A.	Noncompetition. During the Term and, if Executive fails to remain employed through the fifth anniversary of the date hereof, for a period of eighteen (18) months after Executive’s employment terminates (the “Restriction Period”), Executive shall not, without the prior written permission of the Board, directly or indirectly engage in any Competitive Activity. The term “Competitive Activity” shall include (i) entering the employ of, or rendering services to, any person, firm or corporation engaged in the insurance and reinsurance run-off or any other business in which the Company or any of its affiliates has been engaged at any time during the last twelve months of the Term and to which Executive has rendered services or about which Executive has acquired Confidential Information or by which Executive has been engaged at any time during the last twelve months of his period of employment hereunder and in each case in any jurisdiction in which the Company or any of its affiliates has conducted substantial business (hereinafter defined as the “Business”); (ii) engaging in the Business for Executive’s own account or (becoming interested in any such Business, directly or indirectly, as an individual, partner, shareholder, member, director, officer, principal, agent, employee, trustee, consultant, or in any other similar capacity; provided, however, nothing in this Paragraph A shall prohibit Executive from owning, solely as a passive investment, 5% or less of the total outstanding securities of a publicly-held company, or any interest held by Executive in a privately-held company as of the date of this Agreement; provided further that the provisions of this Paragraph A shall not apply in the event Executive’s employment with the Company is terminated without Cause or with Good Reason.	
 
B.	Confidentiality. Without the prior written consent of the Company, except to the extent required by an order of a court having competent jurisdiction or under subpoena from an appropriate regulatory authority, Executive shall not disclose and shall use his best endeavours to prevent the disclosure of any trade secrets, customer lists, market data, marketing plans, sales plans, management organization information (including data and other information relating to members of the Board and management), operating policies or manuals, business plans or financial records, or other financial, commercial, business or technical information relating to the Company or any of its subsidiaries or affiliates or information designated as confidential or proprietary that the Company or any of its subsidiaries or affiliates may receive belonging to clients or others who do business with the Company or any of its subsidiaries or affiliates (collectively, “ Confidential Information ”) to any third person unless such Confidential Information has been previously disclosed to the public by the Company or any of its subsidiaries or affiliates or is in the public domain (other than by reason of Executive’s breach of this Paragraph B). In the event that Executive is required to	

 	disclose Confidential Information in a legal proceeding, Executive shall provide the Company with notice of such request as soon as reasonably practicable, so that the Company may timely seek an appropriate protective order or waive compliance with this Paragraph B, except if such notice would be unlawful or would place Executive in breach of an undertaking he is required to give by law or regulation.	
 
C.	Non-Solicitation of Employees. During the Restriction Period, Executive shall not, without the prior written permission of the Board, directly or indirectly induce any Senior Employee of the Company or any of its affiliates to terminate employment with such entity, and shall not directly or indirectly, either individually or as owner, agent, employee, consultant or otherwise, offer employment to or employ any Senior Employee unless such person shall have ceased to be employed by the Company or any affiliate for a period of at least six (6) months. For the purpose of this Paragraph C, “ Senior Employee ” shall mean a person who, at any time during the last twelve months of Executive’s period of employment hereunder:	
(i) is engaged or employed (other than in a clerical, secretarial or administrative capacity) as an employee, director or consultant of the Company or its affiliates; and
(ii) is or was engaged in a capacity in which he obtained Confidential Information; and
(iii) had personal dealings with Executive.
 
D.	Non-Disparagement. Executive shall not do or say anything adverse or harmful to, or otherwise disparaging of, the Company or its subsidiaries and their respective goodwill. The Company shall not, and shall use reasonable efforts to ensure that its officers, directors, employees and subsidiaries do not do or say anything adverse or harmful to, or otherwise disparaging of, Executive and his goodwill;  provided that  no action by either party in connection with the enforcement of its rights hereunder shall be construed as a violation of this Paragraph D.	
 
E.	Definition. In this Exhibit A, “directly or indirectly” (without prejudice to the generality of the expression) means whether as principal or agent (either alone or jointly or in partnership with any other person, firm or company) or as a shareholder, member or holder of loan capital in any other company or being concerned or interested in any other person, firm or company and whether as a director, partner, consultant, employee or otherwise.	
 
F.	Severability. Each of the provisions contained in this Exhibit A is and shall be construed as separate and severable and if one or more of such provisions is held to be against the public interest or unlawful or in any way an unreasonable restraint of trade or unenforceable in whole or in part for any reason, the remaining provisions of this Exhibit A or part thereof, as appropriate, shall continue to be in full force and effect.	

May 4, 2011
Enstar Group Limited
P.O. Box 2267, Windsor Place, 3rd Floor
18 Queen Street
Hamilton, HM JX
Bermuda
Attn: Richard J. Harris
Re: Waiver of Housing Allowance under Employment Agreement
Dear Richard,
Effective January 1, 2011, I hereby waive my right to a housing allowance under my Amended and Restated Employment Agreement with Enstar Group Limited, dated May 1, 2007, in consideration of the Compensation Committee’s decision to increase my annual base salary by an amount equal to the annual amount of the housing allowance.

Sincerely,	
 	
/s/ Dominic F. Silvester	
Dominic F. Silvester	

Accepted and agreed to
this 4th day of May, 2011	
 	
ENSTAR GROUP LIMITED	
 	
By: /s/ Richard J. Harris        	
Name: Richard J. Harris	
Title: Chief Financial Officer	

Exhibit 10.2
Enstar Group Limited
P.O. Box 2267, Windsor Place, 3rd Floor
18 Queen Street
Hamilton, HM JX
Bermuda
April 25, 2012
Attn: Paul J. O’Shea, Executive Vice President and Joint Chief Operating Officer
Re: Extension of Employment Agreement Term
Dear Paul,
In recognition of your valuable service to Enstar Group Limited over the past few years, we wish to amend your Employment Agreement, dated May 1, 2007, as amended, which is attached as  Exhibit A , to extend its Term (as defined in the Employment Agreement) for an additional term of five years. The modified Term shall be five years commencing on January 1, 2012, as further extended or unless sooner terminated in accordance with the other provisions of the Employment Agreement. For purposes of Section A of Exhibit A to your Employment Agreement, “the fifth anniversary of the date hereof” shall now read “December 31, 2016”.
If you agree to this extension of the Term of your Employment Agreement, please sign the letter in the space provided below and return it to me.

Sincerely,	
 	
Enstar Group Limited	
 	
/s/ Dominic F. Silvester	
Dominic F. Silvester, Chief Executive Officer	

Accepted and agreed to
this 25th day of April, 2012	
 	
/s/ Paul J. O’Shea	
Paul J. O’Shea	

Exhibit A – Existing Employment Agreement

EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (“Agreement”) is dated as of May 1, 2007, between Enstar Group Limited (formerly known as Castlewood Holdings Limited), a Bermuda corporation (“Company”), and Paul O’Shea (“Executive”).
BACKGROUND
Company desires to employ Executive, and Executive desires to be an employee of Company, on the terms and conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein and intending to be legally bound hereby, the parties hereto agree as follows:
TERMS
 
1.	CAPACITY AND DUTIES	
1.1 Employment; Acceptance of Employment. Company hereby employs Executive and Executive hereby agrees to continue employment by Company for the period and upon the terms and conditions hereinafter set forth. Effective on the date hereof, this Agreement replaces the Employment Agreement between Company and Executive, dated as of April 1, 2006 and amended and restated on May 23, 2006, and the rights and obligations of each party shall be governed by this Agreement.
1.2Capacity and Duties.
(a) Executive shall serve as an Executive Vice President of Company. Executive shall also serve as President and Chief Executive Officer of Castlewood Limited, a wholly-owned subsidiary of Company. Executive shall perform such duties and shall have such authority consistent with his position as may from time to time be specified by the Chief Executive Officer of Company. Executive shall report directly to the Chief Executive Officer of Company and his place of business shall be Company’s office in Bermuda. It is recognised that extensive travel may be necessary or appropriate in connection with the performance of Executive’s duties hereunder.
(b) Executive shall devote his full working time and energy, skill and best efforts to the performance of his duties hereunder, in a manner that will comply with Company’s rules and policies and will faithfully and diligently further the business and interests of Company. Executive shall not be employed by or participate or engage in or in any manner be a part of the management or operation of any business enterprise other than Company without the prior written consent of Company, which consent may be granted or withheld in the reasonable discretion of the Board of Directors of Company. Notwithstanding anything herein to the contrary, nothing shall preclude Executive from

(i) serving on the boards of directors of a reasonable number of other corporations or the boards of a reasonable number of trade associations and/or charitable organizations, (ii) engaging in charitable, community and other business affairs, and (iii) managing his personal investments and affairs, provided that such activities do not materially interfere with the proper performance of his responsibilities and duties hereunder.
 
2.	TERM OF EMPLOYMENT	
2.1Term. The term of Executive’s employment hereunder shall be five years commencing on the date hereof, as further extended or unless sooner terminated in accordance with the other provisions hereof (the “Term”). Except as hereinafter provided, on the fifth anniversary of the commencement date and on each subsequent anniversary thereof, the Term shall be automatically extended for one year unless either party shall have given to the other party written notice of termination of this Agreement at least 120 days prior to such anniversary. If written notice of termination is given as provided above, Executive’s employment under this Agreement shall terminate on the last day of the Term.
 
3.	COMPENSATION	
3.1 Basic Compensation. As compensation for Executive’s services during the first twelve months of the Term, Company shall pay to Executive a salary at the annual rate of $465,000 payable in periodic installments in accordance with Company’s regular payroll practices in effect from time to time. For each subsequent twelve-month period of Executive’s employment hereunder, Executive’s salary shall be in the amount of his initial annual salary with such increases, as may be established by the Board of Directors of Company in consultation with Executive provided that the increase in base salary with respect to each subsequent twelve-month period shall not be less than the product of Executive’s base salary multiplied by the annual percentage increase in the retail price index (expressed as a decimal) for the United States, as reported in the most recent report of the U.S. Department of Labor for the preceding twelve-month period. Once increased, Executive’s annual salary cannot be decreased without the written consent of Executive. Executive’s annual salary, as determined in accordance with this Section 3.1, is hereinafter referred to as his “Base Salary.”
3.2 Performance Bonus. Executive shall, following the completion of each fiscal year of Company during the Term, be eligible for a performance bonus in accordance with Company’s performance bonus plan. Executive shall also be eligible for additional equity and other incentive awards, at a level commensurate with his position and in accordance with the policies and practices of the Company.
3.3 Employee Benefits. During the Term, Executive shall be entitled to participate in such of Company’s employee benefit plans and benefit programs, as may from time to time be provided by Company. In addition, during the Term, Executive shall be entitled to the following:
(a) a housing allowance equal to $8,500 per month;

(b) a life insurance policy in the amount of five times the Executive’s Base Salary, provided that Executive assists Company in the procurement of such policy (including, without limitation, submitting to any required physical examinations and completing accurately any applicable applications and or questionnaires);
(c) fully comprehensive medical and dental coverage on a worldwide basis for the Executive, his spouse and dependents and an annual medical examination for same;
(d) long term disability coverage, including coverage for serious illness, and full compensation paid by Company during the period up to and until Executive begins receiving benefits under such long term disability plan. In the event that the generally applicable group long-term disability plan contains a limitation on benefits that would result in Executive’s being entitled to benefit payments under such plan which are less than 50% of his salary, Company shall provide Executive with an individual disability policy paying a benefit amount that, when coupled with the group policy benefit payable, would provide Executive with aggregate benefits in connection with his long-term disability equal to 50% of such salary (provided that, if an individual policy can not be obtained for such amount on commercially reasonable rates and on commercially reasonable terms, Company shall provide Executive with a policy providing for the greatest amount of individual coverage that is available on such standard terms and rates). Provision of any individual disability policy will also be contingent upon Executive being able to be insured at commercially reasonable rates and on commercially reasonable terms and upon Executive assisting Company in the procurement of such policy (including, without limitation, submitting to any required physical examinations and completing accurately any applicable applications and or questionnaires); and
(e) payment from the company of an amount equal to 10% of Executive’s Base Salary each year to Executive as contribution to his pension plans.
3.4 Vacation. During the Term, Executive shall be entitled to a paid vacation of 30 days per year (including 30 days during 2007).
3.5 Expense Reimbursement. Company shall reimburse Executive for all reasonable out-of-pocket expenses incurred by him in connection with the performance of his duties hereunder in accordance with its regular reimbursement policies as in effect from time to time.
 
4.	TERMINATION OF EMPLOYMENT	
4.1 Death of Executive. If Executive dies during the Term, and for the year in which Executive dies, Company achieves the performance goals established in accordance with any incentive plan in which Executive participates, Company shall pay

Executive’s estate an amount equal to the bonus that Executive would have received had he been employed by Company for the full year, multiplied by a fraction, the numerator of which is the number of calendar days Executive was employed in such year and the denominator of which is 365. In addition, Executive’s spouse and dependents (if any) shall be entitled for a period of 36 months, to continue to receive medical benefits coverage (as described in Section 3.3) at Company’s expense if and to the extent Company was paying for such benefits for Executive’s spouse and dependents at the time of Executive’s death.
4.2 Disability. If Executive is or has been materially unable for any reason to perform his duties hereunder for 120 days during any period of 150 consecutive days, Company shall have the right to terminate Executive’s employment upon 30 days’ prior written notice to Executive at any time during the continuation of such inability, in which event Company shall thereafter be obligated to continue to pay Executive’s Base Salary for a period of 36 months, periodically in accordance with Company’s regular payroll practices and, within 30 days of such notice, shall pay any other amounts (including salary, bonuses, expense reimbursement, etc.) that have been fully earned by, but not yet paid to, Executive under this Agreement as of the date of such termination. The amount of payments to Executive under disability insurance policies paid for by Company shall be credited against and shall reduce the Base Salary otherwise payable by Company following termination of employment. If, for the year in which Executive’s employment is terminated pursuant to this Section, Company achieves the performance goals established in accordance with any incentive plan in which Executive participates, Company shall pay Executive an amount equal to the bonus that Executive would have received had he been employed by Company for the full year, multiplied by a fraction, the numerator of which is the number of calendar days Executive was employed in such year and the denominator of which is 365. Executive shall be entitled for a period of 36 months, to continue to receive at Company’s expense medical benefits coverage (as described in Section 3.3) for Executive and Executive’s spouse and dependents (if any) if and to the extent Company was paying for such benefits to Executive and Executive’s spouse and dependents at the time of such termination.
4.3 Termination for Cause. Executive’s employment hereunder shall terminate immediately upon notice that the Board of Directors of Company is terminating Executive for Cause (as defined herein), in which event Company shall not thereafter be obligated to make any further payments hereunder other than amounts (including salary, expense reimbursement, etc.) that have been fully earned by, but not yet paid to, Executive under this Agreement as of the date of such termination. “Cause” shall mean (a) fraud or dishonesty in connection with Executive’s employment that results in a material injury to Company, (b) conviction of any felony or crime involving fraud or misrepresentation or (c) after Executive has received written notice of the specific material and continuing failure of Executive to perform his duties hereunder (other than death or disability) and has failed to cure such failure within 30 days of receipt of the notice, or (d) material and continuing failure to follow reasonable instructions of the Board of Directors after Executive has received at least prior written notice of the specific material and continuing failure to follow instructions and has failed to cure such failure within 30 days of receipt of the notice.

4.4 Termination without Cause or for Good Reason.
(a) If (1) Executive’s employment is terminated by Company for any reason other than Cause or the death or disability of Executive, or (2) Executive’s employment is terminated by Executive for Good Reason (as defined herein):
(i) Company shall pay Executive any amounts (including salary, bonuses, expense reimbursement, etc.) that have been fully earned by, but not yet paid to, Executive under this Agreement as of the date of such termination;
(ii) Company shall pay Executive a lump sum amount equal to three times the Base Salary payable to him;
(iii) Executive shall be entitled to continue to receive medical benefits coverage (as described in Section 3.3) for Executive and Executive’s spouse and dependents (if any) at Company’s expense for a period of 36 months;
(iv) Anything to the contrary in any other agreement or document notwithstanding, each outstanding equity incentive award granted to Executive before, on or within three years after the date hereof shall become immediately vested and exercisable on the date of such termination; and
(v) In addition, if, for the year in which Executive is terminated, Company achieves the performance goals established in accordance with any incentive plan in which Executive participates, Company shall pay an amount equal to the bonus that Executive would have received had he been employed by Company for the full year.
(b) Upon making the payments described in this Section 4.4, Company shall have no further obligation to Executive under this Agreement.
(c) “Good Reason” shall mean the following:
(i) material breach of Company’s obligations hereunder, provided that Executive shall have given written notice thereof to Company, and Company shall have failed to remedy the circumstances within 30 days;
(ii) the relocation of Executive’s principal business office outside of Bermuda without the Executive’s prior agreement; or
(iii) any material reduction in Executive’s duties or authority.

4.5 Change in Control.
(a) If, during the Term, there should be a Change of Control (as defined herein), and within 1 year thereafter either (i) Executive’s employment should be terminated for any reason other than for Cause or (ii) Executive terminates his employment for Good Reason (as defined in Section 4.4):
(i) Company shall pay Executive any amounts (including salary, bonuses, expense reimbursement, etc.) that have been fully earned by, but not yet paid to, Executive under this Agreement as of the date of such termination;
(ii) Company shall pay Executive a lump sum amount equal to three times Executive’s then current Base Salary;
(iii) Executive shall be entitled to continue to receive medical benefits coverage (as described in Section 3.3) for Executive and Executive’s spouse and dependents (if any) at Company’s expense for a period of 36 months;
(iv) Anything to the contrary in any other agreement or document notwithstanding, each outstanding equity incentive award granted to Executive before, on or after the date hereof shall become immediately vested and exercisable on the date of such termination; and
(v) In addition, if, for the year in which Executive is terminated, Company achieves the performance goals established in accordance with any incentive plan in which Executive participates, Company shall pay an amount equal to the bonus that Executive would have received had he been employed by Company for the full year.
(b) Upon making the payments described in this Section 4.5, Company shall have no further obligation to Executive under this Agreement.
(c) A “Change in Control” of Company shall mean:
(i) the acquisition by any person, entity or “group” required to file a Schedule 13D or Schedule 14D-1 under the Securities Exchange Act of 1934 (the “1934 Act”) (excluding, for this purpose, Company, its subsidiaries, any employee benefit plan of Company or its subsidiaries which acquires ownership of voting securities of Company, and any group that includes Executive) of beneficial ownership (within the meaning of Rule 13d-3 under the 1934 Act) of 50% or more of either the then outstanding ordinary shares or the combined voting power of Company’s then outstanding voting securities entitled to vote generally in the election of directors;
(ii) the election or appointment to the Board of Directors of Company, or resignation of or removal from the Board, of directors with the result that the individuals who as of the date hereof constituted the Board (the “Incumbent Board”) no longer constitute at least a majority of the Board, provided that any person who

becomes a director subsequent to the date hereof whose appointment, election, or nomination for election by Company’s shareholders, was approved by a vote of at least a majority of the Incumbent Board (other than an appointment, election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of Company) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or
(iii) approval by the shareholders of Company of: (i) a reorganization, merger or consolidation by reason of which persons who were the shareholders of Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50% of the combined voting power of the reorganized, merged or consolidated company’s then outstanding voting securities entitled to vote generally in the election of directors, or (ii) a liquidation or dissolution of Company or the sale, transfer, lease or other disposition of all or substantially all of the assets of Company (whether such assets are held directly or indirectly).
 
5.	RESTRICTIVE COVENANTS	
5.1 Restrictive Covenants.
(a) Executive acknowledges that he is one of a small number of key executives and that in such capacity, he will have access to confidential information of the Company and will engage in key client relationships on behalf of the Company and that it is fair and reasonable for protection of the legitimate interests of the Company and the other key executives of the Company that he should accept the restrictions described in Exhibit A hereto.
(b) Promptly following Executive’s termination of employment, Executive shall return to the Company all property of the Company, and all documents, accounts, letters and papers of every description relating to the affairs and business of the Company or any of its subsidiaries, and copies thereof in Executive’s possession or under his control.
(c) Executive acknowledges and agrees that the covenants and obligations of Executive in Exhibit A and this Section 5.1 relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, Executive agrees that the Company shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Executive from committing any violation of the covenants and obligations contained in Exhibit A and this Section 5.1. These injunctive remedies are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity.

(d) Executive agrees that if he applies for, or is offered employment by (or is to provide consultancy services to) any other person, firm, company, business entity or other organization whatsoever (other than an affiliate of the Company) during the restriction periods set forth in Exhibit A, he shall promptly, and before entering into any contract with any such third party, provide to such third party a full copy of Exhibit A and this Section 5.1 in order to ensure that such other party is fully aware of Executive’s obligations hereunder.
5.2 Intellectual Property Rights. Executive recognizes and agrees that Executive’s duties for the Company may include the preparation of materials, including written or graphic materials for the Company or its affiliate, and that any such materials conceived or written by Executive shall be done within the scope of his employment as a “work made for hire.” Executive agrees that because any such work is a “work made for hire,” the Company (or the relevant affiliate of the Company) will solely retain and own all rights in said materials, including rights of copyright. Executive agrees to disclose and assign to the Company his entire right, title and interest in and to all inventions and improvements related to the Company’s business or to the business of the Company’s affiliates (including, but not limited to, all financial and sales information), whether patentable or not, whether made or conceived by him individually or jointly with others at any time during his employment by the Company hereunder. Such inventions and improvements are to become and remain the property of the Company and Executive shall take such actions as are reasonably necessary to effectuate the foregoing.
 
6.	MISCELLANEOUS	
6.1 Key Employee Insurance. Company shall have the right at its expense to purchase insurance on the life of Executive, in such amounts as it shall from time to time determine, of which Company shall be the beneficiary. Executive shall submit to such physical examinations as may reasonably be required and shall otherwise cooperate with Company in obtaining such insurance.
6.2 Indemnification/Litigation. Company shall indemnify and defend Executive against all claims arising out of Executive’s activities as an officer or employee of Company or its affiliates to the fullest extent permitted by law and under Company’s organizational documents. At the request of Company, Executive shall during and after the Term render reasonable assistance to Company in connection with any litigation or other proceeding involving Company or any of its affiliates. Company shall provide reasonable compensation to Executive for such assistance rendered after the Term.
6.3 No Mitigation. In no event shall Executive be required to seek other employment or take any other action by way of mitigation of the amounts payable to Executive under this Agreement, and such amounts shall not be reduced whether or not Executive obtains other employment after termination of his employment hereunder.

6.4 Severability. The invalidity or unenforceability of any particular provision or part of any provision of this Agreement shall not affect the other provisions or parts hereof.
6.5 Assignment; Benefit. This Agreement shall not be assignable by Executive, and shall be assignable by Company only with the Executive’s consent and only to any person or entity which may become a successor in interest (by purchase of assets or stock, or by merger, or otherwise) to Company in the business or substantially all of the business presently operated by it. Any Change in Control is deemed an assignment. Subject to the foregoing, this Agreement and the rights and obligations set forth herein shall inure to the benefit of, and be binding upon, the parties hereto and each of their respective permitted successors, assigns, heirs, executors and administrators.
6.6 Notices. All notices hereunder shall be in writing and shall be sufficiently given if hand-delivered, sent by documented overnight delivery service or registered or certified mail, postage prepaid, return receipt requested or by facsimile, receipt acknowledged, addressed as set forth below or to such other person and/or at such other address as may be furnished in writing by any party hereto to the other. Any such notice shall be deemed to have been given as of the date received, in the case of personal delivery, or on the date shown on the receipt or confirmation therefor, in all other cases. Any and all service of process and any other notice in any action, suit or proceeding shall be effective against any party if given as provided in this Agreement; provided that nothing herein shall be deemed to affect the right of any party to serve process in any other manner permitted by law.
(a) If to Company:
Enstar Group Limited
P.O. Box HM 2267
Windsor Place, 3rd Floor
18 Queen Street
Hamilton HM JX
Bermuda
Attention: Dominic F. Silvester
(b) If to Executive:
Paul O’Shea
42 Pitts Bay Road
Pembroke HM06
Bermuda
Facsimile No.: 1 441 292 6603

6.7 Entire Agreement; Modification; Advice of Counsel.
(a) This Agreement constitutes the entire agreement between the parties hereto with respect to the matters contemplated herein and supersedes all prior agreements and understandings with respect thereto. No addendum, amendment, modification, or waiver of this Agreement shall be effective unless in writing. Neither the failure nor any delay on the part of any party to exercise any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy preclude any other or further exercise of the same or of any other right or remedy with respect to such occurrence or with respect to any other occurrence.
(b) Executive acknowledges that he has been afforded an opportunity to consult with his counsel with respect to this Agreement.
6.8 Governing Law. This Agreement is made pursuant to, and shall be construed and enforced in accordance with, the laws of Bermuda, to the extent applicable, without giving effect to otherwise applicable principles of conflicts of law.
6.9 Headings; Counterparts. The headings of paragraphs in this Agreement are for convenience only and shall not affect its interpretation. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which, when taken together, shall be deemed to constitute the same Agreement.
6.10 Further Assurances. Each of the parties hereto shall execute such further instruments and take such additional actions as the other party shall reasonably request in order to effectuate the purposes of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

ENSTAR GROUP LIMITED	
 	 	
By:	 	/s/ Richard J. Harris            	
 	 	Name:	 	Richard J. Harris	
 	 	Title:	 	Chief Financial Officer	
 	
/s/ Paul O’Shea            	
Paul O’Shea	

Exhibit A
Restrictive Covenants
 
A.	Noncompetition. During the Term and, if Executive fails to remain employed through the fifth anniversary of the date hereof, for a period of eighteen (18) months after Executive’s employment terminates (the “Restriction Period”), Executive shall not, without the prior written permission of the Board, directly or indirectly engage in any Competitive Activity. The term “Competitive Activity” shall include (i) entering the employ of, or rendering services to, any person, firm or corporation engaged in the insurance and reinsurance run-off or any other business in which the Company or any of its affiliates has been engaged at any time during the last twelve months of the Term and to which Executive has rendered services or about which Executive has acquired Confidential Information or by which Executive has been engaged at any time during the last twelve months of his period of employment hereunder and in each case in any jurisdiction in which the Company or any of its affiliates has conducted substantial business (hereinafter defined as the “Business”); (ii) engaging in the Business for Executive’s own account or (becoming interested in any such Business, directly or indirectly, as an individual, partner, shareholder, member, director, officer, principal, agent, employee, trustee, consultant, or in any other similar capacity; provided, however, nothing in this Paragraph A shall prohibit Executive from owning, solely as a passive investment, 5% or less of the total outstanding securities of a publicly-held company, or any interest held by Executive in a privately-held company as of the date of this Agreement; provided further that the provisions of this Paragraph A shall not apply in the event Executive’s employment with the Company is terminated without Cause or with Good Reason.	
 
B.	Confidentiality. Without the prior written consent of the Company, except to the extent required by an order of a court having competent jurisdiction or under subpoena from an appropriate regulatory authority, Executive shall not disclose and shall use his best endeavours to prevent the disclosure of any trade secrets, customer lists, market data, marketing plans, sales plans, management organization information (including data and other information relating to members of the Board and management), operating policies or manuals, business plans or financial records, or other financial, commercial, business or technical information relating to the Company or any of its subsidiaries or affiliates or information designated as confidential or proprietary that the Company or any of its subsidiaries or affiliates may receive belonging to clients or others who do business with the Company or any of its subsidiaries or affiliates (collectively, “ Confidential Information ”) to any third person unless such Confidential Information has been previously disclosed to the public by the Company or any of its subsidiaries or affiliates or is in the public domain (other than by reason of Executive’s breach of this Paragraph B). In the event that Executive is required to	

 	disclose Confidential Information in a legal proceeding, Executive shall provide the Company with notice of such request as soon as reasonably practicable, so that the Company may timely seek an appropriate protective order or waive compliance with this Paragraph B, except if such notice would be unlawful or would place Executive in breach of an undertaking he is required to give by law or regulation.	
 
C.	Non-Solicitation of Employees. During the Restriction Period, Executive shall not, without the prior written permission of the Board, directly or indirectly induce any Senior Employee of the Company or any of its affiliates to terminate employment with such entity, and shall not directly or indirectly, either individually or as owner, agent, employee, consultant or otherwise, offer employment to or employ any Senior Employee unless such person shall have ceased to be employed by the Company or any affiliate for a period of at least six (6) months. For the purpose of this Paragraph C, “ Senior Employee ” shall mean a person who, at any time during the last twelve months of Executive’s period of employment hereunder:	
(i) is engaged or employed (other than in a clerical, secretarial or administrative capacity) as an employee, director or consultant of the Company or its affiliates; and
(ii) is or was engaged in a capacity in which he obtained Confidential Information; and
(iii) had personal dealings with Executive.
 
D.	Non-Disparagement. Executive shall not do or say anything adverse or harmful to, or otherwise disparaging of, the Company or its subsidiaries and their respective goodwill. The Company shall not, and shall use reasonable efforts to ensure that its officers, directors, employees and subsidiaries do not do or say anything adverse or harmful to, or otherwise disparaging of, Executive and his goodwill;  provided that  no action by either party in connection with the enforcement of its rights hereunder shall be construed as a violation of this Paragraph D.	
 
E.	Definition. In this Exhibit A, “directly or indirectly” (without prejudice to the generality of the expression) means whether as principal or agent (either alone or jointly or in partnership with any other person, firm or company) or as a shareholder, member or holder of loan capital in any other company or being concerned or interested in any other person, firm or company and whether as a director, partner, consultant, employee or otherwise.	
 
F.	Severability. Each of the provisions contained in this Exhibit A is and shall be construed as separate and severable and if one or more of such provisions is held to be against the public interest or unlawful or in any way an unreasonable restraint of trade or unenforceable in whole or in part for any reason, the remaining provisions of this Exhibit A or part thereof, as appropriate, shall continue to be in full force and effect.	

May 4, 2011
Enstar Group Limited
P.O. Box 2267, Windsor Place, 3rd Floor
18 Queen Street
Hamilton, HM JX
Bermuda
Attn: Dominic F. Silvester
Re: Waiver of Housing Allowance under Employment Agreement
Dear Dominic,
Effective January 1, 2011, I hereby waive my right to a housing allowance under my Employment Agreement with Enstar Group Limited, dated May 1, 2007, in consideration of the Compensation Committee’s decision to increase my annual base salary by an amount equal to the annual amount of the housing allowance.

Sincerely,	
 	
/s/ Paul J. O’Shea	
Paul J. O’Shea	
Accepted and agreed to
this 4th day of May, 2011
ENSTAR GROUP LIMITED
By: /s/ Dominic F. Silvester                            
Name: Dominic F. Silvester
Title: Chairman and Chief Executive Officer

Exhibit 10.3
Enstar Group Limited
P.O. Box 2267, Windsor Place, 3rd Floor
18 Queen Street
Hamilton, HM JX
Bermuda
April 25, 2012
Attn: Nicholas A. Packer, Executive Vice President and Joint Chief Operating Officer
Re: Extension of Employment Agreement Term
Dear Nick,
In recognition of your valuable service to Enstar Group Limited over the past few years, we wish to amend your Employment Agreement, dated May 1, 2007, as amended, which is attached as  Exhibit A , to extend its Term (as defined in the Employment Agreement) for an additional term of five years. The modified Term shall be five years commencing on January 1, 2012, as further extended or unless sooner terminated in accordance with the other provisions of the Employment Agreement. For purposes of Section A of Exhibit A to your Employment Agreement, “the fifth anniversary of the date hereof” shall now read “December 31, 2016”.
If you agree to this extension of the Term of your Employment Agreement, please sign the letter in the space provided below and return it to me.

Sincerely,	
 	
Enstar Group Limited	
 	
/s/ Dominic F. Silvester	
Dominic F. Silvester, Chief Executive Officer	

Accepted and agreed to	
this 25th day of April, 2012	
 	
/s/ Nicholas A. Packer	
Nicholas A. Packer	

Exhibit A – Existing Employment Agreement

EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (“Agreement”) is dated as of May 1, 2007, between Enstar Group Limited (formerly known as Castlewood Holdings Limited), a Bermuda corporation (“Company”), and Nicholas Packer (“Executive”).
BACKGROUND
Company desires to employ Executive, and Executive desires to be an employee of Company, on the terms and conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein and intending to be legally bound hereby, the parties hereto agree as follows:
TERMS
 
1.	CAPACITY AND DUTIES	
1.1Employment; Acceptance of Employment. Company hereby employs Executive and Executive hereby agrees to continue employment by Company for the period and upon the terms and conditions hereinafter set forth. Effective on the date hereof, this Agreement replaces the Employment Agreement between Company and Executive, dated as of April 1, 2006 and amended and restated on May 23, 2006, and the rights and obligations of each party shall be governed by this Agreement.
1.2Capacity and Duties.
(a) Executive shall serve as an Executive Vice President of Company. Executive shall perform such duties and shall have such authority consistent with his position as may from time to time be specified by the Chief Executive Officer of Company. Executive shall report directly to the Chief Executive Officer of Company and his principal place of business shall be Company’s office in Bermuda and his secondary places of business may be in continental Europe. It is recognised that extensive travel may be necessary or appropriate in connection with the performance of Executive’s duties hereunder.
(b) Executive shall devote his full working time and energy, skill and best efforts to the performance of his duties hereunder, in a manner that will comply with Company’s rules and policies and will faithfully and diligently further the business and interests of Company. Executive shall not be employed by or participate or engage in or in any manner be a part of the management or operation of any business enterprise other than Company without the prior written consent of Company, which consent may be granted or withheld in the reasonable discretion of the Board of Directors of Company. Notwithstanding anything herein to the contrary, nothing shall preclude Executive from

(i) serving on the boards of directors of a reasonable number of other corporations or the boards of a reasonable number of trade associations and/or charitable organizations, (ii) engaging in charitable, community and other business affairs, and (iii) managing his personal investments and affairs, provided that such activities do not materially interfere with the proper performance of his responsibilities and duties hereunder.
 
2.	TERM OF EMPLOYMENT	
2.1 Term. The term of Executive’s employment hereunder shall be five years commencing on the date hereof, as further extended or unless sooner terminated in accordance with the other provisions hereof (the “Term”). Except as hereinafter provided, on the fifth anniversary of the commencement date and on each subsequent anniversary thereof, the Term shall be automatically extended for one year unless either party shall have given to the other party written notice of termination of this Agreement at least 120 days prior to such anniversary. If written notice of termination is given as provided above, Executive’s employment under this Agreement shall terminate on the last day of the Term.
 
3.	COMPENSATION	
3.1 Basic Compensation. As compensation for Executive’s services during the first twelve months of the Term, Company shall pay to Executive a salary at the annual rate of $465,000 payable in periodic installments in accordance with Company’s regular payroll practices in effect from time to time. For each subsequent twelve-month period of Executive’s employment hereunder, Executive’s salary shall be in the amount of his initial annual salary with such increases, as may be established by the Board of Directors of Company in consultation with Executive provided that the increase in base salary with respect to each subsequent twelve-month period shall not be less than the product of Executive’s base salary multiplied by the annual percentage increase in the retail price index (expressed as a decimal) for the United States, as reported in the most recent report of the U.S. Department of Labor for the preceding twelve-month period. Once increased, Executive’s annual salary cannot be decreased without the written consent of Executive. Executive’s annual salary, as determined in accordance with this Section 3.1, is hereinafter referred to as his “Base Salary.”
3.2Performance Bonus. Executive shall, following the completion of each fiscal year of Company during the Term, be eligible for a performance bonus in accordance with Company’s performance bonus plan. Executive shall also be eligible for additional equity and other incentive awards, at a level commensurate with his position and in accordance with the policies and practices of the Company.
3.3Employee Benefits. During the Term, Executive shall be entitled to participate in such of Company’s employee benefit plans and benefit programs, as may from time to time be provided by Company. In addition, during the Term, Executive shall be entitled to the following:
(a) a housing allowance equal to $8,500 per month;

(b) a life insurance policy in the amount of five times the Executive’s Base Salary, provided that Executive assists Company in the procurement of such policy (including, without limitation, submitting to any required physical examinations and completing accurately any applicable applications and or questionnaires);
(c) fully comprehensive medical and dental coverage on a worldwide basis for the Executive, his spouse and dependents and an annual medical examination for same;
(d) long term disability coverage, including coverage for serious illness, and full compensation paid by Company during the period up to and until Executive begins receiving benefits under such long term disability plan. In the event that the generally applicable group long-term disability plan contains a limitation on benefits that would result in Executive’s being entitled to benefit payments under such plan which are less than 50% of his salary, Company shall provide Executive with an individual disability policy paying a benefit amount that, when coupled with the group policy benefit payable, would provide Executive with aggregate benefits in connection with his long- term disability equal to 50% of such salary (provided that, if an individual policy can not be obtained for such amount on commercially reasonable rates and on commercially reasonable terms, Company shall provide Executive with a policy providing for the greatest amount of individual coverage that is available on such standard terms and rates). Provision of any individual disability policy will also be contingent upon Executive being able to be insured at commercially reasonable rates and on commercially reasonable terms and upon Executive assisting Company in the procurement of such policy (including, without limitation, submitting to any required physical examinations and completing accurately any applicable applications and or questionnaires);
(e) payment from the company of an amount equal to 10% of Executive’s Base Salary each year to Executive as contribution to his pension plans; and
(f) During the Term, Executive will be reimbursed for one return trip for his family to/from Bermuda each calendar year. Executive’s wife may travel business class and his children may travel premium economy class.
3.4Vacation. During the Term, Executive shall be entitled to a paid vacation of 30 days per year (including 30 days during 2007).
3.5Expense Reimbursement. Company shall reimburse Executive for all reasonable out-of-pocket expenses incurred by him in connection with the performance of his duties hereunder in accordance with its regular reimbursement policies as in effect from time to time. In addition, Company shall, upon receipt of appropriate documentation, reimburse Executive for all reasonable moving expenses incurred by him in moving his and his family’s residence from the United Kingdom.

4.	TERMINATION OF EMPLOYMENT	
4.1Death of Executive. If Executive dies during the Term, and for the year in which Executive dies, Company achieves the performance goals established in accordance with any incentive plan in which Executive participates, Company shall pay Executive’s estate an amount equal to the bonus that Executive would have received had he been employed by Company for the full year, multiplied by a fraction, the numerator of which is the number of calendar days Executive was employed in such year and the denominator of which is 365. In addition, Executive’s spouse and dependents (if any) shall be entitled for a period of 36 months, to continue to receive medical benefits coverage (as described in Section 3.3) at Company’s expense if and to the extent Company was paying for such benefits for Executive’s spouse and dependents at the time of Executive’s death.
4.2Disability. If Executive is or has been materially unable for any reason to perform his duties hereunder for 120 days during any period of 150 consecutive days, Company shall have the right to terminate Executive’s employment upon 30 days’ prior written notice to Executive at any time during the continuation of such inability, in which event Company shall thereafter be obligated to continue to pay Executive’s Base Salary for a period of 36 months, periodically in accordance with Company’s regular payroll practices and, within 30 days of such notice, shall pay any other amounts (including salary, bonuses, expense reimbursement, etc.) that have been fully earned by, but not yet paid to, Executive under this Agreement as of the date of such termination. The amount of payments to Executive under disability insurance policies paid for by Company shall be credited against and shall reduce the Base Salary otherwise payable by Company following termination of employment. If, for the year in which Executive’s employment is terminated pursuant to this Section, Company achieves the performance goals established in accordance with any incentive plan in which Executive participates, Company shall pay Executive an amount equal to the bonus that Executive would have received had he been employed by Company for the full year, multiplied by a fraction, the numerator of which is the number of calendar days Executive was employed in such year and the denominator of which is 365. Executive shall be entitled for a period of 36 months, to continue to receive at Company’s expense medical benefits coverage (as described in Section 3.3) for Executive and Executive’s spouse and dependents (if any) if and to the extent Company was paying for such benefits to Executive and Executive’s spouse and dependents at the time of such termination.
4.3Termination for Cause. Executive’s employment hereunder shall terminate immediately upon notice that the Board of Directors of Company is terminating Executive for Cause (as defined herein), in which event Company shall not thereafter be obligated to make any further payments hereunder other than amounts (including salary, expense reimbursement, etc.) that have been fully earned by, but not yet paid to, Executive under this Agreement as of the date of such termination. “Cause” shall mean (a) fraud or dishonesty in connection with Executive’s employment that results in a material injury to Company, (b) conviction of any felony or crime involving fraud or

misrepresentation or (c) after Executive has received written notice of the specific material and continuing failure of Executive to perform his duties hereunder (other than death or disability) and has failed to cure such failure within 30 days of receipt of the notice, or (d) material and continuing failure to follow reasonable instructions of the Board of Directors after Executive has received at least prior written notice of the specific material and continuing failure to follow instructions and has failed to cure such failure within 30 days of receipt of the notice.
4.4Termination without Cause or for Good Reason.
(a) If (1) Executive’s employment is terminated by Company for any reason other than Cause or the death or disability of Executive, or (2) Executive’s employment is terminated by Executive for Good Reason (as defined herein):
(i) Company shall pay Executive any amounts (including salary, bonuses, expense reimbursement, etc.) that have been fully earned by, but not yet paid to, Executive under this Agreement as of the date of such termination;
(ii) Company shall pay Executive a lump sum amount equal to three times the Base Salary payable to him;
(iii) Executive shall be entitled to continue to receive medical benefits coverage (as described in Section 3.3) for Executive and Executive’s spouse and dependents (if any) at Company’s expense for a period of 36 months;
(iv) Anything to the contrary in any other agreement or document notwithstanding, each outstanding equity incentive award granted to Executive before, on or within three years after the date hereof shall become immediately vested and exercisable on the date of such termination; and
(v) In addition, if, for the year in which Executive is terminated, Company achieves the performance goals established in accordance with any incentive plan in which Executive participates, Company shall pay an amount equal to the bonus that Executive would have received had he been employed by Company for the full year.
(b) Upon making the payments described in this Section 4.4, Company shall have no further obligation to Executive under this Agreement.
(c) “Good Reason” shall mean the following:
(i) material breach of Company’s obligations hereunder, provided that Executive shall have given written notice thereof to Company, and Company shall have failed to remedy the circumstances within 30 days;

(ii) the relocation of Executive’s principal business office outside of Bermuda without the Executive’s prior agreement; or
(iii) any material reduction in Executive’s duties or authority.
4.5Change in Control.
(a) If, during the Term, there should be a Change of Control (as defined herein), and within 1 year thereafter either (i) Executive’s employment should be terminated for any reason other than for Cause or (ii) Executive terminates his employment for Good Reason (as defined in Section 4.4):
(i) Company shall pay Executive any amounts (including salary, bonuses, expense reimbursement, etc.) that have been fully earned by, but not yet paid to, Executive under this Agreement as of the date of such termination;
(ii) Company shall pay Executive a lump sum amount equal to three times Executive’s then current Base Salary;
(iii) Executive shall be entitled to continue to receive medical benefits coverage (as described in Section 3.3) for Executive and Executive’s spouse and dependents (if any) at Company’s expense for a period of 36 months;
(iv) Anything to the contrary in any other agreement or document notwithstanding, each outstanding equity incentive award granted to Executive before, on or after the date hereof shall become immediately vested and exercisable on the date of such termination; and
(v) In addition, if, for the year in which Executive is terminated, Company achieves the performance goals established in accordance with any incentive plan in which Executive participates, Company shall pay an amount equal to the bonus that Executive would have received had he been employed by Company for the full year.
(b) Upon making the payments described in this Section 4.5, Company shall have no further obligation to Executive under this Agreement.
(c) A “Change in Control” of Company shall mean:
(i) the acquisition by any person, entity or “group” required to file a Schedule 13D or Schedule 14D-1 under the Securities Exchange Act of 1934 (the “1934 Act”) (excluding, for this purpose, Company, its subsidiaries, any employee benefit plan of Company or its subsidiaries which acquires ownership of voting securities of Company, and any group that includes Executive) of beneficial ownership (within the meaning of Rule 13d-3 under the 1934 Act) of 50% or more of either the then outstanding ordinary shares or the combined voting power of Company’s then outstanding voting securities entitled to vote generally in the election of directors;

(ii) the election or appointment to the Board of Directors of Company, or resignation of or removal from the Board, of directors with the result that the individuals who as of the date hereof constituted the Board (the “Incumbent Board”) no longer constitute at least a majority of the Board, provided that any person who becomes a director subsequent to the date hereof whose appointment, election, or nomination for election by Company’s shareholders, was approved by a vote of at least a majority of the Incumbent Board (other than an appointment, election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of Company) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or
(iii) approval by the shareholders of Company of: (i) a reorganization, merger or consolidation by reason of which persons who were the shareholders of Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50% of the combined voting power of the reorganized, merged or consolidated company’s then outstanding voting securities entitled to vote generally in the election of directors, or (ii) a liquidation or dissolution of Company or the sale, transfer, lease or other disposition of all or substantially all of the assets of Company (whether such assets are held directly or indirectly).
 
5.	RESTRICTIVE COVENANTS	
5.1Restrictive Covenants.
(a) Executive acknowledges that he is one of a small number of key executives and that in such capacity, he will have access to confidential information of the Company and will engage in key client relationships on behalf of the Company and that it is fair and reasonable for protection of the legitimate interests of the Company and the other key executives of the Company that he should accept the restrictions described in Exhibit A hereto.
(b) Promptly following Executive’s termination of employment, Executive shall return to the Company all property of the Company, and all documents, accounts, letters and papers of every description relating to the affairs and business of the Company or any of its subsidiaries, and copies thereof in Executive’s possession or under his control.
(c) Executive acknowledges and agrees that the covenants and obligations of Executive in Exhibit A and this Section 5.1 relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company irreparable injury for which adequate remedies are not available at

law. Therefore, Executive agrees that the Company shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Executive from committing any violation of the covenants and obligations contained in Exhibit A and this Section 5.1. These injunctive remedies are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity.
(d) Executive agrees that if he applies for, or is offered employment by (or is to provide consultancy services to) any other person, firm, company, business entity or other organization whatsoever (other than an affiliate of the Company) during the restriction periods set forth in Exhibit A, he shall promptly, and before entering into any contract with any such third party, provide to such third party a full copy of Exhibit A and this Section 5.1 in order to ensure that such other party is fully aware of Executive’s obligations hereunder.
5.2Intellectual Property Rights. Executive recognizes and agrees that Executive’s duties for the Company may include the preparation of materials, including written or graphic materials for the Company or its affiliate, and that any such materials conceived or written by Executive shall be done within the scope of his employment as a “work made for hire.” Executive agrees that because any such work is a “work made for hire,” the Company (or the relevant affiliate of the Company) will solely retain and own all rights in said materials, including rights of copyright. Executive agrees to disclose and assign to the Company his entire right, title and interest in and to all inventions and improvements related to the Company’s business or to the business of the Company’s affiliates (including, but not limited to, all financial and sales information), whether patentable or not, whether made or conceived by him individually or jointly with others at any time during his employment by the Company hereunder. Such inventions and improvements are to become and remain the property of the Company and Executive shall take such actions as are reasonably necessary to effectuate the foregoing.
 
6.	MISCELLANEOUS	
6.1Key Employee Insurance. Company shall have the right at its expense to purchase insurance on the life of Executive, in such amounts as it shall from time to time determine, of which Company shall be the beneficiary. Executive shall submit to such physical examinations as may reasonably be required and shall otherwise cooperate with Company in obtaining such insurance.
6.2Indemnification/Litigation. Company shall indemnify and defend Executive against all claims arising out of Executive’s activities as an officer or employee of Company or its affiliates to the fullest extent permitted by law and under Company’s organizational documents. At the request of Company, Executive shall during and after the Term render reasonable assistance to Company in connection with any litigation or other proceeding involving Company or any of its affiliates. Company shall provide reasonable compensation to Executive for such assistance rendered after the Term.

6.3No Mitigation. In no event shall Executive be required to seek other employment or take any other action by way of mitigation of the amounts payable to Executive under this Agreement, and such amounts shall not be reduced whether or not Executive obtains other employment after termination of his employment hereunder.
6.4Severability. The invalidity or unenforceability of any particular provision or part of any provision of this Agreement shall not affect the other provisions or parts hereof.
6.5Assignment; Benefit. This Agreement shall not be assignable by Executive, and shall be assignable by Company only with the Executive’s consent and only to any person or entity which may become a successor in interest (by purchase of assets or stock, or by merger, or otherwise) to Company in the business or substantially all of the business presently operated by it. Any Change in Control is deemed an assignment. Subject to the foregoing, this Agreement and the rights and obligations set forth herein shall inure to the benefit of, and be binding upon, the parties hereto and each of their respective permitted successors, assigns, heirs, executors and administrators.
6.6Notices. All notices hereunder shall be in writing and shall be sufficiently given if hand-delivered, sent by documented overnight delivery service or registered or certified mail, postage prepaid, return receipt requested or by facsimile, receipt acknowledged, addressed as set forth below or to such other person and/or at such other address as may be furnished in writing by any party hereto to the other. Any such notice shall be deemed to have been given as of the date received, in the case of personal delivery, or on the date shown on the receipt or confirmation therefor, in all other cases. Any and all service of process and any other notice in any action, suit or proceeding shall be effective against any party if given as provided in this Agreement; provided that nothing herein shall be deemed to affect the right of any party to serve process in any other manner permitted by law.
(a) If to Company:
Enstar Group Limited
P.O. Box HM 2267
Windsor Place, 3rd Floor
18 Queen Street
Hamilton HM JX
Bermuda
Attention: Paul O’Shea
Facsimile No.: 1 441 292 6603

(b) If to Executive:
Nicholas Packer
Apartment 7B Grosvenor Court
Pembroke HM08
Bermuda
6.7Entire Agreement; Modification; Advice of Counsel.
(a) This Agreement constitutes the entire agreement between the parties hereto with respect to the matters contemplated herein and supersedes all prior agreements and understandings with respect thereto. No addendum, amendment, modification, or waiver of this Agreement shall be effective unless in writing. Neither the failure nor any delay on the part of any party to exercise any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy preclude any other or further exercise of the same or of any other right or remedy with respect to such occurrence or with respect to any other occurrence.
(b) Executive acknowledges that he has been afforded an opportunity to consult with his counsel with respect to this Agreement.
6.8 Governing Law. This Agreement is made pursuant to, and shall be construed and enforced in accordance with, the laws of Bermuda, to the extent applicable, without giving effect to otherwise applicable principles of conflicts of law.
6.9 Headings; Counterparts. The headings of paragraphs in this Agreement are for convenience only and shall not affect its interpretation. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which, when taken together, shall be deemed to constitute the same Agreement.
6.10 Further Assurances. Each of the parties hereto shall execute such further instruments and take such additional actions as the other party shall reasonably request in order to effectuate the purposes of this Agreement.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

ENSTAR GROUP LIMITED	
 	 	
By:	 	/s/ Richard J. Harris                	
 	 	Name:	 	Richard J. Harris	
 	 	Title:	 	Chief Financial Officer	
 	
/s/ Nicholas Packer        	
Nicholas Packer	

Exhibit A
Restrictive Covenants
 
A.	Noncompetition. During the Term and, if Executive fails to remain employed through the fifth anniversary of the date hereof, for a period of eighteen (18) months after Executive’s employment terminates (the “Restriction Period”), Executive shall not, without the prior written permission of the Board, directly or indirectly engage in any Competitive Activity. The term “Competitive Activity” shall include (i) entering the employ of, or rendering services to, any person, firm or corporation engaged in the insurance and reinsurance run-off or any other business in which the Company or any of its affiliates has been engaged at any time during the last twelve months of the Term and to which Executive has rendered services or about which Executive has acquired Confidential Information or by which Executive has been engaged at any time during the last twelve months of his period of employment hereunder and in each case in any jurisdiction in which the Company or any of its affiliates has conducted substantial business (hereinafter defined as the “Business”); (ii) engaging in the Business for Executive’s own account or (becoming interested in any such Business, directly or indirectly, as an individual, partner, shareholder, member, director, officer, principal, agent, employee, trustee, consultant, or in any other similar capacity; provided, however, nothing in this Paragraph A shall prohibit Executive from owning, solely as a passive investment, 5% or less of the total outstanding securities of a publicly-held company, or any interest held by Executive in a privately-held company as of the date of this Agreement; provided further that the provisions of this Paragraph A shall not apply in the event Executive’s employment with the Company is terminated without Cause or with Good Reason.	
 
B.	Confidentiality. Without the prior written consent of the Company, except to the extent required by an order of a court having competent jurisdiction or under subpoena from an appropriate regulatory authority, Executive shall not disclose and shall use his best endeavours to prevent the disclosure of any trade secrets, customer lists, market data, marketing plans, sales plans, management organization information (including data and other information relating to members of the Board and management), operating policies or manuals, business plans or financial records, or other financial, commercial, business or technical information relating to the Company or any of its subsidiaries or affiliates or information designated as confidential or proprietary that the Company or any of its subsidiaries or affiliates may receive belonging to clients or others who do business with the Company or any of its subsidiaries or affiliates (collectively, “ Confidential Information ”) to any third person unless such Confidential Information has been previously disclosed to the public by the Company or any of its subsidiaries or affiliates or is in the public domain (other than by reason of Executive’s breach of this Paragraph B). In the event that Executive is required to	

 	disclose Confidential Information in a legal proceeding, Executive shall provide the Company with notice of such request as soon as reasonably practicable, so that the Company may timely seek an appropriate protective order or waive compliance with this Paragraph B, except if such notice would be unlawful or would place Executive in breach of an undertaking he is required to give by law or regulation.	
 
C.	Non-Solicitation of Employees. During the Restriction Period, Executive shall not, without the prior written permission of the Board, directly or indirectly induce any Senior Employee of the Company or any of its affiliates to terminate employment with such entity, and shall not directly or indirectly, either individually or as owner, agent, employee, consultant or otherwise, offer employment to or employ any Senior Employee unless such person shall have ceased to be employed by the Company or any affiliate for a period of at least six (6) months. For the purpose of this Paragraph C, “ Senior Employee ” shall mean a person who, at any time during the last twelve months of Executive’s period of employment hereunder:	
(i) is engaged or employed (other than in a clerical, secretarial or administrative capacity) as an employee, director or consultant of the Company or its affiliates; and
(ii) is or was engaged in a capacity in which he obtained Confidential Information; and
(iii) had personal dealings with Executive.
 
D.	Non-Disparagement. Executive shall not do or say anything adverse or harmful to, or otherwise disparaging of, the Company or its subsidiaries and their respective goodwill. The Company shall not, and shall use reasonable efforts to ensure that its officers, directors, employees and subsidiaries do not do or say anything adverse or harmful to, or otherwise disparaging of, Executive and his goodwill;  provided that  no action by either party in connection with the enforcement of its rights hereunder shall be construed as a violation of this Paragraph D.	
 
E.	Definition. In this Exhibit A, “directly or indirectly” (without prejudice to the generality of the expression) means whether as principal or agent (either alone or jointly or in partnership with any other person, firm or company) or as a shareholder, member or holder of loan capital in any other company or being concerned or interested in any other person, firm or company and whether as a director, partner, consultant, employee or otherwise.	
 
F.	Severability. Each of the provisions contained in this Exhibit A is and shall be construed as separate and severable and if one or more of such provisions is held to be against the public interest or unlawful or in any way an unreasonable restraint of trade or unenforceable in whole or in part for any reason, the remaining provisions of this Exhibit A or part thereof, as appropriate, shall continue to be in full force and effect.	

May 4, 2011
Enstar Group Limited
P.O. Box 2267, Windsor Place, 3rd Floor
18 Queen Street
Hamilton, HM JX
Bermuda
Attn: Dominic F. Silvester
Re: Waiver of Housing Allowance under Employment Agreement
Dear Dominic,
Effective January 1, 2011, I hereby waive my right to a housing allowance under my Employment Agreement with Enstar Group Limited, dated May 1, 2007, in consideration of the Compensation Committee’s decision to increase my annual base salary by an amount equal to the annual amount of the housing allowance.

Sincerely,	
 	
/s/ Nicholas A. Packer	
Nicholas A. Packer	

Accepted and agreed to
this 4th day of May, 2011	
 	
ENSTAR GROUP LIMITED	
 	 	
By:	 	/s/ Dominic F. Silvester                            	
 	 	 	
Name:	 	Dominic F. Silvester	
 	 	 	
Title:	 	Chairman and Chief Executive Officer	

Exhibit 10.4
Enstar Group Limited
P.O. Box 2267, Windsor Place, 3rd Floor
18 Queen Street
Hamilton, HM JX
Bermuda
April 19, 2012
Attn: Richard J. Harris, Chief Financial Officer
Re: Extension of Employment Agreement Term
Dear Richard,
In recognition of your valuable service to Enstar Group Limited over the past few years, we wish to amend your Employment Agreement, dated May 1, 2007, as amended, which is attached as  Exhibit A , to extend its Term (as defined in the Employment Agreement) for an additional term of five years. The modified Term shall be five years commencing on January 1, 2012, as further extended or unless sooner terminated in accordance with the other provisions of the Employment Agreement. For purposes of Section A of Exhibit A to your Employment Agreement, “the fifth anniversary of the date hereof” shall now read “December 31, 2016”.
If you agree to this extension of the Term of your Employment Agreement, please sign the letter in the space provided below and return it to me.

Sincerely,	
 	
Enstar Group Limited	
 	
/s/ Dominic F. Silvester	
Dominic F. Silvester, Chief Executive Officer	

Accepted and agreed to
this 19th day of April, 2012	
 	
/s/ Richard J. Harris	
Richard J. Harris	

Exhibit A – Existing Employment Agreement

EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (“Agreement”) is dated as of May 1, 2007, between Enstar Group Limited (formerly known as Castlewood Holdings Limited), a Bermuda corporation (“Company”), and Richard J. Harris (“Executive”).
BACKGROUND
Company desires to employ Executive, and Executive desires to be an employee of Company, on the terms and conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements contained herein and intending to be legally bound hereby, the parties hereto agree as follows:
TERMS
 
1.	CAPACITY AND DUTIES	
1.1Employment; Acceptance of Employment. Company hereby employs Executive and Executive hereby agrees to continue employment by Company for the period and upon the terms and conditions hereinafter set forth. Effective on the date hereof, this Agreement replaces any prior employment agreement, and the rights and obligations of each party shall be governed by this Agreement.
1.2Capacity and Duties.
(a) Executive shall serve as Chief Financial Officer of Company. Executive shall perform such duties and shall have such authority consistent with his position as may from time to time be specified by the Chief Executive Officer of Company. Executive shall report directly to the Chief Executive Officer of Company and his principal place of business shall be Company’s office in Bermuda. It is recognised that extensive travel may be necessary or appropriate in connection with the performance of Executive’s duties hereunder.
(b) Executive shall devote his full working time and energy, skill and best efforts to the performance of his duties hereunder, in a manner that will comply with Company’s rules and policies and will faithfully and diligently further the business and interests of Company. Executive shall not be employed by or participate or engage in or in any manner be a part of the management or operation of any business enterprise other than Company without the prior written consent of Company, which consent may be granted or withheld in the reasonable discretion of the Board of Directors of Company. Notwithstanding anything herein to the contrary, nothing shall preclude Executive from (i) serving on the boards of directors of a reasonable number of other corporations or the boards of a reasonable number of trade associations and/or charitable organizations, (ii)

engaging in charitable, community and other business affairs, and (iii) managing his personal investments and affairs, provided that such activities do not materially interfere with the proper performance of his responsibilities and duties hereunder.
 
2.	TERM OF EMPLOYMENT	
2.1Term. The term of Executive’s employment hereunder shall be five years commencing on the date hereof, as further extended or unless sooner terminated in accordance with the other provisions hereof (the “Term”). Except as hereinafter provided, on the fifth anniversary of the commencement date and on each subsequent anniversary thereof, the Term shall be automatically extended for one year unless either party shall have given to the other party written notice of termination of this Agreement at least 120 days prior to such anniversary. If written notice of termination is given as provided above, Executive’s employment under this Agreement shall terminate on the last day of the Term.
 
3.	COMPENSATION	
3.1Basic Compensation. As compensation for Executive’s services during the first twelve months of the Term, Company shall pay to Executive a salary at the annual rate of $415,000 payable in periodic installments in accordance with Company’s regular payroll practices in effect from time to time. For each subsequent twelve-month period of Executive’s employment hereunder, Executive’s salary shall be in the amount of his initial annual salary with such increases, as may be established by the Board of Directors of Company in consultation with Executive provided that the increase in base salary with respect to each subsequent twelve-month period shall not be less than the product of Executive’s base salary multiplied by the annual percentage increase in the retail price index (expressed as a decimal) for the United States, as reported in the most recent report of the U.S. Department of Labor for the preceding twelve-month period. Once increased, Executive’s annual salary cannot be decreased without the written consent of Executive. Executive’s annual salary, as determined in accordance with this Section 3.1, is hereinafter referred to as his “Base Salary.”
3.2 Performance Bonus. Executive shall, following the completion of each fiscal year of Company during the Term, be eligible for a performance bonus in accordance with Company’s performance bonus plan. Executive shall also be eligible for additional equity and other incentive awards, at a level commensurate with his position and in accordance with the policies and practices of the Company.
3.3 Employee Benefits. During the Term, Executive shall be entitled to participate in such of Company’s employee benefit plans and benefit programs, as may from time to time be provided by Company. In addition, during the Term, Executive shall be entitled to the following:
(a) a housing allowance equal to $4,166.67 per month;

(b) a life insurance policy in the amount of five times the Executive’s Base Salary, provided that Executive assists Company in the procurement of such policy (including, without limitation, submitting to any required physical examinations and completing accurately any applicable applications and or questionnaires);
(c) fully comprehensive medical and dental coverage on a worldwide basis for the Executive, his spouse and dependents and an annual medical examination for same;
(d) long term disability coverage, including coverage for serious illness, and full compensation paid by Company during the period up to and until Executive begins receiving benefits under such long term disability plan. In the event that the generally applicable group long-term disability plan contains a limitation on benefits that would result in Executive’s being entitled to benefit payments under such plan which are less than 50% of his salary, Company shall provide Executive with an individual disability policy paying a benefit amount that, when coupled with the group policy benefit payable, would provide Executive with aggregate benefits in connection with his long-term disability equal to 50% of such salary (provided that, if an individual policy can not be obtained for such amount on commercially reasonable rates and on commercially reasonable terms, Company shall provide Executive with a policy providing for the greatest amount of individual coverage that is available on such standard terms and rates). Provision of any individual disability policy will also be contingent upon Executive being able to be insured at commercially reasonable rates and on commercially reasonable terms and upon Executive assisting Company in the procurement of such policy (including, without limitation, submitting to any required physical examinations and completing accurately any applicable applications and or questionnaires); and
(e) payment from the company of an amount equal to 10% of Executive’s Base Salary each year to Executive as contribution to his pension plans; and
3.4 Vacation. During the Term, Executive shall be entitled to a paid vacation of 30 days per year (including 30 days during 2007).
3.5 Expense Reimbursement. Company shall reimburse Executive for all reasonable out-of-pocket expenses incurred by him in connection with the performance of his duties hereunder in accordance with its regular reimbursement policies as in effect from time to time.
 
4.	TERMINATION OF EMPLOYMENT	
4.1 Death of Executive. If Executive dies during the Term, and for the year in which Executive dies, Company achieves the performance goals established in accordance with any incentive plan in which Executive participates, Company shall pay Executive’s estate an amount equal to the bonus that Executive would have received had he been employed by Company for the full year, multiplied by a fraction, the numerator

of which is the number of calendar days Executive was employed in such year and the denominator of which is 365. In addition, Executive’s spouse and dependents (if any) shall be entitled for a period of 36 months, to continue to receive medical benefits coverage (as described in Section 3.3) at Company’s expense if and to the extent Company was paying for such benefits for Executive’s spouse and dependents at the time of Executive’s death.
4.2 Disability. If Executive is or has been materially unable for any reason to perform his duties hereunder for 120 days during any period of 150 consecutive days, Company shall have the right to terminate Executive’s employment upon 30 days’ prior written notice to Executive at any time during the continuation of such inability, in which event Company shall thereafter be obligated to continue to pay Executive’s Base Salary for a period of 36 months, periodically in accordance with Company’s regular payroll practices and, within 30 days of such notice, shall pay any other amounts (including salary, bonuses, expense reimbursement, etc.) that have been fully earned by, but not yet paid to, Executive under this Agreement as of the date of such termination. The amount of payments to Executive under disability insurance policies paid for by Company shall be credited against and shall reduce the Base Salary otherwise payable by Company following termination of employment. If, for the year in which Executive’s employment is terminated pursuant to this Section, Company achieves the performance goals established in accordance with any incentive plan in which Executive participates, Company shall pay Executive an amount equal to the bonus that Executive would have received had he been employed by Company for the full year, multiplied by a fraction, the numerator of which is the number of calendar days Executive was employed in such year and the denominator of which is 365. Executive shall be entitled for a period of 36 months, to continue to receive at Company’s expense medical benefits coverage (as described in Section 3.3) for Executive and Executive’s spouse and dependents (if any) if and to the extent Company was paying for such benefits to Executive and Executive’s spouse and dependents at the time of such termination.
4.3 Termination for Cause. Executive’s employment hereunder shall terminate immediately upon notice that the Board of Directors of Company is terminating Executive for Cause (as defined herein), in which event Company shall not thereafter be obligated to make any further payments hereunder other than amounts (including salary, expense reimbursement, etc.) that have been fully earned by, but not yet paid to, Executive under this Agreement as of the date of such termination. “Cause” shall mean (a) fraud or dishonesty in connection with Executive’s employment that results in a material injury to Company, (b) conviction of any felony or crime involving fraud or misrepresentation or (c) after Executive has received written notice of the specific material and continuing failure of Executive to perform his duties hereunder (other than death or disability) and has failed to cure such failure within 30 days of receipt of the notice, or (d) material and continuing failure to follow reasonable instructions of the Board of Directors after Executive has received at least prior written notice of the specific material and continuing failure to follow instructions and has failed to cure such failure within 30 days of receipt of the notice.

4.4Termination without Cause or for Good Reason.
(a) If (1) Executive’s employment is terminated by Company for any reason other than Cause or the death or disability of Executive, or (2) Executive’s employment is terminated by Executive for Good Reason (as defined herein):
(i) Company shall pay Executive any amounts (including salary, bonuses, expense reimbursement, etc.) that have been fully earned by, but not yet paid to, Executive under this Agreement as of the date of such termination;
(ii) Company shall pay Executive a lump sum amount equal to three times the Base Salary payable to him;
(iii) Executive shall be entitled to continue to receive medical benefits coverage (as described in Section 3.3) for Executive and Executive’s spouse and dependents (if any) at Company’s expense for a period of 36 months;
(iv) Anything to the contrary in any other agreement or document notwithstanding, each outstanding equity incentive award granted to Executive before, on or within three years after the date hereof shall become immediately vested and exercisable on the date of such termination; and
(v) In addition, if, for the year in which Executive is terminated, Company achieves the performance goals established in accordance with any incentive plan in which Executive participates, Company shall pay an amount equal to the bonus that Executive would have received had he been employed by Company for the full year.
(b) Upon making the payments described in this Section 4.4, Company shall have no further obligation to Executive under this Agreement.
(c) “Good Reason” shall mean the following:
(i) material breach of Company’s obligations hereunder, provided that Executive shall have given written notice thereof to Company, and Company shall have failed to remedy the circumstances within 30 days;
(ii) the relocation of Executive’s principal business office outside of Bermuda without the Executive’s prior agreement; or
(iii) any material reduction in Executive’s duties or authority.

4.5 Change in Control.
(a) If, during the Term, there should be a Change of Control (as defined herein), and within 1 year thereafter either (i) Executive’s employment should be terminated for any reason other than for Cause or (ii) Executive terminates his employment for Good Reason (as defined in Section 4.4):
(i) Company shall pay Executive any amounts (including salary, bonuses, expense reimbursement, etc.) that have been fully earned by, but not yet paid to, Executive under this Agreement as of the date of such termination;
(ii) Company shall pay Executive a lump sum amount equal to three times Executive’s then current Base Salary;
(iii) Executive shall be entitled to continue to receive medical benefits coverage (as described in Section 3.3) for Executive and Executive’s spouse and dependents (if any) at Company’s expense for a period of 36 months;
(iv) Anything to the contrary in any other agreement or document notwithstanding, each outstanding equity incentive award granted to Executive before, on or after the date hereof shall become immediately vested and exercisable on the date of such termination; and
(v) In addition, if, for the year in which Executive is terminated, Company achieves the performance goals established in accordance with any incentive plan in which Executive participates, Company shall pay an amount equal to the bonus that Executive would have received had he been employed by Company for the full year.
(b) Upon making the payments described in this Section 4.5, Company shall have no further obligation to Executive under this Agreement.
(c) A “Change in Control” of Company shall mean:
(i) the acquisition by any person, entity or “group” required to file a Schedule 13D or Schedule 14D-1 under the Securities Exchange Act of 1934 (the “1934 Act”) (excluding, for this purpose, Company, its subsidiaries, any employee benefit plan of Company or its subsidiaries which acquires ownership of voting securities of Company, and any group that includes Executive) of beneficial ownership (within the meaning of Rule 13d-3 under the 1934 Act) of 50% or more of either the then outstanding ordinary shares or the combined voting power of Company’s then outstanding voting securities entitled to vote generally in the election of directors;
(ii) the election or appointment to the Board of Directors of Company, or resignation of or removal from the Board, of directors with the result that the individuals who as of the date hereof constituted the Board (the “Incumbent Board”) no longer constitute at least a majority of the Board, provided that any person who becomes a director subsequent to the date hereof whose appointment, election, or nomination for election by Company’s shareholders, was approved by a vote of at least a majority of the Incumbent Board (other than an appointment, election or nomination of

an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of Company) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or
(iii) approval by the shareholders of Company of: (i) a reorganization, merger or consolidation by reason of which persons who were the shareholders of Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50% of the combined voting power of the reorganized, merged or consolidated company’s then outstanding voting securities entitled to vote generally in the election of directors, or (ii) a liquidation or dissolution of Company or the sale, transfer, lease or other disposition of all or substantially all of the assets of Company (whether such assets are held directly or indirectly).
 
5.	RESTRICTIVE COVENANTS	
5.1 Restrictive Covenants.
(a) Executive acknowledges that he is one of a small number of key executives and that in such capacity, he will have access to confidential information of the Company and will engage in key client relationships on behalf of the Company and that it is fair and reasonable for protection of the legitimate interests of the Company and the other key executives of the Company that he should accept the restrictions described in Exhibit A hereto.
(b) Promptly following Executive’s termination of employment, Executive shall return to the Company all property of the Company, and all documents, accounts, letters and papers of every description relating to the affairs and business of the Company or any of its subsidiaries, and copies thereof in Executive’s possession or under his control.
(c) Executive acknowledges and agrees that the covenants and obligations of Executive in Exhibit A and this Section 5.1 relate to special, unique and extraordinary matters and that a violation of any of the terms of such covenants and obligations will cause the Company irreparable injury for which adequate remedies are not available at law. Therefore, Executive agrees that the Company shall be entitled to an injunction, restraining order or such other equitable relief (without the requirement to post bond) restraining Executive from committing any violation of the covenants and obligations contained in Exhibit A and this Section 5.1. These injunctive remedies are cumulative and are in addition to any other rights and remedies the Company may have at law or in equity.
(d) Executive agrees that if he applies for, or is offered employment by (or is to provide consultancy services to) any other person, firm, company, business entity or other organization whatsoever (other than an affiliate of the Company) during the

restriction periods set forth in Exhibit A, he shall promptly, and before entering into any contract with any such third party, provide to such third party a full copy of Exhibit A and this Section 5.1 in order to ensure that such other party is fully aware of Executive’s obligations hereunder.
5.2Intellectual Property Rights. Executive recognizes and agrees that Executive’s duties for the Company may include the preparation of materials, including written or graphic materials for the Company or its affiliate, and that any such materials conceived or written by Executive shall be done within the scope of his employment as a “work made for hire.” Executive agrees that because any such work is a “work made for hire,” the Company (or the relevant affiliate of the Company) will solely retain and own all rights in said materials, including rights of copyright. Executive agrees to disclose and assign to the Company his entire right, title and interest in and to all inventions and improvements related to the Company’s business or to the business of the Company’s affiliates (including, but not limited to, all financial and sales information), whether patentable or not, whether made or conceived by him individually or jointly with others at any time during his employment by the Company hereunder. Such inventions and improvements are to become and remain the property of the Company and Executive shall take such actions as are reasonably necessary to effectuate the foregoing.
 
6.	MISCELLANEOUS	
6.1 Key Employee Insurance. Company shall have the right at its expense to purchase insurance on the life of Executive, in such amounts as it shall from time to time determine, of which Company shall be the beneficiary. Executive shall submit to such physical examinations as may reasonably be required and shall otherwise cooperate with Company in obtaining such insurance.
6.2 Indemnification/Litigation. Company shall indemnify and defend Executive against all claims arising out of Executive’s activities as an officer or employee of Company or its affiliates to the fullest extent permitted by law and under Company’s organizational documents. At the request of Company, Executive shall during and after the Term render reasonable assistance to Company in connection with any litigation or other proceeding involving Company or any of its affiliates. Company shall provide reasonable compensation to Executive for such assistance rendered after the Term.
6.3 No Mitigation. In no event shall Executive be required to seek other employment or take any other action by way of mitigation of the amounts payable to Executive under this Agreement, and such amounts shall not be reduced whether or not Executive obtains other employment after termination of his employment hereunder.
6.4 Severability. The invalidity or unenforceability of any particular provision or part of any provision of this Agreement shall not affect the other provisions or parts hereof.

6.5 Assignment; Benefit. This Agreement shall not be assignable by Executive, and shall be assignable by Company only with the Executive’s consent and only to any person or entity which may become a successor in interest (by purchase of assets or stock, or by merger, or otherwise) to Company in the business or substantially all of the business presently operated by it. Any Change in Control is deemed an assignment. Subject to the foregoing, this Agreement and the rights and obligations set forth herein shall inure to the benefit of, and be binding upon, the parties hereto and each of their respective permitted successors, assigns, heirs, executors and administrators.
6.6 Notices. All notices hereunder shall be in writing and shall be sufficiently given if hand-delivered, sent by documented overnight delivery service or registered or certified mail, postage prepaid, return receipt requested or by facsimile, receipt acknowledged, addressed as set forth below or to such other person and/or at such other address as may be furnished in writing by any party hereto to the other. Any such notice shall be deemed to have been given as of the date received, in the case of personal delivery, or on the date shown on the receipt or confirmation therefor, in all other cases. Any and all service of process and any other notice in any action, suit or proceeding shall be effective against any party if given as provided in this Agreement; provided that nothing herein shall be deemed to affect the right of any party to serve process in any other manner permitted by law.
(a) If to Company:
Enstar Group Limited
P.O. Box HM 2267
Windsor Place, 3rd Floor
18 Queen Street
Hamilton HM JX
Bermuda
Attention: Paul O’Shea
Facsimile No.: 1 441 292 6603
(b) If to Executive:
Richard J. Harris
Birthday Cottage
25 Devon Point Lane
Devonshire FL 05
Bermuda
6.7 Entire Agreement; Modification; Advice of Counsel.
(a) This Agreement constitutes the entire agreement between the parties hereto with respect to the matters contemplated herein and supersedes all prior

agreements and understandings with respect thereto. No addendum, amendment, modification, or waiver of this Agreement shall be effective unless in writing. Neither the failure nor any delay on the part of any party to exercise any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy preclude any other or further exercise of the same or of any other right or remedy with respect to such occurrence or with respect to any other occurrence.
(b) Executive acknowledges that he has been afforded an opportunity to consult with his counsel with respect to this Agreement.
6.8 Governing Law. This Agreement is made pursuant to, and shall be construed and enforced in accordance with, the laws of Bermuda, to the extent applicable, without giving effect to otherwise applicable principles of conflicts of law.
6.9 Headings; Counterparts. The headings of paragraphs in this Agreement are for convenience only and shall not affect its interpretation. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original and all of which, when taken together, shall be deemed to constitute the same Agreement.
6.10 Further Assurances. Each of the parties hereto shall execute such further instruments and take such additional actions as the other party shall reasonably request in order to effectuate the purposes of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

ENSTAR GROUP LIMITED	
 	 	
By:	 	/s/ Dominic Silvester                        	
 	 	Name:	 	Dominic Silvester	
 	 	Title:	 	Chief Executive Officer	
 	
/s/ Richard J. Harris            	
Richard J. Harris	

Exhibit A
Restrictive Covenants
 
A.	Noncompetition. During the Term and, if Executive fails to remain employed through the fifth anniversary of the date hereof, for a period of eighteen (18) months after Executive’s employment terminates (the “Restriction Period”), Executive shall not, without the prior written permission of the Board, directly or indirectly engage in any Competitive Activity. The term “Competitive Activity” shall include (i) entering the employ of, or rendering services to, any person, firm or corporation engaged in the insurance and reinsurance run-off or any other business in which the Company or any of its affiliates has been engaged at any time during the last twelve months of the Term and to which Executive has rendered services or about which Executive has acquired Confidential Information or by which Executive has been engaged at any time during the last twelve months of his period of employment hereunder and in each case in any jurisdiction in which the Company or any of its affiliates has conducted substantial business (hereinafter defined as the “Business”); (ii) engaging in the Business for Executive’s own account or (becoming interested in any such Business, directly or indirectly, as an individual, partner, shareholder, member, director, officer, principal, agent, employee, trustee, consultant, or in any other similar capacity; provided, however, nothing in this Paragraph A shall prohibit Executive from owning, solely as a passive investment, 5% or less of the total outstanding securities of a publicly-held company, or any interest held by Executive in a privately-held company as of the date of this Agreement; provided further that the provisions of this Paragraph A shall not apply in the event Executive’s employment with the Company is terminated without Cause or with Good Reason.	
 
B.	Confidentiality. Without the prior written consent of the Company, except to the extent required by an order of a court having competent jurisdiction or under subpoena from an appropriate regulatory authority, Executive shall not disclose and shall use his best endeavours to prevent the disclosure of any trade secrets, customer lists, market data, marketing plans, sales plans, management organization information (including data and other information relating to members of the Board and management), operating policies or manuals, business plans or financial records, or other financial, commercial, business or technical information relating to the Company or any of its subsidiaries or affiliates or information designated as confidential or proprietary that the Company or any of its subsidiaries or affiliates may receive belonging to clients or others who do business with the Company or any of its subsidiaries or affiliates (collectively, “ Confidential Information ”) to any third person unless such Confidential Information has been previously disclosed to the public by the Company or any of its subsidiaries or affiliates or is in the public domain (other than by reason of Executive’s breach of this Paragraph B). In the event that Executive is required to	

 	disclose Confidential Information in a legal proceeding, Executive shall provide the Company with notice of such request as soon as reasonably practicable, so that the Company may timely seek an appropriate protective order or waive compliance with this Paragraph B, except if such notice would be unlawful or would place Executive in breach of an undertaking he is required to give by law or regulation.	
 
C.	Non-Solicitation of Employees. During the Restriction Period, Executive shall not, without the prior written permission of the Board, directly or indirectly induce any Senior Employee of the Company or any of its affiliates to terminate employment with such entity, and shall not directly or indirectly, either individually or as owner, agent, employee, consultant or otherwise, offer employment to or employ any Senior Employee unless such person shall have ceased to be employed by the Company or any affiliate for a period of at least six (6) months. For the purpose of this Paragraph C, “ Senior Employee ” shall mean a person who, at any time during the last twelve months of Executive’s period of employment hereunder:	
(i) is engaged or employed (other than in a clerical, secretarial or administrative capacity) as an employee, director or consultant of the Company or its affiliates; and
(ii) is or was engaged in a capacity in which he obtained Confidential Information; and
(iii) had personal dealings with Executive.
 
D.	Non-Disparagement. Executive shall not do or say anything adverse or harmful to, or otherwise disparaging of, the Company or its subsidiaries and their respective goodwill. The Company shall not, and shall use reasonable efforts to ensure that its officers, directors, employees and subsidiaries do not do or say anything adverse or harmful to, or otherwise disparaging of, Executive and his goodwill;  provided that  no action by either party in connection with the enforcement of its rights hereunder shall be construed as a violation of this Paragraph D.	
 
E.	Definition. In this Exhibit A, “directly or indirectly” (without prejudice to the generality of the expression) means whether as principal or agent (either alone or jointly or in partnership with any other person, firm or company) or as a shareholder, member or holder of loan capital in any other company or being concerned or interested in any other person, firm or company and whether as a director, partner, consultant, employee or otherwise.	
 
F.	Severability. Each of the provisions contained in this Exhibit A is and shall be construed as separate and severable and if one or more of such provisions is held to be against the public interest or unlawful or in any way an unreasonable restraint of trade or unenforceable in whole or in part for any reason, the remaining provisions of this Exhibit A or part thereof, as appropriate, shall continue to be in full force and effect.	

May 4, 2011
Enstar Group Limited
P.O. Box 2267, Windsor Place, 3rd Floor
18 Queen Street
Hamilton, HM JX
Bermuda
Attn: Dominic F. Silvester
Re: Waiver of Housing Allowance under Employment Agreement
Dear Dominic,
Effective January 1, 2011, I hereby waive my right to a housing allowance under my Employment Agreement with Enstar Group Limited, dated May 1, 2007, in consideration of the Compensation Committee’s decision to increase my annual base salary by an amount equal to the annual amount of the housing allowance.

Sincerely,	
 	
/s/ Richard J. Harris	
Richard J. Harris	

Accepted and agreed to
this 4th day of May, 2011	
 	
ENSTAR GROUP LIMITED	
 	 	
By:	 	/s/ Dominic F. Silvester                            	
Name:	 	Dominic F. Silvester	
Title:	 	Chairman and Chief Executive Officer	

EXHIBIT 15.1
Enstar Group Limited
3rd Floor, Windsor Place
18 Queen Street
Hamilton HM JX, Bermuda
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 three-month periods ended March 31, 2012 and 2011, as indicated in our report dated May 4, 2012; 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, 2012, is incorporated by reference in Registration Statement No. 333-149551, 333-148863, 333-148862 and 333-141793 on Form S-8.
We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is 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 Ltd.
Hamilton, Bermuda
May 4, 2012

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 officer 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 officer 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 4, 2012

/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 officer 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 officer 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 4, 2012

/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, 2012, 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 4, 2012

/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, 2012, 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 4, 2012

/s/ Richard J. Harris	
Richard J. Harris	
Chief Financial Officer