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Section 1: 10-Q (10-Q)


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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


Form 10-Q

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-38731


SIRIUS INTERNATIONAL INSURANCE GROUP, LTD.
(Exact name of registrant as specified in its charter)

Bermuda
(State or other jurisdiction of incorporation or organization)

98-0529995
(I.R.S. Employer Identification No.)

14 Wesley Street, Hamilton HM 11, Bermuda
(Address of principal executive offices)

(441) 278-3140
(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 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 o    No ý

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý    No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

   Accelerated filer o   Non-accelerated filer ý   Smaller reporting company ý   Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý

Securities registered pursuant to Section 12(b) of the Act:

Title of each class   Trading symbol   Name of each exchange on which registered

Common shares, par value $0.01 per share

   SG   Nasdaq Global Select Market

At April 30, 2019, there were 115,262,303 Common Shares, $0.01 par value per share, of the registrant outstanding.

   

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SIRIUS INTERNATIONAL INSURANCE GROUP, LTD.

INDEX TO FORM 10-Q

 
    
   Page  

Part I

  

Financial Information

        

 

Cautionary Note Regarding Forward-Looking Statements

     3  

Item 1.

  

Unaudited Consolidated Financial Statements

        

 

Consolidated Balance Sheets at March 31, 2019 and December 31, 2018

     5  

 

Consolidated Statements of Income for the three months ended March 31, 2019 and 2018

     6  

 

Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 and 2018

     7  

 

Consolidated Statements of Shareholders' Equity for the three months ended March 31, 2019 and 2018

     8  

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018

     9  

 

Notes to Consolidated Financial Statements

     10  

Item 2.

  

Management's Discussion and Analysis of Financial Condition and Results of Operations

     46  

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

     71  

Item 4.

  

Controls and Procedures

     72  

Part II

  

Other Information

        

Item 1.

  

Legal Proceedings

     73  

Item 1A.

  

Risk Factors

     74  

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

     77  

Item 3.

  

Defaults Upon Senior Securities

     78  

Item 4.

  

Mine Safety Disclosures

     79  

Item 5.

  

Other Information

     80  

Item 6.

  

Exhibits

     81  

 

Signatures

        

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PART I. FINANCIAL INFORMATION

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements about the future financial condition, results of operations and operating activities of Sirius International Insurance Group, Ltd. (the "Company" and, together with its subsidiaries, "Sirius Group"). Forward-looking statements are typically identified by words such as "plan," "believe," "expect," "anticipate," "intend," "outlook," "estimate," "forecast," "project," "target," "continue," "could," "may," "might," "will," "possible," "potential," "predict," "should," "would," "seeks," "likely" and other similar words and expressions, but the absence of these words does not mean that a statement is not forward-looking. The forward-looking statements are based on the current expectations of the management of the Company and speak only as of the date of this Quarterly Report on Form 10-Q. There can be no assurance that future developments will be those that have been anticipated. These forward-looking statements involve a number of risks, uncertainties or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, the following:

•
Sirius Group's exposure to unpredictable catastrophic and casualty events and unexpected accumulations of attritional losses;

•
increased competition from existing insurers and reinsurers and from alternative capital providers, such as insurance-linked funds and collateralized special purpose insurers;

•
decreased demand for Sirius Group's insurance or reinsurance products, consolidation and cyclical changes in the insurance and reinsurance industry;

•
the inherent uncertainty of estimating loss and loss adjustment expenses reserves, including asbestos and environmental reserves, and the possibility that such reserves may be inadequate to cover Sirius Group's ultimate liability for losses;

•
a decline in the Company's operating subsidiaries' ratings with rating agencies;

•
the exposure of Sirius Group's investments to interest rate, credit, equity risks and market volatility, which may limit Sirius Group's net income and may affect the adequacy of its capital and liquidity;

•
the impact of various risks associated with transacting business in foreign countries, including foreign currency exchange-rate risk and political risks on investments in, and revenues from, Sirius Group's operations outside the U.S.;

•
the possibility that Sirius Group may become subject to additional onerous governmental or regulatory requirements or fail to comply with applicable regulatory and solvency requirements;

•
Sirius Group's significant deferred tax assets may become materially impaired as a result of insufficient taxable income or a reduction in applicable corporate tax rates or other change in applicable tax law;

•
a decrease in the fair value of Global A&H and/or Sirius Group's intangible assets may result in future impairments;

•
CMIG International Holding Pte. Ltd.'s status as a controlling shareholder;

•
the limited liquidity and trading of the Company's securities;

•
Sirius Group's status as a publicly traded company, foreign private issuer and controlled company; and

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•
risks identified in elsewhere in this Quarterly Report on Form 10-Q, the Company's Annual Report on Form 10-K for the year ended December 31, 2018 and in the Company's other filings with the U.S. Securities and Exchange Commission.

Should one or more of these risks or uncertainties materialize, or should any of the assumptions made by the management of the Company prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. Except to the extent required by applicable law or regulation, Sirius Group undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q.

4

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Sirius International Insurance Group, Ltd.
Consolidated Balance Sheets
As at March 31, 2019 and December 31, 2018

(Expressed in millions of U.S. dollars, except share information)

     March 31, 2019     December 31, 2018
  
​ ​ ​ ​ ​ ​ ​ ​
 
   Unaudited

    
  

Assets

              

Fixed maturity investments, trading, at fair value (Amortized cost 2019: $1,814.8; 2018: $1,952.9)

   $ 1,846.4   $ 1,949.2  

Short-term investments, at fair value (Amortized cost 2019: $830.5; 2018: $716.1)

     833.6     715.5  

Equity securities, trading, at fair value (Cost 2019: $398.4; 2018: $409.4)

     394.4     380.0  

Other long-term investments, at fair value (Cost 2019: $351.7; 2018: $337.6)

     389.7     365.0  

Cash

     116.0     119.4  

Restricted cash

     13.0     12.8  
​ ​ ​ ​ ​ ​ ​ ​

Total investments and cash

     3,593.1     3,541.9  

Accrued investment income

     12.7     14.1  

Insurance and reinsurance premiums receivable

     818.7     630.6  

Reinsurance recoverable on unpaid losses

     349.3     350.2  

Reinsurance recoverable on paid losses

     50.5     55.0  

Funds held by ceding companies

     202.8     186.8  

Ceded unearned insurance and reinsurance premiums

     200.5     159.8  

Deferred acquisition costs

     152.6     141.6  

Deferred tax asset

     171.6     202.5  

Accounts receivable on unsettled investment sales

     1.7     5.0  

Goodwill

     400.7     400.6  

Intangible assets

     191.7     195.6  

Other assets

     161.1     124.0  
​ ​ ​ ​ ​ ​ ​ ​

Total assets

  $ 6,307.0   $ 6,007.7  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

Liabilities

              

Loss and loss adjustment expense reserves

   $ 1,976.3   $ 2,016.7  

Unearned insurance and reinsurance premiums

     860.5     647.2  

Ceded reinsurance payable

     231.3     206.9  

Funds held under reinsurance treaties

     123.4     110.6  

Deferred tax liability

     230.6     237.4  

Debt

     686.1     696.8  

Accounts payable on unsettled investment purchases

     9.9     3.2  

Other liabilities

     173.1     150.5  
​ ​ ​ ​ ​ ​ ​ ​

Total liabilities

    4,291.2     4,069.3  

Commitments and contingencies (see Note 18)

              

Mezzanine equity

              

Series B preference shares

     240.6     232.2  
​ ​ ​ ​ ​ ​ ​ ​

Common shareholders' equity

              

Common shares (shares issued and outstanding, 2019: 115,262,303; 2018: 115,151,251)

     1.2     1.2  

Additional paid-in surplus

     1,090.2     1,089.1  

Retained earnings

     911.8     816.6  

Accumulated other comprehensive (loss)

     (230.2 )   (202.4 )
​ ​ ​ ​ ​ ​ ​ ​

Total common shareholders' equity

    1,773.0     1,704.5  

Non-controlling interests

    2.2     1.7  
​ ​ ​ ​ ​ ​ ​ ​

Total equity

    1,775.2     1,706.2  
​ ​ ​ ​ ​ ​ ​ ​

Total liabilities, mezzanine equity, and equity

  $ 6,307.0   $ 6,007.7  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

See Notes to Consolidated Financial Statements

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Sirius International Insurance Group, Ltd.
Consolidated Statements of Income
For the three months ended March 31, 2019 and 2018
Unaudited

    Three months ended
March 31,		  

(Expressed in millions of U.S. dollars, except share and per share information)

    

2019

    

2018

  
​ ​ ​ ​ ​ ​ ​ ​

Revenues

              

Net earned insurance and reinsurance premiums

   $ 311.9   $ 284.5  

Net investment income

     20.1     10.8  

Net realized investment gains (losses)

     9.0     (3.7 )

Net unrealized investment gains

     74.0     16.0  

Net foreign exchange gains (losses)

     5.1     (3.5 )

Other revenue

     19.6     23.4  
​ ​ ​ ​ ​ ​ ​ ​

Total revenues

     439.7     327.5  
​ ​ ​ ​ ​ ​ ​ ​

Expenses

              

Loss and loss adjustment expenses

     183.9     141.0  

Insurance and reinsurance acquisition expenses

     63.3     63.0  

Other underwriting expenses

     35.3     43.2  

General and administrative expenses

     24.4     14.3  

Intangible asset amortization expenses

     3.9     3.9  

Interest expense on debt

     7.6     7.7  
​ ​ ​ ​ ​ ​ ​ ​

Total expenses

     318.4     273.1  
​ ​ ​ ​ ​ ​ ​ ​

Pre-tax income

     121.3     54.4  

Income tax (expense)

     (17.2 )   (11.1 )
​ ​ ​ ​ ​ ​ ​ ​

Net income

     104.1     43.3  

Less: income attributable to non-controlling interests

     (0.4 )   (0.2 )
​ ​ ​ ​ ​ ​ ​ ​

Net income attributable to Sirius Group

     103.7     43.1  

Change in carrying value of Series B preference shares

     (8.4 )   -  

Accrued dividends on Series A redeemable preference shares

     -     (2.6 )
​ ​ ​ ​ ​ ​ ​ ​

Net income attributable to Sirius Group's common shareholders

   $ 95.3   $ 40.5  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

Net income per common share and common share equivalent

    
 		    
 		  

Basic earnings per common share and common share equivalent

   $ 0.75   $ 0.32  

Diluted earnings per common share and common share equivalent

   $ 0.74   $ 0.32  

Weighted average number of common shares and common share equivalents outstanding

              

Basic weighted average number of common shares and common share equivalents outstanding

     115,182,331     120,000,000  

Diluted weighted average number of common shares and common share equivalents outstanding

     127,335,314     120,000,000  

See Notes to Consolidated Financial Statements

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Sirius International Insurance Group, Ltd.
Consolidated Statements of Comprehensive Income
For the three months ended March 31, 2019 and 2018
Unaudited

      Three months ended
March 31,		  
(Expressed in millions of U.S. dollars)     2019     2018
  
​ ​ ​ ​ ​ ​ ​ ​
Comprehensive income              
Net income   $ 104.1   $ 43.3  
Other comprehensive (loss)              
Change in foreign currency translation, net of tax     (27.8 )   (13.4 )
​ ​ ​ ​ ​ ​ ​ ​
Total other comprehensive (loss)     (27.8 )   (13.4 )
​ ​ ​ ​ ​ ​ ​ ​
Comprehensive income     76.3     29.9  
Net (income) attributable to non-controlling interests     (0.4 )   (0.2 )
​ ​ ​ ​ ​ ​ ​ ​
Comprehensive income attributable to Sirius Group   $ 75.9   $ 29.7  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

See Notes to Consolidated Financial Statements

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Sirius International Insurance Group, Ltd.
Consolidated Statements of Shareholders' Equity
For the three months ended March 31, 2019 and 2018
Unaudited

    Three months ended March 31,  

(Expressed in millions of U.S. dollars)

    

2019

    

2018

  
​ ​ ​ ​ ​ ​ ​ ​

Common shares

              

Balance at beginning and end of period

   $ 1.2   $ 1.2  
​ ​ ​ ​ ​ ​ ​ ​

Additional paid-in surplus

              

Balance at beginning of period

     1,089.1     1,197.9  

Share-based compensation

     1.2     -  

Capital contribution from former parent

     -     1.4  

Other, net

     (0.1 )   -  
​ ​ ​ ​ ​ ​ ​ ​

Balance at end of period

     1,090.2     1,199.3  
​ ​ ​ ​ ​ ​ ​ ​

Retained earnings

              

Balance at beginning of period

     816.6     858.4  

Cumulative effect of an accounting change

     -     1.6  
​ ​ ​ ​ ​ ​ ​ ​

Balance at beginning of period, as adjusted

     816.6     860.0  

Net income

     104.1     43.3  

Income attributable to non-controlling interests

     (0.4 )   (0.2 )

Change in carrying value of Series B preference shares

     (8.4 )   -  

Accrued dividends on Series A redeemable preference shares

     -     (2.6 )

Other, net

     (0.1 )   (0.1 )
​ ​ ​ ​ ​ ​ ​ ​

Balance at end of period

     911.8     900.4  
​ ​ ​ ​ ​ ​ ​ ​

Accumulated other comprehensive (loss)

              

Balance at beginning of period

     (202.4 )   (140.5 )

Accumulated net foreign currency translation (losses)

              

Balance at beginning of period

     (202.4 )   (140.5 )

Net change in foreign currency translation

     (27.8 )   (13.4 )
​ ​ ​ ​ ​ ​ ​ ​

Balance at the end of period

     (230.2 )   (153.9 )
​ ​ ​ ​ ​ ​ ​ ​

Balance at the end of period

     (230.2 )   (153.9 )
​ ​ ​ ​ ​ ​ ​ ​

Total common shareholders' equity

   $ 1,773.0   $ 1,947.0  

Non-controlling interests

     2.2     0.5  
​ ​ ​ ​ ​ ​ ​ ​

Total equity

   $ 1,775.2   $ 1,947.5  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

See Notes to Consolidated Financial Statements

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Sirius International Insurance Group, Ltd.
Consolidated Statements of Cash Flows
For the three months ended March 31, 2019 and 2018
Unaudited

      Three months ended March 31,  
(Expressed in millions of U.S. dollars)     2019     2018
  
​ ​ ​ ​ ​ ​ ​ ​
Cash flows from operations:              
Net income   $ 104.1   $ 43.3  
Adjustments to reconcile net income to net cash provided from operations:              
Net realized and unrealized investment gains (losses)     (83.0 )   (12.3 )
Amortization of premium on fixed maturity investments     (0.8 )   4.4  
Amortization of intangible assets     3.9     3.9  
Depreciation and other amortization     2.2     2.5  
Share-based compensation     1.2     -  
Other operating items:              
Net change in loss and loss adjustment expense reserves     (1.1 )   (4.2 )
Net change in reinsurance recoverable on paid and unpaid losses     (8.7 )   (17.8 )
Net change in funds held by ceding companies     (20.1 )   (12.2 )
Net change in unearned insurance and reinsurance premiums     232.4     271.8  
Net change in ceded reinsurance payable     37.7     47.6  
Net change in ceded unearned insurance and reinsurance premiums     (47.6 )   (71.6 )
Net change in insurance and reinsurance premiums receivable     (208.8 )   (192.2 )
Net change in deferred acquisition costs     (14.2 )   (31.8 )
Net change in funds held under reinsurance treaties     15.4     10.4  
Net change in current and deferred income taxes, net     9.1     2.2  
Net change in other assets and liabilities, net     2.9     (21.6 )
​ ​ ​ ​ ​ ​ ​ ​
Net cash provided from operations     24.6     22.4  
​ ​ ​ ​ ​ ​ ​ ​
Cash flows from investing activities:              
Net change in short-term investments     (120.1 )   (180.0 )
Sales of fixed maturities and convertible fixed maturity investments     135.1     566.2  
Maturities, calls, and paydowns of fixed maturity and convertible fixed maturity investments     59.3     24.0  
Sales of common equity securities     45.9     111.7  
Distributions and redemptions of other long-term investments     15.3     52.4  
Contributions to other long-term investments     (25.0 )   (64.4 )
Purchases of common equity securities     (39.8 )   (179.8 )
Purchases of fixed maturities and convertible fixed maturity investments     (105.1 )   (486.8 )
Net change in unsettled investment purchases and sales     10.0     97.2  
Other, net     0.3     (0.9 )
​ ​ ​ ​ ​ ​ ​ ​
Net cash (used for) investing activities     (24.1 )   (60.4 )
​ ​ ​ ​ ​ ​ ​ ​
Cash flows from financing activities:              
Change in collateral held on Interest Rate Cap     (0.1 )   -  
Capital contribution from former parent     -     1.4  
​ ​ ​ ​ ​ ​ ​ ​
Net cash (used for) provided from financing activities     (0.1 )   1.4  
​ ​ ​ ​ ​ ​ ​ ​
Effect of exchange rate changes on cash     (3.6 )   (2.5 )
Net (decrease) in cash during period     (3.2 )   (39.1 )
Cash and restricted cash balance at beginning of period     132.2     230.6  
Cash and restricted cash balance at end of period   $ 129.0   $ 191.5  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

See Notes to Consolidated Financial Statements

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Sirius International Insurance Group, Ltd.
Notes to Consolidated Financial Statements
Unaudited

Note 1. General

Sirius International Insurance Group, Ltd. (the "Company") is a Bermuda exempted company whose principal businesses are conducted through its wholly- and majority-owned insurance subsidiaries (collectively with the Company, "Sirius Group"). Sirius Group provides insurance, reinsurance, and insurance services on a worldwide basis.

Note 2. Summary of significant accounting policies

Basis of presentation

The accompanying Unaudited Consolidated Financial Statements at March 31, 2019, have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") and the rules and regulations of the U.S. Securities and Exchange Commission ("SEC") for interim financial information. The accompanying Unaudited Consolidated Financial Statements present the consolidated results of operations, financial condition, and cash flows of the Company and its subsidiaries and those entities in which the Company has control and a majority economic interest as well as those variable interest entities ("VIEs") that meet the requirements for consolidation. All intercompany transactions have been eliminated in consolidation.

These Unaudited Consolidated Financial Statements do not include all disclosures normally included in annual financial statements prepared in accordance with GAAP and should be read in conjunction with the Audited Consolidated Financial Statements and the related notes for the year ended December 31, 2018. The consolidated financial information as of December 31, 2018 included herein has been derived from the Audited Consolidated Financial Statements as of December 31, 2018.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In the opinion of management, the accompanying Unaudited Consolidated Financial Statements reflect all adjustments (consisting of normally recurring accruals) necessary for a fair statement of results on an interim basis. Tabular dollar amounts are in millions, with the exception of share and per share amounts. All amounts are reported in U.S. dollars, except where noted otherwise.

Recently adopted changes in accounting principles

Leases

Effective January 1, 2019, Sirius Group adopted Accounting Standards Update ("ASU") 2016-02, Leases (Accounting Standards Codification ("ASC") 842) which requires lessees to recognize lease assets and liabilities on the balance sheet for both operating and financing leases, with the exception of leases with an original term of 12 months or less. Under previous guidance, recognition of lease assets and liabilities was not required for operating leases. The new guidance requires that lease assets and liabilities to be recognized and measured initially based on the present value of the lease payments. Sirius Group adopted the new guidance using the simplified transition option that allows companies to apply the new lease standard at the adoption date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. Sirius Group also made the following elections:

•
Sirius Group elected the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs for all leases upon transition.

•
Sirius Group did not elect the hindsight practical expedient upon transition, for all leases.

•
Sirius Group elected the short-term lease measurement and recognition exemption, resulting in lease payments being recorded as an expense on a straight-line basis over the lease term.

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Sirius International Insurance Group, Ltd.
Notes to Consolidated Financial Statements
Unaudited

•
Sirius Group elected to include both lease and non-lease components as a single component for all leases.

•
Sirius Group did not elect the land easement practical expedient as it was not applicable.

As a result of the adoption of the new guidance, Sirius Group recognized a lease liability of $36.8 million, which represents the present value of our remaining lease payments and a right-of-use asset of $34.4 million as of January 1, 2019. The adoption of this guidance did not materially impact our results of operations or cash flows. Due to the adoption of the standard using the retrospective cumulative-effect adjustment method, there are no changes to our previously reported results prior to January 1, 2019. Lease expense is not expected to change materially as a result of the adoption of the new guidance. (See Note 18.)

Premium amortization on callable debt securities

Effective January 1, 2019, Sirius Group adopted ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities (ASC 310-20), which changes the amortization period for certain purchased callable debt securities. Under the new guidance, for investments in callable debt securities held at a premium, the premium will be amortized over the period to the earliest call date. The new guidance does not change the amortization period for callable debt securities held at a discount. The adoption of this guidance did not have significant effect on our financial statements.

Recent accounting pronouncements

Credit losses

In June 2016, the Financial Accounting Standards Board issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (ASC 326), which establishes new guidance for the recognition of credit losses for financial assets measured at amortized cost. The new guidance, which applies to financial assets that have the contractual right to receive cash, including reinsurance receivables and recoverables, requires reporting entities to estimate the credit losses expected over the life of a credit exposure using historical information, current information and reasonable and supportable forecasts that affect the collectability of the financial asset. The new guidance is effective for annual and interim periods beginning after December 15, 2019. Sirius Group is evaluating the expected impact of this new guidance.

Note 3. Significant transactions

Easterly Acquisition Corp.

On November 5, 2018, the Company completed the transactions contemplated by the definitive Agreement and Plan of Merger ("Merger Agreement"). Under the terms of the Merger Agreement, Easterly Acquisition Corp. ("Easterly") merged with Sirius Acquisitions Holding Company III and became a wholly-owned subsidiary of the Company (the "Merger"). Upon the closing of the Merger, Easterly's common stock was exchanged for the Company's common shares at an exchange ratio (the "Exchange Ratio") calculated as (i) the amount of cash per public share of Easterly common stock in Easterly's trust account (the "Trust Account") immediately prior to the closing of the Merger divided by (ii) (x) 1.05 multiplied by (y) Sirius Group's adjusted diluted book value per common share as of September 30, 2018 ("Sirius Group September 30 Adjusted DBVPS"). Based on the Sirius Group September 30 Adjusted DBVPS, estimated as of September 30, 2018, and funds in the Trust Account on November 5, 2018, the Exchange Ratio was equal to 0.609. Following the Merger, the Company's common shares are traded on the Nasdaq Global Select Market under the symbol "SG."

Easterly held a special meeting of Easterly stockholders on November 2, 2018 to approve the completion of the transactions contemplated by the Merger Agreement. Easterly Acquisition Sponsor, LLC (the "Sponsor") and Easterly's other stockholders approved each of the proposals presented at the special meeting. After the special meeting, but prior to the consummation of the Merger, certain Easterly public stockholders exercised their redemption rights as provided for by Easterly's charter.

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Sirius International Insurance Group, Ltd.
Notes to Consolidated Financial Statements
Unaudited

In total, out of the Trust Account balance of $149.0 million, there were $109.7 million of redemptions by Easterly public stockholders, which decreased the amount of cash in the Trust Account available for general corporate purposes following the Merger. After the redemption of shares held by Easterly's public stockholders, there was $39.3 million in the Trust Account. This resulted in the issuance of 2,280,241 common shares to Easterly public stockholders.

Pursuant to the letter agreement among Easterly, the Sponsor and the Company (the "Sponsor Letter"), the private placement warrants issued to the Sponsor at the closing of the Merger were cancelled. Pursuant to the Merger Agreement, each issued and outstanding public warrant was converted into a warrant exercisable for Company common shares. The number of Company common shares subject to converted warrants was equal to the number of shares of Easterly common stock subject to each Easterly warrant immediately prior to the closing of the Merger multiplied by the Exchange Ratio, and each converted warrant had an exercise price per Company common share equal to the exercise price per share of Easterly common stock subject to such Easterly warrant immediately prior to the closing of the Merger divided by the Exchange Ratio. This resulted in the issuance of 6,088,535 converted warrants.

Sirius Group Private Placement

In connection with the closing of the Merger, the Company completed a private placement of Series B preference shares, common shares, and warrants (the "Sirius Group Private Placement") at a price per share equal to (i) 1.05 multiplied by (ii) the Sirius Group September 30 Adjusted DBVPS, or $17.22447. Investors in the Sirius Group Private Placement included affiliated funds of Gallatin Point Capital, The Carlyle Group, Centerbridge Partners, L.P. and Bain Capital Credit (the "Preference Share Investors"), together with certain employees, directors and "friends & family. The Sirius Group Private Placement raised proceeds of $226.1 million, resulting in the purchase of:

•
11,901,670 Series B preference shares with a cost basis of $195.8 million,

•
1,225,954 of Common shares with a cost basis of $20.8 million,

•
5,418,434 warrants that are exercisable for common shares for a period of five years after the Merger at a strike price equal to 125% of the per share purchase price, or $21.53 with a cost basis of $9.6 million.

•
Issuance costs of $2.0 million

ESPP

In connection with the Merger, Sirius Group implemented the Employee Share Purchase Plan ("ESPP"), which provided all employees of Sirius Group with a one-time opportunity to purchase between 100 and 1,000 Company common shares at a price equal to 85% of market value for the first 100 shares and 100% of market value for the next 900 shares. For this purpose, market value of the Company common shares was equal to 1.05 times the Sirius Group September 30 Adjusted DBVPS. Employees had the option of paying for the shares upfront or, in the case of employees who are not executive officers, through a loan that is repaid over a two-year period through payroll deductions. Through the ESPP, 405 employees purchased 149,236 Company common shares prior to the consummation of the Merger, with a cost basis of $2.6 million.

Gross proceeds of the cash in the Easterly Trust Account assumed by Sirius Group upon the closing of the Merger, the Sirius Group Private Placement, and the ESPP sum to $268.0 million.

Common shares redemption agreement

In connection with the Merger, the Company and CM Bermuda Ltd. ("CM Bermuda"), the sole holder of the Company's common shares prior to the Merger, entered into a redemption agreement, dated November 2, 2018 (the "CM Bermuda Redemption Agreement"), pursuant to which, effective as of the closing of the Merger, the Company redeemed 9,519,280 of the Company's common shares at a price per share equal to $17.22447 for $164.0 million, which was paid on November 16, 2018.

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Sirius International Insurance Group, Ltd.
Notes to Consolidated Financial Statements
Unaudited

Also in connection with the Merger, on November 16, 2018 the Company completed a post-closing adjustment of $1.6 million that was settled in cash with CM Bermuda based on the reported book value per share of $16.44 as of September 30, 2018, pursuant to the Merger Agreement.

Sirius Group incurred certain contractual costs associated with the Merger of $9.0 million and $7.1 million of various legal, advisory, and other consulting costs for the Merger and the Private Placement that were charged to Additional paid-in surplus.

Series A preference shares redemption agreement

In connection with the Merger, the Company, IMG Acquisition Holdings, LLC ("IMGAH") and Sirius Acquisitions Holding Company II completed the transactions contemplated by its previously announced redemption agreement and the Company redeemed all of the outstanding Series A redeemable preference shares, which were held by IMGAH, for $95.0 million in cash. Effective as of the completion of the redemption, the parties terminated the registration rights agreement and the shareholder's agreement between the Company and IMGAH. In addition, the parties agreed that any remaining contingent consideration in respect of the IMG acquisition, will be paid in cash, not in Series A redeemable preference shares as previously contemplated in the agreement in respect of the IMG acquisition.

WRM America Indemnity Company, Inc.

On August 16, 2018, Sirius Group acquired 100% ownership of WRM America Indemnity Company, Inc. ("WRM America") from WRM America Indemnity Holding Company, LLC for $16.9 million in cash. WRM America is a New York-domiciled insurer with a run-off book of business mainly comprised of general liability, educator's legal liability, automobile liability and physical damage, property and excess catastrophe liability. As part of the purchase of WRM America, Sirius Group acquired $3.1 million of indefinite lived intangible assets related to insurance licenses.

Note 4. Segment information

Sirius Group classifies its business into four reportable segments – Global Property, Global A&H, Specialty & Casualty, and Runoff & Other. The accounting policies of the reportable segments are the same as those used for the preparation of the Company's consolidated financial statements.

The Company's Global Property, Global A&H, Specialty & Casualty, and Runoff & Other reportable segments each have managers who are responsible for the overall profitability of their respective segments and who are directly accountable to the Company's chief operating decision maker, the Chief Executive Officer ("CEO") of the Company. The CEO assesses segment operating performance, allocates capital, and makes resource allocation decisions based on Technical profit (loss), Underwriting profit (loss), and Underwriting profit (loss), including net service fee revenue.

Segment results are shown prior to corporate eliminations. Corporate eliminations are shown to reconcile to consolidated Technical profit (loss), consolidated Underwriting profit (loss) and consolidated Underwriting profit (loss), including net service fee revenue.

Sirius Group does not allocate its assets by segment, with the exception of goodwill and intangible assets, and, accordingly, investment income is not allocated to each segment.

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Sirius International Insurance Group, Ltd.
Notes to Consolidated Financial Statements
Unaudited

Global Property

Global Property consists of Sirius Group's underwriting lines of business which offer other property insurance and reinsurance, property catastrophe excess reinsurance, and agriculture reinsurance on a worldwide basis:

Other Property—Sirius Group participates in the broker market for property reinsurance treaties written on a proportional and excess of loss basis. For Sirius Group's international business, the book consists of treaty, written on both a proportional and excess of loss basis, facultative, and primary business, primarily in Europe, Asia and Latin America. In the United States, the book predominantly centers on significant participations on proportional and excess of loss treaties mostly in the excess and surplus lines segment of the market.

Property Catastrophe Excess—Property catastrophe excess of loss reinsurance treaties cover losses from catastrophic events. Sirius Group writes a worldwide book with the largest concentration of exposure in Europe and the United States. The U.S. book written in Bermuda has a national account focus supporting principally the lower and/or middle layers of large capacity programs. Additionally, Stockholm writes a U.S. book mainly consisting of select small regional and standard lines carriers. The exposures written in the international book are diversified across many countries, regions, perils and layers.

Agriculture—Sirius Group provides stop-loss reinsurance coverage to companies writing U.S. government-sponsored multi-peril crop insurance ("MPCI"). Sirius Group's participation is net of the government's stop-loss reinsurance protection. Sirius Group also provides coverage for crop-hail and certain named perils when bundled with MPCI business. Sirius Group also writes agriculture business outside of the United States.

Global A&H

The Global A&H operating segment consists of Sirius Group's insurance, reinsurance, and managing general underwriting ("MGU") units (which include Armada and IMG) that offer accident and health products on a worldwide basis:

Accident and Health insurance and reinsurance—Sirius Group is an insurer of accident and health insurance business in the United States, either on an admitted or surplus lines basis, as well as international business written through wholly-owned IMG. Armada business is written on an admitted basis. Sirius Group also writes proportional and excess reinsurance treaties covering employer medical stop-loss for per person (specific) and per employer (aggregate) exposures. In addition, Sirius Group writes some medical, health, travel and personal accident coverages written on a treaty, facultative and primary basis.

Specialty & Casualty

Specialty & Casualty consists of Sirius Group's insurance and reinsurance underwriting units which offer specialty & casualty product lines on a worldwide basis. Specialty lines represent unique risks where the more difficult and unusual risks are underwritten. Because specialty lines tend to be the more unusual or higher risks, much of the market is characterized by a high degree of specialization:

Aviation & Space provides aviation insurance that covers loss of or damage to an aircraft and the aircraft operations' liability to passengers, cargo and hull as well as to third parties. Additionally, liability arising out of non-aircraft operations such as hangars, airports and aircraft products can be covered. Space insurance primarily covers loss of or damage to a satellite during launch and in orbit. The book consists of treaty, written on both a proportional and excess of loss basis, facultative, and primary business.

Marine provides marine reinsurance, primarily written on an excess of loss and proportional basis. Coverage offered includes damage to ships and goods in transit, marine liability lines, and offshore energy industry insurance. Sirius Group also writes yacht business, both on reinsurance and a primary basis. The marine portfolio is diversified across many countries and regions.

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Sirius International Insurance Group, Ltd.
Notes to Consolidated Financial Statements
Unaudited

Trade Credit writes credit and bond reinsurance worldwide. The bulk of the business is traditional short-term commercial credit insurance, covering pre-agreed domestic and export sales of goods and services with typical coverage periods of 60 to 120 days. Losses under these policies are correlated to adverse changes in a respective country's gross national product.

Contingency underwrites contingency insurance for event cancellation and non-appearance, primarily on a primary policy and facultative reinsurance basis. Additionally, coverage for liabilities arising from contractual bonus, prize redemption and over-redemption is also offered. The contingency portfolio is diversified across many countries and regions.

Casualty underwrites a cross section of all casualty lines, including general liability, umbrella, auto, workers compensation, professional liability, and other specialty classes, written on a proportional, excess of loss, and primary basis.

Surety underwrites commercial surety bonds, including non-construction contract bonds, in a broad range of business segments in the United States.

Environmental underwrites a pure environmental insurance book in the United States consisting of four core products that revolve around pollution coverage, which are premises pollution liability, contractor's pollution liability, contractor's pollution and professional liability.

Runoff & Other

Runoff & Other consists of asbestos risks, environmental risks and other long-tailed liability exposures, and underwriting results from Sirius Global Solutions Holding Company ("Sirius Global Solutions") and its subsidiaries. Sirius Global Solutions is a Connecticut-based division of Sirius Group specializing in the acquisition and management of runoff liabilities for insurance and reinsurance companies, both in the United States and internationally.

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Sirius International Insurance Group, Ltd.
Notes to Consolidated Financial Statements
Unaudited

The following tables summarize the segment results for the three months ended March 31, 2019 and 2018:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

   

For the Three Months Ended March 31, 2019

  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(Millions)

     Global
Property		     Global
A&H		     Specialty &
Casualty		     Runoff &
Other		     Corporate
Elimination		     Total
  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Gross written premiums

   $ 330.7   $ 169.3   $ 120.9   $ 1.4   $ -   $ 622.3  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net written premiums

   $ 241.3   $ 134.9   $ 108.2   $ 0.4   $ -   $ 484.8  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net earned insurance and reinsurance premiums

   $ 139.7   $ 96.1   $ 75.7   $ 0.4   $ -   $ 311.9  

Loss and allocated LAE(1)

     (62.6 )   (63.2 )   (47.6 )   (1.1 )   -     (174.5 )

Insurance and reinsurance acquisition expenses

     (25.8 )   (26.6 )   (20.5 )   (0.7 )   10.3     (63.3 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Technical profit (loss)

     51.3     6.3     7.6     (1.4 )   10.3     74.1  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Unallocated LAE(2)

     (2.1 )   (1.5 )   (1.9 )   (0.5 )   (3.4 )   (9.4 )

Other underwriting expenses

     (16.2 )   (6.1 )   (8.2 )   (2.1 )   (2.7 )   (35.3 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Underwriting (loss) income

     33.0     (1.3 )   (2.5 )   (4.0 )   4.2     29.4  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Service fee revenue(3)

     -     36.3     -     -     (11.0 )   25.3  

Managing general underwriter unallocated LAE(4)

     -     (4.1 )   -     -     4.1     -  

Managing general underwriter other underwriting expenses(5)

     -     (2.7 )   -     -     2.7     -  

General and administrative expenses, MGU + Runoff & Other(6)

     -     (16.2 )   -     (0.8 )   -     (17.0 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Underwriting (loss) income, including net service fee income

     33.0     12.0     (2.5 )   (4.8 )   -     37.7  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net investment income

                                   20.1  

Net realized investment gains (losses)

                                   9.0  

Net unrealized investment gains

                                   74.0  

Net foreign exchange gains (losses)

                                   5.1  

Other revenue(7)

                                   (5.7 )

General and administrative expenses(8)

                                   (7.4 )

Intangible asset amortization expenses

                                   (3.9 )

Interest expense on debt

                                   (7.6 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Pre-tax income

                                 $ 121.3  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Underwriting Ratios

                                      

Loss ratio

     46.3 %   67.3 %   65.4 %   NM     NM     59.0 %

Acquisition expense ratio

     18.5 %   27.7 %   27.1 %   NM     NM     20.3 %

Other underwriting expense ratio

     11.6 %   6.3 %   10.8 %   NM     NM     11.3 %
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Combined ratio(9)

     76.4 %   101.3 %   103.3 %   NM     NM     90.6 %
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Goodwill and intangible assets(10)

   $ -   $ 584.2   $ -   $ 8.1   $ -   $ 592.3  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(1)Loss and allocated loss adjustment expenses ("LAE") are part of Loss and loss adjustment expenses on the Consolidated Statements of Income (the sum of Loss and allocated LAE and Unallocated LAE is equal to Loss and loss adjustment expenses on the Consolidated Statements of Income).

(2)Unallocated LAE are part of Loss and loss adjustment expenses on the Consolidated Statements of Income (the sum of Loss and allocated LAE and Unallocated LAE is equal to Loss and loss adjustment expenses on the Consolidated Statements of Income).

(3)Service fee revenue is part of Other revenue on the Consolidated Statements of Income (the sum of Service fee revenue and Other revenue is equal to Other revenue on the Consolidated Statements of Income).

(4)Managing general underwriter unallocated LAE represents IMG and Armada generated operating expenses following their integration with the Accident and Health insurance and reinsurance underwriting unit, representing costs associated with the claims process. In prior periods, all Armada and IMG expenses were disclosed within General and administrative expenses, MGU + Runoff & Other.

(5)Managing general underwriter other underwriting expenses represent IMG and Armada generated operating expenses following their integration with the Accident and Health insurance and reinsurance underwriting unit, representing costs associated with the underwriting process.

(6)General and administrative expenses, MGU + Runoff & Other is part of General and administrative expenses on the Consolidated Statements of Income (the sum of General and administrative expenses, MGU + Runoff & Other and General and administrative expenses is equal to General and administrative expenses on the Consolidated Statements of Income).

(7)Other revenue is presented net of Service fee revenue and is comprised mainly of gains (losses) from derivatives (see Note 11) (the sum of Service fee revenue and Other revenue is equal to Other revenue on the Consolidated Statements of Income).

(8)General and administrative expenses are presented net of General and administrative expenses, MGU + Runoff & Other (the sum of General and administrative expenses, MGU + Runoff & Other and General and administrative expenses is equal to General and administrative expenses on the Consolidated Statements of Income).

(9)Ratios considered not meaningful ("NM") to Runoff & Other and Corporate Elimination.

(10)Sirius Group does not allocate its assets by segment, with the exception of goodwill and intangible assets.

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Sirius International Insurance Group, Ltd.
Notes to Consolidated Financial Statements
Unaudited

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

   

For the three months ended March 31, 2018

  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(Millions)

     Global
Property		     Global
A&H		     Specialty &
Casualty		     Runoff &
Other		     Corporate
Elimination		     Total
  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Gross written premiums

   $ 346.6   $ 145.6   $ 115.5   $ 7.5   $ -   $ 615.2  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net written premiums

   $ 247.2   $ 115.5   $ 100.6   $ 6.1   $ -   $ 469.4  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net earned insurance and reinsurance premiums

   $ 136.1   $ 88.0   $ 54.4   $ 6.0   $ -   $ 284.5  

Loss and allocated LAE(1)

     (70.4 )   (45.8 )   (21.6 )   2.4     -     (135.4 )

Insurance and reinsurance acquisition expenses

     (29.3 )   (29.2 )   (14.1 )   (0.7 )   10.3     (63.0 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Technical profit

     36.4     13.0     18.7     7.7     10.3     86.1  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Unallocated LAE(2)

     (1.9 )   (1.6 )   (1.2 )   (0.9 )   -     (5.6 )

Other underwriting expenses

     (17.4 )   (8.0 )   (8.0 )   (1.4 )   (8.4 )   (43.2 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Underwriting income

     17.1     3.4     9.5     5.4     1.9     37.3  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Service fee revenue(3)

     -     32.8     -     -     (10.3 )   22.5  

Managing general underwriter unallocated LAE(4)

     -     -     -     -     -     -  

Managing general underwriter other underwriting expenses(5)

     -     (8.4 )   -     -     8.4     -  

General and administrative expenses, MGU + Runoff & Other(6)

     -     (9.5 )   -     (1.1 )   -     (10.6 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Underwriting income (loss), including net service fee income

     17.1     18.3     9.5     4.3     -     49.2  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Net investment income

                                   10.8  

Net realized investment gains (losses)

                                   (3.7 )

Net unrealized investment gains

                                   16.0  

Net foreign exchange gains (losses)

                                   (3.5 )

Other revenue(7)

                                   0.9  

General and administrative expenses(8)

                                   (3.7 )

Intangible asset amortization expenses

                                   (3.9 )

Interest expense on debt

                                   (7.7 )
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Pre-tax income

                                 $ 54.4  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Underwriting Ratios

                                      

Loss ratio

     53.1 %   53.9 %   41.9 %   NM     NM     49.6 %

Acquisition expense ratio

     21.5 %   33.2 %   25.9 %   NM     NM     22.1 %

Other underwriting expense ratio

     12.8 %   9.1 %   14.7 %   NM     NM     15.2 %
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Combined ratio(9)

     87.4 %   96.2 %   82.5 %   NM     NM     86.9 %
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Goodwill and intangible assets(10)

   $ -   $ 608.6   $ -   $ 5.0   $ -   $ 613.6  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(1)Loss and allocated loss adjustment expenses ("LAE") are part of Loss and loss adjustment expenses on the Consolidated Statements of Income (the sum of Loss and allocated LAE and Unallocated LAE is equal to Loss and loss adjustment expenses on the Consolidated Statements of Income).

(2)Unallocated LAE are part of Loss and loss adjustment expenses on the Consolidated Statements of Income (the sum of Loss and allocated LAE and Unallocated LAE is equal to Loss and loss adjustment expenses on the Consolidated Statements of Income).

(3)Service fee revenue is part of Other revenue on the Consolidated Statements of Income (the sum of Service fee revenue and Other revenue is equal to Other revenue on the Consolidated Statements of Income).

(4)Managing general underwriter unallocated LAE represents IMG and Armada generated operating expenses following their integration with the Accident and Health insurance and reinsurance underwriting unit, representing costs associated with the claims process. In prior periods, all Armada and IMG expenses were disclosed within General and administrative expenses, MGU + Runoff & Other.

(5)Managing general underwriter other underwriting expenses represent IMG and Armada generated operating expenses following their integration with the Accident and Health insurance and reinsurance underwriting unit, representing costs associated with the underwriting process.

(6)General and administrative expenses, MGU + Runoff & Other is part of General and administrative expenses on the Consolidated Statements of Income (the sum of General and administrative expenses, MGU + Runoff & Other and General and administrative expenses is equal to General and administrative expenses on the Consolidated Statements of Income).

(7)Other revenue is presented net of Service fee revenue and is comprised mainly of gains (losses) from derivatives (see Note 11) (the sum of Service fee revenue and Other revenue is equal to Other revenue on the Consolidated Statements of Income).

(8)General and administrative expenses are presented net of General and administrative expenses, MGU + Runoff & Other (the sum of General and administrative expenses, MGU + Runoff & Other and General and administrative expenses is equal to General and administrative expenses on the Consolidated Statements of Income).

(9)Ratios considered not meaningful ("NM") to Runoff & Other and Corporate Elimination.

(10)Sirius Group does not allocate its assets by segment, with the exception of goodwill and intangible assets.

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Sirius International Insurance Group, Ltd.
Notes to Consolidated Financial Statements
Unaudited

The following tables provide summary information regarding net premiums written by client location and underwriting location by reportable segment for the three months ended March 31, 2019 and 2018:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
      For the Three Months Ended March 31, 2019
  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(Millions)		     Global
Property		     Global
A&H		     Specialty &
Casualty		     Runoff &
Other		    
Total
  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net written premiums by client location:                                
United States   $ 61.9   $ 111.1   $ 68.4   $ 0.2   $ 241.6  
Europe     124.8     8.0     24.8     0.1     157.7  
Canada, the Caribbean, Bermuda and Latin America     24.5     5.0     4.4     -     33.9  
Asia and Other     30.1     10.8     10.6     0.1     51.6  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Total net written premium by client location   $ 241.3   $ 134.9   $ 108.2   $ 0.4   $ 484.8  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net written premiums by underwriting location:                                
United States   $ 8.0   $ 40.3   $ 12.4   $ 0.2   $ 60.9  
Europe     154.6     63.6     54.6     0.1     272.9  
Canada, the Caribbean, Bermuda and Latin America     62.4     30.7     40.2     -     133.3  
Asia and Other     16.3     0.3     1.0     0.1     17.7  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Total written premiums by underwriting location   $ 241.3   $ 134.9   $ 108.2   $ 0.4   $ 484.8  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

 

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
      For the three months ended March 31, 2018
  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(Millions)		     Global
Property		     Global
A&H		     Specialty &
Casualty		     Runoff &
Other		    
Total
  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net written premiums by client location:                                
United States   $ 87.0   $ 87.5   $ 37.3   $ 6.1   $ 217.9  
Europe     106.3     11.6     50.3     -     168.2  
Canada, the Caribbean, Bermuda and Latin America     23.2     4.8     2.6     -     30.6  
Asia and Other     30.7     11.6     10.4     -     52.7  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Total net written premium by client location   $ 247.2   $ 115.5   $ 100.6   $ 6.1   $ 469.4  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net written premiums by underwriting location:                                
United States   $ 5.3   $ 21.0   $ (0.1 ) $ 6.1   $ 32.3  
Europe     136.5     68.6     72.0     -     277.1  
Canada, the Caribbean, Bermuda and Latin America     89.8     25.7     27.5     -     143.0  
Asia and Other     15.6     0.2     1.2     -     17.0  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Total written premiums by underwriting location   $ 247.2   $ 115.5   $ 100.6   $ 6.1   $ 469.4  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

18

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Sirius International Insurance Group, Ltd.
Notes to Consolidated Financial Statements
Unaudited

Note 5. Reserves for unpaid losses and loss adjustment expenses

The following table summarizes the loss and LAE reserve activities of Sirius Group for the three months ended March 31, 2019 and 2018:

​ ​ ​ ​ ​ ​ ​ ​
      Three Months Ended March 31,  
(Millions)     2019     2018
  
​ ​ ​ ​ ​ ​ ​ ​
Gross beginning balance   $ 2,016.7   $ 1,898.5  
Less beginning reinsurance recoverable on unpaid losses     (350.2 )   (319.7 )
​ ​ ​ ​ ​ ​ ​ ​
Net loss and LAE reserve balance     1,666.5     1,578.8  
Losses and LAE incurred relating to:              

Current year losses

     167.3     143.5  

Prior years losses

     16.6     (2.5 )
​ ​ ​ ​ ​ ​ ​ ​
Total net incurred losses and LAE     183.9     141.0  
​ ​ ​ ​ ​ ​ ​ ​
Foreign currency translation adjustment to net loss and LAE reserves     (3.4 )   6.7  
Loss and LAE paid relating to:              

Current year losses

     36.2     31.3  

Prior years losses

     183.8     147.1  
​ ​ ​ ​ ​ ​ ​ ​
Total loss and LAE payments     220.0     178.4  
​ ​ ​ ​ ​ ​ ​ ​
Net ending balance     1,627.0     1,548.1  
Plus ending reinsurance recoverable on unpaid losses     349.3     327.8  
​ ​ ​ ​ ​ ​ ​ ​
Gross ending balance   $ 1,976.3   $ 1,875.9  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

Loss and LAE development - Three Months Ended March 31, 2019

For the three months ended March 31, 2019, Sirius Group had net unfavorable loss reserve development of $16.6 million. The most significant increases in loss reserve estimates were recorded in Global Property ($11.6 million) and Global A&H ($5.1 million). The unfavorable loss reserve development in Global Property was primarily attributable to higher than expected reporting from prior year catastrophe events ($15.6 million) mainly Hurricanes Irma, Michael, and Florence. Unfavorable loss reserve development in Runoff & Other ($1.2 million) was more than offset by favorable loss reserve development in Specialty & Casualty ($1.3 million).

Loss and LAE development - Three Months Ended March 31, 2018

For the three months ended March 31, 2018, Sirius Group had net favorable loss reserve development of $2.5 million. The major reductions in loss reserve estimates were recorded in Runoff & Other ($8.9 million), Specialty & Casualty ($7.1 million), and Global A&H ($3.7 million). Favorable loss reserve development for Runoff & Other included reduction in World Trade Center claims in response to revised information received by the Company. These reductions were partially offset by increases in Global Property loss reserve development of $17.2 million resulting from higher than expected reporting from recent accident years, including $6.4 million of increases from natural catastrophes, including the 2017 North American natural catastrophes. Also, in Other Property, there was loss deterioration from recent accident years reported in client account statements received in the first quarter, which accounted for the remainder of Global Property unfavorable loss development in the first quarter 2018.

19

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Sirius International Insurance Group, Ltd.
Notes to Consolidated Financial Statements
Unaudited

Note 6. Third party reinsurance

In the normal course of business, Sirius Group seeks to protect its businesses from losses due to concentration of risk and losses arising from catastrophic events by reinsuring with third-party reinsurers. Sirius Group remains liable for risks reinsured in the event that the reinsurer does not honor its obligations under reinsurance contracts.

At March 31, 2019, Sirius Group had reinsurance recoverables on paid losses of $50.5 million and reinsurance recoverables of $349.3 million on unpaid losses. At December 31, 2018, Sirius Group had reinsurance recoverables on paid losses of $55.0 million and reinsurance recoverables of $350.2 million on unpaid losses. Because retrocessional reinsurance contracts do not relieve Sirius Group of its obligation to its insureds, the collectability of balances due from Sirius Group's reinsurers is important to its financial strength. Sirius Group monitors the financial strength and ratings of retrocessionaires on an ongoing basis. Uncollectible amounts historically have not been significant.

Note 7. Investment securities

Sirius Group's invested assets consist of investment securities and other long-term investments held for general investment purposes. The portfolio of investment securities includes fixed maturity investments, short-term investments, equity securities, and other long-term investments, which are all classified as trading securities. Realized and unrealized investment gains and losses on trading securities are reported in pre-tax revenues.

Net investment income

Sirius Group's net investment income is comprised primarily of interest income along with associated amortization of premium and accretion of discount on Sirius Group's fixed maturity investments, dividend income from its equity investments, and interest income from its short-term investments.

Net investment income for the three months ended March 31, 2019 and 2018 consisted of the following:

​ ​ ​ ​ ​ ​ ​ ​
      For the three months ended March 31,  
(Millions)     2019     2018
  
​ ​ ​ ​ ​ ​ ​ ​
Fixed maturity investments   $ 16.8   $ 9.9  
Short-term investments     0.4     0.8  
Equity securities     2.7     1.2  
Other long-term investments     3.9     1.2  
​ ​ ​ ​ ​ ​ ​ ​
Total investment income     23.8     13.1  
Investment expenses     (3.7 )   (2.3 )
​ ​ ​ ​ ​ ​ ​ ​
Net investment income   $ 20.1   $ 10.8  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

20

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Sirius International Insurance Group, Ltd.
Notes to Consolidated Financial Statements
Unaudited

Net realized investment gains (losses) and unrealized investment gains

Net realized investment gains (losses) and unrealized investment gains for the three months ended March 31, 2019 and 2018 consisted of the following:

​ ​ ​ ​ ​ ​ ​ ​
      For the three months ended March 31,  
(Millions)     2019     2018
  
​ ​ ​ ​ ​ ​ ​ ​
Gross realized gains   $ 14.1   $ 8.4  
Gross realized (losses)     (5.1 )   (12.1 )
​ ​ ​ ​ ​ ​ ​ ​
Net realized gains (losses) on investments(1)     9.0     (3.7 )
Net unrealized gains on investments(2)     74.0     16.0  
​ ​ ​ ​ ​ ​ ​ ​
Net realized and unrealized investment gains on investments   $ 83.0   $ 12.3  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

(1)Includes $10.9 and $(1.1) of realized gains (losses) due to foreign currency during 2019 and 2018, respectively.

(2)Includes $25.0 and $18.9 of unrealized gains due to foreign currency during 2019 and 2018, respectively.

Net realized investment gains (losses)

Net realized investment gains (losses) for the three months ended March 31, 2019 and 2018 consisted of the following:

​ ​ ​ ​ ​ ​ ​ ​
      For the three months ended March 31,  
(Millions)     2019     2018
  
​ ​ ​ ​ ​ ​ ​ ​
Fixed maturity investments   $ 6.8   $ (2.8 )
Short-term investments     0.1     -  
Equity securities     (0.6 )   (1.5 )
Other long-term investments     3.3     0.6  
Derivative instruments(1)     (0.6 )   -  
​ ​ ​ ​ ​ ​ ​ ​
Net realized investment gains (losses)   $ 9.0   $ (3.7 )
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

(1)See Note 11.

Net unrealized investment gains

Net unrealized investment gains for the three months ended March 31, 2019 and 2018 consisted of the following:

​ ​ ​ ​ ​ ​ ​ ​
      For the three months ended March 31,  
(Millions)     2019     2018
  
​ ​ ​ ​ ​ ​ ​ ​
Fixed maturity investments   $ 29.7   $ 3.0  
Short-term investments     2.7     -  
Equity securities     25.1     6.4  
Other long-term investments     17.1     6.6  
Derivative instruments(1)     (0.6 )   -  
​ ​ ​ ​ ​ ​ ​ ​
Net unrealized investment gains   $ 74.0   $ 16.0  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

(1)See Note 11.

21

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Sirius International Insurance Group, Ltd.
Notes to Consolidated Financial Statements
Unaudited

The following table summarizes the amount of total gains included in earnings attributable to unrealized investment gains for Level 3 investments for the three months ended March 31, 2019 and 2018:

​ ​ ​ ​ ​ ​ ​ ​
      For the three months
ended March 31,		  
(Millions)     2019     2018
  
​ ​ ​ ​ ​ ​ ​ ​
Other long-term investments   $ 8.8   $ 0.4  
​ ​ ​ ​ ​ ​ ​ ​
Total unrealized investment gains - Level 3 investments   $ 8.8   $ 0.4  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

Investment holdings

Fixed maturity investments

The cost or amortized cost, gross unrealized investment gains (losses), net foreign currency gains (losses), and fair value of Sirius Group's fixed maturity investments as of March 31, 2019 and December 31, 2018, were as follows:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
      March 31, 2019
  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
(Millions)     Cost or
amortized
cost		     Gross
unrealized
gains		     Gross
unrealized
losses		     Net foreign
currency
gains
(losses)		     Fair value
  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Corporate debt securities   $ 614.6   $ 3.0   $ (2.7 ) $ 13.2   $ 628.1  
Asset-backed securities     476.7     0.3     (3.9 )   3.8     476.9  
Residential mortgage-backed securities     415.1     5.2     (3.9 )   9.4     425.8  
U.S. government and government agency     151.9     0.3     (0.2 )   6.4     158.4  
Commercial mortgage-backed securities     113.6     0.4     (1.6 )   1.2     113.6  
Non-U.S. government and government agency     37.8     -     (0.1 )   0.8     38.5  
Preferred stocks     2.5     0.1     -     (0.1 )   2.5  
U.S. States, municipalities and political subdivision     2.6     -     -     -     2.6  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Total fixed maturity investments   $ 1,814.8   $ 9.3   $ (12.4 ) $ 34.7   $ 1,846.4  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

 

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
      December 31, 2018
  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
(Millions)     Cost or
amortized
cost		     Gross
unrealized
gains		     Gross
unrealized
losses		     Net foreign
currency
gains
(losses)		     Fair value
  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Corporate debt securities   $ 694.1   $ 1.4   $ (7.3 ) $ 7.6   $ 695.8  
Asset-backed securities     496.3     0.1     (3.8 )   1.9     494.5  
Residential mortgage-backed securities     413.0     1.7     (7.1 )   5.9     413.5  
U.S. government and government agency     163.9     0.3     (0.5 )   4.2     167.9  
Commercial mortgage-backed securities     117.7     0.2     (2.7 )   0.7     115.9  
Non-U.S. government and government agency     50.6     -     (0.2 )   (0.1 )   50.3  
Preferred stocks     14.5     0.6     (6.8 )   0.2     8.5  
U.S. States, municipalities and political subdivision     2.8     -     -     -     2.8  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Total fixed maturity investments   $ 1,952.9   $ 4.3   $ (28.4 ) $ 20.4   $ 1,949.2  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

22

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Sirius International Insurance Group, Ltd.
Notes to Consolidated Financial Statements
Unaudited

The weighted average duration of Sirius Group's fixed income portfolio as of March 31, 2019 was approximately 1.6 years, including short-term investments, and approximately 2.2 years excluding short-term investments.

The cost or amortized cost and fair value of Sirius Group's fixed maturity investments as of March 31, 2019 and December 31, 2018 are presented below by contractual maturity. Actual maturities could differ from contractual maturities because borrowers may have the right to call or prepay certain obligations with or without call or prepayment penalties.

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
      March 31, 2019     December 31, 2018
  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
(Millions)     Cost or
amortized cost		     Fair value     Cost or
amortized cost		     Fair value
  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Due in one year or less   $ 241.7   $ 250.0   $ 249.6   $ 254.6  
Due after one year through five years     554.3     566.8     635.6     636.4  
Due after five years through ten years     10.9     10.8     26.2     25.7  
Due after ten years     -     -     0.1     0.1  
Mortgage-backed and asset-backed securities     1,005.4     1,016.3     1,026.9     1,023.9  
Preferred stocks     2.5     2.5     14.5     8.5  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Total   $ 1,814.8   $ 1,846.4   $ 1,952.9   $ 1,949.2  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

The following table summarizes the ratings and fair value of fixed maturity investments held in Sirius Group's investment portfolio as of March 31, 2019 and December 31, 2018:

​ ​ ​ ​ ​ ​ ​ ​
(Millions)     March 31, 2019     December 31, 2018
  
​ ​ ​ ​ ​ ​ ​ ​
AAA   $ 575.6   $ 602.0  
AA     799.8     818.0  
A     254.2     290.5  
BBB     154.4     167.4  
Other     62.4     71.3  
​ ​ ​ ​ ​ ​ ​ ​
Total fixed maturity investments(1)   $ 1,846.4   $ 1,949.2  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

(1)Credit ratings are assigned based on the following hierarchy: 1) Standard & Poor's ("S&P") and 2) Moody's Investors Service ("Moody's").

At March 31, 2019, the above totals included $37.6 million of sub-prime securities. Of this total, $12.7 million was rated AAA, $11.5 million rated AA, $4.4 million rated A, $4.1 million rated BBB and $4.9 million classified as Other. At December 31, 2018, the above totals included $42.6 million of sub-prime securities. Of this total, $17.1 million was rated AAA, $9.8 million rated AA, $6.0 million rated A, $4.7 million rated BBB and $5.0 million classified as Other.

23

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Sirius International Insurance Group, Ltd.
Notes to Consolidated Financial Statements
Unaudited

Equity securities and Other long-term investments

The cost or amortized cost, gross unrealized investment gains and losses, net foreign currency gains and losses, and fair values of Sirius Group's equity securities and other long-term investments as of March 31, 2019 and December 31, 2018, were as follows:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
  ​ March 31, 2019
 ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
(Millions) ​ Cost or
amortized
cost		 ​ Gross
unrealized
gains		 ​ Gross
unrealized
losses		 ​ Net foreign
currency
gains		 ​ Fair value
 ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Equity securities ​ $ 398.4 ​ $ 26.2 ​ $ (38.7 ) $ 8.5 ​ $ 394.4 ​
Other long-term investments ​ $ 351.7 ​ $ 48.3 ​ $ (20.5 ) $ 10.2 ​ $ 389.7 ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

 
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
  ​ December 31, 2018
 ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
(Millions) ​ Cost or
amortized
cost		 ​ Gross
unrealized
gains		 ​ Gross
unrealized
losses		 ​ Net foreign
currency
gains		 ​ Fair value
 ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Equity securities ​ $ 409.4 ​ $ 17.8 ​ $ (50.8 ) $ 3.6 ​ $ 380.0 ​
Other long-term investments ​ $ 337.6 ​ $ 32.6 ​ $ (13.5 ) $ 8.3 ​ $ 365.0 ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Other long-term investments at fair value consisted of the following as at March 31, 2019 and December 31, 2018:

​ ​ ​ ​ ​ ​ ​ ​
(Millions)     March 31, 2019     December 31, 2018
  
​ ​ ​ ​ ​ ​ ​ ​
Hedge funds and private equity funds   $ 301.7   $ 301.4  
Limited liability companies and private equity securities     88.0     63.6  
​ ​ ​ ​ ​ ​ ​ ​
Total other long-term investments   $ 389.7   $ 365.0  
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​

Hedge Funds and Private Equity Funds

Sirius Group holds investments in hedge funds and private equity funds, which are included in other long-term investments. The fair value of these investments has been estimated using the net asset value of the funds. As of March 31, 2019, Sirius Group held investments in 9 hedge funds and 28 private equity funds. The largest investment in a single fund was $50.8 million as of March 31, 2019 and $54.8 million as of December 31, 2018.

24

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Sirius International Insurance Group, Ltd.
Notes to Consolidated Financial Statements
Unaudited

The following table summarizes investments in hedge funds and private equity interests by investment objective and sector as of March 31, 2019 and December 31, 2018:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
      March 31, 2019     December 31, 2018
  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(Millions)		    
Fair Value		     Unfunded
Commitments		    
Fair Value		     Unfunded
Commitments
  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
398                          
Hedge funds:                          
Long/short multi-sector   $ 49.5   $ -   $ 41.0   $ -  
Distressed mortgage credit     50.8     -     54.8     -  
Private Credit     20.3           20.0        
Other     2.5     -     2.5     -  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Total hedge funds     123.1     -     118.3     -  
Private equity funds:                          
Energy infrastructure & services     87.5     30.7     93.7     54.2  
Multi-sector     9.2     0.7     9.0     0.7  
Healthcare     31.7     15.6     31.7     15.6  
Life settlement     23.9     -     23.7     -  
Manufacturing/Industrial     23.6     3.1     23.6     10.4  
Private equity secondaries     1.1     1.1     1.1     1.1  
Real estate     0.3     -     0.3     -  
Other     1.3     2.0     -     -  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Total private equity funds     178.6     53.2     183.1     82.0  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Total hedge and private equity funds included in other long-term investments   $ 301.7   $ 53.2   $ 301.4   $ 82.0  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Redemption of investments in certain hedge funds is subject to restrictions including lock-up periods where no redemptions or withdrawals are allowed, restrictions on redemption frequency, and advance notice periods for redemptions. Amounts requested for redemptions remain subject to market fluctuations until the redemption effective date, which generally falls at the end of the defined redemption period.

The following summarizes the March 31, 2019 fair value of hedge funds subject to restrictions on redemption frequency and advance notice period requirements for investments in active hedge funds:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
      Notice Period
  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Redemption Frequency
(Millions)		     30-59 days
notice		     60-89 days
notice		     90-119 days
notice		     120+ days
notice		     Total
  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Monthly   $ -   $ 32.7   $ -   $ -   $ 32.7  
Quarterly     0.8     -     -     -     0.8  
Semi-annual     -     0.8     -     -     0.8  
Annual     -     16.9     51.6     20.3     88.8  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Total   $ 0.8   $ 50.4   $ 51.6   $ 20.3   $ 123.1  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Certain of the hedge fund and private equity fund investments in which Sirius Group is invested are no longer active and are in the process of disposing of their underlying investments. Distributions from such funds are remitted to investors as the fund's underlying investments are liquidated. As of March 31, 2019, no distributions were outstanding from these investments. Investments in private equity funds are generally subject to a "lock-up" period during which investors may not request a redemption. Distributions prior to the expected termination date of the fund may be limited to dividends or proceeds arising from the liquidation of the fund's underlying investments.

25

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Sirius International Insurance Group, Ltd.
Notes to Consolidated Financial Statements
Unaudited

In addition, certain private equity funds provide an option to extend the lock-up period at either the sole discretion of the fund manager or upon agreement between the fund and the investors.

As of March 31, 2019, investments in private equity funds were subject to lock-up periods as follows:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(Millions)

 ​ 1 - 3 years ​ 3 – 5 years ​ 5 – 10 years ​ Total
 ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Private Equity Funds – expected lock-up period remaining           

 ​ $ 12.6 ​ $ 4.3 ​ $ 161.7 ​ $ 178.6 ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Investments held on deposit or as collateral

As of March 31, 2019 and December 31, 2018 investments of $764.9 million and $792.4 million, respectively, were held in trusts required to be maintained in relation to various reinsurance agreements. Sirius Group's reinsurance operations are required to maintain deposits with certain insurance regulatory agencies in order to maintain their insurance licenses. The fair value of such deposits that are included within total investments totaled $779.5 million and $801.2 million as of March 31, 2019 and December 31, 2018, respectively.

As of March 31, 2019, Sirius Group held $0.2 million of collateral in the form of short-term investments associated with Interest Rate Cap agreements. (See Note 11.)

Unsettled investment purchases and sales

As of March 31, 2019 and December 31, 2018, Sirius Group reported $9.9 million and $3.2 million, respectively, in Accounts payable on unsettled investment purchases.

As of March 31, 2019 and December 31, 2018, Sirius Group reported $1.7 million and $5.0 million, respectively, in Accounts receivable on unsettled investment sales.

Note 8. Fair value measurements

Fair value measurements are categorized into a hierarchy that distinguishes between inputs based on market data from independent sources ("observable inputs") and a reporting entity's internal assumptions based upon the best information available when external market data is limited or unavailable ("unobservable inputs"). Quoted prices in active markets for identical assets or liabilities have the highest priority ("Level 1"), followed by observable inputs other than quoted prices, including prices for similar but not identical assets or liabilities ("Level 2"), and unobservable inputs, including the reporting entity's estimates of the assumptions that market participants would use, having the lowest priority ("Level 3").

The availability of observable inputs can vary from financial instrument to financial instrument and is affected by a wide variety factors including, for example, the type of financial instrument, whether the financial instrument is new and not yet established in the marketplace, and other characteristics particular to the instrument. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires significantly more judgment.

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Unaudited

Accordingly, the degree of judgment exercised by management in determining fair value is greatest for instruments categorized in Level 3. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This may lead the Company to change the selection of the valuation technique (for example, from market to cash flow approach) or to use multiple valuation techniques to estimate the fair value of a financial instrument. These circumstances could cause an instrument to be reclassified between levels within the fair value hierarchy. Investments valued using Level 1 inputs include fixed maturity investments, primarily investments in U.S. Treasuries Bills and Notes, equity securities, and short-term investments. Investments valued using Level 2 inputs are primarily comprised of fixed maturity investments, which have been disaggregated into classes, including U.S. government and government agency, corporate debt securities, mortgage-backed and asset-backed securities, non-U.S. government and government agency, U.S. state and municipalities and political sub division and preferred stocks. Investments valued using Level 2 inputs also include certain exchange-traded funds that track U.S. stock indices such as the S&P 500 but are traded on foreign exchanges. Fair value estimates for investments that trade infrequently and have few or no observable market prices are classified as Level 3 measurements. Sirius Group determines when transfers between levels have occurred as of the beginning of the period.

Valuation techniques

Sirius Group uses outside pricing services to assist in determining fair values for its investments. For investments in active markets, Sirius Group uses the quoted market prices provided by outside pricing services to determine fair value. The outside pricing services Sirius Group uses have indicated that they will only provide prices where observable inputs are available. In circumstances where quoted market prices are unavailable or are not considered reasonable, Sirius Group estimates the fair value using industry standard pricing models and observable inputs such as benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids, offers, prepayment speeds, reference data including research publications, and other relevant inputs. Given that many fixed maturity investments do not trade on a daily basis, the outside pricing services evaluate a wide range of fixed maturity investments by regularly drawing parallels from recent trades and quotes of comparable securities with similar features. The characteristics used to identify comparable fixed maturity investments vary by asset type and take into account market convention.

The valuation process above is generally applicable to all of Sirius Group's fixed maturity investments. The techniques and inputs specific to asset classes within Sirius Group's fixed maturity investments for Level 2 securities that use observable inputs are as follows:

U.S. government and government agency

U.S. government and government agency securities consist primarily of debt 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 the Government National Mortgage Association. Fixed maturity investments included in U.S. government and government agency securities are primarily priced by pricing services. When evaluating these securities, the pricing services gather information from market sources and integrate other observations from markets and sector news. Evaluations are updated by obtaining broker-dealer quotes and other market information including actual trade volumes, when available. The fair value of each security is individually computed using analytical models that incorporate option-adjusted spreads and other daily interest rate data.

Non-U.S. government and government agency

Non-U.S. government and government agency securities consist of debt securities issued by non-U.S. governments and their agencies along with supranational organizations (also known as sovereign debt securities). Securities held in these sectors are primarily priced by pricing services that employ proprietary discounted cash flow models to value the securities. Key quantitative inputs for these models are daily observed benchmark curves for treasury, swap, and high issuance credits. The pricing services then apply a credit spread for each security, which is developed by in-depth and real-time market analysis. For securities in which trade volume is low, the pricing services utilize data from more frequently traded securities with similar attributes. These models may also be supplemented by daily market and credit research for international markets.

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Corporate debt securities

Corporate debt securities consist primarily of investment-grade debt of a wide variety of U.S. and non-U.S. corporate issuers and industries. The corporate fixed maturity investments are primarily priced by pricing services. When evaluating these securities, the pricing services gather information from market sources regarding the issuer of the security and obtain credit data, as well as other observations, from markets and sector news. Evaluations are updated by obtaining broker-dealer quotes and other market information including actual trade volumes, when available. The pricing services also consider the specific terms and conditions of the securities, including any specific features that may influence risk.

Mortgage-backed and asset-backed securities

The fair value of mortgage and asset-backed securities is primarily priced by pricing services using a pricing model that utilizes information from market sources and leveraging similar securities. Key inputs include benchmark yields, reported trades, underlying tranche cash flow data and collateral performance, plus new issue data, as well as broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including issuer, vintage, loan type, collateral attributes, prepayment speeds, default rates, recovery rates, cash flow stress testing, credit quality ratings, and market research publications.

U.S. states, municipalities and political subdivisions

The U.S. states, municipalities and political subdivisions portfolio contains debt securities issued by U.S. domiciled state and municipal entities. These securities are generally priced by independent pricing services using the techniques described for U.S. government and government agency securities described above.

Preferred stocks

The fair value of preferred stocks is generally priced by independent pricing services using an evaluated pricing model that calculates the appropriate spread over a comparable security for each issue. Key inputs include exchange prices (underlying and common stock of the same issuer), benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including sector, coupon, credit quality ratings, duration, credit enhancements, early redemption features, and market research publications.

Level 3 investments

Level 3 valuations are generated from techniques that use assumptions not observable in the market. These unobservable assumptions reflect Sirius Group's assumptions about what market participants would use in valuing the investment. Generally, certain securities may start out as Level 3 when they are originally issued but, as observable inputs become available in the market, they may be reclassified to Level 2.

Sirius Group employs a number of procedures to assess the reasonableness of the fair value measurements for its other long-term investments, including obtaining and reviewing the audited annual financial statements of hedge funds and private equity funds and periodically discussing each fund's pricing with the fund manager. However, since the fund managers do not provide sufficient information to evaluate the pricing inputs and methods for each underlying investment, the inputs are considered to be unobservable.

The fair values of Sirius Group's investments in private equity securities and private debt instruments have been classified as Level 3 measurements. They are carried at fair value and are initially valued based on transaction price. Their valuation is subsequently estimated based on available evidence such as a market transaction in similar instruments and other financial information for the issuer.

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Notes to Consolidated Financial Statements
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Investments measured using net asset value

The fair value of Sirius Group's investments in hedge funds and private equity funds has been determined using net asset value ("NAV"). The hedge fund's administrator provides quarterly updates of fair value in the form of Sirius Group's proportional interest in the underlying fund's NAV, which is deemed to approximate fair value, generally with a three month delay in valuation. The fair value of investment in hedge funds is measured using the NAV practical expedient and therefore has been not categorized within the fair value hierarchy. The private equity funds provide quarterly or semi-annual partnership capital statements with a three or six month delay which are used as a basis for valuation. These private equity investments vary in investment strategies and are not actively traded in any open markets. Due to a lag in reporting, some of the fund managers, fund administrators, or both, are unable to provide final fund valuations as of the Company's reporting date. In these circumstances, Sirius Group estimates the return of the current period and uses all credible information available. This includes utilizing preliminary estimates reported by its fund managers and using other information that is available to Sirius Group with respect to the underlying investments, as necessary.

Fair value measurements by level

The following tables summarize Sirius Group's financial assets and liabilities measured at fair value as of March 31, 2019 and December 31, 2018 by level:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
      March 31, 2019
  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
(Millions)     Fair Value     Level 1 Inputs     Level 2 Inputs     Level 3 Inputs
  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Assets measured at fair value                          
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Fixed maturity investments:                          
U.S. Government and government agency   $ 158.4   $ 157.0   $ 1.4   $ -  
Corporate debt securities     628.1     -     628.1     -  
Residential mortgage-backed securities     425.8     -     425.8     -  
Asset-backed securities     476.9     -     476.9     -  
Commercial mortgage-backed securities     113.6     -     113.6     -  
Non-U.S. government and government agency     38.5     33.9     4.6     -  
Preferred stocks     2.5     -     2.5     -  
U.S. States, municipalities, and political subdivision     2.6     -     2.6     -  
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Total fixed maturity investments     1,846.4     190.9     1,655.5     -  
Short-term investments     833.6