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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 June 30, 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)



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

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 ý    No o

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

At July 31, 2019, there were 115,296,918 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

    1  

 

Cautionary Note Regarding Forward-Looking Statements

    1  

Item 1.

 

Unaudited Consolidated Financial Statements

    3  

 

Consolidated Balance Sheets at June 30, 2019 and December 31, 2018

    3  

 

Consolidated Statements of Income for the three and six months ended June 30, 2019 and 2018

    4  

 

Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2019 and 2018

    5  

 

Consolidated Statements of Shareholders' Equity for the three and six months ended June 30, 2019 and 2018

    6  

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018

    7  

 

Notes to Consolidated Financial Statements

    8  

Item 2.

 

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

    52  

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

    83  

Item 4.

 

Controls and Procedures

    84  

Part II

 

Other Information

    85  

Item 1.

 

Legal Proceedings

    85  

Item 1A.

 

Risk Factors

    86  

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

    89  

Item 3.

 

Defaults Upon Senior Securities

    90  

Item 4.

 

Mine Safety Disclosures

    91  

Item 5.

 

Other Information

    92  

Item 6.

 

Exhibits

    93  

 

Signatures

    94  

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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 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.

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ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS


Sirius International Insurance Group, Ltd.
Consolidated Balance Sheets
As at June 30, 2019 and December 31, 2018

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

    June 30, 2019     December 31, 2018
 
 
  Unaudited
   
 

Assets

             

Fixed maturity investments, trading, at fair value (Amortized cost 2019: $1,774.2; 2018: $1,952.9)

  $ 1,815.7   $ 1,949.2  

Short-term investments, at fair value (Amortized cost 2019: $881.3; 2018: $716.1)

    882.9     715.5  

Equity securities, trading, at fair value (Cost 2019: $376.2; 2018: $409.4)

    387.8     380.0  

Other long-term investments, at fair value (Cost 2019: $349.9; 2018: $337.6)

    379.9     365.0  

Cash

    116.8     119.4  

Restricted cash

    13.7     12.8  

Total investments and cash

    3,596.8     3,541.9  

Accrued investment income

    13.3     14.1  

Insurance and reinsurance premiums receivable

    861.3     630.6  

Reinsurance recoverable on unpaid losses

    357.4     350.2  

Reinsurance recoverable on paid losses

    69.8     55.0  

Funds held by ceding companies

    237.6     186.8  

Ceded unearned insurance and reinsurance premiums

    188.1     159.8  

Deferred acquisition costs

    158.8     141.6  

Deferred tax asset

    174.4     202.5  

Accounts receivable on unsettled investment sales

    2.0     5.0  

Goodwill

    400.6     400.6  

Intangible assets

    187.7     195.6  

Other assets

    171.4     124.0  

Total assets

  $ 6,419.2   $ 6,007.7  

Liabilities

             

Loss and loss adjustment expense reserves

  $ 2,023.3   $ 2,016.7  

Unearned insurance and reinsurance premiums

    879.5     647.2  

Ceded reinsurance payable

    256.9     206.9  

Funds held under reinsurance treaties

    126.6     110.6  

Deferred tax liability

    229.7     237.4  

Debt

    685.9     696.8  

Accounts payable on unsettled investment purchases

    2.6     3.2  

Other liabilities

    186.3     150.5  

Total liabilities

    4,390.8     4,069.3  

Commitments and contingencies (see Note 18)

             

Mezzanine equity

             

Series B preference shares

    241.3     232.2  

Common shareholders' equity

             

Common shares (shares issued and outstanding, 2019: 115,296,918; 2018: 115,151,251)

    1.2     1.2  

Additional paid-in surplus

    1,093.5     1,089.1  

Retained earnings

    918.5     816.6  

Accumulated other comprehensive (loss)

    (229.1 )   (202.4 )

Total common shareholders' equity

    1,784.1     1,704.5  

Non-controlling interests

    3.0     1.7  

Total equity

    1,787.1     1,706.2  

Total liabilities, mezzanine equity, and equity

  $ 6,419.2   $ 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 and six months ended June 30, 2019 and 2018
Unaudited

    Three months ended June 30,     Six months ended June 30,  

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

   

2019

   

2018

   

2019

   

2018

 

Revenues

                         

Net earned insurance and reinsurance premiums

  $ 370.7   $ 308.9   $ 682.6   $ 593.4  

Net investment income

    24.4     19.2     44.5     30.0  

Net realized investment gains

    15.6     7.8     24.6     4.1  

Net unrealized investment gains

    15.5     24.7     89.5     40.7  

Net foreign exchange (losses) gains

    (0.6 )   25.6     4.5     22.1  

Other revenue

    15.4     55.6     35.0     79.0  

Total revenues

    441.0     441.8     880.7     769.3  

Expenses

                         

Loss and loss adjustment expenses

    278.0     151.4     461.9     292.4  

Insurance and reinsurance acquisition expenses

    77.0     66.8     140.3     129.8  

Other underwriting expenses

    35.5     38.2     70.8     81.4  

General and administrative expenses

    28.2     24.2     52.6     38.5  

Intangible asset amortization expenses

    4.0     4.0     7.9     7.9  

Interest expense on debt

    8.0     7.8     15.6     15.5  

Total expenses

    430.7     292.4     749.1     565.5  

Pre-tax income

    10.3     149.4     131.6     203.8  

Income tax expense

    (2.1 )   (51.2 )   (19.3 )   (62.3 )

Net income

    8.2     98.2     112.3     141.5  

Income attributable to non-controlling interests

    (0.8 )   (0.4 )   (1.2 )   (0.6 )

Income attributable to Sirius Group

    7.4     97.8     111.1     140.9  

Change in carrying value of Series B preference shares

    (0.8 )   -     (9.2 )   -  

Accrued dividends on Series A redeemable preference shares

    -     -     -     (2.6 )

Net income attributable to Sirius Group's common shareholders

  $ 6.6   $ 97.8   $ 101.9   $ 138.3  

Net income per common share and common share equivalent

   
 
   
 
   
 
   
 
 

Basic earnings per common share and common share equivalent

  $ 0.05   $ 0.78   $ 0.80   $ 1.11  

Diluted earnings per common share and common share equivalent

  $ 0.05   $ 0.78   $ 0.80   $ 1.11  

Weighted average number of common shares and common share equivalents outstanding:

                         

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

    115,243,685     120,000,000     115,212,772     120,000,000  

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

    115,796,367     120,000,000     127,542,402     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 and six months ended June 30, 2019 and 2018
Unaudited

    Three months ended
June 30,
    Six months ended
June 30,
 

(Expressed in millions of U.S. dollars)

   

2019

   

2018

   

2019

   

2018

 

Comprehensive income

                         

Net income

  $ 8.2   $ 98.2   $ 112.3   $ 141.5  

Other comprehensive income (loss)

                         

Change in foreign currency translation, net of tax

    1.1     (48.5 )   (26.7 )   (61.9 )

Total other comprehensive income (loss)

    1.1     (48.5 )   (26.7 )   (61.9 )

Comprehensive income

    9.3     49.7     85.6     79.6  

Net (income) attributable to non-controlling interests

    (0.8 )   (0.4 )   (1.2 )   (0.6 )

Comprehensive income attributable to Sirius Group

  $ 8.5   $ 49.3   $ 84.4   $ 79.0  

See Notes to Consolidated Financial Statements

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Sirius International Insurance Group, Ltd.
Consolidated Statements of Shareholders' Equity
For the six months ended June 30, 2019 and 2018
Unaudited

      Three months ended
June 30,
    Six months ended
June 30,
 
(Expressed in millions of U.S. dollars)     2019     2018     2019     2018
 
Common shares                          
Balance at beginning and end of period   $ 1.2   $ 1.2   $ 1.2   $ 1.2  
Additional paid-in surplus                          
Balance at beginning of period     1,090.2     1,197.9     1,089.1     1,197.9  

Share-based compensation

    3.3     -     4.5     -  

Capital contribution from former parent

    -     1.4     -     1.4  

Other, net

    -     -     (0.1 )   -  
Balance at end of period     1,093.5     1,199.3     1,093.5     1,199.3  
Retained earnings                          
Balance at beginning of period     911.8     900.4     816.6     858.4  

Cumulative effect of an accounting change

    -     -     -     1.6  
Balance at beginning of period, as adjusted     911.8     900.4     816.6     860.0  

Net income

    8.2     98.2     112.3     141.5  

Income attributable to non-controlling interests

    (0.8 )   (0.4 )   (1.2 )   (0.6 )

Change in carrying value of Series B preference shares

    (0.8 )   -     (9.2 )   -  

Accrued dividends on Series A redeemable preference shares

    -     -     -     (2.6 )

Other, net

    0.1     -     -     (0.1 )
Balance at end of period     918.5     998.2     918.5     998.2  
Accumulated other comprehensive (loss)                          
Balance at beginning of period     (230.2 )   (153.9 )   (202.4 )   (140.5 )

Accumulated net foreign currency translation (losses)

                         

Balance at beginning of period

    (230.2 )   (153.9 )   (202.4 )   (140.5 )

Net change in foreign currency translation

    1.1     (48.5 )   (26.7 )   (61.9 )

Balance at the end of period

    (229.1 )   (202.4 )   (229.1 )   (202.4 )
Balance at the end of period     (229.1 )   (202.4 )   (229.1 )   (202.4 )
Total common shareholders' equity   $ 1,784.1   $ 1,996.3   $ 1,784.1   $ 1,996.3  
Non-controlling interests     3.0     1.0     3.0     1.0  
Total equity   $ 1,787.1   $ 1,997.3   $ 1,787.1   $ 1,997.3  

See Notes to Consolidated Financial Statements

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Sirius International Insurance Group, Ltd.
Consolidated Statements of Cash Flows
For the six months ended June 30, 2019 and 2018
Unaudited

      Six months ended June 30,  
(Expressed in millions of U.S. dollars)     2019     2018
 
Cash flows from operations:              
Net income   $ 112.3   $ 141.5  
Adjustments to reconcile net income to net cash provided from operations:              
Net realized and unrealized investment (gains)     (114.1 )   (44.7 )
Amortization of premium on fixed maturity investments     (3.2 )   5.6  
Amortization of intangible assets     7.9     7.9  
Depreciation and other amortization     4.3     4.8  
Share-based compensation     4.5     -  
Other operating items:              
Net change in loss and loss adjustment expense reserves     46.6     18.6  
Net change in reinsurance recoverable on paid and unpaid losses     (36.0 )   (69.1 )
Net change in funds held by ceding companies     (54.7 )   (18.9 )
Net change in unearned insurance and reinsurance premiums     252.6     348.1  
Net change in ceded reinsurance payable     50.4     141.1  
Net change in ceded unearned insurance and reinsurance premiums     (35.8 )   (123.4 )
Net change in insurance and reinsurance premiums receivable     (252.0 )   (320.0 )
Net change in deferred acquisition costs     (20.2 )   (38.2 )
Net change in funds held under reinsurance treaties     18.4     4.7  
Net change in current and deferred income taxes, net     4.2     50.5  
Net change in other assets and liabilities, net     29.8     (73.5 )
Net cash provided from operations     15.0     35.0  
Cash flows from investing activities:              
Net change in short-term investments     (160.2 )   (218.6 )
Sales of fixed maturities and convertible fixed maturity investments     241.9     945.0  
Maturities, calls, and paydowns of fixed maturity and convertible fixed maturity investments     154.7     58.0  
Sales of common equity securities     152.2     189.0  
Distributions and redemptions of other long-term investments     33.6     60.2  
Contributions to other long-term investments     (41.3 )   (94.8 )
Purchases of common equity securities     (125.8 )   (317.3 )
Purchases of fixed maturities and convertible fixed maturity investments     (270.9 )   (753.2 )
Net change in unsettled investment purchases and sales     2.4     6.7  
Other, net     0.6     (1.7 )
Net cash (used for) investing activities     (12.8 )   (126.7 )
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     (3.8 )   (10.3 )
Net (decrease) in cash during period     (1.7 )   (100.6 )
Cash and restricted cash balance at beginning of period     132.2     230.6  
Cash and restricted cash balance at end of period   $ 130.5   $ 130.0  

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 June 30, 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 a 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."

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

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. 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.

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

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.

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 that 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 includes the results of Sirius Global Solutions Holding Company ("Sirius Global Solutions"), which specializes in the acquisition and management of runoff liabilities for insurance and reinsurance companies, both in the United States and internationally, as well as asbestos risks, environmental risks and other long-tailed liability exposures.

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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 June 30, 2019 and 2018:

   

For the three months ended June 30, 2019

 

(Millions)

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

Gross written premiums

  $ 236.2   $ 152.8   $ 96.9   $ 1.2   $ -   $ 487.1  

Net written premiums

  $ 191.6   $ 120.6   $ 89.2   $ 0.3   $ -   $ 401.7  

Net earned insurance and reinsurance premiums

  $ 164.3   $ 118.8   $ 87.3   $ 0.3   $ -   $ 370.7  

Loss and allocated LAE(1)

    (131.3 )   (71.8 )   (61.3 )   (2.4 )   -     (266.8 )

Insurance and reinsurance acquisition expenses

    (27.2 )   (36.0 )   (24.6 )   (1.8 )   12.6     (77.0 )

Technical profit

    5.8     11.0     1.4     (3.9 )   12.6     26.9  

Unallocated LAE(2)

    (2.6 )   (2.0 )   (2.2 )   (0.2 )   (4.2 )   (11.2 )

Other underwriting expenses

    (17.0 )   (5.9 )   (6.7 )   (1.1 )   (4.8 )   (35.5 )

Underwriting income

    (13.8 )   3.1     (7.5 )   (5.2 )   3.6     (19.8 )

Service fee revenue(3)

    -     30.3     -     -     (13.7 )   16.6  

Managing general underwriter unallocated LAE

    -     (5.3 )   -     -     5.3     -  

Managing general underwriter other underwriting expenses

    -     (4.8 )   -     -     4.8     -  

General and administrative expenses, MGU + Runoff & Other(4)

    -     (15.0 )   -     (1.0 )   -     (16.0 )

Underwriting income (loss), including net service fee income

  $ (13.8 ) $ 8.3   $ (7.5 ) $ (6.2 ) $ -   $ (19.2 )

Net investment income

                                  24.4  

Net realized investment (losses) gains

                                  15.6  

Net unrealized investment (losses) gains

                                  15.5  

Net foreign exchange gains (losses)

                                  (0.6 )

Other revenue(5)

                                  (1.2 )

General and administrative expenses(6)

                                  (12.2 )

Intangible asset amortization expenses

                                  (4.0 )

Interest expense on debt

                                  (8.0 )

Pre-tax income

                                $ 10.3  

Underwriting Ratios

                                     

Loss ratio

    81.5 %   62.1 %   72.7 %   NM     NM     75.0 %

Acquisition expense ratio

    16.6 %   30.3 %   28.2 %   NM     NM     20.8 %

Other underwriting expense ratio

    10.3 %   5.0 %   7.7 %   NM     NM     9.6 %

Combined ratio(7)

    108.4 %   97.4 %   108.6 %   NM     NM     105.4 %

Goodwill and intangible assets(8)

  $ -   $ 580.2   $ -   $ 8.1   $ -   $ 588.3  

(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)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).

(5)Other revenue is presented net of Service fee revenue and is comprised mainly of a change in contingent consideration (see Note 9) and 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).

(6)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).

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

(8)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 June 30, 2018
 
(Millions)     Global
Property
    Global
A&H
    Specialty &
Casualty
    Runoff &
Other
    Corporate
Elimination
    Total
 
Gross written premiums   $ 325.4   $ 112.3   $ 60.9   $ 6.4   $ -   $ 505.0  
Net written premiums   $ 177.0   $ 82.8   $ 55.1   $ 5.4   $ -   $ 320.3  
Net earned insurance and reinsurance premiums   $ 167.5   $ 80.8   $ 55.5   $ 5.1   $ -   $ 308.9  
Loss and allocated LAE(1)     (68.2 )   (40.9 )   (31.7 )   (0.3 )   -     (141.1 )
Insurance and reinsurance acquisition expenses     (34.1 )   (26.4 )   (14.6 )   (1.5 )   9.8     (66.8 )
Technical profit     65.2     13.5     9.2     3.3     9.8     101.0  
Unallocated LAE(2)     (2.5 )   (1.0 )   (1.7 )   -     (5.1 )   (10.3 )
Other underwriting expenses     (18.1 )   (6.3 )   (7.9 )   (2.4 )   (3.5 )   (38.2 )
Underwriting income     44.6     6.2     (0.4 )   0.9     1.2     52.5  
Service fee revenue(3)     -     27.4     -     -     (9.8 )   17.6  
Managing general underwriter unallocated LAE     -     (5.1 )   -     -     5.1     -  
Managing general underwriter other underwriting expenses     -     (3.5 )   -     -     3.5     -  
General and administrative expenses, MGU + Runoff & Other(4)     -     (14.2 )   -     (1.0 )   -     (15.2 )
Underwriting income (loss), including net service fee income     44.6     10.8     (0.4 )   (0.1 )   -     54.9  
Net investment income                                   19.2  
Net realized investment (losses) gains                                   7.8  
Net unrealized investment (losses) gains                                   24.7  
Net foreign exchange gains (losses)                                   25.6  
Other revenue(5)                                   38.0  
General and administrative expenses(6)                                   (9.0 )
Intangible asset amortization expenses                                   (4.0 )
Interest expense on debt                                   (7.8 )
Pre-tax income                                 $ 149.4  
Underwriting Ratios                                      
Loss ratio     42.2 %   51.9 %   60.2 %   NM     NM     49.0 %
Acquisition expense ratio     20.4 %   32.7 %   26.3 %   NM     NM     21.6 %
Other underwriting expense ratio     10.8 %   7.8 %   14.2 %   NM     NM     12.4 %
Combined ratio(7)     73.4 %   92.4 %   100.7 %   NM     NM     83.0 %
Goodwill and intangible assets(8)   $ -   $ 604.2   $ -   $ 5.0   $ -   $ 609.2  

(1)Loss and allocated 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)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).

(5)Other revenue is presented net of Service fee revenue and is comprised mainly of the right of indemnification (see Note 10), gains (losses) from derivatives (see Note 11), and the termination of the call option to purchase The Phoenix Holdings, Ltd. (the sum of Service fee revenue and Other revenue is equal to Other revenue on the Consolidated Statements of Income).

(6)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).

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

(8)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 summarize the segment results for the six months ended June 30, 2019 and 2018:

      For the six months ended June 30, 2019
 
(Millions)     Global
Property
    Global
A&H
    Specialty &
Casualty
    Runoff &
Other
    Corporate
Elimination
    Total
 
Gross written premiums   $ 566.9   $ 322.1   $ 217.8   $ 2.6   $ -   $ 1,109.4  
Net written premiums   $ 432.9   $ 255.5   $ 197.4   $ 0.7   $ -   $ 886.5  
Net earned insurance and reinsurance premiums   $ 304.0   $ 214.9   $ 163.0   $ 0.7   $ -   $ 682.6  
Loss and allocated LAE(1)     (193.9 )   (135.0 )   (108.9 )   (3.5 )   -     (441.3 )
Insurance and reinsurance acquisition expenses     (53.0 )   (62.6 )   (45.1 )   (2.5 )   22.9     (140.3 )
Technical profit     57.1     17.3     9.0     (5.3 )   22.9     101.0  
Unallocated LAE(2)     (4.7 )   (3.5 )   (4.1 )   (0.7 )   (7.6 )   (20.6 )
Other underwriting expenses     (33.2 )   (12.0 )   (14.9 )   (3.2 )   (7.5 )   (70.8 )
Underwriting income (loss)     19.2     1.8     (10.0 )   (9.2 )   7.8     9.6  
Service fee revenue(3)     -     66.6     -     -     (24.7 )   41.9  
Managing general underwriter unallocated LAE     -     (9.4 )   -     -     9.4     -  
Managing general underwriter other underwriting expenses     -     (7.5 )   -     -     7.5     -  
General and administrative expenses, MGU + Runoff & Other(4)     -     (31.2 )   -     (1.8 )   -     (33.0 )
Underwriting income (loss), including net service fee income   $ 19.2   $ 20.3   $ (10.0 ) $ (11.0 ) $ -   $ 18.5  
Net investment income                                   44.5  
Net realized investment (losses) gains                                   24.6  
Net unrealized investment (losses) gains                                   89.5  
Net foreign exchange gains (losses)                                   4.5  
Other revenue(5)                                   (6.9 )
General and administrative expenses(6)                                   (19.6 )
Intangible asset amortization expenses                                   (7.9 )
Interest expense on debt                                   (15.6 )
Pre-tax income                                 $ 131.6  
Underwriting Ratios                                      
Loss ratio     65.3 %   64.4 %   69.3 %   NM     NM     67.7 %
Acquisition expense ratio     17.4 %   29.1 %   27.7 %   NM     NM     20.6 %
Other underwriting expense ratio     10.9 %   5.6 %   9.1 %   NM     NM     10.4 %
Combined ratio(7)     93.6 %   99.1 %   106.1 %   NM     NM     98.7 %
Goodwill and intangible assets(8)   $ -   $ 580.2   $ -   $ 8.1   $ -   $ 588.3  

(1)Loss and allocated 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)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).

(5)Other revenue is presented net of Service fee revenue and is comprised mainly of a change in contingent consideration (see Note 9) and 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).

(6)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).

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

(8)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 six months ended June 30, 2018
 
(Millions)     Global
Property
    Global
A&H
    Specialty &
Casualty
    Runoff &
Other
    Corporate
Elimination
    Total
 
Gross written premiums   $ 672.0   $ 257.9   $ 176.4   $ 13.9   $ -   $ 1,120.2  
Net written premiums   $ 424.2   $ 198.3   $ 155.7   $ 11.5   $ -   $ 789.7  
Net earned insurance and reinsurance premiums   $ 303.6   $ 168.8   $ 109.9   $ 11.1   $ -   $ 593.4  
Loss and allocated LAE(1)     (138.6 )   (86.7 )   (53.3 )   2.1     -     (276.5 )
Insurance and reinsurance acquisition expenses     (63.4 )   (55.6 )   (28.7 )   (2.2 )   20.1     (129.8 )
Technical profit     101.6     26.5     27.9     11.0     20.1     187.1  
Unallocated LAE(2)     (4.4 )   (2.6 )   (2.9 )   (0.9 )   (5.1 )   (15.9 )
Other underwriting expenses     (35.5 )   (14.3 )   (15.9 )   (3.8 )   (11.9 )   (81.4 )
Underwriting income     61.7     9.6     9.1     6.3     3.1     89.8  
Service fee revenue(3)     -     60.2     -     -     (20.1 )   40.1  
Managing general underwriter unallocated LAE     -     (5.1 )   -     -     5.1     -  
Managing general underwriter other underwriting expenses     -     (11.9 )   -     -     11.9     -  
General and administrative expenses, MGU + Runoff & Other(4)     -     (23.7 )   -     (2.1 )   -     (25.8 )
Underwriting income (loss), including net service fee income     61.7     29.1     9.1     4.2     -     104.1  
Net investment income                                   30.0  
Net realized investment (losses) gains                                   4.1  
Net unrealized investment (losses) gains                                   40.7  
Net foreign exchange gains (losses)                                   22.1  
Other revenue(5)                                   38.9  
General and administrative expenses(6)                                   (12.7 )
Intangible asset amortization expenses                                   (7.9 )
Interest expense on debt                                   (15.5 )
Pre-tax income                                 $ 203.8  
Underwriting Ratios                                      
Loss ratio     47.1 %   52.9 %   51.1 %   NM     NM     49.3 %
Acquisition expense ratio     20.9 %   32.9 %   26.1 %   NM     NM     21.9 %
Other underwriting expense ratio     11.7 %   8.5 %   14.5 %   NM     NM     13.7 %
Combined ratio(7)     79.7 %   94.3 %   91.7 %   NM     NM     84.9 %
Goodwill and intangible assets(8)   $ -   $ 604.2   $ -   $ 5.0   $ -   $ 609.2  

(1)Loss and allocated 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)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).

(5)Other revenue is presented net of Service fee revenue and is comprised mainly of the right of indemnification (see Note 10), gains (losses) from derivatives (see Note 11), and the termination of the call option to purchase The Phoenix Holdings, Ltd. (the sum of Service fee revenue and Other revenue is equal to Other revenue on the Consolidated Statements of Income).

(6)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).

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

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

17


Table of Contents


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 June 30, 2019 and 2018:

      For the three months ended June 30, 2019
 

(Millions)
    Global
Property
    Global
A&H
    Specialty &
Casualty
    Runoff &
Other
   
Total
 
Net written premiums by client location:                                
United States   $ 103.2   $ 102.5   $ 63.5   $ 0.3   $ 269.5  
Europe     15.1     5.0     13.4     -     33.5  
Canada, the Caribbean, Bermuda and Latin America     14.6     2.0     2.2     -     18.8  
Asia and Other     58.7     11.1     10.1     -     79.9  
Total net written premium by client location for the three months ended June 30, 2019   $ 191.6   $ 120.6   $ 89.2   $ 0.3   $ 401.7  
Net written premiums by underwriting location:                                
United States   $ 4.4   $ 58.7   $ 12.7   $ 0.3   $ 76.1  
Europe     70.1     58.4     34.5     -     163.0  
Canada, the Caribbean, Bermuda and Latin America     99.0     3.3     41.7     -     144.0  
Asia and Other     18.1     0.2     0.3     -     18.6  
Total written premiums by underwriting location for the three months ended June 30, 2019   $ 191.6   $ 120.6   $ 89.2   $ 0.3   $ 401.7  

 

      For the three months ended June 30, 2018
 

(Millions)
    Global
Property
    Global
A&H
    Specialty &
Casualty
    Runoff &
Other
   
Total
 
Net written premiums by client location:                                
United States   $ 91.6   $ 70.6   $ 37.0   $ 5.4   $ 204.6  
Europe     19.3     6.1     9.9     -     35.3  
Canada, the Caribbean, Bermuda and Latin America     21.8     1.2     2.0     -     25.0  
Asia and Other     44.3     4.9     6.2     -     55.4  
Total net written premium by client location for the three months ended June 30, 2018   $ 177.0   $ 82.8   $ 55.1   $ 5.4   $ 320.3  
Net written premiums by underwriting location:                                
United States   $ 10.9   $ 32.3   $ 3.6   $ 5.4   $ 52.2  
Europe     73.7     43.2     24.7     -     141.6  
Canada, the Caribbean, Bermuda and Latin America     80.4     7.1     26.3     -     113.8  
Asia and Other     12.0     0.2     0.5     -     12.7  
Total written premiums by underwriting location for the three months ended June 30, 2018   $ 177.0   $ 82.8   $ 55.1   $ 5.4   $ 320.3  

18


Table of Contents


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 six months ended June 30, 2019 and 2018:

      For the six months ended June 30, 2019
 

(Millions)
    Global
Property
    Global
A&H
    Specialty &
Casualty
    Runoff &
Other
   
Total
 
Net written premiums by client location:                                
United States   $ 165.2   $ 213.6   $ 131.8   $ 0.3   $ 510.9  
Europe     139.7     13.1     38.3     0.2     191.3  
Canada, the Caribbean, Bermuda and Latin America     39.1     7.0     6.6     -     52.7  
Asia and Other     88.9     21.8     20.7     0.2     131.6  
Total net written premium by client location for the six months ended June 30, 2019   $ 432.9   $ 255.5   $ 197.4   $ 0.7   $ 886.5  
Net written premiums by underwriting location:                                
United States   $ 12.5   $ 99.1   $ 25.1   $ 0.3   $ 137.0  
Europe     224.7     122.0     89.1     0.2     436.0  
Canada, the Caribbean, Bermuda and Latin America     161.3     34.0     81.8     -     277.1  
Asia and Other     34.4     0.4     1.4     0.2     36.4  
Total written premiums by underwriting location for the six months ended June 30, 2019   $ 432.9   $ 255.5   $ 197.4   $ 0.7   $ 886.5  

 

      For the six months ended June 30, 2018
 

(Millions)
    Global
Property
    Global
A&H
    Specialty &
Casualty
    Runoff &
Other
   
Total
 
Net written premiums by client location:                             <