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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 September 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 October 31, 2019, there were 115,299,342 Common Shares, $0.01 par value per share, of the registrant outstanding.
 


Table of Contents

SIRIUS INTERNATIONAL INSURANCE GROUP, LTD.
INDEX TO FORM 10-Q
 
 
Page
 
 
 
 
 
 
 
 


Table of Contents

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 Sirius Group'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, including its affiliates' liquidity issues;
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
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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Table of Contents

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
Sirius International Insurance Group, Ltd.
Consolidated Balance Sheets
As at September 30, 2019 and December 31, 2018
(Expressed in millions of U.S. dollars, except share information)
September 30, 2019
December 31, 2018
 
Unaudited
 
Assets
 

 

Fixed maturity investments, trading, at fair value (Amortized cost 2019: $1,702.1; 2018: $1,952.9)
$
1,771.4

$
1,949.2

Short-term investments, at fair value (Amortized cost 2019: $981.5; 2018: $716.1)
989.3

715.5

Equity securities, trading, at fair value (Cost 2019: $359.4; 2018: $409.4)
384.3

380.0

Other long-term investments, at fair value (Cost 2019: $332.6; 2018: $337.6)
368.4

365.0

Cash
145.8

119.4

Restricted cash
14.0

12.8

Total investments and cash
3,673.2

3,541.9

Accrued investment income
11.5

14.1

Insurance and reinsurance premiums receivable
842.6

630.6

Reinsurance recoverable on unpaid losses
392.9

350.2

Reinsurance recoverable on paid losses
55.2

55.0

Funds held by ceding companies
236.8

186.8

Ceded unearned insurance and reinsurance premiums
173.8

159.8

Deferred acquisition costs
155.2

141.6

Deferred tax asset
162.8

202.5

Accounts receivable on unsettled investment sales
12.9

5.0

Goodwill
400.4

400.6

Intangible assets
183.8

195.6

Other assets
164.0

124.0

Total assets
$
6,465.1

$
6,007.7

Liabilities
 
 
Loss and loss adjustment expense reserves
$
2,186.4

$
2,016.7

Unearned insurance and reinsurance premiums
807.7

647.2

Ceded reinsurance payable
250.4

206.9

Funds held under reinsurance treaties
135.9

110.6

Deferred tax liability
208.6

237.4

Debt
670.3

696.8

Accounts payable on unsettled investment purchases
34.7

3.2

Other liabilities
189.1

150.5

Total liabilities
4,483.1

4,069.3

Commitments and contingencies (see Note 18)




Mezzanine equity
 
 
Series B preference shares
236.0

232.2

Common shareholders' equity
 
 
Common shares (shares issued and outstanding, 2019: 115,299,342; 2018: 115,151,251)
1.2

1.2

Additional paid-in surplus
1,097.0

1,089.1

Retained earnings
915.8

816.6

Accumulated other comprehensive (loss)
(271.4
)
(202.4
)
Total common shareholders' equity
1,742.6

1,704.5

Non-controlling interests
3.4

1.7

Total equity
1,746.0

1,706.2

Total liabilities, mezzanine equity, and equity
$
6,465.1

$
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 nine months ended September 30, 2019 and 2018
Unaudited
 
Three months ended September 30,
Nine months ended September 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
$
374.2

$
321.1

$
1,056.8

$
914.5

Net investment income
22.8

21.8

67.3

51.8

Net realized investment gains
15.3

3.9

39.9

8.0

Net unrealized investment gains (losses)
53.9

(11.7
)
143.4

29.0

Net foreign exchange gains (losses)
4.9

(0.4
)
9.4

21.7

Other revenue
16.3

17.0

51.3

96.0

Total revenues
487.4

351.7

1,368.1

1,121.0

Expenses
 
 
 
 
Loss and loss adjustment expenses
348.6

260.4

810.5

552.8

Insurance and reinsurance acquisition expenses
75.1

59.2

215.4

189.0

Other underwriting expenses
35.4

35.7

106.2

117.1

General and administrative expenses
28.0

19.5

80.6

58.0

Intangible asset amortization expenses
3.9

3.9

11.8

11.8

Interest expense on debt
7.7

7.6

23.3

23.1

Total expenses
498.7

386.3

1,247.8

951.8

Pre-tax (loss) income
(11.3
)
(34.6
)
120.3

169.2

Income tax benefit (expense)
3.7

6.9

(15.6
)
(55.4
)
Net income (loss)
(7.6
)
(27.7
)
104.7

113.8

Income attributable to non-controlling interests
(0.4
)
(0.3
)
(1.6
)
(0.9
)
(Loss) income attributable to Sirius Group
(8.0
)
(28.0
)
103.1

112.9

Change in carrying value of Series B preference shares
5.3


(3.9
)

Accrued dividends on Series A redeemable preference shares



(2.6
)
Net (loss) income attributable to Sirius Group's common shareholders
$
(2.7
)
$
(28.0
)
$
99.2

$
110.3

Net (loss) income per common share and common share equivalent
 
 
 
 
Basic earnings per common share and common share equivalent
$
(0.02
)
$
(0.23
)
$
0.78

$
0.88

Diluted earnings per common share and common share equivalent
$
(0.06
)
$
(0.23
)
$
0.78

$
0.88

Weighted average number of common shares and common share equivalents outstanding:
 
 
 
 
Basic weighted average number of common shares and common share equivalents outstanding
115,251,853

120,000,000

115,225,942

120,000,000

Diluted weighted average number of common shares and common share equivalents outstanding
127,153,523

120,000,000

115,619,222

120,000,000

See Notes to Consolidated Financial Statements

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Table of Contents

Sirius International Insurance Group, Ltd.
Consolidated Statements of Comprehensive Income
For the three months and nine months ended September 30, 2019 and 2018
Unaudited
 
Three months ended September 30,
Nine months ended September 30,
(Expressed in millions of U.S. dollars)
2019
2018
2019
2018
Comprehensive (loss) income
 

 

 

 

Net (loss) income
$
(7.6
)
$
(27.7
)
$
104.7

$
113.8

Other comprehensive (loss) income
 
 
 
 
Change in foreign currency translation, net of tax
(42.3
)
4.7

(69.0
)
(57.2
)
Total other comprehensive (loss) income
(42.3
)
4.7

(69.0
)
(57.2
)
Comprehensive (loss) income
(49.9
)
(23.0
)
35.7

56.6

Net (income) attributable to non-controlling interests
(0.4
)
(0.3
)
(1.6
)
(0.9
)
Comprehensive (loss) income attributable to Sirius Group
$
(50.3
)
$
(23.3
)
$
34.1

$
55.7

See Notes to Consolidated Financial Statements

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Sirius International Insurance Group, Ltd.
Consolidated Statements of Shareholders' Equity
For the three months and nine months ended September 30, 2019 and 2018
Unaudited
 
Three months ended September 30,
Nine months ended September 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
1,093.5

1,199.3

1,089.1

1,197.9

Share-based compensation
3.4


7.9


Capital contribution from former parent



1.4

Other, net
0.1




Balance at end of period
1,097.0

1,199.3

1,097.0

1,199.3

Retained earnings
 
 
 
 
Balance at beginning of period
918.5

998.2

816.6

858.4

Cumulative effect of an accounting change



1.6

Balance at beginning of period, as adjusted
918.5

998.2

816.6

860.0

Net (loss) income
(7.6
)
(27.7
)
104.7

113.8

Income attributable to non-controlling interests
(0.4
)
(0.3
)
(1.6
)
(0.9
)
Change in carrying value of Series B preference shares
5.3


(3.9
)

Accrued dividends on Series A redeemable preference shares



(2.6
)
Other, net



(0.1
)
Balance at end of period
915.8

970.2

915.8

970.2

Accumulated other comprehensive (loss)
 
 
 
 
Balance at beginning of period
(229.1
)
(202.4
)
(202.4
)
(140.5
)
Accumulated net foreign currency translation (losses)
 
 
 
 
Balance at beginning of period
(229.1
)
(202.4
)
(202.4
)
(140.5
)
Net change in foreign currency translation
(42.3
)
4.7

(69.0
)
(57.2
)
Balance at the end of period
(271.4
)
(197.7
)
(271.4
)
(197.7
)
Balance at the end of period
(271.4
)
(197.7
)
(271.4
)
(197.7
)
Total common shareholders' equity
$
1,742.6

$
1,973.0

$
1,742.6

$
1,973.0

Non-controlling interests
3.4

1.1

3.4

1.1

Total equity
$
1,746.0

$
1,974.1

$
1,746.0

$
1,974.1

See Notes to Consolidated Financial Statements

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Table of Contents

Sirius International Insurance Group, Ltd.
Consolidated Statements of Cash Flows
For the nine months ended September 30, 2019 and 2018
Unaudited
 
Nine months ended September 30,
(Expressed in millions of U.S. dollars)
2019
2018
Cash flows from operations:
 

 

Net income
$
104.7

$
113.8

Adjustments to reconcile net income to net cash provided from operations:
 
 
Net realized and unrealized investment (gains)
(183.3
)
(37.0
)
Amortization of premium on fixed maturity investments
(4.7
)
5.9

Amortization of intangible assets
11.8

11.8

Depreciation and other amortization
6.3

7.1

Share-based compensation
7.9


Other operating items:
 
 
Net change in loss and loss adjustment expense reserves
274.1

76.1

Net change in reinsurance recoverable on paid and unpaid losses
(82.0
)
(69.7
)
Net change in funds held by ceding companies
(61.5
)
(40.9
)
Net change in unearned insurance and reinsurance premiums
212.4

311.8

Net change in ceded reinsurance payable
73.3

113.0

Net change in ceded unearned insurance and reinsurance premiums
(32.4
)
(106.3
)
Net change in insurance and reinsurance premiums receivable
(269.4
)
(271.9
)
Net change in deferred acquisition costs
(22.5
)
(39.2
)
Net change in funds held under reinsurance treaties
33.1

37.1

Net change in current and deferred income taxes, net
(4.8
)
38.6

Net change in other assets and liabilities, net
24.9

(42.9
)
Net cash provided from operations
87.9

107.3

Cash flows from investing activities:
 
 
Net change in short-term investments
(285.8
)
(157.6
)
Sales of fixed maturities and convertible fixed maturity investments
430.7

1,149.9

Maturities, calls, and paydowns of fixed maturity and convertible fixed maturity investments
239.4

69.0

Sales of common equity securities
212.6

247.9

Distributions, redemptions, and maturities of other long-term investments
53.6

62.1

Contributions to other long-term investments
(46.5
)
(131.3
)
Purchases of common equity securities
(174.9
)
(392.4
)
Purchases of fixed maturities and convertible fixed maturity investments
(504.4
)
(1,062.9
)
Purchases of consolidated subsidiaries, net of cash acquired

(7.9
)
Net change in unsettled investment purchases and sales
23.7

18.6

Other, net
0.8

(3.4
)
Net cash (used for) investing activities
(50.8
)
(208.0
)
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
(9.4
)
(9.8
)
Net (decrease) in cash during period
27.6

(109.1
)
Cash and restricted cash balance at beginning of period
132.2

230.6

Cash and restricted cash balance at end of period
$
159.8

$
121.5

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 September 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") 2016-2, 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.
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.

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

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 2017-8, 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."
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.




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

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.
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 Sirius Group Private Placement that were charged to Additional paid-in surplus.


9

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

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.
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.


10

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

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.
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.

11

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

The following tables summarize the segment results for the three months ended September 30, 2019 and 2018:
 
For the three months ended September 30, 2019
(Expressed in millions of U.S. dollars)
Global
Property

Global
A&H

Specialty &
Casualty

Runoff &
Other

Corporate
Elimination

Total

Gross written premiums
$
153.6

$
137.4

$
120.6

$
2.1

$

$
413.7

Net written premiums
$
103.7

$
104.6

$
113.2

$
0.8

$

$
322.3

Net earned insurance and reinsurance premiums
$
159.9

$
115.1

$
98.7

$
0.5

$

$
374.2

Loss and allocated LAE(1)
(184.4
)
(63.6
)
(85.5
)
(0.9
)

(334.4
)
Insurance and reinsurance acquisition expenses
(29.2
)
(32.5
)
(27.1
)
(0.1
)
13.8

(75.1
)
Technical profit
(53.7
)
19.0

(13.9
)
(0.5
)
13.8

(35.3
)
Unallocated LAE(2)
(5.5
)
(2.0
)
(3.0
)
(0.2
)
(3.5
)
(14.2
)
Other underwriting expenses
(14.7
)
(6.8
)
(8.8
)
(1.4
)
(3.7
)
(35.4
)
Underwriting income
(73.9
)
10.2

(25.7
)
(2.1
)
6.6

(84.9
)
Service fee revenue(3)

31.0



(14.6
)
16.4

Managing general underwriter unallocated LAE

(4.3
)


4.3


Managing general underwriter other underwriting expenses

(3.7
)


3.7


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

(15.1
)

(1.2
)

(16.3
)
Underwriting income (loss), including net service fee income
(73.9
)
18.1

(25.7
)
(3.3
)

(84.8
)
Net investment income
 
 
 
 
 
22.8

Net realized investment (losses) gains
 
 
 
 
 
15.3

Net unrealized investment (losses) gains
 
 
 
 
 
53.9

Net foreign exchange gains (losses)
 
 
 
 
 
4.9

Other revenue(5)
 
 
 
 
 
(0.1
)
General and administrative expenses(6)
 
 
 
 
 
(11.7
)
Intangible asset amortization expenses
 
 
 
 
 
(3.9
)
Interest expense on debt
 
 
 
 
 
(7.7
)
Pre-tax income
 
 
 
 
 
$
(11.3
)
Underwriting Ratios
 
 
 
 
 
 
Loss ratio
118.8
%
57.0
%
89.7
%
NM

NM

93.2
%
Acquisition expense ratio
18.3
%
28.2
%
27.5
%
NM

NM

20.1
%
Other underwriting expense ratio
9.2
%
5.9
%
8.9
%
NM

NM

9.5
%
Combined ratio(7)
146.3
%
91.1
%
126.1
%
NM

NM

122.8
%
Goodwill and intangible assets(8)
$

$
576.1

$

$
8.1

$

$
584.2

(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 8) and gains 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.

12

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

 
For the three months ended September 30, 2018
(Expressed in millions of U.S. dollars)
Global
Property

Global
A&H

Specialty &
Casualty

Runoff &
Other

Corporate
Elimination

Total

Gross written premiums
$
203.7

$
117.1

$
76.5

$
0.7

$

$
398.0

Net written premiums
$
144.9

$
87.9

$
72.6

$
0.3

$

$
305.7

Net earned insurance and reinsurance premiums
$
172.7

$
89.6

$
58.4

$
0.4

$

$
321.1

Loss and allocated LAE(1)
(173.2
)
(51.3
)
(34.1
)
10.2


(248.4
)
Insurance and reinsurance acquisition expenses
(30.1
)
(26.7
)
(16.2
)
(0.1
)
13.9

(59.2
)
Technical profit
(30.6
)
11.6

8.1

10.5

13.9

13.5

Unallocated LAE(2)
(3.3
)
(1.7
)
(1.6
)
(0.7
)
(4.7
)
(12.0
)
Other underwriting expenses
(17.5
)
(6.4
)
(8.4
)
(1.4
)
(2.0
)
(35.7
)
Underwriting income
(51.4
)
3.5

(1.9
)
8.4

7.2

(34.2
)
Service fee revenue(3)

29.3



(13.9
)
15.4

Managing general underwriter unallocated LAE

(4.7
)


4.7


Managing general underwriter other underwriting expenses

(2.0
)


2.0


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

(13.8
)

(0.8
)

(14.6
)
Underwriting income (loss), including net service fee income
(51.4
)
12.3

(1.9
)
7.6


(33.4
)
Net investment income
 
 
 
 
 
21.8

Net realized investment (losses) gains
 
 
 
 
 
3.9

Net unrealized investment (losses) gains
 
 
 
 
 
(11.7
)
Net foreign exchange gains (losses)
 
 
 
 
 
(0.4
)
Other revenue(5)
 
 
 
 
 
1.6

General and administrative expenses(6)
 
 
 
 
 
(4.9
)
Intangible asset amortization expenses
 
 
 
 
 
(3.9
)
Interest expense on debt
 
 
 
 
 
(7.6
)
Pre-tax income
 
 
 
 
 
$
(34.6
)
Underwriting Ratios
 
 
 
 
 
 
Loss ratio
102.2
%
59.2
%
61.1
%
NM

NM

81.1
%
Acquisition expense ratio
17.4
%
29.8
%
27.7
%
NM

NM

18.4
%
Other underwriting expense ratio
10.1
%
7.1
%
14.4
%
NM

NM

11.1
%
Combined ratio(7)
129.7
%
96.1
%
103.2
%
NM

NM

110.6
%
Goodwill and intangible assets(8)
$

$
600.1

$

$
8.1

$

$
608.2

(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 gains 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.




13

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

The following tables summarize the segment results for the nine months ended September 30, 2019 and 2018:
 
For the nine months ended September 30, 2019
(Expressed in millions of U.S. dollars)
Global
Property

Global
A&H

Specialty &
Casualty

Runoff &
Other

Corporate
Elimination

Total

Gross written premiums
$
720.5

$
459.5

$
338.4

$
4.7

$

$
1,523.1

Net written premiums
$
536.6

$
360.1

$
310.6

$
1.5

$

$
1,208.8

Net earned insurance and reinsurance premiums
$
463.9

$
330.0

$
261.7

$
1.2

$

$
1,056.8

Loss and allocated LAE(1)
(378.3
)
(198.6
)
(194.4
)
(4.4
)

(775.7
)
Insurance and reinsurance acquisition expenses
(82.2
)
(95.1
)
(72.2
)
(2.6
)
36.7

(215.4
)
Technical profit
3.4

36.3

(4.9
)
(5.8
)
36.7

65.7

Unallocated LAE(2)
(10.2
)
(5.5
)
(7.1
)
(0.9
)
(11.1
)
(34.8
)
Other underwriting expenses
(47.9
)
(18.8
)
(23.7
)
(4.6
)
(11.2
)
(106.2
)
Underwriting income (loss)
(54.7
)
12.0

(35.7
)
(11.3
)
14.4

(75.3
)
Service fee revenue(3)

97.6



(39.3
)
58.3

Managing general underwriter unallocated LAE

(13.7
)


13.7


Managing general underwriter other underwriting expenses

(11.2
)


11.2


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

(46.3
)

(3.0
)

(49.3
)
Underwriting income (loss), including net service fee income
(54.7
)
38.4

(35.7
)
(14.3
)

(66.3
)
Net investment income
 
 
 
 
 
67.3

Net realized investment (losses) gains
 
 
 
 
 
39.9

Net unrealized investment (losses) gains
 
 
 
 
 
143.4

Net foreign exchange gains (losses)
 
 
 
 
 
9.4

Other revenue(5)
 
 
 
 
 
(7.0
)
General and administrative expenses(6)
 
 
 
 
 
(31.3
)
Intangible asset amortization expenses
 
 
 
 
 
(11.8
)
Interest expense on debt
 
 
 
 
 
(23.3
)
Pre-tax income
 
 
 
 
 
$
120.3

Underwriting Ratios
 
 
 
 
 
 
Loss ratio
83.7
%
61.8
%
77.0
%
NM

NM

76.7
%
Acquisition expense ratio
17.7
%
28.8
%
27.6
%
NM

NM

20.4
%
Other underwriting expense ratio
10.3
%
5.7
%
9.1
%
NM

NM

10.0
%
Combined ratio(7)
111.7
%
96.3
%
113.7
%
NM

NM

107.1
%
Goodwill and intangible assets(8)
$

$
576.1

$

$
8.1

$

$
584.2

(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 a change in contingent consideration (see Note 8) and (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.

14

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

 
For the nine months ended September 30, 2018
(Expressed in millions of U.S. dollars)
Global
Property

Global
A&H

Specialty &
Casualty

Runoff &
Other

Corporate
Elimination

Total

Gross written premiums
$
875.7

$
375.0

$
252.9

$
14.6

$

$
1,518.2

Net written premiums
$
569.1

$
286.2

$
228.3

$
11.8

$

$
1,095.4

Net earned insurance and reinsurance premiums
$
476.3

$
258.4

$
168.3

$
11.5

$

$
914.5

Loss and allocated LAE(1)
(311.8
)
(138.0
)
(87.4
)
12.3


(524.9
)
Insurance and reinsurance acquisition expenses
(93.5
)
(82.3
)
(44.9
)
(2.3
)
34.0

(189.0
)
Technical profit
71.0

38.1

36.0

21.5

34.0

200.6

Unallocated LAE(2)
(7.7
)
(4.3
)
(4.5
)
(1.6
)
(9.8
)
(27.9
)
Other underwriting expenses
(53.0
)
(20.7
)
(24.3
)
(5.2
)
(13.9
)
(117.1
)
Underwriting income
10.3

13.1

7.2

14.7

10.3

55.6

Service fee revenue(3)

89.5



(34.0
)
55.5

Managing general underwriter unallocated LAE

(9.8
)


9.8


Managing general underwriter other underwriting expenses

(13.9
)


13.9


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

(37.5
)

(2.9
)

(40.4
)
Underwriting income (loss), including net service fee income
10.3

41.4

7.2

11.8


70.7

Net investment income
 
 
 
 
 
51.8

Net realized investment (losses) gains
 
 
 
 
 
8.0

Net unrealized investment (losses) gains
 
 
 
 
 
29.0

Net foreign exchange gains (losses)
 
 
 
 
 
21.7

Other revenue(5)
 
 
 
 
 
40.5

General and administrative expenses(6)
 
 
 
 
 
(17.6
)
Intangible asset amortization expenses
 
 
 
 
 
(11.8
)
Interest expense on debt
 
 
 
 
 
(23.1
)
Pre-tax income
 
 
 
 
 
$
169.2

Underwriting Ratios
 
 
 
 
 
 
Loss ratio
67.1
%
55.1
%
54.6
%
NM

NM

60.4
%
Acquisition expense ratio
19.6
%
31.8
%
26.7
%
NM

NM

20.7
%
Other underwriting expense ratio
11.1
%
8.0
%
14.4
%
NM

NM

12.8
%
Combined ratio(7)
97.8
%
94.9
%
95.7
%
NM

NM

93.9
%
Goodwill and intangible assets(8)
$

$
600.1

$

$
8.1

$

$
608.2

(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), (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.

15

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 September 30, 2019 and 2018:
 
For the three months ended September 30, 2019
(Expressed in millions of U.S. dollars)
Global
Property

Global
A&H

Specialty &
Casualty

Runoff &
Other

Total

Net written premiums by client location:
 
 
 
 
 
United States
$
44.0

$
87.6

$
83.1

$
0.7

$
215.4

Europe
14.6

5.8

15.1

(0.1
)
35.4

Canada, the Caribbean, Bermuda and Latin America
19.7

3.7

4.8

0.1

28.3

Asia and Other
25.4

7.5

10.2

0.1

43.2

Total net written premium by client location for the three months ended September 30, 2019
$
103.7

$
104.6

$
113.2

$
0.8

$
322.3

Net written premiums by underwriting location:
 
 
 
 
 
United States
$
7.5

$
36.9

$
12.7

$
0.7

$
57.8

Europe
45.0

68.1

51.2


164.3

Canada, the Caribbean, Bermuda and Latin America
42.3

(0.6
)
49.0


90.7

Asia and Other
8.9

0.2

0.3

0.1

9.5

Total written premiums by underwriting location for the three months ended September 30, 2019
$
103.7

$
104.6

$
113.2

$
0.8

$
322.3

 
For the three months ended September 30, 2018
(Expressed in millions of U.S. dollars)
Global
Property

Global
A&H

Specialty &
Casualty

Runoff &
Other

Total

Net written premiums by client location:
 
 
 
 
 
United States
$
62.4

$
71.4

$
45.3

$
(0.1
)
$
179.0

Europe
22.8

7.4

15.8

0.1

46.1

Canada, the Caribbean, Bermuda and Latin America
24.7

2.6

2.8


30.1

Asia and Other
35.0

6.5

8.7

0.3

50.5

Total net written premium by client location for the three months ended September 30, 2018
$
144.9

$
87.9

$
72.6

$
0.3

$
305.7

Net written premiums by underwriting location:
 
 
 
 
 
United States
$
12.6

$
27.7

$
5.8

$

$
46.1

Europe
61.3

52.7

36.1


150.1

Canada, the Caribbean, Bermuda and Latin America
53.8

7.3

30.5


91.6

Asia and Other
17.2

0.2

0.2

0.3

17.9

Total written premiums by underwriting location for the three months ended September 30, 2018
$
144.9

$
87.9

$
72.6

$
0.3

$
305.7


16

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 nine months ended September 30, 2019 and 2018:
 
For the nine months ended September 30, 2019
(Expressed in millions of U.S. dollars)
Global
Property

Global
A&H

Specialty &
Casualty

Runoff &
Other

Total

Net written premiums by client location:
 
 
 
 
 
United States
$
209.2

$
301.2

$
214.9

$
1.0

$
726.3

Europe
154.3

18.9

53.4

0.1

226.7

Canada, the Caribbean, Bermuda and Latin America
58.8

10.7

11.4

0.1

81.0

Asia and Other
114.3

29.3

30.9

0.3

174.8

Total net written premium by client location for the nine months ended September 30, 2019
$
536.6

$
360.1

$
310.6

$
1.5

$
1,208.8

Net written premiums by underwriting location:
 
 
 
 
 
United States
$
20.0

$
136.0

$
37.8

$
1.0

$
194.8

Europe
269.7

190.1

140.3

0.2

600.3

Canada, the Caribbean, Bermuda and Latin America
203.6

33.4

130.8


367.8

Asia and Other
43.3

0.6

1.7

0.3

45.9

Total written premiums by underwriting location for the nine months ended September 30, 2019
$
536.6

$
360.1

$
310.6

$
1.5

$
1,208.8

 
For the nine months ended September 30, 2018
(Expressed in millions of U.S. dollars)
Global
Property

Global
A&H

Specialty &
Casualty

Runoff &
Other

Total

Net written premiums by client location:
 
 
 
 
 
United States
$
241.0

$
229.5

$
119.6

$
11.4

$
601.5

Europe
148.4

25.1

76.0

0.1

249.6

Canada, the Caribbean, Bermuda and Latin America
69.7

8.6

7.4


85.7

Asia and Other
110.0

23.0

25.3

0.3

158.6

Total net written premium by client location for the nine months ended September 30, 2018
$
569.1

$
286.2

$
228.3

$
11.8

$
1,095.4

Net written premiums by underwriting location:
 
 
 
 
 
United States
$
28.8

$
81.0

$
9.3

$
11.5

$
130.6

Europe
271.5

164.5

132.8


568.8

Canada, the Caribbean, Bermuda and Latin America
224.0

40.1

84.3


348.4

Asia and Other
44.8

0.6

1.9

0.3

47.6

Total written premiums by underwriting location for the nine months ended September 30, 2018
$
569.1

$
286.2

$
228.3

$
11.8

$
1,095.4


17

Table of Contents
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 and nine months ended September 30, 2019 and 2018:
 
Three months ended September 30,
Nine months ended September 30,
(Millions)
2019
2018
2019
2018
Gross beginning balance
$
2,023.3

$
1,827.1

$
2,016.7

$
1,898.5

Less beginning reinsurance recoverable on unpaid losses
(357.4
)
(358.3
)
(350.2
)
(319.7
)
Net loss and LAE reserve balance
1,665.9

1,468.8

1,666.5

1,578.8

Losses and LAE incurred relating to:
 
 
 
 
Current year losses
342.2

270.5

723.6

575.8

Prior years losses
6.4

(10.1
)
86.9

(23.0
)
Total net incurred losses and LAE
348.6

260.4

810.5

552.8

Foreign currency translation adjustment to net loss and LAE reserves
(15.3
)
(5.4
)
(15.3
)
(20.9
)
Acquisitions (See Note 3)

0.2


0.2

Accretion of fair value adjustment to net loss and LAE reserves

0.1

0.1

0.1

Loss and LAE paid relating to:
 
 
 
 
Current year losses
97.7

80.5

254.8

152.5

Prior years losses
108.0

101.6

413.5

416.5

Total loss and LAE payments
205.7

182.1

668.3

569.0

Net ending balance
1,793.5

1,542.0

1,793.5

1,542.0

Plus ending reinsurance recoverable on unpaid losses
392.9

349.0

392.9

349.0

Gross ending balance
$
2,186.4

$
1,891.0

$
2,186.4

$
1,891.0

Loss and LAE development - Three Months Ended September 30, 2019
For the three months ended September 30, 2019, Sirius Group had net unfavorable loss reserve development of $6.4 million. Increases in loss reserve estimates were primarily recorded in Specialty & Casualty ($10.2 million) due to higher than expected claims activity in the Casualty Reinsurance book. These increases were partially offset by favorable loss reserve development in Global A&H ($5.8 million).
Loss and LAE development - Three Months Ended September 30, 2018
For the three months ended September 30, 2018, Sirius Group had net favorable loss reserve development of $10.1 million. The major reductions in loss reserve estimates were recorded in Runoff & Other ($10.6 million), Specialty & Casualty ($7.3 million), and Global A&H ($3.0 million). The reduction in Runoff & Other was primarily due to decrease in runoff casualty reserves from older accident years, whereas Specialty & Casualty was due to favorable loss reserve development across all business lines in more recent accident years. These reductions were partially offset by increases in Global Property loss reserve development of $10.8 million resulting from higher than expected reporting from recent accident years.
Loss and LAE development - Nine Months Ended September 30, 2019
For the nine months ended September 30, 2019, Sirius Group had net unfavorable loss reserve development of $86.9 million. Increases in loss reserve estimates were recorded in Global Property ($67.9 million), Specialty & Casualty ($14.8 million), and Runoff & Other ($5.4 million). The unfavorable loss reserve development in Global Property was primarily attributable to prior year catastrophe events, including Typhoon Jebi and Hurricanes Michael, Florence, and Irma. These reductions were partially offset by a decrease in Global A&H ($1.3 million).

18

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

Loss and LAE development - Nine Months Ended September 30, 2018
For the nine months ended September 30, 2018, Sirius Group had net favorable loss reserve development of $23.0 million. The major reductions in loss reserve estimates were recorded in Runoff & Other ($22.6 million), Specialty & Casualty ($17.7 million), and Global A&H ($11.4 million). Favorable loss reserve development for Runoff & Other included reduction in World Trade Center claims in response to revised information received by the Company in addition to favorable loss reserve development in runoff casualty reserves. In addition, Specialty & Casualty had favorable loss reserve development across all business lines, in particular Aviation & Space with $12.0 million. These reductions were partially offset by increases in Global Property loss reserve development of $28.7 million resulting from higher than expected reporting from recent accident years, including $7.4 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, which accounted for the remainder of Global Property unfavorable loss development in the nine months ended September 30, 2018.
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 September 30, 2019, Sirius Group had reinsurance recoverables on paid losses of $55.2 million and reinsurance recoverables of $392.9 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 and nine months ended September 30, 2019 and 2018 consisted of the following:
 
For the three months ended September 30,
For the nine months ended September 30,
(Millions)
2019

2018

2019

2018

Fixed maturity investments
$
12.8

$
14.2

$
40.0

$
37.8

Short-term investments
4.1

2.4

12.0

3.7

Equity securities
2.7

5.9

12.5

14.2

Other long-term investments
5.2

2.7

12.3

5.2

Total investment income
24.8

25.2

76.8

60.9

Investment expenses
(2.0
)
(3.4
)
(9.5
)
(9.1
)
Net investment income
$
22.8

$
21.8

$
67.3

$
51.8


19

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

Net realized and unrealized investment gains (losses)
Net realized and unrealized investment gains (losses) for the three months and nine months ended September 30, 2019 and 2018 consisted of the following:
 
For the three months ended September 30,
For the nine months ended September 30,
(Millions)
2019

2018

2019

2018

Gross realized gains
$
22.1

$
11.3

$
63.1

$
31.7

Gross realized (losses)
(6.8
)
(7.4
)
(23.2
)
(23.7
)
Net realized gains on investments(1)(2)
15.3

3.9

39.9

8.0

Net unrealized gains (losses) on investments(3)(4)
53.9

(11.7
)
143.4

29.0

Net realized and unrealized gains (losses) on investments
$
69.2

$
(7.8
)
$
183.3

$
37.0

(1) Includes $14.0 and $4.7 of realized gains due to foreign currency for the three months ended September 30, 2019 and 2018, respectively.
(2) Includes $34.5 and $10.7 of realized gains due to foreign currency for the nine months ended September 30, 2019 and 2018, respectively.
(3) Includes $33.9 and $(5.5) of unrealized (losses) gains due to foreign currency for the three months ended September 30, 2019 and 2018, respectively.
(4) Includes $51.7 and $43.1 of unrealized gains due to foreign currency for the nine months ended September 30, 2019 and 2018, respectively.
Net realized investment gains
Net realized investment gains for the three months and nine months ended September 30, 2019 and 2018 consisted of the following:
 
For the three months ended September 30,
For the nine months ended September 30,
(Millions)
2019
2018
2019
2018
Fixed maturity investments
$
7.5

$
4.2

$
22.4

$
5.0

Equity securities
1.7

(0.6
)
(0.1
)
(0.4
)
Short-term investments
6.5


9.7


Derivative instruments
(0.7
)

(1.5
)

Other long-term investments
0.3

0.3

9.4

3.4

Net realized investment gains
$
15.3

$
3.9

$
39.9

$
8.0

Net unrealized investment gains (losses)
Net unrealized investment gains (losses) for the three months and nine months ended September 30, 2019 and 2018 consisted of the following:
 
For the three months ended September 30,
For the nine months ended September 30,
(Millions)
2019

2018

2019

2018

Fixed maturity investments
$
31.4

$
(8.6
)
$
72.1

$
12.2

Equity securities
12.0

0.9

50.4

2.1

Short-term investments
4.6


6.4


Derivative instruments
0.9


0.2


Other long-term investments
5.0

(4.0
)
14.3

14.7

Net unrealized investment gains (losses)
$
53.9

$
(11.7
)
$
143.4

$
29.0


20

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

The following table summarizes the amount of total gains (losses) included in earnings attributable to unrealized investment gains (losses) for Level 3 investments for the three months and nine months ended September 30, 2019 and 2018:
 
For the three months ended September 30,
For the nine months ended September 30,
(Millions)
2019
2018
2019
2018
Fixed maturity investments
$

$
0.1

$

$
(2.0
)
Other long-term investments
(0.3
)
(1.6
)
10.1

6.1

Total unrealized investment (losses) gains – Level 3 investments
$
(0.3
)
$
(1.5
)
$
10.1

$
4.1

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 September 30, 2019 and December 31, 2018, were as follows:
 
September 30, 2019
(Millions)
Cost or
amortized
cost

Gross
unrealized
gains

Gross
unrealized
(losses)

Net foreign
currency
gains
(losses)

Fair value

Corporate debt securities
$
517.7

$
6.3

$
(0.3
)
$
24.0

$
547.7

Asset-backed securities
501.4

1.1

(1.9
)
6.6

507.2

Residential mortgage-backed securities
365.9

11.9

(0.8
)
14.5

391.5

U.S. government and government agency
157.6

1.7


3.0

162.3

Commercial mortgage-backed securities
102.0

1.2

(0.4
)
1.8

104.6

<