Ironshore Inc. Consolidated Financial Statements … 2015 GROUP PUBLIC... · We have audited the...

Ironshore Inc.

Consolidated Financial Statements

December 31, 2015

A member firm of Ernst & Young Global Limited

Ernst & Young LLP 5 Times Square New York, NY 10036-6530

Tel: +1 212 773 3000 Fax: +1 212 773 6350 ey.com

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Report of Independent Auditors

The Board of Directors and Shareholders Ironshore Inc.

We have audited the accompanying consolidated financial statements of Ironshore Inc., which comprise the consolidated balance sheets as of December 31, 2015 and 2014, and the related consolidated statements of operations and comprehensive income, changes in shareholders’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

A member firm of Ernst & Young Global Limited

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We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Ironshore Inc. as of December 31, 2015 and 2014, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

March 10, 2016

See accompanying notes to the consolidated financial statements.

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Ironshore Inc.

Consolidated Balance Sheets

As of December 31, 2015 and 2014 (Expressed in thousands of U.S. dollars, except share data)

2015 2014

ASSETS

Fixed maturity securities, at fair value (amortized cost: 2015 - $4,451,226;

2014 - $4,031,724) $4,425,968 $4,044,195

Equity securities, at fair value (cost: 2015 - $202,014; 2014 - $209,265) 200,724 207,090

Short term investments, at cost which approximates fair value 3,979 40,877

Other investments 90,866 61,089

Total investments 4,721,537 4,353,251

Cash and cash equivalents 381,604 328,797

Accrued investment income 21,057 19,351

Premiums receivable 494,834 514,035

Reinsurance recoverable on unpaid losses 776,787 693,298

Reinsurance recoverable on paid losses 59,034 66,397

Deferred acquisition costs 106,939 125,098

Prepaid reinsurance premiums 372,612 305,647

Goodwill and other intangible assets 76,226 79,354

Deferred tax asset 37,228 12,191

Receivable for securities sold 9,179 17,904

Other assets 193,036 184,592

Total assets $7,250,073 $6,699,915

LIABILITIES

Reserve for losses and loss adjustment expenses $3,197,541 $2,838,158

Unearned premiums 1,304,591 1,310,908

Insurance and reinsurance balances payable 228,243 240,594

Payable for securities purchased 21,761 11,388

Other liabilities 183,383 111,477

Debt obligations 347,992 347,629

Total liabilities 5,283,511 4,860,154

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY

Common shares, 400,000,000 authorized, par value $0.01 per share

(2015: 140,657,340; 2014: 136,625,637), shares issued and outstanding 1,407 1,366

Additional paid-in capital 1,431,794 1,364,762

Accumulated other comprehensive loss (6,149) (8,074)

Retained earnings 539,510 481,707

TOTAL SHAREHOLDERS' EQUITY 1,966,562 1,839,761

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $7,250,073 $6,699,915


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Ironshore Inc.

Consolidated Statements of Operations and Comprehensive Income

For the years ended December 31, 2015 and 2014 (Expressed in thousands of U.S. dollars, except share data)

2015 2014

REVENUES

Gross premiums written $2,163,852 $2,210,554

Reinsurance premiums ceded (684,028) (591,374)

Net premiums written 1,479,824 1,619,180

Change in unearned premiums 63,427 (92,184)

Net premiums earned 1,543,251 1,526,996

Net investment income 113,300 97,043

Net realized and unrealized gains (losses) on investments (48,351) 28,039

Net foreign exchange losses (11,054) (5,283)

Other income 50,413 33,566

Total revenues 1,647,559 1,680,361

EXPENSES

Losses and loss adjustment expenses 1,010,218 1,077,274

Acquisition expenses 210,053 214,708

General and administrative expenses 322,728 279,101

Non-recurring transaction expenses 39,529 -

Interest expense 22,169 21,906

Total expenses 1,604,697 1,592,989

Income before tax benefit (expense) 42,862 87,372

Income tax benefit (expense) 14,941 (2,906)

Net income 57,803 84,466

Net loss attributable to non-controlling interest - (11)

Net income attributable to Ironshore Inc. $57,803 $84,477

COMPREHENSIVE INCOME

Net income $57,803 $84,466

Other comprehensive income, before tax

Equity gains from foreign currency translation 3,851 6,909

Losses on intra-entity foreign currency transactions (1,926) (4,662)

Other comprehensive income, before tax 1,925 2,247

Income tax on other comprehensive income - -

Other comprehensive income, net of tax 1,925 2,247

Comprehensive income 59,728 86,713

Comprehensive loss attributable to non-controlling interests - (11)

Comprehensive income attributable to Ironshore Inc. $59,728 $86,724

Earnings per share:

Weighted average common shares outstanding - Basic 137,195,272 135,185,765

Weighted average common shares outstanding - Diluted 143,106,668 139,934,730

Net income (loss) per common share outstanding - Basic $0.42 $0.62

Net income (loss) per common share outstanding - Diluted $0.41 $0.61


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Ironshore Inc.

Consolidated Statements of Changes in Shareholders’ Equity

For the years ended December 31, 2015 and 2014 (Expressed in thousands of U.S. dollars)

2015 2014

COMMON SHARES

Balances as of beginning of year $1,366 $1,362

Issuance of shares, net of forfeitures 377 8

Repurchase of shares (336) (4)

Balance as of end of year 1,407 1,366

ADDITIONAL PAID-IN CAPITAL

Balance as of beginning of year 1,364,762 1,354,164

Issuance of shares, net of forfeitures 466,387 2,590

Repurchase of shares (469,813) (5,189)

Contribution of additional paid-in capital 36,947 -

Stock compensation expense 19,450 7,927

Tax benefit on stock compensation expense 8,088 722

Modification of liability awards to equity 5,973 5,897

Purchase of non-controlling interest - (1,349)

Balance as of end of year 1,431,794 1,364,762

ACCUMULATED OTHER COMPREHENSIVE LOSS

Balance as of beginning of year (8,074) (10,321)

Equity gains from foreign currency translation 3,851 6,909

Losses on intra-entity foreign currency transactions (1,926) (4,662)

Balance as of end of year (6,149) (8,074)

RETAINED EARNINGS

Balance as of beginning of year 481,707 397,230

Net income attributable to Ironshore Inc. 57,803 84,477

Balance as of end of year 539,510 481,707

TOTAL IRONSHORE INC. SHAREHOLDERS' EQUITY 1,966,562 1,839,761

NON-CONTROLLING INTEREST

Balance as of beginning of year - 3,909

Net loss attributable to non-controlling interest - (11)


Balance as of end of year - -

TOTAL SHAREHOLDERS' EQUITY $1,966,562 $1,839,761


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Ironshore Inc.

Consolidated Statements of Cash Flows


2015 2014

CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:

Net income $57,803 $84,466

ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH

PROVIDED BY OPERATING ACTIVITIES:

Amortization and depreciation 7,906 10,478

Stock compensation expense 22,953 11,866

Amortization of fixed maturity securities 23,444 19,724

Net realized and unrealized (gains) losses on investments 48,351 (28,039)

Deferred tax benefit (25,065) (7,931)

CHANGES IN OPERATING ASSETS AND LIABILITIES:

Accrued investment income (1,765) (1,031)

Premiums receivable 13,138 (60,928)

Reinsurance recoverable on unpaid losses (88,342) (109,272)

Reinsurance recoverable on paid losses 6,551 (5,993)

Deferred acquisition costs 16,027 (2,683)

Prepaid reinsurance premiums (68,945) (33,088)

Other assets 2,018 5,370

Reserve for losses and loss adjustment expenses 381,347 681,891

Unearned premiums 4,691 116,772

Insurance and reinsurance balances payable (8,461) 59,492

Other liabilities 48,699 15,499

Net cash provided by operating activities 440,350 756,593

CASH FLOWS USED IN INVESTING ACTIVITIES:

Purchases of fixed maturity securities (3,974,331) (3,723,875)

Purchases of short term investments (22,055) (278,929)

Purchases of equity securities (134,894) (347,221)

Purchases of other investments (83,236) (58,497)

Proceeds from sales of fixed maturity securities 3,086,889 2,654,490

Proceeds from maturity of fixed maturity securities 430,589 401,470

Proceeds from sales of short term investments 58,956 283,885

Proceeds from sales of equity securities 135,978 278,630

Proceeds from sales of other investments 61,724 1,726

Purchases of fixed assets (9,890) (9,368)

Issuance of note receivable - (3,741)

Net cash used in investing activities (450,270) (801,430)


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Ironshore Inc.

Consolidated Statements of Cash Flows


2015 2014

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:

Proceeds from issuance of common shares 466,764 2,600

Repurchase of shares (470,149) (5,156)

Contribution of additional paid-in capital 36,965 -

Contribution of deferred merger consideration 35,413 -

Issuance of debt - 100,000


Net cash provided by financing activities 68,993 92,197

Net increase in cash and cash equivalents 59,073 47,360

Cash and cash equivalents as of beginning of year 328,797 286,700

Effect of exchange rates on cash and cash equivalents (6,266) (5,263)

CASH AND CASH EQUIVALENTS AS OF END OF YEAR $381,604 $328,797

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Income taxes paid $20,639 $12,578

Interest paid $21,631 $21,393

Ironshore Inc.

Notes to consolidated financial statements (Expressed in thousands of U.S. dollars, except share data)

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1. Nature of the business

Ironshore Inc. (“Ironshore”), a Cayman Islands corporation, through its subsidiaries (collectively referred to as the “Company”)

provides specialty commercial property and casualty coverage for risks located throughout the world.

The Company’s principal operating subsidiary, Ironshore Insurance Ltd. (“Ironshore Insurance”), is registered as a Class 4 insurer

under The Insurance Act 1978 in Bermuda, related regulations and amendments thereto (the “Bermuda Insurance Act”). Ironshore

Insurance writes primarily property catastrophe and property all-risks coverage for small to mid-sized commercial risks. Ironshore

Insurance includes Ironshore Insurance Ltd, Singapore Branch, which is registered as a direct insurer to carry on general insurance

in Singapore effective January 26, 2012, and Ironshore Insurance Ltd., Canada Branch, which writes property and casualty

insurance for Canadian-domiciled risks effective March 29, 2014.

The Company’s U.S. platform consists of Ironshore Holdings (U.S.) Inc. (“Ironshore Holdings U.S.”), a Delaware corporation, and

its principal subsidiaries Ironshore Indemnity Inc., (“Ironshore Indemnity”), a Minnesota domiciled insurer, and Ironshore

Specialty Insurance Company (“Ironshore Specialty”), an Arizona domiciled insurer (collectively referred to as the “U.S.

companies”). The U.S. companies serve the property and specialty casualty insurance market sectors. The U.S. companies also

insure all classes of aviation and aerospace risks worldwide through an agreement with Starr Aviation Agency, Inc.

The Company’s International platform includes Ironshore International Ltd. (“IIL”) and a subsidiary company, Ironshore

Corporate Capital Ltd. (“ICCL”), both of which were incorporated in England and Wales. The International platform also includes

Pembroke JV Limited (“PJV”), its principal subsidiary, Pembroke Managing Agency Limited (“PMA”), and Ironshore Europe

Limited (“IEL”), an Irish corporation. PMA operates within the Lloyd’s of London (“Lloyd’s”) insurance market through

Syndicate 4000 and underwrites a portfolio of specialist lines products including financial institutions, professional liability,

marine and other select specialist lines. IEL commenced underwriting a diverse range of specialty lines in 2011.

Iron-Starr Excess Agency Ltd (“Iron-Starr Excess” or the “Agency”) acts as a specialty lines insurance and reinsurance managing

general agency in the offering, issuance and administration of insurance policies written on an equal subscription basis by

Ironshore Insurance and Starr Insurance and Reinsurance Limited (“SIRL”). In July 2014, Iron-Starr Excess added Hamilton Re, a

Bermuda-based property and casualty reinsurer, as subscribing insurer in order to increase capacity for full suites of products being

offered. Iron-Starr Excess writes financial lines, healthcare and catastrophic excess casualty insurance products, targeting Fortune

2000 and other clients purchasing catastrophe excess coverage.

2. Significant accounting policies

Basis of presentation These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the

United States of America (“U.S. GAAP”) and include the financial statements of Ironshore and its wholly owned and majority

owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation. Certain prior

year amounts have been reclassified to conform to the current year presentation.

Use of estimates in financial statements

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions

that affect the reported and disclosed 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 materially from those estimates. The major estimates reflected in the Company’s consolidated financial statements

include, but are not limited to, the reserves for losses and loss adjustment expenses, reinsurance recoverable balances including

allowances for reinsurance recoverables deemed uncollectible, estimates of written and earned premium, the fair value of

investments, recoverability of intangible assets and the net deferred tax asset or liability.

Premiums and related expenses

Premiums. Direct insurance and assumed facultative reinsurance premiums are recognized as earned on a pro rata basis over the

applicable policy or contract periods. For assumed treaty reinsurance written on a losses occurring basis, premiums written are

earned on a pro rata basis over the risk period. For assumed treaty reinsurance written on a risks attaching basis, premiums written

are earned on a pro rata basis over the periods of the underlying policies. Premiums may include estimates based on information

Ironshore Inc.


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received from brokers, ceding insurers and insureds, and any subsequent differences from such estimates are recorded in the period

in which they are determined. In each case, the portions of the premiums written applicable to the unexpired terms are recorded as

unearned premiums.

Assumed retroactive loss portfolio transfer (“LPT”) contracts in which the insured loss events occurred prior to the inception of the

contract are evaluated to determine whether they meet the established criteria for reinsurance accounting. If reinsurance accounting

is appropriate, premiums written are fully earned and corresponding losses and loss adjustment expenses recognized at the

inception of the contract. The contracts can cause significant variances in gross premiums written, net premiums written, net

premiums earned, and net incurred losses in the years in which they are written. Reinsurance contracts sold not meeting the

established criteria for reinsurance accounting are recorded using the deposit method.

A premium deficiency reserve is established when expected claim payments or incurred losses, loss adjustment expenses and

administrative expenses exceed the premiums to be earned over the remaining contract period. For the purposes of determining

whether a premium deficiency reserve exists contracts are grouped in a manner consistent with how policies are marketed,

serviced and measured. Anticipated investment income is utilized as a factor in the premium deficiency reserve calculation.

Acquisition expenses Acquisition expenses are costs that vary with, and are directly related to, the production of new and renewal business, and consist

principally of commissions and brokerage expenses. The Company does not capitalize internal costs associated with the

production of new business. Acquisition expenses are shown net of commissions on reinsurance ceded. These costs are deferred

and amortized over the periods in which the related premiums are earned. Deferred acquisition costs are limited to their estimated

realizable value based on the related unearned premiums. Anticipated loss and loss adjustment expenses based on historical and

current experience and anticipated investment income related to those premiums are considered in determining the recoverability

of deferred acquisition costs. Acquisition expenses also include profit commission. Profit commissions are recognized when

earned.

Reserve for losses and loss adjustment expenses

The reserve for losses and loss adjustment expenses includes reserves for unpaid reported losses and for losses incurred but not

reported. The reserve for unpaid reported losses and loss expenses is established by management based on reports from loss

adjusters, ceding companies and insureds and represents the estimated ultimate cost of events or conditions that have been reported

to, or specifically identified, by the Company. The reserve for incurred but not reported losses and loss adjustment expenses is

established by management based on actuarially determined estimates of ultimate losses and loss expenses. Inherent in the estimate

of ultimate losses and loss expenses are expected trends in claim severity and frequency and other factors which vary significantly

as claims are settled. Accordingly, ultimate losses and loss expenses may differ materially from the amounts recorded in the

consolidated financial statements. These estimates are reviewed regularly and, as experience develops and new information

becomes known, the reserves are adjusted as necessary. Such adjustments, if any, are recorded in earnings in the periods in which

they become known and are accounted for as changes in estimates.

Ceded Reinsurance In the normal course of business, the Company may seek to mitigate underwriting risk that could cause unfavorable results by

reinsuring certain amounts of risk with reinsurers. Reinsurance does not relieve the Company of its primary obligation to the

insured. The accounting for reinsurance ceded depends on the method of reinsurance. If the policy is on a losses occurring basis,

reinsurance premiums ceded and associated commissions are expensed on a pro rata basis over the period reinsurance coverage is

provided. If the policy is on a risk attaching basis, reinsurance premiums ceded and associated commissions are expensed in line

with gross premiums earned to which the risk attaching policy relates. Prepaid reinsurance premiums represent the portion of

premiums ceded on the unexpired terms of the policies purchased. Reinsurance commissions that will be earned in the future are

deferred and recorded as deferred acquisition costs on the balance sheets.

Reinsurance recoverable is presented on the balance sheets net of any reserves for uncollectible reinsurance. The method of

determining the reinsurance recoverable on unpaid losses and loss adjustment expenses involves actuarial estimates in a manner

consistent with the determination of unpaid losses and loss adjustment expenses.

Ceded reinstatement premiums are estimated after the occurrence of a significant loss and are recorded in accordance with the

contract terms based upon the ultimate loss estimates associated with each contract. Ceded reinstatement premiums are earned over

Ironshore Inc.


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the remaining contract period. Ceded reinstatement premiums earned were $5,905 and $8,296 for the years ended December 31,

2015 and 2014, respectively.

Certain ceded reinsurance contracts do not transfer underwriting risk and are accounted for using the deposit method of

accounting. Fees are accounted for as income based on the terms of the contract. A deposit asset is recorded at the inception of the

contract based on the consideration transferred. Corresponding changes in the amount of the deposit asset reflecting actual and

expected future loss payments are recorded as a credit or charge to interest income.

Investments The Company’s investments in fixed maturity and equity securities are classified as trading and are carried at fair value, with

related unrealized gains and losses recorded in net realized and unrealized gains (losses) on investments included in the statement

of operations and comprehensive income. The Company believes that accounting for its investments as trading with all changes in

fair value included in income reduces an element of management judgment as the Company is not required to perform an analysis

of its investments for other-than-temporary impairment.

Fair values of the Company’s fixed maturity and equity securities are based on quoted market prices or, when such prices are not

available, by reference to broker or underwriter bid indications and/or internal pricing valuation techniques. Investment

transactions are recorded on a trade date basis with balances pending settlement recorded as receivable for investments sold or

payable for investments purchased.

For mortgage-backed and other asset-backed debt securities, fair value includes estimates regarding prepayment assumptions,

which are based on current market conditions. Amortized cost in relation to these securities is calculated using a constant effective

yield based on anticipated prepayments and estimated economic lives of the securities. When actual prepayments differ

significantly from anticipated prepayments, the effective yield is recalculated to reflect actual payments to date. Changes in

estimated yield are recorded on a retrospective basis, which results in future cash flows being used to determine current book

value.

Realized gains and losses on sales of investments are determined on the average cost basis.

Net investment income includes interest income on fixed maturity securities, recorded when earned, dividend income on equity

investments, recorded when declared and the amortization of premiums and discounts on investments. The amortization of

premium and accretion of discount is computed using the effective interest rate method. Net investment income is recorded net of

investment expenses.

Short term investments Short term investments, which are managed as part of the Company’s investment portfolio, have an original maturity of one year

or less when purchased, and are carried at cost which approximates fair value.

Other investments

Other investments include investments in promissory notes and investments in closed-end limited partnerships that invest

primarily in commercial real estate debt in North America and Europe. It also includes investment in a Cayman-island registered

partnership fund that primarily invests in portfolio companies in China, Hong Kong, Macau and/or Taiwan. Investments in

promissory notes are carried at cost with interest income recorded in net investment income. Investments in closed-end limited

partnerships and Cayman-island registered fund are carried at fair value, with related unrealized gains and losses recorded in net

realized and unrealized gains (losses) on investments included in the statement of operations and comprehensive income.

Cash and cash equivalents The Company considers all investments with an original maturity of ninety days or less as cash equivalents.

Other Assets Investments in which the Company had significant influence over the operating and financial policies of the investee are classified

as other assets and are accounted for under the equity method of accounting. Under this method, the Company records its

proportionate share of income or loss from such investments in its results for the period and includes these investments in other

assets in its consolidated financial statements.

Ironshore Inc.


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Also included in other assets are depreciable long-lived assets such as information technology equipment, software, leasehold

improvements, furniture and fixtures that are carried at cost less accumulated depreciation and are depreciated on a straight-line

basis over their estimated useful lives taking into account residual value. The estimated useful lives (i.e. information technology

equipment—3 years; software—3 to 5 years; leasehold improvements—shorter of their useful life or remaining life of the lease;

furniture and fixtures—5 years) is based on the period over which the Company expects to generate net cash inflows from the use

of these assets. The depreciable long-lived assets are subject to impairment testing whenever events or changes in circumstances

indicate that their carrying amount may not be recoverable.

Insurance and reinsurance balances payable Insurance and reinsurance balances payable principally represents ceded premiums payable and profit commissions payable to

third party reinsurance companies or program administrators. Also included within this line item are amounts related to the

Company’s insurance business principally related to return premiums, which arise when an insurance contract is cancelled and the

Company is required to return some or all of the premium received to the insured.

Business combinations, goodwill and other intangible assets The Company accounts for business combinations in accordance with FASB ASC Topic 805 Business Combinations, and

goodwill and other intangible assets that arise from business combinations in accordance with FASB ASC Topic 350 Intangibles—

Goodwill and Other. A purchase price that is in excess of the fair value of the net assets acquired arising from a business

combination is recorded as goodwill, and is not amortized. Other intangible assets with a finite life are amortized over the

estimated useful life of the asset. Other intangible assets with an indefinite useful life are not amortized.

Goodwill and other indefinite life intangible assets are tested for impairment at least annually. The Company first assesses

qualitative factors in determining whether it is necessary to perform the two-step quantitative goodwill impairment test. Only if

management determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount based

on qualitative factors, would it be required to then perform the two-step quantitative goodwill impairment test detailed below.

The first step identifies potential impairments by comparing the fair value of the reporting unit to its book value, including

intangibles. If the fair value of the reporting unit exceeds the carrying amount, the intangible is not impaired and the second step is

not required. If the carrying value is in excess of the fair value, the second step computes the possible impairment loss by

comparing the implied fair value of the intangible with the carrying amount. If the implied fair value of the intangible is less than

the carrying amount, the intangible is written down to its fair value with a corresponding expense being charged to earnings.

The Company considers the recoverability of its intangible assets whenever a change in circumstances arises and in the event that

an impairment exists, any excess unamortized balances are recorded in earnings.

Non-controlling interest The Company accounts for non-controlling interest in accordance with FASB ASC Topic 805 Business Combinations which

establishes accounting and reporting standards that require that ownership interests in subsidiaries held by other parties be

presented in the consolidated statement of shareholders’ equity separately from the parent’s equity and the consolidated net income

attributable to non-controlling interest be presented on the face of the consolidated statements of operations and comprehensive

income. The guidance also requires that changes in a parent’s ownership interest while the parent retains controlling financial

interest in its subsidiary be accounted for consistently. Disclosures in financial statements are required to identify and distinguish

between the interests of the parent and non-controlling owners. On July 1, 2014, the Company purchased the remaining 40%

interest in Wright & Co. from the non-controlling shareholders for cash of $5,247, increasing its ownership interest from 60% to

100%.

Foreign exchange The Company’s reporting currency is the United States Dollar (U.S. dollars). Monetary assets and liabilities denominated in

currencies other than the entities’ functional currencies are revalued at the exchange rates in effect as of the balance sheet date with

the resulting foreign exchange gains and losses included in earnings as net foreign exchange gains (losses). Revenues and expenses

denominated in currencies other than the entities’ functional currencies are remeasured at the average rate for the period. The

financial statements of each of the Company’s subsidiaries are initially measured using the entity’s functional currency, which is

determined based on its operating environment and its underlying cash flows. For entities with a functional currency other than

U.S. dollars, foreign currency assets and liabilities are translated into U.S. dollars using the period end rates of exchange, while

Ironshore Inc.


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statements of operations are translated at average rates of exchange for the period. The resulting cumulative translation adjustment

is recorded in accumulated other comprehensive income as a separate component of shareholders’ equity.

Stock based compensation The Company accounts for its stock compensation plans in accordance with the fair value recognition provisions of FASB ASC

Topic 718 Compensation—Stock Compensation, which requires the Company to measure the cost of services received from

employees, directors and eligible consultants in exchange for an award of equity instruments based on the estimated fair value of

the award on the date of grant for equity-classified awards. The cost of these services is recognized as compensation expense over

the requisite service period and is included in earnings. The Company measures liability-classified awards based on the fair value

remeasured at each reporting period until the date of settlement. The compensation cost related to liability-classified awards

includes a change in the fair value of the liability instrument at each reporting period.

Earnings per share Basic earnings per ordinary share are calculated by dividing net income available to ordinary shareholders by the weighted average

number of ordinary shares outstanding. Diluted earnings per ordinary share are based on the weighted average number of ordinary

shares, warrants, restricted stock and options outstanding, except the effects of the warrants, restricted stock and options that are

anti-dilutive.

Taxation Income taxes have been provided in accordance with the provisions of FASB ASC Topic 740 Income Taxes on those operations

which are subject to income taxes. Deferred tax assets and liabilities result from temporary differences between the amounts

recorded in the consolidated financial statements and the tax basis of the Company’s assets and liabilities. The effect on deferred

tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. A

valuation allowance against deferred tax assets is recorded if it is more likely than not that all, or some portion, of the benefits

related to deferred tax assets will not be realized.

The Company reflects tax positions in accordance FASB ASC Topic 740, Income Taxes. Such tax positions are, based solely on

their technical merits, more likely than not to be sustained upon examination by taxing authorities and reflect the largest amount of

benefit, determined on a cumulative probability basis that is more likely than not to be realized upon settlement with the applicable

taxing authority with full knowledge of all relevant information.

Recent accounting pronouncement

Amendments to Fair Value Disclosures

In May 2015, the FASB issued Accounting Standards Update 2015-07 “Disclosure for Investments in Certain Entities That

Calculate Net Asset Value per Share (or Its Equivalent)” which removes the requirement to categorize within the fair value

hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. However, the

reporting entity is still required to disclose information that will help users understand the nature and risk of these investments.

This update is effective for public business entities for fiscal years beginning after December 15, 2015 and after December 15, 2016

for all other entities. The amendments should be applied retrospectively for all periods presented. Earlier application is permitted.

The Company adopted this pronouncement starting for the period ended June 30, 2015 and it had no material impact on the

consolidated financial statements.

Amendments to the Consolidation Standard

In February 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2015-2,

Consolidation – Amendments to the Consolidation Analysis, which amends the current consolidation guidance. The main

provisions of these amendments may affect consolidation conclusion and include, among others, the following key items:

elimination of three of the six conditions for evaluating whether a fee paid to a decision maker or a service provider

represents a variable interest;

exclusion of some fee arrangements paid to a decision maker on determining primary beneficiary; and

reduction in the application of related party guidance on determining primary beneficiary.

Ironshore Inc.


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This update will be effective for public business entities with annual periods beginning after December 15, 2015 and December 15,

2016 for all other entities. Earlier application is allowed. The Company believes that this guidance has no impact on the

consolidated financial statements.

Elimination of Extraordinary Item Concept

In January 2015, the FASB issued Accounting Standard Update No. 2015-01, Income Statement – Extraordinary and Unusual

Items which eliminates the concept of extraordinary items. Preparers and their auditors will no longer need to evaluate whether

unusual and/or infrequent items are treated properly. Presentation and disclosure guidance for items that are unusual in nature or

infrequent in occurrence will be expanded to include items that have both characteristics. This update will be effective for interim

and annual periods beginning after December 15, 2015. Earlier application is allowed. The Company believes that this guidance

will have no impact on the consolidated financial statements.

Simplifying the Presentation of Debt Issuance Costs

In April 2015, the FASB issued Accounting Standards Update 2015-03 Simplifying the Presentation of Debt Issuance Costs

requiring entities to present debt issuance costs related to a recognized liability in the balance sheet as a direct reduction from that

liability rather than as an asset. This will align the presentation of debt issuance costs with that of debt discounts and premiums. The

guidance is effective for non-public business entities for fiscal years beginning after December 15, 2015 and interim periods within

fiscal years beginning after December 15, 2016. Earlier application is permitted. The Company believes that this guidance will not

have a material impact on the consolidated financial statements.

Disclosures about Short Duration Insurance Contracts

In May 2015, the FASB issued Accounting Standards Update 2015-09 Disclosures about Short Duration Insurance Contracts

requiring insurers to make additional disclosures about short-duration contracts (typically a year or less). The disclosures focus on

the liability for unpaid claims and claim adjustment expenses. Insurers are required to provide tables showing incurred and paid

claims development information by accident year for the number of years claim typically remain outstanding (but not more than 10

years). Insurers will also have to provide a reconciliation of this information to the statement of financial position. For accident

years included in the development tables, insurers will have to disclose the total of incurred-but-not-reported liabilities and

expected development on reported claims plus claims frequency information unless impracticable, and the historical average annual

percent of payout incurred claims. These disclosures will be required to be aggregated or disaggregated so that useful information is

not obscured. The guidance is effective for non-public business entities for fiscal years beginning after December 15, 2016 and

interim periods the following year. Earlier application is permitted. The Company believes that this guidance has no impact on the

consolidated financial statements as it is a change in disclosure only.

Simplifying the Accounting for Measurement Period Adjustments

In September 2015, The FASB issued Accounting Standards Update 2015-16 Simplifying the Accounting for Measurement Period

Adjustments eliminating the requirement that an acquirer in a business combination account for adjustments it makes to the

provisional amounts it records for assets and liabilities retrospectively. An acquirer must recognize these measurement-period

adjustments during the period in which it determines their amounts, including the effect on earnings of any amounts they would

have recorded in previous periods if the accounting had been completed at the acquisition date. The guidance is effective for non-

public business entities for fiscal years beginning after December 15, 2016 and interim periods with fiscal years beginning after

December 15, 2017. Earlier application is permitted. The Company believes that this guidance will not have a material impact on

the consolidated financial statements.

3. Fosun Equity Investment and Ironshore Tender Offer

On August 17, 2014, the Company entered into a definitive equity purchase agreement (the “Equity Purchase Agreement”) with

Fosun International Limited (“Fosun”) and Mettlesome Investment Limited, a wholly owned subsidiary of Fosun (“Mettlesome”),

pursuant to which the Company agreed to sell to Mettlesome 20% of Ironshore’s total outstanding ordinary shares on a fully

diluted basis (the “Fosun Equity Investment”). The Fosun Equity Investment was consummated on February 12, 2015 and,

pursuant to the terms of the Equity Purchase Agreement, the Company initially issued to Mettlesome 27,980,743 ordinary shares

for a cash purchase price of $456,804. The purchase price and number of shares issued were subject to certain post-closing

adjustments under the Equity Purchase Agreement.

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In November 2014, the Company launched a tender offer (the “Ironshore Tender Offer”) to repurchase securities representing 20%

of Ironshore’s total outstanding ordinary shares on a fully diluted basis. Following closing of the Fosun Equity Investment, the

Company consummated the Ironshore Tender Offer, repurchasing 27,687,491 ordinary shares (including shares underlying options

and Class B warrants exercised in connection with the tender offer) at approximately $16.3256 per share and 1,921,040 Class A

warrants at approximately $6.3256 per warrant. All of the proceeds from the Fosun Equity Investment, together with the exercise

price payable to the Company upon the exercise of options and Class B warrants described above, were used to pay the tender

offer consideration. The securities repurchased by the Company pursuant to the Ironshore Tender Offer were cancelled and retired.

The number of securities repurchased by the Company and the aggregate tender offer consideration are subject to adjustment based

on the post-closing adjustments pursuant to the Equity Purchase Agreement.

On March 6, 2015, in conjunction with the initial post-closing adjustment pursuant to the Equity Purchase Agreement, the

Company issued 97,296 additional shares to Mettlesome and received a cash purchase price adjustment of $9,776.

The post-closing adjustments under the Equity Purchase Agreement and the related post-closing share adjustments pursuant to the

Ironshore Tender Offer were finalized in the second fiscal quarter of 2015. Costs incurred associated with the Fosun Equity

Investment are recorded in non-recurring transaction expenses in the consolidated statement of operations and comprehensive

income.

Effective upon closing of the Fosun Equity Investment, the Company’s memorandum of association was amended to increase the

authorized capital of the Company from 200,000,000 ordinary shares to 400,000,000 shares, par value of $0.01 each, which may

be ordinary shares or preferred shares.

4. Merger with Fosun

On May 1, 2015, the Company entered into a definitive merger agreement (the “Merger Agreement”) with Fosun International

Limited (“Fosun”), Mettlesome Investments (Cayman) III Limited (“Purchaser”), Mettlesome Investment 2, a wholly-owned

subsidiary of Purchaser (“Merger Sub”) and IS Equityholder Rep, LLC, solely in its capacity as the representative of the

equityholders of the Company (“Equityholder Representative”), pursuant to which the parties agreed that Fosun would acquire

indirectly the remaining interest in the Company that Fosun did not already beneficially own (the “Fosun Acquisition”). On

November 20, 2015, the Fosun Acquisition was effected by the merger of Merger Sub with and into the Company, with the

Company surviving the merger and becoming a wholly owned indirect subsidiary of Fosun. The aggregate consideration paid by

Purchaser was $2,042,936, which was allocated ratably among the holders of shares, restricted share units, warrants and options of

the Company (taking into consideration the exercise prices of warrants and options), after deduction of (a) the portion of

transaction expenses incurred by the Company payable out of the merger consideration, (b) transaction expenses incurred by the

Equityholder Representative prior to the Closing, (c) $2,500 to fund an escrow account against which indemnity claims may be

made by the Purchaser and (d) $750 to fund potential expenses incurred by the Equityholder Representative after the closing.

Payments for certain equity held by certain employees of the Company were funded into separate escrow accounts for the benefit

of such employees, and payments out of such escrow accounts will be made to such employees on a deferred basis, in each case,

pursuant to arrangements contemplated by the Merger Agreement. The deferred consideration payable was $48,498 and is

recorded in the consolidated balance sheet in the following line items: cash of $48,498, other liabilities of $35,413, and additional

paid in capital of $13,085. Costs incurred associated with the merger of $22,110 are recorded in non-recurring transaction expenses in the consolidated

statement of operations and comprehensive income. Fosun reimbursed the Company for these expenses and the reimbursement is

recorded as additional paid in capital in the balance sheet. Non-recurring transaction expenses also include costs incurred of

$7,615 associated with the Fosun Equity Investment (refer to Note 3) and $9,804 due to the accelerated vesting of certain share

based compensation awards pursuant to the Merger Agreement.

Ironshore Inc.


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5. Investment in Joint Ventures

Ironshore Holdings U.S. formed IDP Holdings LLC (“IDP”) as a joint venture with The Distinguished Programs Group LLC

(“DPG”).

On November 1, 2012, IDP entered into an Asset and Membership Interest Purchase Agreement with National Specialty

Underwriters, Inc. and certain of its subsidiaries (collectively, “NSU”) pursuant to which IDP purchased NSU’s hospitality and

casualty insurance programs business and related claims administration business for cash and a promissory note issued by IDP.

Ironshore Holdings U.S. made a cash equity investment of $4,844 and advanced a loan of $10,088 to IDP, which equity

investment and loan, together with a cash equity investment by DPG, were used to finance the purchase from NSU. In April 2014,

Ironshore Holdings U.S. made an additional cash equity investment of $1,250 and advanced a loan of $2,500 to IDP, which equity

investment and loan, together with a cash equity investment by DPG were used to repay the promissory note issued by IDP in

connection with the NSU transaction. Further, on September 1, 2014, IDP entered into an asset purchase agreement with DPG

pursuant to which IDP purchased certain new hospitality program business from DPG for cash. Ironshore Holdings U.S. made an

additional cash equity investment of $620 and advanced a loan of $1,241 to IDP, which equity investment and loan, together with

a cash equity investment by DPG were used to finance such purchase from DPG. Each loan from Ironshore Holdings U.S. to IDP

bears interest at a rate of prime plus 4% per annum subject to a minimum interest rate of 6% per annum and a maximum interest

rate of 12% per annum. The loans were secured by a pledge of substantially all of the assets of IDP. All profits and losses of

operations are shared equally between Ironshore Holdings U.S. and DPG.

On October 26, 2015, Ironshore Holdings U.S. sold its ownership interest in IDP to DPG for $10,893 resulting in a gain of $5,330

recognized in other income. In addition, the aggregate promissory note value of $13,828 and accrued interest outstanding up to the

October 26, 2015 were settled by DPG.

6. Goodwill and other intangible assets

Goodwill and other intangibles as of December 31, 2015 and 2014 are as follows:

Goodwill & other

Goodwill intangible assets

Gross Gross Amortization

Foreign

Exchange Total Total

Balance as of January 1, 2014 $17,804 $80,425 $(9,944) $(5,727) $64,754 $82,558

Reclassification (b) 391 (391) - - (391) -

Acquired during 2014 - 620 - - 620 620

Amortization - - (2,384) - (2,384) (2,384)

Foreign exchange translation (a) - - - (1,440) (1,440) (1,440)

Balance as of December 31, 2014 18,195 80,654 (12,328) (7,167) 61,159 79,354

Acquired during 2015 187 425 - - 425 612

Amortization - - (2,519) - (2,519) (2,519)

Foreign exchange translation (a) - - - (1,221) (1,221) (1,221)

Balance as of December 31, 2015 $18,382 $81,079 $(14,847) $(8,388) $57,844 $76,226

Other intangible assets

(a) Represents foreign exchange translation on Lloyd’s Syndicate capacity.

(b) Represents adjustment related to the acquisition of ERR acquisition.

Ironshore Inc.


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The gross carrying value and accumulated amortization by major category of other intangible asset as of December 31, 2015 is

shown below:

Gross carrying Accumulated Foreign exchange

value amortization translation Total

Admitted licenses $11,006 $ - $ - $11,006

Excess & surplus lines licenses 8,925 - - 8,925

Lloyd's Syndicate capacity 33,570 - (8,033) 25,537

Indefinite life 53,501 - (8,033) 45,468

Customer relationship, customer lists and trade name 11,468 (7,591) (355) 3,522

Renewal rights 10,514 (4,937) - 5,577

Non-compete agreement 5,596 (2,319) - 3,277

Definite life 27,578 (14,847) (355) 12,376

Total intangible assets $81,079 $(14,847) $(8,388) $57,844

The gross carrying value and accumulated amortization by major category of other intangible asset as of December 31, 2014 is

shown below: Gross carrying Accumulated Foreign exchange

value amortization translation Total

Admitted licenses $11,006 $ - $ - $11,006

Excess & surplus lines licenses 8,925 - - 8,925

Lloyd's Syndicate capacity 33,570 - (6,814) 26,756

Indefinite life 53,501 - (6,814) 46,687

Customer relationship, customer lists and trade name 11,043 (6,969) (353) 3,721

Renewal rights 10,514 (3,875) - 6,639

Non-compete agreement 5,596 (1,484) - 4,112

Definite life 27,153 (12,328) (353) 14,472

Total intangible assets $80,654 $(12,328) $(7,167) $61,159

The useful life of intangible assets with finite lives ranges from 3 to 10 years, with an average amortization period of 5.2 years.

Expected amortization of the intangible assets is shown below:

Other intangible

assets

2016 $2,541

2017 2,541

2018 2,541

2019 2,323

2020 and thereafter 2,430

Total remaining amortization expense - definite life 12,376

Indefinite life 45,468

Total $57,844

As described in Note 2, Significant accounting policies, the annual qualitative impairment test was performed and neither goodwill

nor the other intangible assets were deemed to be impaired.

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7. Investments

The amortized cost, gross unrealized gains and losses and fair value of investments as of December 31, 2015 are as follows:

Amortized Unrealized Unrealized Fair

cost gains losses value

U.S. government and government agency securities $484,524 $164 $(1,240) $483,448

Non-U.S. government and government agency securities 121,800 1,040 (4,191) 118,649

Municipal securities 90,898 845 (182) 91,561

Corporate securities 1,589,575 7,030 (12,815) 1,583,790

Bank loans 456,803 1,656 (10,055) 448,404

U.S. asset-backed securities 610,907 293 (5,588) 605,612

U.S. mortgage-backed securities 1,096,719 6,009 (8,224) 1,094,504

Total fixed maturity securities 4,451,226 17,037 (42,295) 4,425,968

Equity securities 202,014 10,547 (11,837) 200,724

Short term investments 3,979 - - 3,979

4,657,219 $27,584 $(54,132) $4,630,671

The amortized cost, gross unrealized gains and losses and fair value of investments as of December 31, 2014 are as follows:

Amortized Unrealized Unrealized Fair

cost gains losses value

U.S. government and government agency securities $359,877 $764 $(370) $360,271

Non-U.S. government and government agency securities 107,536 1,663 (1,122) 108,077

Municipal securities 88,020 1,344 (179) 89,185

Corporate securities 1,325,037 15,915 (8,015) 1,332,937

Bank loans 435,697 1,489 (6,811) 430,375

U.S. asset-backed securities 635,540 1,562 (3,459) 633,643

U.S. mortgage-backed securities 1,080,017 12,379 (2,689) 1,089,707

Total fixed maturity securities 4,031,724 35,116 (22,645) 4,044,195

Equity securities 209,265 5,527 (7,702) 207,090

Short term investments 40,877 - - 40,877

$4,281,866 $40,643 $(30,347) $4,292,162

Included in the tables above are fixed maturity securities with a fair value of $16,585 and $25,483 which are on deposit with U.S.

insurance regulators as of December 31, 2015 and 2014, respectively, to meet certain statutory requirements. The Company also

maintains fixed maturity securities and cash amounting to $1,981,393 and $1,545,000 in trust accounts as collateral under the

terms of certain insurance and reinsurance transactions as of December 31, 2015 and 2014, respectively.

As of December 31, 2015 and 2014, the Company maintained a trust account of $28,265 and $18,101, respectively, composed of

cash and fixed maturity securities to meet certain Canadian insurance regulatory requirements for Ironshore Insurance Ltd. -

Canada Branch.

On December 1, 2009, the Company entered into a $50,000 standby letter of credit facility provided by Citibank Europe plc. As of

December 31, 2015 and 2014, $49,701 and $37,254 respectively, of letters of credit were issued and outstanding under this

facility, for which $63,754 and $43,929, respectively, of fixed maturity securities were pledged as collateral.

The Company operates in the Lloyd’s market through its corporate member ICCL, which represents its participation in Syndicate

4000. Lloyd’s sets capital requirements for corporate members annually based on the Syndicates’ business plans, rating and

reserving environment together with input arising from Lloyd’s discussions with regulatory and rating agencies. Such capital, or

Funds at Lloyd’s (“FAL”), may be satisfied by cash, certain investments and undrawn letters of credit provided by approved

banks. As of December 31, 2015 and 2014, fixed maturity securities with a fair value of $322,003 and $277,571; equity securities

with a fair value of $51,698 and $55,783; and short term investments and cash equivalents with a fair value of $1,521 and $9,929,

respectively, were restricted to satisfy ICCL’s FAL requirements.

Ironshore Inc.


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The following represents an analysis of net realized gains (losses) on the sale of investments for the years ended:

Realized Realized Net realized

gains losses gains (losses)

Fixed maturity securities $11,451 $(18,250) $(6,799)

Equity securities 2,805 (5,106) (2,301)

Short term investments 602 (719) (117)

$14,858 $(24,075) $(9,217)

Year ended December 31, 2015

Realized Realized Net realized

gains losses gains (losses)

Fixed maturity securities $14,263 $(10,951) $ 3,312

Equity securities 19,639 (4,290) 15,349

Short term investments 664 (707) (43)

$34,566 $(15,948) $ 18,618


The amortized cost and fair value amounts for fixed maturity securities held as of December 31, 2015 are shown by contractual

maturity below. Actual maturity may differ from contractual maturity because certain borrowers may have the right to call or

prepay certain obligations with or without call or prepayment penalties.

Amortized cost Fair value

Due in one year or less $119,186 $119,256

Due after one year through five years 2,159,334 2,152,723

Due after five years through ten years 391,047 384,267

Due after ten years 51,160 46,731

U.S. asset-backed securities 610,907 605,612

U.S. mortgage-backed securities 1,096,719 1,094,504

U.S. government sponsored enterprises 22,873 22,875

Total fixed maturity securities $4,451,226 $4,425,968

December 31, 2015

The following table sets forth certain information regarding the investment ratings of the Company’s fixed maturity investment

portfolio as of December 31, 2015. Investment ratings are as designated by Standard & Poor’s Ratings Group or Moody’s

Investors Service.

S&P Equivalent Rating (a) Amortized cost Fair value

AAA $825,850 $821,953

AA 1,620,810 1,619,238

A 901,539 901,138

BBB 553,388 546,168

Below BBB 361,437 349,357

Not rated 188,202 188,114

Total fixed maturity securities $4,451,226 $4,425,968

December 31, 2015

(a) Carried at the lower of Standard & Poor’s or Moody’s rating, presented in Standard & Poor’s equivalent rating

Ironshore Inc.


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Net investment income is derived from the following sources:

For the years ended December 31 2015 2014

Fixed maturity securities $109,241 $95,864

Equity securities 6,566 6,302

Other investments 6,210 2,124

Cash and cash equivalents 850 686

Short term investments 10 8

Total gross investment income 122,877 104,984

Investment expenses (9,577) (7,941)

Net investment income $113,300 $97,043

8. Fair value measurement

U.S. GAAP establishes a framework for measuring fair value using a hierarchy of fair value measurements that distinguishes market

data between observable independent market inputs and unobservable market assumptions and requires additional disclosures about

such fair value measurements. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is

significant to the fair value measurement. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for

identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

The three levels of the fair value hierarchy are described further below:

Level 1: Quoted prices in active markets for identical assets/liabilities (unadjusted);

Level 2: Indirect observable inputs including quoted prices for similar assets/liabilities (adjusted) and market corroborated inputs;

Level 3: Unobservable inputs which reflect the underlying entity’s interpretation of risk assumptions used by market participants.

The Company receives assistance with its investment accounting function from an independent service provider. This service

provider as well as the Company’s investment managers uses several pricing services and brokers to assist with the determination of

the fair value of the Company’s investment portfolio.

The Company does not typically adjust prices obtained from pricing services. In accordance with accounting guidance regarding fair

value measurements, the Company’s service providers maximize the use of observable inputs ensuring that unobservable inputs are

used only when observable inputs are not available.

The following table presents the Company’s investments that are measured at fair value on a recurring basis as well as the carrying

amount of these investments as of December 31, 2015 by level within the fair value hierarchy:

Quoted Prices in Significant

Active Markets Other Significant

for Identical Observable Unobservable

Assets Inputs Inputs

2015 (Level 1) (Level 2) (Level 3) Total

U.S. government and government agency securities $460,573 $22,875 - $483,448

Non-U.S. government and government agency securities - 118,649 - 118,649

Municipal securities - 91,561 - 91,561

Corporate securities - 1,582,790 1,000 1,583,790

Bank loans - 226,342 222,062 448,404

U.S. asset-backed securities - 575,575 30,037 605,612

U.S. mortgage-backed securities - 1,089,388 5,116 1,094,504

Total fixed maturity securities 460,573 3,707,180 258,215 4,425,968

Equity securities 194,876 5,848 - 200,724

Short term investments - 3,979 - 3,979

$655,449 $3,717,007 $258,215 $4,630,671

Ironshore Inc.


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The following table presents the Company's investments that are measured at fair value on a recurring basis as well as the carrying

amount of these investments as of December 31, 2014 by level within the fair value hierarchy:

Quoted Prices in Significant

Active Markets Other Significant

for Identical Observable Unobservable

Assets Inputs Inputs

2014 (Level 1) (Level 2) (Level 3) Total

U.S. government and government agency securities $283,252 $77,019 - $360,271

Non-U.S. government and government agency securities - 108,077 - 108,077

Municipal securities - 89,185 - 89,185

Corporate securities - 1,331,957 980 1,332,937

Bank loans - 188,998 241,377 430,375

U.S. asset-backed securities - 629,027 4,616 633,643

U.S. mortgage-backed securities - 1,081,844 7,863 1,089,707

Total fixed maturity securities 283,252 3,506,107 254,836 4,044,195

Equity securities 172,992 33,873 225 207,090

Short term investments - 40,877 - 40,877

$456,244 $3,580,857 $255,061 $4,292,162

A description of the valuation techniques and inputs used to determine fair values of investments carried at fair value, as well as the

classification of each investment type in the fair value hierarchy is detailed below.

The Company’s investments classified as Level 1 include U.S. government and government agency securities and equity securities

for which fair value is based on quoted market prices in active markets which is defined by the Company’s pricing service as a

security that has traded in the previous seven days.

The Company’s Level 2 securities primarily consist of securities that are valued using models or other valuation techniques. These

models are industry standard models that take into account various assumptions including time value, yield curve, prepayments

speeds, default rates, loss severity, current market and contractual prices for the underlying securities as well as other economic data.

The majority of these assumptions are observable in the marketplace and this category includes some U.S. and Non-U.S.

government and government agency securities, municipal securities, corporate securities, bank loans, U.S. asset-backed securities,

U.S. mortgage-backed securities, equity securities and short term investments.

The Company’s investments classified as Level 3 consist of bank loans, certain corporate securities, U.S. asset and mortgage-backed

securities and equity securities. Level 3 securities are valued using non-binding broker quotes and other third party pricing sources,

without modification. Consequently, the information about significant unobservable inputs used in the fair value measurement as

required by U.S. GAAP are not disclosed.

The Company’s other investments include investments in closed-end limited partnerships that invest primarily in private commercial

real estate debt in North America and Europe (“Real Estate Debt Funds”). In May, 2015, the Company also invested in a limited

partnership fund registered in Cayman Islands called China Momentum Fund, L.P. (CMF). The fair value of these investments is

estimated using the net asset value (NAV) as provided by the general partners or investment managers. As the NAV obtained from

the general partners or investment managers lags by one quarter as of the measurement date, the Company considers any adjustment

to the most recent NAV such as capital calls, distributions, redemptions and all other information available to the Company.

The Real Estate Debt Funds invest principally in senior and subordinated instruments, including mortgages, B-notes and mezzanine,

senior and bridge loans related to real estate-related assets. These investments are not allowed to be redeemed, transferred or resold

and have an estimated term of 3 to 7 years. CMF invests primarily in portfolio of companies engaged in consumer, financial or

industrial undertakings domiciled in China, Hong Kong, Macau and/or Taiwan. The investment period for CMF commenced on

August 15, 2013 and with an estimated term of 10 years unless sooner dissolved. As of December 31, 2015 and 2014, Real Estate

Debt Funds and CMF had a balance of $87,366 and $43,760, respectively, recorded as other investments in the consolidated balance

sheets.

There have been no significant changes in the Company’s use of valuation techniques or related inputs nor have there been any

transfers between Level 1 and Level 2 during the years ended December 31, 2015 and 2014, respectively. The transfers from Level 2

Ironshore Inc.


21

to Level 3 during the years ended December 31, 2015 and 2014 reflect low level of trading activity in certain fixed maturity

securities while the transfers of fixed maturity securities from Level 3 to Level 2 that occurred during the same periods reflect higher

reliance on observable inputs. The Company’s policy is to recognize transfers in and out of the fair value hierarchy measurement

levels as of the date of the actual transfer.

As of December 31, 2015 and 2014, the Company’s Level 3 investments represented 5.6% and 5.9% of its total investments

measured at fair value, respectively.

Level 3 Gains and Losses

The table below presents assets that are measured at fair value on a recurring basis as of December 31, 2015 using significant

Level 3 inputs:

U.S. asset- U.S. mortgage-

Equity Corporate backed backed

Year ended December 31, 2015 Bank loans securities securities securities securities Total

Balance at beginning of year $241,377 $225 $980 $4,616 $7,863 $255,061

Realized gains (losses) (1,198) (7) - - 130 (1,075)

Unrealized gains (losses) 459 15 17 (212) (127) 152

Purchases 75,442 - - 22,065 6,018 103,525

Sales (75,744) (233) 1 (772) (8,755) (85,503)

Amortization 837 - 2 11 (13) 837

Transfer into Level 3 4,609 - - 8,708 - 13,317

Transfer out of Level 3 (23,720) - - (4,379) - (28,099)

Balance at end of the year $222,062 $0 $1,000 $30,037 $5,116 $258,215

The table below presents assets that are measured at fair value on a recurring basis as of December 31, 2014 using significant

Level 3 inputs:

U.S. asset- U.S. mortgage-

Equity Corporate backed backed

Year ended December 31, 2014 Bank loans securities securities securities securities Total

Balance at beginning of the period $132,831 - $77 $50,571 $3,567 $187,046

Realized gains 26 - 4 - - 30

Unrealized gains (losses) (2,593) (15) (2) (14) 86 (2,538)

Purchases 174,926 240 980 4,629 6,180 186,955

Sales (71,796) - (79) - (1,099) (72,974)

Amortization 698 - - 1 12 711

Transfer into Level 3 25,018 - - - - 25,018

Transfer out of Level 3 (17,733) - - (50,571) (883) (69,187)

Balance at end of the year $241,377 $225 $980 $4,616 $7,863 $255,061

Change in unrealized loss for the year included in earnings for assets held at the end of December 31, 2015 and 2014 amounted to

$669 and $1,795, respectively.

Financial Instruments not Carried at Fair Value

U.S. GAAP requires that entities disclose the fair value of all of their financial instruments whether or not carried at fair value in

the financial statements.

On May 4, 2010, the Company issued $250,000 of Senior Notes bearing an annual interest rate of 8.5%, payable semi -annually in

arrears on May 15 and November 15 of each year, beginning November 15, 2010. As of December 31, 2015 and December 31,

2014, the fair value of the Senior Notes was $287,500 (carrying value – $247,992) and $300,948 (carrying value - $247,629),

respectively. The fair value is determined using a non-binding broker quote which is considered Level 3 in the fair value hierarchy.

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Consequently, the information about significant unobservable inputs used in the fair value measurement as required by U.S. GAAP

is not disclosed.

As of December 31, 2015, the Company has an outstanding loan of $100,000 owed to Federal Home Loan Bank Boston (“FHLB”)

(see Note 14). As of December 31, 2015, the carrying value of the short-term loan of $100,000 approximates fair value and is

classified as Level 2 in the fair value hierarchy.

9. Reserves for losses and loss adjustment expenses

Reserves for losses and loss adjustment expenses are based in part upon the estimation of case reserves reported from brokers,

insureds and ceding companies. The Company also uses statistical and actuarial methods to estimate ultimate expected losses and

loss adjustment expenses. The period of time from the occurrence of a loss, the reporting of a loss to the Company and the

settlement of the Company’s liability may be several months or years. During this period, additional facts and trends may be

revealed. As these factors become apparent, case reserves will be adjusted, sometimes requiring an increase or decrease in the

overall reserves of the Company, and at other times requiring a reallocation of incurred but not reported reserves to specific case

reserves. These estimates are reviewed regularly, and such adjustments, if any, are recorded in earnings in the period in which they

become known. While management believes that it has made a reasonable estimate of ultimate losses, there can be no assurances

that ultimate losses and loss expenses will not exceed the total reserves.

The following table represents the activity in the reserve for losses and loss adjustment expenses for the years ended December 31,

2015 and 2014, respectively:

2015 2014

Gross reserves for losses and loss adjustment expenses, beginning of year $2,838,158 $2,181,812

Less reinsurance recoverable balances, beginning of year 693,298 601,352

Net reserves for losses and loss adjustment expenses, beginning of year 2,144,860 1,580,460

Increase (decrease) in net losses and loss adjustment expenses incurred in

respect of loses occurring in:

Current year 1,000,318 1,024,508

Prior years 9,900 52,766

Total incurred losses and loss adjustment expenses 1,010,218 1,077,274

Less net losses and loss adjustment expenses paid in respect of losses

occurring in:

Current year 130,449 146,129

Prior years 586,252 358,467

Total net paid losses 716,701 504,596

Net foreign currency gain on reserve for losses and loss adjustment expenses (17,623) (8,278)

Net reserve for losses and loss adjustment expenses, end of year 2,420,754 2,144,860

Plus reinsurance recoverable balances, end of year 776,787 693,298

Gross reserve for losses and loss adjustment expenses, end of year $3,197,541 $2,838,158

The underlying reasons for prior year unfavorable development of $9,900 for the year ended December 31, 2015 included:

Net unfavorable loss reserve development for our U.S. segment of $7,800, of which $13,200 was recognized in our

IronPro line of business, primarily on the 2013 and 2014 accident years, and $12,800 in our aviation line of business,

primarily on the 2013 and 2014 accident years, due to higher than expected reported claim activity. This was partially

offset by favorable loss reserve development due to better than expected reported claim activity in the following lines of

business and accident years: $11,300 in our U.S. property line of business (2013 and 2014 accident years) and $10,400 in

our environmental line of business (2012 and 2013 accident years); and

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Net unfavorable loss reserve development for our Bermuda segment of $1,400, of which was $6,200 was recognized in

our Bermuda property line of business, primarily on the 2013 and 2014 accident years, due to higher than expected

reported claim activity. This was partially offset by favorable development due to better than expected reported claim

activity of $4,700 in our Corporate Deals line of business, primarily on the 2013 and 2014 accident years.

The underlying reasons for prior year unfavorable development of $52,766 for the year ended December 31, 2014 included:

Net unfavorable loss reserve development for our U.S. segment of $43,700, of which $74,700 was recognized in our

casualty line of business, primarily on the 2009 to 2013 accident years, due to higher than expected reported claim

activity. This was partially offset by favorable loss reserve development due to better than expected reported claim

activity in the following lines of business and accident years: $11,600 in our U.S. property line of business (2011 to 2013

accident years), $9,700 in our political risk line of business (2011 to 2013 accident years), $4,000 in our IronPro line of

business (2009 and 2010 accident years), and $3,200 in our IronHealth line of business (2011 accident year); and

Net unfavorable loss reserve development for our International segment of $9,400, of which $14,000 was recognized in

our marine line of business due to higher than expected reported claim activity, primarily on the 2010 to 2012 accident

years. This was partially offset by favorable loss reserve development due to better than expected reported claim activity

of $4,700 in our liability line of business primarily on the 2009 and 2011 accident years.

The Company has written an increasing volume of casualty business in recent years which adds significant variability to

management’s estimates because of the longer tail nature of the risks.

As of December 31, 2015 and 2014, reinsurance recoverable and reserve for losses and loss adjustment expenses include amounts

of $25,506 and $18,784, respectively, related to the pre-acquisition business of Ironshore Indemnity and Ironshore Specialty that

are secured by conditional guarantees from the parents of the sellers.

10. Reinsurance

In certain cases, the risks written by the Company are wholly or partially reinsured with third-party reinsurers. Reinsurance ceded

varies by location and line of business based on a number of factors, including market conditions. The benefits of ceding risks to

third-party reinsurers include reducing exposure on individual risks, protecting against catastrophic risks, maintaining acceptable

capital ratios and enabling the writing of additional business. Reinsurance ceded contracts do not discharge the Company from its

liabilities to the original policyholder in respect of the risk being reinsured.

The Company uses reinsurance to support its underwriting and retention guidelines as well as to control the aggregate exposure of

the Company to a particular risk or class of risks. Reinsurance may be purchased at several levels ranging from reinsurance of risks

assumed on individual contracts to reinsurance covering the aggregate exposure on a portfolio of policies issued by groups of

companies.

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(a) Effects of reinsurance on premiums written and earned

The effects of reinsurance on premiums written and earned, and on losses and loss adjustment expenses is as follows:

2015 2014

Net premiums written

Direct $1,787,298 $1,831,841

Assumed 376,554 378,713

Ceded (684,028) (591,374)

Net premiums written $1,479,824 $1,619,180

Net premiums earned

Direct $1,775,439 $1,714,136

Assumed 384,769 379,759

Ceded (616,957) (566,899)

Net premiums earned $1,543,251 $1,526,996

Loss and loss adjustment expenses

Gross losses and loss adjustment expenses incurred $1,324,333 $1,365,274

Losses and loss adjustment expense recoveries (314,115) (288,000)

Net losses and loss adjustment expenses $1,010,218 $1,077,274

Assumed retroactive reinsurance contracts generally provide large, but limited, indemnification of unpaid losses and loss

adjustment expenses with respect to past loss events that are generally expected to be paid over long periods of time. Premiums

earned under assumed retroactive reinsurance contracts amounted to $0 and $5,844 during the years ended December 31, 2015

and 2014, respectively. The assumed retroactive contracts entered into in 2015 and 2014 provide for a maximum limit of

indemnification of $0 and $15,000, respectively.

Underwriting results attributable to assumed retroactive reinsurance include the recurring periodic amortization of deferred charges

that are established with respect to these contracts. At the inception of a contract, deferred charges represent the difference between

the net premium received and the estimated ultimate losses payable. Deferred charges are subsequently amortized over the

estimated claims payment period. As of December 31, 2015 and 2014, unamortized deferred charges for assumed retroactive

contracts were $1,414 and $1,482, respectively. The amortized deferred income was $755 and $2,863 for 2015 and 2014,

respectively, and was included in net loss and loss adjustment expenses. Gross unpaid losses from assumed retroactive reinsurance

contracts were approximately $6,833 and $4,904 as of December 31, 2015 and 2014, respectively.

(b) Credit risk The Company evaluates the financial condition of its reinsurers and monitors concentration of credit risk arising from its exposure

to individual reinsurers. Reinsurance programs are generally placed with reinsurers whose rating, as of the time of placement, is A-

or better as rated by AM Best or the equivalent with other rating agencies. Exposure to a single reinsurer is also controlled with

restrictions dependent on rating. As of December 31, 2015 and 2014, respectively, 97.6% and 97.8% of reinsurance recoverables

(which includes loss reserves recoverable and recoverables on paid losses) were from reinsurers rated A- or better and included

$571,688 and $479,776, respectively, of IBNR recoverable.

Reinsurance recoverables by reinsurer categories are as follows:

Reinsurance % of Reinsurance % of

Recoverable Total Recoverable Total

Top 10 Reinsurers $649,039 77.7% $600,770 79.1%

Other reinsurers balances > $1 million 185,624 22.2% 154,172 20.3%

Other reinsurers balances < $1 million 1,158 0.1% 4,753 0.6%

Total $835,821 100.0% $759,695 100.0%

December 31, 2015 December 31, 2014

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Reserves for reinsurance recoverables deemed uncollectible are based on an estimate of the amount of the reinsurance recoverable

balance that will ultimately not be recovered due to reinsurer insolvency, contractual dispute or some other reason. The valuation

of the reserve for uncollectible reinsurance includes a detailed review of the credit ratings of the reinsurance recoverable by

reinsurer on a continuous basis with any resulting adjustments recorded in earnings in the period that collection issues are

identified. As of December 31, 2015 and 2014, the reserves for reinsurance recoverables deemed uncollectible was $465 and $477,

respectively.

11. Share capital

(a) Authorized and issued

The Company’s authorized share capital is 400,000,000 ordinary shares with a par value of $0.01 each. As a result of the merger

with Fosun, with the Company becoming a wholly owned indirect subsidiary of Fosun, the Company’s existing outstanding shares,

excluding the 28,131,468 shares owned by Mettlesome Investment Limited (Mettlesome), were cancelled and converted into

ordinary shares. As of December 31, 2015, the Company had a total of 140,657,340 outstanding shares; 28,131,468 of which are

owned by Mettlesome and 112,525,872 are owned by Mettlesome Investments (Cayman) III Limited. Refer also to Note 4.

During 2014, the Company re-purchased 391,754 of the Company’s shares for $5,026. The shares repurchased by the Company

were cancelled and retired.

(b) Warrants

The Company did not issue any warrants during the years ended December 31, 2015 and 2014. For the years ended December 31,

2014, the outstanding warrants of 10,282,185 were fully vested and had a weighted average exercise price of $10.00.

As of December 31, 2015, all warrants were settled as part of the merger with Fosun.

(c) Dividends

The Company did not declare any dividends during the years ended December 31, 2015 and 2014.

12. Stock compensation plans

The Company had a stock incentive plan, the 2006 Long Term Incentive Plan (the “Plan”), under which the Compensation

Committee of the Company’s Board of Directors periodically granted stock option awards, restricted share unit awards, and

restricted share awards to employees, non-employee directors and consultants. As part of the merger with Fosun, all outstanding

warrants, restricted shares and restricted share units were terminated and converted into the right to receive cash equal to its ratable

portion of the closing merger consideration.

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(a) Options

Activity with respect to options for the years ended December 31, 2015 and 2014 is as follows:

Weighted Weighted

average grant average exercise

Options date fair value price

Options outstanding, January 1, 2014 10,171,578 $3.09 $10.58

Options issued during 2014 88,050 $4.85 $12.49

Options exercised during 2014 (265,878) $2.42 $9.78

Options forfeited during 2014 (115,400) $3.62 $10.40

Options outstanding, December 31, 2014 9,878,350 $10.81

Options exercisable as of December 31, 2014 7,749,156

Options outstanding, January 1, 2015 9,878,350 $2.97 $10.80

Options issued during 2015 2,030,000 $1.83 $16.59

Options exercised during 2015 (789,742) $3.30 $10.10

Options forfeited during 2015 (115,748) $3.06 $10.30

Options settled as part of Fosun merger (11,002,860) $2.74 $11.93

Options outstanding, December 31, 2015 -

b) Restricted shares

Activity with respect to restricted share awards for the years ended December 31, 2015 and 2014 is as follows:

Weighted average

Restricted Shares grant date fair value

Restricted shares outstanding, January 1, 2014 3,701,358 $10.20

Restricted shares issued during 2014 942,593 $13.23

Restricted shares settled during 2014 (379,526) $12.83

Restricted shares forfeited during 2014 (1,406) $10.50

Restricted shares issued but not yet fully vested, December 31, 2014 (2,039,016) $11.87

Restricted shares vested as of December 31, 2014 2,224,003 $10.00

Restricted shares outstanding, January 1, 2015 4,263,019 $10.89

Restricted shares issued during 2015 905,603 $16.58

Restricted shares settled during 2015 (198,372) $11.34

Restricted shares forfeited during 2015 (13,014) $14.83

Restricted shares settled as part of the Fosun merger (4,957,236) $11.90

Restricted shares vested as of December 31, 2015 -

13. Retirement plans

The Company maintains defined contribution retirement plans. Contributions are based on the participants’ eligible compensation.

During 2015 and 2014, the Company expensed $10,575 and $9,660, respectively, related to these retirement plans.

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14. Taxation

(a) Cayman Islands

Under current Cayman Islands law, the Company is not required to pay any taxes on its income or capital gains. If a Cayman

Islands law were to be enacted that would impose taxes on income or capital gains, the Company has received an undertaking from

the Governor in Cabinet that would exempt it from such taxation until October 2026.

(b) Bermuda

Under current Bermuda law, Ironshore Insurance is exempt from all Bermuda income, withholding and capital gains taxes. At the

present time, no such taxes are levied in Bermuda. In the event that such taxes are imposed, Ironshore Insurance would be exempt

until March 2035 pursuant to the Bermuda Exempted Undertakings Tax Protection Act 1966, and Amended Act of 1987.

(c) United States

The Company’s U.S. subsidiaries are subject to federal, state, and local corporate income taxes and other taxes applicable to U.S.

operations. A partial valuation allowance has been established for the Company’s net deferred tax asset related to certain U.S.

operations, as management believes that the realization of the tax benefits from these deferred tax assets is uncertain.

(d) United Kingdom

The Company operates in the U.K. through its U.K. subsidiaries and the profits of these companies are subject to U.K. corporation

taxes. Income from the Company’s operations at Lloyd’s is also subject to U.S. income taxes. Under a Closing Agreement

between Lloyd’s and the IRS, Lloyd’s Members pay U.S. income tax on U.S.-connected income written by Lloyd’s Syndicates.

U.S. income tax due on this U.S.-connected income is calculated by Lloyd’s and remitted directly to the IRS and is charged by

Lloyd’s to Members in proportion to their participation on the relevant Syndicates. The Company’s Corporate Member is subject

to this arrangement and will receive a U.K. corporation tax credit for any U.S. income tax incurred up to the value of the

equivalent U.K. corporation tax charge on the U.S. income. A partial valuation allowance has been established for the Company’s

net deferred tax asset related to certain U.K. operations, as management believes that the realization of the tax benefits from these

deferred tax assets is uncertain.

(e) Ireland

The Company operates in Ireland through its Irish subsidiary which is subject to income taxes in that jurisdiction. A valuation

allowance has been established for the Company’s net deferred tax asset related to its Irish operations, as management believes

that the realization of the tax benefits from these deferred tax assets is uncertain.

The Company is subject to income taxation in other jurisdictions than those stated above, but the impact of the other jurisdictions

is not material to the provision for income taxes for 2015 and 2014. There can be no assurance that there will not be changes in

applicable laws, regulations or treaties, which might require the Company to change the way it operates or become subject to

taxation.

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The components of the provision for income taxes attributable to operations consist of the following:

2015 2014

Current tax expense:

U.S. Federal $8,200 $8,895

U.S. State & local 1,400 683

United Kingdom 766 1,213

Ireland (270) (22)

Total 10,096 10,769

Deferred tax benefit:

U.S. Federal (25,989) (7,674)

U.S. State & local - (249)

United Kingdom 952 60

Total (25,037) (7,863)

Income tax expense (benefit) ($14,941) $2,906

Deferred income taxes reflect the tax impact of temporary differences between the carrying amounts of assets and liabilities for

financial reporting and income tax purposes. Significant components of the net deferred tax assets were as follows:

2015 2014

Deferred tax assets:

Discounting of loss reserves $8,604 $8,406

Unearned premiums 6,629 8,303

Deferred acquisition costs 21,131 24,040

Non-deductible compensation 16,187 17,466

Net operating losses 13,763 8,393

Underwriting losses - 3,170

Intercompany service accrual 4,330 5,124

Deferred ceding commissions 2,016 2,674

Other deferred tax assets 12,287 3,862

Total deferred tax assets 84,947 81,438

Valuation allowance (26,655) (47,623)

Deferred tax assets net of valuation allowance 58,292 33,815

Deferred tax liabilities:

Intercompany revenue accrual (6,402) (8,261)

Amortization of intangibles (4,427) (3,880)

Underwriting income (1,772) -

Investments - fixed maturity securities - (1,048)

Investments - equity securities - (731)

Other deferred tax liabilities (8,463) (7,704)

Total deferred tax liabilities (21,064) (21,624)

Net deferred tax asset $37,228 $12,191

The Company’s net deferred tax asset or liability relates primarily to net operating loss carry-forwards and U.S. GAAP versus tax

basis accounting differences. The Company has provided a valuation allowance to reduce certain deferred tax assets to an amount

that management expects will more likely than not be realized. During 2015, the Company reassessed its estimate of deferred tax

assets that are more likely than not to be realized, resulting in a reduction to the valuation allowance. The deferred tax asset is

realizable to the extent of projected future taxable income and deferred tax liabilities that can offset deferred tax assets.

In the prior year, the Company established a valuation allowance for its U.S., U.K., Irish subsidiaries that are subject to corporate,

federal, state and local income taxes as management believes that the realization of a portion of tax benefits from these deferred

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tax assets is uncertain due to negative evidence at that time that sufficient taxable income will be generated in the future. During

the year, the Company recorded net reductions to the valuation allowance of $20,968, a significant portion of which is in respect of

U.S. operations. The reduction in the valuation allowance is due to the Company’s reassessment of its estimate of deferred tax

assets that is more likely than not to be realized and its projections of future income.

The expected tax provision computed on pre-tax income at the weighted average tax rate has been calculated as the sum of the pre-

tax income in each jurisdiction multiplied by that jurisdiction’s applicable statutory tax rate. A reconciliation of income before tax

expense by taxing jurisdiction to the expected income tax provision by taxing jurisdiction and consolidated weighted average

effective income tax rate is as follows for the years ended December 31, 2015 and 2014:

2015 2014

Income (loss) before tax expense by taxing jurisdiction:

Bermuda $18,891 $69,208

United States 19,905 16,844

Ireland (4,467) 1,356

Canada (187) 463

United Kingdom 10,732 7

Australia (1,440) (348)

Hong Kong (397) (158)

United Arab Emirates (175) -

Consolidated income before tax expense $42,862 $87,372

Statutory tax rates:

Bermuda 0.0% 0.0%

United States 35.0% 35.0%

Ireland 12.5% 12.5%

Canada 25.0% 25.0%

United Kingdom 20.3% 21.5%

Australia 30.0% 30.0%

Hong Kong 16.5% 16.5%

United Arab Emirates 0.0% 0.0%

Expected income tax provision by taxing jurisdiction

Bermuda - -

United States 6,967 5,895

Ireland (558) 170

Canada (47) 116

United Kingdom 2,173 2

Australia (432) (104)

Hong Kong (66) (28)

United Arab Emirates - -

Consolidated $8,037 $6,051

Consolidated weighted average effective income tax rate 18.8% 6.9%

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A reconciliation of the difference between the provision for income taxes and the expected tax provision at the weighted average

rate is as follows for the years ended December 31, 2015 and 2014:

2015 % 2014 %

Expected income tax provision at weighted average rate $8,037 18.8% $6,051 6.9%

State income taxes (net of federal benefit) (3,982) (9.3)% 316 0.4%

Valuation allowance (20,969) (48.9)% (3,485) (4.0)%

Deferred tax adjustments 2,088 4.9% (1,474) (1.7)%

Others (115) (0.3)% 1,498 1.7%

Income tax expense (benefit) $(14,941) (34.8)% $2,906 3.3%

As of December 31, 2015, the Company’s non-U.S. subsidiaries had net operating loss carryovers in various non-U.S. jurisdictions

of that do not expire. The Company’s U.S. subsidiaries have U.S. state and local net operating loss carryovers with a tax equivalent

value of $9,103 that expire in the years 2028 to 2034.

During 2015 and 2014, the Company had no unrecognized benefits from uncertain tax positions. The Company does not anticipate

any significant changes in the amount of unrecognized tax benefits during the next 12 months. Interest and penalties related to

unrecognized tax benefits will be included in income tax expense.

The Company has an open examination by tax authorities in the U.S. The Company believes that this examination will be

concluded within the next 24 months; however, it is not currently possible to estimate the outcome of this examination. The

Company’s U.S. federal and state income tax returns for fiscal years 2012 to 2014 remain open to examination. The Company’s

U.K. corporation tax returns for fiscal years 2012 to 2014 are open for examination by the U.K. tax authorities. The Company’s

Irish income tax returns for fiscal years 2011 to 2014 are open for examination by the Irish tax authorities.

15. Debt obligations

On May 10, 2010, the Company issued $250,000 of Senior Notes at an issue price of 99.17%, generating net proceeds of

$246,300. The Senior Notes bear interest at a rate of 8.5%, payable semi-annually in arrears on May 15 and November 15 of each

year, beginning November 15, 2010. Unless previously redeemed, the Senior Notes will mature on May 15, 2020. The Company

may redeem the Senior Notes prior to maturity subject to the payment of a “make-whole” premium. The Senior Notes also include

certain interest rate adjustment clauses based on changes in S&P and Moody’s ratings and debt to capital ratios. The Company was

in compliance with all of these clauses as of December 31, 2015. The carrying value of the Senior Notes as of December 31, 2015

and 2014 was $247,992 and $247,629, respectively.

Interest expense on the Senior Notes includes interest payable, amortization of offering discount and amortization of debt offering

expenses. The offering discount and the debt offering expenses are amortized over the period of time during which the Senior

Notes are outstanding. The Company incurred interest expense on the Senior Notes of $21,740 and $21,700 respectively, for the

years ended December 31, 2015 and 2014.

The Company, through its wholly-owned subsidiary Ironshore Specialty, has an existing arrangement with FHLB which provides

the Company access to FHLB-member loan facilities. Ironshore Specialty is currently a member of FHLB. As of December 31,

2015, Ironshore Specialty had an outstanding loan of $100,000 with FHLB maturing on September 22, 2016 with interest payable

at an annual rate of 0.65%. Ironshore Specialty is required to maintain a capital stock investment of $5,406 with FHLB to support

its membership and borrowing activity. As of December 31, 2015 and 2014, fixed maturity securities with a fair value of

$112,087 and $119,944, respectively, were pledged as collateral for the amounts borrowed under this facility.

16. Commitments and contingencies

(a) Concentration of credit risk

The creditworthiness of a counterparty is evaluated by the Company, taking into account credit ratings assigned by independent

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agencies. The credit approval process involves an assessment of factors, including, among others, the counterparty, country and

industry credit exposure limits. The areas where significant concentrations of credit risk may exist include reinsurance

recoverables (see Note 10), investments and cash and cash equivalent balances.

The Company underwrites a significant amount of its business through brokers. Credit risk exists should any of these brokers be

unable to fulfill their contractual obligations with respect to the payments of insurance and reinsurance balances owed to the

Company.

During the years ended December 31, 2015 and 2014, the following brokers were used to generate greater than 10% of the

Company’s consolidated gross premiums written:

% of Gross Premiums % of Gross Premiums

Written December 31, Written December 31,

Broker 2015 2014

Marsh & McLennan Companies 12.3% 12.4%

Aon Benfield 11.0% 10.1%

The Company’s investment portfolio is managed in accordance with guidelines designed to ensure specific investment strategies

are met. These guidelines include standards of diversification which limit the allowable holdings of any single issue. There were

no investments in any entity in excess of 10% of the Company’s shareholders’ equity as of December 31, 2015 and 2014 other

than investments issued or guaranteed by the U.S. government, its agencies or U.S. Government-Sponsored Enterprises.

The Company’s cash and cash equivalents are on deposit with various financial institutions. Credit risk arises from the failure of

the counterparty to perform according to the terms of a contract. The Company’s deposits are with reputable banks to minimize

this risk and they are located principally in Bermuda, the U.S., the U.K., Ireland, Singapore, Australia, Canada and the Cayman

Islands.

(b) Operating leases

The Company has entered into various operating lease agreements to lease office space and fixtures and fittings that expire up to

2032. During the years ended 2015 and 2014, total rent expenses of $11,728 and $8,551, respectively, were recorded in general

and administrative expenses. The future minimum lease payments in the aggregate as of December 31, 2015 are as follows:

December 31, 2015

2016 $6,694

2017 8,789

2018 10,227

2019 10,152

2020 9,530

Later years 88,606

Total minimum future lease commitments $133,998

(c) Outsourcing

On December 23, 2011, the Company entered into a services agreement with Genpact International, Inc. (“Genpact”), whereby

Genpact provides certain information technology processes and business process functions to the Company up to December 31,

2018. The future minimum payments as of December 31, 2015 are as follows:

December 31, 2015

2016 $15,391

2017 15,706

2018 16,167

Total minimum future commitments $47,264

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(d) Letters of credit

On December 1, 2009, the Company entered into a $50,000 standby letter of credit facility provided by Citibank Europe plc.

Refer to Note 7 for additional disclosure.

(e) Litigation

The Company is subject to litigation and arbitration in the normal course of its business. These lawsuits and arbitrations principally

involve claims on policies of insurance and contracts of reinsurance and are typical for the Company and for the property and

casualty insurance and reinsurance industry in general. Such legal proceedings are considered in connection with the Company’s

loss and loss expense reserves. In addition to litigation relating to insurance and reinsurance claims, the Company and its

subsidiaries are subject to lawsuits in the normal course of business. The status of any such legal actions is actively monitored by

management. If management believed, based on available information, that an adverse outcome upon resolution of a given legal

action was probable and the amount of that adverse outcome was reasonable to estimate, a loss would be recognized and a related

liability recorded. No such liabilities were recorded by the Company as of December 31, 2015 and 2014.

(f) Other Investments

As of December 31, 2015 and 2014, the Company had an unfunded commitment to invest $88,202 and $101,377, respectively,

into closed-end limited partnership funds.

17. Related party transactions

On July 1, 2015, the Company through its subsidiary Ironshore Insurance Services, LLC entered into an agreement with Summit

Glory, LLC to lease certain office space in New York City expiring on May 31, 2032. Summit Glory, LLC is a wholly-owned

subsidiary of Fosun Property Holdings Limited, a subsidiary of Fosun. During the year ended December 31, 2015, the Company

incurred rental, maintenance and utility expenses of $1,589 related to this lease.

As of December 31, 2015 and 2014, the Company through its wholly-owned subsidiary, Ironshore Surety Holdings Inc. (“ISHI”)

invested a total of $26,463 and $20,376, respectively, in Lexon Group composed of Lexon Surety Group LLC (“LSG”), Surety

Agency Holding Company LLC (“SAHC”), and Surety Management Company, LLC (“SMC”). Lexon Group is engaged in the

business of underwriting, placing, insuring and reinsuring contract and commercial surety bonds, court and probate surety bonds,

surety bail bonds, U.S. Customs surety bonds and other related risks. ISHI purchased Class B units in LSG and common units in

SAHC and SMC. The Class B units rank senior to the Common and Class A units of LSG. The Class B units are also entitled to a

cumulative fixed return of 3% per annum for the first five years and then 9% per annum thereafter. The investment is recorded in

other assets in the Company’s consolidated balance sheet as of December 31, 2015 and 2014.

In connection with the above investment, the Company through its subsidiaries Ironshore Indemnity and Ironshore Specialty

provides quota share reinsurance and a primary fronting facility on new and renewal business for U.S. commercial and contract

surety risks. The amounts of gross written premium assumed by Ironshore Indemnity and Ironshore Specialty as part of the quota

share facility for the year ending December 31, 2015 and 2014 are $50,282 and $31,851, respectively.

As of December 31, 2015, Company had an investment of $18,514 in CMF and had an unrealized loss of $2,380 for the year ending

December 31, 2015. Fosun Momentum Holdings Limited is the sole shareholder of the general partner of CMF. Fosun Momentum

Holdings Limited is owned by Fosun International Holdings Ltd., a related party. The investment is recorded in other investments

in the Company’s balance sheet as of December 31, 2015.

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18. Earnings per share

The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31, 2015 and

2014:

2015 2014

Net income attributable to Ironshore Inc. $57,803 $84,477

Adjustment for liability-classified

restricted share awards 1,009 980

$58,812 $85,457

Weighted average shares - basic 137,195,272 135,185,765

Share equivalents:

Warrants 2,893,269 2,313,352

Options 2,390,867 1,628,666

Restricted stock 627,260 806,947

Weighted average shares - diluted 143,106,668 139,934,730

Basic earnings per share $0.42 $0.62

Fully diluted earnings per share $0.41 $0.61

19. Note receivable

On December 31, 2013, the Company, through its subsidiary, Ironshore Holdings U.S., extended a loan to a third party entity

(“Borrower”) for $41,800 in order to partially finance Borrower’s acquisition of substantially all the assets of a managing general

agency (“MGA”). The loan is evidenced by a secured recourse promissory note that bears annual interest for the first three years at

the greater of (a) 1.65% of the principal amount and (b) fixed amount of $800 plus 80% of annual contingency income earned by

Borrower in MGA’s agency agreement with a third party insurer for the year in which interest is payable. Thereafter, the note

bears annual interest at 3.32% of the principal amount. In the event that MGA’s agency agreement with the third party insurer is

terminated before December 31, 2016, the annual interest rate shall be adjusted to 3.32% from the date of such termination. The

note receivable is recorded in other assets in the Company’s balance sheet as of December 31, 2015 and 2014.

On January 15, 2016, the note receivable was settled in conjunction with the sale by the Company to a third party of the MGA’s

existing rights to underwrite and administer insurance policies constituting the MGA’s business.

20. Segment reporting

The Company conducts its operations worldwide through three reportable operating segments, U.S., International and Bermuda

and one corporate function, which have been determined under FASB ASC Topic 280 Segment Reporting. The Company’s

operating segments are strategic business units that offer different policies.

The U.S. segment offers a wide array of property and casualty coverage on an admitted and excess and surplus lines basis. The

U.S. segment is managed by the chief executive officer of U.S. Operations.

The International segment operates through Lloyd’s of London Syndicate 4000 and IEL and underwrites financial institutions

liability, professional management liability, property and other select specialist lines. The International segment is managed by the

chief executive officer of IIL.

The Bermuda segment provides property insurance on a worldwide basis. This segment also offers catastrophe excess liability,

financial lines and healthcare liability insurance through Iron-Starr Excess. The Bermuda segment is managed by the chief

executive officer of Ironshore Insurance.

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The corporate function includes the activities of the parent company and activities of certain key executives, such as the Chief

Executive Officer and Chief Financial Officer of Ironshore. The corporate function includes revenue earned on the Company’s

investment portfolio and costs associated with parent company activities.

The Company does not manage its assets by segment and therefore total assets are not allocated to the segments.

Segment data for the years ended December 31, 2015, and 2014 are as follows:

Year ended December 31, 2015 U.S. International Bermuda Total Corporate Consolidated

REVENUES

Gross premiums written $1,402,484 $597,228 $164,140 $2,163,852 - $2,163,852

Reinsurance premiums ceded (456,879) (139,517) (87,632) (684,028) - (684,028)

Net premiums written 945,605 457,711 76,508 1,479,824 - 1,479,824

Change in unearned premiums 65,590 (8,528) 6,365 63,427 - 63,427

Net premiums earned 1,011,195 449,183 82,873 1,543,251 - 1,543,251

Net investment income - - - - 113,300 113,300

Net realized and unrealized losses on investments - - - - (48,351) (48,351)

Net foreign exchange losses - - - - (11,054) (11,054)

Other income 25,733 15,622 9,058 50,413 - 50,413

Total revenues 1,036,928 464,805 91,931 1,593,664 53,895 1,647,559

EXPENSES

Losses and loss adjustment expenses 729,863 240,388 39,967 1,010,218 - 1,010,218

Acquisition expenses 105,971 105,416 (1,334) 210,053 - 210,053

General and administrative expenses 166,528 85,199 23,497 275,224 47,504 322,728

Non-recurring transaction expenses - - - - 39,529 39,529

Interest expense - - - - 22,169 22,169

Total expenses 1,002,362 431,003 62,130 1,495,495 109,202 1,604,697

Income (loss) before tax expense $34,566 $33,802 $29,801 $98,169 ($55,307) $42,862

Loss ratio (a) 72.2% 53.5% 48.2% 65.5%

Acquisition costs ratio (b) 10.5% 23.5% (1.6)% 13.6%

General and administrative expense ratio (c) 13.9% 15.5% 17.4% 14.6%

Combined ratio (d) 96.6% 92.5% 64.0% 93.7%

(a) The loss ratio is calculated by dividing losses and loss adjustment expenses by net premiums earned.

(b) The acquisition costs ratio is calculated by dividing acquisition expenses by net premiums earned.

(c) The general and administrative expense ratio is calculated by dividing general and administrative expenses less other income by net premiums earned.

Corporate general and administrative expenses, non-recurring transaction expenses and corporate other income are not included in the calculation.

(d) The combined ratio is the sum of the loss ratio, acquisition costs ratio and general and administrative expense ratio.

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Year ended December 31, 2014 U.S. International Bermuda Total Corporate Consolidated

REVENUES

Gross premiums written $1,437,684 $574,327 $198,543 $2,210,554 - $2,210,554

Reinsurance premiums ceded (356,614) (128,749) (106,011) (591,374) - (591,374)

Net premiums written 1,081,070 445,578 92,532 1,619,180 - 1,619,180

Change in unearned premiums (71,448) (35,105) 14,369 (92,184) - (92,184)

Net premiums earned 1,009,622 410,473 106,901 1,526,996 - 1,526,996

Net investment income - - - - 97,043 97,043

Net realized and unrealized gains on investments - - - - 28,039 28,039

Net foreign exchange losses - - - - (5,283) (5,283)

Other income 13,383 12,460 5,711 31,554 2,012 33,566

Total revenues 1,023,005 422,933 112,612 1,558,550 121,811 1,680,361

EXPENSES

Losses and loss adjustment expenses 758,447 251,621 67,206 1,077,274 - 1,077,274

Acquisition expenses 115,993 97,738 977 214,708 - 214,708

General and administrative expenses 142,566 70,250 21,975 234,791 44,310 279,101

Interest expense - - - - 21,906 21,906

Total expenses 1,017,006 419,609 90,158 1,526,773 66,216 1,592,989

Income before tax expense $5,999 $3,324 $22,454 $31,777 $55,595 $87,372

Loss ratio (a) 75.1% 61.3% 62.9% 70.5%

Acquisition costs ratio (b) 11.5% 23.8% 0.9% 14.1%

General and administrative expense ratio (c) 12.8% 14.1% 15.2% 13.3%

Combined ratio (d) 99.4% 99.2% 79.0% 97.9%

(a) The loss ratio is calculated by dividing losses and loss adjustment expenses by net premiums earned.

(b) The acquisition costs ratio is calculated by dividing acquisition expenses by net premiums earned.

(c) The general and administrative expense ratio is calculated by dividing general and administrative expenses less other income by net premiums earned.

Corporate general and administrative expenses, non-recurring transaction expenses and corporate other income are not included in the calculation.

(d) The combined ratio is the sum of the loss ratio, acquisition costs ratio and general and administrative expense ratio.

Gross premiums written by type of business for the years ended December 31, 2015 and 2014 are as follow:

U.S. International Bermuda Total


Casualty $1,079,832 $191,063 $41,297 $1,312,192

Property 167,577 121,221 122,843 411,641

Specialty Short Tail 155,075 284,944 - 440,019

Total $1,402,484 $597,228 $164,140 $2,163,852

U.S. International Bermuda Total


Casualty $1,093,919 $204,058 $48,274 $1,346,251

Property 171,090 108,461 150,269 429,820

Specialty Short Tail 172,675 261,808 - 434,483

Total $1,437,684 $574,327 $198,543 $2,210,554

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21. Statutory financial data

Bermuda

Ironshore Insurance is subject to the requirements of the Bermuda Insurance Act. Under the Bermuda Insurance Act, Ironshore

Insurance is required to prepare statutory financial statements and to file a statutory financial return. The Bermuda Insurance Act

also requires Ironshore Insurance to maintain certain measures of solvency and liquidity during the year. Declarations of dividends

from retained earnings and distributions from additional paid-in capital are subject to these solvency and liquidity requirements

being met. As of December 31, 2015 and 2014, these requirements were met.

Under the Bermuda Insurance Act, Ironshore Insurance is restricted from paying dividends for amounts greater than 25% of the

prior year’s statutory capital and surplus unless approved by the Bermuda Monetary Authority.

As of December 31, 2015 and 2014, Ironshore Insurance was required to maintain a minimum statutory capital and surplus of

$550,747 and $654,500, respectively. As of December 31, 2015 and 2014, Ironshore Insurance had statutory capital and surplus of

$1,388,301 and $1,254,923, respectively, and its statutory net income was $130,133 and $91,027 for the years ended December

31, 2015 and 2014, respectively. The declaration of dividends from retained earnings and distributions from additional paid-in

capital are limited to the extent that the solvency and liquidity requirements are met.

United States Ironshore Indemnity and Ironshore Specialty file financial statements prepared in accordance with statutory accounting practices

prescribed or permitted by U.S. insurance regulators. Statutory net income and statutory surplus, as reported to the insurance

regulatory authorities, differ in certain respects from the amounts prepared in accordance with U.S. GAAP. The main differences

between statutory net income and U.S. GAAP net income relate to deferred acquisition costs, deferred income and deferred

income taxes. In addition to deferred acquisition costs, deferred income and deferred income tax assets, other differences between

statutory surplus and U.S. GAAP shareholders’ equity are unrealized appreciation or decline in value of investments and non-

admitted assets.

Ironshore Indemnity is required to maintain a minimum combined statutory surplus of $15,000. As of December 31, 2015 and

2014, Ironshore Indemnity’s statutory surplus was $154,000 and $156,600, respectively, and its statutory net income (loss) was

$(48) and $2,894 for the years ended December 31, 2015 and 2014, respectively.

Ironshore Specialty is required to maintain a minimum combined statutory surplus of $15,000. As of December 31, 2015 and

2014, Ironshore Specialty’s statutory surplus was $333,950 and $325,800 respectively, and its statutory net income was $20,900

and $31,300 for the years ended December 31, 2015 and 2014, respectively.

Both of Ironshore Indemnity and Ironshore Specialty must seek regulatory approval at least 30 days prior to payment of an

extraordinary dividend or distribution, or payment of a dividend from a source other than earned surplus (determined as of the end

of the immediately preceding quarter for which the insurer has filed a quarterly or annual statement). Such an extraordinary

dividend, extraordinary distribution or a dividend paid from a source other than earned surplus cannot be paid unless the insurance

regulator has approved such payment or has failed to disapprove the payment within the 30-day period. An extraordinary dividend

or extraordinary distribution includes any dividend, distribution of cash or other property the fair market value of which together

with that of other dividends or distributions made within the preceding 12 months exceeds the greater of (i) 10% of the insurer’s

policyholders surplus as of the 31st day of December next preceding, or (ii) the net income for the 12-month period ending on the

31st day of December next preceding, but does not include pro rata distributions of any class of the insurer’s own securities. For

purposes of this calculation, the Minnesota statute applicable to Ironshore Indemnity provides that “net income” excludes realized

capital gains. Ironshore Indemnity could not pay any dividend without prior regulatory approval. As of December 31, 2015,

Ironshore Indemnity obtained regulatory approval and paid $5,000 dividend to its parent company, Ironshore Holdings U.S.

As of December 31, 2015 and 2014, the maximum dividend payout that Ironshore Specialty could have made without prior

regulatory approval was approximately $15,600 and $16,800, respectively. In 2015 and 2014, Ironshore Specialty made dividend

payments of $15,600 and $0, respectively, to its parent company, Ironshore Holdings U.S.

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United Kingdom and Lloyd’s

(pounds sterling in thousands)

The Company owns a Lloyd’s managing agency, PMA which operates in the Lloyd’s insurance market and manages Syndicate

4000, Special Purpose Syndicate 6110 (“SPS 6110”) and Syndicate 2014. PMA is subject to regulation by the UK Financial

Conduct Authority (“FCA”) and the Prudential Regulation Authority (“PRA”). The majority of the underwriting risk is borne by

ICCL which is a corporate member at Lloyd’s. Effective January 1, 2010, Ironshore CC (Two) Limited (“ICC2”), which is a

wholly owned subsidiary of IIL, also participated in the underwriting of Syndicate 4000. This participation ceased at the end of the

2012 year of account, leaving ICCL as the sole capital provider for Syndicate 4000 in the 2013 underwriting years onwards. For

the 2015 year of account, Syndicate 4000 has a capacity of £270,000.

PMA is subject to regulations by Lloyds which requires it to maintain certain measures of solvency and liquidity during the year.

As of December 31, 2015, PMA was required to maintain a minimum fixed capital of £400 (2014: £400), a net current asset

margin of £1,984 (2014: £368) and a minimum net asset requirement of £1,109 (2014: £615). As of December 31, 2015, PMA had

fixed capital of £2,150 (2014: £2,200), a net current asset surplus of £14 (2014: £6) and a surplus of net assets of £15,706 (2014:

£7,900).Therefore as of December 31, 2015 and 2014, these requirements were met.

Corporate members of Lloyd’s and Lloyd’s syndicates are bound by the rules of Lloyd’s, which are prescribed by-laws and

Requirements made by the Council of Lloyd’s under powers conferred by the Lloyd’s Act 1982. These rules prescribe members’

membership subscription, the level of their contribution to the Lloyd’s Central Fund and the assets they must deposit with Lloyd’s

in support of their underwriting. The Council of Lloyd’s has broad powers to sanction breaches of its rules, including the power to

restrict or prohibit a member’s participation on Lloyd’s Syndicates.

The amount which is provided as FAL is not available for distribution for the payment of dividends or for working capital

requirements. Corporate members may also be required to maintain funds under the control of Lloyd’s in excess of their capital

requirements and such funds also may not be available for distribution for the payment of dividends. Lloyd’s sets the corporate

members’ required capital annually. Individual Capital Assessments (ICA’s) are agreed with the syndicates based on their business

plans.

FAL may comprise cash, certain investments and undrawn letters of credit provided by approved banks. The FAL requirement set

by Lloyd’s to support the planned level of underwriting by ICCL for 2016 and 2015 was £240,464 and £210,048, respectively.

ICC2 ceased underwriting after the 2012 year of account. However, as of December 31, 2015, ICC2 was still required to hold FAL

to a value of £11,700 until such time as the corporate quota share agreement with a specific reinsurer is commuted. As of

December 31, 2015 and 2014, ICCL met its FAL requirement. Refer to Note 7 for the fair value of assets restricted to satisfy

ICCL’s FAL requirements.

Ireland

The Company’s Irish-regulated operating subsidiary, IEL, is subject to the regulatory framework established by the Central Bank

of Ireland (“CBI”). It is required to:

maintain an adequate solvency margin and guarantee fund;

submit quarterly and annual regulatory returns to ensure that IEL maintains an adequate solvency margin and minimum

guarantee funds as well as ad hoc reporting of certain material transactions; and

obtain regulatory pre-approval of certain transactions, such as payment of dividends or acquisitions and disposals in the

ownership/voting rights of (re)insurance companies.

The CBI has minimum competency and fitness and probity codes that seek to ensure that regulated entities are run by those with

appropriate professional qualifications or experience within the CBI’s view, with regulatory pre-approval required for certain key

roles. The CBI’s Corporate Governance Code for Credit Institutions and Insurance Undertakings 2013 sets out the minimum

statutory corporate governance requirements for Irish incorporated credit institutions and insurance undertakings. A compliance

statement specifying whether this has been complied with during the period must be submitted to the CBI on an annual basis.

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In addition, the CBI has broad supervisory and administrative powers over capital and surplus requirements; outsourcing

arrangements; changes in qualifying holdings; intercompany loans; related party transactions; and changes in and the declaration

of and payment of dividends or other distributions. IEL is required to seek prior approval from the CBI in respect of these matters.

IEL is also subject to limited regulation from the FCA in respect of its London branch.

As of December 31, 2015 and 2014, IEL was required to maintain a minimum statutory capital and surplus of $22,326 and

$23,101, respectively. As of December 31, 2015 and 2014, IEL had statutory capital and surplus of $99,599 and $92,578,

respectively, and its statutory net income (loss) was $(4,197) and $1,226 for the years ended December 31, 2015 and 2014,

respectively.

International

The Company’s international subsidiaries prepare statutory financial statements based on local laws and regulations. Some

jurisdictions impose complex regulatory requirements on insurance companies while other jurisdictions impose fewer

requirements. In some countries, the applicable subsidiary must obtain licenses issued by governmental authorities to conduct local

insurance business. These licenses may be subject to reserves and minimum capital and solvency tests. Jurisdictions may impose

fines, censure, and/or criminal sanctions for violation of regulatory requirements.

22. Subsequent events

Subsequent events have been evaluated through March 10, 2016, the date on which the financial statements were available to be

issued.

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