Enstar rocked by investments and interest rates
Enstar Group Limited, the Bermudian-based insurer, has reported net losses of $493 million and $775 million for the three and six months ended June 30, driven by unrealised losses on fixed-income securities in the rising interest rate environment.
That compares with net earnings of $378 million in the second quarter of 2021, and net earnings of $561 million in the first half a year ago.
Return on equity for the second quarter and first half of 2022 was minus 9.8 per cent and minus 13.9 per cent.
The company said ROE was impacted by $379 million of net unrealised losses arising from interest rate increases on fixed maturity portfolios that are classified as trading, combined with $212 million of net unrealised losses in Enstar's non-core portfolios.
Enstar said that the market dislocation had resulted in material unrealised losses in its investment portfolio impacted by the combination of interest rate increases, widening credit spreads and equity market declines.
While it recognised net investment losses of $522 million in the quarter, it was confident in its investment strategies for the long term, the company said.
Enstar said its solvency or economic balance sheet became stronger during the second quarter. This is driven by two factors: first, the company’s solvency ratio reflects not only losses on investments but also the impact of a higher discount rate on its reserves; and secondly, the company’s core fixed income securities are shorter in duration than its insurance liabilities.
Enstar said its run-off liability earnings benefited from reductions in the value of certain portfolios that are held at fair value and favourable loss activity in the professional indemnity/directors and officers and workers' compensation lines of business net of amortisation of deferred charge assets.
Enstar CEO Dominic Silvester said: “Our second quarter financial results continued to be impacted by unrealised investment losses, resulting from rising interest rates and ongoing economic uncertainty. Our fixed-income portfolio has incurred a significant amount of the unrealised losses.
“However, it is important to keep in mind that this portfolio is designed to largely complement the maturity of underlying loss reserves and as such, we expect the losses to unwind over time. Overall, we remain confident that our investment strategy can generate strong value for the long term.
“We maintain a strong balance sheet with capacity to continue to pursue our active pipeline of opportunities and remain focused on delivering long-term value to our partners and shareholders.
“We are seeing a robust market demand for our solutions and we maintain discipline with respect to acquiring new business and will only execute on transactions where we can generate appropriate risk-adjusted returns.”