ESGR 10-Q Quarter ended March 31, 2015

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

For the Quarterly Period Ended March 31, 2015

OR

For the Transition Period From             to

001-33289

Commission File Number

ENSTAR GROUP LIMITED

(Exact name of registrant as specified in its charter)

P.O. Box HM 2267

Windsor Place, 3rd Floor

22 Queen Street

Hamilton HM JX

Bermuda

(Address of principal executive office, including zip code)

(441) 292-3645

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes þ No ¨

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

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

As of May 6, 2015, the registrant had outstanding 15,817,694 voting ordinary shares and 3,439,652 non-voting convertible ordinary shares, each par value $1.00 per share.

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ENSTAR GROUP LIMITED

As of March 31, 2015 and December 31, 2014

See accompanying notes to the unaudited condensed consolidated financial statements

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ENSTAR GROUP LIMITED

For the Three Months Ended March 31, 2015 and 2014

See accompanying notes to the unaudited condensed consolidated financial statements

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ENSTAR GROUP LIMITED

For the Three Months Ended March 31, 2015 and 2014

See accompanying notes to the unaudited condensed consolidated financial statements

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ENSTAR GROUP LIMITED

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Three Months Ended March 31, 2015 and 2014

See accompanying notes to the unaudited condensed consolidated financial statements

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ENSTAR GROUP LIMITED

For the Three Months Ended March 31, 2015 and 2014

See accompanying notes to the unaudited condensed consolidated financial statements

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ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2015 and December 31, 2014

(Tabular information expressed in thousands of U.S. dollars except share and per share data)

(unaudited)

1. SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation and Consolidation

The Company’s condensed consolidated financial statements have not been audited. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, these financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company’s financial position and results of operations as at the end of and for the periods presented. Results of operations for subsidiaries acquired are included from the dates of their acquisition by the Company. The results of operations for any interim period are not necessarily indicative of the results for a full year. Inter-company accounts and transactions have been eliminated. In these notes, the terms “we,” “us,” “our,” or “the Company” refer to Enstar Group Limited and its direct and indirect subsidiaries.

The preparation of these unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. While management believes that the amounts included in the unaudited condensed consolidated financial statements reflect its best estimates and assumptions, actual results could differ from those estimates. The Company’s principal estimates include, but are not limited to:

The following information should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

New Accounting Standards Adopted in 2015

Accounting Standards Update (“ASU”) 2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items

In January 2015, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2015-01, which eliminates the concept of extraordinary items from U.S. GAAP as part of its simplification

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ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

1. SIGNIFICANT ACCOUNTING POLICIES—(Continued)

initiative. As a result, a registrant will no longer (1) segregate an extraordinary item from the results of ordinary operations; (2) separately present an extraordinary item on its income statement, net of tax, after income from continuing operations; and (3) disclose income taxes and earnings-per-share data applicable to an extraordinary item. However, the guidance does not affect the reporting and disclosure requirements for material items that are unusual in nature or infrequently occurring. The guidance is effective for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted if applied from the beginning of the fiscal year of adoption. Registrants may apply the guidance prospectively or retrospectively to all prior periods presented in the financial statements. The Company adopted the new guidance effective January 1, 2015 and its adoption did not have an impact on its consolidated financial statements and disclosures.

ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity

In April 2014, the FASB issued ASU No. 2014-08, which changed the definition of discontinued operations as well as certain presentation and disclosure requirements. Under the new guidance, only those disposed components or components held-for-sale representing a strategic shift that have or will have a major impact on operations and financial results of a registrant, or that are businesses held-for-sale at acquisition will be reported in discontinued operations. In addition, under the new guidance, continuing involvement by the registrant will no longer preclude a disposal group from being presented as discontinued operations. However, the new guidance requires registrants to disclose the nature of any continuing involvement including cashflows to or from the discontinued operation, as long as the discontinued operation is included in the financial statements presented. Expanded disclosures about discontinued operations and disposals of individually significant components that do not qualify for discontinued operations presentation will however be required by the new guidance. The Company adopted this guidance effective January 1, 2015 and its adoption did not have a material impact on its consolidated financial statements and disclosures.

Recently Issued Accounting Pronouncements Not Yet Adopted

ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs

In April 2015, the FASB issued ASU No. 2015-03, which changes the presentation of debt issuance costs in financial statements. Under the guidance, a registrant would present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. The guidance is effective for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. The Company is currently evaluating the impact of this guidance, however it does not expect the adoption of this guidance to have a material impact on its consolidated financial statements and disclosures.

ASU 2015-02, Amendments to the Consolidation Analysis

In February 2015, the FASB issued ASU No. 2015-02, which requires registrants to evaluate whether they should consolidate certain legal entities. The new consolidation guidance changes the way registrants evaluate whether (1) they should consolidate limited partnerships and similar entities; (2) fees paid to a decision maker or service provider are variable interests in a variable interest entity (“VIE”), and (3) variable interests in a VIE held by related parties of the registrant require the registrant to consolidate the VIE. The new guidance also eliminates the VIE consolidation model based on

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ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

1. SIGNIFICANT ACCOUNTING POLICIES—(Continued)

majority exposure to variability that applied to certain investment companies and similar entities. The ASU also significantly changes how to evaluate voting rights for entities that are not similar to limited partnerships when determining whether the entity is a VIE, which may affect entities for which decision making rights are conveyed through a contractual arrangement. The guidance is effective for interim and annual reporting periods beginning after December 15, 2015. The Company is currently evaluating the impact of the adoption of this guidance on its consolidated financial statements and disclosures.

2. ACQUISITIONS

Nationale Suisse Assurance S.A.

On February 5, 2015, the Company’s wholly-owned subsidiary, Harper Holding SARL, entered into a definitive agreement with Nationale Suisse to acquire its Belgian subsidiary, Nationale Suisse Assurance S.A. (“NSA”). NSA is a Belgium-based insurance company writing non-life insurance (which the Company expects to operate in run-off as part of its non-life run-off segment) and life insurance (which the Company expects to operate in run-off as part of its life and annuities segment).

The total consideration for the transaction will be € 33.7 million (approximately $38.5 million) (subject to certain possible closing adjustments). The Company expects to finance the purchase price from cash on hand. Completion of the transaction is conditioned on, among other things, governmental and regulatory approvals and satisfaction of various customary closing conditions. The transaction is expected to close during the third quarter of 2015.

Wilton Re Life Settlements

On May 5, 2015, the Company, through its wholly owned subsidiary, Guillamene Holdings Limited, completed the acquisitions of two Delaware limited liability companies from subsidiaries of Wilton Re Limited that own interests in life insurance policies acquired in the secondary and tertiary markets and through collateralized lending transactions.

The total consideration for the transaction was $173.0 million, which will be paid in two installments. The first installment of $89.1 million was paid on closing and was financed by borrowings under the Company’s revolving credit facility. The second installment of $83.9 million, due on the first anniversary of closing, is expected to be funded from cash on hand.

Sussex Property and Casualty Insurance Company (formerly known as Companion)

On January 27, 2015, the Company and Sussex Holdings, Inc. (“Sussex Holdings”), a wholly-owned subsidiary of the Company, completed the acquisition of Companion Property and Casualty Insurance Company (“Companion”) from Blue Cross and Blue Shield of South Carolina, an independent licensee of the Blue Cross Blue Shield Association. Companion is a South Carolina-based insurance group writing property, casualty, specialty and workers compensation business, and has also provided fronting and third party administrative services.

The total consideration for the transaction was $218.0 million in cash, which was financed 50% through borrowings under the previously announced Term Facility Agreement with National Australia Bank Limited and Barclays Bank PLC (the “Sussex Facility”) and 50% from cash on hand.

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ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

2. ACQUISITIONS—(Continued)

Immediately following the acquisition, Companion was placed into run-off, and accordingly is no longer writing new insurance policies. Since its acquisition, Companion has renewed expiring insurance policies when it was obligated to do so.

The Company changed the name of Companion to Sussex Property and Casualty Insurance Company (“Sussex”) following the acquisition and is operating the company as part of its non-life run-off business.

The purchase price was allocated to the acquired assets and liabilities of Sussex based on estimated fair values at the acquisition date.

The Company has not completed the process of determining the fair value of its losses and loss adjustment expense reserves acquired in the Sussex acquisition. The valuation will be completed within the measurement period, which cannot exceed 12 months from the acquisition date. As a result, the fair value recorded is a provisional estimate and may be subject to adjustment. Once completed, any adjustments resulting from the valuations may impact the individual amounts recorded for assets acquired and liabilities assumed.

Results related to Sussex are included within the Company’s non-life run-off segment.

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ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

2. ACQUISITIONS—(Continued)

The following table summarizes the provisional fair values of the assets acquired and liabilities assumed at the acquisition date.

From the date of acquisition to March 31, 2015, the Company earned premiums of $20.6 million, recorded net increase in ultimate losses and loss adjustment expense liabilities of $18.5 million on those earned premiums, and recorded $2.2 million in net losses attributable to Enstar Group Limited in its consolidated statement of earnings.

3. SIGNIFICANT NEW BUSINESS

Reciprocal of America

On January 15, 2015, the Company’s wholly-owned subsidiary, Providence Washington Insurance Company, completed the previously announced loss portfolio transfer reinsurance transaction with Reciprocal of America (in Receivership) and its Deputy Receiver relating to a portfolio of workers compensation business in run-off. The total net insurance reserves assumed were approximately $162.1 million, with an equivalent amount of cash and/or investments being received as consideration.

Shelbourne RITC Transaction

Effective January 1, 2015, Lloyd’s Syndicate 2008, which is managed by the Company’s wholly-owned subsidiary and Lloyd’s managing agent, Shelbourne Syndicate Services Limited, entered into a reinsurance to close contract (“RITC”) of the 2012 and prior underwriting years of account of another Lloyd’s syndicate, under which Syndicate 2008 assumed total net insurance reserves of approximately £17.2 million (approximately $26.9 million) for cash consideration of an equal amount.

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ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. INVESTMENTS

The Company holds: (i) trading portfolios of fixed maturity investments, short-term investments, equities and other investments; (ii) a held-to-maturity portfolio of fixed maturity investments; and (iii) available-for-sale portfolios of fixed maturity investments. The Company’s trading and available-for-sale portfolios are recorded at fair value. The Company’s held-to-maturity portfolio is recorded at amortized cost.

In the normal course of the Company’s investing activities, it actively manages allocations to non-controlling tranches of structured securities issued by VIEs. These structured securities include residential mortgage-backed, commercial mortgage-backed and asset-backed securities and are included in the tables below.

The Company’s other investments are comprised of private equity funds, fixed income funds, fixed income hedge funds, equity and real estate debt funds. The Company also holds both direct and indirect investments in collateralized loan obligation (“CLO”) equity-tranched securities, which are all variable interests issued by VIEs. The indirect investments are in the form of CLO equity funds. For these variable interests, the Company does not have the power to direct the activities that are most significant to the economic performance of the VIEs and, accordingly, it is not the primary beneficiary for any of these VIEs. The Company’s maximum exposure to loss on these interests is limited to the amount of its investment. The Company has not provided financial or other support with respect to these structured securities other than its original investment.

Trading

The estimated fair values of the Company’s investments in fixed maturity investments, short-term investments and equities classified as trading securities were as follows:

Included within residential and commercial mortgage-backed securities as at March 31, 2015 were securities issued by U.S. governmental agencies with a fair value of $363.1 million (as at December 31, 2014: $263.4 million).

Included within corporate securities as at March 31, 2015 were senior secured loans of $37.3 million (as at December 31, 2014: $33.5 million).

The increase in the Company’s investments classified as trading securities of $911.0 million was due primarily to additional fixed maturity investments acquired in the Sussex acquisition.

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ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. INVESTMENTS—(Continued)

The contractual maturities of the Company’s short-term and fixed maturity investments classified as trading are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

The following tables set forth certain information regarding the credit ratings (provided by major rating agencies) of the Company’s fixed maturity and short-term investments classified as trading:

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ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. INVESTMENTS—(Continued)

Held-to-maturity

The Company holds a portfolio of held-to-maturity securities to support the annuity business acquired with Pavonia Holdings (US) Inc. (“Pavonia”). The amortized cost and estimated fair values of the Company’s fixed maturity investments classified as held-to-maturity were as follows:

As at March 31, 2015 and December 31, 2014, none of these securities were considered to be other than temporarily impaired.

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ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. INVESTMENTS—(Continued)

The contractual maturities of the Company’s fixed maturity investments classified as held-to-maturity are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

The following tables set forth certain information regarding the credit ratings (provided by major rating agencies) of the Company’s fixed maturity investments classified as held-to-maturity:

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ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. INVESTMENTS—(Continued)

Available-for-sale

The amortized cost and estimated fair values of the Company’s fixed maturity investments classified as available-for-sale were as follows:

Included within residential mortgage-backed securities as at March 31, 2015 were securities issued by U.S. governmental agencies with a fair value of $1.0 million (as at December 31, 2014: $1.1 million).

The following tables summarize the Company’s fixed maturity investments classified as available-for-sale in an unrealized loss position as well as the aggregate fair value and gross unrealized loss by length of time the securities have continuously been in an unrealized loss position:

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ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. INVESTMENTS—(Continued)

As at March 31, 2015 and December 31, 2014, the number of securities classified as available-for-sale in an unrealized loss position was 126 and 212, respectively, with a fair value of $68.0 million and $149.6 million, respectively. Of these securities, the number of securities that had been in an unrealized loss position for twelve months or longer was 29 and 120, respectively. As of March 31, 2015, none of these securities were considered to be other than temporarily impaired.

The contractual maturities of the Company’s fixed maturity investments classified as available-for-sale are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

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ENSTAR GROUP LIMITED

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

4. INVESTMENTS—(Continued)

The following tables set forth certain information regarding the credit ratings (provided by major rating agencies) of the Company’s fixed maturity investments classified as available-for-sale: