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Amtrust International Insurance, Ltd AmTrust International Insurance, Ltd. Consolidated Financial Statements For the Years Ended December 31, 2018 and 2017 kpmg KPMG Audit Limited Crown House Mailing Address: 4 Par-la-Ville Road P.O. Box HM 906 Hamilton HM 08 Bermuda Hamilton HM DX Bermuda Telephone +1 441 295 5063 Fax +1 441 295 9132 Internet www.kpmg.bm INDEPENDENT AUDITOR’S REPORT To the Board of Directors of AmTrust International Insurance, Ltd. We have audited the accompanying consolidated financial statements of AmTrust International Insurance, Ltd. and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive income, changes in stockholder’s 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 U.S. generally accepted accounting principles; 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 consolidated 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 consolidated financial statements. 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 AmTrust International Insurance, Ltd. and its subsidiaries as of December 31, 2018 and 2017, and the results of their operations and their cash flows for the years then ended in accordance with U.S. generally accepted accounting principles. © 2019 KPMG Audit Limited, a Bermuda limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. kpmg Other Matter U.S. generally accepted accounting principles require that certain disclosures related to short-duration contracts in Note 7 to the basic financial statements be presented to supplement the basic consolidated financial statements. Such information, although not a part of the basic consolidated financial statements, is required by the Financial Accounting Standards Board who consider it to be an essential part of financial reporting for placing the basic consolidated financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic consolidated financial statements, and other knowledge we obtained during our audit of the basic consolidated financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Chartered Professional Accountants Hamilton, Bermuda April 30, 2019 2 AMTRUST INTERNATIONAL INSURANCE, LTD. CONSOLIDATED BALANCE SHEETS (In Thousands of US Dollars, Except Par Value per Share) December 31, ASSETS 2018 2017 Investments: Fixed maturities, available-for-sale, at fair value (amortized cost $3,846,638; and $3,492,267) $ 3,784,010 $ 3,513,982 Equity securities, at fair value (cost $15,646; and $15,833) 9,821 7,288 Short-term investments 161,290 136,905 Other investments (related party $59,295; and $7,770) 212,772 88,906 Total investments 4,167,893 3,747,081 Cash and cash equivalents 294,541 537,337 Restricted cash and cash equivalents 303,366 357,027 Accrued interest and dividends 28,409 32,551 Premiums receivable, net (related party $632,751; and $717,404) 1,545,216 1,658,787 Reinsurance recoverable (related party $3,306,076; and $3,026,834) 4,156,431 3,986,964 Prepaid reinsurance premium (related party $1,126,243; and $1,172,332) 1,304,314 1,360,585 Federal income tax receivable 133,389 121,413 Deferred policy acquisition costs 656,515 646,171 Assets held for sale — 59,570 Property and equipment, net 206,799 223,150 Goodwill 193,375 176,785 Intangible assets, net 178,154 195,805 Due from affiliate 300,029 606,883 Other assets (related party $203,688; and $300,030; recorded at fair value $1,910; and $7,791) 969,503 896,683 Total Assets $ 14,437,934 $14,606,792 LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities: Loss and loss adjustment expense reserves $ 7,578,517 $ 7,644,867 Unearned premiums 3,257,474 3,140,302 Ceded reinsurance premiums payable (related party $337,771; and $402,461) 585,943 588,448 Funds held under reinsurance treaties 34,342 — Securities sold under agreements to repurchase, at contract value 64,239 — Liabilities held for sale — 19,277 Deferred gain on retroactive reinsurance 65,440 68,634 Debt 111,268 124,300 Accrued expenses and other liabilities (recorded at fair value $12,973; and $26,380) 596,063 627,156 Total liabilities 12,293,286 12,212,984 Stockholder's equity: Common stock, $1 par value; 250 shares authorized, issued and outstanding in 2018 and 2017 250 250 Preferred stock 29,750 29,750 Additional paid-in capital 1,919,147 1,847,643 Accumulated other comprehensive (loss) income (168,368) (16,975) Retained earnings 315,171 443,147 Total AmTrust International Insurance, Ltd. equity 2,095,950 2,303,815 Non-controlling interest 48,698 89,993 Total stockholder's equity 2,144,648 2,393,808 Total liabilities and stockholder's equity $ 14,437,934 $14,606,792 3 AMTRUST INTERNATIONAL INSURANCE, LTD. CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands of US Dollars) Year Ended December 31, 2018 2017 Revenues: Net earned premium $ 2,769,565 $ 2,639,297 Service and fee income (related parties - $31,596; and $40,920) 132,661 154,944 Net investment income 101,879 126,815 Net realized gain on investments 15,390 100,739 Other 51,240 — Total revenues 3,070,735 3,021,795 Losses and expenses: Loss and loss adjustment expenses 1,954,201 2,175,261 Amortization of deferred acquisition costs 862,631 767,265 Underwriting, general, and administrative expenses 279,021 258,675 Interest expense (net of interest income - related party - $4,710; and $4,654) 17,006 27,478 Foreign currency (gain) loss (9,835) 153,788 Other 126,388 104,934 Total losses and expenses 3,229,412 3,487,401 (Loss) income before income taxes (158,677) (465,606) (Benefit from) provision for income taxes (59,243) (131,502) Net (Loss) income (99,434) (334,104) Net (loss) income attributable to non-controlling interests (6,842) 48,896 Net (loss) income attributable to AmTrust International Insurance, Ltd. common stockholders $ (92,592) $ (383,000) 4 AMTRUST INTERNATIONAL INSURANCE, LTD. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands of US Dollars) Year Ended December 31, 2018 2017 Net (loss) income $ (99,434) $ (334,104) Other comprehensive (loss) income, net of tax: Foreign currency translation adjustments (91,311) 160,000 Change in fair value of interest rate swap 45 88 Minimum pension liability (626) (258) Unrealized (loss) gain on securities: Gross unrealized holding (loss) gain (58,155) (106,206) Less tax benefit (expense) 18,041 62,327 Cumulative effect of change in accounting principles (1,794) — Net unrealized holding (loss) gain (41,908) (43,879) Reclassification adjustment for investment loss (gain) included in net income, net of tax: Other-than-temporary impairment loss 1,918 — Other net realized loss (gain) on investments (19,511) 85,665 Reclassification adjustment for investment (loss) gain included in net income (17,593) 85,665 Other comprehensive (loss) income, net of tax $ (151,393) $ 201,616 Comprehensive (loss) income (250,827) (132,488) Less: Comprehensive (loss) income attributable to non-controlling interest (6,842) 104,419 Comprehensive (loss) income attributable
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