ARMO.UR RE LTD.

FINANCI.AL STATEMENTS

For the Period Ended Decentb~r 31, ·2011

~!d. flu.or, 19 Par-la·Vilie Road, Hanill~on HM11 , Bermuda

pwc

April 30, 2018

Report of Independent Auditors

To the Shareholder of Armour Re Ltd.

We have audited the accompanying financial statements of Armour Re Ltd., which comprise the balance sheet as of December 31, 2017, and the related statements ofloss and comprehensive loss, of changes in shareholder's equity and of cash flows for the period from November 20, 2017 (date of incorporation) to December 31, 2017.

Management's responsibility for the f'mancial statements Management is responsible for the preparation and fair presentation of the 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 financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' responsibility Our responsibility is to express an opinion on the 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 financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the fi nancial statements, whether due to fraud or error. In malting those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the 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 Company'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. We be1ieve that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

PricewaterhouseCoopers Ltd., Charte1·ed Profe$Sional Accountants, P.O. Box HM 1171, Hamilton HM EX, Bermuda 1': +1 (441) 295 2000, F:+J (441) 2951242, www.pwc.com/ bermuda

pwc

Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Armour Re Ud. as of December 31, 2017, and the results of its operations and its cash flows for the period from November 20, 2017 (date of incorporation) to December 31, 2017 in accordance with accounting principles generally accepted in the United States of America.

P~~.Ul, Chartered Professional Accountants

Reference: Report of Independent Auditors on the Financial Statements of Armour Re Ltd. as at December 31, 2017 andforllte period from Nouembel" 20, 20J7 (date of incorporation) to December 31, 2017

Page2oj2

A,SSETS

Premiums receivable . . . . . ·. pue rront-sh~reJlo.id!'!r Deferred ch~(!le

TOTA.L ASSETS

l.IA~Il.ITIES

ll)Ss~s ~nd_lqs~ agjust~~n\.expenses

.Upe'!m~d p~mlurits

AEcou.nts paya_ble ft!lil ac;cn!ed ll~bilities

TOTAL UABILITIE:)

COMMITMENTS A~l;l CQNltNGENCtES

·SHAR.~HOLDE~'S EQUITY

,!?h.are csplt~l :

O'rdlnnry'shares (issued. and .oulst3niling·2o~ 7: 120,000).

Adiliilcinal pald·in.caphal

· Relliined deficit

TOTAL SHAREHOLDER'S EQUITY

r ·orAL LlABitiTIES AND SH'r\REt;OL.DER!S EQUITY.

ARMOUR RE LTD.

BALANCE Sl:fEET AS:· of .Decem~~r 3_1 ,. 2017

S'ee ac<;onip'anyh)_g notes' to the'firitHicial:statetnenls'

'S.

Oocombor·31, 2017'

lex pressed i11 U.S. doiiBNI, except·!>hara di!la)

193',6 17. 7:32'

122,147,132

26,6~5-,;17.0

342,410,234

209;8~9,523.

ro.;m,!;!7if 18.3,0711·

12o;oo'O 122;oao, 1 o~

(236,04'8)

17.1,964,057

3!12.410,2~4

ARMO{JR RE LTD,.

STATEMEN.T dF LOSS AND' COMPREHENSIVE LQSS For the P~rlod from .Nqven1her 2Q, ·2017 (.qate. of in~orporaticil'l}'to De.~embe.r 31, 2017

EXPENSES General and adtr)inistrativ~ ·~xpenses

TOTAL EXPEN$ES

.NETLOSSAND COMPREHENSIVE LOSS:

$~e ~ccompanying notes .to the financi;:~l statem~nts

s·

2d17 (Eixprossoclln U:s.

·dollarS}

(236,"048)

ARMOUR RE· LTD.

STATEMENT OF· CHANGES. IN SHAREHOLDER'S EQUITY ·For the Period frqm Novem~e·r 20, -2017 (_d~b~ of'in_corporation) to be_cemQer ~1_ , 2.017

Sham_ca·pi.tal - Ordinary ·shards

Balan<;e.)eginnlrig ·or period

lsstie of-~hates

Balance, end of !Jer_io~

Adilllioriai Pal_d-ln .Capital

aat~nce, beginning or· period

Contritiullon from ~ha,reholc;ler

Balance, ·erid o·f_ yeai

_Retained -Deficit_

Bata·nce, be~innlng of.P.&rlod

Net lo&s-

B~la·n·ce, erid-of period

$

$

$

$

$

$

See accompa·nylilg ll'otes to the fjn~ncjal statements

2017-

(el<p-re·:;;s_ec_l_fn· u .s . dollars)

'1,000;000

'1,000,000

1:i2,080i105 -

1;?2,Q80,105

{236,046)

{;i3s,o48i .

ARIVIOUR RE !::fo.

STATEMENt OF 'CASH FLQ:WS For _the Perio~ from Novemb~r 20,-2017 (~ate of incorporatiOn) to December 3-1,2017

OPE_RATIN~ACTIVI_TIES: Net loss .AdJt~slr:nent~ tq reco~c!le ne_t eam!ngs IR cash·floY{S pro_~i~ed· by (u~ed in) operaliflg aplivil_les.:

Ch'anges in; l'{elns(,lran~.e b~lim_ces ·recoverable Othe·r assets

Losses a'nd.los.s adjustmenrexpenses Premiums . .receiilab_le Unearned pr~1J1ium~ Accol.lrils payable ~nd accri'Jei:ltiabili\ies

Net cash-flows used in operating activities·

F. I NANG JN!3 .1\C:riVlTIES; .lssu·<!'nce of s~ares··

.. Cor)frfbutlon by--shareholder Receivable·· from ~haretiolde·r

Net cash flows provided by financing activities EFFE;CT o·F E.XGf!ANGE:_RATE CHANGE$ ON FOREIG_N CVRREN~Y GASH, CAS}! EQUIVALENTS:AND R1'0STRICTED (:ASH

NET INCREASE. ([lECRE,A,~E) IN CASH, CW;H (:QUIVALEN~S AND R.!';STRICTED CASH CASH, CASH EOU.IVALENTS.AND RESTR-ICTED GASH, BEGINNING Of PERIOD CASt;!, GAS.H 'EQUIVA-I,£NT?:Ji.ND RE.~TRI_CTED CA~H,. END O_F PERIOD

.See ·a<;companying note~ - tq theiil')aricial·sta\einents

7

2017-

_(oxpi'es-sod in - U.S, dollars_l

(236,048}

'(26,645,370)

209,889.523

(193.6'17~ 7.32) . 10,373;578'

1'83,076

(52,973)'

52,973"_

$

·1. DESCRIPTION.OF BUS!N~SS

ARMOUR RE LTD,

NOTES TO THE 'FINANCIAL STATEMENTS December 31, -20.1 J.

(Tabular lnforrpati·on· expressed iil U.S, doliar:s)

Arrtfour .Re Ltd._ ("Ar.l')iour'' or toe ''Company") is a ~ermuda exempted coJ.Tlpany r~gf~tered as Cl Class 38 'irisurer unoer thE! Bermuda lnsuranceAcr1.97e. 'rhe Companywas:incorporated ori Noyember ~0,. 2017 and is wbolly-owne£;1 qy Arri'lout .Grotip Ltd. ("AGL''). · ·

The primary putpos·e.of'the Company·ls-to·acqtiire·discontinued property and casual~y business in ··the n'on-life sec.tor of the insuranc~ indu!;!try frQm inswers, relo~ur!'!~s .and/or other ~ntifie_s. (i_ncludlng, witl:lou.t· llmltatlon, self­insured ·organizations) arid the management of the payment' of future claims and the assets supporting such Jiabilit'iEis. u rless the c;ontext-tndlb!:~tes. Qtheiw,ise, the terms Hte "Gompany, II ·:Armol)r;''' ,·!we," "us'' or "o_ur" mean Armour-Re Ltd ..

2 •. SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation

The finpncjal sJaiements·have peen prep~l'ed in conformity w'ltb accountiog_principle.s generally· accepted in ·.ttie United States of America ("U.S; GAAP")'. The financial ·statei:nents inclupe· our a·ss~ts, li'abili~ies and .r!3s'ults of C?P.r;lrat\ons.as of. D!3cernber·31, 20'17 anq ·for the period from .November 20, ..iP'l 7 (d.~te .of lncorporatfon} 1o. D~ce~P.er 31., 2017.

Use of Estimafes

The·_prepar.atioil offin·ancial statements in accordance with U.S. GAAP requires managementto make ~stimates and assum·pth;:ms tha~ affect th~ repo_rted -amoynt qf ·assets and lial;'lililies and disGiosu re of contingent as~-~~~ and _t'iabilit\es ·at.·the date of the financiai:statements -ahd the reported amounts· of revenues and expenses- cluring the reporting perfod. Our adira'l resl!lts col!lc;f differ mater.ially f.ro_m our est_irnate~. Acca,unting policies that we peli'eve are most.dependent on a_ssum·ptions and estimates are considered·to_-be our·critical accountin~ polici~s and are related t.o ~he determinatiqn of:

liability for losse_s an.d los_s a_djustm_en_t expen$es.("LAE"):

reinsurance balance~ recoverable; ~nd

• fair 11alue estimates ass·ociated With accC:iuriting for acquisitions .

. SignificantA ccounting Policies

(a) Premiums

. Non-life premiums wrltten. ~re.earned on ~ pro"r.ata basis OV!=lf .the .period the-cove.rage is prov(ded. Reinsurance premiums are recorded· at the inception of the pplfcy, are based upo'n contractual_ tern1s.aod, for 'certain _business, ~re

ARMOU~ ~E LTD,

NOTES to THE FINANCIAL STATEMENTS- (Continued) estimated based. on underlying .cor.1tracts or fro.m. informatio-n provid~d: by iilsu.red.s and/or "brokers .. Changes fn reinsurance ·premium estimates are ·expected arid m·ay result .in adjustments in future p~_riods .. Ariy subsequent ·differences arisfng -on such ·estimate~ ·are recordect:.as pr~miums: written In the.-perioq in which ·they-are:qet~rmined,

.C.j3rt<;~.ln npn .. life ·cpntracts ar.e retrosp!3cfively rated and proyide .. for a -~nal.adjustment"tp _the. premium based on · the··final ·settlement 'of all losses. Premiun1s: on sVcli contracts are adjusted based: upon contractual terms,· arid management judgm~nt is invpfved With r.espect to the estimate o.f th_e :ampunt of lqsses that we expect to incur. Additional· premiums are· recognized at tlie time loss tliresholds.specified .in the contracU!te exceeded-and are:earned over t~e: covera,ge ,period, or ~re earned ·immediately if, the pE!ri"o(i ·of ri~k Qoverage has pas~~q_

Premiums· receivable . . ...

Prerr,-ium·s receivable represe"rit·amol.irits cu_r~ently ·due and amounfs not-yet d~e -on insuran¢e and reinsurance polici~l'· Premiums for i_nsuranc;e polici_es are g~n~rall:tdue ·.afinc;~ption. Premiqms·for reinsurance poliCies g_~nerally become due over the period of coverage based. t\n the :policy terms. We mo·nltor the credit risk ass·ociated with premi.ums. receivaqle, ta~ing intq cqnsidera~lon ttle·impact of our con~raclua.l right to _offset foss-obligatiqns dr L.mearned premiurtfs against premi(lms receivable. Amounts· deemed uncollectible are chari;fedto het earnings iri the period they. .ar~:determlned. Chang~~ In the estimates of premium~ written will ~es.ult In an adjy!?!m~nt to_ premiums receivable in the period they are determined.

Unearned premiums and prepaid.teinsurarice.ptemiums

Unearned pr!SJm(ums repr!iJSent th£{ portion of premiums. written fhat relate· to-the.unexpired terms of policies in forc:S: Preri;(um,s·ce.ded are shjlil~rly pro-rated over the· peri.od the coverage is provided with· the onearned portion being !]eferr.ep··as prepaid relnsurar:tce premiums.

(b) Losses ~anq LAE·

The liapility for l.osses and LAE includ.es·an ~mount determine.d·from:rf;:lpQrted ·claims (;'OSLR:') anct·an am punt, basea· dn historical loss .experience and industry statistics, for losses fncurred but not yef reported ("IBNYR") and loss.es if!c~rred but no.t enough r.eported. (''IBNER").I(3NYRplus IBNER are.com_monty ref$rred to. coli!3ctively a·s I~NR .. ·The ultimate claims reserves (OSLR plus·IBNR) is ·established by management based on ·actuarial" analysis of data

provided by bro~ers, ·9!'ld.ing· .c;ompanies a~d in~ureds and ~epresent? the esti.mated L!ltimate net qut5tan.9ing claim,s liabilities. These ·estiniates are coritinually-reviewea and are_ neces·sarily sUbjectto the .impaCt of future changes in factors ~Ltch.- as, C!a;im 9f?Verity and frec!\.terwy,_ chang~s in economic conditions inclt,~qing. the ..impact of infl~ti"cm,. )ega/ and judicial deveropments1·and medical cost-trends. WhiJe·we belie:ve that the amountis adequate, ttie ultimate liability may .be in excess of, o~ less than·, t"he ~mounts .pro',!lded. Agjustrnents will ~~ refl~ct.ed as part of net-increase or reduction in lo~~eS" -arid LA~ iiahiliti.es. In: the perio.ds ih w.hich they be~ome .known. Premium and commission ~idju~trT,i¢rils inay be· triggered by inc!-Jrred l9!lses, an_d any_arnoun_ls a·re reco"rd~tl if) the same pejiqd that -the ~eiated incurred loss is recognized ..

We ~stab_lish pr.ovis_iqns for. LAE relating (o run-.oi'f costs· for ~he estimated <Juration .of th.e run-off, which at.e ·included ih losses· and.LAE. Thes·e- provisions are.·assessed at each reporting -dafe, a·nd provisions relating to future p_eriods are.adjusted ·to .r~fl~c;t any QhF!Ag_es in estimates ·of the pe~iqdic rl!n~~f( (:;osts or the duration pf the run-off; -including th·e inipact of any acceleration of the. run-off per.iod that.may be caused by com·mutations.

9

ARIIiiOUR~E LTD.

NOTES' TO THE 'FINANCIAL STATEMENTS- (QontJil!Jed)

(c)' ln((estmeljts, Ca~h and .C~sh Equivalent?

"Short-term ihv€/st(nei;its· an.d fixeq maturity inve~tments·

· ShorHerm invt;Jsfments comprise ·iriVestme.nts with a ·maturity gre~ter than three. l'l,"'qnths up :tp o.ne year from the dale of PJl~ch~se. fjx!'ld rnatQrities._comprlse in.vestme.nts wi\h a maturity of ~reater than one· year from the date·of purchase.

Short-term and Jii<ed maturity investments 'classified as trading are:.carried at .fair valu~. with (ealized amj unreali?ed holding 9E!ins .and lc>sses include~ in net. earnings and rep·orted as nf}t real {zed an~ unrea.lized ~ains -and losses.

lrwestr:ne.nt purchases·and sales are record !3d dn a ·trade~date basis. Realized: gains and losses on· the ·sale· of investm~·nls are .. based· upon specific·identific.ation ofthe cost of.in1.1estrnents·. ··

Cash an.d cash l'!qL!iVqlerJts

·cash equivalents includes all hi!;jhly liquid de.bt instrurpents p·urchased wit~ an· pr]girJal ·m9lurity ofthree mqnths or less.

(d) Funds H.eld

Under funds held .anangemerits, the re(nsured ·cdmpany has. re~ained funds that would otherwise have. been rehiitted'.tcfour·reiilsurance .subsidiaries. The funds. balance is cradifed wittrinv~stment income .and losses payal;>l~ are ded~cte~l. The invesf111erit return~ . of fu.nds· h~ld ·are rec;qgnized in net ihyes~ment· inqome:·and net realized and unrealize'd·gains (iosses~-

_(e) Foreign. Exchange

Our reporting qurrency is the· u_;s., .. dollar. Other 'foreign currency ·at;sets and liabilities that are considered monetar.y iten)$ :are· translated. at exchange rates· in effect. at the balance sheet date. Foreign curr~rtcy. reyenues ·and ~xp.ens~s are transla.t~d atttansaction dat'~ e;cliange t~te~. Th~se'exchai'1ge gai~~ :and losses are recag·niz~d ·in ·het earnings.

(f) Retroactive Reinsurance and Defetied Charges·

Retroactive relnsuranc·e.'pblit:ies provide ir'ldemnificatioil of losses··:and LAE with respect to past loss events.

We use th{;!' balance· sheet acc.o·unting approach for assumed loss portfolio transfers, whereby at the inc~ption ofth$ contract therf3 are.· flO pterniun1s.or lcisses re.cqrded in -earnings. At th~ ihr::eption of a cqnlrac.t,.a deferr~d charge asset li;orecordecrfdr the·excess, if any,· ·of the estimated .ultimate losses _payable ·over the. prerniums received·. Deferred ·charges ·ar.e.amortized oi.terthe e·stlfJ1a(ed c;h:ih'rfpayment P.er.iqd-of the related contract.wlth .t.he perioqic arr)ortization

10

AR!IJ!OUR RE LTD.

NOTES TO THE FINANCIAL STATEMENTS- (.Continued)

refi'~ctecUn earr1h:~_gs as. a component·oflosses and L~l;·. Defem~(j ~harges amortiz:c:t~ior:l-is adjust,ed at eaqh· r~portin'g period: to reflect new estimates of the amount arid tirriin~· of remaining loss payments.· Changes ·in the estimaled

amciunt ·and the timirig of payments of l,lnpald los&e~ m.ay hav~· an effec.t.on the unamqrtfz~d .deferred charges and

·the amount of p~rioctic am.o~izatlon . Deferr~d charg·es ·are assessed at ¢ach teportit1g period· for in1palrment-. If: the

asset is determined to be Impaired, It is written down ir) the PE!r.iod hi which the· de~ermlnation Is. made .

. 3 •. SIGNIFICANT.NEW BUSINESS

2018

Knowl~dge·

On M.arch ·5, 2<h8, we enter~d in"to .a quota ~har.e retrocession agreement with ILS Property & Casualty Re·ll

Liniitea ("PC· RE II") in rela_tion to the loss pprtfolio transfer agr~eti)enf("L.PTA") ·it enterec! fa r~insyre a portfqlip of

u.K commercial mQl()r,: public anp ~mployeui• iia6illty line~ of business: along with propetty/preinises relafed to U.K.

cbmmerdal motor. P~r.suant to the agreement, w~ will in_1;h~mnify P&.C Re 11.- fqr 9ur qlJot? sh~r~ perqentage ofthe

ultlma.te. net ioss and qther liabiliti~s incurred by p&c Re.ll undenhe LPTA. The CompanY .ha~· provided capital of

ap·proximately $14.4 million to fund its·quota sl)~re perc~nt~ge· of th~ .aggregate llmi\· u~~e~. ~he terms.o.f.the ~PTA.

2017"

River-

.On December-29.- -20.17, we entered into ·a quota share retrocession agreeineht .{"QS Ag.f~emen.t") with P.G R.E

I.L We ~ssumeifgrpss.-re_ins!Jrance rest?rves of apprqximately $259.8 milliqn (n~t res·erv~s ~f . $1&3 . 2 . milllon). The ·ini.tiaJ net .reinsurance premium payable to the ·Coinpahy under"the QS·Agreerrient was approximately $~93.6.r:riii1Jqn ·rela~ing· to the portfo!io, which pdmarily in'cludes·· Cqmmer.cial Autom.~blfe .• Npn-St~11~ard Personal Autpmobile,

G<i!neral Uabil.ity, Commercf.~l Elnd Personal 'Property; Mono-line Liquor Liability,· ReaF Estale E&O,. Wo"rkers'.

Compehsation. and·· otliei' srnalie·r lines. of bu~in~.s~. ln .addltion, on Jan\,lary.2~. 20W·w e:_pald to. PC Re II $1.21 .1 millior:~ repr~senting our proportionate share- of-the requir\3d collaterallo fully "fund its' reinst:Jr'ahce· up. f61ts aggregale

·rim it.

4. LOSSE:S.AND.LOSS AOJU$TMENT EXPENSES

The,· liability for Josse~ ·~oQ. LAg, also referred. to as jOS!? reserves, repr~sents . o.ur ,gross. es.timat\35 ·be"fore

reinsurance ·tor unpaid reported ·rosses ahd loss'es that liave been-incurred but·· not. reported ("IBNR~') .. We rec.ognJz~: ~n assel for .the pcirtfon of the ll~bllity t!iat we exp_~ct .. ~o r.eco~e.r. from:rein~t,Jrers. LA~ reserves i.nclude .. a.llocat.ecf lo.ss

adju~tm~nt exp~nses ("ALAE''), and unallocated loss -adJustmMt expenses· f 'ULAE"): ALAE are·. linked ·to the­

settlement of an individual .claim a doss, whereas. UlAE are based on our estimates offuture costs to administer the

claim!?:.IBNR. represent~ ·rese.rVes:fo;. io~s-and LAE that hl:\iJe hee~ locur~ed but not .yet- r~port~d-.to. us. This ' in~ludes amounts· fodmreported cl.aim_s, develcipfl:ierit O!'J. ~nown c.I?Jiins a.n~· reop:ened cl~im.s.

The-following: table summarizes Uie·liabili\y'for.los·ses. a!1d LAE as at December 31, ·2017: . . . . .

A~!\IIOUR RE LTC>.

NOTES ·TO THE FINANCIAL $TATEMENTS- (Cantin \Jed) •2017

:Oulstandlhg loss.es·. $ .9?,230,656: 'IBNR . 101 :1).~\"i-, 77~ ULAE '10,7·11,096

lot" I $ io9,ea9,-52a

·The tabla below provide~ a recooc;JIIation of.the·b.eglnning and encling liability for lo.sses arid LAE forthe.period ended December 31·,·-2017:

B~lance as .at Noilei11!;le_r 20. 2017 (dale. of incorporation~

Le~f\: ·~eirtsur~nce· ~eserve·s ;recoyerabiEi ·

Less;. d~fl!rre~ ~harge on r~!roacl!v~ reirtsu~a.nce.

Nel.balance .as at Nov.eml.ier zo; 2017 (ilate of'inco·rporalion)

Net l.h!!Urred l~sses. ~n~ lAE:·

Curr¢111, perio'd

Prior period

·Total n~t in~urred losses and LAE Nef paid'lossesl

Curr~nl perio.d

Priorp~ijods

Tolai nel.paid losses Effect of excha·nge:rate movement

Assumed business

Cede~ buslne~s

Net balance as at Decenl~er. 31 Pius:· reinsurance rel'!erves recoverable

Pius: defer,red _charge on retro!lctive r~insur~nce

BalanC"1' as at. Oecember 31

2017•

$

183,244,153

1!13,244,1!l3

26,845,370

$· ·209;889,523 _ ..............

The net' reseJ:Ves for losses and loss expenses related to the. acguisitio·n of the River' LPT co":~pleted on Decemqer'31 ! 2917'will be incorporated in.Artnollr. .Re'!? reseNes for lqsses and loss e)!penses.on a prpspe~.tive b~sis fqr ·the'year be_ginning .January t. 2018. The'.treatrnent .for the acquisition of the River·portfolio was adopted _'pt.irhar.Hy as a resu,lt of the data necessary to prodi:tce·the lo:;!i. qeye)opmen'Ua~J~s were n.ot migrated over on ac.qul~i~ibn of'the portfolio by .PC RE iJ as it was nqt teqllested or received.and as a·re.sult dGes.'nbtexlsfwithin PC Re ll's data systems.

5. DEFERRED CHARGES.

The follciwin~ tables present a reconciliation of the be~innirig and endin9 .d~feired .Pharges for tli~ periocl:ended ·oe~ember 31 , 2017:

ARMOUR RE LTD. . . .

NOTES TO THE FINANCIAL STATEMENTS- (Continued)

·20H'

·sa lance ~s- ~ t Noveniber·2Q"(d;ife ofiricorporatlori) ·ACq~Jired f;1liilng l~e yea·r Amortization·

Bai'lnce. a~ . i!l Oecem~er-31 .• 2017

qeferred C_h.arg es

$ 26;645,370 .

Deferred chames-.re.late to re~ro"!ctive reirtsutance policles ... providing indemnification of" lo!!ses arrd LAE with respect to past ·1o~s events. At.the inc~ptlpn of a. tontract,-a.defe.rred charge· asset is·recorded fb(the· excess, if a·ny, of the. estimated ultimate losses._paya~l~ over'the premium·s rf!!ceivt;!d_. T~e~e .amounts rei at~ to the tra11~~ctlon w_ith Equator, g~scribec! i.n NotE? 3 - '' $igriifi~arit New Busines·s".

The gros~ -c~rry!ng valu~; ·a.ccumulat~d .amortitation and net car-rying ·value of the def!'lrred charge at December' 31. 2017:was as.follows::

6ererr.ed_.ch_ar,9es qn retroact_iY~. r~ins.urance

6." PREMII.iMS-RE.CEWABLE

$

Gross Carrying

Value· Accumulated ·Amortization

·Nat 'carry_lfl~

Value

- $- 26,6!15,370 __ .......; __

Li.nderthe."QS Agreement, the premium owing to the C0mpany o"f-$1"93.6 million was contractual.due oh Ja·nuary 23, ·2018. These funds· were. paid. _over on that d<W int0 ~he premium :tru~t accounts: and ~Ill ~e tre.at~d:as fut)d~ W,l~hhefd py the Company.

I.. ·SHARE CAPITAL AND ADDITIONAL "PAID-IN"GAPITAL

As at .Decembet-31, 2017, the autliorii ed ·share capital of the compa~"y wall $10.0 mlllior:J qivlded into 1G,"QOb,ooo sh~r!'ls. o"f" par value qt"$1..0"0 each, A~ at Decemb~r 31, .2017, (h~ ·issueq. and fullY paid sha.re Qapital of the. Company·was 120,000 ordinary share-s of par' value $1,00 per share. Th.e·Cor:rypany r\9c.6rded $0:9 million. pf additiQnal. pai·d~in .capital. on issuance. of it~. ordinary $hares. An c;~tflliate. coh:lpany trold~.-t~e ,$1.0 milljon paid in forth~ share ·capital ~nd paid~in capital ofthe Company which.-is· included within lhe amounts:due from sharehol.der.

~ .

T!1e' Qo.mpany ~ecorded $12-1.1 million fn. a_ddltional paid.-io· capital iii relation to contributio"ns owing. from· its parent in-relation to o_pefational expenses·and t~mdin·g ass.ocia~ed with the River-- transaclfoJ~.

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ARMOUR RE LTD_.

NOTES TO THE. FINANCIAL ST,f\TE~ENTS. - .{Continued). -~ .. RELATED PAR·TY TR~NSACtlbNS .

A'$ at D.e.cember 31 •. 4017.., the Company .. had an amo~nt of $122: f milliondve from its ·parent, AGL, in relatron· to $1:2.1.1 niilfion to fund our proportionate: .share of the capital r.eguire·d-· tor the. River transaction, as described In. Note 3 - "Signjflcanl New I;Jusin~ss," ahd ${9 milliqn ·in .rel.ation ,to .tlie Initial share capital and paid-ih PCl.plial a_s disclosed in Not.~ 7- "S~are C.9pital·and-Additibnal Pai'd-ln CapftaJ.!'

.9 .. DiV-IDEND RES.TRIIiTIONS AND-STATUTORY FINANCIAL. INFORMATION

The· Cornpany js. regfstered under the lns_uranc~.Aci 1978 of Bermuda -and ·related regulations, as amended. {the "lnsuranceAcr'). The lnsu·rance-AcHmpbses· certain - solvency>~nd ligliidity stand_ards aiid auditi'l9 and rep~;:n~ing .requirements and:·grants the ·sMA power~ to $Upeni_jse, inl(estigate,. r.equire· l11fonnatio.n .and the :·produ.ction of doclllilehts-and:·interveoe in the affairs ofinsurance companies ..

The Company is required to mair:~tain minimum statutory capital and surplus equart6. the greater cif a ·r:niri_ir.num _ so!vehcy f'\1argin C'MSr.J1") ~lhd th~ Enh<;lnc;:ed c'apit_af Requireme)ot ("ECR~) whe[e-.app_licabl~. Th~ ECR Js equal.to the higher of the MSM or-the: Bermuda Soivency Capital Requiremerit.("BSCR'') niodel. The BSCRfor the vear en_ded De!=~:mber 31, 201-TWil.l DOt be fil~d with the . Bf\11~ ~ntil M~y ~018. A~ a re.sult, the requ'ir~d stafutqry caplfal.ahd-surp.lus as at December 31,2017, -based on -the· MSM, is $31 ;5 million.

W~-would be prohibited fr.om declaring or. paying anY aiyidi:mds If We were in breach of ·our minimum solvency ma.rgin _(\1hich 1s a func.t!on of outstanding lo~ses) . .or liquidity· ratio (which is .a· funQtion of relevant assets) or if th~

-o~claraHo.n or payment of.such 'div)dends would -caus·e.- itto -fail to meet-such margin or ratio. In ·aqdition, we would be ·prohibifec!, without the prior approval of tlie· BMA, from reducin'g by 1.5% ·or ti_lore ou.r fot~l -statu~ory c_~pital as set. out in ils_preViOUS year's statutpry financial statem~nt~ . W~ areTequireq to-seek regt,~la_tory approval {Of any divld~nd~ .or distributions. ·

·1(i. S\JB~EQUENT _EVENTS

The Company has .compieted l~s ~ubs_~quent events evalu"!tions for t_he period subs~quent-to the bc:J,I<mce sheet date Decem bet 31',-2017 through to April30,2018, the date these-financial. statem'ehts-would be issued andi except

·.for the_ it~m ,as desccibf:l.d iii Nc;>te 3 ~ "Significail~. New Bu~iness," concluded. that_ ~here a~e- no subsequent evel)tE! t~quirlng recqgnition.or disclosure.

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