Statutory Matters

12 Months Ended

Dec. 31, 2019

U.S.

U.S. state insurance laws and regulations prescribe accounting practices for determining statutory net income and capital and surplus for insurance companies. In addition, state regulators may permit statutory accounting practices that differ from

prescribed practices. Statutory accounting practices prescribed or permitted by regulatory authorities for the Company’s insurance subsidiaries differ from U.S. GAAP. The principal differences between SAP and GAAP as they relate to the financial statements of the Company’s insurance subsidiaries are (a) policy acquisition costs are expensed as incurred under SAP, whereas they are deferred and amortized under GAAP, (b) certain assets are not admitted for purposes of determining surplus under SAP, (c) the classification and carrying amounts of investments in certain securities are different under SAP and GAAP, and (d) the criteria for providing asset valuation allowances and the methodologies used to determine the amount thereof are different under SAP and GAAP.

Combined net income, statutory capital and surplus and minimum required statutory capital and surplus, as determined in accordance with statutory accounting practices, for the U.S. insurance subsidiaries as of December 31, 2019, 2018, and 2017 and for the years then ended are summarized as follows:



	2019		2018		2017
	(in thousands)
Statutory net income	$	3,586	$	6,770	$	31,881
Statutory capital and surplus	266,715		241,668		219,132
Minimum required statutory capital and surplus	111,208		24,850		25,000

Risk-Based Capital (“RBC”) requirements promulgated by the National Association of Insurance Commissioners require property-casualty insurers to maintain minimum capitalization levels determined based on formulas incorporating various business risks of the insurance subsidiaries. As of December 31, 2019, the insurance subsidiaries’ adjusted capital and surplus exceeds their authorized control level RBC.

Bermuda

The Company has two Bermuda-based insurance subsidiaries: JRG Re, a Class 3B insurer and Carolina Re, a Class 3A insurer. Under the Bermuda Insurance Act 1978 and related regulations, an insurer must maintain minimum statutory capital and surplus at the greater of a minimum solvency margin (“MSM”) and the Enhanced Capital Requirement (“ECR”), which is the higher of the MSM and capital calculated by the Bermuda Solvency Capital Requirement (“BSCR”) model or an approved internal model. The combined Bermuda insurers minimum statutory solvency margin required at December 31, 2019 was approximately $161.4 million (2018: $161.3 million). Actual combined statutory capital and surplus at December 31, 2019 was $502.6 million (2018: $439.4 million). The insurers had combined statutory net income of $53.2 million for 2019, $86.5 million for 2018, and $20.1 million for 2017. The combined ECR for the year ended December 31, 2018 was $283.6 million. The BSCR models for the year ended December 31, 2019 will not be filed with the Bermuda Monetary Authority until April 30, 2020. The Company believes that the minimum statutory capital and surplus requirements will be met.

The insurers must also maintain a minimum liquidity ratio in which the value of its relevant assets is not less than 75.0% of the amount of its relevant liabilities for general business. Relevant assets include cash and cash equivalents, fixed maturities, quoted alternative investments, accrued interest income, premiums receivable, losses recoverable from reinsurers, and funds withheld. The relevant liabilities include total insurance provisions and other liabilities less deferred income taxes and letters of credit, guarantees and other instruments. As of December 31, 2019 the minimum liquidity ratio requirements were met.