10-K 1 sg-20191231x10k.htm 10-K Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________________
Form 10-K
ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-38731
______________________________________________________________
SIRIUS INTERNATIONAL INSURANCE GROUP, LTD.
(Exact name of registrant as specified in its charter)
Bermuda
(State or other jurisdiction of incorporation or organization)
98-0529995
(I.R.S. Employer Identification No.)
14 Wesley Street, Hamilton HM 11, Bermuda
(Address of principal executive offices)
(441) 278-3140
(Registrant's telephone number, including area code)
______________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
 
 
Common shares, par value $0.01 per share
 
SG
 
Nasdaq Global Select Market
 
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
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 ý No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o Non-accelerated filer ý Smaller reporting company ý Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ý

The aggregate market value of the voting and non-voting common equity held by non-affiliates, computed by reference to the closing price as reported by the Nasdaq Global Select Market as of the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $52.4 million.
At February 28, 2020, the number of outstanding common shares of the registrant was 115,299,341.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Part III of this Annual Report on Form 10-K will be filed by amendment no later than 120 days after the end of the fiscal year.
 



SIRIUS INTERNATIONAL INSURANCE GROUP, LTD.
TABLE OF CONTENTS
 
 
Page
 
 
 
 
 
 
 
 



As used in this Annual Report on Form 10-K, references to "we," "us," "our," "Sirius Group" or "the Company" refer to the consolidated operations of Sirius International Insurance Group, Ltd. and, unless the context requires otherwise, its consolidated subsidiaries. Tabular amounts are in U.S. Dollars in thousands, except share amounts, unless otherwise noted.
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995. These forward looking statements reflect the future financial condition, results of operations and operating activities of Sirius Group. Forward-looking statements are typically identified by forward-looking terminology such as "plan," "believe," "expect," "anticipate," "intend," "outlook," "estimate," "forecast," "project," "target," "continue," "could," "may," "might," "will," "possible," "potential," "predict," "should," "would," "seeks," "likely," and other similar words and expressions, but the absence of these words does not mean that a statement is not forward-looking. The forward-looking statements are based on the current expectations of the management of the Company and speak only as of the date of this Annual Report on Form 10-K. There can be no assurance that future developments will be those that have been anticipated. These forward-looking statements involve a number of risks, uncertainties or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those risks identified in "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Annual Report on Form 10-K and in the Company's other filings with the Securities and Exchange Commission.
While forward-looking statements reflect our good-faith beliefs, they are not guarantees of future performance. Should one or more of these risks or uncertainties materialize, or should any of the assumptions made by the management of the Company prove incorrect, actual results or performance may vary in material respects from that projected in these forward-looking statements. Except to the extent required by applicable law or regulation, Sirius Group undertakes no obligation to update these forward-looking statements to reflect changes in underlying assumptions or factors, new information, data or methods, or future events or other changes after the date of this Annual Report on Form 10-K.

1


PART I
Item 1. Business
Overview

Sirius International Insurance Group, Ltd. ("the Company") is a Bermuda exempted company organized in 2006 with roots back to 1945 and has $2.5 billion in total capital as of December 31, 2019, and provides multi-line insurance and reinsurance on a worldwide basis through its subsidiaries (collectively with the Company, "Sirius Group"). As of December 31, 2019, Sirius Group had $6.4 billion of total assets and $1.6 billion of common shareholders' equity. Sirius Group wrote $1.9 billion and $1.8 billion in gross written premiums and $1.5 billion and $1.4 billion in net written premiums in 2019 and 2018, respectively.

We have a highly diversified portfolio carefully assembled over 75 years with nearly 2,000 clients in approximately 150 countries. Together, our primary operating subsidiaries are responsible for the execution of over 8,000 treaties and accounts. Sirius Group's key insurance and reinsurance subsidiaries include Sirius Bermuda Insurance Company Ltd. ("Sirius Bermuda"), Sirius International Insurance Corporation ("Sirius International"), Sirius America Insurance Company ("Sirius America"), Sirius International Corporate Member Limited, a Lloyd's of London ("Lloyd's") Corporate Member, and Sirius Global Solutions Holding Company ("Sirius Global Solutions"). In addition, Sirius International sponsors Lloyd's Syndicate 1945 ("Syndicate 1945") and Sirius International Corporate Member participates in the Lloyd's market, which in turn provides underwriting capacity to Syndicate 1945.

In addition to the key insurance and reinsurance subsidiaries, we own two managing general underwriters ("MGUs"), International Medical Group, Inc. ("IMG") and ArmadaCorp Capital, LLC ("Armada"). IMG is a full service MGU that has been an award‑winning provider of global health and travel insurance benefits and assistance service for over 25 years. IMG offers a full, innovative line of international medical insurance products, trip cancellation programs, medical management services and 24/7 emergency medical and travel assistance. For 2019 and 2018, IMG produced $204 million and $175 million of gross written premiums, respectively, the vast majority of which are written on Sirius Group paper. Armada, through ArmadaCare and ArmadaHealth, serves as a supplemental medical insurance MGU that markets and underwrites its signature UltimateHealth supplemental health product designed for C‑Suite executives, as well as PlenaHealth and ComplaMed, which are targeted towards broader segments of the workforce. For 2019 and 2018, Armada produced $128 million and $120 million of gross written premiums, respectively.

As of December 31, 2019, our business consisted of the following reportable segments:
 
Global Property, which offers other property insurance and reinsurance, property catastrophe excess reinsurance, and agriculture reinsurance products on a worldwide basis;
Global A&H, which consists of Sirius Group's Global A&H insurance and reinsurance underwriting unit along with IMG and Armada, which provide supplemental healthcare and medical travel insurance products as well as related administration services;
Specialty & Casualty, which offers insurance and reinsurance specialty & casualty product lines consisting of Aviation & Space, Marine, Trade Credit, Contingency, Casualty, Surety and Environmental specialty lines on a worldwide basis; and
Runoff & Other, which is comprised of asbestos risks, environmental risks, and other long-tailed liability exposures, in addition to results from Sirius Global Solutions.

On December 31, 2019, the Company completed an internal reorganization to optimize the Company's operations, better serve its clients and make the Company more nimble and efficient. Beginning on January 1, 2020, our reportable segments will consist of the following:

Global Reinsurance, which will be comprised of Property Insurance and Reinsurance, Property Catastrophe Excess Reinsurance, Agriculture Reinsurance, Aviation & Space, Marine, Trade Credit, Contingency, and Casualty Reinsurance;
Global A&H, which will remain unchanged;
U.S. Specialty, which will be comprised of our primary Environmental, Surety, and Casualty platforms; and
Runoff & Other, which will remain unchanged.

1


Our History
Our corporate history can be traced back to 1945 when a predecessor of Sirius International was founded in Stockholm, Sweden. Since its founding Sirius International has expanded through acquisitions resulting in the establishment of local branch offices providing insurance and reinsurance services in various cities throughout Europe and Asia, including London, United Kingdom; Hamilton, Bermuda; Liege, Belgium; Hamburg, Germany; Zurich, Switzerland; and Singapore. In 2011, Sirius International sponsored the formation of Syndicate 1945. In 2014, Sirius Group established its own Lloyd's managing agent, Sirius International Managing Agency, to manage Syndicate 1945.
In 1980, Sirius America (formerly known as Folksamerica Reinsurance Company) commenced business as a New York domiciled insurance and reinsurance company. Since its formation, Sirius America has grown organically and through strategic acquisitions. In the mid-1990's Sirius America was acquired by White Mountains Insurance Group Ltd. ("White Mountains"). In 2004, White Mountains acquired Sirius International which was joined with Sirius America to form the Sirius Group. Sirius America has offices in New York; Norwalk, Connecticut; Miami, Florida and Toronto, Canada.
Until 2016, the Company was a subsidiary of White Mountains. On April 18, 2016, CMIG International Holdings Pte. Ltd. ("CMIG International"), through its Bermuda holding company CM Bermuda Ltd. ("CM Bermuda"), purchased Sirius Group and its subsidiaries from White Mountains for approximately $2.6 billion. In 2017, the Company expanded its accident and health primary business capabilities in the U.S. via the acquisition of IMG, which offered Sirius Group additional access to health products that are complementary to its global product offerings, as well as growth opportunities in Europe and Asia, and via the acquisition of Armada which offered Sirius Group additional health products that improve the efficiency and effectiveness of how its clients access the healthcare system. In addition to growing in accident and health insurance, Sirius Group further expanded its primary insurance platform launching its primary Surety and Environmental insurance platforms in the U.S. in late 2017. In mid-2018, Sirius Group began writing primary casualty insurance through Pie Insurance Holdings, Inc. ("Pie Insurance"), a start-up specializing in a data driven approach to workers compensation insurance, where we also have a minority investment and carrier relationship. In addition to these primary insurance platforms, Sirius Group re-entered the broker market for U.S. casualty reinsurance treaties written on a proportional and excess of loss basis in 2017.
On November 5, 2018, Sirius Group merged (the "Merger") with Easterly Acquisition Corp. ("Easterly") pursuant to a definitive agreement and plan of merger, which resulted in Sirius Group becoming a publicly listed company. Following the Merger, the Company's common shares are traded on the Nasdaq Global Select Market ("Nasdaq") under the symbol "SG."
Competitive Strengths
Sirius Group's management believes that the following competitive strengths position Sirius Group to capitalize on the opportunities presented in the insurance and reinsurance marketplace:

Global Multi‑Line Reinsurer with Proven Track Record and Diversified Book of Business

Sirius Group is a global multi‑line insurance and reinsurance company with a long operating history. Sirius Group writes a diversified book of insurance and reinsurance business across different risk types and geographic locations. As of December 31, 2019, Sirius Group had nearly 2,000 clients in approximately 150 countries with over 8,000 treaties and accounts. The majority of Sirius Group’s business is relatively short‑tailed, though its Specialty & Casualty segment started to underwrite longer-tailed lines of business in 2017. Sirius Group’s management believes diversification is a competitive advantage, which increases return per unit of risk, provides access to risk worldwide and reduces the overall volatility of results. Diversification is also the cornerstone of managing the cyclicality of insurance and reinsurance markets.

History of Long‑Term Customer Relationships

Sirius Group’s global branch network, managed by a long‑tenured and experienced team, has allowed Sirius Group to develop long‑standing, local customer relationships. These strong relationships have allowed Sirius Group’s operating team to profitably navigate through both favorable and unfavorable market conditions. Sirius Group’s global management committee underwriting leaders have an average of approximately 20 years of employment with Sirius Group and 30 years in the insurance and reinsurance industry.


2


Over the years, Sirius Group has developed into a leading reinsurer primarily in Europe but also in the United States and in other parts of the world. Of Sirius Group’s 2019 underwriting year written premiums, 32% are from clients of 20 or more years and 52% are from clients of 10 or more years. Sirius Group’s long‑standing relationships have contributed to its position in its markets that enables it to lead, co‑lead or have influence on prices in 58% of its business (as measured on December 31, 2019), which influences terms and conditions.

Prudent, Disciplined Approach to Risk Management

Sirius Group is guided by its core operating principles and believes that a long‑term commitment to disciplined underwriting and prudent pricing is firmly ingrained in its corporate culture. Sirius Group focuses risk management efforts on ensuring that exposure to potential loss in any business area remains at an acceptable level. Although these efforts include extensive modeling, Sirius Group also evaluates its total limit loss in a particular region to ensure that not only is the probable maximum loss (“PML”) within its tolerance, but the maximum foreseeable loss is as well.

Efficient Capital Deployment and Financial Strength

Sirius Group’s management believes that its long‑standing presence in multiple markets, including North America and Europe, has allowed Sirius Group to deploy its capital in an efficient manner throughout the world. Sirius Group seeks to maintain capital and leverage at levels that support its ratings, and deploys its capital opportunistically across the entire organization. Another important benefit of Sirius Group’s capital structure is the $239 million deferred tax liability on retained earnings in Sirius Group’s Swedish “safety reserve” position as of December 31, 2019. Pursuant to Swedish regulations, all the retained earnings in the safety reserve, including the deferred tax liability, are available to pay claims and deemed to be capital supporting underwriting.

Management’s Extensive Experience

Sirius Group’s executive management team has extensive experience in the insurance and reinsurance industry across operations, strategy and mergers and acquisitions. On average, each team member has 26 years of professional experience. Sirius Group strives to continue to attract and retain exceptional talent by encouraging individual personal development of all its employees and rewarding them for outstanding performance.
Growth Strategy

Sirius Group’s corporate objective is to grow book value per share by maximizing underwriting profits through market cycles while preserving and achieving long‑term growth. Sirius Group intends to pursue this objective with the following strategies:

Maintain Broad Geographic Coverage Across Multiple Lines

Sirius Group intends to leverage its multi‑line offerings across a broad geographic scope to grow its business when appropriate. Sirius Group has had a long‑standing presence in multiple markets and across multiple product categories and has developed long‑term relationships with brokers and ceding companies. Sirius Group seeks to use management’s expertise, experience, and market relationships to identify and underwrite well‑priced risks while delivering innovative risk transfer solutions to customers. Sirius Group believes that its flexibility and expertise in diverse insurance and reinsurance markets will allow it to create a well‑balanced and profitable portfolio of risks across market cycles.

Manage Capital Prudently

Sirius Group actively manages its capital and business profile. Sirius Group strives to underwrite business only when the price and other terms and conditions are attractive. If Sirius Group needs to reduce its business volumes due to overly aggressive competition, it intends to do so, as it has done in the past. The “Reportable Segments” table under “Products and Services” later in this section demonstrates Sirius Group’s opportunistic underwriting approach, whereby Sirius Group has increased and decreased writings in various lines of business commensurate with prevailing market conditions. When appropriate, Sirius Group will consider dedicated pools of outside capital and use of retrocessional coverage.

3



Continue to Identify Opportunistic Acquisitions

Sirius Group has the in‑house mergers and acquisitions capability and experience to source and successfully execute upon attractive opportunities. Sirius Group will continue to evaluate acquisition opportunities and pursue those that meet its strict criteria to generate attractive financial returns. Acquisitions can be in the form of active operations, such as the acquisitions of IMG and Armada, or in the form of run‑off opportunities, which are led by the dedicated team at Sirius Global Solutions. While Sirius Group has an active and ongoing effort to pursue acquisitions, management believes that Sirius Group’s opportunistic and disciplined approach and experience ensures that it will be selective in pursuing transactions. In a given year, Sirius Group may complete several transactions or may not complete any, depending on the quality of opportunities that become available. Sirius Group is optimistic that there will continue to be attractive opportunities in the future.

Maintain a Disciplined Investment Approach

Sirius Group’s investment philosophy is to maximize long‑term total returns (after‑tax) while taking prudent levels of risk and maintaining a diversified portfolio, subject to its investment guidelines and various regulatory restrictions. Under this total return investment approach, gains in market prices of securities are valued equally with yield income.
Insurance and Reinsurance Overview
Products and Services
Sirius Group writes primary insurance and reinsurance business. Sirius Group's primary insurance business is written predominantly by several MGUs in the accident and health space. Sirius Group employs a detailed selection process for these MGU partners, and has narrowly defined underwriting standards in place that are closely monitored by Sirius Group staff. In addition to the day-to-day interactions that Sirius Group has with the MGUs, audits are performed on a regular basis.
Reinsurance is an arrangement in which a reinsurance company (the "reinsurer") agrees to indemnify an insurance company (the "ceding company") for insurance risks underwritten by the ceding company. Reinsurance can benefit a ceding company in a number of ways, including reducing exposure on individual risks, providing catastrophe protections from large or multiple losses, and assisting in maintaining acceptable capital levels as well as financial and operating leverage ratios. Reinsurance can also provide a ceding company with additional underwriting capacity by permitting it to accept larger risks and underwrite a greater number of risks without a corresponding increase in its capital. Reinsurers may also purchase reinsurance, known as retrocessional reinsurance, to cover risks assumed from ceding companies. Reinsurance companies often enter into retrocessional agreements for many of the same reasons that ceding companies enter into reinsurance agreements.
Reinsurance is generally written on a treaty or facultative basis. Treaty reinsurance is an agreement whereby the reinsurer assumes a specified portion or category of risk under all qualifying policies issued by the ceding company during the term of the agreement, usually one year. When underwriting treaty reinsurance, the reinsurer does not evaluate each individual risk and generally accepts the original underwriting decisions made by the ceding company. Facultative reinsurance, on the other hand, is underwritten on a risk-by-risk basis, which allows the reinsurer to determine pricing for each exposure.
Treaty reinsurance is typically written on either a proportional or excess of loss basis. A proportional reinsurance treaty is an arrangement whereby a reinsurer assumes a predetermined proportional share of the premiums and losses generated on specified business. An excess of loss treaty is an arrangement whereby a reinsurer assumes losses that exceed a specific retention of loss by the ceding company.
A significant period of time normally elapses between the receipt of insurance premiums for MGUs and reinsurance premiums from ceding companies and the payment of claims. While premiums are generally paid to the insurer or reinsurer following inception of the underlying coverage, the claims process is delayed and generally begins upon the occurrence of an event causing an insured loss followed by: (i) the reporting of the loss by the insured to its broker or agent; (ii) the reporting by the broker or agent to the MGU or ceding company; (iii) the reporting by the ceding company to its reinsurance intermediary or agent; (iv) the reporting by the reinsurance intermediary or agent to the reinsurer; (v) the MGUs or ceding company's adjustment and payment of the loss; and (vi) the payment to the MGU or ceding company by the reinsurer. During this time, the insurer or reinsurer invests the premiums, earns investment income, and generates net realized and unrealized investment gains and losses on investments.

4


Reportable Segments
During 2019, we classified our business into four reportable segments: Global Property, Global A&H, Specialty & Casualty, and Runoff & Other. The following discussion summarizes the business written by each of Sirius Group's segments.
Global Property
Global Property consists of Sirius Group's underwriting lines of business which offer other property insurance and reinsurance, property catastrophe excess reinsurance, and agriculture reinsurance on a worldwide basis. The following provides details of Global Property by product line:
Other Property Insurance and Reinsurance—Sirius Group participates in the broker market for property reinsurance treaties written on a proportional and excess of loss basis. For Sirius Group's international business, the book consists of treaty, written on both a proportional and excess of loss basis, facultative, and primary business, primarily in Europe, Asia and Latin America. In the United States, the book predominantly centers on significant participations on proportional and excess of loss treaties mostly in the excess and surplus lines of the market.
Property Catastrophe Excess Reinsurance—Property catastrophe excess of loss reinsurance treaties covers losses from catastrophic events. Sirius Group writes a worldwide book with the largest concentration of exposure in Europe and the United States. The U.S. book has a national account focus supporting principally the lower and/or middle layers of large capacity programs and also consists of select small regional and standard lines carriers. The exposures written in the international book are diversified across many countries, regions, perils and layers.
Agriculture—Sirius Group provides stop-loss reinsurance coverage to companies writing U.S. government-sponsored multi-peril crop insurance ("MPCI"). Sirius Group's participation is net of the government's stop-loss reinsurance protection. Sirius Group also provides coverage for crop-hail and certain named perils when bundled with MPCI business. Sirius Group also writes agriculture business outside of the United States.
Global A&H
The Global A&H operating segment consists of Sirius Group's insurance, reinsurance, and MGUs units (which include Armada and IMG) that offer accident and health products on a worldwide basis:
Accident and Health insurance and reinsurance—Sirius Group is an insurer of accident and health insurance business in the United States, either on an admitted or surplus lines basis, as well as international business written through wholly-owned IMG. Armada business is written on an admitted basis. Sirius Group also writes proportional and excess reinsurance treaties covering employer medical stop-loss for per person (specific) and per employer (aggregate) exposures. In addition, Sirius Group writes some medical, health, travel and personal accident coverages written on a treaty, facultative, and primary basis.
Specialty & Casualty
Specialty & Casualty consists of Sirius Group's insurance and reinsurance underwriting units which offer specialty & casualty product lines on a worldwide basis. Specialty lines represent unique risks where the more difficult and unusual risks are underwritten, and much of the market is characterized by a high degree of specialization. The following provides details of Specialty & Casualty by product line:
Aviation & Space—provides aviation insurance that covers loss of or damage to an aircraft and the aircraft operations' liability to passengers, cargo and hull as well as to third parties. Additionally, liability arising out of non-aircraft operations such as hangars, airports and aircraft products can be covered. Space insurance primarily covers loss of or damage to a satellite during launch and in orbit. The book consists of treaty, written on both a proportional and excess of loss basis, facultative, and primary business.
Marine—provides marine reinsurance, primarily written on an excess of loss and proportional basis. Coverage offered includes damage to ships and goods in transit, marine liability lines, and offshore energy industry insurance. Sirius Group also writes yacht business, both on reinsurance and a primary basis. The marine portfolio is diversified across many countries and regions. Starting in 2018, Sirius Group decided not to renew the book written in Sirius International's London office due to underwriting performance.
Trade credit—writes credit and bond reinsurance worldwide. The bulk of the business is traditional short-term commercial credit insurance, covering pre-agreed domestic and export sales of goods and services with typical coverage periods of 60 to 120 days. Losses under these policies are correlated to adverse changes in a respective country's gross national product.

5


Contingency—writes insurance for event cancellation and non-appearance, primarily on a primary policy and facultative reinsurance basis. Additionally, coverage for liabilities arising from contractual bonus, prize redemption and over-redemption is also offered. The contingency portfolio is diversified across many countries and regions. In August 2018, Sirius Group decided not to renew the book written in Sirius International's London office due to underwriting performance.
Casualty—represents a cross section of all casualty lines, including general liability, umbrella, auto, workers compensation, professional liability, and other specialty classes, written on a proportional, excess of loss, and primary basis.
Surety—underwrites commercial surety bonds, including non-construction contract bonds, in a broad range of business segments in the U.S.
Environmental—underwrites a pure environmental insurance book in the U.S. consisting of four core products that revolve around pollution coverage, which are premises pollution liability, contractor's pollution liability, contractor's pollution and professional liability.
Runoff & Other
Runoff & Other consists of asbestos risks, environmental risks and other long-tailed liability exposures, and results from Sirius Global Solutions, including the acquisition and management of runoff liabilities for insurance and reinsurance companies, both in the United States and internationally.
Gross and Net Written Premiums – Reportable Segments
The following table sets forth Sirius Group's gross written premiums for the years ended December 31, 2019, 2018, and 2017:
(Millions)
2019
2018
2017
Other Property
$
476.5

$
623.0

$
405.2

Property Catastrophe Excess
301.9

275.3

255.3

Agriculture
70.0

64.1

71.6

Global Property
848.4

962.4

732.1

Global Accident & Health
593.4

500.6

494.6

Casualty Reinsurance
203.9

131.9

38.2

Aviation & Space
95.1

72.5

65.7

Trade Credit
53.7

48.1

39.7

Primary Workers Compensation
37.7

4.5


Marine
31.5

34.7

56.1

Environmental
20.5

10.1


Surety
9.3

6.7


Contingency
5.0

16.6

18.4

Specialty & Casualty
456.7

325.1

218.1

Runoff & Other
4.2

32.9

(5.5
)
Total
$
1,902.7

$
1,821.0

$
1,439.3


6


The following table sets forth Sirius Group's net written premiums for the years ended December 31, 2019, 2018, and 2017:
(Millions)
2019
2018
2017
Other Property
$
337.1

$
414.9

$
323.2

Property Catastrophe Excess
219.9

177.8

163.9

Agriculture
68.7

62.3

69.1

Global Property
625.7

655.0

556.2

Global Accident & Health
458.1

379.8

341.5

Casualty Reinsurance
203.9

131.9

38.2

Aviation & Space
76.6

61.9

55.0

Trade Credit
53.1

45.4

37.3

Primary Workers Compensation
36.8

4.5


Marine
23.2

26.4

47.9

Environmental
10.2

5.1


Surety
8.3

5.4


Contingency
4.2

12.1

14.6

Specialty & Casualty
416.3

292.7

193.0

Runoff & Other
2.5

29.6

(0.5
)
Total
$
1,502.6

$
1,357.1

$
1,090.2

For the years ended December 31, 2019, 2018, and 2017, 76%, 76%, and 74%, respectively, of Sirius Group's net written premiums were for reinsurance products, with the remainder for insurance products.
Diversification by Geography
Sirius Group's net written premiums are geographically diversified across the world. The following table shows Sirius Group's net written premiums by geographic region based on client location for the years ended December 31, 2019, 2018, and 2017:
(Millions)
2019
2018
2017
United States
$
922.3

$
794.7

$
563.1

Europe
268.9

276.5

262.3

Canada, the Caribbean, Bermuda and Latin America
102.5

103.6

111.4

Asia and Other
208.9

182.3

153.4

Total
$
1,502.6

$
1,357.1

$
1,090.2

Marketing and Distribution
For reinsurance business, Sirius Group obtains most of its submissions from reinsurance intermediaries that represent the ceding company. The process of placing an intermediary reinsurance program typically begins when a ceding company enlists the aid of a reinsurance intermediary in structuring a reinsurance program. The ceding company and the reinsurance intermediary will often consult with one or more lead reinsurers as to the pricing and contract terms for the reinsurance protection being sought. Once the ceding company has approved the terms quoted by the lead reinsurer, the reinsurance intermediary will offer participation to qualified reinsurers until the program is fully subscribed. Sirius Group considers both the reinsurance intermediary and the ceding company to be its clients. Sirius Group believes it has developed strong business relationships over a long period of time with the management of many of its ceding companies and reinsurance intermediaries.
Sirius Group pays ceding companies a ceding commission under most proportional reinsurance treaties and some excess of loss reinsurance treaties. The ceding commission is generally based on the ceding company's cost of acquiring and administering the business being reinsured (e.g., agent commissions, premium taxes and certain miscellaneous expenses). The ceding commissions paid to ceding companies constitute the majority of Sirius Group's total acquisition costs. Additionally, Sirius Group pays reinsurance intermediaries commissions based on negotiated percentages of the premium they produce on a per treaty or certificate basis.

7


For primary insurance business, mostly Global A&H, Sirius Group enters into agreements with select MGUs, who then market Sirius Group's insurance products to the general public and have underwriting authority on its behalf. Sirius Group has narrowly defined underwriting standards in place for these MGUs that are closely monitored by Sirius Group staff. Sirius Group pays certain MGUs profit commissions based upon the underwriting profit business produced. In addition to the day-to-day interactions that Sirius Group has with its MGUs, audits are performed on a regular basis. These high-retention, long-term partnerships generate significant premium, and create alignment with the MGUs as they retain a share of underwriting results.
During the years ended December 31, 2019, 2018, and 2017, Sirius Group received gross written premiums from four major, third-party insurance and reinsurance intermediaries as detailed in the following table:
Gross written premium by intermediary
2019
2018
2017
AON Corporation and subsidiaries
24%
26%
22%
Guy Carpenter & Company and subsidiaries
24%
26%
25%
WT Butler and Co. Ltd.
11%
10%
10%
Willis Towers Watson plc and subsidiaries
10%
8%
8%
Total
69%
70%
65%
Policies with Respect to Certain Activities
The following is a discussion of our underwriting and pricing, claims management, catastrophe risk management, and reinsurance protection policies.
Underwriting and Pricing
Sirius Group seeks to maintain a disciplined underwriting strategy which, while considering overall exposure, focuses on writing more business when market terms and conditions are favorable and reducing business volume during soft markets when terms and conditions become less favorable. Sirius Group offers clients a wide range of insurance and reinsurance products across multiple lines of business to satisfy risk management needs.
Sirius Group derives its reinsurance business from a broad spectrum of ceding companies, including national, regional, specialty, and excess and surplus lines writers, both internationally and in the United States. Sirius Group derives its primary insurance business mostly for Global A&H through several MGUs, which source business internationally and in the United States. Sirius Group prices its products by assessing the desired return on the expected capital needed to write a given contract and on the expected underwriting results of the contract. Sirius Group's pricing indications are based on a number of underwriting factors including historical results, analysis of exposure and estimates of future loss costs, a review of other programs displaying similar exposure characteristics and the MGUs or ceding company's underwriting and claims experience. Additionally, in the United States, Sirius Group's underwriters, actuaries and claims personnel perform audits of all MGUs and certain ceding companies. Generally, ceding company audits are not customary outside the United States.
Reinsurers do not have the stringent regulations with respect to contract terms and policy exclusions that are generally imposed on primary insurers. For example, the Terrorism Risk Insurance Act in the United States is not applicable to reinsurers. As a result, terrorism exclusions on reinsurance contracts are dictated by the marketplace. Sirius Group evaluates terrorism exposure from its ceding companies and applies exclusions as it deems appropriate and as permitted by market conditions. Reinsurance on U.S. commercial risks written by Sirius Group subsequent to the terrorist acts of September 11, 2001 generally contains clauses that exclude acts of terrorism certified under the Terrorism Risk Insurance Act. Reinsurance on personal risks written by Sirius Group subsequent to the terrorist acts of September 11, 2001 generally contains exclusions related to nuclear, biological, radiological and chemical attacks.
Claims Management
Sirius Group maintains a staff of experienced insurance and reinsurance claim specialists. Sirius Group's claims specialists work closely with reinsurance intermediaries, MGUs and insureds to obtain specific claims information on reported matters to properly adjust and resolve each matter. Where customary or appropriate, Sirius Group's claims staff performs selective on-site claim reviews to assess an MGU's claim handling abilities and, where customary or appropriate, a ceding company's claim handling abilities and reserve techniques. In addition, Sirius Group's claims specialists review loss information provided by ceding companies and MGUs for adequacy and accuracy. The results of these claim reviews are shared with the underwriters and actuaries to assist them in pricing products and establishing loss reserves.

8


Sirius Group also uses third-party administrators ("TPAs") for certain claims, including claims arising from certain Runoff & Other claims related to certain acquired companies. Sirius Group's claims staff performs on-site claim audits of certain TPAs to ensure the propriety of the controls and processes over claims serviced by the TPAs.
Catastrophe Risk Management
Sirius Group has exposure to catastrophe losses, mostly for Global Property, caused by hurricanes, earthquakes, tornadoes, winter storms, windstorms, floods, tsunamis, terrorist acts and other catastrophic events. In the normal course of business, Sirius Group regularly manages its concentration of exposures to catastrophic events, primarily by limiting concentrations of exposure to what it deems acceptable levels and, if necessary, purchasing reinsurance. In addition, Sirius Group seeks to limit losses that might arise from other extreme events such as terrorism, cyber or nuclear incidents, in its insurance and reinsurance contracts by exclusionary provisions where available. Sirius Group has significant exposure to windstorm, earthquake, wildfire, and flood events across the globe, primarily in North America, Europe, Asia (including Japan), Oceania, and Latin America.
Sirius Group licenses third-party global property catastrophe models from two of the leading vendors of industry-standard catastrophe modeling software, and also utilizes its own proprietary models to calculate expected PML estimates from various property natural catastrophe scenarios. Sirius Group prices its property catastrophe contracts using the aforementioned third-party software and internal models and other methods. Sirius Group also uses a proprietary property underwriting and pricing tool, referred to as "GPI", which consolidates and reports on all its worldwide property exposures. GPI is used to calculate individual and aggregate PMLs by combining multiple third-party and proprietary models, actuarial methods, and underwriting judgement. For business that Sirius Group determines to have exposure to natural catastrophic perils, it models and assesses the exposure to quantify the appropriate premium for the exposure as part of its underwriting process. This includes property, accident and health, marine, and casualty exposures.
The following table provides an estimate of Sirius Group's three largest PML zones on a per occurrence basis for 1-in-100 and 1-in-250 year events as of January 1, 2020 as measured by net after-tax exposure.
 
 
 
 
 
 
 
 
Sirius Group Net After-Tax Loss
(Millions)
 
Modelled
Industry
Loss
 
Sirius
Group
Gross Loss
 
Net After
Reinsurance
and
Reinstatements
 
Net
After-
Tax
 
Net After-
Tax
as % of
Total Capital (1)
 
Net After-Tax
as % of
Common
Shareholders'
Equity (1)
 
 
 
 
 
 
1-in-100 year event
 
 
 
 
Southeast U.S.
 
$
117,292.3

 
$
397.3

 
$
281.6

 
$
256.9

 
10.1
%
 
15.7
%
West Coast U.S.
 
38,952.9

 
380.0

 
233.8

 
212.9

 
8.4
%
 
13.0
%
Europe
 
38,449.1

 
486.0

 
224.3

 
185.8

 
7.3
%
 
11.3
%
 
 
 
 
 
 
1-in-250 year event
 
 
 
 
Southeast U.S.
 
$
187,501.2

 
$
580.7

 
$
414.1

 
$
376.2

 
14.8
%
 
22.9
%
West Coast U.S.
 
68,487.3

 
572.5

 
379.9

 
344.3

 
13.5
%
 
21.0
%
Europe
 
56,575.9

 
611.3

 
278.5

 
232.2

 
9.1
%
 
14.2
%
(1)Total Capital and Common Shareholders' Equity as of December 31, 2019. Total Capital represents total debt, Series B preference shares, and Common Shareholders' Equity.
The proprietary GPI platform allows Sirius Group to choose either a third-party catastrophe modeling software or an internally developed model for PML reporting within each area and peril. The choice is based on a scientific, actuarial and underwriting assessment of the quality of the model by territory. If a third-party model is deemed to be qualitative overall but less strong in certain regards, Sirius Group may impose modifications on the model to mitigate any weaknesses. The third-party catastrophe modeling software provides new versions of their models on a periodic basis, usually annually for peak exposure zones. Sirius Group may implement these new versions for use in the underwriting and risk management process after having engaged in appropriate testing and achieving comfort with the model enhancements.
With GPI, the view of risk for each treaty can be further adjusted based on underwriting judgment regarding the specific exposures underlying each cedent's portfolio. This yields a final view of risk for each cedent. This view of risk is aggregated across Sirius Group's portfolio to an aggregated, simulated dataset from which PML estimates and any other portfolio metrics can be extracted.

9


Catastrophe modeling is dependent upon several broad scientific and economic assumptions. This includes fundamental assumptions on hazard frequency and intensity, assumptions on the vulnerability of different risks depending on their occupancy and building characteristics, assumptions on replacement values as well as assumptions on economic factors such as demand surge (the localized increase in prices of goods and services that often follows a catastrophe). Catastrophe modeling is inherently uncertain due to the significant uncertainties involved in estimating and quantifying these assumptions. Third-party modeling software does not provide information for all territories or perils for which Sirius Group writes business. Sirius Group uses its own proprietary models in these situations.
Sirius Group does not believe that it can rely solely upon catastrophe modeling to measure its exposure to natural catastrophe risk. For example, the losses arising from Hurricane Katrina for both Sirius Group and the industry were substantially in excess of losses previously predicted by third-party models from such an event. This was due to issues such as inadequate storm surge and demand surge assumptions in the models, as well as flooding from levees breaking, which was not fully contemplated in these models. Sirius Group monitors gross and net property catastrophe occurrence limits by country and region globally. Further, losses to a number of deterministic scenarios involving both natural and man-made catastrophes are estimated and tracked.
Reinsurance Protection
In the normal course of business, Sirius Group seeks to protect its business from losses due to concentration of risk and loss arising from catastrophic events by reinsuring with third-party reinsurers. Sirius Group remains liable for risks reinsured in the event that the reinsurer does not honor its obligations under reinsurance contracts. The effects of reinsurance on Sirius Group's written and earned premiums and on losses and loss adjustment expenses ("LAE") for the years ended December 31, 2019, 2018, and 2017 were as follows:
(Millions)
2019
2018
2017
Written premiums:
 
 
 
Direct
$
511.2

$
454.5

$
450.2

Assumed
1,391.5

1,366.5

989.1

Gross written premiums
1,902.7

1,821.0

1,439.3

Ceded
(400.1
)
(463.9
)
(349.1
)
Net written premiums
$
1,502.6

$
1,357.1

$
1,090.2

Earned premiums:
 
 
 
Direct
$
481.0

$
432.6

$
405.7

Assumed
1,357.7

1,236.2

942.2

Gross earned premiums
1,838.7

1,668.8

1,347.9

Ceded
(397.1
)
(406.5
)
(312.6
)
Net earned premiums
$
1,441.6

$
1,262.3

$
1,035.3

Losses and LAE:
 
 
 
Direct
$
316.3

$
260.5

$
294.9

Assumed
1,111.4

819.1

701.3

Gross losses and LAE
1,427.7

1,079.6

996.2

Ceded
(257.4
)
(179.6
)
(185.0
)
Net losses and LAE
$
1,170.3

$
900.0

$
811.2

Sirius Group's reinsurance protection primarily consists of pro-rata and excess of loss protections that protect all of its reportable segments. Attachment points and coverage limits vary by region around the world. Protections by reportable segment are listed below.
Global Property
Sirius Group's core proportional property reinsurance programs provide protection for parts of the non proportional treaty accounts written in Europe, the Americas, Caribbean, Asia, the Middle East, and Australia. These reinsurance protections are designed to increase underwriting capacity where appropriate, and to reduce exposure both to large catastrophe losses and to a frequency of smaller loss events.

10


Sirius Group has in place excess of loss retrocessional coverage for its worldwide earthquake related exposures. This coverage was renewed for one year at June 1, 2019, providing 50% of $40.0 million of reinsurance protection in excess of Sirius Group's retention of $35.0 million and a further of 100% of $35.0 million of coverage in excess of $75.0 million.
Sirius Group periodically purchases industry loss warranties ("ILW") contracts to augment its overall retrocessional program. The following ILW contracts are currently in force:
Scope
Limit

Trigger

Expiration Date
United States excluding North East, all natural perils

$5.0
 million

$40.0
 billion
July 5, 2020
Sirius Group also purchases excess of loss reinsurance protection for its facultative and primary insurance property books. Almost all of Sirius Group's excess of loss reinsurance protections, excluding ILWs which tend to only cover one loss event, include provisions that reinstate coverage at a cost of 100% or more of the original reinsurance premium.
Global A&H
Sirius Group has excess of loss protection covering its personal accident and life accounts written in the Stockholm, Hamburg, Liege, and Singapore branches. For primary insurance, there are account‑specific quota share and stop‑loss reinsurance protections in place of various percentages for the medical benefits and student health business. In addition to these primary insurance protections, there is an excess of loss protection of unlimited dollars in excess of $1.5 million (per person) in place.
Specialty & Casualty
The Aviation & Space reinsurance program is intended to reduce exposure to a frequency of small losses, a single large loss, or a combination of both. For the proportional and facultative aviation book, reinsurance protection purchased is geared to cover losses from events that cause a market loss in excess of $150.0 million up to a full policy limit of $2.0 billion. This program is in place through October 2020. For the non‑proportional book, reinsurance protection includes a 12.5% quota share treaty. In addition, the non‑proportional book is protected by ILWs totaling limits of $27.5 million. The ILWs attach at industry loss levels between $400.0 million and $800.0 million.
Other lines of business within the Specialty & Casualty segment are protected through various quota share and excess of loss protections.
Runoff & Other
Within the Runoff & Other segment, there are multiple reinsurance protections in place, primarily excess of loss protections.
Reinsurance Recoverables by Rating
As of December 31, 2019, Sirius Group had reinsurance recoverables on paid losses of $74 million and reinsurance recoverables of $410 million on unpaid losses. As of December 31, 2018, Sirius Group had reinsurance recoverables on paid losses of $55 million and reinsurance recoverables of $350 million on unpaid losses. Because retrocessional reinsurance contracts do not relieve Sirius Group of its obligation to its insureds, the ability to collect balances due from Sirius Group's reinsurers is important to its financial strength. Sirius Group monitors the financial strength and ratings of retrocessionaires on an ongoing basis. Uncollectible amounts historically have not been significant.

11


The following table provides a listing of Sirius Group's gross and net recoverable amounts by the reinsurer's Standard & Poor's Financial Services LLC ("Standard & Poor's") rating and the percentage of total recoverables as of December 31, 2019. With certain reinsurers, if Standard & Poor's rating was not available, an A.M. Best rating was used.
 
December 31, 2019
Rating(1)
Gross

Collateral

Net

% of Net
Total

AAA
$
3.4

$

$
3.4

1
%
AA
117.2

14.3

102.9

42
%
A
301.8

195.6

106.2

43
%
BBB or lower
14.9

13.7

1.2

1
%
Not rated
46.9

13.4

33.5

13
%
Total
$
484.2

$
237.0

$
247.2

100
%
(1)Standard & Poor's ratings as detailed above are: "AAA" (Extremely Strong), "AA" (Very strong), "A" (Strong), and "BBB" (Adequate).
Loss and LAE Reserves
Sirius Group establishes loss and LAE reserves that are estimates of future amounts needed to pay claims and related expenses for events that have already occurred. The process of estimating reserves involves a considerable degree of judgment by management and, as of any given date, is inherently uncertain. See Note 2 "Summary of Significant Accounting Policies—Significant Accounting Policies" in Sirius Group's audited financial statements and "Summary of Critical Accounting Estimates" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Annual Report on Form 10-K for a further discussion of loss and LAE reserves.
Sirius Group's net incurred losses from asbestos and environmental ("A&E") claims have totaled $166 million over the past ten years. Sirius Group's A&E exposure is primarily from reinsurance contracts written between 1974 through 1985 by acquired companies. The exposures are mostly higher layer excess of loss treaty and facultative coverages with relatively low limits exposed for each claim. The acquisition of companies having modest portfolios of A&E exposure has been typical of several prior Sirius Global Solutions transactions and is likely to be an element of at least some future acquisitions. However, the acquisition of new A&E liabilities is undertaken only after careful due diligence and utilizing conservative reserving assumptions in relation to industry benchmarks. In the case of portfolios acquired previously, the exposures arise almost entirely from old assumed reinsurance contracts having small limits of liability. See Note 5 "Reserves for Unpaid Losses and Loss Adjustment Expenses—Asbestos and Environmental Loss and Loss Adjustment Expense Reserve Activity" in Sirius Group's audited financial statements included elsewhere in this Annual Report on Form 10-K.
Investments
Sirius Group's investment objective is to maximize the total return, including yield income and gains and losses, over the long term, without assuming risk to a degree which could jeopardize the vitality of Sirius Group's insurance franchise. This objective and associated policies and guidelines ("Investment Policy") are established by the Finance Committee of the Sirius Group Board of Directors. Certain relevant subsidiaries also approve policies and guidelines substantially similar to, and consistent with, the Sirius Group Investment Policy.
Sirius Group operates its investment portfolio in a way that would allow it to demonstrate to internal and external constituents that it is able, and will remain able, to pay insurance claims during, and after, periods of extreme volatility to its enterprise-whether such volatility arises from within its insurance business operations or investment portfolio. Such constituents include numerous regulatory regimes, rating agencies, shareholders and Sirius Group's risk management framework.
The Investment Policy provides a cohesive framework to mitigate risk and prescribes a number of thresholds under which the portfolio is intended to operate. The group is expected to hold cash and fixed income investments that amount to no less than 100% of policyholder liabilities. Investable assets in excess of policyholder liabilities and liquidity needs are available to be invested in equity securities, funds, direct investments and other long-term investments.

12


Sirius Group operates subsidiaries and branches located throughout the world. Its global footprint requires Sirius Group to transact in numerous currencies. Where practical, Sirius Group aims to generally match material liabilities with assets and in many cases investable assets. From time to time, Sirius Group may utilize third party tools such as currency forwards or swaps to mitigate unmatched exposure or may choose to leave such exposure unmatched. Sirius Group does not apply hedge accounting to currency swaps or forwards.
See Note 2 "Summary of Significant Accounting Policies—Significant Accounting Policies" and Note 8 "Investment securities," in Sirius Group's audited financial statements as well as "Summary of Investment Results" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this Annual Report on Form 10-K for a further discussion of investments.
Competition and Peers
The worldwide insurance and reinsurance markets are highly competitive. Competition is influenced by a variety of factors, including price charged and other terms and conditions offered, financial strength ratings, prior history and relationships, as well as expertise and the speed at which the company has historically paid claims.
Sirius Group competes for business in Europe, Bermuda, the United States and other international markets with numerous global competitors. Its competitors include other insurance and reinsurance companies and underwriting syndicates at Lloyd's of London, as well as London Market Companies. Some of the companies that Sirius Group competes with directly include Alleghany Corporation, Arch Capital Group Ltd., Axis Capital Holdings Ltd., Everest Re Group, Ltd., General Reinsurance Corporation, Greenlight Capital Re, Ltd., Hannover Ruckversicherung AG, Munich Re Group, Odyssey Re Holdings Corp., PartnerRe Ltd., RenaissanceRe Holdings Ltd., Scor Global P&C, Swiss Re Group and Third Point Reinsurance Ltd. While some of these competitors have greater revenue and shareholders' equity than Sirius Group, management believes that Sirius Group is well-suited to compete against its peers.
In addition, in recent years the persistent low interest rate environment and ease of entry into the reinsurance sector has led to increased competition from non-traditional sources of capital, such as insurance-linked funds or collateralized special purpose insurers, predominantly in the property catastrophe excess reinsurance market. This alternative capital provides collateralized property catastrophe protection in the form of catastrophe bonds, industry loss warranties and other risk-linked products that facilitate the ability for non-reinsurance entities, such as hedge funds and pension funds, to compete for property catastrophe excess reinsurance business outside of the traditional treaty market. As a result, Sirius Group has observed reduced pricing and/or reduced shares in certain property catastrophe excess markets, as well as certain other markets.
Seasonality
Sirius Group's segments experience some seasonality with regard to quarterly recognition of premiums written, which are generally highest in the first quarter and lowest during the fourth quarter. We expect this trend to continue in the future.
Regulation
The business of insurance and reinsurance is regulated in all countries in which Sirius Group operates, although the degree and type of regulation varies from one jurisdiction to another. As a holding company, Sirius Group is generally not directly subject to such regulations, but its various insurance and reinsurance operating subsidiaries are subject to regulation. The following describes the current material regulations under which the Company operates.
Bermuda Insurance Regulation
Insurance Regulation Generally
Our Bermuda insurance operating subsidiary and other Bermuda operating companies are subject to the Insurance Act 1978 of Bermuda and related regulations, as amended (the "Insurance Act"). The Insurance Act imposes solvency and liquidity standards on Bermuda insurance companies, as well as auditing and reporting requirements and grants the BMA powers to supervise, investigate, require information and demand the production of documents and intervene in the affairs of insurance companies.

13


The BMA acts as the group supervisor for Sirius Group and has designated Sirius Bermuda, a Class 4 licensed Bermuda-based reinsurance company, which is the most strictly regulated insurance classification, as the designated insurer for group supervisory and solvency purposes ("Designated Insurer"). Therefore, Sirius Group is subject to the BMA's group supervision and solvency rules which cover assessing the financial situation and solvency position of Sirius Group and regulating intra-Group transactions, risk concentration, governance procedures, risk management and regulatory reporting and disclosure. See "—Regulatory Group Supervision" below for further discussion.
Principal Representative
As a Class 4 insurer, Sirius Bermuda is required to maintain a principal office and to appoint and maintain a principal representative in Bermuda. It is the duty of the principal representative to notify the BMA if there is a likelihood of the insurer becoming insolvent, or upon becoming aware that a reportable "event" has occurred, or is believed to have occurred. Examples of a reportable "event" include a failure by the insurer to comply substantially with a condition imposed upon it by the BMA relating to its solvency position, governance and risk management or supervisory reporting and disclosures, a significant loss reasonably likely to cause the insurer to fail to comply with its enhanced capital requirement (discussed below) and the occurrence of a "material change" (as such term is defined under the Insurance Act) in its business operations.
Loss Reserve Specialist
As a Class 4 insurer, Sirius Bermuda is required to appoint a qualified individual approved by the BMA to be its loss reserve specialist, and is required to submit annually an opinion of its loss reserve specialist with its capital and solvency return in respect of its total general business insurance technical provisions (i.e. the aggregate of its net premium provisions, net loss and loss expense provisions and risk margin, as each is reported in the insurer's statutory economic balance sheet). The loss reserve specialist's opinion must state, among other things, whether or not the aggregate amount of technical provisions shown in the statutory economic balance sheet as at the end of the relevant financial year (i) meets the requirements of the Insurance Act and (ii) makes reasonable provision for the total technical provisions of the insurer under the terms of its insurance contracts and agreements. In order to comply with this requirement, Sirius Bermuda has appointed an independent loss reserve specialist to provide the opinion described above with Sirius Bermuda's annual capital and solvency return.
Annual Statutory Financial Statements
As a Class 4 insurer, Sirius Bermuda is required to file with the BMA a statutory financial return no later than four months after its financial year end. The statutory financial return includes, among other matters, the statutory financial statements and the calculations for the Class 4 insurer's minimum solvency margin and liquidity ratio.
In addition, each year Sirius Bermuda is required to file with the BMA a capital and solvency return. As required by the Insurance Act, Sirius Group has published on its website its financial condition report as of December 31, 2018 which contains the minimum solvency margin and enhanced capital requirement of Sirius Group together with those of its Bermudian subsidiaries including Sirius Bermuda.
At the time of filing its statutory financial statements, Sirius Bermuda is also required to deliver to the BMA a declaration of compliance, with respect to the preceding financial year as to (i) compliance with all requirements of the minimum criteria applicable to it; (ii) compliance with the minimum margin of solvency as at its financial year end; (iii) compliance with the applicable enhanced capital requirements as at its financial year end; and (iv) compliance with any limitations, restrictions or conditions imposed upon issuance of its license, if applicable.
Minimum Liquidity Ratio
The Insurance Act provides a minimum liquidity ratio for general business insurers. A Class 4 insurer engaged in general business is required to maintain the value of its relevant assets at not less than 75% of the amount of its relevant liabilities, as reported in the statutory financial return.
Minimum Solvency Margin and Enhanced Capital Requirements
Sirius Bermuda is required to maintain available statutory economic capital and surplus at a level equal to or in excess of its enhanced capital requirement ("ECR"), which is established by reference to either a model based on the BMA's prescribed form of capital and solvency return (known as the Bermuda Solvency Capital Requirement or "BSCR") or an approved internal capital model.

14


The BSCR model is a risk-based capital model which provides a method for determining a Class 4 insurer's capital requirements (statutory economic capital and surplus) by taking into account the risk characteristics of different aspects of the Class 4 insurer's business. The BMA has also established a target capital level ("TCL") for each Class 4 insurer equal to 120% of its ECR. The TCL serves as an early warning tool for the BMA, and failure to maintain statutory capital at least equal to the TCL will likely result in increased regulatory oversight.
A Class 4 insurer is required to have general business assets that exceed the value of its general business liabilities by an amount prescribed by the Insurance Act, as its Minimum Solvency Margin ("MSM"). The MSM that a Class 4 insurer is required to maintain with respect to its general business is the greater of (i) U.S. $100 million, or (ii) 50% of net premiums written (with a credit for reinsurance ceded not exceeding 25% of gross premiums), or (iii) 15% of the aggregate of net loss and loss expense provisions and other reinsurance reserves, or (iv) 25% of the ECR as reported at the end of the relevant year.
Eligible Capital
A Class 4 insurer is required to disclose the makeup of its capital in accordance with the "3-tiered eligible capital system". Under this system, all of the Class 4 insurer's capital instruments will be classified as either basic or ancillary capital which in turn will be classified into one of three tiers based on their "loss absorbency" characteristics. Highest quality capital will be classified as Tier 1 Capital, and lesser quality capital will be classified as either Tier 2 Capital or Tier 3 Capital. Under this regime, up to certain specified percentages of Tier 1, Tier 2 and Tier 3 Capital may be used to support the Class 4 insurer's MSM, ECR and TCL.
Non-insurance Business
As a Class 4 insurer, Sirius Bermuda may not engage in non-insurance business, unless that non-insurance business is ancillary to its core business. Non-insurance business means any business other than insurance business and includes carrying on investment business, managing an investment fund as operator, carrying on business as a fund administrator, carrying on banking business, underwriting debt or securities or otherwise engaging in investment banking, engaging in commercial or industrial activities and carrying on the business of management, sales or leasing of real property.
Code of Conduct
The Insurance Code of Conduct (the "Code of Conduct") prescribes the duties, standards, procedures and sound business principles that must be complied with by all insurers registered under the Insurance Act. The BMA will assess an insurer's compliance with the Code of Conduct in a proportional manner relative to the nature, scale and complexity of its business.
Cancellation of Insurer's Registration
An insurer's registration may be cancelled by the BMA at the request of the insurer or on certain grounds specified in the Insurance Act. For example, such grounds include a failure by the insurer to comply with its obligations under the Insurance Act or where the BMA believes that the insurer has not been carrying on business in accordance with sound insurance principles.
Restrictions on Dividends and Distributions
A Class 4 insurer is prohibited from declaring or paying a dividend if it is in breach of its MSM, ECR or minimum liquidity ratio, or if the declaration or payment of such dividend would cause such a breach. Where an insurer fails to meet its MSM or minimum liquidity ratio on the last day of any financial year, it will be prohibited from declaring or paying any dividends during the next financial year without the approval of the BMA.
In addition, a Class 4 insurer is prohibited from declaring or paying in any financial year dividends of more than 25% of its total statutory capital and surplus (as shown on its previous financial year's statutory balance sheet) unless it files with the BMA an affidavit signed by at least two directors and the principal representative stating that it will continue to meet its solvency margin and minimum liquidity ratio.

15


On May 3, 2019, in connection with certain public announcements relating to defaults and cross-defaults on certain bonds and other debt obligations issued by certain subsidiaries of China Minsheng Investment Group Corp., Ltd. ("CMIG" and, such defaults, the "CMIG Defaults"), which is the ultimate parent company of CMIG International, Sirius Bermuda and Sirius Group entered into a voluntary undertaking with the BMA to provide further comfort to the BMA as the group supervisor of Sirius Group and primary regulator of Sirius Bermuda, the designated insurer for group supervisory purposes, regarding the potential risks to Sirius Group in connection with the CMIG Defaults. Pursuant to the voluntary undertaking, each of Sirius Group and Sirius Bermuda have agreed, until May 3, 2020, to (a) provide ten days prior written notice to the BMA prior to declaring any dividend or capital distribution, which notice shall include an affidavit confirming that the declaration and payment of such dividend would not be in breach of (i) in the case of Sirius Bermuda, after the payment of a dividend, the requirement (x) to be able to pay its liabilities as they become due or (y) that its assets be greater than its liabilities, (ii) the minimum liquidity ratio in the case of Sirius Bermuda; and (iii) the TCL of 120% of the ECR for Sirius Group and Sirius Bermuda, and a summary description of the use proceeds from such declaration or dividend or capital distribution within Sirius Group or Sirius Bermuda, among other undertakings; (b) not enter into any guarantees, keepwells, loans or other financial arrangements between Sirius Group and CMIG, or provide any credit support with respect to any obligations of CMIG; and (c) not enter into any related party transaction with CMIG. For additional details, see "Risk Factors—Sirius Group has become aware of recent announcements by CMIG regarding the CMIG Defaults. The CMIG Defaults may have financial, legal, regulatory, contractual and other implications that could have a material adverse effect on Sirius Group's business, prospects, financial condition, results from operations, liquidity, and share price" and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Dividend Capacity" included elsewhere in this Annual Report on Form 10-K.
Reduction of Capital
No Class 4 insurer may reduce its total statutory capital by 15% or more, as set out in its previous year's financial statements, unless it has received the prior approval of the BMA.

Supervision, Investigation, Intervention and Disclosure

The BMA may, by notice in writing served on a registered person or a designated insurer, require the registered person or designated insurer to provide such information and/or documentation as the BMA may reasonably require with respect to matters that are likely to be material to the performance of its supervisory functions under the Insurance Act. In addition, it may require such person's or insurer's auditor, underwriter, accountant or any other person with relevant professional skill of such registered person or designated insurer to prepare a report on any aspect pertaining thereto. In the case of a report, the person so appointed shall immediately give the BMA written notice of any fact or matter of which he becomes aware or which indicates to him that any condition attaching to his registration under the Insurance Act is not or has not or may not be or may not have been fulfilled and that such matters are likely to be material to the performance of its functions under the Insurance Act. If it appears to the BMA to be desirable in the interests of the clients of a registered person or relevant insurance group, the BMA may also exercise these powers in relation to subsidiaries, parent companies and other affiliates of the registered person or designated insurer.

Where the BMA suspects that a person has failed to properly register under the Insurance Act or that a registered person or designated insurer has failed to comply with a requirement of the Insurance Act or that a person is not, or is no longer, a fit and proper person to perform functions in relation to a regulated activity, it may, by notice in writing, carry out an investigation into such person (or any other person connected thereto). In connection therewith, the BMA may require every person who is or was a controller, officer, employee, agent, banker, auditor, accountant, barrister and attorney or insurance manager to make a report and produce such documents in his care, custody and control and to attend before the BMA to answer questions relevant to the BMA's investigation and to take such actions as the BMA may direct.

If it appears to the BMA that the business of the registered insurer is being conducted in a way that there is a significant risk of the insurer becoming insolvent or being unable to meet its obligations to policyholders, or that the insurer is in breach of the Insurance Act or any conditions imposed upon its registration, or the minimum criteria stipulated in the Insurance Act is not or has not been fulfilled in respect of a registered insurer, or that a person has become a controller without providing the BMA with the appropriate notice or in contravention of a notice of objection, or the registered insurer is in breach of its ECR, or that a designated insurer is in breach of any provision of the Insurance Act or the regulations or rules applicable to it, the BMA may issue such directions as it deems desirable for safeguarding the interests of policyholders or potential policyholders of the insurer or the insurance group, including but not limited to, restricting business activities, investments and dividends.

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Fit and Proper Controllers
The BMA maintains supervision over the controllers of all registered insurers in Bermuda. A controller includes (i) the managing director of the registered insurer or its parent company; (ii) the chief executive of the registered insurer or of its parent company; (iii) a shareholder controller (as defined below); and (iv) any person in accordance with whose directions or instructions the directors of the registered insurer or of its parent company are accustomed to act. All registered insurers are required to give written notice to the BMA of a change in controller(s) within 45 days of becoming aware of such change. The BMA may object to a controller and require the controller to reduce its shareholdings and direct, among other things, that voting rights attaching to the shares shall not be exercisable.
The definition of shareholder controller generally refers to (i) a person who holds 10% or more of the shares carrying rights to vote at a shareholders' meeting of the registered insurer or its parent company, or (ii) a person who is entitled to exercise 10% or more of the voting power at any shareholders' meeting of such registered insurer or its parent company, or (iii) a person who is able to exercise significant influence over the management of the registered insurer or its parent company by virtue of its shareholding or its entitlement to exercise, or control the exercise of, the voting power at any shareholders' meeting. These regulations may impact a person or entity's ability to acquire 10% or more of Sirius Group common shares.
Notification of Material Changes
Registered insurers are required to give notice to the BMA of their intention to effect a material change within the meaning of the Insurance Act. Material changes include: the transfer or acquisition of insurance business; merger with or acquisition of another firm; acquisition of a controlling interest in an undertaking that is engaged in non-insurance business; outsourcing all or substantially all of the company's actuarial, risk management, compliance, underwriting or internal audit functions; transfer or expansion into another line of business or the outsourcing of an officer role.
Regulatory Group Supervision
The BMA acts as group supervisor of Sirius Group and its subsidiaries (the "Regulatory Group") and has designated Sirius Bermuda as the Designated Insurer. As the Designated Insurer, Sirius Bermuda is required to facilitate compliance by the Regulatory Group with group insurance solvency and supervision rules.
As group supervisor, the BMA performs a number of supervisory functions including (i) coordinating the gathering and dissemination of information which is of importance for the supervisory task of other competent authorities; (ii) carrying out a supervisory review and assessment of the Regulatory Group; (iii) carrying out an assessment of the Regulatory Group's compliance with the rules on solvency, risk concentration, intra-group transactions and good governance procedures; (iv) planning and coordinating, with other competent authorities, supervisory activities in respect of the Regulatory Group, both as a going concern and in emergency situations; (v) coordinating any enforcement action that may need to be taken against the Regulatory Group or any of its members; and (vi) planning and coordinating meetings of colleges of supervisors (consisting of insurance regulators) in order to facilitate the carrying out of the functions described above.
Group Solvency and Group Supervision
The current supervision and solvency rules (together, "Group Rules") apply to the Regulatory Group so long as the BMA remains Sirius Group's group supervisor. Through the Group Rules, the BMA may take action which affects Sirius Group. Under the Group Rules, the Regulatory Group is required to annually prepare and submit to the BMA audited financial statements prepared in accordance with GAAP, statutory financial statements, an annual statutory financial return, a capital and solvency return, a Group Solvency Self-Assessment ("GSSA"), and a financial condition report. The GSSA assesses the quality and quantity of the capital required to adequately cover the risks to which the insurance group is exposed. In particular, the GSSA should, among other things, include consideration of the relationship between risk management, the quality and quantity of capital resources, the impact of risk mitigation techniques and diversification and correlation effects between material risks; describe the Regulatory Group's risk appetite; be forward-looking; include appropriate stress and scenario testing and appropriately reflect all assets and liabilities, material off-balance sheet arrangements, material intra-group transactions, relevant managerial practices, systems and controls and a valuation basis that is aligned with the risk characteristics and business model of the group. The Regulatory Group is also required to maintain available Group statutory economic capital and surplus in an amount that is at least equal to the ECR of the Regulatory Group ("Group ECR") and the BMA has established a group target capital level equal to 120% of Group ECR.

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In addition, the Designated Insurer is required to file quarterly group financial returns for the Regulatory Group, ensure that the Regulatory Group appoints an individual approved by the BMA to be the group actuary and disclose the make of the Regulatory Group's capital in accordance with a 3-tiered eligible capital system. Under the eligible capital requirements, all of the Regulatory Group's capital instruments will be classified as either basic or ancillary capital which in turn will be classified into one of three tiers based on their "loss absorbency" characteristics. Highest quality capital will be classified Tier 1 Capital, lesser quality capital will be classified as either Tier 2 Capital or Tier 3 Capital. A minimum threshold of Tier 1 and maximum thresholds of Tier 2 and Tier 3 Capital used to satisfy the Regulatory Group MSM and Regulatory Group ECR requirements are specified under the rules.
Group Governance
The Group Rules require the Board of Directors of Sirius Group ( the" Parent Board") to establish and effectively implement corporate governance policies and procedures, which must be periodically reviewed to ensure they continue to support the overall organizational strategy of the Regulatory Group. In particular, the Parent Board must:
ensure that operational and oversight responsibilities of the group are clearly defined and documented and that the reporting of material deficiencies and fraudulent activities are transparent and devoid of conflicts of interest;
establish systems for identifying on a risk-sensitive basis those policies and procedures that must be reviewed annually and those policies and procedures that must be reviewed at other regular intervals;
establish a risk management and internal controls framework and ensure that it is assessed regularly and such assessment is reported to the Parent Board, the chief executive officer and senior executives;
establish and maintain sound accounting and financial reporting procedures and practices for the Regulatory Group; and
establish and keep under review group functions relating to actuarial, compliance, internal audit and risk management functions which must address certain specific requirements as set out in the Group Rules.
Certain Other Bermuda Law Considerations
Sirius Group is a Bermuda exempted company incorporated under the Companies Act. As a result, Sirius Group is required to comply with the provisions of the Companies Act regulating the payment of dividends and making of distributions from contributed surplus. Under Sirius Group's bye-laws, each common share is entitled to dividends if, and when, dividends are declared by the Parent Board, subject to any preferred dividend rights which may be held by the holders any preference shares. In addition, the Companies Act regulates return of capital, reduction of capital and any purchase or redemption of shares by Sirius Group.
Under Bermuda law, exempted companies are companies formed for the purpose of conducting business outside Bermuda from a principal place in Bermuda. As an exempted company, Sirius Group may not participate in certain business transactions, including the carrying on of business of any kind in Bermuda, except in furtherance of its business carried on outside Bermuda or under license granted by the Minister of Finance. Generally, it is not permitted without a special license granted by the Minister of Finance to insure Bermuda domestic risks or risks of persons of, in or based in Bermuda.
On January 1, 2019, the Economic Substance Act 2018 (the "ESA") came into effect in Bermuda. Under the provisions of the ESA, every Bermuda registered entity engaged in a "relevant activity" must satisfy economic substance requirements by maintaining a substantial economic presence in Bermuda. Carrying on as a business in either insurance or holding entity activities (both as defined in the ESA and Economic Substance Regulations 2018) are relevant activities under the ESA. Sirius Group's registered entities are required to demonstrate compliance with the ESA by filing an annual economic substance declaration with the Registrar of Companies in Bermuda.
U.S. Insurance Regulation
State-Based Regulation
Sirius Group's U.S.-based insurance and reinsurance operating subsidiaries are subject to regulation and supervision in each of the states where they are domiciled and where they are licensed to conduct business. Generally, state regulatory authorities have broad supervisory and administrative powers over such matters as licenses, standards of solvency, premium rates, policy forms, investments, statutory deposits, methods of accounting, form and content of financial statements, reserves for unpaid loss and loss adjustment expenses, reinsurance, minimum capital and surplus requirements, dividends and other distributions to shareholders, annual and other report filings and market conduct.

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Sirius Group's U.S.-based insurance and reinsurance subsidiaries, and their respective domiciliary state regulators (the "Domiciliary States") are as follows:
Sirius America Insurance Company (New York State Department of Financial Services);
Empire Insurance Company (New York State Department of Financial Services);
Cedar Insurance Company (New York State Department of Financial Services); and
Oakwood Insurance Company (Tennessee Department of Commerce and Insurance).
State Accreditation and Monitoring
All state insurance regulatory bodies with jurisdiction over Sirius Group's U.S.-based insurance and reinsurance subsidiaries are accredited by the National Association of Insurance Commissioners ("NAIC"). Accredited states generally follow the model laws developed by the NAIC. However, there are jurisdictional differences that require reference to each state's insurance laws. States have laws establishing the standards that an insurer must meet to maintain its license to write business. In addition, all states, including the Domiciliary States, have enacted laws substantially similar to the NAIC's risk-based capital ("RBC") standards for property and casualty companies, which are designed to determine minimum capital requirements and to raise the level of protection that statutory surplus provides for policyholder obligations. The RBC formula for property and casualty insurance companies measures three major areas of risk: (1) underwriting, which encompasses the risk of adverse loss developments and inadequate pricing; (2) declines in asset values arising from market and/or credit risk; and (3) off-balance sheet risk arising from adverse experience from non-controlled assets, guarantees for affiliates or other contingent liabilities and excessive premium growth. RBC reports are provided annually to state regulators as part of an insurer's financial reporting requirements. Insurers having less total adjusted capital than that required by the RBC calculation will be subject to varying degrees of regulatory action, depending on the level of capital inadequacy. As of December 31, 2019, Sirius Group's U.S. domiciled subsidiaries exceeded all required RBC regulatory thresholds.
The NAIC has a set of financial relationship tests known as the Insurance Regulatory Information System to assist state insurance regulators in monitoring the financial condition of insurance companies and identifying companies that require special regulatory attention operating in their respective states. Insurance companies generally submit data annually to their domiciliary state regulator, which in turn analyzes the data using prescribed financial data ratios ("IRIS ratios"), each with defined "usual ranges". Generally, regulators will begin to investigate or monitor an insurance company if its IRIS ratios fall outside the usual ranges for four or more of the ratios. If an insurance company has insufficient capital, regulators may act to reduce the amount of insurance it can issue or, in severe situations, assume control of the company. None of Sirius Group's U.S.-based (re)insurance subsidiaries is currently subject to regulatory scrutiny based on their respective IRIS ratios.
Many states have laws and regulations that limit an insurer's ability to exit a market. Some states also limit canceling or non-renewing certain policies for specific reasons. State insurance laws and regulations include numerous provisions governing marketplace activities of insurers, including provisions governing marketing and sales practices, policyholder services, claims management and complaint handling. State regulatory authorities generally test and enforce these provisions through periodic market conduct examinations. These laws are applicable to certain types of primary insurance policies, but not applicable to reinsurance.
States have adopted laws modeled on the NAIC's Risk Management and Own Risk and Solvency Assessment Model Act ("ORSA Model Act") to strengthen the ability of regulators to understand and regulate the risk-management practices of insurers and insurance groups. The ORSA Model Act requires insurers meeting premium thresholds to: (1) maintain a risk-management framework; and (2) annually submit a comprehensive report ("ORSA Report") designed to assess the adequacy of an insurer's risk-management practices, including risks related to the insurer's future solvency position. Each of the Domiciliary States has substantially adopted the ORSA Model Act, and Sirius Group's U.S.-based (re)insurance subsidiaries are in compliance with the ORSA Model Act as adopted by the Domiciliary States.
Holding Company Regulation
As a holding company, Sirius Group is subject to the state insurance holding company statutes as well as certain other laws of each of the Domiciliary States. The insurance holding company statutes generally require an insurance holding company and insurers that are members of such holding company system to register with their domestic insurance regulators and to file certain reports with those authorities, including information concerning their capital structure, ownership, financial condition, certain intercompany transactions and general business operations.

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The NAIC's amended Insurance Holding Company System Regulatory Model Act (the "Amended Holding Company Model Act"), addresses the concept of "enterprise risk" within an insurance holding company system and provides enhanced authority for states to regulate insurers as well as their affiliated entities and imposed more extensive informational requirements on parents and other affiliates of licensed insurers or reinsurers for the purpose of protecting licensed companies from enterprise risk. The Amended Holding Company Model Act requires the ultimate controlling person in an insurer's holding company structure to identify and annually report to state insurance regulators material risks within the structure that could pose enterprise risk to the insurer. Each of the Domiciliary States has substantially adopted the Amended Holding Company Model Act.
Acquisition of Control
Insurance holding company laws generally provide that no person or entity may acquire control of an insurance company, or a controlling interest in any parent company of an insurance company, without the prior approval of such insurance company's domiciliary state insurance regulator. Control is generally presumed to exist if any person acquires, directly or indirectly, 10% or more of the voting securities of an insurance company. This statutory presumption of control may be rebutted by showing that control does not exist in fact. Control may also be deemed to exist upon the possession of the power to direct or cause the direction of the management and policies of any person, whether through ownership of voting securities, by contract or otherwise.

To obtain approval of any acquisition of control, the proposed acquirer must file with the applicable insurance regulator an application disclosing, among other information, its background, financial condition, the financial condition of its affiliates, the source and amount of funds by which it will affect the acquisition, the criteria used in determining the nature and amount of consideration to be paid for the acquisition, proposed changes in the management and operations of the insurance company and other related matters. In considering an application to acquire control of an insurer, an insurance commissioner generally will consider such factors as the experience, competence and financial strength of the applicant, the integrity of the applicant's board of directors and executive officers, the acquirer's plans for the management and operation of the insurer, and any anti-competitive results that may arise from the acquisition. Regulations pertaining to an acquisition of control of an insurance company may impact a person or entity's ability to acquire Sirius Group, as well as Sirius Group's ability to acquire an insurance company.
Guaranty Funds and Mandatory Shared Market Mechanisms
All states within the U.S. and the District of Columbia have insurance guaranty fund laws requiring insurance companies doing business within those jurisdictions to participate in guaranty associations. Sirius Group's U.S.-based insurance and reinsurance subsidiaries may be required to participate in guaranty funds to help pay the obligations of impaired, insolvent or failed insurance companies to their policyholders and claimants. Such participation generally includes an assessment based on the premiums written by the insurer in such state applicable to particular lines of business.
Pricing, Investments and Dividends
Nearly all states have insurance laws requiring licensed property and casualty insurance companies to file their rates, rules and policy or coverage forms with the state's regulatory authority. In most cases, such rates, rules and forms must be approved prior to use. While pricing laws vary from state to state, their objectives are generally to ensure that rates are not excessive, unfairly discriminatory or used to engage in unfair price competition. The ability and timing of Sirius Group's U.S.-based (re)insurance subsidiaries to increase rates are dependent upon the regulatory requirements in each state where policies are sold.
Sirius Group's U.S.-based (re)insurance subsidiaries are subject to state laws and regulations that require investment portfolio diversification and that dictate the quality, quantity and general types of investments they may hold. Non-compliance may cause non-conforming investments to be non-admitted when measuring statutory surplus and, in some instances, may require divestiture. Sirius Group's investment/finance units continually monitor portfolio composition to ensure compliance with the investment rules applicable to each (re)insurance subsidiary.

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Under the insurance laws of the Domiciliary States, an insurer is restricted with respect to the timing and the amount of dividends it may pay without prior approval by regulatory authorities. Under the current law of the State of Tennessee, where Oakwood Insurance Company ("Oakwood") is domiciled, an insurer has the ability, without the prior approval of the regulatory authority and subject to the availability of earned surplus, to pay dividends or make distributions which, together with dividends or distributions paid during the preceding twelve months, do not exceed the greater of (i) 10% of the insurer's surplus as regards policyholders as of the immediately preceding year end or (ii) the net income of the insurer (excluding realized capital gains) for the preceding twelve-month period ending as of the immediately preceding year end. Under the current law of the State of New York, where Sirius America, Empire Insurance Company ("Empire"), and Cedar Insurance Company ("Cedar") are domiciled, an insurer has the ability to pay dividends during any 12-month period without the prior approval of the regulatory authority in an amount set by a formula based on the lesser of adjusted net investment income, as defined by statute, or 10% of statutory surplus, in both cases as most recently reported to the regulatory authority, subject to the availability of earned surplus and subject to dividends paid in prior periods. The insurance laws and regulations of the Domiciliary States also require that an insurer's surplus as regards policyholders following any dividend or distribution be reasonable in relation to such insurer's outstanding liabilities and adequate to meet its financial needs.
Based upon these formulas, as of December 31, 2019, Sirius America and Empire have dividend capacity without prior approval of the applicable regulatory authority, while Oakwood and Cedar do not have dividend capacity without prior approval of the applicable regulatory authorities.
U.S. Federal Regulation Affecting the Insurance Industry
Sirius Group's U.S.-based insurance and reinsurance subsidiaries are not federally regulated, but they are impacted by other federal regulations targeted at the insurance and other industries. From time to time, federal measures are proposed that may significantly affect the insurance business, for example, the Terrorism Risk Insurance Act. The Terrorism Risk Insurance Act provides a federal backstop to all U.S.-based property and casualty insurers for insurance-related losses resulting from any act of terrorism on U.S. soil or against certain U.S. air carriers, vessels or foreign mission.
The federal government also has issued certain orders and regulations that require Sirius Group's U.S.-based (re)insurance subsidiaries to establish certain internal controls. Most significant of these regulations is the U.S. Treasury Department Office of Foreign Asset Control ("OFAC"). OFAC proscribes transactions with specially designated nationals ("SDNs") and blocked countries due to ties with matters such as terrorism, drugs and money laundering. Insurance and reinsurance transactions with SDNs and blocked countries are prohibited and violation can result in significant fines.
While the federal government does not directly regulate the insurance business, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") made sweeping changes to the regulation of financial services entities, products and markets.
The Dodd-Frank Act established the Federal Insurance Office ("FIO") within the Treasury Department to monitor the insurance industry and certain lines of business. The FIO is designed principally to exercise a monitoring and information-gathering role, rather than a regulatory role. The director of the FIO has submitted reports to Congress regarding (i) how to modernize and improve the system of insurance regulation in the U.S., (ii) the impact of Part II of the Nonadmitted and Reinsurance Reform Act of 2010 and (iii) the global reinsurance market and the regulation of reinsurance. These activities could ultimately lead to changes in the regulation of certain insurers and reinsurers in the United States.
The Dodd-Frank Act also authorizes the FIO to assist the Treasury Department in negotiating covered agreements. A covered agreement is an agreement between the U.S. and one or more foreign governments, authorities or regulatory entities, regarding prudential measures with respect to insurance or reinsurance. The FIO is further charged with determining, in accordance with the procedures and standards established under the Dodd-Frank Act, whether state laws are preempted by a covered agreement. Pursuant to this authority, in September 2017, the U.S. and the European Union signed a covered agreement (the "Covered Agreement") to address, among other things, reinsurance collateral requirements. U.S. state regulators have 60 months, or five years, to adopt reinsurance reforms removing reinsurance collateral requirements for European Union reinsurers that meet the Covered Agreement's prescribed minimum conditions or else state laws imposing such reinsurance collateral requirements may be subject to federal preemption. On June 25, 2019, the NAIC Executive Committee and Plenary adopted revisions to the Credit for Reinsurance Model Law and Regulation ("Model Law and Regulation") which incorporate relevant provisions of the Covered Agreement. Individual states are now beginning a process of adopting the Model Law and Regulation. The reinsurance collateral provisions of the Covered Agreement may increase competition, in particular with respect to pricing for reinsurance transactions, by lowering the cost at which competitors are able to provide reinsurance to U.S. insurers.

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Consumer Protection Laws and Privacy and Data Security Regulation
The NAIC has adopted an Insurance Data Security Model Law, which when adopted by the states, will require insurers and other related entities that are licensed under state insurance laws to comply with certain data and information security requirements, such as developing an information security program, conducting risk assessments and overseeing the data security practices of third-party vendors. In addition, certain federal and state laws and regulations require financial institutions, including insurers, to protect the security and confidentiality of nonpublic personal information, including certain health-related and customer information, and to notify customers and other individuals about their policies and practices relating to their collection and disclosure of health-related and customer information and their practices relating to protecting the security and confidentiality of such information. State laws regulate use and disclosure of social security numbers and federal and state laws require notice to affected individuals, law enforcement, regulators and others if there is a breach of the security of certain nonpublic personal information, including social security numbers.
Issues surrounding data security and the safeguarding of consumers' protected information are under increasing regulatory scrutiny by state and federal regulators, particularly in light of the number and severity of recent U.S. companies' data breaches. The Federal Trade Commission, the Federal Bureau of Investigation, the Federal Communications Commission, the New York State Department of Financial Services, and the NAIC have undertaken various studies, reports and actions regarding data security for entities under their respective supervision. Some states have recently enacted new insurance laws that require certain regulated entities to implement and maintain comprehensive information security programs to safeguard the personal information of insureds and enrollees. For example, New York requires financial institutions, including certain of Sirius Group's U.S.-based (re)insurance subsidiaries, to establish a cybersecurity program with specific technical safeguards and requirements regarding governance, incident planning, data management, system testing and regulator notification. In addition, the California Consumer Privacy Act of 2018, which took effect January 1, 2020, requires Sirius Group to comply with obligations to identify and secure personal data, among other requirements.
Sirius Group expects cybersecurity risk management, prioritization and reporting to continue to be an area of significant regulatory focus by such regulatory bodies and self-regulatory organizations.
European Insurance Regulation
Businesses that carry out insurance activities in Europe are subject to extensive insurance laws and regulations, including prudential requirements and requirements relating to the manner in which insurance activities are conducted. These laws and regulations are generally designed to protect the interests of policyholders, consumers and claimants, rather than investors.
Prudential regulation and supervision focuses on authorization, ownership and control, resourcing and capital adequacy, risk identification and management, and sound governance. Conduct regulation focuses on the manner in which an insurer or insurance intermediary conducts itself in relation to its interactions with customers. Businesses carrying out insurance activities are primarily regulated and supervised by government authorities within their home jurisdictions.
The regulatory framework promulgated under the Solvency II Directive 2009/138/EC, Commission Delegated Regulation (EU) 2015/35, a number of Commission Implementing Technical Standards and the European Insurance and Occupational Pensions Authority ("EIOPA") Guidelines (the "Solvency II Regulation") for insurance business provides a single set of key prudential requirements that apply to insurance and reinsurance businesses operating within the European Economic Area ("EEA"). It imposes economic risk-based solvency requirements across all member states. The aim of the Solvency II Regulation is to ensure that insurance and reinsurance undertakings are financially sound and can withstand adverse events in order to protect policyholders and the stability of the financial system as a whole. It also aims at the creation of a single market for insurance in the EEA with consistent regulatory requirements and harmonized supervision. The Solvency II Regulation is categorized into three 'pillars', covering quantitative requirements, such as capital requirements designed to ensure that sufficient and appropriate assets are held to cover insurance liabilities and risk exposure (Pillar 1), qualitative requirements relating to governance and risk-management (Pillar 2), and transparency obligations requiring disclosure of extensive information to supervisors and to the public (Pillar 3).
The Solvency II Regulation requirements in respect of insurance groups include group solvency and capital requirements, group disclosure and supervisory reporting, and undertaking a group own risk and solvency assessment. The Bermuda commercial insurance regulatory regime has been approved by the European Commission as being Solvency II equivalent. Therefore, the Solvency II group requirements are capped at the highest European entity, Sirius International UK Holdings Ltd. ("SIUK"). Accordingly, the Swedish Financial Supervisory Authority (the "SFSA") is the group supervisor for the SIUK group, and the BMA has been designated as the group supervisor for the Sirius Group-level and below. As a consequence of the U.K. withdrawal from the European Union, Sirius Group is preparing for the Solvency II Regulation group requirements to apply to another of its subsidiary holding companies within the European group which is located in Luxembourg.

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In addition to the Solvency II Regulation, there are a number of pan-European rules and regulations in relation to the distribution of insurance in the EEA. The Insurance Distribution Directive (EU/2016/97) (the "IDD") was implemented in all EEA states by October 1, 2018. The IDD applies to all distributors of insurance and reinsurance products (including insurers and reinsurers selling directly to customers) and intends to strengthen the regulatory regime applicable to distribution activities through increased transparency, information and conduct requirements.
The General Data Protection Regulation (EU 2016/679) ("GDPR") became effective on May 25, 2018. The GDPR is intended to harmonize data protection procedures and enforcement across the EU and achieve consistency with the system for ensuring privacy online and it is directly applicable to data controllers and data processors in all member states. Many of the provisions of the GDPR will have a significant impact on data controllers and processors who are active within the EEA, and those who are located outside it, including Sirius Group. The penalties for breach of GDPR and IDD are substantial.
Sweden Insurance Regulation
Sirius International is subject to regulation and supervision by the SFSA. As Sweden is a member of the EU, the SFSA supervision of branches is recognized across all locations within the EU (apart from customer conduct that is regulated and supervised locally across the EU). The SFSA has broad supervisory and administrative powers over such matters as licenses, governance and internal control, standards of solvency, investments, methods of accounting, form and content of financial statements, minimum capital and surplus requirements, and annual and other report filings. Non-compliance can be sanctioned by warnings, fees or withdrawal of license.
The Solvency II Regulation is implemented in Sweden primarily through the Swedish Insurance Business Act (Sw. försäkringsrörelselag (2010:2043)) (the "IBA"), the measures set out in the Commission Delegated Regulation (EU) 2015/35 and the Commission Implementing Technical Standards and have direct effect in Sweden. The IBA, the Commission Delegated Regulation (EU) 2015/35 and the Commission Implementing Technical Standards constitute the main legal framework applicable to insurance business in Sweden. In addition, the SFSA and EIOPA issues regulations and general guidelines. Supplementary company law for most insurance companies is provided in the Swedish Companies Act (Sw. aktiebolagslagen (2005:551)).
Insurance companies are obliged to provide, on an ongoing basis, information about their financial status, and the SFSA may conduct on-site inspections and review the operations at any time. In addition to what is required under the Solvency II Regulation, Swedish insurance companies must conduct the business in accordance with "generally accepted insurance practices".
Safety Reserve
Subject to certain limitations under Swedish law, Sirius International is permitted to transfer pre-tax income amounts into a reserve referred to as a "Safety Reserve." Under local statutory requirements, an amount equal to the deferred tax liability on Sirius International's Safety Reserve is included in Solvency Capital. Access to the Safety Reserve is restricted to cover insurance and reinsurance losses and to cover a breach of the Solvency Capital Requirement. Access for any other purpose requires the approval of Swedish regulatory authorities. Similar to the approach taken by Swedish regulatory authorities, most major rating agencies generally include the balance of the Safety Reserve, without any provision for deferred taxes, in Sirius International's regulatory capital when assessing Sirius International and Sirius Group's financial strength.

As of December 31, 2019, Sirius International's Safety Reserve amounted to SEK 10.2 billion, or $1.1 billion (based on the December 31, 2019 SEK to USD exchange rate). Under Swedish GAAP, an amount equal to the Safety Reserve, net of a related deferred tax liability established at the Swedish tax rate, is classified as common shareholders' equity. Generally, this deferred tax liability ($226 million based on the December 31, 2019 SEK to USD exchange rate) is only required to be paid by Sirius International if it fails to maintain prescribed levels of premium writings and loss reserves in future years. As a result of the indefinite deferral of these taxes, the related deferred tax liability is not taken into account by Swedish regulatory authorities for purposes of calculating Solvency Capital under Swedish insurance regulations.

Pursuant to tax legislation enacted in Sweden in June 2018, the tax rate applicable to Swedish corporations decreased to 21.4% effective as of January 1, 2019, and then will further reduce to 20.6% starting in 2021. The tax legislation also introduced an annual tax on the Safety Reserve effective as of January 1, 2019. This provision adds additional taxable income for the Company annually. The calculation applies the Government Borrowing Rate (with a floor rate of +0.5%) to the Safety Reserve balance at the beginning of the year. At the current year tax rate of 21.4% the additional tax expense for 2019 is SEK 11 million, or $1 million (based on the December 31, 2019 SEK to USD exchange rate).


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Further, the enacted legislation also included a new provision treating an amount equal to 6% of the Safety Reserve balance as of January 1, 2021, as additional taxable income in tax year 2021 only, subject to tax at the applicable 20.6% rate. Based on this provision and Sirius International's Safety Reserve balance as of December 31, 2019, Sirius International has recorded an additional deferred tax liability as of December 31, 2019 in the amount of SEK 131 million, or $14 million (based on the December 31, 2019 SEK to USD exchange rate).
Change of Control
The acquisition of a "qualifying holding" directly or indirectly in Sirius International requires approval from the SFSA prior to completion. "Qualifying holding" means:
a direct or indirect ownership in an undertaking, where the holding represents 10% or more of the equity capital or of all voting participating interests; or
the ability to exercise a significant influence over the management of the undertaking (e.g. possible shareholder agreements which might have an impact on the influence over the undertaking)
In addition, approval from the SFSA must be obtained when the holding is increased so that the holding represents or exceeds 20%, 30% or 50% of the equity capital or of all voting participating interests, or when the company becomes a subsidiary. The same is valid if there is a decrease. When certain persons or companies act in concert, their holdings are aggregated to determine whether such persons or companies acquire a qualifying holding or cross any relevant threshold.
The SFSA assesses the suitability of the acquirer and will generally grant authorization if, among other things, the acquisition is found to be financially sound. The SFSA will also assess the acquirer's reputation, financial standing and possible links to money laundering and financing of terrorism. The ownership assessment also encompasses a suitability assessment of the management of all legal persons' acquiring a qualifying holding in Sirius International.
United Kingdom Insurance Regulation
The financial services industry in the United Kingdom is currently dual-regulated by the Financial Conduct Authority (the "FCA") and the Prudential Regulation Authority (the "PRA") (collectively, the "U.K. Regulators"). Prudential regulation and supervision of insurance undertakings is carried out by the PRA and the regulation and supervision of conduct matters is carried out by the FCA. All insurers and Lloyd's managing agents are regulated by both the PRA and the FCA, while businesses that only carry on insurance intermediary activities are solely regulated by the FCA for both prudential and conduct matters. The Financial Policy Committee (which is within the Bank of England) is responsible for the overall prudential regulation of the financial services industry.
There remains some considerable uncertainty as to the legal and regulatory landscape that will exist in respect of the U.K. insurance regulatory regime and the future approach U.K. legislation and regulation may take following the U.K.'s anticipated transition from the EU in 2020 and as to the terms of any transitional agreement that may be entered into between the U.K. and EU.
Sirius Group's U.K.-based authorized insurance subsidiaries are as follows:
Sirius International Managing Agency Limited, a Lloyd's managing agent that is dual-regulated by the PRA and FCA and supervised by Lloyd's; and
A La Carte Healthcare Limited and IMG Europe Limited, both insurance intermediaries regulated by the FCA.
Sirius International Insurance Corporation also operates in the U.K. under an EEA branch passporting license and one company within Sirius Group, Sirius International Corporate Member Limited ("Sirius International Corporate Member"), is a corporate member of Lloyd's.
PRA and FCA regulation
The primary statutory objectives of the PRA in relation to its supervision of insurers are (i) to promote their safety and soundness; and (ii) to contribute to the securing of an appropriate degree of protection for policyholders or those who may become policyholders. As conduct regulator, the FCA also acts to protect policyholders but the FCA's focus is to ensure that consumers are treated fairly when dealing with insurers and insurance intermediaries while the PRA's focus is to ensure that policyholders have appropriate protection in respect of the cover for the risks that they are insured against.

24


The U.K. Regulators have extensive powers to intervene in the affairs of the insurance businesses that they regulate and to monitor compliance with their objectives, including amending (including by imposing limitations on) or withdrawing a firm's authorization, prohibiting individuals from carrying on regulated activities, suspending firms or individuals from undertaking regulated activities and fining or requiring compensation from firms and individuals who breach their rules.
Businesses carrying out insurance activities in the U.K. must not only comply with the PRA's requirements (as set out in the PRA Rulebook) and the FCA's requirements (as set out in the FCA Handbook) but also a wide range of U.K. insurance legislation. The most notable of such legislation is the Financial Services and Markets Act 2000 ("FSMA"), which includes the requirements for becoming authorized to carry out regulated insurance activities, regulated and prohibited activities of an insurance company, the approval process for the acquisition or disposal of control of insurance companies, rules on financial promotions, transfers of insurance portfolios and market abuse provisions. This is complemented by a range of statutory instruments on certain subjects, for example the authorization or exemption process. In addition, U.K. companies carrying out insurance activities must comply with general legislation, such as the U.K. Companies Act 2006.
Lloyd's regulation
As well as regulating insurers and insurance intermediaries, the U.K. Regulators also regulate Lloyd's. The U.K. Regulators and Lloyd's have common objectives in ensuring that the Lloyd's market is appropriately regulated. Lloyd's is required to implement certain rules prescribed by the U.K. Regulators by the powers it has under the Lloyd's Act of 1982 ("Lloyd's Act") relating to the operation of the Lloyd's market. In addition, each year the U.K. Regulators require Lloyd's to satisfy an annual solvency test that measures whether Lloyd's has sufficient assets in the aggregate to meet all the outstanding liabilities of its members. The PRA and the FCA can give directions to Lloyd's in order to advance their statutory objectives.
The governing body of the Lloyd's market is the Council of Lloyd's (the "Council"). The Council is responsible for the supervision and management of the Lloyd's market and it has the power to regulate and direct the business of the market. The Lloyd's Acts, byelaws, requirements made under byelaws, minimum standards, guidance, codes of conduct and bulletins issued by or under the authority of the Council together contain the powers and requirements that apply in respect of businesses operating in the Lloyd's market. In addition, Lloyd's prescribes, in respect of its managing agents and corporate and individual members ("Members"), certain minimum standards relating to their management and control, financial resources and various other requirements. In addition, as dual-regulated firms, managing agents must comply with the relevant parts of the PRA Rulebook and the FCA Handbook (including FCA capital resources requirements). Sirius Group participates in the Lloyd's market through the 100% ownership of Sirius International Corporate Member, which is the sole member of Syndicate 1945. Syndicate 1945 commenced underwriting on July 1, 2011 and is managed by another wholly-owned subsidiary within Sirius Group, Sirius International Managing Agency. Lloyd's approved stamp capacity for Syndicate 1945 in 2020 is £91 million, or approximately $120 million (based on the December 31, 2019 GBP to USD exchange rate). Stamp capacity is a measure of the amount of net premium (gross premiums written less acquisition costs) that a syndicate is authorized by Lloyd's to write.
Sirius International Corporate Member, as a Member of Lloyds, is required to contribute 0.35% of Syndicate 1945's premium income limit for each year of account to the Lloyd's Central Fund ("Central Fund"). If a Member is unable to pay its obligations to policyholders, such obligations may be payable by the Central Fund. If Lloyd's determines that the Central Fund needs to be increased, it may levy premiums on current Members. The Council of Lloyd's has discretion to call upon up to 3% of a Member's underwriting capacity in any one year as a Central Fund contribution.
The underwriting capacity of a Member must be supported by providing a deposit in the form of cash, securities, letters of credit or guarantees ("Funds at Lloyd's") in an amount to be determined pursuant to the Members' capital requirements set by Lloyd's.
The amounts of capital required by Lloyd's to be maintained in the form of Funds at Lloyd's to support the activities of the Members of a syndicate is determined by a combination of the managing agent's assessment of capital requirements for the syndicate, and review and challenge by Lloyd's. The managing agent's assessment of capital requirements for the syndicate determines its view of the Solvency Capital Requirement ("SCR"); this represents the capital needed to support the syndicate, based on modeling individual syndicate robustness against the risk environment in which the syndicate operates. Lloyd's may or may not approve the level of SCR as submitted by the managing agent and has the authority to require the SCR to be increased. The approved or amended SCR is then uplifted by an economic capital margin (currently a flat 35% for all syndicates) to produce an amount of syndicate capital known as the economic capital assessment ("ECA"). The level of the ECA is set to ensure that Lloyd's overall aggregate capital is maintained at a level necessary to retain its desired rating, as well as to meet the requirements of the U.K. Regulators. Any failure to comply with these requirements may affect the amount of business which the syndicate may underwrite and/or could result in sanctions being imposed by Lloyd's and/or the U.K. Regulators. The process and the method by which the required capital is calculated may alter from year to year and may affect the level of participation of Members in a particular syndicate.

25


In addition to a Member's Funds at Lloyd's, at a syndicate level insurance premiums are held in a premium trust fund for the benefit of policyholders whose contracts are underwritten by the syndicate and these funds are the first resources used to pay claims made by policyholders of that syndicate.
Lloyd's has wide discretionary powers to regulate a Member's underwriting. All syndicates at Lloyd's must also submit their business plans to Lloyd's for approval and amendments or restrictions may be applied to proposed business plans or, in extreme circumstances, approval may be refused which would lead to that syndicate ceasing to underwrite for the following year of account.
Change of Control
The change of control requirements in the U.K. are similar to the Swedish regulatory requirements. Prior regulatory consent is required before a person (alone or together with any associates) can acquire direct or indirect control over a U.K. authorized firm. The change of control requirements apply whether such change of control results from an external acquisition or an internal restructuring resulting in a new controller. For U.K. authorized insurance intermediaries, the control threshold percentages are amended such that there is a single 20% threshold where prior regulatory consent is required. In relation to the acquisition or increase of direct or indirect control over a Lloyd's managing agent or Lloyd's corporate member, such as Sirius International Managing Agency Limited and Sirius International Corporate Member Limited respectively, prior approval is also required from Lloyd's. Prior approval is also required where a person (together with any associates) increases its holding of shares or voting power from (i) less than 20% to 20% or more, (ii) less than 30% to 30% or more, and (iii) less than 50% to 50% or more.
Ratings
Ratings by independent agencies are an important factor in establishing the competitive position of insurance and reinsurance companies and are important to Sirius Group's ability to market and sell its products and services. Rating organizations continually review the financial positions of reinsurers and insurers, including Sirius Group. Sirius Group's insurance and reinsurance operating subsidiaries are rated as follows:
 
A.M. Best(1)
 
Fitch(2)
 
Standard & Poor's(3)
Rating
"A-" (Excellent)
 
"A–" (Strong)
 
"A–" (Strong)
Outlook
Negative
 
Negative
 
Negative
(1)"A–" is the fourth highest of 16 financial strength ratings assigned by A.M. Best, as last updated March 4, 2020.
(2)"A–" is the seventh highest of 22 financial strength ratings assigned by Fitch, as last updated December 12, 2019.
(3)"A–" is the seventh highest of 21 financial strength ratings assigned by Standard & Poor's, as last updated March 3, 2020.
These ratings reflect A.M. Best's, Fitch's and Standard & Poor's respective opinions of the ability of Sirius Group to pay claims and are not evaluations directed to security holders. A.M. Best maintains a letter-scale rating system ranging from "A++" (Superior) to "F" (in liquidation). Fitch maintains a letter-scale rating system ranging from "AAA" (Exceptionally Strong) to "D" (Distressed). Standard & Poor's maintains a letter-scale rating system ranging from "AAA" (Extremely Strong) to "D" (Default).
These ratings are subject to periodic review by, and may be revised downward or revoked at the sole discretion of the rating agencies.
Employees
As of December 31, 2019, Sirius Group had 1,076 employees. Sirius Group believes its relationships with employees are satisfactory.

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Status as a Foreign Private Issuer and Controlled Company
Sirius Group is considered a "foreign private issuer" under the rules and regulations of the SEC. A "foreign private issuer" is any issuer incorporated or organized under the laws of a foreign country, except an issuer meeting both of the following conditions: (i) more than 50% of the outstanding voting securities of the issuer are directly or indirectly held of record by residents of the U.S.; and (ii) any one of the following: (a) the majority of the executive officers or directors of the issuer are U.S. citizens or residents; (b) more than 50% of the assets of the issuer are located in the U.S.; or (c) the business of the issuer is administered principally in the U.S. Pursuant to the "foreign private issuer" rules, Sirius Group is exempt from certain provisions of the Exchange Act applicable to U.S. domestic public companies, including: (1) the sections of the Exchange Act regulating the solicitations of proxies, consents or authorizations in respect of a security registered under the Exchange Act; (2) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and (3) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specific information, or current reports on Form 8-K, upon the occurrence of specified significant events.
In addition, Sirius Group is a "controlled company" within the meaning of Nasdaq rules. A "controlled company" is a company of which more than 50% of the voting power is held by an individual, group or another company. Pursuant to the "controlled company" exemption, Sirius Group is not required to comply with the requirements that: (1) a majority of the Board consist of independent directors; (2) it have a nominating committee composed entirely of independent directors with a written charter addressing such committee's purpose and responsibilities and (3) it have a compensation committee that is composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities.
Sirius Group does not currently rely on the scaled disclosure practices permitted by the SEC or the alternate governance practices permitted by Nasdaq applicable to foreign private issuers and/or controlled companies, and is voluntarily choosing to register and report using the SEC's domestic forms and comply with the Nasdaq governance practices applicable to domestic companies. However, there is no assurance that Sirius Group will not rely on these exemptions in the future. If Sirius Group were to utilize some or all of these exemptions, shareholders may not have the same protections or level of disclosure afforded to shareholders of companies that are subject to all of the SEC and Nasdaq rules regarding corporate governance and disclosure.
Available Information
Our Internet website address is https://www.siriusgroup.com. From time to time, we may make available on our website certain financial information of our operating subsidiaries. We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and file or furnish reports, proxy statements, and other information with the U.S. Securities and Exchange Commission ("SEC"), including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. Such reports and other information filed by the Company with the SEC are available free of charge on our website at ir.siriusgroup.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC maintains an Internet site that contains reports, proxy statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. The contents of the websites referred to above are not incorporated herein.
Item 1A. Risk Factors
You should carefully consider the following risk factors, in addition to the other information included in this Annual Report on Form 10-K, including matters addressed in the section entitled "Cautionary Statement Regarding Forward-Looking Statements" and the financial statements and notes to the financial statements included herein. Sirius Group may face additional risks and uncertainties that are not presently known to us, or that Sirius Group currently deems immaterial, which may also impair our business.

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Risks Related to Sirius Group's Business and Industry
Sirius Group is exposed to unpredictable catastrophic events that could adversely affect its results of operations and financial condition.
Sirius Group writes reinsurance contracts and insurance policies that cover unpredictable catastrophic events. Covered unpredictable catastrophic events, predominantly in its property catastrophe excess line of business, include natural perils and other disasters, such as hurricanes, windstorms, earthquakes, floods, wildfires and severe winter weather. Catastrophes can also include terrorist attacks, explosions and infrastructure failures. Sirius Group has significant exposure to a potential major earthquake or series of earthquakes in California, the Midwestern United States, Canada, Japan and Latin America and to windstorm damage in Northern Europe, the Northeast United States, the United States Atlantic Coast (i.e., Massachusetts to Florida) and the United States Gulf Coast (i.e., Florida to Texas) regions and Japan.
Similar exposures to losses caused by the same types of catastrophic events occur in other lines of business such as marine, aviation, contingency, casualty, trade credit and accident and health (including trip cancellation), including pandemic risk. Pandemic risk is the increase in mortality or morbidity over an annual period associated with a rapidly spreading virus (either within a highly populated geographic area or on a global basis) with a high mortality or morbidity rate. Sirius Group could experience risk of loss due to potential claims for cover of high mortality virus and infectious disease, such as the coronavirus. It could experience loss in certain lines of business, including its property (re)insurance due to business interruption if a pandemic spreads and supply chains are globally disrupted. As a result of a pandemic, Sirius Group could also experience losses in its trade credit line of business if businesses become insolvent due to the decrease in economic activity, and losses in its investment portfolio as a result of volatile markets. Sirius Group's catastrophe losses, net of reinsurance and reinstatement premiums, were $194 million, $194 million, and $259 million for the years ended December 31, 2019, 2018, and 2017, respectively.
The extent of catastrophe losses is a function of both the severity of the event and total amount of insured exposure affected by the event. Increases in the value and concentration of insured property or insured individuals, the effects of inflation, changes in weather patterns, such as climate change, and increased terrorism could increase the future frequency and/or severity of claims from catastrophic events. Claims from catastrophic events could materially adversely affect Sirius Group's results of operations and financial condition. Sirius Group's ability to write new reinsurance contracts and insurance policies could also be impacted as a result of corresponding reductions in Sirius Group's capital levels.
Although Sirius Group attempts to manage its exposure to such events through a multitude of approaches, including geographic diversification, geographic limits, individual policy limits, exclusions or limitations from coverage, purchase of reinsurance and expansion of supportive collateralized capacity, the availability of these management tools may be dependent on market factors and, to the extent available, may not respond in the way that is expected. For instance, Sirius Group seeks to manage its exposure to catastrophe losses by limiting the aggregate insured value of policies in geographic areas with exposure to catastrophic events by estimating PML for many different catastrophe scenarios and by buying reinsurance, including retrocession coverage. To manage and analyze aggregate insured values and PML, Sirius Group uses a variety of tools, including external and internal catastrophe modeling software packages. Estimates of PMLs are dependent on many variables, including assumptions about demand surge and storm surge, loss adjustment expenses, insurance-to-value for the underlying properties, the relationship of the actual event parameters to the modelled event and the quality of portfolio data provided to Sirius Group by ceding companies (in the case of Sirius Group's reinsurance operations). Accordingly, if these assumptions about the variables are incorrect, the losses Sirius Group might incur from an actual catastrophe could be materially higher than its expectation of losses generated from modelled catastrophe scenarios which could materially adversely affect Sirius Group's financial condition, liquidity or results of operations.
Given the inherent uncertainty of models, the usefulness of such models as a tool to evaluate risk is subject to a high degree of uncertainty that could result in actual losses that are materially different than Sirius Group's estimates including PMLs, and Sirius Group's financial results may be adversely impacted, perhaps significantly.
Sirius Group uses third-party vendor and proprietary analytic and modeling capabilities, including global property catastrophe models, which consolidates and reports on all its worldwide property exposures, to calculate expected PML from various property natural catastrophe scenarios. Sirius Group uses these models and software to help it control risk accumulation, inform management and other stakeholders of capital requirements and to improve the risk/return profile in Sirius Group's overall portfolio of reinsurance contracts. However, given the inherent uncertainty of modeling techniques and the application of such techniques, these models and databases may not accurately address a variety of matters impacting Sirius Group's coverages.

28


For example, catastrophe modeling is dependent upon several broad economic and scientific assumptions, such as storm surge (the water that is pushed toward the shore by the force of a windstorm), demand surge (the localized increase in prices of goods and services that often follows a catastrophe) and zone density (the percentage of insured perils that would be affected in a region by a catastrophe). Third-party modeling software also does not provide information for all territories or perils for which Sirius Group writes business. Catastrophe modeling is inherently uncertain due to process risk (i.e., the probability and magnitude of the underlying event) and parameter risk (i.e., the probability of making inaccurate model assumptions).
The inherent uncertainties underlying, or the incorrect usage or misunderstanding of these tools may lead to unanticipated exposure to risks relating to certain perils or geographic regions which could have a material adverse effect on Sirius Group's business, prospects, financial condition or results of operations.
Sirius Group's loss and LAE reserves may be inadequate to cover its ultimate liability for losses and as a result its financial results could be adversely affected.
Sirius Group must maintain reserves adequate to cover its estimated ultimate liabilities for LAE. Loss and LAE reserves are typically comprised of (i) case reserves for claims reported ("case reserves") and (ii) incurred but not reported ("IBNR") reserves for losses that have occurred but for which claims have not yet been reported and for expected future development on case reserves. These reserves are estimates of what the settlement and administration of claims will cost based on facts and circumstances then known to Sirius Group. These estimates involve actuarial and claims assessments, and require Sirius Group to make a number of assumptions about future events that are subject to unexpected changes and are beyond its control, such as future trends in claim severity, frequency, inflation, legislative and judicial changes and other factors.
Because of uncertainties associated with estimating ultimate loss and LAE reserves, we are unable to guarantee that Sirius Group's reserves are adequate. In the event that Sirius Group's reserves become insufficient to cover its actual losses and LAE, Sirius Group may need to add to its reserves, which could have a material adverse effect on Sirius Group's results of operations and financial condition.
In addition, Sirius Group reserves for losses and LAE include an estimate of Sirius Group's ultimate liability for natural catastrophe events, and asbestos and environmental claims for which Sirius Group cannot estimate the ultimate value using traditional reserving techniques, and for which there are significant uncertainties in estimating the amount of Sirius Group's potential losses.
Sirius Group is reliant on financial strength and creditworthiness ratings, and any downgrade or withdrawal of ratings and/or change in outlook may have a material adverse effect on Sirius Group's business, prospects, financial condition and results from operations.
Third-party rating agencies assess and rate the financial strength, including claims-paying ability, of insurers and reinsurers. These ratings are based upon criteria established by the rating agencies and are subject to revision at any time at the sole discretion of the agencies. Some of the criteria relate to general economic conditions and other circumstances outside of the rated company's control. These financial strength ratings are used by policyholders, agents and brokers to assess the suitability of insurers and reinsurers as business counterparties and are an important factor in establishing the competitive position of insurance and reinsurance companies.
The maintenance of an "A-" or better financial strength rating from A.M. Best and/or Standard & Poor's is particularly important to the ability of Sirius Group's operating (re)insurance subsidiaries to bind property and casualty insurance and reinsurance business in most markets. In addition, general creditworthiness ratings are used by existing or potential investors to assess the likelihood of repayment on a particular debt issue. Accordingly, the maintenance of an investment grade creditworthiness rating (e.g., "BBB-" or better from Standard & Poor's or Fitch Ratings) is important to Sirius Group's ability to raise new debt with acceptable terms. Strong creditworthiness ratings are important factors that provide better financial flexibility when issuing new debt or restructuring existing debt.

29


Rating agencies periodically evaluate Sirius Group to confirm that it continues to meet the criteria of the ratings previously assigned to Sirius Group. A downgrade, withdrawal or negative watch/outlook of the financial strength rating of Sirius Group's operating (re)insurance companies could severely limit or prevent Sirius Group from writing new policies or renewing existing policies, which could have a material adverse effect on Sirius Group's results of operations and financial condition. A downgrade, withdrawal or negative watch/outlook of Sirius Group's creditworthiness ratings could limit its ability to raise new debt or could make new debt more costly and/or have more restrictive conditions. Additionally, some of Sirius Group's assumed reinsurance contracts contain optional cancellation, commutation and/or funding provisions that would be triggered if A.M. Best and/or Standard & Poor's were to downgrade below "A-" or withdraw the financial strength ratings of Sirius Group's principal (re)insurance operating subsidiaries. A client may choose to exercise these rights depending on, among other things, the reasons for such a downgrade, the extent of the downgrade, the prevailing market conditions, the degree of unexpired coverage, and the pricing and availability of replacement reinsurance coverage. Sirius Group cannot predict in advance how many of its clients would actually exercise such rights in the event of such a downgrade or withdrawal, but widespread exercise of these options could be materially adverse.
Currently, Sirius Group's and its main subsidiaries' have financial strength ratings of "A–" (Strong) with negative implications from Standard & Poor's, "A-" (Strong) with a negative outlook from Fitch, and "A–" (Excellent) with negative implications from A.M. Best. Our ratings are subject to periodic review by these agencies and we can offer no assurances that our ratings will remain at their current levels or that any of our ratings will remain unchanged. Liquidity events at CMIG, such as the CMIG Defaults and other concerns with respect to our controlling shareholder, including its lack of financial transparency, have prompted rating agencies to place a negative outlook on Sirius Group's ratings, and other events outside of Sirius Group's control, such as actions taken by CMIG's creditors and other parties in interest, may in the future prompt ratings agencies to take additional actions to downgrade and/or place a negative watch/outlook on Sirius Group's ratings. For example, during the fourth quarter 2019, Fitch revised Sirius Group's outlook from stable to negative. The negative outlook and financial strength rating reflected Fitch's concerns regarding the deterioration of Sirius Group's recent operating performance and a one-notch lower adjustment due to CMIG's majority ownership. In addition, during the first quarter 2020, Sirius Group's ratings were downgraded by A.M. Best from a financial strength rating of "A" (Excellent) with stable outlook to "A-" (Excellent) under review with negative implications and Standard & Poor's placed Sirius Group on credit watch negative. Standard & Poor's and A.M. Best's ratings actions were taken following a written resolution executed by CM Bermuda Ltd., the Company's controlling shareholder, on February 25, 2020 which may prohibit Sirius Group's Board of Directors from issuing any shares without CM Bermuda Ltd.'s prior approval. A.M. Best's ratings downgrade reflects the negative impact of Sirius Group's association with CMIG and A.M. Best's concern that CMIG, with a credit quality significantly weaker than Sirius Group, could exert control over Sirius Group despite the presence of a sufficiently strong governance structure and independent board. Standard & Poor's noted that it placed Sirius Group on credit watch negative due to its concerns that there appeared to be a divergence of views between Sirius Group's management and CMIG over the group's future capital strategy. It also noted that the worsening of the dispute between Sirius Group and CMIG could impact the assessment of the group's governance possibly leading to the determination that the Board was no longer Sirius Group's final decision making authority. Standard & Poor's also viewed CMIG's creditworthiness to be significantly weaker than Sirius Group. If the rating agencies were to perceive Sirius Group's safeguard mechanisms as insufficient, or should they determine that CMIG exercises control over Sirius Group's operations, further negative rating action will likely occur, which could include a downgrade or withdrawal of Sirius Group's ratings, and any such action taken by the ratings agencies would have a material adverse effect on Sirius Group's business (including, without limitation, loss of premium), prospects, financial condition and results from operations.
Sirius Group's investment portfolio may suffer reduced returns or losses, which could adversely affect Sirius Group's results of operations and financial condition. Adverse changes in interest rates, foreign currency exchange rates, equity markets, debt markets or market volatility could result in significant losses to the fair value of Sirius Group's investment portfolio.
Sirius Group's investment portfolio is overseen in accordance with the investment policy and guidelines approved by the Finance Committee of the Sirius Group board of directors. As of December 31, 2019, Sirius Group's investment portfolio consisted of fixed maturity investments (including U.S. and foreign government bonds, corporate debt, mortgage-backed, asset-backed and other fixed-maturity securities), short-term investments, equity securities, convertibles and other long-term investments, including hedge funds and private equity funds.
Sirius Group invests to maximize long-term total returns (after-tax) while taking prudent levels of risk and maintaining a diversified portfolio subject to its investment guidelines, policy and various regulatory restrictions. However, investing entails substantial risks. Sirius Group may not achieve its investment objectives, and investment performance may vary substantially over time. Investment returns are an important part of Sirius Group's strategy to grow, and fluctuations in the fixed-income or equity markets could impair Sirius Group's results of operations and financial condition.
Both Sirius Group's investment income and the fair market value of its investment portfolio are affected by general economic and market conditions, including fluctuations in interest rates, foreign currency exchange rates, debt market levels, equity market levels and market volatility.

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Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond Sirius Group's control. In particular, a significant increase in interest rates could result in significant losses in the fair value of Sirius Group's investment portfolio. In addition, certain fixed-income securities, such as mortgage-backed and asset backed securities, carry prepayment risk or, in a rising interest rate environment, may not pre-pay as quickly as expected. Conversely, in a low interest rate environment, Sirius Group may be forced to reinvest proceeds from investments that have matured or have been prepaid or sold at lower yields, which will reduce Sirius Group's investment returns. Additionally, a change in interest rates could adversely affect Sirius Group's results of operations and financial condition.
The table below summarizes the estimated effects of hypothetical increases and decreases in market interest rates on Sirius Group's fixed maturity investments. The size of interest rate decreases presented may be limited in order to floor interest rates at a de minimis level.
 
 
Fair Value at
December 31, 2019
 
Assumed Change in
Relevant Interest Rate
 
Estimated Fair Value
After Change in Interest
Rate
 
Pre-Tax Increase
(Decrease) in Carrying
Value
Fixed maturity investments
 
$
1,681.0

 
300 bp decrease
 
$
1,764.6

 
$
83.6

 
 
 
 
200 bp decrease
 
1,748.5

 
67.5

 
 
 
 
100 bp decrease
 
1,716.8

 
35.8

 
 
 
 
50 bp decrease
 
1,700.1

 
19.1

 
 
 
 
50 bp  increase
 
1,661.1

 
(19.9
)
 
 
 
 
100 bp  increase
 
1,641.1

 
(39.9
)
 
 
 
 
200 bp  increase
 
1,601.2

 
(79.8
)
 
 
 
 
300 bp  increase
 
1,561.2

 
(119.8
)
Sirius Group's investment portfolio is also exposed to investment credit risk, which is the risk that the value of certain investments may decrease due to a deterioration in the financial condition, operating performance or business prospects of, or the liquidity available to, one or more issuers of those securities or, in the case of mortgaged-back and other asset-backed securities, due to the deterioration of the loans or other assets that underlie the securities. Mortgage-backed securities are particularly sensitive to changes in U.S. economic conditions, including deterioration of the U.S. housing market and unemployment, among other factors.
Sirius Group is also exposed to changes in equity markets. A significant decline in the equity markets, such as that experienced from September 2008 to March 2009, could have a material adverse effect on Sirius Group's results of operations and financial condition. Assuming a hypothetical 10% and 30% increase or decrease in the value of Sirius Group's equity securities and other long-term investments as of December 31, 2019, the carrying value of Sirius Group's equity securities and other long-term investments would have increased or decreased by approximately $75 million and $226 million pre-tax, respectively.
Since a portion of Sirius Group's investment portfolio is invested in securities denominated in currencies other than the U.S. dollar, the value of Sirius Group's portfolio is sensitive to changes in foreign currency rates. Sirius Group is also exposed to changes in the volatility levels of various investment markets. The underlying conditions prompting such changes are outside of Sirius Group's control and could adversely affect the value of Sirius Group's investments and results of operations and financial condition.
A portion of Sirius Group's investment portfolio is invested in securities indexed based on the London Interbank Offered Rate ("LIBOR"). On July 27, 2017, the U.K. Financial Conduct Authority announced that it will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021, which is expected to result in these widely used reference rates no longer being available. At this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates or any other reforms to LIBOR that may be enacted in the U.K. or elsewhere. Uncertainty as to the nature of such potential changes, alternative reference rates or other reforms may adversely affect the trading market for LIBOR- based securities, including those held in our investment portfolio. For discussion regarding changes to LIBOR, see "Changes in the method for determining LIBOR and the potential replacement of LIBOR may affect our cost of capital and net investment income" below.

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Changes in the method for determining LIBOR and the potential replacement of LIBOR may affect our cost of capital and net investment income.
As a result of concerns about the accuracy of the calculation of LIBOR, a number of British Bankers Association ("BBA") member banks entered into settlements with certain regulators and law enforcement agencies with respect to the alleged manipulation of LIBOR. Actions by the BBA, regulators or law enforcement agencies as a result of these or future events may result in changes to the manner in which LIBOR is determined. Potential changes or uncertainty related to such potential changes, alternative reference rates or other reforms may adversely affect the market for LIBOR-based securities, including certain of our LIBOR-based assets and liabilities. More generally, any of the above changes or any other consequential changes to LIBOR or any other "benchmark" as a result of international, national or other proposals for reform or other "initiatives" or "investigations" or any other further uncertainty in relation to timing and manner of implementation of such changes, could have a material adverse effect on the value of return on any securities based on or linked to a "benchmark" such as certain of our LIBOR-based assets and liabilities. If LIBOR ceases to exist, we may need to renegotiate the terms of certain of our capital securities and credit instruments, which utilize LIBOR as a factor in determining the interest rate, to replace LIBOR with the new standard that is established. The U.S. Federal Reserve has begun publishing a Secured Overnight Funding Rate which is intended to replace U.S. dollar LIBOR. Plans for alternative reference rates for other currencies have also been announced. At this time, it is not possible to predict how markets will respond to these new rates, and the effect that any changes in LIBOR or the discontinuation of LIBOR might have on new or existing financial instruments. We are not able to predict what the impact of such changes may be on our cost of capital or net investment income.
An unexpected accumulation of attritional losses may adversely affect Sirius Group's operating results.
In addition to Sirius Group's exposures to natural catastrophe and other large losses as discussed above, Sirius Group's operating results may be adversely affected by unexpectedly large accumulations of smaller losses. Sirius Group seeks to manage this risk by using appropriate underwriting processes to guide the pricing, terms and acceptance of risks. These processes, which include pricing models, are intended to ensure that premiums received are sufficient to cover the expected levels of attritional losses and a contribution to the cost of natural catastrophes and large losses where necessary. However, it is possible that these underwriting approaches and/or pricing models may not work as intended and that actual losses from a class of risks may be greater than expected. Sirius Group's pricing models are also subject to the same limitations as the models used to assess exposures to natural catastrophe losses noted above. Accordingly, these factors could adversely impact Sirius Group's financial condition and/or operating results.
A decrease in the fair value of Global A&H and/or Sirius Group's intangible assets may result in future impairments.
As of December 31, 2019, goodwill and intangible assets represented approximately 35% of Sirius Group's consolidated shareholders' equity. Goodwill and intangible assets are assessed for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable. These assessments require Sirius Group to use significant judgment in making various estimates and assumptions, such as the determination of expected future cash flows and/or earnings, and actual results may ultimately be materially different from such estimates and assumptions. For example, expected future cash flows and/or earnings may be materially and negatively impacted as a result of, among other things, a decrease in renewals and new business, loss of key personnel, lower-than-expected yields and/or cash flows from Sirius Group's investment portfolio, as applicable, or higher-than-expected claims activity and incurred losses as well as other general economic factors. As a result of these potential changes, the estimated fair value of Sirius Group's goodwill and intangible assets may decrease, causing the carrying value to exceed the fair value and the goodwill and/or intangible assets to be impaired. If an impairment is determined to exist, the carrying value of the goodwill and/or intangible asset is adjusted to its implied fair value with the corresponding expense recorded in Sirius Group's income statement, as applicable, in the period in which the impairment is determined. If Sirius Group is required to record goodwill impairments in the future, its financial condition and results of operations would be negatively affected.

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Sirius Group is exposed to unpredictable casualty insurance risks that could adversely affect its results of operations and financial condition.
Sirius Group writes insurance and reinsurance policies covering casualty risks. Casualty insurance generally covers the financial consequences of the legal liability of an individual or organization resulting from negligent acts causing bodily injury and/or property damage to a third party. Claims from such business can take years to develop and settle and can be subject to unanticipated claims and economic and social inflation. In addition, Sirius Group could be adversely affected by proposals or enacted legislation to expand the scope of coverage under existing policies or extend the statute of limitations for certain casualty risks. For example, the State of New York recently passed the Child Victims Act which greatly extends the State of New York's statutes of limitations for childhood sex abuse allowing victims to sue until age 55. In connection with this legislation, the New York State Department of Financial Services has released guidance that (re)insurers are to cooperate fully with the Child Victims Act. As a result, this legislation may greatly expand the universe of claimants for which Sirius Group may be liable. Accordingly, if Sirius Group's pricing and/or reserving assumptions are incorrect, higher than expected losses could materially adversely affect Sirius Group's financial condition, liquidity or results of operations.
The property and casualty insurance and reinsurance industries are highly competitive and cyclical and Sirius Group may not be able to compete effectively in the future.
The property and casualty insurance and reinsurance industries are highly competitive and have historically been cyclical, experiencing periods of severe price competition and less selective underwriting standards ("soft markets") followed by periods of relatively high prices and more selective underwriting standards ("hard markets"). Sirius Group competes with numerous reinsurance companies throughout the world and Lloyd's Syndicate 1945, the Lloyd's syndicate that Sirius Group sponsors and that is managed through Syndicate 1945, also competes with other Lloyd's syndicates and London market companies. Many of these competitors have greater financial, marketing and management resources available to them, including greater revenue and shareholders' equity, have established long-term and continuing business relationships throughout the insurance and reinsurance industries and may have higher financial strength ratings, which can be a significant competitive advantage for them.
Soft primary insurance market conditions could lead to a significant reduction in reinsurance premium rates, less favorable contract terms and fewer submissions for Sirius Group's reinsurance underwriting capacity. The supply of reinsurance is also related to the level of reinsured losses and the level of industry capital which, in turn, may fluctuate in response to changes in rates of return earned in the reinsurance industry. As a result, the reinsurance business historically has been a cyclical industry characterized by periods of intense price competition due to excess underwriting capacity as well as periods when shortages of capacity permitted improvements in reinsurance rate levels and terms and conditions.
In recent years, the persistent low interest rate environment and ease of entry into the reinsurance sector has led to increased competition from non-traditional sources of capital, such as insurance-linked funds or collateralized special purpose insurers, predominantly in the property catastrophe excess reinsurance market. This alternative capital provides collateralized property catastrophe protection in the form of catastrophe bonds, industry loss warranties and other risk-linked products that facilitate the ability of non-reinsurance entities, such as hedge funds and pension funds, to compete for property catastrophe excess reinsurance business outside of the traditional treaty market. This alternative capacity is also expanding into lines of business other than property catastrophe reinsurance.
Consequently, the market is currently in a prolonged phase of the soft market cycle in many lines of business, particularly in certain property catastrophe excess reinsurance markets, and, as a result, many of Sirius Group's products are experiencing varying degrees of rate pressure. To the extent these trends continue or accelerate, Sirius Group's financial condition or operating results could be adversely affected.
Sirius Group may not successfully alleviate risk through reinsurance arrangements. Additionally, Sirius Group may not collect all amounts due from its reinsurers under its existing reinsurance arrangements.
Sirius Group attempts to limit its risk of loss through the purchase of reinsurance, including retrocession coverage (i.e., the reinsurance of reinsurance). The availability and cost of reinsurance protection is subject to market conditions, which are outside of Sirius Group's control. In addition, the coverage provided by these reinsurance arrangements may be inadequate to cover Sirius Group's future liabilities. As a result, Sirius Group may not be able to successfully alleviate risk through these arrangements, which could have a material adverse effect on Sirius Group's results of operations and financial condition.

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Purchasing reinsurance does not relieve Sirius Group of the underlying obligations to policyholders or ceding companies, so any inability to collect amounts due from reinsurers could adversely affect Sirius Group's financial condition and results of operations. Inability to collect amounts due from reinsurers can result from a number of scenarios, including: (i) reinsurers choosing to withhold payment due to a dispute or other factors beyond Sirius Group's control; and (ii) reinsurers becoming unable to pay amounts owed to Sirius Group as a result of a deterioration in their financial condition. While Sirius Group regularly reviews the financial condition of its reinsurers and currently believes their financial condition is strong, it is possible that one or more of these reinsurers will be adversely affected by future significant losses or economic events, causing them to be unable or unwilling to pay amounts owed to Sirius Group.
In addition, due to factors such as the price or availability of reinsurance coverage, Sirius Group sometimes decides to increase the amount of risk retained by purchasing less reinsurance or no reinsurance for a particular geographical region. Such determinations have the effect of increasing Sirius Group's financial exposure to losses associated with such risks and, in the event of significant losses associated with a given risk, could have a material adverse effect on Sirius Group's financial condition and results of operations.
Sirius Group, or agents appointed by Sirius Group, may act based on inaccurate or incomplete information regarding the insurance accounts Sirius Group underwrites, or such agents may exceed their authority or act fraudulently when binding policies on Sirius Group's behalf.
Sirius Group, and its MGUs and other agents who have the ability to bind policies on Sirius Group's behalf, rely on information provided by insureds or their representatives when underwriting insurance policies. While Sirius Group may make inquiries to validate or supplement the information provided, Sirius Group may make underwriting decisions based on incorrect or incomplete information. It is possible that Sirius Group will misunderstand the nature or extent of the activities and the corresponding extent of the risks that Sirius Group insures because of its reliance on inadequate or inaccurate information. If any such agents exceed their authority or engage in fraudulent activities, Sirius Group's financial condition and results of operations could be materially adversely affected.
Unexpected volatility or illiquidity associated with some of Sirius Group's investments could significantly and negatively affect Sirius Group's financial results, liquidity and ability to conduct business.
Sirius Group holds, or may in the future purchase, certain investments that include, but are not limited to, publicly traded equities, hedge funds, private equity funds, bonds, bank loans, emerging market debt, nonagency residential mortgage-backed securities, asset-backed securities, commercial mortgage-backed securities, derivatives and other investment products. During the height of the financial crisis, both fixed-income and equity markets were more illiquid and volatile than expected. If Sirius Group requires significant amounts of cash on short notice in excess of normal cash requirements, it may have difficulty selling these investments in a timely manner and/or be forced to sell them for less than it otherwise would have been able to realize. If Sirius Group is forced to sell its assets in unfavorable market conditions, there can be no assurance that it will be able to sell them for the prices at which it has recorded them and may be forced to sell them at significantly lower prices. As a result, Sirius Group's business, financial condition, liquidity or results of operations could be adversely affected.
A portion of Sirius Group's investment portfolio consists of hedge fund and private equity fund investments. The underlying investments in these funds are typically publicly traded and private equity securities and investments, and, as such, are subject to market risks that are similar to Sirius Group's equity securities. However, these investments entail substantial risks and are generally illiquid. Redemption of investments in certain of these funds is subject to restrictions including lock-up periods where no redemptions or withdrawals are allowed, restrictions on redemption frequency and advance notice periods for redemptions. Amounts requested for redemptions remain subject to market fluctuations until the redemption effective date, which generally falls at the end of the defined redemption period.
Global climate change may have a material adverse effect on Sirius Group's business, operating results and financial condition.
There are concerns that the higher level of weather-related catastrophes and other losses incurred by the industry in prior years is indicative of changing weather patterns, including as a result of global climate change, which could cause such events to persist. This would lead to higher overall losses that Sirius Group may not be able to recoup, particularly in the current economic and competitive environment, and higher reinsurance costs. In addition, rising sea levels are expected to add to the risks associated with coastal flooding in many geographical areas. Large scale climate change could increase both the frequency and severity of Sirius Group's loss costs associated with property damage, agricultural losses and business interruption due to storms, floods and other weather-related events. Over the long-term, global climate change could impair Sirius Group's ability to predict the costs associated with future weather events and could also give rise to new environmental liability claims in the energy, manufacturing and other industries Sirius Group serves.

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Given the scientific uncertainty of predicting the effect of climate cycles and global climate change on the frequency and severity of natural catastrophes and the lack of adequate predictive tools, Sirius Group may be unable to adequately model the associated exposures and potential losses in connection with such catastrophes that could have a material adverse effect on Sirius Group's business, operating results and financial condition.
Sirius Group has significant foreign operations that expose it to certain additional risks, including foreign currency risks and political risk.
Through its multinational reinsurance operations, Sirius Group conducts business in a variety of foreign (non-U.S.) currencies, the principal exposures being the Swedish Krona, British Pound Sterling, Euro and Canadian dollar. As a result, a significant portion of Sirius Group's assets, liabilities, revenues and expenses are denominated in currencies other than the U.S. dollar and are therefore subject to foreign currency risk. Significant changes in foreign exchange rates may adversely affect Sirius Group's results of operations and financial condition.
Sirius Group's foreign operations are also subject to legal, political and operational risks that may be greater than those present in the U.S. As a result, Sirius Group's operations at these foreign locations could be temporarily or permanently disrupted.
Sirius Group may suffer losses from unfavorable outcomes from litigation and other legal proceedings.
In the ordinary course of business, Sirius Group is subject to litigation and other legal proceedings as part of the claims process, the outcomes of which are uncertain. Sirius Group maintains reserves for claims-related legal proceedings as part of its loss and LAE reserves. Adverse outcomes are possible and could negatively impact Sirius Group's financial condition.
Furthermore, as industry practices and legal, judicial, social and other conditions change, unexpected issues related to claims and coverage may emerge. These issues may adversely affect Sirius Group's results of operations and financial condition by either extending coverage beyond Sirius Group's underwriting intent or by increasing the number and size of claims. In some instances, these changes may not become apparent until sometime after Sirius Group has issued the affected insurance contracts. Examples of emerging claims and coverage issues include, but are not limited to:
new theories of liability and disputes regarding medical causation with respect to certain diseases;
assignment-of-benefits agreements, where rights of insurance claims and benefits of the insurance policy are transferred to third parties, and which can result in inflated repair costs and legal expenses to insurers and reinsurers;
claims related to data security breaches, information system failures or cyber-attacks; and
claims related to blackouts caused by space weather.
Moreover, Sirius Group cannot guarantee that a court or arbitration panel will enforce policy language or not issue a ruling adverse to Sirius Group. In fact, this risk can be exacerbated by the increased willingness of some market participants to dispute insurance and reinsurance policy and contract provisions. This exposure may grow as Sirius Group grows its "long tail" casualty business since claims can typically be made for many years after actual exposure to a risk. If Sirius Group chooses to exclude such exposures, it could reduce the market's acceptance of Sirius Group's products. Sirius Group continually seeks to improve the effectiveness of its contractual provisions to address this exposure but may fail to mitigate such exposure nonetheless.
In addition, from time to time Sirius Group is subject to legal proceedings that are not related to the claims process. In the event of an unfavorable outcome in one or more non-claims legal matters, Sirius Group's ultimate liability may be in excess of amounts reserved and such additional amounts may be material to Sirius Group's results of operations and financial condition. Furthermore, it is possible that these non-claims legal proceedings could result in unexpected outcomes that may materially impact Sirius Group's business or operations.

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The effects of, and uncertainty regarding, the U.K.'s withdrawal from the European Union could negatively impact Sirius Group's investment portfolio, business and results of operations.

On January 31, 2020, the U.K. withdrew from the European Union ("EU"), referred to as "Brexit". The U.K. entered into a withdrawal agreement resulting in a transition period until December 31, 2020 during which the trading relationship between the U.K. and the EU will remain the same. Uncertainty remains as to what terms, if any, may be approved during the transition period. During the transition period and beyond, the impact on the U.K. and European economies and the broader global economy could be significant, resulting in negative impacts, such as increased volatility and illiquidity, and potentially lower economic growth on markets in the U.K., Europe and globally, which may negatively impact the value of Sirius Group's investment portfolio, business and results of operations. Lloyd's has established a European subsidiary company through which Lloyd's syndicates will have access to the EU single market and Lloyd’s has given assurance that the European subsidiary company will not result in increased costs above the marginal costs which have already been incurred.  Sirius International and its U.K. branch can continue to write business on a passporting rights basis in the U.K. until the end of the transition period. After the transition period ends and in the absence of any trade deals, Sirius International will lose its passporting rights to operate in the U.K. Sirius has applied to the U.K. regulators to establish a Third Country Branch, to enable it to continue to operate in the U.K. The approval for the branch is expected to be secured before the U.K. temporary permissions regime has expired on December 31, 2020. This will add an additional regulatory burden on the U.K. branch as it will fall under the direct supervision of the U.K. regulators.
Sirius Group's reinsurance operations are largely dependent upon ceding companies' evaluation of risk.
Sirius Group, like other reinsurance companies that write treaty reinsurance, generally does not evaluate separately each of the assumed individual insurance risks under Sirius Group's reinsurance contracts. As such, Sirius Group is largely dependent upon the cedents' original underwriting decisions. Sirius Group is subject to the risk that the cedents may not have adequately or accurately evaluated the risks that they have insured, and Sirius Group has reinsured, and that the premiums ceded may not adequately compensate Sirius Group for the risks it assumes. If Sirius Group's reserves are insufficient to cover the actual loss and LAE arising from Sirius Group's treaty reinsurance business, Sirius Group would have to strengthen its reserves and incur charges to its earnings. These charges could be significant and could have a material adverse effect on Sirius Group's results of operations and financial condition.
Consolidation in the insurance and reinsurance industries could adversely impact Sirius Group.
The insurance and reinsurance industries have been consolidating over the past several years and the consolidation trend may continue and even accelerate in the near future. These consolidated client and competitor enterprises may try to use their enhanced market power to negotiate price reductions for Sirius Group's products and services and/or obtain a larger market share through increased line sizes. If competitive pressures reduce prices, Sirius Group would generally expect to reduce its future underwriting activities thus resulting in reduced premiums and a reduction in expected earnings. As the insurance industry consolidates, competition for customers will become more intense and the importance of sourcing and properly servicing each customer will become greater. Sirius Group could incur greater expenses relating to customer acquisition and retention, further reducing Sirius Group's operating margins. In addition, insurance companies that merge may be able to spread their risks across a consolidated, larger capital base so that they require less reinsurance. The number of companies offering retrocessional reinsurance may decline. Reinsurance intermediaries could also continue to consolidate, potentially adversely impacting Sirius Group's ability to access business and distribute its products. Sirius Group could also experience more robust competition from larger, better capitalized competitors. Any of the foregoing could adversely affect Sirius Group's business or its results of operations.
Since Sirius Group depends on a small number of brokers for a large portion of its revenues, loss of business provided by any one of them could adversely affect Sirius Group.
Sirius Group markets its insurance and reinsurance worldwide primarily through insurance and reinsurance brokers. The insurance and reinsurance brokerage industry generally, and Sirius Group's sources of business specifically, are concentrated. During 2019, 2018, and 2017, Sirius Group received 69%, 70%, and 65%, respectively, of its insurance and reinsurance business from four major insurance and reinsurance brokers as follows: Aon Corporation and subsidiaries—24%, 26%, and 22%, respectively; Guy Carpenter & Company and subsidiaries—24%, 26%, and 25%, respectively; WT Butler and Co. Ltd.—11%, 10%, and 10%; and Willis Towers Watson plc and subsidiaries—10%, 8%, and 8%, respectively. A decision of one or more of these brokers to reduce substantially or eliminate its business with Sirius Group could adversely affect Sirius Group's business, results of operations or financial condition. In addition, numerous brokers and their affiliates have equity interests in insurance and reinsurance companies that compete with Sirius Group. These brokers may favor these insurers and reinsurers over other companies, including members of Sirius Group.

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Sirius Group's reliance on intermediaries subjects it to the intermediaries' credit risk.
In accordance with industry practice, Sirius Group frequently pays amounts owing in respect of claims under its contracts to reinsurance brokers and, to a lesser extent, MGUs that, in turn, make payments to the cedents. In the event that a broker or MGU fails to make such a payment, depending on the jurisdiction, Sirius Group may remain liable to the cedent for the deficiency. Conversely, when premiums for reinsurance contracts are paid to reinsurance brokers or MGUs for payment to Sirius Group, these premiums may be deemed to have been paid and the cedent may no longer be liable to Sirius Group for those amounts, whether or not actually received by Sirius Group. Intermediaries generally are less capitalized than the businesses Sirius Group reinsures and therefore may be unable to pay their debts when due. Consequently, Sirius Group faces credit risk associated with intermediaries during the payment process.
The regulatory framework under which Sirius Group operates and potential changes thereto could have a material adverse effect on its business.
Sirius Group's activities are subject to extensive regulation under the laws and regulations of the U.S., the U.K., Bermuda, Sweden and the EU and its member states and the other jurisdictions in which Sirius Group operates.
Sirius Group's operations in each of these jurisdictions are subject to varying degrees of regulation and supervision. The laws and regulations of the jurisdictions in which Sirius Group's insurance and reinsurance subsidiaries are domiciled require, among other things, that these subsidiaries maintain minimum levels of statutory capital, surplus and liquidity, meet solvency standards, submit to periodic examinations of their financial condition and restrict payments of dividends, distributions and reductions of capital in certain circumstances. Statutes, regulations and policies to which Sirius Group's insurance and reinsurance subsidiaries are subject may also restrict the ability of these subsidiaries to write insurance and reinsurance policies, make certain investments and distribute funds.
Sirius Group devotes a significant amount of time and resources to comply with various regulatory requirements imposed in Bermuda, Sweden, the U.S. and the U.K. and various other jurisdictions around the globe. There remains significant uncertainty as to the impact that these various regulations and legislation will have on Sirius Group. Such impacts could include constraints on Sirius Group's ability to move capital between subsidiaries or requirements that additional capital be provided to subsidiaries in certain jurisdictions, which may adversely impact Sirius Group's profitability. In addition, while Sirius Group currently has excess capital and surplus under applicable capital adequacy requirements, such requirements or similar regulations, in their current form or as they may be amended in the future, may have a material adverse effect on Sirius Group's business, financial condition or results of operations.
Sirius Group's insurance and reinsurance operating subsidiaries may not be able to maintain necessary licenses, permits, authorizations or accreditations in territories where Sirius Group is currently engaged in business or obtain them in new territories, or may be able to do so only at significant cost. In addition, Sirius Group may not be able to comply fully with, or obtain appropriate exemptions from, the wide variety of laws and regulations applicable to insurance or reinsurance companies or holding companies. In addition to insurance and financial industry regulations, Sirius Group's activities are also subject to relevant economic and trade sanctions, money laundering regulations, and anti-corruption laws including the U.S. Foreign Corrupt Practices Act, U.K. Bribery Act 2010 and the Bermuda Bribery Act 2016, which may increase the costs of regulatory compliance, limit or restrict Sirius Group's ability to do business or engage in certain regulated activities, or subject Sirius Group to the possibility of regulatory actions or proceedings.
There can be no assurance that Sirius Group, its employees, or its agents acting on Sirius Group's behalf are in full compliance with all applicable laws and regulations or their interpretation by the relevant authorities and, given the complex nature of the risks, it may not always be possible for Sirius Group to ascertain compliance with such laws and regulations. Failure to comply with or to obtain appropriate authorizations and/or exemptions under any applicable laws or regulations, including those referred to above, could subject Sirius Group to investigations, criminal sanctions or civil remedies, including fines, injunctions, loss of an operating license, reputational consequences, and other sanctions, all of which could have a material adverse effect on Sirius Group's business. Also, changes in the laws or regulations to which Sirius Group is subject could have a material adverse effect on its business. In addition, in most jurisdictions, government regulatory authorities have the power to interpret or amend applicable laws and regulations, and have discretion to grant, renew or revoke licenses and approvals Sirius Group needs to conduct its activities. Such governmental and regulatory authorities may require Sirius Group to incur substantial costs in order to comply with such laws and regulations.

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We face risks related to changes in Bermuda law and regulations, and the political environment in Bermuda.
Sirius Group is incorporated in Bermuda and certain of our operating companies are domiciled in Bermuda. Therefore, our exposure to potential changes in Bermuda law and regulations that may have an adverse impact on our operations, such as the imposition of tax liability, increased regulatory supervision or changes in regulation could have a material adverse effect on our business. The Bermuda insurance and reinsurance regulatory framework recently has become subject to increased scrutiny in many jurisdictions, including in the U.S. and in various states within the U.S. Sirius Group is unable to predict the impact of such changes on Sirius Group's operations.
In addition, Sirius Group may be impacted by changes in the political environment in Bermuda, which could make it difficult to operate in, or attract talent to, Bermuda. Bermuda is a small jurisdiction and may be disadvantaged in participating in global or cross border regulatory matters as compared with larger jurisdictions such as the U.S. or the leading EU countries. Bermuda, which is an overseas territory of the United Kingdom, may consider changes to its relationship with the United Kingdom in the future. A change to Bermuda's regulatory or political environment could have an adverse effect on the international reinsurance market focused there which could, in turn, have a material adverse impact on Sirius Group.
Sirius Group is subject to certain legal and regulatory restrictions concerning its ownership and control which could be violated in connection with CMIG or its creditors' plans to address the CMIG Defaults.
Sirius Group is subject to certain legal and regulatory restrictions concerning its ownership and control. One such restriction is that no person or entity may acquire direct or indirect control of Sirius Group (which in some jurisdictions could occur with a person or entity, directly or indirectly, acquiring 10% or more of the voting securities of Sirius Group), without first obtaining the consent of the various regulatory authorities that have jurisdiction over Sirius Group. The CMIG Defaults could result in a situation in which CMIG or its affiliates elect or are required to sell or otherwise transfer, directly or indirectly, their holdings of Sirius Group, or their respective creditors could collect on securities (if any) pledged as collateral within Sirius Group’s chain of ownership, which could result in a change of control of Sirius Group. In addition, under certain circumstances, including in the event of a change of control under the certificate of designation in respect of the Series B preference shares, Sirius Group may not have sufficient liquidity available and therefore may be required to pay the redemption price for the outstanding Sirius Group Series B preference shares in common shares valued at $1.00 per share, which could result in a further change of control of Sirius Group. Any direct or indirect change of control of Sirius Group without the prior approval of applicable insurance regulatory authorities could result in the transaction being enjoined, the assessment of fines or penalties, the takeover of the applicable insurers by such insurance regulatory authorities, the revocation of applicable insurance licenses, and criminal penalties for willful violations of applicable insurance laws. In addition, a change in control could result in the termination of or the posting of collateral under certain reinsurance contracts. Certain U.S. states also prohibit the control of insurers by state-owned or state-controlled entities (such as state-owned banks), which may include certain of CMIG’s creditors. A violation of such prohibitions could result in the revocation of insurance licenses held by Sirius Group’s U.S.-domiciled insurers, which are necessary for Sirius Group to operate its business. In addition, a change of control of CMIG or Sirius Group that results in non-U.S. persons (including CMIG’s creditors) acquiring direct or indirect control of Sirius Group's U.S. businesses may be subject to review by the Committee on Foreign Investment in the United States (“CFIUS”), potentially resulting in enforcement actions by CFIUS to enjoin or unwind the transaction.
In recent discussions, several holders of Sirius Group's Series B preference shares have raised the possibility that there may have been, or that CMIG or its creditors may take actions that result in, a change of control triggering a redemption of their preference shares pursuant to the terms of the certificate of designation for the Series B preference shares. Sirius Group has previously notified CMIG and outside counsel representing certain creditors of CMIG that any action that results in a change of direct or indirect control of Sirius Group, without first obtaining the consent of the various regulatory authorities that have jurisdiction over the Company and its operating subsidiaries, would be a violation of law and could result in actions being taken against such persons and/or Sirius Group that could negatively impact Sirius Group and its businesses. Sirius Group has not been able to obtain information to determine whether a change of control (within the meaning of relevant legal and regulatory restrictions and/or the certificate of designation for the Series B preference shares) has occurred or may occur as a result of actions taken or contemplated with respect to such entities.

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Risks associated with changes in U.S. healthcare legislation could negatively affect Sirius Group's accident and health business.
Sirius Group derives revenues from, among other things, the provision of accident and health premiums in the U.S., that is, providing insurance to institutions that participate in the U.S. healthcare delivery infrastructure. Changes in U.S. healthcare legislation, specifically the Patient Protection and Affordable Care Act of 2010 (the "Healthcare Act") (and legislative reforms related thereto), have made significant changes to the regulation of health insurance including, but not limited to, the healthcare delivery system, the healthcare cost reimbursement structure in the U.S. and the rate of growth of health care costs in the U.S. and may negatively affect Sirius Group's accident and health business. In addition, Sirius Group may be subject to regulations, guidance or determinations emanating from the various regulatory authorities authorized under the Healthcare Act. It is difficult to predict the effect that the Healthcare Act, or any regulatory pronouncement made thereunder, will have on Sirius Group's results of operations or financial condition.
Sirius Group may be unable to adequately maintain its systems and safeguard the security of the data it holds or the data held by its business partners and service providers, which may adversely impact Sirius Group's ability to operate its business and cause reputational harm and financial loss.
Because Sirius Group's business and operations rely on secure and efficient information technology systems, Sirius Group depends on its ability and the ability of certain third parties, including vendors and business partners, to access Sirius Group's computer systems to perform necessary functions such as providing quotes and product pricing, billing and processing premiums, administering claims, and reporting its financial results. The functioning of these systems may be impacted by any number of events, including power outages, natural and man-made catastrophes, and cyber-attacks even though backup and recovery systems and contingency plans are in place. In the event Sirius Group is unable to access its systems, or any third-party system that it relies upon, Sirius Group's ability to operate its business effectively may be significantly impaired, which could adversely affect our consolidated financial condition or results of operations.
Sirius Group's business also depends upon its ability to securely process, store, transmit and safeguard confidential and proprietary information that is in Sirius Group's possession. This information includes confidential information relating to Sirius Group's business, and personally identifiable information ("PII") and protected health information ("PHI") belonging to employees, customers, claimants and business partners. Even though we implement and maintain reasonable security processes, practices and procedures appropriate to the nature of the information we hold, and we rely on sophisticated commercial control technologies to maintain security and confidentiality of our systems, Sirius Group's systems may be vulnerable to a variety of forms of unauthorized access that could result in a data breach, including hackers, computer viruses, and other cyber-attacks, as well as breaches that result from dishonest employees, errors by employees or lost or stolen computer devices, and Sirius Group may not be able to protect the confidentiality of such information.
Third parties present an additional risk of cyber-related events. Sirius Group outsources certain technological and business process functions to third-party providers. Sirius Group relies on these third parties to maintain and store PII and PHI and other confidential information on their systems. As needed, Sirius Group also transmits such information by e-mail and other electronic means. Sirius Group attempts to establish appropriate controls and secure capabilities to transmit such information and to prevent unauthorized disclosure, but these controls may not be sufficient. Furthermore, third-party providers may not have appropriate controls in place to protect such information.
Sirius Group's computer systems have been and will continue to be the target of cyber-attacks, despite the measures we have taken and may take in the future to address and mitigate cybersecurity and technology risks. We cannot assure you that our systems and networks will not be subject to successful attacks, breaches or interference. While Sirius Group has not experienced a material cybersecurity breach, it has experienced and may experience in the future a cybersecurity incident. For example, in January 2020, IMG, a subsidiary of Sirius Group, experienced a cybersecurity incident and initiated its disaster recovery plan which resulted in an interruption of business. As of the date of this filing, we have found no indication that any customer data or personal information was exfiltrated or accessed by unauthorized parties in connection with the incident. While the cybersecurity incident disrupted the operations of our subsidiary, the cybersecurity incident did not result in a material disruption to Sirius Group's systems. At the time of this filing, Sirius Group has no reasonable basis to determine that IMG's recent cybersecurity incident will result in any material costs to Sirius Group. While we have significant security processes and initiatives in place, Sirius Group and its subsidiaries may be unable to detect or prevent a breach or disruption in the future. Additionally, while Sirius Group has insurance coverage designed to address certain aspects of cyber risks in place, such insurance coverage may be insufficient to cover all losses or all types of claims that may arise.

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Sirius Group is also not aware of any third-party vendor having experienced a material cybersecurity breach that impacted Sirius Group's data. The risk of cyber-attack may increase, and Sirius Group may experience more significant attacks in the future. The risks identified above, including with respect to the cybersecurity incident of Sirius Group's subsidiary, IMG, could expose Sirius Group to data breaches, disruptions of service, financial losses and significant increases in compliance costs and reputational harm to Sirius Group, any of which could have a material adverse effect on Sirius Group's business and results of operations.
In addition, a data breach that involves the compromise of PII or PHI could subject Sirius Group to legal liability or regulatory action under data protection and privacy laws and regulations enacted by federal, state and foreign governments, or other regulatory bodies. In particular, Sirius Group is subject to EU, U.S., federal, state and other foreign laws and regulations regarding the protection of personal data and information. These laws and regulations are complex and sometimes conflict. Sirius Group could be subject to fines, penalties, and/or regulatory enforcement actions in one or more jurisdictions if Sirius Group breaches, whether intentionally or negligently, controls intended to protect the personal data of Sirius Group's employees and clients. For example, the regulations adopted by the New York State Department of Financial Services addressing cybersecurity, the GDPR in the EU and the California Consumer Privacy Act require Sirius Group to comply with obligations to identify and secure personal data, among other requirements. Failure to comply could result in significant fines.
Operational risks, including human or systems failures, are inherent in Sirius Group's business.
Operational risks and losses can result from many sources including fraud, errors by employees, failure to document transactions properly or to obtain proper internal authorization, failure to comply with regulatory requirements or information technology failures.
Sirius Group's modeling, underwriting and information technology and application systems are critical to its business and reputation. Moreover, Sirius Group's technology and applications have been an important part of its underwriting process and ability to compete successfully. Such technology is and will continue to be a very important part of the underwriting process. Sirius Group has also licensed certain systems and data from third parties. Sirius Group cannot be certain that it will have access to these, or comparable service providers, or that Sirius Group's technology or applications will continue to operate as intended. In addition, Sirius Group cannot be certain that these service providers or consultants could be replaced without slowing Sirius Group's underwriting response time. A major defect or failure in Sirius Group's internal controls or information technology and application systems could result in management distraction, harm to Sirius Group's reputation, a loss or delay of revenues or increased expense.
Sirius Group may modify its business and strategic plan and these changes could adversely affect Sirius Group and its financial condition and results of operations.
Sirius Group regularly evaluates its business plans and strategies which may result in changes it its business operations. Changes in its business plans and strategic focus require significant management time and effort and may divert management's attention from its core operations and competencies. Modifications to Sirius Group's operations, such as the recent internal reorganization of Sirius Group's global operating structure, may not result in the anticipated benefits immediately or at all, and could have unintended consequences. If our restructuring activities are not executed successfully, it could have a material adverse effect on our business, financial condition and results of operations. In addition, Sirius Group routinely evaluates potential strategic transactions but there can be no assurance that we will successfully consummate any such transaction or that a consummated transaction would succeed financially. Sirius Group's failure to successfully carry out its business plans and/or execute strategic transactions may have a material adverse effect on Sirius Group's long-term results of operations and financial condition.
Sirius Group depends on key personnel to manage the business effectively and they may be difficult to replace.
Sirius Group's performance substantially depends on the efforts and abilities of its management team and other executive officers and key employees. Furthermore, much of Sirius Group's competitive advantage is based on the expertise, experience and know-how of its key management personnel. Sirius Group does not have fixed-term employment agreements with many of its key employees or key-man life insurance and the loss of one or more of these key employees could adversely affect Sirius Group's business, results of operations and financial condition. Sirius Group's success also depends on the ability to hire and retain additional personnel. Difficulty in hiring or retaining personnel could adversely affect Sirius Group's results of operations and financial condition.

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Sirius Group faces unforeseen liabilities arising from possible acquisitions and dispositions of businesses or difficulties integrating acquired businesses.
Sirius Group has engaged in acquisitions of businesses in the past, including the acquisitions of Armada and IMG in 2017, and may continue to do so in the future. Any future acquisitions may expose it to operational challenges and risks, including:
integrating financial and operational reporting systems;
establishing satisfactory budgetary and other financial controls;
funding increased capital needs and overhead expenses;
obtaining management personnel required for expanded operations;
funding cash flow shortages that may occur if anticipated sales and revenues are not realized or are delayed, whether by general economic or market conditions or unforeseen internal difficulties;
the value of assets acquired may be lower than expected or may diminish due to credit defaults or changes in interest rates and liabilities assumed may be greater than expected;
the assets and liabilities acquired by Sirius Group may be subject to foreign currency exchange rate fluctuation; and
financial exposures in the event that the sellers of the entities acquired are unable or unwilling to meet their indemnification, reinsurance and other obligations to Sirius Group.
Sirius Group's ability to achieve the benefits anticipated from any business acquisition will depend in large part upon its ability to successfully integrate such businesses in an efficient and effective manner. Sirius Group may not be able to integrate such businesses successfully, or the process may take longer than expected. The integration of operations may require the dedication of significant management resources, which may distract management's attention from day-to-day business. If Sirius Group is unable to successfully integrate the operations of such acquired businesses, it may be unable to realize the full benefits it expects to achieve as a result of such acquisitions and Sirius Group's business and results of operations may be lower than expected.
Sirius Group may require additional capital in the future, which may not be available or may only be available on unfavorable terms. Increasing barriers to free trade and the free flow of capital could adversely affect the reinsurance industry and Sirius Group's business.
Sirius Group's future capital requirements depend on many factors, including regulatory requirements, the ability to write new business successfully, the frequency and severity of catastrophic events, and the ability to establish premium rates and reserves at levels sufficient to cover losses. Sirius Group may need to raise additional funds through financings or curtail its growth and reduce its assets. Any equity or debt financing, if available at all, may be on unfavorable terms. Disruption in the financial markets may limit Sirius Group's ability to access capital required to operate its business and Sirius Group may be forced to delay raising capital or bear a higher cost of capital, which could decrease Sirius Group's profitability and significantly reduce its financial flexibility. In addition, if Sirius Group experiences a credit rating downgrade, withdrawal or negative watch/outlook in the future, it could incur higher borrowing costs and may have more limited means to access capital. If Sirius Group cannot obtain adequate capital on favorable terms or at all, its business, results of operations and financial condition could be adversely affected.
In addition, recent political initiatives to restrict free trade and close markets, such as Brexit and the U.S.'s decision to withdraw from the Trans-Pacific partnership and renegotiation and/or potential termination of existing bilateral and multilateral trade arrangements could have a material adverse effect on the reinsurance industry and Sirius Group's business. The reinsurance industry is disproportionately impacted by restraints on the free flow of capital and risk because it may affect Sirius Group's ability to globally diversify risk and grow organically or inorganically.
Sirius Group has incurred losses in the past and may incur losses in the future.
Sirius Group had a comprehensive (loss) of approximately $(82) million, $(80) million, and $(78) million for 2019, 2018, and 2017, respectively. Sirius Group expects to incur increased operating expenses related to its growth initiatives, including those initiatives related to the growth of Armada and a primary insurance platform to support its business. If revenue fails to grow at anticipated rates, or if operating costs rise without a commensurate increase in revenue, then the imbalance between revenue and operating expenses will negatively impact Sirius Group's liquidity as well as its ability to achieve profitability in upcoming quarters. Sirius Group's lack of recent profitability may indicate that it needs to re-evaluate its plan of operations or change its strategies in order to generate a profit. A lack of profitability could adversely affect the price of its common shares and liquidity.

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Sirius Group's results of operations may fluctuate significantly from period to period and may not be indicative of its long-term prospects.
Sirius Group's results of operations may fluctuate significantly from period to period. These fluctuations result from a variety of factors, including the seasonality of the insurance and reinsurance business, the volume and mix of reinsurance and insurance products that Sirius Group writes, loss experience on Sirius Group's insurance and reinsurance liabilities, the performance of Sirius Group's investment portfolio and its ability to assess and integrate its risk management strategy effectively. In particular, Sirius Group seeks to underwrite products and make investments to achieve long-term results. As a result, at any given time, Sirius Group's short-term results of operations may not be indicative of its long-term prospects.
Sirius Group is a holding company with no direct operations, and its insurance and reinsurance subsidiaries' ability to pay dividends and other distributions to Sirius Group is restricted by law.
Sirius Group is a holding company and carries out its business through its insurance and reinsurance subsidiaries. Accordingly, Sirius Group is dependent upon receipt of funds from other members of Sirius Group to fulfill its obligations. Sirius Group's subsidiaries may not be able to generate cash flow sufficient to pay a dividend or distribute funds to Sirius Group. In addition, under the insurance laws of certain jurisdictions in which Sirius Group's insurance and reinsurance subsidiaries are domiciled, an insurer or reinsurer is restricted with respect to the timing or the amount of dividends it may pay without prior approval by their relevant regulatory authorities.
Sirius Group's top tier regulated insurance and reinsurance operating subsidiary is Sirius Bermuda. In addition to the voluntary undertaking executed by Sirius Bermuda and Sirius Group in May 2019, Sirius Bermuda's ability to pay dividends is limited under Bermuda law and regulations. Under the Insurance Act, Sirius Bermuda is restricted with respect to the payment of dividends. Sirius Bermuda is prohibited from declaring or paying in any financial year dividends of more than 25% of its total statutory capital and surplus (as shown on its previous financial year's statutory balance sheet) unless it files, at least seven days before payment of such dividends, with the BMA an affidavit stating that it will continue to meet the required margins following the declaration of those dividends. Accordingly, Sirius Bermuda can pay approximately $524 million to its parent company, Sirius International Group, Ltd., during 2020 without providing an affidavit to the BMA. Sirius Bermuda indirectly owns Sirius International Insurance Corporation, Sirius America Insurance Company and Sirius Group's other insurance and reinsurance operating companies, each of which are limited in their ability to pay dividends by the insurance laws of their relevant jurisdictions.
As of December 31, 2019, Sirius Group and its intermediate holding companies had $43 million of net unrestricted cash, short-term investments and fixed-maturity investments outside of its regulated and unregulated insurance and reinsurance operating subsidiaries. Management believes that Sirius Group's cash balances, cash flows from operations and cash flows from investments are adequate to meet expected cash requirements for the foreseeable future on both a holding company and operating subsidiary level. However, if Sirius Group's insurance and reinsurance subsidiaries cannot pay dividends in future periods, it may have difficulty servicing its debt and meeting its holding company expenses. Dividend payments and other distributions from Sirius Group's subsidiaries also may be subject to withholding taxes, which would reduce the amount available to service Sirius Group's debt.
The current state of the global economy and capital markets increases the possibility of adverse effects on Sirius Group's financial position and results of operations. Economic downturns could impair Sirius Group's investment portfolio and affect the primary insurance market, which could, in turn, harm Sirius Group's results of operations and reduce the volume of new business.
Global capital markets in the U.S. and Europe, as well as other leading markets, continue to experience volatility. Although conditions may be improving, the longer this economic situation persists, the greater the probability that these risks could have an adverse effect on Sirius Group's financial results. This may be evidenced in several ways including, but not limited to, a potential reduction in Sirius Group's premium income, financial losses in Sirius Group's investment portfolio and decreases in revenue and net income.
Unfavorable economic conditions also could increase Sirius Group's funding costs, limit its access to the capital markets or result in a decision by lenders not to extend credit to Sirius Group. These events could prevent Sirius Group from increasing its underwriting activities and negatively impact Sirius Group's results of operations. In addition, Sirius Group's cedents and other counterparties may be affected by such developments in the financial markets, which could adversely affect their ability to meet their obligations to Sirius Group.

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Changes in current accounting principles and practices and financial reporting requirements may materially affect Sirius Group's reported financial results and our reported financial condition.

Sirius Group's financial statements are prepared in accordance with GAAP, which is periodically revised by the Financial Accounting Standards Board (“FASB”), and they are subject to the accounting-related rules and interpretations of the SEC. Sirius Group is required to adopt new and revised accounting standards implemented by the FASB. Unanticipated developments in accounting practices may require us to incur considerable additional expenses to comply with such developments, particularly if we are required to prepare information relating to prior periods for comparative purposes or to apply the new requirements retroactively.
Risks Related to Tax Matters
Sirius Group has significant deferred tax assets, which may become devalued if either Sirius Group does not generate sufficient future taxable income or applicable corporate tax rates are reduced.
Sirius Group's total net deferred tax liability as of December 31, 2019 was $39 million. Of that amount, $25 million relates to net deferred tax assets in the U.S. subsidiaries, $142 million relates to net deferred tax assets in Luxembourg subsidiaries and $206 million relates to net deferred tax liabilities in Sweden subsidiaries. Net deferred tax assets and liabilities reflect carryforward tax attributes and temporary differences between the book basis and tax basis of various assets and liabilities. Utilization of most deferred tax assets is dependent on generating sufficient future taxable income in the appropriate jurisdiction and/or entity. If it is determined that it is more likely than not that sufficient future taxable income will not be generated, Sirius Group would be required to increase applicable valuation allowance(s). Most of Sirius Group's deferred tax assets are determined by reference to applicable corporate income tax rates, in particular in the U.S., Luxembourg and Sweden. Accordingly, in the event of new legislation that reduces any such corporate income tax rates, the carrying value of certain of Sirius Group's deferred tax assets would decrease. A material devaluation in Sirius Group's deferred tax assets due to either insufficient taxable income or lower corporate income tax rates would have an adverse effect on Sirius Group's results of operations and financial condition.
Two of Sirius Group's Swedish non-insurance subsidiaries are involved in tax disputes.
The Swedish Tax Authority ("STA") has denied deductions claimed by two of Sirius Group's Swedish subsidiaries in certain tax years for interest they paid on intra-group debt instruments. Sirius Group is currently challenging the STA's denial in court based on the technical merits. In October 2018, one of the Swedish subsidiaries received an adverse decision from Sweden's Administrative Court, which Sirius Group has appealed. Sirius Group's reserve for uncertain tax positions has taken into account this and other relevant developments in these tax disputes and in applicable Swedish tax law including recent case law. Sirius Group also has taken into account the Stock Purchase Agreement by which Sirius Group was sold to CMIG International in 2016, pursuant to which the seller agreed to indemnify Sirius Group and the buyer for, among other things, (i) any additional tax liability in excess of Sirius Group's accounting for uncertain tax positions for tax periods prior to the sale of Sirius Group to CMIG International, and (ii) an impairment in Sirius Group's net deferred tax assets resulting from a final determination by a tax authority. While Sirius Group intends to continue challenging the STA's denial based on the technical merits (including the appeal of the adverse court decision received in October 2018), the ultimate resolution of these tax disputes is uncertain and no assurance can be given that there will be no material changes to Sirius Group's operating results or balance sheet in connection with these uncertain tax positions or the related indemnification.
Sirius Group may be treated as a PFIC, in which case a U.S. holder of Sirius Group common shares would be subject to disadvantageous rules under U.S. federal income tax laws.
If Sirius Group is considered a passive foreign investment company ("PFIC") for U.S. federal income tax purposes, a U.S. shareholder will be subject to adverse tax consequences, including subjecting the U.S. shareholder to a greater tax liability than might otherwise apply and subjecting the U.S. shareholder to tax on amounts in advance of when tax would otherwise be imposed, in which case its investment in Sirius Group could be materially adversely affected. In addition, if Sirius Group were considered a PFIC, upon the death of any U.S. individual owning shares, such individual's heirs or estate would not be entitled to a "step-up" in the basis of the shares that might otherwise be available under U.S. federal income tax laws. A U.S. shareholder may avoid some of the adverse tax consequences of owning an equity interest in a PFIC by making a qualified electing fund election. If Sirius Group is a PFIC, an electing U.S. shareholder is likely to recognize income in a taxable year in amounts significantly greater than the distributions received from Sirius Group, if any, in such taxable year.

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Sirius Group will be treated as a PFIC for U.S. federal income tax purposes in any taxable year for which either (i) at least 75% of Sirius Group's gross income consists of certain types of "passive income" or (ii) at least 50% of the average value of Sirius Group's assets produce, or are held for the production of, "passive income." Unless an exception applies, "passive income" includes dividends, interest, rents and royalties. For these purposes, if Sirius Group owns (directly or indirectly) at least 25% (by value) of the stock of another corporation, for purposes of determining whether Sirius Group is a PFIC, Sirius Group is treated as if it held the proportionate share of the assets of such other corporation, and as if it received directly the proportionate share of the income of such other corporation. Under a specific exception, as amended by the 2017 tax reform known as the Tax Cuts and Jobs Act (Pub. L. 115-97) ("2017 Tax Cuts and Jobs Act"), passive income does not include income derived in the active conduct of an insurance business by a qualifying insurance corporation. Whether an insurance company is a qualifying insurance corporation is determined based on an asset to liability test. The test requires the insurance company to have applicable insurance liabilities in excess of 25% of its total assets as reported on the company's financial statements and there is significant uncertainty regarding how the exception will be interpreted. In July 2019, the U.S. Treasury and IRS issued proposed regulations providing guidance on the active insurance business exception, including the 25% test and calculation of income that is not treated as passive. The proposed regulations are not effective until adopted in final form. The IRS has requested comments on several aspects of the proposed regulations. It is uncertain when the proposed regulations will be finalized, and whether and how the provisions of any final or temporary regulations will vary from proposed regulations.
Based on Sirius Group's assets, income and activities, including those of its subsidiaries engaged in the active conduct of an insurance business, Sirius Group does not expect that it will be treated as a PFIC in 2020; however, this conclusion is not free from doubt and the IRS could take the position that Sirius Group is a PFIC. While Sirius Group expects its insurance subsidiaries will qualify for the active insurance income exception for qualified insurance corporations in light of pending regulations and in the absence of other detailed guidance relating to the interpretations of the 2017 Tax Cuts and Jobs Act, there can be no assurance that Sirius Group's insurance subsidiaries will meet the requirements for this exception. Moreover, PFIC classification is a factual determination made annually, and even if Sirius Group is not a PFIC in 2020, it could become a PFIC in later years. Accordingly, Sirius Group cannot assure you that it will not be treated as a PFIC for 2020 or for any future year.
Sirius Group may become subject to increased taxation in Bermuda and other countries as a result of the OECD's various proposals or as a result of being listed on the EU list of non-cooperative jurisdictions for tax purposes.
The Organisation for Economic Cooperation and Development ("OECD"), with the support of the Group of Twenty ("G20"), initiated the "base erosion and profit shifting" ("BEPS") project in 2013 in response to concerns that international tax standards have not kept pace with changes in global business practices and that changes are needed to international tax laws to address situations where multinational enterprises may pay little or no tax in certain jurisdictions by shifting profits away from jurisdictions where the activities creating those profits may take place. In October 2015, the OECD issued "final reports" in connection with the BEPS project. The final reports were approved for adoption by the G20 finance ministers in November 2015 and provide the basis for international standards for corporate taxation, which are designed to prevent, among other things, treaty-shopping, the artificial shifting of income to tax havens and low-tax jurisdictions, the erosion of the tax base through interest deductions on intercompany debt and the artificial avoidance of permanent establishments (i.e., tax nexus with a jurisdiction). Action 6 (treaty abuse) led to the development of a global multilateral instrument to incorporate and facilitate changes to tax treaties, which was signed on June 7, 2017. Legislation to adopt these standards has been enacted or is currently under consideration in a number of jurisdictions, including country-by-country reporting.
More recently, the OECD also published a “Programme of Work” (organized as two “pillars”) and follow-on reports intended to address the tax challenges created by an increasing digitalized economy. Pillar One focuses on global profit allocation and includes proposals for new profit allocation and nexus methodologies. In January 2020, the OECD published a statement suggesting that financial services businesses with commercial customers (including insurance) will be outside the scope of Pillar One. Pillar Two addresses remaining BEPS issues by introducing a global minimum tax and a new tax on base eroding payments. The OECD has announced that it intends to obtain consensus by its participating members during 2020, which could give rise to their respective countries enacting new tax legislation and/or amending tax treaties.
As a result of changes in applicable tax law emanating from the developments discussed above, Sirius Group's earnings may be subject to income tax, or intercompany payments may be subject to withholding tax, in jurisdictions where they are not currently taxed or at higher rates of tax than currently taxed. The applicable tax authorities could also attempt to apply such taxes to past earnings and payments. Any such additional taxes could materially increase Sirius Group's effective tax rate. Also, the adoption of these standards may increase the complexity and costs associated with tax compliance and adversely affect Sirius Group's financial position and results of operations.

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On March 12, 2019, the Council of the European Union added Bermuda to the list of non-cooperative jurisdictions for tax purposes. On May 17, 2019, Bermuda was removed from this list and was listed as a cooperative tax jurisdiction that was subject to certain commitments. The Council of European Union has stated that Bermuda has taken positive steps to comply with their requirements but that further technical changes need to be made to address economic substance concerns. Bermuda had until the end of 2019 to address these concerns. If Bermuda is unable to satisfy the EU’s concerns then it risks being returned to the list of non-cooperative jurisdictions for tax purposes. On February 18, 2020, Bermuda was completely removed from the list. Therefore, Sirius Group does not currently expect any material adverse effects from these developments. If Bermuda is added back to this list, Sirius Group and its subsidiaries may be subject to certain adverse tax and non-tax consequences, which may depend in part on future changes in tax laws and/or administration of relevant EU countries.
Sirius Group's operations may be affected by the introduction of EU mandatory disclosure rules under DAC 6.
The EU has introduced new rules requiring companies and their respective advisors to disclose information to tax authorities regarding certain cross-border arrangements which satisfy certain conditions, as part of a new Directive widely referred to as “DAC 6”. The scope of the arrangements and conditions which may trigger disclosure is very wide, and not limited to aggressive tax planning or indeed (for certain of the conditions) to arrangements which have any tax motive. Although first disclosures are not required until August 2020, the rules will apply retrospectively to any arrangements put in place or made available for implementation on or after June 25, 2018. The obligation to file disclosures under DAC 6 will fall on persons acting as intermediaries, which in many cases may require our advisers and other service providers to file disclosures relating to arrangements we are party to, in the first instance.
Sirius Group intends to operate in compliance with DAC 6 mandatory disclosure rules. Achieving and maintaining compliance is likely to entail some cost to Sirius Group, and any inadvertent failure to comply with Sirius Group's obligations may lead to fines and penalties, which would have an adverse effect on Sirius Group's results. Sirius Group's shareholders and their respective intermediaries could also be subject to certain disclosure obligations in relation to their investment in Sirius Group, and should seek guidance from their own advisors in respect of the potential application of DAC 6 to them.
Sirius Group may become subject to income tax (or an increased amount of income tax) in one or more countries, including the U.S., which could materially reduce Sirius Group's after-tax returns and the value of Sirius Group common shares.
Due to their business operating models, a portion of the income of two of Sirius Group's foreign insurance companies is treated as effectively connected with a U.S. trade or business, and Sirius Group complies with the applicable U.S. income tax filing and payment requirements accordingly. Other than these deemed U.S. businesses, Sirius Group (including its foreign subsidiaries) currently intends to conduct substantially all of its businesses and operations in a manner such that it will not otherwise be engaged in a trade or business in the U.S. and will not be subject to more U.S. income tax than it currently incurs. However, the matter is not free from doubt in light of the applicable tax law and guidance regarding activities that constitute being engaged in a trade or business in the U.S. for U.S. federal income tax purposes. Accordingly, Sirius Group cannot assure you that the IRS will not contend, perhaps successfully, that a foreign entity in Sirius Group is engaged in a trade or business in the U.S. or is subject to more U.S. income tax than it currently incurs. A foreign corporation deemed to be so engaged would be subject to U.S. federal income tax, as well as branch profits tax, on its income that is treated as effectively connected with the conduct of that trade or business unless the corporation is entitled to relief under an applicable tax treaty.
Sirius Group could become subject to income tax in one or more countries, including the U.S., as a result of activities performed by it, adverse developments or changes in law, contrary conclusions by the relevant tax authorities or other causes. The imposition of any of these income taxes could materially reduce Sirius Group's post-tax returns available for distributions on, and consequently the value of, Sirius Group common shares.
The impact of Bermuda's letter of commitment to the OECD to eliminate harmful tax practices is uncertain and could adversely affect Sirius Group's tax status in Bermuda.
The OECD has published reports and launched a global dialogue among member and non-member countries on measures to limit harmful tax competition. These measures are largely directed at counteracting the effects of tax havens and preferential tax regimes in countries around the world. According to the OECD, Bermuda is a jurisdiction that has substantially implemented the internationally agreed tax standard and as such is listed on the OECD "white list". However, Sirius Group is unable to predict whether any changes will be made to this classification or whether any such changes will subject Sirius Group or its Bermuda operations to additional taxes.

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An "ownership change" could limit Sirius Group's ability to utilize tax loss and credit carryforwards in the U.S. to offset future taxable income.
As of December 31, 2019, Sirius Group had a deferred tax asset (net of valuation allowance) in the U.S. of approximately $44 million representing tax attributes including net operating loss carryforwards and tax credit carryforwards. Sirius Group's ability to use the tax attributes underlying such deferred tax asset to offset future taxable income may be significantly limited if Sirius Group experiences an "ownership change" as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"). In general, an ownership change will occur when the percentage of ownership (by value) of one or more "5-percent shareholders" (as defined in the Code) in Sirius Group common shares has increased by more than 50% over the lowest percentage owned by such shareholders at any time during the prior three years (calculated on a rolling basis). An entity that experiences an ownership change generally will be subject to an annual limitation on its pre-ownership change tax loss and credit carryforwards equal to the equity value of the corporation immediately before the ownership change, multiplied by the long-term, tax-exempt rate posted monthly by the IRS (subject to certain adjustments). The limitation on Sirius Group's ability to utilize tax loss and credit carryforwards arising from an ownership change under Section 382 of the Code would depend on the value of Sirius Group's equity at the time of any ownership change. For example, the CMIG Defaults could result in a situation in which CM Bermuda or other entities in the ownership chain elect or are required to sell or otherwise transfer their holdings in Sirius Group. If Sirius Group were to experience an "ownership change" under Section 382 of the Code it is possible that a significant portion of Sirius Group's tax loss and credit carryforwards could expire before Sirius Group would be able to use them to offset future taxable income. Sirius Group also has a significant amount of tax loss carryforwards and other tax attributes in other countries, including Luxembourg, the U.K., and Sweden. While Sirius Group does not currently expect such tax attributes to be restricted if CM Bermuda transfers its holdings of Sirius Group, the actual consequences will depend on the facts and the law in effect at the time, and no assurance can be made that Sirius Group's non-U.S. tax attributes will not be restricted if CM Bermuda transfers its holdings of Sirius Group in the future.
The ongoing effects of the 2017 Tax Cuts and Jobs Act and BEAT could make Sirius Group's results difficult to predict.
Sirius Group's effective tax rate may fluctuate in the future as a result of the 2017 Tax Cuts and Jobs Act, which included significant enacted changes in U.S. income tax law that had a meaningful impact on Sirius Group's provision for income taxes and requires significant judgments and estimates in the interpretation and calculations. Sirius Group recorded the effects in its financial statements for the year ended December 31, 2019. However, Sirius Group cannot assure that the IRS will apply the new tax law in a way similar to Sirius Group's interpretation.
The enacted tax legislation included, among other new provisions, a reduction in the corporate tax rate, new limitations on the deductibility of net interest, and the Base Erosion and Anti-Abuse Minimum Tax ("BEAT"). Final and proposed regulations interpreting and applying some of these provisions have been issued by the U.S. Department of the Treasury and the IRS, and additional guidance may be forthcoming. It is not possible to predict if, when or in what form such guidance will be provided and whether such guidance will be applied on a retroactive basis. The BEAT levies a significant tax on cross border payments to related group companies. This tax will subject certain intragroup reinsurance arrangements to a base erosion tax on premiums ceded. While Sirius Group intends to operate in a manner that limits its exposure to BEAT, at this time, subject to additional IRS guidance, uncertainty about the financial impact on Sirius Group of this new tax remains and Sirius Group cannot reassure you it will not be subject to material amounts of BEAT in the future. Accordingly, BEAT could materially impact Sirius Group's provision for taxes in the future.
Sirius Group may be subject to tax withholding under FATCA, which may reduce investment returns and distributions to shareholders.
The Hiring Incentives to Restore Employment Act provides that a 30% withholding tax will be imposed on certain payments of U.S. source income and certain payments of proceeds from the sale of property that could give rise to U.S. source interest or dividends unless Sirius Group and the applicable foreign subsidiaries enter into an agreement with the IRS to disclose the name, address and taxpayer identification number of certain U.S. persons that own, directly or indirectly, an interest in Sirius Group as well as certain other information relating to any such interest (these rules are commonly known as the Foreign Account Tax Compliance Act, or "FATCA"). The IRS has released final and proposed regulations and other guidance that provide for the phased implementation of the foregoing withholding and reporting requirements. On December 19, 2013, the U.S. Department of the Treasury signed a Model 2 non-reciprocal intergovernmental agreement (the "Model 2 IGA") with Bermuda. The Model 2 IGA modifies the foregoing requirements but generally requires similar information to be disclosed to the IRS. Although Sirius Group will attempt to satisfy any obligations imposed on it to avoid the imposition of this withholding tax, no assurance can be given that it will be able to satisfy these obligations. If Sirius Group or its subsidiaries become subject to a withholding tax as a result of FATCA, the return of all shareholders may be materially adversely affected.

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U.S. tax-exempt organizations who own Sirius Group common shares may recognize unrelated business taxable income.
A U.S. tax-exempt organization may recognize unrelated business taxable income if Sirius Group is a "controlled foreign corporation" (which we also refer to as a "CFC") as discussed below, and the organization is a 10% U.S. Shareholder, or if the related person insurance income ("RPII") inclusion rules above apply. U.S. tax-exempt organizations should consult their own tax advisors regarding the risk of recognizing unrelated business taxable income as a result of the ownership of Sirius Group common shares. A "10% U.S. Shareholder" is a U.S. person who owns (directly, indirectly through foreign entities or constructively) at least 10% of the total combined voting power of Sirius Group's voting shares, or at least 10% of the total value of shares of all classes of stock of such foreign corporation.
Changes in U.S. federal income tax law and other jurisdictions could materially adversely affect an investment in Sirius Group common shares.
The U.S. federal income tax laws and interpretations regarding whether a company is engaged in a trade or business within the U.S. or whether a company is a CFC or PFIC or has RPII are subject to change, possibly on a retroactive basis. Treasury regulations were issued in proposed form regarding the application of the PFIC rules to an insurance company. Additionally, the 2017 Tax Cuts and Jobs Act changed in material ways the tests for whether a foreign insurance company is a PFIC, and while proposed regulations have been issued with respect to these new rules they have not yet been finalized. Additionally, the Treasury regulations regarding RPII are still in proposed form. New Treasury regulations or pronouncements interpreting or clarifying such rules may be forthcoming from the IRS. It is not possible to predict if, when or in what form such guidance will be provided and whether such guidance will be applied on a retroactive basis. Due to the absence of specific authority with respect to these issues, the amount, timing and character of income, gain or loss recognized with respect to a U.S. shareholder could be significantly different from that described herein. Additionally, changes in tax law in non-U.S. jurisdictions may also adversely affect Sirius Group's tax treatment and that of its subsidiaries. You are urged to consult your own tax advisor regarding the tax consequences of owning Sirius Group shares in your particular circumstances.
Reduced U.S. federal income tax rates for qualified dividend income may not be available in the future.
As long as Sirius Group common shares are readily tradable on an established securities market in the U.S. and it is not a PFIC, then under current U.S. law, dividends paid on Sirius Group common shares to U.S. individual shareholders should qualify as "qualified dividend income" and be eligible for reduced U.S. federal income tax rates. The U.S. Congress has, in the past, considered legislation that would exclude shareholders of foreign corporations from this preferential U.S. federal income tax treatment unless either (i) the corporation is organized or created under the laws of a country that has entered into a "comprehensive income tax treaty" with the U.S. or (ii) the stock of such corporation is readily tradable on an established securities market in the U.S. and the corporation is organized or created under the laws of a country that has a "comprehensive income tax system" that the U.S. Secretary of the Treasury determines is satisfactory for this purpose. Sirius Group would likely not satisfy either of these tests and, accordingly, if this or similar legislation were to become law, individual U.S. shareholders would no longer qualify for reduced U.S. federal income tax rates on dividends paid by it.
Sirius Group may be treated as a CFC and might be subject to the rules for related person insurance income, and in either case this may subject a U.S. holder of Sirius Group common shares to disadvantageous rules under U.S. federal income tax laws.
A CFC for U.S. federal income tax purposes is any foreign corporation if, on any day of the taxable year, 10% U.S. Shareholders own (directly, indirectly through foreign entities or by attribution by application of certain constructive ownership rules) more than 50% (25% in the case of certain insurance companies) of the total combined voting power of all classes of that corporation's voting shares, or more than 50% (25% in the case of certain insurance companies) of the total value of all the corporation's shares. If Sirius Group is a CFC, each 10% U.S. Shareholder must annually include in its income its pro rata share of Sirius Group's "subpart F income," and its "global intangible low-taxed income" even if no distributions are made.

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If, with respect to any of Sirius Group's non-U.S. insurance subsidiaries, (i) 20% or more of the gross income in any taxable year is attributable to insurance or reinsurance policies of which the direct or indirect insureds are direct or indirect U.S. shareholders of Sirius Group (regardless of the number of shares owned by those shareholders) or persons related to such U.S. shareholders and (ii) direct or indirect insureds, whether or not U.S. persons, and persons related to such insureds own directly or indirectly 20% or more of the voting power or value of Sirius Group's shares, any U.S. person who owns any shares directly or indirectly on the last day of the taxable year would most likely be required to include its allocable share of the RPII of the applicable subsidiary for the taxable year in its income, even if no distributions are made. Sirius Group believes it is not likely that these conditions will be satisfied. However, Sirius Group cannot assure you that this will be the case. Consequently, Sirius Group cannot assure you that a person who is a direct or indirect U.S. shareholder will not be required to include amounts in its income in respect of RPII in any taxable year.
Sirius Group may become subject to taxes in Bermuda after March 31, 2035, which may have a material adverse effect on its results of operations and your investment.
The Bermuda Minister of Finance, under the Exempted Undertakings Tax Protection Act 1966 of Bermuda, as amended, has given Sirius Group and each of its Bermuda incorporated subsidiaries an assurance that if any legislation is enacted in Bermuda that would impose tax computed on profits or income, or computed on any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, then the imposition of any such tax will not be applicable to any such entity or any of its operations, shares, debentures or other obligations until March 31, 2035, except insofar as such tax applies to persons ordinarily resident in Bermuda or to any taxes payable by it in respect of real property owned or leased by it in Bermuda. Given the limited duration of the Bermuda Minister of Finance's assurance, there can be no assurance that Sirius Group will not be subject to any Bermuda tax after March 31, 2035.
U.S. Treasury regulations may limit Sirius Group's ability to make acquisitions of U.S.-domiciled companies using corporate stock.
On April 4, 2016 and July 12, 2018, the IRS and the Treasury Department issued final and temporary regulations on corporate inversions. Among other provisions, the regulations provide for a "cash box rule" that in general reduces a foreign corporation's value by the percentage of passive assets it holds for the purpose of applying the inversion ownership test. Failure of such test could result in the acquiring corporation being taxed as a U.S. corporation. As a result of these regulations, the size of any U.S. company that Sirius Group could acquire for stock may need to be dramatically reduced to avoid severe adverse tax consequences. Sirius Group would need to monitor its passive assets to avoid such adverse tax consequences.
Risks Related to Sirius Group Common Shares and Ownership
There can be no assurance that Sirius Group will be able to comply with the continued listing standards of Nasdaq.
Sirius Group is required to demonstrate compliance with Nasdaq's continued listing requirements in order to continue to list its common shares on Nasdaq. If Nasdaq delists Sirius Group common shares from trading on its exchange for failure to meet the continued listing requirements, Sirius Group and its shareholders could face significant material adverse consequences including:
a limited availability of market quotations for Sirius Group securities;
a determination that Sirius Group common shares are a "penny stock," which will require brokers trading in Sirius Group common shares to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for Sirius Group common shares;
a limited amount of analyst coverage; and
a decreased ability to issue additional securities or obtain additional financing in the future.
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as "covered securities." If Nasdaq delists Sirius Group common shares, the common shares would not be covered securities and Sirius Group would be subject to regulation in each state in which it offers its securities.

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Sirius Group has limited experience complying with the reporting and other requirements of a publicly traded company. Fulfilling Sirius Group's obligations incident to being a public company, including with respect to the requirements of the Sarbanes-Oxley Act of 2002, will be expensive and time consuming, and any delays or difficulties in satisfying these obligations could have a material adverse effect on Sirius Group's future results of operations and share price.
Prior to the completion of the Merger in November 2018, Sirius Group had operated as a private company, and prior to April 2016 as a subsidiary of a public company, and had not been subject to the same financial and other reporting and corporate governance requirements as a public company. As a result of the completion of the Merger, as a public company, Sirius Group is required, among other things, to:
prepare and file periodic reports in compliance with the federal securities laws;
define and expand the roles and the duties of its board of directors and its committees;
institute more comprehensive compliance, investor relations and internal audit functions; and
evaluate and maintain its system of internal control over financial reporting, and report on management's assessment thereof, in compliance with rules and regulations of the SEC.
The changes necessitated by becoming a public company require a significant commitment of additional resources and management oversight, which has increased Sirius Group's operating costs and may divert attention away from the day-to-day management of the business. These changes also place significant additional demands on Sirius Group's finance and accounting staff, as they adjust to working for a newly public company, and on Sirius Group's financial accounting and information systems. Other expenses associated with being a public company include, but are not limited to, increases in auditing, accounting and legal fees and expenses, investor relations expenses, increased directors' fees and director and officer liability insurance costs, registrar and transfer agent fees and listing fees. The costs and time commitments of Sirius Group's staff could be substantially more than we currently expect. Therefore, our historical consolidated financial statements may not be indicative of our future costs and performance as a stand-alone public company. Moreover, if our finance and accounting personnel are unable for any reason to respond adequately to the increased demands resulting from being an independent public company, the quality and timeliness of our financial reporting may suffer, and we could experience significant deficiencies or material weaknesses in our disclosures.
In particular, the Sarbanes-Oxley Act of 2002 requires Sirius Group to document and test the effectiveness of its internal control over financial reporting in accordance with an established internal control framework, and to report on management's conclusions as to the effectiveness of its internal controls. In addition, Sirius Group is required under the Exchange Act to maintain disclosure controls and procedures and internal control over financial reporting. Sirius Group's operating results could be harmed or we may not be able to meet our reporting obligations if we fail to implement required new or improved controls, or encounter difficulties in their implementation. If management is unable to conclude that Sirius Group has effective internal control over financial reporting, investors could lose confidence in the reliability of its financial statements. This could result in a decrease in the value of Sirius Group common shares. Failure to comply with the Sarbanes-Oxley Act of 2002 could potentially subject Sirius Group to sanctions or investigations by the SEC, Nasdaq or other regulatory authorities.

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A significant percentage of the outstanding Sirius Group common shares are held by a single shareholder, which could impact your liquidity, and future sales of Sirius Group common shares by this shareholder may lower the trading price of Sirius Group common shares.
CM Bermuda, a direct wholly owned subsidiary of CMIG International, owns approximately 96.0% of the outstanding Sirius Group common shares as of February 14, 2020. Continuation of this concentrated ownership would result in a limited amount of shares being available to be traded in the market, resulting in reduced liquidity. The shares held by CM Bermuda are restricted securities within the meaning of Rule 144 under the Securities Act of 1933, as amended (the "Securities Act'") and are eligible for resale in the public market without registration subject to volume, manner of sale and holding period limitations under Rule 144 under the Securities Act. Further, pursuant to the Registration Rights Agreement, dated as of November 5, 2018, between the Company, CM Bermuda and Easterly Acquisition Sponsor, LLC, all of the common shares owned by CM Bermuda are eligible to be registered under the Securities Act, subject to certain limitations set forth in the registration rights agreement, and may be offered and sold to the public from time to time after the effectiveness of the related registration statement. Sirius Group has also filed a registration statement with respect to the resale of certain of its securities held by other holders, which has been declared effective by the SEC. CM Bermuda could at any time elect to require Sirius Group to file a registration statement to register any or all of its common shares, including in order to gain liquidity following the CMIG Defaults. Upon effectiveness of such registration statements, CM Bermuda or other holders may sell large amounts of Sirius Group common shares in the open market or in privately negotiated transactions, which could have the effect of increasing the volatility in Sirius Group common share price or putting significant downward pressure on the price of Sirius Group common shares. Sales of substantial amounts of Sirius Group common shares in the public market, or the perception that such sales will occur, could adversely affect the market price of Sirius Group common shares and make it difficult for it to raise funds through securities offerings in the future.
On February 25, 2020, CM Bermuda Ltd., the Company’s controlling shareholder, executed a written resolution which may prohibit the Board from issuing any shares and taking certain other actions with respect to the shares without the prior approval of holders of the common shares of the Company representing at least 75% of the shareholder voting rights (“CMB Resolution”). The CMB Resolution could prevent the Company from performing a number of matters necessary to the operation of its business, including raising capital, even if necessary to meet regulatory or rating agency capital requirements, to finance its operations or to increase its public float, as well as incentivizing employees using shares of the Company, and completing equity-based financing of transactions, without the approval of CM Bermuda Ltd. If Sirius Group is unable to obtain such approval to complete financing, strategic or other transactions due to Sirius Group’s inability to issue additional shares or securities convertible into or exercisable for shares, Sirius Group’s financial condition and business prospects may be materially harmed, which may have a material adverse effect on its business and results from operations.
Sirius Group’s bye-laws permit the Board to issue any authorized but unissued shares on such terms and conditions as it may determine, subject in some instances to a resolution of its shareholders to the contrary. The CMB Resolution states that the Board shall not exercise its powers to issue any common or preference shares, warrants, options or other forms of share equity, or to confer any new share rights or implement any rights plan, or to amend or vary or alter any rights attaching to any existing shares, in each case without the prior approval of holders of the common shares of the Company representing at least 75% of the shareholder voting rights (the "Shareholder Approval"), except for any shares or rights that the Company is contractually required to issue or amendments the Company is contractually required to make under a contract executed prior to February 25, 2020.
The CMB Resolution may have a material adverse effect on the Company’s results from operations, including prohibiting the Board from conducting capital raises without the Shareholder Approval and demonstrating financial strength and independence to its rating agencies. This may lead to a downgrade and/or withdrawal of the financial strength ratings of Sirius Group by A.M. Best and/or Standard & Poor’s. The CMB Resolution also jeopardizes the ability of the Board to act independently and free from the control and direction of CM Bermuda Ltd. on matters that are customarily overseen by the Board or a committee thereof, such as issuances of shares pursuant to authority previously granted to the Board under the bye-laws of the Company and granting long-term incentive compensation to employees in the form of equity-based awards pursuant to the Omnibus Incentive Plan previously approved by CM Bermuda Ltd. prior to the Company being publicly listed on Nasdaq.
There is no assurance that CM Bermuda Ltd., which as of the date of this report is the only shareholder with sufficient voting rights under the CMB Resolution to approve the matters restricted thereby, would approve any requested share issuances. If Sirius Group is unable to raise capital or finance strategic transactions with its common shares or any other form of equity, it may not be able to satisfy the capital requirements of its regulators and rating agencies, finance its operations and/or take actions to increase its public float.


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The CMB Resolution may also result in Sirius Group becoming the subject of lawsuits initiated by minority shareholders, including lawsuits claiming that they are being unfairly oppressed by Sirius Group’s controlling shareholder. In addition, the prohibition on issuance of shares without CM Bermuda Ltd.’s approval may prevent Sirius Group from receiving funds and/or credit as a borrower from a financial institution in order to support its business and operations.
Any of the foregoing events could have a material adverse effect on Sirius Group’s business, prospects, financial condition, results from operations, liquidity and share price.
Sirius Group has become aware of recent announcements by CMIG regarding the CMIG Defaults. The CMIG Defaults may have financial, legal, regulatory, contractual and other implications that could have a material adverse effect on Sirius Group's business, prospects, financial condition, results from operations, liquidity and share price.
CMIG International, which is approximately 82% owned by CMIG, indirectly holds approximately 87% of the voting control over the Sirius Group equity securities as of December 31, 2019, through CMIG International's wholly-owned Bermuda holding company, CM Bermuda. In April 2019, subsidiaries of CMIG announced the existence of certain asset freeze orders relating to CMIG's Chinese subsidiaries and cross-defaults, relating to, among others, approximately US$300 million and US$500 million on certain of CMIG's subsidiaries' bonds not within the chain of control of Sirius Group. Since then, the US$300 million bonds were subsequently accelerated and repaid in full, and the noteholders agreed to extend the maturity date of the US$500 million notes from August 2, 2019 to August 2, 2020 and reduce the total aggregate principal amount to US$450 million in connection with the payment of a US$50 million mandatory partial redemption. In addition, on October 28, 2019, CMIG, through one of its subsidiaries, informed the holders of the US$500 million notes that are now due in 2020 that CMIG has been progressing with investment and asset dispositions with respect to certain non-core businesses and investment projects and expects to use the proceeds from these dispositions to repay the notes and redeem an aggregate principal amount of US$130 million of the notes with any interest accrued and unpaid thereon by June 2020. CMIG previously announced in mid-2019 that it was uncertain that certain super and short-term commercial paper obligations in the amount of approximately US$220 million and US$113 million would be timely repaid. However, these obligations were eventually repaid in full five and three days after the maturity date, respectively. In early 2019, a CMIG subsidiary announced that a previously declared US$30 million dividend would be delayed due to concerns regarding a possible cash shortfall following the payment of the dividend. There were also previous public announcements by CMIG during 2019 that disclosed that an onshore creditors committee had been formed to stabilize the current situation and maintain the operations of CMIG.
Risks and uncertainties associated with the CMIG Defaults include the actions that CMIG may take to resolve its liquidity issues (such as a sale of Sirius Group), potential opposition to such actions from CMIG's creditors and other parties in interest and potential opposition to such actions from Sirius Group's other shareholders and stakeholders, potential disagreements between Sirius Group and CMIG regarding contractual indemnitees, as well as the actions that CMIG's creditors and government authorities may take (such as additional freezes on CMIG's assets, including directly or indirectly the Sirius Group common shares held by CM Bermuda, or involuntary bankruptcy or liquidation proceedings of CMIG). For more information about how the CMIG Defaults may impact Sirius Group, see the following risk factors elsewhere in this Item 1.A.: "Sirius Group is reliant on financial strength and creditworthiness ratings, and any downgrade and/or change in outlook may have a material adverse effect on Sirius Group's business, prospects, financial condition and results from operations," "Sirius Group is subject to certain legal and regulatory restrictions concerning its ownership and control which could be violated in connection with CMIG or its creditors' plans to address the CMIG Defaults," "An 'ownership change' could limit Sirius Group's ability to utilize tax loss and credit carryforwards in the U.S. to offset future taxable income," "A significant percentage of the outstanding Sirius Group common shares are held by a single shareholder, which could impact your liquidity, and future sales of Sirius Group common shares by this shareholder may lower the trading price of Sirius Group common shares," and "The trading price of Sirius Group's securities is volatile and subject to wide fluctuations in response to various factors, some of which are beyond Sirius Group's control."
In addition, as a result of these heightened risks and uncertainties, Sirius Group may be unable to enter into new relationships or preserve its existing relationships with third parties that are critical to maintaining its business. For example, Sirius Group has lost and may in the future lose business opportunities which may have been or could have been accretive to the long-term growth of the business. Clients and other business partners may seek to engage with other insurance and reinsurance companies that are not experiencing the same degree of uncertainty as Sirius Group. These circumstances could have a material adverse impact on Sirius Group's ability to maintain its existing business, to generate new business or to identify future partners to develop and expand its business. Sirius Group's ability to hire and retain qualified personnel has been and may in the future be similarly affected.


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Although the CMIG Defaults do not trigger any defaults under Sirius Group's credit facilities, a change of control of Sirius Group as a result of the CMIG Defaults could trigger defaults under Sirius Group's credit facilities, and other effects of the CMIG Defaults could ultimately trigger redemption provisions of Sirius Group's Series B preference shares. In the event of acceleration of Sirius Group's debt obligations under and the termination of its credit facilities or a mandatory redemption of the Series B preference shares, Sirius Group may face challenges in refinancing its indebtedness on acceptable terms or at all, and may be unable to raise additional capital to fund the redemption payment or support its business, particularly as Sirius Group's credit ratings have been placed on a negative watch/outlook or if they are downgraded. In addition, due to the CMIG Defaults, CMIG International's status as a controlling shareholder could limit Sirius Group's ability to raise new equity and debt capital or execute on strategic objectives, including bolt-on acquisitions and strategic mergers & acquisitions. Any of the foregoing events could have a material adverse effect on Sirius Group's business, prospects, financial condition, results from operations, liquidity and share price.
Sirius Group's shareholders will be subject to significant dilution upon the occurrence of certain events, which could result in a decrease in the Sirius Group common share price.
In connection with the Merger, Sirius Group issued warrants to certain investors that may be exercised for an aggregate of 5.4 million common shares at an exercise price of $21.53 per share, and converted warrants to the former Easterly stockholders that may be exercised for an aggregate of 6.1 million common shares at an exercise price of $18.89 per share. In addition, Sirius Group has 14.1 million common shares reserved or designated for future issuance pursuant to the Sirius Group Long Term Incentive Plan and 2018 Omnibus Incentive Plan.
Sales of substantial amounts of Sirius Group common shares into the public markets by the holders of these warrants and equity grants following their exercise or vesting will be dilutive to Sirius Group's existing shareholders and could result in a decrease in the Sirius Group common share price.
Future issuances of any equity securities may dilute the interests of Sirius Group's shareholders and decrease the trading price of Sirius Group common shares.
Any future issuance of equity securities could dilute the interests of Sirius Group's shareholders and could substantially decrease the trading price of Sirius Group common shares. Sirius Group may issue equity or equity-linked securities in the future for a number of reasons, including to finance Sirius Group's operations and business strategy (including in connection with acquisitions and other transactions), to adjust Sirius Group's ratio of debt to equity, to satisfy its obligations upon the exercise of then-outstanding options or other equity-linked securities, if any, or for other reasons.
The trading price of Sirius Group's securities is volatile and subject to wide fluctuations in response to various factors, some of which are beyond Sirius Group's control.
The trading price of Sirius Group's securities is volatile and subject to wide fluctuations in response to various factors, some of which are beyond Sirius Group's control. Any of the factors listed below could have a material adverse effect on your investment in Sirius Group's securities and Sirius Group's securities may trade at prices significantly below the price paid for such securities. In such circumstances, the trading price of Sirius Group's securities may not recover and may experience a further decline.

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Factors affecting the trading price of Sirius Group's securities may include:
actual or anticipated fluctuations in Sirius Group's periodic financial results or the financial results of companies perceived to be similar to Sirius Group;
changes in the market's expectations about Sirius Group's operating results;
Sirius Group's operating results failing to meet the expectation of securities analysts or investors in a particular period;
changes in financial estimates and recommendations by securities analysts concerning Sirius Group or its industry in general;
operating and stock price performance of other companies that investors deem comparable to Sirius Group;
changes in laws and regulations affecting Sirius Group's business;
Sirius Group's ability to meet compliance requirements;
commencement of litigation involving Sirius Group;
changes in Sirius Group's capital structure, such as future issuances of securities or the incurrence of additional debt;
the volume of Sirius Group common shares available for public sale;
any major change in Sirius Group's board of directors or management;
sales of substantial amounts of common shares by Sirius Group's directors, executive officers or significant shareholders or the perception that such sales could occur;
the pendency of the CMIG Defaults, and actions taken by CMIG or its creditors in relation thereto; and
general economic and political conditions such as recessions, interest rates, international currency fluctuations and acts of war or terrorism or other catastrophes.
Broad market and industry factors may materially harm the market price of Sirius Group's securities irrespective of its operating performance. The stock market in general, and Nasdaq in particular, has experienced price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of the particular companies affected. The trading prices and valuations of these stocks, and of Sirius Group's securities, may not be predictable. A loss of investor confidence in the market for insurance securities or the stocks of other companies which investors perceive to be similar to Sirius Group could depress Sirius Group's share price regardless of Sirius Group's business, prospects, financial conditions or results of operations. A decline in the market price of Sirius Group's securities also could adversely affect Sirius Group's ability to issue additional securities and its ability to obtain additional financing in the future.
Securities class action litigation is often brought against a public company following periods of volatility in the market price of its securities. Due to volatility in Sirius Group's share price, the depressed price of Sirius Group's common shares and the overhang of Sirius Group's controlling shareholder, including any actions taken in connection therewith by CMIG, CMIG's creditors and other parties in interest, Sirius Group, CM Bermuda or Sirius Group's other shareholders, regulators, ratings agencies or other stakeholders. Sirius Group may be the target of securities litigation in the future. Securities litigation could result in substantial uninsured costs and divert management's attention and Sirius Group's resources, and result in unexpected outcomes that may materially impact Sirius Group's business or operations.

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Sirius Group's controlling shareholder, CM Bermuda, has significant influence over Sirius Group, which could limit your ability to influence the outcome of key transactions, including a change of control. CM Bermuda's interests may not be aligned with your interests on any matter requiring shareholder approval, and actions taken by CMIG International, CM Bermuda's controlling shareholder, could be adverse to Sirius Group and its other shareholders.
As of February 28, 2020, CM Bermuda beneficially owns, and is entitled to vote, approximately 87% of the voting power of Sirius Group's issued and outstanding equity securities. As a result, subject to the terms of the Shareholders Agreement dated November 5, 2018 and Sirius Group's bye-laws, CM Bermuda has the ability to elect all the members of Sirius Group's board of directors and thereby controls its business and affairs, including any determinations with respect to mergers or other business combinations, the acquisition or disposition of assets, the incurrence of indebtedness, the issuance of any additional common shares or other equity securities, the repurchase or redemption of common shares and the payment of dividends. In addition, CM Bermuda is able to determine the outcome of all matters requiring shareholder approval and, subject to the terms of the Shareholders Agreement, may cause or prevent a change of control of Sirius Group and could preclude any unsolicited acquisition of Sirius Group or any other strategic transaction involving Sirius Group that you may consider to be in your best interest. CM Bermuda's interests may not be aligned with your interests on any matter requiring shareholder approval. In addition, the concentration of ownership could deprive you of an opportunity to receive a premium for your common shares as part of a sale of Sirius Group, and may ultimately affect the market price of Sirius Group common shares.
Under Bermuda law, CM Bermuda may be able to acquire compulsorily the common shares of minority holders by a procedure under the Companies Act known as a "scheme of arrangement." A scheme of arrangement could be effected by obtaining the agreement of Sirius Group and of holders of common shares, representing in the aggregate a majority in number and at least 75% in value of the common shareholders present and voting at a court ordered meeting held to consider the scheme of arrangement. The scheme of arrangement must then be sanctioned by the Bermuda Supreme Court. If a scheme of arrangement receives all necessary agreements and sanctions, upon the filing of the court order with the Registrar of Companies in Bermuda, all holders of common shares could be compelled to sell their shares under the terms of the scheme of arrangement. As of the date of this Annual Report on Form 10-K, CM Bermuda owns in excess of 75% of Sirius Group's common shares and, therefore, CM Bermuda could choose to implement a scheme of arrangement.
As a "controlled company" within the meaning of Nasdaq rules, Sirius Group qualifies for exemptions from certain corporate governance requirements. Sirius Group has the opportunity to elect any of the exemptions afforded a controlled company, but has not made any such election as of the date of this Annual Report on Form 10-K.
Because CM Bermuda controls more than a majority of the total voting power for the election of directors, Sirius Group is a "controlled company" within the meaning of Nasdaq rules. Under these rules, a company of which more than 50% of the voting power is held by another person or group of persons acting together is a "controlled company" and may elect not to comply with certain stock exchange rules regarding corporate governance, including:
the requirement that a majority of its board of directors consist of independent directors;
the requirement that its director nominees be selected or recommended for the board's selection by a majority of the board's independent directors in a vote in which only independent directors participate or by a nominating committee comprised solely of independent directors, in either case, with a formal written charter or board resolutions, as applicable, addressing the nominations process and such related matters as may be required under the federal securities laws; and
the requirement that its compensation committee be composed entirely of independent directors with a written charter addressing the committee's purpose and responsibilities.
Sirius Group does not currently rely on any of these exemptions, but there is no assurance that it will not rely on these exemptions in the future. If Sirius Group were to utilize some or all of these exemptions, you may not have the same protections afforded to shareholders of companies that are subject to all of the Nasdaq rules regarding corporate governance, and the trading price of Sirius Group common shares may be materially adversely affected.

54


As a "foreign private issuer" under the rules and regulations of the SEC, Sirius Group is permitted to file less or different information with the SEC than a company incorporated in the U.S. or otherwise subject to these rules, and to follow certain home country corporate governance practices in lieu of certain Nasdaq requirements applicable to U.S. issuers. Sirius Group has the opportunity to elect any of these exemptions afforded a foreign private issuer, but has not made any such election as of the date of this Annual Report on Form 10-K.
Sirius Group is considered a "foreign private issuer" under the rules and regulations of the SEC. Accordingly, Sirius Group is not required to file periodic reports and financial statements with the SEC as frequently or within the same time frames as U.S. companies with securities registered under the Exchange Act. In addition, Sirius Group is not required to comply with other regulations applicable to U.S. companies, including Regulation FD, which imposes restrictions on the selective disclosure of material information to shareholders. Furthermore, as a "foreign private issuer" whose common shares are listed on Nasdaq, Sirius Group is permitted to follow certain home country corporate governance practices in lieu of certain Nasdaq requirements.
Sirius Group does not currently rely on the scaled disclosure practices permitted by the SEC or the alternate governance practices permitted by Nasdaq, but there is no assurance that it will not rely on these exemptions in the future. If Sirius Group were to utilize some or all of these exemptions, you may not be provided with the same disclosures or have the same protections afforded to shareholders of companies that are subject to all of the SEC's disclosure requirements and Nasdaq rules regarding corporate governance, and the trading price of Sirius Group common shares may be materially adversely affected.
Sirius Group relies principally on dividends and other distributions on equity paid by Sirius Group's operating subsidiaries and limitations on their ability to pay dividends to Sirius Group could adversely impact shareholders' ability to receive dividends on Sirius Group common shares.
Dividends and other distributions on equity paid by Sirius Group's operating subsidiaries are Sirius Group's principal source for cash in order for Sirius Group to be able to pay any dividends and other cash distributions to its shareholders. If Sirius Group's operating subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to Sirius Group.
You will have limited ability to bring an action against Sirius Group or against Sirius Group's directors and officers, or to enforce a judgment against Sirius Group or them, because Sirius Group is incorporated in Bermuda and because certain of Sirius Group's directors and officers reside outside the U.S.
Sirius Group is incorporated in Bermuda and conducts much of its operations outside the U.S. Certain of Sirius Group's officers and directors reside outside the U.S. and a substantial portion of the assets of those persons are located outside of the U.S. As a result, it could be difficult or impossible for you to bring an action against Sirius Group or against these individuals in Bermuda in the event that you believe that your rights have been infringed under the applicable securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of Bermuda could render you unable to enforce a judgment against Sirius Group's assets or the assets of Sirius Group's directors and officers.
In addition, class actions and derivative actions are generally not available to shareholders under Bermuda law. The Bermuda courts, however, would ordinarily be expected to permit a shareholder to commence an action in the name of a company to remedy a wrong to the company where the act complained of is alleged to be beyond the corporate power of the company or illegal, or would result in the violation of the company's memorandum of association or bye-laws, including any breach of fiduciary duty claims in cases where the actions from which such claims arise have not been ratified by a majority of the shareholders.
As a result of the above, Sirius Group shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a U.S. company.

55


If securities or industry analysts do not publish or cease publishing research or reports about Sirius Group, its business or its industry, or if they change their recommendations regarding Sirius Group common shares adversely, the price and trading volume of the common shares could decline.
The trading market for Sirius Group common shares is influenced by the research and reports that industry or securities analysts may publish about Sirius Group, its business, its industry or its competitors. Securities and industry analysts are not required to publish research on Sirius Group. If any of the analysts who may cover Sirius Group change their recommendation regarding Sirius Group common shares adversely, or provide more favorable relative recommendations about Sirius Group's competitors, the price of Sirius Group common shares would likely decline. If any analyst who may cover Sirius Group were to cease coverage of Sirius Group or fail to regularly publish reports on it, Sirius Group could lose visibility in the financial markets, which in turn could cause its share price or trading volume to decline.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Sirius Group maintains a professional office, which we lease, located at 14 Wesley Street, Hamilton, Bermuda, which also serves as our headquarters and our registered office. We and our subsidiaries lease office space throughout the United States, Canada, Europe and Asia. We believe that our office space is sufficient for us to conduct our operations for the foreseeable future.
Item 3. Legal Proceedings
Sirius Group, and the insurance and reinsurance industry in general, are routinely subject to claims-related litigation and arbitration in the normal course of business, as well as litigation and arbitration that do not arise from, or are directly related to, claims activity. Sirius Group's estimates of the costs of settling matters routinely encountered in claims activity are reflected in the reserves for unpaid loss and LAE.
Although the ultimate outcome of claims and non-claims-related litigation and arbitration, and the amount or range of potential loss at any particular time, is often inherently uncertain, management does not believe that the ultimate outcome of such claims and non-claims-related litigation and arbitration will have a material adverse effect on Sirius Group's financial condition, results of operations or cash flows. See Note 22 "Commitments and Contingencies—Legal Proceedings" in Sirius Group's audited financial statements included elsewhere this Annual Report on Form 10-K.
Item 4. Mine Safety Disclosures
Not applicable.

56


PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information and Number of Holders
Our common shares have been listed on the Nasdaq Global Select Market under the symbol "SG" since November 5, 2018. Prior to that time, there was no public market for our common shares.
On January 31, 2020, there were 387 shareholders of record of our common shares.
Dividend Policy
As of December 31, 2019, we have not paid any dividends to our public shareholders. While we expect to pay cash dividends in the future, the declaration and payment of future dividends will be at the discretion of our Board of Directors and will depend upon many factors, including our earnings, financial condition, business needs, capital and surplus requirements of our operating subsidiaries and regulatory and contractual restrictions, including those set forth in our credit facilities. For additional information regarding our liquidity and capital resources refer to Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources".
Performance Graph
The following graph compares cumulative total shareholder return on our common shares since November 6, 2018 (first day of trading) through December 31, 2019 to the cumulative total return, assuming reinvestment of dividends, of S&P 500 Composite Stock Index ("S&P 500 Index") and the S&P 500 Property & Casualty Insurance Index ("S&P P&C Index"). The graph assumes that $100 was invested on November 5, 2018. The share price performance presented below is not necessarily indicative of future results.
Cumulative Total Shareholder Return(1)(2) a2019performancegrapha04.jpg
(1)Stock price appreciation plus dividends.
(2)This graph is not "soliciting material" is not deemed filed with the SEC, and is not to be incorporated by reference in any filing by us under the Securities Act of 1933 or the Securities and Exchange Act of 1934.

57


Unregistered Sales of Equity Securities
Not applicable.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Not applicable.
Item 6. Selected Financial Data
The following table sets forth selected consolidated historical financial information derived from Sirius Group's (i) audited financial statements included elsewhere in this Annual Report on Form 10-K as of December 31, 2019 and 2018 and for the years ended December 31, 2019, 2018, and 2017, (ii) audited financial statements not included elsewhere in this Annual Report on Form 10-K as of December 31, 2017 and 2016 and for the years ended December 31, 2016 and 2015, and (iii) unaudited financial statements not included elsewhere in this Annual Report on Form 10-K as of December 31, 2015. You should read the following selected financial information in conjunction with the sections entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Financial Statements and Supplementary Data".

For the Years Ended December 31,

 
2019
2018
2017
2016
2015
 
(in millions, except for share and per share amounts)
Selected Statement of (Loss) Income Data:
 
 
 
 
 
Net earned insurance and reinsurance premiums
$
1,441.6

$
1,262.3

$
1,035.3

$
890.1

$
847.0

Net investment income
84.7

71.4

56.8

56.2

39.9

Net realized investment gains (losses)
56.7

2.3

(27.2
)
288.3

138.5

Net unrealized investment gains (losses)
80.6

(23.2
)
(10.5
)
(238.2
)
102.5

Other revenue
55.1

112.7

21.7

9.1

(2.4
)
Loss and loss adjustment expenses
1,170.3

900.0

811.2

519.3

422.7

Insurance and reinsurance acquisition expenses
288.7

255.4

197.2

210.3

189.8

Other underwriting expenses
138.2

146.2

106.1

107.3

107.9

General and administrative expenses
109.8

77.9

91.9

85.1

27.1

Interest expense on debt
31.0

30.8

22.4

34.6

26.6

Net (loss) income attributable to Sirius Group's common shareholders
(38.1
)
(43.3
)
(156.1
)
32.5

291.2

Comprehensive (loss) income attributable to Sirius Group
(82.4
)
(80.0
)
(78.3
)
(33.6
)
196.2

Per Common Share Data:
 
 
 
 
 
Basic earnings per common share and common share equivalent
$
(0.33
)
$
(0.36
)
$
(1.30
)
$
0.27

$
2.43

Diluted earnings per common share and common share equivalent
$
(0.37
)
$
(0.36
)
$
(1.30
)
$
0.27

$
2.43

Cash dividends declared per common share
$

$

$

$
0.23

$

Basic weighted average number of common shares and common shares equivalents outstanding(1)
115,234,105

119,253,924

120,000,000

120,000,000

120,000,000

Diluted weighted average number of common shares and common share equivalents outstanding(2)
127,135,775

119,253,924

120,000,000

120,000,000

120,000,000

Operating Ratios:
 
 
 
 
 
Loss and loss adjustment expense ratio(3)
81.2
%
71.3
%
78.4
%
58.3
%
49.9
%
Acquisition expense ratio(4)
20.0
%
20.2
%
19.0
%
23.6
%
22.4
%
Other underwriting expense ratio(5)
9.6
%
11.6
%
10.2
%
12.1
%
12.7
%
Combined ratio(6)
110.8
%
103.1
%
107.6
%
94.0
%
85.0
%

58


 
As of December 31,
 
2019
2018
2017
2016
2015
 
(in millions, except for share and per share amounts)
Selected Balance Sheet Data:
 
 
 
 
 
Total investments and cash
$
3,668.8

$
3,541.9

$
3,604.3

$
3,814.5

$
3,678.2

Reinsurance recoverable on unpaid losses
410.3

350.2

319.7

291.5

283.1

Total assets
6,413.8

6,007.7

5,823.6

5,166.5

5,091.9

Loss and loss adjustment expense reserves
2,331.5

2,016.7

1,898.5

1,620.1

1,644.4

Unearned insurance and reinsurance premiums
708.0

647.2

506.8

398.0

342.2

Debt
685.2

696.8

723.2

396.2

403.0

Total common shareholders' equity
1,640.4

1,704.5

1,917.0

1,988.1

1,959.1

Book value per common share
$
14.23

$
14.80

$
15.98

$
16.57

$
16.33

Common shares outstanding
115,299,341

115,151,251

120,000,000

120,000,000

120,000,000

(1)On April 27, 2016, Sirius Group split its 12,000 common shares by a multiple of 10,000 resulting in 120,000,000 common shares and changed the par value of the common shares from $1.00 per share to $0.01 per share. Sirius Group's basic and diluted earnings per share calculations have been retrospectively adjusted for all periods presented to reflect the change in capital structure.
(2)As of December 31, 2019 and 2018, Sirius Group had 6,088,535 warrants issued to former Easterly shareholders and 5,418,434 warrants issued to Series B preference shareholders outstanding. The Company also granted incentive compensation awards which provides for certain employees to purchase fully-vested common shares and be issued performance unit shares, which would give rise to potential additional Sirius Group shares outstanding. See Note 3 ("Significant transactions"), Note 14 ("Employee benefit plans and compensation plans"), and Note 16 ("Earnings per share") in Sirius Group's audited financial statements included elsewhere in this Annual Report on Form 10-K for additional information.
(3)The loss and loss adjustment expense ratio is calculated by dividing loss and loss adjustment expenses by net earned insurance and reinsurance premiums.
(4)The acquisition expense ratio is calculated by dividing insurance and reinsurance acquisition expenses by net earned insurance and reinsurance premiums.
(5)The other underwriting expense ratio is calculated by dividing other underwriting expenses by net earned insurance and reinsurance premiums.
(6)The combined ratio is calculated by combining the loss and loss adjustment ratio, the acquisition expense ratio, and the other underwriting expense ratio.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following is management's discussion and analysis ("MD&A") of the Company's audited consolidated results of operations for the years ended December 31, 2019 and 2018 and the Company's consolidated financial condition, liquidity and capital resources as of and for the year ended December 31, 2019. This discussion and analysis should be read in conjunction with the Company's audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP").
Pursuant to the FAST Act Modernization and Simplification of Regulation S-K, discussions related to the results of operations for the year ended December 31, 2018 in comparison to the year ended December 31, 2017 have been omitted. For such omitted discussions, refer to Item 7 “Management’s Discussion and Analysis of Consolidated Results of Operations and Financial Condition” in Part II of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
The following MD&A includes forward-looking statements, which are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from those expressed or implied by our forward-looking statements. See "Cautionary Note Regarding Forward-Looking Statements."

59


Index to Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
 
The Company is a Bermuda exempted company that provides multi-line insurance and reinsurance on a worldwide basis through its wholly owned subsidiaries. Sirius Group's key insurance and reinsurance subsidiaries include Sirius Bermuda Insurance Company Ltd. ("Sirius Bermuda"), Sirius International Insurance Corporation ("Sirius International"), Sirius America Insurance Company ("Sirius America"), Sirius International Corporate Member Limited, a Lloyd's of London ("Lloyd's") Corporate Member, and Sirius Global Solutions Holding Company ("Sirius Global Solutions"). In addition, Sirius International sponsors Lloyd's Syndicate 1945 ("Syndicate 1945") and Sirius International Corporate Member participates in the Lloyd's market, which in turn provides underwriting capacity to Syndicate 1945. In addition to the key insurance and reinsurance subsidiaries, we own two managing general underwriters ("MGUs"), International Medical Group, Inc. ("IMG") and ArmadaCorp Capital, LLC ("Armada").
On November 5, 2018, Sirius Group merged (the "Merger") with Easterly Acquisition Corp. ("Easterly") pursuant to a definitive agreement and plan of merger, which resulted in Sirius Group becoming a publicly listed company. Following the Merger, the Company's common shares are traded on the Nasdaq Global Select Market ("Nasdaq") under the symbol "SG." See Note 3 "Significant Transactions" in Sirius Group's audited financial statements included elsewhere in this Annual Report on Form 10-K for further details on the Easterly merger.


60


Reportable Segments

As of December 31, 2019, our business consisted of the following reportable segments:
 
Global Property, which offers other property insurance and reinsurance, property catastrophe excess reinsurance, and agriculture reinsurance products on a worldwide basis;
Global A&H, which consists of Sirius Group's Global A&H insurance and reinsurance underwriting unit along with IMG and Armada, which provide supplemental healthcare and medical travel insurance products as well as related administration services;
Specialty & Casualty, which offers insurance and reinsurance specialty & casualty product lines consisting of Aviation & Space, Marine, Trade Credit, Contingency, Casualty, Surety and Environmental specialty lines on a worldwide basis; and
Runoff & Other, which is comprised of asbestos risks, environmental risks, and other long-tailed liability exposures, in addition to results from Sirius Global Solutions.

On December 31, 2019, the Company completed an internal reorganization to optimize the Company's operations, better serve its clients and make the Company more nimble and efficient, resulting in a change in reportable segments beginning with the first quarter of 2020. See Item 1 “Business” for additional information.
Marketplace Trends

The global insurance and reinsurance marketplace is highly competitive, cyclical, and evolving. Around the globe, we increasingly see the impacts of climate change, such as rising sea levels, increased rainfall and flooding, and intensifying hurricanes. Catastrophe events appear to be increasing in frequency and severity, and more often are coming from non, or under, modeled zones.

Recent years have been characterized by decreasing margins, particularly in the property business where there has been an influx of capital into the industry. Post-event loss emergence has increased with recent events, notably in Japan and the Florida hurricanes since 2017. Later recognition of losses has also impacted the casualty business, with “social inflation” as a significant contributor. Social inflation is also causing increased severity. These trends are likely to lead to a continued erosion of industry reserves. Depending upon class of business, recent loss history, and geography, the aforementioned stresses have led to overall increased rates during the year, and a challenging retrocessional market, as reinsurers have been more thoughtful in allocating capital.

With these varying market conditions, it is helpful to have different “tools in the toolkit” to expand into, and pull back from, various markets as appropriate. For example, we have a unique pro-rata outwards retrocessional program which fosters partnerships that mutually benefit each other’s books of business and adds diversification. Sirius Group has seasoned underwriting teams throughout our extensive global branch network allowing us to foster “local” relationships across the globe helping us to succeed throughout different underwriting cycles. Underneath it all, Sirius Group has a disciplined underwriting culture that focuses on carefully deploying capital to achieve underwriting profitability.

The global insurance and reinsurance industry, which has historically been slow to evolve relative to other industries, is becoming more innovative. Lloyd’s, for example, is working hard to execute upon its Future at Lloyd’s strategy. Significant capital has flown into technology start-ups, which is prompting legacy carriers to implement more efficient back-end processes and find innovative ways to deliver value to their clients. We believe that delivery of services to clients will become increasingly digitally enabled as time progresses. During 2019, we began to push forward organizational changes to globalize and unify the various businesses, and transform functions, including technology, that service these businesses.

As loss reserves become stressed, and with recent entrants to the reinsurance industry failing to gain scale on underwriting operations, we believe that there will be opportunities for further consolidation. The modern Sirius Group was built through a series of accretive M&A transactions in the 1990s through 2004, when Sirius International was acquired, and in 2017, when Armada and IMG were purchased. Sirius Group has the experience and tools to execute growth in intrinsic value in this fashion going forward.

We have a strong reputation in the insurance and reinsurance industry and a knowledgeable and experienced management team. We will opportunistically react as the industry evolves, adding underwriting teams who value our underwriting-comes-first culture during a time of market consolidation. We have the resources, skill-set, and innovative mentality to provide insurance and reinsurance solutions to a variety of customers.


61


Executive Summary
Years Ended December 31, 2019 and 2018
Sirius Group ended 2019 with net (loss) attributable to common shareholders of $(38) million. Basic earnings per common share was $(0.33) and diluted earnings per common share was $(0.37). This compares to a net (loss) attributable to common shareholders of $(43) million and basic and diluted earnings per common share of $(0.36) in 2018. The decrease was primarily due to higher net realized and unrealized investment gains, partially offset by net unfavorable prior year loss reserve development and higher current accident year losses in the Global Property and Specialty & Casualty segments. In both 2019 and 2018, Sirius Group recorded catastrophe losses, net of reinsurance and reinstatement premiums, of $194 million. Catastrophe losses, net of reinsurance and reinstatement premiums, for 2019 included $65 million for Typhoon Hagibis, $53 million for Typhoon Faxai, and $40 million for Hurricane Dorian, whereas catastrophe losses in 2018, net of reinsurance and reinstatement premiums, included $91 million for Typhoon Jebi, $36 million for Hurricane Michael, $12 million for the California wildfires, and $9 million for Typhoon Trami. The 2019 results included $104 million of net unfavorable prior year loss reserve development compared to $7 million of net favorable prior year loss reserve development in 2018.
Sirius Group's combined ratio was 111% for the year ended December 31, 2019 compared to 103% for the year ended December 31, 2018. The increase in the combined ratio was driven primarily by net unfavorable prior year loss reserve development and higher current accident year losses in the Global Property and Specialty & Casualty segments. Sirius Group's 2019 combined ratio was impacted by 7 points of net unfavorable prior year loss reserve development compared to 1 point of net favorable prior year loss reserve development in 2018. The combined ratio included 13 points of catastrophe losses, net of reinsurance and reinstatement premiums, compared to 15 points for 2018.
Book Value Per Share
Sirius Group ended 2019 with book value per common share of $14.23 compared to $14.80 as of December 31, 2018, a decrease of 3.9% due to the comprehensive (loss) of $(82) million recognized for 2019. Total common shareholders' equity at the end of 2019 was $1,640 million compared to $1,704 million as of December 31, 2018.
Return on equity
Return on equity ("ROE"), calculated by dividing Net (loss) attributable to Sirius Group's common shareholders for the period by beginning common shareholders' equity, was (2.2)% for 2019 compared to (2.3)% for 2018 due to a lower net (loss) recognized.
Adjusted Book Value Per Share
Sirius Group ended 2019 with Adjusted book value per share of $14.57, which assumes that the Series B preference shares will convert into common shares on a one-for-one basis, and also incorporates the impact of dilution arising from share-based compensation programs, compared to $15.24 as of December 31, 2018, a decrease of 4.4% due to the comprehensive (loss) recognized. For 2019, Adjusted book value and Adjusted book value per share include the earned effects of share-based compensation awards issued during 2019.
See "Non-GAAP Financial Measures" for an explanation and calculation of Adjusted book value and Adjusted book value per share.
Adjusted Tangible Book Value Per Share
Sirius Group ended 2019 with Adjusted tangible book value per share of $10.22, which is derived by subtracting Goodwill, Intangible assets, and Net deferred tax liability on intangible assets from Adjusted book value, and also incorporates the impact of dilution arising from share-based compensation programs, compared to $10.76 as of December 31, 2018, a decrease 5.0% due to the comprehensive (loss) recognized.
See "Non-GAAP Financial Measures" for an explanation and calculation of Adjusted tangible book value and Adjusted tangible book value per share.

62


Operating (loss) attributable to common shareholders
For the year ended December 31, 2019, Operating (loss) attributable to common shareholders was $(162) million compared to $(56) million for the year ended December 31, 2018, primarily due to a higher net underwriting (loss) recognized for the year ended December 31, 2019.
See "Non-GAAP Financial Measures" for an explanation and calculation of Operating (loss) attributable to common shareholders.

63


Consolidated Results of Operations – Years Ended December 31, 2019, 2018, and 2017
(Expressed in millions of U.S. dollars, except ratios, share, and per share information)
 
 
 
Years ended December 31,
2019
2018
2017
Revenues
 
 
 
Gross written premiums
$
1,902.7

$
1,821.0

$
1,439.3

Net written premiums
$
1,502.6

$
1,357.1

$
1,090.2

Net earned insurance and reinsurance premiums
$
1,441.6

$
1,262.3

$
1,035.3

Net investment income
84.7

71.4

56.8

Net realized investment gains (losses)
56.7

2.3

(27.2
)
Net unrealized investment gains (losses)
80.6

(23.2
)
(10.5
)
Net foreign exchange gains
7.7

22.7

9.2

Revaluation of contingent consideration
(6.3
)
9.6

48.8

Other revenue
55.1

112.7

21.7

Total revenues
1,720.1

1,457.8

1,134.1

Expenses
 
 
 
Loss and loss adjustment expenses ("LAE")
1,170.3

900.0

811.2

Insurance and reinsurance acquisition expenses
288.7

255.4

197.2

Other underwriting expenses
138.2

146.2

106.1

General and administrative expenses
109.8

77.9

91.9

Intangible asset amortization expenses
15.8

15.8

10.2

Impairment of intangible assets

8.0

5.0

Interest expense on debt
31.0

30.8

22.4

Total expenses
1,753.8

1,434.1

1,244.0

Pre-tax (loss) income
(33.7
)
23.7

(109.9
)
Income tax (expense)
(11.9
)
(40.4
)
(26.4
)
Net (loss)
(45.6
)
(16.7
)
(136.3
)
Income attributable to non-controlling interests
(1.7
)
(1.4
)
(13.7
)
Net (loss) attributable to Sirius Group
(47.3
)
(18.1
)
(150.0
)
Accrued dividends on Series A redeemable preference shares

(2.6
)
(6.1
)
Change in carrying value of Series B preference shares
9.2

(36.4
)

Redemption of Series A redeemable preference shares

13.8


Net (loss) attributable to Sirius Group's common shareholders
$
(38.1
)
$
(43.3
)
$
(156.1
)
Comprehensive (loss)
 
 
 
Net (loss)
$
(45.6
)
$
(16.7
)
$
(136.3
)
Other comprehensive (loss) income, net of tax
 
 
 
Change in foreign currency translation, net of tax
(35.1
)
(61.9
)
71.7

Total other comprehensive (loss) income
(35.1
)
(61.9
)
71.7

Comprehensive (loss)
(80.7
)
(78.6
)
(64.6
)
Income attributable to non-controlling interests
(1.7
)
(1.4
)
(13.7
)
Comprehensive (loss) attributable to Sirius Group
$
(82.4
)
$
(80.0
)
$
(78.3
)
Ratios:
 
 
 
Loss ratio(1)
81.2
 %
71.3
 %
78.4
 %
Acquisition expense ratio(2)
20.0
 %
20.2
 %
19.0
 %
Other underwriting expense ratio(3)
9.6
 %
11.6
 %
10.2
 %
Combined ratio(4)
110.8
 %
103.1
 %
107.6
 %
Selected financial data:
 
 
 
Basic earnings per common share and common share equivalent
$
(0.33
)
$
(0.36
)
$
(1.30
)
Diluted earnings per common share and common share equivalent
$
(0.37
)
$
(0.36
)
$
(1.30
)
Basic weighted average number of common shares and common share equivalents outstanding
115,234,105

119,253,924

120,000,000

Diluted weighted average number of common shares and common share equivalents outstanding
127,135,775

119,253,924

120,000,000

Return on equity (5)
(2.2
)%
(2.3
)%
(7.9
)%
Operating (loss) attributable to common shareholders (6)
$
(161.7
)
$
(56.4
)
$
(128.4
)
(1)The loss ratio is calculated by dividing loss and LAE expenses by net earned insurance and reinsurance premiums.
(2)The acquisition expense ratio is calculated by dividing insurance and reinsurance acquisition expenses by net earned insurance and reinsurance premiums.
(3)The other underwriting expense ratio is calculated by dividing other underwriting expenses by net earned insurance and reinsurance premiums.
(4)The combined ratio is calculated by combining the loss ratio, the acquisition expense ratio, and the other underwriting expense ratio.
(5)Return on equity is calculated by dividing Net (loss) attributable to Sirius Group's common shareholders for the period by beginning common shareholders' equity.
(6)Operating (loss) attributable to common shareholders is a non-GAAP financial measure. See "Non-GAAP Financial Measures" for an explanation and calculation of Operating (loss) attributable to common shareholders.
Selected balance sheet data:
As of
December 31,
2019
As of
December 31,
2018
Book value per common share (1)
$
14.23

$
14.80

Adjusted book value per share (2)
$
14.57

$
15.24

Adjusted tangible book value per share (2)
$
10.22

$
10.76

(1)Book value per common share is calculated by dividing Total common shareholders' equity by the total number of Common shares outstanding.
(2)Adjusted book value per share and Adjusted tangible book value per share are non-GAAP financial measures. See "Non-GAAP Financial Measures" for an explanation and calculation of Adjusted book value per share and Adjusted tangible book value per share.
Years Ended December 31, 2019 and 2018
Gross written premiums – Gross written premiums in 2019 were $1,903 million, an increase of $82 million or 5% compared to gross written premiums of $1,821 million in 2018, with Specialty & Casualty up 41%, Global A&H up 18%, and Global Property down 12%. Absent the effect of a single fronting arrangement within the Global Property segment, gross written premiums increased 8% compared to the prior year. See "Results of Reportable Segments" below.
Net written premiums – Net written premiums in 2019 were $1,503 million, an increase of $146 million or 11% compared to net written premiums of $1,357 million in 2018, with Specialty & Casualty up 42%, Global A&H up 21%, and Global Property down 4%. See "Results of Reportable Segments" below.
Net earned insurance and reinsurance premiums – Net earned insurance and reinsurance premiums in 2019 were $1,442 million, an increase of $180 million or 14% compared to net earned insurance and reinsurance premiums of $1,262 million in 2018, with Specialty & Casualty up 50%, Global A&H up 24%, and Global Property flat. See "Results of Reportable Segments" below.
Net investment income, Net realized investment gains (losses), Net unrealized investment gains (losses) and Net foreign exchange gains – Net investment income increased 20% to $85 million in 2019 from $71 million in 2018 due primarily to a higher interest rate environment at the time of reinvestment. Sirius Group reported net realized investment gains of $57 million in 2019, which included $50 million of net realized foreign currency gains, compared to net realized investment gains of $2 million in 2018, which included $17 million of net realized foreign currency gains. Net unrealized investment gains were $81 million in 2019, which included $(6) million of net unrealized foreign currency (losses), compared to net unrealized investment (losses) of $(23) million in 2018, which included $36 million of net unrealized foreign currency gains. See "Summary of Investment Results" below. Additionally, Sirius Group recorded $8 million of non-investment related foreign exchange gains in 2019 compared to $23 million of non-investment related foreign exchange gains in 2018. Included in the 2019 amount is $13 million of favorable currency movement compared to $28 million of favorable foreign currency movement in 2018 on the SEK Subordinated Notes (as defined herein). See "Foreign Currency Translation" below.
Revaluation of contingent consideration – Revaluation of contingent consideration was $(6) million and $10 million in 2019 and 2018, respectively, due to the revaluation of contingent consideration related to the remeasurement of the contingent earnouts in connection with each of the acquisitions of IMG and Armada (the “IMG Earnout” and the “Armada Earnout,” respectively).
Other revenue – Other revenue decreased to $55 million in 2019 from $113 million in 2018. The decrease in other revenue was primarily attributable to a change in management's estimate of a right of indemnification against a third party in connection with an uncertain tax position that was recorded in 2018.
Loss and loss adjustment expenses – Loss and loss adjustment expenses increased 30% to $1,170 million in 2019 from $900 million in 2018 primarily due to net unfavorable prior year loss reserve development and increased net earned insurance and reinsurance premiums. See "Results of Reportable Segments" below.
Insurance and reinsurance acquisition expenses – Insurance and reinsurance acquisition expenses increased 13% to $289 million in 2019 from $255 million in 2018 primarily due to an increase in net earned insurance and reinsurance premiums for the Specialty & Casualty and Global A&H segments, partially offset by lower acquisition expenses for Global Property, primarily due to business mix. See "Results of Reportable Segments" below.
Other underwriting expenses – Other underwriting expenses decreased 5% to $138 million in 2019 from $146 million in 2018 primarily due to increased allocation of operating expenses to General and administrative expenses for corporate related activities in 2019. See "Results of Reportable Segments" below.
General and administrative expenses – General and administrative expenses increased 41% to $110 million in 2019 from $78 million in 2018 due to an increase in professional fees and expenses related to IMG.
Impairment of intangible assets – In 2018, Sirius Group recognized an impairment of $8 million related to trade names acquired as part of the acquisition of IMG. No impairment was recognized in 2019.
Summary of Investment Results
Pre-Tax return on investments
Total return on investments includes investment income, net realized gains and losses, and the change in unrealized gains and losses generated by the investment portfolio including equity method eligible investments for which we have made a fair value election. Total return is calculated on a pre-tax basis and includes the impact of investment related foreign exchange gains or losses whether reflected in pre-tax income or other comprehensive income, unless otherwise noted. Returns are calculated on average investments for the period displayed and presented gross of separately managed account fees as well as internal expenses in order to produce a better comparison to benchmark returns that exclude an expense load.
Sirius Group maintains an equity portfolio that consists of equity securities and other long-term investments, including hedge funds, private equity funds, and direct investments in privately held common equity securities investments. From time to time, Sirius Group may also invest in exchange-traded funds ("ETFs") and mutual funds. For return purposes, investments in fixed-income ETFs and mutual funds are included in the fixed income results and excluded from equity portfolio results. Returns exclude the impact of third-party currency forwards and/or swaps.
The following is a summary of Sirius Group's total pre-tax net investment results and performance metrics for the years ended 2019, 2018, and 2017:
 
Years Ended December 31,
(Millions)
2019
2018
2017
Pre-tax investment results
 
 
 
Net investment income
$
84.7

$
71.4

$
56.8

Net realized and unrealized investment gains (losses) (1)
137.3

(20.9
)
(37.7
)
Change in foreign currency translation on investments recognized through other comprehensive income (2)
(43.6
)
(96.6
)
83.9

Net pre-tax investment gains (losses)
$
178.4

$
(46.1
)
$
103.0

(1)Includes foreign exchange gains (losses) for the years ended December 31, 2019, 2018, and 2017 of $44.7 million, $53.0 million, and $(70.8) million, respectively.
(2)Excludes non-investment related foreign exchange gains for the years ended December 31, 2019, 2018, and 2017 of $7.7 million, $22.7 million, and $9.2 million, respectively.

64


 
Years Ended December 31,
 
2019
2018
2017
Performance metrics
 
 
 
Total fixed income investment returns:
 
 
 
In U.S. dollars
3.5
%
0.4
 %
2.9
 %
In local currencies
3.7
%
1.5
 %
1.8
 %
Bloomberg Barclays U.S. Agg 1-3 Year Total Return Value Unhedged USD
4.0
%
1.6
 %
0.9
 %
OMX Stockholm OMRX Total Bond Index
1.1
%
1.0
 %
0.3
 %
Bloomberg Barclays Pan-European Aggregate: Corp 1-3 Years Total Return
2.3
%
(0.2
)%
(0.1
)%
Total equity securities and other long-term investments returns:
 
 
 
In U.S. dollars
13.3
%
(6.7
)%
16.8
 %
In local currencies
12.5
%
(5.1
)%
13.8
 %
S&P 500 Index (total return)
31.5
%
(4.4
)%
21.8
 %
Total consolidated portfolio
 
 
 
In U.S. dollars
5.2
%
(0.9
)%
4.1
 %
In local currencies
5.2
%
0.3
 %
2.9
 %
Years Ended December 31, 2019 and 2018
Sirius Group's pre-tax total gross return on invested assets was 5.2% in 2019 compared to (0.9)% in 2018; currency had no impact on the 2019 investment result. The investment result for 2018 was adversely impacted by the strengthening of the U.S. dollar which reduced our return by (1.2)%.
Net investment income was $85 million for 2019 compared to $71 million for 2018. The increase was driven by higher earned income from our fixed income securities and other long term investments. In addition, the increase was driven by a higher interest rate environment at the time of reinvestment.
Net realized and unrealized investment gains (losses), excluding foreign currency, were $93 million in 2019 compared to $(74) million in 2018. The increase was driven by unrealized investment gains consistent with overall market performance.
Fixed income results (including short-term investments)
As of December 31, 2019, the fixed income portfolio duration was approximately 1.6 years compared to 1.7 years as of December 31, 2018. The average credit quality of the fixed income portfolio, including short-term investments, was AA as of December 31, 2019 and 2018. As of December 31, 2019 and 2018, Sirius Group held $341million and $361 million, respectively, of non-U.S. denominated fixed income securities.
The fixed income portfolio return in 2019 was 3.5% on a U.S. dollar basis and 3.7% in original currencies. Our U.S. portfolio returned 4.1% versus the Barclays, 1-3 Year Aggregate ("BarcAg 1-3") of 4.0%. Our non-U.S. portfolio gained 0.3% in original currencies, which compares to the OMX Stockholm OMRX Total Return Bond Index ("OMRX") of 1.1%. Despite a strong performance of our Canadian dollar ("CAD") fixed income holdings, a weak performance of our Swedish Krona ("SEK") denominated fixed income holdings in conjunction with the longer duration of the comparative indices versus our portfolio impacted the return.
The fixed income portfolio return in 2018 was 0.4% on a U.S. dollar basis and 1.5% in original currencies. Our U.S. portfolio returned 1.5% versus the BarcAg 1-3 of 1.6%. Our non-U.S. portfolio gained 1.3% in original currencies, which compares to the OMRX of 1.0%. This was driven by a strong performance of our CAD and SEK-denominated fixed income holdings.
Equity securities and other long-term investments results
As of December 31, 2019, the equity and other long-term investments portfolio included $482 million of U.S. dollar and $187 million of non-U.S. dollar denominated securities.

65


In 2019, the equity portfolio returned 13.3% on a U.S. dollar basis and 12.5% on a local currency basis. The S&P 500 returned 31.5% for the same period. 2019 performance lagged the S&P 500 in part due to the private equity portfolios which are still in the early stages of investment.
As of December 31, 2018, the equity and other long-term investments portfolio included $439 million of U.S. dollar and $149 million of non-U.S. dollar denominated securities.
In 2018, the equity portfolio returned (6.7)% on a U.S. dollar basis and (5.1)% on a local currency basis. The S&P 500 returned (4.4)% for the same period. Performance lagged the S&P 500 in 2018 given the performance of our non-U.S. dollar exposure as well as our private equity and hedge fund portfolios that are in the early stages of investment.
Foreign Currency Translation
Impact of foreign currency translation
The U.S. dollar is the functional currency for Sirius Group's businesses except for Sirius International, Syndicate 1945, several subsidiaries of IMG, and the Canadian reinsurance operations of Sirius America. Sirius Group also invests in securities denominated in foreign currencies. Assets and liabilities recorded in these foreign currencies are translated into U.S. dollars at exchange rates in effect at the balance sheet date, and revenues and expenses are converted using the average exchange rates for the period. Net foreign exchange gains and losses arising from the translation of functional currencies into U.S. dollars are reported in common shareholders' equity and in Accumulated other comprehensive (loss). As of December 31, 2019 and 2018, Sirius Group had net unrealized foreign currency translation losses of $238 million and $202 million, respectively, recorded in Accumulated other comprehensive (loss) on its Consolidated Balance Sheets.
Assets and liabilities relating to foreign operations are remeasured into the functional currency using current exchange rates; revenues and expenses are remeasured into the functional currency using the weighted average exchange rate for the period. The resulting exchange gains and losses are reported as a component of net income (loss) in the period in which they arise within Net realized investment gains (losses), Net unrealized investment gains (losses), and Net foreign exchange gains.
The following rates of exchange for the U.S. dollar have been used for translation of assets and liabilities whose functional currency is not the U.S. dollar as of December 31, 2019 and 2018:
Currency
Closing
Rate 2019

Closing
Rate 2018

Swedish kronor
9.3210

8.9397

British pound
0.7568

0.7850

Euro
0.8912

0.8734

Canadian dollar
1.3003

1.3614

Sirius International holds a large portfolio of investments that are denominated in U.S. dollars, but its functional currency is the SEK. When Sirius International prepares its stand-alone GAAP financial statements, it remeasures its U.S. dollar-denominated investments to SEK and recognizes the related foreign currency remeasurement gains or losses through pre-tax income (loss). When Sirius Group consolidates Sirius International, it translates Sirius International's stand-alone GAAP financial statements to U.S. dollars and recognizes the related foreign currency translation gains or losses through other comprehensive income (loss). Since Sirius Group reports its financial statements in U.S. dollars, there is no net effect to book value per common share or to investment returns from foreign currency translation on its U.S. dollar-denominated investments at Sirius International. However, net realized and unrealized investment gains (losses), other revenues, net income (loss), earnings per share and other comprehensive income (loss) can be significantly affected during periods of high volatility in the foreign exchange rate between the U.S. dollar and other currencies, especially the SEK.

66


A summary of the impact of foreign currency translation on Sirius Group's consolidated financial results for the years ended December 31, 2019, 2018, and 2017 was as follows:
 
Years Ended December 31,
(Millions)
2019
2018
2017
Net realized investment gains (losses) - foreign currency (1)
$
50.4

$
17.3

$
(19.1
)
Net unrealized investment (losses) gains - foreign currency (2)
(5.7
)
35.7

(51.7
)
Net realized and unrealized investment gains (losses) - foreign currency
44.7

53.0

(70.8
)
Net foreign exchange gains - foreign currency translation gains (3)
13.9

16.0

20.7

Net foreign exchange gains (losses) - currency swaps (3)
4.2

6.9

(11.3
)
Net foreign exchange (losses) - currency forwards (3)
(10.4
)


Net foreign exchange (losses) - other (3)

(0.2
)
(0.2
)
Income tax expense
0.9

2.0

3.3

Total foreign currency remeasurement gains (losses) recognized through net (loss), after tax
53.3

77.7

(58.3
)
Change in foreign currency translation on investments recognized through other comprehensive (loss) income, after tax
(43.6
)
(96.6
)
83.9

Change in foreign currency translation on non-investment net liabilities recognized through other comprehensive (loss) income, after tax
8.5

34.7

(12.2
)
Total foreign currency translation (losses) gains recognized through other comprehensive (loss) income, after tax
(35.1
)
(61.9
)
71.7

Total foreign currency gains recognized in comprehensive (loss), after tax
$
18.2

$
15.8

$
13.4

(1) Component of Net realized investment gains (losses) on the Consolidated Statements of (Loss)
(2) Component of Net unrealized investment (losses) on the Consolidated Statements of (Loss)
(3) Component of Net foreign exchange gains on the Consolidated Statements of (Loss)
As of December 31, 2019, the following currencies represented the largest exposure to foreign currency risk as a percentage of Sirius Group's common shareholders' equity: the Japanese Yen 9% (short) and the SEK 3% (long).
As of December 31, 2018 the following currencies represented the largest exposure to foreign currency risk as a percentage of Sirius Group's common shareholders' equity: the SEK 13% (short) and the Israeli shekel 4% (long).
Investment portfolio composition by currency
As of December 31, 2019 and 2018, Sirius Group's investment portfolio included approximately $484 million and $468 million in non-U.S. dollar denominated investments, most of which is denominated in Swedish kronor, Euro, Canadian dollar, Israeli shekel, and British pound. The investment values in this portfolio are impacted by changes in the exchange rate between the U.S. dollar and those currencies.

67


Set forth below is the carrying value of our investment holdings in U.S. dollars and foreign currencies as of December 31, 2019 and 2018:
 
2019
 
2018
Currency (Millions)
Local Currency

USD

 
Local Currency

USD

U.S. dollar
3,034.1

$
3,034.1

 
2,941.6

$
2,941.6

Swedish kronor
1,513.7

162.4

 
1,348.1

150.8

Euro
78.2

87.7

 
105.2

120.5

Canadian dollar
113.1

87.0

 
84.0

61.7

Israeli shekel
264.8

76.6

 
232.7

62.1

British pound
8.5

11.2

 
8.2

10.4

Other

59.2

 

62.6

Total investments
 
$
3,518.2

 
 
$
3,409.7

Results of Reportable Segments
Global Property
Global Property consists of Sirius Group's underwriting lines of business which offer other property insurance and reinsurance, property catastrophe excess reinsurance, and agriculture reinsurance on a worldwide basis.
Global Property (Millions)
Years ended December 31,
2019
2018
2017
Gross written premiums
$
848.4

$
962.4

$
732.1

Net written premiums
625.7

655.0

556.2

Net earned insurance and reinsurance premiums
635.9

636.0

564.4

Loss and allocated LAE
(582.7
)
(518.2
)
(499.5
)
Insurance and reinsurance acquisition expenses
(107.3
)
(121.1
)