Ironshore Inc. Consolidated Financial Statements … 2014 GROUP PUBLIC... · December 31, 201and...

Ironshore Inc.

Consolidated Financial Statements

December 31, 2014

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders Ironshore Inc.

We have audited the accompanying consolidated balance sheets of Ironshore Inc. as of December 31, 2014 and 2013, and the related consolidated statements of operations and comprehensive income, changes in shareholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ironshore Inc. at December 31, 2014 and 2013, and the consolidated results of its operations and its cash flows for each of the years then ended, in conformity with U.S. generally accepted accounting principles.

March 4, 2015

A member firm of Ernst & Young Global Limited

Ernst & Young LLP 5 Times Square New York, NY 10036-6530

Tel: +1 212 773 3000 Fax: +1 212 773 6350 ey.com

See accompanying notes to the consolidated financial statements.

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Ironshore Inc.

Consolidated Balance Sheets

As of December 31, 2014 and 2013

(Expressed in thousands of U.S. dollars, except share data)

2014 2013

ASSETS

Fixed maturity securities, at fair value (amortized cost: 2014 - $4,031,724;

2013 - $3,425,287) $4,044,195 $3,423,413

Equity securities, at fair value (cost: 2014 - $209,265; 2013 - $129,298) 207,090 131,947

Short term investments, at cost which approximates fair value 40,877 45,828

Other investments 61,089 13,588

Total investments 4,353,251 3,614,776

Cash and cash equivalents 328,797 286,700

Accrued investment income 19,351 18,389

Premiums receivable 514,035 462,042

Reinsurance recoverable on unpaid losses 693,298 601,352

Reinsurance recoverable on paid losses 66,397 69,451

Deferred acquisition costs 125,098 123,066

Prepaid reinsurance premiums 305,647 283,214

Goodwill and other intangible assets 79,354 82,558

Deferred tax asset 12,191 4,328

Receivable for securities sold 17,904 3,516

Other assets 184,592 169,184

Total assets $6,699,915 $5,718,576

LIABILITIES

Reserve for losses and loss adjustment expenses $2,838,158 $2,181,812

Unearned premiums 1,310,908 1,207,707

Insurance and reinsurance balances payable 240,594 225,362

Payable for securities purchased 11,388 16,147

Other liabilities 111,477 93,908

Debt obligations 347,629 247,296

Total liabilities 4,860,154 3,972,232

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY

Common shares, 200,000,000 authorized, par value $0.01 per share

(2014: 136,625,637; 2013: 136,211,426), shares issued and outstanding 1,366 1,362

Additional paid-in capital 1,364,762 1,354,164

Accumulated other comprehensive loss (8,074) (10,321)

Retained earnings 481,707 397,230

TOTAL IRONSHORE INC. SHAREHOLDERS' EQUITY 1,839,761 1,742,435

Non-controlling interest - 3,909

TOTAL SHAREHOLDERS' EQUITY 1,839,761 1,746,344

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $6,699,915 $5,718,576


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Ironshore Inc.

Consolidated Statements of Operations and Comprehensive Income

For the years ended December 31, 2014 and 2013

(Expressed in thousands of U.S. dollars, except share data)

2014 2013

REVENUES

Gross premiums written $2,210,554 $1,993,123

Reinsurance premiums ceded (591,374) (535,404)

Net premiums written 1,619,180 1,457,719

Change in unearned premiums (92,184) (203,396)

Net premiums earned 1,526,996 1,254,323

Net investment income 97,043 84,372

Net realized and unrealized gains (losses) on investments 28,039 (70,462)

Net foreign exchange losses (5,283) (2,989)

Other income 33,566 29,554

Total revenues 1,680,361 1,294,798

EXPENSES

Losses and loss adjustment expenses 1,077,274 745,173

Acquisition expenses 214,708 174,052

General and administrative expenses 279,101 250,643

Interest expense 21,906 21,663

Total expenses 1,592,989 1,191,531

Income before tax expense 87,372 103,267

Income tax expense 2,906 5,723

Net income 84,466 97,544

Net income (loss) attributable to non-controlling interest (11) 177

Net income attributable to Ironshore Inc. $84,477 $97,367

COMPREHENSIVE INCOME

Net income $84,466 $97,544

Other comprehensive income (loss), before tax

Equity gains (losses) from foreign currency translation 6,909 (2,845)

Gains (losses) on intra-entity foreign currency transactions (4,662) 1,022

Other comprehensive income (loss), before tax 2,247 (1,823)

Income tax on other comprehensive income (loss) - -

Other comprehensive income (loss), net of tax 2,247 (1,823)

Comprehensive income 86,713 95,721

Comprehensive income (loss) attributable to non-controlling interests (11) 177

Comprehensive income attributable to Ironshore Inc. $86,724 $95,544

Earnings per share:

Weighted average common shares outstanding - Basic 135,185,765 134,334,072

Weighted average common shares outstanding - Diluted 139,934,730 137,686,875

Net income per common share outstanding - Basic $0.62 $0.72

Net income per common share outstanding - Diluted $0.61 $0.71


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Ironshore Inc.

Consolidated Statements of Changes in Shareholders’ Equity


(Expressed in thousands of U.S. dollars)

2014 2013

COMMON SHARES

Balances as of beginning of year $1,362 $1,355

Issue of shares, net of forfeitures 8 10

Repurchase of shares (4) (3)

Balance as of end of year 1,366 1,362

ADDITIONAL PAID-IN CAPITAL

Balances as of beginning of year 1,354,164 1,347,401

Issue of shares, net of forfeitures 2,590 2,722

Repurchase of shares (5,189) (2,899)

Stock compensation expense 8,649 8,115

Modification of liability awards to (from) equity 5,897 (1,175)

Purchase of non-controlling interest (1,349) -

Balance as of end of year 1,364,762 1,354,164

ACCUMULATED OTHER COMPREHENSIVE LOSS

Balances as of beginning of year (10,321) (8,498)

Equity gains (losses) from foreign currency translation 6,909 (2,845)

Gains (losses) on intra-entity foreign currency transactions (4,662) 1,022

Balance as of end of year (8,074) (10,321)

RETAINED EARNINGS

Balances as of beginning of year 397,230 299,863

Net income attributable to Ironshore Inc. 84,477 97,367

Balance as of end of year 481,707 397,230

TOTAL IRONSHORE INC. SHAREHOLDERS' EQUITY 1,839,761 1,742,435

NON-CONTROLLING INTEREST

Balances as of beginning of year 3,909 3,731

Net income (loss) attributable to non-controlling interest (11) 178


Balance as of end of year - 3,909

TOTAL SHAREHOLDERS' EQUITY $1,839,761 $1,746,344


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Ironshore Inc.

Consolidated Statements of Cash Flows



2014 2013

CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:

Net income $84,466 $97,544

ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH

PROVIDED BY OPERATING ACTIVITIES:

Amortization and depreciation 10,478 10,384

Stock compensation expense 11,866 11,407

Amortization of fixed maturity securities 19,724 19,367

Net realized and unrealized (gains) losses on investments (28,039) 70,462

Deferred tax benefit (7,931) (7,446)

CHANGES IN OPERATING ASSETS AND LIABILITIES:

Accrued investment income (1,031) (365)

Premiums receivable (60,928) (80,303)

Reinsurance recoverable on unpaid losses (109,272) 23,348

Reinsurance recoverable on paid losses (5,993) (48,376)

Deferred acquisition costs (2,683) (33,848)

Prepaid reinsurance premiums (33,088) (12,162)

Other assets 5,370 (42,736)

Reserve for losses and loss adjustment expenses 681,891 319,491

Unearned premiums 116,772 218,943

Insurance and reinsurance balances payable 59,492 19,016

Other liabilities 15,499 11,961

Net cash provided by operating activities 756,593 576,687

CASH FLOWS USED IN INVESTING ACTIVITIES:

Purchase of subsidiaries, net of cash acquired (13,148) (9,098)

Purchase of intangible in asset acquisition (620) -

Purchases of fixed maturity securities (3,723,875) (4,089,326)

Purchases of short term investments (278,929) (369,153)

Purchases of equity securities (346,601) (221,031)

Purchases of other investments (45,349) (3,500)

Proceeds on sales of fixed maturity securities 2,654,490 3,387,972

Proceeds on maturity of fixed maturity securities 401,470 210,043

Proceeds on sales of short term investments 283,885 332,024

Proceeds on sales of equity securities 278,630 183,797

Proceeds on sales of other investments 1,726 -

Purchases of fixed assets (9,368) (6,402)

Issuance of note receivable (3,741) (41,970)

Net cash used in investing activities (801,430) (626,644)


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Ironshore Inc.

Consolidated Statements of Cash Flows



2014 2013

CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:

Proceeds from issuance of common shares 2,600 2,492

Repurchase of restricted shares (5,156) (2,902)

Issuance of debt 100,000 -


Net cash provided by (used in) financing activities 92,197 (410)

Net increase (decrease) in cash and cash equivalents 47,360 (50,367)

Cash and cash equivalents as of beginning of year 286,700 336,079

Effect of exchange rates on cash and cash equivalents (5,263) 988

CASH AND CASH EQUIVALENTS AS OF END OF YEAR $328,797 $286,700

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

Income taxes paid $12,578 $6,092

Interest paid $21,393 $21,250

Ironshore Inc.

Notes to consolidated financial statements (Expressed in thousands of U.S. dollars, except share data)

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1. Nature of the business

Ironshore Inc. (“Ironshore”), a Cayman Islands corporation, through its subsidiaries (collectively referred to as the “Company”)

provides specialty commercial property and casualty coverage for risks located throughout the world.

The Company’s principal operating subsidiary, Ironshore Insurance Ltd. (“Ironshore Insurance”), is registered as a Class 4 insurer

under The Insurance Act 1978 in Bermuda, related regulations and amendments thereto (the “Bermuda Insurance Act”). Ironshore

Insurance writes primarily property catastrophe and property all-risks coverage for small to mid-sized commercial risks. Ironshore

Insurance includes Ironshore Insurance Ltd, Singapore Branch, which is registered as a direct insurer to carry on general insurance

in Singapore effective January 26, 2012, and Ironshore Insurance Ltd., Canada Branch, which writes property and casualty

insurance for Canadian-domiciled risks effective March 29, 2014.

The Company’s U.S. platform consists of Ironshore Holdings (U.S.) Inc. (“Ironshore Holdings U.S.”), a Delaware corporation, and

its principal subsidiaries Ironshore Indemnity Inc., (“Ironshore Indemnity”), a Minnesota domiciled insurer, and Ironshore

Specialty Insurance Company (“Ironshore Specialty”), an Arizona domiciled insurer (collectively referred to as the “U.S.

companies”). The U.S. companies serve the property and specialty casualty insurance market sectors. The U.S. companies also

insure all classes of aviation and aerospace risks worldwide through an agreement with Starr Aviation Agency, Inc.

The Company’s International platform includes Ironshore International Ltd. (“IIL”) and a subsidiary company, Ironshore

Corporate Capital Ltd. (“ICCL”), both of which were incorporated in England and Wales. The International platform also includes

Pembroke JV Limited (“PJV”), its principal subsidiary, Pembroke Managing Agency Limited (“PMA”), and Ironshore Europe

Limited (“IEL”), an Irish corporation. PMA operates within the Lloyd’s of London (“Lloyd’s”) insurance market through

Syndicate 4000 and underwrites a portfolio of specialist lines products including financial institutions, professional liability,

marine and other select specialist lines. IEL commenced underwriting a diverse range of specialty lines in 2011.

Iron-Starr Excess Agency Ltd (“Iron-Starr Excess” or the “Agency”) acts as a specialty lines insurance and reinsurance managing

general agency in the offering, issuance and administration of insurance policies written on an equal subscription basis by

Ironshore Insurance and Starr Insurance and Reinsurance Limited (“SIRL”). In July 2014, Iron-Starr Excess added Hamilton Re, a

Bermuda-based property and casualty reinsurer, as subscribing insurer in order to increase capacity for full suites of products being

offered. Iron-Starr Excess writes financial lines, healthcare and catastrophic excess casualty insurance products, targeting Fortune

2000 and other clients purchasing catastrophe excess coverage.

2. Significant accounting policies

Basis of presentation

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the

United States of America (“U.S. GAAP”) and include the financial statements of Ironshore and its wholly owned and majority

owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation. Certain prior

year amounts have been reclassified to conform to the current year presentation.

Use of estimates in financial statements

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions

that affect the reported and disclosed amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the

date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results

could differ materially from those estimates. The major estimates reflected in the Company’s consolidated financial statements

include, but are not limited to, the reserves for losses and loss adjustment expenses, reinsurance recoverable balances including

allowances for reinsurance recoverables deemed uncollectible, estimates of written and earned premium, the fair value of

investments, recoverability of intangible assets and the net deferred tax asset or liability.

Premiums and related expenses

Premiums. Direct insurance and assumed facultative reinsurance premiums are recognized as earned on a pro rata basis over the

applicable policy or contract periods. For assumed treaty reinsurance written on a losses occurring basis, premiums written are

earned on a pro rata basis over the risk period. For assumed treaty reinsurance written on a risks attaching basis, premiums written

are earned on a pro rata basis over the periods of the underlying policies. Premiums may include estimates based on information

Ironshore Inc.


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received from brokers, ceding insurers and insureds, and any subsequent differences from such estimates are recorded in the period

in which they are determined. In each case, the portions of the premiums written applicable to the unexpired terms are recorded as

unearned premiums.

Assumed retroactive loss portfolio transfer (“LPT”) contracts in which the insured loss events occurred prior to the inception of the

contract are evaluated to determine whether they meet the established criteria for reinsurance accounting. If reinsurance accounting

is appropriate, premiums written are fully earned and corresponding losses and loss adjustment expenses recognized at the

inception of the contract. The contracts can cause significant variances in gross premiums written, net premiums written, net

premiums earned, and net incurred losses in the years in which they are written. Reinsurance contracts sold not meeting the

established criteria for reinsurance accounting are recorded using the deposit method.

A premium deficiency reserve is established when expected claim payments or incurred losses, loss adjustment expenses and

administrative expenses exceed the premiums to be earned over the remaining contract period. For the purposes of determining

whether a premium deficiency reserve exists contracts are grouped in a manner consistent with how policies are marketed,

serviced and measured. Anticipated investment income is utilized as a factor in the premium deficiency reserve calculation.

Acquisition expenses

Acquisition expenses are costs that vary with, and are directly related to, the production of new and renewal business, and consist

principally of commissions and brokerage expenses. The Company does not capitalize internal costs associated with the

production of new business. Acquisition expenses are shown net of commissions on reinsurance ceded. These costs are deferred

and amortized over the periods in which the related premiums are earned. Deferred acquisition costs are limited to their estimated

realizable value based on the related unearned premiums. Anticipated loss and loss adjustment expenses based on historical and

current experience and anticipated investment income related to those premiums are considered in determining the recoverability

of deferred acquisition costs. Acquisition expenses also include profit commission. Profit commissions are recognized when

earned.

Reserve for losses and loss adjustment expenses

The reserve for losses and loss adjustment expenses includes reserves for unpaid reported losses and for losses incurred but not

reported. The reserve for unpaid reported losses and loss expenses is established by management based on reports from loss

adjusters, ceding companies and insureds and represents the estimated ultimate cost of events or conditions that have been reported

to, or specifically identified, by the Company. The reserve for incurred but not reported losses and loss adjustment expenses is

established by management based on actuarially determined estimates of ultimate losses and loss expenses. Inherent in the estimate

of ultimate losses and loss expenses are expected trends in claim severity and frequency and other factors which vary significantly

as claims are settled. Accordingly, ultimate losses and loss expenses may differ materially from the amounts recorded in the

consolidated financial statements. These estimates are reviewed regularly and, as experience develops and new information

becomes known, the reserves are adjusted as necessary. Such adjustments, if any, are recorded in earnings in the periods in which

they become known and are accounted for as changes in estimates.

Ceded Reinsurance

In the normal course of business, the Company may seek to mitigate underwriting risk that could cause unfavorable results by

reinsuring certain amounts of risk with reinsurers. Reinsurance does not relieve the Company of its primary obligation to the

insured. The accounting for reinsurance ceded depends on the method of reinsurance. If the policy is on a losses occurring basis,

reinsurance premiums ceded and associated commissions are expensed on a pro rata basis over the period reinsurance coverage is

provided. If the policy is on a risk attaching basis, reinsurance premiums ceded and associated commissions are expensed in line

with gross premiums earned to which the risk attaching policy relates. Prepaid reinsurance premiums represent the portion of

premiums ceded on the unexpired terms of the policies purchased. Reinsurance commissions that will be earned in the future are

deferred and recorded as deferred acquisition costs on the balance sheets.

Reinsurance recoverable is presented on the balance sheets net of any reserves for uncollectible reinsurance. The method of

determining the reinsurance recoverable on unpaid losses and loss adjustment expenses involves actuarial estimates in a manner

consistent with the determination of unpaid losses and loss adjustment expenses.

Ceded reinstatement premiums are estimated after the occurrence of a significant loss and are recorded in accordance with the

contract terms based upon the ultimate loss estimates associated with each contract. Ceded reinstatement premiums are earned over

Ironshore Inc.


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the remaining contract period. Ceded reinstatement premiums earned were $8,296 and $1,100 for the years ended December 31,

2014 and 2013, respectively.

Certain ceded reinsurance contracts do not transfer underwriting risk and are accounted for using the deposit method of

accounting. Fees are accounted for as income based on the terms of the contract. A deposit asset is recorded at the inception of the

contract based on the consideration transferred. Corresponding changes in the amount of the deposit asset reflecting actual and

expected future loss payments are recorded as a credit or charge to interest income.

Investments

The Company’s investments in fixed maturity and equity securities are classified as trading and are carried at fair value, with

related unrealized gains and losses recorded in net realized and unrealized gains (losses) on investments included in the statement

of operations and comprehensive income. The Company believes that accounting for its investments as trading with all changes in

fair value included in income reduces an element of management judgment as the Company is not required to perform an analysis

of its investments for other-than-temporary impairment.

Fair values of the Company’s fixed maturity and equity securities are based on quoted market prices or, when such prices are not

available, by reference to broker or underwriter bid indications and/or internal pricing valuation techniques. Investment

transactions are recorded on a trade date basis with balances pending settlement recorded as receivable for investments sold or

payable for investments purchased.

For mortgage-backed and other asset-backed debt securities, fair value includes estimates regarding prepayment assumptions,

which are based on current market conditions. Amortized cost in relation to these securities is calculated using a constant effective

yield based on anticipated prepayments and estimated economic lives of the securities. When actual prepayments differ

significantly from anticipated prepayments, the effective yield is recalculated to reflect actual payments to date. Changes in

estimated yield are recorded on a retrospective basis, which results in future cash flows being used to determine current book

value.

Realized gains and losses on sales of investments are determined on the average cost basis.

Net investment income includes interest income on fixed maturity securities, recorded when earned, dividend income on equity

investments, recorded when declared and the amortization of premiums and discounts on investments. The amortization of

premium and accretion of discount is computed using the effective interest rate method. Net investment income is recorded net of

investment expenses.

Short term investments

Short term investments, which are managed as part of the Company’s investment portfolio, have an original maturity of one year

or less when purchased, and are carried at cost which approximates fair value.

Other investments

Other investments include investments in promissory notes and investments in closed-end limited partnerships that invest

primarily in commercial real estate debt in North America and Europe. Investments in promissory notes are carried at cost with

interest income recorded in net investment income. Investments in closed-end limited partnerships are carried at fair value, with

related unrealized gains and losses recorded in net realized and unrealized gains (losses) on investments included in the statement

of operations and comprehensive income.

Cash and cash equivalents

The Company considers all investments with an original maturity of ninety days or less as cash equivalents.

Other Assets

Investments in which the Company had significant influence over the operating and financial policies of the investee are classified

as other assets and are accounted for under the equity method of accounting. Under this method, the Company records its

proportionate share of income or loss from such investments in its results for the period and includes these investments in other

assets in its consolidated financial statements.

Ironshore Inc.


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Also included in other assets are depreciable long-lived assets such as information technology equipment, software, leasehold

improvements, furniture and fixtures that are carried at cost less accumulated depreciation and are depreciated on a straight-line

basis over their estimated useful lives taking into account residual value. The estimated useful lives (i.e. information technology

equipment—3 years; software—3 to 5 years; leasehold improvements—shorter of their useful life or remaining life of the lease;

furniture and fixtures—5 years) is based on the period over which the Company expects to generate net cash inflows from the use

of these assets. The depreciable long-lived assets are subject to impairment testing whenever events or changes in circumstances

indicate that their carrying amount may not be recoverable.

Insurance and reinsurance balances payable

Insurance and reinsurance balances payable principally represents ceded premiums payable and profit commissions payable to

third party reinsurance companies or program administrators. Also included within this line item are amounts related to the

Company’s insurance business principally related to return premiums, which arise when an insurance contract is cancelled and the

Company is required to return some or all of the premium received to the insured.

Business combinations, goodwill and other intangible assets

The Company accounts for business combinations in accordance with FASB ASC Topic 805 Business Combinations, and

goodwill and other intangible assets that arise from business combinations in accordance with FASB ASC Topic 350 Intangibles—

Goodwill and Other. A purchase price that is in excess of the fair value of the net assets acquired arising from a business

combination is recorded as goodwill, and is not amortized. Other intangible assets with a finite life are amortized over the

estimated useful life of the asset. Other intangible assets with an indefinite useful life are not amortized.

Goodwill and other indefinite life intangible assets are tested for impairment at least annually. The Company first assesses

qualitative factors in determining whether it is necessary to perform the two-step quantitative goodwill impairment test. Only if

management determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount based

on qualitative factors, would it be required to then perform the two-step quantitative goodwill impairment test detailed below.

The first step identifies potential impairments by comparing the fair value of the reporting unit to its book value, including

intangibles. If the fair value of the reporting unit exceeds the carrying amount, the intangible is not impaired and the second step is

not required. If the carrying value is in excess of the fair value, the second step computes the possible impairment loss by

comparing the implied fair value of the intangible with the carrying amount. If the implied fair value of the intangible is less than

the carrying amount, the intangible is written down to its fair value with a corresponding expense being charged to earnings.

The Company considers the recoverability of its intangible assets whenever a change in circumstances arises and in the event that

an impairment exists, any excess unamortized balances are recorded in earnings.

Non-controlling interest

The Company accounts for non-controlling interest in accordance with FASB ASC Topic 805 Business Combinations which

establishes accounting and reporting standards that require that ownership interests in subsidiaries held by other parties be

presented in the consolidated statement of shareholders’ equity separately from the parent’s equity and the consolidated net income

attributable to non-controlling interest be presented on the face of the consolidated statements of operations and comprehensive

income. The guidance also requires that changes in a parent’s ownership interest while the parent retains controlling financial

interest in its subsidiary be accounted for consistently. Disclosures in financial statements are required to identify and distinguish

between the interests of the parent and non-controlling owners. On July 1, 2014, the Company purchased the remaining 40%

interest in Wright & Co. from the non-controlling shareholders for cash of $5,247, increasing its ownership interest from 60% to

100%.

Foreign exchange

The Company’s reporting currency is the United States Dollar (U.S. dollars or $). Monetary assets and liabilities denominated in

currencies other than the entities’ functional currencies are revalued at the exchange rates in effect as of the balance sheet date with

the resulting foreign exchange gains and losses included in earnings as net foreign exchange gains (losses). Revenues and expenses

denominated in currencies other than the entities’ functional currencies are remeasured at the average rate for the period. The

financial statements of each of the Company’s subsidiaries are initially measured using the entity’s functional currency, which is

determined based on its operating environment and its underlying cash flows. For entities with a functional currency other than

U.S. dollars, foreign currency assets and liabilities are translated into U.S. dollars using the period end rates of exchange, while

Ironshore Inc.


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statements of operations are translated at average rates of exchange for the period. The resulting cumulative translation adjustment

is recorded in accumulated other comprehensive income as a separate component of shareholders’ equity.

Stock based compensation

The Company accounts for its stock compensation plans in accordance with the fair value recognition provisions of FASB ASC

Topic 718 Compensation—Stock Compensation, which requires the Company to measure the cost of services received from

employees, directors and eligible consultants in exchange for an award of equity instruments based on the estimated fair value of

the award on the date of grant for equity-classified awards. The cost of these services is recognized as compensation expense over

the requisite service period and is included in earnings. The Company measures liability-classified awards based on the fair value

remeasured at each reporting period until the date of settlement. The compensation cost related to liability-classified awards

includes a change in the fair value of the liability instrument at each reporting period.

Earnings per share

Basic earnings per ordinary share are calculated by dividing net income available to ordinary shareholders by the weighted average

number of ordinary shares outstanding. Diluted earnings per ordinary share are based on the weighted average number of ordinary

shares, warrants, restricted stock and options outstanding, except the effects of the warrants, restricted stock and options that are

anti-dilutive.

Taxation

Income taxes have been provided in accordance with the provisions of FASB ASC Topic 740 Income Taxes on those operations

which are subject to income taxes. Deferred tax assets and liabilities result from temporary differences between the amounts

recorded in the consolidated financial statements and the tax basis of the Company’s assets and liabilities. The effect on deferred

tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. A

valuation allowance against deferred tax assets is recorded if it is more likely than not that all, or some portion, of the benefits

related to deferred tax assets will not be realized.

The Company reflects tax positions in accordance FASB ASC Topic 740, Income Taxes. Such tax positions are, based solely on

their technical merits, more likely than not to be sustained upon examination by taxing authorities and reflect the largest amount of

benefit, determined on a cumulative probability basis that is more likely than not to be realized upon settlement with the applicable

taxing authority with full knowledge of all relevant information.

Recent accounting pronouncement

Going concern

In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-15,

Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The new standard requires management to

assess the company’s ability to continue as a going concern for each annual and interim reporting period. Disclosures are required

when conditions exist that give rise to substantial doubt about a company’s ability to continue as a going concern within one year

from the issuance of the financial statements. This standard will be effective in the first annual period ending after December 15,

2016. Earlier application is permitted. This guidance has no impact on the Company’s consolidated financial statements because

we believe that we are a going concern.

3. Business combinations

On December 31, 2012, Ironshore Holdings U.S. acquired 100% of the issued and outstanding shares of capital stock of Excess

Risk Reinsurance Inc. (“ERR”) under a Stock Purchase Agreement (the “ERR Acquisition Agreement”) for a net cash purchase

price of $19,100 plus contingent consideration of $820. ERR is a Managing General Underwriter that manages, underwrites,

services and administers specific and aggregate medical stop loss insurance.

The ERR Acquisition Agreement includes an earn-out clause which details the contingent consideration included in the

transaction. The earn-out clause provides for an adjustment to be made to the purchase price based on ERR’s underwriting

performance for five years from the date of acquisition. The earn-out amount payable ranges from 0 - 4% of the excess of Gross

Premiums Written above $20,000 for each relevant underwriting year subject to a maximum payout of $3,000. The Company

assessed that a portion of the earn-out arrangement amounting to $900 with a fair value of $820 was contingent consideration

Ironshore Inc.


13

included in the purchase price. The remaining $2,100 of the earn-out agreement represents compensation to be recognized as

earned over the vesting period.

The fair value of the assets and liabilities acquired and allocation of the purchase price is summarized as follows:

Purchase price (cash and contingent consideration) $19,920

Asset acquired

Cash and other assets 922

Intangible asset - Trade name 401

Intangible asset - Customer relationship 2,500

Intangible asset - Non-compete agreement 4,976

Liabilities Acquired

Accounts payable and other liabilities (791)

Net assets acquired 8,008

Excess purchase price - Goodwill $11,912

4. Investment in Joint Ventures

Ironshore Holdings U.S. formed IDP Holdings LLC (“IDP”) as a joint venture with The Distinguished Programs Group LLC

(“DPG”). It is intended that IDP will acquire small- to mid-sized program managers, MGAs, brokers, or agency companies that

write specialty insurance programs.

On November 1, 2012, IDP entered into an Asset and Membership Interest Purchase Agreement with National Specialty

Underwriters, Inc. and certain of its subsidiaries (collectively, “NSU”) pursuant to which IDP purchased NSU’s hospitality and

casualty insurance programs business and related claims administration business for cash and a promissory note issued by IDP.

Ironshore Holdings U.S. made a cash equity investment of $4,844 and advanced a loan of $10,088 to IDP, which equity

investment and loan, together with a cash equity investment by DPG, were used to finance the purchase from NSU. In April 2014,

Ironshore Holdings U.S. made an additional cash equity investment of $1,250 and advanced a loan of $2,500 to IDP, which equity

investment and loan, together with a cash equity investment by DPG were used to repay the promissory note issued by IDP in

connection with the NSU transaction. Further, on September 1, 2014, IDP entered into an asset purchase agreement with DPG

pursuant to which IDP purchased certain new hospitality program business from DPG for cash. Ironshore Holdings U.S. made an

additional cash equity investment of $620 and advanced a loan of $1,241 to IDP, which equity investment and loan, together with

a cash equity investment by DPG were used to finance such purchase from DPG. Each loan from Ironshore Holdings U.S. to IDP

bears interest at a rate of prime plus 4% per annum subject to a minimum interest rate of 6% per annum and a maximum interest

rate of 12% per annum. The loans are secured by a pledge of substantially all of the assets of IDP. All profits and losses of

operations are shared equally between Ironshore Holdings U.S. and DPG. For the years ended December 31, 2014 and 2013,

Ironshore Holdings U.S.’s share of IDP’s net (loss) income of $(1,269) and $1,000 was recorded in other income in the Company’s

statements of operations and comprehensive income.

Ironshore Inc.


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5. Goodwill and other intangible assets

Goodwill and other intangibles as of December 31, 2014 and 2013 are as follows:

Goodwill & other

Goodwill intangible assets

Gross Gross Amortization

Foreign

Exchange Total Total

Balance as of January 1, 2013 $25,383 $72,157 $(6,923) $(6,075) $59,159 $84,542

Reclassification (b) (7,579) 8,268 - - 8,268 689

Amortization - - (3,021) - (3,021) (3,021)

Foreign exchange translation (a) - - - 348 348 348

Balance as of December 31, 2013 17,804 80,425 (9,944) (5,727) 64,754 82,558

Reclassification (b) 391 (391) - - (391) -

Acquired during 2014 - 620 - - 620 620

Amortization - - (2,384) - (2,384) (2,384)

Foreign exchange translation (a) - - - (1,440) (1,440) (1,440)

Balance as of December 31, 2014 $18,195 $80,654 $(12,328) $(7,167) $61,159 $79,354

Other intangible assets

(a) Represents foreign exchange translation on Lloyd’s Syndicate capacity.

(b) Represents adjustment related to the acquisition of ERR. Refer also to Note 3.

The gross carrying value and accumulated amortization by major category of other intangible asset as of December 31, 2014 is

shown below:

Gross carrying Accumulated Foreign exchange

value amortization translation Total

Admitted licenses $11,006 $ - $ - $11,006

Excess & surplus lines licenses 8,925 - - 8,925

Lloyd's Syndicate capacity 33,570 - (6,814) 26,756

Indefinite life 53,501 - (6,814) 46,687

Customer relationship, customer lists and trade name 11,043 (6,969) (353) 3,721

Renewal rights 10,514 (3,875) - 6,639

Non-compete agreement 5,596 (1,484) - 4,112

Definite life 27,153 (12,328) (353) 14,472

Total intangible assets $80,654 ($12,328) ($7,167) $61,159

Ironshore Inc.


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The gross carrying value and accumulated amortization by major category of other intangible asset as of December 31, 2013 is

shown below:

Gross carrying Accumulated Foreign exchange

value amortization translation Total

Admitted licenses $11,006 $ - $ - $11,006

Excess & surplus lines licenses 8,925 - - 8,925

Lloyd's Syndicate capacity 33,570 - (5,374) 28,196

Indefinite life 53,501 - (5,374) 48,127

Customer relationship, customer lists and trade name 11,129 (6,378) (353) 4,398

Renewal rights 10,514 (2,812) - 7,702

Non-compete agreement 5,281 (754) - 4,527

Definite life 26,924 (9,944) (353) 16,627

Total intangible assets $80,425 ($9,944) ($5,727) $64,754

The useful life of intangible assets with finite lives ranges from 3 to 10 years, with an average amortization period of 6 years.

Expected amortization of the intangible assets is shown below:

Other intangible

assets

2015 $2,498

2016 2,498

2017 2,498

2018 2,498

2019 and thereafter 4,480

Total remaining amortization expense - definite life 14,472

Indefinite life 46,687

Total $61,159

As described in Note 2, Significant accounting policies, the annual qualitative impairment test was performed and neither goodwill

nor the other intangible assets were deemed to be impaired.

6. Investments

The amortized cost, gross unrealized gains and losses and fair value of investments as of December 31, 2014 are as follows:

Amortized Unrealized Unrealized Fair

cost gains losses value

U.S. government and government agency securities $359,877 $764 $(370) $360,271

Non-U.S. government and government agency securities 107,536 1,663 (1,122) 108,077

Municipal securities 88,020 1,344 (179) 89,185

Corporate securities 1,325,037 15,915 (8,015) 1,332,937

Bank loans 435,697 1,489 (6,811) 430,375

U.S. asset-backed securities 635,540 1,562 (3,459) 633,643

U.S. mortgage-backed securities 1,080,017 12,379 (2,689) 1,089,707

Total fixed maturity securities 4,031,724 35,116 (22,645) 4,044,195

Equity securities 209,265 5,527 (7,702) 207,090

Short term investments 40,877 - - 40,877

$4,281,866 $40,643 $(30,347) $4,292,162

Ironshore Inc.


16

The amortized cost, gross unrealized gains and losses and fair value of investments as of December 31, 2013 are as follows:

Amortized Unrealized Unrealized Fair

cost gains losses value

U.S. government and government agency securities $271,486 $1,547 $(1,609) $271,424

Non-U.S. government and government agency securities 97,093 514 (3,065) 94,542

Municipal securities 73,714 1,727 (942) 74,499

Corporate securities 1,255,768 18,849 (10,063) 1,264,554

Bank loans 330,943 4,294 (1,346) 333,891

U.S. asset-backed securities 431,760 2,396 (2,620) 431,536

U.S. mortgage-backed securities 964,523 7,586 (19,142) 952,967

Total fixed maturity securities 3,425,287 36,913 (38,787) 3,423,413

Equity securities 129,298 6,044 (3,395) 131,947

Short term investments 45,828 - - 45,828

$3,600,413 $42,957 $(42,182) $3,601,188

Included in the tables above are fixed maturity securities with a fair value of $25,483 and $23,046, which are on deposit with U.S.

insurance regulators as of December 31, 2014 and 2013, respectively, to meet certain statutory requirements. The Company also

maintains fixed maturity securities and cash amounting to $1,494,652 and $1,221,100 in trust accounts as collateral under the

terms of certain insurance and reinsurance transactions as of December 31, 2014 and 2013, respectively.

As of December 31, 2014 and 2013, the Company maintained trust collateral of $50,348 and $25,047, respectively, composed of

short-term and fixed maturity securities for the Company’s political risk business and $18,101 and $19,918, respectively,

composed of cash and fixed maturity securities to meet certain Canadian insurance regulatory requirements for Ironshore

Insurance Ltd. - Canada Branch.

On December 1, 2009, the Company entered into a $50,000 standby letter of credit facility provided by Citibank Europe plc. As of

December 31, 2014 and 2013, $37,254 and $22,962, respectively, of letters of credit were issued and outstanding under this

facility, for which $43,929 and $32,488, of fixed maturity securities were pledged as collateral.

The Company operates in the Lloyd’s market through its corporate member ICCL, which represents its participation in Syndicate

4000. Lloyd’s sets capital requirements for corporate members annually based on the Syndicates’ business plans, rating and

reserving environment together with input arising from Lloyd’s discussions with regulatory and rating agencies. Such capital, or

Funds at Lloyd’s (“FAL”), may be satisfied by cash, certain investments and undrawn letters of credit provided by approved

banks. As of December 31, 2014 and 2013, fixed maturity securities with a fair value of $277,571 and $182,564; equity securities

with a fair value of $55,783 and $0; and short term investments with a fair value of $9,929 and $1,382; and cash of $0 and $5,325,

respectively, were restricted to satisfy ICCL’s FAL requirements.

As of December 31, 2013, the Company had an existing letter of credit facility with a face value of $125,000 provided by ING

Bank N.V. for the purpose of providing FAL. The Company had pledged fixed maturity securities with a fair value of $146,345 as

collateral. This letter of credit facility was terminated on November 19, 2014.

The following represents an analysis of net realized gains (losses) on the sale of investments for the years ended:

Realized Realized Net realized

gains losses gains (losses)

Fixed maturity securities $14,263 $(10,951) $3,312

Equity securities 19,639 (4,290) 15,349

Short term investments 664 (707) (43)

$34,566 $(15,948) $18,618

Year ended December 31, 2014

Ironshore Inc.


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Realized Realized Net realized

gains losses gains (losses)

Fixed maturity securities $18,355 $(21,125) ($2,770)

Equity securities 12,714 (366) 12,348

Short term investments 1,443 (1,337) 106

$32,512 $(22,828) $9,684


The amortized cost and fair value amounts for fixed maturity securities held as of December 31, 2014 are shown by contractual

maturity below. Actual maturity may differ from contractual maturity because certain borrowers may have the right to call or

prepay certain obligations with or without call or prepayment penalties.

Amortized cost Fair value

Due in one year or less $148,655 $149,831

Due after one year through five years 1,628,735 1,632,264

Due after five years through ten years 419,348 419,900

Due after ten years 42,564 41,831

U.S. asset-backed securities 635,540 633,643

U.S. mortgage-backed securities 1,080,017 1,089,707

U.S. government sponsored enterprises 76,865 77,019

Total fixed maturity securities $4,031,724 $4,044,195

December 31, 2014

The following table sets forth certain information regarding the investment ratings of the Company’s fixed maturity investment

portfolio as of December 31, 2014. Investment ratings are as designated by Standard & Poor’s Ratings Group or Moody’s

Investors Service.

S&P Equivalent Rating (a) Amortized cost Fair value

AAA $851,126 $853,340

AA 1,498,966 1,507,630

A 700,498 706,925

BBB 445,071 447,531

Below BBB 364,020 357,680

Not rated 172,043 171,089

Total fixed maturity securities $4,031,724 $4,044,195

December 31, 2014

(a) Carried at the lower of Standard & Poor’s or Moody’s rating, presented in Standard & Poor’s equivalent rating

Net investment income is derived from the following sources:

For the years ended December 31 2014 2013

Fixed maturity securities $95,864 $83,074

Equity securities 6,302 5,794

Other investments 2,124 855

Cash and cash equivalents 686 1,213

Short term investments 8 6

Total gross investment income 104,984 90,942

Investment expenses (7,941) (6,570)

Net investment income $97,043 $84,372

Ironshore Inc.


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7. Fair value measurement

U.S. GAAP establishes a framework for measuring fair value using a hierarchy of fair value measurements that distinguishes market

data between observable independent market inputs and unobservable market assumptions and requires additional disclosures about

such fair value measurements. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is

significant to the fair value measurement. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for

identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

The three levels of the fair value hierarchy are described further below:

Level 1: Quoted prices in active markets for identical assets/liabilities (unadjusted);

Level 2: Indirect observable inputs including quoted prices for similar assets/liabilities (adjusted) and market corroborated inputs;

Level 3: Unobservable inputs which reflect the underlying entity’s interpretation of risk assumptions used by market participants.

The Company receives assistance with its investment accounting function from an independent service provider. This service

provider as well as the Company’s investment managers uses several pricing services and brokers to assist with the determination of

the fair value of the Company’s investment portfolio.

The Company does not typically adjust prices obtained from pricing services. In accordance with accounting guidance regarding fair

value measurements, the Company’s service providers maximize the use of observable inputs ensuring that unobservable inputs are

used only when observable inputs are not available.

The following table presents the Company’s investments that are measured at fair value on a recurring basis as well as the carrying

amount of these investments as of December 31, 2014 by level within the fair value hierarchy:

Quoted Prices in Significant

Active Markets Other Significant

for Identical Observable Unobservable

Assets Inputs inputs

2014 (Level 1) (Level 2) (Level 3) Total

U.S. government and government agency securities $283,252 $77,019 - $360,271

Non-U.S. government and government agency securities - 108,077 - 108,077

Municipal securities - 89,185 - 89,185

Corporate securities - 1,331,957 980 1,332,937

Bank loans - 188,998 241,377 430,375

U.S. asset-backed securities - 629,027 4,616 633,643

U.S. mortgage-backed securities - 1,081,844 7,863 1,089,707

Total fixed maturity securities 283,252 3,506,107 254,836 4,044,195

Equity securities 172,992 33,873 225 207,090

Short term investments - 40,877 - 40,877

Other investments - - 43,761 43,761

$456,244 $3,580,857 $298,822 $4,335,923

Ironshore Inc.


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The following table presents the Company's investments that are measured at fair value on a recurring basis as well as the carrying

amount of these investments as of December 31, 2013 by level within the fair value hierarchy:

Quoted Prices in Significant

Active Markets Other Significant

for Identical Observable Unobservable

Assets Inputs inputs

2013 (Level 1) (Level 2) (Level 3) Total

U.S. government and government agency securities $167,445 $103,979 - $271,424

Non-U.S. government and government agency securities - 94,542 - 94,542

Municipal securities - 74,499 - 74,499

Corporate securities - 1,264,477 77 1,264,554

Bank loans - 201,060 132,831 333,891

U.S. asset-backed securities - 380,965 50,571 431,536

U.S. mortgage-backed securities - 949,400 3,567 952,967

Total fixed maturity securities 167,445 3,068,922 187,046 3,423,413

Equity securities 98,911 33,036 - 131,947

Short term investments - 45,828 - 45,828

$266,356 $3,147,786 $187,046 $3,601,188

A description of the valuation techniques and inputs used to determine fair values of investments carried at fair value, as well as the

classification of each investment type in the fair value hierarchy is detailed below.

The Company’s investments classified as Level 1 include U.S. government and government agency securities and equity securities

for which fair value is based on quoted market prices in active markets which is defined by the Company’s pricing service as a

security that has traded in the previous seven days.

The Company’s Level 2 securities primarily consist of securities that are valued using models or other valuation techniques. These

models are industry standard models that take into account various assumptions including time value, yield curve, prepayments

speeds, default rates, loss severity, current market and contractual prices for the underlying securities as well as other economic data.

The majority of these assumptions are observable in the marketplace and this category includes some U.S. and Non-U.S.

government and government agency securities, municipal securities, corporate securities, bank loans, U.S. asset-backed securities,

U.S. mortgage-backed securities, equity securities and short term investments.

The Company’s investments classified as Level 3 consist of bank loans, certain corporate securities, U.S. asset and mortgage-backed

securities, equity securities and other investments. Level 3 securities, other than other investments, are valued using non-binding

broker quotes and other third party pricing sources, without modification. Consequently, the information about significant

unobservable inputs used in the fair value measurement as required by U.S. GAAP are not disclosed. The Company’s other

investments include investment in closed-end limited partnerships that invest primarily in private commercial real estate debt in

North America and Europe. These investments principally include senior and subordinated instruments, including mortgages, B-

notes and mezzanine, senior and bridge loans related to real estate-related assets. The fair value of these investments is estimated

using the net asset value (NAV) as provided by the general partners or investment managers. As the NAV obtained from the general

partners or investment managers lags by one quarter as of the measurement date, the Company considers any adjustment to the most

recent NAV such as capital calls, distributions, redemptions and all other information available to the Company. These investments

are not allowed to be redeemed, transferred or resold and have an estimated term of 3 to 7 years.

There have been no significant changes in the Company’s use of valuation techniques or related inputs nor have there been any

transfers between Level 1 and Level 2 during the years ended December 31, 2014 and 2013, respectively. The transfers from Level 2

to Level 3 during the years ended December 31, 2014 and 2013 reflect low level of trading activity in certain fixed maturity

securities while the transfers of fixed maturity securities from Level 3 to Level 2 that occurred during the same periods reflect higher

reliance on observable inputs. The Company’s policy is to recognize transfers in and out of the fair value hierarchy measurement

levels as of the date of the actual transfer.

As of December 31, 2014 and 2013, the Company’s Level 3 investments represented 6.9% and 5.2% of its total investments

measured at fair value, respectively.

Ironshore Inc.


20

Level 3 Gains and Losses

The table below presents assets that are measured at fair value on a recurring basis as of December 31, 2014 using significant

Level 3 inputs:

U.S. asset- U.S. mortgage-

Equity Corporate backed backed Other

Year ended December 31, 2014 Bank loans securities securities securities securities investments Total

Balance at beginning of the period $132,831 - $77 $50,571 $3,567 - $187,046

Realized gains 26 - 4 - - - 30

Unrealized gains (losses) (2,593) (15) (2) (14) 86 137 (2,401)

Purchases 174,926 240 980 4,629 6,180 45,326 232,281

Sales (71,796) - (79) - (1,099) (1,702) (74,676)

Amortization 698 - - 1 12 - 711

Transfer into Level 3 25,018 - - - - - 25,018

Transfer out of Level 3 (17,733) - - (50,571) (883) - (69,187)

Balance at end of the period $241,377 $225 $980 $4,616 $7,863 $43,761 $298,822

The table below presents assets that are measured at fair value on a recurring basis as of December 31, 2013 using significant

Level 3 inputs: U.S. asset- U.S. mortgage-

Corporate backed backed

Year ended December 31, 2013 Bank loans securities securities securities Total

Balance at beginning of the period $105,371 - - - $105,371

Realized gains 255 - - - 255

Unrealized gains (losses) 80 2 (734) (10) (662)

Purchases 82,187 75 51,304 3,954 137,520

Sales (46,541) - - (1,743) (48,284)

Amortization 495 - 1 22 518

Transfer into Level 3 9,394 - - 1,344 10,738

Transfer out of Level 3 (18,410) - - - (18,410)

Balance at end of the period $132,831 $77 $50,571 $3,567 $187,046

Change in unrealized loss for the year included in earnings for assets held at the end of December 31, 2014 and 2013 amounted to

$1,795 and $743, respectively.

Financial Instruments not Carried at Fair Value

U.S. GAAP requires that entities disclose the fair value of all of their financial instruments whether or not carried at fair value in

the financial statements.

On May 4, 2010, the Company issued $250,000 of Senior Notes bearing an annual interest rate of 8.5%, payable semi -annually in

arrears on May 15 and November 15 of each year, beginning November 15, 2010. As of December 31, 2014 and December 31,

2013, the fair value of the Senior Notes was $300,948 (carrying value – $247,629) and $283,000 (carrying value - $247,296),

respectively. The fair value is determined using a non-binding broker quote which is considered Level 3 in the fair value hierarchy.

Consequently, the information about significant unobservable inputs used in the fair value measurement as required by U.S. GAAP

is not disclosed.

As of December 31, 2014, the Company has an outstanding loan of $100,000 owed to FHLB (see Note 14). As of December 31,

2014, the carrying value of the short-term loan of $100,000 approximates fair value and is classified as Level 2 in the fair value

hierarchy.

Ironshore Inc.


21

8. Reserves for losses and loss adjustment expenses

Reserves for losses and loss adjustment expenses are based in part upon the estimation of case reserves reported from brokers,

insureds and ceding companies. The Company also uses statistical and actuarial methods to estimate ultimate expected losses and

loss adjustment expenses. The period of time from the occurrence of a loss, the reporting of a loss to the Company and the

settlement of the Company’s liability may be several months or years. During this period, additional facts and trends may be

revealed. As these factors become apparent, case reserves will be adjusted, sometimes requiring an increase or decrease in the

overall reserves of the Company, and at other times requiring a reallocation of incurred but not reported reserves to specific case

reserves. These estimates are reviewed regularly, and such adjustments, if any, are recorded in earnings in the period in which they

become known. While management believes that it has made a reasonable estimate of ultimate losses, there can be no assurances

that ultimate losses and loss expenses will not exceed the total reserves.

The following table represents the activity in the reserve for losses and loss adjustment expenses for the years ended December 31,

2014 and 2013, respectively:

2014 2013

Gross reserves for losses and loss adjustment expenses, beginning of year $2,181,812 $1,856,759

Less reinsurance recoverable balances, beginning of year 601,352 621,965

Net reserves for losses and loss adjustment expenses, beginning of year 1,580,460 1,234,794

Increase (decrease) in net losses and loss adjustment expenses incurred in

respect of loses occurring in:

Current year 1,024,508 754,435

Prior years 52,766 (9,262)

Total incurred losses and loss adjustment expenses 1,077,274 745,173

Less net losses and loss adjustment expenses paid in respect of losses

occurring in:

Current year 146,129 100,785

Prior years 358,467 293,621

Total net paid losses 504,596 394,406

Net foreign currency gain on reserve for losses and loss adjustment expenses (8,278) (5,101)

Net reserve for losses and loss adjustment expenses, end of year 2,144,860 1,580,460

Plus reinsurance recoverable balances, end of year 693,298 601,352

Gross reserve for losses and loss adjustment expenses, end of year $2,838,158 $2,181,812

The underlying reasons for prior year unfavorable development of $52,766 for the year ended December 31, 2014 included:

Net unfavorable loss reserve development for our U.S. segment of $43,700, of which $74,700 was recognized in our

casualty line of business, primarily on the 2009 to 2013 accident years, due to higher than expected reported claim

activity. This was partially offset by favorable loss reserve development due to better than expected reported claim

activity in the following lines of business and accident years: $11,600 in our U.S. property line of business (2011 to 2013

accident years), $9,700 in our political risk line of business (2011 to 2013 accident years), $4,000 in our IronPro line of

business (2009 and 2010 accident years), and $3,200 in our IronHealth line of business (2011 accident year); and

Net unfavorable loss reserve development for our International segment of $9,400, of which $14,000 was recognized in

our marine line of business due to higher than expected reported claim activity, primarily on the 2010 to 2012 accident

years. This was partially offset by favorable loss reserve development due to better than expected reported claim activity

of $4,700 in our liability line of business primarily on the 2009 and 2011 accident years.

Ironshore Inc.


22

The underlying reasons for prior year favorable development of $9,262 for the year ended December 31, 2013 included:

Net favorable loss reserve development for our U.S. segment of $11,700 due to better than expected reported claim

activity, of which $6,100 was recognized on our IronPro line of business, primarily on the 2009 and 2010 accident years,

$7,300 on our political risk line of business, primarily on the 2012 accident year and $4,400 in our U.S. property and

IronHealth lines of business (2009 to 2012 accident years). This was partially offset by unfavorable loss reserve

development in our casualty lines of business of $7,500 (2010 and 2011 accident years) due to higher than expected

reported claim activity;

Net favorable loss reserve development for our International segment of $6,300, including $10,500 on liability lines of

business, primarily on the 2011 and 2012 accident years, due to a reduction in loss development factors reflecting better

than expected reported claim activity. This was partially offset by unfavorable loss reserve development due to higher

than expected reported claim activity of $2,800 in our marine line of business (principally on the 2009 accident year), and

$2,600 in our personal accident line of business, primarily on the 2012 accident year; and

Net unfavorable loss reserve development for our Bermuda segment of $8,700, of which $9,500 was recognized on our

Bermuda property line of business, due to an increase in reported claim activity, primarily on the 2007 and 2012 accident

years. The unfavorable development for the 2007 accident year principally related to two specific property claims.

The Company has written an increasing volume of casualty business in recent years which adds significant variability to

management’s estimates because of the longer tail nature of the risks.

As of December 31, 2014 and 2013, reinsurance recoverable and reserve for losses and loss adjustment expenses include amounts

of $18,784 and $29,986, respectively, related to the pre-acquisition business of Ironshore Indemnity and Ironshore Specialty that

are secured by conditional guarantees from the parents of the sellers.

9. Reinsurance

In certain cases, the risks written by the Company are wholly or partially reinsured with third-party reinsurers. Reinsurance ceded

varies by location and line of business based on a number of factors, including market conditions. The benefits of ceding risks to

third-party reinsurers include reducing exposure on individual risks, protecting against catastrophic risks, maintaining acceptable

capital ratios and enabling the writing of additional business. Reinsurance ceded contracts do not discharge the Company from its

liabilities to the original policyholder in respect of the risk being reinsured.

The Company uses reinsurance to support its underwriting and retention guidelines as well as to control the aggregate exposure of

the Company to a particular risk or class of risks. Reinsurance may be purchased at several levels ranging from reinsurance of risks

assumed on individual contracts to reinsurance covering the aggregate exposure on a portfolio of policies issued by groups of

companies.

Ironshore Inc.


23

(a) Effects of reinsurance on premiums written and earned

The effects of reinsurance on premiums written and earned, and on losses and loss adjustment expenses is as follows:

2014 2013

Net premiums written

Direct $1,831,841 $1,582,682

Assumed 378,713 410,441

Ceded (591,374) (535,404)

Net premiums written $1,619,180 $1,457,719

Net premiums earned

Direct $1,714,136 $1,389,094

Assumed 379,759 384,270

Ceded (566,899) (519,041)

Net premiums earned $1,526,996 $1,254,323

Loss and loss adjustment expenses

Gross losses and loss adjustment expenses incurred $1,365,274 $931,157

Losses and loss adjustment expense recoveries (288,000) (185,984)

Net losses and loss adjustment expenses $1,077,274 $745,173

Assumed retroactive reinsurance contracts generally provide large, but limited, indemnification of unpaid losses and loss

adjustment expenses with respect to past loss events that are generally expected to be paid over long periods of time. Premiums

earned under assumed retroactive reinsurance contracts amounted to $5,844 and $1,509 during the years ended December 31, 2014

and 2013, respectively. The new assumed retroactive contracts entered into in 2014 and 2013 provide for a maximum limit of

indemnification of $15,000 and $25,000, respectively.

Underwriting results attributable to assumed retroactive reinsurance include the recurring periodic amortization of deferred charges

that are established with respect to these contracts. At the inception of a contract, deferred charges represent the difference between

the net premium received and the estimated ultimate losses payable. Deferred charges are subsequently amortized over the

estimated claims payment period. As of December 31, 2014 and 2013, unamortized deferred charges for assumed retroactive

contracts were $1,482 and $1,773, respectively. The amortized deferred income was $2,863 and $639 for 2014 and 2013,

respectively, and was included in net loss and loss adjustment expenses. Gross unpaid losses from assumed retroactive reinsurance

contracts were approximately $4,904 and $8,692 as of December 31, 2014 and 2013, respectively.

(b) Credit risk

The Company evaluates the financial condition of its reinsurers and monitors concentration of credit risk arising from its exposure

to individual reinsurers. Reinsurance programs are generally placed with reinsurers whose rating, as of the time of placement, is A-

or better as rated by AM Best or the equivalent with other rating agencies. Exposure to a single reinsurer is also controlled with

restrictions dependent on rating. As of December 31, 2014 and 2013, respectively, 97.8% and 96.6% of reinsurance recoverables

(which includes loss reserves recoverable and recoverables on paid losses) were from reinsurers rated A- or better and included

$479,776 and $431,178, respectively, of IBNR recoverable.

Reinsurance recoverables by reinsurer categories are as follows:

Reinsurance % of Reinsurance % of

Recoverable Total Recoverable Total

Top 10 Reinsurers $600,770 79.1% $519,881 77.5%

Other reinsurers balances > $1 million 154,172 20.3% 144,145 21.5%

Other reinsurers balances < $1 million 4,753 0.6% 6,777 1.0%

Total $759,695 100.0% $670,803 100.0%

December 31, 2014 December 31, 2013

Ironshore Inc.


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Reserves for reinsurance recoverables deemed uncollectible are based on an estimate of the amount of the reinsurance recoverable

balance that will ultimately not be recovered due to reinsurer insolvency, contractual dispute or some other reason. The valuation

of the reserve for uncollectible reinsurance includes a detailed review of the credit ratings of the reinsurance recoverable by

reinsurer on a continuous basis with any resulting adjustments recorded in earnings in the period that collection issues are

identified. As of December 31, 2014 and 2013, the reserves for reinsurance recoverables deemed uncollectible was $477 and $700,

respectively.

10. Share capital

(a) Authorized and issued

The Company’s authorized share capital is 200,000,000 ordinary shares, which may be Class A (voting) ordinary shares or Class B

(non-voting) ordinary shares, with a par value of $0.01 each. All ordinary shares outstanding as of December 31, 2014 and 2013

are Class A ordinary shares, except for 30,447 shares which are Class B shares. Holders of Class A ordinary shares are entitled to

one vote per ordinary share, except that voting rights are subject to adjustment pursuant to a methodology specified in the

Company’s Articles of Association.

During 2014, the Company re-purchased 391,754 of the Company’s shares for $5,026. The shares repurchased by the Company

were cancelled and retired.

On November 30, 2013, under the terms and conditions of the 2006 Long Term Incentive Plan, the Company issued 184,541

ordinary shares at a price of $11.88 per share for net proceeds of $2,192.

(b) Warrants

The Company did not issue any warrants during the years ended December 31, 2014 and 2013.

For the years ended December 31, 2014 and 2013, the outstanding warrants of 10,282,185 were fully vested and had a weighted

average exercise price of $10.00. As of December 31, 2014 and 2013, all warrants are exercisable over 2.0 years and 3.0 years,

respectively.

(c) Dividends

The Company did not declare any dividends during the years ended December 31, 2014 and 2013.

11. Stock compensation plans

The Company has a stock incentive plan, the 2006 Long Term Incentive Plan (the “Plan”), under which the Compensation

Committee of the Company’s Board of Directors has periodically granted stock option awards, restricted share unit awards, and

restricted share awards to employees, non-employee directors and consultants.

(a) Options

Stock option awards granted under the Plan may be exercised for the Company’s voting ordinary shares upon vesting. Exercise

prices are established at not less than the fair value of the Company’s ordinary shares on the date of grant.

The fair value of each stock option award is estimated on the date of the grant using the Black—Scholes option pricing model

which includes the following weighted average-valuation assumptions for all awards issued:

Expected Volatility: The expected volatility is estimated by the Company based on a historical peer group stock volatility analysis.

No allowance was made as of the grant dates for any potential illiquidity associated with the private trading of the Company’s

shares. The weighted average volatility assumption for 2014 was 31.2% (2013: 31.8%) and the range of volatility assumptions

used was 31.2% (2013: 31.8% - 32.1%).

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Expected Term: The Company has elected to use the simplified method of calculating the expected term of the Company’s stock

option awards. This method calculates the expected term based on the average of the vesting period and the contractual term for

each stock option award. The Company’s management considers this method appropriate given the lack of historical data and the

straight forward nature of the contractual terms of the stock option awards. An expected term of 6.5 years was used for 2014

(2013: 6.5 years).

Expected Dividend Yield: The expected dividend yield is nil.

Risk-Free Interest Rate: The risk-free rate is estimated based on the yield of a U.S. treasury zero-coupon issue with a remaining

term equal to the expected term of the stock option awards. The weighted average risk-free rate for 2014 was 2.2% (2013: 1.8%)

and the range of risk-free rates for the year was 2.2% (2013: 0.9% - 2.7%).

When estimating forfeitures, the Company considers its historical forfeitures as well as expectations about employee behavior and

currently uses a 5.0% forfeiture rate.

Activity with respect to options for the years ended December 31, 2014 and 2013 is as follows:

Weighted Weighted

average grant average exercise

Options date fair value price

Options outstanding, January 1, 2013 9,039,678 $3.00 $10.12

Options issued during 2013 1,509,050 $3.29 $11.99

Options exercised during 2013 (144,000) $3.10 $10.16

Options forfeited during 2013 (233,150) $3.31 $10.31

Options outstanding, December 31, 2013 10,171,578 $10.58

Options exercisable as of December 31, 2013 7,640,182

Options outstanding, January 1, 2014 10,171,578 $3.09 $10.58

Options issued during 2014 88,050 $4.85 $12.49

Options exercised during 2014 (265,878) $2.42 $9.78

Options forfeited during 2014 (115,400) $3.62 $10.40

Options outstanding, December 31, 2014 9,878,350 $10.81

Options exercisable as of December 31, 2014 7,749,156

As of December 31, 2014 and 2013, there was $4,656 and $8,252 respectively, of total unrecognized compensation expense

relating to the stock option awards granted that is expected to be recognized over a weighted average remaining vesting period of

3.3 years (2013: 3.5 years). During 2014 and 2013, stock compensation expense of $2,587 and $5,205, respectively, relating to

stock option awards was recorded in general and administrative expenses.

The weighted average remaining contractual term of the unvested stock option awards outstanding for 2014 is 8.2 years (2013: 8.6

years) and the weighted average remaining contractual term of options fully vested is 4.2 years (2013: 5.1 years).

Stock option awards generally vest ratably over a five year period, subject to the grantee’s continued employment with the

Company. A portion of the options issued during 2013 included a performance condition. This award will vest on December 31,

2018 at the applicable vested percentage rate of 0% to 100% based upon achievement of the targeted average annual return on

equity (“ROE”).

Cash received from options exercised was $2,600 and $300 for the years ended December 31, 2014 and 2013, respectively.

b) Restricted shares

As used in this Note 11(b), references to “restricted shares” include restricted share units. Restricted share awards are granted

periodically by the Compensation Committee of the Board of Directors. Generally, restricted share awards granted in respect of

annual bonus awards vest ratably over a three year period and other restricted share awards cliff-vest after three, four or five years.

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All restricted share awards contain certain restrictions for the three, four or five year period, relating to, among other things,

forfeiture in the event of termination of employment and transferability.

Activity with respect to restricted share awards for the years ended December 31, 2014 and 2013 is as follows:

Weighted average

Restricted Shares grant date fair value

Restricted shares outstanding, January 1, 2013 3,001,407 $10.02

Restricted shares issued during 2013 1,025,596 $10.50

Restricted shares settled during 2013 (250,201) $10.46

Restricted shares forfeited during 2013 (75,444) $10.59

Restricted shares issued but not yet fully vested, December 31, 2013 (1,548,766) $10.65

Restricted shares vested as of December 31, 2013 2,152,592 $9.87

Restricted shares outstanding, January 1, 2014 3,701,358 $10.20

Restricted shares issued during 2014 942,593 $13.23

Restricted shares settled during 2014 (379,526) $12.83

Restricted shares forfeited during 2014 (1,406) $10.50

Restricted shares issued but not yet fully vested, December 31, 2014 (2,039,016) $11.87

Restricted shares vested as of December 31, 2014 2,224,003 $10.00

During 2014 and 2013, stock compensation expense of $9,279 and $6,714, respectively, was recorded in general and

administrative expenses. Compensation cost is equivalent to the estimated fair value as of the grant date for the number of shares

expected to fully vest and is amortized over the vesting period. As of December 31, 2014 and 2013, there was $15,614 and

$11,103, respectively, of deferred compensation expense relating to the restricted share awards issued that is expected to be

recognized over a weighted average remaining vesting period of 2.1 years (2013: 1.7 years).

A portion of the restricted shares issued during 2013 included a performance condition. This award will vest on December 31,

2018 at the applicable vested percentage rate of 0% to 100% based upon achievement of targeted average annual return on equity

(“ROE”).

During 2011, the Company modified the existing restricted share awards allowing cash settlement of certain awards issued under

the 2011, 2012, 2013 and 2014 grants. As of December 31, 2014 and 2013, the Company has an outstanding balance in other

liabilities of $2,782 and $4,741, respectively, pertaining to liability-classified awards.

12. Retirement plans

The Company maintains defined contribution retirement plans. Contributions are based on the participants’ eligible compensation.

During 2014 and 2013, the Company expensed $9,660 and $7,404, respectively, related to these retirement plans.

13. Taxation

(a) Cayman Islands

Under current Cayman Islands law, the Company is not required to pay any taxes on its income or capital gains. If a Cayman

Islands law were to be enacted that would impose taxes on income or capital gains, the Company has received an undertaking from

the Governor in Cabinet that would exempt it from such taxation until October 2026.

(b) Bermuda

Under current Bermuda law, Ironshore Insurance is exempt from all Bermuda income, withholding and capital gains taxes. At the

present time, no such taxes are levied in Bermuda. In the event that such taxes are imposed, Ironshore Insurance would be exempt

until March 2035 pursuant to the Bermuda Exempted Undertakings Tax Protection Act 1966, and Amended Act of 1987.

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(c) United States

The Company’s U.S. subsidiaries are subject to federal, state, and local corporate income taxes and other taxes applicable to U.S.

operations. A partial valuation allowance has been established for the Company’s net deferred tax asset related to certain U.S.

operations, as management believes that the realization of the tax benefits from these deferred tax assets is uncertain.

(d) United Kingdom

The Company operates in the U.K. through its U.K. subsidiaries and the profits of these companies are subject to U.K. corporation

taxes. Income from the Company’s operations at Lloyd’s is also subject to U.S. income taxes. Under a Closing Agreement

between Lloyd’s and the IRS, Lloyd’s Members pay U.S. income tax on U.S.-connected income written by Lloyd’s Syndicates.

U.S. income tax due on this U.S.-connected income is calculated by Lloyd’s and remitted directly to the IRS and is charged by

Lloyd’s to Members in proportion to their participation on the relevant Syndicates. The Company’s Corporate Member is subject

to this arrangement and will receive a U.K. corporation tax credit for any U.S. income tax incurred up to the value of the

equivalent U.K. corporation tax charge on the U.S. income. A partial valuation allowance has been established for the Company’s

net deferred tax asset related to certain U.K. operations, as management believes that the realization of the tax benefits from these

deferred tax assets is uncertain.

(e) Ireland

The Company operates in Ireland through its Irish subsidiary which is subject to income taxes in that jurisdiction. A valuation

allowance has been established for the Company’s net deferred tax asset related to its Irish operations, as management believes

that the realization of the tax benefits from these deferred tax assets is uncertain.

The Company is subject to income taxation in other jurisdictions than those stated above, but the impact of the other jurisdictions

is not material to the provision for income taxes for 2014 and 2013. There can be no assurance that there will not be changes in

applicable laws, regulations or treaties, which might require the Company to change the way it operates or become subject to

taxation.

The components of the provision for income taxes attributable to operations consist of the following:

2014 2013

Current tax expense:

U.S. Federal $8,895 $7,768

U.S. State & local 683 530

United Kingdom 1,213 4,933

Ireland (22) -

Total 10,769 13,231

Deferred tax expense (benefit):

U.S. Federal (7,674) (6,281)

U.S. State & local (249) 96

United Kingdom 60 (1,323)

Total (7,863) (7,508)

Income tax expense $2,906 $5,723

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Deferred income taxes reflect the tax impact of temporary differences between the carrying amounts of assets and liabilities for

financial reporting and income tax purposes. Significant components of the net deferred tax liabilities were as follows:

2014 2013

Deferred tax assets:

Discounting of loss reserves $8,406 $6,392

Unearned premiums 8,303 7,657

Deferred acquisition costs 24,040 19,528

Non-deductible compensation 17,466 18,550

Net operating losses 8,393 7,770

Underwriting losses 3,170 3,938

Intercompany service accrual 5,124 3,646

Deferred ceding commissions 2,674 5,589

Other deferred tax assets 3,862 3,239

Total deferred tax assets 81,438 76,309

Valuation allowance (47,623) (51,107)

Deferred tax assets net of valuation allowance 33,815 25,202

Deferred tax liabilities:

Intercompany revenue accrual (8,261) (6,693)

Amortization of intangibles (3,880) (3,595)

Investments - fixed maturity securities (1,048) (1,098)

Investments - equity securities (731) (1,967)

Other deferred tax liabilities (7,704) (7,521)

Total deferred tax liabilities (21,624) (20,874)

Net deferred tax asset $12,191 $4,328

The Company’s net deferred tax asset or liability relates primarily to net operating loss carry-forwards and U.S. GAAP versus tax

basis accounting differences. The Company has provided a valuation allowance to reduce certain deferred tax assets to an amount

that management expects will more likely than not be realized. The Company reassessed its estimate of deferred tax assets that are

more likely than not to be realized, resulting in a reduction to the valuation allowance. The deferred tax asset is realizable to the

extent of deferred tax liabilities that can offset deferred tax assets and the amount of taxes that can be recovered through carryback

of net operating losses.

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The expected tax provision computed on pre-tax income at the weighted average tax rate has been calculated as the sum of the pre-

tax income in each jurisdiction multiplied by that jurisdiction’s applicable statutory tax rate. A reconciliation of income before tax

expense by taxing jurisdiction to the expected income tax provision by taxing jurisdiction and consolidated weighted average

effective income tax rate is as follows for the years ended December 31, 2014 and 2013:

2014 2013

Income before tax expense by taxing jurisdiction:

Bermuda $69,208 $98,966

United States 16,844 626

Ireland 1,356 (150)

Canada 463 -

United Kingdom 7 4,512

Australia (348) (687)

Hong Kong (158) -

Consolidated income before tax expense $87,372 $103,267

Statutory tax rates:

Bermuda 0.0% 0.0%

United States 35.0% 35.0%

Ireland 12.5% 12.5%

Canada 25.0% 25.0%

United Kingdom 21.5% 23.3%

Australia 30.0% 30.0%

Hong Kong 16.5% 16.5%

Expected income tax provision by taxing jurisdiction

Bermuda - -

United States 5,895 219

Ireland 170 (19)

Canada 116 -

United Kingdom 2 1,051

Australia (104) (206)

Hong Kong (28) -

Consolidated $6,051 $1,045

Consolidated weighted average effective income tax rate 6.9% 1.0%

A reconciliation of the difference between the provision for income taxes and the expected tax provision at the weighted average

rate is as follows for the years ended December 31, 2014 and 2013:

2014 % 2013 %

Expected income tax provision at weighted average rate $6,051 6.9% $1,045 1.0%

State income taxes (net of federal benefit) 316 0.4% 4,517 4.4%

Valuation allowance (3,485) (4.0%) (1,761) (1.7%)

Deferred tax adjustments (1,474) (1.7%) (810) (0.8%)

Transfer pricing adjustment - - 3,090 3.0%

Others 1,498 1.7% (358) (0.4%)

Income tax expense $2,906 3.3% $5,723 5.5%

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As of December 31, 2014, the Company’s non-U.S. subsidiaries had net operating loss carryovers in various non-U.S. jurisdictions

of $14,121 that do not expire. The Company’s U.S. subsidiaries have U.S. state and local net operating loss carryovers with a tax

equivalent value of $5,513 that expire in the years 2028 to 2034.

During 2014 and 2013, the Company had no unrecognized benefits from uncertain tax positions. The Company does not anticipate

any significant changes in the amount of unrecognized tax benefits during the next 12 months. Interest and penalties related to

unrecognized tax benefits will be included in income tax expense.

The Company has an open examination by tax authorities in the U.S. The Company believes that this examination will be

concluded within the next 24 months; however, it is not currently possible to estimate the outcome of this examination. The

Company’s U.S. federal and state income tax returns for fiscal years 2011 to 2013 remain open to examination. The Company’s

U.K. corporation tax returns for fiscal years 2011 to 2013 are open for examination by the U.K. tax authorities. The Company’s

Irish income tax returns for fiscal years 2010 to 2013 are open for examination by the Irish tax authorities.

14. Debt obligations

On May 10, 2010, the Company issued $250,000 of Senior Notes at an issue price of 99.17%, generating net proceeds of

$246,300. The Senior Notes bear interest at a rate of 8.5%, payable semi-annually in arrears on May 15 and November 15 of each

year, beginning November 15, 2010. Unless previously redeemed, the Senior Notes will mature on May 15, 2020. The Company

may redeem the Senior Notes prior to maturity subject to the payment of a “make-whole” premium. The Senior Notes also include

certain interest rate adjustment clauses based on changes in S&P and Moody’s ratings and debt to capital ratios. The Company was

in compliance with all of these clauses as of December 31, 2014. The carrying value of the Senior Notes as of December 31, 2014

and 2013 was $247,629 and $247,296, respectively.

Interest expense on the Senior Notes includes interest payable, amortization of offering discount and amortization of debt offering

expenses. The offering discount and the debt offering expenses are amortized over the period of time during which the Senior

Notes are outstanding. The Company incurred interest expense on the Senior Notes of $21,700 and $21,663 respectively, for the

years ended December 31, 2014 and 2013.

The Company, through its wholly-owned subsidiary Ironshore Specialty, has an existing arrangement with Federal Home Loan

Bank Boston (“FHLB”) which provides the Company access to FHLB-member loan facilities. Ironshore Specialty is currently a

member of FHLB. As of December 31, 2014, Ironshore Specialty has an outstanding loan of $100,000 owed to FHLB maturing

on September 21, 2015 with interest payable at an annual rate of 0.37%. Ironshore Specialty is required to maintain a capital stock

investment of $5,084 with FHLB to support its membership and borrowing activity. As of December 31, 2014, fixed maturity

securities with a fair value of $119,944 were pledged as collateral for the loan. The Company incurred interest expense of $206 for

the year ended December 31, 2014.

15. Commitments and contingencies

(a) Concentration of credit risk

The creditworthiness of a counterparty is evaluated by the Company, taking into account credit ratings assigned by independent

agencies. The credit approval process involves an assessment of factors, including, among others, the counterparty, country and

industry credit exposure limits. The areas where significant concentrations of credit risk may exist include reinsurance

recoverables (see Note 9), investments and cash and cash equivalent balances.

The Company underwrites a significant amount of its business through brokers. Credit risk exists should any of these brokers be

unable to fulfill their contractual obligations with respect to the payments of insurance and reinsurance balances owed to the

Company.

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During the years ended December 31, 2014 and 2013, the following brokers were used to generate greater than 10% of the

Company’s consolidated gross premiums written:

% of Gross Premiums % of Gross Premiums

Written December 31, Written December 31,

Broker 2014 2013

Marsh & McLennan Companies 12.4% 10.3%

Aon Benfield 10.1% 10.2%

The Company’s investment portfolio is managed in accordance with guidelines designed to ensure specific investment strategies

are met. These guidelines include standards of diversification which limit the allowable holdings of any single issue. There were

no investments in any entity in excess of 10% of the Company’s shareholders’ equity as of December 31, 2014 and 2013 other

than investments issued or guaranteed by the U.S. government, its agencies or U.S. Government-Sponsored Enterprises.

The Company’s cash and cash equivalents are on deposit with various financial institutions. Credit risk arises from the failure of

the counterparty to perform according to the terms of a contract. The Company’s deposits are with reputable banks to minimize

this risk and they are located in Bermuda, the U.S., the U.K., Ireland, Singapore, Australia, Canada and the Cayman Islands.

(b) Operating leases

The Company has entered into various operating lease agreements to lease office space and fixtures and fittings that expire up to

2023. During the years ended 2014 and 2013, total rent expenses of $8,551and $7,483, respectively, were recorded in general and

administrative expenses. The future minimum lease payments in the aggregate as of December 31, 2014 are as follows:

December 31, 2014

2015 $6,692

2016 4,760

2017 3,473

2018 3,182

2019 2,919

Later years 4,113

Total minimum future lease commitments $25,139

(c) Outsourcing

On December 23, 2011, the Company entered into a services agreement with Genpact International, Inc. (“Genpact”), whereby

Genpact provides certain information technology processes and business process functions to the Company up to December 31,

2018. The future minimum payments as of December 31, 2014 are as follows:

December 31, 2014

2015 $16,087

2016 15,391

2017 15,706

2018 16,167

Total minimum future commitments $63,351

(d) Letters of credit

The Company operates in the Lloyd’s market through its corporate member, ICCL which represents its participation in Syndicate

4000. Lloyd’s sets capital requirements for corporate members annually based on the Syndicates’ business plans, rating

environment and reserving environment together with input arising from Lloyd’s discussions with regulatory and rating agencies.

Such capital, or FAL, may be satisfied by cash, certain investments and undrawn letters of credit provided by approved banks.

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As of December 31, 2013, the Company had an existing letter of credit facility with a face value of $125,000 provided by ING

Bank N.V. for the purpose of providing FAL. The Company had pledged fixed maturity securities with a fair value of $146,345 as

collateral. This letter of credit facility was terminated on November 19, 2014.

On December 1, 2009, the Company entered into a $50,000 standby letter of credit facility provided by Citibank Europe plc.

Refer to Note 6 for additional disclosure.

(e) Litigation

The Company is subject to litigation and arbitration in the normal course of its business. These lawsuits and arbitrations principally

involve claims on policies of insurance and contracts of reinsurance and are typical for the Company and for the property and

casualty insurance and reinsurance industry in general. Such legal proceedings are considered in connection with the Company’s

loss and loss expense reserves. In addition to litigation relating to insurance and reinsurance claims, the Company and its

subsidiaries are subject to lawsuits in the normal course of business. The status of any such legal actions is actively monitored by

management. If management believed, based on available information, that an adverse outcome upon resolution of a given legal

action was probable and the amount of that adverse outcome was reasonable to estimate, a loss would be recognized and a related

liability recorded. No such liabilities were recorded by the Company as of December 31, 2014 and 2013.

(f) Other Investments

As of December 31, 2014, the Company had an unfunded commitment to invest $101,377 into closed-end limited partnership

funds.

16. Related party transactions

The Company’s founding investors, Tara Partners Fund LLC and Tara Partners Fund II LLC (collectively, “Tara”), are affiliated

with a member of the Company’s Board of Directors. This individual is also a founder and director of Integro Ltd. (“Integro”), an

insurance broker. During the years ended December 31, 2014 and 2013, Ironshore wrote $5,781 and $11,051, respectively, of

gross premiums written that have been brokered by Integro, and incurred commission expense of $303 and $1,128, respectively.

On January 12, 2009, Ironshore entered into an agreement with Integro to sublease certain office space in New York City. During

the years ended December 31, 2014 and 2013, the Company incurred rental, maintenance and utility expenses of $1,079 and

$1,031, respectively, related to this sublease.

As of December 31, 2014 and 2013, the Company through its wholly-owned subsidiary, Ironshore Surety Holdings Inc. (“ISHI”)

invested a total of $20,376 and $9,097, respectively, in Lexon Group composed of Lexon Surety Group LLC (“LSG”), Surety

Agency Holding Company LLC (“SAHC”), and Surety Management Company, LLC (“SMC”). Lexon Group is engaged in the

business of underwriting, placing, insuring and reinsuring contract and commercial surety bonds, court and probate surety bonds,

surety bail bonds, U.S. Customs surety bonds and other related risks. ISHI purchased Class B units in LSG and common units in

SAHC and SMC. The Class B units rank senior to the Common and Class A units of LSG. The Class B units are also entitled to a

cumulative fixed return of 3% per annum for the first five years and then 9% per annum thereafter. The investment is recorded in

other assets in the Company’s balance sheet as of December 31, 2014 and 2013.

In connection with the above investment, the Company through its subsidiaries Ironshore Indemnity and Ironshore Specialty

provides quota share reinsurance and a primary fronting facility on new and renewal business for U.S. commercial and contract

surety risks. The amounts of gross written premium assumed by Ironshore Indemnity and Ironshore Specialty as part of the quota

share facility for the year ending December 31, 2014 and 2013 are $31,851 and $15,110, respectively.

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17. Earnings per share

The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31, 2014 and

2013:

2014 2013

Net income attributable to Ironshore Inc. $84,477 $97,367

Adjustment for liability-classified

restricted share awards 980 630

Net income available to common stockholders $85,457 $97,997

Weighted average shares - basic 135,185,765 134,334,072

Share equivalents:

Warrants 2,313,352 1,765,216

Options 1,628,666 1,018,087

Restricted stock 806,947 569,500

Weighted average shares - diluted 139,934,730 137,686,875

Basic earnings per share $0.62 $0.72

Fully diluted earnings per share $0.61 $0.71

18. Note receivable

On December 31, 2013, the Company, through its subsidiary, Ironshore Holdings U.S., extended a loan to a third party entity

(“Borrower”) for $41,800 in order to partially finance Borrower’s acquisition of substantially all the assets of a managing general

agency (“MGA”). The loan is evidenced by a secured recourse promissory note that bears annual interest for the first three years at

the greater of (a) 1.65% of the principal amount and (b) fixed amount of $800 plus 80% of annual contingency income earned by

Borrower in MGA’s agency agreement with a third party insurer for the year in which interest is payable. Thereafter, the note

bears annual interest at 3.32% of the principal amount. In the event that MGA’s agency agreement with the third party insurer is

terminated before December 31, 2016, the annual interest rate shall be adjusted to 3.32% from the date of such termination. The

note receivable is recorded in other assets in the Company’s balance sheet as of December 31, 2014 and 2013.

The note receivable is due upon the earliest of: (a) the 5th anniversary date of the note, (b) the expiration or earlier termination of

the current agency agreement of MGA with a third party insurer, and (c) the occurrence of default (“Maturity Date”). Upon

maturity and at option of the Company, the note receivable shall be repaid as follows: (a) the Borrower to convey to the Company

MGA’s existing rights to underwrite and administer insurance policies constituting MGA’s business and pay in cash all unpaid

interest on the note receivable accrued as of the Maturity Date, or (b) the Borrower to pay cash in twenty equal annual payments of

principal together with interest on the then outstanding amount.

19. Other income

The Company recorded $7,995 of other income in respect of previously unresolved claims for certain investment losses for the

year ending December 31, 2013.

20. Segment reporting

The Company conducts its operations worldwide through three reportable operating segments, U.S., International and Bermuda

and one corporate function, which have been determined under FASB ASC Topic 280 Segment Reporting. The Company’s

operating segments are strategic business units that offer different policies.

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The U.S. segment offers a wide array of property and casualty coverage on an admitted and excess and surplus lines basis. The

U.S. segment is managed by the chief executive officer of U.S. Operations.

The International segment operates through Lloyd’s of London Syndicate 4000 and IEL and underwrites financial institutions

liability, professional management liability, property and other select specialist lines. The International segment is managed by the

chief executive officer of IIL.

The Bermuda segment provides property insurance on a worldwide basis. This segment also offers catastrophe excess liability,

financial lines and healthcare liability insurance through Iron-Starr Excess. The Bermuda segment is managed by the chief

executive officer of Ironshore Insurance who provides oversight to a team of underwriters, risk modelers and other industry

professionals.

The corporate function includes the activities of the parent company and activities of certain key executives, such as the Chief

Executive Officer and Chief Financial Officer of Ironshore. The corporate function includes revenue earned on the Company’s

investment portfolio and costs associated with parent company activities.

The Company does not manage its assets by segment and therefore total assets are not allocated to the segments.

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Segment data for the years ended December 31, 2014, and 2013 are as follows:

Year ended December 31, 2014 U.S. International Bermuda Total Corporate Consolidated

REVENUES

Gross premiums written $1,437,684 $574,327 $198,543 $2,210,554 - $2,210,554

Reinsurance premiums ceded (356,614) (128,749) (106,011) (591,374) - (591,374)

Net premiums written 1,081,070 445,578 92,532 1,619,180 - 1,619,180

Change in unearned premiums (71,448) (35,105) 14,369 (92,184) - (92,184)

Net premiums earned 1,009,622 410,473 106,901 1,526,996 - 1,526,996

Net investment income - - - - 97,043 97,043

Net realized and unrealized gains on investments - - - - 28,039 28,039

Net foreign exchange losses - - - - (5,283) (5,283)

Other income 13,383 12,460 5,711 31,554 2,012 33,566

Total revenues 1,023,005 422,933 112,612 1,558,550 121,811 1,680,361

EXPENSES

Losses and loss adjustment expenses 758,447 251,621 67,206 1,077,274 - 1,077,274

Acquisition expenses 115,993 97,738 977 214,708 - 214,708

General and administrative expenses 142,566 70,250 21,975 234,791 44,310 279,101

Interest expense - - - - 21,906 21,906

Total expenses 1,017,006 419,609 90,158 1,526,773 66,216 1,592,989

Income before tax expense $5,999 $3,324 $22,454 $31,777 $55,595 $87,372

Loss ratio (a) 75.1% 61.3% 62.9% 70.5%

Acquisition costs ratio (b) 11.5% 23.8% 0.9% 14.1%

General and administrative expense ratio (c) 12.8% 14.1% 15.2% 13.3%

Combined ratio (d) 99.4% 99.2% 79.0% 97.9%

(a) The loss ratio is calculated by dividing losses and loss adjustment expenses by net premiums earned.

(b) The acquisition costs ratio is calculated by dividing acquisition expenses by net premiums earned.

(c) The general and administrative expense ratio is calculated by dividing general and administrative expenses less other income by net premiums earned.

Corporate general and administrative expenses and corporate other income are not included in the calculation.

(d) The combined ratio is the sum of the loss ratio, acquisition costs ratio and general and administrative expense ratio.

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Year ended December 31, 2013 U.S. International Bermuda Total Corporate Consolidated

REVENUES

Gross premiums written $1,234,920 $566,233 $191,970 $1,993,123 - $1,993,123

Reinsurance premiums ceded (291,195) (164,680) (79,529) (535,404) - (535,404)

Net premiums written 943,725 401,553 112,441 1,457,719 - 1,457,719

Change in unearned premiums (129,155) (79,339) 5,098 (203,396) - (203,396)

Net premiums earned 814,570 322,214 117,539 1,254,323 - 1,254,323

Net investment income - - - - 84,372 84,372

Net realized and unrealized losses on investments - - - - (70,462) (70,462)

Net foreign exchange losses - - - - (2,989) (2,989)

Other income 12,164 4,079 4,119 20,362 9,192 29,554

Total revenues 826,734 326,293 121,658 1,274,685 20,113 1,294,798

EXPENSES

Losses and loss adjustment expenses 523,868 159,562 61,743 745,173 - 745,173

Acquisition expenses 88,152 78,012 7,888 174,052 - 174,052

General and administrative expenses 135,795 58,316 24,010 218,121 32,522 250,643

Interest expense - - - - 21,663 21,663

Total expenses 747,815 295,890 93,641 1,137,346 54,185 1,191,531

Income (loss) before tax expense $78,919 $30,403 $28,017 $137,339 ($34,072) $103,267

Loss ratio (a) 64.3% 49.5% 52.5% 59.4%

Acquisition costs ratio (b) 10.8% 24.2% 6.7% 13.9%

General and administrative expense ratio (c) 15.2% 16.8% 16.9% 15.8%

Combined ratio (d) 90.3% 90.5% 76.1% 89.1%

(a) The loss ratio is calculated by dividing losses and loss adjustment expenses by net premiums earned.

(b) The acquisition costs ratio is calculated by dividing acquisition expenses by net premiums earned.

(c) The general and administrative expense ratio is calculated by dividing general and administrative expenses less other income by net premiums earned.

Corporate general and administrative expenses and corporate other income are not included in the calculation.

(d) The combined ratio is the sum of the loss ratio, acquisition costs ratio and general and administrative expense ratio.

Gross premiums written by type of business for the years ended December 31, 2014 and 2013 are as follow:

U.S. International Bermuda Total


Casualty $1,093,919 $204,058 $48,274 $1,346,251

Property 171,090 108,461 150,269 429,820

Specialty Short Tail 172,675 261,808 - 434,483

Total $1,437,684 $574,327 $198,543 $2,210,554

U.S. International Bermuda Total


Casualty $901,106 $169,548 $45,906 $1,116,560

Property 169,230 110,661 152,123 432,014

Specialty Short Tail 164,584 286,024 (6,059) 444,549

Total $1,234,920 $566,233 $191,970 $1,993,123

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21. Statutory financial data

Bermuda

Ironshore Insurance is subject to the requirements of the Bermuda Insurance Act. Under the Bermuda Insurance Act, Ironshore

Insurance is required to prepare statutory financial statements and to file a statutory financial return. The Bermuda Insurance Act

also requires Ironshore Insurance to maintain certain measures of solvency and liquidity during the year. Declarations of dividends

from retained earnings and distributions from additional paid-in capital are subject to these solvency and liquidity requirements

being met. As of December 31, 2014 and 2013, these requirements were met.

Under the Bermuda Insurance Act, Ironshore Insurance is restricted from paying dividends for amounts greater than 25% of the

prior year’s statutory capital and surplus unless approved by the Bermuda Monetary Authority.

As of December 31, 2014 and 2013, Ironshore Insurance was required to maintain a minimum statutory capital and surplus of

$654,500 and $593,600, respectively. As of December 31, 2014 and 2013, Ironshore Insurance had statutory capital and surplus of

$1,231,200 and $1,399,400, respectively, and its statutory net income was $72,800 and $58,400 for the years ended December 31,

2014 and 2013, respectively. The declaration of dividends from retained earnings and distributions from additional paid-in capital

are limited to the extent that the solvency and liquidity requirements are met.

United States Ironshore Indemnity and Ironshore Specialty file financial statements prepared in accordance with statutory accounting practices

prescribed or permitted by U.S. insurance regulators. Statutory net income and statutory surplus, as reported to the insurance

regulatory authorities, differ in certain respects from the amounts prepared in accordance with U.S. GAAP. The main differences

between statutory net income and U.S. GAAP net income relate to deferred acquisition costs, deferred income and deferred

income taxes. In addition to deferred acquisition costs, deferred income and deferred income tax assets, other differences between

statutory surplus and U.S. GAAP shareholders’ equity are unrealized appreciation or decline in value of investments and non-

admitted assets.

Ironshore Indemnity is required to maintain a minimum combined statutory surplus of $15,000. As of December 31, 2014 and

2013, Ironshore Indemnity’s statutory surplus was $156,600 and $120,500, respectively, and its statutory net income was $2,894

and $91 for the years ended December 31, 2014 and 2013, respectively.

Ironshore Specialty is required to maintain a minimum combined statutory surplus of $15,000. As of December 31, 2014 and

2013, Ironshore Specialty’s statutory surplus was $325,800 and $300,300 respectively, and its statutory net income was $31,300

and $21,400 for the years ended December 31, 2014 and 2013, respectively.

Both of Ironshore Indemnity and Ironshore Specialty must seek regulatory approval at least 30 days prior to payment of an

extraordinary dividend or distribution, or payment of a dividend from a source other than earned surplus (determined as of the end

of the immediately preceding quarter for which the insurer has filed a quarterly or annual statement). Such an extraordinary

dividend, extraordinary distribution or a dividend paid from a source other than earned surplus cannot be paid unless the insurance

regulator has approved such payment or has failed to disapprove the payment within the 30-day period. An extraordinary dividend

or extraordinary distribution includes any dividend, distribution of cash or other property the fair market value of which together

with that of other dividends or distributions made within the preceding 12 months exceeds the greater of (i) 10% of the insurer’s

policyholders surplus as of the 31st day of December next preceding, or (ii) the net income for the 12-month period ending on the

31st day of December next preceding, but does not include pro rata distributions of any class of the insurer’s own securities. For

purposes of this calculation, the Minnesota statute applicable to Ironshore Indemnity provides that “net income” excludes realized

capital gains. As of December 31, 2014 and 2013, Ironshore Indemnity could not pay any dividend without prior regulatory

approval.

As of December 31, 2014 and 2013, the maximum dividend payout that Ironshore Specialty could have made without prior

regulatory approval was approximately $16,800 and $17,700, respectively. In 2014 and 2013, Ironshore Specialty made dividend

payments of $0 and $17,000, respectively, to its parent company, Ironshore Holdings U.S.

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United Kingdom and Lloyd’s

(pounds sterling in thousands)

The Company owns a Lloyd’s managing agency, PMA which operates in the Lloyd’s insurance market and manages Syndicate

4000, Special Purpose Syndicate 6110 (“SPS 6110”) and Syndicate 2014. PMA is subject to regulation by the UK Financial

Conduct Authority (“FCA”) and the Prudential Regulation Authority (“PRA”). The majority of the underwriting risk is borne by

ICCL which is a corporate member at Lloyd’s. Effective January 1, 2010, Ironshore CC (Two) Limited (“ICC2”), which is a

wholly owned subsidiary of IIL, also participated in the underwriting of Syndicate 4000. This participation ceased at the end of the

2012 year of account, leaving ICCL as the sole capital provider for Syndicate 4000 in the 2013 and 2014 underwriting years of

account. For the 2014 year of account, Syndicate 4000 has a capacity of £252,000, which is provided entirely by ICCL.

SPS 6110, which commenced trading on January 1, 2012, was managed by PMA and all of the capacity was provided by third

party capital represented by Hampden Agency Ltd, a Lloyd’s member agent. SPS 6110 ceased writing business at the end of the

2013 year of account. PMA received a managing agency fee from SPS 6110 and allocated a proportion of administrative expenses

to the SPS 6110.

Effective January 1, 2014 PMA commenced the management of Syndicate 2014. Syndicate 2014 had an initial capacity of

£75,000 provided by third party through Lloyd’s member agencies. This capacity has risen to £100,000 in 2015. PMA receives a

managing agency fee and profit commission from this arrangement.

Corporate members of Lloyd’s and Lloyd’s syndicates are bound by the rules of Lloyd’s, which are prescribed by Bye-laws and

Requirements made by the Council of Lloyd’s under powers conferred by the Lloyd’s Act 1982. These rules prescribe members’

membership subscription, the level of their contribution to the Lloyd’s Central Fund and the assets they must deposit with Lloyd’s

in support of their underwriting. The Council of Lloyd’s has broad powers to sanction breaches of its rules, including the power to

restrict or prohibit a member’s participation on Lloyd’s Syndicates.

The amount which is provided as FAL is not available for distribution for the payment of dividends or for working capital

requirements. Corporate members may also be required to maintain funds under the control of Lloyd’s in excess of their capital

requirements and such funds also may not be available for distribution for the payment of dividends. Lloyd’s sets the corporate

members’ required capital annually. Individual Capital Assessments (ICA’s) are agreed with the syndicates based on their business

plans.

FAL may comprise cash, certain investments and undrawn letters of credit provided by approved banks. The FAL requirement set

by Lloyd’s to support the planned level of underwriting by ICCL for 2015 and 2014 was £210,048 and £211,680, respectively.

ICC2 ceased underwriting after the 2012 year of account. However, as of December 31, 2014, ICC2 was still required to hold FAL

to a value of £11,700 until such time as the corporate quota share agreement with a specific reinsurer is commuted. As of

December 31, 2014 and 2013, ICCL met its FAL requirement. Refer to Note 6 for the fair value of assets restricted to satisfy

ICCL’s FAL requirements.

Ireland

The Company’s Irish-regulated operating subsidiary, IEL, is subject to the regulatory framework established by the Central Bank

of Ireland (“CBI”). It is required to:

maintain an adequate solvency margin and guarantee fund;

submit quarterly and annual regulatory returns to ensure that IEL maintains an adequate solvency margin and minimum

guarantee funds as well as ad hoc reporting of certain material transactions; and

obtain regulatory pre-approval of certain transactions, such as payment of dividends or acquisitions and disposals in the

ownership/voting rights of (re)insurance companies.

The CBI has minimum competency and fitness and probity codes that seek to ensure that regulated entities are run by those with

appropriate professional qualifications or experience within the CBI’s view, with regulatory pre-approval required for certain key

roles. The CBI’s Corporate Governance Code for Credit Institutions and Insurance Undertakings 2013 sets out the minimum

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statutory corporate governance requirements for Irish incorporated credit institutions and insurance undertakings. A compliance

statement specifying whether this has been complied with during the period must be submitted to the CBI on an annual basis.

In addition, the CBI has broad supervisory and administrative powers over capital and surplus requirements; outsourcing

arrangements; changes in qualifying holdings; intercompany loans; related party transactions; and changes in and the declaration

of and payment of dividends or other distributions. IEL is required to seek prior approval from the CBI in respect of these matters.

IEL is also subject to limited regulation from the FCA in respect of its London branch.

As of December 31, 2014 and 2013, IEL was required to maintain a minimum statutory capital and surplus of $23,101 and

$18,098, respectively. As of December 31, 2014 and 2013, IEL had statutory capital and surplus of $92,578 and $41,394,

respectively, and its statutory net income (loss) was $1,226 and $(356) for the years ended December 31, 2014 and 2013,

respectively.

International

The Company’s international subsidiaries prepare statutory financial statements based on local laws and regulations. Some

jurisdictions impose complex regulatory requirements on insurance companies while other jurisdictions impose fewer

requirements. In some countries, the applicable subsidiary must obtain licenses issued by governmental authorities to conduct local

insurance business. These licenses may be subject to reserves and minimum capital and solvency tests. Jurisdictions may impose

fines, censure, and/or criminal sanctions for violation of regulatory requirements.

22. Subsequent events

On August 17, 2014, the Company entered into a definitive equity purchase agreement with Fosun International Limited (“Fosun”)

and Mettlesome Investment Limited, a wholly owned subsidiary of Fosun (“Mettlesome”), pursuant to which the Company agreed

to sell to Mettlesome 20% of Ironshore’s total outstanding ordinary shares on a fully diluted basis. The sale of the shares was

consummated on February 12, 2015 and, pursuant to the terms of the equity purchase agreement, the Company initially issued to

Mettlesome 27,980,743 ordinary shares for a cash purchase price of $456,804. The purchase price and number of shares issued are

subject to certain post-closing adjustments under the equity purchase agreement.

In November 2014, the Company launched a tender offer to repurchase securities representing 20% of Ironshore’s total

outstanding ordinary shares on a fully diluted basis. Following closing of the Fosun transaction, the Company consummated the

tender offer, repurchasing 27,687,491 ordinary shares (including shares underlying options and Class B warrants exercised in

connection with the tender offer) at approximately $16.3256 per share and 1,921,040 Class A warrants at approximately $6.3256

per warrant. All of the proceeds from the Fosun transaction, together with the exercise price payable to the Company upon the

exercise of options and Class B warrants described above, were used to pay the tender offer consideration. The securities

repurchased by the Company pursuant to the tender offer were cancelled and retired. The number of securities repurchased by the

Company and the aggregate tender offer consideration are subject to adjustment based on the post-closing adjustments pursuant to

the Fosun transaction.

These post-closing adjustments under the equity purchase agreement and for the tender offer are expected to be finalized in the

second fiscal quarter of 2015.

Effective upon closing of the Fosun transaction, the Company’s memorandum of association was amended to increase the

authorized capital of the Company from 200,000,000 ordinary shares to 400,000,000 shares, par value of $0.01 each, which may

be ordinary shares or preferred shares.

Subsequent events have been evaluated through March 4, 2015, the date on which the financial statements were available to be

issued.

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