Management s Responsibility for the Condensed Statutory-Basis Financial Statements

Transcription

1 Brightstar Re, Ltd. Condensed Consolidated General Purpose Financial Statements as of and for the Year Ended December 31, 2016, and Independent Auditors Report

2 INDEPENDENT AUDITORS REPORT Board of Directors of Brightstar Re, Ltd. We have audited the accompanying condensed statutory-basis financial statements of Brightstar Re, Ltd. (the Company ), which comprise the condensed statutory-basis balance sheet as of December 31, 2016, and the related condensed statutory-basis statements of income and capital and surplus for the year then ended, and the related notes to the condensed statutory-basis financial statements. Management s Responsibility for the Condensed Statutory-Basis Financial Statements Management is responsible for the preparation and fair presentation of these condensed statutory-basis financial statements in accordance with the financial reporting provisions of the Insurance Act 1978, amendments thereto and the Insurance Account Rules 2016 with respect to Condensed General Purpose Financial Statements (the Legislation ). Management is also responsible for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these condensed statutory-basis financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the condensed statutorybasis financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the condensed statutory-basis financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the condensed statutory-basis financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company s preparation and fair presentation of the condensed statutory-basis financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the condensed statutory-basis financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

3 Basis for Adverse Opinion on Accounting Principles Generally Accepted in the United States of America As described in Note 3 to the condensed statutory-basis financial statements, the condensed statutory-basis financial statements are prepared by the Company based on the financial reporting provisions of the Legislation, which is a basis of accounting other than accounting principles generally accepted in the United States of America, to meet the requirements of the Bermuda Monetary Authority ( BMA ). The effects on the condensed statutory-basis financial statements of the variances between the statutory-basis of accounting described in Note 3 to the condensed statutory-basis financial statements and accounting principles generally accepted in the United States of America, although not reasonably determinable, are presumed to be material. Adverse Opinion on Accounting Principles Generally Accepted in the United States of America In our opinion, because of the significance of the matter described in the Basis for Adverse Opinion on Accounting Principles Generally Accepted in the United States of America paragraph, the condensed statutory-basis financial statements referred to above do not present fairly, in accordance with accounting principles generally accepted in the United States of America, the financial position of the Company. as of December 31, 2016, or the results of its operations for the year then ended. Opinion on Statutory Basis of Accounting In our opinion, the condensed statutory-basis financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2016, and the results of its operations for the year then ended, in accordance with the financial reporting provisions of the Legislation descried in Note 3 to the condensed statutory-basis financial statements. April 27,

4 CONDENSED BALANCE SHEET Enter Company Name As at December 31, 2016 expressed in ['000s] United States Dollars LINE No CASH AND CASH EQUIVALENTS 50,328, QUOTED INVESTMENTS: (a) Bonds and Debentures i. Held to maturity ii. O ther (b) Total Bonds and Debentures - (c) Equities i. Common stocks ii. Preferred stocks iii. Mutual funds (d) T otal equities - (e) O ther quoted investments (f) Total quoted investments - 3. UNQ UO TED INVESTMENTS: (a) Bonds and Debentures i. Held to maturity ii. O ther (b) Total Bonds and Debentures - (c) Equities i. Common stocks ii. Preferred stocks iii. Mutual funds (d) T otal equities - (e) O ther unquoted investments (f) Total unquoted investments - 4. INVESTMENTS IN AND ADVANCES TO AFFILIATES (a) Unregulated entities that conduct ancillary services (b) Unregulated non-financial operating entities (c) Unregulated financial operating entities (d) Regulated non-insurance financial operating entities (e) Regulated insurance financial operating entities (f) Total investments in affiliates - (g) Advances to affiliates 55,685,225 (h) Total investments in and advances to affiliates 55,685, INVESTMENTS IN MORTGAGE LOANS ON REAL ESTATE: (a) First liens (b) O ther than first liens (c) Total investments in mortgage loans on real estate - 6. POLICY LOANS 7. REAL ESTATE: (a) O ccupied by the company (less encumbrances) (b) O ther properties (less encumbrances) (c) Total real estate - 8. COLLATERAL LOANS 9. INVESTMENT INCOME DUE AND ACCRUED 10. ACCOUNTS AND PREMIUMS RECEIVABLE: (a) In course of collection 15,921,904 (b) Deferred - not yet due (c) Receivables from retrocessional contracts (d) Total accounts and premiums receivable 15,921,

5 CONDENSED CONSOLIDATED BALANCE SHEET Enter Company Name As at December 31, 2016 expressed in ['000s] United States Dollars LINE No REINSURANCE BALANCES RECEIVABLE: (a) Foreign affiliates (b) Domestic affiliates (c) Pools & associations (d) All other insurers (e) Total reinsurance balance receivable FUNDS HELD BY CEDING REINSURERS 13. SUNDRY ASSETS: (a) Derivative instruments (b) Segregated accounts companies - long-term business - variable annuities (c) Segregated accounts companies - long-term business - other (d) Segregated accounts companies - general business (e) Deposit assets (f) Deferred acquisition costs 1,693,703 (g) Net receivables for investments sold (h) Prepaid expenses 12,118 (i) O ther Sundry Assets (Specify) (j) O ther Sundry Assets (Specify) (k) Total sundry assets 1,705, LETTERS OF CREDIT, GUARANTEES AND OTHER INSTRUMENTS (a) Letters of credit (b) G uarantees (c) O ther instruments (e) Total letters of credit, guarantees and other instruments TOTAL 123,641,630 TOTAL INSURANCE RESERVES, OTHER LIABILITIES AND STATUTORY CAPITAL AND SURPLUS 16. UNEARNED PREMIUM RESERVE (a) Gross unearned premium reserves 2,590,016 (b) Less: Ceded unearned premium reserve i. Foreign affiliates ii. Domestic affiliates iii. Pools & associations iv. All other insurers (c) Total ceded unearned premium reserve - (d) Net unearned premium reserve 2,590, LOSS AND LOSS EXPENSE PROVISIONS: (a) Gross loss and loss expense provisions 4,982,646 (b) Less : Reinsurance recoverable balance i. Foreign affiliates ii. Domestic affiliates iii. Pools & associations iv. All other reinsurers (c) Total reinsurance recoverable balance - (d) Net loss and loss expense provisions 4,982, OTHER GENERAL BUSINESS INSURANCE RESERVES 19. TOTAL GENERAL BUSINESS INSURANCE RESERVES 7,572,

6 CONDENSED BALANCE SHEET Enter Company Name As at December 31, 2016 expressed in ['000s] United States Dollars LINE No LONG-TERM BUSINESS INSURANCE RESERVES 20. RESERVE FOR REPORTED CLAIMS 21. RESERVE FOR UNREPORTED CLAIMS 22. POLICY RESERVES - LIFE 23. POLICY RESERVES - ACCIDENT AND HEALTH 24. POLICYHOLDERS' FUNDS ON DEPOSIT 25. LIABILITY FOR FUTURE POLICY HOLDERS' DIVIDENDS 26. OTHER LONG-TERM BUSINESS INSURANCE RESERVES 27. TOTAL LONG-TERM BUSINESS INSURANCE RESERVES (a) Total Gross Long-Term Business Insurance Reserves - (b) Less: Reinsurance recoverable balance on long-term business (i) Foreign A ffiliates (ii) Domestic Affiliaties (iii) Pools and Associations (iv) All O ther Insurers (c) Total Reinsurance Recoverable Balance - (d) T otal Net Long-T erm Business Insurance Reserves - O T HER LIABILIT IES 28. INSURANCE AND REINSURANCE BALANCES PAYABLE 8,056, COMMISSIONS, EXPENSES, FEES AND TAXES PAYABLE 30. LOANS AND NOTES PAYABLE 31. (a) INCOME TAXES PAYABLE (b) DEFERRED INCOME TAXES 32. AMOUNTS DUE TO AFFILIATES 33. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 34. FUNDS HELD UNDER REINSURANCE CO NTRACTS: 300, DIVIDENDS PAY ABLE 36. SUNDRY LIABILITIES: (a) Derivative instruments (b) Segregated accounts companies (c) Deposit liabilities (d) Net payable for investments purchased (e) Amounts due under TPA agreements - (f) O ther sundry liabilities (specify) (g) O ther sundry liabilities (specify) (h) Total sundry liabilities LETTERS OF CREDIT, GUARANTEES AND OTHER INSTRUMENTS: (a) Letters of credit (b) G uarantees (c) O ther instruments (d) Total letters of credit, guarantees and other instruments TOTAL OTHER LIABILITIES 8,356, TOTAL INSURANCE RESERVES AND OTHER LIABILITIES 15,928,813 CAPITAL AND SURPLUS 40. TOTAL CAPITAL AND SURPLUS 107,712, TOTAL 123,641,

7 CONDENSED STATEMENT OF INCOME Enter Company Name As at December 31, 2016 expressed in ['000s] United States Dollars LINE No GENERAL BUSINESS UNDERWRITING INCO ME 1. GROSS PREMIUMS WRITTEN (a) Direct gross premiums written (b) Assumed gross premiums written 258,417,891 (c) Total gross premiums written 258,417, REINSURANCE PREMIUMS CEDED 3. NET PREMIUMS WRITTEN 258,417, INCREASE (DECREASE) IN UNEARNED PREMIUMS 3,215, NET PREMIUMS EARNED 261,633, O THER INSURANCE INCO ME 7. TO TAL G ENERAL BUSINESS UNDERW RITING INCO ME 261,633,421 GENERAL BUSINESS UNDERWRITING EXPENSES 8. INCURRED 55,688, COMMISSIONS AND BROKERAGE 150,959, TOTAL GENERAL BUSINESS UNDERWRITING EXPENSES 206,648, NET UNDERWRITING PRO FIT (LO SS) - GENERAL BUSINESS 54,985,382 LO NG-TERM BUSINESS INCO ME 12. GROSS PREMIUMS AND OTHER CONSIDERATIONS: (a) Direct gross premiums and other considerations (b) Assumed gross premiums and other considerations (c) Total gross premiums and other considerations PREMIUMS CEDED 14. NET PREMIUMS AND O THER CO NSIDERATIO NS: (a) Life (b) A nnuities (c) Accident and health (d) Total net premiums and other considerations O THER INSURANCE INCO ME 16. TO TAL LO NG -TERM BUSINESS INCO ME - LONG-TERM BUSINESS DEDUCTIONS AND EXPENSES 17. CLAIMS - LIFE 18. POLICY HOLDERS' DIVIDENDS 19. SURRENDERS 20. MATURITIES 21. ANNUITIES 22. ACCIDENT AND HEALTH BENEFITS 23. CO MMISSIO NS 24. O THER 25. TOTAL LONG-TERM BUSINESS DEDUCTIONS AND EXPENSES

8 CONDENSED STATEMENT OF INCOME Enter Company Name As at December 31, 2016 expressed in ['000s] United States Dollars LINE No GENERAL BUSINESS UNDERWRITING INCO ME 26. INCREASE (DECREASE) IN POLICY RESERVES (ACTUARIAL LIABILITIES): (a) Life (b) A nnuities (c) Accident and health (d) Total increase (decrease) in policy reserves TOTAL LONG-TERM BUSINESS EXPENSES NET UNDERWRITING PRO FIT (LO SS) - LO NG-TERM BUSINESS COMBINED NET UNDERWRITING RESULTS BEFORE THE UNDERNOTED ITEMS 54,985,382 UNDERNOTED ITEMS 30. COMBINED OPERATING EXPENSE (a) G eneral and administration 2,517,591 (b) Personnel cost 3,839,352 (c) Other (d) Total combined operating expenses 6,356, CO MBINED INVESTMENT INCO ME - NET 32. COMBINED OTHER INCOME (DEDUCTIONS) 33. COMBINED INCOME BEFORE TAXES 48,628, COMBINED INCOME TAXES (IF APPLICABLE): (a) Current (b) Deferred (c) Total COMBINED INCOME BEFORE REALIZED GAINS (LOSSES) 48,628, COMBINED REALIZED GAINS (LOSSES) 37. COMBINED INTEREST CHARGES 38. NET INCO ME 48,628,

9 CONDENSED STATEMENT OF CAPITAL AND SURPLUS Enter Company Name As at December 31, 2016 expressed in ['000s] United States Dollars LINE No CAPITAL: (a) C apital Stock (i) C ommon Shares 120,000 authorized 120,000 shares of par value $ each issued and fully paid 120,000 shares (ii) (A) Preferred shares: authorized value fully paid aggregate liquidation value for shares of par each issued and shares (B) Preferred shares issued by a subsidiary: authorized shares of par value each issued and fully paid shares aggregate liquidation value for (iii) Treasury Shares repurchased value shares of par each issued (b) (c) C ontributed surplus Any other fixed capital (i) Hybrid capital instruments (ii) G uarantees and others (iii) Total any other fixed capital - (d) Total Capital 120, SURPLUS: (a) Surplus - Beginning of Y ear 119,175,654 (b) Add: Income for the year 48,628,439 (c) Less: Dividends paid and payable (60,211,276) (d) (e) Add (Deduct) change in unrealized appreciation (depreciation) of investments Add (Deduct) change in any other surplus (f) Surplus - End of Y ear 107,592, MINO RIT Y INT EREST 4. TOTAL CAPITAL AND SURPLUS 107,712,

10 Brightstar Re, Ltd. Notes to Condensed General Purpose Financial Statements December 31, 2016 General Notes to the Condensed Financial Statements 1. Brightstar Re, Ltd. (formerly esecuritel Re Ltd.) (the Insurer or the Company ) was incorporated under the laws of Bermuda on May 20, 2009 and is a wholly-owned subsidiary of Brightstar Device Protection, LLC (formerly esecuritel Holdings, LLC), (the Parent Company ), a United States limited liability company. Pursuant to Section 6 of the Segregated Accounts Companies Act 2000 ( the Act ), the Registrar of Companies duly registered the Company, effective September 7, 2011, as a Segregated Accounts Company. The Company is registered as a Class 3A general business insurer, effective July 10, There were no changes to the shareholder controllers during the year. In September 2011, the Company entered into a participation agreement with MTPCS, LLC, a Delaware Limited Liability Company, to establish a segregated account cell namely Segregated Account , within the Company for and on behalf of MTPCS, LLC. The business of the cell is reinsurance of wireless handsets for customers of MTPCS, LLC. In April 2015, the Company entered into a participation agreement with Brightstar Corp., a Delaware corporation, to establish a segregated account cell namely Segregated Account , within the Company for and on behalf of Brightstar Corp. The business of the cell is reinsurance of an inland marine stock insurance policy. 2. The Company reinsures group master inland marine insurance contracts for wireless carriers to cover direct physical loss to covered property, including wireless communication equipment and, if reported as part of a covered loss, standard battery, standard battery charger, a SIM card and one accessory. The Parent Company performs claim administration and other services for the reinsured as defined by a Claims Administration Agreement. 3. The condensed general purpose financial statements have been prepared in conformity with the financial reporting provisions of the Insurance Act 1978, amendments thereto and the Insurance Account Rules 2016 with respect to Condensed General Purpose Financial Statements (the Legislation ). The condensed general purpose financial statements are based upon U.S. Generally Accepted Accounting Principles ( GAAP ) but are in accordance with the reporting requirements of the Legislation, which varies in certain respects from GAAP. The more significant variances are as follows: A statement of cash flows is not included; A statement of comprehensive income is not included; The presentation and classification of financial statement line items is in accordance with Schedules IX and XI of the Insurance Account Rules 2016 and differ from the expected presentation and classification under GAAP; and The notes included in the condensed general purpose financial statements have been prepared in accordance with Schedule X of the Insurance Account Rules 2016 and exclude certain information required under GAAP. 4. The following are the significant accounting policies adopted by the Insurer: (a) Premiums: Premiums are recognized as revenue and the majority of premiums are earned as received by the Company. However, premiums for some programs and related - 9 -

11 Brightstar Re, Ltd. Notes to Condensed General Purpose Financial Statements December 31, 2016 acquisition costs are recognized pro-rata over the term of the related policies. Unearned premiums represent the portion of premiums written which are applicable to the unexpired terms of the policies in force at year end. (b) Incurred but not reported reserves, outstanding loss reserves and loss expenses: The liability for incurred but not reported ( IBNR ) losses, outstanding loss and loss adjustment expenses includes amounts reported to the Company by the Parent Company. Customers only have 60 days after a loss to report a claim and all claims must be settled through the Parent Company within 60 days after the claim is approved. Therefore, the loss and loss expense provisions at each year end is all related to that particular fiscal year due to the short tail nature of the business. Loss and loss expense provisions comprise a provision for IBNR losses based on a review of loss experience of the insureds. Uncertainty is inherent in the calculation of IBNR due to the nature of the claims made against the Insurer. It is possible that management will revise this estimate in the next fiscal year. Given the inherent degree of variability in such estimates, management believes that the provision will be adequate to cover the ultimate cost of losses incurred to the balance sheet date. It should be noted, however, that the estimated provision may ultimately be settled for a greater or lesser amount. Any subsequent differences arising are recorded in the period in which they are determined. Losses payable are recorded in the balance sheet in the amount of $8,056,151. Loss and loss expense provisions are recorded in the balance sheet in the amount of $4,982,646. The ultimate settlement of losses may vary from the provision recorded. (c) Cash and Cash Equivalents: Cash and cash equivalents are comprised of cash in a US dollar checking bank account. 5. Premium Income See Note 4(a). Investment Income Not Applicable. Commission Income Not Applicable. 6. Amounts denominated in foreign currencies are translated into the currency of the statutory financial statements as at the financial statement date and any amounts gained or lost on such translation are recognized on the income statement Not Applicable. 15. The Company writes business with some related parties (see Note 1 and 2 General Notes to the Condensed Financial Statements), related party transactions for the year include: 2016 Premiums earned $260,289,798 Losses incurred and loss expenses $54,138,230 Commissions and brokerage $150,636,273 Accounts and premiums receivable $15,251,

12 Brightstar Re, Ltd. Notes to Condensed General Purpose Financial Statements December 31, The Company evaluated subsequent events after December 31, 2016 through April 27, 2017, representing the date that the financial statements were available to be issued. The Company concluded that no material events occurred subsequent to December 31, 2016, that provided additional evidence about conditions that existed at December 31, 2016, which require adjustments to or disclosure in the financial statements. 17. The Parent Company has entered into contracts to provide third party administrative and compliance services ( TPA services) for wireless telecommunications service providers who offer equipment replacement services ( Third Parties ). Per the agreements, the Company facilitates the pass through of the net cession income associated with these programs to the Third Parties but receives no revenue. For the year ended December 31, 2016, the Company received $22,162,333 in net cession income on behalf of Third Parties and transferred $22,162,333. At December 31, 2016, the Company held $Nil related to net cession income received on behalf of Third Parties. This balance was transferred to the Third Parties subsequent to year end. During the year, the Company passed a resolution and with approval from the Registrar of Companies changed its name and was registered as Brightstar Re, Ltd. on February 12, The Corporate Secretary of the Company provided the Bermuda Monetary Authority with a copy of the letter sent to the Registrar of Companies on February 11, 2016 in regards to the name change of the Company

13 Brightstar Re, Ltd. Notes to Condensed General Purpose Financial Statements December 31, 2016 Notes to the Condensed Statement of Capital and Surplus 1(a) Capital Stock Capital stock comprises $120,000 authorized, issued and fully paid common shares at par value of $1 each. 1(b) Contributed Surplus Not Applicable. 2(c) Dividends Paid and Payable During the year, the Board of Directors declared and paid dividends to the shareholder in the amount of $57,845,826 and approved and paid a distribution to the participants of the MTPCS cell of $2,368,

14 Brightstar Re, Ltd. Notes to Condensed General Purpose Financial Statements December 31, 2016 Notes to the Condensed Balance Sheet 1-3. Not Applicable. 4. Investments in and Advances to Affiliates As at December 31, 2016, $55,115,225 was due from the Parent Company to the Company. This amount is payable on demand and represents excess funds in the captive that were transferred to the Parent Company. These balances are carried at cost and bear no interest Not Applicable. 10. Accounts and Premiums Receivable At December 31, 2016 $15,251,362 was due from affiliates. This receivable is not collateralized Not Applicable 13. Sundry Assets Sundry assets comprise deferred acquisition costs and prepaid expenses. Deferred acquisition costs represent the acquisition costs related to the portion of premiums written which are applicable to the unexpired terms of the policies in force at year end. 14. Letters of Credit, Guarantees and Other Instruments The Company has a letter of credit issued in its favor for value of $880,000 from the Parent Company in relation to its reinsurance business. 16. Unearned Premium Reserve See General Notes to the Condensed General Purposes Financial Statements, Note 4(a). 17. Loss and Loss Expense Provision See General Notes to the Condensed General Purposes Financial Statements, Note 4(b). The activity in the reserve for losses and loss expenses for 2016 is summarized as follows: 2016 Balance, beginning of year $1,868,606 Incurred related to: Current year 54,377,358 Prior years 1,311,097 Total incurred 55,688,455 Paid losses related to: Current year (50,705,708)

15 Brightstar Re, Ltd. Notes to Condensed General Purpose Financial Statements December 31, 2016 Prior years (1,868,606) Total paid (52,574,314) Balance, end of year $4,982, Reserves for Reported Claims/Reserves for Unreported Claims See General Notes to the Condensed General Purposes Financial Statements, Note 4(b) Not applicable 28. Insurance and Reinsurance Balances Payable At December 31, 2016 $7,385,609 was due to affiliates Not Applicable 36. Sundry Liabilities See General Notes to the Condensed General Purposes Financial statements, Note Letter of Credit, Guarantees and Other Instruments Diamond Wireless, LLC has placed on deposit with the Company $300,000 in relation to the TPA agreement with the Parent Company to mitigate the credit risk associated with the net cessions flowing through the Company

16 Brightstar Re, Ltd. Notes to Condensed General Purpose Financial Statements December 31, 2016 Notes to the Condensed Statement of Income 6. Not Applicable. 15. Not Applicable. 32. Not Applicable. 36. Not Applicable