The following is a discussion and analysis of our results of operations for the three months ended March 31, 2009 and 2008. This discussion and analysis should be read in conjunction with the attached unaudited condensed consolidated financial statements and notes thereto and the audited consolidated financial statements and notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

Business Overview

Enstar Group Limited, or Enstar, was formed in August 2001 under the laws of Bermuda to acquire and manage insurance and reinsurance companies in run-off, and to provide management, consulting and other services to the insurance and reinsurance industry.

Since our formation we have acquired a number of insurance and reinsurance companies and are now administering those businesses in run-off. We derive our net earnings from the ownership and management of these companies primarily by settling insurance and reinsurance claims below the recorded loss reserves and from returns on the portfolio of investments retained to pay future claims. In addition, we have formed other businesses that provide management and consultancy services, claims inspection services and reinsurance collection services to our affiliates and third-party clients for both fixed and success-based fees.

Recent Transactions

On January 31, 2009, we, through our indirect subsidiary, Sun Gulf Holdings Inc., completed the acquisition of all of the outstanding capital stock of Constellation Reinsurance Company Limited, or Constellation, for a total purchase price of approximately $2.5 million. Constellation is a New York domiciled reinsurer that is in run-off. The acquisition was funded from available cash on hand.

We own 50.1% of Shelbourne Group Limited, which in turn owns 100% of Shelbourne Syndicate Services Limited, the Managing Agency for Lloyd's Syndicate 2008, a syndicate approved by Lloyd's of London on December 16, 2007 to undertake Reinsurance to Close or "RITC" transactions (the transferring of liabilities from one Lloyd's Syndicate to another) with Lloyd's syndicates in run-off. In February 2009, Lloyd's Syndicate 2008 entered into a RITC agreement with a Lloyd's syndicate with total gross insurance reserves of approximately $67.0 million. JCF FPK I L.P., or JCF FPK, a joint investment program between J.C. Flowers II L.P., or the Flowers Fund, and Fox-Pitt Kelton Cochran Caronia Waller (USA) LLC, or FPK, owns 49.9% of Shelbourne Group Limited.

The Flowers Fund is a private investment fund advised by J.C. Flowers & Co. LLC. J. Christopher Flowers, a member of our board of directors and one of our largest shareholders, is the founder and Managing Member of J.C. Flowers & Co.
LLC. John J. Oros, our Executive Chairman and a member of our board of directors, is a Managing Director of J.C. Flowers & Co. LLC. In July 2008, FPK acted as lead managing underwriter in our public share offering. An affiliate of the Flowers Fund controls approximately 41% of FPK.

Results of Operations

The following table sets forth our selected consolidated statement of operations
data for each of the periods indicated.


                                                                      Three Months Ended March 31,
                                                                        2009                 2008

INCOME
Consulting fees                                                    $        3,336       $        6,055
Net investment income                                                      17,309                  590
Net realized losses                                                        (6,010 )             (1,084 )

                                                                           14,635                5,561

EXPENSES
Net (decrease) increase in loss and loss adjustment expense
liabilities                                                               (26,679 )                685
Salaries and benefits                                                      12,417               11,357
General and administrative expenses                                        12,382               11,911
Interest expense                                                            4,965                3,315
Net foreign exchange loss (gain)                                            1,598               (1,335 )

                                                                            4,683               25,933

Earnings (Loss) before income taxes and share of net earnings of
partly owned company                                                        9,952              (20,372 )
Income taxes                                                                  618                  239
Share of net earnings of partly owned company                                 269                    -

Earnings (Loss) before extraordinary gain                                  10,839              (20,133 )
Extraordinary gain - negative goodwill                                          -               50,280

NET EARNINGS                                                               10,839               30,147
Less: Net loss (earnings) attributable to noncontrolling
interest                                                                      692              (18,460 )

NET EARNINGS ATTRIBUTABLE TO ENSTAR GROUP LIMITED                  $       11,531       $       11,687

Comparison of the Three Months Ended March 31, 2009 and 2008

We reported consolidated net earnings attributable to Enstar Group Limited of approximately $11.5 million for the three months ended March 31, 2009 as compared to approximately $11.7 million for the same period in 2008. Included as part of net earnings for 2008 are extraordinary gains related to negative goodwill of $50.3 million (inclusive of the noncontrolling interest's share of extraordinary gain of $15.1 million). The increase in earnings, before extraordinary item and net earnings attributable to noncontrolling interest, of approximately $31.0 million was primarily a result of the following:

(i) an increase in investment income (net of realized losses) of $11.8 million, primarily due to an overall increase in cash and investments as a result of acquisitions that we completed during 2008; and

(ii) an increase in the net decrease in loss and loss adjustment expense liabilities of $27.4 million; partially offset by

(iii) net increase in foreign exchange loss of $2.9 million;

(iv) increased interest expense of $1.7 million due to increased bank borrowings; and

(v) decreased consulting fee income of $2.7 million.

Consulting Fees:


                                     Three Months Ended March 31,
                                   2009            2008       Variance
                                    (in thousands of U.S. dollars)

                  Consulting    $    11,332      $ 13,303     $  (1,971 )
                  Reinsurance        (7,996 )      (7,248 )        (748 )

                  Total         $     3,336      $  6,055     $  (2,719 )

We earned consulting fees of approximately $3.3 million and $6.1 million for the three months ended March 31, 2009 and 2008, respectively. The decrease in consulting fees primarily relates to decreased incentive fees earned from third party agreements.

Internal management fees of $8.0 million and $7.2 million were paid in the three months ended March 31, 2009 and 2008, respectively, by our reinsurance companies to our consulting companies. The increase in internal fees paid to the consulting segment was due primarily to fees paid by reinsurance companies that we acquired subsequent to March 31, 2008.

Net Investment Income and Net Realized Gains/(Losses):


                                                                     Three Months Ended March 31,
                                     Net Investment Income                            Net Realized Gains/(Losses)
                                      2009             2008        Variance            2009                 2008           Variance
                                                                    (in thousands of U.S. dollars)

Consulting                         $       212       $ (4,908 )    $   5,120      $            -       $            -      $       -
Reinsurance                             17,097          5,498         11,599              (6,010 )             (1,084 )       (4,926 )

Total                              $    17,309       $    590      $  16,719      $       (6,010 )     $       (1,084 )    $  (4,926 )

Net investment income for the three months ended March 31, 2009 increased by $16.7 million to $17.3 million, as compared to $0.6 million for the same period in 2008. The increase was primarily attributable to the combination of the following items:

(i) decrease from $26.2 million to $2.0 million in writedowns in the fair value of our investments in New NIB Partners L.P., the Flowers Fund, Affirmative Investment LLC and GSC European Mezzanine Fund II, LP for the quarters ended March 31, 2008 and 2009, respectively; partially offset by

(ii) lower investment income from fixed maturities and cash and cash equivalents, reflecting the impact of lower global short-term and intermediate interest rates - the average U.S. Federal Funds Rate has decreased from 3.24% for the three months ended March 31, 2008 to 0.25% for the three months ended March 31, 2009.

The average return on the cash and fixed maturities investments for the three months ended March 31, 2009 was 1.72%, as compared to the average return of 3.24% for the three months ended March 31, 2008. In respect of our fixed income investments, 76.4% and 91.0% had a Standard & Poor's credit rating of AA or higher for the three months ended March 31, 2009 and 2008, respectively.

Net realized losses for the three months ended March 31, 2009 and 2008 were $6.0 million and $1.1 million, respectively. The net realized loss for the three months ended March 31, 2009 primarily arose as a result of us transferring approximately $10.0 million of investments that were classified as available-for-sale fixed maturities and approximately $2.0 million of other investments that were classified as other to equities and we wrote down the value of those securities by approximately $5.4 million to reflect their current market values.

Fair Value Measurements

The following table summarizes all of our financial assets and liabilities
measured at fair value by FAS No. 157, "Fair Value Measurements," or FAS 157,
heirarchy.


                                                                      March 31, 2009
                                      Quoted Prices in           Significant           Significant
                                     Active Markets for        Other Observable       Unobservable
                                      Identical Assets              Inputs               Inputs           Total Fair
                                          (Level 1)               (Level 2)             (Level 3)           Value

Assets
Fixed maturity investments           $                 -      $          732,577      $         284      $    732,861
Equity securities                                  3,506                   3,971              2,091             9,568
Other investments                                      -                       -             69,566            69,566

Total                                $             3,506      $          736,548      $      71,941      $    811,995

As a percentage of total assets
($4.4 billion, as at March 31,
2009)                                                0.1 %                  16.9 %              1.6 %            18.6 %

Net (Decrease) Increase in Loss and Loss Adjustment Expense Liabilities:

The net (decrease) increase in loss and loss adjustment expense liabilities for the three months ended March 31, 2009 and 2008 was $(26.7) million and $0.7 million, respectively. The net decrease in loss and loss adjustment expense liabilities for the three months ended March 31, 2009 of $26.7 million was attributable to a reduction in estimates of net ultimate losses of $29.9 million, a reduction in aggregate provisions for bad debts of $9.7 million and a reduction in estimates of loss adjustment expense liabilities of $10.1 million, relating to 2009 run-off activity, partially offset by the amortization, over the estimated payout period, of fair value adjustments relating to companies acquired amounting to $23.0 million. The reduction in estimates of net ultimate losses of $29.9 million primarily related to a reduction in Incurred But Not Reported (IBNR) loss reserves. Subsequent to the period end, claims liabilities of certain policyholders within a number of our insurance subsidiaries were agreed at levels that required a reassessment of IBNR loss reserves for those subsidiaries. The reduction in aggregate provisions for bad debts of $9.7 million resulted from the collection of certain reinsurance balances receivable against which bad debt provisions had been provided.

For the three months ended March 31, 2008, the net increase in loss and loss adjustment expense liabilities of $0.7 million was attributable to an increase in bad debt provisions of $1.3 million, the amortization, over the estimated payout period, of fair value adjustments relating to companies acquired amounting to $6.5 million, partially offset by the reduction in estimates of loss adjustment expense liabilities of $7.1 million, to reflect 2008 run-off activity.

The following table shows the components of the movement in the net increase in loss and loss adjustment expense liabilities for the three months ended March 31, 2009 and 2008.

                                                                    Three Months Ended March 31,
                                                                    2009                     2008
                                                                   (in thousands of U.S. dollars)

Net Losses Paid                                                $        12,372           $      (3,375 )
Net Change in Case and LAE Reserves                                    (15,306 )                 4,542
Net Change in IBNR                                                     (23,745 )                  (482 )

Net (Decrease) Increase in Loss and Loss Adjustment
Expense Liabilities                                            $       (26,679 )         $         685

The table below provides a reconciliation of the beginning and ending reserves for loss and loss adjustment expenses for the three months ended March 31, 2009 and March 31, 2008. Losses incurred and paid are reflected net of reinsurance recoverables.

                                                  Three Months Ended March 31,
                                                     2009                 2008
                                                 (in thousands of U.S. dollars)

   Balance as of January 1,                    $       2,798,287       $ 1,591,449
   Less: Reinsurance recoverables                        394,575           427,964

                                                       2,403,712         1,163,485
   Incurred Related to Prior Years                       (26,679 )             685
   Paids Related to Prior Years                          (12,372 )           3,375
   Effect of Exchange Rate Movement                       (6,650 )           9,413
   Retroactive Reinsurance Contracts Assumed              48,818           394,913
   Acquired on Acquisition of Subsidiaries                11,383           465,887

   Net balance as at March 31                  $       2,418,212       $ 2,037,758
   Plus: Reinsurance recoverables                        379,615           662,929

   Balance as at March 31,                     $       2,797,827       $ 2,700,687

Salaries and Benefits:


                                     Three Months Ended March 31,
                                   2009            2008       Variance
                                    (in thousands of U.S. dollars)

                  Consulting    $     8,951      $  9,295     $     344
                  Reinsurance         3,466         2,062        (1,404 )

                  Total         $    12,417      $ 11,357     $  (1,060 )

Salaries and benefits, which include expenses relating to our discretionary bonus and employee share plans, were $12.4 million and $11.4 million for the three months ended March 31, 2009 and 2008, respectively. The increase in salaries and benefits is primarily attributable to increased staff costs due to an increase in staff numbers from 253 as at March 31, 2008 to 284 as at March 31, 2009.

Expenses relating to our discretionary bonus plan will be variable and dependent on our overall profitability.

General and Administrative Expenses:


                                     Three Months Ended March 31,
                                   2009            2008       Variance
                                    (in thousands of U.S. dollars)

                  Consulting    $     4,325      $  3,622     $    (703 )
                  Reinsurance         8,057         8,289           232

                  Total         $    12,382      $ 11,911     $    (471 )

General and administrative expenses attributable to the consulting segment increased by $0.7 million during the three months ended March 31, 2009, as compared to the three months ended March 31, 2008.

General and administrative expenses attributable to the reinsurance segment decreased by $0.2 million during the three months ended March 31, 2009, as compared to the three months ended March 31, 2008. For the quarter ended March 31, 2008, we incurred approximately $4.5 million of bank loan structure fees incurred in respect of acquisitions we completed during the quarter - for the three months ended March 31, 2009 we did not incur any similar fees. The reduced expenses were partially offset by increased costs associated with new companies acquired subsequent to March 31, 2008.

Interest Expense:


                                     Three Months Ended March 31,
                                   2009            2008       Variance
                                    (in thousands of U.S. dollars)

                  Consulting    $         -       $     -     $       -
                  Reinsurance         4,965         3,315        (1,650 )

                  Total         $     4,965       $ 3,315     $  (1,650 )

Interest expense of $5.0 million and $3.3 million was recorded for the three months ended March 31, 2009 and 2008, respectively. The increase in interest expense is attributable to the increase in bank borrowings used in the funding of acquisitions during 2008, primarily in relation to Goshawk Insurance Holdings Plc, or Goshawk, AMP Limited's Australian-based closed reinsurance and insurance operations, or Gordian, and Unionamerica Holdings Limited or Unionamerica.

Negative Goodwill:


                                      Three Months Ended March 31
                                  2009             2008       Variance
                                    (in thousands of U.S. dollars)

                  Consulting    $       -        $      -     $       -
                  Reinsurance           -          50,280       (50,280 )

                  Total         $       -        $ 50,280     $ (50,280 )

Negative goodwill of $nil and $50.3 million, was recorded for the three months ended March 31, 2009 and 2008, respectively. For the three months ended March 31, 2008 the negative goodwill of $50.3 million was earned in connection with our acquisition of Gordian and represents the excess of the cumulative fair value of net assets acquired of $455.7 million over the cost of $405.4 million. This excess was, in accordance with FAS No. 141 "Business Combinations," recognized as an extraordinary gain in 2008. The negative goodwill arose primarily as a result of the income earned by Gordian between the date of the balance sheet on which the agreed purchase price was based, June 30, 2007, and the date the acquisition closed, March 5, 2008, and the desire of the vendors to achieve a substantial reduction in regulatory capital requirements and therefore to dispose of Gordian at a discount to fair value.

Noncontrolling Interest


                                      Three Months Ended March 31
                                  2009            2008        Variance
                                    (in thousands of U.S. dollars)

                  Consulting    $       -       $       -     $       -
                  Reinsurance         692         (18,460 )      19,152

                  Total         $     692       $ (18,460 )   $  19,152

We recorded a noncontrolling interest in earnings of $0.7 million and $(18.5) million for the three months ended March 31, 2009 and 2008, respectively. The decrease for the quarter ended March 31, 2009 in noncontrolling interest was primarily due to the noncontrolling interest's share of the negative goodwill relating to the Gordian acquisition in the first quarter of 2008.

Liquidity and Capital Resources

On April 4, 2009, we repaid AU$80.7 million (approximately $56.7 million) of the outstanding principal of the Facility A commitment pursuant to the term facility agreement of our wholly-owned subsidiary, Cumberland Holdings Limited. Other than this repayment, which occurred subsequent to the three month period ended March 31, 2009, there have been no material changes in our liquidity position or capital resource requirements

since December 31, 2008. For more information refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" included in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2008, filed with the SEC on March 5, 2009.

With respect to the three month periods ended March 31, 2009 and 2008, net cash provided by our operating activities was $3.1 million and $374.4 million, respectively. The decrease in cash flows was primarily attributable to net assets assumed on retro-active reinsurance contracts during the three months ended March 31, 2008, which did not recur in 2009.

Net cash used in investing activities for the three months ended March 31, 2009 was $(283.1) million compared to $(243.2) million for the three months ended March 31, 2008. The decrease in the cash flows was primarily due to an increase in net purchases of investments, offset partially by an increase in cash provided by the sales and maturities of available-for-sale securities.

Net cash (used in) provided by financing activities for the three months ended March 31, 2009 and 2008 was $(19.1) million and $354.2 million, respectively. The decrease in cash flows was primarily attributable to the receipt of bank loans and capital contributions by noncontrolling interest shareholders, relating to the purchase of Guildhall Insurance Company Limited, Gordian, and the financing of Shelbourne Group Limited, during the three months ended March 31, 2008, which did not recur in 2009.

Commitments and Contingencies

There have been no other material changes in our commitments or contingencies since December 31, 2008. For more information refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations - Commitments and Contingencies" included in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2008, filed with the SEC on March 5, 2009.

Critical Accounting Estimates

Our critical accounting estimates are discussed in "Management's Discussion and Analysis of Results of Operations and Financial Condition - Critical Accounting Policies" included in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2008, filed with the SEC on March 5, 2009.

Off-Balance Sheet and Special Purpose Entity Arrangements

At March 31, 2009, we have not entered into any off-balance sheet arrangements, as defined by Item 303(a)(4) of Regulation S-K.

Cautionary Statement Regarding Forward-Looking Statements

This quarterly report contains statements that constitute "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, with respect to our financial condition, results of operations, business strategies, operating efficiencies, competitive positions, growth opportunities, plans and objectives of our management, as well as the markets for our ordinary shares and the insurance and reinsurance sectors in general. Statements that include words such as "estimate," "project," "plan," "intend," "expect," "anticipate," "believe," "would," "should," "could," "seek," and similar statements of a future or forward-looking nature identify forward-looking statements for purposes of the federal securities laws or otherwise. All forward-looking statements are necessarily estimates or expectations, and not statements of historical fact, reflecting the best judgment of our management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. These forward-looking statements should, therefore, be considered in light of various important factors, including those set forth in and incorporated by reference in this quarterly report.

Factors that could cause actual results to differ materially from those suggested by the forward-looking statements include:

• risks associated with implementing our business strategies and initiatives;

• the adequacy of our loss reserves and the need to adjust such reserves as claims develop over time;

• risks relating to the availability and collectability of our reinsurance;

• changes in economic conditions, including interest rates, inflation, currency exchange rates, equity markets and credit conditions including current market conditions and the instability in the global credit markets, which could affect our investment portfolio, our ability to finance future acquisitions and our profitability;

• losses due to foreign currency exchange rate fluctuations;

. . .