Investment Information

12 Months Ended

Dec. 31, 2020

Disclosure Investment Information [Abstract]

At December 31, 2020, total investable assets of $29.5 billion included $26.9 billion held by the Company and $2.7 billion attributable to Watford.

Available For Sale Investments

The following table summarizes the fair value and cost or amortized cost of the Company’s securities classified as available for sale:


	Estimated Fair Value		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Expected Credit Losses (2)		Cost or Amortized Cost
December 31, 2020
Fixed maturities (1):
Corporate bonds	$	7,856,571	$	414,247	$	(34,388)	$	(896)	$	7,477,608
Mortgage backed securities	630,001		8,939		(5,028)		(278)		626,368
Municipal bonds	494,522		27,291		(3,835)		(11)		471,077
Commercial mortgage backed securities	389,900		8,722		(2,954)		(122)		384,254
U.S. government and government agencies	5,557,077		22,612		(12,611)		—		5,547,076
Non-U.S. government securities	2,433,733		153,891		(8,060)		—		2,287,902
Asset backed securities	1,634,804		19,225		(10,715)		(1,090)		1,627,384
Total	18,996,608		654,927		(77,591)		(2,397)		18,421,669


Short-term investments	1,924,922		2,693		(2,063)		—		1,924,292
Total	$	20,921,530	$	657,620	$	(79,654)	$	(2,397)	$	20,345,961

December 31, 2019
Fixed maturities (1):
Corporate bonds	$	6,406,591	$	191,889	$	(12,793)			$	6,227,495
Mortgage backed securities	562,309		9,669		(931)				553,571
Municipal bonds	881,926		24,628		(2,213)				859,511
Commercial mortgage backed securities	733,108		14,951		(2,330)				720,487
U.S. government and government agencies	4,916,592		36,600		(10,134)				4,890,126
Non-U.S. government securities	2,078,757		48,549		(20,330)				2,050,538
Asset backed securities	1,683,753		24,017		(4,724)				1,664,460
Total	17,263,036		350,303		(53,455)				16,966,188


Short-term investments	956,546		811		(1,548)				957,283
Total	$	18,219,582	$	351,114	$	(55,003)			$	17,923,471

(1) In securities lending transactions, the Company receives collateral in excess of the fair value of the fixed maturities pledged. For purposes of this table, the Company has excluded the collateral received under securities lending, at fair value and included the securities pledged under securities lending, at fair value. See “—Securities Lending Agreements.”

(2) Effective January 1, 2020, the Company adopted ASU 2016-13 and as a result any credit impairment losses on the Company’s available-for-sale investments are recorded as an allowance, subject to reversal. See note 3.

The following table summarizes, for all available for sale securities in an unrealized loss position, the fair value and gross unrealized loss by length of time the security has been in a continual unrealized loss position:


	Less than 12 Months				12 Months or More				Total
	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
December 31, 2020
Fixed maturities (1):
Corporate bonds	$	747,442	$	(33,086)	$	3,934	$	(1,302)	$	751,376	$	(34,388)
Mortgage backed securities	284,619		(4,788)		3,637		(240)		288,256		(5,028)
Municipal bonds	67,937		(3,835)		—		—		67,937		(3,835)
Commercial mortgage backed securities	126,624		(2,916)		2,655		(38)		129,279		(2,954)
U.S. government and government agencies	1,285,907		(12,611)		—		—		1,285,907		(12,611)
Non-U.S. government securities	543,844		(7,658)		2,441		(402)		546,285		(8,060)
Asset backed securities	634,470		(9,110)		57,737		(1,605)		692,207		(10,715)
Total	3,690,843		(74,004)		70,404		(3,587)		3,761,247		(77,591)


Short-term investments	97,920		(2,063)		—		—		97,920		(2,063)
Total	$	3,788,763	$	(76,067)	$	70,404	$	(3,587)	$	3,859,167	$	(79,654)

December 31, 2019
Fixed maturities (1):
Corporate bonds	$	675,131	$	(12,350)	$	37,671	$	(443)	$	712,802	$	(12,793)
Mortgage backed securities	102,887		(927)		203		(4)		103,090		(931)
Municipal bonds	220,296		(2,213)		—		—		220,296		(2,213)
Commercial mortgage backed securities	147,290		(2,302)		2,683		(28)		149,973		(2,330)
U.S. government and government agencies	1,373,127		(10,089)		32,058		(45)		1,405,185		(10,134)
Non-U.S. government securities	1,224,243		(20,163)		37,610		(167)		1,261,853		(20,330)
Asset backed securities	441,522		(3,334)		48,313		(1,390)		489,835		(4,724)
Total	4,184,496		(51,378)		158,538		(2,077)		4,343,034		(53,455)


Short-term investments	95,777		(1,548)		—		—		95,777		(1,548)
Total	$	4,280,273	$	(52,926)	$	158,538	$	(2,077)	$	4,438,811	$	(55,003)

(1) In securities lending transactions, the Company receives collateral in excess of the fair value of the fixed maturities pledged. For purposes of this table, the Company has excluded the collateral received and reinvested and included the fixed maturities pledged. See “—Securities Lending Agreements.”

At December 31, 2020, on a lot level basis, approximately 2,320 security lots out of a total of approximately 11,180 security lots were in an unrealized loss position and the largest single unrealized loss from a single lot in the Company’s fixed maturity portfolio was $0.9 million. The Company believes that such securities were temporarily impaired at December 31, 2020. At December 31, 2019, on a lot level basis, approximately 2,230 security lots out of a total of approximately 9,590 security lots were in an unrealized loss position and the largest single unrealized loss from a single lot in the Company’s fixed maturity portfolio was $0.9 million.

The contractual maturities of the Company’s fixed maturities and fixed maturities pledged under securities lending agreements are shown in the following table. Expected maturities, which are management’s best estimates, will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	December 31, 2020				December 31, 2019
Maturity	Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost
Due in one year or less	$	348,200	$	339,951	$	428,659	$	423,617
Due after one year through five years	10,629,959		10,340,819		10,126,403		9,996,206
Due after five years through 10 years	4,881,564		4,654,754		3,317,535		3,219,567
Due after 10 years	482,180		448,139		411,269		388,280
	16,341,903		15,783,663		14,283,866		14,027,670
Mortgage backed securities	630,001		626,368		562,309		553,571
Commercial mortgage backed securities	389,900		384,254		733,108		720,487
Asset backed securities	1,634,804		1,627,384		1,683,753		1,664,460
Total (1)	$	18,996,608	$	18,421,669	$	17,263,036	$	16,966,188

(1) In securities lending transactions, the Company receives collateral in excess of the fair value of the fixed maturities pledged. For purposes of this table, the Company has excluded the collateral received and reinvested and included the fixed maturities pledged. See “—Securities Lending Agreements.”

Securities Lending Agreements

The Company enters into securities lending agreements with financial institutions to enhance investment income whereby it loans certain of its securities to third parties, primarily major brokerage firms, for short periods of time through a lending agent. The Company maintains legal control over the securities it lends (shown as ‘Securities pledged under securities lending, at fair value’ on the Company’s balance sheet), retains the earnings and cash flows associated with the loaned securities and receives a fee from the borrower for the temporary use of the securities. An indemnification agreement with the lending agent protects the Company in the event a borrower becomes insolvent or fails to return any of the securities on loan to the Company.

The Company receives collateral (shown as ‘Collateral received under securities lending, at fair value’ on the Company’s balance sheet) in the form of cash or U.S. government and government agency securities. At December 31, 2020, the fair value of the cash collateral received on securities lending was nil and the fair value of security collateral received was $301.1 million. At December 31, 2019, the fair value of the cash collateral received on securities lending was $81.2 million and the fair value of security collateral received was $307.2 million.

The Company’s securities lending transactions were accounted for as secured borrowings with significant investment categories as follows:


	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Less than 30 Days		30-90 Days		90 Days or More		Total
December 31, 2020
U.S. government and government agencies	$	142,317	$	—	$	139,290	$	—	$	281,607
Corporate bonds	3,021		—		—		—		3,021
Equity securities	16,461		—		—		—		16,461
Total	$	161,799	$	—	$	139,290	$	—	$	301,089
Gross amount of recognized liabilities for securities lending in offsetting disclosure in Note 11									—
Amounts related to securities lending not included in offsetting disclosure in Note 11									$	301,089

December 31, 2019
U.S. government and government agencies	$	240,332	$	—	$	115,973	$	—	$	356,305
Corporate bonds	2,570		—		—		—		2,570
Equity securities	29,491		—		—		—		29,491
Total	$	272,393	$	—	$	115,973	$	—	$	388,366
Gross amount of recognized liabilities for securities lending in offsetting disclosure in Note 11									—
Amounts related to securities lending not included in offsetting disclosure in Note 11									$	388,366

Equity Securities, at Fair Value

At December 31, 2020, the Company held $1.4 billion of equity securities, at fair value, compared to $838.9 million at December 31, 2019. Pursuant to applicable accounting guidance, changes in fair value on equity securities are recorded through net income effective January 1, 2018.

Other Investments

The following table summarizes the Company’s other investments and other investable assets:


	December 31,
	2020		2019
Fixed maturities	$	843,354	$	754,452
Other investments	2,331,885		2,429,316
Short-term investments	557,008		377,014
Equity securities	92,549		102,695
Investments accounted for using the fair value option	3,824,796		3,663,477

Other investable assets (1)	500,000		—
Total other investments	$	4,324,796	$	3,663,477

(1) Participation interests in a receivable of a reverse repurchase agreement.

The following table summarizes the Company’s other investments, as detailed in the previous table, by strategy:


	December 31,
	2020		2019
Term loan investments	1,231,731		1,326,018
Lending	572,636		602,841
Credit related funds	90,780		123,020
Energy	65,813		97,402
Investment grade fixed income	138,646		151,594
Infrastructure	165,516		61,786
Private equity	48,750		49,376
Real estate	18,013		17,279
Total	$	2,331,885	$	2,429,316

Investments Accounted For Using the Equity Method

The following table summarizes the Company’s investments accounted for using the equity method, by strategy:


	December 31,
	2020		2019
Credit related funds	$	740,060	$	428,437
Equities	343,058		293,686
Real estate	258,518		246,851
Lending	179,629		202,690
Private equity	235,289		144,983
Infrastructure	175,882		235,033
Energy	115,453		108,716
Total	$	2,047,889	$	1,660,396

In applying the equity method, investments are initially recorded at cost and are subsequently adjusted based on the Company’s proportionate share of the net income or loss of the funds (which include changes in the fair value of the underlying securities in the funds). Such investments are generally recorded on a one to three month lag based on the availability of reports from the investment funds.

A summary of financial information for the Company’s investment funds accounted for using the equity method is as follows:


	December 31,
	2020		2019
Invested assets	$	44,131,377	$	26,383,370
Total assets	49,078,464		28,039,181
Total liabilities	6,054,189		3,595,695
Net assets	$	43,024,275	$	24,443,486


	Year Ended December 31,
	2020		2019		2018
Total revenues	$	5,762,098	$	164,669	$	4,565,354
Total expenses	1,656,029		528,762		1,135,602
Net income (loss)	$	4,106,069	$	(364,093)	$	3,429,752

Certain of the Company’s other investments and investments accounted for using the equity method are in investment funds for which the Company has the option to redeem at agreed upon values as described in each investment fund’s subscription agreement. Depending on the terms of the various subscription agreements, investments in investment funds may be redeemed daily, monthly, quarterly or on other terms. Two common redemption restrictions which may impact the Company’s ability to redeem these investment funds are gates and lockups. A gate is a suspension of redemptions which may be implemented by the general partner or investment manager of the fund in order to defer, in whole or in part, the redemption request in the event the aggregate amount of redemption requests exceeds a predetermined percentage of the investment fund's net assets which may otherwise hinder the general partner or investment manager's ability to liquidate holdings in an orderly fashion in order to generate the cash necessary to fund extraordinarily large redemption payouts. A lockup period is the initial amount of time an investor is contractually required to hold the security before having the ability to redeem. If the investment funds are eligible to be redeemed, the time to redeem such fund can take weeks or months following the notification.

Limited Partnership Interests

In the normal course of its activities, the Company invests in limited partnerships as part of its overall investment strategy. Such amounts are included in ‘investments accounted for using the equity method’ and ‘investments accounted for using the fair value option.’ The Company determined that

these limited partnership interests represented variable interests in the funds because the general partner did not have a significant interest in the funds. The Company’s maximum exposure to loss with respect to these investments is limited to the investment carrying amounts reported in the Company’s consolidated balance sheet and any unfunded commitment.

The following table summarizes investments in limited partnership interests where the Company has a variable interest by balance sheet item:


	December 31,
	2020		2019
Investments accounted for using the equity method (1)	$	2,047,889	$	1,660,396
Investments accounted for using the fair value option (2)	184,720		188,283
Total	$	2,232,609	$	1,848,679

(1) Aggregate unfunded commitments were $1.8 billion at December 31, 2020, compared to $1.4 billion at December 31, 2019.

(2) Aggregate unfunded commitments were $35.6 million at December 31, 2020, compared to $41.7 million at December 31, 2019.

Net Investment Income

The components of net investment income were derived from the following sources:


	Year Ended December 31,
	2020		2019		2018
Fixed maturities	$	412,481	$	505,399	$	470,912
Term loans	84,149		98,949		87,926
Equity securities	28,958		15,857		13,154
Short-term investments	10,840		15,820		18,793
Other (1)	72,395		80,618		64,942
Gross investment income	608,823		716,643		655,727
Investment expenses	(89,215)		(88,905)		(92,094)
Net investment income	$	519,608	$	627,738	$	563,633

(1) Includes income distributions from investment funds and other items.

Net Realized Gains (Losses)

Net realized gains (losses) were as follows:


	Year Ended December 31,
	2020		2019		2018
Available for sale securities:
Gross gains on investment sales	$	595,941	$	235,655	$	69,299
Gross losses on investment sales	(117,282)		(104,612)		(223,123)
Change in fair value of assets and liabilities accounted for using the fair value option:
Fixed maturities	15,881		41,910		(90,898)
Other investments	13,656		(35,734)		(90,778)
Equity securities	14,629		15,869		(5,984)
Short-term investments	2,279		3,801		(461)
Equity securities, at fair value (1):
Net realized gains (losses) on securities sold	26,849		11,313		(40,117)
Net unrealized gains (losses) on equity securities still held at reporting date	102,394		97,768		(22,828)
Allowance for credit losses:(3)
Investments related	(3,597)		—		—
Underwriting related	(10,007)		—		—
Net impairment losses	(533)		(3,165)		(2,829)
Derivative instruments (2)	179,675		119,741		15,636
Other	3,575		(19,348)		(16,090)
Net realized gains (losses)	$	823,460	$	363,198	$	(408,173)

(1) Effective January 1, 2018, changes in fair value on equity securities are recorded through net income.

(2) See Note 11 for information on the Company’s derivative instruments.

(3) Adoption of ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326)” See note 3.

Equity in Net Income (Loss) of Investments Accounted For Using the Equity Method

The Company recorded equity in net income related to investments accounted for using the equity method of $146.7 million for 2020, compared to $123.7 million for 2019 and $45.6 million for 2018. In applying the equity method, investments are initially recorded at cost and are subsequently adjusted based on the Company’s proportionate share of the net income or loss of the funds (which include changes in the market value of the underlying securities in the funds). Such investments are generally recorded on a one to three month lag based on the availability of reports from the investment funds.

Allowance for Expected Credit Losses

The following table provides a roll forward of the allowance for expected credit losses of the Company’s securities classified as available for sale:


	Year Ended December 31, 2020
	Structured Securities (1)		Municipal Bonds		Corporate Bonds		Total
Balance at beginning of period	$	—	$	—	$	—	$	—
Cumulative effect of accounting change (2)	517		—		117		634
Additions for current-period provision for expected credit losses	2,942		67		7,644		10,653
Additions (reductions) for previously recognized expected credit losses	(1,398)		6		(5,638)		(7,030)
Reductions due to disposals	(571)		(62)		(1,227)		(1,860)
Write-offs charged against the allowance	—		—		—		—
Balance at end of period	$	1,490	$	11	$	896	$	2,397

(1) Includes asset backed securities, mortgage backed securities and commercial mortgage backed securities.

(2) Adoption of ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326)” See note 3.

Restricted Assets

The Company is required to maintain assets on deposit, which primarily consist of fixed maturities, with various regulatory authorities to support its underwriting operations. The Company’s subsidiaries maintain assets in trust accounts as collateral for transactions with affiliated companies and also have investments in segregated portfolios primarily to provide collateral or guarantees for letters of credit to third parties

The following table details the value of the Company’s restricted assets:


	December 31,
	2020		2019
Assets used for collateral or guarantees:
Affiliated transactions	$	4,643,334	$	4,526,761
Third party agreements	3,083,324		2,278,248
Deposits with U.S. regulatory authorities	827,552		797,371
Deposits with non-U.S. regulatory authorities	179,099		119,238
Total restricted assets	$	8,733,309	$	7,721,618

In addition, Watford maintains a secured credit facility to provide borrowing capacity for investment purposes and a total return swap agreement and maintains assets pledged as collateral for such purposes. The Company does not guarantee or provide credit support for Watford, and the Company’s financial exposure to Watford is limited to its investment in Watford’s senior notes, common and preferred shares and counterparty credit risk (mitigated by collateral) arising from reinsurance transactions. As of December 31, 2020 and December 31, 2019, Watford held $954.6 million and $1.0 billion, respectively, in pledged assets to collateralize the credit facility mentioned above.

Reconciliation of Cash and Restricted Cash

The following table details reconciliation of cash and restricted cash within the Consolidated Balance Sheets:


	December 31,
	2020		2019		2018
Cash	$	906,448	$	726,230	$	646,556
Restricted cash (included in ‘other assets’)	384,096		177,468		78,087
Cash and restricted cash	$	1,290,544	$	903,698	$	724,643