Investment Information

9 Months Ended

Sep. 30, 2021

Disclosure Investment Information [Abstract]

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
September 30, 2021
Fixed maturities (1):
Corporate bonds	$	6,403,617	$	155,246	$	(40,649)	$	(1,440)	$	6,290,460
Mortgage backed securities	405,797		3,384		(3,966)		(24)		406,403
Municipal bonds	382,722		20,096		(1,206)		(2)		363,834
Commercial mortgage backed securities	579,424		3,598		(548)		(3)		576,377
U.S. government and government agencies	4,460,515		12,912		(30,320)		—		4,477,923
Non-U.S. government securities	1,863,734		46,378		(28,948)		(82)		1,846,386
Asset backed securities	2,672,554		12,576		(7,700)		(560)		2,668,238
Total	16,768,363		254,190		(113,337)		(2,111)		16,629,621

Short-term investments	3,069,965		1,625		(1,780)		—		3,070,120
Total	$	19,838,328	$	255,815	$	(115,117)	$	(2,111)	$	19,699,741

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

(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.” In September 2021, the Company terminated its securities lending program and no longer enters into securities lending agreements with financial institutions.

(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.

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
September 30, 2021
Fixed maturities (1):
Corporate bonds	$	2,744,615	$	(36,595)	$	68,450	$	(4,054)	$	2,813,065	$	(40,649)
Mortgage backed securities	257,789		(3,113)		22,769		(853)		280,558		(3,966)
Municipal bonds	46,450		(731)		7,148		(475)		53,598		(1,206)
Commercial mortgage backed securities	76,518		(256)		6,578		(292)		83,096		(548)
U.S. government and government agencies	3,621,719		(29,797)		9,755		(523)		3,631,474		(30,320)
Non-U.S. government securities	1,283,266		(27,523)		22,304		(1,425)		1,305,570		(28,948)
Asset backed securities	1,119,638		(6,524)		37,078		(1,176)		1,156,716		(7,700)
Total	9,149,995		(104,539)		174,082		(8,798)		9,324,077		(113,337)

Short-term investments	265,011		(1,780)		—		—		265,011		(1,780)
Total	$	9,415,006	$	(106,319)	$	174,082	$	(8,798)	$	9,589,088	$	(115,117)

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)

At September 30, 2021, on a lot level basis, approximately 3,910 security lots out of a total of approximately 10,020 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 $2.5 million. 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 contractual maturities of the Company’s fixed maturities 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.


	September 30, 2021				December 31, 2020
Maturity	Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost
Due in one year or less	$	416,601	$	410,373	$	348,200	$	339,951
Due after one year through five years	7,862,472		7,772,773		10,629,959		10,340,819
Due after five years through 10 years	4,483,025		4,453,526		4,881,564		4,654,754
Due after 10 years	348,490		341,931		482,180		448,139
	13,110,588		12,978,603		16,341,903		15,783,663
Mortgage backed securities	405,797		406,403		630,001		626,368
Commercial mortgage backed securities	579,424		576,377		389,900		384,254
Asset backed securities	2,672,554		2,668,238		1,634,804		1,627,384
Total (1)	$	16,768,363	$	16,629,621	$	18,996,608	$	18,421,669

Securities Lending Agreements

In September 2021, the Company terminated its securities lending program and no longer enters into securities lending agreements with financial institutions to enhance investment income. Prior to the termination of this program, the Company loaned certain of its securities to third parties, primarily major brokerage firms, for short periods of time through a lending agent. The Company maintained legal control over the securities it lent (shown as ‘Securities pledged under securities lending, at fair value’ on the Company’s balance sheet), retained the earnings and cash flows associated with the loaned securities and received a fee from the borrower for the temporary use of the securities. An indemnification agreement with the lending agent protected the Company in the event a borrower became insolvent or failed to return any of the securities on loan from the Company.

The Company received 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 September 30, 2021, the Company had no cash collateral or security collateral due to the termination of the program. 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.

The carrying value of collateral held under the Company’s securities lending transactions by significant investment category and remaining contractual maturity of the underlying agreements was as follows at December 31, 2020 (no balances at September 30, 2021 due to the termination of the program):


	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 10									$	—
Amounts related to securities lending not included in offsetting disclosure in note 10									$	301,089

Equity Securities, at Fair Value

At September 30, 2021, the Company held $1.8 billion of equity securities, at fair value, compared to $1.4 billion at

December 31, 2020. Such holdings include publicly traded common stocks primarily in the consumer cyclical and non-cyclical, technology, communication and financial sectors

and exchange-traded funds in fixed income, equity and other sectors.

Other Investments

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


	September 30, 2021		December 31, 2020
Fixed maturities	$	414,007	$	843,354
Other investments	1,489,759		2,331,885
Short-term investments	115,681		557,008
Equity securities	24,523		92,549
Investments accounted for using the fair value option	$	2,043,970	$	3,824,796

Other investable assets (1)	—		500,000
Total other investments	$	2,043,970	$	4,324,796

(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:


	September 30, 2021		December 31, 2020
Term loan investments	$	528,585	$	1,231,731
Lending	579,563		572,636
Credit related funds	56,997		90,780
Energy	84,880		65,813
Investment grade fixed income	131,910		138,646
Infrastructure	26,359		165,516
Private equity	81,465		48,750
Real estate	—		18,013
Total	$	1,489,759	$	2,331,885

Investments Accounted For Using the Equity Method

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


	September 30, 2021		December 31, 2020
Credit related funds	$	952,794	$	740,060
Equities	414,322		343,058
Real estate	340,510		258,518
Lending	330,368		179,629
Private equity	365,840		235,289
Infrastructure	222,484		175,882
Energy	114,975		115,453
Total	$	2,741,293	$	2,047,889

Certain of the Company’s other investments 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 has determined that it is not required to consolidate these investments because it is not the primary beneficiary of 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 line item:


	September 30, 2021		December 31, 2020
Investments accounted for using the equity method (1)	2,741,293		2,047,889
Investments accounted for using the fair value option (2)	176,884		184,720
Total	$	2,918,177	$	2,232,609

(1) Aggregate unfunded commitments were $2.3 billion at September 30, 2021, compared to $1.8 billion at December 31, 2020.

(2) Aggregate unfunded commitments were $22.9 million at September 30, 2021, compared to $35.6 million at December 31, 2020.

Net Investment Income

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


	September 30,
	2021		2020
Three Months Ended
Fixed maturities	$	75,964	$	98,344
Term loans	1,736		22,459
Equity securities	9,867		6,659
Short-term investments	1,858		1,332
Other (1)	17,378		22,060
Gross investment income	106,803		150,854
Investment expenses	(18,608)		(22,342)
Net investment income	$	88,195	$	128,512

Nine Months Ended
Fixed maturities	$	255,215	$	318,582
Term loans	33,343		66,141
Equity securities	24,101		18,885
Short-term investments	3,603		9,611
Other (1)	51,683		57,926
Gross investment income	367,945		471,145
Investment expenses	(69,281)		(65,995)
Net investment income	$	298,664	$	405,150

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

Net Realized Gains (Losses)

Net realized gains (losses), which include changes in the allowance for credit losses on financial assets and net impairment losses recognized in earnings were as follows:


	September 30,
	2021		2020
Three Months Ended
Available for sale securities:
Gross gains on investment sales	$	86,819	$	104,733
Gross losses on investment sales	(18,446)		(16,862)
Change in fair value of assets and liabilities accounted for using the fair value option:
Fixed maturities	(7,492)		34,115
Other investments	3,811		61,622
Equity securities	3,042		4,048
Short-term investments	16		3,377
Equity securities, at fair value:
Net realized gains (losses) on sales during the period	14,736		26,549
Net unrealized gains (losses) on equity securities still held at reporting date	(40,155)		33,562
Allowance for credit losses:
Investments related	(456)		1,332
Underwriting related	(3,985)		351

Derivative instruments (1)	(21,435)		20,369
Other (2)	(41,495)		7,303
Net realized gains (losses)	$	(25,040)	$	280,499

Nine Months Ended
Available for sale securities:
Gross gains on investment sales	$	267,362	$	515,086
Gross losses on investment sales	(132,071)		(98,654)
Change in fair value of assets and liabilities accounted for using the fair value option:
Fixed maturities	19,973		(25,370)
Other investments	111,550		(67,608)
Equity securities	10,599		5,803
Short-term investments	648		(1,936)
Equity securities, at fair value:
Net realized gains (losses) on sales during the period	86,155		7,760
Net unrealized gains (losses) on equity securities still held at reporting date	45,400		3,682
Allowance for credit losses:
Investments related	(1,208)		(4,763)
Underwriting related	2,664		(8,753)
Net impairments losses	—		(533)
Derivative instruments (1)	(36,428)		146,722
Other (2)	(54,316)		(1,309)
Net realized gains (losses)	$	320,328	$	470,127

(1) See note 10 for information on the Company’s derivative instruments.

(2) 2021 periods reflected $33.1 million of losses related to the Company’s deconsolidation of Watford.

Equity in Net Income (Loss) of Investment Funds Accounted for Using the Equity Method

The Company recorded $105.4 million of equity in net income related to investment funds accounted for using the equity method in the 2021 third quarter, compared to income of $126.7 million for the 2020 third quarter, and an income of $299.3 million for the nine months ended September 30, 2021, compared to income of $57.4 million for nine months ended September 30, 2020. 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.

Investments in Operating Affiliates

Investments in which the Company has significant influence over the operating and financial policies are classified as ‘investments in operating affiliates’ on the Company’s balance sheets and are accounted for under the equity method. Such investments primarily include the Company’s investment in Coface, Greysbridge and Premia. Investments in Coface and Premia are generally recorded on a three month lag, while the Company’s investment in Greysbridge is not recorded on a lag.

In 2021, the Company completed the share purchase agreement with Natixis to purchase 29.5% of the common equity of Coface, a France-based leader in the global trade credit insurance market. The consideration paid was €9.95 per share, or an aggregate €453 million (approximately $546 million) including related fees. Income (loss) from

operating affiliates reflected a one-time gain of $74.5 million realized from the acquisition. As a result of equity method accounting rules, approximately $36 million of additional gain was deferred and will generally be recognized over the next five years. As of September 30, 2021, the Company owned approximately 29.86% of the issued shares of Coface, or 30.10% excluding treasury shares, with a carrying value of $615.9 million.

In July 2021, the Company announced the completion of the previously disclosed acquisition of Watford by Greysbridge for a cash purchase price of $35.00 per common share. Effective July 1, 2021, Watford is wholly owned by Greysbridge, and Greysbridge is owned 40% by the Company, 30% by certain investment funds managed by Kelso and 30% by certain investment funds managed by Warburg. At September 30, 2021 the Company’s carrying value in Greysbridge was $363.3 million, which reflected the Company’s aggregate purchase price of $278.9 million along with income (loss) from operating affiliates, which included a one-time gain of $95.7 million recognized from the acquisition. In addition, the ‘net realized gains (losses)’ line on the Company’s consolidated statements of income included a $33.1 million loss as a result of deconsolidation of Watford in the Company’s financial statements following the close of the transaction. See n ote 12.

Income from operating affiliates for the 2021 third quarter was $124.1 million, compared to an income of $0.9 million, for the 2020 third quarter, and income of $224.1 million for the nine months ended September 30, 2021, compared to an income of $6.3 million for the nine months ended September 30, 2020. The income from operating affiliates for the 2021 period, primarily related to the Company’s recent acquisitions of Coface and Greysbridge.

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:


	Structured Securities (1)		Municipal Bonds		Corporate Bonds		Total
Three Months Ended September 30, 2021
Balance at beginning of period	$	759	$	6	$	1,359	$	2,124

Additions for current-period provision for expected credit losses	48		—		—		48
Additions (reductions) for previously recognized expected credit losses	14		(4)		395		405
Reductions due to disposals (3)	(234)		—		(232)		(466)

Balance at end of period	$	587	$	2	$	1,522	$	2,111

Three Months Ended September 30, 2020
Balance at beginning of period	$	1,726	$	28	$	4,115	$	5,869

Additions for current-period provision for expected credit losses	27		—		202		229
Additions (reductions) for previously recognized expected credit losses	403		33		(1,996)		(1,560)
Reductions due to disposals	(28)		—		(577)		(605)

Balance at end of period	$	2,128	$	61	$	1,744	$	3,933


Nine Months Ended September 30, 2021
Balance at beginning of period	$	1,490	$	11	$	896	$	2,397

Additions for current-period provision for expected credit losses	282		—		2,428		2,710
Additions (reductions) for previously recognized expected credit losses	(751)		(9)		(557)		(1,317)
Reductions due to disposals (3)	(434)		—		(1,245)		(1,679)

Balance at end of period	$	587	$	2	$	1,522	$	2,111

Nine Months Ended September 30, 2020
Balance at beginning of period	$	—	$	—	$	—	$	—
Cumulative effect of accounting change (2)	517		—		117		634
Additions for current-period provision for expected credit losses	2,868		67		7,643		10,578
Additions (reductions) for previously recognized expected credit losses	(903)		8		(4,920)		(5,815)
Reductions due to disposals	(354)		(14)		(1,096)		(1,464)

Balance at end of period	$	2,128	$	61	$	1,744	$	3,933

(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)”.

(3) Reduction for the 2021 periods primarily related to the Company’s deconsolidation of Watford.

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. See note 18, “Commitments and Contingencies,” of the notes to consolidated financial statements in the Company’s 2020 Form 10-K.

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


	September 30, 2021		December 31, 2020
Assets used for collateral or guarantees:
Affiliated transactions	$	4,271,208	$	4,643,334
Third party agreements	2,594,053		3,083,324
Deposits with U.S. regulatory authorities	803,878		827,552
Deposits with non-U.S. regulatory authorities	469,497		179,099

Total restricted assets	$	8,138,636	$	8,733,309

Reconciliation of Cash and Restricted Cash

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


	September 30, 2021		December 31, 2020
Cash	$	1,137,721	$	906,448
Restricted cash (included in ‘other assets’)	$	411,188	$	384,096
Cash and restricted cash	$	1,548,909	$	1,290,544