INVESTMENTS

Fixed Maturity Investments Trading

The following table summarizes the fair value of fixed maturity investments trading:




	December 31, 2015		December 31, 2014
U.S. treasuries	$	2,064,944	$	1,671,471
Agencies	137,976		96,208
Municipal	583,282		—
Non-U.S. government (Sovereign debt)	334,981		280,651
Non-U.S. government-backed corporate	138,994		146,467
Corporate	2,055,323		1,610,442
Agency mortgage-backed	504,368		312,333
Non-agency mortgage-backed	262,235		241,590
Commercial mortgage-backed	554,625		373,117
Asset-backed	128,277		24,406
Total fixed maturity investments trading	$	6,765,005	$	4,756,685

Fixed Maturity Investments Available For Sale

The following table summarizes the amortized cost, fair value and related unrealized gains and losses and non-credit other-than-temporary impairments of fixed maturity investments available for sale:




			Included in Accumulated Other Comprehensive Income
At December 31, 2015	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Non-Credit Other-Than- Temporary Impairments (1)
Agency mortgage-backed	$	143	$	7	$	—	$	150	$	—
Non-agency mortgage-backed	7,005		1,523		—		8,528		550
Commercial mortgage-backed	6,578		293		—		6,871		—
Asset-backed	2,217		47		—		2,264		—
Total fixed maturity investments available for sale	$	15,943	$	1,870	$	—	$	17,813	$	550




			Included in Accumulated Other Comprehensive Income
At December 31, 2014	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Non-Credit Other-Than- Temporary Impairments (1)
Agency mortgage-backed	$	3,928	$	359	$	—		$	4,287	$	—
Non-agency mortgage-backed	9,478		1,985		(3		)	11,460		656
Commercial mortgage-backed	7,291		643		—			7,934		—
Asset-backed	3,075		129		—			3,204		—
Total fixed maturity investments available for sale	$	23,772	$	3,116	$	(3	)	$	26,885	$	656


(1)	Represents the non-credit component of other-than-temporary impairments recognized in accumulated other comprehensive income adjusted for subsequent sales of securities. It does not include the change in fair value subsequent to the impairment measurement date.

Contractual maturities of fixed maturity investments are described in the following table. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.




	Trading				Available for Sale				Total Fixed Maturity Investments
At December 31, 2015	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in less than one year	$	253,700	$	252,257	$	—	$	—	$	253,700	$	252,257
Due after one through five years	3,872,756		3,833,261		—		—		3,872,756		3,833,261
Due after five through ten years	1,031,351		1,011,132		—		—		1,031,351		1,011,132
Due after ten years	220,768		218,850		—		—		220,768		218,850
Mortgage-backed	1,318,468		1,321,228		13,726		15,549		1,332,194		1,336,777
Asset-backed	128,834		128,277		2,217		2,264		131,051		130,541
Total	$	6,825,877	$	6,765,005	$	15,943	$	17,813	$	6,841,820	$	6,782,818

Equity Investments Trading

The following table summarizes the fair value of equity investments trading:




	December 31, 2015		December 31, 2014

Financials	$	193,716	$	222,190
Communications and technology	65,833		31,376
Industrial, utilities and energy	51,168		28,859
Consumer	40,918		19,522
Healthcare	36,148		16,582
Basic materials	6,094		3,569
Total	$	393,877	$	322,098

Pledged Investments

At December 31, 2015, $2.5 billion of cash and investments at fair value were on deposit with, or in trust accounts for the benefit of, various counterparties, including with respect to the Company’s standby letter of credit facility and bilateral letter of credit facility (2014 - $2.4 billion). Of this amount, $664.6 million is on deposit with, or in trust accounts for the benefit of, U.S. state regulatory authorities (2014 - $691.9 million).

Reverse Repurchase Agreements

At December 31, 2015, the Company held $26.2 million (2014 - $49.3 million) of reverse repurchase agreements. These loans are fully collateralized, are generally outstanding for a short period of time and are presented on a gross basis as part of short term investments on the Company’s consolidated balance sheets. The required collateral for these loans typically include high-quality, readily marketable instruments at a minimum amount of 102% of the loan principal. Upon maturity, the Company receives principal and interest income.

Net Investment Income

The components of net investment income are as follows:




Year ended December 31,	2015			2014			2013
Fixed maturity investments	$	134,800		$	100,855		$	95,907
Short term investments	1,227			944			1,698
Equity investments	8,346			3,450			2,295
Other investments
Private equity investments	9,455			18,974			45,767
Other	12,472			11,037			73,735
Cash and cash equivalents	467			395			191
	166,767			135,655			219,593
Investment expenses	(14,200		)	(11,339		)	(11,565		)
Net investment income	$	152,567		$	124,316		$	208,028

Net Realized and Unrealized (Losses) Gains on Investments

Net realized and unrealized (losses) gains on investments are as follows:




Year ended December 31,	2015			2014			2013
Gross realized gains	$	50,488		$	45,568		$	72,492
Gross realized losses	(53,630		)	(14,868		)	(50,206		)
Net realized (losses) gains on fixed maturity investments	(3,142		)	30,700			22,286
Net unrealized (losses) gains on fixed maturity investments trading	(64,908		)	19,680			(87,827		)
Net realized and unrealized gains (losses) on investments-related derivatives	5,443			(30,931		)	31,058
Net realized gains on equity investments trading	16,348			10,908			26,650
Net unrealized (losses) gains on equity investments trading	(22,659		)	11,076			42,909
Net realized and unrealized (losses) gains on investments	$	(68,918	)	$	41,433		$	35,076

The following table provides an analysis of the components of other comprehensive income and reclassifications out of accumulated other comprehensive income.




	Year ended December 31, 2015
	Investments in other ventures			Fixed maturity investments available for sale			Total
Beginning balance	$	303		$	3,113		$	3,416
Other comprehensive loss before reclassifications	(65		)	(917		)	(982		)
Amounts reclassified from accumulated other comprehensive income by statement of operations line item:
Realized gains reclassified from accumulated other comprehensive income to net realized and unrealized (losses) gains on investments	—			(326		)	(326		)
Net current-period other comprehensive loss	(65		)	(1,243		)	(1,308		)
Ending balance	$	238		$	1,870		$	2,108




	Year ended December 31, 2014
	Investments in other ventures		Fixed maturity investments available for sale			Total
Beginning balance	$	163	$	3,968		$	4,131
Other comprehensive income (loss) before reclassifications	140		(855		)	(715		)
Amounts reclassified from accumulated other comprehensive income by statement of operations line item:
Realized gains reclassified from accumulated other comprehensive income to net realized and unrealized gains (losses) on investments	—		—			—
Net current-period other comprehensive income (loss)	140		(855		)	(715		)
Ending balance	$	303	$	3,113		$	3,416

The Company did not have any fixed maturity investments available for sale in an unrealized loss position at December 31, 2015. The following tables provide an analysis of the length of time the Company’s fixed maturity investments available for sale in an unrealized loss have been in a continual unrealized loss position.

Less than 12 Months

12 Months or Greater

Total

At December 31, 2015

Fair Value

Unrealized

Losses

Fair Value

Unrealized

Losses

Fair Value

Unrealized

Losses

Total

—




	Less than 12 Months				12 Months or Greater					Total
At December 31, 2014	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Non-agency mortgage-backed	$	—	$	—	$	69	$	(3	)	$	69	$	(3	)
Total	$	—	$	—	$	69	$	(3	)	$	69	$	(3	)

At December 31, 2015, the Company held zero fixed maturity investments available for sale securities that were in an unrealized loss position (2014 - two), and therefore zero fixed maturity investments available for sale securities that were in an unrealized loss position for twelve months or greater (2014 - two). The Company does not intend to sell securities and it is not more likely than not that the Company will be required to sell securities before the anticipated recovery of the remaining amortized cost basis. The Company performed reviews of its fixed maturity investments available for sale for the years ended December 31, 2015 and 2014, respectively, in order to determine whether declines in the fair value below the amortized cost basis were considered other-than-temporary in accordance with the applicable guidance, as discussed below.

Other-Than-Temporary Impairment Process

The Company’s process for assessing whether declines in the fair value of its fixed maturity investments

available for sale represent impairments that are other-than-temporary includes reviewing each fixed

maturity investment available for sale that is impaired and determining: (i) if the Company has the intent to

sell the debt security or (ii) if it is more likely than not that the Company will be required to sell the debt

security before its anticipated recovery; and (iii) whether a credit loss exists, that is, where the Company

expects that the present value of the cash flows expected to be collected from the security is less than the

amortized cost basis of the security.

During 2015, the Company recognized $Nil of other-than-temporary impairments which were recognized in earnings and $Nil related to other factors which were recognized in other comprehensive income (2014 – $Nil and $Nil, respectively, 2013 - $Nil and $Nil, respectively).

The following table provides a rollforward of the amount of other-than-temporary impairments related to credit losses recognized in earnings for which a portion of an other-than-temporary impairment was recognized in accumulated other comprehensive income:




	2015			2014
Balance – January 1	$	498		$	561
Reductions:
Securities sold during the period	(81		)	(63		)
Balance – December 31	$	417		$	498

Other Investments

The table below shows the fair value of the Company’s portfolio of other investments:




At December 31,	2015		2014
Catastrophe bonds	$	241,253	$	200,329
Private equity partnerships	214,848		281,932
Senior secured bank loan fund	23,231		19,316
Hedge funds	2,289		2,570
Total other investments	$	481,621	$	504,147

Interest income, income distributions and net realized and unrealized gains on other investments are included in net investment income and totaled $21.9 million (2014 – $30.0 million, 2013 – $119.5 million) of which $13.5 million related to net unrealized losses (2014 – losses of $1.4 million, 2013 – gains of $75.8 million). Included in net investment income for 2015 is a loss of $2.5 million (2014 - $0.6 million, 2013 - $3.7 million) representing the change in estimate during the period related to the difference between the Company’s estimated fair value due to the lag in reporting, as discussed in “Note 2. Significant Accounting Policies,” and the actual amount as reported in the final net asset values provided by the Company’s fund managers.

The Company has committed capital to private equity partnerships and other entities of $724.5 million, of which $528.8 million has been contributed at December 31, 2015. The Company’s remaining commitments to these funds at December 31, 2015 totaled $204.5 million. In the future, the Company may enter into additional commitments in respect of private equity partnerships or individual portfolio company investment opportunities.

Investments in Other Ventures, under Equity Method

The table below shows the Company’s portfolio of investments in other ventures, under equity method:




	2015						2014
At December 31,	Investment		Ownership %		Carrying Value		Investment		Ownership %		Carrying Value
THIG	$	50,000	25.0	%	$	19,155	$	50,000	25.0	%	$	20,811
Tower Hill	10,000		31.3	%	19,981		10,000		30.3	%	18,991
Tower Hill Re	4,250		25.0	%	4,136		4,250		25.0	%	5,162
Tower Hill Signature	500		25.0	%	7,315		500		25.0	%	5,692
Total Tower Hill Companies	64,750				50,587		64,750				50,656
Top Layer Re	65,375		50.0	%	68,936		65,375		50.0	%	60,911
Other	23,607		43.5	%	12,828		13,507		36.3	%	9,146
Total investments in other ventures, under equity method	$	153,732			$	132,351	$	143,632			$	120,713

On July 1, 2008, the Company invested $50.0 million in Tower Hill Insurance Group, LLC (“THIG”) representing a 25.0% equity ownership. Included in the purchase price was $40.0 million of other intangibles and $7.8 million of goodwill, which, in accordance with generally accepted accounting principles, are recorded as “Investments in other ventures, under equity method” rather than “Goodwill and other intangibles” on the Company’s consolidated balance sheet.

The Company originally invested $13.1 million in Top Layer Re, representing a 50.0% ownership. In December 2010, March 2011 and December 2011, primarily as a result of net claims and claim expenses incurred by Top Layer Re with respect to the September 2010 New Zealand Earthquake, the February 2011 New Zealand Earthquake and the Tohoku Earthquake and Tsunami, respectively, the Company invested an additional $13.8 million, $20.5 million and $18.0 million, respectively, in Top Layer Re, maintaining the Company’s 50% ownership interest.

The table below shows the Company’s equity in earnings of other ventures, under equity method:




Year ended December 31,	2015			2014			2013

Tower Hill Companies	$	13,116		$	18,376		$	10,270
Top Layer Re	8,026			10,411			13,836
Other	(661		)	(2,712		)	(912		)
Total equity in earnings of other ventures	$	20,481		$	26,075		$	23,194

Undistributed earnings in the Company’s investments in other ventures, under equity method were $10.1 million at December 31, 2015 (2014 - $20.0 million). During 2015, the Company received $13.3 million of dividends from its investments in other ventures, under equity method (2014 – $10.3 million, 2013 – $9.9 million). Except for Top Layer Re, the equity in earnings of the Company’s investments in other ventures are reported one quarter in arrears.