10-Q 1 axs10-qq12016.htm FORM 10-Q
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
OR
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-31721
AXIS CAPITAL HOLDINGS LIMITED
(Exact name of registrant as specified in its charter)
BERMUDA
(State or other jurisdiction of incorporation or organization)
98-0395986
(I.R.S. Employer Identification No.)
92 Pitts Bay Road, Pembroke, Bermuda HM 08
(Address of principal executive offices and zip code)
(441) 496-2600
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of April 20, 2016, there were 92,922,203 Common Shares, $0.0125 par value per share, of the registrant outstanding.

Table of Contents
AXIS CAPITAL HOLDINGS LIMITED
INDEX TO FORM 10-Q

|  | Page
| PART I |
| Financial Information | 3
Item 1. | Consolidated Financial Statements | 4
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 39
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 67
Item 4. | Controls and Procedures | 67
| PART II |
| Other Information | 68
Item 1. | Legal Proceedings | 68
Item 1A. | Risk Factors | 68
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 68
Item 6. | Exhibits | 69
| Signatures | 70

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PART I | FINANCIAL INFORMATION

This quarterly report contains forward-looking statements within the meaning of the U.S. federal securities laws. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the United States securities laws. In some cases, these statements can be identified by the use of forward-looking words such as “may”, “should”, “could”, “anticipate”, “estimate”, “expect”, “plan”, “believe”, “predict”, “potential” and “intend”. Forward-looking statements contained in this report may include information regarding our estimates of losses related to catastrophes and other large losses, measurements of potential losses in the fair value of our investment portfolio and derivative contracts, our expectations regarding pricing and other market conditions, our growth prospects, and valuations of the potential impact of movements in interest rates, equity prices, credit spreads and foreign currency rates. Forward-looking statements only reflect our expectations and are not guarantees of performance.
These statements involve risks, uncertainties and assumptions. Accordingly, there are or will be important factors that could cause actual results to differ materially from those indicated in such statements. We believe that these factors include, but are not limited to, the following:

• | the occurrence and magnitude of natural and man-made disasters,

• | actual claims exceeding our loss reserves,

• | general economic, capital and credit market conditions,

• | the failure of any of the loss limitation methods we employ,

• | the effects of emerging claims, coverage and regulatory issues, including uncertainty related to coverage definitions, limits, terms and conditions,

• | the failure of our cedants to adequately evaluate risks,

• | inability to obtain additional capital on favorable terms, or at all,

• | the loss of one or more key executives,

• | a decline in our ratings with rating agencies,

• | loss of business provided to us by our major brokers,

• | changes in accounting policies or practices,

• | the use of industry catastrophe models and changes to these models,

• | changes in governmental regulations,

• | increased competition,

• | changes in the political environment of certain countries in which we operate or underwrite business,

• | fluctuations in interest rates, credit spreads, equity prices and/or currency values,

• | the other matters set forth under Item 1A, ‘Risk Factors’ and Item 7, ‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’ included in our Annual Report on Form 10-K for the year ended December 31, 2015.

We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
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ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

| Page
Consolidated Balance Sheets at March 31, 2016 (Unaudited) and December 31, 2015 | 5
Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015 (Unaudited) | 6
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and 2015 (Unaudited) | 7
Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2016 and 2015 (Unaudited) | 8
Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015 (Unaudited) | 9
Notes to Consolidated Financial Statements (Unaudited) | 10
Note 1 - Basis of Presentation and Accounting Policies | 10
Note 2 - Segment Information | 12
Note 3 - Investments | 13
Note 4 - Fair Value Measurements | 21
Note 5 - Derivative Instruments | 31
Note 6 - Reserve for Losses and Loss Expenses | 33
Note 7 - Share-Based Compensation | 34
Note 8 - Earnings Per Common Share | 35
Note 9 - Shareholders' Equity | 36
Note 10 - Commitments and Contingencies | 37
Note 11 - Other Comprehensive Income | 38

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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2016 (UNAUDITED) AND DECEMBER 31, 2015

| 2016 |  | 2015
| (in thousands)
Assets |  |  |
Investments: |  |  |
Fixed maturities, available for sale, at fair value (Amortized cost 2016: $11,812,782; 2015: $11,897,639) | $ | 11,838,068 |  |  | $ | 11,719,749 |
Equity securities, available for sale, at fair value (Cost 2016: $605,291; 2015: $575,776) | 637,325 |  |  | 597,998 |
Mortgage loans, held for investment, at amortized cost and fair value | 267,589 |  |  | 206,277 |
Other investments, at fair value | 859,639 |  |  | 816,756 |
Short-term investments, at amortized cost and fair value | 29,540 |  |  | 34,406 |
Total investments | 13,632,161 |  |  | 13,375,186 |
Cash and cash equivalents | 777,320 |  |  | 988,133 |
Restricted cash and cash equivalents | 174,991 |  |  | 186,618 |
Accrued interest receivable | 71,475 |  |  | 73,729 |
Insurance and reinsurance premium balances receivable | 2,690,400 |  |  | 1,967,535 |
Reinsurance recoverable on unpaid and paid losses | 2,116,090 |  |  | 2,096,104 |
Deferred acquisition costs | 646,919 |  |  | 471,782 |
Prepaid reinsurance premiums | 436,382 |  |  | 396,201 |
Receivable for investments sold | 1,614 |  |  | 26,478 |
Goodwill and intangible assets | 86,446 |  |  | 86,858 |
Other assets | 344,392 |  |  | 313,267 |
Total assets | $ | 20,978,190 |  |  | $ | 19,981,891 |
Liabilities |  |  |
Reserve for losses and loss expenses | $ | 9,716,487 |  |  | $ | 9,646,285 |
Unearned premiums | 3,586,307 |  |  | 2,760,889 |
Insurance and reinsurance balances payable | 344,181 |  |  | 356,417 |
Senior notes | 992,091 |  |  | 991,825 |
Payable for investments purchased | 135,647 |  |  | 9,356 |
Other liabilities | 253,218 |  |  | 350,237 |
Total liabilities | 15,027,931 |  |  | 14,115,009 |
Shareholders’ equity |  |  |
Preferred shares | 625,000 |  |  | 627,843 |
Common shares (2016: 176,556; 2015: 176,240 shares issued and 2016: 92,903; 2015: 96,066 shares outstanding) | 2,206 |  |  | 2,202 |
Additional paid-in capital | 2,296,533 |  |  | 2,241,388 |
Accumulated other comprehensive income (loss) | 17,646 |  |  | (188,465 | )
Retained earnings | 6,198,932 |  |  | 6,194,353 |
Treasury shares, at cost (2016: 83,653; 2015: 80,174 shares) | (3,190,058 | ) |  | (3,010,439 | )
Total shareholders’ equity | 5,950,259 |  |  | 5,866,882 |
Total liabilities and shareholders’ equity | $ | 20,978,190 |  |  | $ | 19,981,891 |

See accompanying notes to Consolidated Financial Statements.
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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015

| Three months ended
| 2016 |  | 2015
| (in thousands, except for per share amounts)
Revenues |  |  |
Net premiums earned | $ | 902,340 |  |  | $ | 904,053 |
Net investment income | 49,164 |  |  | 92,107 |
Other insurance related income (losses) | (203 | ) |  | 7,676 |
Net realized investment losses: |  |  |
Other-than-temporary impairment ("OTTI") losses | (9,729 | ) |  | (17,568 | )
Other realized investment losses | (56,779 | ) |  | (24,985 | )
Total net realized investment losses | (66,508 | ) |  | (42,553 | )
Total revenues | 884,793 |  |  | 961,283 |
Expenses |  |  |
Net losses and loss expenses | 498,962 |  |  | 512,328 |
Acquisition costs | 180,635 |  |  | 171,542 |
General and administrative expenses | 149,901 |  |  | 163,241 |
Foreign exchange losse s (gains) | 616 |  |  | (63,220 | )
Interest expense and financing costs | 12,833 |  |  | 12,257 |
Total expenses | 842,947 |  |  | 796,148 |
Income before income taxes | 41,846 |  |  | 165,135 |
Income tax benefit | (6,540 | ) |  | (690 | )
Net income | 48,386 |  |  | 165,825 |
Preferred share dividends | 9,969 |  |  | 10,022 |
Net income available to common shareholders | $ | 38,417 |  |  | $ | 155,803 |
Per share data |  |  |
Net income per common share: |  |  |
Basic net income | $ | 0.41 |  |  | $ | 1.56 |
Diluted net income | $ | 0.41 |  |  | $ | 1.54 |
Weighted average number of common shares outstanding - basic | 94,035 |  |  | 99,910 |
Weighted average number of common shares outstanding - diluted | 94,853 |  |  | 101,139 |
Cash dividends declared per common share | $ | 0.35 |  |  | $ | 0.29 |

See accompanying notes to Consolidated Financial Statements.
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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015

| Three months ended |
| 2016 |  | 2015 |
| (in thousands)
Net income | $ | 48,386 |  |  | $ | 165,825 |  |
Other comprehensive income, net of tax: |  |  |  |
Available for sale investments: |  |  |  |
Unrealized investment gains (losses) arising during the period | 138,634 |  |  | (5,187 | ) |
Adjustment for reclassification of net realized investment losses and OTTI losses recognized in net income | 59,281 |  |  | 45,104 |  |
Unrealized investment gains arising during the period, net of reclassification adjustment | 197,915 |  |  | 39,917 |  |
Foreign currency translation adjustment | 8,196 |  |  | (11,413 | ) |
Total other comprehensive income, net of tax | 206,111 |  |  | 28,504 |  |
Comprehensive income | $ | 254,497 |  |  | $ | 194,329 |  |

See accompanying notes to Consolidated Financial Statements.
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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015

| 2016 |  | 2015
| (in thousands)
Preferred shares |  |  |
Balance at beginning of period | $ | 627,843 |  |  | $ | 627,843 |
Shares repurchased | (2,843 | ) |  | — |
Balance at end of period | 625,000 |  |  | 627,843 |
Common shares (par value) |  |  |
Balance at beginning of period | 2,202 |  |  | 2,191 |
Shares issued | 4 |  |  | 9 |
Balance at end of period | 2,206 |  |  | 2,200 |
Additional paid-in capital |  |  |
Balance at beginning of period | 2,241,388 |  |  | 2,285,016 |
Shares issued - common shares | 1,779 |  |  | 2,294 |
Cost of treasury shares reissued | (15,007 | ) |  | (13,517 | )
Settlement of accelerated share repurchase | 60,000 |  |  | — |
Stock options exercised | — |  |  | 560 |
Share-based compensation expense | 8,373 |  |  | 12,712 |
Balance at end of period | 2,296,533 |  |  | 2,287,065 |
Accumulated other comprehensive income (loss) |  |  |
Balance at beginning of period | (188,465 | ) |  | (45,574 | )
Unrealized gains (losses) on available for sale investments, net of tax: |  |  |
Balance at beginning of period | (149,585 | ) |  | (28,192 | )
Unrealized gains arising during the period, net of reclassification adjustment | 197,915 |  |  | 39,917 |
Non-credit portion of OTTI losses | — |  |  | — |
Balance at end of period | 48,330 |  |  | 11,725 |
Cumulative foreign currency translation adjustments, net of tax: |  |  |
Balance at beginning of period | (38,880 | ) |  | (17,382 | )
Foreign currency translation adjustments | 8,196 |  |  | (11,413 | )
Balance at end of period | (30,684 | ) |  | (28,795 | )
Balance at end of period | 17,646 |  |  | (17,070 | )
Retained earnings |  |  |
Balance at beginning of period | 6,194,353 |  |  | 5,715,504 |
Net income | 48,386 |  |  | 165,825 |
Preferred share dividends | (9,969 | ) |  | (10,022 | )
Common share dividends | (33,838 | ) |  | (29,068 | )
Balance at end of period | 6,198,932 |  |  | 5,842,239 |
Treasury shares, at cost |  |  |
Balance at beginning of period | (3,010,439 | ) |  | (2,763,859 | )
Shares repurchased for treasury | (196,011 | ) |  | (14,772 | )
Cost of treasury shares reissued | 16,392 |  |  | 13,517 |
Balance at end of period | (3,190,058 | ) |  | (2,765,114 | )
Total shareholders’ equity | $ | 5,950,259 |  |  | $ | 5,977,163 |

See accompanying notes to Consolidated Financial Statements.
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AXIS CAPITAL HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2016 AND 2015

| Three months ended
| 2016 |  | 2015
| (in thousands)
Cash flows from operating activities: |  |  |
Net income | $ | 48,386 |  |  | $ | 165,825 |
Adjustments to reconcile net income to net cash used in operating activities: |  |  |
Net realized investment losses | 66,508 |  |  | 42,553 |
Net realized and unrealized gains (losses) on other investments | 27,177 |  |  | (30,935 | )
Amortization of fixed maturities | 19,100 |  |  | 31,372 |
Other amortization and depreciation | 5,294 |  |  | 6,581 |
Share-based compensation expense, net of cash payments | (1,357 | ) |  | 4,834 |
Changes in: |  |  |
Accrued interest receivable | 2,616 |  |  | 3,101 |
Reinsurance recoverable balances | (6,668 | ) |  | (10,133 | )
Deferred acquisition costs | (175,038 | ) |  | (149,786 | )
Prepaid reinsurance premiums | (37,732 | ) |  | (6,926 | )
Reserve for loss and loss expenses | 50,132 |  |  | (122,508 | )
Unearned premiums | 820,947 |  |  | 553,642 |
Insurance and reinsurance balances, net | (737,185 | ) |  | (419,218 | )
Other items | (96,430 | ) |  | (96,490 | )
Net cash used in operating activities | (14,250 | ) |  | (28,088 | )
Cash flows from investing activities: |  |  |
Purchases of: |  |  |
Fixed maturities | (2,556,709 | ) |  | (3,036,497 | )
Equity securities | (102,963 | ) |  | (41,239 | )
Mortgage loans | (61,263 | ) |  | — |
Other investments | (117,622 | ) |  | (21,418 | )
Short-term investments | (13,931 | ) |  | (14,513 | )
Proceeds from the sale of: |  |  |
Fixed maturities | 2,473,167 |  |  | 2,823,044 |
Equity securities | 85,254 |  |  | 522 |
Other investments | 47,562 |  |  | 78,812 |
Short-term investments | 16,331 |  |  | 79,657 |
Proceeds from redemption of fixed maturities | 246,147 |  |  | 280,864 |
Proceeds from redemption of short-term investments | 2,282 |  |  | 4,632 |
Purchase of other assets | (44,721 | ) |  | (4,647 | )
Change in restricted cash and cash equivalents | 11,627 |  |  | 19,240 |
Net cash provided by (used in) investing activities | (14,839 | ) |  | 168,457 |
Cash flows from financing activities: |  |  |
Repurchase of common shares | (136,011 | ) |  | (22,581 | )
Dividends paid - common shares | (36,636 | ) |  | (30,103 | )
Dividends paid - preferred shares | (10,003 | ) |  | (10,022 | )
Proceeds from issuance of common shares | 1,783 |  |  | 2,863 |
Repurchase of preferred shares | (2,843 | ) |  | — |
Net cash used in financing activities | (183,710 | ) |  | (59,843 | )
Effect of exchange rate changes on foreign currency cash and cash equivalents | 1,986 |  |  | (16,122 | )
Increase (decrease) in cash and cash equivalents | (210,813 | ) |  | 64,404 |
Cash and cash equivalents - beginning of period | 988,133 |  |  | 921,830 |
Cash and cash equivalents - end of period | $ | 777,320 |  |  | $ | 986,234 |

See accompanying notes to Consolidated Financial Statements.
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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. | BASIS OF PRESENTATION AND ACCOUNTING POLICIES

Basis of Presentation
These interim consolidated financial statements include the accounts of AXIS Capital Holdings Limited (“AXIS Capital”) and its subsidiaries (herein referred to as “we,” “us,” “our,” or the “Company”).
The consolidated balance sheet at March 31, 2016 and the consolidated statements of operations, comprehensive income, shareholders' equity and cash flows for the periods ended March 31, 2016 and 2015 have not been audited. The balance sheet at December 31, 2015 is derived from our audited financial statements.
These financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) for interim financial information and with the Securities and Exchange Commission's (“SEC”) instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, these financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of our financial position and results of operations for the periods presented. The results of operations for any interim period are not necessarily indicative of the results for a full year. All inter-company accounts and transactions have been eliminated.
The following information should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2015. Tabular dollar and share amounts are in thousands, except per share amounts. All amounts are reported in U.S. dollars.
Significant Accounting Policies
There were no notable changes in our significant accounting policies subsequent to our Annual Report on Form 10-K for the year ended December 31, 2015.
New Accounting Standards Adopted in 2016
Share-Based Compensation
Effective January 1, 2016, the Company adopted the Accounting Standards Update ("ASU") 2014-12, "Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period" issued by the Financial Accounting Standards Board (the "FASB"). This guidance requires that compensation costs be recognized in the period in which it becomes probable that the performance target will be achieved and to represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. This guidance was issued to clarify treatment where there was a divergence in accounting practice and its adoption did not impact the results of our operations, our financial condition or liquidity.
Debt Issuance Costs
Effective January 1, 2016, the Company adopted ASU 2015-03, "Simplifying the Presentation of Debt Issuance Costs" issued by the FASB. This guidance requires the debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the debt liability rather than as an asset. This guidance was issued to simplify the presentation of debt issuance costs and to resolve conflicting guidance. This guidance did not impact our results of operations, financial condition or liquidity.
Investments Measured Using The Net Asset Value Per Share ("NAV") Practical Expedient
Effective January 1, 2016, the Company adopted ASU 2015-07, "Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or its Equivalent)" issued by the FASB. This guidance eliminated the requirement to categorize investments measured using the NAV practical expedient in the fair value hierarchy table. As this new guidance related solely to disclosures, the adoption did not impact our results of operations, financial condition or liquidity. The updated disclosures have been provided in Note 4 'Fair Value Measurements'.
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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. | BASIS OF PRESENTATION AND ACCOUNTING POLICIES (CONTINUED)

Recently Issued Accounting Standards Not Yet Adopted
Leases
In February 2016, the FASB issued guidance that provides a new comprehensive model for lease accounting. The guidance will require most leases to be recognized on the balance sheet by recording a right-of-use asset and a corresponding lease liability. This guidance is effective for reporting periods beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted. The Company is currently evaluating the impact of this guidance on our results of operations, financial condition and liquidity.
Transition To Equity Method Of Accounting
In March 2016, the FASB issued new guidance eliminating the requirement that an investor retrospectively apply equity method accounting when an existing investment qualifies for equity method accounting. The guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those fiscal years with early adoption permitted. The guidance will be adopted on a prospective basis. The adoption of this guidance is not expected to materially impact our results of operations, financial condition or liquidity.
Share-Based Compensation Accounting
In March 2016, the FASB issued new guidance that will change the accounting for certain aspects of share-based compensation payments to employees. The guidance will require all income tax effects of awards to be recognized in the income statement when the awards vest or are settled. The guidance will also allow employers to increase the amounts withheld to cover income taxes on share-based compensation awards without requiring liability classification. Additionally, companies will be required to elect whether they will account for award forfeitures by recognizing forfeitures only as they occur or by estimating the number of awards expected to be forfeited. This guidance is effective for annual periods beginning after December 15, 2016, and interim periods within those fiscal years with early adoption permitted. The Company is currently evaluating the impact of this guidance on our results of operations, financial condition and liquidity.
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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

2. | SEGMENT INFORMATION

Our underwriting operations are organized around our global underwriting platforms, AXIS Insurance and AXIS Re. Therefore we have determined that we have two reportable segments, insurance and reinsurance. We do not allocate our assets by segment, with the exception of goodwill and intangible assets, as we evaluate the underwriting results of each segment separately from the results of our investment portfolio.
The following tables summarize the underwriting results of our reportable segments, as well as the carrying values of allocated goodwill and intangible assets:

|  | 2016 |  | 2015 |
| Three months ended and at March 31, | Insurance |  | Reinsurance |  | Total |  | Insurance |  | Reinsurance |  | Total |
| Gross premiums written | $ | 653,349 |  |  | $ | 1,305,812 |  |  | $ | 1,959,161 |  |  | $ | 602,724 |  |  | $ | 1,076,208 |  |  | $ | 1,678,932 |  |
| Net premiums written | 473,163 |  |  | 1,212,643 |  |  | 1,685,806 |  |  | 436,740 |  |  | 1,018,806 |  |  | 1,455,546 |  |
| Net premiums earned | 438,678 |  |  | 463,662 |  |  | 902,340 |  |  | 447,467 |  |  | 456,586 |  |  | 904,053 |  |
| Other insurance related income (loss) | 137 |  |  | (340 | ) |  | (203 | ) |  | — |  |  | 7,676 |  |  | 7,676 |  |
| Net losses and loss expenses | (274,405 | ) |  | (224,557 | ) |  | (498,962 | ) |  | (285,773 | ) |  | (226,555 | ) |  | (512,328 | ) |
| Acquisition costs | (61,398 | ) |  | (119,237 | ) |  | (180,635 | ) |  | (64,455 | ) |  | (107,087 | ) |  | (171,542 | ) |
| General and administrative expenses | (85,576 | ) |  | (38,013 | ) |  | (123,589 | ) |  | (87,689 | ) |  | (39,380 | ) |  | (127,069 | ) |
| Underwriting income | $ | 17,436 |  |  | $ | 81,515 |  |  | 98,951 |  |  | $ | 9,550 |  |  | $ | 91,240 |  |  | 100,790 |  |
| Corporate expenses |  |  |  |  | (26,312 | ) |  |  |  |  |  | (36,172 | ) |
| Net investment income |  |  |  |  | 49,164 |  |  |  |  |  |  | 92,107 |  |
| Net realized investment losses |  |  |  |  | (66,508 | ) |  |  |  |  |  | (42,553 | ) |
| Foreign exchange (losses) gains |  |  |  |  | (616 | ) |  |  |  |  |  | 63,220 |  |
| Interest expense and financing costs |  |  |  |  | (12,833 | ) |  |  |  |  |  | (12,257 | ) |
| Income before income taxes |  |  |  |  | $ | 41,846 |  |  |  |  |  |  | $ | 165,135 |  |
| Net loss and loss expense ratio | 62.6 | % |  | 48.4 | % |  | 55.3 | % |  | 63.9 | % |  | 49.6 | % |  | 56.7 | % |
| Acquisition cost ratio | 14.0 | % |  | 25.7 | % |  | 20.0 | % |  | 14.4 | % |  | 23.5 | % |  | 19.0 | % |
| General and administrative expense ratio | 19.5 | % |  | 8.2 | % |  | 16.6 | % |  | 19.6 | % |  | 8.6 | % |  | 18.0 | % |
| Combined ratio | 96.1 | % |  | 82.3 | % |  | 91.9 | % |  | 97.9 | % |  | 81.7 | % |  | 93.7 | % |
| Goodwill and intangible assets | $ | 86,446 |  |  | $ | — |  |  | $ | 86,446 |  |  | $ | 88,508 |  |  | $ | — |  |  | $ | 88,508 |  |

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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3. | INVESTMENTS

a) Fixed Maturities and Equities
The amortized cost or cost and fair values of our fixed maturities and equities were as follows:

|  | Amortized Cost or Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value |  | Non-credit OTTI in AOCI(5) |
| At March 31, 2016 |  |  |  |  |  |  |  |  |  |
| Fixed maturities |  |  |  |  |  |  |  |  |  |
| U.S. government and agency | $ | 1,552,689 |  |  | $ | 20,614 |  |  | $ | (3,123 | ) |  | $ | 1,570,180 |  |  | $ | — |  |
| Non-U.S. government | 753,923 |  |  | 6,718 |  |  | (39,918 | ) |  | 720,723 |  |  | — |  |
| Corporate debt | 4,423,369 |  |  | 55,031 |  |  | (53,358 | ) |  | 4,425,042 |  |  | — |  |
| Agency RMBS(1) | 2,377,262 |  |  | 45,420 |  |  | (1,381 | ) |  | 2,421,301 |  |  | — |  |
| CMBS(2) | 1,099,346 |  |  | 13,221 |  |  | (5,883 | ) |  | 1,106,684 |  |  | — |  |
| Non-Agency RMBS | 94,704 |  |  | 1,584 |  |  | (1,266 | ) |  | 95,022 |  |  | (862 | ) |
| ABS(3) | 1,359,752 |  |  | 1,199 |  |  | (17,801 | ) |  | 1,343,150 |  |  | — |  |
| Municipals(4) | 151,737 |  |  | 4,758 |  |  | (529 | ) |  | 155,966 |  |  | — |  |
| Total fixed maturities | $ | 11,812,782 |  |  | $ | 148,545 |  |  | $ | (123,259 | ) |  | $ | 11,838,068 |  |  | $ | (862 | ) |
| Equity securities |  |  |  |  |  |  |  |  |  |
| Common stocks | $ | 292 |  |  | $ | 96 |  |  | $ | (210 | ) |  | $ | 178 |  |  |  |
| Exchange-traded funds | 471,879 |  |  | 32,339 |  |  | (3,550 | ) |  | 500,668 |  |  |  |
| Bond mutual funds | 133,120 |  |  | 3,359 |  |  | — |  |  | 136,479 |  |  |  |
| Total equity securities | $ | 605,291 |  |  | $ | 35,794 |  |  | $ | (3,760 | ) |  | $ | 637,325 |  |  |  |
| At December 31, 2015 |  |  |  |  |  |  |  |  |  |
| Fixed maturities |  |  |  |  |  |  |  |  |  |
| U.S. government and agency | $ | 1,673,617 |  |  | $ | 1,545 |  |  | $ | (23,213 | ) |  | $ | 1,651,949 |  |  | $ | — |  |
| Non-U.S. government | 809,025 |  |  | 2,312 |  |  | (72,332 | ) |  | 739,005 |  |  | — |  |
| Corporate debt | 4,442,315 |  |  | 16,740 |  |  | (96,286 | ) |  | 4,362,769 |  |  | — |  |
| Agency RMBS(1) | 2,236,138 |  |  | 22,773 |  |  | (9,675 | ) |  | 2,249,236 |  |  | — |  |
| CMBS(2) | 1,088,595 |  |  | 3,885 |  |  | (9,182 | ) |  | 1,083,298 |  |  | — |  |
| Non-Agency RMBS | 99,989 |  |  | 1,992 |  |  | (973 | ) |  | 101,008 |  |  | (875 | ) |
| ABS(3) | 1,387,919 |  |  | 952 |  |  | (17,601 | ) |  | 1,371,270 |  |  | — |  |
| Municipals(4) | 160,041 |  |  | 2,319 |  |  | (1,146 | ) |  | 161,214 |  |  | — |  |
| Total fixed maturities | $ | 11,897,639 |  |  | $ | 52,518 |  |  | $ | (230,408 | ) |  | $ | 11,719,749 |  |  | $ | (875 | ) |
| Equity securities |  |  |  |  |  |  |  |  |  |
| Common stocks | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  |  |
| Exchange-traded funds | 447,524 |  |  | 31,211 |  |  | (4,762 | ) |  | 473,973 |  |  |  |
| Bond mutual funds | 128,252 |  |  | — |  |  | (4,227 | ) |  | 124,025 |  |  |  |
| Total equity securities | $ | 575,776 |  |  | $ | 31,211 |  |  | $ | (8,989 | ) |  | $ | 597,998 |  |  |  |

(1) | Residential mortgage-backed securities (RMBS) originated by U.S. agencies.

(2) | Commercial mortgage-backed securities (CMBS).

(3) | Asset-backed securities (ABS) include debt tranched securities collateralized primarily by auto loans, student loans, credit cards, and other asset types. This asset class also includes collateralized loan obligations (CLOs) and collateralized debt obligations (CDOs).

(4) | Municipals include bonds issued by states, municipalities and political subdivisions.

(5) | Represents the non-credit component of the other-than-temporary impairment (OTTI) losses, adjusted for subsequent sales of securities. It does not include the change in fair value subsequent to the impairment measurement date.

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3. | INVESTMENTS (CONTINUED)

In the normal course of investing activities, we actively manage allocations to non-controlling tranches of structured securities (variable interests) issued by VIEs. These structured securities include RMBS, CMBS and ABS and are included in the above table. Additionally, within our other investments portfolio, we also invest in limited partnerships (hedge funds, direct lending funds and private equity funds) and CLO equity tranched securities, which are all variable interests issued by VIEs (see Note 4(c)). For these variable interests, we do not have the power to direct the activities that are most significant to the economic performance of the VIEs and accordingly we are not the primary beneficiary for any of these VIEs. Our maximum exposure to loss on these interests is limited to the amount of our investment. We have not provided financial or other support with respect to these structured securities other than our original investment.
Contractual Maturities
The contractual maturities of fixed maturities are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

|  | Amortized Cost |  | Fair Value |  | % of Total Fair Value |
| At March 31, 2016 |  |  |  |  |  |
| Maturity |  |  |  |  |  |
| Due in one year or less | $ | 295,599 |  |  | $ | 291,510 |  |  | 2.5 | % |
| Due after one year through five years | 3,994,127 |  |  | 3,985,100 |  |  | 33.7 | % |
| Due after five years through ten years | 2,263,573 |  |  | 2,264,238 |  |  | 19.1 | % |
| Due after ten years | 328,419 |  |  | 331,063 |  |  | 2.8 | % |
|  | 6,881,718 |  |  | 6,871,911 |  |  | 58.1 | % |
| Agency RMBS | 2,377,262 |  |  | 2,421,301 |  |  | 20.5 | % |
| CMBS | 1,099,346 |  |  | 1,106,684 |  |  | 9.3 | % |
| Non-Agency RMBS | 94,704 |  |  | 95,022 |  |  | 0.8 | % |
| ABS | 1,359,752 |  |  | 1,343,150 |  |  | 11.3 | % |
| Total | $ | 11,812,782 |  |  | $ | 11,838,068 |  |  | 100.0 | % |
| At December 31, 2015 |  |  |  |  |  |
| Maturity |  |  |  |  |  |
| Due in one year or less | $ | 291,368 |  |  | $ | 289,571 |  |  | 2.5 | % |
| Due after one year through five years | 4,217,515 |  |  | 4,142,802 |  |  | 35.3 | % |
| Due after five years through ten years | 2,263,684 |  |  | 2,181,525 |  |  | 18.6 | % |
| Due after ten years | 312,431 |  |  | 301,039 |  |  | 2.6 | % |
|  | 7,084,998 |  |  | 6,914,937 |  |  | 59.0 | % |
| Agency RMBS | 2,236,138 |  |  | 2,249,236 |  |  | 19.2 | % |
| CMBS | 1,088,595 |  |  | 1,083,298 |  |  | 9.2 | % |
| Non-Agency RMBS | 99,989 |  |  | 101,008 |  |  | 0.9 | % |
| ABS | 1,387,919 |  |  | 1,371,270 |  |  | 11.7 | % |
| Total | $ | 11,897,639 |  |  | $ | 11,719,749 |  |  | 100.0 | % |

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3. | INVESTMENTS (CONTINUED)

Gross Unrealized Losses
The following table summarizes fixed maturities and equities in an unrealized loss position and the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position:

|  | 12 months or greater |  | Less than 12 months |  | Total |
|  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |  | Fair Value |  | Unrealized Losses |
| At March 31, 2016 |  |  |  |  |  |  |  |  |  |  |  |
| Fixed maturities |  |  |  |  |  |  |  |  |  |  |  |
| U.S. government and agency | $ | 84,342 |  |  | $ | (3,030 | ) |  | $ | 146,502 |  |  | $ | (93 | ) |  | $ | 230,844 |  |  | $ | (3,123 | ) |
| Non-U.S. government | 135,920 |  |  | (30,440 | ) |  | 220,140 |  |  | (9,478 | ) |  | 356,060 |  |  | (39,918 | ) |
| Corporate debt | 388,621 |  |  | (24,425 | ) |  | 1,019,187 |  |  | (28,933 | ) |  | 1,407,808 |  |  | (53,358 | ) |
| Agency RMBS | 179,155 |  |  | (850 | ) |  | 143,472 |  |  | (531 | ) |  | 322,627 |  |  | (1,381 | ) |
| CMBS | 102,506 |  |  | (1,775 | ) |  | 392,674 |  |  | (4,108 | ) |  | 495,180 |  |  | (5,883 | ) |
| Non-Agency RMBS | 5,419 |  |  | (275 | ) |  | 58,771 |  |  | (991 | ) |  | 64,190 |  |  | (1,266 | ) |
| ABS | 579,638 |  |  | (11,397 | ) |  | 536,264 |  |  | (6,404 | ) |  | 1,115,902 |  |  | (17,801 | ) |
| Municipals | 14,966 |  |  | (509 | ) |  | 2,635 |  |  | (20 | ) |  | 17,601 |  |  | (529 | ) |
| Total fixed maturities | $ | 1,490,567 |  |  | $ | (72,701 | ) |  | $ | 2,519,645 |  |  | $ | (50,558 | ) |  | $ | 4,010,212 |  |  | $ | (123,259 | ) |
| Equity securities |  |  |  |  |  |  |  |  |  |  |  |
| Common stocks | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (210 | ) |  | $ | — |  |  | $ | (210 | ) |
| Exchange-traded funds | — |  |  | — |  |  | 72,146 |  |  | (3,550 | ) |  | 72,146 |  |  | (3,550 | ) |
| Bond mutual funds | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |
| Total equity securities | $ | — |  |  | $ | — |  |  | $ | 72,146 |  |  | $ | (3,760 | ) |  | $ | 72,146 |  |  | $ | (3,760 | ) |
| At December 31, 2015 |  |  |  |  |  |  |  |  |  |  |  |
| Fixed maturities |  |  |  |  |  |  |  |  |  |  |  |
| U.S. government and agency | $ | 84,179 |  |  | $ | (7,622 | ) |  | $ | 1,474,202 |  |  | $ | (15,591 | ) |  | $ | 1,558,381 |  |  | $ | (23,213 | ) |
| Non-U.S. government | 170,269 |  |  | (50,841 | ) |  | 317,693 |  |  | (21,491 | ) |  | 487,962 |  |  | (72,332 | ) |
| Corporate debt | 340,831 |  |  | (33,441 | ) |  | 2,845,375 |  |  | (62,845 | ) |  | 3,186,206 |  |  | (96,286 | ) |
| Agency RMBS | 64,792 |  |  | (1,609 | ) |  | 1,073,566 |  |  | (8,066 | ) |  | 1,138,358 |  |  | (9,675 | ) |
| CMBS | 75,627 |  |  | (1,579 | ) |  | 659,480 |  |  | (7,603 | ) |  | 735,107 |  |  | (9,182 | ) |
| Non-Agency RMBS | 5,283 |  |  | (210 | ) |  | 43,199 |  |  | (763 | ) |  | 48,482 |  |  | (973 | ) |
| ABS | 562,599 |  |  | (11,158 | ) |  | 667,448 |  |  | (6,443 | ) |  | 1,230,047 |  |  | (17,601 | ) |
| Municipals | 14,214 |  |  | (310 | ) |  | 64,104 |  |  | (836 | ) |  | 78,318 |  |  | (1,146 | ) |
| Total fixed maturities | $ | 1,317,794 |  |  | $ | (106,770 | ) |  | $ | 7,145,067 |  |  | $ | (123,638 | ) |  | $ | 8,462,861 |  |  | $ | (230,408 | ) |
| Equity securities |  |  |  |  |  |  |  |  |  |  |  |
| Common stocks | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |
| Exchange-traded funds | 2,331 |  |  | (313 | ) |  | 110,972 |  |  | (4,449 | ) |  | 113,303 |  |  | (4,762 | ) |
| Bond mutual funds | — |  |  | — |  |  | 124,025 |  |  | (4,227 | ) |  | 124,025 |  |  | (4,227 | ) |
| Total equity securities | $ | 2,331 |  |  | $ | (313 | ) |  | $ | 234,997 |  |  | $ | (8,676 | ) |  | $ | 237,328 |  |  | $ | (8,989 | ) |

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3. | INVESTMENTS (CONTINUED)

Fixed Maturities
At March 31, 2016, 1,382 fixed maturities (2015: 2,314) were in an unrealized loss position of $123 million (2015: $230 million), of which $26 million (2015: $39 million) was related to securities below investment grade or not rated.
At March 31, 2016, 438 (2015: 383) securities had been in a continuous unrealized loss position for 12 months or greater and had a fair value of $1,491 million (2015: $1,318 million). Following our credit impairment review, we concluded that these securities as well as the remaining securities in an unrealized loss position in the above table were temporarily impaired at March 31, 2016, and were expected to recover in value as the securities approach maturity. Further, at March 31, 2016, we did not intend to sell these securities in an unrealized loss position and it is more likely than not that we will not be required to sell these securities before the anticipated recovery of their amortized costs.
Equity Securities
At March 31, 2016, 29 securities (2015: 35) were in an unrealized loss position of $4 million (2015: $9 million).
At March 31, 2016, there were no securities (2015: 1) in a continuous unrealized loss position for 12 months or greater. Based on our impairment review process and our ability and intent to hold these securities for a reasonable period of time sufficient for a full recovery, we concluded that the above equities in an unrealized loss position were temporarily impaired at March 31, 2016.
b) Mortgage Loans
The following table provides a breakdown of our mortgage loans held-for-investment:

|  | March 31, 2016 |  | December 31, 2015 |
|  | Carrying Value |  | % of Total |  | Carrying Value |  | % of Total |
| Mortgage Loans held-for-investment: |  |  |  |  |  |  |  |
| Commercial | $ | 267,589 |  |  | 100 | % |  | $ | 206,277 |  |  | 100 | % |
|  | 267,589 |  |  | 100 | % |  | 206,277 |  |  | 100 | % |
| Valuation allowances | — |  |  | — | % |  | — |  |  | — | % |
| Total Mortgage Loans held-for-investment | $ | 267,589 |  |  | 100 | % |  | $ | 206,277 |  |  | 100 | % |

For commercial mortgage loans, the primary credit quality indicator is the debt service coverage ratio (which compares a property’s net operating income to amounts needed to service the principal and interest due under the loan, generally, the lower the debt service coverage ratio, the higher the risk of experiencing a credit loss) and the loan-to-value ratio (loan-to-value ratios compare the unpaid principal balance of the loan to the estimated fair value of the underlying collateral, generally, the higher the loan-to-value ratio, the higher the risk of experiencing a credit loss). The debt service coverage ratio and loan-to-value ratio, as well as the values utilized in calculating these ratios, are updated annually, on a rolling basis.
We have a high quality mortgage portfolio with debt service coverage ratios in excess of 1.3 x and loan-to-value ratios of less than 65%; there are no credit losses associated with the commercial mortgage loans that we hold at March 31, 2016.
There are no past due amounts at March 31, 2016.
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3. | INVESTMENTS (CONTINUED)

c) Other Investments
The following table provides a breakdown of our investments in hedge funds, direct lending funds, private equity funds, real estate funds and CLO Equities, together with additional information relating to the liquidity of each category:

|  | Fair Value |  | Redemption Frequency (if currently eligible) |  | Redemption Notice Period |
| At March 31, 2016 |  |  |  |  |  |  |  |  |  |
| Long/short equity funds | $ | 128,502 |  |  | 15 | % |  | Quarterly, Semi-annually, Annually |  | 45-60 days |
| Multi-strategy funds | 312,211 |  |  | 36 | % |  | Quarterly, Semi-annually |  | 60-95 days |
| Event-driven funds | 146,428 |  |  | 17 | % |  | Quarterly, Annually |  | 45-60 days |
| Leveraged bank loan funds | 65 |  |  | — | % |  | n/a |  | n/a |
| Direct lending funds | 112,889 |  |  | 13 | % |  | n/a |  | n/a |
| Private equity funds | 93,783 |  |  | 11 | % |  | n/a |  | n/a |
| Real estate funds | 5,390 |  |  | 1 | % |  | n/a |  | n/a |
| CLO - Equities | 60,371 |  |  | 7 | % |  | n/a |  | n/a |
| Total other investments | $ | 859,639 |  |  | 100 | % |  |  |  |  |
| At December 31, 2015 |  |  |  |  |  |  |  |  |  |
| Long/short equity funds | $ | 154,348 |  |  | 19 | % |  | Quarterly, Semi-annually, Annually |  | 45-60 days |
| Multi-strategy funds | 355,073 |  |  | 43 | % |  | Quarterly, Semi-annually |  | 60-95 days |
| Event-driven funds | 147,287 |  |  | 18 | % |  | Quarterly, Annually |  | 45-60 days |
| Leveraged bank loan funds | 65 |  |  | — | % |  | n/a |  | n/a |
| Direct lending funds | 90,120 |  |  | 11 | % |  | n/a |  | n/a |
| Private equity funds | — |  |  | — | % |  | n/a |  | n/a |
| Real estate funds | 4,929 |  |  | 1 | % |  | n/a |  | n/a |
| CLO - Equities | 64,934 |  |  | 8 | % |  | n/a |  | n/a |
| Total other investments | $ | 816,756 |  |  | 100 | % |  |  |  |  |

n/a - not applicable
The investment strategies for the above funds are as follows:

• | Long/short equity funds: Seek to achieve attractive returns primarily by executing an equity trading strategy involving both long and short investments in publicly-traded equities.

• | Multi-strategy funds: Seek to achieve above-market returns by pursuing multiple investment strategies to diversify risks and reduce volatility. This category includes funds of hedge funds which invest in a large pool of hedge funds across a diversified range of hedge fund strategies.

• | Event-driven funds: Seek to achieve attractive returns by exploiting situations where announced or anticipated events create opportunities.

• | Leveraged bank loan funds: Seek to achieve attractive returns by investing primarily in bank loan collateral that has limited interest rate risk exposure.

• | Direct lending funds: Seek to achieve attractive risk-adjusted returns, including current income generation, by investing in funds which provide financing directly to borrowers.

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• | Real estate funds: Seek to achieve attractive risk-adjusted returns by making and managing investments in real estate and real estate securities and businesses.

• | Private equity funds: Seek to achieve attractive risk-adjusted returns by investing in private transactions over the course of several years.

Two common redemption restrictions which may impact our ability to redeem our hedge 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 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. During 2016 and 2015, neither of these restrictions impacted our redemption requests. At March 31, 2016, $59 million (2015: $66 million), representing 10% (2015: 10%) of our total hedge funds, relate to holdings where we are still within the lockup period. The expiration of these lockup periods range from March 2016 to April 2018.
At March 31, 2016, we have $198 million (2015: $222 million) of unfunded commitments within our other investments portfolio relating to our future investments in direct lending funds. Once the full amount of committed capital has been called by the General Partner of each of these funds, the assets will not be fully returned until the completion of the fund's investment term. These funds have investment terms ranging from 5-10 years and the General Partners of certain funds have the option to extend the term by up to three years.
At March 31, 2016, we have $12 million (2015: $12 million) of unfunded commitments as a limited partner in a multi-strategy hedge fund. Once the full amount of committed capital has been called by the General Partner, the assets will not be fully returned until the completion of the fund's investment term which ends in March, 2019. The General Partner then has the option to extend the term by up to three years.
At March 31, 2016, we have $95 million (2015: $95 million) of unfunded commitments as a limited partner in a fund which invests in real estate and real estate securities and businesses. The fund is subject to a three year commitment period and a total fund life of eight years during which time we are not eligible to redeem our investment.
During 2016, we made a $135 million commitment as a limited partner in a private equity fund. At March 31, 2016, $41 million of our commitment remains unfunded and the current fair value of the funds called to date are included in the private equity funds line of the table above. The fund invests in underlying private equity funds and the life of the fund is subject to the dissolution of the underlying funds. We expect the overall holding period to be over ten years.
During 2015, we made a $50 million commitment as a limited partner of a bank revolver opportunity fund. The fund is subject to an investment term of seven years and the General Partners have the option to extend the term by up to two years. At March 31, 2016, this commitment remains unfunded. It is not anticipated that the full amount of this fund will be drawn.
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3. | INVESTMENTS (CONTINUED)

d) Net Investment Income
Net investment income was derived from the following sources:

|  | Three months ended March 31, |
|  | 2016 |  | 2015 |
| Fixed maturities | $ | 75,975 |  |  | $ | 66,088 |  |
| Other investments | (26,878 | ) |  | 30,935 |  |
| Equity securities | 5,145 |  |  | 1,676 |  |
| Mortgage loans | 1,684 |  |  | 13 |  |
| Cash and cash equivalents | 1,434 |  |  | 1,099 |  |
| Short-term investments | 206 |  |  | 69 |  |
| Gross investment income | 57,566 |  |  | 99,880 |  |
| Investment expenses | (8,402 | ) |  | (7,773 | ) |
| Net investment income | $ | 49,164 |  |  | $ | 92,107 |  |

e) Net Realized Investment Losses
The following table provides an analysis of net realized investment losses:

|  | Three months ended March 31, |
|  | 2016 |  | 2015 |
| Gross realized gains |  |  |  |
| Fixed maturities and short-term investments | $ | 16,164 |  |  | $ | 15,661 |  |
| Equities | 3,541 |  |  | 38 |  |
| Gross realized gains | 19,705 |  |  | 15,699 |  |
| Gross realized losses |  |  |  |
| Fixed maturities and short-term investments | (59,177 | ) |  | (43,091 | ) |
| Equities | (14,787 | ) |  | (124 | ) |
| Gross realized losses | (73,964 | ) |  | (43,215 | ) |
| Net OTTI recognized in earnings | (9,729 | ) |  | (17,568 | ) |
| Change in fair value of investment derivatives(1) | (2,520 | ) |  | 2,531 |  |
| Net realized investment losses | $ | (66,508 | ) |  | $ | (42,553 | ) |

(1) Refer to Note 5 – Derivative Instruments
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3. | INVESTMENTS (CONTINUED)

The following table summarizes the OTTI recognized in earnings by asset class:

|  | Three months ended March 31, |
|  | 2016 |  | 2015 |
| Fixed maturities: |  |  |  |
| Non-U.S. government | $ | — |  |  | $ | 1,422 |  |
| Corporate debt | 7,169 |  |  | 16,120 |  |
| Non-Agency RMBS | — |  |  | 4 |  |
| ABS | — |  |  | 22 |  |
|  | 7,169 |  |  | 17,568 |  |
| Equity Securities |  |  |  |
| Exchange-traded funds | 2,560 |  |  | — |  |
|  | 2,560 |  |  | — |  |
| Total OTTI recognized in earnings | $ | 9,729 |  |  | $ | 17,568 |  |

The following table provides a roll forward of the credit losses, before income taxes, for which a portion of the OTTI was recognized in AOCI:

|  | Three months ended March 31, |
|  | 2016 |  | 2015 |
| Balance at beginning of period | $ | 1,506 |  |  | $ | 1,531 |  |
| Credit impairments recognized on securities not previously impaired | — |  |  | — |  |
| Additional credit impairments recognized on securities previously impaired | — |  |  | 10 |  |
| Change in timing of future cash flows on securities previously impaired | — |  |  | — |  |
| Intent to sell of securities previously impaired | — |  |  | — |  |
| Securities sold/redeemed/matured | — |  |  | — |  |
| Balance at end of period | $ | 1,506 |  |  | $ | 1,541 |  |

f) Reverse Repurchase Agreements
At March 31, 2016, we held $77 million (2015: $30 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 cash and cash equivalents on our consolidated balance sheet. The required collateral for these loans is either cash or U.S. Treasuries at a minimum rate of 102% of the loan principal. Upon maturity, we receive principal and interest income. We monitor the estimated fair value of the securities loaned and borrowed on a daily basis with additional collateral obtained as necessary throughout the duration of the transaction.
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Fair Value Hierarchy
Fair value is defined as the price to sell an asset or transfer a liability (i.e. the “exit price”) in an orderly transaction between market participants. We use a fair value hierarchy that gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data. The hierarchy is broken down into three levels as follows:

• | Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that we have the ability to access.

• | Level 2 - Valuations based on quoted prices in active markets for similar assets or liabilities, quoted prices for identical assets or liabilities in inactive markets, or for which significant inputs are observable (e.g. interest rates, yield curves, prepayment speeds, default rates, loss severities, etc.) or can be corroborated by observable market data.

• | Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The unobservable inputs reflect our own judgments about assumptions that market participants might use.

The availability of observable inputs can vary from financial instrument to financial instrument and is affected by a wide variety of factors including, for example, the type of financial instrument, whether the financial instrument is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires significantly more judgment.
Accordingly, the degree of judgment exercised by management in determining fair value is greatest for instruments categorized in Level 3. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This may lead us to change the selection of our valuation technique (from market to cash flow approach) or may cause us to use multiple valuation techniques to estimate the fair value of a financial instrument. This circumstance could cause an instrument to be reclassified between levels within the fair value hierarchy.
We used the following valuation techniques and assumptions in estimating the fair value of our financial instruments as well as the general classification of such financial instruments pursuant to the above fair value hierarchy.
Fixed Maturities
At each valuation date, we use the market approach valuation technique to estimate the fair value of our fixed maturities portfolio, when possible. This market approach includes, but is not limited to, prices obtained from third party pricing services for identical or comparable securities and the use of “pricing matrix models” using observable market inputs such as yield curves, credit risks and spreads, measures of volatility, and prepayment speeds. Pricing from third party pricing services is sourced from multiple vendors, when available, and we maintain a vendor hierarchy by asset type based on historical pricing experience and vendor expertise. When prices are unavailable from pricing services, we obtain non-binding quotes from broker-dealers who are active in the corresponding markets.
The following describes the significant inputs generally used to determine the fair value of our fixed maturities by asset class.
U.S. government and agency
U.S. government and agency securities consist primarily of bonds issued by the U.S. Treasury and mortgage pass-through agencies such as the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association. As the fair values of our U.S. Treasury securities are based on unadjusted market prices in active markets, they are classified within Level 1. The fair values of U.S. government agency securities are priced using the spread above the risk-free yield curve. As the yields for the risk-free yield curve and the spreads for these securities are observable market inputs, the fair values of U.S. government agency securities are classified within Level 2.
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Non-U.S. government
Non-U.S. government securities comprise bonds issued by non-U.S. governments and their agencies along with supranational organizations (collectively also known as sovereign debt securities). The fair value of these securities is based on prices obtained from international indices or a valuation model that includes the following inputs: interest rate yield curves, cross-currency basis index spreads, and country credit spreads for structures similar to the sovereign bond in terms of issuer, maturity and seniority. As the significant inputs are observable market inputs, the fair value of non-U.S. government securities are classified within Level 2.
Corporate debt
Corporate debt securities consist primarily of investment-grade debt of a wide variety of corporate issuers and industries. The fair values of these securities are generally determined using the spread above the risk-free yield curve. These spreads are generally obtained from the new issue market, secondary trading and broker-dealer quotes. As these spreads and the yields for the risk-free yield curve are observable market inputs, the fair values of our corporate debt securities are classified within Level 2. Where pricing is unavailable from pricing services, we obtain non-binding quotes from broker-dealers to estimate fair value. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. In this event, securities are classified within Level 3.
Agency RMBS
Agency RMBS securities consist of bonds issued by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association. The fair values of these securities are priced using a mortgage pool specific model which uses daily inputs from the active to be announced market and the spread associated with each mortgage pool based on vintage. As the significant inputs are observable market inputs, the fair values of Agency RMBS securities are classified within Level 2.
CMBS
CMBS include mostly investment-grade bonds originated by non-agencies. The fair values of these securities are determined using a pricing model which uses dealer quotes and other available trade information along with security level characteristics to determine deal specific spreads. As the significant inputs are observable market inputs, the fair values of CMBS securities are classified within Level 2. Where pricing is unavailable from pricing services, we obtain non-binding quotes from brokerdealers to estimate fair value. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. These securities are classified within Level 3.
Non-Agency RMBS
Non-Agency RMBS include mostly investment-grade bonds originated by non-agencies. The fair values of these securities are determined using an option adjusted spread model or other relevant models, which use inputs including available trade information or broker quotes, prepayment and default projections based on historical statistics of the underlying collateral and current market data. As the significant inputs are observable market inputs, the fair values of Non-Agency RMBS securities are classified withing Level 2.
ABS
ABS include mostly investment-grade bonds backed by pools of loans with a variety of underlying collateral, including automobile loan receivables, student loans, credit card receivables, and CLO Debt originated by a variety of financial institutions. Similarly to MBS, the fair values of ABS are priced through the use of a model which uses prepayment speeds and spreads sourced primarily from the new issue market. As the significant inputs used to price ABS are observable market inputs, the fair values of ABS are classified within Level 2. Where pricing is unavailable from pricing services, we obtain non-binding quotes from broker-dealers. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. These securities are classified within Level 3.
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Municipals
Our municipal portfolio comprises revenue and general obligation bonds issued by U.S. domiciled state and municipal entities. The fair value of these securities is determined using spreads obtained from broker-dealers, trade prices and the new issue market. As the significant inputs used to price the municipals are observable market inputs, municipals are classified within Level 2.
Equity Securities
Equity securities include common stocks, exchange-traded funds and bond mutual funds. For common stocks and exchange-traded funds, we classified these within Level 1 as their fair values are based on unadjusted quoted market prices in active markets. Our investments in bond mutual funds have daily liquidity, with redemption based on the NAV of the funds. Accordingly, we have classified these investments as Level 2.
Other Investments
As a practical expedient, we estimate fair values for hedge funds, direct lending funds, private equity funds and real estate funds using NAVs as advised by external fund managers or third party administrators. For each of these funds, the NAV is based on the manager's or administrator's valuation of the underlying holdings in accordance with the fund's governing documents and in accordance with U.S. GAAP. For hedge funds, direct lending funds and real estate funds any funds that we have not yet received a NAV concurrent with our period end date, we record an estimate of the change in fair value for the period subsequent to the most recent NAV. Such estimates are based on return estimates for the period between the most recently issued NAV and the period end date, and the inclusion of any subscriptions, redemptions, drawdowns and distributions. Estimates are obtained from the relevant fund managers. Accordingly, we do not typically have a reporting lag in our fair value measurements for these funds. Historically, our valuation estimates incorporating these return estimates have not significantly diverged from the subsequent NAVs. For private equity funds the typical reporting lag is three months before NAV statements are released. We estimate fair value for our private equity funds by starting with the prior quarter-end NAV and adjusting for capital calls, redemptions and distributions.
Within the hedge fund, direct lending fund, real estate fund and private equity fund industries, there is a general lack of transparency necessary to facilitate a detailed independent assessment of the values placed on the securities underlying the NAV provided by the fund manager or fund administrator. To address this, on a quarterly basis, we perform a number of monitoring procedures designed to assist us in the assessment of the quality of the information provided by managers and administrators. These procedures include, but are not limited to, regular review and discussion of each fund's performance with its manager, regular evaluation of fund performance against applicable benchmarks and the backtesting of our fair value estimates against subsequently received NAVs. Backtesting involves comparing our previously reported values for each individual fund against NAVs per audited financial statements (for year-end values) and final NAVs from fund managers and fund administrators (for interim values).
The fair value of our hedge funds, direct lending funds, private equity funds and real estate funds are measured using the NAV practical expedient and therefore have not been categorized with the fair value hierarchy.
At March 31, 2016, our investments in CLO - Equities were classified within Level 3 as we estimated the fair value for these securities using an income approach valuation technique (discounted cash flow model) due to the lack of observable and relevant trades in the secondary markets.
Short-Term Investments
Short-term investments primarily comprise highly liquid securities with maturities greater than three months but less than one year from the date of purchase. These securities are classified within Level 2 because these securities are typically not actively traded due to their approaching maturity and, as such, their amortized cost approximates fair value.
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Derivative Instruments
Our foreign currency forward contracts, interest rate swaps and commodity contracts are customized to our economic hedging strategies and trade in the over-the-counter derivative market. We use the market approach valuation technique to estimate the fair value for these derivatives based on significant observable market inputs from third party pricing vendors, non-binding broker-dealer quotes and/or recent trading activity. Accordingly, we classified these derivatives within Level 2.
We also participate in non-exchange traded derivative-based risk management products addressing weather risks. We use observable market inputs and unobservable inputs in combination with industry or internally-developed valuation and forecasting techniques to determine fair value. We classify these instruments within Level 3.
Insurance-linked Securities
Insurance-linked securities comprise an investment in a catastrophe bond. We obtain non-binding quotes from broker-dealers to estimate fair value. This is generally the case when there is a low volume of trading activity and current transactions are not orderly. These securities are classified within Level 3.
Strategic Investments
Strategic investments comprise investments with our strategic (re)insurance partners. The investments can take the form of convertible preferred shares, convertible notes and notes payable. As all the investments in this category were made during the first quarter of 2016, the cost of these investments is believed to approximate fair value at March 31, 2016. These securities are classified within Level 3.
Cash Settled Awards
Cash settled awards comprise restricted stock units that form part of our compensation program. Although the fair value of these awards is determined using observable quoted market prices in active markets, the stock units themselves are not actively traded. Accordingly, we have classified these liabilities within Level 2.
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The tables below present the financial instruments measured at fair value on a recurring basis for the periods indicated:

|  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Fair value based on NAV practical expedient |  | Total Fair Value |
| At March 31, 2016 |  |  |  |  |  |  |  |  |  |
| Assets |  |  |  |  |  |  |  |  |  |
| Fixed maturities |  |  |  |  |  |  |  |  |  |
| U.S. government and agency | $ | 1,503,841 |  |  | $ | 66,339 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,570,180 |  |
| Non-U.S. government | — |  |  | 720,723 |  |  | — |  |  | — |  |  | 720,723 |  |
| Corporate debt | — |  |  | 4,384,792 |  |  | 40,250 |  |  | — |  |  | 4,425,042 |  |
| Agency RMBS | — |  |  | 2,421,301 |  |  | — |  |  | — |  |  | 2,421,301 |  |
| CMBS | — |  |  | 1,096,133 |  |  | 10,551 |  |  | — |  |  | 1,106,684 |  |
| Non-Agency RMBS | — |  |  | 95,022 |  |  | — |  |  | — |  |  | 95,022 |  |
| ABS | — |  |  | 1,343,150 |  |  | — |  |  | — |  |  | 1,343,150 |  |
| Municipals | — |  |  | 155,966 |  |  | — |  |  | — |  |  | 155,966 |  |
|  | 1,503,841 |  |  | 10,283,426 |  |  | 50,801 |  |  | — |  |  | 11,838,068 |  |
| Equity securities |  |  |  |  |  |  |  |  |  |
| Common stocks | 178 |  |  | — |  |  | — |  |  | — |  |  | 178 |  |
| Exchange-traded funds | 500,668 |  |  | — |  |  | — |  |  | — |  |  | 500,668 |  |
| Bond mutual funds | — |  |  | 136,479 |  |  | — |  |  | — |  |  | 136,479 |  |
|  | 500,846 |  |  | 136,479 |  |  | — |  |  | — |  |  | 637,325 |  |
| Other investments |  |  |  |  |  |  |  |  |  |
| Hedge funds | — |  |  | — |  |  | — |  |  | 587,206 |  |  | 587,206 |  |
| Direct lending funds | — |  |  | — |  |  | — |  |  | 112,889 |  |  | 112,889 |  |
| Private equity funds | — |  |  | — |  |  | — |  |  | 93,783 |  |  | 93,783 |  |
| Real estate funds | — |  |  | — |  |  | — |  |  | 5,390 |  |  | 5,390 |  |
| CLO - Equities | — |  |  | — |  |  | 60,371 |  |  | — |  |  | 60,371 |  |
|  | — |  |  | — |  |  | 60,371 |  |  | 799,268 |  |  | 859,639 |  |
| Short-term investments | — |  |  | 29,540 |  |  | — |  |  | — |  |  | 29,540 |  |
| Other assets |  |  |  |  |  |  |  |  |  |
| Derivative instruments (see Note 5) | — |  |  | 5,980 |  |  | 5,977 |  |  | — |  |  | 11,957 |  |
| Insurance-linked securities | — |  |  | — |  |  | 24,916 |  |  | — |  |  | 24,916 |  |
| Strategic investments | — |  |  | — |  |  | 36,712 |  |  | — |  |  | 36,712 |  |
| Total Assets | $ | 2,004,687 |  |  | $ | 10,455,425 |  |  | $ | 178,777 |  |  | $ | 799,268 |  |  | $ | 13,438,157 |  |
| Liabilities |  |  |  |  |  |  |  |  |  |
| Derivative instruments (see Note 5) | $ | — |  |  | $ | 6,841 |  |  | $ | 15,028 |  |  | $ | — |  |  | $ | 21,869 |  |
| Cash settled awards (see Note 7) | — |  |  | 22,101 |  |  | — |  |  | — |  |  | 22,101 |  |
| Total Liabilities | $ | — |  |  | $ | 28,942 |  |  | $ | 15,028 |  |  | $ | — |  |  | $ | 43,970 |  |

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|  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  | Significant Other Observable Inputs (Level 2) |  | Significant Unobservable Inputs (Level 3) |  | Fair value based on NAV practical expedient |  | Total Fair Value |
| At December 31, 2015 |  |  |  |  |  |  |  |  |  |
| Assets |  |  |  |  |  |  |  |  |  |
| Fixed maturities |  |  |  |  |  |  |  |  |  |
| U.S. government and agency | $ | 1,632,355 |  |  | $ | 19,594 |  |  | $ | — |  |  | $ | — |  |  | $ | 1,651,949 |  |
| Non-U.S. government | — |  |  | 739,005 |  |  | — |  |  | — |  |  | 739,005 |  |
| Corporate debt | — |  |  | 4,324,251 |  |  | 38,518 |  |  | — |  |  | 4,362,769 |  |
| Agency RMBS | — |  |  | 2,249,236 |  |  | — |  |  | — |  |  | 2,249,236 |  |
| CMBS | — |  |  | 1,072,376 |  |  | 10,922 |  |  | — |  |  | 1,083,298 |  |
| Non-Agency RMBS | — |  |  | 101,008 |  |  | — |  |  | — |  |  | 101,008 |  |
| ABS | — |  |  | 1,371,270 |  |  | — |  |  | — |  |  | 1,371,270 |  |
| Municipals | — |  |  | 161,214 |  |  | — |  |  | — |  |  | 161,214 |  |
|  | 1,632,355 |  |  | 10,037,954 |  |  | 49,440 |  |  | — |  |  | 11,719,749 |  |
| Equity securities |  |  |  |  |  |  |  |  |  |
| Common stocks | — |  |  | — |  |  | — |  |  | — |  |  | — |  |
| Exchange-traded funds | 473,973 |  |  | — |  |  | — |  |  | — |  |  | 473,973 |  |
| Bond mutual funds | — |  |  | 124,025 |  |  | — |  |  | — |  |  | 124,025 |  |
|  | 473,973 |  |  | 124,025 |  |  | — |  |  | — |  |  | 597,998 |  |
| Other investments |  |  |  |  |  |  |  |  |  |
| Hedge funds | — |  |  | — |  |  | — |  |  | 656,773 |  |  | 656,773 |  |
| Direct lending funds | — |  |  | — |  |  | — |  |  | 90,120 |  |  | 90,120 |  |
| Private equity funds | — |  |  | — |  |  | — |  |  | — |  |  | — |  |
| Real estate funds | — |  |  | — |  |  | — |  |  | 4,929 |  |  | 4,929 |  |
| CLO - Equities | — |  |  | — |  |  | 27,257 |  |  | 37,677 |  |  | 64,934 |  |
|  | — |  |  | — |  |  | 27,257 |  |  | 789,499 |  |  | 816,756 |  |
| Short-term investments | — |  |  | 34,406 |  |  | — |  |  | — |  |  | 34,406 |  |
| Other assets |  |  |  |  |  |  |  |  |  |
| Derivative instruments (see Note 5) | — |  |  | 2,072 |  |  | 4,395 |  |  | — |  |  | 6,467 |  |
| Insurance-linked securities | — |  |  | — |  |  | 24,925 |  |  | — |  |  | 24,925 |  |
| Strategic investments | — |  |  | — |  |  | — |  |  | — |  |  | — |  |
| Total Assets | $ | 2,106,328 |  |  | $ | 10,198,457 |  |  | $ | 106,017 |  |  | $ | 789,499 |  |  | $ | 13,200,301 |  |
| Liabilities |  |  |  |  |  |  |  |  |  |
| Derivative instruments (see Note 5) | $ | — |  |  | $ | 7,692 |  |  | $ | 10,937 |  |  | $ | — |  |  | $ | 18,629 |  |
| Cash settled awards (see Note 7) | — |  |  | 33,215 |  |  | — |  |  | — |  |  | 33,215 |  |
| Total Liabilities | $ | — |  |  | $ | 40,907 |  |  | $ | 10,937 |  |  | $ | — |  |  | $ | 51,844 |  |

During 2016 and 2015, we had no transfers between Levels 1 and 2.
Level 3 Fair Value Measurements
Except for hedge funds, direct lending funds, private equity funds and real estate funds priced using NAV as a practical expedient and certain fixed maturities and insurance-linked securities priced using broker-dealer quotes (underlying inputs are not available), the following table quantifies the significant unobservable inputs we have used in estimating fair value at March 31, 2016 for our investments classified as Level 3 in the fair value hierarchy.
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|  | Fair Value | Valuation Technique | Unobservable Input | Range | Weighted Average |
| Other investments - CLO - Equities | $ | 39,616 |  | Discounted cash flow | Default rates | 4.0% | 4.0% |
|  |  |  | Loss severity rate | 35.0% - 53.5% | 36.5% |
|  |  |  | Collateral spreads | 3.2% - 4.0% | 3.9% |
|  |  |  | Estimated maturity dates | 3 - 7 years | 7 years |
|  | 20,755 |  | Liquidation value | Fair value of collateral | 100% | 100% |
|  |  |  | Discount margin | 0.7% - 25.9% | 5.5% |
| Derivatives - Weather derivatives, net | $ | (9,051 | ) | Simulation model | Weather curve | 1 - 2331(1) | n/a (2) |
|  |  |  | Weather standard deviation | 1 - 165(1) | n/a (2) |

(1) Measured in Heating Degree Days ("HDD") which is the number of degrees the daily temperature is below a reference temperature. The cumulative HDD for the duration of the derivatives contract is compared to the strike value to determine the necessary settlement.

(2) | Due to the diversity of the portfolio, the range of unobservable inputs can be widespread; therefore, presentation of a weighted average is not useful. Weather parameters may include various temperature and/or precipitation measures that will naturally vary by geographic location of each counterparty's operations.

The CLO - Equities market continues to be mostly inactive with only a small number of transactions being observed in the market and fewer still involving transactions in our CLO - Equities. Accordingly, we rely on the use of models to estimate the fair value of our investments in CLO - Equities. With all of our direct investments in CLO - Equities past the end of their reinvestment period, there is uncertainty over the remaining time until maturity. As such our direct investments in CLO - Equities are valued at the lower of the liquidation value and our internal discounted cash flow modelled estimate of fair value. The liquidation valuation is based on the fair value of the net underlying collateral which is determined by applying market discount margins by credit quality bucket. An increase (decrease) in the market discount margin would result in a decrease (increase) in value of our CLO - Equities. Regarding the discounted cash flow model, the default and loss severity rates are the most judgmental unobservable market inputs to which the valuation of CLO - Equities is most sensitive. A significant increase (decrease) in either of these significant inputs in isolation would result in lower (higher) fair value estimates for direct investments in our CLO - Equities and, in general, a change in default rate assumptions will be accompanied by a directionally similar change in loss severity rate assumptions. Collateral spreads and estimated maturity dates are less judgmental inputs as they are based on the historical average of actual spreads and the weighted average life of
the current underlying portfolios, respectively. A significant increase (decrease) in either of these significant inputs in isolation would result in higher (lower) fair value estimates for direct investments in our CLO - Equities. In general, these inputs have no significant interrelationship with each other or with default and loss severity rates.
On a quarterly basis, our valuation process for CLO - Equities includes a review of the underlying cash flows and key assumptions used in the discounted cash flow model, and a review of the underlying collateral along with related discount margin by credit quality bucket. We review and update the above significant unobservable inputs based on information obtained from secondary markets, including from the managers of the CLOs we hold. These inputs are the responsibility of management and, in order to ensure fair value measurement is applied consistently and in accordance with U.S. GAAP, we update our assumptions through regular communication with industry participants and ongoing monitoring of the deals in which we participate (e.g. default and loss severity rate trends), we maintain a current understanding of the market conditions, historical results, as well as emerging trends that may impact future cash flows. By maintaining this current understanding, we are able to assess the reasonableness of the inputs we ultimately use in our model.
Weather derivatives relate to non-exchange traded risk management products addressing weather risks. We use observable market inputs and unobservable inputs in combination with industry or internally-developed simulation models to determine fair value; these models may reference market price information for similar instruments. The pricing models are internally reviewed by Risk Management personnel prior to implementation and are reviewed periodically thereafter.
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Observable and unobservable inputs to these models vary by contract type and would typically include the following:

• | Observable inputs: market prices for similar instruments, notional, option strike, term to expiry, contractual limits;

• | Unobservable inputs: correlation; and

• | Both observable and unobservable inputs: weather curves, weather standard deviation.

In general, weather curves are the most significant contributing input to fair value determination; changes in this variable can result in higher or lower fair value depending on the underlying position. In addition, changes in any or all of the unobservable inputs identified above may contribute positively or negatively to overall portfolio value. The correlation input will quantify the interrelationship, if any, amongst the other variables.
The following tables present changes in Level 3 for financial instruments measured at fair value on a recurring basis for the periods indicated:

|  | Opening Balance |  | Transfers into Level 3 |  | Transfers out of Level 3 |  | Included in earnings (1) |  | Included in OCI (2) |  | Purchases |  | Sales |  | Settlements/ Distributions |  | Closing Balance |  | Change in unrealized investment gain/(loss) (3) |
| Three months ended March 31, 2016 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Fixed maturities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Corporate debt | $ | 38,518 |  |  | $ | — |  |  | $ | (1,955 | ) |  | $ | 2 |  |  | $ | (76 | ) |  | $ | 5,821 |  |  | $ | (1,910 | ) |  | $ | (150 | ) |  | $ | 40,250 |  |  | $ | — |  |
| CMBS | 10,922 |  |  | — |  |  | — |  |  | — |  |  | (144 | ) |  | — |  |  | — |  |  | (227 | ) |  | 10,551 |  |  | — |  |
| ABS | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |
|  | 49,440 |  |  | — |  |  | (1,955 | ) |  | 2 |  |  | (220 | ) |  | 5,821 |  |  | (1,910 | ) |  | (377 | ) |  | 50,801 |  |  | — |  |
| Other investments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| CLO - Equities | 27,257 |  |  | 36,378 |  |  | — |  |  | (1,016 | ) |  | — |  |  | — |  |  | — |  |  | (2,248 | ) |  | 60,371 |  |  | (1,016 | ) |
|  | 27,257 |  |  | 36,378 |  |  | — |  |  | (1,016 | ) |  | — |  |  | — |  |  | — |  |  | (2,248 | ) |  | 60,371 |  |  | (1,016 | ) |
| Other assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Derivative instruments | 4,395 |  |  | — |  |  | — |  |  | 2,948 |  |  | — |  |  | 1,359 |  |  | — |  |  | (2,725 | ) |  | 5,977 |  |  | 1,479 |  |
| Insurance-linked securities | 24,925 |  |  | — |  |  | — |  |  | (9 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | 24,916 |  |  | (9 | ) |
| Strategic investments | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 36,712 |  |  | — |  |  | — |  |  | 36,712 |  |  | — |  |
|  | 29,320 |  |  | — |  |  | — |  |  | 2,939 |  |  | — |  |  | 38,071 |  |  | — |  |  | (2,725 | ) |  | 67,605 |  |  | 1,470 |  |
| Total assets | $ | 106,017 |  |  | $ | 36,378 |  |  | $ | (1,955 | ) |  | $ | 1,925 |  |  | $ | (220 | ) |  | $ | 43,892 |  |  | $ | (1,910 | ) |  | $ | (5,350 | ) |  | $ | 178,777 |  |  | $ | 454 |  |
| Other liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Derivative instruments | $ | 10,937 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,423 |  |  | $ | — |  |  | $ | (1,025 | ) |  | $ | — |  |  | $ | 1,693 |  |  | $ | 15,028 |  |  | $ | 3,682 |  |
| Total liabilities | $ | 10,937 |  |  | $ | — |  |  | $ | — |  |  | $ | 3,423 |  |  | $ | — |  |  | $ | (1,025 | ) |  | $ | — |  |  | $ | 1,693 |  |  | $ | 15,028 |  |  | $ | 3,682 |  |

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4. | FAIR VALUE MEASUREMENTS (CONTINUED)

|  | Opening Balance |  | Transfers into Level 3 |  | Transfers out of Level 3 |  | Included in earnings (1) |  | Included in OCI (2) |  | Purchases |  | Sales |  | Settlements/ Distributions |  | Closing Balance |  | Change in unrealized investment gain/(loss) (3) |
| Three months ended March 31, 2015 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Fixed maturities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Corporate debt | $ | 15,837 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 180 |  |  | $ | 10,910 |  |  | $ | — |  |  | $ | (70 | ) |  | $ | 26,857 |  |  | $ | — |  |
| CMBS | 17,763 |  |  | — |  |  | — |  |  | — |  |  | (204 | ) |  | — |  |  | — |  |  | (498 | ) |  | 17,061 |  |  | — |  |
| ABS | 40,031 |  |  | — |  |  | — |  |  | — |  |  | 62 |  |  | — |  |  | — |  |  | (172 | ) |  | 39,921 |  |  | — |  |
|  | 73,631 |  |  | — |  |  | — |  |  | — |  |  | 38 |  |  | 10,910 |  |  | — |  |  | (740 | ) |  | 83,839 |  |  | — |  |
| Other investments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| CLO - Equities | 37,046 |  |  | — |  |  | — |  |  | 3,530 |  |  | — |  |  | — |  |  | — |  |  | (3,616 | ) |  | 36,960 |  |  | 3,530 |  |
|  | 37,046 |  |  | — |  |  | — |  |  | 3,530 |  |  | — |  |  | — |  |  | — |  |  | (3,616 | ) |  | 36,960 |  |  | 3,530 |  |
| Other assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Derivative instruments | 111 |  |  | — |  |  | — |  |  | (1,067 | ) |  | — |  |  | — |  |  | — |  |  | 956 |  |  | — |  |  | — |  |
| Insurance-linked securities | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 25,000 |  |  | — |  |  | — |  |  | 25,000 |  |  | — |  |
| Strategic investments | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |
|  | 111 |  |  | — |  |  | — |  |  | (1,067 | ) |  | — |  |  | 25,000 |  |  | — |  |  | 956 |  |  | 25,000 |  |  | — |  |
| Total assets | $ | 110,788 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,463 |  |  | $ | 38 |  |  | $ | 35,910 |  |  | $ | — |  |  | $ | (3,400 | ) |  | $ | 145,799 |  |  | $ | 3,530 |  |
| Other liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Derivative instruments | $ | 15,288 |  |  | $ | — |  |  | $ | — |  |  | $ | (8,551 | ) |  | $ | — |  |  | $ | 1,082 |  |  | $ | — |  |  | $ | (511 | ) |  | $ | 7,308 |  |  | $ | (2,058 | ) |
| Total liabilities | $ | 15,288 |  |  | $ | — |  |  | $ | — |  |  | $ | (8,551 | ) |  | $ | — |  |  | $ | 1,082 |  |  | $ | — |  |  | $ | (511 | ) |  | $ | 7,308 |  |  | $ | (2,058 | ) |

(1) | Gains and losses included in earnings on fixed maturities are included in net realized investment gains (losses). Gains and (losses) included in earnings on other investments are included in net investment income. Gains (losses) on weather derivatives included in earnings are included in other insurance-related income.

(2) | Gains and losses included in other comprehensive income (“OCI”) on fixed maturities are included in unrealized gains (losses) arising during the period.

(3) | Change in unrealized investment gain (loss) relating to assets held at the reporting date.

The transfers into and out of fair value hierarchy levels reflect the fair value of the securities at the end of the reporting period.
Transfers into Level 3 from Level 2
There were no transfers to Level 3 from Level 2 made during the three months ended March 31, 2016 and 2015.
The transfers into Level 3 during the three months ended March 31, 2016 were the result of a change in valuation methodology relating to our CLO equity fund. An income approach valuation technique (discounted cash flow model) is used to estimate fair value at March 31, 2016. As the NAV practical expedient is no longer used the CLO equity fund is now categorized within the fair value hierarchy.
Transfers out of Level 3 into Level 2
The transfers to Level 2 from Level 3 made during the three months ended March 31, 2016 were primarily due to the availability of observable market inputs and quotes from pricing vendors on certain fixed maturities. There were no transfers to Level 2 from Level 3 made during the three months ended March 31, 2015.
Financial Instruments Not Carried at Fair Value
U.S. GAAP guidance over disclosures about the fair value of financial instruments are also applicable to financial instruments not carried at fair value, except for certain financial instruments, including insurance contracts.
The carrying values of cash equivalents (including restricted amounts), accrued investment income, receivable for investments sold, certain other assets, payable for investments purchased and certain other liabilities approximated their fair values at March 31, 2016, due to their respective short maturities. As these financial instruments are not actively traded, their respective fair values are classified within Level 2.
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4. | FAIR VALUE MEASUREMENTS (CONTINUED)

The carrying value of mortgage loans held-for-investment approximated their fair value at March 31, 2016, due to the fact that the loans are within their first year of issue. The estimated fair value of mortgage loans is primarily determined by estimating expected future cash flows and discounting them using current interest rates for similar mortgage loans with similar credit risk, or is determined from pricing for similar loans. Mortgage loans are not actively traded, their respective fair values are classified within Level 3.
At March 31, 2016, our senior notes are recorded at amortized cost with a carrying value of $992 million (2015: $992 million) and have a fair value of $1,068 million (2015: $1,058 million). The fair values of these securities were obtained from a third party pricing service and pricing was based on the spread above the risk-free yield curve. These spreads are generally obtained from the new issue market, secondary trading and broker-dealer quotes. As these spreads and the yields for the risk-free yield curve are observable market inputs, the fair values of our senior notes are classified within Level 2.
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5. | DERIVATIVE INSTRUMENTS

The following table summarizes the balance sheet classification of derivatives recorded at fair values. The notional amount of derivative contracts represents the basis upon which pay or receive amounts are calculated and is presented in the table to quantify the volume of our derivative activities. Notional amounts are not reflective of credit risk.
None of our derivative instruments are designated as hedges under current accounting guidance.

|  | March 31, 2016 |  | December 31, 2015 |
|  | Derivative Notional Amount |  | Derivative Asset Fair Value(1) |  | Derivative Liability Fair Value(1) |  | Derivative Notional Amount |  | Derivative Asset Fair Value(1) |  | Derivative Liability Fair Value(1) |
| Relating to investment portfolio: |  |  |  |  |  |  |  |  |  |  |  |
| Foreign exchange forward contracts | $ | 166,189 |  |  | $ | 592 |  |  | $ | 4,182 |  |  | $ | 198,406 |  |  | $ | 490 |  |  | $ | 837 |  |
| Interest rate swaps | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |
| Relating to underwriting portfolio: |  |  |  |  |  |  |  |  |  |  |  |
| Foreign exchange forward contracts | 643,673 |  |  | 4,839 |  |  | 2,659 |  |  | 692,023 |  |  | 1,582 |  |  | 6,855 |  |
| Weather-related contracts | 27,519 |  |  | 5,977 |  |  | 15,028 |  |  | 51,395 |  |  | 4,395 |  |  | 10,937 |  |
| Commodity contracts | 39,500 |  |  | 549 |  |  | — |  |  | — |  |  | — |  |  | — |  |
| Total derivatives |  |  | $ | 11,957 |  |  | $ | 21,869 |  |  |  |  | $ | 6,467 |  |  | $ | 18,629 |  |

(1) | Asset and liability derivatives are classified within other assets and other liabilities in the Consolidated Balance Sheets.

Offsetting Assets and Liabilities
Our derivative instruments are generally traded under International Swaps and Derivatives Association master netting agreements, which establish terms that apply to all transactions. In the event of a bankruptcy or other stipulated event, master netting agreements provide that individual positions be replaced with a new amount, usually referred to as the termination amount, determined by taking into account market prices and converting into a single currency. Effectively, this contractual close-out netting reduces credit exposure from gross to net exposure. The table below presents a reconciliation of our gross derivative assets and liabilities to the net amounts presented in our Consolidated Balance Sheets, with the difference being attributable to the impact of master netting agreements.

|  | March 31, 2016 |  | December 31, 2015 |
|  | Gross Amounts | Gross Amounts Offset | Net Amounts(1) |  | Gross Amounts | Gross Amounts Offset | Net Amounts(1) |
| Derivative assets | $ | 18,302 |  | $ | (6,345 | ) | $ | 11,957 |  |  | $ | 14,336 |  | $ | (7,869 | ) | $ | 6,467 |  |
| Derivative liabilities | $ | 28,214 |  | $ | (6,345 | ) | $ | 21,869 |  |  | $ | 26,498 |  | $ | (7,869 | ) | $ | 18,629 |  |

(1) | Net asset and liability derivatives are classified within other assets and other liabilities in the Consolidated Balance Sheets.

Refer to Note 3 - Investments for information on reverse repurchase agreements.
Derivative Instruments not Designated as Hedging Instruments
a) Relating to Investment Portfolio
Foreign Currency Risk
Within our investment portfolio we are exposed to foreign currency risk. Accordingly, the fair values for our investment portfolio are partially influenced by the change in foreign exchange rates. We may enter into foreign exchange forward contracts to manage the
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5. | DERIVATIVE INSTRUMENTS (CONTINUED)

effect of this foreign currency risk. These foreign currency hedging activities are not designated as specific hedges for financial reporting purposes.
Interest Rate Risk
Our investment portfolio contains a large percentage of fixed maturities which exposes us to significant interest rate risk. As part of our overall management of this risk, we may use interest rate swaps.
b) Relating to Underwriting Portfolio
Foreign Currency Risk
Our (re)insurance subsidiaries and branches operate in various foreign countries. Consequently, some of our business is written in currencies other than the U.S. dollar and, therefore, our underwriting portfolio is exposed to significant foreign currency risk. We manage foreign currency risk by seeking to match our foreign-denominated net liabilities under (re)insurance contracts with cash and investments that are denominated in such currencies. We may also use derivative instruments, specifically forward contracts and currency options, to economically hedge foreign currency exposures.
Weather Risk
We write derivative-based risk management products designed to address weather risks with the objective of generating profits on a portfolio basis. The majority of this business consists of receiving a payment at contract inception in exchange for bearing the risk of variations in a quantifiable weather-related phenomenon, such as temperature. Where a client wishes to minimize the upfront payment, these transactions may be structured as swaps or collars. In general, our portfolio of such derivative contracts is of short duration, with contracts being predominantly seasonal in nature. In order to economically hedge a portion of this portfolio, we may also purchase weather derivatives.
Commodity Risk
Within our (re)insurance portfolio we are exposed to commodity price risk. We may hedge a portion of this price risk by entering into commodity derivative contracts.
The total unrealized and realized gains (losses) recognized in earnings for derivatives not designated as hedges were as follows:

|  | Location of Gain (Loss) Recognized in Income on Derivative | Three months ended March 31, |
|  | 2016 |  | 2015 |
| Derivatives not designated as hedging instruments |  |  |  |
| Relating to investment portfolio: |  |  |  |  |
| Foreign exchange forward contracts | Net realized investment gains (losses) | $ | (2,520 | ) |  | $ | 6,537 |  |
| Interest rate swaps | Net realized investment gains (losses) | — |  |  | (4,006 | ) |
| Relating to underwriting portfolio: |  |  |  |  |
| Foreign exchange forward contracts | Foreign exchange losses (gains) | 3,202 |  |  | (15,273 | ) |
| Weather-related contracts | Other insurance related income (losses) | (475 | ) |  | 7,342 |  |
| Commodity contracts | Other insurance related income (losses) | 243 |  |  | — |  |
| Total |  | $ | 450 |  |  | $ | (5,400 | ) |

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6. RESERVE FOR LOSSES AND LOSS EXPENSES
The following table presents a reconciliation of our beginning and ending gross reserve for losses and loss expenses and net reserve for unpaid losses and loss expenses for the periods indicated:

| Three months ended March 31, | 2016 |  | 2015 |
| Gross reserve for losses and loss expenses, beginning of period | $ | 9,646,285 |  |  | $ | 9,596,797 |  |
| Less reinsurance recoverable on unpaid losses, beginning of period | (2,031,309 | ) |  | (1,890,280 | ) |
| Net reserve for unpaid losses and loss expenses, beginning of period | 7,614,976 |  |  | 7,706,517 |  |
| Net incurred losses and loss expenses related to: |  |  |  |
| Current year | 569,356 |  |  | 568,394 |  |
| Prior years | (70,394 | ) |  | (56,066 | ) |
|  | 498,962 |  |  | 512,328 |  |
| Net paid losses and loss expenses related to: |  |  |  |
| Current year | (21,740 | ) |  | (23,527 | ) |
| Prior years | (534,532 | ) |  | (474,030 | ) |
|  | (556,272 | ) |  | (497,557 | ) |
| Foreign exchange and other | 87,420 |  |  | (198,705 | ) |
| Net reserve for unpaid losses and loss expenses, end of period | 7,645,086 |  |  | 7,522,583 |  |
| Reinsurance recoverable on unpaid losses, end of period | 2,071,401 |  |  | 1,920,639 |  |
| Gross reserve for losses and loss expenses, end of period | $ | 9,716,487 |  |  | $ | 9,443,222 |  |

Prior year reserve development arises from changes to loss and loss expense estimates recognized in the current year but relating to losses incurred in previous calendar years. Such development is summarized by segment in the following table:

|  | Three months ended March 31, |
|  | 2016 |  | 2015 |
| Insurance | $ | 2,427 |  |  | $ | 3,361 |  |
| Reinsurance | 67,967 |  |  | 52,705 |  |
| Total | $ | 70,394 |  |  | $ | 56,066 |  |

Overall, the majority of the net favorable prior year reserve development in each period related to short-tail lines of business. Net favorable prior year reserve development in motor and liability reinsurance lines in the three months ended March 31, 2016 and 2015 also contributed, with professional reinsurance providing additional favorable loss development in the three months ended March 31, 2015. The net favorable prior year reserve development in the three months ended March 31, 2015 was partially offset by net adverse prior year reserve development in the political risk and liability insurance lines.
The underlying exposures in the property, marine and aviation reserving classes within our insurance segment and the property reserving class within our reinsurance segment largely relate to short-tail business. Development from these classes contributed $48 million and $34 million of the total net favorable prior year reserve development for the three months ended March 31, 2016 and 2015, respectively. The net favorable development for these classes primarily reflected the recognition of better than expected loss emergence.
Our medium-tail business consists primarily of professional insurance and reinsurance lines, credit and political risk insurance lines and credit and surety reinsurance business. In the three months ended March 31, 2016 and March 31, 2015, the reinsurance
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6. | RESERVE FOR LOSSES AND LOSS EXPENSES (CONTINUED)

professional lines contributed net favorable prior year reserve development of $2 million and $20 million, respectively. The favorable prior year development on these lines in the first quarter of 2015 continued to reflect the generally favorable experience on earlier accident years as we continued to transition to more experience based methods on these years. The reduction in the favorable prior year reserve development in the first quarter of 2016 was reflective of the emerging experience on more recent accident years which has generally been more in line with expectations. In the three months ended March 31, 2015, we recorded adverse prior year reserve development of $11 million in our insurance credit and political risk lines relating primarily to an increase in loss estimates for one specific claim.
Our long-tail business consists primarily of liability and motor lines. Our motor and liability reinsurance lines contributed additional net favorable prior year reserve development of $23 million and $19 million in the three months ended March 31, 2016 and March 31, 2015, respectively. The net favorable development for the motor lines related to favorable loss emergence trends on several classes of business spanning multiple accident years. The net favorable development for the liability reinsurance lines primarily reflected the progressively increased weight given by management to experience based indications on older accident years, which has generally been favorable. In the three months ended March 31, 2015, we recorded net adverse prior year reserve development of $11 million in our insurance liability lines related primarily to an increase in loss estimates for one specific claim.
Our March 31, 2016 net reserve for losses and loss expenses includes estimated amounts for numerous catastrophe events. We caution that the magnitude and/or complexity of losses arising from certain of these events, in particular Storm Sandy, the 2011 Japanese earthquake and tsunami, the three New Zealand earthquakes and the Tianjin port explosion, inherently increases the level of uncertainty and, therefore, the level of management judgment involved in arriving at our estimated net reserves for losses and loss expenses. As a result, our actual losses for these events may ultimately differ materially from our current estimates.

7. | SHARE-BASED COMPENSATION

For the three months ended March 31, 2016, we incurred share-based compensation costs of $17 million (2015: $19 million) and recorded associated tax benefits of $4 million (2015: $4 million).
The total fair value of restricted stock, restricted stock units and cash settled awards vested during the three months ended March 31, 2016 was $57 million (2015: $63 million). At March 31, 2016 there were $143 million of unrecognized compensation costs, which are expected to be recognized over the weighted average period of 2.7 years.
Awards to settle in shares
The following table provides a reconciliation of the beginning and ending balance of nonvested restricted stock (including restricted stock units) for the three months ended March 31, 2016:

|  | Performance-based Stock Awards |  | Service-based Stock Awards |
|  | Number of Restricted Stock |  | Weighted Average Grant Date Fair Value |  | Number of Restricted Stock |  | Weighted Average Grant Date Fair Value(1) |
| Nonvested restricted stock - beginning of period | 201 |  |  | $ | 49.24 |  |  | 1,954 |  |  | $ | 43.34 |  |
| Granted | 104 |  |  | 53.80 |  |  | 577 |  |  | 53.83 |  |
| Vested | — |  |  | — |  |  | (714 | ) |  | 38.82 |  |
| Forfeited | — |  |  | — |  |  | (1 | ) |  | 41.89 |  |
| Nonvested restricted stock - end of period | 305 |  |  | $ | 50.79 |  |  | 1,816 |  |  | $ | 48.42 |  |

(1) Fair value is based on the closing price of our common shares on the New York Stock Exchange on the day of the grant.
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7. SHARE-BASED COMPENSATION (CONTINUED)
Cash-settled awards
The following table provides a reconciliation of the beginning and ending balance of nonvested cash settled restricted stock units for the three months ended March 31, 2016:

|  | Performance-based Cash Settled RSUs |  | Service-based Cash Settled RSUs |
|  | Number of Restricted Stock Units |  | Number of Restricted Stock Units |
| Nonvested restricted stock units - beginning of period | 70 |  |  | 1,433 |  |
| Granted | 18 |  |  | 485 |  |
| Vested | — |  |  | (346 | ) |
| Forfeited | — |  |  | (1 | ) |
| Nonvested restricted stock units - end of period | 88 |  |  | 1,571 |  |

At March 31, 2016, the corresponding liability for cash-settled units, included in other liabilities on the Consolidated Balance Sheets, was $22 million (2015: $13 million).

8. | EARNINGS PER COMMON SHARE

The following table sets forth the comparison of basic and diluted earnings per common share:

|  | Three months ended March 31, |
|  | 2016 |  | 2015 |
| Basic earnings per common share |  |  |  |
| Net income | $ | 48,386 |  |  | $ | 165,825 |  |
| Less: preferred share dividends | 9,969 |  |  | 10,022 |  |
| Net income available to common shareholders | 38,417 |  |  | 155,803 |  |
| Weighted average common shares outstanding - basic(1) | 94,035 |  |  | 99,910 |  |
| Basic earnings per common share | $ | 0.41 |  |  | $ | 1.56 |  |
| Diluted earnings per common share |  |  |  |
| Net income available to common shareholders | $ | 38,417 |  |  | $ | 155,803 |  |
| Weighted average common shares outstanding - basic(1) | 94,035 |  |  | 99,910 |  |
| Share based compensation plans | 818 |  |  | 1,229 |  |
| Weighted average common shares outstanding - diluted(1) | 94,853 |  |  | 101,139 |  |
| Diluted earnings per common share | $ | 0.41 |  |  | $ | 1.54 |  |
| Anti-dilutive shares excluded from the dilutive computation | 670 |  |  | 569 |  |

(1) | On August 17, 2015, the Company entered into an Accelerated Share Repurchase (“ASR”) agreement (see 'Note 9 - Shareholders' Equity' for additional detail). The weighted-average number of shares outstanding used in the computation of basic and diluted earnings per share reflects the Company’s receipt of 4,149,378 common shares delivered to the Company on August 20, 2015, and 1,358,380 common shares delivered to the company on January 15, 2016 under the Company's ASR agreement.

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9. SHAREHOLDERS' EQUITY
The following table presents our common shares issued and outstanding:

|  | Three months ended March 31, |
|  | 2016 |  | 2015 |
| Shares issued, balance at beginning of period | 176,240 |  |  | 175,478 |  |
| Shares issued | 316 |  |  | 712 |  |
| Total shares issued at end of period | 176,556 |  |  | 176,190 |  |
| Treasury shares, balance at beginning of period | (80,174 | ) |  | (76,052 | ) |
| Shares repurchased | (3,910 | ) |  | (290 | ) |
| Shares reissued from treasury | 431 |  |  | 371 |  |
| Total treasury shares at end of period | (83,653 | ) |  | (75,971 | ) |
| Total shares outstanding | 92,903 |  |  | 100,219 |  |

Treasury Shares
The following table presents our share repurchases:

|  | Three months ended March 31, |
|  | 2016 |  | 2015 |
| In the open market: |  |  |  |
| Total shares(1) | 3,704 |  |  | 16 |  |
| Total cost | $ | 185,000 |  |  | $ | 832 |  |
| Average price per share(2) | $ | 49.94 |  |  | $ | 50.69 |  |
| From employees: |  |  |  |
| Total shares | 206 |  |  | 274 |  |
| Total cost | $ | 11,011 |  |  | $ | 13,939 |  |
| Average price per share(2) | $ | 53.45 |  |  | $ | 50.97 |  |
| Total shares repurchased: |  |  |  |
| Total shares | 3,910 |  |  | 290 |  |
| Total cost | $ | 196,011 |  |  | $ | 14,771 |  |
| Average price per share(2) | $ | 50.13 |  |  | $ | 50.95 |  |

(1) Amounts in 2016 include 1,358,380 common shares acquired under the accelerated share repurchase program (see below for more detail).
(2) Calculated using whole figures.
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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

9. | SHAREHOLDERS' EQUITY (CONTINUED)

Accelerated Share Repurchase Program
On August 17, 2015, the Company entered into an Accelerated Share Repurchase agreement with Goldman, Sachs & Co. (“Goldman Sachs”) to repurchase an aggregate of $300 million of the Company’s ordinary shares under an accelerated share repurchase program.
During August, 2015, under the terms of this agreement, the Company paid $300 million to Goldman Sachs and initially repurchased 4,149,378 ordinary shares. The initial shares acquired represented 80% of the $300 million total paid to Goldman Sachs and were calculated using the Company’s stock price at activation of the program. The ASR program is accounted for as an equity transaction. Accordingly, as at December 31, 2015, $240 million of common shares repurchased were included as treasury shares in the Consolidated Balance Sheet with the remaining $60 million included as a reduction to additional paid-in capital.
On January 15, 2016, Goldman Sachs early terminated the ASR agreement and delivered 1,358,380 additional common shares to the Company, resulting in the reduction from additional paid-in capital of $60 million being reclassified to treasury shares. In total, the Company repurchased 5,507,758 common shares under the ASR agreement at an average price of 54.47.
Series B Preferred Shares
On January 27, 2016 we redeemed the remaining 28,430 Series B preferred shares, for an aggregate liquidation preference of
$3 million.

10. | COMMITMENTS AND CONTINGENCIES

Reinsurance Agreements
We purchase reinsurance coverage for various lines of our business. The minimum reinsurance premiums are contractually due in advance on a quarterly basis. Accordingly at March 31, 2016, we have outstanding reinsurance purchase commitments of $36 million, of which $35 million is due in 2016 while the remaining $1 million is due in 2017. Actual payments under the reinsurance contracts will depend on the underlying subject premium and may exceed the minimum premium.
Investments
At March 31, 2016, we have a $20 million commitment to purchase commercial mortgage loans.
Refer 'Note 3 - Investments' for information on commitments related to our other investments.
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AXIS CAPITAL HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
11. OTHER COMPREHENSIVE INCOME
The tax effects allocated to each component of other comprehensive income were as follows:

|  | 2016 |  | 2015 |
|  | Before Tax Amount |  | Tax Expense |  | Net of Tax Amount |  | Before Tax Amount |  | Tax (Expense) Benefit |  | Net of Tax Amount |
| Three months ended March 31, |  |  |  |  |  |  |  |  |  |  |  |
| Available for sale investments: |  |  |  |  |  |  |  |  |  |  |  |
| Unrealized investment gains (losses) arising during the period | $ | 148,831 |  |  | $ | (10,197 | ) |  | $ | 138,634 |  |  | $ | 5,063 |  |  | $ | (10,250 | ) |  | $ | (5,187 | ) |
| Adjustment for reclassification of net realized investment losses and OTTI losses recognized in net income | 63,992 |  |  | (4,711 | ) |  | 59,281 |  |  | 45,098 |  |  | 6 |  |  | 45,104 |  |
| Unrealized investment gains arising during the period, net of reclassification adjustment | 212,823 |  |  | (14,908 | ) |  | 197,915 |  |  | 50,161 |  |  | (10,244 | ) |  | 39,917 |  |
| Non-credit portion of OTTI losses | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |
| Foreign currency translation adjustment | 8,196 |  |  | — |  |  | 8,196 |  |  | (11,413 | ) |  | — |  |  | (11,413 | ) |
| Total other comprehensive income | $ | 221,019 |  |  | $ | (14,908 | ) |  | $ | 206,111 |  |  | $ | 38,748 |  |  | $ | (10,244 | ) |  | $ | 28,504 |  |

Reclassifications out of AOCI into net income available to common shareholders were as follows:

|  |  | Amount Reclassified from AOCI(1) |
| Details About AOCI Components | Consolidated Statement of Operations Line Item That Includes Reclassification | Three months ended March 31, |
| 2016 |  | 2015 |
| Unrealized gains (losses) on available for sale investments |  |  |  |  |
|  | Other realized investment losses | $ | (54,263 | ) |  | $ | (27,530 | ) |
|  | OTTI losses | (9,729 | ) |  | (17,568 | ) |
|  | Total before tax | (63,992 | ) |  | (45,098 | ) |
|  | Income tax (expense) benefit | 4,711 |  |  | (6 | ) |
|  | Net of tax | $ | (59,281 | ) |  | $ | (45,104 | ) |

(1) | Amounts in parentheses are debits to net income available to common shareholders.

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ITEM 2. | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis of our financial condition and results of operations. This should be read in conjunction with the consolidated financial statements and related notes included in Item 1 of this report and also our Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2015. Tabular dollars are in thousands, except per share amounts. Amounts in tables may not reconcile due to rounding differences.

| Page
First Quarter 2016 Financial Highlights | 40
Executive Summary | 41
Underwriting Results – Group | 45
Results by Segment: For the three months ended March 31, 2016 and 2015 | 51
i) Insurance Segment | 51
ii) Reinsurance Segment | 54
Other Expenses (Revenues), Net | 56
Net Investment Income and Net Realized Investment Gains (Losses) | 57
Cash and Investments | 59
Liquidity and Capital Resources | 62
Critical Accounting Estimates | 64
New Accounting Standards | 64
Off-Balance Sheet and Special Purpose Entity Arrangements | 64
Non-GAAP Financial Measures | 64

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FIRST QUARTER 2016 FINANCIAL HIGHLIGHTS

First Quarter 2016 Consolidated Results of Operations

• | Net income available to common shareholders of $38 million, or $0.41 per common share and $0.41 per diluted common share

• | Operating income of $101 million, or $1.07 per diluted common share(1)

• | Gross premiums written of $2.0 billion

• | Net premiums written of $1.7 billion

• | Net premiums earned of $902 million

• | Net favorable prior year reserve development of $70 million

• | Low level of catastrophe and weather-related pre-tax net losses

• | Underwriting income of $99 million and combined ratio of 91.9%

• | Net investment income of $49 million

• | Net realized investment losses of $67 million

First Quarter 2016 Consolidated Financial Condition

• | Total cash and investments of $14.6 billion; fixed maturities, cash and short-term securities comprise 88% of total cash and investments and have an average credit rating of AA-

• | Total assets of $21.0 billion

• | Reserve for losses and loss expenses of $9.7 billion and reinsurance recoverable of $2.1 billion

• | Total debt of $1.0 billion and the debt to total capital ratio of 14.3%

• | Repurchased 3.9 million common shares, including 2.5 million of common shares repurchased for a total of $136 million and 1.4 million common shares acquired under an Accelerated Share Repurchase agreement ("ASR") which terminated on January 15, 2016. At April 28, 2016 the remaining authorization under the repurchase program approved by our Board of Directors was $625 million

• | Common shareholders’ equity of $5.3 billion and diluted book value per common share of $56.04

(1) | Operating income is a non-GAAP financial measure as defined in SEC Regulation G. Refer ‘Non-GAAP Financial Measures’ for reconciliation to nearest GAAP financial measure (net income available to common shareholders).

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EXECUTIVE SUMMARY

Business Overview
We are a Bermuda-based global provider of specialty lines insurance and treaty reinsurance products with operations in Bermuda, the United States, Europe, Singapore, Canada, Latin America and the Middle East. Our underwriting operations are organized around our two global underwriting platforms, AXIS Insurance and AXIS Re.
Our mission is to provide our clients and distribution partners with a broad range of risk transfer products and services and meaningful capacity, backed by significant financial strength. We manage our portfolio holistically, aiming to construct the optimum consolidated portfolio of funded and unfunded risks, consistent with our risk appetite and development of our franchise. We nurture an ethical, entrepreneurial and disciplined culture that promotes outstanding client service, intelligent risk taking and the achievement of superior risk-adjusted returns for our shareholders. We believe that the achievement of our objectives will position us as a global leader in specialty risks. Our execution on this strategy in the first three months of 2016 included:

• | continued rebalancing of our portfolio towards less-volatile lines of business that carry attractive rates;

• | increased use of available reinsurance and retrocessional protection to optimize the risk-adjusted returns on our portfolio;

• | continued expansion of our third-party capital capabilities through AXIS Ventures Reinsurance Limited which was launched to manage capital for investors interested in deploying funds directly into the property-catastrophe and other short-tail business;

• | growth of our Weather and Commodity Markets business unit which offers parametric risk management solutions to clients whose profit margins are exposed to adverse weather and commodity price risks;

• | growth of our syndicate at Lloyd's which provides us with access to Lloyd's worldwide licenses and an extensive distribution network. During the first quarter of 2016 we commenced writing business through our underwriting division at Lloyd's in China; and

• | continued growth of our accident and health line, which launched in 2010 and is focused on specialty accident and health products.

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Results of Operations

|  | Three months ended March 31, |
|  | 2016 |  | % Change |  | 2015 |
| Underwriting income: |  |  |  |  |  |
| Insurance | $ | 17,436 |  |  | 83% |  | $ | 9,550 |  |
| Reinsurance | 81,515 |  |  | (11%) |  | 91,240 |  |
| Net investment income | 49,164 |  |  | (47%) |  | 92,107 |  |
| Net realized investment losses | (66,508 | ) |  | 56% |  | (42,553 | ) |
| Other revenues (expenses), net | (33,221 | ) |  | nm |  | 15,481 |  |
| Net income | 48,386 |  |  | (71%) |  | 165,825 |  |
| Preferred share dividends | (9,969 | ) |  | (1%) |  | (10,022 | ) |
| Net income available to common shareholders | $ | 38,417 |  |  | (75%) |  | $ | 155,803 |  |
| Operating income | $ | 101,274 |  |  | (26%) |  | $ | 136,071 |  |

nm – not meaningful
Underwriting Results
Total underwriting income in the three months ended March 31, 2016 was $99 million, a decrease of $2 million compared to $101 million in the three months ended March 31, 2015. The modest decrease in underwriting income was primarily driven by an increase in the acquisition cost ratio, a reduction in other insurance related income and increased weather-related losses, which was largely offset by an increase in prior year development, a decrease in the current accident year loss ratio excluding weather-related losses and lower general and administrative expenses.
The reinsurance segment underwriting income decreased by $10 million in the three months ended March 31, 2016, compared to the three months ended March 31, 2015. The decrease in underwriting income was driven by a reduction in other insurance related income which primarily reflects the results of our weather and commodities derivative business. In addition, the decrease in segment underwriting income was due to an increase in acquisition costs, which were impacted by adjustments for loss-sensitive features in reinsurance contracts and higher commissions paid in certain lines of business, and increases in the current accident year loss ratio, reflecting changes in the business mix and the impact of rates and loss trends. These reductions in underwriting income were partially offset by an increase in favorable prior year development and a decrease in general and administrative expenses.
The insurance segment underwriting income increased by $8 million in the three months ended March 31, 2016, compared to the three months ended March 31, 2015. The increase was primarily due to a decrease in the current accident year loss ratio, following an improvement in the mid-size loss experience in our marine and property lines, a reduction in the acquisition cost ratio and lower general and administrative expenses.
Net Investment Income
Net investment income was $49 million in the three months ended March 31, 2016, a decrease of $43 million from $92 million in the three months ended March 31, 2015. The decrease was primarily driven by our other investments; these investments generated a loss of $27 million this quarter, compared to a gain of $31 million in the first quarter of 2015. Other investments were impacted by the poor performance of our hedge funds with two hedge funds in particular performing very poorly in the volatile global equity markets experienced during the first quarter of 2016.
Net Realized Investment Gains (Losses)
During the three months ended March 31, 2016, we realized losses of $67 million, compared to realized losses of $43 million for the same period of 2015. The losses were mainly attributable to foreign currency losses on non-U.S. denominated securities as a result of the strengthening of the U.S. dollar and by other-than-temporary impairment (“OTTI”) charges. The comparative period in 2015 reflected losses related to the same factors. OTTI charges were $10 million for the three months ended March 31, 2016, compared to $18 million for the same period in 2015.
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Other Revenues (Expenses), Net
Appreciation of various currencies against the U.S dollar, partially offset by depreciation of the sterling against the U.S dollar resulted in a foreign exchange loss of $1 million in the three months ended March 31, 2016. In the three months ended March 31, 2015, depreciation of the euro and sterling against the U.S. Dollar was the primary driver of a foreign exchange gain of $63 million.
Corporate expenses decreased from $36 million in the three months ended March 31, 2015 to $26 million in the three months ended March 31, 2016. The quarterly decrease in corporate expenses was primarily attributable to non-recurring expenses incurred in the first quarter of 2015, including expenses related to the proposed amalgamation with PartnerRe and certain lease cancellation costs.
Our effective tax rate, which is calculated as income tax expense (benefit) divided by net income (loss) before tax, was (15.6)% in the three months ended March 31, 2016 compared to (0.4)% in the same period of 2015. The effective tax rate can vary between periods depending on the distribution of net income amongst tax jurisdictions, as well as other factors. The tax benefit in 2016 was primarily driven by realized investment losses in the United States and the reduction of a valuation allowance on European foreign tax credit carry forwards while the tax benefit in 2015 was the result of underwriting losses borne by our operations in the United States.
Outlook
Competitive conditions continue to impact the insurance markets with pricing pressures affecting most markets. Consistent with prior quarters, we observed the greatest pressure in the catastrophe exposed property and certain global specialty lines of business, with large accounts more competitive than smaller risks. While these competitive pressures have led to price reductions across most of lines of business, with decreases in the international markets generally more severe than those in the United States, we are beginning to see some moderation in the price decreases compared to prior periods. In response to these challenging market conditions, we continue to voluntarily reduce business where our profitability requirements are no longer met and actively pursue more attractive business. Where necessary we also continue to shift our business mix toward smaller accounts in order to achieve a better, more stable attritional experience with lower severity.
The reinsurance markets continue to be affected by the excess capacity which has shaped markets over a number of quarters, and conditions remain very challenging in the majority of lines of business and geographical regions. However, we have recently begun to observe resistance to irrational rate reductions in certain lines of business which was coupled with an increase in the number of cedants looking to buy more reinsurance protection. This has led to some moderation of pricing pressures and increased the resistance to cedant demands for greater commission rates and more generous terms and conditions. While overall the reinsurance markets remain very competitive, we are optimistic that the current year may approach a floor in pricing for many lines and markets, with some market disruptions creating opportunities for long-term, stable and credible market participants such as AXIS Capital.
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Financial Measures
We believe the following financial indicators are important in evaluating our performance and measuring the overall growth in value generated for our common shareholders:

|  | Three months ended and at March 31, |
|  | 2016 |  | 2015 |
| ROACE (annualized)(1) | 2.9 | % |  | 11.8 | % |
| Operating ROACE (annualized)(2) | 7.7 | % |  | 10.3 | % |
| DBV per common share(3) | $ | 56.04 |  |  | $ | 51.97 |  |
| Cash dividends declared per common share | $ | 0.35 |  |  | $ | 0.29 |  |
| Increase in diluted book value per common share adjusted for dividends | $ | 2.31 |  |  | $ | 1.63 |  |

(1) | Return on average common equity (“ROACE”) is calculated by dividing annualized net income available to common shareholders for the period by the average shareholders’ equity determined by using the common shareholders’ equity balances at the beginning and end of the period.

(2) | Operating ROACE is calculated by dividing annualized operating income for the period by the average common shareholders’ equity determined by using the common shareholders’ equity balances at the beginning and end of the period. Annualized operating ROACE is a non-GAAP financial measure as defined in SEC Regulation G. Refer ‘Non-GAAP Financial Measures’ for additional information and reconciliation to the nearest GAAP financial measure (ROACE).

(3) | Diluted book value (“DBV”) per common share represents total common shareholders’ equity divided by the number of common shares and diluted common share equivalents outstanding, determined using the treasury stock method. Cash settled awards are excluded from the denominator.

Return on Equity
The decrease in ROACE in the three months ended March 31, 2016, compared to the three months ended March 31, 2015, was primarily driven by the decrease in foreign exchange gains and net investment income and the increase in net realized investment losses in the three months ended March 31, 2016 compared to the same period in 2015.
The decrease in operating ROACE for the three months ended March 31, 2016, compared to the three months ended March 31, 2015 was driven by the decrease in net investment income in the three months ended March 31, 2016 compared to the same period in 2015 which was partially offset by a decrease in corporate expenses. The decrease in operating ROACE was less pronounced compared to the decrease in ROACE primarily due to the exclusion of the foreign exchange gains (losses) and realized investment losses from the operating ROACE measure.
Diluted Book Value per Common Share
Our DBV per common share increase of 8% from $51.97 at March 31, 2015, to $56.04 at March 31, 2016, primarily reflected the generation of $484 million in net income available to common shareholders over the past twelve months and the increase over the last twelve months in unrealized gains on investments which are included in accumulated other comprehensive income, which was partially offset by common share dividends declared.
Diluted Book Value per Common Share Adjusted for Dividends
Taken together, we believe that growth in diluted book value per common share and common share dividends declared represent the total value created for our common shareholders. As companies in the insurance industry have differing dividend payout policies, we believe investors use the DBV per common share adjusted for dividends metric to measure comparable performance across the industry.
During the three months ended March 31, 2016, total value created consisted primarily of an increase in unrealized gains on investments, reported in accumulated other comprehensive income, and our net income.
During the three months ended March 31, 2015, total value created consisted primarily of our net income and increases in the unrealized gains on investments, which were partially offset by foreign exchange losses included in the cumulative foreign currency translation adjustments.
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UNDERWRITING RESULTS – GROUP

The following table provides our group underwriting results for the periods indicated. Underwriting income is a pre-tax measure of underwriting profitability that takes into account net premiums earned and other insurance related income as revenues and net losses and loss expenses, acquisition costs and underwriting-related general and administrative costs as expenses.

|  | Three months ended March 31, |
|  | 2016 |  | % Change |  | 2015 |
| Revenues: |  |  |  |  |  |
| Gross premiums written | $ | 1,959,161 |  |  | 17% |  | $ | 1,678,932 |  |
| Net premiums written | 1,685,806 |  |  | 16% |  | 1,455,546 |  |
| Net premiums earned | 902,340 |  |  | —% |  | 904,053 |  |
| Other insurance related income | (203 | ) |  | nm |  | 7,676 |  |
| Expenses: |  |  |  |  |  |
| Current year net losses and loss expenses | (569,356 | ) |  |  |  | (568,394 | ) |
| Prior year reserve development | 70,394 |  |  |  |  | 56,066 |  |
| Acquisition costs | (180,635 | ) |  |  |  | (171,542 | ) |
| Underwriting-related general and administrative |  |  |  |  |  |
| expenses(1) | (123,589 | ) |  |  |  | (127,069 | ) |
| Underwriting income(2) | $ | 98,951 |  |  | (2%) |  | $ | 100,790 |  |
| General and administrative expenses(1) | $ | 149,901 |  |  |  |  | $ | 163,241 |  |
| Income before income taxes(2) | $ | 41,846 |  |  |  |  | $ | 165,135 |  |

nm – not meaningful

(1) | Underwriting-related general and administrative expenses is a non-GAAP measure as defined in SEC Regulation G. Our total general and administrative expenses also included corporate expenses of $26,312 and $36,172 for the three months ended March 31, 2016 and 2015, respectively; refer to 'Other Expenses (Revenues), Net' for additional information related to these corporate expenses. Also, refer 'Non-GAAP Financial Measures' for further information.

(2) | Group (or consolidated) underwriting income is a non-GAAP financial measure as defined in SEC Regulation G. Refer to Item 1, Note 2 to the Consolidated Financial Statements for a reconciliation of consolidated underwriting income to the nearest GAAP financial measure (income before income taxes) for the periods indicated above. Refer 'Non-GAAP Financial Measures' for additional information related to the presentation of consolidated underwriting income.

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UNDERWRITING REVENUES
Premiums Written:
Gross and net premiums written, by segment, were as follows:

|  | Gross Premiums Written |
|  | Three months ended March 31, |
|  | 2016 |  | % Change |  | 2015 |
| Insurance | $ | 653,349 |  |  | 8% |  | $ | 602,724 |  |
| Reinsurance | 1,305,812 |  |  | 21% |  | 1,076,208 |  |
| Total | $ | 1,959,161 |  |  | 17% |  | $ | 1,678,932 |  |
| % ceded |  |  |  |  |  |
| Insurance | 28% |  | — |  | 28% |
| Reinsurance | 7% |  | 2 pts |  | 5% |
| Total | 14% |  | 1 pts |  | 13% |
|  | Net Premiums Written |
|  | Three months ended March 31, |
|  | 2016 |  | % Change |  | 2015 |
| Insurance | $ | 473,163 |  |  | 8% |  | $ | 436,740 |  |
| Reinsurance | 1,212,643 |  |  | 19% |  | 1,018,806 |  |
| Total | $ | 1,685,806 |  |  | 16% |  | $ | 1,455,546 |  |

Gross premiums written in the three months ended March 31, 2016, increased by $280 million or 17% (on a constant currency basis, premiums increased 20%) compared to the three months ended March 31, 2015 due to increases in both our reinsurance and insurance segments.
The increase in the reinsurance segment gross written premiums in the three months ended March 31, 2016, compared to the same period of 2015 was impacted by the increase in the level of premiums written on a multi-year basis during the first quarter of 2016 compared to 2015, most notably in our credit and surety and liability lines. This increase was partially offset by foreign exchange movements as the strength of the U.S. dollar drove comparative premium decreases in treaties denominated in foreign currencies. After adjusting for the impact of the multi-year contracts and foreign exchange movements, our gross premiums written increased by $192 million. The increase was primarily driven by our marine and other, liability, motor and professional lines. The increase in our marine and other lines was due to a new large pro-rata marine treaty. The increase in the liability lines was due to new business and the timing of a large pro-rata treaty. The increase in our motor lines was due to new business and increased participations, partially offset by favorable premium adjustments recorded in the prior year that were not repeated in the current quarter. The increase in professional lines was primarily due to timing differences.
Our insurance segment's gross written premiums increased by $51 million in the three months ended March 31, 2016, compared to the same period of 2015. The increase was attributable to our accident and health, property and aviation lines. The increases in our accident and health and property lines were primarily driven by new business. The increase in the aviation lines was driven by timing differences. These increases were partially offset by a decrease in the marine and professional lines. The decrease in marine lines was driven by lower rates and timing differences. The reduction in professional lines was primarily driven by the exit of certain lines of business announced during 2015, which reduced premiums written in our Australian business.
In the three months ended March 31, 2016, the ceded gross written premium ratio increased by 1%, compared to the three months ended March 31, 2015, with the increase driven by the reinsurance segment due to increased reinsurance retrocessions in the property and catastrophe lines.
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Net Premiums Earned:
Net premiums earned by segment were as follows:

|  | Three months ended March 31, |  |  |
|  | 2016 |  |  |  | 2015 |  |  |  | % Change |
| Insurance | $ | 438,678 |  |  | 49 | % |  | $ | 447,467 |  |  | 49 | % |  | (2%) |
| Reinsurance | 463,662 |  |  | 51 | % |  | 456,586 |  |  | 51 | % |  | 2% |
| Total | $ | 902,340 |  |  | 100 | % |  | $ | 904,053 |  |  | 100 | % |  | —% |

Changes in net premiums earned reflect period to period changes in net premiums written and business mix, together with normal variability in premium earning patterns.
Net premiums earned were flat (increased by 3% on a constant currency basis) in the three months ended March 31, 2016, compared to the same period in 2015. A reduction in the insurance segment was offset by increases in the reinsurance segment.
The decrease in the insurance segment was primarily driven by a reduction in the professional lines, due to an increase in ceded premiums, and marine lines. These decreases were largely offset by an increase in business written in the accident and health lines in recent periods.
The increase in the reinsurance segment was driven by increased business in the marine and other and liability lines in recent periods, partially offset by increased reinsurance retrocessions in the property and catastrophe lines.
Other Insurance Related Income (Loss):
The decrease in other insurance related income of $8 million in the three months ended March 31, 2016, compared to the same period in 2015, primarily reflected the favorable impact of realized gains and mark-to-market adjustments on the reinsurance segment's weather and commodities derivative business in the first quarter of 2015 compared to an immaterial impact of this business in the first quarter of 2016.
UNDERWRITING EXPENSES
The following table provides a breakdown of our combined ratio:

|  | Three months ended March 31, |
|  | 2016 |  | % Point Change |  | 2015 |
| Current accident year loss ratio | 63.1 | % |  | 0.2 |  | 62.9 | % |
| Prior year reserve development | (7.8 | %) |  | (1.6) |  | (6.2 | %) |
| Acquisition cost ratio | 20.0 | % |  | 1.0 |  | 19.0 | % |
| General and administrative expense ratio(1) | 16.6 | % |  | (1.4) |  | 18.0 | % |
| Combined ratio | 91.9 | % |  | (1.8) |  | 93.7 | % |

(1) | The general and administrative expense ratio includes corporate expenses not allocated to reportable segments of 2.9% and 4.0% for the three months ended March 31, 2016 and 2015, respectively. These costs are further discussed in the ‘Other Expenses (Revenues), Net’ section.

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Current Accident Year Loss Ratio:
The current accident year loss ratio increased to 63.1% in the three months ended March 31, 2016, from 62.9% in the three months ended March 31, 2015. In the three months ended March 31, 2016, we incurred weather-related losses of $14 million. Comparatively, in the three months ended March 31, 2015, we incurred weather-related losses of $8 million. After adjusting for these losses our current accident year loss ratio for the quarter ended March 31, 2016, decreased due to improved mid-size loss experience in our insurance marine and property lines, which was partially offset by the impact of rate and loss trends and changes in the business mix.
Prior Year Reserve Development:
Our favorable prior year reserve development was the net result of several underlying reserve developments on prior accident years, identified during our quarterly reserve review process. The following table provides a breakdown of prior year reserve development by segment:

|  | Three months ended March 31, |
|  | 2016 |  | 2015 |
| Insurance | $ | 2,427 |  |  | $ | 3,361 |  |
| Reinsurance | 67,967 |  |  | 52,705 |  |
| Total | $ | 70,394 |  |  | $ | 56,066 |  |

Overview
Overall, the majority of the net favorable prior year reserve development in each period related to short-tail lines of business. Net favorable prior year reserve development in motor and liability reinsurance lines in the three months ended March 31, 2016 and 2015 also contributed, with professional reinsurance providing additional favorable loss development in the three months ended March 31, 2015. The net favorable prior year reserve development in the three months ended March 31, 2015 was partially offset by net adverse prior year reserve development in the political risk and liability insurance lines.
The underlying exposures in the property, marine and aviation reserving classes within our insurance segment and the property reserving class within our reinsurance segment largely relate to short-tail business. Development from these classes contributed $48 million and $34 million of the total net favorable prior year reserve development for the three months ended March 31, 2016 and 2015, respectively. The net favorable development for these classes primarily reflected the recognition of better than expected loss emergence.
Our medium-tail business consists primarily of professional insurance and reinsurance lines, credit and political risk insurance lines and credit and surety reinsurance business. In the three months ended March 31, 2016 and March 31, 2015, the reinsurance professional lines contributed net favorable prior year reserve development of $2 million and $20 million, respectively. The favorable prior year development on these lines in the first quarter of 2015 continued to reflect the generally favorable experience on earlier accident years as we continued to transition to more experience based methods on these years. The reduction in the favorable prior year reserve development in the first quarter of 2016 was reflective of the emerging experience on more recent accident years which has generally been more in line with expectations. In the three months ended March 31, 2015, we recorded adverse prior year reserve development of $11 million in our insurance credit and political risk lines relating primarily to an increase in loss estimates for one specific claim.
Our long-tail business consists primarily of liability and motor lines. Our motor and liability reinsurance lines contributed additional net favorable prior year reserve development of $23 million and $19 million in the three months ended March 31, 2016 and March 31, 2015, respectively. The net favorable development for the motor lines related to favorable loss emergence trends on several classes of business spanning multiple accident years. The net favorable development for the liability reinsurance lines primarily reflected the progressively increased weight given by management to experience based indications on older accident years, which has generally been favorable. In the three months ended March 31, 2015, we recorded net adverse prior year reserve development of $11 million in our insurance liability lines related primarily to an increase in loss estimates for one specific claim.
We caution that conditions and trends that impacted the development of our liabilities in the past may not necessarily occur in the future.
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Estimates of Significant Catastrophe Events
Our March 31, 2016 net reserve for losses and loss expenses includes estimated amounts for numerous catastrophe events. We caution that the magnitude and/or complexity of losses arising from certain of these events, in particular Storm Sandy, the 2011 Japanese earthquake and tsunami, the three New Zealand earthquakes and the Tianjin port explosion, inherently increases the level of uncertainty and, therefore, the level of management judgment involved in arriving at our estimated net reserves for losses and loss expenses. As a result, our actual losses for these events may ultimately differ materially from our current estimates.
Our estimated net losses in relation to the catastrophe events described above were derived from ground-up assessments of our in-force contracts and treaties providing coverage in the affected regions. These assessments take into account the latest information available from clients, brokers and loss adjusters. In addition, we consider industry insured loss estimates, market share analyses and catastrophe modeling analyses, when appropriate. Our estimates remain subject to change, as additional loss data becomes available.
The following sections provide further details on prior year reserve development by segment, reserving class and accident year.
Insurance Segment:

|  | Three months ended March 31, |
|  | 2016 |  | 2015 |
| Property and other | $ | 3,060 |  |  | $ | 16,523 |  |
| Marine | 416 |  |  | 8,810 |  |
| Aviation | 964 |  |  | 242 |  |
| Credit and political risk | (179 | ) |  | (11,100 | ) |
| Professional lines | (342 | ) |  | (80 | ) |
| Liability | (1,492 | ) |  | (11,034 | ) |
| Total | $ | 2,427 |  |  | $ | 3,361 |  |

In the three months ended March 31, 2016, we recognized $2 million of net favorable prior year reserve development, the principal component of which was:

• | $3 million of net favorable prior year reserve development on property and other business, driven by better than expected loss emergence across most accident years, partially offset by strengthening of the 2015 accident year related to late loss emergence on several large property losses.

In the three months ended March 31, 2015, we recognized $3 million of net favorable prior year reserve development, the principal components of which were:

• | $17 million of net favorable prior year reserve development on property and other business, primarily related to the 2013 accident year and driven by better than expected loss emergence.

• | $9 million of net favorable prior year reserve development on marine business, largely related to better than expected loss emergence in our energy offshore business on accident years 2011 through 2014.

• | $11 million of net adverse prior year reserve development on liability business, related to the reserve strengthening for one specific claim impacting accident year 2009.

• | $11 million of net adverse prior year reserve development on credit and political risk business, related to updated information on one specific claim impacting accident year 2014.

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Reinsurance Segment:

|  | Three months ended March 31, |
|  | 2016 |  | 2015 |
| Property and other | $ | 43,632 |  |  | $ | 8,377 |  |
| Credit and surety | (123 | ) |  | 4,956 |  |
| Professional lines | 1,526 |  |  | 20,419 |  |
| Motor | 16,469 |  |  | 7,021 |  |
| Liability | 6,463 |  |  | 11,932 |  |
| Total | $ | 67,967 |  |  | $ | 52,705 |  |

In the three months ended March 31, 2016, we recognized $68 million of net favorable prior year reserve development, the principal components of which were:

• | $44 million of net favorable prior year reserve development on property and other business, related to multiple prior accident years and driven by better than expected loss emergence.

• | $16 million of net favorable prior year reserve development on motor business, related to favorable loss emergence trends on several classes spanning multiple accident years.

• | $6 million of net favorable prior year reserve development on liability business, primarily related to the 2006 through 2011 accident years, for reasons discussed in the overview.

In the three months ended March 31, 2015, we recognized $53 million of net favorable prior year reserve development, the principal components of which were:

• | $20 million of net favorable prior year reserve development on professional lines business, primarily related to the 2004 through 2010 accident years, for reasons discussed in the overview.

• | $12 million of net favorable prior year reserve development on liability business, primarily related to the 2005 through 2009 accident years, for reasons discussed in the overview.

• | $8 million of net favorable prior year reserve development on property and other business, spanning a number of accident years and driven by better than expected loss emergence. Included in this net development is $16 million of adverse development on agriculture reserves relating to loss development on the 2014 accident year driven by lower than expected crop yields reported for two specific treaties.

• | $7 million of net favorable prior year reserve development on motor business, largely related to proportional business in accident years 2012 through 2013, driven by better than expected loss emergence.

Acquisition Cost Ratio: The increase in the acquisition cost ratio in the three months ended March 31, 2016 to 20.0%, compared to 19.0% in the three months ended March 31, 2015, was driven by increases in our reinsurance segment. The reinsurance segment's increase was primarily due to adjustments related to loss-sensitive features in reinsurance contracts, driven by prior year loss reserve releases, higher acquisition costs paid in certain lines of business and changes in the business mix.
General and Administrative Expense Ratio: The general and administrative expense ratio in the three months ended March 31, 2016, decreased to 16.6%, compared to 18.0% in the three months ended March 31, 2015. The decrease in expenses and the expense ratio between periods was primarily driven by non-recurring expenses related to the proposed PartnerRe amalgamation and certain lease cancellation costs incurred in the first quarter of 2015, as well as a decrease in personnel expenses during the first quarter of 2016 due to a lower headcount.
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RESULTS BY SEGMENT

INSURANCE SEGMENT
Results from our insurance segment were as follows:

|  | Three months ended March 31, |
|  | 2016 |  | % Change |  | 2015 |
| Revenues: |  |  |  |  |  |
| Gross premiums written | $ | 653,349 |  |  | 8% |  | $ | 602,724 |  |
| Net premiums written | 473,163 |  |  | 8% |  | 436,740 |  |
| Net premiums earned | 438,678 |  |  | (2%) |  | 447,467 |  |
| Other insurance related income | 137 |  |  | nm |  | — |  |
| Expenses: |  |  |  |  |  |
| Current year net losses and loss expenses | (276,832 | ) |  |  |  | (289,134 | ) |
| Prior year reserve development | 2,427 |  |  |  |  | 3,361 |  |
| Acquisition costs | (61,398 | ) |  |  |  | (64,455 | ) |
| General and administrative expenses | (85,576 | ) |  |  |  | (87,689 | ) |
| Underwriting income | $ | 17,436 |  |  | 83% |  | $ | 9,550 |  |
| Ratios: |  |  | % Point Change |  |  |
| Current year loss ratio | 63.1 | % |  | (1.5) |  | 64.6 | % |
| Prior year reserve development | (0.5 | %) |  | 0.2 |  | (0.7 | %) |
| Acquisition cost ratio | 14.0 | % |  | (0.4) |  | 14.4 | % |
| General and administrative expense ratio | 19.5 | % |  | (0.1) |  | 19.6 | % |
| Combined ratio | 96.1 | % |  | (1.8) |  | 97.9 | % |

nm – not meaningful
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Gross Premiums Written:
The following table provides gross premiums written by line of business:

|  | Three months ended March 31, |  |  |
|  | 2016 |  |  |  | 2015 |  |  |  | % Change |
| Property | $ | 146,592 |  |  | 23 | % |  | $ | 129,624 |  |  | 22 | % |  | 13% |
| Marine | 73,532 |  |  | 11 | % |  | 91,586 |  |  | 15 | % |  | (20%) |
| Terrorism | 7,046 |  |  | 1 | % |  | 7,935 |  |  | 1 | % |  | (11%) |
| Aviation | 19,101 |  |  | 3 | % |  | 10,014 |  |  | 2 | % |  | 91% |
| Credit and Political Risk | 8,917 |  |  | 1 | % |  | 8,117 |  |  | 1 | % |  | 10% |
| Professional Lines | 145,451 |  |  | 22 | % |  | 150,422 |  |  | 25 | % |  | (3%) |
| Liability | 83,886 |  |  | 13 | % |  | 82,667 |  |  | 14 | % |  | 1% |
| Accident and Health | 168,824 |  |  | 26 | % |  | 122,359 |  |  | 20 | % |  | 38% |
| Total | $ | 653,349 |  |  | 100 | % |  | $ | 602,724 |  |  | 100 | % |  | 8% |

Gross premiums written in the three months ended March 31, 2016, increased by $51 million or 8% (10% on a constant currency basis) compared to the three months ended March 31, 2015. The increase was attributable to our accident and health, property and aviation lines. The increase in our accident and health and property lines was driven by new business. The increase in the aviation lines was driven by timing differences. These increases were partially offset by a decrease in the marine and professional lines. The marine lines decreased primarily due to lower rates and timing differences. Professional lines decrease was due to the impact of exiting certain lines of business announced during 2015, which reduced premiums written in our Australian business.
Premiums Ceded: In the three months ended March 31, 2016, premiums ceded were $180 million, or 28% of gross premiums written, compared to $166 million, or 28% of gross premiums written in the three months ended March 31, 2015. An increase in reinsurance protection purchased in our professional lines was largely offset by a change in the business mix.
Net Premiums Earned:
The following table provides net premiums earned by line of business:

|  | Three months ended March 31, |  |  |
|  | 2016 |  |  |  | 2015 |  |  |  | % Change |
| Property | $ | 106,198 |  |  | 25 | % |  | $ | 102,488 |  |  | 24 | % |  | 4% |
| Marine | 42,909 |  |  | 10 | % |  | 58,646 |  |  | 13 | % |  | (27%) |
| Terrorism | 8,614 |  |  | 2 | % |  | 9,059 |  |  | 2 | % |  | (5%) |
| Aviation | 13,853 |  |  | 3 | % |  | 10,540 |  |  | 2 | % |  | 31% |
| Credit and Political Risk | 13,292 |  |  | 3 | % |  | 15,654 |  |  | 3 | % |  | (15%) |
| Professional Lines | 133,474 |  |  | 30 | % |  | 151,134 |  |  | 34 | % |  | (12%) |
| Liability | 40,909 |  |  | 9 | % |  | 41,320 |  |  | 9 | % |  | (1%) |
| Accident and Health | 79,429 |  |  | 18 | % |  | 58,626 |  |  | 13 | % |  | 35% |
| Total | $ | 438,678 |  |  | 100 | % |  | $ | 447,467 |  |  | 100 | % |  | (2%) |

Net premiums earned in the three months ended March 31, 2016, decreased by $9 million or 2% (were flat on a constant currency basis) compared to the three months ended March 31, 2015. The change in net premiums earned was primarily driven by a reduction in business written in the marine lines in recent periods as well as increases in our professional lines ceded reinsurance programs, largely offset by growth in our accident and health lines.
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Loss Ratio:
The table below shows the components of our loss ratio:

|  | Three months ended March 31, |
|  | 2016 |  | % Point Change |  | 2015 |
| Current accident year | 63.1 | % |  | (1.5) |  | 64.6 | % |
| Prior year reserve development | (0.5 | %) |  | 0.2 |  | (0.7 | %) |
| Loss ratio | 62.6 | % |  | (1.3) |  | 63.9 | % |

Current Accident Year Loss Ratio:
The current accident year loss ratios decreased to 63.1% in the three months ended March 31, 2016, from 64.6% in the three months ended March 31, 2015 primarily driven by an improvement in the mid-size loss experience in our marine and property lines. During the three months ended March 31, 2016, we incurred pre-tax losses related to weather-related losses of $10 million, compared to weather-related losses of $5 million incurred in the three months ended March 31, 2015.
Refer to the ‘Prior Year Reserve Development’ section for further details.
Acquisition Cost Ratio: The acquisition cost ratio in the three months ended March 31, 2016 was 14.0% compared to 14.4% in the three months ended March 31, 2015, with the reduction in the ratio driven by an increase in ceded commissions received, primarily in our professional lines, following the expansion of our reinsurance protection programs. The increase in ceded commission received more than offset higher commissions paid on certain lines of business.
General and Administrative Expense Ratio: The modest decrease in the general and administrative expense ratio in the three months ended March 31, 2016 compared to the three months ended March 31, 2015 primarily reflected lower personnel expenses.
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REINSURANCE SEGMENT
Results from our reinsurance segment were as follows:

|  | Three months ended March 31, |
|  | 2016 |  | % Change |  | 2015 |
| Revenues: |  |  |  |  |  |
| Gross premiums written | $ | 1,305,812 |  |  | 21% |  | $ | 1,076,208 |  |
| Net premiums written | 1,212,643 |  |  | 19% |  | 1,018,806 |  |
| Net premiums earned | 463,662 |  |  | 2% |  | 456,586 |  |
| Other insurance related income (losses) | (340 | ) |  | nm |  | 7,676 |  |
| Expenses: |  |  |  |  |  |
| Current year net losses and loss expenses | (292,524 | ) |  |  |  | (279,260 | ) |
| Prior year reserve development | 67,967 |  |  |  |  | 52,705 |  |
| Acquisition costs | (119,237 | ) |  |  |  | (107,087 | ) |
| General and administrative expenses | (38,013 | ) |  |  |  | (39,380 | ) |
| Underwriting income | $ | 81,515 |  |  | (11%) |  | $ | 91,240 |  |
| Ratios: |  |  | % Point Change |  |  |
| Current year loss ratio | 63.1 | % |  | 1.9 |  | 61.2 | % |
| Prior year reserve development | (14.7 | %) |  | (3.1) |  | (11.6 | %) |
| Acquisition cost ratio | 25.7 | % |  | 2.2 |  | 23.5 | % |
| General and administrative expense ratio | 8.2 | % |  | (0.4) |  | 8.6 | % |
| Combined ratio | 82.3 | % |  | 0.6 |  | 81.7 | % |

nm – not meaningful
Gross Premiums Written:
The following table provides gross premiums written by line of business for the periods indicated:

|  | Three months ended March 31, |  |  |
|  | 2016 |  |  |  | 2015 |  |  |  | % Change |
| Catastrophe | $ | 146,847 |  |  | 11 | % |  | $ | 131,216 |  |  | 12 | % |  | 12% |
| Property | 176,174 |  |  | 13 | % |  | 182,012 |  |  | 17 | % |  | (3%) |
| Professional Lines | 88,774 |  |  | 7 | % |  | 65,024 |  |  | 6 | % |  | 37% |
| Credit and Surety | 258,111 |  |  | 20 | % |  | 191,357 |  |  | 18 | % |  | 35% |
| Motor | 321,422 |  |  | 25 | % |  | 297,690 |  |  | 28 | % |  | 8% |
| Liability | 149,990 |  |  | 11 | % |  | 89,772 |  |  | 8 | % |  | 67% |
| Agriculture | 62,657 |  |  | 5 | % |  | 69,729 |  |  | 6 | % |  | (10%) |
| Engineering | 34,789 |  |  | 3 | % |  | 38,059 |  |  | 4 | % |  | (9%) |
| Marine and Other | 67,048 |  |  | 5 | % |  | 11,349 |  |  | 1 | % |  | 491% |
| Total | $ | 1,305,812 |  |  | 100 | % |  | $ | 1,076,208 |  |  | 100 | % |  | 21% |

Gross premiums written increased by $230 million in the three months ended March 31, 2016, compared to the same period in 2015. The increase in the gross premiums written in the three months ended March 31, 2016, was impacted by treaties written on a multi-year basis and foreign exchange movements.
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In the three months ended March 31, 2016, the reinsurance segment reported an increase in the level of multi-year contracts written compared to the same period in 2015. This increase in multi-year contracts increased the amount of premium recorded in the current period but relating to future years compared to the same period in 2015, most notably in the credit and surety and liability lines. On a comparative basis the impact of the multi-year premiums resulted in an increase in gross premiums written of $86 million in the three months ended March 31, 2016, compared to the same period in 2015.
The increase in written premiums was partially offset by the impact of foreign exchange movements in the three months ended March 31, 2016, compared to the same period in 2015, as the strength of the U.S. dollar drove comparative premium decreases in the treaties denominated in foreign currencies. Foreign exchange movements resulted in a relative decrease of $48 million in gross premiums written in the three months ended March 31, 2016, compared to the same period in 2015.
After adjusting for the impact of multi-year contracts and on a constant currency basis, our gross premiums written increased by $192 million in the three months ended March 31, 2016, compared to the same period in 2015, due to an increase in the marine and other, liability, motor and professional lines. The increase in our marine and other lines was due to a new large marine pro-rata treaty. The increase in the liability lines was due to new business and the timing of a large pro-rata treaty. The increase in our motor lines was due to new business and increased participation, partially offset by favorable premium adjustments recorded in the prior year that were not repeated in the current quarter. The increase in professional lines was primarily due to timing differences.
Premiums Ceded: In the three months ended March 31, 2016, the ratio of ceded premium to gross written premium increased to 7% from 5% in the three months ended March 31, 2015. The increase was largely due to increased reinsurance retrocessions primarily in our property and catastrophe business.
Net Premiums Earned:
The following table provides net premiums earned by line of business:

|  | Three months ended March 31, |  |  |
|  | 2016 |  |  |  | 2015 |  |  |  | % Change |
| Catastrophe | $ | 46,738 |  |  | 10 | % |  | $ | 60,674 |  |  | 13 | % |  | (23%) |
| Property | 68,596 |  |  | 15 | % |  | 76,008 |  |  | 17 | % |  | (10%) |
| Professional Lines | 76,394 |  |  | 16 | % |  | 70,310 |  |  | 15 | % |  | 9% |
| Credit and Surety | 59,993 |  |  | 13 | % |  | 59,834 |  |  | 13 | % |  | —% |
| Motor | 77,508 |  |  | 17 | % |  | 83,439 |  |  | 18 | % |  | (7%) |
| Liability | 82,532 |  |  | 18 | % |  | 71,052 |  |  | 16 | % |  | 16% |
| Agriculture | 19,654 |  |  | 4 | % |  | 19,603 |  |  | 4 | % |  | —% |
| Engineering | 15,613 |  |  | 3 | % |  | 11,900 |  |  | 3 | % |  | 31% |
| Marine and Other | 16,634 |  |  | 4 | % |  | 3,766 |  |  | 1 | % |  | 342% |
| Total | $ | 463,662 |  |  | 100 | % |  | $ | 456,586 |  |  | 100 | % |  | 2% |

Net premiums earned increased by $7 million or 2% (6% on a constant currency basis) in the three months ended March 31, 2016, compared to the same period in 2015 . The increase was primarily driven by the growth in the business written in the marine and other and liability lines in recent periods, partially offset by increased reinsurance retrocessions in the catastrophe and property lines.
Other Insurance Related Income (Losses):
The decrease in other insurance related income of $8 million in the three months ended March 31, 2016, compared to the same period in 2015, reflected the impact of the realized gains and favorable mark-to-market adjustments on our weather and commodities derivative portfolio in the three months ended March 31, 2015. This derivative portfolio had an immaterial impact in the three months ended March 31, 2016.
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Loss Ratio:
The table below shows the components of our loss ratio:

|  | Three months ended March 31, |
|  | 2016 |  | % Point Change |  | 2015 |
| Current accident year | 63.1 | % |  | 1.9 |  | 61.2 | % |
| Prior year reserve development | (14.7 | %) |  | (3.1) |  | (11.6 | %) |
| Loss ratio | 48.4 | % |  | (1.2) |  | 49.6 | % |

Current Accident Year Loss Ratio:
The current accident year loss ratio increased to 63.1% in the three months ended March 31, 2016, from 61.2% in the three months ended March 31, 2015. The current accident year loss ratio increased primarily due to changes in the business mix and the impact of rate and loss trends.
Refer ‘Prior Year Reserve Development’ for further details.
Acquisition Cost Ratio: The increase in the acquisition cost ratio in the three months ended March 31, 2016 to 25.7%, compared to 23.5% in the three months ended March 31, 2015, was due to adjustments related to loss-sensitive features in reinsurance contracts, primarily due to prior year reserve releases, higher acquisition costs paid in certain lines of business and changes in the business mix.
General and Administrative Expense Ratio: The general and administrative expense ratio in the three months ended March 31, 2016 was 8.2% compared to 8.6% in the three months ended March 31, 2015, with the decrease driven by lower personnel expenses due to a reduction in headcount and an increase in net premiums earned.

OTHER EXPENSES (REVENUES), NET

The following table provides a breakdown of our other expenses (revenues), net:

|  | Three months ended March 31, |
|  | 2016 |  | % Change |  | 2015 |
| Corporate expenses | $ | 26,312 |  |  | (27%) |  | $ | 36,172 |  |
| Foreign exchange losses (gains) | 616 |  |  | nm |  | (63,220 | ) |
| Interest expense and financing costs | 12,833 |  |  | 5% |  | 12,257 |  |
| Income tax benefit | (6,540 | ) |  | nm |  | (690 | ) |
| Total | $ | 33,221 |  |  | nm |  | $ | (15,481 | ) |

nm – not meaningful
Corporate Expenses: Our corporate expenses include holding company costs necessary to support our worldwide insurance and reinsurance operations and costs associated with operating as a publicly-traded company. As a percentage of net premiums earned, corporate expenses were 2.9% for the three months ended March 31, 2016, compared to 4.0% in the same period of 2015. The decrease reflects non-recurring expenses incurred in the first quarter of 2015, including expenses related to the proposed amalgamation with PartnerRe and certain lease cancellation costs.
Foreign Exchange Losses (Gains): Some of our business is written in currencies other than the U.S. Dollar. The foreign exchange losses (gains) for the periods presented were largely driven by the re-measurement of our net insurance related liabilities. The modest foreign exchange loss for the three months ended March 31, 2016 was primarily driven by the appreciation of various currencies
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against the U.S dollar, partially offset by the depreciation of the sterling against the U.S dollar. The foreign exchange gains for the three months ended March 31, 2015, were primarily driven by depreciation of the euro and sterling against the U.S. Dollar.
Income Tax Benefit: Income tax (expense) benefit primarily results from income (loss) generated by our foreign operations in the United States and Europe. Our effective tax rate, which is calculated as income tax expense (benefit) divided by net income before tax, was (15.6)% in the three months ended March 31, 2016, compared to (0.4)% in the three months ended March 31, 2015. This effective rate can vary between periods depending on the distribution of net income amongst tax jurisdictions, as well as other factors. We generated consolidated pre-tax net income in both the three months ended March 31, 2016 and March 31, 2015; however, in 2016 realized investment losses in the United States and the reduction of a valuation allowance on European foreign tax credit carry forwards resulted in the recognition of an income tax benefit, while in 2015 underwriting losses borne by our operations in the United States were the primary drivers of an income tax benefit.

NET INVESTMENT INCOME AND NET REALIZED INVESTMENT GAINS (LOSSES)

Net Investment Income
The following table provides a breakdown of income earned from our cash and investment portfolio by major asset class:

|  | Three months ended March 31, |
|  | 2016 |  | % Change |  | 2015 |
| Fixed maturities | $ | 75,975 |  |  | 15% |  | $ | 66,088 |  |
| Other investments | (26,878 | ) |  | nm |  | 30,935 |  |
| Equity securities | 5,145 |  |  | 207% |  | 1,676 |  |
| Mortgage loans | 1,684 |  |  | nm |  | 13 |  |
| Cash and cash equivalents | 1,434 |  |  | 30% |  | 1,099 |  |
| Short-term investments | 206 |  |  | 199% |  | 69 |  |
| Gross investment income | 57,566 |  |  | (42%) |  | 99,880 |  |
| Investment expense | (8,402 | ) |  | 8% |  | (7,773 | ) |
| Net investment income | $ | 49,164 |  |  | (47%) |  | $ | 92,107 |  |
| Pre-tax yield:(1) |  |  |  |  |  |
| Fixed maturities | 2.6% |  |  |  | 2.2% |

nm - not meaningful

(1) | Pre-tax yield is annualized and calculated as net investment income divided by the average month-end amortized cost balances for the periods indicated.

Fixed Maturities
The increase in year-to-date investment income from fixed maturities was due to an emphasis on longer duration assets and an improvement in CPI adjustments following the reduction in exposure to treasury inflation-protected securities.
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Other Investments
The following table provides a breakdown of total net investment income from other investments:

|  | Three months ended March 31, |
|  | 2016 |  | 2015 |
| Hedge, direct lending, private equity and real estate funds | $ | (27,897 | ) |  | $ | 24,848 |  |
| CLO - Equities | 1,019 |  |  | 6,087 |  |
| Total net investment income from other investments | $ | (26,878 | ) |  | $ | 30,935 |  |
| Pre-tax return on other investments(1) | (3.2 | %) |  | 3.3 | % |

(1) | The pre-tax return on other investments is non-annualized and calculated by dividing total net investment income from other investments by the average month-end fair value balances held for the periods indicated.

The decrease in the total net investment income from other investments compared to the same period of 2015 was primarily due to a decrease in income from hedge funds. Income from hedge funds was impacted by the volatility of the global equity markets, with two hedge funds in particular reporting very poor performance.
The decrease in income from CLO - Equities in the quarter reflected lower underlying loan valuations.
Net Realized Investment Gains (Losses)
The following table provides a breakdown of net realized investment gains (losses):

|  | Three months ended March 31, |
|  | 2016 |  | 2015 |
| On sale of investments: |  |  |  |
| Fixed maturities and short-term investments | $ | (43,013 | ) |  | $ | (27,430 | ) |
| Equity securities | (11,246 | ) |  | (86 | ) |
|  | (54,259 | ) |  | (27,516 | ) |
| OTTI charges recognized in earnings | (9,729 | ) |  | (17,568 | ) |
| Change in fair value of investment derivatives | (2,520 | ) |  | 2,531 |  |
| Net realized investment losses | $ | (66,508 | ) |  | $ | (42,553 | ) |

On sale of investments
Generally, sales of individual securities occur when there are changes in the relative value, credit quality or duration of a particular issue. We may also sell to rebalance our investment portfolio in order to change exposure to particular asset classes or sectors. Net losses during the current quarter are primarily due to foreign exchange losses on non-U.S. denominated securities, as a result of the strengthening of the U.S. dollar.
OTTI charges
For the three months ended March 31, 2016, OTTI charges were driven by impairments on high yield corporate debt securities which are exposed to the energy sector and by exchange-traded funds (ETFs) which are unlikely to recover in the near term.
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Change in fair value of investment derivatives
From time to time, we may economically hedge the foreign exchange exposure of non-U.S. denominated securities by entering into foreign exchange forward contracts. During the current quarter, our foreign exchange hedges resulted in $3 million of net losses which related primarily to securities denominated in the Australian dollar and Euro.
Total Return
The following table provides a breakdown of the total return on cash and investments for the period indicated:

|  | Three months ended March 31, |
|  | 2016 |  | 2015 |
| Net investment income | $ | 49,164 |  |  | $ | 92,107 |  |
| Net realized investments losses | (66,508 | ) |  | (42,553 | ) |
| Change in net unrealized gains/losses | 212,824 |  |  | 50,161 |  |
| Total | $ | 195,480 |  |  | $ | 99,715 |  |
| Average cash and investments(1) | $ | 14,505,886 |  |  | $ | 14,952,713 |  |
| Total return on average cash and investments, pre-tax: |  |  |  |
| Inclusive of investment related foreign exchange movements | 1.3 | % |  | 0.7 | % |
| Exclusive of investment related foreign exchange movements | 1.3 | % |  | 1.2 | % |

(1) | The average cash and investments balance is calculated by taking the average of the month-end fair value balances held for the periods indicated.

CASH AND INVESTMENTS

The table below provides a breakdown of our cash and investments:

|  | March 31, 2016 |  | December 31, 2015 |
|  | Amortized Cost or Cost |  | Fair Value |  | Amortized Cost or Cost |  | Fair Value |
| Fixed maturities | $ | 11,812,782 |  |  | $ | 11,838,068 |  |  | $ | 11,897,639 |  |  | $ | 11,719,749 |  |
| Equities | 605,291 |  |  | 637,325 |  |  | 575,776 |  |  | 597,998 |  |
| Mortgage loans | 267,589 |  |  | 267,589 |  |  | 206,277 |  |  | 206,277 |  |
| Other investments | 708,475 |  |  | 859,639 |  |  | 609,619 |  |  | 816,756 |  |
| Short-term investments | 29,540 |  |  | 29,540 |  |  | 34,406 |  |  | 34,406 |  |
| Total investments | $ | 13,423,677 |  |  | $ | 13,632,161 |  |  | $ | 13,323,717 |  |  | $ | 13,375,186 |  |
| Cash and cash equivalents(1) | $ | 952,311 |  |  | $ | 952,311 |  |  | $ | 1,174,751 |  |  | $ | 1,174,751 |  |

(1) | Includes restricted cash and cash equivalents of $175 million and $187 million at March 31, 2016 and at December 31, 2015, respectively.

The cost of our total investments increased by $100m from December 31, 2015, due to the timing and settlement of trade activity. The $257m increase in the fair value of our total investments was driven by the downward shift in sovereign yield curves and the tightening of credit spreads on both investment grade and high-yield corporate debt.
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The following provides a further analysis on our investment portfolio by asset classes:
Fixed Maturities
The following provides a breakdown of our investment in fixed maturities:

|  | March 31, 2016 |  | December 31, 2015 |
|  | Fair Value |  | % of Total |  | Fair Value |  | % of Total |
| Fixed maturities: |  |  |  |  |  |  |  |
| U.S. government and agency | $ | 1,570,180 |  |  | 13 | % |  | $ | 1,651,949 |  |  | 14 | % |
| Non-U.S. government | 720,723 |  |  | 6 | % |  | 739,005 |  |  | 6 | % |
| Corporate debt | 4,425,042 |  |  | 37 | % |  | 4,362,769 |  |  | 37 | % |
| Agency RMBS | 2,421,301 |  |  | 20 | % |  | 2,249,236 |  |  | 19 | % |
| CMBS | 1,106,684 |  |  | 9 | % |  | 1,083,298 |  |  | 9 | % |
| Non-Agency RMBS | 95,022 |  |  | 1 | % |  | 101,008 |  |  | 1 | % |
| ABS | 1,343,150 |  |  | 11 | % |  | 1,371,270 |  |  | 12 | % |
| Municipals(1) | 155,966 |  |  | 3 | % |  | 161,214 |  |  | 2 | % |
| Total | $ | 11,838,068 |  |  | 100 | % |  | $ | 11,719,749 |  |  | 100 | % |
| Credit ratings: |  |  |  |  |  |  |  |
| U.S. government and agency | $ | 1,570,180 |  |  | 13 | % |  | $ | 1,651,949 |  |  | 14 | % |
| AAA(2) | 4,492,488 |  |  | 38 | % |  | 4,266,673 |  |  | 36 | % |
| AA | 1,341,394 |  |  | 11 | % |  | 1,273,941 |  |  | 11 | % |
| A | 1,988,274 |  |  | 17 | % |  | 2,065,192 |  |  | 18 | % |
| BBB | 1,381,312 |  |  | 12 | % |  | 1,442,938 |  |  | 12 | % |
| Below BBB(3) | 1,064,420 |  |  | 9 | % |  | 1,019,056 |  |  | 9 | % |
| Total | $ | 11,838,068 |  |  | 100 | % |  | $ | 11,719,749 |  |  | 100 | % |

(1) | Includes bonds issued by states, municipalities, and political subdivisions.

(2) | Includes U.S. government-sponsored agency RMBS and CMBS.

(3) | Non-investment grade and non-rated securities.

At March 31, 2016, our fixed maturities had a weighted average credit rating of AA- (2015: AA-) and an average duration of 3.1 years (2015: 3.3 years). When incorporating short-term investments and cash and cash equivalents into the calculation (bringing the total to $12.8 billion), the average credit rating would be AA- (2015: AA-) and duration would be 2.9 years (2015: 3.0 years).
During the quarter, net unrealized gains (losses) on fixed maturities moved from a net unrealized loss of $178 million at December 31, 2015 to a net unrealized gain of $25 million at March 31, 2016.
Equities
During the quarter, net unrealized gains on equities increased from $22 million at December 31, 2015 to $32 million at March 31, 2016. The increase was due to an improvement in valuations reflective of performance of the global equity markets.
Mortgage Loans
During the year, we increased our investment in commercial mortgage loans to $268 million. The commercial mortgage loans are high quality and collateralized by a variety of commercial properties and are diversified both geographically throughout the United States and by property type to reduce the risk of concentration.
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Other Investments
The composition of our other investments portfolio is summarized as follows:

|  | March 31, 2016 |  | December 31, 2015 |
| Hedge funds |  |  |  |  |  |  |  |
| Long/short equity funds | $ | 128,502 |  |  | 15 | % |  | $ | 154,348 |  |  | 19 | % |
| Multi-strategy funds | 312,211 |  |  | 36 | % |  | 355,073 |  |  | 43 | % |
| Event-driven funds | 146,428 |  |  | 17 | % |  | 147,287 |  |  | 18 | % |
| Leveraged bank loan funds | 65 |  |  | — | % |  | 65 |  |  | — | % |
| Total hedge funds | 587,206 |  |  | 68 | % |  | 656,773 |  |  | 80 | % |
| Direct lending funds | 112,889 |  |  | 13 | % |  | 90,120 |  |  | 11 | % |
| Private equity funds | 93,783 |  |  | 11 | % |  | — |  |  | — | % |
| Real estate funds | 5,390 |  |  | 1 | % |  | 4,929 |  |  | 1 | % |
| Total hedge, direct lending and real estate funds | 799,268 |  |  | 93 | % |  | 751,822 |  |  | 92 | % |
| CLO - Equities | 60,371 |  |  | 7 | % |  | 64,934 |  |  | 8 | % |
| Total other investments | $ | 859,639 |  |  | 100 | % |  | $ | 816,756 |  |  | 100 | % |

The $70 million decrease in the fair value of our total hedge funds in 2016 was driven by $41 million of net redemptions and $29 million of price depreciation.
We have made total commitments of $310 million to managers of direct lending funds. To date, $112 million of our total commitment has been called. We have made a total commitment of $60 million as a limited partner in a multi-strategy hedge fund, of which $48 million has been called to date. We have made a total commitment of $100 million to a real estate fund, of which $5 million has been called to date.
During 2016, we made a total commitment of $135 million to a private equity fund, of which $94 million has been called to date.
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LIQUIDITY AND CAPITAL RESOURCES

Refer to the ‘Liquidity and Capital Resources’ section included under Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015 for a general discussion of our liquidity and capital resources.
The following table summarizes our consolidated capital for the periods indicated:

|  | March 31, 2016 |  | December 31, 2015 |
| Senior notes | $ | 992,091 |  |  | $ | 991,825 |  |
| Preferred shares | 625,000 |  |  | 627,843 |  |
| Common equity | 5,325,259 |  |  | 5,239,039 |  |
| Shareholders’ equity | 5,950,259 |  |  | 5,866,882 |  |
| Total capital | $ | 6,942,350 |  |  | $ | 6,858,707 |  |
| Ratio of debt to total capital | 14.3 | % |  | 14.5 | % |
| Ratio of debt and preferred equity to total capital | 23.3 | % |  | 23.6 | % |

We finance our operations with a combination of debt and equity capital. Our debt to total capital and debt and preferred equity to total capital ratios provide an indication of our capital structure, along with some insight into our financial strength. A company with higher ratios in comparison to industry average may show weak financial strength because the cost of its debts may adversely affect results of operations and/or increase its default risk. We believe that our financial flexibility remains strong.
Preferred Shares
On January 27, 2016 we redeemed the remaining 28,430 Series B preferred shares, for an aggregate liquidation preference of
$3 million.
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Common Equity
During the three months ended March 31, 2016, our common equity increased by $86 million. The following table reconciles our opening and closing common equity positions:

| Three months ended March 31, | 2016 |
| Common equity - opening | $ | 5,239,039 |  |
| Net income | 48,386 |  |
| Shares repurchased for treasury | (196,011 | ) |
| Change in unrealized appreciation on available for sale investments, net of tax | 197,915 |  |
| Settlement of accelerated share repurchase | 60,000 |  |
| Common share dividends | (33,838 | ) |
| Preferred share dividends | (9,969 | ) |
| Share-based compensation expense recognized in equity | 8,373 |  |
| Foreign currency translation adjustment | 8,196 |  |
| Shares issued | 1,783 |  |
| Cost of treasury shares reissued | 1,385 |  |
| Common equity - closing | $ | 5,325,259 |  |

During the three months ended March 31, 2016, we repurchased 3.9 million common shares, including 2.5 million of common shares repurchased for a total of $136 million (including $125 million pursuant to our Board-authorized share repurchase program and $11 million relating to shares purchased in connection with the vesting of restricted stock awards granted under our 2007 Long-Term Equity Compensation Plan), and 1.4 million common shares acquired under the ASR which terminated on January 15, 2016. At April 28, 2016, the remaining authorization under the common share repurchase program approved by our Board of Directors was $625 million (refer to Part II, Item 2 'Unregistered Sales of Equity Securities and Use of Proceeds' for additional information).
We continue to expect that cash flows generated from our operations, combined with the liquidity provided by our investment portfolio, will be sufficient to cover our required cash outflows and other contractual commitments through the foreseeable future.
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CRITICAL ACCOUNTING ESTIMATES

Our Consolidated Financial Statements include certain amounts that are inherently uncertain and judgmental in nature. As a result, we are required to make assumptions and best estimates in order to determine the reported values. We consider an accounting estimate to be critical if: (1) it requires that significant assumptions be made in order to deal with uncertainties and (2) changes in the estimate could have a material impact on our results of operations, financial condition or liquidity.
As disclosed in our 2015 Annual Report on Form 10-K, we believe that the material items requiring such subjective and complex estimates are our:

• | reserves for losses and loss expenses;

• | reinsurance recoverable balances;

• | premiums;

• | fair value measurements for our financial assets and liabilities; and

• | assessments of other-than-temporary impairments.

We believe that the critical accounting estimates discussion in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015, continues to describe the significant estimates and judgments included in the preparation of our Consolidated Financial Statements.

NEW ACCOUNTING STANDARDS

Refer to Item 1, Note 1 'Basis of Presentation and Accounting policies' to the Consolidated Financial Statements and Item 8, Note 2 'Significant Accounting Policies' to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2015, for a discussion of recently issued accounting pronouncements that we have not yet adopted.

OFF-BALANCE SHEET AND SPECIAL PURPOSE ENTITY ARRANGEMENTS

At March 31, 2016, we have not entered into any off-balance sheet arrangements, as defined by Item 303(a)(4) of Regulation S-K.

NON-GAAP FINANCIAL MEASURES

In this report, we present operating income, consolidated underwriting income and underwriting-related general and administrative expenses, which are “non-GAAP financial measures” as defined in Regulation G.
Operating income represents after-tax operational results without consideration of after-tax net realized investment gains (losses) and foreign exchange losses (gains). We also present diluted operating income per common share and operating return on average common equity (“operating ROACE”), which are derived from the non-GAAP operating income measure.
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Consolidated underwriting income is a pre-tax measure of underwriting profitability that takes into account net premiums earned and other insurance related income as revenues and net losses and loss expenses, acquisition costs and underwriting-related general and administrative costs as expenses. Underwriting-related general and administrative expenses include those general and administrative expenses that are incremental and/or directly attributable to our individual underwriting operations. While these measures are presented in Item 1, Note 2 to our Consolidated Financial Statements, they are considered non-GAAP financial measures when presented elsewhere on a consolidated basis.
Operating income, diluted operating income per common share and operating ROACE can be reconciled to the nearest GAAP financial measures as follows:

|  | Three months ended March 31, |
|  | 2016 |  | 2015 |
| Net income available to common shareholders | $ | 38,417 |  |  | $ | 155,803 |  |
| Net realized investment losses, net of tax(1) | 61,810 |  |  | 41,994 |  |
| Foreign exchange losses (gains), net of tax(2) | 1,047 |  |  | (61,726 | ) |
| Operating income | $ | 101,274 |  |  | $ | 136,071 |  |
| Earnings per common share - diluted | $ | 0.41 |  |  | $ | 1.54 |  |
| Net realized investment losses, net of tax | 0.65 |  |  | 0.42 |  |
| Foreign exchange losses (gains), net of tax | 0.01 |  |  | (0.61 | ) |
| Operating income per common share - diluted | $ | 1.07 |  |  | $ | 1.35 |  |
| Weighted average common shares and common share equivalents - diluted(3) | 94,853 |  |  | 101,139 |  |
| Average common shareholders’ equity | $ | 5,282,149 |  |  | $ | 5,271,299 |  |
| ROACE (annualized) | 2.9 | % |  | 11.8 | % |
| Operating ROACE (annualized) | 7.7 | % |  | 10.3 | % |

(1) | Tax benefit of $4,698 and $559 for the three months ended March 31, 2016 and 2015, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of other relevant factors including the ability to utilize capital losses.

(2) | Tax cost of $431 and $1,494 for the three months ended March 31, 2016 and 2015, respectively. Tax impact is estimated by applying the statutory rates of applicable jurisdictions, after consideration of other relevant factors including the tax status of specific foreign exchange transactions.

(3) | Refer to Item 1, Note 8 to our Consolidated Financial Statements for further details on the dilution calculation.

A reconciliation of consolidated underwriting income to income before income taxes (the nearest GAAP financial measure) can be found in Item 1, Note 2 to the Consolidated Financial Statements. Underwriting-related general and administrative expenses are reconciled to general and administrative expenses (the nearest GAAP financial measure) within 'Underwriting Results - Group'.
We present our results of operations in the way we believe will be most meaningful and useful to investors, analysts, rating agencies and others who use our financial information to evaluate our performance. This includes the presentation of “operating income”, (in total and on a per share basis), “annualized operating ROACE” (which is based on the “operating income” measure) and "consolidated underwriting income", which incorporates "underwriting-related general and administrative expenses".
Operating Income
Although the investment of premiums to generate income and realized investment gains (or losses) is an integral part of our operations, the determination to realize investment gains (or losses) is independent of the underwriting process and is heavily influenced by the availability of market opportunities. Furthermore, many users believe that the timing of the realization of investment gains (or losses) is somewhat opportunistic for many companies.
Foreign exchange gains (or losses) in our Consolidated Statements of Operations are primarily driven by the impact of foreign exchange rate movements on net insurance related-liabilities. However, this movement is only one element of the overall impact of
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foreign exchange rate fluctuations on our financial position. In addition, we recognize unrealized foreign exchange gains (or losses) on our available-for-sale investments in other comprehensive income and foreign exchange gains (or losses) realized upon the sale of these investments in net realized investments gains (or losses). These unrealized and realized foreign exchange rate movements generally offset a large portion of the foreign exchange gains (or losses) reported separately in earnings, thereby minimizing the impact of foreign exchange rate movements on total shareholders' equity. As such, the Statement of Operations foreign exchange gains (or losses) in isolation are not a fair representation of the performance of our business.
In this regard, certain users of our financial statements evaluate earnings excluding after-tax net realized investment gains (or losses) and foreign exchange gains (or losses) to understand the profitability of recurring sources of income.
We believe that showing net income available to common shareholders exclusive of net realized gains (or losses) and foreign exchange gains (or losses) reflects the underlying fundamentals of our business. In addition, we believe that this presentation enables investors and other users of our financial information to analyze performance in a manner similar to how our management analyzes the underlying business performance. We also believe this measure follows industry practice and, therefore, facilitates comparison of our performance with our peer group. We believe that equity analysts and certain rating agencies that follow us, and the insurance industry as a whole, generally exclude these items from their analyses for the same reasons.
Consolidated Underwriting Income/Underwriting-Related General and Administrative Expenses
Corporate expenses include holding company costs necessary to support our worldwide insurance and reinsurance operations and costs associated with operating as a publicly-traded company. As these costs are not incremental and/or directly attributable to our individual underwriting operations, we exclude them from underwriting-related general and administrative expenses and, therefore, consolidated underwriting income. Interest expense and financing costs primarily relate to interest payable on our senior notes and are excluded from consolidated underwriting income for the same reason.
We evaluate our underwriting results separately from the performance of our investment portfolio. As such, we believe it appropriate to exclude net investment income and net realized investment gains (or losses) from our underwriting profitability measure.
As noted above, foreign exchange gains (or losses) in our Consolidated Statements of Operations primarily relate to our net insurance-related liabilities. However, we manage our investment portfolio in such a way that unrealized and realized foreign exchange rate gains (or losses) on our investment portfolio generally offset a large portion of the foreign exchange gains (or losses) arising from our underwriting portfolio. As a result, we believe that foreign exchange gains (or losses) are not a meaningful contributor to our underwriting performance and, therefore, exclude them from consolidated underwriting income.
We believe that presentation of underwriting-related general and administrative expenses and consolidated underwriting income provides investors with an enhanced understanding of our results of operations, by highlighting the underlying pre-tax profitability of our underwriting activities.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Refer to Item 7A included in our 2015 Form 10-K. With the exception of the changes in exposure to foreign currency risk presented below, there have been no material changes to this item since December 31, 2015.
Foreign Currency Risk
The table below provides a sensitivity analysis of our total net foreign currency exposures.

|  | AUD |  | NZD |  | CAD |  | EUR |  | GBP |  | JPY |  | Other |  | Total |
| At March 31, 2016 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Net managed assets (liabilities), excluding derivatives | $ | (2,816 | ) |  | $ | (26,253 | ) |  | $ | 78,332 |  |  | $ | (94,687 | ) |  | $ | 44,190 |  |  | $ | 1,542 |  |  | $ | 102,888 |  |  | $ | 103,196 |  |
| Foreign currency derivatives, net | 1,918 |  |  | 24,900 |  |  | (82,267 | ) |  | 311,824 |  |  | 97,884 |  |  | (5,778 | ) |  | 18,419 |  |  | 366,900 |  |
| Net managed foreign currency exposure | (898 | ) |  | (1,353 | ) |  | (3,935 | ) |  | 217,137 |  |  | 142,074 |  |  | (4,236 | ) |  | 121,307 |  |  | 470,096 |  |
| Other net foreign currency exposure | 1,991 |  |  | — |  |  | — |  |  | 21,125 |  |  | 11,460 |  |  | — |  |  | 67,126 |  |  | 101,702 |  |
| Total net foreign currency exposure | $ | 1,093 |  |  | $ | (1,353 | ) |  | $ | (3,935 | ) |  | $ | 238,262 |  |  | $ | 153,534 |  |  | $ | (4,236 | ) |  | $ | 188,433 |  |  | $ | 571,798 |  |
| Net foreign currency exposure as a percentage of total shareholders’ equity | — | % |  | — | % |  | (0.1 | %) |  | 4.0 | % |  | 2.6 | % |  | (0.1 | %) |  | 3.2 | % |  | 9.6 | % |
| Pre-tax impact of net foreign currency exposure on shareholders’ equity given a hypothetical 10% rate movement(1) | $ | 109 |  |  | $ | (135 | ) |  | $ | (394 | ) |  | $ | 23,826 |  |  | $ | 15,353 |  |  | $ | (424 | ) |  | $ | 18,843 |  |  | $ | 57,178 |  |

(1) | Assumes 10% change in underlying currencies relative to the U.S. dollar.

Total Net Foreign Currency Exposure
At March 31, 2016, our total net foreign currency exposure was $572 million net long, driven by increases in our exposures to the euro, Sterling and other non-core currencies primarily due to new business written during the first quarter of 2016 as part of the January 2016 renewal season.

ITEM 4. CONTROLS AND PROCEDURES

The Company’s management has performed an evaluation, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) as of March 31, 2016. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2016, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and is accumulated and communicated to management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
The Company’s management has performed an evaluation, with the participation of the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of changes in the Company’s internal control over financial reporting that occurred during the three months ended March 31, 2016. Based upon that evaluation, there were no changes in our internal control over financial reporting that occurred during the three months ended March 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are subject to routine legal proceedings, including arbitrations, arising in the ordinary course of business. These legal proceedings generally relate to claims asserted by or against us in the ordinary course of insurance or reinsurance operations; estimated amounts payable under such proceedings are included in the reserve for losses and loss expenses in our Consolidated Balance Sheets.
We are not a party to any material legal proceedings arising outside the ordinary course of business.

ITEM 1A. RISK FACTORS

There were no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth information regarding the number of shares we repurchased during the three months ended March 31, 2016:
ISSUER PURCHASES OF EQUITY SECURITIES
Common Shares

Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) | Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under the Announced Plans or Programs(2) |
January 1-31, 2016 (3) | 1,616 |  |  | $45.60 |  | 1,616 |  |  | $736.3 | million |
February 1-29, 2016 | 1,861 |  |  | $53.00 |  | 1,732 |  |  | $644.5 | million |
March 1-31, 2016 | 433 |  |  | $54.69 |  | 357 |  |  | $625.0 | million |
Total | 3,910 |  |  | 3,705 |  |  | $625.0 | million |

(1) | From time to time, we purchase shares in connection with the vesting of restricted stock awards granted to our employees under our 2007 Long-Term Equity Compensation Plan. The purchase of these shares is separately authorized and is not part of our Board-authorized share repurchase program, described below.

(2) | On December 7, 2015, our Board of Directors authorized a share repurchase plan to repurchase up to $750 million of our common shares through to December 31, 2016. The share repurchase authorization which became effective on December 31, 2015, replaced the previous plan which had $444.0 million available through the end of 2016. Share repurchases may be effected from time to time in open market or privately negotiated transactions, depending on market conditions.

(3) | Includes 1,358,380 shares acquired under the accelerated share repurchase program. Refer Item 1, Note 9 to our Consolidated Financial Statements for additional details.

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ITEM 6. EXHIBITS

3.1 |  | Certificate of Incorporation and Memorandum of Association (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1(Amendment No. 1) (No. 333-103620) filed on April 16, 2003).
3.2 |  | Amended and Restated Bye-Laws (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-8 filed on May 15, 2009).
4.1 |  | Specimen Common Share Certificate (incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (Amendment No. 3) (No. 333-103620) filed on June 10, 2003).
4.2 |  | Certificate of Designations establishing the specific rights, preferences, limitations and other terms of the Series B Preferred Shares (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on November 23, 2005).
4.3 |  | Certificate of Designations establishing the specific rights, preferences, limitations and other terms of the Series C Preferred Shares (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on March 19, 2012).
4.4 |  | Certificate of Designations establishing the specific rights, preferences, limitations and other terms of the Series D Preferred Shares (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on May 20, 2013).
10.1 |  | Master Confirmation and form of Supplemental Confirmation, dated August 17, 2015, by and between AXIS Capital Holdings Limited and Goldman, Sachs & Co. (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on August 19, 2015).
†31.1 |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
†31.2 |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
†32.1 |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
†32.2 |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
†101 |  | The following financial information from AXIS Capital Holdings Limited’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2016 formatted in XBRL: (i) Consolidated Balance Sheets at March 31, 2016 and December 31, 2015; (ii) Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015; (iii) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and 2015; (iv) Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2016 and 2015; (v) Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015; and (vi) Notes to Consolidated Financial Statements, tagged as blocks of text and in detail.

† | Filed herewith.

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: April 28, 2016

AXIS CAPITAL HOLDINGS LIMITED
By: | /S/ ALBERT BENCHIMOL
| Albert Benchimol
| President and Chief Executive Officer
| /S/ JOSEPH HENRY
| Joseph Henry
| Executive Vice President and Chief Financial Officer
| (Principal Financial Officer)

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