Investments

Income Statement

Investment Income. The following table summarizes investment income for the three and nine months ended September 30, 2017 and 2016:



	For the Three Months Ended						For the Nine Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
	($ in millions)						($ in millions)
Fixed income securities — Available for sale	$	32.9		$	34.8		$	100.7		$	107.9
Fixed income securities — Trading	11.1			7.6			31.6			22.9
Short-term investments — Available for sale	0.1			0.2			0.4			0.5
Short-term investments — Trading	—			—			0.5			—
Cash and cash equivalents	2.1			0.8			4.1			2.2
Equity securities — Trading	2.8			5.5			11.7			17.9
Catastrophe bonds — Trading	0.5			0.2			1.3			1.3
Total	$	49.5		$	49.1		$	150.3		$	152.7
Investment expenses	(3.1		)	(2.7		)	(8.8		)	(8.8		)
Net investment income	$	46.4		$	46.4		$	141.5		$	143.9

The following table summarizes the net realized and unrealized investment gains and losses recorded in the statement of operations and the change in unrealized gains and losses on investments recorded in other comprehensive income for the three and nine months ended September 30, 2017 and 2016:



	For the Three Months Ended						For the Nine Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016
	($ in millions)						($ in millions)
Available for sale:
Fixed income securities — gross realized gains	$	2.3		$	5.5		$	7.8		$	14.7
Fixed income securities — gross realized (losses)	(1.6		)	(0.9		)	(5.3		)	(4.6		)
Short-term investments — gross realized gains	—			0.1			0.1			—
Short-term investments — gross realized (losses)	—			(0.2		)	—			—
Cash and cash equivalents — gross realized gains	0.3			—			0.3			0.1
Cash and cash equivalents — gross realized (losses)	—			—			(0.1		)	(0.5		)
Other-than-temporary impairments	(0.1		)	—			(0.5		)	—
Trading:
Fixed income securities — gross realized gains	3.0			4.3			8.3			9.5
Fixed income securities — gross realized (losses)	(0.2		)	(0.5		)	(2.6		)	(6.9		)
Short-term investments — gross realized gains	1.9			—			2.0			—
Cash and cash equivalents — gross realized gains	1.3			—			1.3			—
Equity securities — gross realized gains	46.1			8.1			55.0			23.3
Equity securities — gross realized (losses)	(7.4		)	(4.2		)	(12.4		)	(22.2		)
Catastrophe bonds — net unrealized (losses)/gains	(3.1		)	0.3			(3.2		)	0.1
Net change in gross unrealized (losses)/gains	(25.0		)	8.0			54.4			88.8
Other investments:
Gross realized and unrealized (loss) in MVI	—			—			(0.1		)	—
Gross realized (loss)/gain in Chaspark	—			1.0			0.9			1.0
Gross realized and unrealized (loss) in Bene	—			—			(0.2		)	—
Total net realized and unrealized investment gains recorded in the statement of operations	$	17.5		$	21.5		$	105.7		$	103.3

Change in available for sale net unrealized gains:
Fixed income securities	0.3			(23.2		)	15.2			104.0
Total change in pre-tax available for sale unrealized gains	0.3			(23.2		)	15.2			104.0
Change in taxes	(0.4		)	2.0			(1.4		)	(11.1		)
Total change in net unrealized gains, net of taxes, recorded in other comprehensive income	$	(0.1	)	$	(21.2	)	$	13.8		$	92.9

Other-Than-Temporary Impairments. A security is potentially impaired when its fair value is below its amortized cost. The Company reviews its available for sale fixed income portfolios on an individual security basis for potential other-than-temporary impairment (“OTTI”) each quarter based on criteria including issuer-specific circumstances, credit ratings actions and general macro-economic conditions. The total OTTI charge for the three and nine months ended September 30, 2017 was $0.1 million and $0.5 million, respectively (2016 — $Nil and $Nil). For a more detailed description of accounting policies for OTTI, please refer to Note 2(c) of the “Notes to the Audited Consolidated Financial Statements” in the Company’s 2016 Annual Report on Form 10-K filed with the SEC.

Balance Sheet

Fixed Income Securities and Short-Term Investments — Available For Sale. The following tables present the cost or amortized cost, gross unrealized gains and losses and estimated fair market value of available for sale investments in fixed income securities and short-term investments as at September 30, 2017 and December 31, 2016:



	As at September 30, 2017
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
	($ in millions)
U.S. government	$	1,171.3	$	7.6	$	(6.2	)	$	1,172.7
U.S. agency	61.3		0.9		(0.1		)	62.1
Municipal	47.9		2.2		—			50.1
Corporate	2,431.5		45.4		(8.6		)	2,468.3
Non-U.S. government-backed corporate	94.0		0.4		(0.4		)	94.0
Non-U.S. government	525.3		7.9		(1.5		)	531.7
Asset-backed	33.6		0.1		—			33.7
Agency mortgage-backed	940.8		17.4		(5.4		)	952.8
Total fixed income securities — Available for sale	5,305.7		81.9		(22.2		)	5,365.4
Total short-term investments — Available for sale	34.4		—		—			34.4
Total	$	5,340.1	$	81.9	$	(22.2	)	$	5,399.8



	As at December 31, 2016
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
	($ in millions)
U.S. government	$	1,207.9	$	9.4	$	(11.2	)	$	1,206.1
U.S. agency	117.7		1.9		—			119.6
Municipal	23.2		1.6		(0.4		)	24.4
Corporate	2,566.9		39.6		(20.0		)	2,586.5
Non-U.S. government-backed corporate	89.2		0.7		(0.1		)	89.8
Non-U.S. government	477.7		11.8		(0.8		)	488.7
Asset-backed	62.6		0.4		—			63.0
Non-agency commercial mortgage-backed	12.3		0.3		—			12.6
Agency mortgage-backed	1,062.6		19.6		(8.3		)	1,073.9
Total fixed income securities — Available for sale	5,620.1		85.3		(40.8		)	5,664.6
Total short-term investments — Available for sale	145.3		—		—			145.3
Total	$	5,765.4	$	85.3	$	(40.8	)	$	5,809.9

Fixed Income Securities, Short-Term Investments, Equities and Catastrophe Bonds — Trading. The following tables present the cost or amortized cost, gross unrealized gains and losses, and estimated fair market value of trading investments in fixed income securities, short-term investments, equity securities and catastrophe bonds as at September 30, 2017 and December 31, 2016:



	As at September 30, 2017
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
	($ in millions)
U.S. government	$	160.6	$	0.6	$	(0.6	)	$	160.6
Municipal	32.4		—		(0.1		)	32.3
Corporate	1,029.8		17.9		(2.7		)	1,045.0
Non-U.S government-backed corporate	2.0		—		—			2.0
Non-U.S. government	203.5		7.8		(0.4		)	210.9
Asset-backed	11.0		0.1		—			11.1
Agency mortgage-backed	203.1		0.7		(0.7		)	203.1
Total fixed income securities — Trading	1,642.4		27.1		(4.5		)	1,665.0
Total short-term investments — Trading	90.3		—		—			90.3
Total equity securities — Trading	407.2		68.7		(7.3		)	468.6
Total catastrophe bonds — Trading	33.5		—		(3.2		)	30.3
Total	$	2,173.4	$	95.8	$	(15.0	)	$	2,254.2



	As at December 31, 2016
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
	($ in millions)
U.S. government	$	82.8	$	0.4	$	(0.8	)	$	82.4
Municipal	15.7		—		(0.2		)	15.5
Corporate	817.8		9.9		(7.1		)	820.6
Non-U.S. government	203.4		3.5		(4.1		)	202.8
Asset-backed	14.5		—		—			14.5
Agency mortgage-backed	130.6		0.2		(0.9		)	129.9
Total fixed income securities — Trading	1,264.8		14.0		(13.1		)	1,265.7
Total short-term investments — Trading	185.4		—		—			185.4
Total equity securities — Trading	554.3		55.4		(25.0		)	584.7
Total catastrophe bonds — Trading	42.5		—		—			42.5
Total	$	2,047.0	$	69.4	$	(38.1	)	$	2,078.3

The Company classifies the financial instruments presented in the tables above as held for trading as this most closely reflects the facts and circumstances of the investments held.

Catastrophe Bonds. The Company has invested in catastrophe bonds with a total value of $30.3 million as at September 30, 2017. The bonds receive quarterly interest payments based on variable interest rates with scheduled maturities ranging from 2017 to 2021. The redemption value of the bonds will adjust based on the occurrence of a covered event, such as windstorms and earthquakes in the United States, Canada, the North Atlantic, Japan or Australia.

Other Investments. In January 2015, the Company established, along with seven other insurance companies, a micro-insurance venture consortium and micro-insurance incubator (“MVI”) domiciled in Bermuda. The MVI is a social impact organization that provides micro-insurance products to assist global emerging consumers. The Company’s initial investment in the MVI was $0.8 million. The Company made an additional investment of $0.1 million in the quarter ended September 30, 2017.

On October 2, 2012, the Company established a subsidiary, Aspen Recoveries Limited, to take ownership of a 58.5% shareholding in Chaspark Maritime Holdings Ltd., a Singaporean registered company (“Chaspark”), with the remaining shareholding owned by other insurers. The shareholding in Chaspark was received as a settlement for subrogation rights associated with a contract frustration claim settlement. In the three and nine months ended September 30, 2017, the change in the value of the Company’s investment in Chaspark was a realized loss of $Nil and a realized gain of $0.9 million, respectively (September 30, 2016 — $1.0 million unrealized gain and $1.0 million unrealized gain). On March 10, 2017, Aspen Recoveries Limited received cash of $9.3 million as settlement of its share of subrogation assets held by Chaspark.

On July 26, 2016, the Company purchased through its wholly-owned subsidiary, Acorn Limited, a 20% share of Bene Assicurazioni (“Bene”), an Italian-based motor insurer for a total consideration of $3.3 million. The investment is accounted for under the equity method and adjustments to the carrying value of this investment are made based on the Company’s share of capital, including share of income and expenses.

On January 1, 2017, the Company purchased through its wholly-owned subsidiary, Aspen U.S. Holdings, Inc. (“Aspen U.S. Holdings”), a 49% share of Digital Risk Resources, LLC (“Digital Re”), a U.S.-based enterprise engaged in the business of developing, marketing and servicing turnkey information security and privacy liability insurance products, for a total consideration of $2.3 million. The investment is accounted for under the equity method and adjustments to the carrying value of this investment are made based on the Company’s share of capital, including share of income and expenses.

The tables below show the Company’s investments in the MVI, Chaspark, Bene and Digital Re for the three and nine months ended September 30, 2017 and September 30, 2016:



	For the Three Months Ended September 30, 2017
	MVI		Chaspark		Bene		Digital Re		Total
	($ in millions)
Opening undistributed value of investment	$	0.4	$	—	$	3.0	$	0.5	$	3.9
Additional investment	0.1		—		—		—		0.1
Closing undistributed value of investment	$	0.5	$	—	$	3.0	$	0.5	$	4.0



	For the Three Months Ended September 30, 2016
	MVI		Chaspark		Bene		Total
	($ in millions)
Opening undistributed value of investment	$	0.6	$	8.1	$	—	$	8.7
Initial investment	—		—		3.3		3.3
Realized/unrealized gain for the three months to September 30, 2016	—		1.0		—		1.0
Closing value of investment	$	0.6	$	9.1	$	3.3	$	13.0



	For the Nine Months Ended September 30, 2017
	MVI			Chaspark			Bene			Digital Re			Total
	($ in millions)
Opening undistributed value of investment	$	0.5		$	8.4		$	3.2		$	—		$	12.1
Initial investment	—			—			—			2.3			2.3
Goodwill	—			—			—			(1.8		)	(1.8		)
Additional investment	0.1			—			—			—			0.1
Distribution received	—			(9.3		)	—			—			(9.3		)
Realized/unrealized gain/(losses) for the nine months to September 30, 2017	(0.1		)	0.9			(0.2		)	—			0.6
Closing undistributed value of investment	$	0.5		$	—		$	3.0		$	0.5		$	4.0



	For the Nine Months Ended September 30, 2016
	MVI			Chaspark		Bene		Total
	($ in millions)
Opening undistributed value of investment	$	0.8		$	8.1	$	—	$	8.9
Initial investment	—			—		3.3		3.3
Realized/unrealized gain for the nine months to September 30, 2016	(0.2		)	1.0		—		0.8
Closing value of investment	$	0.6		$	9.1	$	3.3	$	13.0

Fixed Income Securities. The scheduled maturity distribution of available for sale fixed income securities as at September 30, 2017 and December 31, 2016 is set forth in the tables below. Actual maturities may differ from contractual maturities because issuers of securities may have the right to call or prepay obligations with or without call or prepayment penalties.



	As at September 30, 2017
	Amortized Cost or Cost		Fair Market Value		Average S&P Ratings by Maturity
	($ in millions)
Due one year or less	$	577.8	$	579.2	AA
Due after one year through five years	2,597.3		2,623.2		AA-
Due after five years through ten years	1,060.6		1,070.1		AA-
Due after ten years	95.6		106.4		A+
Subtotal	4,331.3		4,378.9
Agency mortgage-backed	940.8		952.8		AA+
Asset-backed	33.6		33.7		AAA
Total fixed income securities — Available for sale	$	5,305.7	$	5,365.4



	As at December 31, 2016
	Amortized Cost or Cost		Fair Market Value		Average S&P Ratings by Maturity
	($ in millions)
Due one year or less	$	567.2	$	570.0	AA
Due after one year through five years	2,643.7		2,671.9		AA-
Due after five years through ten years	1,172.3		1,168.1		A+
Due after ten years	99.4		105.1		A+
Subtotal	4,482.6		4,515.1
Non-agency commercial mortgage-backed	12.3		12.6		AAA
Agency mortgage-backed	1,062.6		1,073.9		AA+
Asset-backed	62.6		63.0		AAA
Total fixed income securities — Available for sale	$	5,620.1	$	5,664.6

Guaranteed Investments. As at September 30, 2017, the Company held no investments which are guaranteed by mono-line insurers, excluding those with explicit government guarantees. As at December 31, 2016, the Company held one municipal bond security guaranteed by a mono-line insurer with fair value less than $0.1 million rated CC or higher. The standalone rating (rating without guarantee) is determined as the senior unsecured debt rating of the issuer. Where the credit ratings were split between the two main rating agencies, Standard & Poor’s Financial Services LLC (“S&P”) and Moody’s Investors Service, Inc. (“Moody’s”), the lowest rating was used. The Company’s exposure to other third-party guaranteed debt is primarily to investments backed by non-U.S. government guaranteed issuers.

Gross Unrealized Loss. The following tables summarize, by type of security, the aggregate fair value and gross unrealized loss by length of time the security has been in an unrealized loss position in the Company’s available for sale portfolio as at September 30, 2017 and December 31, 2016:



	As at September 30, 2017
	0-12 months					Over 12 months					Total
	Fair Market Value		Gross Unrealized Loss			Fair Market Value		Gross Unrealized Loss			Fair Market Value		Gross Unrealized Loss			Number of Securities
	($ in millions)
U.S. government	$	617.5	$	(5.0	)	$	62.5	$	(1.2	)	$	680.0	$	(6.2	)	80
U.S. agency	19.6		(0.1		)	—		—			19.6		(0.1		)	7
Municipal	19.2		—			—		—			19.2		—			6
Corporate	483.9		(4.6		)	154.1		(4.0		)	638.0		(8.6		)	255
Non-U.S. government-backed corporate	63.4		(0.4		)	0.4		—			63.8		(0.4		)	15
Non-U.S. government	211.5		(1.2		)	36.8		(0.3		)	248.3		(1.5		)	43
Asset-backed	12.2		—			—		—			12.2		—			9
Agency mortgage-backed	426.0		(4.5		)	33.9		(0.9		)	459.9		(5.4		)	133
Total fixed income securities — Available for sale	1,853.3		(15.8		)	287.7		(6.4		)	2,141.0		(22.2		)	548
Total short-term investments — Available for sale	25.7		—			—		—			25.7		—			10
Total	$	1,879.0	$	(15.8	)	$	287.7	$	(6.4	)	$	2,166.7	$	(22.2	)	558



	As at December 31, 2016
	0-12 months					Over 12 months					Total
	Fair Market Value		Gross Unrealized Loss			Fair Market Value		Gross Unrealized Loss			Fair Market Value		Gross Unrealized Loss			Number of Securities
	($ in millions)
U.S. government	$	724.4	$	(11.2	)	$	—	$	—		$	724.4	$	(11.2	)	78
U.S. agency	14.1		—			—		—			14.1		—			4
Municipal	7.7		(0.2		)	0.8		(0.2		)	8.5		(0.4		)	6
Corporate	1,044.4		(19.4		)	6.6		(0.6		)	1,051.0		(20.0		)	386
Non-U.S. government-backed corporate	29.6		(0.1		)	—		—			29.6		(0.1		)	11
Non-U.S. government	143.5		(0.8		)	1.0		—			144.5		(0.8		)	29
Asset-backed	25.8		—			1.4		—			27.2		—			15
Agency mortgage-backed	527.6		(7.6		)	27.2		(0.7		)	554.8		(8.3		)	148
Total fixed income securities — Available for sale	2,517.1		(39.3		)	37.0		(1.5		)	2,554.1		(40.8		)	677
Total short-term investments — Available for sale	1.1		—			—		—			1.1		—			2
Total	$	2,518.2	$	(39.3	)	$	37.0	$	(1.5	)	$	2,555.2	$	(40.8	)	679