Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2017

Financial Assets Measured on Recurring Basis

The following tables present the level within the fair value hierarchy at which the Company’s financial assets and liabilities are measured on a recurring basis as at September 30, 2017 and December 31, 2016:



	As at September 30, 2017
	Level 1		Level 2			Level 3			Total
	($ in millions)
Available for sale financial assets, at fair value
U.S. government	$	1,172.6	$	—		$	—		$	1,172.6
U.S. agency	—		62.1			—			62.1
Municipal	—		50.1			—			50.1
Corporate	—		2,468.4			—			2,468.4
Non-U.S. government-backed corporate	—		94.0			—			94.0
Non-U.S. government	375.2		156.5			—			531.7
Asset-backed	—		33.7			—			33.7
Agency mortgage-backed	—		952.8			—			952.8
Total fixed income securities available for sale, at fair value	1,547.8		3,817.6			—			5,365.4
Short-term investments available for sale, at fair value	27.4		7.0			—			34.4
Held for trading financial assets, at fair value
U.S. government	160.6		—			—			160.6
U.S. agency	—		—			—			—
Municipal	—		32.3			—			32.3
Corporate	—		1,045.0			—			1,045.0
Non-U.S. government-backed corporate	—		2.0			—			2.0
Non-U.S. government	24.5		186.4			—			210.9
Asset-backed	—		11.1			—			11.1
Agency mortgage-backed	—		203.1			—			203.1
Total fixed income securities trading, at fair value	185.1		1,479.9			—			1,665.0
Short-term investments trading, at fair value	90.0		0.3			—			90.3
Equity investments trading, at fair value	468.6		—			—			468.6
Catastrophe bonds trading, at fair value	—		30.3			—			30.3

Other financial assets and liabilities, at fair value
Derivatives at fair value — foreign exchange contracts	—		8.4			—			8.4
Liabilities under derivative contracts — foreign exchange contracts	—		(2.9		)	—			(2.9		)
Loan notes issued by variable interest entities, at fair value	—		—			(101.5		)	(101.5		)
Loan notes issued by variable interest entities, at fair value (included within accrued expenses and other payables)	—		—			(2.4		)	(2.4		)
Total	$	2,318.9	$	5,340.6		$	(103.9	)	$	7,555.6

There were no transfers between Level 1, Level 2 and Level 3 during the three and nine months ended September 30, 2017. The Company settled $1.4 million and $115.9 million of Level 3 liabilities in respect of the Loan Notes issued by Silverton for the three and nine months ended September 30, 2017, respectively. As at September 30, 2017, there were no assets classified as Level 3 and the Company’s Level 3 liabilities consisted solely of the Loan Notes issued by Silverton.



	As at December 31, 2016
	Level 1		Level 2			Level 3			Total
	($ in millions)
Available for sale financial assets, at fair value
U.S. government	$	1,206.1	$	—		$	—		$	1,206.1
U.S. agency	—		119.6			—			119.6
Municipal	—		24.4			—			24.4
Corporate	—		2,586.5			—			2,586.5
Non-U.S. government-backed corporate	—		89.8			—			89.8
Non-U.S. government	343.7		145.0			—			488.7
Asset-backed	—		63.0			—			63.0
Non-agency commercial mortgage-backed	—		12.6			—			12.6
Agency mortgage-backed	—		1,073.9			—			1,073.9
Total fixed income securities available for sale, at fair value	1,549.8		4,114.8			—			5,664.6
Short-term investments available for sale, at fair value	118.6		26.7			—			145.3
Held for trading financial assets, at fair value
U.S. government	82.4		—			—			82.4
Municipal	—		15.5			—			15.5
Corporate	—		820.6			—			820.6
Non-U.S. government	—		202.8			—			202.8
Asset-backed	—		14.5			—			14.5
Agency mortgage-backed	—		129.9			—			129.9
Total fixed income securities trading, at fair value	82.4		1,183.3			—			1,265.7
Short-term investments trading, at fair value	76.1		109.3			—			185.4
Equity investments trading, at fair value	584.7		—			—			584.7
Catastrophe bonds trading, at fair value	—		42.5			—			42.5

Other financial assets and liabilities, at fair value
Derivatives at fair value – foreign exchange contracts	—		7.2			—			7.2
Liabilities under derivative contracts – foreign exchange contracts	—		(18.4		)	—			(18.4		)
Loan notes issued by variable interest entities, at fair value	—		—			(115.0		)	(115.0		)
Loan notes issued by variable interest entities, at fair value (included within accrued expenses and other payables)	—		—			(108.4		)	(108.4		)
Total	$	2,411.6	$	5,465.4		$	(223.4	)	$	7,653.6

Reconciliation of Liabilities Using Level 3 Inputs

The following table presents a reconciliation of the beginning and ending balances for all assets and liabilities measured at fair value on a recurring basis using Level 3 inputs for the three and nine months ended September 30, 2017 and 2016:



Reconciliation of Liabilities Using Level 3 Inputs	Three Months Ended September 30, 2017			Three Months Ended September 30, 2016
	($ in millions)
Balance at the beginning of the period	$	115.1		$	105.5
Distributed to third party	(1.4		)	(0.3		)
Total change in fair value included in the statement of operations	(9.8		)	9.8
Balance at the end of the period ⁽¹⁾	$	103.9		$	115.0



Reconciliation of Liabilities Using Level 3 Inputs	Nine Months Ended September 30, 2017		Nine Months Ended September 30, 2016
	($ in millions)
Balance at the beginning of the period	223.4		190.6
Distributed to third party	(115.9	)	(89.3	)
Total change in fair value included in the statement of operations	(3.6	)	13.7
Balance at the end of the period ⁽¹⁾	103.9		115.0

⁽¹⁾ The amount classified within accrued expenses and other payables was $2.4 million and $2.3 million as at September 30, 2017 and September 30, 2016, respectively.

Pricing Sources Used in Pricing Fixed Income Investments

Pricing sources used in pricing fixed income investments as at September 30, 2017 and December 31, 2016 were as follows:



	As at September 30, 2017		As at December 31, 2016
Index providers	84	%	87	%
Pricing services	10		7
Broker-dealers	6		6
Total	100	%	100	%

Summary of Securities Priced Using Pricing Information from Index Providers

A summary of securities priced using pricing information from index providers as at September 30, 2017 and December 31, 2016 is provided below:



	As at September 30, 2017				As at December 31, 2016
	Fair Market Value Determined using Prices from Index Providers		% of Total Fair Value by Security Type		Fair Market Value Determined using Prices from Index Providers		% of Total Fair Value by Security Type
	($ in millions, except for percentages)
U.S. government	$	1,333.2	100	%	$	1,288.2	100	%
U.S. agency	53.2		86	%	110.2		92	%
Municipal	31.2		38	%	28.8		72	%
Corporate	3,346.0		95	%	3,275.3		96	%
Non-U.S. government-backed corporate	47.8		50	%	44.8		50	%
Non-U.S. government	425.6		61	%	455.6		72	%
Asset-backed	14.2		32	%	32.1		41	%
Non-agency commercial mortgage-backed	—		—	%	12.5		98	%
Agency mortgage-backed	618.2		54	%	691.9		58	%
Total fixed income securities	$	5,869.4	84	%	$	5,939.4	87	%
Equities	468.6		100	%	584.7		100	%
Total fixed income securities and equity investments	$	6,338.0	85	%	$	6,524.1	88	%

Fair Value Inputs, Assets, Quantitative Information

The observable and unobservable inputs used to determine the fair value of the Loan Notes as at September 30, 2017 and December 31, 2016 are presented in the tables below:



As at September 30, 2017		Fair Value Level 3			Valuation Method	Observable (O) and Unobservable (U) inputs	Low		High
	($ in millions)						($ in millions)
Loan Notes		$	103.9	⁽¹⁾	Internal Valuation Model	Gross premiums written (O)	$	50.1	$	57.6
						Reserve for losses (U)	$	4.2	$	37.5
						Contract period (O)	N/A		365 days
						Initial value of issuance (O)	$	325.0	$	325.0



As at December 31, 2016		Fair Value Level 3			Valuation Method	Observable (O) and Unobservable (U) inputs	Low		High
	($ in millions)						($ in millions)
Loan Notes		$	223.4	⁽¹⁾	Internal Valuation Model	Gross premiums written (O)	$	38.9	$	43.4
						Reserve for losses (U)	$	2.7	$	11.8
						Contract period (O)	N/A		365 days
						Initial value of issuance (O)	$	220.0	$	220.0

⁽¹⁾ The amounts classified within accrued expenses and other payables were $2.4 million and $108.4 million as at September 30, 2017 and December 31, 2016, respectively.