Variable Interest Entities

As at September 30, 2018, the Company had investments in two variable interest entities (“VIE”): Peregrine Reinsurance Ltd (“Peregrine”) and Silverton Re Ltd (“Silverton”).

Peregrine. In November 2016, the Company, registered Peregrine as a segregated accounts company under the Bermuda Segregated Accounts Companies Act 2000, as amended. As at September 30, 2018, Peregrine had four segregated accounts which were funded by a third party investor. The segregated accounts have not been consolidated as part of the Company’s consolidated financial statements. The Company has, however, determined that Peregrine has the characteristics of a VIE as addressed by the guidance in ASC 810, Consolidation. The Company concluded that it is not the primary beneficiary of the four segregated accounts of Peregrine but is the primary beneficiary of the Peregrine general fund and, similar to prior reporting periods, the Company has included the results of the Peregrine general fund in its consolidated financial statements. The Company’s exposure to Peregrine’s general fund is not material.

Silverton. On September 10, 2013, the Company established Silverton, a Bermuda domiciled special purpose insurer formed to provide additional collateralized capacity to support Aspen Re’s business through retrocession agreements which are collateralized and funded by Silverton through the issuance of one or more series of participating loan notes (collectively, the “Loan Notes”). Silverton is a non-rated insurer and the risks are fully collateralized by way of funds held in trust for the benefit of Aspen Bermuda and Aspen U.K., the ceding reinsurers. Silverton was not renewed in 2017 and has not issued any Loan Notes since, in the future, any such quota share support for Aspen Re will be provided by a separate cell of Peregrine.

All proceeds from the issuance of the Loan Notes were deposited into separate collateral accounts for each series of Loan Notes to fund Silverton’s obligations under a retrocession property quota share agreement entered into with Aspen Bermuda or Aspen Bermuda and Aspen U.K., as the case may be. The holders of the Loan Notes participate in any profit or loss generated by Silverton attributable to the operations of the respective Silverton segregated account. Any existing value of the Loan Notes will be returned to the noteholders in installments after the expiration of the risk period of the retrocession agreement issued by Silverton for the related series of Loan Notes with the final payment being contractually due on the respective maturity dates.

The following tables show the total liability balance of the Loan Notes for the nine months ended September 30, 2018 and 2017:



	For the Nine Months Ended September 30, 2018
	Third Party			Aspen Holdings			Total
	($ in millions)
Opening balance	$	86.6		$	20.6		$	107.2
Total change in fair value for the period	4.1			1.0			5.1
Total distributed in the period	(78.4		)	(18.7		)	(97.1		)
Closing balance as at September 30, 2018	$	12.3		$	2.9		$	15.2

Liability
Loan notes (long-term liabilities)	$	—		$	—		$	—
Accrued expenses (current liabilities)	12.3			2.9			15.2
Total aggregate unpaid balance as at September 30, 2018	$	12.3		$	2.9		$	15.2



	For the Nine Months Ended September 30, 2017
	Third Party			Aspen Holdings			Total
	($ in millions)
Opening balance	$	223.4		$	54.5		$	277.9
Total change in fair value for the period	(3.6		)	(0.9		)	(4.5		)
Total distributed in the period	(115.9		)	(28.8		)	(144.7		)
Closing balance as at September 30, 2017	$	103.9		$	24.8		$	128.7

Liability
Loan notes (long-term liabilities)	$	101.5		$	24.2		$	125.7
Accrued expenses (current liabilities)	2.4			0.6			3.0
Total aggregate unpaid balance as at September 30, 2017	$	103.9		$	24.8		$	128.7

The Company has determined that Silverton has the characteristics of a VIE that are addressed by the guidance in ASC 810, Consolidation. The Company concluded that it is the primary beneficiary of Silverton as it owns all of Silverton’s voting shares and issued share capital, and has a significant financial interest and the power to control Silverton. As a result, the Company consolidated Silverton upon its formation. The Company has no other obligation to provide financial support to Silverton and neither the creditors nor beneficial interest holders of Silverton have recourse to the Company’s general credit.

In the event of an extreme catastrophic property reinsurance event or severe credit-related event, there is a risk that Aspen Bermuda and Aspen U.K. would be unable to recover losses from Silverton. These two risks are mitigated as follows:


i.	Silverton has collateralized the aggregate limit provided to Aspen Bermuda and Aspen U.K. by way of a trust in favor of Aspen Bermuda and Aspen U.K. as beneficiaries;


ii.	the trustee is a large, well-established regulated entity; and


iii.	all funds within the trust account are bound by investment guidelines restricting investments to one of the institutional class money market funds run by large international investment managers.

For further information regarding the Loan Notes attributable to the third-party investments in Silverton, refer to Note 8 of these unaudited condensed consolidated financial statements.