Investments

Income Statement

Investment Income. The following table summarizes investment income for the twelve months ended December 31, 2018, 2017 and 2016:



	For the Twelve Months Ended
	December 31, 2018			December 31, 2017			December 31, 2016
	($ in millions)
Fixed income securities — Available for sale	$	134.1		$	133.3		$	141.3
Fixed income securities — Trading	49.6			44.0			31.6
Short-term investments — Available for sale	1.4			0.4			0.6
Short-term investments — Trading	0.4			0.8			0.2
Fixed term deposits (included in cash and cash equivalents)	14.2			6.2			3.4
Equity securities — Trading	2.1			13.6			20.4
Catastrophe bonds — Trading	2.8			1.8			1.6
Other investments, at fair value	2.5			—			—
Total	207.1			200.1			199.1
Investment expenses	(8.9		)	(11.1		)	(12.0		)
Net investment income	$	198.2		$	189.0		$	187.1

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 twelve months ended December 31, 2018, 2017 and 2016:



	For the Twelve Months Ended
	December 31, 2018			December 31, 2017			December 31, 2016
	($ in millions)
Available for sale:
Fixed income securities — gross realized gains	$	6.4		$	10.2		$	18.6
Fixed income securities — gross realized (losses)	(11.4		)	(6.6		)	(8.3		)
Short-term investments — gross realized gains	—			0.1			—
Short-term investments — gross realized (losses)	—			—			—
Cash and cash equivalents — gross realized gains	0.3			0.4			0.2
Cash and cash equivalents — gross realized (losses)	(0.5		)	(0.1		)	(0.6		)
Other-than-temporary impairments	—			(0.7		)	—
Trading:
Fixed income securities — gross realized gains	4.6			9.7			12.6
Fixed income securities — gross realized (losses)	(25.0		)	(4.5		)	(7.3		)
Short-term investments — gross realized gains	0.1			2.7			—
Short-term investments — gross realized (losses)	(4.2		)	—			—
Cash and cash equivalents — gross realized gains	1.5			1.3			0.1
Cash and cash equivalents — gross realized (losses)	(0.3		)	—			(0.3		)
Equity securities — gross realized gains	94.5			59.0			54.1
Equity securities — gross realized (losses)	(20.1		)	(13.7		)	(46.3		)
Catastrophe bonds — net unrealized gains (losses)	2.2			(2.4		)	—
Net change in gross unrealized (losses) gains	(112.1		)	60.3			22.5
Other investments, equity method:
Gross realized and unrealized (loss) in MVI	(0.2		)	(0.1		)	(0.3		)
Gross unrealized gain in Chaspark	—			0.9			0.3
Gross realized and unrealized gain in Digital Risk	0.4			—			—
Gross realized and unrealized (loss) in Bene	(0.9		)	(0.3		)	(0.1		)
Gross realized gain on sale of AgriLogic	—			4.3			—
Total net realized and unrealized investment (losses)/gains recorded in the statement of operations	$	(64.7	)	$	120.5		$	45.2

Change in available for sale net unrealized (losses):
Fixed income securities	(81.3		)	(14.8		)	(39.0		)
Change in taxes	4.8			2.0			1.3
Total change in net unrealized (losses), net of taxes recorded in other comprehensive income	$	(76.5	)	$	(12.8	)	$	(37.7	)

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 December 31, 2018 and December 31, 2017:



	As at December 31, 2018
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
	($ in millions)
U.S. government	$	1,413.5	$	6.8	$	(16.1	)	$	1,404.2
U.S. agency	47.7		0.1		(0.4		)	47.4
Municipal	46.7		1.3		(0.8		)	47.2
Corporate	2,238.9		7.8		(40.5		)	2,206.2
Non-U.S. government-backed corporate	93.2		0.2		(0.2		)	93.2
Non-U.S government	399.8		3.6		(0.8		)	402.6
Asset-backed	17.4		—		(0.1		)	17.3
Agency mortgage-backed	1,025.1		6.5		(19.0		)	1,012.6
Total fixed income securities — Available for sale	5,282.3		26.3		(77.9		)	5,230.7
Total short-term investments — Available for sale	105.6		—		—			105.6
Total	$	5,387.9	$	26.3	$	(77.9	)	$	5,336.3



	As at December 31, 2017
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
	($ in millions)
U.S. government	$	1,166.5	$	4.5	$	(11.6	)	$	1,159.4
U.S. agency	51.8		0.5		(0.2		)	52.1
Municipal	53.0		2.1		(0.2		)	54.9
Corporate	2,391.4		36.1		(11.8		)	2,415.7
Non-U.S. government-backed corporate	91.5		0.3		(0.5		)	91.3
Non-U.S government	479.7		6.4		(1.2		)	484.9
Asset-backed	26.3		—		(0.1		)	26.2
Agency mortgage-backed	941.0		13.7		(8.2		)	946.5
Total fixed income securities — Available for sale	5,201.2		63.6		(33.8		)	5,231.0
Total short-term investments — Available for sale	90.0		—		(0.1		)	89.9
Total	$	5,291.2	$	63.6	$	(33.9	)	$	5,320.9

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 December 31, 2018 and December 31, 2017:



	As at December 31, 2018
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
	($ in millions)
U.S. government	$	146.6	$	1.6	$	(0.5	)	$	147.7
Municipal	2.8		—		(0.1		)	2.7
Corporate	734.2		2.6		(16.6		)	720.2
Non-U.S. government	268.7		1.9		(5.2		)	265.4
Asset-backed	2.4		—		—			2.4
Agency mortgage-backed	50.3		0.2		(1.1		)	49.4
Total fixed income securities — Trading	1,205.0		6.3		(23.5		)	1,187.8
Total short-term investments — Trading	9.5		—		—			9.5
Total catastrophe bonds — Trading	37.9		0.1		(1.8		)	36.2
Total	$	1,252.4	$	6.4	$	(25.3	)	$	1,233.5



	As at December 31, 2017
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
	($ in millions)
U.S. government	$	162.3	$	0.4	$	(0.8	)	$	161.9
Municipal	32.4		—		(0.2		)	32.2
Corporate	1,036.5		14.0		(4.2		)	1,046.3
Non-U.S government	196.1		6.9		(0.5		)	202.5
Asset-backed	9.9		—		—			9.9
Agency mortgage-backed	196.7		0.2		(1.4		)	195.5
Total fixed income securities — Trading	1,634.9		21.5		(7.1		)	1,649.3
Total short-term investments — Trading	73.0		—		—			73.0
Total equity securities — Trading	414.8		83.5		(7.3		)	491.0
Total catastrophe bonds — Trading	33.5		—		(1.1		)	32.4
Total	$	2,156.2	$	105.0	$	(15.5	)	$	2,245.7

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

As at December 31, 2018, the Company had a 4.5% position in BBB Emerging Market Debt and a 1.3% position in a real estate fund totaling 5.8% of our Managed Portfolio (December 31, 2017 — 10.0%).

Catastrophe bonds. The Company has invested in catastrophe bonds with a total value of $36.2 million as at December 31, 2018 (December 31, 2017 — $32.4 million). The bonds are either zero-coupon notes or receive quarterly interest payments based on variable interest rates with scheduled maturities ranging from 2019 to 2022. The redemption value of the bonds will adjust based on the occurrence or aggregate occurrence of a covered event, such as windstorms and earthquakes in the United States, Canada, the North Atlantic, South America, Europe, Japan or Australia.

Other Investments. On December 20, 2017, the Company committed $100.0 million as a limited partner to a real estate fund. The investment objective of the fund is to achieve attractive risk-adjusted returns through the acquisition of income producing, high quality assets in gateway cities located in the U.S. and Canada in the office, retail, industrial and multifamily sectors of the real estate market. On May 1, 2018, the Company received a demand for an initial capital call of $86.2 million and paid the capital call on May 10, 2018. On September 19, 2018, the Company received a demand for the final capital call of $13.8 million and paid the capital on September 28, 2018. For further information on the real estate fund, refer to Note 19 in these consolidated financial statements, “Commitments and Contingencies.”

Investments — Equity Method. In January 2015, the Company, along with seven other insurance companies, established 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 twelve months ended December 31, 2017 and a further investment of $0.2 million in the twelve months ended December 31, 2018.

On September 25, 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 represented the interest in subrogation rights arising on a contract frustration claim settlement. On March 10, 2017, Aspen Recoveries Limited received cash of $9.3 million as settlement of its share of subrogation assets held by Chaspark. In the twelve months ended December 31, 2017, the change in the value of the Company’s investment in Chaspark was an unrealized gain of $0.9 million.

On July 26, 2016, the Company purchased through its wholly-owned subsidiary, Acorn Limited (“Acorn”), a 20.0% 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. The Company made an additional investment of $1.2 million in the twelve months ended December 31, 2018.

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.

On December 18, 2017, the Company acquired through its wholly-owned subsidiary, Aspen U.S. Holdings, a 23.2% share of Crop Re Services LLC (“Crop Re”), a newly formed U.S.-based subsidiary of CGB Diversified Services, Inc (“CGB DS”) in exchange for the sale of AG Logic Holdings, LLC (“AgriLogic”), the Company’s U.S. crop insurance business. Total consideration for the sale of AgriLogic consisted of the 23.2% share of Crop Re valued at $62.5 million and cash in the amount of $5.9 million. Crop Re is responsible for directing the placement of reinsurance on behalf of CGB DS and CGB Insurance Company (“CGBIC”), an Indiana insurance company affiliate of CGB DS and an RMA licensed crop insurer. The remaining 76.8% of Crop Re is owned by CGB DS. AAIC’s primary crop insurance coverage will be run-off and AAIC, or an affiliate of AAIC, will provide quota share reinsurance to CGBIC for both federal and state regulated crop insurance as part of Aspen’s ownership in Crop Re. The investment in Crop Re represents the Company’s share of the net assets of Crop Re plus a basis difference which represents the difference between the cost of the investment and the amount of underlying equity in net assets. The Company has determined that this basis difference of $62.5 million represents the value attributable to the ability of Crop Re to direct the placement of reinsurance business under the reinsurance commitment contained within the operating agreement between Crop Re and the Company. The investment in Crop Re 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 September 18, 2018, Aspen U.S. Holdings sold a 60% interest in AgriLogic Consulting, LLC, its agricultural consulting business, to CGB DS and an individual investor. The Company’s residual 40% interest in AgriLogic Consulting, LLC is valued at $Nil.

The table below shows the Company’s investments in MVI, Chaspark, Bene, Digital Re and Crop Re for the twelve months ended December 31, 2018 and 2017:



	MVI			Chaspark			Bene			Digital Re			Crop Re		Total

Opening undistributed value of investment as at January 1, 2018	$	0.5		$	—		$	2.9		$	0.5		$	62.5	$	66.4
Investment in the period	0.2			—			1.2			—			—		1.4
Unrealized (loss)/gain for the twelve months to December 31, 2018	(0.2		)	—			(0.9		)	0.4			—		(0.7		)
Closing value of investment as at December 31, 2018	$	0.5		$	—		$	3.2		$	0.9		$	62.5	$	67.1

Opening undistributed value of investment as at January 1, 2017	$	0.5		$	8.4		$	3.2		$	—		$	—	$	12.1
Investment in the period	0.1			—			—			2.3			62.5		64.9
Goodwill	—			—			—			(1.8		)	—		(1.8		)
Distribution received	—			(9.3		)	—			—			—		(9.3		)
Unrealized (loss)/gain for the twelve months to December 31, 2017	(0.1		)	0.9			(0.3		)	—			—		0.5
Closing value of investment as at December 31, 2017	$	0.5		$	—		$	2.9		$	0.5		$	62.5	$	66.4

Fixed Income Securities. The scheduled maturity distribution of the Company’s available for sale fixed income securities as at December 31, 2018 and December 31, 2017 is set forth 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 December 31, 2018
	Amortized Cost or Cost		Fair Market Value		Average S&P Ratings by Maturity
	($ in millions)
Due one year or less	$	464.3	$	463.5	AA-
Due after one year through five years	2,605.7		2,582.0		AA-
Due after five years through ten years	1,047.9		1,028.3		AA-
Due after ten years	121.9		127.0		AA-
Total — Government and corporate	4,239.8		4,200.8
Agency mortgage-backed	1,025.1		1,012.6		AA+
Asset-backed	17.4		17.3		AAA
Total fixed income securities — Available for sale	$	5,282.3	$	5,230.7



	At December 31, 2017
	Amortized Cost or Cost		Fair Market Value		Average S&P Ratings by Maturity
	($ in millions)
Due one year or less	$	561.7	$	562.4	AA
Due after one year through five years	2,486.7		2,492.2		AA-
Due after five years through ten years	1,092.2		1,097.4		A+
Due after ten years	93.3		106.3		A
Total — Government and corporate	4,233.9		4,258.3
Agency mortgage-backed	941.0		946.5		AA+
Asset-backed	26.3		26.2		AAA
Total fixed income securities — Available for sale	$	5,201.2	$	5,231.0

Guaranteed Investments. As at December 31, 2018 and December 31, 2017, the Company held no investments which are guaranteed by mono-line insurers, excluding those with explicit government guarantees. The Company’s exposure to other third-party guaranteed debt is primarily to investments backed by non-U.S. government guaranteed issuers.

Gross Unrealized Losses. 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 for the Company’s available for sale portfolio as at December 31, 2018 and December 31, 2017:



	December 31, 2018
	0-12 months					Over 12 months					Total
	Fair Market Value		Gross Unrealized Losses			Fair Market Value		Gross Unrealized Losses			Fair Market Value		Gross Unrealized Losses			Number of Securities
	($ in millions)
U.S. government	$	180.2	$	(0.7	)	$	740.6	$	(15.4	)	$	920.8	$	(16.1	)	103
U.S. agency	13.5		(0.2		)	18.4		(0.2		)	31.9		(0.4		)	12
Municipal	3.1		(0.1		)	25.0		(0.7		)	28.1		(0.8		)	9
Corporate	999.1		(15.2		)	762.2		(25.3		)	1,761.3		(40.5		)	667
Non-U.S. government-backed corporate	14.5		—			25.8		(0.2		)	40.3		(0.2		)	12
Non-U.S government	64.0		(0.3		)	91.0		(0.5		)	155.0		(0.8		)	57
Asset-backed	6.3		—			10.8		(0.1		)	17.1		(0.1		)	8
Agency mortgage-backed	245.7		(2.6		)	447.3		(16.4		)	693.0		(19.0		)	253
Total fixed income securities — Available for sale	1,526.4		(19.1		)	2,121.1		(58.8		)	3,647.5		(77.9		)	1,121
Total short-term investments — Available for sale	34.5		—			—		—			34.5		—			12
Total	$	1,560.9	$	(19.1	)	$	2,121.1	$	(58.8	)	$	3,682.0	$	(77.9	)	1,133



	December 31, 2017
	0-12 months					Over 12 months					Total
	Fair Market Value		Gross Unrealized Losses			Fair Market Value		Gross Unrealized Losses			Fair Market Value		Gross Unrealized Losses			Number of Securities
	($ in millions)
U.S. government	$	652.1	$	(5.1	)	$	259.8	$	(6.5	)	$	911.9	$	(11.6	)	101
U.S. agency	20.1		(0.2		)	6.1		—			26.2		(0.2		)	10
Municipal	28.5		(0.2		)	—		—			28.5		(0.2		)	9
Corporate	699.3		(3.4		)	360.7		(8.4		)	1,060.0		(11.8		)	412
Non-U.S. government-backed corporate	43.5		(0.3		)	13.3		(0.2		)	56.8		(0.5		)	15
Non-U.S government	206.2		(0.8		)	32.0		(0.4		)	238.2		(1.2		)	47
Asset-backed	11.1		—			10.5		(0.1		)	21.6		(0.1		)	11
Agency mortgage-backed	257.6		(1.9		)	301.9		(6.3		)	559.5		(8.2		)	156
Total fixed income securities — Available for sale	1,918.4		(11.9		)	984.3		(21.9		)	2,902.7		(33.8		)	761
Total short-term investments — Available for sale	46.9		(0.1		)	—		—			46.9		(0.1		)	8
Total	$	1,965.3	$	(12.0	)	$	984.3	$	(21.9	)	$	2,949.6	$	(33.9	)	769

Other-than-temporary Impairments. A security is potentially impaired when its fair value is below its cost or amortized cost. The Company reviews its available for sale fixed income and equity portfolios on an individual security basis for potential OTTI each quarter based on criteria including issuer-specific circumstances, credit ratings actions and general macro-economic conditions. The total OTTI charge for the twelve months ended December 31, 2018 was $Nil (2017 — $0.7 million). For a more detailed description of accounting policies for OTTI, refer to Note 2(c), “Basis of Preparation and Significant Accounting Policies — Accounting for Investments, Cash and Cash Equivalents” of these consolidated financial statements.