Investments

Statements of Operations and Other Comprehensive Income

Investment Income. The following table summarizes investment income for the three months ended March 31, 2019 and 2018:



	For the Three Months Ended
	March 31, 2019			March 31, 2018
	($ in millions)
Fixed income securities — Available for sale	$	34.3		$	33.3
Fixed income securities — Trading	11.7			12.0
Short-term investments — Available for sale	0.8			0.2
Short-term investments — Trading	0.2			0.2
Fixed term deposits (included in cash and cash equivalents)	4.5			2.4
Equity securities — Trading	—			1.2
Catastrophe bonds — Trading	0.8			0.6
Other investments, at fair value	1.4			—
Total	$	53.7		$	49.9
Investment expenses	(2.2		)	(2.6		)
Net investment income	$	51.5		$	47.3

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 months ended March 31, 2019 and 2018:



	For the Three Months Ended
	March 31, 2019			March 31, 2018
	($ in millions)
Available for sale:
Fixed income securities — gross realized gains	$	3.0		$	1.8
Fixed income securities — gross realized (losses)	(3.2		)	(1.8		)
Cash and cash equivalents — gross realized gains	—			0.2
Cash and cash equivalents — gross realized (losses)	—			(0.1		)
Trading:
Fixed income securities — gross realized gains	2.3			1.6
Fixed income securities — gross realized (losses)	(2.8		)	(7.0		)
Short-term investments — gross realized (losses)	(0.1		)	—
Cash and cash equivalents — gross realized gains	0.1			1.6
Equity securities — gross realized gains	—			94.5
Equity securities — gross realized (losses)	—			(20.3		)
Catastrophe bonds — net unrealized gains	0.3			0.9
Net change in gross unrealized gains/(losses)	36.3			(108.8		)
Investments — equity method:
Gross realized and unrealized (loss) in MVI	—			(0.1		)
Gross realized and unrealized (loss) in Bene	(0.1		)	(0.2		)
Total net realized and unrealized investment gains/(losses) recorded in the statement of operations	$	35.8		$	(37.7	)

Change in available for sale net unrealized gains/(losses):
Fixed income securities	75.6			(82.9		)
Change in taxes	(5.2		)	5.5
Total change in net unrealized gains/(losses), net of taxes, recorded in other comprehensive income	$	70.4		$	(77.4	)

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 March 31, 2019 and December 31, 2018:



	As at March 31, 2019
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
	($ in millions)
U.S. government	$	1,352.6	$	14.6	$	(8.0	)	$	1,359.2
U.S. agency	39.3		0.3		(0.1		)	39.5
Municipal	46.5		1.9		(0.2		)	48.2
Corporate	2,151.6		21.8		(10.8		)	2,162.6
Non-U.S. government-backed corporate	98.1		0.4		(0.2		)	98.3
Non-U.S. government	356.9		4.9		(0.2		)	361.6
Asset-backed	16.2		—		(0.1		)	16.1
Agency mortgage-backed	955.3		9.9		(10.2		)	955.0
Total fixed income securities — Available for sale	5,016.5		53.8		(29.8		)	5,040.5
Total short-term investments — Available for sale	160.7		0.2		—			160.9
Total	$	5,177.2	$	54.0	$	(29.8	)	$	5,201.4



	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

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 March 31, 2019 and December 31, 2018:



	As at March 31, 2019
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Market Value
	($ in millions)
U.S. government	$	217.4	$	1.6	$	(0.2	)	$	218.8
Municipal	3.0		—		—			3.0
Corporate	754.9		12.4		(3.4		)	763.9
Non-U.S. government	246.4		6.8		(0.7		)	252.5
Asset-backed	2.3		—		—			2.3
Agency mortgage-backed	49.1		0.3		(0.6		)	48.8
Total fixed income securities — Trading	1,273.1		21.1		(4.9		)	1,289.3
Total short-term investments — Trading	81.0		—		—			81.0
Total catastrophe bonds — Trading	39.5		—		(1.4		)	38.1
Total	$	1,393.6	$	21.1	$	(6.3	)	$	1,408.4



	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

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 $38.1 million as at March 31, 2019. The bonds are either zero-coupon notes or receive quarterly interest payments based on variable interest rates with scheduled maturities ranging from 2019 to 2021. 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.

Investments — Equity Method. 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 twelve months ended December 31, 2017 and a further investment of $0.1 million in the twelve months ended December 31, 2018.

On July 26, 2016, the Company purchased through its wholly-owned subsidiary, Acorn Limited (“Acorn”), 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. 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 former 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 the difference between the cost of the investment and the amount of underlying equity in net assets, the basis difference. 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 the MVI, Bene, Digital Re and Crop Re for the three months ended March 31, 2019:



	For the Three Months Ended March 31, 2019
	MVI		Bene			Digital Re		Crop Re		Total
	($ in millions)
Opening undistributed value of investment	$	0.5	$	3.2		$	0.9	$	62.5	$	67.1
Investment in the period	—		—			—		—		—
Realized/unrealized losses for the three months to March 31, 2019	—		(0.1		)	—		—		(0.1		)
Closing undistributed value of investment	$	0.5	$	3.1		$	0.9	$	62.5	$	67.0

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, refer to Note 17 in these unaudited condensed consolidated financial statements.

Fixed Income Securities. The scheduled maturity distribution of available for sale fixed income securities as at March 31, 2019 and December 31, 2018 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 March 31, 2019
	Amortized Cost or Cost		Fair Market Value		Average S&P Ratings by Maturity
	($ in millions)
Due one year or less	$	441.1	$	440.7	AA-
Due after one year through five years	2,463.8		2,467.0		AA-
Due after five years through ten years	1,014.7		1,025.1		AA-
Due after ten years	125.4		136.6		AA-
Subtotal	4,045.0		4,069.4
Agency mortgage-backed	955.3		955.0		AA+
Asset-backed	16.2		16.1		AAA
Total fixed income securities — Available for sale	$	5,016.5	$	5,040.5



	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-
Subtotal	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

Guaranteed Investments. The Company held no investments which were guaranteed by mono-line insurers, excluding those with explicit government guarantees as at March 31, 2019 and December 31, 2018. The Company’s exposure to other third-party guaranteed debt was 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 March 31, 2019 and December 31, 2018:



	As at March 31, 2019
	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	$	90.9	$	(0.2	)	$	645.1	$	(7.8	)	$	736.0	$	(8.0	)	75
U.S. agency	1.4		—			14.8		(0.1		)	16.2		(0.1		)	7
Municipal	—		—			25.4		(0.2		)	25.4		(0.2		)	8
Corporate	27.8		(0.1		)	966.9		(10.7		)	994.7		(10.8		)	380
Non-U.S. government-backed corporate	—		—			28.1		(0.2		)	28.1		(0.2		)	10
Non-U.S. government	5.7		—			53.2		(0.2		)	58.9		(0.2		)	35
Asset-backed	—		—			13.1		(0.1		)	13.1		(0.1		)	6
Agency mortgage-backed	28.5		(0.1		)	496.6		(10.1		)	525.1		(10.2		)	197
Total fixed income securities — Available for sale	154.3		(0.4		)	2,243.2		(29.4		)	2,397.5		(29.8		)	718
Total short-term investments — Available for sale	17.2		—			—		—			17.2		—			7
Total	$	171.5	$	(0.4	)	$	2,243.2	$	(29.4	)	$	2,414.7	$	(29.8	)	725



	As at December 31, 2018
	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	$	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

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 months ended March 31, 2019 was $Nil (March 31, 2018 —$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 2018 Annual Report on Form 10-K filed with the SEC.