| Investments |
Investments a) Fixed Maturities and Other Investments
During the third quarter of 2015, we designated fixed maturities with a total fair value of $608,722 as HTM reflecting our intent to hold these securities to maturity. The net unrealized holding gain of $244 at the designation date continues to be reported in the carrying value of the HTM securities and is amortized through Other Comprehensive Income over the remaining life of the securities using the effective interest method in a manner consistent with the amortization of any premium or discount.
The original or amortized cost, estimated fair value and gross unrealized gains and losses of fixed maturities and other investments at December 31, 2015 and 2014, are as follows: | | | | | | | | | | | | | | | | | | December 31, 2015 | | Original or
amortized
cost | | Gross
unrealized
gains | | Gross
unrealized
losses | | Fair value | AFS fixed maturities: | | | | | | | | | U.S. treasury bonds | | $ | 5,714 |
| | $ | 312 |
| | $ | (16 | ) | | $ | 6,010 |
| U.S. agency bonds – mortgage-backed | | 1,471,782 |
| | 15,399 |
| | (10,190 | ) | | 1,476,991 |
| U.S. agency bonds – other | | 23,734 |
| | 577 |
| | — |
| | 24,311 |
| Non-U.S. government and supranational bonds | | 35,128 |
| | — |
| | (4,584 | ) | | 30,544 |
| Asset-backed securities | | 165,719 |
| | 1,174 |
| | (1,089 | ) | | 165,804 |
| Corporate bonds | | 1,798,610 |
| | 38,070 |
| | (97,012 | ) | | 1,739,668 |
| Municipal bonds | | 62,177 |
| | 2,583 |
| | — |
| | 64,760 |
| Total AFS fixed maturities | | 3,562,864 |
| | 58,115 |
| | (112,891 | ) | | 3,508,088 |
| HTM fixed maturities: | | | | | | | | | Corporate bonds | | 607,843 |
| | 3,458 |
| | (12,326 | ) | | 598,975 |
| Total HTM fixed maturities | | 607,843 |
| | 3,458 |
| | (12,326 | ) | | 598,975 |
| Other investments | | 10,816 |
| | 1,091 |
| | (95 | ) | | 11,812 |
| Total investments | | $ | 4,181,523 |
| | $ | 62,664 |
| | $ | (125,312 | ) | | $ | 4,118,875 |
|
| | | | | | | | | | | | | | | | | | December 31, 2014 | | Original or
amortized
cost | | Gross
unrealized
gains | | Gross
unrealized
losses | | Fair value | AFS fixed maturities: | | | | | | | | | U.S. treasury bonds | | $ | 8,937 |
| | $ | 423 |
| | $ | — |
| | $ | 9,360 |
| U.S. agency bonds – mortgage-backed | | 1,313,834 |
| | 19,197 |
| | (10,588 | ) | | 1,322,443 |
| U.S. agency bonds – other | | 7,213 |
| | 775 |
| | — |
| | 7,988 |
| Non-U.S. government and supranational bonds | | 54,467 |
| | 304 |
| | (3,128 | ) | | 51,643 |
| Asset-backed securities | | 52,337 |
| | 2,443 |
| | — |
| | 54,780 |
| Corporate bonds | | 1,831,431 |
| | 89,243 |
| | (25,295 | ) | | 1,895,379 |
| Municipal bonds | | 62,153 |
| | 3,666 |
| | — |
| | 65,819 |
| Short term investments | | 49,492 |
| | — |
| | — |
| | 49,492 |
| Total AFS fixed maturities | | 3,379,864 |
| | 116,051 |
| | (39,011 | ) | | 3,456,904 |
| Other investments | | 10,862 |
| | 1,709 |
| | — |
| | 12,571 |
| Total investments | | $ | 3,390,726 |
| | $ | 117,760 |
| | $ | (39,011 | ) | | $ | 3,469,475 |
|
The contractual maturities of our fixed maturities are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
4. Investments (continued)
| | | | | | | | | | | | | | | | | | | | AFS fixed maturities | | HTM fixed maturities | December 31, 2015 | | Amortized cost | | Fair value | | Amortized cost | | Fair value | Maturity | | | | | | | | | Due in one year or less | | $ | 181,769 |
| | $ | 180,407 |
| | $ | — |
| | $ | — |
| Due after one year through five years | | 477,902 |
| | 475,103 |
| | 67,371 |
| | 66,888 |
| Due after five years through ten years | | 1,238,535 |
| | 1,180,221 |
| | 540,472 |
| | 532,087 |
| Due after ten years | | 27,157 |
| | 29,562 |
| | — |
| | — |
| | | 1,925,363 |
| | 1,865,293 |
| | 607,843 |
| | 598,975 |
| U.S. agency bonds - mortgage-backed | | 1,471,782 |
| | 1,476,991 |
| | — |
| | — |
| Asset-backed securities
| | 165,719 |
| | 165,804 |
| | — |
| | — |
| Total fixed maturities | | $ | 3,562,864 |
| | $ | 3,508,088 |
| | $ | 607,843 |
| | $ | 598,975 |
|
The following tables summarize fixed maturities in an unrealized loss position and the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position: | | | | | | | | | | | | | | | | | | | | | | | | | | | | Less than 12 Months | | 12 Months or More | | Total | December 31, 2015 | | Fair
value | | Unrealized
losses | | Fair
value | | Unrealized
losses | | Fair
value | | Unrealized
losses | Fixed maturities | | | | | | | | | | | | | U.S. treasury bonds | | $ | 1,119 |
| | $ | (16 | ) | | $ | — |
| | $ | — |
| | $ | 1,119 |
| | $ | (16 | ) | U.S. agency bonds – mortgage-backed | | 443,331 |
| | (4,113 | ) | | 170,053 |
| | (6,077 | ) | | 613,384 |
| | (10,190 | ) | Non–U.S. government and supranational bonds | | 6,958 |
| | (365 | ) | | 22,586 |
| | (4,219 | ) | | 29,544 |
| | (4,584 | ) | Asset-backed securities | | 89,838 |
| | (1,089 | ) | | — |
| | — |
| | 89,838 |
| | (1,089 | ) | Corporate bonds | | 752,911 |
| | (41,352 | ) | | 399,779 |
| | (67,986 | ) | | 1,152,690 |
| | (109,338 | ) | Total temporarily impaired fixed maturities | | 1,294,157 |
| | (46,935 | ) | | 592,418 |
| | (78,282 | ) | | 1,886,575 |
| | (125,217 | ) | Other investments | | 4,905 |
| | (95 | ) | | — |
| | — |
| | 4,905 |
| | (95 | ) | Total temporarily impaired fixed maturities and other investments | | $ | 1,299,062 |
| | $ | (47,030 | ) | | $ | 592,418 |
| | $ | (78,282 | ) | | $ | 1,891,480 |
| | $ | (125,312 | ) |
At December 31, 2015, there were approximately 270 securities in an unrealized loss position with a fair value of $1,891,480 and unrealized losses of $125,312. Of these securities, there were 93 securities that have been in an unrealized loss position for 12 months or greater with a fair value of $592,418 and unrealized losses of $78,282. | | | | | | | | | | | | | | | | | | | | | | | | | | | | Less than 12 Months | | 12 Months or More | | Total | December 31, 2014 | | Fair
value | | Unrealized
losses | | Fair
value | | Unrealized
losses | | Fair
value | | Unrealized
losses | Fixed maturities | | | | | | | | | | | | | U.S. agency bonds – mortgage-backed | | $ | 84,264 |
| | $ | (806 | ) | | $ | 441,601 |
| | $ | (9,782 | ) | | $ | 525,865 |
| | $ | (10,588 | ) | Non-U.S. government and supranational bonds | | 43,712 |
| | (2,822 | ) | | 2,522 |
| | (306 | ) | | 46,234 |
| | (3,128 | ) | Corporate bonds | | 397,173 |
| | (14,485 | ) | | 143,894 |
| | (10,810 | ) | | 541,067 |
| | (25,295 | ) | Total | | $ | 525,149 |
| | $ | (18,113 | ) | | $ | 588,017 |
| | $ | (20,898 | ) | | $ | 1,113,166 |
| | $ | (39,011 | ) |
4. Investments (continued)
At December 31, 2014, there were approximately 141 securities in an unrealized loss position with a fair value of $1,113,166 and unrealized losses of $39,011. Of these securities, there were 46 securities that have been in an unrealized loss position for 12 months or greater with a fair value of $588,017 and unrealized losses of $20,898.
OTTI
The Company performs quarterly reviews of its fixed maturities in order to determine whether declines in fair value below the amortized cost basis were considered other-than-temporary in accordance with applicable guidance. Based on our qualitative and quantitative OTTI review of each security within our fixed maturity portfolio, during the year ended December 31, 2015, we determined that there was a credit impairment in respect of one corporate bond. The Company does not intend to sell this security, but we do not believe it is probable that we will recover the amortized cost basis of the security. The Company has therefore recognized $1,060 of OTTI through earnings for the year ended December 31, 2015. The Company recognized $2,364 and $0 OTTI for the years ended December 31, 2014 and 2013, respectively.
In respect of the rest of our portfolio, we have determined that the unrealized losses on fixed maturities at December 31, 2015 were primarily due to widening of credit spreads since their date of purchase. Because we do not intend to sell these securities and it is not more likely than not that we will be required to do so until a recovery of fair value to amortized cost, we currently believe it is probable that we will collect all amounts due according to their respective contractual terms. Therefore, we do not consider these fixed maturities to be other-than-temporarily impaired at December 31, 2015.
The following summarizes the credit ratings of our fixed maturities: | | | | | | | | | | | | | Rating* at December 31, 2015 | | Amortized cost | | Fair value | | % of Total
fair value | U.S. treasury bonds | | $ | 5,714 |
| | $ | 6,010 |
| | 0.1 | % | U.S. agency bonds | | 1,495,516 |
| | 1,501,302 |
| | 36.6 | % | AAA | | 170,190 |
| | 170,391 |
| | 4.1 | % | AA+, AA, AA- | | 222,506 |
| | 223,084 |
| | 5.4 | % | A+, A, A- | | 1,075,550 |
| | 1,066,794 |
| | 26.0 | % | BBB+, BBB, BBB- | | 1,077,064 |
| | 1,039,228 |
| | 25.3 | % | BB+ or lower | | 124,167 |
| | 100,254 |
| | 2.5 | % | Total | | $ | 4,170,707 |
| | $ | 4,107,063 |
| | 100.0 | % |
| | | | | | | | | | | | | Rating* at December 31, 2014 | | Amortized cost | | Fair value | | % of Total
fair value | U.S. treasury bonds | | $ | 8,937 |
| | $ | 9,360 |
| | 0.3 | % | U.S. agency bonds | | 1,321,047 |
| | 1,330,431 |
| | 38.5 | % | AAA | | 193,280 |
| | 202,973 |
| | 5.9 | % | AA+, AA, AA- | | 116,936 |
| | 120,679 |
| | 3.5 | % | A+, A, A- | | 883,092 |
| | 917,544 |
| | 26.5 | % | BBB+, BBB, BBB- | | 794,244 |
| | 814,039 |
| | 23.5 | % | BB+ or lower | | 62,328 |
| | 61,878 |
| | 1.8 | % | Total | | $ | 3,379,864 |
| | $ | 3,456,904 |
| | 100.0 | % |
*Ratings as assigned by Standard & Poor's ("S&P")
4. Investments (continued)
b) Other Investments
The table below shows our portfolio of other investments: | | | | | | | | | | | | | | | | December 31, | | 2015 | | 2014 | | | Fair value | | % of Total
fair value | | Fair value | | % of Total
fair value | Investment in limited partnerships | | $ | 5,907 |
| | 50.0 | % | | $ | 5,581 |
| | 44.4 | % | Investment in quoted equity | | 4,905 |
| | 41.5 | % | | 5,990 |
| | 47.6 | % | Other | | 1,000 |
| | 8.5 | % | | 1,000 |
| | 8.0 | % | Total other investments | | $ | 11,812 |
| | 100.0 | % | | $ | 12,571 |
| | 100.0 | % |
The Company has a remaining unfunded commitment on its investment in limited partnerships of approximately $622 at December 31, 2015.
c) Net Investment Income
Net investment income was derived from the following sources: | | | | | | | | | | | | | | For the Year Ended December 31, | | 2015 | | 2014 | | 2013 | Fixed maturities | | $ | 132,394 |
| | $ | 118,203 |
| | $ | 89,350 |
| Cash and cash equivalents | | 2,578 |
| | 2,224 |
| | 3,120 |
| Loan to related party | | 1,865 |
| | 1,797 |
| | 1,857 |
| Other | | 312 |
| | 246 |
| | 1,452 |
| | | 137,149 |
| | 122,470 |
| | 95,779 |
| Less: Investment expenses | | (6,057 | ) | | (5,255 | ) | | (4,427 | ) | Total | | $ | 131,092 |
| | $ | 117,215 |
| | $ | 91,352 |
|
d) Realized Gains (Losses) on Investment
Realized gains or losses on the sale of investments are determined on the basis of the first in first out cost method. The following provides an analysis of net realized gains on investment included in the Consolidated Statements of Income: | | | | | | | | | | | | | | For the Year Ended December 31, 2015 | | Gross gains | | Gross losses | | Net | AFS fixed maturities | | $ | 2,849 |
| | $ | (543 | ) | | $ | 2,306 |
| Other investments | | 192 |
| | — |
| | 192 |
| Net realized gains on investment | | $ | 3,041 |
| | $ | (543 | ) | | $ | 2,498 |
|
| | | | | | | | | | | | | | For the Year Ended December 31, 2014 | | Gross gains | | Gross losses | | Net | AFS fixed maturities | | $ | 1,334 |
| | $ | (610 | ) | | $ | 724 |
| Other investments | | 439 |
| | — |
| | 439 |
| Net realized gains on investment | | $ | 1,773 |
| | $ | (610 | ) | | $ | 1,163 |
|
4. Investments (continued) | | | | | | | | | | | | | | For the Year Ended December 31, 2013 | | Gross gains | | Gross losses | | Net | AFS fixed maturities | | $ | 5,598 |
| | $ | (2,201 | ) | | $ | 3,397 |
| Other investments | | 188 |
| | — |
| | 188 |
| Net realized gains on investment | | $ | 5,786 |
| | $ | (2,201 | ) | | $ | 3,585 |
|
Proceeds from sales of fixed maturities classified as AFS were $129,152, $171,216 and $355,863, for the years ended December 31, 2015, 2014 and 2013, respectively.
Net unrealized (losses) gains were as follows: | | | | | | | | | | | | | | December 31, | | 2015 | | 2014 | | 2013 | Fixed maturities | | $ | (55,024 | ) | | $ | 77,040 |
| | $ | 34,275 |
| Other investments | | 996 |
| | 1,709 |
| | 570 |
| Total net unrealized (losses) gains | | (54,028 | ) | | 78,749 |
| | 34,845 |
| Deferred income tax | | (84 | ) | | (170 | ) | | (117 | ) | Net unrealized (losses) gains, net of deferred income tax | | $ | (54,112 | ) | | $ | 78,579 |
| | $ | 34,728 |
| Change, net of deferred income tax | | $ | (132,691 | ) | | $ | 43,851 |
| | $ | (108,937 | ) |
e) Restricted Cash and Cash Equivalents and Investments
We are required to maintain assets on deposit to support our reinsurance operations and to serve as collateral for our reinsurance liabilities under various reinsurance agreements. The assets on deposit are available to settle reinsurance liabilities. We also utilize trust accounts to collateralize business with our reinsurance counterparties. These trust accounts generally take the place of letter of credit requirements.
The assets in trust as collateral are primarily cash and highly rated fixed maturities. The fair value of our restricted assets was as follows: | | | | | | | | | | December 31, | | 2015 | | 2014 | Restricted cash and cash equivalents – third party agreements | | $ | 102,837 |
| | $ | 107,884 |
| Restricted cash and cash equivalents – related party agreements | | 139,944 |
| | 175,817 |
| Restricted cash and cash equivalents – U.S. state regulatory authorities | | 78 |
| | 680 |
| Total restricted cash and cash equivalents | | 242,859 |
| | 284,381 |
| Restricted investments AFS – in trust for third party agreements at fair value (Amortized cost: 2015 – $1,081,202; 2014 – $993,974) | | 1,067,602 |
| | 1,014,878 |
| Restricted investments AFS – in trust for related party agreements at fair value (Amortized cost: 2015 – $1,781,178; 2014 – $1,769,083) | | 1,754,705 |
| | 1,814,478 |
| Restricted investments HTM – in trust for related party agreements at fair value (Amortized cost: 2015 – $607,843; 2014 – $0) | | 598,975 |
| | — |
| Restricted investments AFS – in trust for U.S. state regulatory authorities (Amortized cost: 2015 – $4,071; 2014 – $7,269) | | 4,303 |
| | 7,606 |
| Total restricted investments | | 3,425,585 |
| | 2,836,962 |
| Total restricted cash and cash equivalents and investments | | $ | 3,668,444 |
| | $ | 3,121,343 |
|
|