| Investments |
Investments | | a) | Fixed Maturities and Other Investments |
During the second quarter of 2017, we designated additional fixed maturities with a fair value of $391,934 as held-to-maturity ("HTM") and during 2016 we designated fixed maturities with a total fair value of $155,538 as HTM reflecting our intent to hold these securities to maturity. The net unrealized holding gain of $4,313 and $15,770, respectively, as at each 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 yield 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 September 30, 2017 and December 31, 2016, are as follows: | | | | | | | | | | | | | | | | | | September 30, 2017 | | Original or amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Fair value | Available-for-sale ("AFS") fixed maturities : | | | | | | | | | U.S. treasury bonds | | $ | 5,194 |
| | $ | 150 |
| | $ | (8 | ) | | $ | 5,336 |
| U.S. agency bonds – mortgage-backed | | 2,004,645 |
| | 14,208 |
| | (12,451 | ) | | 2,006,402 |
| Non-U.S. government and supranational bonds | | 33,392 |
| | 216 |
| | (2,012 | ) | | 31,596 |
| Asset-backed securities | | 257,969 |
| | 4,456 |
| | (164 | ) | | 262,261 |
| Corporate bonds | | 1,541,296 |
| | 52,717 |
| | (17,624 | ) | | 1,576,389 |
| Municipal bonds | | 2,500 |
| | 103 |
| | — |
| | 2,603 |
| Total AFS fixed maturities | | 3,844,996 |
| | 71,850 |
| | (32,259 | ) | | 3,884,587 |
| Held-to-maturity ("HTM") fixed maturities: | | | | | | | | | Corporate bonds | | 1,057,943 |
| | 34,027 |
| | (748 | ) | | 1,091,222 |
| Municipal bonds | | 60,425 |
| | 459 |
| | — |
| | 60,884 |
| Total HTM fixed maturities | | 1,118,368 |
| | 34,486 |
| | (748 | ) | | 1,152,106 |
| Other investments | | 5,640 |
| | 1,401 |
| | — |
| | 7,041 |
| Total investments | | $ | 4,969,004 |
| | $ | 107,737 |
| | $ | (33,007 | ) | | $ | 5,043,734 |
|
| | | | | | | | | | | | | | | | | | December 31, 2016 | | Original or amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Fair value | AFS fixed maturities: | | | | | | | | | U.S. treasury bonds | | $ | 5,186 |
| | $ | 238 |
| | $ | (11 | ) | | $ | 5,413 |
| U.S. agency bonds – mortgage-backed | | 1,720,436 |
| | 12,867 |
| | (17,265 | ) | | 1,716,038 |
| U.S. agency bonds – other | | 18,082 |
| | 20 |
| | — |
| | 18,102 |
| Non-U.S. government and supranational bonds | | 35,158 |
| | 73 |
| | (5,297 | ) | | 29,934 |
| Asset-backed securities | | 217,232 |
| | 3,713 |
| | (69 | ) | | 220,876 |
| Corporate bonds | | 1,947,347 |
| | 30,951 |
| | (62,093 | ) | | 1,916,205 |
| Municipal bonds | | 62,201 |
| | 2,897 |
| | — |
| | 65,098 |
| Total AFS fixed maturities | | 4,005,642 |
| | 50,759 |
| | (84,735 | ) | | 3,971,666 |
| HTM fixed maturities: | | | | | | | | | Corporate bonds | | 752,212 |
| | 16,370 |
| | (2,447 | ) | | 766,135 |
| Total HTM fixed maturities | | 752,212 |
| | 16,370 |
| | (2,447 | ) | | 766,135 |
| Other investments | | 10,057 |
| | 3,003 |
| | — |
| | 13,060 |
| Total investments | | $ | 4,767,911 |
| | $ | 70,132 |
| | $ | (87,182 | ) | | $ | 4,750,861 |
|
4. Investments (continued) 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. | | | | | | | | | | | | | | | | | | | | AFS fixed maturities | | HTM fixed maturities | September 30, 2017 | | Amortized cost | | Fair value | | Amortized cost | | Fair value | Maturity | | | | | | | | | Due in one year or less | | $ | 40,440 |
| | $ | 38,784 |
| | $ | 49,293 |
| | $ | 49,298 |
| Due after one year through five years | | 577,760 |
| | 583,569 |
| | 335,922 |
| | 346,747 |
| Due after five years through ten years | | 961,682 |
| | 990,968 |
| | 723,297 |
| | 746,131 |
| Due after ten years | | 2,500 |
| | 2,603 |
| | 9,856 |
| | 9,930 |
| | | 1,582,382 |
| | 1,615,924 |
| | 1,118,368 |
| | 1,152,106 |
| U.S. agency bonds – mortgage-backed | | 2,004,645 |
| | 2,006,402 |
| | — |
| | — |
| Asset-backed securities | | 257,969 |
| | 262,261 |
| | — |
| | — |
| Total fixed maturities | | $ | 3,844,996 |
| | $ | 3,884,587 |
| | $ | 1,118,368 |
| | $ | 1,152,106 |
|
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 | September 30, 2017 | | Fair
value | | Unrealized
losses | | Fair
value | | Unrealized
losses | | Fair
value | | Unrealized
losses | Fixed maturities | | | | | | | | | | | | | U.S. treasury bonds | | $ | — |
| | $ | — |
| | $ | 592 |
| | $ | (8 | ) | | $ | 592 |
| | $ | (8 | ) | U.S. agency bonds – mortgage-backed | | 700,173 |
| | (5,545 | ) | | 390,211 |
| | (6,906 | ) | | 1,090,384 |
| | (12,451 | ) | Non–U.S. government and supranational bonds | | 12,678 |
| | (1,116 | ) | | 15,132 |
| | (896 | ) | | 27,810 |
| | (2,012 | ) | Asset-backed securities | | 21,499 |
| | (105 | ) | | 3,323 |
| | (59 | ) | | 24,822 |
| | (164 | ) | Corporate bonds | | 152,959 |
| | (4,437 | ) | | 262,782 |
| | (13,935 | ) | | 415,741 |
| | (18,372 | ) | Total temporarily impaired fixed maturities | | $ | 887,309 |
| | $ | (11,203 | ) | | $ | 672,040 |
| | $ | (21,804 | ) | | $ | 1,559,349 |
| | $ | (33,007 | ) |
At September 30, 2017, there were approximately 148 securities in an unrealized loss position with a fair value of $1,559,349 and unrealized losses of $33,007. 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 $672,040 and unrealized losses of $21,804. 4. Investments (continued) | | | | | | | | | | | | | | | | | | | | | | | | | | | | Less than 12 Months | | 12 Months or More | | Total | December 31, 2016 | | Fair
value | | Unrealized
losses | | Fair
value | | Unrealized
losses | | Fair
value | | Unrealized
losses | Fixed maturities | | | | | | | | | | | | | U.S. treasury bonds | | $ | 589 |
| | $ | (11 | ) | | $ | — |
| | $ | — |
| | $ | 589 |
| | $ | (11 | ) | U.S. agency bonds – mortgage-backed | | 997,943 |
| | (14,440 | ) | | 47,969 |
| | (2,825 | ) | | 1,045,912 |
| | (17,265 | ) | Non-U.S. government and supranational bonds | | 3,169 |
| | (160 | ) | | 25,236 |
| | (5,137 | ) | | 28,405 |
| | (5,297 | ) | Asset-backed securities | | 30,589 |
| | (69 | ) | | — |
| | — |
| | 30,589 |
| | (69 | ) | Corporate bonds | | 642,599 |
| | (15,058 | ) | | 357,954 |
| | (49,482 | ) | | 1,000,553 |
| | (64,540 | ) | Total temporarily impaired fixed maturities | | $ | 1,674,889 |
| | $ | (29,738 | ) | | $ | 431,159 |
| | $ | (57,444 | ) | | $ | 2,106,048 |
| | $ | (87,182 | ) |
At December 31, 2016, there were approximately 251 securities in an unrealized loss position with a fair value of $2,106,048 and unrealized losses of $87,182. Of these securities, there were 91 securities that have been in an unrealized loss position for 12 months or greater with a fair value of $431,159 and unrealized losses of $57,444. 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. At September 30, 2017, we have determined that the unrealized losses on fixed maturities were primarily due to widening of credit and interest rate spreads as well as the impact of foreign exchange rate changes on certain foreign currency denominated AFS fixed maturities 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 ("OTTI") at September 30, 2017. The Company has recognized no OTTI through earnings for the three and nine months ended September 30, 2017 and 2016. The following summarizes the credit ratings of our fixed maturities: | | | | | | | | | | | | | Ratings(1) at September 30, 2017 | | Amortized cost | | Fair value | | % of Total
fair value | U.S. treasury bonds | | $ | 5,194 |
| | $ | 5,336 |
| | 0.1 | % | U.S. agency bonds | | 2,004,645 |
| | 2,006,402 |
| | 39.8 | % | AAA | | 169,514 |
| | 173,589 |
| | 3.4 | % | AA+, AA, AA- | | 238,268 |
| | 244,507 |
| | 4.9 | % | A+, A, A- | | 1,395,001 |
| | 1,421,504 |
| | 28.3 | % | BBB+, BBB, BBB- | | 1,093,491 |
| | 1,125,119 |
| | 22.3 | % | BB+ or lower | | 57,251 |
| | 60,236 |
| | 1.2 | % | Total fixed maturities | | $ | 4,963,364 |
| | $ | 5,036,693 |
| | 100.0 | % |
4. Investments (continued) | | | | | | | | | | | | | Ratings(1) at December 31, 2016 | | Amortized cost | | Fair value | | % of Total
fair value | U.S. treasury bonds | | $ | 5,186 |
| | $ | 5,413 |
| | 0.1 | % | U.S. agency bonds | | 1,738,518 |
| | 1,734,140 |
| | 36.6 | % | AAA | | 170,515 |
| | 171,090 |
| | 3.6 | % | AA+, AA, AA- | | 238,315 |
| | 237,169 |
| | 5.0 | % | A+, A, A- | | 1,386,023 |
| | 1,374,860 |
| | 29.0 | % | BBB+, BBB, BBB- | | 1,053,529 |
| | 1,047,376 |
| | 22.2 | % | BB+ or lower | | 165,768 |
| | 167,753 |
| | 3.5 | % | Total fixed maturities | | $ | 4,757,854 |
| | $ | 4,737,801 |
| | 100.0 | % |
| | (1) | Based on Standard & Poor’s ("S&P"), or equivalent, ratings |
The table below shows our portfolio of other investments: | | | | | | | | | | | | | | | | | | September 30, 2017 | | December 31, 2016 | | | Fair value | | % of Total
fair value | | Fair value | | % of Total
fair value | Investment in limited partnerships | | $ | 5,541 |
| | 78.7 | % | | $ | 5,474 |
| | 41.9 | % | Investment in quoted equity | | — |
| | — | % | | 6,586 |
| | 50.4 | % | Other | | 1,500 |
| | 21.3 | % | | 1,000 |
| | 7.7 | % | Total other investments | | $ | 7,041 |
| | 100.0 | % | | $ | 13,060 |
| | 100.0 | % |
The Company has a remaining unfunded commitment on its investment in limited partnerships of approximately $319 at September 30, 2017 (December 31, 2016 - $463). Net investment income was derived from the following sources: | | | | | | | | | | | | | | | | | | | | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | | 2017 | | 2016 | | 2017 | | 2016 | Fixed maturities | | $ | 40,369 |
| | $ | 35,769 |
| | $ | 123,849 |
| | $ | 108,018 |
| Cash and cash equivalents | | 899 |
| | 506 |
| | 1,328 |
| | 1,147 |
| Loan to related party | | 913 |
| | 599 |
| | 2,441 |
| | 1,729 |
| Other | | 569 |
| | 572 |
| | 1,460 |
| | 1,519 |
| | | 42,750 |
| | 37,446 |
| | 129,078 |
| | 112,413 |
| Investment expenses | | (1,927 | ) | | (1,780 | ) | | (5,586 | ) | | (5,122 | ) | Net investment income | | $ | 40,823 |
| | $ | 35,666 |
| | $ | 123,492 |
| | $ | 107,291 |
|
4. Investments (continued) | | 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 Condensed Consolidated Statements of Income: | | | | | | | | | | | | | | For the Three Months Ended September 30, 2017 | | Gross gains | | Gross losses | | Net | AFS fixed maturities | | $ | 1,366 |
| | $ | (997 | ) | | $ | 369 |
| Other investments | | 5,490 |
| | — |
| | 5,490 |
| Net realized gains on investment | | $ | 6,856 |
| | $ | (997 | ) | | $ | 5,859 |
| | | | | | | | For the Three Months Ended September 30, 2016 | | Gross gains | | Gross losses | | Net | AFS fixed maturities | | $ | 1,813 |
| | $ | — |
| | $ | 1,813 |
| Other investments | | 87 |
| | — |
| | 87 |
| Net realized gains on investment | | $ | 1,900 |
| | $ | — |
| | $ | 1,900 |
| | | | | | | | For the Nine Months Ended September 30, 2017 | | Gross gains | | Gross losses | | Net | AFS fixed maturities | | $ | 3,854 |
| | $ | (1,253 | ) | | $ | 2,601 |
| Other investments | | 5,715 |
| | — |
| | 5,715 |
| Net realized gains on investment | | $ | 9,569 |
| | $ | (1,253 | ) | | $ | 8,316 |
| | | | | | | | For the Nine Months Ended September 30, 2016 | | Gross gains | | Gross losses | | Net | AFS fixed maturities | | $ | 4,953 |
| | $ | (891 | ) | | $ | 4,062 |
| Other investments | | 449 |
| | — |
| | 449 |
| Net realized gains on investment | | $ | 5,402 |
| | $ | (891 | ) | | $ | 4,511 |
|
Proceeds from sales of fixed maturities classified as AFS were $97,357 and $199,751 for the three and nine months ended September 30, 2017, respectively (2016 - $15,260 and $101,923, respectively). Net unrealized (losses) gains were as follows: | | | | | | | | | | | | September 30, 2017 | | December 31, 2016 | Fixed maturities | | $ | 47,888 |
| | $ | (23,635 | ) | Other investments | | 1,401 |
| | 3,003 |
| Total net unrealized gains (losses) | | 49,289 |
| | (20,632 | ) | Deferred income tax | | (79 | ) | | (84 | ) | Net unrealized gains (losses), net of deferred income tax | | $ | 49,210 |
| | $ | (20,716 | ) | Change, net of deferred income tax | | $ | 69,926 |
| |
|
|
| | 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. 4. Investments (continued) The assets in trust as collateral are primarily cash and highly rated fixed maturities. The fair value of our restricted assets was as follows: | | | | | | | | | | | | September 30, 2017 | | December 31, 2016 | Restricted cash – third party agreements | | $ | 80,999 |
| | $ | 56,891 |
| Restricted cash – related party agreements | | 50,467 |
| | 46,777 |
| Restricted cash – U.S. state regulatory authorities | | 132 |
| | 120 |
| Total restricted cash | | 131,598 |
| | 103,788 |
| Restricted investments – in trust for third party agreements at fair value (Amortized cost: 2017 – $1,337,185; 2016 – $1,307,926) | | 1,354,548 |
| | 1,299,569 |
| Restricted investments AFS– in trust for related party agreements at fair value (Amortized cost: 2017 – $2,193,678; 2016 – $2,242,565) | | 2,218,382 |
| | 2,225,066 |
| Restricted investments HTM– in trust for related party agreements at fair value (Amortized cost: 2017 – $1,118,368; 2016 – $752,212) | | 1,152,106 |
| | 766,135 |
| Restricted investments – in trust for U.S. state regulatory authorities (Amortized cost: 2017 – $4,071; 2016 – $4,059) | | 4,188 |
| | 4,238 |
| Total restricted investments | | 4,729,224 |
| | 4,295,008 |
| Total restricted cash and investments | | $ | 4,860,822 |
| | $ | 4,398,796 |
|
|