v3.19.2
Investments
 6 Months Ended
Jun. 30, 2019
Schedule of Investments [Abstract]  
Investments Investments
a)
Fixed Maturities
The original or amortized cost, estimated fair value and gross unrealized gains and losses of fixed maturities at June 30, 2019 and December 31, 2018 are as follows:
June 30, 2019
 
Original or amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair value
AFS fixed maturities:
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
365,953

 
$
1,153

 
$
(3
)
 
$
367,103

U.S. agency bonds – mortgage-backed
 
950,301

 
9,299

 
(3,203
)
 
956,397

U.S. agency bonds – other
 
51,875

 
4

 
(1
)
 
51,878

Non-U.S. government and supranational bonds
 
29,321

 
313

 
(298
)
 
29,336

Asset-backed securities
 
220,938

 
681

 
(553
)
 
221,066

Corporate bonds
 
1,310,870

 
37,115

 
(15,258
)
 
1,332,727

Municipal bonds
 
12,949

 
142

 
—

 
13,091

Total fixed maturity investments
 
$
2,942,207

 
$
48,707

 
$
(19,316
)
 
$
2,971,598

December 31, 2018
 
Original or amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair value
AFS fixed maturities:
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
138,625

 
$
448

 
$
(1
)
 
$
139,072

U.S. agency bonds – mortgage-backed
 
1,485,716

 
3,491

 
(36,073
)
 
1,453,134

U.S. agency bonds – other
 
129,741

 
40

 
(548
)
 
129,233

Non-U.S. government and supranational bonds
 
11,212

 
66

 
(1,206
)
 
10,072

Asset-backed securities
 
216,072

 
425

 
(1,415
)
 
215,082

Corporate bonds
 
1,128,614

 
6,525

 
(30,164
)
 
1,104,975

Total AFS fixed maturities
 
3,109,980

 
10,995

 
(69,407
)
 
3,051,568

HTM fixed maturities:
 
 
 
 
 
 
 
 
Corporate bonds
 
957,845

 
3,872

 
(20,990
)
 
940,727

Municipal bonds
 
57,836

 
—

 
(551
)
 
57,285

Total HTM fixed maturities
 
1,015,681

 
3,872

 
(21,541
)
 
998,012

Total fixed maturity investments
 
$
4,125,661

 
$
14,867

 
$
(90,948
)
 
$
4,049,580


4. Investments (continued)
The Company has historically classified its fixed maturity investments as either AFS or held-to-maturity ("HTM"). The AFS portfolio is reported at fair value. The HTM portfolio at December 31, 2018 included securities for which we had the ability and intent to hold to maturity or redemption and was reported at amortized cost. When a security transferred from AFS to HTM, the fair value at the time of transfer, adjusted for subsequent amortization, becomes the security's amortized cost. When a security transferred from HTM to AFS, the security’s amortized cost basis carries over to the AFS category for the subsequent amortization of the historical premium or discount, comparisons of fair value and amortized cost for the purpose of determining unrealized holding gains and losses and required disclosures of amortized cost. The difference between the security’s amortized cost and fair value at the date of transfer into the AFS portfolio will be recognized as an unrealized gain or loss and recorded in accumulated other comprehensive income ("AOCI").
Due to the termination of both AmTrust Reinsurance quota share contracts effective January 1, 2019, the Company no longer believes that it has the positive ability to hold the securities in the HTM portfolio to maturity since this portfolio serves as part of the collateral for the AmTrust Reinsurance segment loss reserves. Therefore, the Company has reclassified and transferred all HTM securities to the AFS portfolio at their fair market value as at March 31, 2019. The carrying value of the HTM securities at the time of transfer was $1,011,878 and the related unrealized gains of $14,230 have been reported in the fair value of the AFS securities as well as reported as a component of AOCI as at March 31, 2019.
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.
June 30, 2019
 
Amortized cost
 
Fair value
Maturity
 
 
 
 
Due in one year or less
 
$
403,428

 
$
402,136

Due after one year through five years
 
791,633

 
798,539

Due after five years through ten years
 
575,907

 
593,460

 
 
1,770,968

 
1,794,135

U.S. agency bonds – mortgage-backed
 
950,301

 
956,397

Asset-backed securities
 
220,938

 
221,066

Total fixed maturities
 
$
2,942,207

 
$
2,971,598


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
June 30, 2019
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
249,954

 
$
(3
)
 
$
—

 
$
—

 
$
249,954

 
$
(3
)
U.S. agency bonds – mortgage-backed
 
10,461

 
(52
)
 
281,302

 
(3,151
)
 
291,763

 
(3,203
)
U.S. agency bonds – other
 
49,988

 
(1
)
 
—

 
—

 
49,988

 
(1
)
Non-U.S. government and supranational bonds
 
14,126

 
(181
)
 
7,789

 
(117
)
 
21,915

 
(298
)
Asset-backed securities
 
83,560

 
(419
)
 
9,266

 
(134
)
 
92,826

 
(553
)
Corporate bonds
 
26,221

 
(530
)
 
214,237

 
(14,728
)
 
240,458

 
(15,258
)
Total temporarily impaired fixed maturities
 
$
434,310

 
$
(1,186
)
 
$
512,594

 
$
(18,130
)
 
$
946,904

 
$
(19,316
)

4. Investments (continued)
At June 30, 2019, there were approximately 131 securities in an unrealized loss position with a fair value of $946,904 and unrealized losses of $19,316. Of these securities, there were 84 securities that have been in an unrealized loss position for 12 months or greater with a fair value of $512,594 and unrealized losses of $18,130.
 
 
Less than 12 Months
 
12 Months or More
 
Total
December 31, 2018
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
 
Fair
value
 
Unrealized
losses
Fixed maturities
 
 
 
 
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
125

 
$
(1
)
 
$
—

 
$
—

 
$
125

 
$
(1
)
U.S. agency bonds – mortgage-backed
 
416,147

 
(6,624
)
 
838,091

 
(29,449
)
 
1,254,238

 
(36,073
)
U.S. agency bonds – other
 
26,838

 
(27
)
 
17,462

 
(521
)
 
44,300

 
(548
)
Non-U.S. government and supranational bonds
 
4,024

 
(252
)
 
3,770

 
(954
)
 
7,794

 
(1,206
)
Asset-backed securities
 
74,801

 
(1,196
)
 
5,793

 
(219
)
 
80,594

 
(1,415
)
Corporate bonds
 
1,052,765

 
(30,334
)
 
286,542

 
(20,820
)
 
1,339,307

 
(51,154
)
Municipal bonds
 
20,379

 
(261
)
 
36,906

 
(290
)
 
57,285

 
(551
)
Total temporarily impaired fixed maturities
 
$
1,595,079

 
$
(38,695
)
 
$
1,188,564

 
$
(52,253
)
 
$
2,783,643

 
$
(90,948
)

At December 31, 2018, there were approximately 348 securities in an unrealized loss position with a fair value of $2,783,643 and unrealized losses of $90,948. Of these securities, there were 103 securities that have been in an unrealized loss position for 12 months or greater with a fair value of $1,188,564 and unrealized losses of $52,253.
Other-than-temporarily impaired ("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 June 30, 2019, we have determined that the unrealized losses on fixed maturities were primarily due to interest rates rising as well as the impact of foreign exchange rate changes on certain foreign currency denominated AFS fixed maturities since their date of purchase. All fixed maturity securities in the investment portfolio continue to pay the expected coupon payments under the contractual terms of the securities. Any credit-related impairment related to fixed maturity securities that the Company does not plan to sell and for which the Company is not more likely than not to be required to sell is recognized in net earnings, with the non-credit related impairment recognized in comprehensive earnings. Based on our analysis, our fixed maturity portfolio is of high credit quality and we believe we will recover the amortized cost basis of our fixed maturity securities. We continually monitor the credit quality of our fixed maturity investments to assess if it is probable that we will receive our contractual or estimated cash flows in the form of principal and interest. Therefore, there were no OTTI losses recognized in earnings on the fixed maturity portfolio in the three and six months ended June 30, 2019 and June 30, 2018, respectively.
The following summarizes the credit ratings of our fixed maturities:
Ratings(1) at June 30, 2019
 
Amortized cost
 
Fair value
 
% of Total
fair value
U.S. treasury bonds
 
$
365,953

 
$
367,103

 
12.4
%
U.S. agency bonds
 
1,002,176

 
1,008,275

 
33.9
%
AAA
 
117,628

 
117,891

 
4.0
%
AA+, AA, AA-
 
154,929

 
156,037

 
5.2
%
A+, A, A-
 
784,152

 
800,009

 
26.9
%
BBB+, BBB, BBB-
 
491,469

 
496,589

 
16.7
%
BB+ or lower
 
25,900

 
25,694

 
0.9
%
Total fixed maturities
 
$
2,942,207

 
$
2,971,598

 
100.0
%
4. Investments (continued)
Ratings(1) at December 31, 2018
 
Amortized cost
 
Fair value
 
% of Total
fair value
U.S. treasury bonds
 
$
138,625

 
$
139,072

 
3.4
%
U.S. agency bonds
 
1,615,457

 
1,582,367

 
39.1
%
AAA
 
137,172

 
135,119

 
3.3
%
AA+, AA, AA-
 
183,142

 
178,674

 
4.4
%
A+, A, A-
 
1,132,993

 
1,113,710

 
27.5
%
BBB+, BBB, BBB-
 
866,043

 
848,348

 
21.0
%
BB+ or lower
 
52,229

 
52,290

 
1.3
%
Total fixed maturities
 
$
4,125,661

 
$
4,049,580

 
100.0
%
(1)
Based on Standard & Poor’s ("S&P"), or equivalent, ratings
b)
Other Investments
The table below shows our portfolio of other investments:
 
 
June 30, 2019
 
December 31, 2018
 
 
Fair value
 
% of Total
fair value
 
Fair value
 
% of Total
fair value
Investment in limited partnerships
 
$
3,258

 
11.5
%
 
$
3,833

 
16.2
%
Investment in special purpose vehicles focused on lending activities
 
23,373

 
82.2
%
 
18,383

 
77.5
%
Other
 
1,800

 
6.3
%
 
1,500

 
6.3
%
Total other investments
 
$
28,431

 
100.0
%
 
$
23,716

 
100.0
%

The Company has a remaining unfunded commitment on its investment in limited partnerships of approximately $340 at June 30, 2019 (December 31, 2018 - $414). The Company also has a remaining unfunded commitment on its investment in special purpose vehicles focused on lending activities of approximately $3,516 at June 30, 2019 (December 31, 2018 - $7,359).
c)
Net Investment Income
Net investment income was derived from the following sources:
 
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
 
 
2019
 
2018
 
2019
 
2018
Fixed maturities
 
$
23,522

 
$
32,914

 
$
49,742

 
$
65,042

Funds withheld interest
 
5,169

 
54

 
9,706

 
113

Loan to related party
 
1,842

 
1,565

 
3,664

 
2,993

Cash and cash equivalents and other
 
1,316

 
800

 
1,591

 
1,168

 
 
31,849

 
35,333

 
64,703

 
69,316

Investment expenses
 
(727
)
 
(1,073
)
 
(1,559
)
 
(2,187
)
Net investment income
 
$
31,122

 
$
34,260

 
$
63,144

 
$
67,129

    
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 (losses) on investment included in the Condensed Consolidated Statements of Income:
For the Three Months Ended June 30, 2019
 
Gross gains
 
Gross losses
 
Net
AFS fixed maturities
 
$
25,436

 
$
(1,501
)
 
$
23,935

Other investments
 
151

 
—

 
151

Net realized gains (losses) on investment
 
$
25,587

 
$
(1,501
)
 
$
24,086

 
 
 
 
 
 
 
For the Three Months Ended June 30, 2018
 
Gross gains
 
Gross losses
 
Net
AFS fixed maturities
 
$
2,287

 
$
(2,921
)
 
$
(634
)
Other investments
 
220

 
—

 
220

Net realized gains (losses) on investment
 
$
2,507

 
$
(2,921
)
 
$
(414
)
 
 
 
 
 
 
 
For the Six Months Ended June 30, 2019
 
Gross gains
 
Gross losses
 
Net
AFS fixed maturities
 
$
27,860

 
$
(14,881
)
 
$
12,979

Other investments
 
151

 
(145
)
 
6

Net realized gains (losses) on investment
 
$
28,011

 
$
(15,026
)
 
$
12,985

 
 
 
 
 
 
 
For the Six Months Ended June 30, 2018
 
Gross gains
 
Gross losses
 
Net
AFS fixed maturities
 
$
2,939

 
$
(4,698
)
 
$
(1,759
)
Other investments
 
1,702

 
—

 
1,702

Net realized gains (losses) on investment
 
$
4,641

 
$
(4,698
)
 
$
(57
)

Proceeds from sales of AFS fixed maturities were $625,254 and $709,615 for the three and six months ended June 30, 2019, respectively (2018 - $36,315 and $116,555, respectively).
Net unrealized gains (losses) on investments, including those allocated to discontinued operations and classified as held for sale, were as follows:
 
 
June 30, 2019
 
December 31, 2018
Fixed maturities
 
$
29,392

 
$
(59,729
)
Deferred income tax
 
(114
)
 
(33
)
Net unrealized gains (losses), net of deferred income tax
 
$
29,278

 
$
(59,762
)
Change, net of deferred income tax
 
$
89,040

 
$
(81,651
)
The portion of net unrealized gains (losses) recognized in net income (loss) for the three and six months ended June 30, 2019 and 2018 that are related to other investments still held at the end of the reporting period were as follows:
For the Three Months Ended June 30,
 
2019
 
2018
Net gains recognized in net income on other investments during the period
 
$
151

 
$
220

Net realized gains recognized on other investments divested during the period
 
(409
)
 
(287
)
Net unrealized losses recognized on other investments still held at end of period
 
$
(258
)
 
$
(67
)
 
 
 
 
 
For the Six Months Ended June 30,
 
2019
 
2018
Net gains recognized in net income on other investments during the period
 
$
6

 
$
1,702

Net realized gains recognized on other investments divested during the period
 
(411
)
 
(879
)
Net unrealized (losses) gains recognized on other investments still held at end of period
 
$
(405
)
 
$
823

    
4. Investments (continued)
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. We also utilize trust accounts to collateralize business with our reinsurance counterparties. The assets in trust as collateral are primarily cash and highly rated fixed maturities. The fair value of our restricted assets was as follows:
 
 
June 30, 2019
 
December 31, 2018
Restricted cash – third party agreements
 
$
21,299

 
$
21,420

Restricted cash – related party agreements(1)
 
360,399

 
108,728

Total restricted cash
 
381,698

 
130,148

Restricted investments – in trust for third party agreements at fair value (amortized cost: 2019 – $69,855; 2018 – $88,841)
 
69,999

 
89,596

Restricted investments – in trust for related party agreements at fair value (amortized cost: 2019 – $2,655,683; 2018 – $3,870,731)
 
2,689,179

 
3,804,215

Restricted investments – liability for investments purchased for related party agreements(1)
 
(266,946
)
 
—

Total restricted investments
 
2,492,232

 
3,893,811

Total restricted cash and investments
 
$
2,873,930

 
$
4,023,959


(1) $266,946 of the restricted cash held for related party agreements as of June 30, 2019 was used to settle the liability for investments purchased of $298,939 as of June 30, 2019 subsequent to the quarter end.