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Investments
 6 Months Ended
Jun. 30, 2017
Schedule of Investments [Abstract]  
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 June 30, 2017 and December 31, 2016, are as follows:
June 30, 2017
 
Original or amortized cost
 
Gross unrealized gains
 
Gross unrealized losses
 
Fair value
Available-for-sale ("AFS") fixed maturities :
 
 
 
 
 
 
 
 
U.S. treasury bonds
 
$
5,191

 
$
178

 
$
(8
)
 
$
5,361

U.S. agency bonds – mortgage-backed
 
1,797,606

 
11,984

 
(13,978
)
 
1,795,612

U.S. agency bonds – other
 
18,083

 
17

 
—

 
18,100

Non-U.S. government and supranational bonds
 
30,284

 
162

 
(2,743
)
 
27,703

Asset-backed securities
 
255,487

 
4,349

 
(158
)
 
259,678

Corporate bonds
 
1,583,799

 
41,322

 
(29,418
)
 
1,595,703

Municipal bonds
 
2,500

 
104

 
—

 
2,604

Total AFS fixed maturities
 
3,692,950

 
58,116

 
(46,305
)
 
3,704,761

Held-to-maturity ("HTM") fixed maturities:
 
 
 
 
 
 
 
 
Corporate bonds
 
1,070,289

 
28,705

 
(1,046
)
 
1,097,948

Municipal bonds
 
62,627

 
366

 
(247
)
 
62,746

Total HTM fixed maturities
 
1,132,916

 
29,071

 
(1,293
)
 
1,160,694

Other investments
 
10,041

 
5,512

 
—

 
15,553

Total investments
 
$
4,835,907

 
$
92,699

 
$
(47,598
)
 
$
4,881,008

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
June 30, 2017
 
Amortized cost
 
Fair value
 
Amortized cost
 
Fair value
Maturity
 
 
 
 
 
 
 
 
Due in one year or less
 
$
31,694

 
$
29,616

 
$
44,589

 
$
44,572

Due after one year through five years
 
593,384

 
588,064

 
325,150

 
333,463

Due after five years through ten years
 
1,009,611

 
1,026,649

 
749,494

 
768,886

Due after ten years
 
5,168

 
5,142

 
13,683

 
13,773

 
 
1,639,857

 
1,649,471

 
1,132,916

 
1,160,694

U.S. agency bonds – mortgage-backed
 
1,797,606

 
1,795,612

 
—

 
—

Asset-backed securities
 
255,487

 
259,678

 
—

 
—

Total fixed maturities
 
$
3,692,950

 
$
3,704,761

 
$
1,132,916

 
$
1,160,694


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, 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
 
1,055,238

 
(11,765
)
 
44,542

 
(2,213
)
 
1,099,780

 
(13,978
)
Non–U.S. government and supranational bonds
 
—

 
—

 
25,179

 
(2,743
)
 
25,179

 
(2,743
)
Asset-backed securities
 
29,949

 
(158
)
 
—

 
—

 
29,949

 
(158
)
Corporate bonds
 
271,138

 
(4,506
)
 
275,394

 
(25,958
)
 
546,532

 
(30,464
)
Municipal bonds
 
10,323

 
(247
)
 
—

 
—

 
10,323

 
(247
)
Total temporarily impaired fixed maturities
 
$
1,367,240

 
$
(16,684
)
 
$
345,115

 
$
(30,914
)
 
$
1,712,355

 
$
(47,598
)

At June 30, 2017, there were approximately 177 securities in an unrealized loss position with a fair value of $1,712,355 and unrealized losses of $47,598. Of these securities, there were 75 securities that have been in an unrealized loss position for 12 months or greater with a fair value of $345,115 and unrealized losses of $30,914.
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 June 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 June 30, 2017. The Company has therefore recognized no OTTI through earnings for the three and six months ended June 30, 2017 and 2016.
The following summarizes the credit ratings of our fixed maturities:
Ratings(1) at June 30, 2017
 
Amortized cost
 
Fair value
 
% of Total
fair value
U.S. treasury bonds
 
$
5,191

 
$
5,361

 
0.1
%
U.S. agency bonds
 
1,815,689

 
1,813,712

 
37.3
%
AAA
 
167,065

 
169,687

 
3.5
%
AA+, AA, AA-
 
207,671

 
211,290

 
4.3
%
A+, A, A-
 
1,351,748

 
1,368,370

 
28.2
%
BBB+, BBB, BBB-
 
1,151,997

 
1,169,178

 
24.0
%
BB+ or lower
 
126,505

 
127,857

 
2.6
%
Total fixed maturities
 
$
4,825,866

 
$
4,865,455

 
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
b)
Other Investments
The table below shows our portfolio of other investments:
 
 
June 30, 2017
 
December 31, 2016
 
 
Fair value
 
% of Total
fair value
 
Fair value
 
% of Total
fair value
Investment in limited partnerships
 
$
5,819

 
37.4
%
 
$
5,474

 
41.9
%
Investment in quoted equity
 
8,734

 
56.2
%
 
6,586

 
50.4
%
Other
 
1,000

 
6.4
%
 
1,000

 
7.7
%
Total other investments
 
$
15,553

 
100.0
%
 
$
13,060

 
100.0
%

The Company has a remaining unfunded commitment on its investment in limited partnerships of approximately $144 at June 30, 2017 (December 31, 2016 - $463).
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,
 
 
2017
 
2016
 
2017
 
2016
Fixed maturities
 
$
40,610

 
$
35,506

 
$
83,480

 
$
72,249

Cash and cash equivalents
 
262

 
472

 
429

 
696

Loan to related party
 
816

 
568

 
1,528

 
1,130

Other
 
660

 
474

 
891

 
892

 
 
42,348

 
37,020

 
86,328

 
74,967

Investment expenses
 
(1,836
)
 
(1,697
)
 
(3,659
)
 
(3,342
)
Net investment income
 
$
40,512

 
$
35,323

 
$
82,669

 
$
71,625


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 June 30, 2017
 
Gross gains
 
Gross losses
 
Net
AFS fixed maturities
 
$
1,766

 
$
(256
)
 
$
1,510

Other investments
 
62

 
—

 
62

Net realized gains on investment
 
$
1,828

 
$
(256
)
 
$
1,572

 
 
 
 
 
 
 
For the Three Months Ended June 30, 2016
 
Gross gains
 
Gross losses
 
Net
AFS fixed maturities
 
$
47

 
$
(12
)
 
$
35

Other investments
 
299

 
—

 
299

Net realized gains on investment
 
$
346

 
$
(12
)
 
$
334

 
 
 
 
 
 
 
For the Six Months Ended June 30, 2017
 
Gross gains
 
Gross losses
 
Net
AFS fixed maturities
 
$
2,488

 
$
(256
)
 
$
2,232

Other investments
 
225

 
—

 
225

Net realized gains on investment
 
$
2,713

 
$
(256
)
 
$
2,457

 
 
 
 
 
 
 
For the Six Months Ended June 30, 2016
 
Gross gains
 
Gross losses
 
Net
AFS fixed maturities
 
$
3,140

 
$
(891
)
 
$
2,249

Other investments
 
362

 
—

 
362

Net realized gains on investment
 
$
3,502

 
$
(891
)
 
$
2,611


Proceeds from sales of fixed maturities classified as AFS were $71,610 and $102,394 for the three and six months ended June 30, 2017, respectively (2016 - $18,826 and $86,663, respectively).
Net unrealized (losses) gains were as follows:
 
 
June 30, 2017
 
December 31, 2016
Fixed maturities
 
$
22,409

 
$
(23,635
)
Other investments
 
5,512

 
3,003

Total net unrealized gains (losses)
 
27,921

 
(20,632
)
Deferred income tax
 
(55
)
 
(84
)
Net unrealized gains (losses), net of deferred income tax
 
$
27,866

 
$
(20,716
)
Change, net of deferred income tax
 
$
48,582

 



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:
 
 
June 30, 2017
 
December 31, 2016
Restricted cash – third party agreements
 
$
69,164

 
$
56,891

Restricted cash – related party agreements
 
121,171

 
46,777

Restricted cash – U.S. state regulatory authorities
 
135

 
120

Total restricted cash
 
190,470

 
103,788

Restricted investments – in trust for third party agreements at fair value (Amortized cost: 2017 – $1,274,449; 2016 – $1,307,926)
 
1,283,941

 
1,299,569

Restricted investments AFS– in trust for related party agreements at fair value (Amortized cost: 2017 – $1,984,440; 2016 – $2,242,565)
 
1,992,095

 
2,225,066

Restricted investments HTM– in trust for related party agreements at fair value (Amortized cost: 2017 – $1,132,916; 2016 – $752,212)
 
1,160,694

 
766,135

Restricted investments – in trust for U.S. state regulatory authorities (Amortized cost: 2017 – $4,067; 2016 – $4,059)
 
4,205

 
4,238

Total restricted investments
 
4,440,935

 
4,295,008

Total restricted cash and investments
 
$
4,631,405

 
$
4,398,796