The Company’s investments are managed by its investment manager, Third Point LLC (“Third Point LLC” or the “Investment Manager”), under long-term investment management contracts. The Company directly owns the investments that are held in separate accounts and managed by Third Point LLC. The following is a summary of the separate accounts managed by Third Point LLC:



	September 30, 2015		December 31, 2014
Assets	($ in thousands)
Total investments in securities and commodities	$	2,053,777	$	1,828,761
Cash and cash equivalents	10		3
Restricted cash and cash equivalents (1)	604,428		308,763
Due from brokers	303,597		58,241
Securities purchased under an agreement to sell	—		29,852
Derivative assets	27,337		21,130
Interest and dividends receivable	10,030		2,590
Other assets	—		325
Total assets	2,999,179		2,249,665
Liabilities and non-controlling interest
Accounts payable and accrued expenses	714		464
Securities sold, not yet purchased, at fair value	172,074		82,485
Due to brokers	695,019		312,609
Derivative liabilities	22,495		10,985
Interest and dividends payable	647		697
Non-controlling interest	15,597		40,241
Total liabilities and non-controlling interest	906,546		447,481
Total net investments managed by Third Point LLC	$	2,092,633	$	1,802,184


(1)	Includes amounts advanced to Third Point Re to fund collateral held in trust accounts.

The Company’s Investment Manager has a formal valuation policy that sets forth the pricing methodology for investments to be used in determining the fair value of each security in the Company’s portfolio. The valuation policy is updated and approved at least on an annual basis by Third Point LLC’s valuation committee (the “Committee”), which is comprised of officers and employees who are senior business management personnel of Third Point LLC. The Committee meets monthly. The Committee’s role is to review and verify the propriety and consistency of the valuation methodology to determine the fair value of investments. The Committee also reviews any due diligence performed and approves any changes to current or potential external pricing vendors.

Investments are carried at fair value. The fair values of investments are estimated using prices obtained from either third-party pricing services or broker quotes. The methodology for valuation is generally determined based on the investment’s asset class per the Company’s Investment Manager’s valuation policy. For investments where fair values from pricing services or brokers are unavailable, fair values are estimated using information obtained by the Company’s Investment Manager.

Securities and commodities listed on a national securities or commodities exchange or quoted on NASDAQ are valued at their last sales price as of the last business day of the period. Listed securities with no reported sales on such date and over-the-counter (“OTC”) securities are valued at their last closing bid price if held long by the Company, and last closing ask price if held short by the Company. As of September 30, 2015, securities valued at $567.1 million (December 31, 2014 - $434.4 million), representing 27.3% (December 31, 2014 – 23.5%) of investments in securities and derivative assets, and $1.5 million (December 31, 2014 - $1.3 million), representing 0.8% (December 31, 2014 – 1.4%) of securities sold, not yet purchased and derivative liabilities, are valued based on broker quotes or other quoted market prices for similar securities.

Private securities are not registered for public sale and are carried at an estimated fair value at the end of the period. Valuation techniques used by the Company may include market approach, last transaction analysis, liquidation analysis and/or discounted cash flow models where the significant inputs could include but are not limited to additional rounds of equity financing, financial metrics such as revenue multiples or price-earnings ratio, discount rates and other factors. In addition, third party valuation firms may be employed to conduct separate valuations of such private securities. The third party valuation firms provide written reports documenting their recommended valuation as of the determination date for the specified investments.

As of September 30, 2015, the Company had $16.6 million (December 31, 2014 - $2.3 million) of private securities fair valued by a third party valuation firm using information obtained from the Company’s Investment Manager. Private securities represented less than 1% (December 31, 2014 - less than 1%) of total investments in securities, commodities and derivative assets. The actual value at which these securities could be sold or settled with a willing buyer or seller may differ from the Company’s estimated fair values depending on a number of factors including, but not limited to, current and future economic conditions, the quantity sold or settled, the presence of an active market and the availability of a willing buyer or seller.

The Company’s free standing derivatives are recorded at fair value, and are included in the condensed consolidated balance sheets in derivative assets and derivative liabilities. The Company values exchange-traded derivatives at their last sales price on the exchange where they are primarily traded. OTC derivatives, which include swap, option, swaption, forward, future and contract for differences, are valued by third party sources when available; otherwise, fair values are obtained from broker quotes that are based on pricing models that consider the time value of money, volatility, and the current market and contractual prices of the underlying financial instruments.

As an extension of our underwriting activities, the Catastrophe Reinsurer has sold derivative instruments that provide reinsurance-like protection to third parties for specific loss events associated with certain lines of business. These derivatives are recorded in the condensed consolidated balance sheets at fair value, with changes in the fair value of these derivatives recorded in net investment income in the condensed consolidated statements of income (loss). These contracts are valued on the basis of models developed by us, which approximates fair value.

The Company also has derivatives embedded in non-derivative host contracts that are required to be separated from the host contracts and accounted for at fair value with changes in fair value of the embedded derivative reported in other expenses. The Company’s embedded derivatives relate to interest crediting features in certain reinsurance and deposit contracts that vary based on the returns on the Company’s investments managed by Third Point LLC. The Company determines the fair value of the embedded derivatives using models developed by the Company.

As of September 30, 2015 and December 31, 2014, the Company’s asset-backed securities (“ABS”) holdings were as follows:



	September 30, 2015				December 31, 2014
	($ in thousands)
Re-REMIC (1)	$	226,047	44.0	%	$	131,568	32.9	%
Subprime RMBS	162,738		31.7	%	198,046		49.5	%
Collateralized debt obligations	54,358		10.6	%	9,397		2.3	%
Other (2)	70,076		13.7	%	61,223		15.3	%
	$	513,219	100.0	%	$	400,234	100.0	%

(1) Mezzanine portions of the re-securitized real estate mortgage investment conduits (“re-REMIC”) structure of ABS.

(2) Other includes: U.S. Alt-A Positions, Commercial Mortgage-backed securities, market place loans, Non-U.S. RMBS and student loans ABS.

As of September 30, 2015, all of the Company’s ABS holdings were private-label issued, non-investment grade securities, and none of these securities were guaranteed by government sponsored entities. These investments are valued using broker quotes or a recognized third-party pricing vendor. All of these classes of ABS are sensitive to changes in interest rates and any resulting change in the rate at which borrowers sell their properties, refinance, or otherwise pre-pay their loans. As an investor in these classes of ABS, the Company may be exposed to the credit risk of underlying borrowers not being able to make timely payments on loans or the likelihood of borrowers defaulting on their loans. In addition, the Company may be exposed to significant market and liquidity risks.

The Company values its investments in limited partnerships at fair value, which is estimated based on the Company’s share of the net asset value of the limited partnerships as provided by the investment managers of the underlying investment funds. The resulting net gains or net losses are reflected in the condensed consolidated statements of income (loss).

On December 18, 2014, the Company entered into a subscription agreement with the Kiskadee Diversified Fund Ltd. (“Kiskadee Fund”) to invest up to $25.0 million in Hiscox Insurance Company (Bermuda) Limited’s (“Hiscox”) separately managed insurance-linked securities platform, Kiskadee Re Ltd. The Kiskadee Fund is a fund vehicle managed by Hiscox. The Kiskadee Fund invests in property catastrophe exposures through collateralized reinsurance transactions and other insurance-linked investments. On January 2, 2015 and June 1, 2015 the Company funded $5.0 million and $20.0 million, respectively, and there are no remaining commitments. The Company has elected the fair value option for this investment, which is recorded on the condensed consolidated balance sheets at fair value as a Level 3 asset. The fair value is estimated based on the Company’s share of the net asset value in the Kiskadee Fund, as provided by the investment manager. The resulting net gains or losses are reflected in the condensed consolidated statements of income (loss).

The Company performs several processes to ascertain the reasonableness of the valuation of all of the Company’s investments comprising the Company’s investment portfolio. These processes include (i) obtaining and reviewing weekly and monthly investment portfolio reports from the Investment Manager, (ii) obtaining and reviewing monthly Net Asset Value (“NAV”) and investment return reports received directly from the Company’s third-party fund administrator, which are compared to the reports noted in (i), and (iii) monthly update discussions with the Company’s Investment Manager regarding the investment portfolio, including, their process for reviewing and validating pricing obtained from third party service providers.

For the nine months ended September 30, 2015 and 2014, there were no changes in the valuation techniques as they relate to the above.

U.S. GAAP disclosure requirements establish a framework for measuring fair value, including a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability. The three-level hierarchy of inputs is summarized below:


•	Level 1 – Quoted prices available in active markets/exchanges for identical investments as of the reporting date.

•

Level 2 – Observable inputs to the valuation methodology other than unadjusted quoted market prices for identical assets or liabilities in active markets. Level 2 inputs include, but are not limited to, prices quoted for similar assets or liabilities in active markets/exchanges, prices quoted for identical or similar assets or liabilities in markets that are not active and fair values determined through the use of models or other valuation methodologies.


•	Level 3 – Pricing inputs unobservable for the investment and include activities where there is little, if any, market activity for the investment. The inputs applied in the determination of fair value require significant management judgment and estimation.

Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources other than those of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and considers factors specific to the investment.

The key inputs for corporate, government and sovereign bond valuation are coupon frequency, coupon rate and underlying bond spreads. The key inputs for ABS are yield, probability of default, loss severity and prepayment.

Key inputs for over-the-counter (“OTC”) valuations vary based on the type of underlying security on which the contract was written:


•	The key inputs for most OTC option contracts include notional, strike price, maturity, payout structure, current foreign exchange forward and spot rates, current market price of the underlying security and volatility of the underlying security.


•	The key inputs for most forward contracts include notional, maturity, forward rate, spot rate, various interest rate curves and discount factor.


•	The key inputs for swap valuation will vary based on the type of underlying on which the contract was written. Generally, the key inputs for most swap contracts include notional, swap period, fixed rate, credit or interest rate curves, current market or spot price of the underlying security and the volatility of the underlying security.

The following tables present the Company’s investments, categorized by the level of the fair value hierarchy as of September 30, 2015 and December 31, 2014:



	September 30, 2015
	Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs		Total
	(Level 1)		(Level 2)		(Level 3)		Total
Assets	($ in thousands)
Equity securities	$	1,244,646	$	25,348	$	—	$	1,269,994
Private common equity securities	—		982		601		1,583
Private preferred equity securities	—		—		18,263		18,263
Total equities	1,244,646		26,330		18,864		1,289,840
Asset-backed securities	—		509,361		3,858		513,219
Bank debts	—		—		7,681		7,681
Corporate bonds	—		94,208		3,235		97,443
Sovereign debt	—		118,679		17		118,696
Total debt securities	—		722,248		14,791		737,039
Investments in limited partnerships	—		2,427		5,913		8,340
Options	3,925		3,472		—		7,397
Rights and warrants	1,039		—		—		1,039
Trade claims	—		10,122		—		10,122
Investment in Kiskadee Fund	—		—		25,984		25,984
Total other investments	4,964		16,021		31,897		52,882
Derivative assets (free standing)	—		27,337		—		27,337
Total assets	$	1,249,610	$	791,936	$	65,552	$	2,107,098
Liabilities
Equity securities	$	125,666	$	—	$	—	$	125,666
Sovereign debt	—		6,031		—		6,031
Corporate bonds	—		30,323		—		30,323
Options	6,728		3,326		—		10,054
Total securities sold, not yet purchased	132,394		39,680		—		172,074
Derivative liabilities (free standing)	903		20,572		1,020		22,495
Derivative liabilities (embedded)	—		—		10,075		10,075
Total liabilities	$	133,297	$	60,252	$	11,095	$	204,644



	December 31, 2014
	Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs		Total
	(Level 1)		(Level 2)		(Level 3)		Total
Assets	($ in thousands)
Equity securities	$	1,158,428	$	15,207	$	—	$	1,173,635
Private common equity securities	—		2,718		1,443		4,161
Total equities	1,158,428		17,925		1,443		1,177,796
Asset-backed securities	—		395,514		4,720		400,234
Bank debts	—		2,395		—		2,395
Corporate bonds	—		56,795		3,799		60,594
Municipal bonds	—		3,094		—		3,094
Sovereign debt	—		103,331		—		103,331
Total debt securities	—		561,129		8,519		569,648
Investments in limited partnerships	—		55,756		6,354		62,110
Options	3,205		3,791		—		6,996
Rights and warrants	1,843		—		—		1,843
Trade claims	—		10,368		—		10,368
Catastrophe bond	—		2,077		—		2,077
Total other investments	5,048		71,992		6,354		83,394
Derivative assets (free standing)	380		20,750		—		21,130
Total assets	$	1,163,856	$	671,796	$	16,316	$	1,851,968
Liabilities
Equity securities	$	33,222	$	—	$	—	$	33,222
Sovereign debt	—		29,350		—		29,350
Corporate bonds	—		13,312		—		13,312
Options	3,755		2,846		—		6,601
Total securities sold, not yet purchased	36,977		45,508		—		82,485
Derivative liabilities (free standing)	505		9,548		962		11,015
Derivative liabilities (embedded)	—		—		9,289		9,289
Total liabilities	$	37,482	$	55,056	$	10,251	$	102,789

During the nine months ended September 30, 2015, the Company made no significant reclassifications of assets or liabilities between Levels 1 and 2. During the year ended December 31, 2014, the Company reclassified $86.6 million of private common equity securities from Level 2 to Level 1 equity securities. This reclassification was the result of the issuer’s IPO, with quoted prices having become available in an active market as of the reporting date.

The following table presents the reconciliation of all investments measured at fair value using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2015 and 2014:



	July 1, 2015			Transfers in to (out of) Level 3			Purchases		Sales			Realized and Unrealized Gains(Losses) (1)			September 30, 2015
	($ in thousands)
Assets
Private common equity securities	$	962		$	—		$	—	$	—		$	(361	)	$	601
Private preferred equity securities	13,474			—			5,084		—			(295		)	18,263
Asset-backed securities	1,843			916			1,125		(62		)	36			3,858
Bank debts	7,404			—			—		—			277			7,681
Corporate bonds	2,772			—			—		(107		)	570			3,235
Sovereign debt	18			—			—		—			(1		)	17
Investments in limited partnerships	6,156			—			—		—			(243		)	5,913
Investment in Kiskadee Fund	25,183			—			—		—			801			25,984
Total assets	$	57,812		$	916		$	6,209	$	(169	)	$	784		$	65,552
Liabilities
Derivative liabilities (free standing)	$	(1,020	)	$	—		$	—	$	—		$	—		$	(1,020	)
Derivative liabilities (embedded)	(9,817		)	—			—		(2,354		)	2,096			(10,075		)
Total liabilities	$	(10,837	)	$	—		$	—	$	(2,354	)	$	2,096		$	(11,095	)

	January 1, 2015			Transfers in to (out of) Level 3			Purchases		Sales			Realized and Unrealized Gains(Losses) (1)			September 30, 2015
	($ in thousands)
Assets
Private common equity securities	$	1,443		$	—		$	—	$	—		$	(842	)	$	601
Private preferred equity securities	—			—			13,586		—			4,677			18,263
Asset-backed securities	4,720			(3,599		)	2,024		(1,061		)	1,774			3,858
Bank debts	—			—			7,634		—			47			7,681
Corporate bonds	3,799			—			—		(259		)	(305		)	3,235
Sovereign debt	—			19			—		—			(2		)	17
Investments in limited partnerships	6,354			—			725		(267		)	(899		)	5,913
Investment in Kiskadee Fund	—			—			25,000		—			984			25,984
Total assets	$	16,316		$	(3,580	)	$	48,969	$	(1,587	)	$	5,434		$	65,552
Liabilities
Derivative liabilities (free standing)	$	(962	)	$	—		$	—	$	(174	)	$	116		$	(1,020	)
Derivative liabilities (embedded)	(9,289		)	—			—		(3,152		)	2,366			(10,075		)
Total liabilities	$	(10,251	)	$	—		$	—	$	(3,326	)	$	2,482		$	(11,095	)



	July 1, 2014			Transfers in to (out of) Level 3			Purchases		Sales			Realized and Unrealized Gains(Losses) (1)			September 30, 2014
	($ in thousands)
Assets
Private common equity securities	$	2,300		$	(2,300	)	$	—	$	—		$	—		$	—
Asset-backed securities	2,441			(520		)	288		(18		)	243			2,434
Corporate bonds	5,153			(811		)	—		(152		)	(226		)	3,964
Sovereign debt	30			(11		)	—		—			—			19
Investments in limited partnerships	5,771			—			1,525		—			(526		)	6,770
Total assets	$	15,695		$	(3,642	)	$	1,813	$	(170	)	$	(509	)	$	13,187
Liabilities
Derivative liabilities (free standing)	$	—		$	—		$	—	$	(1,013	)	$	780		$	(233	)
Derivative liabilities (embedded)	(5,538		)	—			—		(2,264		)	(111		)	(7,913		)
Total liabilities	$	(5,538	)	$	—		$	—	$	(3,277	)	$	669		$	(8,146	)

	January 1, 2014			Transfers in to (out of) Level 3			Purchases		Sales			Realized and Unrealized Gains(Losses) (1)			September 30, 2014
	($ in thousands)
Assets
Private common equity securities	$	2,012		$	(2,300	)	$	—	$	—		$	288		$	—
Asset-backed securities	400			(2,151		)	4,093		(1,921		)	2,013			2,434
Corporate bonds	4,610			(811		)	821		(484		)	(172		)	3,964
Sovereign debt	—			(11		)	30		—			—			19
Investments in limited partnerships	5,292			—			1,579		—			(101		)	6,770
Total assets	$	12,314		$	(5,273	)	$	6,523	$	(2,405	)	$	2,028		$	13,187
Liabilities
Derivative liabilities (free standing)	$	—		$	—		$	—	$	(1,013	)	$	780		$	(233	)
Derivative liabilities (embedded)	(4,430		)	—			—		(3,046		)	(437		)	(7,913		)
Total liabilities	$	(4,430	)	$	—		$	—	$	(4,059	)	$	343		$	(8,146	)


(1)	Total change in realized and unrealized gain (loss) recorded on Level 3 financial instruments is included in net investment income in the condensed consolidated statements of income (loss).

Total unrealized gains related to fair value assets using significant unobservable inputs (Level 3) for the nine months ended September 30, 2015 was $5.3 million (2014 - $0.4 million).

For assets and liabilities that were transferred into Level 3 during the period, gains (losses) are presented as if the assets or liabilities had been transferred into Level 3 at the beginning of the period; similarly, for assets and liabilities that were transferred out of Level 3 during the period, gains (losses) are presented as if the assets or liabilities had been transferred out of Level 3 at the beginning of the period. The Company held no Level 3 investments where quantitative unobservable inputs are produced by the Company when estimating fair value.

The following table summarizes information about the significant unobservable inputs used in determining the fair value of the Level 3 investments held by the Company. Level 3 investments not presented in the table below generally do not have any unobservable inputs to disclose, as they are valued primarily using dealer quotes, at cost or net asset value for investment in limited partnerships.



September 30, 2015
Assets	Fair value ($ in thousands)		Valuation technique	Unobservable input	Range
Corporate bond	$	2,210	Discounted Cash Flow	Yield	8.1-9.1%
				Duration	3 years
				Credit Spread	786 bps
				Volatility	25.0-35.0%
Asset backed security	$	1,245	Probability Weighted	Probability	85.0	%
Derivative liabilities (embedded)	$	10,075	Discounted cash flow	Contractual Variable Annual Investment Credit	0.0 - 3.5%
				Mean Monthly Investment Return	1.2%
				Duration from Inception of Contracts	4.00 - 5.50 years
				Duration from Valuation Date	1.00 - 5.25 years
				Interest Rates	U.S. Treasury Spot Rates

December 31, 2014
Assets	Fair value ($ in thousands)		Valuation technique	Unobservable input	Range
Corporate bond	$	2,346	Discounted cash flow	Yield	14.9-16.9%
				Duration	3 years
				Credit spreads	1,376-1,576 bps
				Volatility	20.0-30.0%
Derivative liabilities (embedded)	$	9,289	Discounted cash flow	Contractual Variable Annual Investment Credit	0.0 - 3.5%
				Mean Monthly Investment Return	1.2%
				Duration from Inception of Contracts	4.00 - 5.50 years
				Duration from Valuation Date	1.75 - 5.00 years
				Interest Rates	U.S. Treasury Spot Rates