Fair Value Measurements

6 Months Ended

Jun. 30, 2021

Fair Value Disclosures [Abstract]

Fair Value Measurements

7. Fair value measurements

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 – Inputs are based all or in part on significant unobservable inputs for the investment, and include situations 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.

Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. For example, the risk inherent in a particular valuation technique used to measure fair value including such a pricing model and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable.

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 following tables present the Company’s investments, categorized by the level of the fair value hierarchy as of June 30, 2021 and December 31, 2020:

	June 30, 2021
	Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs		Total
	(Level 1)		(Level 2)		(Level 3)
Assets
Asset-backed securities	$	—	$	543.6	$	—	$	543.6
Residential mortgage-backed securities	—		367.8		—		367.8
Commercial mortgage-backed securities	—		123.6		—		123.6
Corporate debt securities	—		595.0		—		595.0
U.S. government and government agency	204.9		59.4		—		264.3
Non-U.S. government and government agency	24.5		77.0		—		101.5
U.S. states, municipalities and political subdivision	—		0.7		—		0.7
Preferred stocks	—		—		12.8		12.8
Total debt securities	229.4		1,767.1		12.8		2,009.3
Fixed income mutual funds	1.9		—		—		1.9
Common stocks	3.1		—		—		3.1
Total equity securities	5.0		—		—		5.0
Short-term investments	742.3		24.4		—		766.7
Other long-term investments	—		—		322.1		322.1
Derivative assets	—		—		5.2		5.2
Loan participation	—		—		36.5		36.5
	$	976.7	$	1,791.5	$	376.6	3,144.8
Investments in funds valued at NAV							1,395.6
Total assets							$	4,540.4
Liabilities
U.S. Government and government agency	$	—	$	10.0	$	—	$	10.0
Total securities sold, not yet purchased	—		10.0		—		10.0
Liability-classified capital instruments	—		22.9		99.3		122.2
Contingent consideration	—		—		1.5		1.5
Derivative liabilities	—		—		3.7		3.7
Total liabilities	$	—	$	32.9	$	104.5	$	137.4

	December 31, 2020
	Quoted prices in active markets		Significant other observable inputs		Significant unobservable inputs		Total
	(Level 1)		(Level 2)		(Level 3)
Assets
Asset-backed securities	$	—	$	1.3	$	—	$	1.3
Residential mortgage-backed securities	—		8.7		—		8.7
Bank debt	—		0.4		—		0.4
Corporate debt securities	—		37.7		—		37.7
U.S. Government and government agency	—		53.2		—		53.2
Total debt securities	—		101.3		—		101.3
Short-term investments	—		—		—		—
Other long-term investments	—		—		4.0		4.0
Derivative assets	—		—		1.2		1.2
	$	—	$	101.3	$	5.2	106.5
Investments in funds valued at NAV							1,055.6
Total assets							$	1,162.1
Liabilities
U.S. Government and government agency	$	—	$	12.0	$	—	$	12.0
Total securities sold, not yet purchased	—		12.0		—		12.0
Derivative liabilities	—		—		1.0		1.0
Total liabilities	$	—	$	12.0	$	1.0	$	13.0

During the six months ended June 30, 2021, the Company made $nil (December 31, 2020 - $nil) of reclassifications of assets or liabilities between Levels 2 and 3.

Valuation techniques

The Company uses outside pricing services to assist in determining fair values for its investments. For investments in active markets, the Company uses the quoted market prices provided by outside pricing services to determine fair value. The outside pricing services the Company uses have indicated that they will only provide prices where observable inputs are available. In circumstances where quoted market prices are unavailable or are not considered reasonable, the Company estimates the fair value using industry standard pricing models and observable inputs such as benchmark yields, reported trades, broker-dealer quotes, issuer spreads, benchmark securities, bids, offers, prepayment speeds, reference data including research publications, and other relevant inputs. Given that many debt securities do not trade on a daily basis, the outside pricing services evaluate a wide range of fixed maturity investments by regularly drawing parallels from recent trades and quotes of comparable securities with similar features. The characteristics used to identify comparable debt securities vary by asset type and take into account market convention.

The techniques and inputs specific to asset classes within the Company’s debt securities and short-term investments for Level 2 securities that use observable inputs are as follows:

Asset-backed and mortgage-backed securities

The fair value of mortgage and asset-backed securities is primarily priced by pricing services using a pricing model that uses information from market sources and leveraging similar securities. Key inputs include benchmark yields, reported trades, underlying tranche cash flow data, collateral performance, plus new issue data, as well as broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers and reference data including issuer, vintage, loan type, collateral attributes, prepayment speeds, default rates, recovery rates, cash flow stress testing, credit quality ratings and market research publications.

Corporate debt securities

Corporate debt securities consist primarily of investment-grade debt of a wide variety of U.S. and non-U.S. corporate issuers and industries. The corporate fixed maturity investments are primarily priced by pricing services. When evaluating these securities, the pricing services gather information from market sources regarding the issuer of the security and obtain credit data, as well as other observations, from markets and sector news. Evaluations are updated by obtaining broker dealer quotes and other market information including actual trade volumes, when available. The pricing services also consider the specific terms and conditions of the securities, including any specific features which may influence risk.

U.S. government and government agency

U.S. government and government agency securities consist primarily of debt securities issued by the U.S. Treasury and mortgage pass-through agencies such as the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association. Fixed maturity investments included in U.S. government and government agency securities are primarily priced by pricing services. When evaluating these securities, the pricing services gather information from market sources and integrate other observations from markets and sector news. Evaluations are updated by obtaining broker dealer quotes and other market information including actual trade volumes, when available. The fair value of each security is individually computed using analytical models which incorporate option adjusted spreads and other daily interest rate data.

Non-U.S. government and government agency

Non-U.S. government and government agency securities consist of debt securities issued by non-U.S. governments and their agencies along with supranational organizations (also known as sovereign debt securities). Securities held in these sectors are primarily priced by pricing services who employ proprietary discounted cash flow models to value the securities. Key quantitative inputs for these models are daily observed benchmark curves for treasury, swap and high issuance credits. The pricing services then apply a credit spread for each security which is developed by in-depth and real time market analysis. For securities in which trade volume is low, the pricing services utilize data from more frequently traded securities with similar attributes. These models may also be supplemented by daily market and credit research for international markets.

U.S. states, municipalities, and political subdivisions

The U.S. states, municipalities and political subdivisions portfolio contains debt securities issued by U.S. domiciled state and municipal entities. These securities are generally priced by independent pricing services using the techniques for U.S. government and government agency securities.

Preferred stocks

The fair value of preferred stocks is generally priced by independent pricing services using an evaluated pricing model that calculates the appropriate spread over a comparable security for each issue. Key inputs include exchange prices (underlying and common stock of same issuer), benchmark yields, reported trades, broker-dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, and reference data including sector, coupon, credit quality ratings, duration, credit enhancements, early redemption features and market research publications.

Short-term investments

Short-term investments consist of U.S. treasury bills, certificates of deposit and other securities, which, at the time of purchase, mature within a period of greater than three months but less than one year. These investments are generally priced by independent pricing services using the techniques described for U.S. government and government agency securities and Corporate debt securities described above.

Investments measured using Net Asset Value

The Company values its investments in limited partnerships, including its investments in related party investment funds, at fair value. The Company has elected the practical expedient for fair value for these investments which is estimated based on the Company’s share of the net asset value (“NAV”) of the limited partnerships, as provided by the independent fund administrator, as the Company believes it represents the most meaningful measurement basis for the investment assets and liabilities. The NAV represents the Company’s proportionate interest in the members’ equity of the limited partnerships.

The fair value of the Company's investments in certain hedge funds and certain private equity funds are also determined using NAV. The hedge fund's administrator provides quarterly updates of fair value in the form of the Company's proportional interest in the underlying fund's NAV, which is deemed to approximate fair value, generally with a three month delay in valuation. The private equity funds provide quarterly or semi-annual partnership capital statements with a three or six month delay which are used as a basis for valuation. These private equity investments vary in investment strategies and are not actively traded in any open markets. Due to a lag in reporting, some of the fund managers, fund administrators, or both, are unable to provide final fund valuations as of the Company's reporting date. In these circumstances, the Company estimates the return of the current period and uses all credible information available. This includes utilizing preliminary estimates reported by its fund managers and using other information that is available to the Company with respect to the underlying investments, as necessary.

In order to assess the reasonableness of the NAVs, the Company performs a number of monitoring procedures on a monthly, quarterly and annual basis, to assess the quality of the information provided by the investment manager and fund administrator underlying the preparation of the NAV. These procedures include, but are not limited to, regular review and discussion of the fund’s performance with the investment manager.

These investments are included in investment in funds valued at NAV and excluded from the presentation of investments categorized by the level of the fair value hierarchy.

Level 3 Investments

Level 3 valuations are generated from techniques that use assumptions not observable in the market. These unobservable assumptions reflect the Company's assumptions, that market participants would use in valuing the investment. Generally, certain securities may start out as Level 3 when they are originally issued but as observable inputs become available in the market, they may be reclassified to Level 2.

The Company employs a number of procedures to assess the reasonableness of the fair value measurements for its other long-term investments, including obtaining and reviewing the audited annual financial statements of hedge funds and private equity funds and periodically discussing each fund's pricing with the fund manager. However, since the fund managers do not provide sufficient information to evaluate the pricing inputs and methods for each underlying investment, the inputs are considered to be unobservable.

The fair values of the Company's investments in private equity securities, private debt instruments, certain private equity funds, and certain hedge funds have been classified as Level 3 measurements. They are carried at fair value and in the case of private equity securities and private debt instruments are initially valued based on transaction price and their valuation is subsequently estimated based on available evidence such as a market transaction in similar instruments and other financial information for the issuer.

See Note 8 for additional information on the fair values of derivative financial instruments used for both risk management and investment purposes.

Underwriting-related derivatives

The Company 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 Company’s investment returns. The Company determines the fair value of the embedded derivatives using models developed by the Company.

Other underwriting-related derivatives include reinsurance contracts that are accounted for as derivatives. These derivative contracts are initially valued at cost which approximates fair value. In subsequent measurement periods, the fair values of these derivatives are determined using internally developed discounted cash flow models. As the significant inputs used to price these derivatives are unobservable, the fair values of these contracts are classified as Level 3.

The following table presents the reconciliation of all investments measured at fair value using Level 3 inputs for the three and six months ended June 30, 2021 and 2020:

	April 1, 2021		Transfers in to (out of) Level 3		Purchases		Assets Acquired (1)		Sales		Realized and Unrealized Gains (Losses) (2)		June 30, 2021
Assets
Preferred stocks	$	2.8	$	—	$	10.0	$	—	$	—	$	—	$	12.8
Other long-term investments	311.2		—		14.1		—		(4.9)		1.7		322.1
Derivative assets	3.2		—		—		—		(0.3)		2.3		5.2
Loan participation	32.8		—		3.9		—		(0.2)		—		36.5
Total assets	$	350.0	$	—	$	28.0	$	—	$	(5.4)	$	4.0	$	376.6
Liabilities
Liability-classified capital instruments	$	(135.0)	$	27.0	$	(2.6)	$	—	$	—	$	11.3	$	(99.3)
Contingent consideration	(1.5)		—		—		—		—		—		(1.5)
Derivative liabilities	(3.5)		—		—		—		—		(0.2)		(3.7)
Total liabilities	$	(140.0)	$	27.0	$	(2.6)	$	—	$	—	$	11.1	$	(104.5)
	January 1, 2021		Transfers in to (out of) Level 3		Purchases		Assets Acquired (1)		Sales		Realized and Unrealized Gains (Losses) (2)		June 30, 2021
Assets
Preferred stocks	$	—	$	—	$	10.0	$	2.8	$	—	$	—	$	12.8
Other long-term investments	4.0		—		27.7		259.0		(5.9)		37.3		322.1
Derivative assets	1.2		—		—		0.3		(0.3)		4.0		5.2
Loan participation	—		—		3.9		32.8		(0.2)		—		36.5
Total assets	$	5.2	$	—	$	41.6	$	294.9	$	(6.4)	$	41.3	$	376.6
Liabilities
Liability-classified capital instruments	$	—	$	27.0	$	(137.6)	$	—	$	—	$	11.3	$	(99.3)
Contingent consideration liabilities	—		—		—		(0.7)		—		(0.8)		(1.5)
Derivative liabilities	(1.0)		—		—		(2.0)		—		(0.7)		(3.7)
Total liabilities	$	(1.0)	$	27.0	$	(137.6)	$	(2.7)	$	—	$	9.8	$	(104.5)
	April 1, 2020		Transfers in to (out of) Level 3		Purchases		Assets Acquired		Sales		Realized and Unrealized Gains (Losses) (2)		June 30, 2020
Assets
Asset-backed securities	$	4.4	$	(4.4)	$	1.0	$	—	$	—	$	0.2	$	1.2
Other long-term investments	4.0		—		—		—		—		—		4.0
Total assets	$	8.4	$	(4.4)	$	1.0	$	—	$	—	$	0.2	$	5.2

	January 1, 2020		Transfers in to (out of) Level 3		Purchases		Assets Acquired		Sales		Realized and Unrealized Gains (Losses) (2)		June 30, 2020
Assets
Asset-backed securities	$	—	$	—	$	1.0	$	—	$	—	$	0.2	$	1.2
Other long-term investments	4.0		—		—		—		—		—		4.0
Total assets	$	4.0	$	—	$	1.0	$	—	$	—	$	0.2	$	5.2

(1)Includes amounts acquired as a result of the Sirius Group acquisition.

(2)Total change in realized and unrealized gains (losses) recorded on Level 3 financial instruments is included in net investment income (loss) in the condensed consolidated statements of income (loss). Realized and unrealized gains (losses) related to underwriting-related derivative assets and liabilities are included in other underwriting expenses, net of foreign exchange (gains) losses, in the condensed consolidated statements of income (loss).

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.

Significant unobservable inputs

The table below presents information about the significant unobservable inputs used for recurring fair value measurements for certain Level 3 instruments as of June 30, 2021, and includes only those instruments for which information about the inputs is reasonably available to the Company, such as data from independent third-party valuation service providers and from internal valuation models.

June 30, 2021
Assets (Liability)	Fair Value		Valuation Technique	Unobservable input
Private equity securities (4)	$	152.0	Subject company transaction approach	Share price range	19.84 - 23.34
Private equity funds (3)	82.6		Net asset value discount	Discount range	50% - 95%
Private equity securities (1)	39.6		Share price of recent transaction	Purchase share price	50.79
Loan participations (5)	36.5		Share price of recent transaction	Comparable yields	Range - 4.91%-7.82% Median - 5.92%
Private equity securities (1)	15.3		Multiple of GAAP book value	Book value multiple	Range - 0.73x-0.91x Median - 0.82x
Preferred stock (1)	10.0		Purchase price of recent transaction	Purchase price	10.0
Common stock (1)	10.0		Purchase price of recent transaction	Purchase price	10.0
Partnership interest (1)	6.1		Purchase price of recent transaction	Purchase price	6.1
Private debt instrument (1)	6.1		Discounted cash flow	Discount yield	Range - 4.74%-5.70% Median - 5.14%
Preferred stock (1)	4.3		Share price of recent transaction	Purchase price	4.3
Promissory note (1)	3.5		Purchase price of recent transaction	Purchase price	3.5
Preferred stocks (5)	2.8		Share price of recent transaction	Share price	2.8
Weather derivatives (2)	1.3		Third party appraisal	Broker quotes	1.3
Preferred stock (1)	1.1		Purchase price of recent transaction	Purchase price	1.1
Membership Interest (1)	1.0		Purchase price of recent transaction	Purchase price	1.0
Equity warrants (2)	0.5		Option pricing model	Strike price	0.3
Private equity securities (1)	0.3		Purchase price of recent transaction	Purchase price	0.3
Promissory note (1)	0.2		Purchase price of recent transaction	Purchase price	0.2
Currency forwards (2)	0.1		Third party appraisal	Broker quotes	0.1
Contingent consideration (1)	(1.5)		External valuation model	Discounted future payments	(1.5)
Upside rights (1)	(1.6)		External valuation model	Share price	(1.6)
Public warrants (1)	(2.6)		Black Scholes pricing model	Share price	0.72
Currency swaps (2)	(3.0)		Third party appraisal	Broker quotes	(3.0)
Private warrants (1)	(6.3)		Black Scholes pricing model	Share price	1.57
Series A preference shares (1)	(38.4)		External valuation model	Share price	(38.4)
Merger warrants (1)	$	(50.4)	External valuation model	Share price	2.40

(1)Each asset type consists of one security except as indicated below.

(2)See Note 8 for discussion of derivative instruments.

(3)Represents multiple private equity funds where a discount on net asset value was taken.

(4)Represents various tranches of the Company's investment in Pie Insurance Holdings, Inc. (“Pie Insurance”).

(5)Represents multiple securities held under the same Investment Management Agreement.

Financial instruments disclosed, but not carried at fair value

The Company uses various financial instruments in the normal course of its business. The carrying values of cash, accrued investment income, certain other assets, certain other liabilities, and other financial instruments not included in the table below approximated their fair values at June 30, 2021 and December 31, 2020, due to their respective short maturities. The following table includes financial instruments for which the carrying value differs from the estimated fair values at June 30, 2021 and December 31, 2020:

	June 30, 2021				December 31, 2020
	Fair Value		Carrying Value		Fair Value	Carrying Value
2017 SEK Subordinated Notes (1)	$	320.6	$	315.5	n/a	n/a
2016 SIG Senior Notes (1)	410.4		406.6		n/a	n/a
2015 TPRUSA Senior Notes (1)	118.6		114.4		117.8	114.3
Series B preference shares (1)	$	220.1	$	200.0	n/a	n/a

(1)Fair value based on observable inputs and considered a Level 2 measurement.