Fair Value Measurements

(a) Fair Value Summary

The following tables set forth the Company’s assets and liabilities that were accounted for at fair value at December 31, 2016 and 2015 by level within the fair value hierarchy. For further information, see Note 1(b), "Significant Accounting Policies - Fair Value Measurements":



December 31, 2016 (U.S. dollars in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Collateral and Counterparty Netting		Balance at December 31, 2016
Assets
Fixed maturities - AFS - Excluding Life Funds Withheld Assets
U.S. Government	$	—	$	3,869,637	$	24,751	$	—	$	3,894,388
Corporate - Financials	—		3,612,006		10,284		—		3,622,290
Corporate - Non Financials	—		6,502,638		9,801		—		6,512,439
RMBS - Agency	—		4,218,367		—		—		4,218,367
RMBS - Non-Agency	—		274,258		—		—		274,258
CMBS	—		665,087		99		—		665,186
CDO	—		377,490		1		—		377,491
Other asset-backed securities	—		874,767		1,130		—		875,897
U.S. States and political subdivisions of the States	—		2,478,112		—		—		2,478,112
Non-U.S. Government	—		5,030,132		—		—		5,030,132
Total fixed maturities - AFS - Excluding Life Funds Withheld Assets, at fair value	$	—	$	27,902,494	$	46,066	$	—	$	27,948,560
Equity securities, at fair value	898,664		138,667		—		—		1,037,331
Short-term investments, at fair value (1)	—		625,193		—		—		625,193
Total investments AFS - Excluding Life Funds Withheld Assets	$	898,664	$	28,666,354	$	46,066	$	—	$	29,611,084
Fixed maturities - AFS - Life Funds Withheld Assets
U.S. Government	—		10,577		—		—		10,577
Corporate - Financials	—		439,267		—		—		439,267
Corporate - Non Financials	—		1,015,341		—		—		1,015,341
RMBS - Agency	—		613		—		—		613
RMBS - Non-Agency	—		21,767		—		—		21,767
CMBS	—		94,240		—		—		94,240
Other asset-backed securities	—		101,560		—		—		101,560
Non-U.S. Government	—		624,677		—		—		624,677
Total fixed maturities - AFS - Life Funds Withheld Assets, at fair value	—		2,308,042		—		—		2,308,042
Total investments - AFS, at fair value	898,664		30,974,396		46,066		—		31,919,126



December 31, 2016 (U.S. dollars in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Collateral and Counterparty Netting			Balance at December 31, 2016
Fixed maturities - Trading - Life Funds Withheld Assets
U.S. Government	—		14,708		—		—			14,708
Corporate - Financials	—		468,175		—		—			468,175
Corporate - Non Financials	—		643,030		—		—			643,030
RMBS - Agency	—		852		—		—			852
RMBS - Non-Agency	—		109		—		—			109
CMBS	—		5,526		—		—			5,526
Other asset-backed securities	—		39,446		—		—			39,446
U.S. States and political subdivisions of the States	—		224		—		—			224
Non-U.S. Government	—		444,944		—		—			444,944
Total fixed maturities - Trading - Life Funds Withheld Assets, at fair value	—		1,617,014		—		—			1,617,014
Short-term investments, at fair value	—		9,563		—		—			9,563
Total investments, Trading	—		1,626,577		—		—			1,626,577
Cash equivalents (2)	573,398		1,096,254		—		—			1,669,652
Cash equivalents - Life Funds Withheld Assets	—		72,798		—		—			72,798
Other investments (3)			493,874		205,528		—			699,402
Other assets (4)	—		87,655		19,841		(17,947		)	89,549
Total assets accounted for at fair value	$	1,472,062	$	34,351,554	$	271,435	$	(17,947	)	$	36,077,104
Liabilities
Funds withheld on GreyCastle Life Retro Arrangements (net of future policy benefit reserves recoverable) (5)	$	—	$	937,721	$	—	$	—		$	937,721
Other liabilities (4)	—		44,865		19,839		(17,947		)	46,757
Total liabilities accounted for at fair value	$	—	$	982,586	$	19,839	$	(17,947	)	$	984,478



December 31, 2015 (U.S. dollars in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Collateral and Counterparty Netting		Balance at December 31, 2015
Assets
Fixed maturities - AFS - Excluding Life Funds Withheld Assets
U.S. Government	$	—	$	5,020,574	$	45,063	$	—	$	5,065,637
Corporate - Financials	—		3,508,224		53,685		—		$	3,561,909
Corporate - Non Financials	—		6,900,259		188		—		$	6,900,447
RMBS - Agency	—		3,754,894		3,077		—		$	3,757,971
RMBS - Non-Agency	—		328,540		—		—		$	328,540
CMBS	—		405,316		—		—		$	405,316
CDOs	—		2		32,408		—		$	32,410
Other asset-backed securities	—		1,150,715		17,857		—		$	1,168,572
U.S. States and political subdivisions of the States	—		2,632,070		—		—		$	2,632,070
Non-U.S. Government	—		5,251,614		—		—		$	5,251,614
Total fixed maturities - AFS - Excluding Funds Withheld Assets, at fair value	$	—	$	28,952,208	$	152,278	$	—	$	29,104,486
Equity securities, at fair value	528,581		350,338		—		—		878,919
Short-term investments, at fair value (1)	—		617,390		—		—		617,390
Total investments AFS - Excluding Funds Withheld Assets	$	528,581	$	29,919,936	$	152,278	$	—	$	30,600,795



December 31, 2015 (U.S. dollars in thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Collateral and Counterparty Netting			Balance at December 31, 2015
Fixed maturities - Life Funds Withheld Assets
U.S. Government and Government-Related/Supported	$	—	$	12,742	$	—	$	—		$	12,742
Corporate - Financials	—		598,236		—		—			$	598,236
Corporate - Non Financials	—		1,308,628		—		—			$	1,308,628
RMBS – Agency	—		752		—		—			$	752
RMBS – Non-Agency	—		26,953		—		—			$	26,953
CMBS	—		122,481		—		—			$	122,481
Other asset-backed securities	—		149,795		—		—			$	149,795
Non-U.S. Government	—		933,516		—		—			$	933,516
Total fixed maturities - AFS - Life Funds Withheld Assets, at fair value	$	—	$	3,153,103	$	—	$	—		$	3,153,103
Total investments - AFS, at fair value	$	528,581	$	33,073,039	$	152,278	$	—		$	33,753,898
Fixed maturities - Trading - Life Funds Withheld Assets
U.S. Government	$	—	$	4,990	$	—	$	—		$	4,990
Corporate - Financials	—		335,956		—		—			$	335,956
Corporate - Non Financials	—		493,621		—		—			$	493,621
RMBS – Agency	—		368		—		—			$	368
CMBS	—		4,803		—		—			$	4,803
Other asset-backed securities	—		25,700		—		—			$	25,700
Non-U.S. Government	—		370,261		—		—			$	370,261
Total fixed maturities - Trading - Life Funds Withheld Assets, at fair value	$	—	$	1,235,699	$	—	$	—		$	1,235,699
Short-term investments, at fair value	—		60,330		—		—			$	60,330
Total investments, Trading	$	—	$	1,296,029	$	—	$	—		$	1,296,029
Cash equivalents (2)	437,742		830,924		—		—			$	1,268,666
Cash equivalents - Life Funds Withheld Assets (2)	517		100,757		—		—			$	101,274
Other investments (3)	—		490,058		283,550		—			$	773,608
Other assets (4)	—		69,914		19,400		(3,087		)	$	86,227
Total assets accounted for at fair value	$	966,840	$	35,860,721	$	455,228	$	(3,087	)	$	37,279,702
Liabilities
Funds withheld on life retrocession arrangements (net of future policy benefit reserves recoverable) (5)	$	—	$	463,915	$	—	$	—		$	463,915
Financial instruments sold, but not yet purchased (6)	347		—		—		—			$	347
Other liabilities (4)	—		16,304		29,191		(3,087		)	$	42,408
Total liabilities accounted for at fair value	$	347	$	480,219	$	29,191	$	(3,087	)	$	506,670

____________


(1)	Short-term investments consist primarily of Corporate securities and U.S. and Non-U.S. Government and Government-Related/ Supported securities.


(2)	Cash equivalents balances subject to fair value measurement include certificates of deposit and money market funds. Operating cash balances are not subject to recurring fair value measurement guidance.

(3)

Other Investments balance excludes $322.9 million and $518.1 million as of December 31, 2016 and December 31, 2015, respectively, measured using Net Asset Value, based on new accounting guidance. In addition, the Other investments balance excludes a certain payment obligation. These investments, which totaled $142.3 million at December 31, 2016 and $141.3 million at December 31, 2015, are carried at amortized cost. For further information, see Note 6, "Other Investments."

(4)

Other assets and other liabilities include derivative instruments. The derivative balances included in each category are reported on a gross basis by level with a netting adjustment presented separately in the Collateral and Counterparty Netting column. The fair values of the individual derivative contracts are reported gross in their respective levels based on the fair value hierarchy. For further details regarding derivative fair values and associated collateral received or paid see Note 7, "Derivative Instruments."

(5)

Funds withheld on life retrocession arrangements (net of future policy benefit reserves recoverable) include balances related to the life retrocession embedded derivative, under which all investment results associated with the Life Funds Withheld Assets related to the GreyCastle Life Retro Arrangements described in Note 2(g), "Acquisitions and Disposals - Sale of Life Reinsurance Subsidiary", accrue to the benefit of GCLR.


(6)	Financial instruments sold, but not yet purchased, represent "short sales" and are included within "Payable for investments purchased" on the balance sheets.

(b) Level 2 Asset Valuations

U.S. Government, Corporate - Financials, Corporate - Non Financials and Non-U.S. Government

Transaction activity inputs utilized in the valuation of fair value hierarchy Level 2 securities within these sub-categories include actual trades, dealer posts, results of bids-wanted, institutional secondary offerings, primary market offerings and Trade Reporting and Compliance Engine ("TRACE") trade feeds. As part of the evaluation process, transaction activity is compared to prior evaluations and necessary adjustments are made accordingly. Market-color inputs include actively quoted benchmark issues, buy-side/evaluator dialogue, sell-side/evaluator dialogue and credit derivative indices.

RMBS - Agency, RMBS - Non-Agency, CMBS, CDO and Other asset-backed securities

As part of the fair valuation process, Level 2 securities in these sub-categories are analyzed by collateral type, deal structure, deal performance and vintage. Market inputs into the valuation process for each sub-category include reported or observed trades, results of bids-wanted, buy-side/sell-side evaluator dialogue, dealer offering and market research reports. Cash flow inputs into the evaluation process include conditional prepayment rates, conditional decay rates, delinquency and loss severity rates. This assumptive data is reviewed and updated using third party reported information to reflect current market convention.

U.S. States and political subdivisions of the States

Transaction activity inputs utilized in the valuation of fair value hierarchy Level 2 securities within this sub-category include client and broker trades, dealer posts, results of bids-wanted, institutional secondary offerings, primary market offerings, and Municipal Securities Rulemaking trade feeds. As part of the evaluation process, transaction activity is compared to prior evaluations and necessary adjustments are made accordingly. Market-color inputs include bids, offerings, two-sided markets, buy-side/evaluator dialogue and sell-side/evaluator dialogue. Credit information inputs include issuer financial statements, default and material event notices, developer reports and liquidation and restructuring analysis.

Equity securities and other investments

Other investment securities generally include investments in thinly traded equity funds and hedge funds. Fair value is determined based upon the most recent net asset values (“NAV’) received from the fund administrators, the nature of the underlying investments in the funds and the frequency of subscriptions or redemptions as dictated by the fund’s governing documents.

Other assets and other liabilities

Other assets and other liabilities primarily include over-the-counter (“OTC”) derivatives, which are valued using market transactions and other market evidence whenever possible, including market-based inputs to models, model calibration to market clearing transactions, broker or dealer quotations or alternative independent pricing sources where an understanding of the inputs utilized in arriving at the valuations is obtained. Where models are used, the selection of a particular model to value an OTC derivative depends upon the contractual terms and specific risks inherent in the instrument as well as the availability of pricing information in the market. The Company generally uses similar models to value similar instruments. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit curves, measures of volatility, prepayment rates and correlations of such inputs. For OTC derivatives that trade in liquid markets, such as generic forwards, interest rate swaps and options, model inputs can generally be verified and model selection does not involve significant management judgment.

The tables below present additional information about assets and liabilities measured at fair value on a recurring basis and for which Level 3 inputs were utilized to determine fair value. The tables present a reconciliation of the beginning and ending balances for the years ended December 31, 2016 and 2015 for all financial assets and liabilities measured at fair value using significant unobservable inputs (Level 3) at December 31, 2016 and 2015, respectively. The tables do not include gains or losses that were reported in Level 3 in prior periods for assets that were transferred out of Level 3 prior to December 31, 2016 and 2015, respectively. Gains and losses for assets and liabilities classified within Level 3 in the table below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3). Further, it should be noted that the following tables do not take into consideration the effect of offsetting Level 1 and 2 financial instruments entered into by the Company that are either economically hedged by certain exposures to the Level 3 positions or that hedge the exposures in Level 3 positions.

In general, Level 3 assets include securities for which values were obtained from brokers where either significant inputs were utilized in determining the values that were difficult to corroborate with observable market data, or sufficient information regarding the specific inputs utilized by the broker was not available to support a Level 2 classification. Transfers into or out of Level 3 primarily arise as a result of the valuations utilized by the Company changing between either those provided by independent pricing services that do not contain significant unobservable inputs and other valuations sourced from brokers that are considered Level 3.

Fixed maturities and short-term investments

The Company’s Level 3 assets consist primarily of U.S. Government and Government-Related/Supported, Corporates and CDOs, for which non-binding broker quotes are the primary source of the valuations. Sufficient information regarding the specific inputs utilized by the brokers was not available to support a Level 2 classification. The Company obtains the majority of broker quotes for these securities from third party investment managers who perform independent verifications of these valuations using pricing matrices based upon information gathered by market traders. In addition, for the majority of these securities, the Company compares the broker quotes to independent valuations obtained from third party pricing vendors, which may also consist of broker quotes, to assess if the prices received represent a reasonable estimate of the fair value. Although the Company does not have access to the specific unobservable inputs that may have been used in the fair value measurements of these securities provided by brokers, we would expect that the significant inputs considered are prepayment rates, probability of default, loss severity in the event of default, recovery rates, liquidity premium and reinvestment rates. Significant increases (decreases) in any of those inputs in isolation could result in a significantly different fair value measurement. Generally, a change in the assumption used for the probability of default is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for prepayment rates.

The remainder of the Level 3 assets relate primarily to private investments (including funds) and certain derivative positions as described below.

Other investments

Included within the other investments component of the Company’s Level 3 valuations are private investments (including funds) and hedge funds where the Company is not deemed to have significant influence over the investee. The fair value of these investments is based upon net asset values received from the investment manager or general partner of the respective entity. The nature of the underlying investments held by the investee that form the basis of the net asset value include assets such as private business ventures and are such that significant Level 3 inputs are utilized in the determination of the individual underlying holding values and, accordingly, the fair value of the Company’s investment in each entity is classified within Level 3. The Company has not adjusted the net asset values received; however, management incorporates factors such as the most recent financial information received, annual audited financial statements and the values at which capital transactions with the investee take place when applying judgment regarding whether any adjustments should be made to the net asset value in recording the fair value of each position. Investments in hedge funds included in other investments utilize strategies including arbitrage, directional, event driven and multi-style. The funds potentially have lockup and gate provisions which may limit redemption liquidity. For further details regarding the nature of other investments and related features, see Note 6, "Other Investments," for further details.

Derivative instruments

Derivative instruments recorded within other liabilities and classified within Level 3 include credit derivatives sold providing protection on senior tranches of structured finance transactions where the value is obtained directly from the investment bank counterparty and sufficient information regarding the inputs utilized in such valuation was not obtained to support a Level 2 classification and guaranteed minimum income benefits embedded within one reinsurance contract. The majority of inputs utilized in the valuations of these types of derivative contracts are considered Level 1 or Level 2; however, each valuation includes at least one Level 3 input that was significant to the valuation and, accordingly, the values are disclosed within Level 3.

The calculation of the change in fair value of the embedded derivative associated with the Life Retro Arrangements includes the interest income, realized and unrealized gains and losses on Life Funds Withheld Assets and certain related expenses related to the Life Funds Withheld Assets. The fair value of the embedded derivative is included in “Funds withheld on life retrocession arrangements, net of future policy benefit reserves recoverable” on the consolidated balance sheets. The fair value of the embedded derivative is considered a Level 2 valuation.



	Level 3 Assets and Liabilities - Year Ended December 31, 2016
(U.S. dollars in thousands)	Balance, beginning of period			Realized gains (losses)			Movement in unrealized gains (losses)			Purchases and Issuances			Sales			Settlements			Net transfers into (out of) Level 3 (2)			Balance, end of period			Movement in total gains (losses) relating to investments still held
U.S. Government	$	45,063		$	264		$	687		$	—		$	(19,101	)	$	(2,162	)	$	—		$	24,751		$	886
Corporate - Financials	53,685			(2,991		)	10			285			(30,420		)	—			(10,285		)	10,284			31
Corporate - Non-Financials	188			—			13			1,747			—			(6		)	7,859			9,801			14
RMBS - Agency	3,077			(3		)	7			—			—			(229		)	(2,852		)	—			—
CMBS	—			—			(3		)	—			—			—			102			99			(3		)
CDO	32,408			189			6,870			—			—			(23,030		)	(16,436		)	1			6,152
Other asset-backed securities	17,857			479			(2,113		)	1,072			—			(14,190		)	(1,975		)	1,130			(1,673		)
Other investments	283,550			18,097			(10,622		)	47,998			(27,676		)	(43,607		)	(62,212		)	205,528			2,454
Derivative Contracts - Net	(9,791		)	—			9,793			—			—			—			—			2			10
Total	$	426,037		$	16,035		$	4,642		$	51,102		$	(77,197	)	$	(83,224	)	$	(85,799	)	$	251,596		$	7,871

	Level 3 Assets and Liabilities - Year Ended December 31, 2015
(U.S. dollars in thousands)	Balance, beginning of period			Realized gains (losses)			Movement in unrealized gains (losses)			Purchases and Issuances (1)			Sales			Settlements			Net transfers into (out of) Level 3 (2)			Balance, end of period			Movement in total gains (losses) relating to investments still held
U.S. Government	$	—		$	—		$	—		$	35,044		$	—		$	—		$	10,019		$	45,063		$	—
Corporate - Financials	—			9			(10		)	53,686			—			—			—			53,685			(2		)
Corporate - Non-Financials	5,894			(186		)	(13		)	(123		)	—			(316		)	(5,068		)	188			(153		)
RMBS - Agency	1,910			—			(3		)	1,297			—			(323		)	196			3,077			(2		)
CDO	687,958			(8,658		)	16,688			25,882			(366,633		)	(322,829		)	—			32,408			5,279
Other asset-backed securities	5,288			628			(599		)	46,940			(7,269		)	(6,359		)	(20,772		)	17,857			451
Other investments	185,083			15,270			(12,548		)	117,143			(1,417		)	(19,981		)	—			283,550			2,724
Derivative Contracts - Net	(9,764		)	—			(27		)	—			—			—			—			(9,791		)	80
Total	$	876,369		$	7,063		$	3,488		$	279,869		$	(375,319	)	$	(349,808	)	$	(15,625	)	$	426,037		$	8,377

____________

(1) Includes assets acquired as result of the transaction described in Note 2(e), "Acquisitions and Disposals - Catlin Acquisition"

(2) Net transfers include both movement in and movement out of Level 3. Corporate - Non-Financials securities for 2016 includes $9.7 million of incoming transfers partially offset by $1.9 million outgoing transfers. Other asset-backed securities for 2016 includes $5.0 million of outgoing transfers partially offset by $3.0 million of incoming transfers, and 2015 includes $34.1 million of outgoing transfers partially offset by $13.3 million of incoming transfers. Other investments for 2016 includes $77.7 million of outgoing transfers partially offset by $15.5 million of incoming transfers. RMBS-Agency for 2015 includes $3.1 million of incoming transfers partially offset by $2.9 million of outgoing transfers.

(d) Financial Instruments Not Carried at Fair Value

Authoritative guidance over disclosures about the fair value of financial instruments requires additional disclosure of fair value information for financial instruments not carried at fair value in both interim and annual reporting periods. Certain financial instruments, particularly insurance contracts, are excluded from these fair value disclosure requirements. The carrying values of cash and cash equivalents, accrued investment income, net receivable from investments sold, other assets, net payable for investments purchased, other liabilities and other financial instruments not included below approximated their fair values. The following table includes financial instruments for which the carrying value differs from the estimated fair values at December 31, 2016 and 2015. All of these fair value estimates are considered Level 2 fair value measurements.



(U.S. dollars in thousands)	2016				2015
(U.S. dollars in thousands)	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial Assets - Other investments, structured transactions	$	142,271	$	153,173	$	141,329	$	154,065
Deposit liabilities	$	1,116,233	$	1,337,406	$	1,168,376	$	1,436,210
Notes payable and debt	2,647,677		2,813,257		2,644,970		2,805,152
Financial Liabilities	$	3,763,910	$	4,150,663	$	3,813,346	$	4,241,362

The Company historically participated in structured transactions. Our remaining structured transaction is an investment in a payment obligation with an insurance company. This transaction is carried at amortized cost. The fair value of this investment held by the Company is determined through use of an internal model utilizing benchmark yields, issuer spreads and reference data.

Deposit liabilities include obligations under structured insurance and reinsurance transactions. For purposes of fair value disclosures, the Company determined the estimated fair value of the deposit liabilities by assuming a discount rate equal to the appropriate U.S. Treasury rate plus 50.0 basis points and 26.5 basis points at December 31, 2016 and 2015, respectively. The discount rate incorporates the Company’s own credit risk into the determination of estimated fair value.

The fair values of the Company’s notes payable and debt outstanding were determined based on quoted market prices.

There are no significant concentrations of credit risk within the Company’s financial instruments as defined in the authoritative guidance over disclosures of fair value of financial instruments not carried at fair value, which excludes certain financial instruments, particularly insurance contracts.